Pizza Management, Inc. v. Pizza Hut, Inc.

Decision Date11 May 1990
Docket NumberNo. 86-1664-C.,86-1664-C.
Citation737 F. Supp. 1154
PartiesPIZZA MANAGEMENT, INC., a Texas Corporation, et al., Plaintiffs, v. PIZZA HUT, INC., a Delaware Corporation, et al., Defendants.
CourtU.S. District Court — District of Kansas

COPYRIGHT MATERIAL OMITTED

Gary M. Austerman, Alexander B. Mitchell of Klenda, Mitchell, Austerman & Zuercher, Wichita, Kan., for plaintiffs.

John J. Murphy of Foulston & Siefkin, Wichita, Kan., and Arthur S. Friedman of Friedman, Wang, Bleiberg & Heimer, New York City, for defendants.

MEMORANDUM AND ORDER

CROW, District Judge.

The case comes before the court on the defendants' motion to dismiss (Dk. 392) and motion for summary judgment (Dk. 394). As this case is one of the oldest on the court's docket, this court has promptly taken up the motions before it. A complete summary of the lengthy history to this case would require more effort than deserving of the result. Suffice it to say, the court is quite familiar with the basic disputes involved herein after having entertained and decided several applications for a temporary restraining order or preliminary injunction, several motions to review orders of the magistrate, a motion to amend a supplemental complaint, motions for partial summary judgment filed by all parties, a motion to reconsider the partial summary judgment order, and a motion for leave to file a second amended complaint. The new wave of motions are again aggressively contested with plaintiffs' response to the motion for summary judgment comprising no less than two hundred pages of text and four volumes of exhibits. Because of the sheer breadth and complexity of these motions, the court makes no attempt to organize its discussion comprehensively and is content simply to address seriatim the issues and arguments. The length of this order indicates the effort this court made to address most of the significant arguments advanced in the motions and responses. In its discretion, the court, however, has chosen not to address individually certain arguments and issues because either they are seriously lacking in merit or the rationale of the court's rulings on related issues is also controlling on them.

MOTION TO DISMISS

Defendants move to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) these counts of plaintiffs' second amended complaint which are captioned in the complaint as follows: count II — reformation, count IV — tortious interference with prospective business advantage, count V — tortious interference with contract/promissory and equitable estoppel, count VI — civil conspiracy, count X — breach of contract-breach of duty of good faith and fair dealing, and count XII — promissory estoppel/equitable estoppel.

In deciding a motion to dismiss, the court must accept as true on their face the well-pleaded factual allegations in the complaint, and all reasonable inferences are drawn in favor of the plaintiffs. Shaw v. Valdez, 819 F.2d 965, 968 (10th Cir.1987). Allegations must be construed most favorably for the plaintiffs. Huxall v. First State Bank, 842 F.2d 249, 251 (10th Cir. 1988). Dismissal is appropriate only if it appears beyond a reasonable doubt that a plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). The sufficiency of the complaint is not assessed from whether the plaintiff may ultimately prevail but from whether plaintiff is entitled to present evidence in support of its claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). Dismissal is a harsh remedy to be used cautiously so as to promote the liberal rules of pleading and to protect the interests of justice. Cayman Exploration Corp. v. United Gas Pipe Line, 873 F.2d 1357, 1359 (10th Cir.1989).

Plaintiffs attempt to delimit the force of the defendants' motion to dismiss by characterizing it as essentially a motion to reconsider the court's earlier order which granted plaintiffs leave to file their second amended complaint over defendants' objections of futility. In reply, defendants first explain that their arguments opposing the motion to amend were narrowly made and then correctly note that the court did not analyze their arguments in any depth and chose, instead, to await the expected dispositive motions. Defendants' motion to dismiss is not merely a motion to reconsider and its scope will not be so circumscribed.

COUNT II — REFORMATION

In this count, plaintiffs seek reformation of two written instruments, the 1976 Agreement and 1981 Blanket Amendment. Defendants seek to dismiss this claim contending it is barred by the statute of limitations. Plaintiff alleges the 1976 Agreement between Pizza Hut, Inc. (PHI) and Pizza Management, Inc. (PMI) was consummated as part of the negotiations which surrounded Arturo Torres' (Torres) assignment of PHI franchises to PMI on November 6, 1981. Plaintiffs allege the 1981 Blanket Amendment was a separate document dated July 20, 1981, and executed simultaneously with the execution of the superseding franchise agreement. From the face of the complaint, it appears the later agreement of the two, the 1981 Blanket Amendment, was executed on July 20, 1981. Plaintiffs filed their original complaint in this case on July 31, 1986, more than five years after the execution of the 1981 Blanket Amendment.

Plaintiffs' reformation count has two premises. One is legal and the other is factual. Plaintiffs recognize that the court's order of April 14, 1989, held that the 1976 Agreement and 1981 Blanket Amendment applied only to the franchise agreements respectively referenced in each of them, and that the two agreements, therefore, were not applicable to all franchise agreements actually held by PMI at the time of its proposed public offering. Plaintiffs next allege the parties' intent at the time of making both agreements was to the contrary. It was intended that PMI and Torres would be able to go public with whatever franchise agreements were owned by PMI whenever it was decided to go public. Plaintiffs seek to have the two written instruments reformed on the basis of mutual mistake.

The summary judgment order of April 14, 1989, has forced the plaintiffs to recast their arguments concerning the 1976 Agreement and the 1981 Blanket Amendment. Plaintiffs contended last year that their intent was unambiguously expressed in these same agreements. Now, they argue for the first time that the same language fails to convey their intent because of mutual mistake. Plaintiffs obviously hope this new claim will allow the court to consider the parol evidence supporting their interpretation of these agreements. Defendants move to dismiss the reformation count on the basis it is barred by the statute of limitations.

"Reformation is an ancient remedy used to reframe a written contract to reflect accurately the real agreement between the contracting parties when, either through mutual mistake or unilateral mistake coupled with actual or equitable fraud by the other party, the writing does not embody the contract as actually made." Mutual of Omaha Insurance Company v. Russell, 402 F.2d 339, 344 (10th Cir.1968), cert. denied, 394 U.S. 973, 89 S.Ct. 1456, 22 L.Ed.2d 753 (1969). Kansas courts apply the five-year statute of limitations under K.S.A. 60-511(5) to reformation claims. Conner v. Koch Oil Co., 245 Kan. 250, 255, 777 P.2d 821 (1989); Ferrell v. Ferrell, 11 Kan.App.2d 228, 230-31, 719 P.2d 1, rev. denied, 239 Kan. 693 (1986). This statute "commences to run from the date the mistake is made." Siegel v. Hackler, Administrator, 181 Kan. 316, 318, 310 P.2d 914 (1957) (citing in part Collins v. Richardson, 168 Kan. 203, 209, 212 P.2d 302 (1949)); see also Palmer v. The Land & Power Co., 180 Kan. 492, 500, 306 P.2d 152 (1957) (commences upon the date the deed was executed); Regier v. Amerada Petroleum Corp., 139 Kan. 177, 183, 30 P.2d 136 (1934). To be timely, plaintiffs' reformation claim needed to be filed before July 21, 1986, it was not.

In defense, plaintiffs propound a novel, but entirely unsupported, interpretation of Kansas case law on when an action for reformation accrues. From the proposition that a written instrument is to be reformed to reflect the true agreement between the parties, plaintiffs assert that by analogy to breach of contract actions their reformation action did not accrue until the true, unwritten, agreement was breached by PHI's refusal to consent to the public offering in May of 1986. Not surprisingly, this novel approach is not validated by the case law in Kansas, or for that matter any other jurisdiction. In fact, this breach of the true agreement proposal contradicts the express language previously quoted from the Kansas Supreme Court decisions of Siegel and Collins.

Reformation of an instrument is an equitable action primarily brought to rectify or reframe the instrument when it fails to express the real agreement. 66 Am.Jur. 2d at § 1. It is not brought primarily to recover for the breach of the true, real or intended agreement. Nothing prevents a party from bringing an action to reform once a mutual mistake has been made in recording the agreement in writing. When reformed, the written instrument relates back to the time of its original execution. Conner, 245 Kan. at 255, 777 P.2d 821. Breach of the real or true agreement may enable the parties to discover their mutual mistake in the written instrument, but it is only the making of the mistake which allows the party to bring an action to reform and which triggers the commencement of the five-year limitations period.

In the alternative, plaintiffs argue the defendants are estopped from raising the statute of limitations as a defense because they knew of plaintiffs' mistaken reading of the 1976 Agreement and 1981 Blanket Amendment, allowed plaintiffs to expand and invest in reliance upon that reading, and did nothing to inform plaintiffs of their mistaken reading....

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