United States District Court, N.D. California, San Jose Division
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY
JUDGMENT AND FOR PARTIAL SUMMARY JUDGMENT Re: Dkt. No.
J. DAVILA UNITED STATES DISTRICT JUDGE
action is one between a franchisor and its former
franchisees. Plaintiff Jack in the Box, Inc.
("JIB"), a corporation engaged in the
"highly-competitive quick-service restaurant
business" alleges that Defendants Deepak Mehta ("D.
Mehta"), Kiran Mehta ("K. Mehta"), Mehta
Enterprises, Inc. and Deepak Enterprises, Inc. (collectively,
"Defendants") breached several provisions of the
written agreements that enabled Defendants to operate Jack in
the Box restaurants throughout Northern California.
before the court is JIB's Motion for Summary Judgment and
for Partial Summary Judgment on its first, third and fourth
causes of action for breach of contract and violations of the
Lanham Act, 15 U.S.C. 1051 et seq., as asserted in its First
Amended Complaint. Dkt. No. 205. JIB also moves for summary
judgment on Defendants' counterclaim for breach of
contract, breach of the implied covenant of good faith and
fair dealing, promissory estoppel, and negligent interference
with contract and economic advantage. Defendants have filed
written opposition to the motion. Dkt. Nos. 215, 216.
carefully considered this matter, the court finds that JIB is
entitled to partial summary judgment on its cause of action
for breach of contract, is entitled to summary judgment on
its causes of action for trademark infringement and unfair
competition, and is entitled to summary judgment on
Defendants' counterclaim. Accordingly, JIB's motion
will be granted in its entirety for the reasons explained
FACTUAL AND PROCEDURAL BACKGROUND
The Franchise Agreements
details of JIB's relationship with Defendants were
primarily outlined in 19 written Jack in the Box Restaurant
Franchise Agreements, which the parties executed between
September 22, 1992, and May 19, 2011. Decl. of Connie Rand
("Rand Decl.), Dkt. No. 205, at ¶¶ 5-7, Exs.
1-3. Although JIB initially entered into the agreements with
D. Mehta and K. Mehta, the parties subsequently agreed to
assign the rights of those individuals to Mehta Enterprises,
Inc. and Deepak Enterprises, Inc. Id. at Exs. 2, 3.
Thus, all Defendants became jointly and severally liable for
the performance of the agreements' terms and conditions.
the Franchise Agreements authorized Defendants to utilize
JIB's commercial marks, format and restaurant operating
system in exchange for Defendants' monthly payment of
royalty and marketing fees. Id. at Ex. 1, § 1.
They also obligated Defendants to, among other duties,
maintain and submit certain records to JIB, pay all state and
federal taxes associated with operation of the restaurants,
and to "comply and perform all covenants contained in
any other agreement, instrument or other document"
between JIB and Defendants, including any other franchise
agreement, lease agreement or note. Id. at Ex. 1,
§§ 7, 8, 16.
addition, the Franchise Agreements contained a termination
clause. Id. at Ex. 1, § 17. Defendants would
"be deemed to be in default . . . and all rights granted
[would] immediately terminate automatically and without
notice" if Defendants became "insolvent" such
that they failed or were unable to pay obligations in the
regular course of business as they became due."
Id. Additionally, upon the occurrence of other
"default" events, JIB could terminate the Franchise
Agreements at its option. Id. The following
occurrences could permit termination:
Franchisee fails for a period of ten (10) days to pay any of
the fees required under this Agreement;
Franchisee fails to pay any federal or state income, sales or
other taxes due on the Restaurant's operations . . . .
Franchisee will have five (5) days to correct such condition.
Franchisee fails to make regular payments to JIB or any
Vendor for any monies due and owing. Franchisee will have
thirty (30) days to correct such condition.
Franchisee fails to comply with any other provision of this
Agreement or defaults under any other franchise agreement,
development agreement, lease agreement, note, or any
agreement or account for the purchase of products or services
between JIB and Franchisee, whether or not pertaining to the
premises. Franchisee will have thirty (30) days to correct
provisions specified the Franchise Agreements were fully
integrated contracts, and could only be modified by a signed
writing. Id. at Ex 1, § 19.
The Lease Agreements
as tenants, and JIB, as landlord, also entered into Lease
Agreements in connection with the Franchise Agreements.
Id. at Ex. 4. The Lease Agreements required
Defendants to pay a fixed amount of monthly rent, along with
an additional amount of rent based on the percentage of gross
sales, in exchange for Defendants' use of the property
for the operation of franchised restaurants. Id. at
Ex. 4, § 3. The lease agreements also required
Defendants to pay any taxes levied against the property, to
make all utility payments, to maintain and pay for insurance
coverage, and prohibited Defendants from encumbering the
property. Id. at Ex. 4, §§ 6, 7, 9, 21.
Lease Agreements could be terminated by JIB if Defendants
failed to pay rent within 5 days of a demand to cure, or if
Defendants defaulted on the Franchise Agreement or any other
"lease, note, or other agreement" between JIB and
Defendants. Id. at Ex. 4, § 23.
Defendants' Defaults under the Agreements
September 1, 2011, and August 22, 2012, Defendants failed to
pay rent, royalties, marketing fees and other charges due to
JIB under the Franchise and Lease Agreements in the total
amount of $567, 092.45. Decl. of Keith Guilbault
("Guilbault Decl."), Dkt. No. 205, at ¶ 5-7,
Rand Decl., at ¶ 11, Ex. 7. The parties eventually
attended a mediation to address these defaults, which
resulted in a written Promissory Note (the "2012
Note") in the amount of $576, 173 payable to JIB, as
well as a General Release. Rand Decl., at ¶ 13, Exs. 9,
10. D. and K. Mehta signed both documents on November 28,
2012. Id. By doing so, they agreed to remit to JIB
an expected rebate from the Coca-Cola Company within 7 days
of receiving it, and to pay off the 2012 Note by April 15,
2013. Id. Through the General Release, they agreed
to discharge JIB from any liability arising out of any
matters prior to November 28, 2012. Id.
not addressed by the 2012 Note were two notices of lien
recorded on September II, 2012, by the Contra Costa County
Tax Collector against Defendants' personal and real
property for failure to pay property taxes. Decl. of Robert
S. McWhorter ("McWhorter Decl.), Dkt. No. 205, at ¶
3, Ex. 3. Neither was a UCC Financing Statement that
was recorded against Defendants' personal property by MGI
Group, LLC on October 23, 2012. Id. at Ex. 10.
Thereafter, the California State Board of Equalization also
recorded liens against Defendants on February 5, 2013 and
March 5, 2013, for unpaid sales tax in the total amount of
$648, 400.10. Id. at Exs. 1, 2. Additionally,
Coca-Cola notified Defendants that it was mailing a rebate to
them on February 23, 2013, but Defendants failed to pay the
rebate to JIB pursuant to the 2012 Note. Decl. of Shane Paul
("Paul Decl."), Dkt. No. 205, at ¶ 9, Ex. 4.
on March 27, 2013, JIB served several Notices of Default upon
Defendants, and eventually extended the date on which most of
the Franchise and Lease Agreements would terminate to
September 17, 2013. Rand Decl., at Exs. 12-24. The agreements
for one store, No. 578, were scheduled to terminate on
September 5, 2013. Id. at Ex. 25. The Notice of
Default dated August 16, 2013, informed Defendants they owed
$1, 993, 415.15 to JIB as of August 15, 2013. Id. at
Defendants' Efforts to Obtain Financing and Termination
of the Agreements
2013, Defendants began working with Bank of America about
refinancing existing debt. Decl. of Anna-Marie E. Mundle
("Mundle Decl."), Dkt. No. 205, at ¶ 3. On
July 13, 2013, Bank of America issued a conditional
Commitment Letter to Defendants for a loan of $7.8 million,
with contained a representation that Defendants would sell 5
restaurants and use the proceeds to pay any outstanding debt
owed to JIB. Id. at ¶ 4, Ex. 2. Defendants did
not, however, initially notify Bank of America of their
defaults under the Franchise and Lease Agreements.
Id.; McWhorter Decl., at Ex. 13, 75:4-8, 12:15-20,
17, 2013,  Steven Brigandi of JIB sent a "good
standing letter" to Bank of America which stated that
Defendants were in default under their agreements with JIB.
Mundle Decl., at Ex. 3. Brigandi further stated that JIB
"believed" the default would be "cured from
the proceeds of the sale of five restaurants to another
existing Jack in the Box franchisee, in conjunction with the
proposed refinancing." Id. Bank of America
learned for the first time through Brigandi's letter that
Defendants were in default. Id. at ¶ 7;
McWhorter Decl., at Ex. 13, 122:14-25. D. Mehta ...