PHIL. FAST FOODS, INC. v. Popeyes Famous Fried Chicken, Inc.

• Decision Date: 13 March 1986
• Docket Number: Civ. A. No. 84-825.
• Citation: 647 F. Supp. 216
• Parties: PHILADELPHIA FAST FOODS, INC., et al. v. POPEYES FAMOUS FRIED CHICKEN, INC., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

647 F. Supp. 216

PHILADELPHIA FAST FOODS, INC., et al. v. POPEYES FAMOUS FRIED CHICKEN, INC., et al.

Civ. A. No. 84-825.

United States District Court, E.D. Pennsylvania.

March 13, 1986.

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David L. Pennington, Roger B. Wood, Philadelphia, Pa., for plaintiffs.

David J. Butler, Peter J. Klarfeld, Gary C. Tepper, Washington, D.C., for Popeyes Famous Fried Chicken, Inc.

Joseph M. Gindhart, Philadelphia, Pa., for Marriott Corp.

MEMORANDUM OF DECISION

McGLYNN, District Judge.

Plaintiffs Philadelphia Fast Foods, Inc., and Philadelphia Fast Foods Partnership, collectively known as "PFF", brought this action against defendants Popeyes, Inc. ("Popeyes") and the Marriott Corporation ("Marriott") alleging that Popeyes and Marriott violated the antitrust laws, that Popeyes breached a contract with PFF, and that Marriott tortiously interfered with PFF's actual and prospective contractual relations with Popeyes. Specifically, PFF claims that Popeyes and Marriott conspired to restrain trade and monopolize the market in "spicy fast food chicken" and that PFF had entered an agreement with Popeyes that gave PFF the right to open five additional franchises in the Philadelphia area, which Popeyes breached by granting Marriott the exclusive right to develop Popeyes' franchises in the Philadelphia area.

At the close of a jury trial lasting three weeks, I directed a verdict for the defendants on PFF's per se claim under Section 1 of the Sherman Act (the "Act"). The jury found for the defendants on all of the remaining claims. In answer to special interrogatories, the jury found that Popeyes and Marriott did not conspire to restrain trade and that PFF had failed to prove the existence of the alleged product market in "spicy fast food chicken." The jury further found that Popeyes and PFF had not entered into an agreement extending PFF additional franchise rights because they did not intend to be bound contractually until they entered into a formal Popeyes' Option Agreement, and that Marriott did not tortiously interfere with any of PFF's actual or prospective contractual rights.

PFF has now moved for a judgment notwithstanding the verdict or for a new trial contending that this court made numerous errors, 132 to be exact. As the discussion below will reveal, this catalog of errors is characterized by misstatements of the governing principles, objections not raised at trial, facts not supported by the record, and irrelevant issues which the jury was never required to reach. Accordingly, for the reasons that follow, PFF's motion for a judgment notwithstanding the verdict or for a new trial will be denied.¹

THE FACTS

Popeyes is a Louisiana corporation which has franchised fast food restaurants specializing in the sale of fried chicken since 1976. At the time of trial, there were eleven Popeyes' franchised restaurants in Philadelphia, ten of which are operated by Marriott and one by Charles Maxwell, Arlie Maxwell, Robert Carrick and Glenna Malcolm, who together formed the Philadelphia Fast Food Partnership.

According to the evidence adduced at trial, there is a four step procedure for obtaining a Popeyes' franchise. First, when an interested applicant contacts Popeyes, Popeyes sends the applicant information and a financial information request form. Second, if the applicant complies and returns the form, the applicant will be asked to forward a refundable $5000.00 good faith deposit and come in for an interview. Both Terrel Rhoton and William A. Copeland, III of Popeyes testified that the purpose of the deposit is to demonstrate that the applicant is seriously interested in acquiring franchise rights.²

If Popeyes finds the applicant to be an acceptable operator and financially sound, Popeyes and the applicant may enter into an Option Agreement. The Option Agreement is a standard Popeyes' form agreement which grants the applicant an option to develop (1) an agreed upon number of Popeyes' stores (2) in a defined area (3) to be opened within a specific time period. The option agreements do not specify individual locations for each store, but rather set out geographic boundaries in terms of city blocks within which all agreed upon stores must be located. If after receipt of the $5000.00 deposit, Popeyes and the applicant cannot, for any reason whatsoever, agree upon these three terms, or any other terms, Popeyes refunds the $5000.00 in full.³ Copeland testified that Popeyes has never granted franchise rights without first executing a Popeyes Option Agreement.

Finally, the applicant exercises each option by entering into an individual Franchise Agreement for each store to be opened under the Option Agreement. Before a store can be opened, the applicant must also obtain Popeyes' approval for a particular site within the territory granted. In defining territories and approving individual locations for a prospective franchisee, Popeyes introduced evidence that it will not permit a franchisee to open a Popeyes store that would compete with another unit in the Popeyes' system, so as to maximize Popeyes' competition with other vendors.⁴ The Option Agreement further specifies that "time is of the essence." Thus, if an applicant fails to open stores in accordance with the schedule set forth in the Option Agreement, he forfeits all rights to his territory, but may continue to operate any Popeyes stores already opened.

In October of 1982, Charles Maxwell and his partners entered into a standard Popeyes Option Agreement for one store. This Option Agreement provided that Maxwell and his three partners would be given until April 8, 1983, to open one Popeyes franchise. Maxwell exercised this option and entered into a Franchise Agreement on December 16, 1982, for a store at 139-143 West Chelten Avenue in Philadelphia.

On March 24, 1983, Maxwell wrote to Popeyes enclosing an unsolicited $5000.00 check and stating inter alia:

This $5000.00 will be used to secure territorial franchise rights to the following area of Philadelphia pending a formal contract:

The eastern portion of territory formally (sic) held by Mr. Kenneth Wall PLUS an extension of the southern boundary of that territory to Chestnut Street.

The formal definition of the territory will be made after the franchise conference with all territorial rights transferred by April 30th.

. . . . .

Philadelphia Fast Food Partnership maintains its right to withdraw the $5000.00 (minus expenses) if a mutually agreeable number of options for this area cannot be determined.

. . . . .

We have substantial financial commitment. Our sources of capital should be stronger than any franchisee in the franchise community.

Popeyes responded by letter dated April 1, 1983, as follows:

This letter acknowledges receipt of your check # 1161 in the amount of $5000.00 payable to Popeyes Famous Fried Chicken. This sum represents a good faith deposit and will secure a yet to be determined five (5) store area in Philadelphia, Pennsylvania.

In your letter to us dated March 24, 1983 you made reference that you have secured a strong financial commitment. Please forward to us a copy of this financial commitment. If it is strong enough we would be more than happy to let you acquire additional territory.

PFF contends that these letters created a binding agreement between itself and Popeyes to enter into an option agreement for five additional stores in the Philadelphia area. PFF concedes that it never entered into a standard Option Agreement, nor did it send any financial information.⁵

On July 12, 1983, Popeyes sent Maxwell the following letter:

It has been three months since accepting your $5000.00 deposit on Philadelphia and nothing has transpired since that time. You have failed to live up to running your store in an organized manner and therefore I have no other alternative but to return your $5000.00 therefore giving you no further rights to any other portion of the City of Philadelphia.

PFF contends that this constituted a breach of the agreement created by the two letters. Although Charles Maxwell protested to Popeyes both orally and in writing concerning Popeyes' withdrawal from negotiations over additional stores, Maxwell subsequently cashed the refund check.

Thereafter, Maxwell and his partners entered into an agreement purporting to transfer their rights under the Option Agreement of October 7, 1982 to Philadelphia Fast Foods, Inc.⁶ Maxwell sought Popeyes' permission to do so as required by the Option Agreement, but there is no evidence that Maxwell sought or obtained permission to transfer rights to the alleged additional territory.

The evidence introduced at trial also reveals that Popeyes first discussed the possibility of selling franchise rights to Marriott in mid to late April of 1983, but that no agreement was reached with Marriott until December 8, 1983, when a formal Option Agreement was executed. PFF's contention that William Copeland of Popeyes informed Marriott that PFF had existing rights to obtain additional franchises prior to the return of the deposit on July 12, 1983, is not supported by any citation to the record, and indeed, Copeland expressly denied this in his testimony. May 7 Tr. at 27 and 30. In addition, Copeland testified that the use of an exclusive development agreement was a desirable marketing strategy, and Popeyes has regularly used such agreements in other parts of the country. THE PER SE CLAIM UNDER § 1 OF THE SHERMAN ACT

PFF's initial contention is that the grant of exclusive territorial rights by Popeyes to Marriott constitutes a per se violation of § 1 of the Sherman Act, which it variously describes as a "horizontal market allocation", a "group boycott" and a "concerted refusal to deal." Specifically, PFF contends that Marriott demanded exclusivity although it knew of PFF's existing rights in Popeyes' franchises, and by acceding to this request, Popeyes entered into a conspiracy with Marriott to exclude PFF from...