Bakrac, Inc. v. Villager Franchise Systems, Inc.

[DO NOT PUBLISH]
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
_______________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 03-16197 January 6, 2006
_______________________ THOMAS K. KAHN
CLERK
D.C. Docket No. 02-23434-CIV-PCH
BAKRAC, INC., d.b.a. Ponce De Leon Hotel,
Plaintiff-Counter
Defendant-Appellant,
SAVNI BAKRAC,
Plaintiff-Appellant,
versus
VILLAGER FRANCHISE SYSTEMS, INC.,
Defendant-Counter
Claimant-Appellee,
CENDANT CORPORATION,
KENNETH RODGERS,
Defendants-Appellees.
______________________
Appeal from the United States District Court
for the Southern District of Florida
______________________
(January 6, 2006)
Before CARNES and COX, Circuit Judges, and MILLS*, District Judge.
RICHARD MILLS, District Judge:
I. BACKGROUND
This case sounds in contract.
Savni Bakrac (“Bakrac”) is the sole owner of Bakrac, Inc., a company that
consists of three St. Petersburg, Florida hotels. A college graduate who majored in
mechanical engineering, Bakrac began his company in 1988 after immigrating
from Yugoslavia.
Bakrac had operated the company for over eleven years when Village
Franchise Systems, Inc. (a Cendant Corporation) contacted him about a franchise
opportunity. At the time, Kenneth Rodgers was Village Franchise Systems, Inc.’s
(hereinafter “VFS”) president and Ronald Murray was a company official.
According to Bakrac, VFS salesperson Brad Smith met with him and promised: a
low interest loan; a free “state of the art” reservation management/cash intake
system; a 70% occupancy rate; management training and on-site new property
training; adequate marketing, advertising, promotion, and publicity; and multiple
termination rights. Smith allegedly made these promises in March 1999.
*
Honorable Richard Mills, United States District Judge of the Central District of Illinois,
sitting by designation.
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About a week after meeting with Smith, VFS mailed Bakrac a copy of its
Uniform Franchise Offering Circular (“UFOC”). The UFOC contained a
mandatory Federal Trade Commission warning which stated:
TO PROTECT YOU, WE’VE REQUIRED YOUR FRANCHISOR
TO GIVE YOU THIS INFORMATION. . . . STUDY IT
CAREFULLY. WHILE IT INCLUDES SOME INFORMATION
ABOUT YOUR CONTRACT, DON’T RELY ON IT ALONE TO
UNDERSTAND YOUR CONTRACT. READ ALL OF YOUR
CONTRACT CAREFULLY. BUYING A FRANCHISE IS A
COMPLICATED INVESTMENT. TAKE YOUR TIME TO
DECIDE. IF POSSIBLE, SHOW YOUR CONTRACT AND THIS
INFORMATION TO AN ADVISOR, LIKE A LAWYER OR
ACCOUNTANT.
Bakrac did not read any part of the UFOC other than the cover page. Had he done
so, he would have found that he was required to purchase a computer system and
software, he did not qualify for an interest-free loan, and VFS’s average
occupancy rate was 57.43%.
Despite failing to read the UFOC, Bakrac was skeptical about Smith’s
promises. He contacted a VFS affiliate in Lakeland, FL (“Villager Lakeland”) to
investigate Smith’s 70% occupancy pledge. Villager Lakeland could not confirm
an occupancy rate, but stated that it was “very busy.” Bakrac took no additional
steps to verify Smith’s claims.
Bakrac’s doubts persisted and he repeatedly asked Smith to put VFS’s
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promises in writing. In May 1999, Bakrac insisted on having an addendum to the
franchise agreement. The Addendum was created because, Bakrac “didn’t trust
some stuff so [he] wanted to have it in writing.” The Addendum provided a
reduced initial franchise fee, reduced royalty fees, a $4,000 royalty credit, and
multiple no-penalty termination rights.
After the Addendum was created, Bakrac executed a copy of the Addendum,
a Franchise Agreement, an Integrated Systems Agreement, and a Software and
Services Agreement. The Franchise Agreement included a “Waiver of Jury Trial”
which stated:
The parties waive the right to a jury trial in any action related to this
Agreement or the relationship between the franchisor, the franchisee,
any guarantor, and their respective successors and assigns.
The Franchise Agreement also contained the following integration clause:
Neither [VFS] nor any person acting on our behalf has made any oral
or written representation or promise to you on which you are relying
on to enter into this Agreement that is not written in this Agreement.
You release any claim against us or our agents based on any oral or
written representation or promise not stated in this Agreement.
This Agreement, together with the exhibits and schedules attached, is
the entire agreement superseding all previous oral and written
representations, agreements, and understandings of the parties about
the Facility and the License.
You acknowledge that no salesperson has made any promise or
provided any information to you about projected sales, revenues,
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income, profits or expenses from the Facility except as stated in Item
19 of the UFOC or in a writing that is attached to this Agreement.
Item 19 merely noted that while VFS’s average occupancy rate is 57.43% and that
VFS does not guarantee an occupancy rate.
Bakrac spent $80,000 re-making his hotels into Villager hotels. VFS did
not provide him with a low interest loan, on-site training, or anything else that
Bakrac believed VFS to have promised to him. By November 2002, Bakrac had
become so disturbed with VFS, he stopped complying with the Franchise
Agreement. In December 2002, VFS informed Bakrac and Bakrac, Inc. that they
were required to pay $93,600.00 in liquidated damages and $41,602.94 in other
damages because they prematurely terminated the Franchise Agreement. Bakrac
and Bakrac, Inc. responded by filing a mail fraud claim against VFS pursuant to
the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §
1961 et seq. According to Bakrac and Bakrac, Inc., VFS made promises it never
intended to keep.
Upon VFS’s motion, the district court found that the record evidence
showed Bakrac and Bakrac, Inc. validly waived their right to jury trial. VFS
counterclaimed for breach of contract and moved for summary judgment motion
on Plaintiff’s RICO claim. Bakrac and Bakrac, Inc. tried to defeat the summary
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judgment motion by arguing that genuine issues of material fact were created via
VFS’s oral promises and the promises contained in the Addendum. However,
Bakrac and Bakrac, Inc. failed to offer a single affidavit, deposition, or other type
of evidence to support their position.
The district court found that the parol evidence rule barred the admission of
those promises and entered summary judgment in VFS’s favor. The case then
went to bench trial for the sole purpose of determining damages. The district court
held that Bakrac and Bakrac, Inc. were jointly and severally liable to VFS. Bakrac
and Bakrac, Inc. timely appealed.
II. ANALYSIS
We review the district court’s rulings on motion for summary judgment de
novo, applying the same legal standards that bound the district court. National
Fire Insur. Co. of Hartford v. Fortune Const. Co., 320 F.3d 1260, 1267 (11th
Cir.2003). “The standard of review for a motion of summary judgment is whether
a genuine issue exists as to any material fact and whether the moving party is
entitled to judgment as a matter of law.” Sarfati v. Wood Holly Associates, 874
F.2d 1523, 1525 (11th Cir.1989); Fed.R.Civ.P.
A. Jury Trial Waiver
A party may validly waive its Seventh Amendment right to a jury trial so
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long as the waiver is knowing and voluntary. See Brookhart v. Janis, 384 U.S. 1,
4, 5, 86 S.Ct. 1245, 1246, 1247, 16 L.Ed.2d 314 (1966); see also Leasing Service
Corp. v Crane, 804 F.2d 828, 833 (4th Cir. 1986)1. In making this assessment,
courts consider the conspicuousness of the waiver provision, the parties’ relative
bargaining power, the sophistication of the party challenging the waiver, and
whether the terms of the contract were negotiable. See Crane, 804 F.2d at 833;
See Whirlpool Financial Corp. v. Savaux, 866 F.Supp. 1102 (N.D.Ill. 1994).
In this case, Bakrac’s ability to negotiate an Addendum indicates that the
contract was negotiable. The waiver was conspicuously set forth in the Franchise
Agreement in large type and plain language. Bakrac was a college-educated
mechanical engineer who had eleven years experience as a hotel operator. There
is no indication that Bakrac was under duress or that VFS pressured him to sign
the Franchise Agreement. VFS merely offered Bakrac what he thought was a
good deal and he had plenty of time to consider the terms. Under these
1
The circuits are split as to which party has the burden of proving whether
a contractual jury trial waiver, such as the one here, was knowing and voluntary.
See Pierce v. Atchison Topeka & Santa Fe Ry. Co., 110 F.3d 431, 435 n. 4 (7th
Cir.1997) (collecting cases). Although this Circuit has not ruled on the matter, the
district court put the burden on VFS. The district court’s approach is consistent
with the approach used in Luis Acosta, Inc. v. Citibank, N.A., 920 F.Supp. 15, 18
(D.P.R.1996) (party seeking to enforce the waiver bears the burden). We need not
determine whether this is the correct approach. VFS prevails regardless of who
has the burden.
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circumstances, one must conclude that Bakrac knowingly and voluntarily waived
his right to a jury trial.
B. VFS’s Summary Judgment Motion
A plaintiff must prove the following elements to establish liability under the
federal mail and wire fraud statutes: (1) that defendants knowingly devised or
participated in a scheme to defraud the plaintiff(s); (2) that the defendants did so
willingly with an intent to defraud; and (3) that the defendants used the U.S. mails
or the interstate wires for the purpose of executing the scheme. See Langford v.
Rite Aid of Alabama, Inc., 231 F.3d 1308, 1313 (11th Cir. 2000). To determine if
conduct is fraudulent, the Court looks to state law. See Pelletier v. Zweifel, 921
F.2d 1465, 1503 (11th Cir. 2003). Because the Franchise Agreement’s choice of
law provision designated New Jersey law as binding authority, the Court relies on
New Jersey precedent. Thus, to establish fraud, Bakrac and Bakrac, Inc. must
show a material misrepresentation of a presently existing or past fact; knowledge
or belief by the defendant of its falsity; an intention that the other person rely on it;
reasonable reliance thereon by the other person; and resulting damages. See
Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610, 691 A.2d 350 (1997) (citing
Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624, 432 A.2d 521 (1981)).
Bakrac and Bakrac, Inc. claim that VFS defrauded them by not providing
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them with things it promised to them orally and in the Addendum (i.e. loans,
training, etc.). Under New Jersey law,
“[w]hen two parties have made a contract and have expressed it in a
writing to which they have both assented as the complete and
accurate integration of that contract, evidence, whether parol or
otherwise, of antecedent understandings and negotiations will not be
admitted for the purpose of varying or contradicting the writing.
See Filmlife, Inc. v. Mal”Z” Ena, Inc., 251 N.J.Super. 570, 573 (App.Div.1991).
In this case, neither loans, nor training, nor occupancy rates were promised in the
Franchise Agreement. Therefore, Bakrac and Bakrac, Inc. could not prevail on
any of their claims.
III. CONCLUSION
For the reasons stated above, the district court’s decision is AFFIRMED.
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