Pizza Inn Inc v. Clairday

Filing 48

MEMORANDUM OPINION AND ORDER granting in part and denying in part 15 Motion for Summary Judgment. The Court denies Pizza Inn's motion for summary judgment on its claim for declaratory judgment. The Court likewise denies Pizza Inn's mot ion as to Clairday's claims for breach of contract and declaratory judgment. The Court, however, grants Pizza Inn's motion for summary judgment on Clairday's claims for violations of the AFPA. (Ordered by Judge David C Godbey on 2/8/2019) (zkc)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
PIZZA INN, INC.,
Plaintiff,
v.
BOB CLAIRDAY,
Defendant.

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Civil Action No. 3:18-CV-0221-N

MEMORANDUM OPINION AND ORDER
This Order addresses Pizza Inn, Inc.’s (“Pizza Inn”) Motion for Summary Judgment
[15]. For the reasons stated below, the Court grants and denies the motion in part.
I. ORIGINS OF THE DISPUTE
Pizza Inn is a franchisor of pizza restaurants. Defendant Bob Clairday owned and
operated several Pizza Inn restaurants in Arkansas, Louisiana, and Oklahoma. In December
1992, Clairday paid Pizza Inn $1,250,000 for the rights to two Area Developer agreements
(the “AD agreements”) that covered territory throughout Arkansas. The stated purpose of
the AD agreements is for the Area Developer, i.e., Clairday, to promote and develop Pizza
Inn restaurants within the designated geographic territory. PI-APP-033–004, PI-APP023–024. The AD agreements contain a primary term of twenty (20) years, effective from
December 2, 1992 to December 1, 2012. The agreements, however, also contain renewal
options that permit Clairday to renew for up to two additional five (5) year periods. It is

MEMORANDUM OPINION AND ORDER – PAGE 1

undisputed that the parties agreed to the first five-year renewal period, extending the AD
agreements until December 1, 2017.
The parties now dispute whether Clairday effectively exercised his right to renew for
the second five-year period. Pizza Inn brought this declaratory judgment suit seeking a
declaration from the Court that the AD agreements between the parties expired on December
1, 2017 and that Clairday has no lawful right to demand a second renewal of the agreements.
Clairday counterclaimed, asserting violations of the Arkansas Franchise Practices Act, as
well as claims for declaratory judgment and breach of contract. Clairday seeks a declaration
from the Court that he has the right to renew and extend the AD agreements for the second
five-year period, beyond December 1, 2017. Pizza Inn now moves for summary judgment
on its declaratory judgment claim and on all of Clairday’s counterclaims.
II. SUMMARY JUDGMENT STANDARD
Courts “shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). In making
this determination, courts must view all evidence and draw all reasonable inferences in the
light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369
U.S. 654, 655 (1962). The moving party bears the initial burden of informing the court of
the basis for its belief that there is no genuine issue for trial. Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986).

MEMORANDUM OPINION AND ORDER – PAGE 2

When a party bears the burden of proof on an issue, she “must establish beyond
peradventure all of the essential elements of the claim or defense to warrant judgment in [her]
favor.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986) (emphasis omitted).
When the nonmovant bears the burden of proof, the movant may demonstrate entitlement to
summary judgment by either (1) submitting evidence that negates the existence of an
essential element of the nonmovant’s claim or affirmative defense, or (2) arguing that there
is no evidence to support an essential element of the nonmovant’s claim or affirmative
defense. Celotex, 477 U.S. at 322–25.
Once the movant has made this showing, the burden shifts to the nonmovant to
establish that there is a genuine issue of material fact such that a reasonable jury might return
a verdict in its favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586–87 (1986). Moreover, “[c]onclusory allegations, speculation, and unsubstantiated
assertions” will not suffice to satisfy the nonmovant’s burden. Douglass v. United Servs.
Auto. Ass’n, 79 F.3d 1415, 1429 (5th Cir. 1996) (en banc). Indeed, factual controversies are
resolved in favor of the nonmoving party “‘only when an actual controversy exists, that is,
when both parties have submitted evidence of contradictory facts.’” Olabisiomotosho v. City
of Houston, 185 F.3d 521, 525 (5th Cir. 1999) (quoting McCallum Highlands, Ltd. v.
Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir. 1995)).

MEMORANDUM OPINION AND ORDER – PAGE 3

III. THE COURT DENIES PIZZA INN’S MOTION FOR SUMMARY
JUDGMENT ON ITS DECLARATORY JUDGMENT CLAIM
The Court denies Pizza Inn’s motion for summary judgment on its declaratory
judgment claim because fact issues exist regarding whether Clairday had the right to renew
the AD agreements for a second five-year period. The Court also notes at the outset that
Pizza Inn and Clairday agree that Texas law governs the AD agreements, as both parties cite
to Texas law in support of their respective arguments on contract interpretation, breach, and
equitable intervention. Pl.’s Mem. in Supp. at 13–19 [16]; Def.’s Brief in Supp. at 12–13,
20 [39]. The Court will therefore apply Texas law in assessing the parties’ breach of contract
and declaratory judgment claims.1
A. The 2012 Letter Agreement Does Not Limit Clairday to One Renewal Period
Pizza Inn first argues that the parties executed a 2012 Letter Agreement that clearly
and unambiguously limited Clairday to only one five-year renewal and extinguished his right
to a second renewal. Pl.’s Mem. in Supp. at 14. The parties allegedly entered into this Letter
Agreement to cure Clairday’s defaults and allow him to continue serving as an Area
Developer. Id. Whether the Letter Agreement unambiguously limited Clairday to one
renewal period is a question of law, as it concerns contract interpretation. McLane

1

Pizza Inn further argues that based on section 32 of the AD agreements, Texas law
governs the entire dispute and bars application of another state’s substantive laws. Clairday
disputes this contention, arguing that section 32 is not so broad as to bar application of
Arkansas law. The Court need not decide this issue, however, because even assuming
Arkansas law applies, Clairday’s claims for violations of the Arkansas Franchise Practices
Act (“AFPA”) fail as a matter of law.

MEMORANDUM OPINION AND ORDER – PAGE 4

Foodservice, Inc. v. Table Rock Restaurants, L.L.C., 736 F.3d 375, 377 (5th Cir. 2013). The
Court’s primary objective is to ascertain the intentions of the parties as expressed in the
contract. Id. (citing Lopez v. Munos, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861
(Tex.2000)). A contract is unambiguous if it can be given a definite or certain legal meaning.
Id. at 378. However, if the language in the contract is subject to two or more reasonable
interpretations, then the contract is ambiguous, creating a fact issue as to the parties’ intent.
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex.
2011).
The relevant contractual language states:
Steve Link and I appreciated the opportunity to meet with you on Friday, June
15, 2012, to discuss the resolution of your current defaults and the potential
renewal of the AD Agreement, which, currently, is set to expire on December
1, 2012. Consistent with that discussion, Pizza Inn is willing to extend the
term of the AD Agreement for one additional 5-year period (until December
1, 2017), subject to the following terms and conditions . . . .
PI-APP-04. Pizza Inn argues that this language constituted an agreement by the parties to
terminate the AD agreements in December 2017 and extinguish Clairday’s right to a second
renewal. The Court disagrees. Taken literally, the Letter Agreement only demonstrates
Pizza Inn’s consent to the first renewal period. The Letter Agreement does not abrogate or
even mention the second five-year renewal option and therefore does not reflect that the
parties agreed that Clairday could not renew the Agreement for a second five-year term.
Accordingly, the Court concludes that the language of the Letter Agreement only reflects
Pizza Inn’s consent to the first renewal period and does not unambiguously extinguish

MEMORANDUM OPINION AND ORDER – PAGE 5

Clairday’s option to renew for the second five-year term. The Court thus denies Pizza Inn’s
motion.
B. Fact Issues Exist Regarding Whether Clairday Forfeited
His Right to Renewal Under the AD Agreements
Pizza Inn argues that Clairday failed to abide by the terms of the AD agreements and
therefore forfeited his right to renewal. Section 3 of the agreements state that Clairday “shall
have the option to extend . . . if Area Developer has remained in compliance” with the terms
of the agreements. PI-APP-05, PI-APP-025. Pizza Inn alleges that Clairday defaulted on his
contractual obligations in both the original term and the first renewal term and therefore did
not remain in compliance. Pl.’s Mem. in Supp. at 15–16. Clairday argues in his response
that he remained in compliance and denies that he was in default under the agreements.
Def.’s Brief in Supp. at 16. Clairday alleges that the parties disagreed as to when certain
balances, interest, and payments were due and that the parties executed the 2012 Letter
Agreement to resolve the dispute and clarify his obligations. Id. Clairday also cites to Pizza
Inn’s President, Bob Bafundo’s deposition testimony, in which Bafundo acknowledges that
he did not know of any defaults or any noncompliance on Clairday’s part. BC-APP-069.
Accordingly, the Court concludes that there is a genuine issue of material fact as to whether
Clairday defaulted under the AD agreements and forfeited his right to renewal. The Court
therefore denies Pizza Inn’s motion for summary judgment based on any noncompliance or
breach of the AD agreements.

MEMORANDUM OPINION AND ORDER – PAGE 6

C. Equitable Intervention May Apply to Relax Strict Compliance
with the Notice Requirement Under the AD Agreements
Pizza Inn argues that Clairday was required to deliver written notice of his intention
to renew no later than June 1, 2017, but that he delivered notice on August 3, 2017, more
than two months late. Clairday, however, asks the Court to apply the doctrine of equitable
intervention, which permits a court to excuse a party’s failure to strictly comply with a
condition precedent of a contract. In re Eldercare Properties Ltd., 568 F.3d 506, 519--20
(5th Cir. 2009) (citing Jones v. Gibbs, 130 S.W.2d 265, 272 (Tex. 1939)). In Jones, the
Texas Supreme Court explained that the rule of strict compliance in the exercise of an option
to extend or renew is not an inflexible one. 130 S.W.2d at 272. The Court held that in cases
of mere neglect in fulfilling a condition precedent, “equity will relieve when [(1)] the delay
has been slight, [(2)] the loss to the [other party] small, and [(3)] when not to grant relief
would result in such a hardship to the [party] as to make it unconscionable to enforce literally
the condition precedent of the [contract].” Id.
In Eldercare, the 5th Circuit upheld the lower court’s application of Texas’s equitable
intervention doctrine, noting that with regard to the first element, the party gave written
notice one month late, which was relatively slight in comparison to the contract’s original
ten-year term and five-year renewal term. 568 F.3d at 522. Here, Clairday gave written
notice two months late. When compared to the contract’s original 20-year term and five-year
renewal terms, that is quite slight. As to the second element, the 5th Circuit held that the
opposing party failed to demonstrate how it would be harmed by allowing equity to intervene

MEMORANDUM OPINION AND ORDER – PAGE 7

and rejected the opposing party’s general argument about the sanctity of property rights. Id.
Here, Pizza Inn responds to Clairday’s equitable intervention argument in a footnote. Pl.’s
Reply at 6 n.5. Pizza Inn does not address any of the three factors laid out in Jones. Instead,
Pizza Inn only generally complains that the Court should not apply equitable intervention in
this commercial contract, arguing that the doctrine is limited to contracts involving real
property. Id. However, nothing in Jones or subsequent cases, such as Eldercare, expressly
limit the doctrine of equitable intervention to the real property context. As in Eldercare, the
Court finds that such a general contention establishes, at best, “only abstract, de minimis
harm.” 568 F.3d at 522–23. For the third factor, Clairday argues that he has suffered
enormous hardship, incurring damages in the amount of $787,511.82 and was forced to close
his franchisee restaurant due to his loss of income as an Area Developer. BC-APP-072–73,
BC-APP-119. The Court finds that Clairday has established at least a facially valid claim of
equitable intervention, but the Court defers ruling on this issue until the conclusion of trial.
Accordingly, the Court denies Pizza Inn’s motion for summary judgment based on Clairday’s
failure to provide written notice by June 1, 2017.
IV. THE COURT DENIES PIZZA INN’S MOTION FOR SUMMARY JUDGMENT
ON CLAIRDAY’S COUNTERCLAIMS FOR DECLARATORY
JUDGMENT AND BREACH OF CONTRACT
Pizza Inn alleges that Clairday does not have standing to assert any claims arising out
of the AD agreements because he assigned the revenue and operations of the AD agreements
to a corporation in December 1992, when the agreements were first executed. In support of
its position, Pizza Inn cites to the deposition testimony of Clairday’s accountant, Matt

MEMORANDUM OPINION AND ORDER – PAGE 8

Knight, who prepares Clairday’s tax returns.

Knight allegedly confirmed on cross-

examination that Clairday assigned the revenue and operations from the AD agreements to
BCI Pizza Development, Inc. (“BCI”). PI-SUPP-APP-068–69 [35]. In response, Clairday
states that he owns BCI and reports the income from the AD agreements through BCI for tax
purposes. Clairday also complains that Knight is not qualified to offer a legal opinion as to
the assignment of contractual rights. In his deposition, Knight admitted to never having seen
any legal document showing that Clairday assigned the AD agreements to BCI. PI-SUPPAPP-068. Moreover, Knight is an accountant, not a lawyer, and Pizza Inn offers no further
proof of the actual content of any alleged assignment agreement. Accordingly, the Court
rejects Pizza Inn’s argument that Clairday does not have standing.
Pizza Inn also argues that the Court should grant summary judgment on Clairday’s
declaratory judgment and breach of contract claims because Clairday breached the AD
agreements by (1) defaulting, (2) assigning his rights and interests to BCI without Pizza Inn’s
consent, and (3) failing to provide timely notice of his intent to renew. The Court has already
determined that fact issues exist regarding whether Clairday was in default and therefore
breached the AD agreements. Likewise, equitable intervention applies to excuse Clairday’s
late notice. Finally, Pizza Inn fails to establish that Clairday assigned the AD agreements to
BCI. Accordingly, the Court denies Pizza’s motion for summary judgment on Clairday’s
counterclaims for declaratory judgment and breach of contract.

MEMORANDUM OPINION AND ORDER – PAGE 9

V. THE COURT GRANTS PIZZA INN’S MOTION FOR SUMMARY JUDGMENT
ON CLAIRDAY’S COUNTERCLAIMS FOR VIOLATIONS OF THE
ARKANSAS FRANCHISE PRACTICES ACT
Clairday brings counterclaims against Pizza Inn for violations of the AFPA.
Assuming section 32 of the AD agreements does not bar application of the AFPA, the Court
agrees with Pizza Inn that Clairday’s claims under the AFPA are untenable. The AFPA only
applies to franchisor-franchisee relationships, and the AD agreements are not franchise
agreements within the meaning of the statute. Under the AFPA, Clairday must first establish
that he is a “franchisee” as defined by the Act. A “franchisee” means a person to whom a
franchise is offered or granted. Ark. Code Ann. § 4-72-202(4). A “franchise” means a
“written or oral agreement for a definite or indefinite period in which a person grants to
another person a license to use a trade name, trademark, service mark, or related
characteristic within an exclusive or nonexclusive territory or to sell or distribute goods or
services within an exclusive or nonexclusive territory at wholesale or retail, by lease
agreement, or otherwise.” Id. at § 4-42-202(1)(A).
Clairday argues that he is a franchisee and that the AD agreements are “franchise
agreements” because Area Developers have the ability to participate in sales and have
responsibilities to service Pizza Inn stores. Def.’s Brief in Supp. at 32. Clairday also alleges
that Area Developers are authorized to solicit new franchisees to open restaurants and to
provide consulting services and advice. Id. at 33. However, case law interpreting the statute
notes that the AFPA is not intended to apply to persons who merely solicit or procure sales,
and that a person ordinarily needs authority to consummate sales to be considered a

MEMORANDUM OPINION AND ORDER – PAGE 10

“franchisee.” Stockton v. Sentry Ins., 989 S.W.2d 914, 917 (Ark. 1999); Kent Jenkins Sales,
Inc. v. Angelo Bros. Co., 804 F.2d 482, 487 (8th Cir. 1986).
As set forth in the AD agreements, Clairday’s role as Area Developer is to develop
and support other franchisees and to promote the development of Pizza Inn restaurants. PIAPP-003, PI.-APP-023. The AD agreements specifically provide that they are “not a
Franchise Agreement permitting the operation of a Pizza Inn restaurant or the use of
Proprietary Marks.” PI-APP-004, PI-APP-024. Section 6 additionally states that the
agreements are “not a franchise license agreement and Area Developer has no right to use
Company’s trademarks, service marks or trade secrets or to operate a Pizza Inn restaurant by
virtue of this Agreement.” PI-APP-006, PI-APP-026. Moreover, the AD agreements require
Pizza Inn’s approval before Clairday can approve or close deals with new franchisees. PIAPP-009. Thus, Clairday does not possess the requisite authority; he functions more as a
solicitor or procurer of new franchisees, which Arkansas courts have held does not amount
to a franchisor-franchisee relationship. Stockton, 989 S.W.2d at 917 (finding no franchisorfranchisee relationship where party only had authority to “solicit and procure” new insurance
contracts). Clairday also argues that he is a franchisee because he provides services to Pizza
Inn restaurants. The statute, however, contemplates the sale or distribution of goods or
services at wholesale or retail. Ark. Code Ann. § 4-72-202(1)(A). Clairday does not sell or
distribute goods or services at wholesale or retail. Accordingly, the Court holds that Clairday
cannot show that his claims fall under the purview of the AFPA and therefore grants
summary judgment in favor of Pizza Inn on Clairday’s claims for violations of the AFPA.

MEMORANDUM OPINION AND ORDER – PAGE 11

CONCLUSION
The Court denies Pizza Inn’s motion for summary judgment on its claim for
declaratory judgment. The Court likewise denies Pizza Inn’s motion as to Clairday’s claims
for breach of contract and declaratory judgment. The Court, however, grants Pizza Inn’s
motion for summary judgment on Clairday’s claims for violations of the AFPA.
Signed February 8, 2019.

_________________________________
David C. Godbey
United States District Judge

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