Bennett Enterprises, Inc. v. Domino's Pizza, Inc., Domino's Pizza Distribution Corporation, Inc., Bennett Enterprises, Inc. v. Domino's Pizza, Inc., Domino's Pizza Distribution Corporation, Inc.

Citation: 45 F.3d 493Docket: 93-7188

Court: Court of Appeals for the D.C. Circuit; April 7, 1995; Federal Appellate Court

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Domino's Pizza, Inc. appeals a jury verdict that awarded Bennett Enterprises, Inc. $2,250,000 in damages for breach of contract and tortious interference following Domino's default on a franchise agreement. The court found the franchise agreement to be clear regarding Domino's right to declare a franchisee in default for tax law violations, and determined that there was insufficient evidence to support a breach of contract claim or to establish the elements of tortious interference. 

In December 1987, Bennett, formed by experienced Domino's managers, entered into a franchise agreement with Domino's to operate a pizza store in Washington, D.C. The agreement required Bennett to maintain all necessary licenses and comply with laws. It also stipulated that Domino's could terminate the agreement if Bennett failed to comply with its terms or rectify issues within specified timeframes. The court ultimately reversed the judgment in favor of Bennett, concluding that Domino's acted within its contractual rights.

Bennett's store, opened in December 1987, faced financial difficulties primarily due to the failure to manage costs, submit required profit and loss reports to Domino's, and pay federal, state, and D.C. taxes throughout most of 1988. Bennett's initial accountants did not fulfill their obligations regarding tax payments and reporting, leading to significant liabilities. Arthur Bennett and Bruce Bennett acknowledged mismanagement, with Bruce personally handling bills but neglecting tax payments. A creditor, James Artis, secured a $66,300 judgment against Bennett in April 1989 due to unpaid loans.

In early 1988, accountant Patrick Miller informed Domino's of Bennett's accounting issues and tax non-compliance. Subsequent communications from Artis to Domino's led to meetings aimed at resolving these issues. Despite advice and suggestions from Domino's, including a warning of default in December 1988 for tax violations, Bennett made little progress. 

In February 1989, after receiving a temporary reprieve from default, Bennett failed to establish a tax payment plan with the IRS. New accountant Gordon Clay was hired in November 1988 and later began addressing the tax liabilities and cost control. By spring 1989, a repayment plan with D.C. was in progress, but no agreements were reached with Maryland or the IRS by April.

Domino's formally declared Bennett in default again in April 1989 for unresolved tax issues and allowed thirty days to rectify the situation. Unable to resolve its challenges, Bennett sought to sell the franchise, with Domino's providing a deadline until June 1989. The valuation of the store was contested, with estimates ranging from approximately $424,000 based on the franchise agreement's method to potential valuations of $1.2 million or $600,000 using alternative formulas.

In May 1989, Bennett offered to sell his Domino's franchise to Meeks for $1.5 million, which Meeks declined. Bennett then negotiated with Duignan, who initially proposed $900,000 based on Bennett's claim of $1.8 million in sales. Upon discovering that Bennett's actual sales were $1.3 million and that his bank would not finance the purchase, Duignan withdrew his offer. Subsequently, Bennett agreed to sell to Meeks for $500,000 but finalized a deal with Duignan for $600,000 instead. Domino's granted Bennett an extension to complete the sale, which was approved. At trial, Bennett presented evidence of a conversation where Meeks acknowledged operational issues at the store, which Fulton, a Domino's consultant, confirmed.

Three years later, Bennett sued Domino's for breach of the franchise agreement, arguing that the agreement did not allow for default based on tax liabilities. He contended that section 15.2's requirement of compliance with applicable laws did not include tax nonpayment. Testimony from Domino's officials indicated that "applicable laws" did not refer to minor infractions like parking tickets. The court admitted later versions of the franchise agreement, which explicitly allowed for default due to tax nonpayment. Bennett claimed Domino's failed to assist him with tax issues and that they tortiously interfered with his economic opportunities by sharing negative information with potential buyers, leading to lower offers.

After a three-day trial, the jury awarded Bennett $850,000 for breach of contract, $450,000 for tortious interference, and $950,000 in punitive damages. Domino's sought judgment as a matter of law or a new trial, arguing the verdict was unsupported by evidence and that the tortious interference award duplicated breach of contract damages. The district court upheld the jury's decision, stating the damages addressed distinct harms and denied Bennett's motion to amend the judgment regarding the sale price deduction from the breach of contract award.

Domino's contended that section 15.2 clearly permitted declaring Bennett in default for tax law violations, interpreting "applicable laws" broadly to include all legal obligations.

District of Columbia law governs this diversity action, treated as state law under the "Erie Doctrine." Contract ambiguity is a question of law reviewed de novo; a provision is deemed ambiguous only if it is reasonably susceptible to different interpretations, and not solely because of later disagreements between parties. The admissibility of extrinsic evidence hinges on the existence of such ambiguity. In this case, the language in section 15.2 of the franchise agreement is determined to be unambiguous, as it clearly encompasses compliance with state and federal tax laws. The district court erred by admitting later versions of Domino's franchise agreement, which specified tax law violations as grounds for default, because the contract allowed Domino's to place Bennett in default for unpaid taxes.

In assessing the trial court's judgment on a motion for judgment as a matter of law, the evidence must favor the prevailing party, and the jury's verdict is upheld unless the evidence overwhelmingly contradicts it. Bennett did not comply with tax laws at the time of default, having failed to address substantial outstanding tax liabilities from 1988 and not negotiating payment plans with the state or IRS. As there was no evidence to support that Domino's breached the contract by placing Bennett in default, the verdict on this claim is not sustainable.

Bennett did not prove a breach of contract under section 11 of the franchise agreement, as Domino's provided more assistance than required. Bennett acknowledged that Domino's offered additional accounting services, which he chose not to use, opting for his own accountant instead. Additionally, neither Bennett nor his accountant submitted the necessary profit and loss statements in a timely manner, preventing Domino's from verifying claims about Bennett's tax payments. Bruce Bennett was responsible for paying bills until late 1988, implying he was aware of tax obligations. Once tax issues were confirmed, Domino's reviewed Bennett's financial records, arranged consultations, recommended hiring a new accountant, and allowed several months for Bennett to rectify the situation. The franchise agreement stipulated that Domino's was only required to provide reasonable operational assistance, not to manage the store or handle accounting services, which were the responsibility of Bennett. Consequently, the jury's verdict against Domino's lacked evidentiary support and should be reversed.

Regarding the tortious interference claim, Bennett alleged that Domino's disrupted its business expectations of selling the store for $900,000 to $1.5 million, resulting in a jury award of $450,000. Bennett's claims included that Domino's improperly placed it in default and provided confidential information to bidders. However, since the default was deemed non-wrongful, the first claim was dismissed. For the second claim, testimony indicated that a bidder, Meeks, had already received financial information from Bennett prior to his offer, suggesting he did not rely on Domino's for information. Furthermore, there was no evidence of communications between Domino's and another bidder, Duignan, who adjusted his offer based on accurate sales figures provided by Bennett, undermining Bennett's claims of interference.

To establish tortious interference with economic advantage under District of Columbia law, a plaintiff must demonstrate: (1) a valid business relationship or expectancy exists, (2) the interferer has knowledge of this relationship or expectancy, (3) there is intentional interference that causes a breach or termination, and (4) resultant damages occur. Intent is crucial; mere general intent or knowledge that actions will harm the plaintiff’s business is insufficient for liability. In this case, Bennett's evidence did not satisfy the required standard of "strong showing of intent" to disrupt business relationships. Testimony indicated that Domino's merely disclosed truthful information, leading to a lower sale price for Bennett's enterprise, but did not support any ill motive or intent to interfere. Consequently, since Bennett did not establish liability as a matter of law, the jury's verdict must be reversed. The court found no need to address issues regarding damages or punitive damages. Ultimately, it was concluded that Domino's did not breach the franchise agreement, and Bennett failed to provide adequate evidence for its claims, resulting in the reversal of the judgment.