Association of Independent BR Franchise Owners v. Baskin Robbins Franchising, LLC
Judge William G. Young: ORDER entered. FINDINGS OF FACT AND CONCLUSIONS OF LAW "Accordingly, this Court declares that Baskins Commercial Factor is not an unauthorized additional fee imposed upon its franchisees and thus judgment will enter for Baskin.SO ORDERED."(Sonnenberg, Elizabeth)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
BASKIN ROBBINS FRANCHISING, LLC,
ASSOCIATION OF INDEPENDENT BR
September 27, 2017
FINDINGS OF FACT, RULINGS OF LAW, & ORDER
In this action for declaratory relief, the Association of
Independent BR Franchise Owners (the “Association”) seeks a
judgment that franchisor Baskin Robbins Franchising, LLC
(“Baskin”) has no contractual right to charge its franchisees a
“Commercial Factor Fee.”
The parties have now filed cross-
motions for summary judgment, Pl. Association Independent BR
Franchise Owners Mem. Law. Supp. Mot. Summ. J. (“Pl.’s Mem.”),
ECF No. 56; Pl.’s Mem. Points and Authorities Resp. Mot. Summ.
J. (“Pl.’s Opp’n”), ECF No. 65; Pl. Association Independent BR
Franchise Owners Reply Supp. Mot. Summ. J. (“Pl.’s Reply”), ECF
No. 73; Mem. Def. Baskin-Robbins Franchising LLC Supp. Mot.
Summ. J. (“Def.’s Mem.”), ECF No. 53; Mem. Def. Baskin-Robbins
Franchising LLC Opp’n Mot. Pl. Association Independent BR
Franchise Owners Summ. J. (“Def.’s Opp’n”), ECF No. 64; Reply
Mem. Def. Baskin-Robbins Franchising LLC Supp. Mot. Summ. J.
(“Def.’s Reply”), ECF No. 72, and accompanying statements of
fact, Pl. Association Independent BR Franchise Owners Statement
Undisputed Material Facts (“Pl.’s Facts”), ECF No. 57; Def.
Baskin-Robbins Franchising LLC’s Statement Material Facts
(“Def.’s Facts”), ECF No. 54.
By agreement of the parties, this
Court held a case stated hearing1 on June 9, 2017, Electronic
Clerk’s Notes, ECF No. 74, and here issues findings of fact and
rulings of law.
FINDINGS OF FACT
Baskin is a Delaware limited liability company with its
principal place of business in Canton, Massachusetts.
Facts ¶ 1.
For over fifty years, Baskin has licensed
independent business owners to operate ice cream shops that use
the Baskin Robbins trademark and sell Baskin’s proprietary ice
cream and related products.
Id. ¶ 4.
Members of the
The case stated procedure allows the Court to render a
judgment based on a largely undisputed record in cases where
there are minimal factual disputes. In its review of the
record, “[t]he [C]ourt is . . . entitled to ‘engage in a certain
amount of factfinding, including the drawing of inferences.’”
TLT Constr. Corp. v. RI, Inc., 484 F.3d 130, 135 n.6 (1st Cir.
2007) (quoting United Paperworkers Int’l Union Local 14 v.
International Paper Co., 64 F.3d 28, 31 (1st Cir. 1995)).
Association are standalone franchisees that collectively own
eighty-four Baskin Robbins stores.
Compl. ¶¶ 15-16.
Prior to 1998, Baskin franchisees either paid no royalty
fees or paid a small percentage of “Continuing Franchise Fees”
(0.5%), and purchased the vast majority of their ice cream
products from Baskin or an affiliate.
Pl.’s Facts ¶¶ 1-2.
result, Baskin derived its primary revenue from the sale of ice
In 1998, Baskin offered its franchisees a
“Royalty Conversion Program” that: 1) raised or imposed for the
first time a Continuing Franchise Fee of 4.9%; 2) raised the
advertising fee paid by the franchisee to 5.0%; 3) lowered the
costs for ice cream products and other goods; and 4) charged a
“Commercial Factor” on ice cream and other products.
Id. ¶ 3.
The vast majority of then existing franchisees accepted the
terms of the program, and executed conversion agreements that
included terms requiring franchisees to pay to Baskin a
“Commercial Factor” on its ice cream and related products.
Today, the number of franchisees remaining subject to
these conversion agreements is close to zero.
Beginning in 2000, new and renewing franchisees have
entered into a franchise agreement (which the Association refers
to as the “Current Franchise Agreement”2) that does not contain
In general, there are two versions of the Current
Franchise Agreement -- one for 2000-2007, and another for 2008
the terms “Commercial Factor” or “Commercial Factor Fee.”
Also in 2000, Baskin ceased production of ice cream,
outsourcing the manufacture and wholesale distribution of its
proprietary products to Dean Foods, a dairy vendor designated by
Def.’s Facts ¶ 6.
Pursuant to the Current Franchise
Agreement (“Agreement”), franchisees must purchase all of their
ice cream and related products from Dean Foods.
Id. ¶ 9.
Foods pays a fee to Baskin based on the volume of Dean Foods’s
sales of certain products to Baskin franchisees.
Id. ¶ 7.
basic arrangement has been in effect for approximately sixteen
Id. ¶ 11.
Dean Foods charges Baskin franchisees a “Commercial Factor”
Id. ¶ 9.
In 2016, franchisees paid a commercial
factor of $1.26 per tub of ice cream, and $6.52 per case of
Pastry Pride Non-Dairy Whip Topping.
Pl.’s Facts ¶¶ 12-13.
Each Agreement contains an integration and merger clause,
which provides that the Agreement can only be modified by a
writing signed by the parties.
Pl.’s Facts ¶ 18.
the 2000 Agreement contains a clause that states:
This Agreement, and the documents referred to herein shall
be the entire, full and complete agreement between
FRANCHISOR and FRANCHISEE concerning the subject matter
hereof, and supersedes all prior agreements, no other
representation having induced FRANCHISEE to execute this
2016. Although there are some variations from year to year
within these two broad categories, these are irrelevant to the
Court’s present analysis.
Agreement; and there are no representations, inducements,
promises or agreements, oral or otherwise, between the
parties not embodied herein, which are of any force or
effect with reference to this Agreement or otherwise. No
amendment, change or variance from this Agreement shall be
binding on either party unless executed in writing.
Id., Ex. 3, Baskin-Robbins 2000 Franchise Agreement,
BASKIN0000910, ECF No. 57-3.
III. RULINGS OF LAW
The issue before the Court is the interpretation of the
Current Franchise Agreement.
The Association views the dispute
fundamentally as concerning the scope of contractually
permissible fees, contending that because the fully integrated
franchise agreements do not include a “Commercial Factor Fee” as
part of the Agreement’s fee provisions, franchisees have no
contractual obligation to pay such fees.
Pl.’s Opp’n 12-13.
the other hand, Baskin frames the dispute as one concerning
product pricing, arguing that the Commercial Factor is simply a
franchise fee charged to Dean Foods, that Dean Foods then passes
on to the purchasers of their products, the franchisees.
The Court begins with the proper characterization of
the Commercial Factor, then examines the relevant provisions of
the Agreement and the parties’ course of dealing.
Massachusetts Contract Law
In Massachusetts, a contract’s interpretation is a question
of law for the court, so long as there is “no dispute as to the
facts to be applied to the terms of the contract.”
Dedham Mut. Fire Ins. Co. v. Morrison, 456 Mass. 463, 467 (2010)
(quoting Ober v. National Cas. Co., 318 Mass. 27, 30 (1945)).
Similarly, “[w]hether a contract is ambiguous is also a question
Eigerman v. Putnam Invs., Inc., 450 Mass. 281, 287
(2007) (citing Fashion House, Inc. v. K mart Corp., 892 F.2d
1076, 1083 (1st Cir. 1989)).
Indeed, “[a]ny conflict as to the
meaning of contract terms . . . is a matter of law for the
Id. at 288 n.8 (citing Allstate Ins. Co. v. Bearce, 412
Mass. 442, 446-47 (1992); Cody v. Connecticut Gen. Life Ins.
Co., 387 Mass. 142, 147 n.9 (1982)).
In general, “‘[t]he interpretation of an integrated
agreement is directed to the meaning of the terms of the writing
or writings in the light of the circumstances’ of the
Boston Edison Co. v. Federal Energy Regulatory
Comm’n, 856 F.2d 361, 365 (1st Cir. 1988) (alteration in
original) (quoting Thomas v. Christensen, 12 Mass. App. Ct. 169,
In determining whether contract language is
ambiguous, courts examine whether the language “is susceptible
of more than one meaning and reasonably intelligent persons
would differ as to which meaning is the proper one.”
Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998) (citation omitted).
“[E]xtrinsic evidence may be used as an interpretive guide only
after the judge or the court determines that the contract is
ambiguous on its face or as applied . . . . [and] is not to be
used as the basis for concluding in the first instance that a
contract is unambiguous as matter of law.”
Bank v. Thermo
Elemental Inc., 451 Mass. 638, 649 (2008) (citations omitted).
The Commercial Factor
Baskin contends that the Commercial Factor that Dean Foods
receives from the franchisees is not a “fee” charged to the
franchisees at all, but rather a component of the product price
of the ice cream and related products.
Def.’s Mem. 8-9.
this interpretation, franchisees cannot avoid their obligation
to pay the purchase price of ice cream products from Dean Foods.
In response, the Association argues that: 1) Baskin itself
describes the fee it charges Dean Foods as a “Commercial Factor
Fee” in section 4.2 of the Supply Agreement, Def.’s Facts, Ex.
1.B, 2015 Supply Agreement, ECF No. 54-3; and 2) functionally,
the Commercial Factor is a fee charged by Baskin to franchisees
because Dean Foods is merely a conduit that collects the fee for
Pl.’s Opp’n 10-11.
In support of its contention that “Commercial Factor” and
“Commercial Factor Fee” are two entirely distinct terms
describing two completely separate components of the economic
relationship among Baskin, Dean Foods, and franchisees, Def.’s
Mem. 8-10; Def.’s Reply 8, Baskin begins by citing the wellestablished proposition that “Black’s Law Dictionary is a
standard resource for the determination of the meaning of words
used in a legal context.”
Def.’s Reply 8 (citations omitted).
Indeed, Massachusetts courts have stated that “[i]n the absence
of case law, established dictionaries can furnish the approved
natural meaning of disputed terms.”
Suffolk Constr. Co. v.
Illinois Union Ins. Co., 80 Mass. App. Ct. 90, 94 (2011)
(citations omitted); see also Siebe, Inc. v. Louis M. Gerson
Co., 74 Mass. App. Ct. 544, 551 (2009).
Black’s Law Dictionary
defines “fee” as “[a] charge or payment for labor or services.”
Black’s Law Dictionary 732 (10th ed. 2014).
dictionary also defines, in the same entry, “franchise fee” as
“[a] fee paid by a franchisee to a franchisor for franchise
Whereas, “price” is defined as “[t]he amount of
money or other consideration asked for or given in exchange for
something else; the cost at which something is bought or sold.”
Id. at 1380.
In contrast, the Association essentially invites the Court
to ignore the fact that the Commercial Factor that the
franchisees actually pay is a component of the product price
charged by Dean Foods, and instead treat it as a fee that is
paid directly to Baskin.
The Association cites two facts --
(1) sections 1.2 and 4.2 of the 2015 Supply Agreement explicitly
refer to the fee charged to Dean Foods as a “Commercial Factor
Fee,” Pl.’s Opp’n 9, and (2) the same sections state that Dean
Foods will receive a credit against the Commercial Factor Fee
for any Commercial Factor fee paid in connection with any
products that have not been paid for in full by franchisees,
2015 Supply Agreement §§ 1.2, 4.2 -- but provides no legal
authority to support this theory.3
The Court pauses briefly to consider two arguments that
the Association does not make. The Association does not raise
the concept of “functional equivalence” in interpreting
contracts. To the extent that Massachusetts courts have
recognized such a doctrine, the cases do not appear to apply to
these facts. See, e.g., In re Adoption of Vidal, 56 Mass. App.
Ct. 916, 916 (2002) (“An assessment completed by one employed by
an organization under contract with DSS is the functional
equivalent of an assessment undertaken by a person employed
directly by DSS.”). But see Brasi Dev. Corp. v. Attorney Gen.,
456 Mass. 684, 694 (2010) (upholding lower court finding that
lease agreement between “was not ‘the functional equivalent of a
construction contract’ because Brasi retained ownership of the
land and the building, assumed the risks and costs of
construction, and assumed also the costs of ownership of the
Nor does the Association challenge the Agreements as a sham
or base its argument in the implied covenant of good faith and
fair dealing. Nevertheless, there is insufficient evidence in
the record to sustain an allegation that the contracts at issue
here were a sham or that Baskin had defrauded its franchisees.
See Lass v. Bank of Am., N.A., 695 F.3d 129, 144-45 (1st Cir.
2012) (dismissing sham allegations as “pure rhetoric . . .
especially because of the ease of pleading real facts (if they
existed)” (citation omitted)); see also Hemi Grp., LLC v. City
of New York, 559 U.S. 1, 26 (2010) (“This Court has recognized
specifically that ‘under the common law a fraud may be
established when the defendant has made use of a third party to
reach the target of the fraud.’” (quoting Tanner v. United
States, 483 U.S. 107, 129 (1987))). Furthermore, counsel for
the Association argued that the implied covenant of good faith
and fair dealing was not implicated because express provisions
of the Agreement govern the fees. June 9, 2017 Hearing Tr.
17:24-18:10, ECF No. 75.
On balance, the more compelling interpretation of the
Commercial Factor is that it is a franchise fee Baskin charges
Dean Foods for the right to sell Dean Foods products under the
Baskin Robbins name to Baskin’s franchisees; and that Dean Foods
then charges this back to franchisees.
This component of Dean
Foods’s product price, therefore, is simply a pass-through cost
and Dean Foods does not make any money on the “commercial
factor” that it adds to the wholesale cost of the products it
sells to the franchisees.
The question is whether this
arrangement is permissible under the Franchise Agreements.
The Court thus turns to the contract language of the
Agreements to determine whether the provisions obligate the
franchisees to pay the commercial factor Dean Foods charges.
The Association first focuses on the fee provisions in the
Sections 4 and 10 in the 2000 through 2007
Agreements and sections 5 and 13 in the 2008 through 2016
Agreements list fees that franchisees are obligated to pay to
Pl.’s Facts ¶ 8.
Though the exact provisions differ
somewhat from year to year, the 2000 Agreement includes: Initial
Franchise Fee, Grand Opening Fee, Continuing Franchise Fee,
Continuing Advertising Fee, Late Fees, and Transfer Fee.
Similarly, the 2015 Agreement sets out: Initial
Franchise Fee, Initial Training Fee, Marketing Start-Up Fee,
Continuing Franchise Fee, Continuing Training Fee, Continuing
Advertising Fee, Additional Advertising Fee, Late Fees, Transfer
Fee, and Fixed Documentation Fee.
Id. ¶ 8(p).
It is undisputed
that the Current Franchise Agreement does not explicitly mention
a “Commercial Factor Fee.”
Id. ¶ 10.
In light of these fee
provisions, the crux of the Association’s case is that because
the Current Franchise Agreement is fully integrated but does not
list the Commercial Factor Fee, the franchisees do not have a
contractual duty to pay it.
Pl.’s Mem. 7.
In response, Baskin first argues that the “fee” provisions
cited by the Association do not expressly state that they
encompass the only instances in which Baskin may derive revenue
from its franchisees.
Def.’s Mem. 6.
Baskin argues that under
Massachusetts law, contracts are not interpreted to prohibit
activity not expressly permitted if the contract does not state
explicitly that “activities not expressly permitted are
Id. at 7 (citing Robert Indus., Inc. v. Spence, 362
Mass. 751, 755–56 (1973) (“[T]he lease nowhere says that
activities not expressly permitted are forbidden . . . . [but
instead] simply does not deal with competition other than
competition by lessees.”)); see also Abegglen v. Abegglen, 64
Mass. App. Ct. 590, 596 (2005) (“The separation agreement does
not expressly prohibit anything else he has done. . . .”);
Proteon, Inc. v. Digital Equip. Corp., No. 9801533F, 1999 WL
1336438, at *12 (Mass. Super. Ct. Jan. 13, 1999) (Smith, J.)
(“[B]ecause the Agreement does not expressly forbid assignment
by Digital and because there is no evidence that assignment
would give rise to any of the exceptions noted above, as a
matter of law, Digital may assign its rights under the Basic
But see Abbott v. John Hancock Mut. Life
Ins. Co., 18 Mass. App. Ct. 508, 524 (1984) (“The fact that the
trust agreement did not contain a provision expressly
prohibiting policy loans does not necessarily mean that they
On balance, the case law favors Baskin’s
argument that the lack of an express prohibition in the fees
provisions precludes the Association’s reliance on the fee
language in the Agreements.
Second, Baskin contends that under Massachusetts law,
contracts must be interpreted as a whole rather than as isolated
Def.’s Opp’n 5 (citing MCI WorldCom Commc’ns, Inc.
v. Department of Telecomms. & Energy, 442 Mass. 103, 112-13
(2004) (“To ascertain the intent of contracting parties, the
court considers the words used by the parties, the agreement
taken as a whole and the surrounding facts and circumstances.”
(citations omitted))); see also Lydon v. Allstate Ins. Co., 5
Mass. App. Ct. 771, 771 (1977) (“The intent of the parties
entering into the contract must be gathered from construing the
contract as a whole and not by placing special emphasis on any
one part.” (citation omitted)).
Specifically, Baskin highlights
the provisions dealing with product pricing -- section 184.108.40.206
of the 2000-2007 Franchise Agreements and sections 7.04 and 7.05
of the 2008-2017 Franchise Agreements, Def.’s Mem. 10-11.
Section 220.127.116.11 of the 2000 Agreement states that the franchisee
“agrees to purchase from Baskin-Robbins or its designee . . .
all of the Baskin-Robbins requirements for the Baskin-Robbins
Products specified by [Baskin] from time to time . . . at
[Baskin’s] or its designee’s prices at the time of delivery.”
Def.’s Facts ¶ 19(f).
Similarly, section 7.0.5 of the 2016
Agreement requires that franchisees “[s]ell all required
products, sell only approved products, and source them from
suppliers that [Baskin] approve[s], of which [Baskin] may be
Id. ¶ 19(b).
In response, the Association advances three arguments:
(1) the pricing provision only requires franchisees to purchase
products at the price set by the vendor and is therefore
irrelevant to this dispute, Pl.’s Reply 6; (2) section 18.104.22.168
does not state a duty to pay a fee to Baskin, id.; and (3) such
an interpretation is untenable, because it would allow Baskin or
Dean Foods to impose any additional fee on top of the wholesale
price of the ice cream and related products, Pl.’s Opp’n 13-14.
Baskin correctly points out that the Association does not in
fact challenge that franchisees are required under the product
purchasing provisions of the Franchise Agreements to purchase
products from Dean Foods.
Def.’s Reply 1.
The key flaw in the Association’s case is that it does not
cite any legal support for the argument that Dean Foods cannot
embed one of its costs into the ice cream price that it charges
Indeed, pass-through costs and charges along the
supply chain is a standard industry practice.4
In support of its
argument, the Association relies primarily on cases involving
Baskin Robbins as a party in other courts.
cites Brock v. Baskin Robbins, USA, Co., No. 5:99–CV–274, 2003
WL 21309428, at *5 (E.D. Tex. Jan. 17, 2003), and Baskin-Robbins
Inc. v. S & N Prinja, Inc., 78 F. Supp. 2d 226, 232-33 (S.D.N.Y.
1999), for the basic rule that collateral promises are not
enforced where there is a fully integrated contract.
Brock does no more than state the general proposition that
“where a merger clause is included in the written contract,
To rule for the Association in this case would imply that
Dean Foods has done something wrong by simply passing on one of
its costs to its buyers -- a common industry practice. See
Howard Smith & John Thanassoulis, Prices, Profits, and PassThrough of Costs Along a Supermarket Supply Chain: Bargaining
and Competition, 31 Oxford Rev. Econ. Pol. 64, 66 (2015). There
is no evidence in the record of any contractual provision
forbidding Dean Foods from setting its price this way. Indeed,
franchisees can and very well may pass franchise fees on to
customers, subject to any contractual pricing constraints,
although there is no evidence of this in the record.
Furthermore, the Association does not challenge Baskin’s ability
to charge its exclusive distributor a franchise fee.
alleged collateral promises will not be enforced.”
21309428, at *5.
In S & N Prinja, the defendants filed
counterclaims against Baskin Robbins alleging that Baskin denied
them permission to relocate their store.
78 F. Supp. 2d at 232.
The court dismissed the counterclaim, holding that under New
York contract law, a fully integrated agreement that made no
reference to a corporate policy allowing relocation imparts on
Baskin no contractual duty to assent to defendant’s relocation.
Id. at 233.
Here, however, there is a specific contractual
provision as to price, which states that franchisees are
obligated to pay the price of ice cream charged by Dean Foods.
Def.’s Opp’n 4-5.
Accordingly, a plain reading of the contract
supports the interpretation that Baskin was entitled to derive
revenue from franchisees by charging a franchise fee to Dean
Foods, which Dean Foods then passes on to its purchasers.
Course of Dealing
The parties further dispute whether this Court may examine
the course of performance in determining the scope of the
Baskin argues that courts may examine
“all the circumstances of the parties leading to [the
Co., 856 F.2d at 365).
Def.’s Opp’n 4 (quoting Boston Edison
The Association, however, correctly
notes that a court only examines the course of dealings in order
to determine the parties’ intent where there is ambiguity in the
Pl.’s Opp’n 17-18 (citing S & N Prinja,
Inc., 78 F. Supp. 2d at 233).
Although Baskin prevails even if
this Court’s analysis were confined to the four corners of the
Agreement, the Court comments briefly on the extrinsic evidence.
To the extent that there is any ambiguity as to what
“price” means, or what prices Baskin and its designated
distributor are entitled to charge under the Franchise
Agreement, the Court looks to the parties’ course of
Here, Baskin argues that the course of conduct
between the parties unequivocally shows that the Commercial
Factor -- a part of the product price Dean Foods charges -- was
paid without objection despite franchisees’ clear knowledge that
Baskin was entitled to receive revenue from the sale of its
proprietary ice cream and related products.
Def.’s Mem. 17.
required by the Federal Trade Commission’s (“FTC”) franchise
regulations, Baskin disclosed to franchisees that it reserved
the right to receive “fees or other consideration” from
suppliers in connection with its granting or licensing of supply
Id. at 15.5
Baskin further disclosed that it received
Baskin also argues that the FTC franchise regulations
reflect the custom and business usage in franchise agreements of
treating disclosure of fees that a franchisee pays to its
franchisor and fees that a franchisor receives from an approved
supplier in separate regulations. Def.’s Mem. 11-12. This
structure, Baskin contends, reflects that the industry custom of
treating the two types of fees as distinct. Id.; see 16 C.F.R.
§ 436.5(e), (f), (h)(6).
revenue from franchisees’ required purchases from Dean Foods.
Def.’s Facts ¶ 25.
Finally, every franchisee received a copy of the August
2012 announcement of the Brand Contribution Plan (which
reinvested part of the revenue generated from the Commercial
Factor into advertising and promoting the Baskin Robbins brand)
that attributed part of its funding to revenue generated from
the Commercial Factors.
Id. ¶ 30.
Indeed, the Chairperson of
the Association, Shaw Darwish (“Darwish”), attended meetings as
a member of Baskin’s Brand Advisory Council concerning the
company’s 2012 launch of the Brand Contribution Plan.
Darwish also apparently paid the Commercial Factor for
Id. at 8.
The Association, in response, argues
only that the course of dealings is not relevant where there is
no ambiguity in the contract language.
Pl.’s Opp’n 19.
with an unambiguous contract, the plain language of which allows
Baskin to charge Dean Foods a franchise fee, which Dean Foods is
free to pass onto its customers, this Court need not consider
the extrinsic evidence.
The Court merely notes that should
there be an ambiguity in the Agreement, the parties’ course of
performance overwhelmingly favors Baskin’s interpretation.
Accordingly, this Court declares that Baskin’s “Commercial
Factor” is not an unauthorized additional fee imposed upon its
franchisees and thus judgment will enter for Baskin.
/s/ William G. Young
WILLIAM G. YOUNG
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