Western Chance No. 2, Inc. v. KFC Corp.

• Decision Date: 28 February 1992
• Docket Number: 90-15796,Nos. 90-15032,90-15242,90-15795,s. 90-15032
• Citation: 957 F.2d 1538
• Parties: WESTERN CHANCE # 2, INC., an Arizona corporation, Plaintiff-Appellant, v. KFC CORPORATION, a Delaware corporation; KFC National Management Company, a Delaware corporation, Defendants-Appellees. (Two Cases) WESTERN CHANCE # 2, INC., an Arizona corporation, Plaintiff-Appellee, v. KFC CORPORATION, a Delaware corporation; KFC National Management Company, a Delaware corporation, Defendants-Appellants. (Two Cases)
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1538

957 F.2d 1538

WESTERN CHANCE # 2, INC., an Arizona corporation, Plaintiff-Appellant, v. KFC CORPORATION, a Delaware corporation; KFC National

Management Company, a Delaware corporation,

Defendants-Appellees. (Two Cases)

WESTERN CHANCE # 2, INC., an Arizona corporation, Plaintiff-Appellee, v. KFC CORPORATION, a Delaware corporation; KFC National

Management Company, a Delaware corporation,

Defendants-Appellants. (Two Cases)

Nos. 90-15032, 90-15242, 90-15795, 90-15796.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 6, 1991.

Decided Feb. 28, 1992.

George R. Brown and Robert J. Egielski, Linden, Chapa & Fields, Tucson, Ariz., for appellant-cross-appellee.

William S. Hawgood II and Craig H. Kaufman, Streich, Lang, Weeks & Cardon, Tucson, Ariz., for appellees-cross-appellants.

Sheryl G. Snyder, Merrill S. Schell and Walter M. Jones, Wyatt, Tarrant & Combs, Louisville, Ky., for amicus curiae.

Appeal from the United States District Court for the District of Arizona.

Before POOLE, REINHARDT and FERNANDEZ, Circuit Judges.

FERNANDEZ, Circuit Judge:

Western Chance # 2, Inc. (Western Chance) appeals the district court's grant of summary judgment ¹ in favor of KFC Corporation and KFC National Management Co. (both hereinafter referred to as KFC) on Western Chance's complaint alleging breach of an oral contract which allegedly gave Western Chance an exclusive franchise for the whole city of Tucson, Arizona. Western Chance also appeals the district court's determinations regarding written contracts with KFC. KFC cross appeals the district court's denial of attorneys' fees. We affirm in part and reverse and remand in part.

BACKGROUND

Western Chance is a franchisee of KFC in Tucson, Arizona. It and its sister corporations of the same name own and operate Kentucky Fried Chicken outlets in the city and other areas of southern Arizona. In 1965, Walter Hill (Hill), founder and shareholder of Western Chance, met with Dick Robinson (Robinson), a franchising director at KFC in Kentucky. The purpose of the meeting was to discuss the possible development of KFC outlets by Western Chance. The parties decided that Western Chance would build and operate outlets in Tucson. Western Chance alleges that at this meeting Robinson granted Western Chance exclusive territorial rights for Tucson. Western Chance further alleges that the exclusive territorial agreement consummated with Robinson required Western Chance to open six KFC outlets within a specified time and to continue to open outlets as the population of Tucson grew. Western Chance contends that this oral agreement accorded with the "area-wide" franchises KFC was offering at the time. KFC argues that this alleged agreement never occurred. ²

In 1966, Hill moved to Tucson and Western Chance began to build and open the agreed-upon KFC outlets. KFC required Western Chance to enter into a separate franchise agreement for each outlet. One term of the standardized form agreement gave each outlet an exclusive territory within a radius of 1 1/2 miles of the store or within an area containing 30,000 people, whichever was smaller. A subsequent class action settlement between KFC and its franchisees amended the Franchise Agreements to give existing franchisees the right of first application for ownership of contemplated new KFC outlets to be located near the franchisees' existing outlets. (G & K Amendment, Section V). Later franchise agreements incorporated the substance of Section V of the G & K Amendment into their terms. (Franchise Agreements p 19). The parties debate the scope of the Paragraph 19. Western Chance argues that it applies to all contemplated stores, whether they be franchised to a third party or owned by KFC. KFC contends that the right of first application is for ownership of contemplated franchised outlets, not contemplated company-owned stores.

In 1974, Western Chance purchased options for eight more KFC outlets in Tucson and southern Arizona. Western Chance exercised a number of the options and developed additional stores. In 1987, one outlet was closed by local health officials for sanitation violations. KFC sued for breach of the franchise agreement covering that outlet. The parties settled, and Western Chance agreed to remedy the sanitation problems and upgrade all of its outlets. It also agreed to surrender an option for a store at Ina and Thornydale roads to KFC. The settlement agreement, dated July 6, 1987, provided that Western Chance released KFC of all obligations and claims arising out of the litigation or from its commercial relationship with KFC (the General Release). KFC contends that the General Release eliminated any obligations it may have had under an oral agreement.

Finally, KFC opened a company-owned store in Tucson and commenced construction on another. Neither is located within the 1 1/2 mile exclusive territory of a Western Chance-owned outlet. Western Chance claimed that the oral agreement granted it the exclusive franchise for the entire city. Thus, it filed this action for, among other things, breach of that agreement.

The facts are more extensively set forth in the district court's opinion and need not be repeated here. Western Chance I, 734 F.Supp. at 1530-36.

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction pursuant to 28 U.S.C. § 1332 and § 1446. ³ We have jurisdiction pursuant to 28 U.S.C. 1291.

We review de novo the district court's grant of summary judgment. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989). Summary judgment is proper if there are no questions of material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

DISCUSSION

The district court granted KFC's motion for summary judgment as to all eight counts in Western Chance's complaint. Western Chance has appealed the judgment as to all counts but one, tortious breach of the implied covenant of good faith and fair dealing.

A. Breach of Oral Contract (Count One) and Promissory Estoppel (Count Seven).

Although its existence and terms are disputed by the parties, the court assumed that an oral agreement for exclusive rights to develop Tucson had been reached by Hill and Robinson. However, the court found that the agreement violated the statute of frauds, and thus was unenforceable as a matter of law. Moreover, it determined that the parol evidence rule barred proof of the agreement, and that the General Release abrogated the oral agreement, if it ever existed.

Western Chance disputes these rulings. It contends that either the agreement is not within the purview of the statute of frauds, or, in the alternative, it is evidenced by sufficient memoranda and the parties' course of performance under the agreement estops KFC from raising the statute as a defense.

1. Statute of Frauds.

Under Arizona law, contracts which are not to be performed within one year from the making of the contract must be in writing. Ariz.Rev.Stat. § 44-101. The one-year provision of the statute of frauds is narrowly construed. John D. Calamari & Joseph M. Perillo, Contracts § 19-17 (3d Ed.1987). The mere possibility that performance can be completed within one year--even if not contemplated by the parties--is usually sufficient to remove the agreement from the statute of frauds. Co- op Dairy, Inc. v. Dean, 102 Ariz. 573, 575, 435 P.2d 470, 472 (1967); Waugh v. Lennard, 69 Ariz. 214, 226, 211 P.2d 806, 813-14 (1949) (since employer could die within a year, oral employment contract not within the statute of frauds); Healey v. Coury, 162 Ariz. 349, 353, 783 P.2d 795, 799 (App.1989) (statute requires impossibility of performance within a year). The fact that performance is completed in more than a year is immaterial. Healey v. Coury, 162 Ariz. at 353, 783 P.2d at 799. ⁴ In this case, Western Chance argues that KFC's performance under the oral agreement was complete when Robinson granted the six options. Moreover, since it is possible that Western Chance could have opened all six outlets within a year of the making of the contract, the oral agreement did not fall under the statute of frauds. However, the district court correctly found that KFC's performance under the contract was not complete when it granted the options, since KFC had a continuing obligation to reserve the Tucson market exclusively for Western Chance.

The parties dispute the duration of KFC's continuing obligation. Western Chance argues that it was indefinite. The testimony of Hill supports this inference; KFC was required to maintain Western Chance's exclusivity until Western Chance was unable to satisfy market demand for KFC outlets and Western Chance turned down proposed outlets. Yet Robinson testified that he agreed to a twenty year exclusivity term. If so, the oral agreement would have expired in 1985. However, he also said that KFC would honor the oral agreement as long as Western Chance "fulfilled its obligations"; he did not specifically say that the contract would end upon Western Chance's refusal to build additional outlets.

We are unable to say whether KFC's obligations were to terminate under the oral agreement once Western Chance turned down proposed outlets or whether KFC was still required to give Western Chance the right of first application to the next proposed outlet, despite having turned down others. The crux of the issue is not the duration of the contract, but whether it was to be terminated once Western Chance declined proposed outlets. If the grant...