Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App.: Inquiry into franchise applicant’s felony conviction not prejudicial error, (Feb 12, 2016)

By Michael Menzhuber, J.D., LL.M.

The admission of an applicant’s failure to disclose a felony conviction on a Kawasaki Motors Corp. U.S.A. franchise application, followed by the trial court’s instruction that the disclosure was not required, was not prejudicial error, according to the California Court of Appeal in Sacramento. The trial court also did not err in denying the plaintiffs’ motion for promissory estoppel because there was no evidence of a “clear promise” made on behalf of Kawasaki (R&T Investments, Inc. v. Kawasaki Motors Corp., February 9, 2016, Robie, R.).

Dana Tutt, a co-owner of R&T Investments, along with the Rancourt Family Trust, contacted Kawasaki to discuss acquiring a franchise in the Roseville area. Kawasaki district manager Richard Perrin, made numerous representations concerning Kawasaki’s intention to enter into a franchise and, according to Perrin, the only impediment was the acquisition of a suitable facility from which to operate the franchise. However, after Tutt and Rancourt purchased a parcel of property for the dealership, Perrin informed Tutt that Kawasaki had decided to award the Roseville franchise to another entity.

R&T and its owners asserted several claims against Kawasaki and Perrin which included: breach of contract, breach of the covenant of good faith and fair dealing, intentional misrepresentation, concealment, false promise, and negligent misrepresentation. At the trial, the defendants were permitted to ask Tutt about his truthfulness on the dealership application with respect to a prior felony conviction. The jury, was however, given a special instruction that Tutt’s felony conviction was dismissed and that he was not required to disclose it on his franchise application.

The jury found that R&T had not entered into a contact with Kawasaki for the Roseville franchise. However, it found that Perrin made a false representation to the defendants, which they acted upon to their detriment. The trial court entered judgements on the verdicts and awarded the plaintiffs $45,000 from Perrin and nothing from Kawasaki. The trial court also rejected the plaintiffs’ argument that, under the doctrine of promissory estoppel, that equity demanded the enforcement of the agreement to award them the Roseville Kawasaki franchise.

The plaintiffs’ contended that the trial court erred in allowing Kawasaki to inquire about Tutt’s prior felony conviction, as it related to disclosure on the application. Because the plaintiffs chose to proceed with their appeal on the judgment roll alone, the appellate court’s review was limited to determining whether any error appeared on the face of the record. It found that whether the jury may have been prejudiced by the evidence of the conviction was speculative. Therefore, since the appeal was on the judgment roll alone, no prejudicial error was shown.

The plaintiffs also argued that the trial court erred in denying their motion for judgment notwithstanding the verdict based on promissory estoppel. The appellate court disagreed because the jury did not find the elements of promissory estoppel were established and, in particular, the element of a “clear promise”. It noted that the jury had found that: (1) Perrin had made a “false representation of an important fact” but that this was not the equivalent of a finding that Perrin, let alone Kawasaki, had made a “clear promise”; and (2) Perrin did not have ostensible authority to make a representation on behalf of Kawasaki.

The case is No. C078231.

Attorneys: Michael Sieving for R & T Investments, Inc. Maurice Sanchez (Baker & Hostetler LLP) for Kawasaki Motors Corp., USA.

Companies: R & T Investments, Inc.; Kawasaki Motors Corp., USA

Cases: FranchisingDistribution CaliforniaNews