Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Ariz.: Claims against principals of chocolate shop franchisor dismissed, (Jul 12, 2013)

By Peter Reap, J.D., LL.M.

Claims of tortious interference, intentional infliction of emotional distress, and breach of the implied covenant of good faith and fair dealing brought against Bernard Callebaut and Francesca Callebaut (collectively “Defendants”), the two individual principals of chocolate shop franchisor Chocolaterie Bernard Callebaut Ltd. (“CBC”), by a franchisee and its owner have been dismissed by the federal district court in Phoenix (Chocolates by Bernard, LLC v. Chocolaterie Bernard Callebaut Ltd., July 11, 2013, Sedwick, J.). Although the claims were also asserted against franchisor CBC, the franchisor was protected by a bankruptcy stay issued by a Canadian court. Thus, the case proceeded solely against the Defendants.

Intentional interference with contractual relations. The claim for intentional interference with contractual relations was barred by the applicable statute of limitations because the claim accrued more than two years prior to the filing of the lawsuit, the court decided. Thus, the Defendants were entitled to dismissal of the claim.

Intentional infliction of emotional distress. The remaining claims related to the franchisor’s alleged refusal to ship chocolate goods to the franchisee, the court noted. Arizona law set out three required elements of a claim for intentional infliction of emotional distress. “The three required elements are: (1) the conduct by the defendant must be “extreme” and “outrageous”; (2) the defendant must either intend to cause emotional distress or recklessly disregard the near certainty that such distress will result from his conduct; and (3) severe emotional distress must indeed occur as a result of defendant’s conduct.

Assuming that the two-year statute of limitations also applied to the claim for intentional infliction of emotional distress, it was timely because the complaint was filed less than two years after the underlying events occurred in April and May of 2008.

The Defendants also attempted to avoid liability on the fourth claim on the basis that “the members of a partnership are generally not liable for the partnership’s obligations, and are not proper parties to such a lawsuit [when the partnership is a limited liability partnership].” However, the record did not establish that CBC is a limited liability partnership. In the amended complaint, the plaintiffs alleged that CBC is a corporation, the court noted.

In their answer, the Defendants refused to respond to that allegation. Therefore, the Defendants’ argument about limited liability partnerships missed the mark, the court held.

However, conduct alleged in the claim for intentional infliction of emotional distress did not meet the test articulated by the Arizona Supreme court by being “so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community,” the court determined. The conduct could have involved a breach of contract, but it failed to clear the high bar Arizona law established for the first element of a claim of intentional infliction of emotional distress. Indeed, the conduct alleged in the fourth claim was less reprehensible than the conduct alleged in the applicable caselaw. Thus, the claim was dismissed.

Implied covenant of good faith and fair dealing. As pointed out by the Defendants, they were not parties to any contract with either the franchisee or its owner. Without a contractual relationship between the plaintiffs and defendants, the covenant of good faith that was generally implied in all contracts in Arizona was inapplicable. Thus, the Defendants could not have breached any duty to act in good faith and the claim was dismissed, the court held.

The case is No. 2:10-cv-01298 JWS.

Attorneys: Sal James Rivera (Rivera Law Group PC) for Murray Kuzek and Chocolates by Bernard LLC. Paul Sullivan Gerding , Jr. (Kutak Rock LLP) for Chocolaterie Bernard Callebaut Ltd.

Companies: Chocolates by Bernard LLC.; Chocolaterie Bernard Callebaut Ltd.

Cases: FranchisingDistribution ArizonaNews