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Western Chance 2 Inc. v. KFC Corp.

filed: February 28, 1992.

WESTERN CHANCE #2, INC., AN ARIZONA CORPORATION, PLAINTIFF-APPELLANT,
v.
KFC CORPORATION, A DELAWARE CORPORATION; KFC NATIONAL MANAGEMENT COMPANY, A DELAWARE CORPORATION, DEFENDANTS-APPELLEES. WESTERN CHANCE #2, INC., AN ARIZONA CORPORATION, PLAINTIFF-APPELLEE, V. KFC CORPORATION, A DELAWARE CORPORATION; KFC NATIONAL MANAGEMENT COMPANY, A DELAWARE CORPORATION, DEFENDANTS-APPELLANTS. WESTERN CHANCE #2, INC., AN ARIZONA CORPORATION, PLAINTIFF-APPELLANT, V. KFC CORPORATION, A DELAWARE CORPORATION; KFC NATIONAL MANAGEMENT COMPANY, A DELAWARE CORPORATION, DEFENDANTS-APPELLEES. WESTERN CHANCE #2, INC., AN ARIZONA CORPORATION, PLAINTIFF-APPELLEE, V. KFC CORPORATION, A DELAWARE CORPORATION; KFC NATIONAL MANAGEMENT COMPANY, A DELAWARE CORPORATION, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the District of Arizona. D.C. No. CV-88-0648-TUC-ACM. D.C. No. CV-88-0648-TUC-ACM. D.C. No. CV-88-0648-TUC-ACM. D.C. No. CV-88-0648-TUC-ACM. Alfredo C. Marquez, District Judge, Presiding.

Before: Cecil F. Poole, Stephen Reinhardt and Ferdinand F. Fernandez, Circuit Judges. Opinion by Judge Fernandez.

Author: Fernandez

FERNANDEZ, Circuit Judge:

Western Chance #2, Inc. (Western Chance) appeals the district court's grant of summary judgment*fn1 in favor of KFC Corporation and KFC National Management Co. (both hereinafter referred to as KFC) on Western Chance's complaint alleging breach of an oral contract which allegedly gave Western Chance an exclusive franchise for the whole city of Tucson, Arizona. Western Chance also appeals the district court's determinations regarding written contracts with KFC. KFC cross appeals the district court's denial of attorneys' fees. We affirm in part and reverse and remand in part.

BACKGROUND

Western Chance is a franchisee of KFC in Tucson, Arizona. It and its sister corporations of the same name own and operate Kentucky Fried Chicken outlets in the city and other areas of southern Arizona. In 1965, Walter Hill (Hill), founder and shareholder of Western Chance, met with Dick Robinson (Robinson), a franchising director at KFC in Kentucky. The purpose of the meeting was to discuss the possible development of KFC outlets by Western Chance. The parties decided that Western Chance would build and operate outlets in Tucson. Western Chance alleges that at this meeting Robinson granted Western Chance exclusive territorial rights for Tucson. Western Chance further alleges that the exclusive territorial agreement consummated with Robinson required Western Chance to open six KFC outlets within a specified time and to continue to open outlets as the population of Tucson grew. Western Chance contends that this oral agreement accorded with the "area-wide" franchises KFC was offering at the time. KFC argues that this alleged agreement never occurred.*fn2

In 1966, Hill moved to Tucson and Western Chance began to build and open the agreed-upon KFC outlets. KFC required Western Chance to enter into a separate franchise agreement for each outlet. One term of the standardized form agreement gave each outlet an exclusive territory within a radius of 1 1/2 miles of the store or within an area containing 30,000 people, whichever was smaller. A subsequent class action settlement between KFC and its franchisees amended the Franchise Agreements to give existing franchisees the right of first application for ownership of contemplated new KFC outlets to be located near the franchisees' existing outlets. (G & K Amendment, Section V). Later franchise agreements incorporated the substance of Section V of the G & K Amendment into their terms. (Franchise Agreements Par. 19). The parties debate the scope of the Paragraph 19. Western Chance argues that it applies to all contemplated stores, whether they be franchised to a third party or owned by KFC. KFC contends that the right of first application is for ownership of contemplated franchised outlets, not contemplated company-owned stores.

In 1974, Western Chance purchased options for eight more KFC outlets in Tucson and southern Arizona. Western Chance exercised a number of the options and developed additional stores. In 1987, one outlet was closed by local health officials for sanitation violations. KFC sued for breach of the franchise agreement covering that outlet. The parties settled, and Western Chance agreed to remedy the sanitation problems and upgrade all of its outlets. It also agreed to surrender an option for a store at Ina and Thornydale roads to KFC. The settlement agreement, dated July 6, 1987, provided that Western Chance released KFC of all obligations and claims arising out of the litigation or from its commercial relationship with KFC (the General Release). KFC contends that the General Release eliminated any obligations it may have had under an oral agreement.

Finally, KFC opened a company-owned store in Tucson and commenced construction on another. Neither is located within the 1 1/2 mile exclusive territory of a Western Chance-owned outlet. Western Chance claimed that the oral agreement granted it the exclusive franchise for the entire city. Thus, it filed this action for, among other things, breach of that agreement.

The facts are more extensively set forth in the district court's opinion and need not be repeated here. Western Chance I, 734 F. Supp. 1530 at 1530-36 .

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction pursuant to 28 U.S.C. § 1332 and § 1446.*fn3 We have jurisdiction pursuant to 28 U.S.C. 1291.

We review de novo the district court's grant of summary judgment. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, __ U.S. __, 110 S. Ct. 3217, 110 L. Ed. 2d 664 (1990). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989). Summary judgment is proper if there are no questions of material fact and the ...


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