St. Charles v. America's Favorite , 198 F.3d 815 ( 1999 )

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
_______________ ELEVENTH CIRCUIT
12/20/99
THOMAS K. KAHN
No. 98-8193 CLERK
_______________
D. C. Docket No. 1:96-cv-1466-JEC
ST. CHARLES FOODS, INC.,
Plaintiff-Appellant,
versus
AMERICA’S FAVORITE CHICKEN COMPANY,
Defendant-Appellee.
______________________________
Appeal from the United States District Court
for the Northern District of Georgia
______________________________
(December 20, 1999)
Before BIRCH and DUBINA, Circuit Judges, and MIDDLEBROOKS*, District
Judge.
BIRCH, Circuit Judge:
*
Honorable Donald M. Middlebrooks, U.S. District Judge for the Southern District of
Florida, sitting by designation.
St. Charles Foods, Inc. (“SCF”) appeals the district court’s order granting
summary judgment in favor of America’s Favorite Chicken Company (“AFC”) on
SCF’s complaint which alleged breach of contract and denying SCF’s motion to
amend its complaint. SCF argues, first, that summary judgment was improper because
the ambiguity in its contract with AFC would allow a reasonable factfinder to draw
different inferences from the undisputed facts and that the ambiguity should be
construed against AFC as the drafter. Second, SCF argues that the liberal policy of
allowing amendments to complaints under Federal Rule of Civil Procedure 15 requires
that the district court allow SCF to amend its complaint. For the reasons that follow,
we REVERSE the district court’s order and REMAND this case for further
proceedings consistent with this opinion.
I. BACKGROUND
SCF entered into a franchise agreement with Popeye’s Famous Fried Chicken
Corporation (“PFFCC”) in 1982. See R6-78-Adden. 1- Exh. 1. Under this agreement,
SCF built its first Popeye’s restaurant, and PFFCC granted SCF the exclusive right to
develop Popeye’s restaurants within St. Charles Parish, Louisiana, until 2002. In
1987, SCF developed its second Popeye’s restaurant, and PFFCC extended SCF’s
exclusive development rights through 2007. See R6-78-Adden. 2-Exh. 2 at 2.
2
In 1989, PFFCC acquired the Church’s Fried Chicken brand via a leveraged
buy-out. Because Church’s was a competing restaurant chain, PFFCC assured its
Popeye’s franchisees that they would be given a right of first refusal for any proposed
development within their territory. Al Copeland Enterprises was created as a
successor to PFFCC to manage both the Church’s and the Popeye’s brands. Al
Copeland Enterprises filed for Chapter 11 bankruptcy in 1992. AFC emerged from
the bankruptcy reorganization plan as the successor to Al Copeland Enterprises and
as franchisor of the Popeye’s and Church’s restaurants.
In 1993, the owners of SCF, Richard and Marilyn Englander, began
negotiations to sell SCF and its franchise rights to Edward Carlson, owner of a
separate Popeye’s franchise. Pursuant to a provision in the SCF franchise agreement
granting AFC the right to approve any transfer of ownership, Edward Carlson (“E.
Carlson”) notified AFC of the proposed sale. As a condition to its approval of the
sale, AFC required that SCF execute a new franchise agreement which would
eliminate its exclusive right to develop Popeye’s franchises within St. Charles Parish.
E. Carlson and his son Charles Carlson (“C. Carlson”) (collectively, the
“Carlsons”) were concerned about the loss of SCF’s territorial exclusivity and
engaged in discussions with AFC representatives. As a result of these discussions,
3
AFC agreed to replace SCF’s territorial exclusivity with a right of first refusal on “any
proposed development with St. Charles Parish.” 1SR1-101-Exh. 7. The terms of this
right of first refusal were detailed in a letter dated October 29, 1993, from AFC’s Vice
President of Franchise Administration, Michael Anderson, to E. Carlson. See id. This
letter was written on AFC letterhead, which displayed both the Popeye’s and Church’s
logos. See id. On November 2, 1993, Anderson sent another letter to E. Carlson
stating that “AFC (‘Franchisor’) will grant to St. Charles Foods, Inc. (‘Franchisee’)
a right of first refusal for St. Charles Parish, Louisiana through April 10, 2007.” R6-
78-Adden. 9-Exh. 7-A. The letter explained that “Franchisor will notify [SCF] of any
proposed development within St. Charles Parish, Louisiana and will specify the
number of stores to be developed and timeframe for development. ... If Franchisee
declines to exercise such right [of first refusal], Franchisor has the right to franchise
within St. Charles Parish, Louisiana.” Id. Again, this letter was written on letterhead
displaying both the Church’s and Popeye’s service marks. See id. The Carlsons
interpreted the Letter Agreements1 as providing SCF a right of first refusal for any
proposed development of any AFC brand within St. Charles Parish. See Exh. Dep.
of E. Carlson at 71-72. In accordance with the change from territorial exclusivity to
1
We shall refer to the October 29, 1993 and November 2, 1993 letters collectively as the
“Letter Agreements.”
4
a right of first refusal within the territory, the purchase price for SCF was reduced by
$100,000. See Exh. Dep. of Richard W. Englander, Jr. at 95-102.
In 1995, AFC began discussions with SCF regarding the development of a
Church’s restaurant within St. Charles Parish but ultimately granted the Church’s
franchise to Dugas Oil Company without extending a right of first refusal to SCF. In
response, SCF filed a Petition for Injunctive Relief, Declaratory Judgment and
Damages in Louisiana state court. See 1SR-101-1. The case was removed to federal
court in the Eastern District of Louisiana and then transferred to the Northern District
of Georgia, where the court denied SCF’s motion to amend its complaint, granted
AFC’s motion for summary judgment, and dismissed SCF’s case in its entirety.
The district court found that the contract between SCF and AFC, as
memorialized in the Letter Agreements was “ambiguous as to the scope of the right
of first refusal.” R7-84-8. Applying Georgia law2, the court then attempted to resolve
the contract ambiguity using Georgia’s rules of construction. See id. The district
court determined that the past relationship between SCF and AFC would most likely
suggest that the scope of the right of first refusal was limited to the development of
new Popeye’s restaurants within St. Charles Parish. See id. at 12. Specifically, the
2
Because the parties consented in the Franchise Agreement that it would “be interpreted and
construed under the laws of the State of Georgia,” 1SR-101-Exh. 8-33, the district court applied
Georgia contract law.
5
district court pointed to the facts that SCF had only dealt with AFC as the franchisor
of Popeye’s restaurants, that the territorial exclusivity which the right of first refusal
replaced was limited to Popeye’s restaurants, that SCF lacked evidence indicating that
AFC intended to alter SCF’s franchise relationship by granting it development rights
in the Church’s brand, and that the language in the franchise agreement between the
parties preserved the right for AFC to compete with SCF through other franchise
systems. See id. at 9-11. Finally, the district court denied SCF’s motion to amend its
complaint because its determination that AFC never offered SCF a right of first refusal
for the Church’s brand would dispose of the claims SCF sought to add to its
complaint. Thus, the district court concluded that SCF’s amendment would be futile.
Subsequently, the district court, when considering SCF’s motion to vacate,
found, even after considering three additional depositions, that SCF had failed to meet
the standard required to withstand AFC’s motion for summary judgment. See 2SR-
103 at 4-5. The court sympathized with SCF and noted that AFC’s actions “hardly
seem[] to promote the team spirit;” however, the court remained unconvinced that
SCF’s interpretation of the letters from AFC could be accepted by a reasonable jury.
Id. at 10. Therefore, the district court denied SCF’s motion to vacate its grant of
summary judgment. SCF now appeals.
6
II. DISCUSSION
On appeal, SCF argues that the district court never made a specific finding that
there was no genuine issue of material fact in dispute but instead made a legal
determination that the contract between SCF and AFC was ambiguous and then
resolved the ambiguity by attempting to ascertain the parties’ intent. Second, SCF
contends that the district court’s weighing of the evidence and the inferences it drew
therefrom were inappropriate on summary judgment. Third, SCF claims that the
district court incorrectly applied the Georgia Rules of Statutory Construction in its
attempt to resolve the contract ambiguity. Finally, SCF argues that because the
district court’s conclusion that AFC did not extend SCF a right of first refusal for both
the Popeye’s and Church’s brands was inappropriate, the court’s conclusion that
SCF’s amendment of its complaint would be futile was also incorrect.
In opposition, AFC suggests that the district court correctly determined that the
contract between AFC and SCF was ambiguous as a matter of law and then, as
required by Georgia law, properly ascertained the parties’ intentions. Moreover, AFC
claims that SCF failed to meet its burden of proof by not submitting any evidence
supporting its interpretation of the scope of the right of first refusal. Finally, AFC
argues that the district court correctly concluded that the amendment would be futile
7
because the district court’s entry of summary judgment on SCF’s existing complaint
was proper and, therefore, AFC’s amended complaint would also fail as a matter of
law.
A. SUMMARY JUDGMENT
We review de novo the district court’s order granting summary judgment. See
Williams v. Vitro Services Corp., 144 F.3d 1438, 1441 (11th Cir. 1998). A motion
for summary judgment should be granted when “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56 (c). There is no genuine
issue for trial “[w]here the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). In making
this assessment, we “must ‘view all the evidence and all factual inferences reasonably
drawn from the evidence in the light most favorable to the nonmoving party,’”
Maniccia v. Brown, 171 F.3d 1364, 1367 (11th Cir. 1999) (quoting Stewart v. Happy
Herman’s Cheshire Bridge, Inc., 117 F. 3d 1278, 1285 (11th Cir. 1997)), and “resolve
8
all reasonable doubts about the facts in favor of the non-movant,” United of Omaha
Life Ins. v. Sun Life Ins. Co., 894 F.2d 1555, 1558 (11th Cir. 1990). Further, “[i]f
reasonable minds might differ on the inferences arising from undisputed facts, then
the court should deny summary judgment.” Warrior Tombigbee Transp. Co. v. M/V
Nan Fung, 695 F.2d 1294, 1296-97 (11th Cir. 1983) (finding summary judgment “may
be inappropriate where the parties agree on the basic facts, but disagree about the
factual inferences that should be drawn from these facts”).
Because the parties consented in the Franchise Agreement that it would “be
interpreted and construed under the laws of the State of Georgia,” 1SR-101-Exh. 8-33
at § XXV,¶ A, we apply Georgia contract law. Under Georgia law,
“[t]here are three steps in the process of contract construction. The trial
court must first decide whether the contract language is ambiguous; if it
is ambiguous, the trial court must then apply the applicable rules of
construction (OCGA § 13-2-2)3; if after doing so the trial court
3
O.C.G.A. § 13-2-2 provides nine rules for interpretation of contracts; these rules
provide, in pertinent part:
(1) Parol evidence is inadmissible to add to, take from or vary a written
contract ...;
(2) Words generally bear their usual and common signification. ...;
(3) The custom of any business or trade shall be binding only when it is
of such universal practice as to justify the conclusion that it became, by
implication, a part of the contract. ...;
(4) The construction which will uphold a contract in whole and in every
part is to be preferred, and the whole contract should be looked to in arriving
at the construction of any part;
(5) If the construction is doubtful, that which goes most strongly against
the party executing the instrument or undertaking the obligation is generally
to be preferred;
9
determines that an ambiguity still remains, the jury must then resolve the
ambiguity.”
Georgia-Pacific Corp. v. Lieberam, 959 F.2d 901, 904 (11th Cir. 1992) (quoting Copy
Systems of Savannah, Inc. v. Page, 197 Ga. App. 435, 436, 398 S.E.2d 784, 785 (
1990); brackets in original). In the case at bar, the district court correctly determined
that the scope of the right of first refusal granted by the Letter Agreements was
ambiguous. See International Bhd. of Boilermakers v. Local Lodge D111, 858 F.2d
1559, 1561 (11th Cir. 1988) (“A contract term is ambiguous if it is reasonably
susceptible of more than one interpretation.”). However, the district court erroneously
concluded that the applicable rules of construction resolved the ambiguity and limited
the right of first refusal to the Popeye’s brand.
As the district court noted, see R7-84 at 8; the “cardinal rule of construction is
to ascertain the intention of the parties,” O.C.G.A. § 13-2-3. See also Georgia-
Pacific, 959 F. 2d at 905 (citing O.C.G.A. § 13-2-3 and Hunsinger v. Lockheed Corp.,
192 Ga. App. 781, 386 S.E.2d 537, 539 (1989)). When attempting to ascertain the
intent of parties to a contract, the court should consider the language of the contract
(6) The rules of grammatical construction usually govern. ...;
(7) When a contract is partly printed and partly written, the latter part
is entitled to most consideration;
(8) Estates and grants by implication are not favored;
(9) Time is not generally of the essence of a contract ....
10
in light of the surrounding circumstances, see Georgia R.R. Bank & Trust Co. v.
Federal Deposit Ins. Corp., 758 F.2d 1548, 1552 (11th Cir. 1985); Paul v. Paul , 235
Ga. 382, 219 S.E.2d 736, 738-39 (1975), including the correspondence between the
parties during the contract negotiations, see Romine, Inc. v. Savannah Steel Co., 117
Ga. App. 353, 160 S.E.2d 659, 660 (1968). Enforcement of the parties’ intent is
superior to the other rules of construction, “if that intention is clear,” the parties used
“sufficient words ... to arrive at the intention,” and “it contravenes no rule of law.”
Hunsinger, 386 S.E.2d at 539 (quoting O.C.G.A. § 13-2-3). If, however, after
applying the rules of construction, the intent of the parties continues to be disputed
and capable of more than one interpretation, then it is a “factual matter for resolution
by the jury and not a matter of law for determination by the court.” Crestlawn
Memorial Park v. Scott, 146 Ga. App. 715, 247 S.E.2d 175, 177 (1978).
The evidence in this case can support the district court’s conclusion that AFC
did not intend to grant development rights in the Church’s brand and, therefore, that
the scope of the right of first refusal was limited to the Popeye’s brand. However,
viewing all the evidence in the light most favorable to SCF, we find that the evidence
also provides sufficient support to allow a rational fact-finder to conclude that AFC’s
grant of a right of first refusal to SCF for “any development,” 1SR-1-101-Exh. 7 and
R6-78 Adden. 9-Exh. 7-A, within St. Charles Parish included both the Popeye’s and
11
the Church’s brands. Specifically, the facts that the Popeye’s franchisees believed
they already had a right of first refusal covering the Church’s brand and that the
Church’s logo was printed on the Letter Agreements could lead a rational factfinder
to infer that right of first refusal granted by AFC in the Letter Agreements included
both the Popeye’s and Church’s brands. See Empire Distrib, Inc. v. George L. Smith
II Georgia World Congress Center Authority et. al., 235 Ga. App. 742, 744 (1998)
(explaining that both extrinsic and parol evidence are admissible to explain ambiguity
within a written contract); Cox Broadcasting Corp. et. al. v. National Collegiate
Athletic Association et. al., 250 Ga. 391, 297 S.E.2d 733 (1982) (stating that courts
may consider extrinsic evidence when deciding if there was a mutual assent to an
agreement). See also Exh., Dep. of E.Carlson at 42-43 (testifying that he understood
the scope SCF’s territorial exclusivity to be the same as the territorial exclusivity of
his other Popeye’s franchise in Plaquemines Parish and, therefore, to include “all
brands. Anything the parent company or franchiser [sic] was trying to sell or
opening.”); Exh., Dep. of C. Carlson at 38-43 (explaining that both the Englanders
and his father, as long-time Popeye’s franchisees, had told him that when the
predecessor to AFC became the franchiser of the Church’s brand, it sent its existing
Popeye’s franchisees letters assuring them that they would be given a right of first
refusal on any Church’s restaurants to be opened within the exclusive territory they
12
had been granted for their Popeye’s franchise and even offered the Popeye’s
franchisees special financing to open Church’s restaurants; and further explaining that,
although he did not see any documentation that SCF held such a right of first refusal,
he did not request this documentation because “as the transaction developed, we got
that protection”); Exh., Dep. of Richard W. Englander, Jr. at 124-25 (stating that when
AFC’s predecessor acquired the Church’s brand, SCF received a letter explaining the
merits of the Church’s acquisition and explaining that Popeye’s “franchisees in a
particular area, who wanted, would have first rights to acquire that Church’s
franchise.”); Exh., Dep. of Marilyn H. Englander at 7 (“I was aware of that Church’s,
when it was bought by Popeyes, that we had the right to buy the Church’s first in our
parish. There was a letter that was sent out to us and it soothed my feelings of what
if someone came in on us.”).
Moreover, we are persuaded that the rules of contract construction require that
the ambiguity in this contract be construed against AFC. See Georgia-Pacific Corp.,
959 F.2d at 905 (It is well established [in Georgia] that any ambiguity in a contract is
to be construed against the party who drafted it’”) (quoting Crook v. West, 196 Ga.
App. 4, 4-5, 395 S.E.2d 260, 261 (1990); brackets in original); see also O.C.G.A. §
13-2-2(5). Michael Anderson, acting as an agent for AFC, drafted the Letter
Agreements. He used the term “any development within St. Charles Parish.”
13
Applying the “usual and common signification” of these words, O.C.G.A. § 13-2-
2(2), this term could be interpreted to mean “every [or] all” development
contemplated by AFC. THE RANDOM HOUSE DICTIONARY OF THE ENGLISH
LANGUAGE, UNABR. 96 (2d ed. 1987). This interpretation seems all the more likely
given the fact that the letters were written by an agent of both franchises on stationary
displaying the logos of both franchises.
The district court found that “the best indicator of the parties’ intent is their
prior relationship.” R7-84 at 9. Accordingly, the district court relied upon the fact
that the SCF had only dealt with AFC as a Popeye’s franchisee prior to the Letter
Agreements as support for its conclusion that the right of first refusal should be
limited to the Popeye’s restaurants. In contrast, because the current and past owners
of SCF were franchisees of Al Copeland Enterprises prior to the acquisition of the
Church’s brand, a reasonable jury could find that any assurances they may have
received at the time that the Church’s brand was acquired created a foundation within
their past and existing relationship to support the interpretation that the Letter
Agreements provided SCF a right of first refusal that included both the Popeye’s and
Church’s brands within St. Charles Parish.
Similarly, the district court believed that an interpretation of the Letter
Agreements to provide SCF a right of first refusal for both the Church’s and Popeye’s
14
brands was antithetical to the parties’ franchise agreement provision which explicitly
preserved AFC’s right to compete with SCF’s Popeye’s restaurants via “other
franchise systems,” such as Church’s. See R7-84 at 11 (applying O.C.G.A. § 13-2-
2(4) by using “‘the whole contract ... in arriving at the construction of any part’”).
However, C. Carlson explained that SCF negotiated the right of first refusal in
question as a response to the clause in a separate document, AFC’s Uniform Franchise
Offering Circular, that preserved AFC’s right to compete against its Popeye’s
franchisees using the Church’s brand. See Exh., Dep. of C. Carlson at 49-69. Given
this background to the negotiations of the right of first refusal, a reasonable factfinder
could conclude that the Letter Agreements were intended to limit the franchise
agreement and provide SCF some protection against potential competition from
Church’s within St. Charles Parish. It is well established under Georgia law that
parties have a right to change the terms of their agreement by subsequent agreements,
so long as the subsequent agreement is supported by some consideration. See Nalley
v. Hanover Fire Ins. Co., 56 Ga. App. 555, 193 S.E. 619, 626 (1937). Here, the Letter
Agreements are supported by SCF relinquishing its territorial exclusivity and signing
a new franchise agreement.4
4
We acknowledge that the clause in the franchise agreement whereby AFC retains the
right to compete against its franchisees under a different set of proprietary marks has been
enforced by other courts and found not to breach the implied covenants of good faith and fair
dealing. See Clark v. America’s Favorite Chicken Company, 110 F. 3d 295, 298 (5th Cir.
15
Therefore, we conclude that because reasonable factfinders could interpret the
Letter Agreements between SCF and AFC differently after applying the Georgia rules
of contract construction, the contract remains ambiguous. Accordingly, we find that
the district court erred in granting summary judgment and the ambiguity of the Letter
Agreements should be left for a jury to resolve.
B. MOTION TO AMEND COMPLAINT
SCF petitioned the district court for leave to amend its complaint by adding four
causes of action based upon unfair trade practices, breach of implied covenants,
detrimental reliance, and breach of other duties. See R5-70 at 6. Specifically, SCF
alleged (1) that AFC “used unfair methods of competition and unfair or deceptive acts
or practices in conducting its trade in violation of the Unfair Trade Practices and
Consumer Protection Law;” id. at ¶ 26, (2) that AFC “breached its implied covenant
of good faith and fair dealing by placing another franchise in direct competition with
an existing franchisee;” id. at ¶ 27, (3) that SCF “detrimentally relied on promises and
conduct of AFC, resulting in damages”; id. at ¶ 28, and (4) that AFC “breached other
1997). However, this case hinges not on the validity of that clause within the franchise
agreement, but on whether the Letter Agreements were intended to limit the application of
that clause by providing SCF a right of first refusal for the development of both Popeye’s and
Church’s restaurants in St. Charles Parish.
16
duties and obligations owed to [SCF] under the prevailing circumstances,” id. at ¶ 29.
The district court found that “[a]ll of the claims plaintiff seeks to add to its complaint
depend for their success on plaintiff’s assertion that defendant breached an agreement
to extend a right of first refusal for the Church’s brand.” R7-84 at 14. The district
court concluded that its holding that AFC never promised to grant SCF a right of first
refusal for the Church’s brand “dispose[d] of all of the claims plaintiff seeks to add
to its complaint.” Id. at 15. Accordingly, the district court found that SCF’s
amendment of its complaint would be futile and, thus, denied the motion to amend .5
Id.
When a district court denies the plaintiff leave to amend a complaint due to
futility, the court is making the legal conclusion that the complaint, as amended,
would necessarily fail. See Motorcity of Jacksonville, Ltd. v. Southeast Bank N.A.,
83 F.3d 1317, 1323 (11th Cir. 1996), vacated on other grounds by Hess v. F.D.I.C.,
519 U.S. 1087, 117 S. Ct. 760, 136 L. Ed. 2d. 708 (1997), reinstated by Motorcity of
Jacksonville, Ltd. v. Southeast Bank N.A., 120 F.3d 1140 (11th Cir. 1997), cert.
denied, ___ U.S.___, 118 S. Ct. 1559, 140 L. Ed. 2d 791 (1998). We review de novo
5
The district court commented that it was inclined to agree with AFC that SCF’s
motion to amend its complaint is untimely since it was “submitted eighteen months after this
case was filed and nearly a year after its docketing in this Court.” R7-84 at 13-14. However,
because the district court found that the amendments would be futile, it did not address the
timeliness issue. Id. at 14.
17
that conclusion of law. See id.6 The district court based its finding that the additional
causes of action which SCF sought to include in its complaint were futile on its earlier
conclusion that AFC did not grant SCF a right of first refusal in the Church’s brand.
Our conclusion that the contract between SCF and AFC remains ambiguous after
applying the Georgia rules of contract construction and that the scope of the right of
first refusal AFC promised SCF must be determined by a jury, invalidates the district
court’s basis for denying the amendment. Therefore, on remand the district court
should reconsider whether, in light of this ruling, SCF’s amendment to its complaint
would be futile.7
III. CONCLUSION
Because genuine issues of material fact exist that preclude summary judgment,
we REVERSE the district’s court judgment and REMAND this case for further
proceedings consistent with this opinion.
6
Generally, a court’s refusal to allow a plaintiff to amend its complaint is reviewed for
abuse of discretion, see Shipner v. Eastern Air Lines, Inc., 868 F.2d 401, 407 (11th Cir. 1989);
however, when the denial is based upon a finding that amendment of the complaint as
proposed would be futile, then the standard of review is de novo, see Ochran v. United States,
117 F. 3d 495, 503 n. 3 (11th Cir. 1997).
7
In determining whether SCF’s additional causes of action are viable, the district court
should “focus precisely on the nature and contours of each.” Motorcity of Jacksonville, Ltd.,
83 F.3d at 1338-39.
18
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