The written provisions of a franchise agreement — and its merger clause — resulted in summary judgment on a franchisee’s fraud and other claims against a franchisor. The case, decided last Friday by the Business Court, is L’Heureux Enterprises, Inc. v. Port City Java, Inc.

Conflicting Representations

Plaintiffs claimed they had premised their purchase of a bakery on verbal representations from Port City Java, a franchisor of coffee shops, that it would only cost $50,000 to convert a small existing coffee kiosk in the bakery space into a full sit-down cafe.

Plaintiffs obtained an upfit estimate six days after closing in a range of $100,000 more than the $50,000 represented. Plaintiffs then sued the franchisor for fraud, negligent misrepresentation, unfair and deceptive practices, and breach of contract.

But before closing, the Plaintiffs had asked the franchisor’s COO for a guarantee on the upfit costs. He wouldn’t provide that, saying instead that he would not make any guarantee with regard to specific costs. He also provided a letter saying that the cost of renovations would be "entirely dependent on the extent and quality of same."

The Plaintiffs’ claim was further weakened by the transaction documents. Those included a Uniform Franchise Offering Circular which provided an estimated range for typical costs associated with creating a cafe. And the Franchise Agreement signed by the Plaintiffs contained a merger clause which expressly excluded prior negotiations between the parties and stated that it represented the entire agreement of the parties.

Plaintiffs Could Not Establish Reasonable Reliance

Judge Jolly granted Port City’s Motion for Summary Judgment, focusing on the issue of the reasonableness of Plaintiffs reliance on the alleged misrepresentations. He stated "[r]eliance is not reasonable where the plaintiff could have discovered the truth of the matter through reasonable diligence, but failed to investigate." Op. ¶37. He concluded that the Plaintiffs had not used reasonable diligence in relying on the claimed verbal statements "over clearly contrary language" in the written documents. Op. ¶39.

In dismissing the unfair and deceptive practices claim, Judge Jolly held:

While the disclosures and documents unfortunately appear not to have been adequately digested, investigated or understood by Plaintiffs, the forecast evidence does not establish any violation of duty on the part of Defendants to educate Plaintiffs on the plain meaning of the contractual documents involved in the Transaction.

Op. ¶47.

The clear written provisions of the UFOC and the Franchise Agreement also, according to the Court, warranted the grant of summary judgment on the breach of contract claim. 

I write sometimes about litigation involving Duke University’s sports teams. In fact, the most popular post ever on this blog was The Law And Duke Football: The Video, which has a video of Duke’s own lawyer telling a judge how bad Duke football is. That video, according to youtube, has been watched over 17,000 times.

Posts on derivative actions and motions for sanctions don’t get that kind of traffic.

Anyway, yesterday’s decision (sorry, no video) from the North Carolina Court of Appeals in Pressler v. Duke University is worth a mention.  It involves Duke’s unsuccessful effort to force its former men’s lacrosse coach out of court and into arbitration on his defamation claims.

The defamation claim arose after Pressler and Duke had settled matters involving his resignation as coach. The Mutual Release and Settlement Agreement, entered into in 2007, contained a non-disparagement provision.  It also contained a provision stating that Pressler and Duke "wish to cancel all earlier agreements" between them. Those earlier agreements included an Employment Contract which incorporated by reference Duke’s Dispute Resolution Policy. The Policy required arbitration of all disputes.

In 2008, Pressler sued Duke for allegedly defaming him in post-settlement statements. Duke moved to compel arbitration in reliance on its Policy, notwithstanding the language of the Release extinguishing all prior agreements. Duke argued that "when the mutual release referred to ‘all earlier agreements,’ this did not really mean all earlier agreements."

When all was said and done, the Court of Appeals disagreed.  The Court held "[t]he mutual release addresses ‘all earlier agreements,’ and whether the policy was a part of the 2005 Employment Contract or not, surely it was an ‘earlier agreement’ between the parties which would be encompassed by the term ‘all.’"

Th-th-th-that’s all folks. 

When an employee quits his or her job, unemployment benefits aren’t available unless there was "good cause" for leaving the job. Today, the North Carolina Supreme Court answered the question whether an employee who quits in the face of a downsizing, accepting a "voluntary" retirement package, can show the good cause necessary to receive unemployment benefits.

The answer to that question of first impression, in the case of Carolina Power & Light Company v. Employment Security Commission, was "no."  Along the way, the Court made some interesting observations on downsizings in general, and the rights of employees at will.

The case involved a former CP&L employee named Roberts, who accepted a Voluntary Early Retirement Package. Roberts took the package in the face of a downsizing by CP&L.  His position had been eliminated, he was relocated and put in a temporary position, and when he asked if he would continue to have a job, he didn’t receive any assurances. Although the opinion doesn’t say it, Roberts must have been very concerned that if he didn’t take the package, he wasn’t going to have a job much longer.

Roberts’ right to unemployment benefits turned on N.C. Gen. Stat. § 96-14(1), which disqualifies an employee from benefits if he is "unemployed because he left work without good cause attributable to the employer." It’s the employee’s burden to show the good cause.  Id. at §96-14(1a),

The argument by Roberts was that the downsizing itself was good cause, as was his employer’s failure to tell him whether he would still have a job if he didn’t grab the retirement package. The Supreme Court, in an opinion written by Chief Justice Parker, rejected both arguments.

As to the downsizing, the Court said "[d]ownsizing of the workforce is a recognized means by which corporations and businesses maintain their productivity and profitability. Although downsizing may ultimately lead to the loss of some jobs, downsizing to a desired number of employees is often achieved through attrition.  Downsizing or a reduction in force does not automatically trigger layoffs."

The Court also gave short shrift to Roberts’ argument regarding his uncertainty as to continued employment because CP&L didn’t answer his question about whether he still had a job. Justice Parker said "[t]o construe the failure to answer that question as good cause assumes that claimant, who from the record appears to have been an employee at will, was entitled to an assurance tantamount to a contract guaranteeing him a job after the downsizing was completed. An employee who has no such guarantee of a job before the employer begins downsizing certainly has no legal basis to use the failure of the employer to give such assurances as good cause entitling him to unemployment benefits when he voluntarily accepts an enhanced early retirement package."

As the Court described the situations where good cause is present, they are limited to (1) "circumstances which make continued work logistically impractical," and (2) "when the work or work environment itself is intolerable." Roberts’ arguments didn’t fall in either category.