Donut Holdings v. Risberg , 294 Neb. 861 ( 2016 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
09/30/2016 08:09 AM CDT
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861Donut Holdings, Inc., appellant, v.
William R isberg, appellee, and
R isberg Stores, L.L.C.,
intervenor-appellee.
___ N.W.2d ___
Filed September 30, 2016. No. S-15-851.
1. Judgments: Appeal and Error. In a bench trial of a law action, the trial
court’s factual findings have the effect of a jury verdict and will not be
disturbed on appeal unless clearly wrong.
2. ____: ____. An appellate court independently reviews questions of law
decided by a lower court.
3. Actions: Default Judgments: Proof. In Nebraska, where a defendant
has filed an answer, the fact that the defendant does not appear for trial
does not entitle the plaintiff to a judgment without proof of the facts
constituting the plaintiff’s cause of action, unless the facts admitted by
the defendant in the answer make out a prima facie case in the plain-
tiff’s favor.
4. Contracts: Parties: Intent. An implied in fact contract arises where
the intention of the parties is not expressed in writing but where the
circumstances are such as to show a mutual intent to contract. The
determination of the parties’ intent to make a contract is to be gathered
from objective manifestations—the conduct of the parties, language
used, or acts done by them, or other pertinent circumstances surrounding
the transaction.
5. Contracts: Intent. If the parties’ conduct is sufficient to show an
implied contract, it is just as enforceable as an express contract.
Appeal from the District Court for Lancaster County:
A ndrew R. Jacobsen, Judge. Affirmed.
Terry K. Barber, of Barber & Barber, P.C., L.L.O., for
appellant.
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861No appearance for appellee.
No appearance for intervenor-appellee.
Heavican, C.J., Wright, Miller-Lerman, Cassel, K elch,
and Funke, JJ.
K elch, J.
NATURE OF CASE
This case presents the issue of whether a franchisor has a
breach of contract claim against a “holdover franchisee”—a
franchisee who continues to receive the benefits of an expired
franchise agreement, but fails to make payments to the fran­
chisor per the agreement.
BACKGROUND
Donut Holdings, Inc. (DHI), is the Nebraska parent corpora-
tion of LaMar’s Donuts International, Inc. (LaMar’s). LaMar’s
is a franchise company with nine franchisees, including one
in Springfield, Missouri. In 2002, the Springfield store was
purchased by Risberg Stores, L.L.C., a Missouri entity. At that
time, the store was operating under the terms of a 1994 fran-
chise agreement entered into by Risberg Store’s predecessor.
This case arises from DHI’s claim against William Risberg,
the owner of Risberg Stores, and Risberg Stores, as intervenor
(collectively Risberg Stores), for royalty and marketing fees
accruing after June 2009. In Risberg Store’s answer to DHI’s
complaint, Risberg Stores took the position that it did not owe
DHI any fees because the parties’ written agreement ended in
2004. This action was initially filed in county court and after
transferring to district court, a bench trial on the matter was
held on March 11, 2015. The evidence presented revealed the
following facts.
Franchise Agreement and
Course of Dealing
The 1994 franchise agreement had a 10-year term and a
provision for extending the initial term by written request.
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861When the term ended in 2004, neither Risberg Stores nor DHI
took any action to formally extend the terms of the franchise
agreement. Instead, Risberg Stores continued to operate the
Springfield store and continued to pay DHI royalty and adver-
tising fees, which DHI accepted.
DHI’s reports show that Risberg Stores stopped making
payments to DHI on June 7, 2009. In a letter dated June 18,
2009, DHI advised Risberg Stores that, because Risberg Stores
had not taken any steps to renew the 1994 agreement, the
agreement expired in 2004, and that therefore, Risberg Stores
should review the provisions of the franchise agreement relat-
ing to its obligations upon the expiration of the franchise. The
agreement provided that upon the expiration of the franchise,
Risberg Stores was to immediately stop using any methods,
procedures, and techniques of Lamar’s, as well as any trade-
marks or service marks bearing the Lamar’s name. Despite this
letter, Risberg Stores continued to operate using the Lamar’s
system and continued to report its sales to DHI. However,
Risberg Stores did not pay any royalties or marketing fees to
DHI after June 2009.
In December 2009, DHI sent Risberg Stores another let-
ter stating that, to the extent that the franchise agreement had
not expired by its own terms, DHI was terminating the agree-
ment effective immediately, because Risberg Stores had failed
to make royalty payments. DHI requested Risberg Stores to
communicate a complete and detailed statement of Risberg
Store’s cost of equipment, supplies, and other inventory bear-
ing the Lamar’s trademarks or service marks, so that DHI
could decide whether it would exercise its right under the
franchise agreement to assume Risberg Store’s lease and pur-
chase all items bearing its marks. Despite these letters from
DHI, Risberg Stores continued to operate using LaMar’s name,
mixes, and “trade dress.” It continued reporting sales to DHI
until February 2010.
In February 2010, Risberg Stores stopped reporting sales
to DHI, but the evidence shows that Risberg Stores continued
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861to use LaMar’s system until at least October 31, 2010. In a
letter dated October 22, 2010, Risberg Stores informed DHI
of its intent to discontinue its operations as a LaMar’s store,
effective at the close of business on October 31. On November
24, a customer of the Springfield store sent DHI a message
via DHI’s “LaMar’s . . . Customer Comment Form” about the
poor customer service she received at the Springfield store
that day. Lamar’s responded by apologizing and stating, “The
[Springfield store] is no longer a part of the LaMar’s . . . fam-
ily. I am sorry you were led to believe they were still a part of
LaMar’s. The store is under independent ownership.” Below
the comment form, DHI noted that further action was needed;
DHI’s president was to request Risberg Stores to remove
LaMar’s signage. According to Risberg himself, Risberg Stores
continued to use the LaMar’s system until October 2011. He
testified, “It was a very difficult thing for me to do but, you
know, I did have to finally withdraw from the LaMar’s system.
When I did that, which was, I believe, in October of 2011, I
stopped using the LaMar’s mixes and took down all of the
trade dress . . . .” Risberg also testified that Risberg Stores
continued to make and sell donuts of the same consistency
and quality until May 2012, when the store was sold to a
third party.
Damages
DHI claims that between June 2009 and October 2010,
the total amount of unpaid royalties and marketing fees was
$33,586 and that by May 2012, the fees accrued to $71,878.
Because Risberg Stores stopped reporting its sales in February
2010, DHI calculated the amount of the monthly fees owed
after February by averaging the fees from the previous
3 weeks.
Motion for Default Judgment
Although Risberg Stores was initially represented by
counsel and filed an answer to DHI’s complaint, its counsel
withdrew in October 2012. Risberg Stores did not obtain
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861replacement counsel and did not participate in the remainder
of the proceedings. According to DHI, it filed written motions
for a default judgment against Risberg Stores in April 2014
and February 2015. DHI twice renewed its motion during the
trial—once prior to the presentation of the evidence and once
at the conclusion of the evidence. Rather than ruling at trial,
the district court took the motion under advisement. In its
order filed August 13, 2015, the district court did not explic-
itly rule on the motion.
Ruling on Fees
The district court found that DHI was not entitled to any
royalty or advertising fees from Risberg Stores after June
2009. The district court interpreted DHI’s June 2009 letter
to Risberg Stores as evidence that DHI did not consider the
franchise agreement to have continued beyond that date. The
district court therefore found that the agreement ended in June
2009 and that thereafter, DHI was not entitled to any payments
under the agreement. DHI appeals. Risberg Stores did not file
a brief on appeal.
ASSIGNMENTS OF ERROR
DHI assigns, restated, that the district court erred (1) in
failing to grant a default judgment against Risberg Stores, (2)
in its findings of fact on the status of the franchise relation-
ship between DHI and Risberg Stores, and (3) in failing to
enter judgment in favor of DHI and against Risberg Stores for
accrued and unpaid fees under the terms of the parties’ fran-
chise agreement.
STANDARD OF REVIEW
[1,2] In a bench trial of a law action, the trial court’s fac-
tual findings have the effect of a jury verdict and will not be
disturbed on appeal unless clearly wrong.1 But an appellate
1
City of Scottsbluff v. Waste Connections of Neb., 282 Neb. 848, 809
N.W.2d 725 (2011).
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Cite as 294 Neb. 861court independently reviews questions of law decided by a
lower court.2
ANALYSIS
[3] We first address DHI’s argument that the district court
erred in failing to grant DHI a default judgment against
Risberg Stores. In Nebraska, where a defendant has filed an
answer, the fact that the defendant does not appear for trial
does not entitle the plaintiff to a judgment without proof of
the facts constituting the plaintiff’s cause of action, unless the
facts admitted by the defendant in the answer make out a prima
facie case in the plaintiff’s favor.3 Here, DHI is not entitled to
a default judgment against Risberg Stores for breach of con-
tract, because Risberg Stores filed an answer, and, as discussed
below, the facts admitted therein do not make out a prima facie
case in DHI’s favor. Risberg Stores admitted that it previously
used the LaMar’s name and trademark, but did not admit that
the parties were operating under any agreement during the
relevant time period. Accordingly, this assignment of error is
without merit.
The primary issue in this case is whether Risberg Stores
breached a franchise agreement with DHI by failing to pay
DHI royalty and advertising fees after June 2009. Although
the district court did not make any finding as to whether the
parties were operating under an implied in fact contract from
2004 to June 2009, that determination is necessary to conduct
a clear analysis. We find that the parties were operating under
an implied in fact contract.
[4,5] An implied in fact contract arises where the intention
of the parties is not expressed in writing but where the cir-
cumstances are such as to show a mutual intent to contract.4
2
Johnson v. Johnson, 282 Neb. 42, 803 N.W.2d 420 (2011).
3
Scudder v. Haug, 201 Neb. 107, 266 N.W.2d 232 (1978).
4
See Linscott v. Shasteen, 288 Neb. 276, 847 N.W.2d 283 (2014).
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861The determination of the parties’ intent to make a contract
is to be gathered from objective manifestations—the conduct
of the parties, language used, or acts done by them, or other
pertinent circumstances surrounding the transaction.5 If the par-
ties’ conduct is sufficient to show an implied contract, it is just
as enforceable as an express contract.6 Here, Risberg Stores
acknowledged that it continued to use the LaMar’s system after
the 1994 franchise agreement expired and DHI continued to
accept royalty and advertising payments from Risberg Stores.
Thus, it is clear that the parties’ conduct showed a mutual
intent to contract.
Although the parties were operating under an implied in
fact contract after the 1994 franchise agreement expired, the
district court concluded that DHI was not entitled to any fees
after June 2009, because any agreement between the parties
clearly ended with the June 2009 letter, which the district
court interpreted as “evidence that [DHI] was not extending
[Risberg Stores] the benefits of the franchise relationship.”
DHI argues that the district court wrongly focused on the
June 2009 letter and that the court should have considered
that Risberg Stores continued to use its recipes and trade-
marks after the letter was sent. While that fact might be
relevant to a claim for unjust enrichment, DHI did not assign
or argue those theories on appeal, so we need not consider
them now.7
DHI urges us to adopt the rule that “‘[w]here a franchisee
continues operation of the franchise after the expiration of a
franchise agreement, the parties will be found to have mutu-
ally agreed to a new contract with terms to be measured by
5
See id.
6
Id.
7
See, McArthur v. Papio-Missouri River NRD, 250 Neb. 96, 547 N.W.2d
716 (1996); Ford Motor Credit Co. v. All Ways, Inc., 249 Neb. 923, 546
N.W.2d 807 (1996); Standard Fed. Sav. Bank v. State Farm, 248 Neb. 552,
537 N.W.2d 333 (1995).
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DONUT HOLDINGS v. RISBERG
Cite as 294 Neb. 861the provisions of the previous contract.’”8 In our view, this
proposed rule is similar to our established rule on implied
in fact contracts. Both rules require the court to look to the
conduct of the parties in determining whether the parties
have agreed to a new contract. However, we need not decide
whether to adopt the “new” rule, because we have already
determined that the parties entered into an implied in fact
contract after 2004. Instead, DHI’s hurdle, one which is not
addressed by its proposed rule, is when that implied in fact
contract ended.
We agree with the district court’s finding that the implied in
fact contract ended in June 2009 with DHI’s letter to Risberg
Stores. In the letter, DHI advised Risberg Stores that the
1994 franchise agreement had expired and that Risberg Stores
should review the provisions of the franchise agreement relat-
ing to its obligations upon the expiration of the franchise. The
agreement provided that upon the expiration of the franchise,
Risberg Stores was to immediately stop using any methods,
procedures, and techniques of Lamar’s, as well as any trade-
marks or service marks bearing the Lamar’s name. With DHI
directing Risberg Stores to discontinue using the benefits of
the franchise agreement, the district court rendered a reason-
able reading of the letter that DHI was unwilling to continue
to extend benefits. Thus, it was not clearly erroneous for the
district court to conclude that DHI’s June 2009 letter termi-
nated the implied in fact contract.
DHI also cites Muller Enterprises, Inc. v. Samuel Gerber
Adv. Agcy., Inc.,9 for the proposition that “‘[w]hen a con-
tract has been executed on one side, the law will not permit
the injustice of the other party retaining the benefit without
paying unless compelled by some inexorable rule.’” Muller
8
Brief for appellant at 14, quoting 62B Am. Jur. 2d Private Franchise
Contracts § 322 (2015).
9
Muller Enterprises, Inc. v. Samuel Gerber Adv. Agcy., Inc., 182 Neb. 261,
267, 153 N.W.2d 920, 924 (1967).
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Cite as 294 Neb. 861Enterprises, Inc. is clearly distinguishable, because in that
case, the contract had not expired or been terminated. In
fact, by the contract’s terms, the “duration of the obligation
[was] commensurate with [the defendant’s] performance.”10
But under the facts of this case, where the contract had been
terminated by DHI’s own actions, we cannot say that the dis-
trict court’s finding was clearly wrong that Risberg Stores had
no contractual obligation to pay DHI fees after June 2009.
CONCLUSION
The district court did not err in failing to grant DHI a
default judgment, because Risberg Stores filed an answer
and the answer did not make out a prima facie case in DHI’s
favor. The district court was not clearly wrong in determin-
ing that the June 2009 letter terminated the implied in fact
contract, and therefore, DHI was not entitled to fees under
the contract.
A ffirmed.
Stacy, J., not participating.
10
Id. at 266, 153 N.W.2d at 924.