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Whataburger, Inc. v. Whataburger of Alice, Ltd.

Court of Appeals of Texas, Fourth District, San Antonio

June 21, 2017

WHATABURGER, INC.; CA Development LLC; CA Real Estate LLC; Cinco Aguilas LLC; Tres Aguilas Enterprises LLC; Tres Aguilas Management LLC; Whataburger International LLC; Whataburger Real Estate LLC; Whataburger Restaurants LLC; Whataburger Ventures, LLC; Whataburger Supply and Merchandising LLC; and Whatabrands LLC; Appellants
v.
WHATABURGER OF ALICE, LTD., Appellee

         From the 131st Judicial District Court, Bexar County, Texas Trial Court No. 2016-CI-01431 Honorable Gloria Saldana, Judge Presiding.

          Sitting: Karen Angelini, Justice, Marialyn Barnard, Justice Patricia O. Alvarez, Justice.

          MEMORANDUM OPINION

          KAREN ANGELINI, JUSTICE.

         The underlying dispute arises out of a 1993 settlement agreement between Appellee Whataburger of Alice, Ltd. ("WOA"), and Appellants Whataburger, Inc.; CA Development LLC; CA Real Estate LLC; Cinco Aguilas LLC; Tres Aguilas Enterprises LLC; Tres Aguilas Management LLC; Whataburger International LLC; Whataburger Real Estate LLC; Whataburger Restaurants LLC; Whataburger Ventures, LLC; Whataburger Supply and Merchandising LLC; and Whatabrands LLC (collectively "Whataburger").

         WOA filed the underlying petition for declaratory judgment, and Whataburger filed a counterclaim for declaratory judgment. Both parties filed traditional motions for summary judgment, seeking declarations by the trial court. The trial court granted WOA's motion for summary judgment, and denied Whataburger's motion. It then made declarations as requested by WOA's motion. Whataburger appeals, arguing that the trial court erred in

(1)declaring that Whataburger owed WOA duties of "candor, loyalty, and good faith";
(2)declaring that after the franchise agreement for an existing location expires, WOA has a right to re-designate that existing location as a "new" location under the 1993 Settlement Agreement; and
(3)declaring that WOA has the "sole right" to select site locations in Webb and Jim Wells Counties and thus requiring Whataburger to tender standard form franchise agreements for any such selected locations to WOA.

         We affirm the trial court's judgment in part, and reverse and render in part.

         Background

         WOA and Whataburger have had a business relationship dating back to 1953 when WOA opened its first Whataburger franchise in Alice, Jim Wells County, Texas. Over the next forty years, WOA opened more Whataburger franchises in Bexar County, Jim Wells County, Bee County, and Webb County. WOA's development of franchises was based on Whataburger's promises of exclusivity in each of those counties. In 1990, WOA arranged to sell to a group of investors its twenty-eight franchises situated in Bexar County, along with its exclusive development rights. In response, Whataburger sued WOA to block the sale of the franchises. During the pendency of the lawsuit, WOA discovered what it labeled a "kickback" scheme. Whataburger required its franchisees to purchase certain food products and supplies from specified vendors. WOA discovered that Whataburger was receiving money from these vendors as a result of these "forced" sales. The case went to trial and while the jury was deliberating, the parties agreed to settle. The result was the 1993 Settlement Agreement, the interpretation of which is in dispute in this case.

         The 1993 Settlement Agreement is titled "Agreement for Acquisition of Assets Between Whataburger, Inc. (a Texas corporation) and Whataburger of Alice, Inc. (a Texas Corporation)." Pursuant to the 1993 Settlement Agreement, Whataburger agreed to buy WOA's twenty-eight franchises located in Bexar County for the purchase price of $4, 600, 000.00. Additionally, Whataburger gave WOA "the exclusive right to construct, operate or develop Whataburger restaurants in Bee, Jim Wells, and Webb Counties, except as otherwise provided for herein." The 1993 Settlement Agreement stated that WOA and Whataburger "shall enter in [Whataburger]'s standard form of franchise agreement for each new location developed by [WOA] in Bee, Jim Wells, or Webb County." Also pursuant to the 1993 Settlement Agreement, any franchise agreements between Whataburger and WOA entered into after 1993 with respect to Whataburger restaurants located in Bee, Jim Wells, and Webb Counties "shall provide that the amount of each of the royalty and advertising fee payable by [WOA] to [Whataburger] shall be 2% of the gross sales of such restaurants."

         In 2013, WOA had twelve franchise restaurants. It had found a location in Laredo, Texas, and wanted to open a new Whataburger restaurant at that location. It informed Whataburger of its intention to open a new franchise restaurant on that site. Whataburger and WOA then argued about whether WOA needed Whataburger's consent to the selected site. Whataburger agreed that WOA had the right of exclusivity in Webb County, but Whataburger argued that it had the right to approve new site locations. According to Whataburger, it could approve or not approve such site locations in its sole discretion for any reason. Whataburger stated that it would not approve this new site location unless WOA renegotiated the franchise agreements regarding its existing locations. Whataburger demanded that (1) WOA relinquish its rights set out in the 1993 Settlement Agreement to a fixed 2% royalty and advertising fee on future restaurants; (2) all existing WOA franchise locations be transitioned to a new 5% royalty and advertising fee; and (3) WOA formally agree that Whataburger had the right to approve all site locations. Because of the uncertainty surrounding these negotiations, WOA did not move forward on the new location in Laredo.

         When Whataburger made it clear that no more franchise agreements would be issued with respect to any site locations designated by WOA until WOA agreed to the new terms, WOA filed the underlying petition for declaratory judgment. Whataburger responded by filing a counterclaim for declaratory judgment. Both WOA and Whataburger then filed traditional motions for summary judgment.

         In its motion for summary judgment, WOA requested that the trial court make the following declarations:

(1)The 1993 Settlement Agreement allows WOA the sole right to select site locations on which restaurants are to be located in the counties of exclusivity.
(2)The right to site selection and the right to receive standard form franchise agreements on sites that WOA selects in areas of exclusivity also exists with respect to sites that WOA has previously selected, has previously received a site specific franchise agreement for and operated a restaurant on, even when that specific franchise agreement may have expired by its terms.
(3)Whataburger must deliver to WOA standard form franchise agreements with royalty and advertising fees of 2% on sites selected by WOA in areas of exclusivity.
(4)Whataburger owes fiduciary duties and special duties of good faith and fair dealing to WOA in the performance of its obligations under the 1993 Settlement Agreement (including duties of candor, loyalty, and good faith) pursuant to sections 5.01 and 6.01 of the 1993 Settlement Agreement. These duties prevent Whataburger from (1) including terms and conditions in a proposed "standard form" franchise agreement that have the purpose and/or effect of limiting the rights of WOA to select locations; (2) limit or curtail WOA's other rights under the 1993 Settlement Agreement; and (3) demanding or conditioning any acts or approvals upon a waiver by WOA of its existing rights.

         In its motion for summary judgment, Whataburger argued that the trial court should refuse to grant WOA's request for declaration and should instead make the following declarations:

(1)Neither the 1993 Settlement Agreement nor the franchise agreements signed by WOA compel Whataburger to grant a new Whataburger franchise to WOA. On the contrary, the agreements unambiguously recognize Whataburger's sole discretion to grant or deny future franchise locations.
(2)Neither the 1993 Settlement Agreement nor the franchise agreements signed by WOA compel Whataburger to grant a new franchise agreement to WOA upon the expiration of the franchise agreements governing each of WOA's existing restaurants. On the contrary, the agreements unambiguously recognize Whataburger's sole discretion to grant or deny new franchise agreements for existing locations upon the expiration of these agreements.
(3)Whataburger may issue to WOA a standard form of franchise agreement that includes any obligation, requirement, term, or language Whataburger deems appropriate so long as the standard form of franchise agreement includes the following terms: (i) a 2% cap on the royalty rate; (ii) a 2% cap on the advertising rate; (iii) a reference to exclusivity within Jim Wells County and Webb County, subject to the terms and conditions of the 1993 Settlement Agreement; and (iv) a reference to the transferability provisions within Section 6.03(e) of the 1993 Settlement Agreement. The 1993 Settlement Agreement does not otherwise restrict Whataburger's inclusion of terms within its standard form of franchise agreement offered to WOA.
(4)The 1993 Settlement Agreement includes no covenant of honest and forthright performance and Whataburger has not violated any such covenant.
(5)As a matter of law and based upon the parties' contracts, Whataburger and WOA do not have a formal or informal fiduciary relationship.

         After considering the cross-motions for summary judgment, the trial court granted WOA's motion for summary judgment and denied Whataburger's motion. The trial court's order made the following declarations, which it numbered (a) through (f):

a. WOA has the sole right of selecting site locations upon which Whataburger restaurants will be developed in Webb and Jim Wells Counties about which locations Whataburger has no preapproval or veto rights. Whataburger's argument that it has the "sole discretion" to approve or disapprove sites is denied.
b. Upon WOA's designation of those site locations for development of restaurants in Webb and Jim Wells Counties, Whataburger is obligated to tender its standard form franchise agreement for such site locations and Whataburger may not refuse to enter a standard franchise agreement regarding a site location selected by WOA.
c. Pursuant to Section 6.03(d) of the 1993 Settlement Agreement, such franchise agreements must provide that the amount of royalty and advertising fees shall each be 2% of the gross sales of such restaurants.[1]
d. Given WOA's rights of exclusivity as well as its right of site selection and the right to receive a franchise agreement on locations it selects, when the franchise agreements on any of WOA's existing locations expires by their terms, at that time, should WOA choose, it has the right to re-designate that site as one on which it chooses to conduct a Whataburger operation. At that time, having designated that location as a new location, WOA is entitled to receive a standard franchise agreement for that location such that it could continue to operate;
e. As a result of sections 5.01 and 6.01 of the 1993 Settlement Agreement, Whataburger owes WOA duties of candor, loyalty and good faith. As a result of these duties, among other things, Whataburger is precluded from
i. including terms and conditions in a proposed "standard form" franchise agreement that have the purpose and/or effect of limiting the rights of WOA to select site locations;
ii. limiting or curtailing WOA's other rights arising from the 1993 Settlement Agreement; and
iii. conditioning the performance of its obligations, whether approving any new site locations or franchise agreements or otherwise, on WOA waiving or releasing rights stated in the 1993 Settlement Agreements.
f. The provisions set forth in paragraph 82 hereof, [2] if included in any franchise agreement presented by Whataburger, violate the 1993 Settlement Agreement and thus may not be included in any future standard form franchise agreement.

         Whataburger appeals, arguing that the trial court erred in granting WOA's motion for summary judgment. Specifically, Whataburger contends the trial court erred in declaring the following: (1) WOA has the "sole right" to select site locations in Webb and Jim Wells Counties, and Whataburger must tender to WOA standard form franchise agreements for such selected locations; (2) WOA has a right to renew the terms of the 1993 Settlement Agreement after the franchise agreement for an existing restaurant expires; and (3) Whataburger owes WOA duties of "candor, loyalty, and good faith." Whataburger also contends the trial court should have made the declarations it requested in its motion for summary judgment.

         Summary Judgment Standard

         To obtain a traditional summary judgment, a party moving for summary judgment must show that no genuine issue of material fact exists and that the party is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Randall's Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). In reviewing the grant of a summary judgment, we must indulge every reasonable inference and resolve any doubts in favor of the respondent. Johnson, 891 S.W.2d at 644; Nixon, 690 S.W.2d at 549. In addition, we must assume all evidence favorable to the respondent is true. Johnson, 891 S.W.2d at 644; Nixon, 690 S.W.2d at 548-49. Once the movant has established a right to summary judgment, the burden shifts to the respondent to present evidence that would raise a genuine issue of material fact. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979).

         When, as here, both parties move for summary judgment on the same issues and the trial court grants one motion and denies the other, we consider the summary judgment evidence presented by both sides, determine all questions presented, and if we determine that the trial court erred, render the judgment the trial court should have rendered. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).

         Interpretation of Contract

         The interpretation of an unambiguous contract is a question of law for the court. Moayedi v. Interstate 35/Chisam Road, L.P., 438 S.W.3d 1, 7 (Tex. 2014). In interpreting a contract, a court's "primary concern is to determine the true intent of the parties as expressed by the plain language of the agreement." N. Shore Energy, LLC v. Harkins, 501 S.W.3d 598, 602 (Tex. 2016). "To achieve this objective, " we "examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless." J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). We "construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served and avoiding unreasonable constructions when possible and proper." Harkins, 501 S.W.3d at 602 (citation omitted).

         "A contract is not ambiguous if the contract's language can be given a certain or definite meaning." Id. (citation omitted). "On the other hand, a contract is ambiguous if it is susceptible to more than one reasonable interpretation." Id. (citation omitted). "An ambiguity, however, does not arise merely because parties to an agreement proffer different interpretations of a term." Id. (citation omitted). "For ambiguity to exist, both interpretations must be reasonable." Id. (citation omitted) (emphasis in ...


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