Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Cal.: Food supplier could not intervene in franchising dispute, (Apr 11, 2014)

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

McLane Foodservice, Inc., a supplier to franchised restaurants, was not entitled to intervene, either by right or permissively, in an action brought by franchisor Jack in the Box against some of its terminated franchisees for failing to make timely payments, the federal district court in San Jose has decided (Jack in the Box Inc. v. Mehta, April 9, 2014, Davila, J.).

Background. McLane delivered food and supplies pursuant to its agreements with the franchisees through October 10, 2013. However, before McLane was paid for all of its deliveries, Jack in the Box terminated its franchise agreements with the franchisees, initiated the instant lawsuit, and took over operations of the restaurants pursuant to a court order entered in lieu of a receivership.

The total principal amount due to McLane from the franchisees was $409,895, plus interest and late charges, the court noted. McLane sought to intervene in this action to recover the remaining amount from Jack in the Box.

Intervention. To establish the right to intervene under Rule 24(a)(2), a third party applicant must establish four elements: (1) its motion must be timely; (2) the applicant must claim a “significantly protectable” interest relating to the property or transaction which is the subject of the action; (3) the applicant must be so situated that the disposition of the action may as a practical matter impair or impede its ability to protect that interest; and (4) the applicant’s interest must be inadequately represented by the parties to the action. As to Rule 24(b), the court may permit a party to intervene in its discretion.

Starting with intervention of right, there was little doubt that McLane’s application met the timeliness requirement, according to the court. As to prejudice, McLane’s addition at this early stage would not cause meaningful disadvantage to any party. Furthermore, any delay in bringing this motion was explained by the time McLane took to determine whether Jack in the Box would voluntarily pay the outstanding balance short of litigation. That was a reasonable explanation, the court determined. It was also true that McLane’s interest was not represented by the current named parties to this action.

In contrast, McLane did not meet its burden to show the remaining two factors for intervention under Rule 24(a). McLane’s interest in collecting on a debt simply related to the operation of the restaurants was not raised by Jack in the Box’s claims and did not justify intervention as of right. In addition, the disposition of this action would not impair McLane’s ability to protect its interest. Because McLane did not demonstrate a significantly protectable interest and would not be impaired by a disposition in this case, its request to intervene as of right under Rule 24(a) was denied.

The determination that McLane’s interest was distinct from all claims raised in this action meant it failed to establish the common question of law or fact necessary for permissive intervention. Thus, its request under Rule 24(b) was denied as well.

The case is No. 5:13-cv-04444 EJD.

Attorneys: Robert Scott McWhorter (Nossaman LLP) for Jack in the Box Inc. Kelli Michelle Kennaday (Kennaday, Leavitt & Daponde PC) for Deepak Mehta, Mehta Enterprises, Inc., and Deepak Enterprises, Inc.

Companies: Mehta Enterprises, Inc.; Deepak Enterprises, Inc.; Jack in the Box Inc.

Cases: FranchisingDistribution CaliforniaNews