Vallabhapurapu et al v. Burger King Corporation

Filing 132

ORDER DENYING MOTION TO SEVER THIRD-PARTY COMPLAINT AND VACATING HEARING by Judge William Alsup [denying 59 Motion to Sever]. (whasec, COURT STAFF) (Filed on 10/19/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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MOHAN VALLABHAPURAPU, et al.,

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For the Northern District of California

United States District Court

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Plaintiffs,

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No. C 11-00667 WHA

v.

ORDER DENYING MOTION
TO SEVER THIRD-PARTY
COMPLAINT AND
VACATING HEARING

BURGER KING CORPORATION,
Defendant.
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INTRODUCTION

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In this contractual dispute between a franchisor — Burger King Corporation — and its

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California franchisees, the franchisees move in two groups to sever Burger King’s third-party

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complaint against them and consolidate it with an earlier action, Newport v. Burger King

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Corporation. For the following reasons, the two motions are DENIED and the hearing is vacated.

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STATEMENT

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This action is the second part of a class action originally asserted against Burger King,

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which alleged ADA violations at 96 of its California restaurants. In the first part of the

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litigation, Castaneda v. Burger King Corporation, C08-04262 WHA, classes were certified as to

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ten of the alleged 96 non-compliant restaurants. Burger King reached a settlement with the

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plaintiffs in Castaneda, and then sought to recoup the settlement costs from its franchisees via

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contractual indemnity. In response, 64 of the franchisees filed a complaint, Newport v. Burger

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King Corporation, C10-04511 WHA, seeking declaratory relief from indemnifying Burger King

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for its own negligence (SRAC Br. 1–2; Third-Party Br. 4–5; Opp. to Third-Party 2–4).

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Burger King contends that the plaintiffs in the Newport action — third-party defendants in this

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action — only sought relief as to the Castaneda settlement (ten restaurants), but the third-party

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defendants claim they sought relief from all claims at any and all Burger King locations

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(Third-Party Br. 3; Opp. to Third-Party 3). The Newport action is ongoing and has a trial date

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set for January 2012.

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The disability plaintiffs filed this action in February 2011, against Burger King regarding

filed a third-party complaint pursuant to FRCP 14 against the franchisees for indemnity of

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settlements and judgments for this action. Some of the franchisees now move to sever the

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For the Northern District of California

the 86 restaurants not included in the Castaneda settlement (Dkt. No. 1). Burger King then

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United States District Court

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third-party complaint against them in this action and consolidate it with the indemnity issues

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in the Newport action. The franchisees have filed two motions — one on behalf of numerous

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third-party defendants in which others have since joined (See Dkt. Nos. 59, 128) — and the

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other one by Strategic Restaurants Acquisition Company II, LLC, SRAC Holdings I, Inc., and

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Jerry M. Comstock (SRAC Br. 1–2; Third-Party Br. 4–5). This order follows full briefing.

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ANALYSIS

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Third-party defendants assert that it would be appropriate to sever Burger King’s

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third-party complaint in this action and consolidate it with the Newport indemnity issues.

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Third-party defendants argue that the third-party complaint is a compulsory counterclaim to

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the Newport action and principles of comity require severance. SRAC defendants further

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assert that severance would be in the interest of judicial economy and consolidation would

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be appropriate under FRCP 42(a).

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In the Court’s view, it is better to adjudicate the extent to which the franchisees owe

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Burger King indemnity after any amounts paid to the disability plaintiffs is determined.

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In addition, the franchisees’ liability for indemnity will turn on a franchise-by-franchise basis

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depending on each franchise’s agreement with Burger King. Many of the agreements will be

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parallel and deserve parallel treatment, but that will not always be true, and an individual

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franchise-by-franchise appraisal will likely be needed. Consolidation of the claims into the
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Newport action creates too big of a risk that the trial date set for January 9, 2012, will turn into a

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zoo and mass confusion. There is no pressing need here for indemnity to be determined before

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Burger King’s liability to the plaintiff class is determined.

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In support of their argument, third-party defendants contend that the third-party

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complaint must be severed from this action and consolidated with the Newport indemnity claims

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because it is a compulsory counterclaim in the Newport action. Not so. “A pleading must state

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as a counterclaim any claim that — at the time of its service — the pleader has against an

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opposing party of the claim” if it arises out of the same transaction or occurrence and does not

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require adding a party over whom the court cannot acquire jurisdiction. FRCP 13(a)(1).
As Burger King argues in its opposition, Burger King’s third-party complaint in this

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For the Northern District of California

United States District Court

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action could not be considered a compulsory counterclaim in Newport because the outcome

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of this action and thus, Burger King’s need for indemnity, remains to be determined. “A cause

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of action [for indemnity] does not accrue until the indemnitee has made actual payment.”

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States S.S. Co. v. Am. Smelting & Ref. Co., 339 F.2d 66, 70 (9th Cir. 1964). If a claim has

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not yet accrued, it cannot be said that it was a compulsory counterclaim in an earlier action.

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Accordingly, Burger King’s third-party complaint is not a compulsory counterclaim in the

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Newport action. Third-party defendants’ and SRAC’s motions to sever Burger King’s third-

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party complaint are hereby DENIED.

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Third-party defendants request judicial notice of six documents that do not bear on the
foregoing analysis; that request is DENIED AS MOOT.
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The Court may have to postpone the January 2012, trial date in all events on account

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of a criminal trial in the MS-13 case. It is conceivable that the calculus on this motion will be

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re-evaluated as we draw closer to trial in the Newport action.

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CONCLUSION

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For the foregoing reasons, third-party defendants’ and SRAC’s motions to sever the

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third-party complaint are DENIED. The hearing scheduled for October 27 is hereby VACATED.

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Third-party defendants’ request for judicial notice is DENIED AS MOOT.

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IT IS SO ORDERED.

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Dated: October 19, 2011.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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