Vons Companies, Inc. v. Seabest Foods, Inc.

• Decision Date: 12 December 1996
• Docket Number: No. S049039,S049039
• Citation: 14 Cal.4th 434,58 Cal.Rptr.2d 899,926 P.2d 1085
• Court: California Supreme Court
• Parties: , 926 P.2d 1085, 96 Cal. Daily Op. Serv. 8972, 96 Cal. Daily Op. Serv. 9156, 96 Daily Journal D.A.R. 14,881 VONS COMPANIES, INC., Cross-Complainant and Appellant, v. SEABEST FOODS, INC., et al., Cross-Defendants and Respondents.

Page 899

58 Cal.Rptr.2d 899

14 Cal.4th 434, 926 P.2d 1085, 96 Cal. Daily Op. Serv. 8972,

96 Cal. Daily Op. Serv. 9156,

96 Daily Journal D.A.R. 14,881

VONS COMPANIES, INC., Cross-Complainant and Appellant, v. SEABEST FOODS, INC., et al., Cross-Defendants and Respondents.

No. S049039.

Supreme Court of California.

Dec. 12, 1996.

Rehearing Denied Feb. 5, 1997.

Munger, Tolles & Olson, Gregory P. Stone, Joseph D. Lee, Kristin A. Linsley, David M. Rosenzweig, Susan R. Szabo and Kristin S. Escalante, Los Angeles, for Cross-complainant and Appellant.

Neil, Dymott, Perkins, Brown & Frank, Thomas M. Dymott, Kyle A. Cruse, San Diego, Crosby, Heafey, Roach & May, Peter W. Davis, James C. Martin, Jacques B. LeBoeuf, Oakland, Laskero & Associates and Michael G. Roddy, San Diego, for Cross-defendants and Respondents.

GEORGE, Chief Justice.

We consider in this case the issue whether California courts may exercise personal jurisdiction over owners of "fast food" restaurant franchises located in another state, in litigation stemming from several incidents of food poisoning that occurred in the foreign jurisdiction. We conclude that the franchisees had sufficient contacts with California through their relationship with their California franchiser, and that the tort claims alleged against the franchisees in a cross-complaint filed in a California action stemming from the food poisoning incidents were sufficiently related to the franchisees' contacts in California, to justify this state's exercise of jurisdiction over the franchisees.

I

In 1993, customers of Jack-in-the-Box restaurants in several states, including Washington, suffered from exposure to Escherichia coli (E. coli) bacteria traced to hamburgers sold at the restaurants. Many fell ill and some died.

Foodmaker, Inc., of which Jack-in-the-Box is a division, is a Delaware corporation with its principal place of business in San Diego, California. It blamed the E. coli contamination on its meat suppliers, including the Vons Companies, Inc. (Vons). Vons processed hamburger patties in its El Monte, California plant and shipped them to Foodmaker for use in Jack-in-the-Box restaurants.

Litigation soon followed. Eighty-five Jack-in-the-Box franchisees from California and other states, whose customers had not been injured, sued Foodmaker, Vons, and other meat processors, in an action brought in the San Diego County Superior Court. The action stated causes of action for negligence, breach of implied warranty, breach of contract, and other claims, and sought substantial damages for loss of business caused by the adverse publicity that followed the E. coli outbreak.

Foodmaker cross-complained against Vons and the other meat suppliers. Foodmaker's cross-complaint alleged breach of warranty and of contract, as well as negligence, negligent interference with economic relations, and other claims. It alleged the suppliers delivered contaminated meat to Foodmaker, and that this conduct exposed Foodmaker to liability both to injured customers and to franchisees who had lost business after the E. coli outbreak.

Vons then filed the cross-complaint that is the subject of this appeal. ¹ It asserted causes of action against Foodmaker, several slaughterers and meat packers, and several Jack-in-the-Box franchisees, including Seabest Foods, Inc. (Seabest) and Washington Restaurant Management, Inc. (WRMI). Seabest, beginning in 1988, and WRMI, beginning in 1987, were owners of Jack-in-the-Box franchises in Washington State at which E. coli contamination had injured or killed Jack-in-the-Box customers. ²

Vons's cross-complaint alleged the injuries caused by the E. coli contamination would have been avoided had Foodmaker and its franchisees cooked the hamburgers at the proper temperature. Specifically, it alleged Foodmaker, Seabest, and WRMI had failed to follow proper procedures for cooking the meat, and that their procedures were "systematically deficient when measured against industry standards." In addition, it alleged Foodmaker, Seabest, and WRMI had failed to follow government standards for cooking the meat at a proper temperature, that Foodmaker had failed to inform its franchisees of the applicable government regulations, that the "standard" grills used by Foodmaker, Seabest, and WRMI were below the industry norm and lacked various safety features, and that Foodmaker, Seabest, and WRMI failed to require adequate qualifications and training for their cooks.

The cross-complaint asserted causes of action against Seabest and WRMI for negligence, negligent and intentional interference with economic advantage, and comparative and equitable indemnity. Vons sought damages for its own loss of business, as well as indemnification for any liability that might be imposed upon it for injury to Jack-in-the-Box customers in other actions, and for liability that might be imposed upon it for the claims of the franchisees in the current action.

Seabest and WRMI appeared specially and moved to quash service of process on the ground of lack of personal jurisdiction. The trial court considered evidence of Seabest's contacts with California, including the circumstance that a majority of its board of directors lived in California and had signed franchise agreements, leases, and a security agreement with Foodmaker in California. One of Seabest's leases and its security agreement with Foodmaker listed the franchisee's home office address as being in Granada Hills, California. Although most of its business with Foodmaker was conducted with Foodmaker's Washington office, Seabest conducted some business by mail and telephone with Foodmaker at Foodmaker's corporate headquarters in San Diego. Seabest officers attended multiple training sessions offered by Foodmaker in California, and met with Foodmaker representatives in San Diego before entering the franchise agreements, and again thereafter to resolve a dispute unrelated to the present litigation.

Significantly, the franchise agreements for Seabest's 10 Washington restaurants provided that any contract disputes would be litigated in California under California law, and that the franchisees would meet Foodmaker's specifications in providing training, following cooking procedures, and using equipment. The agreement specified that the franchisees must purchase ingredients, materials, and supplies from sources approved by Foodmaker, which might include Foodmaker itself. In fact, Seabest purchased most of its food and all of its hamburger patties from Foodmaker. It received delivery of food from Foodmaker's Washington warehouse, but was sent invoices by (and sent payments to) the San Diego Foodmaker headquarters--at first by mail, and then through a Colorado telephone exchange. Seabest also made its royalty and rent payments to Foodmaker in the same manner. Seabest employed a San Diego accountant to prepare the monthly financial statement it was required to send to Foodmaker headquarters in San Diego. During high volume periods, Seabest remitted up to $450,000 a month to Foodmaker.

Foodmaker inspectors from California occasionally inspected Seabest's restaurants, and Foodmaker once sent an auditor from its San Diego office to audit Seabest's books. Seabest also made equipment purchases from Foodmaker in California. Payment for equipment purchases for one restaurant totaled $233,217.

WRMI had less extensive contacts with Foodmaker in California, conducting almost all of its business with Foodmaker through Foodmaker's Washington office. Nonetheless, WRMI's three franchise agreements were negotiated in California, and one of the individual franchisees executed original franchise agreements in California. These franchise agreements provided that contract disputes would be litigated in California under California law, and also controlled the franchisee's purchases of ingredients, training, equipment, and cooking procedures in the same manner as the Seabest agreements. In addition, the president of WRMI met once with Foodmaker representatives in San Diego to negotiate regarding two initial franchises, and attended training on another occasion in San Diego. He also had telephone conversations regarding the potential sale of a franchise with a manager employed at Foodmaker's San Diego office. His application to purchase a third franchise was forwarded to the San Diego office of Foodmaker, and that office in turn returned the approved franchise and an assignment of the individual franchises to the WRMI corporation.

The president of WRMI attended yearly meetings in California with Foodmaker dealing with WRMI business, and also traveled to California six to eight times to represent Jack-in-the-Box franchisees other than WRMI in policy discussions with Foodmaker. He received monthly accounts receivable statements from the San Diego office. He purchased 70 percent of his food supplies and all of his hamburger patties from Foodmaker. He was sent invoices by Foodmaker's Washington center and received his deliveries from that location, but he received a monthly statement for his food purchases from Foodmaker in San Diego. The hamburger patties delivered to him from that center originally came from California suppliers. He originally mailed his royalty, rent, and food payments to Foodmaker's San Diego address, and later paid the bills by telephone to a bank located in California. He also sent monthly income statements and a yearly accounting to Foodmaker in San Diego. His employees had occasional phone conversations with Foodmaker in California regarding financial matters, and he occasionally received updated training materials from Foodmaker in California. After the E. coli outbreak, he had conversations with Foodmaker in California regarding an agreement to terminate his franchises, as noted below. Finally, two WRMI employees received training in California on one occasion, and WRMI purchased cash registers and other sales tracking equipment directly from...