Truglia v. KFC Corp.
| Decision Date | 10 August 1988 |
| Docket Number | No. 88 Civ. 1331 (GLG).,88 Civ. 1331 (GLG). |
| Citation | 692 F. Supp. 271 |
| Parties | Joseph A. TRUGLIA, Plaintiff, v. KFC CORPORATION and Pepsico Corporation, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Steven H. Gaines, White Plains, N.Y., for plaintiff.
Clark, Gagliardi & Miller, P.C., White Plains, N.Y., for defendants; Lawrence T. D'Aloise, Jr., of counsel.
The plaintiff, Joseph Truglia, a citizen of New York, operates two Kentucky Fried Chicken franchises. The first franchise is located in White Plains, New York and the second in Elmsford, New York. Defendant KFC Corporation ("KFC") is incorporated in Delaware1 and is a wholly-owned subsidiary of Frito-Lay, Inc. Frito-Lay is not a defendant in this suit. However, Frito-Lay's parent corporation, Pepsico, Inc. ("Pepsico") is a defendant in this suit.2 Pepsico is incorporated in North Carolina and has its principal place of business in Purchase, New York.
Each of these parties has brought one or several motions. There is, first, a motion by Pepsico to dismiss pursuant to Fed.R. Civ.P. 12(b)(6) or for summary judgment pursuant to Fed.R.Civ.P. 56. We have treated the plaintiff's opposition to this motion as a motion to remand. KFC has moved to dismiss pursuant to Rule 12(b)(6) or for summary judgment. KFC has also moved for a preliminary injunction enforcing the provisions of the franchise termination agreement between it and the plaintiff. Also before us is the plaintiff's motion for a preliminary injunction preventing the defendants from terminating his franchises.
By order dated April 8, 1988, we granted defendant Pepsico's motion to dismiss, and consequently denied the plaintiff's motion to remand since diversity jurisdiction existed between the remaining parties. By the same order, we denied the plaintiff's motion for a preliminary injunction, and denied KFC's motion for a preliminary injunction to the extent it sought to prevent the plaintiff from engaging in the fried chicken business within a ten-mile radius of his present locations. We reserved judgment as to the remaining portions of KFC's motion for a preliminary injunction, and as to its motion to dismiss or for summary judgment.
In this opinion we present the analysis underlying the decisions contained in our order and address the outstanding elements of KFC's motions. With respect to the latter, for the reasons enunciated below we deny, in its entirety, KFC's motion for a preliminary injunction. We grant KFC's motion for summary judgment only with respect to plaintiff's White Plains franchise. With respect to the Elmsford outlet, we deny its motion for summary judgment.
On January 6, 1984, by assignment from a prior franchisee, the plaintiff acquired operation of the Kentucky Fried Chicken franchise in White Plains, New York. The Franchise Agreement assumed by the plaintiff requires the plaintiff to operate his franchise within certain guidelines prescribed by KFC.3 Of particular relevance here is the requirement that the plaintiff make monthly royalty payments to KFC and that he execute an Advertising Agreement with KFC National Cooperative Advertising Program, Inc. ("KFC Cooperative").4 Royalty payments are due the twentieth of the month subsequent to that for which they accrue. The Franchise Agreement provides that KFC will give the franchisee notice of default in the event of default or breach, and thereafter, give the franchisee thirty days to remedy the breach or default. If the franchisee is repeatedly in default or breach, KFC can reduce the period in which to cure to ten days. Section 8.3 of the Franchise Agreement states that "each failure to pay royalties when due will be a material breach." (emphasis added)
The plaintiff's association with KFC has not been a happy one. Evidence proffered by KFC indicates that the plaintiff has been frequently, if not chronically, late in paying royalties to KFC. The plaintiff accepts this, but suggests that late payments were customary among franchisees, and at least in the plaintiff's case, acquiesced in by KFC. Evidence also suggests that the plaintiff was in other respects deficient in the operation of his franchise. Specifically, KFC alleges the plaintiff was late in making payments to the KFC Cooperative and operated the White Plains outlet in an "unclean" manner.
In 1985, the plaintiff sought to obtain an additional franchise in Elmsford, New York. Initially, KFC rejected his application because, at that time, he was in default on his obligation to make royalty payments for the White Plains outlet. In the fall of 1986, KFC reconsidered its decision and conditionally granted the plaintiff the Elmsford franchise. In consideration for the Elmsford franchise the plaintiff signed a Termination Agreement. Under its terms the plaintiff agreed that if he defaulted on "any obligation" under the Franchise Agreement, and if he failed to cure the default within the specified period, as controlled by the Franchise Agreement, then the Franchise Agreement would automatically terminate.5 Upon termination, the plaintiff would be obligated not only to cease operations as a Kentucky Fried Chicken outlet, but also to cease selling fried chicken within a ten-mile radius of his present franchise. As noted, the specified period in which to cure was thirty days from receipt of a notice of default, unless the plaintiff repeatedly defaulted, in which case the grace period could be shortened to ten days. These conditions are described in the Termination Agreement which the plaintiff signed on December 16, 1986. The Elmsford store opened on August 27, 1987.
Despite the Termination Agreement, the plaintiff continued in his ways and repeatedly failed to make royalty payments for the White Plains store. KFC sent default notices to the plaintiff for January, February, April, May, June, July, and August of 1987. In all months but July the plaintiff cured his default within thirty days of receiving a notice of default. This action arises from the plaintiff's failure to cure his default for July 1987.
KFC notified the plaintiff, by letter dated September 16, 1987, of his default of his July obligations for the White Plains store. KFC's letter, which the plaintiff acknowledges receiving on September 22, 1987, also reduced, as per paragraph 17.3 of the Franchise Agreement, plaintiff's time to cure from thirty to ten days. On the next day, September 23, the plaintiff sent KFC his July royalty check. This check was returned for insufficient funds. By letter dated October 22, 1987, KFC notified the plaintiff that it was exercising its rights under the Termination Agreement and declared the Franchise Agreement for the White Plains store terminated.
In November 1987, KFC and the plaintiff executed an amendment to the Termination Agreement, whereby they extended the effective date of termination until February 20, 1988. (The amendment refers to both the White Plains and Elmsford stores, although the default and termination notices had referred only to the White Plains store.) The stated purpose of the amendment was to give the plaintiff time in which to sell his two franchises.6 On February 19, 1988, one day before the (extended) date of termination, the plaintiff instituted an action in New York state court and obtained an order temporarily restraining KFC's execution of the Termination Agreement. The defendants subsequently removed the case to this court. After removal, the plaintiff filed his complaint. Both the Franchise Agreement and the Termination Agreement provide that all contractual disputes will be interpreted in accordance with Kentucky law.
We have treated the plaintiff's opposition to Pepsico's motion pursuant to either Rule 12(b)(6) or Rule 56 as a motion to remand. This case was removed to this court on the basis of diversity jurisdiction. However, both the plaintiff and Pepsico reside in New York. If Pepsico is properly named as a defendant, then diversity jurisdiction would be defeated and the case must be remanded.
The joinder of a defendant who resides in the state where an action is brought will not defeat diversity jurisdiction if the resident defendant has no real connection to the action. Allied Programs Corp. v. Puritan Insurance Co., 592 F.Supp. 1274, 1276 (S.D.N.Y.1984). The test for determining whether a plaintiff has improperly joined a resident defendant has been stated in various ways. Basically, the defendant must show with specificity that the facts as stated in the complaint, under the present law of the forum state, form no basis for recovery against the defendant who defeats diversity. Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir.1962), cert. denied, 376 U.S. 949, 84 S.Ct. 964, 11 L.Ed.2d 969 (1964); American Mutual Liability Ins. Co. v. Flintkote Co., 565 F.Supp. 843, 845 (S.D.N.Y.1983). In applying this test the court should resolve all disputed questions of fact in favor of the plaintiff. American Mutual at 845. Similarly, any doubt as to the state of controlling law should be resolved in the plaintiff's favor. Id. The burden of proving the right to a federal forum falls squarely on the party seeking removal. R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir.1979). Thus, in this case, the defendants must show that the plaintiff's allegations, taken in the light most favorable to him, cannot establish any liability on the part of Pepsico.
The plaintiff alleges that Pepsico controlled the policies of KFC, and that Pepsico changed those policies to his detriment. The nature of these policies, how Pepsico changed them, and how these changes specifically harmed the plaintiff are left unexplained by the plaintiff. Under New York law a parent must completely dominate and control its subsidiary before the corporate veil can be pierced. See Fidenas AG v. Honeywell Inc., 501 F.Supp....
To continue reading
Request your trial
-
Lenz v. Associated Inns & Restaurants Co. of Am., 90 Civ. 3026 (KC).
...266, 68 L.Ed. 628 (1924); District of Columbia v. Transamerica Insurance Company, 797 F.2d 1041 (D.C.Cir.1986); Truglia v. KFC Corporation, 692 F.Supp. 271 (S.D.N.Y.1988), aff'd, 875 F.2d 308 (2d Cir.1989)). The court disagrees and finds, for reasons set forth below, that diversity jurisdic......
-
Pizza Management, Inc. v. Pizza Hut, Inc.
...1084, 1089 (D.N.J.1988) (citation omitted); see generally U.S. v. Van Diviner, 822 F.2d 960, 964 (10th Cir.1987); Truglia v. KFC Corp., 692 F.Supp. 271, 275 (S.D.N.Y.1988), aff'd, 875 F.2d 308 (2nd Cir.1989). Plaintiffs have not even asserted in their complaint any of the conclusory referen......
-
DV Diamond Club of Flint, LLC v. U.S. Small Bus. Admin.
..."widely been held to constitute irreparable harm, at least when the business has been in operation for some time." Truglia v. KFC Corp. , 692 F. Supp. 271, 279 (S.D.N.Y. 1988), aff'd , 875 F.2d 308 (2d Cir. 1989). Next, the balance of harms and public interest factors also favor the grantin......
-
Powers v. British Vita, PLC
...he was a victim of a wrongful or illegal act or threat and that this act or threat deprived him of his free will. Truglia v. KFC Corp., 692 F.Supp. 271, 278 (S.D.N.Y.1988) (citing 13 S. Williston, A Treatise on the Law of Contracts § 1617 (3d ed. 1968)), aff'd, 875 F.2d 308 (2d Cir.1989); a......