Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. La.: Prospective franchisee seeking 'good faith deposit' return denied summary judgment, (Aug 17, 2016)

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

A prospective restaurant franchisee’s summary judgment motion that sought return of a "good faith deposit," after the parties could not agree on the final terms of a franchise agreement, was denied by the federal district court in New Orleans because a genuine issue of material fact existed as to whether the payment was refundable. The court also determined that the prospective franchisee failed to show that there was an absence of evidence to support the franchisor’s counterclaims (Touch Holding Co. v. Copeland’s Cheesecake Bistro, L.L.C., August 15, 2016, Zainey, J.).

Copeland’s Cheesecake Bistro and Touch Holding Company executed a letter of interest in which Copeland’s offered to sell certain rights to Touch Holding and proposed fees for these rights. The letter required Touch Holding to pay Copeland’s a "good faith deposit" of $100,000, with the balance of upfront fees to be paid upon execution of the master franchise agreement. After wiring the deposit, Copeland’s began working on a menu and on "purchasing and distribution" for Touch Holding.

The parties were eventually unable to agree to the final terms of the transaction, and Touch Holding demanded a return of the $100,000. Copeland’s refused and Touch Holding filed suit alleging breach of contract, or, in the alternative, enrichment without cause. Copeland’s responded by asserting counterclaims and affirmative defenses of promissory estoppel and detrimental reliance, negligent misrepresentation, and intentional misrepresentation. Touch Holding then filed a summary judgment motion which sought a return of the $100,000 and dismissal of Copeland’s counterclaims for promissory estoppel and detrimental reliance.

In seeking a return of the $100,000, Touch Holding relied on Louisiana Civil Code Article 2624 which had been applied and interpreted to hold that when a payment is not designated as "earnest money," it is a deposit and therefore refundable. The court, however, found that these cases generally involved real estate sales and, after noting the difference in the relationship between the parties to a real estate sale and that of a franchise agreement, determined that Article 2624 did not apply to the present case.

The court then found that the intention of the parties regarding the $100,000 payment could not be ascertained from the language of the letter of intent. Therefore, because the dispute over the payment and whether it was refundable constituted a genuine dispute about a material fact, the court determined that summary judgment was precluded.

Counterclaims. The court also found that summary judgment was precluded with respect to dismissal of Copeland’s counterclaims for promissory estoppel and detrimental reliance because Touch Holding did not meet its burden of showing that there was an absence of evidence to support Copeland’s counterclaims. Instead, the court found that the evidence suggested that Touch Holding may have made representations via email that induced a "justifiable reliance" by Copeland’s and that Copeland’s spent money on recipe development, administrative expenses and corporate overhead, registering trademarks, and preparing international franchise agreements.

The case is No. 15-5711.

Attorneys: Andrew Lewis Kramer (Andrew L. Kramer, LLC) for Touch Holding Co. Len R. Brignac (King, Krebs & Jurgens, PLLC) for Copeland's Cheesecake Bistro, LLC.

Companies: Touch Holding Co.; Copeland's Cheesecake Bistro, LLC

Cases: FranchisingDistribution LouisianaNews