Simply put, defendant cannot definitively rule out plaintiffs' fairly supported claim that other reasons, including a desire by Southland to take over Steve Lyons' franchise for itself in order to attempt to boost sales and raise the franchise fee, may have played a role in plaintiffs' disqualification. It is, at the very least, "evidence going to [the] issue of the existence of bona fide dissatisfaction," id., thereby raising a genuine issue of material fact.
Simply saying that one is dissatisfied after the fact is quite different than proving bona fide dissatisfaction. While "good cause" is not required, the conflict of evidence mandates that the question of "bona fides" be put to the jury.
D. Plaintiffs' Second and Third Claims For Intentional and Negligent Interference.
Plaintiffs' second and third causes of action are for intentional and negligent interference with prospective economic advantage. Plaintiffs allege that Southland intentionally and negligently interfered with their contract to buy Steve Lyons' franchise interest. The alleged interference consists of the wrongful disqualification of the Traumanns. Amended Complaint PP 14, 18. Defendant asserts that both claims must fall if Southland had bona fide dissatisfaction with the Traumanns because that would make disqualification of the Traumanns a privileged exercise of its contractual rights. Summit Mach. Tool Mfg. v. Victor CNC Systems, Inc., 7 F.3d 1434, 1442 (9th Cir. 1993) (one element of intentional interference claim is that the claimed breach was caused by defendant's unjustified and wrongful conduct). Defendant is correct; however, because the "bona fide" dissatisfaction issue remains, the Court will not grant summary judgment on plaintiffs' interference claims.
E. Plaintiffs' Statutory Claims.
Plaintiffs have amended their complaint to include two new causes of action under the California Franchise Investment Law ("CFIL") and one under the California Franchise Relation Act ("CFRA"). The former protects consumers in the sale of franchises and the latter regulates certain events after the franchise relationship has been formed, such as renewal and termination. See e.g., Dameshghi v. Texaco Refining & Marketing, Inc., 3 Cal. App. 4th 1262, 1283, 6 Cal. Rptr. 2d 515 (1992) (CFIL).
Plaintiffs' fourth claim, under Cal. Corp. Code § 31200, alleges that Southland's franchise offering circular and agreement failed to include a "statement of conditions under which the franchise agreement may be terminated." Amended Complaint, P 21. After reviewing the franchise offering circular the Court finds that it contains specific conditions of termination in both the sample franchise agreement contained in it and by separate disclosure on pages 36-43 covering renewal, termination, repurchase, etc.
Further, the claim is brought under a repealed provision of the CFIL, Cal. Corp. Code § 31111(k). Assuming, arguendo, that plaintiffs had pleaded this claim under Cal. Corp. Code § 31111(a), which superseded section 31111(k), the claim would still fail. Section 31111(a) provides that the application for registration "shall be filed with the commissioner upon the Uniform Franchise Registration Application (UFRA)." Cal. Corp. Code section 31111(a). UFRA sets up guidelines for offering circulars and does require a statement of conditions of termination. It does not, however, require that conditions of disqualification during training and before the effective date of the agreement, or that conditions precedent, be stated.
Plaintiffs' fifth claim, under Cal. Corp Code section 31201, relates to several allegedly fraudulent communications; (1) the February 28 "acceptance" letter; (2) "other oral representations in the course of selling the franchise to plaintiffs, to the effect that Plaintiffs had been accepted as franchisees"; and (3) statements allegedly made by Michael Sweet in answer to specific inquiries by plaintiffs, purporting to suggest that plaintiffs could only be disqualified for objective reasons, not for subjective reasons. Consistent with its prior order, the Court finds that these reincarnated fraud claims are barred by the parol evidence rule. Prior order at 11-12; Davis v. Gulf Oil Corp., 572 F. Supp. 1393, 1400 (C.D. Cal. 1983) (parol evidence rule bars evidence of fraud under CFIL); see also Brinderson-Newberg, supra, 971 F.2d at 280-81 ("If the false promise relates to the matter covered by the main agreement and contradicts or varies the terms thereof, any evidence of the false promise directly violates the parol evidence rule and is inadmissible."); and Spahn v. Guild Industries Corp., 94 Cal. App. 3d 143, 159, 156 Cal. Rptr. 375 (1979) (trial court erred by failing to instruct jury on every element of common law fraud for misrepresentation claim under § 31301).
The Court also finds that plaintiffs' sixth claim for relief under CFRA fails as a matter of law. Plaintiffs do not have standing under CFRA because they were never granted a franchise. See Cal. Bus. & Prof. Code § 20002 ("A 'franchisee' is a person to whom a franchise is granted.") The Traumanns were disqualified before the operative terms of their franchise became effective. The statutory obligations created under CFRA all relate to rights of a franchisee under an existing franchise agreement, e.g., good cause for termination under Cal. Bus. & Prof. Code § 20020. Here, the agreement never became effective because the condition precedent, i.e., "satisfactory completion of all training by FRANCHISEE and continued certifications of FRANCHISEE until and including the Effective Date", was not satisfied. Agreement, P 4(i).
Plaintiffs' contention that the phrase "effective date" does not apply to the agreement as a whole, but rather only to the beginning of the term of the license and lease is unsupported by the plain language of the Agreement which provides in pertinent part:
Term. The License, Lease, and continuing obligations of the parties shall begin on the Effective Date . . .
Agreement, P 7 (emphasis added). The Court will not adopt plaintiffs' strained construction which would render several other provisions of the Agreement inoperative or internally inconsistent. Because plaintiffs have only been disqualified from training and not terminated as franchisees, they cannot invoke the protections of the CFRA.
No amount of liberal construction can cure this defect. Simply because the legislature intended to provide prospective franchisees with the information necessary to make an intelligent decision regarding franchises being offered, does not mean that the legislature also intended to rely on non-franchisees to enforce the law. The statute is clear; plaintiffs do not fit the definition of franchisee under the law.
Finally, the declaration of Kevin Murphy submitted by plaintiffs in opposition to defendant's motion is inadmissible. Mr. Murphy's opinions regarding California franchise laws and their application to this case are not a proper subject for expert testimony because they do not help determine the facts in issue. Federal Rule of Evidence 702. Expert testimony must embrace factual issues and may not include legal opinions or conclusions. United States v. Jungles, 903 F.2d 468, 477 (7th Cir. 1990). Nor is Murphy's declaration admissible under Federal Rule of Evidence 704 which allows opinion testimony as to an ultimate issue. Such testimony is not permitted when it consists of legal conclusions or opinions. Marx & Co., Inc. v. Diners' Club, Inc., 550 F.2d 505, 508-10, (2d Cir.), cert. denied, 434 U.S. 861, 54 L. Ed. 2d 134, 98 S. Ct. 188 (1977)
For the foregoing reasons defendant's motion for summary judgment and/or dismissal is GRANTED as to the First (Breach of Contract), Fourth (CFIL), Fifth (CFIL), and Sixth (CFRA) Claims in plaintiffs' Amended Complaint. Defendant's motion is DENIED as to the Second (Intentional Interference), Third (Negligent Interference), and Seventh (Implied Covenant of Good Faith and Fair Dealing) Claims in plaintiffs' Amended Complaint.
DATED: February 8, 1994
FERN M. SMITH
United States District Judge
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