Papa John's Intern., Inc. v. Cosentino

• Decision Date: 28 December 2005
• Docket Number: No. 4D04-4864.,4D04-4864.
• Citation: 916 So.2d 977
• Parties: PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation, Appellant, v. James COSENTINO, individually, Appellee.
• Court: Florida Supreme Court

916 So.2d 977

PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation, Appellant, v. James COSENTINO, individually, Appellee.

No. 4D04-4864.

District Court of Appeal of Florida, Fourth District.

December 28, 2005.

COPYRIGHT MATERIAL OMITTED

John T. Houchin, Hunton & Williams LLP, Miami, and Michael J. Lockerby, Hunton & Williams LLP, Richmond, VA, for appellant.

Robert Zarco, Robert M. Einhorn, and Himanshu M. Patel of Zarco Einhorn Salkowski & Brito, P.A., Miami, for appellee.

GROSS, J.

Papa John's International, Inc., appeals a final judgment arising from an order granting a motion to dismiss under Florida Rule of Civil Procedure 1.140. We reverse.

This litigation arises from a substantial franchise deal for the development of Papa John's restaurants in New York. The terms of the deal were set forth in a series of contracts. The parties to those contracts were: (1) the franchisor, Papa John's International, Inc.; (2) the franchisee/developer, Dynamic Pizza Corporation; and (3) James Cosentino, the sole shareholder of Dynamic Pizza.

In reviewing an order granting a motion to dismiss, this court's "gaze is limited to the four corners of the complaint." Gladstone v. Smith, 729 So.2d 1002, 1003 (Fla. 4th DCA 1999). The facts alleged in the complaint must be accepted as true and all reasonable inferences are drawn in favor of the pleader. See id.

The complaint alleges that in September, 1996, Papa John's entered into a development agreement with Dynamic Pizza, one of many corporations solely owned by Cosentino. Pursuant to that agreement, Dynamic Pizza agreed to develop 40 Papa John's restaurants in New York state. To that end, the parties executed a number of additional contracts, including multiple franchise agreements and an owner agreement.¹

One of the issues in this case is whether Cosentino is bound by the owner agreement in his individual capacity. That agreement provides, in pertinent part:

OWNER AGREEMENT

In consideration of, and as a condition to the granting by PAPA JOHN'S INTERNATIONAL, INC. ("we" or "us") of a Development Agreement . . . and all Franchise Agreements executed pursuant to its terms (collectively the "Agreements") providing certain rights relating to one or more of Papa John's Restaurants (the "Restaurants") to DYNAMIC PIZZA, INC. ("Franchisee"), each of the undersigned individuals ("you"), who are a beneficial owner of an interest in the Franchisee, hereby covenant and agree to be bound by the terms and restrictions of this Owner Agreement . . .

1. Acknowledgments. Each of you, jointly and severally, represent and warrant to us:

(a) That you are the owners of all equity, voting, and other ownership interests in the Franchisee . . .;

(b) Franchisee is duly organized and validly existing in good standing under the laws of the State of New York . . .;

(c) It is a condition to the granting of the franchise to the Franchisee that you enter into this Owner Agreement and we have entered into the Agreements in reliance upon your agreement to do so, and will continue to do so. . . .

2. Confidentiality and Non-Competition Agreements.

(a) Covenant Not-to-Compete. Each of you covenants and agrees that during the period Franchisee owns one or more Papa John's Restaurants . . . and for a period of two years after . . . you shall not, within a 10-mile radius . . . [compete with Papa John's]. . . .

3. Guaranty.

(a) Guaranty. Each of you personally and unconditionally guaranty to us and to our Affiliates . . . the punctual payment when due of all sums . . . which Franchisee may now or in the future might owe to any member of Our Group. . .; provided the maximum aggregate liability of each of you shall not exceed $300,000.

(b) Covenants and Acknowledgements. Each of you covenant and agree that: (1) liability under this guaranty shall be joint and several; (2) that this is a guaranty of payment and not of collection . . .; [and] (3) this guaranty shall extend to all amounts you may now or in the future owe any member of our Group, whether pursuant to the Agreements, another agreement with us or otherwise . . .

(Emphasis added).

Following this language, the owner agreement included two sequential signature blocks—one for the "owner" and another for the "principal operator," if that principal operator is not an owner.

The first signature block was prefaced with the following language, "IN WITNESS WHEREOF, each of you have signed this Owner Agreement on the date set forth opposite your signature."

The second signature block was prefaced differently. It stated:

TO BE COMPLETED IF PRINCIPAL OPERATOR IS NOT AN OWNER.

I represent and acknowledge that I am the Principal Operator of a Restaurant and that I agree to be bound by the provisions of Section 2 of this Owner Agreement and, at such time as I become an Owner . . . to be fully bound by this Agreement without any need for further action of reexecution of this Agreement.

Cosentino signed both signature blocks, giving the same address under both signatures.

Papa John's complaint explains the events that followed the execution of this first batch of documents:

12. After Cosentino and Dynamic Pizza executed the Development Agreement and the Owner Agreement, Dynamic Pizza opened only 19 Papa John's pizza restaurant less than one-half of the 40 restaurants required by the Development Agreement.

13. Dynamic Pizza was unable to open the number of restaurants required by the Development Agreement because, among other things, the Dynamic Pizza companies were undercapitalized. Indeed, in order to keep the Dynamic Pizza companies operating, Cosentino had to take out numerous additional loans and take money from his other operating companies to put it into the Dynamic Pizza companies. These sums totaled approximately seven million five hundred thousand ($7,500,000) in additional capitalization.

14. Thereafter, disputes arose between Dynamic Pizza and Papa John's. In an effort to resolve the disputes, Dynamic Pizza, Cosentino, and Papa John's executed a Workout Agreement . . . and . . . also executed an Addendum to the Workout Agreement. . . .

15. Pursuant to the terms of the Workout Agreement, Dynamic Pizza's obligation to develop Papa John's restaurants was decreased from 40 restaurants to 19 restaurants.

16. As part of the Workout Agreement, Dynamic Pizza and Cosentino executed and delivered a Promissory Note in the principle amount of two hundred ten thousand dollars ($210,000). . . .

The workout agreement, promissory note, and addendum referenced in these paragraphs were all attached to the complaint. Section 7(a) of the workout agreement included a choice of law and choice of forum clause, requiring the application of Kentucky law in a Kentucky court for disputes arising under its terms. Section 7(b) of the workout agreement contained a superiority clause, stating that it shall control over "any other preceding agreement between the parties. . . ." As this clause indicates, the parties' initial agreements remained intact to the extent they were not contradicted by the workout agreement. Cosentino signed the workout agreement twice, once on behalf of Dynamic Pizza and again in his individual capacity. Cosentino signed the promissory note, which was referenced in, and attached to, the workout agreement, in the same way.

Shortly after signing the workout agreement and promissory note, the parties executed an addendum. The purpose of the addendum was to make clear that the $210,000 promissory note Cosentino executed did not increase his maximum aggregate liability of $300,000 under the owner agreement. The addendum stated, in pertinent part:

2. James Cosentino has previously agreed to guaranty an aggregate amount of $300,000 in respect to the obligations of the Developer. It is intended that the extent of the guaranty of James Cosentino not increase by his execution of the Promissory Note. To accomplish this agreement, the following provision is hereby added to the end of Section 4 of the Workout Agreement:

Shareholder has executed one or more guarantees in favor of Papa John's under which Shareholder is obligated to Papa John's for up to the aggregate amount of $300,000 (the "Guarantees"). Any payment of principle [sic] or interest made by the Developer or Shareholder to Papa John's or its affiliates in connection with the Promissory Note shall be considered to be paid pursuant to the Guarantees signed by the Shareholder, and shall reduce the amount which Shareholder would otherwise be liable to Papa John's or its affiliates in connection with the Guarantees.

As with the owner agreement, workout agreement, and promissory note, Cosentino signed the addendum twice, with one signature being in his individual capacity.

Another issue in this case is whether the trial court properly entered dismissal on the theories of res judicata or collateral estoppel based on a prior case between the same parties in a Kentucky federal district court. The complaint vaguely described the Kentucky case:

17. Later, additional disputes arose between the parties. As a result, Papa John's sued the Dynamic Pizza companies and Cosentino [in Kentucky federal court] for breach of contract and breach of the Owner Agreement, Development Agreement, Franchise Agreements, and Workout Agreement.

18. On May 20, 2004, the United States District Court for the Western District of Kentucky entered a Consent Final Order and Judgment in favor of Papa John's and against the Dynamic Pizza companies owned by Cosentino jointly and severally [among Cosentino's companies] in the amount of one million five hundred thousand dollars ($1,500,000) on Papa John's breach of contract claim. . . .

Attached to the complaint was a copy of the consent final order and judgment rendered by the Kentucky federal district court. That order provided:

CONSENT FINAL ORDER AND JUDGMENT

UPON CONSIDERATION of the parties' joint motion for entry of a Consent Final Order and Judgment . . . ...