Sioux Falls Pizza Co. v. Little Caesar Enters., Inc.

• Decision Date: 14 March 2012
• Docket Number: No. CIV 11–4047–RAL.,CIV 11–4047–RAL.
• Citation: 858 F.Supp.2d 1053
• Parties: SIOUX FALLS PIZZA COMPANY, INC., a South Dakota corporation formerly known as Pinnacle Pizza, Inc., a South Dakota corporation, Plaintiff, v. LITTLE CAESAR ENTERPRISES, INC., a Michigan corporation, Defendant.
• Court: U.S. District Court — District of South Dakota

858 F.Supp.2d 1053

SIOUX FALLS PIZZA COMPANY, INC., a South Dakota corporation formerly known as Pinnacle Pizza, Inc., a South Dakota corporation, Plaintiff,

v.LITTLE CAESAR ENTERPRISES, INC., a Michigan corporation, Defendant.

No. CIV 11–4047–RAL.

United States District Court,

D. South Dakota,

Southern Division.

March 14, 2012.

Shawn M. Nichols, Cadwell, Sanford, Deibert & Garry, LLP, Sioux Falls, SD, for Plaintiff.

Lisa Hansen Marso, Boyce Greenfield Pashby & Welk, LLP, Sioux Falls, SD, Arthur L. Pressman, Gregg A. Rubenstein, Nixon Peabody LLP, Boston, MA, for Defendant.

OPINION AND ORDER CONCERNING CROSS–MOTIONS FOR SUMMARY JUDGMENT

ROBERTO A. LANGE, District Judge.

Plaintiff Sioux Falls Pizza Company, Inc. (“Sioux Falls Pizza”) sued Defendant Little Caesar Enterprises, Inc. (“Little Caesar”) after Little Caesar gave notice that it deemed Sioux Falls Pizza not to have the right to renew its agreements to operate Little Caesar franchises beyond May 30, 2011. Sioux Falls Pizza sought declaratory relief that it was entitled to renew the franchise agreements. Doc. 9. In the alternative, Sioux Falls Pizza sought a declaration that it was relieved of any duty not to compete or to re-sell certain items to Little Caesar. Sioux Falls Pizza also filed a motion for preliminary injunction to allow it to operate the franchises after May 30, 2011, and during the pendency of the case. Doc. 10.

Sioux Falls Pizza and Little Caesar reached an agreement memorialized in a joint motion and stipulation regarding preliminary injunctive relief and expedited litigation. Doc. 17. In short, the parties agreed that Sioux Falls Pizza could continue to operate its three Little Caesar franchises past May 30, 2011, the parties would present the case for decision by this Court on cross-motions for summary judgment, and the extension of the franchise agreements would be without prejudice to Little Caesar's position that the franchise agreements with Sioux Falls Pizza were not subject to a ten-year renewal under the circumstances. Doc. 17.

Both Sioux Falls Pizza and Little Caesar now have filed motions for summary judgment. Doc. 27; Doc. 31. The main question framed by the cross-motions for summary judgment is whether a breach of contract by Sioux Falls Pizza through filing a lawsuit in 2004 in contravention of the franchise agreements permits Little Caesar to avoid automatic renewal of the franchise agreements for ten years. This somewhat straightforward issue becomes more difficult because, through a class action lawsuit settlement, the automatic renewal language of the franchise agreements was displaced by language written to amend terms of a form franchise agreement different from the one between these parties.

Both Sioux Falls Pizza and Little Caesar filed statements of undisputed material facts, Doc. 28; Doc. 33, and both responded to the other party's statement of undisputed material facts by admitting most of the facts and contesting some characterizations of the facts. Doc. 39; Doc. 41. This Court draws the facts from the portions of the statements of material facts that are either undisputed or not subject to genuine dispute. As the parties contemplated in their joint motion and stipulation, the issues in this case can be decided under Rule 56 of the Federal Rules of Civil Procedure because this case turns on contract interpretation and not on resolution of any genuine issue of material fact.

I. Undisputed Facts

Sioux Falls Pizza is a South Dakota corporation that operates Little Caesar franchises in three separate Sioux Falls locations, Doc. 33 at ¶ 2; Doc. 41 at ¶ 2; Doc. 28 at ¶ 1; Doc. 39 at ¶ 1. Sioux Falls Pizza previously was known as Pinnacle Pizza Company, Inc. (“Pinnacle”) until a name change in April of 2011. Doc. 33 at ¶ 2; Doc. 41 at ¶ 2. This Court by using “Sioux Falls Pizza” means to refer to both the predecessor and current company.

Little Caesar is a Michigan corporation with its principal place of business in Detroit, Michigan. Doc. 33 at ¶ 1; Doc. 41 at ¶ 1. Diversity of citizenship jurisdiction exists under 28 U.S.C. § 1332 because the value of renewal of three Little Caesar franchise agreements in the Sioux Falls market exceeds $75,000.00.¹See Hedberg v. State Farm Mut. Auto. Ins., Co., 350 F.2d 924, 928 (8th Cir.1965); Noel v. Liberty Bank of Ark., 2010 WL 2804331, at *1 (E.D.Ark.2010); 14AA Wright & Miller, Federal Practice and Procedure, § 3708 (4th ed. 2009).

In the early 1990s, Little Caesar and Sioux Falls Pizza entered into three separate franchise agreements, each of which have identical terms material to the issues in this case. The franchise agreements contemplated that Sioux Falls Pizza would run three Little Caesar franchises in Sioux Falls. Doc. 33 at ¶¶ 1, 3; Doc. 41 at ¶ 3; Doc. 28 at ¶ 1. The franchise agreements expired by their terms on May 31, 2011, but allowed Sioux Falls Pizza the right to renew them for an additional ten years if certain conditions existed. Doc. 33 at ¶ 4; Doc. 41 at ¶ 4. The language in the initial franchise agreements signed by Little Caesar and Sioux Falls Pizza allowed for automatic renewal if, under Section XVI.C:

Franchise Owner is not in default, and has never been in substantial default of any provisions of this Agreement, or any amendment hereof or successor hereto, and Franchise Owner is not in arrears with respect to any indebtedness incurred in connection with its business.

Doc. 9–2, p. 13.

In 1999, certain Little Caesar franchisees—not including Sioux Falls Pizza—brought suit against Little Caesar in Texas state court under the caption Hotchkiss v. Little Caesar Enterprises, Inc., Civil Action No. 99–CI–16042 (“ Hotchkiss Litigation”). Doc. 33 at ¶ 10; Doc. 41 at ¶ 10. The Texas state court certified the Hotchkiss Litigation as a class action of Little Caesar franchisees. Doc. 33 at ¶ 11; Doc. 41 at ¶ 11. Franchisees of Little Caesar were given an opportunity to opt-out of the class; Sioux Falls Pizza did not opt-out of the class. Doc. 33 at ¶¶ 11, 15; Doc. 41 at ¶¶ 11, 15. A settlement agreement was reached in the Hotchkiss Litigation, and notice was provided to class members of the existence of the settlement agreement (“ Hotchkiss Settlement Agreement”). Doc. 33 at ¶¶ 12–13; Doc. 41 ¶¶ 12–13. The notice provided a summary to class members of the Hotchkiss Settlement Agreement, including describing an amendment to the franchise agreements that purportedly would:

eliminate requirement that a franchisee must never have been in default of the franchise agreement, and any other agreement, or the Little Caesar Manuals, in order to attain a ten-year renewal of the franchise agreement.

Doc. 28 at ¶ 13; Doc. 39 at ¶ 13. The notice also advised that it was “only a summary” and that references should be made to the settlement agreement “for a full statement of its provisions.” Doc. 33 at ¶ 14; Doc. 41 at ¶ 14.

The Hotchkiss Settlement Agreement itself provided:

... the franchise agreements between [Little Caesar] and the Settlement Class are reformed by this Agreement and the Court's final order and judgment approving the same, to the extent said franchise agreements are in conflict with any provision of this Agreement, but otherwise such franchise agreements remain in full force and effect.

Doc. 21–1 at p, 17; Hotchkiss Settlement Agreement at ¶ 17.1. The Hotchkiss Settlement Agreement also stated:

In addition to any other amendments to such franchise agreements made necessary by this Agreement, the Parties hereby agree on specific contract language finalizing additional amendments to the [Little Caesar] franchise agreements set forth in Exhibit D hereto.

Doc. 21–1 at p. 17; Hotchkiss Settlement Agreement at ¶ 17.2. Exhibit D to the Hotchkiss Settlement Agreement contained modifications to the Little Caesar franchise agreement. Doc. 21–1 at p. 50–56. Both Sioux Falls Pizza and Little Caesar agree that the Hotchkiss Settlement Agreement and the language changes thereunder apply to Sioux Falls Pizza's franchise agreements with Little Caesar. Doc. 33 at ¶ 15; Doc. 41 at ¶ 16.

Little Caesar, through the years, had revised its form franchise agreement and used different franchise agreements with its various franchisees. While many franchisees have nearly identical franchise agreements, there are variations among franchise agreements used by Little Caesar. The language contained in Exhibit D to the Hotchkiss Settlement Agreement revised standard franchise terms that were different from terms in franchise agreements between Sioux Falls Pizza and Little Caesar. For example, the “current provision” for renewal of franchises referred to in the Hotchkiss Settlement Agreement is denominated Section 2.2, while the renewal of franchise language in the franchise agreements between Sioux Falls Pizza and Little Caesar is at Section XVI. Compare Doc. 21–1 to Doc. 9–2.

Both Sioux Falls Pizza and Little Caesar agree that the Hotchkiss Settlement Agreement was intended to make changes to the franchise agreement favorable to franchisees. Both Little Caesar and Sioux Falls Pizza acknowledge that the Hotchkiss Settlement Agreement was not designed to make non-renewal of franchise agreements easier for Little Caesar to accomplish.

As concerns conditions for renewal of franchise agreements, Exhibit D to the Hotchkiss Settlement Agreement addressing the subject, in its entirety, stated:

CONDITIONS OF RENEWAL

Purpose: Modify current renewal condition that franchisee must never have been in default of any franchise or other LCE agreement.

Current Provision

2.2— Renewal Term of Franchise: Franchisee may, at its option, renew this franchise for one renewal term of ten (10) years, subject to the following prerequisites:

2.2.3 Franchisee shall not be in default of any provision of this Agreement, or any other agreement between Franchisee and Little Caesar or Little Caesar's affiliates, or any standards set forth in the Manuals (as defined in Section 4.3), and Franchisee shall have...