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finding that invocation of laches defense was "unnecessary and redundant" in an action at law for breach of contract that was governed by a statute of limitations
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CIVIL ACTION NO. 3:02-CV-0730-P
June 16, 2003
MEMORANDUM OPINION AND ORDER
Now before the Court is Burger King Corporation's Motion for Summary Judgment, filed October 21, 2002 ("Motion for Summary Judgment"). After careful consideration of the Parties' briefing and the applicable law, the Court hereby GRANTS in PART and DENIES in PART the Motion for Summary Judgment.
FACTS
In December 1985, Burger King Corporation ("Burger King" or "Defendant") entered into a partnership agreement ("Partnership Agreement") with two other entities, QSV Properties, Inc. and Burger King Investors Master L.P. (Pl's App. at 15.) The partnership, known as the Burger King Operating Limited Partnership (the "Partnership"), owns and leases properties that are operated as Burger King restaurants by Burger King franchisees. (Pl.'s App. at 5.) In November 1994, Burger King withdrew from the Burger King Operating Limited Partnership. (PL's App. at 25.) In March 1995, the Partnership Agreement was amended and the name of the Partnership was changed to U.S. Restaurant Properties Operating L.P. ("Plaintiff or "USRP"). (PL's App. at 26.) The Partnership Agreement was amended two more times in 1997. (PL's App. at 29, 37.)
When Burger King withdrew from the partnership in 1994, the Partnership Agreement of 1985 was still in effect. At that time, Paragraph 18.07 of the Partnership Agreement provided:
Binding Effect. Subject to any provisions hereof restricting assignments, this Agreement shall be binding upon and shall inure to the benefit of the Partners (and BKC [Burger King Corporation] and its successor and assigns for purposes of Article VIII and Section 16.03(b)) and their respective heirs, devisees, executors, administrators, legal representatives, successors, and assigns.
(Pl.'s App. at 17.) This provision remained in each of the three subsequent amended partnership agreements. (Pl.'s App. at 27, 35, 62.)
Article VIII of the Fourth Amended Partnership Agreement of 1997 governs, among other things, the operation of the Partnership's Burger King restaurants. (Pl.'s App. at 42-59.) Section 8.2 memorializes that the Partnership had previously acquired certain "Restricted Restaurant Properties" from Burger King. (Pl.'s App. at 43.) The Partnership Agreement also obligated the Partnership to use the Partnership properties only as Burger King restaurants. (Pl.'s App. at 43.)
Section 8.3(b)(I) of the Fourth Amended Partnership Agreement provides that "any extension or renewal of a lease of a Restricted Restaurant Property pursuant to the Successor Policy shall be in accordance with the Successor Policy." (Pl.'s App. at 44.) The Burger King "Successor Policy" is a policy whereby Burger King determines whether a current franchisee will be allowed to continue operating as a Burger King franchisee once its current franchise agreement and/or lease expires. (Pl.'s App. at 107.) As part of obtaining a successor franchise agreement, a Burger King restaurant typically will be required to remodel its facility. (PL's App. at 111.) Such a "remodeling" is required by Burger King's "Image Policy," which is incorporated into Burger King's "Successor Policy." (PL's App. at 109.)
Section 8.6 of the Fourth Amended Partnership Agreement is entitled "Successor Policy" and expressly applies Burger King's "Successor Policy" to the Burger King restaurants operated by the Partnership.
The Managing General Partner [Plaintiff USRP] shall cause the Partnership to implement, with respect to the Restricted Restaurant Properties, those aspects of the Successor Policy related to the rebuilding of the BK Restaurants, as such policy is currently in effect and as such policy may be modified, amended, supplemented, superceded, or replaced by BKC from time to time in its sole and absolute discretion, in order to cause those Restricted Restaurant Properties designated by BKC, in its sole and absolute discretion, to be rebuilt under such successor policy to be rebuilt, subject to satisfaction by BKC of the following conditions . . .
(Pl.'s Resp. at 52-53.)
Section 8.6(a), provides that the Partnership can rebuild any of its Burger King restaurants that have been so designated by Burger King under its Successor Policy, and that Burger King will then reimburse the Partnership for its proportionate share of those expenses. (Pl.'s App. at 53.)
On September 22, 1995, Burger King sent a letter to USRP as a follow-up to a recent telephone conversation the Parties had concerning Burger King's contribution to the rebuilding of the Partnership properties. (Def.'s Mot. Ex. 3.) In this letter, Burger King references Section 8.06 of the Partnership Agreement, which reads:
Notwithstanding anything to the contrary herein, BKC, in its sole and absolute discretion, may elect not to designate a particular Restricted Restaurant Property to be rebuilt under the "Successor Policy."
(Def.'s Mot. Ex. 3.) Burger King goes on to state in its letter that it has
decided not to designate any restaurant belonging to the Partnership to be rebuilt under the Successor Policy because said policy is designed only for BKL restaurants. In essence, [Burger King Corporation] will treat the Partnership's restaurants in the same manner as all other DTL restaurants. Accordingly, [Burger King Corporation] will not contribute to the cost of "rebuilding" any of the Partnership properties.
A BKL (Burger King lease) restaurant is a franchise restaurant in which Burger King Corporation has an ownership interested in the property on which the restaurant sits. (Pl.'s App. at 112, 114.) By contrast, a DTL restaurant (direct-to-licensee) is a franchise restaurant in which someone else owns the property. (Pl.'s App. at 112.)
(Def.'s Mot. Ex. 3.)
According to Peggy Stanley, Asset Manager for USRP, Burger King did in fact designate certain Partnership Restaurants to be "successored" under the Burger King Successor Policy. (Pl.'s App. at 6.) She goes on to state in a conclusory fashion that when these designations occurred, the Partnership Restaurants were required to be remodeled in order to comply with the Burger King Image Policy/Successor Policy. (PL's App. at 5-6.) However, the summary judgment evidence does not support Stanley's bold assertions. Burger King has explained the difference between the BKL and DTL restaurants — and the Burger King Successor Policy is designed for BKL restaurants only. ( See Pl.'s App. at 111-13.) DTL restaurants may obtain their successor franchise agreement though a separate agreement. ( See id.) Defendant offers no evidence, beyond the mere assertions of Ms. Stanley, that Burger King successored USRP (a DTL restaurant) under the Burger King Successor Policy.
The Partnership contributed to the costs of the remodeling for the Partnership Restaurants. (Pl.'s App. at 6.) On December 9, 1996, USRP sent a letter to Burger King explaining that "despite BKC's refusal to" pay its portion of the remodeling costs, USRP has continued to provide capital to the Partnership properties for improvements. (Def.'s Mot. Ex. 5.) USRP explained that its contribution from 1996 through 1999 will total between $5 million and $8 million. USRP then stated that it reserved its right to sue Burger King "for damages in connection with BKC failing to provide their [sic] portion of the remodel funds." (Def.'s Mot. Ex. 5.)
On March 3, 1998, USRP sent another letter to Burger King, again asking Burger King to pay its share of the remodeling done to the Partnership restaurants. (Pl.'s App. at 67.) Burger King denied USRP's request by letter dated March 17, 1998, relying on its earlier letter dated September 22, 1995. (Pl.'s App. at 70.)
On March 8, 2002, USRP filed a lawsuit in state district court in Dallas County, Texas seeking reimbursement of Burger King's portion of the remodeling costs. USRP pled claims for breach of contract and breach of fiduciary duty. Burger King removed this action to federal court on April 10, 2002. On October 21, 2002, Burger King filed this Motion for Summary Judgment based on statute of limitations, latches, and no fiduciary duty.
DISCUSSION
I. BREACH OF CONTRACT CLAIM.
In its Motion for Summary Judgment, Burger King argues that USRP's claims are barred by Delaware's three-year statute of limitations period for breach of contract claims. Defendant maintains that USRP's causes of action arose in 1995, when Burger King initially rejected Plaintiff s request for payment.
In response, USRP argues that Texas's, not Delaware's, four-year statute of limitations applies to this action, and that its causes of action accrued within the limitations period. USRP maintains that Defendant mischaracterizes the 1995 letter and that its causes of action actually accrued in 1998, when Burger King sent its March 17, 1998 letter refusing to reimburse USRP.
A. Applicable Limitations Period.
"[I]n diversity lawsuits, a federal court is ordinarily bound to look to the choice of law rules of the state in which it sits to determine whether the state courts of that state would apply their own state's statute of limitations or the statute of limitations of some other state." Long Island Trust Co. v. Dicker, 659 F.2d 641, 644-45 n. 6 (5th Cir. 1981). In Texas, "[q]uestions of substantive law are controlled by the laws of the state where the cause of action arose, but matters of remedy and procedure are governed by the laws of the state where the action is sought to be maintained." Hill v. Perel, 923 S.W.2d 636, 639 (Tex.App.-Houston [1st Dist.] 1995, no writ). Texas courts regard statutes of limitations as procedural, and therefore apply Texas's statutes of limitations. See Johansen v. E.I. Du Pont De Nemours Co., 810 F.2d 1377, 1381 (5th Cir. 1987); Boustany v. Monsanto Co., 6 S.W.3d 596, 601 (Tex.App.-Houston [1st Dist] 1999), rev'd on other grounds, 73 S.W.3d 225 (Tex. 2002).
Because this case is pending in a Texas court, and because Texas's choice-of-law rules treat the statute of limitations as procedural in nature, Texas's four-year statutes of limitations apply to the breach of contract and breach of fiduciary duty claims brought by Plaintiff. See Tex. Civ. Prac. Rem. Code Ann. § 16.004(a)(5); Kansa Reinsurance Co., Ltd. v. Congressional Mortgage Corp. of Tex., 20 F.3d 1362, 1368 (5th Cir. 1994).
B. Accrual of Causes of Action.
Under Texas law, "[l]imitation of actions is an affirmative defense that must be specifically pleaded and proved." Intermedics v. Grady, 683 S.W.2d 842, 845 (Tex.App.-Houston [1st Dist.] 1984, no writ). Thus, the party defending on the ground of statute of limitations bears the burden of proof on the issue. See In re Hinsley, 201 F.3d 638, 645 (5th Cir. 2000). A party asserting a limitations defense must not only establish the applicability of the limitations statute, but must, as well, prove when the opponent's cause of action accrued in order to demonstrate the bar of limitations. See id.; Intermedics, 683 S.W.2d at 845. Where the facts are undisputed, the defendant may establish that the plaintiff's claim is barred by the statute of limitations as a matter of law. See Intermedics, 683 S.W.2d at 845. However, where reasonable minds may differ as to the inferences to be drawn from the evidence, this becomes a question of fact to be determined by the trier of the fact from all the facts and circumstances in evidence. See id; Metal Structures Corp. v. Plains Texfiles, Inc., 470 S.W.2d 93, 99 (Tex.Civ.App. — Amarillo 1971, writ ref'd n.r.e.)
In a case for breach of contract, the statute of limitations accrues when the contract is breached or when the claimant has notice of facts sufficient to place him on notice of the breach. See Slusser v. Union Bankers Ins. Co., 72 S.W.3d 713, 717 (Tex.App.-Eastland 2002, no writ); Rose v. Baker Botts, 816 S.W.2d 805, 810 (Tex.App.-Houston [1st Dist.] 1991, writ denied). The statute of limitations may also be set in motion when an agreement is unequivocally terminated by the abandonment or repudiation thereof by either party, notwithstanding that the time for performance of the contract has not expired. See Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 211 (Tex. 1999); 50 Tex. Jur.3d Limitation of Actions § 91 (3d ed. 2003). The effect of such an anticipatory repudiation is to give the plaintiff the option of treating it as a breach and suing immediately upon the repudiation or refusing to accept the renunciation and hold the contract open until the time for performance arrives. See id. If the plaintiff does not treat the contract as repudiated on its first breach, then the contract does not begin to run until the period prescribed by the contract has expired. See id.
After reviewing all the evidence and the Parties' briefing, the Court concludes that Defendant's 1995 letter which states that "BKC will not contribute to the cost of `rebuilding' any of the Partnership properties" is an anticipatory repudiation of the alleged agreement to contribute to remodeling costs. Defendant has not demonstrated that Plaintiff accepted the repudiation and opted to treat the repudiation as a breach. In fact, USRP's statement in its 1996 letter that it does not waive its rights to damages indicates that USRP refused to accept the renunciation, instead electing to hold the contract open until the time for performance arrived.
Where a demand is an integral part of a cause of action or a condition precedent to the right to sue, the statute of limitations does not begin to run until a demand for payment has been made and refused. See Ingersoll-Rand, 997 S.W.2d at 211 (Tex. 1999); Dorsett v. Cross, No. 01-01-00739-CV, 2003 WL 1563972, ___ S.W.3d ___, at *2 (Tex.App.-Houston [1st Dist] Mar. 27, 2003, no writ); Stevens v. State Farm Fire and Casualty Co., 929 S.W.2d 665, 671 (Tex.App.-Texarkana 1996, writ denied); Intermedics, 683 S.W.2d at 845.
First, we must determine whether a demand is an integral part of this cause of action. In Hansen v. Hidalgo and Cameron Counties Water Control and Improvement District, 319 S.W.2d 765 (Tex.Civ.App. — San Antonio 1958, no writ), the water department sued the defendant for reimbursement of construction costs, pursuant to an agreement between the parties. The court held that a demand for payment was a necessary part of the cause of action because "until the work was completed, there was no way to know the precise amount of the costs, and until the District submitted that amount to the Hansens, there was no way for Hansens to know how much they owed. Hence, this was a suit in which a demand to pay a certain sum was a necessary part of plaintiff's cause of action."
As in Hansen, a demand is an essential part of Plaintiffs cause of action. Until the renovation work had been completed, there was no way know the precise amount of the costs. Until USRP submitted that amount to Burger King, there was no way for Burger King to know how much it owed. Hence, this was a suit in which a demand to pay a certain sum was a necessary part of Plaintiffs cause of action.
The Court must next determine when the demand for payment was made and refused. Plaintiffs March 3, 1998 letter to Defendants requesting reimbursement in the specific amount of "$488,597.47 for Burger King's share of the remodel grants" is considered a "demand." (Pl.'s App. at 67-69.) Burger King's March 17, 1998 letter refusing payment constitutes the refusal that began the four-year limitations period. (PL's App. at 70.) Because Plaintiff filed its Complaint on March 8, 2002, it filed the action within the limitations period. Therefore, Defendant's Motion for Summary Judgment on Plaintiff's breach of contract claim on the basis of limitations is DENIED.
II. LACHES.
Defendant also argues that Plaintiffs breach of contract claims is barred by laches. Specifically, Burger King asserts that USRP's "unreasonable delay in bringing suit has prejudiced BKC's rights." (Def.'s Mot. at 4.) Burger King contends that USRP "never contested or filed a declaratory judgment over BKC's refusal some seven years ago to help pay to remodel USRP's properties," and instead incurred years of remodeling costs. ( Id. (emphasis added).) In response, Plaintiff argues that the equitable defense of laches cannot be used to defeat the legal right of a contract and that the facts do not support the defense of laches.
First, laches is an affirmative defense that Burger King has the burden of proving. See Jim Rutherford Investments, Inc. v. Terramar Beach Community Association, 25 S.W.3d 845, 853 (Tex.App.-Houston [14th Dist.] 2000, pet. denied). It is an equitable remedy that prevents a plaintiff from asserting a claim due to lapse of time. See Brewer v. Nationsbank of Tex., N.A., 28 S.W.3d 801, 804 (Tex.App. — Corpus Christi 2000, no pet). To prevail, the party asserting the defense of laches must establish two elements: (1) there was an unreasonable delay by the other party in asserting a legal or equitable right, and (2) the party asserting laches made a good faith change in position to his detriment because of the delay. See Wayne v. A. V.A. Vending, Inc., 52 S.W.3d 412, 415 (Tex.App. — Corpus Christi 2001, pet. denied); Brewer, 28 S.W.3d at 804. "Laches is usually available only in suits strictly in equity or in actions at law that involve claims of an essentially equitable character." Wayne, 52 S.W.3d at 415; Brewer, 28 S.W.3d at 804. "Furthermore . . .'laches . . . [is] peculiarly available against the against the assertion of equitable rights, and may not be invoked to resist the enforcement of a purely legal right.'" Wayne, 52 S.W.3d at 415 (citation omitted).
Some courts have held that laches may not be invoked in a breach of contract case because contract cases involve legal rights and provide for legal remedies, as in a suit for damages. Where, for example, neither specific performance nor injunctive relief are sought ( i.e. equitable remedies) in a contract case, the defense of laches is in applicable. See Wayne, 52 S.W.3d at 415; see also Three H Enterps., LL.C. v. Advanced Environmental Recycling Techs., Inc., No. A-00-CA-298-AWA, 2002 WL 32078931, at * 17, ___ F. Supp.2d ___, (W.D. Tex. July 16, 2002) ("[B]ecause 3H's claim is based purely upon a legal right, i.e. breach of contract, the doctrine of laches is inapplicable.")
This court agrees. "Generally, whereas actions at law are governed by statutes of limitations, suits in equity are controlled by the doctrine of laches . . ." 34 Tex. Jur.3d Equity § 41 (3d ed. 2003). This is a breach of contract case — an action at law, and because there is a statute of limitations directly applicable to this cause of action, invocation of the doctrine of laches is unnecessary and redundant. See also 34 Tex. Jur.3d Equity § 43 (listing types of suits in equity or law in which laches may be invoked; for example, injunction, nuisance, rescission, contribution . . .).
Even if laches applied, Defendant has not satisfied the elements of laches. In order to justify a defense of laches, the party asserting the defense must establish that there was an unreasonable delay by the other party in asserting a legal or equitable right, and the party asserting laches made a good faith change in position to his detriment because of the delay. See Wayne, Inc., 52 S.W.3d at 415; Brewer v. Nationsbank of Tex., N.A., 28 S.W.3d at 804.
"Laches should not bar an action on which the statute of limitations has not run unless allowing the action `would work a grave injustice.'" Brewer, N.A., 28 S.W.3d at 804 (citation omitted). "Generally, in the absence of some element of estoppel or such extraordinary circumstance as would render inequitable the enforcement of the [plaintiff's] right after a delay, laches will not bar a suit short of the limitations period." Id.
USRP put Burger King on notice in December 1996 that USRP was not waiving its rights to damages from Burger King's refusal to contribute to rebuilding and costs and in this case, USRP's action was filed within the limitations period. Thus, Burger King has the burden of establishing that USRP's delay in asserting its right was unreasonable. Yet, Burger King merely contends in a conclusory fashion that "USRP's unreasonable delay in bringing suit has prejudiced BKC's rights." (Def.'s Mot. at 4; Knight Aff. ¶ 6.) Burger King also makes the conclusory statement that USRP was unreasonable in failing to file its own declaratory judgment action concerning Burger King's refusal to contribute to the remodeling costs and that USRP was acted unreasonably by racking up large remodeling expenses. (Def.'s Mot. at 4.) Other than Burger King's conclusory statement, Burger King has not presented any evidence to satisfy its burden of establishing that USRP's actions were unreasonable.
Furthermore, there is no evidence that Burger King changed its position in good faith and to its detriment because of the delay. As USRP points out, there is no evidence that Burger King changed any position because of the delay.
For these reasons, Burger King's Motion for Summary Judgment on Plaintiff's breach of contract claim on the basis of laches is hereby DENIED.
III. BREACH OF FIDUCIARY DUTY CLAIM.
Burger King also argues that USRP's breach of fiduciary duty claim must be dismissed because Burger King does not owe USRP any fiduciary duties. Burger King maintains that no fiduciary duties exist because it is no longer a partner of USRP and is no longer bound by the Partnership Agreement. In response, USRP contends that Burger King and USRP have forged a "special relationship" that gives rise to fiduciary duties. Under Delaware law, "a fiduciary relationship will arise `where one person reposes special confidence in another, or where a special duty exists on the part of one person to protect the interests of another, or where there is a reposing of faith, confidence, and trust, and the placing of reliance by one person on the judgment and advice of another.'" Total Care Physicians, P.A. v. O'Hara, 798 A.2d 1043, 1058 (Del.Super. 2001) (citation omitted).
While USRP concedes that Burger King withdrew from the partnership, USRP argues that Burger King remained bound to the obligations imposed by Article VII of the Partnership Agreement. Yet, Plaintiff cites no legal authority to support its conclusory allegation that "[e]ven after its withdrawal from the partnership, Burger King remained bound by Article VII of the Partnership Agreement." (PL's Resp. at 14.) Moreover, even if Burger King had remained bound by Article VIII after its withdrawal, Plaintiff has not raised a fact issue demonstrating that this mere contractual obligation gives rise to any fiduciary duties. Plaintiff does argue that "USRP and Burger King necessarily worked together in connection with the operation of some Burger King restaurants owned and/or leased by USRP" and that Burger King "retain[ed] significant involvement because it is Burger King who ultimately determines whether a USRP restaurant will be `successored,'" yet Plaintiff has not explained how these facts are sufficient to give rise to a fiduciary relationship. Because Plaintiff has failed to raise a fact issue demonstrating that a fiduciary duty exists, Plaintiff's claims fiduciary duty claim is hereby DISMISSED with PREJUDICE.
It is SO ORDERED.