OV Marketing Associates, Inc. v. Carter, 90-1551-C.

• Decision Date: 22 May 1991
• Docket Number: No. 90-1551-C.,90-1551-C.
• Citation: 766 F. Supp. 960
• Court: U.S. District Court — District of Kansas
• Parties: O.V. MARKETING ASSOCIATES, INC., Plaintiff, v. Charles C. CARTER and Sports, Inc., Defendants.

766 F. Supp. 960

O.V. MARKETING ASSOCIATES, INC., Plaintiff, v. Charles C. CARTER and Sports, Inc., Defendants.

No. 90-1551-C.

United States District Court, D. Kansas.

May 22, 1991.

Terry L. Malone & Brian Burris, Martin, Pringle, Oliver, Wallace & Swartz, Wichita, Kan., for plaintiff.

Daniel K. Diederich, Kennedy, Berkley, Yarnevich & Williamson, Chtd., Salina, Kan., Roger Sherwood, Sherwood, Harper & Gregory, Wichita, Kan., for defendants.

MEMORANDUM AND ORDER

CROW, District Judge.

Plaintiff, O.V. Marketing Associates, Inc. ("O.V."), is the franchisor of "Olympia Village" sporting goods stores. Plaintiff filed this action alleging the defendant, Charles C. Carter, a franchisee, breached his franchise agreement. Plaintiff sought monetary damages and specific performance or injunctive relief on the restrictive covenant. Both sides filed dispositive motions which the court decided in the order of March 20, 1991. Specifically, the court held that the franchise agreement of February 14, 1985, governed the parties' relationship and that Charles Carter had breached that agreement in unilaterally terminating it before the end of its ten-year term. Defendant Carter then confessed a money judgment in favor of the plaintiff in the amount of $147,191.93 with post-judgment interest at the contract rate of eighteen percent (18%).

The case proceeded to a trial before the court on April 24 and 25, 1991, on the sole issue whether the restrictive covenant is valid and enforceable. The parties have submitted their supplemental and amended suggested findings of fact and conclusions of law. Having reviewed those pleadings and having heard the evidence and arguments, the court is prepared to enter its findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. Plaintiff has requested that the court adopt the statement of uncontroverted facts in the order of March 20, 1991, as findings of fact in the trial. Defendants have voiced no objection to this request. Because the uncontroverted facts provide a necessary background, the court will include them in its findings of fact.

FINDINGS OF FACT

1. Plaintiff O.V. is the franchisor of "Olympia Village" sporting goods stores. In 1977, Tom Swiatoviak and a partner opened a sporting goods store in Grand Island, Nebraska. Their success lead them to open seven or eight additional "Olympia Village" stores in other communities and even in other states. Continuing success took their business venture to the next step of franchising. They created manuals, plans, form agreements and marketing techniques for their franchise business.

2. When a franchise application was received, O.V. evaluated the applicant's financial statement, the proposed store site and surrounding community, and also personally met with the applicant. O.V.'s franchise business grew to a total of twenty-five franchise stores. O.V. currently has no franchisees, as most left in 1988 through 1990. There are three Olympia Village stores still operating and each is company-owned by O.V.'s sister corporation, W.O.V., Inc.

3. Defendant Charles C. Carter is forty-eight years old and the father of five children. His employment history began after four-years of service with the Air Force as an aircraft mechanic when he started working in retail tire sales for B.F. Goodrich and Goodyear. He later went to work for Farmland Industries as a petroleum specialist and eventually became the manager of the Junction City Co-op. He received training for each of these positions and, in particular, six months of intensive management training for his job as a Co-op manager. The Junction City Co-op later became a franchisee of Western Auto, and Carter received more training to manage that franchise. Carter quit his position with Co-op in 1984 after certain disputes arose.

4. In late 1984, Carter responded to an advertisement for Olympia Village franchises. Negotiations between Carter and O.V. representative occurred over a four to six month period. Carter was presented with O.V.'s standard franchise agreement and was told that some terms therein were negotiable while others were not. O.V.'s representative, Ray O'Connor, said the restrictive covenant was a term "cast in concrete."

5. On or about February 14, 1985, O.V. and Carter entered into a franchise agreement whereby an Olympia Village franchise was issued to Carter according to specified terms and conditions. Before he signed the contract, Carter read it and got the advice of his counsel on its contents. The franchise agreement was prepared by or on behalf of O.V. The parties also attached to their agreement an addendum reflecting changes to the form agreement as a result of their negotiations. Carter had wanted additional exclusive franchise rights to the towns of Salina, Topeka and Manhattan. The final agreement gave him rights only to Junction City and Manhattan, but a representative of O.V. orally promised Carter a first option on any franchise in Salina.

6. Before Carter opened his Junction City store in April of 1985, O.V. provided him with a franchisee manual, assisted him in ordering his initial inventory and preparing his store for its opening, and provided him with forms for ordering merchandise and monitoring inventory. Also in advance of his store's opening, Carter visited O.V.'s Grand Island headquarters where he received limited instruction. After his store opened, Carter used the inventory system suggested by O.V. for approximately sixty days and then abandoned it in favor of another method. Carter found the record keeping instructions and training offered by O.V. so inadequate that he primarily resorted to forms he had used while manager at the Junction City Co-op. Without any assistance from O.V., Carter put his inventory and bookkeeping functions on a computer in 1986. Of the materials and training given to its franchisees, O.V. considers its franchisee manual, the advertising calendar and inventory methods to be trade secrets.

7. W.O.V., Inc., a sister corporation to O.V., opened a company-owned Olympia Village store in Salina in 1987. Carter learned of the store approximately three months after it opened. He asked O.V. representatives why he was not given the first option to a Salina store as had been promised. Negotiations then commenced over Carter's purchase of the Salina store.

8. On or about August 1, 1988, W.O.V. sold its Salina store to Carter. Paragraph 3(f) of the sales agreement reads:

f. FRANCHISEES. Both Seller and Buyer acknowledge that they are franchise holders of O.V. Marketing Associates, Inc., a Nebraska Corporation, and W.O.V., Inc. is selling and Charles Carter is buying W.O.V.'s franchise rights to the Salina, Kansas store and Buyer is not purchasing a new franchise from O.V. Marketing Associates, Inc. Buyer covenants and agrees that Buyer shall continue to operate the Olympia Village store in Salina, Kansas, under his Franchise Agreement with O.V. Marketing Associates, Inc. dated February 14, 1985, and all Amendments and Addendums thereto, and shall continue to adhere to all agreements of the Franchise Agreement with O.V. Marketing Associates, Inc. as set forth in Buyer's Franchise Agreement. O.V. Marketing Associates, Inc. shall consent to the sale by signature to this document.

Defendant Carter read the entire sales agreement, including this clause, before he signed it. As part of his purchase of the Salina store, Carter and O.V. also executed an addendum to the original franchise agreement expanding the franchise territory to include the city limits of Salina, Kansas.

9. The Salina store was located in the Mid States Mall which had suffered a number of recent vacancies, including one of its anchor tenants, Montgomery Ward. Sales were poor and declining at the Salina store when Carter purchased it. Carter moved the store to a larger space in the Mid States Mall shortly after he purchased it and sales increased some. A new mall, Central Mall, was being built in Salina and retail shops were moving there. O.V. representatives advised Carter that he should also move his store to Central Mall when the lease in the Mid States Mall expired. The Salina store was operated under the trade name of "Olympia Village," and Carter paid royalties pursuant to the original franchise agreement and addendum, and used Olympia Village's packaging, advertising material, and buying group.

10. At the time of the Salina store purchase, O.V. only provided Carter with the accounting books to the store and did not supply a customer list, an advertising plan or any other trade secrets.

11. Carter then sought and received the consent of O.V. to sell the Junction City store. A dispute arose when O.V. insisted that Carter owed a transfer fee on this sale. This dispute eventually lead to the termination of the franchise relationship and this litigation.

12. Carter developed some new marketing techniques at his Salina store. He asked customers to sign a register and disclose their birthdates. Carter then mailed them promotional discounts on their birthdays. Carter also used this as a customer mailing list for other promotions. High school athletes were employed on a part-time basis so as to create communication lines for high school team sales.

13. Carter successfully negotiated with Central Mall a lease for his store that increased its size by nearly 1,000 square feet.

14. In early 1988, franchisees including Carter were disappointed with O.V.'s buying program which had been intended to provide the franchisees with buying discounts on their orders from certain wholesalers and manufacturers. Because of the franchisees' complaints and O.V.'s cash flow problems with running the program, O.V. abandoned the buying program and reduced the royalty rates to be paid by the franchisees. This change in the franchise agreement is reflected in the addendum entered into on May 12, 1988.

15. By letter dated October 27, 1989,...