Newport et al v. Burger King Corporation

Filing 396

ORDER RE SUMMARY JUDGMENT MOTIONS by Judge William Alsup [denying #223 Motion for Summary Judgment; denying #230 Motion for Summary Judgment; denying #277 Motion for Summary Judgment; granting in part and denying in part #278 Motion for Summary Judgment; denying #279 Motion for Summary Judgment; denying #280 Motion for Summary Judgment; denying #281 Motion for Summary Judgment; denying #283 Motion for Joinder; denying #309 Motion for Joinder]. (whasec, COURT STAFF) (Filed on 12/5/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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ROY D. NEWPORT, et al.,

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For the Northern District of California

United States District Court

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Plaintiffs/Counter-Defendants,
v.
BURGER KING CORPORATION,

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ORDER RE SUMMARY
JUDGMENT MOTIONS

Defendant/Counter-Claimant.
/

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No. C 10-04511 WHA

Except as stated at the end of this order, all pending summary judgment motions are
DENIED.
The lessee/franchisees are entitled to their day in court as to whether (or the extent to

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which) there were in fact any disability barriers at their locations. On the present record, there

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are triable fact issues on this question and as to whether they should be deemed bound by the

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Castenada settlement, even presumptively, there having been no third-party joinder of the

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lessee/franchisees in the underlying suit and there now being inadequate proof of any proper,

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timely and unequivocal tender of defense. Mere notice to an indemnitor is not enough.

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BKC’s representation (Br. 10) that the defense was tendered was inaccurate, at least on this

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record, and it is disappointing that BKC counsel would have misstated so important a point.

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Contrary to BKC, the letter dated January 22, 2009, did not tender the defense of the

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action; rather, it gave further notice of the action and stated that the letter recipient was obligated

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to defend and indemnify BKC under its agreements with BKC. This was not a tender but merely

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a claim of a purported duty owed by the recipient to defend and to indemnify. That it was not

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a tender was made clear in the passage stating that “as we discussed,” a single unified defense

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(controlled by BKC) was the most effective and cost efficient and that “BKC will assume the

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defense of this action.” At most, the letter would support an argument that the recipient, having

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remained silent in the face of the letter, is now estopped to deny that it owed and owes to BKC

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whatever duty to indemnify was called out in the agreements and is further estopped to deny that

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the recipient had acquiesced in the unified defense alluded to in the letter. Estoppels are usually

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fact-bound issues and cannot be resolved on summary judgment. More than that, the letter begs

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the question of the contours of the duty to indemnify and any and all issues of allocation.
For the same reason, there is a triable issue whether the lessee/franchisees are even

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For the Northern District of California

United States District Court

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presumptively bound by the dollar amounts sought. There is also an issue whether the

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lessee/franchisees ever agreed to the BKC allocation formula. There are other triable issues

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as well.

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This, of course, is not to say that there is no indemnification duty owed by the

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franchisees. To the contrary, it seems likely that at least some indemnification will lie, to be

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determined store by store. Rather, it is to say that each franchisee is entitled to litigate the scope

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of the duty.

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Which agreement governs? The lease or the franchise agreement? Both possibly.

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Both have indemnification duties that would seem to apply save and except for those that have

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the gross negligence carve-out. At all events, which agreement applies cannot be adjudicated as

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a matter of law on this record. This issue too will have to be tried.

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The lessee/franchisees will not be able to escape all liability by claiming the Castenada

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action and settlement were aimed solely at BKC’s corporate policies. But for actual disability

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violations at a given store, there could have been no liability by BKC for that store. In turn, each

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store owed a duty to remedy all disability violations, or so a jury could reasonably find. At least

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some indemnification will be due and owing for the substantive settlement once BKC proves

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(as it seems likely but not certain it can) that the ten stores were in violation of the disability laws

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and that the store owed a duty to indemnify, subject only to the possible exception in some of

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the agreements for BKC gross negligence.

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As to the latter, it seems unlikely that the lessee/franchisees will be able to excuse their

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own violations of law and contract by saying that BKC was “grossly negligent” in failing to

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make the lessee/franchisees do what the law and contract already required of them. That said,

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this possibility cannot be ruled out on their summary judgment record. Nor can this order rule

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out some wrinkle like estoppel or unclean hands, unlikely as they seem now. All points herein

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must be tested at trial.

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In sum, these are the main issues (not all) that need to be tried:
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Duty: At trial, BKC will have to establish its right to recover

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For the Northern District of California

United States District Court

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under the agreements and this will be a store-by-store inquiry. It seems very

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likely that BKC will succeed on this point save only for those stores that had the

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gross negligence carve-out (and it seems unlikely that BKC was grossly

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negligent), but none of this can be finally resolved on this summary judgment

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record.

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2.

Cost of Defense: Since there was no proper tender of defense or

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joinder, the franchisees may contest the reasonableness of the expensiveness of

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the unified defense. Similarly, they may contest the allocation formula.

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Questions of fact exist as to whether they ever agreed to the formula. Note that

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even if a store was in full access compliance, it would very likely still owe a duty

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to reimburse for reasonable costs of defenses.

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Substantive Settlement: As to those ten franchisees from whom

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BKC seeks to recover the substantive settlement, each such franchisee has the

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right to its day in court on whether it was in violation in the first place and, to

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the extent it was in violation, whether the settlement was unreasonably high in

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relation to the actual violations that had occurred at the store. Although this

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cannot be resolved on summary judgment, the franchisees should be realistic and

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take into account the surveys that show the actual then-prevailing conditions.
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Also, the fact that the settlement was a high dollar amount is not necessarily fatal

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since in the long run the settlement may have saved the defense more money in

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litigation costs. These are all fact questions.

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Burger King Corporation argues that it is entitled to summary judgment on all of Willie

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Cook’s cross-claims because he signed a release barring his claims. Cook signed an agreement

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transferring franchise No. 3674 to BKC in December 2009. That agreement contained a release

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clause, but it pertained to franchise No. 3674 only. Cook owned two other franchise

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agreements — No. 2055 and No. 2288 — and events involving those franchises in part make up
the foundation for Cook’s claims. Accordingly, BKC’s motion for summary judgment as to

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For the Northern District of California

United States District Court

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Cook’s declaratory relief, negligence, and intentional infliction of emotional distress claims is

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DENIED. BKC’s motion for summary judgement as to Cook’s breach of contract claim as to

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franchises No. 2055 and No. 2288 is DENIED. Cook’s breach of contract claim as to franchise

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No. 3674, however, is barred by the release he signed. As such, BKC’s motion for summary

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judgment on Cook’s breach-of-contract claim as to franchise No. 3674 is GRANTED.

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IT IS SO ORDERED.

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Dated: December 5, 2011.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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