Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Ky.: Franchisors unable to hide behind confidentiality concern in discovery, (Aug 22, 2013)

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

Fast food restaurant franchisors Long John Silver’s, Inc., Yum! Brands, Inc., and LJS Partners, LLC (the “Defendants”), were ordered to comply with the disputed discovery requests for information put forth by a terminated franchisee, Janko Enterprises, Inc., and its two principals, Sandra and Robert Jankovich (the “Plaintiffs”), because the requested information was relevant and the Defendants’ confidentiality concerns were unpersuasive, the federal district court in Louisville, has decided (Janko Enterprises, Inc. v. Long John Silver’s, Inc., August 16, 2013, Whalin, J.). Further, the Defendants’ objection to the requests on the grounds that they were too burdensome was without merit.

The complaint alleged that in 2006, the Plaintiffs, in an effort to obtain a Taco Bell franchise, were provided information by the Defendant Yum! about franchising opportunities involving Long John Silver’s, KFC and A&W. Mrs. Jankovich attended a “Discovery Day” at Yum! the following month where she claimed that she was told that Yum! was putting all of its efforts into promoting the concept of a combined Long John Silver’s and A&W outlet or LAW unit, and that Yum! was putting millions of dollars, into research, development and marketing of such co-branded stores.

Mrs. Jankovich further claimed she was told at the event that LAW franchisees would be trained without additional cost in company-owned LAW stores, and that the combined LAW units would make specified levels of revenue. That summer, Defendants Yum! and Long John Silver’s forwarded her a Uniform Franchise Offering Circular (UFOC) for co-branded Long John Silver’s and A&W restaurants. The Plaintiffs claimed that as a result of the above representations made at Discovery Day during Bisignano’s visit and in the UFOC, they became a franchisee of a LAW unit in February of 2007, and made preparation to obtain space for the future LAW restaurant in Titusville, Florida, by leasing commercial property and taking steps to obtain a building permit.

The Jankoviches continued in their second amended complaint to allege that more than 26 months then passed, however, before the company would approve the building layout and blueprints that had been supplied by Long John Silver’s. Following the initial approval for construction plans, the Defendants changed the building format and design three times, thereby forcing Jankoviches and their company Janko to restart the project with newer plans, resulting not only in major delays, but tens of thousands of dollars in extra architecture and engineering fees.

Significantly, they alleged in Janko’s second amended complaint that at the very time that Yum! and/or Long John Silver’s were forcing them to make these changes, Yum! had already decided that the LAW or combo-restaurant concept was a financial failure and had determined that the company would no longer develop or support any LAW restaurants. Yum! then allegedly advised Janko that it would proceed with building a single Long John Silver’s restaurant. Due to the alleged delays, inaction and uncooperative behavior of Yum! and Long John Silver’s, however, Janko never was able to complete the construction of the restaurant. Long John Silver’s thereafter in January of 2011, terminated the franchise agreement.

Based on the above allegations, Janko claimed that during the period from mid-2007, through March of 2010, Yum! and Long John Silver’s encouraged and misled Janko to develop a LAW franchise restaurant even though they had already decided that they would no longer support any such new combined restaurant franchises. Janko sued the Defendants on claims of breach of contract, tortious interference with contract (Yum!), fraud and fraud in the inducement, breach of good faith and fair dealing, violation of the Florida Franchise Act and the Florida Unfair and Deceptive Trade Practices Act.

Janko’s two interrogatories now in dispute requested the following information:

17. State the date that Yum! Brands, Inc. made the decision to divest itself and/or sell its interest in Long John Silver’s, Inc., and state the reasons why said divestment decision was made.

18. State the date that Yum! Brands, Inc. began negotiations with LJS Partners, LLC (or its owners) to sell Yum!’s ownership interest in Long John Silver’s, Inc.

The Defendants made an identical objection to both interrogatories. In each case, they responded: “ANSWER: Defendants specifically object to interrogatory no. 17 [18] because it seeks highly proprietary information that is not relevant to the subject matter involved in the pending action and that is not reasonably calculated to lead to the discovery of admissible evidence.”

Request for production no. 3 also addressed the same subject and sought “all documents pertaining to the decision of Yum! Brands, Inc. to divest itself of all Long John Silver’s, Inc. restaurants.” The Defendants responded with the same objection that the documents sought are highly proprietary and not relevant nor reasonably calculated to lead to the discovery of admissible evidence.

The scope of discovery is set out in Rule 26(b)(1) of the Federal Rules of Civil Procedure. The Rule explicitly states that a party “may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense....” Fed. R. Civ. P. 26(b)(1). It is well established by now that this language is broadly construed by the federal courts to include any matter that bears on, or that reasonably could lead to other matter[s] that could bear on, any issue that is or may be in the case, the court noted.

When the discovery material sought appears to be relevant, the party who is resisting production has the burden to establish that the material either does not come within the scope of relevance or is of such marginal relevance that the potential harm resulting from production outweighs the presumption in favor of broad disclosure.

Here, the two interrogatories and the document request at issue easily satisfied the standard for relevancy set forth in Rule 26(b)(1) when one examined the claims set forth in Janko’s second amended complaint, the court held. The information sought by both interrogatory no. 17 and 18 clearly was relevant to the claims raised in the Second Amended Complaint. Further, the supplemental responses by the Defendants were inadequate, the court explained.

The same was true with equal force for the date that Yum! began negotiations with LJS Partners, LLC or the owners of LJS to sell its interest in Long John Silver’s. While the Defendants provided the date on which LJS Partners, LLC was organized, September 20, 2011, such information shed little light on when negotiations between LJS Partners and Yum! began over the sale of Long John Silver’s, the court observed.

The objection of the Defendants based upon the alleged proprietary nature of such information or other confidentiality-related concerns was unpersuasive for a number of reasons. First, the parties entered into a protective order and confidentiality agreement. That order was entirely sufficient to address such concerns, according to the court.

Second, the sale of Long John Silver’s to JLS Partners, LLC, occurred now over two years ago so that a legitimate question could be raised about the proprietary status of such historical information at this point in time. Even assuming that the requested information was proprietary, the law simply did not favor the refusal of a party to disclose otherwise relevant information merely because of its proprietary status.

The final objection of the Defendants, that compliance with the document request of the Plaintiffs would be unduly burdensome, also was rejected for lack of sufficient specificity. In other words, such an objection was a mere boilerplate objection that was insufficient to prevent compliance with the document request, according to the court.

The Defendants were ordered to provide the Plaintiffs with supplemental discovery responses to interrogatories no. 17 and 18, and request for production of documents no. 3 within 30 days.

The case is Civil Action No. 3:12-CV-345-S.

Attorneys: W. Michael Garner (W. Michael Garner, P.S.) for Janko Enterprises, Inc. Jeremiah A. Byrne (Frost Brown Todd LLC) for Long John Silvers, Inc.

Companies: Janko Enterprises, Inc.; Long John Silvers, Inc.; Yum! Brands, Inc.; LJS Partners, LLC.

Cases: FranchisingDistribution KentuckyNews