Opinion
Civ. No. 02-1772 (RHK/AJB)
November 18, 2002
Stephen L. Wilson, Foley Mansfield, Minneapolis, Minnesota, for Plaintiffs.
Richard Ihrig and Garrett M. Weber, Lindquist Vennum, Minneapolis, Minnesota, and Fredric A. Cohen, Piper Rudnick, Chicago, Illinois, for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
This matter comes before the Court after being removed from Hennepin County District Court. Plaintiffs William Emmett Dennehy and Kellie Dennehy ("the Dennehys"), citizens and residents of Minnesota, have sued Defendant Cousins Subs Systems, Inc. ("Cousins"), a Wisconsin corporation with its principal place of business in Menomonee Falls, Wisconsin, for breach of contract, breach of the duty of good faith and fair dealing, and breach of an implied-in-fact contract based on Cousins' non-renewal of the Dennehys' franchise agreement. Before the Court is Cousins' Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. Because the Court concludes that two portions of the Dennehys' Complaint are defective, the motion will be granted in part and denied in part.
Background
The background section is taken from the Complaint. For the purposes of this 12(b)(6) motion, the factual allegations are deemed to be true.
In 1992, the Dennehys entered into an area development agreement ("the Agreement") with Cousins to become the exclusive developer of Cousins Subs shops for an area southwest of Minneapolis over a period of ten years. (Compl. ¶¶ 4, 5, 9; Weber Decl. Ex. A (Area Development Agreement).) Under the Agreement, the Dennehys were to meet various "sales quota" targets regarding the number of Cousins Subs shops that they were to have open and operating by certain specified dates. (Compl. ¶ 7; Weber Decl. Ex. A at 3-4, § 4(B).) Cousins was, among other things, required to provide "assistance and advice" to the Dennehys. (Compl. ¶ 8; Weber Decl. Ex. A at 10, § 11.) In exchange for the development rights granted to them by Cousins, the Dennehys paid a fee of $30,000. (Compl. ¶ 10.)
Over the course of the next ten years, the Dennehys consistently fell short of the number of Cousins Subs shops that they were required to have open and operating. (Id. ¶¶ 11, 12.) Cousins representatives assured the Dennehys that no local Cousins area developer was in compliance with the sales quotas, and that no developers would be terminated for that reason. (Id. ¶ 12.) In 1999 or 2000, Emmett Dennehy asked a Cousins representative whether the Agreement would be renewed after it expired in the year 2002. (Id. ¶ 17.) This representative indicated to Mr. Dennehy that it would. (Id. ¶ 2.) On August 30, 2001, Cousins notified the Dennehys that they were in default on the Agreement for failure to attain their sales quotas and that the Agreement would automatically expire effective May 14, 2002. (Id. ¶ 18.) In a subsequent letter dated May 16, 2002, Cousins confirmed that the Agreement had expired. (Id. ¶ 19.)
The Agreement contains several relevant provisions regarding forum selection and non-renewal. Under the Agreement, "the rights granted hereunder shall be governed by the internal laws of the state of Wisconsin." (Weber Decl. Ex. A at 22, § 17(I).) A "Rider (for Residents of Wisconsin)" (hereinafter "the Wisconsin Resident Rider") executed at the same time as the Agreement specifies that "[t]he conditions under which the franchise can be terminated or not renewed are set forth in the Wisconsin Fair Dealership Law, Wisconsin Statutes 1981-1982, Title XIV-A, Chapter 135." (Weber Decl. Ex. A (Wisconsin Resident Rider).) The forum selection clause, however, states that "the Wisconsin Fair Dealership Law shall not apply unless its jurisdictional requirements are met independently without reference to this Section." (Weber Decl. Ex. A at 22, § 17(I).)
Standard of Review
Cousins brings the present motion pursuant to Federal Rule of Civil Procedure 12(b)(6). Under Rule 12(b)(6), all factual allegations must be accepted as true and every reasonable inference must be granted in favor of the complainant. Fed.R.Civ.P. 12(b)(6); see also Midwestern Mach., Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999); Carney v. Houston, 33 F.3d 893, 894 (8th Cir. 1994). Viewing the complaint in this manner, the Court may dismiss a case under 12(b)(6) only if it is clear that no relief could be granted under any set of facts that could be proven consistent with the allegations. Force v. ITT Hartford Life and Annuity Ins. Co., 4 F. Supp.2d 843, 850 (D.Minn. 1998) (Kyle, J.) (citations omitted). Put another way, "a dismissal under Rule 12(b)(6) should be granted only in the unusual case in which a plaintiff includes allegations that show, on the face of the complaint, that there is some insuperable bar to relief." Schmedding v. Tnemec Co., Inc., 187 F.3d 862, 864 (8th Cir. 1999).
Analysis
The Dennehys' Complaint asserts three counts stemming from Cousins' non-renewal of the Agreement. Count One accuses Cousins of breach of contract for (a) failing to comply with the non-renewal provisions of the Wisconsin Fair Dealership Law as incorporated in the agreement, and (b) flouting their obligation to provide assistance and advice to the Dennehys under the Agreement. Count Two maintains that Cousins breached its duty of good faith and fair dealing in its performance of contract. Count Three contends that Cousins' oral representations created an implied-in-fact contract whereby Cousins agreed to renew the Agreement when it expired. Because the Court concludes that the claims regarding the Wisconsin Fair Dealership Law and the implied-in-fact contract fail to state a claim upon which relief can be granted, these claims will be dismissed.
I. Breach of Contract
A. Wisconsin Fair Dealership Law
The Dennehys allege that Cousins breached the Agreement by failing to conform to the Wisconsin Fair Dealership Law's ("WFDL") requirements for termination or non-renewal. They do not assert a cause of action under the WFDL, instead maintaining that the Agreement incorporated the WFDL's standards for termination or non-renewal. (See Weber Decl. Ex. A (Wisconsin Resident Rider) (stating that "[t]he conditions under which the franchise can be terminated or not renewed are set forth in the Wisconsin Fair Dealership Law").) Incorporating a statutory provision by reference, the Dennehys correctly assert, is permissible under Wisconsin Law. See State ex rel. Journal/Sentinel v. Pleva, 456 N.W.2d 359 (Wis. 1990) (enforcing, on grounds of freedom of contract, provision in lease requiring compliance with state open meetings law).
Conversely, Cousins argues that the WFDL, by its terms, applies exclusively to dealerships that do business within the geographic confines of the State of Wisconsin. See Wis. Stat. § 135.02(2); see also Baldewein Co. v. Tri-Clover, Inc., 606 N.W.2d 145, 150 (Wis. 2000) (noting that Wisconsin choice-of-law provision is insufficient to render a dealership as "situated" in the state, so that grantee of dealership is entitled to protection of WFDL). Courts have routinely rejected attempts by out-of-state plaintiffs to bring claims under the WFDL based on Wisconsin choice-of-law provisions. See Generac Corp. v. Caterpillar, Inc., 172 F.3d 971, 976 (7th Cir. 1999); Bimel Walroth v. Ratheon, Co., 796 F.2d 840, 842-43 (6th Cir. 1986). Because the Dennehys exclusively do business in the State of Minnesota, Cousins avers, they do not meet the WFDL's jurisdictional requirements.
The Dennehys' argument is an interesting one. Contracting parties can and do incorporate statutory requirements into their agreements to which they would otherwise not be subject. Indeed, the Wisconsin Resident Rider's language explicitly appears to incorporate "[t]he conditions under which the franchise can be terminated or not renewed" separate and apart from the WFDL's jurisdictional prerequisites. (See Weber Decl. Ex. A (Rider) (emphasis added.) Yet while this argument is plausible in isolation, it is defeated by the plain language of another portion of the Agreement. Section 17(I) clearly states that "the Wisconsin Fair Dealership Law shall not apply unless its jurisdictional requirements are met independently without reference to this Section." (Weber Decl. Ex. A. at 22, § 17(I) (emphasis added).) Moreover, an addendum executed at the same time as the Wisconsin Resident Rider provides that the forum selection clause "shall not in any way abrogate or reduce any rights of the Franchisee as provided for in Minnesota Statutes 1984, Chapter 80C, including the right to submit matters to the jurisdiction of the courts of Minnesota." Under this language, the Agreement specifically contemplates a recourse to Minnesota law should the Dennehys fail the jurisdictional requirements of the WFDL. Because, as a matter of law, they do fail, and because they have contracted with Cousins to ensure that the WFDL's jurisdictional prerequisites are met, the Dennehys cannot obligate Cousins to comply with the WFDL in this instance. Thus, the Dennehys' claims relating to the WFDL will be dismissed.
B. Assistance and Advice
The Dennehys also contend that Cousins breached the Agreement's "assistance and advice" provision. Section 11 provides:
Franchisor shall furnish to Area Developer assistance and advice with respect to Area Developer's responsibilities under this Agreement. Franchisor shall advise Area Developer from time to time of operating problems of any franchisee operating with Area Developer's Exclusive Area disclosed by reports submitted to or inspections made by Franchisor specifying the action it has recommended and from time to time a report of the status of such operating problems. Franchisor shall make a separate per diem charge at then-current rates to Area Developer for each staff member or employee of Franchisor requested by the Area Developer or made necessary in the judgment of Franchisor as a result of Area Developer's failure to comply with this Agreement.
(Weber Decl. Ex. A. at 10, § 11 (emphasis added).) While the Dennehys do not allege that Cousins failed to comply with any of the specific obligations set forth in Section 11, they advance a multitude of other wrongs purportedly inconsistent with a duty to furnish assistance and advice.
For instance, the Complaint asserts that Cousins failed to provide assistance to the Dennehys by (1) putting its corporate-owned stores up for sale in the Twin Cities area (outside of the exclusive area specified by the Agreement) at half the price of a new shop, (2) discontinuing its advertising in the Dennehys' exclusive area, (3) closing its Minnesota regional office and withdrawing its full-time marketing representative, and (4) rejecting a qualified potential franchisee who intended to purchase five shops in the Dennehys exclusive area. (Compl. ¶ 13-16.)
Cousins responds that these actions do not violate the Agreement. Section 15(D) states that the Dennehys are "required during each year of the term to use reasonable efforts and spend reasonable amounts to advertise and promote the offer and sale of franchises for shops in the exclusive area." (Weber Decl. Ex. A at 16. § 15(D) (emphasis added).) Moreover, the Agreement did not require Cousins to maintain a regional office in Minnesota. Lastly, Cousins specifically reserved the right in the Agreement to grant other persons franchises outside the Dennehys' exclusive area. (Weber Decl. Ex. A at 3, § 4.)
Although the Agreement may not have specifically barred Cousins from any of these activities, there is nothing to indicate that they did not violate an independent contractual duty to advise and assist. While the terms "assistance and advice" are certainly quite broad, the Dennehys are entitled to discovery to uncover any relevant trade usage, course of dealing, or other contextual indicators that might make Cousins' obligations clearer. Granting the Dennehys every reasonable inference, the Court concludes the Dennehys have properly stated a claim for breach of contract regarding Cousins' obligation to furnish assistance and advice.
II. Duty of Good Faith and Fair Dealing
The Dennehys have also alleged that Cousins breached its duty of good faith and fair dealing. (Compl. ¶¶ 19, 28-31.) Under Wisconsin law, a duty of good faith and fair dealing is an implied condition in every contract and imposes a duty of cooperation on the part of both parties and an obligation to act honestly. See In re Estate of Chayka, 176 N.W.2d 561 (Wis. 1970). A party seeking to show a breach of the duty of good faith and fair dealing must show that the party accused has actually denied the benefit of the bargain originally intended by the parties. See Zenith Ins Co v. Employers Ins. of Wausau, 141 F.3d 300 (7th Cir. 1998) (citing Foseid v. State Bank of Cross Plains, 541 N.W.2d 203 (Wis.Ct.App. 1995)). When a party's conduct is so arbitrary or unreasonable as to "[strip] near all of the flesh from the bones" of the agreement, that party may be liable for breach of the implied contractual covenant of good faith even though all the terms of the written agreement have been fulfilled. Foseid, 541 N.W.2d at 212.
Here, the Dennehys allege sufficient facts to support a claim for a breach of the duty of good faith and fair dealing. Assuming for the sake of this motion that Cousins rejected a qualified potential franchisee, undercut sales, withdrew a local representative, ceased advertising, and misled the Dennehys as to the nature of their renewal status, such facts could lead a jury to find that conduct to constitute such arbitrary and unreasonable havior as to deprive the Dennehys of the benefit of the bargain. (See Compl. ¶¶ 1-18.) Such facts, if proved, would not face an insuperable bar to relief under Wisconsin law.
III. Implied-in-Fact Contract
Finally, the Dennehys allege that Cousins breached an implied-in-fact contract to renew the Agreement. While a contract requires an offer, an acceptance, and consideration, Goossen v. Estate of Standaert, 525 N.W.2d 314, 318 (Wis.Ct.App. 1994), the offer and acceptance need not occur expressly and may be implied, Theuerkauf v. Sutton, 306 N.W.2d 651, 657 (1981). "The essence of an implied contract is that it arises from an agreement circumstantially proved." Id. The existence of an agreement is determined by the use of an objective standard. "[A]n implied in fact contract must be one which arises under circumstances which, according to ordinary course of dealing and common understanding of men, show a mutual intention to contract." Id. at 185, 306 N.W.2d at 658.
The facts, as alleged by the Dennehys, do not establish such a claim. Paragraph 17 of the Complaint reads:
17. Sometime in 1999 or 2000, Emmett Dennehy asked a Cousins' representative if the Agreement would be renewed after it expired in the year 2002. This Cousins' representative indicated to Mr. Dennehy that the Agreement would be renewed, and that all the Dennehys would need to do would be to sign a new Agreement and continue their effort to develop new Shops in the Exclusive Area.
(Compl. ¶ 17 (emphasis added).) The language of this paragraph clearly indicates that the subject matter of the implied-in-fact contract-renewing the Agreement-was to be performed after the expiration of the Agreement. Since this oral contract allegedly occurred in 1999 or 2000, and the renewal would not take place until 2002, it would take more than a year to perform and be barred by the Statute of Frauds. See Wis. Stat. § 241.02(1). Accordingly, the Dennehys fail to state a claim for breach of an implied-in-fact contract.
Conclusion
Based on the foregoing, and all of the files, records and proceedings herein, IT IS ORDERED that Defendant Cousins Subs Systems, Inc.'s Motion to Dismiss is GRANTED IN PART as follows: Count One of the Complaint, to the extent it alleges breach of contract by failure to conform with the non-renewal and termination provisions of the Wisconsin Fair Dealership Law, and Count Three of the Complaint are
DISMISSED WITH PREJUDICE.