Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—La. Ct. App.: Refusal to offer additional units to franchisee not unfair or deceptive, (Oct 2, 2014)

By John W. Arden, J.D., LL.M.

AFC Enterprises’ refusal to “grow with” an existing Popeye’s franchisee by granting additional franchises or approving the transfer of existing franchises was not an unfair or deceptive practice in violation of the Louisiana Unfair Trade Practices Act, according to the Louisiana Court of Appeals. A state district court’s dismissal of the franchisee’s claims was affirmed (LeCompte v. AFC Enterprises, Inc., October 1, 2014, Cooks, S.)

Kenneth John LeCompte was the principal and sole shareholder of a Louisiana corporation that owned and operated two Popeye’s restaurants. In 2004, LeCompte sought to acquire additional franchises in nearby towns. However, an AFC representative allegedly told him that the franchisor “did not want to grow” with him by giving him a new store. In correspondence, AFC simply stated that “we are not interested in considering the LeComptes for growth in the POPEYES system . . . “

Soon thereafter, another Popeye’s franchisee offered to sell his two franchises to LeCompte. Concerned about AFC’s stated position about his acquiring new franchises, LeCompte had his attorney inquire about the offer. LeCompte received a letter from AFC, again stating that the franchisor was not interested in considering him for growth in the system, whether through acquisition of an existing franchise or through new development. LeCompte believed that the refusals were the result of prior litigation he instituted against AFC. After that litigation in mediation, AFC assured LeCompte that the litigation would not affect his ability to acquire additional franchises.

Subsequent to AFC’s disapproval of the franchise transfers, LeCompte filed a lawsuit against AFC and its representatives, claiming that their refusal to “grow with” him amounted to violations of the Louisiana Unfair Trade Practices Act and the abuse of rights doctrine.

In response, AFC filed exceptions of no right of action and no cause of action and a motion for summary judgment. The district court granted the exception of no right of action and gave LeCompte time to amend the pleadings. After the parties failed to reach a settlement, the district court granted the motion for summary judgment, dismissing the claims. LeCompte appealed.

The appellate court upheld the ruling of no cause of action. LeCompte claimed that AFC breached its contract with the proposed franchise transferor, but the court found that LeCompte was not a party to the contract and lacked standing to assert that AFC’s disapproval of the transfer was a breach of contract. The appeals court agreed.

The district court’s grant of summary judgment for AFC was affirmed on the ground that the refusals to grant additional franchises did not constitute unfair or deceptive acts under the Louisiana Unfair Trade Practices Act. At the summary judgment stage, AFC had argued that the parties never had a development agreement and, in the absence of such an agreement, it was not obligated to allow LeCompte to acquire additional franchises. LeCompte alleged that the refusals were in retribution of the prior litigation and therefore were unfair trade practices.

The appeals court ruled that AFC was under no legal obligation to grant additional franchises. “The record is simply devoid of any proof that AFC’s refusal to grant Plaintiffs’ additional franchises violates any LUPTA provisions.” The abuse of rights claim was likewise lacking, according to the court.

LeCompte presented no evidence that AFC’s refusal to “grow with” him was motivated by a cause to harm, bad motive, or bad faith, the court concluded. AFC simply had no legal obligation to do additional business with him.

The case is No. 14-242.

Attorneys: Stan Gauthier, II and Michael G. Johnston II for Kenneth John LeCompte and Joanne Mathias LeCompte. Edmond L. Guidry, III (Guidry & Guidry) for AFC Enterprises.

Cases: FranchisingDistribution StateUnfairTradePractices LouisianaNews