B & H NATIONAL PLACE, INC., et al., Plaintiffs/Counter-Defendants, v. Charles BERESFORD, et al., Defendants/Counter-Plaintiffs. v. Byung Kwon Cho & Hana Cho, Third-Party Defendants.
Civil Case No. 10-855 (RJL)
United States District Court, District of Columbia.
March 24, 2012
850 F. Supp. 2d 251
RICHARD J. LEON, District Judge.
Lori Vaughn Ebersohl, Apatoff Peters Ebersohl, LLP, Falls Church, VA, for Defendants/Counter-Plaintiffs.
Andrew Kenneth Wible, Cohen Mohr, LLP, Washington, DC, for Third-Party Defendants.
MEMORANDUM OPINION
RICHARD J. LEON, District Judge.
Plaintiffs B & H National Place, Inc. and B & H International Square, Inc. (“plaintiffs“) bring this suit against defendants Charles Beresford, Delores Beresford, Stephen Forehand, Froda, Inc., and Froda International Square LLC (collectively, the “Beresford defendants“) and Five Guys Enterprises, LLC (“FGE“). Plaintiffs allege multiple claims arising out of the Beresford defendants’ opening of a new restaurant near other restaurants that plaintiffs had purchased from the Beresford defendants. Presently before the Court are three summary judgment motions: (1) the Beresford defendants’ motion for judgment on plaintiffs’ claims [Dkt. # 51]; (2) defendant FGE‘s motion for judgment on plaintiffs’ claims [Dkt. # 52]; and (3) plaintiffs and third-party defendants Byung Kwon Cho and Hana Cho‘s (“the Chos“) motion for judgment on several of plaintiffs’ claims as well as on FGE‘s counterclaims and third-party claims [Dkt. # 62]. Upon consideration of
BACKGROUND
This case involves three Five Guys Burgers and Fries (“Five Guys“) restaurants located in the District of Columbia. In 2008, the Beresford defendants sold plaintiffs two of these restaurants—the Five Guys at 1331 Pennsylvania Avenue, N.W. (“National Place“) and the Five Guys at 1825 Eye Street, N.W. (“International Square“). Am. Compl. ¶¶ 2-3, 23 [Dkt. # 1-1]. Currently, plaintiffs B & H National Place, Inc. (“B & H National“) and B & H International Square, Inc. (“B & H Intl.“), who are also counter-defendants in this litigation, own and operate these two restaurants. Id. ¶¶ 2-3. In turn, the Chos, who are also third-party defendants in this case, are owners and principals of the two B & H entities. Def. FGE‘s Mot. Summ. J. (“Def. FGE‘s Mot.“) 6, ¶ 1 [Dkt. # 52].
The previous owners of National Place and International Square were, respectively, defendants Froda, Inc. (“Froda“) and Froda International Square LLC (“Froda Intl.“). Am. Compl. ¶¶ 7-8.1 In turn, defendants Charles Beresford, Delores Beresford, and Stephen Forehand (the “individual defendants“) are the stockholders and officers of the Froda entities. Id. ¶ 9; Beresford Defs.’ Mot. Summ. J. (“Beresford Defs.’ Mot.“) 3, ¶¶ 6-7, 10 [Dkt. # 51]. Currently, Froda Intl. owns and operates a third restaurant, located at 1400 Eye Street, N.W. (“1400 Eye Street“), which opened in November 2009. Am. Compl. ¶¶ 8, 47; Pls.’ & Third-Party Defs.’ Mot. Summ. J. (“Pls.’ Mot.“) 6, ¶ 25 [Dkt. # 62]. Five Guys Enterprises, LLC (“FGE“), which is a defendant, counter-claimant, and third-party plaintiff in this case, is the franchisor of all Five Guys restaurants. Am. Compl. ¶ 10. The details and terms of the sale of the National Place and International Square restaurants are central to this litigation.
In May 2008, a realty broker contacted Charles Beresford and Stephen Forehand to inquire whether any of the Beresford defendants’ Five Guys restaurants, including National Place and International Square, were for sale. Decl. of J. Noh, Ex. GG to Pls.’ Opp‘n to Beresford Defs.’ Mot. (“Pls.’ Opp‘n Beresford“) ¶¶ 2-5 [Dkt. # 56-3]. The broker then identified the Chos as potential buyers and, on June 2, 2008, submitted an offer on the Chos’ behalf to purchase National Place and International Square. Pls.’ SOF ¶¶ 52-54 [Dkt. # 56-1]. After some negotiations, the Chos entered into a Purchase Agreement with the Froda entities, backdated June 2, 2008, in which those entities agreed to sell the two restaurants to the Chos.2 Beresford Defs.’ SOF ¶¶ 24-31 [Dkt. # 51-1]; Am. Compl. ¶ 23, Ex. B. Then, on October 14, 2008, FGE entered into a Transfer and Release Agreement with Charles Beresford,
Later, at the sales-closings of the restaurants, the parties entered into separate non-compete agreements (“the Covenants“). Pls.’ SOF ¶¶ 70-75; Am. Compl. Exs. D, E. Specifically, B & H National, the final purchaser of National Place, entered into a Covenant with Froda on November 6, 2008, Am. Compl. ¶ 38, Ex. D, and B & H Intl., the final purchaser of International Square, entered into a Covenant with Froda Intl. on January 30, 2009, Am. Compl. ¶ 40, Ex. E.3
Separately, Forehand had applied for site approval from FGE for the 1400 Eye Street location on June 4, 2008. Def. FGE‘s Mot. 6, ¶ 9.4 Although FGE initially approved the site, the project was delayed and then terminated before finally coming to fruition. See Ex. I to Pls.’ Mot. at FGE000444-45 [Dkt. # 62-3]. On or about November 2, 2009, Froda Intl. opened 1400 Eye Street. Am. Compl. ¶ 47. Subsequently, on May 3, 2010, plaintiffs initiated this suit in D.C. Superior Court and, on May 7, 2010, amended that complaint. Then, on May 24, 2010, the Beresford defendants removed the case to this Court. Plaintiffs allege multiple claims centered on plaintiffs’ contention that the Beresford defendants opened 1400 Eye Street in violation of the Covenants, with FGE‘s knowledge and approval. Id. ¶ 1. Specifically, plaintiffs allege breach of both Covenants against the Beresford defendants (Counts I, III),5 breach of both Covenants under an alter-ego theory against the individual defendants (Counts II, IV), breach of the implied duty of good faith and fair dealing against the Beresford defendants (Count V),6 fraud against the Beresford defendants (Count VII), tortious interference with a contract against FGE (Count VIII), and common law and statutory business conspiracy against all defendants (Counts IX-X). Id. ¶¶ 53-124.
On October 29, 2010, FGE filed its answer and counterclaimed against plaintiffs, seeking damages and attorneys’ fees for an alleged breach of the Transfer and Release Agreement by filing suit against FGE. Def. FGE Answer & Countercl. 13-15 [Dkt. # 17]. Subsequently, on November 8, 2010, FGE filed a third-party complaint against the Chos as owners and personal guarantors of the B & H entities and as separate signatories to the Transfer and Release Agreement, also seeking damages and attorneys’ fees for breach of that
Following discovery, the Beresford defendants moved for summary judgment on all of plaintiffs’ claims against them (Counts I-VII, IX-X) on May 31, 2011. Beresford Defs.’ Mot. 1. Then, on June 3, 2011, FGE separately moved for summary judgment on plaintiffs’ claims against FGE (Counts VIII-X). Def. FGE‘s Mot. 1-4. Finally, on August 10, 2011, the plaintiff B & H entities and the third-party defendant Chos moved (1) for partial summary judgment in favor of their breach of contract claims (Counts I-IV), breach of the implied duty of good faith and fair dealing claim (Count V), and tortious interference claim (Count VIII); and (2) for summary judgment on FGE‘s counterclaims and third-party claims. Pls.’ Mot. 1.
STANDARD OF REVIEW
Summary judgment is appropriate when the movant demonstrates that there is no genuine issue of material fact in dispute and that the moving party is entitled to judgment as a matter of law.
ANALYSIS
I. The Beresford Defendants Are Entitled to Summary Judgment on Plaintiffs’ Breach of Contract Claims.
Because plaintiffs have failed to provide sufficient evidence for a reasonable jury to find that the Beresford defendants breached the Covenants, defendants are entitled to judgment on those claims. See Am. Compl. ¶¶ 53-88 (Counts I-IV). Plaintiffs’ breach of contract claims turn on the answers to two questions: (1) whether 1400 Eye Street is located within four blocks of plaintiffs’ restaurants; and (2) whether defendants have solicited trade within four blocks of plaintiffs’ restaurants. See id. ¶¶ 57, 68, 75, 86. The defendants contend both that 1400 Eye Street is more than four blocks from plaintiffs’ restaurants and that they have not—and plaintiffs have not provided any evidence thereof—solicited trade within four blocks of plaintiffs’ restaurants. Beresford Defs.’ Mot. 14-21; Def. FGE‘s Mot. 15-18. I agree, and, therefore, the Beresford defendants’ motion must be granted and the plaintiffs’ motion must be denied as to these claims.
A. Location of 1400 Eye Street
According to the maps submitted by the parties, more than four blocks separate 1400 Eye Street on a direct line from each National Place and International Square. See Ex. B to Beresford Defs.’ Mot.; Exs. LLL, MMM, NNN to Pls.’ Opp‘n Beresford. Nevertheless, plaintiffs argue that 1400 Eye Street‘s physical location still violates the Covenants, based upon their contentions that “a distance of four (4) blocks” actually refers to a four-block radius and that certain “blocks” between the restaurants are not actually blocks under the Covenants. Pls.’ Opp‘n Beresford 4-9.
“Where the language in [a contract] is unambiguous, its interpretation is a question of law for the court.” Independence Mgmt. Co., Inc. v. Anderson & Summers, LLC, 874 A.2d 862, 867 (D.C. 2005). Whether a contract‘s language is ambiguous is also a question of law for the court. Akassy v. William Penn Apartments Ltd. P‘ship, 891 A.2d 291, 299 (D.C. 2006). To determine whether language is ambiguous, courts “examine the document on its face, giving the language used therein its plain meaning.” Id. at 299 (citation omitted). Here, the Covenants are unambiguous; the relevant language refers simply to a “distance of four (4) blocks.”7 Plaintiffs’ interpretations are discounted by this plain language—the Covenants neither reference radii nor exclude certain areas from the definition of blocks.
Plaintiffs contend, however, that referencing other evidence is necessary to determine how a reasonable person would interpret this language. See Pls.’ Opp‘n Beresford 4-7 (citing St. James Mut. Homes v. Andrade, 951 A.2d 766, 771 (D.C. 2008)); Pls.’ Mot. 10-12. Even considering additional evidence, a reasonable person would still reject plaintiffs’ interpretations. First, plaintiffs claim that a protected territory in a business sale is “customarily defined as a circular area determined by a particular radius” and cite two cases for support: Allison v. Seigle, 79 F.2d 170 (D.C. Cir. 1935) and Deutsch v. Barsky, 795 A.2d 669 (D.C. 2002). Pls.’ Opp‘n Beresford 5-6.8 But, far from representing any customary practice, the non-compete clauses in both of those cases specifically included the term radius, unlike those here. See 79 F.2d at 171, 795 A.2d at 671. Plaintiffs also argue a course-of-dealing supports their interpretation because these parties were aware of non-compete language in other documents that defined a prohibited area with a radial distance. See Pls.’ Opp‘n Beresford 5-7. At best however, plaintiffs’ examples only show that the parties may have been aware of such radius language and chose not to use it.9 Finally, plaintiffs contend, without offering any support, that counting a certain block between 1400 Eye Street and National Place, “the triangular area bounded by 14th and H Streets, and New York Avenue,” would be “unreasonable.” See id. at 9.10 In sum, plaintiffs have failed to offer any support for their
B. Soliciting Trade
Second, plaintiffs have failed to provide any evidence that the defendants solicited trade within the four-block restricted areas. Apparently recognizing this deficiency, plaintiffs resort to an effort to redefine the phrase “solicit trade” such as to expand the restricted areas beyond four blocks. See Pls.’ Opp‘n Beresford 9-11; Pls.’ Mot. 12-14; see also Dep. of Byung Cho, Ex. I to Beresford Defs.’ Mot. 80:3-81:16 [Dkt. # 51-10]. Specifically, plaintiffs claim that “solicit trade” must be interpreted broadly to give the clause some effect as FGE already prohibits its franchisees from independently advertising. See Pls.’ Opp‘n Beresford 9-10; see also Pls.’ Mot. 13 (claiming that “prohibiting only the active soliciting of customers would deprive [this clause] of all meaning“). Plaintiffs argue therefore that the Covenants prohibit defendants from opening a restaurant with a “passive draw” or “Trade Area”12 that intrudes within four blocks of plaintiffs’ restaurants. See Pls.’ Opp‘n Beresford 10; Pls.’ Mot. 12-14. But, plaintiffs present a false choice because their interpretation is plainly unreasonable.
The fact that defendants might otherwise be prohibited from advertising Five Guys does not justify an unreasonable interpretation contrary to the Covenants’ plain language, which does not mention a “trade area.” See District of Columbia v. D.C. Pub. Serv. Comm‘n, 963 A.2d 1144, 1155 (D.C. 2009) (noting that courts must give a “reasonable, lawful, and effective meaning to all [a contract‘s] terms“).13 To have any discernible standard, the Covenants cannot possibly prevent defendants from performing actions, which may have a passive effect, outside of four blocks. Moreover, non-compete agreements should be construed narrowly so as to be reasonable. See Deutsch v. Barsky, 795 A.2d 669, 674-78 (D.C. 2002). Therefore, plain-
C. The Individual Defendants
Even if plaintiffs could prove defendants breached the Covenants, Charles and Dolores Beresford and Stephen Forehand (the “individual defendants“) would still be entitled to summary judgment because they are not parties to the Covenants. Neither Beresford was personally a party to the Purchase Agreement or the Covenants, and Stephen Forehand was a party only to the Purchase Agreement. See generally Am. Compl. Exs. B, D, E. Additionally, through the Covenants’ integration clauses, the Covenants superseded the Purchase Agreement‘s non-compete clause. See Am. Compl. Exs. D ¶ 5, E ¶ 5; see also Ozerol v. Howard Univ., 545 A.2d 638, 642 (D.C. 1988) (noting that an integrated contract precludes introduction of prior agreements). Therefore, only the Froda entities, the actual signatories, may be bound by the Covenants.
Plaintiffs contend, however, that the Purchase Agreement remains enforceable against Forehand or, alternatively, that the individual defendants are liable under the Covenants under an alter-ego theory. Pls.’ Opp‘n Beresford 11-18. These arguments are without merit. First, plaintiffs claim that the Purchase Agreement cannot have merged because the parties to that agreement and the Covenants were not identical. See id. at 12. But, plaintiffs cite no binding authority for this proposition. Cf. Wash. Inv. Partners of Del., LLC v. Sec. House, K.S.C.C., 28 A.3d 566, 574 (D.C. 2011) (enforcing integration clause against party that signed that agreement where different companies had signed the two agreements). Further, because the non-compete agreements merged, plaintiffs cannot rely on Purchase Agreement language, including that document‘s non-merger clause, to argue that the parties did not want the agreements to merge. See Pls.’ Opp‘n Beresford 12.; Am. Compl. Ex. B ¶ 19. And, even though the Covenants refer to the sellers’ potentially acting as an “officer, director, or employee of a corporation, or as sole proprietors,” Pls.’ Opp‘n Beresford 12-13, there is no question that the Covenants define “Seller” only as Froda and Froda Intl., respectively, Am. Compl. Exs. D, E. Finally, plaintiffs contend that the Covenants would be “illusory” if at least one of the individual defendants was not bound. Pls.’ Opp‘n Beresford 13. Yet, this argument warrants little weight given that the Covenants were drafted by the plaintiffs’ own attorney, see Forehand Decl. ¶¶ 33-34, and that it is contradicted by the Covenants’ express terms. Therefore, the Covenants, and not the Purchase Agreement, are the operative non-compete agreements.
Similarly, plaintiffs’ claims under the “alter-ego” theory of liability fail. See Am. Compl. ¶¶ 60-70 (Count II), 78-88 (Count IV).14 Under, the “alter-ego”
II. The Beresford Defendants Are Entitled to Summary Judgment on Plaintiffs’ Claim of Breach of the Implied Duty of Good Faith and Fair Dealing.
Plaintiffs have also failed to provide sufficient evidence that the Beresford defendants breached an implied duty of good faith and fair dealing. Am. Compl. ¶¶ 89-93 (Count V).16 Plaintiffs allege that defendants breached this duty “by withholding from Plaintiffs their intention to open a new franchise within the Restricted Territory and thereafter establishing and operating a competing franchise within the Restricted Territories.” Id. ¶ 92. As previously discussed, plaintiffs cannot show that 1400 Eye Street is within the protected area. And as for the claim that defendants withheld their intention to build a new franchise, Plaintiffs have not provided any actual evidence that defendants believed the new restaurant would breach the Covenants. See Pls.’ Opp‘n Beresford 18-19. Regardless, this claim is flawed because defendants simply had no duty under the Covenants to disclose their business plans. C & E Servs., Inc. v. Ashland Inc., 601 F. Supp. 2d 262, 275 (D.D.C. 2009) (“The breach of the duty of good faith and fair dealing must necessarily arise out of the performance or enforcement of the contract, not out of the contract negotia-
III. The Beresford Defendants Are Entitled to Summary Judgment on Plaintiffs’ Claim of Fraud.
Plaintiffs’ fraud claim against the Beresford defendants must also fail. Am. Compl. ¶¶ 98-106 (Count VII). “The essential elements of common law fraud are: (1) a false representation (2) in reference to a material fact, (3) made with knowledge of its falsity, (4) with the intent to deceive, and (5) action is taken in reliance upon the representation.” Bennett v. Kiggins, 377 A.2d 57, 59 (D.C. 1977) (citations omitted). First, plaintiffs argue that the defendants, primarily Forehand, committed fraud solely by entering into the non-compete agreements without the intention to abide by these agreements. See Pls.’ Opp‘n Beresford 20. Such a claim would require, however, that defendants actually breached the Covenants: a “contractual commitment may be actionable as fraud,” but “the first step to this inquiry is whether the contract was in fact breached at all.” Va. Acad. of Clinical Psychologists v. Grp. Hospitalization & Med. Servs., Inc., 878 A.2d 1226, 1234-35 (D.C. 2005). Even if plaintiffs were able to show the defendants breached the Covenants, plaintiffs have not provided the requisite clear and convincing evidence that the defendants, when entering the Covenants, intended to breach them. Atraqchi v. GUMC Unified Billing Servs., 788 A.2d 559, 563 (D.C. 2002) (holding that plaintiffs must prove common law fraud by clear and convincing evidence); see also supra note 16 (discussing evidence indicating that Forehand believed 1400 Eye Street would not violate the Covenants).
Plaintiffs also contend that defendants committed fraud by concealing the fact that they planned to open 1400 Eye Street. See Pls.’ Opp‘n Beresford 20. But, as previously discussed, the defendants were not under any duty to disclose their plans. See also Kapiloff v. Abington Plaza Corp., 59 A.2d 516, 517 (D.C. 1948) (“[M]ere silence does not constitute fraud unless there is a duty to speak.“). Nor have plaintiffs provided any evidence that defendants misrepresented to plaintiffs the locations of their planned restaurant.17 At bottom, plaintiffs’ fraud claim is inextricably bound to plaintiffs’ deficient breach of contract claims, and, therefore, defendants are also entitled to judgment on this claim. See Pls.’ Opp‘n Beresford 20 (“The allegations of fraud in this case closely parallel Plaintiffs’ claims for breach of contract.“); see also Am. Compl. ¶¶ 99-103 (alleging fraud based on defendants’ representations that they “would not compete with Plaintiffs within 4 blocks of each restaurant“).
IV. FGE Is Entitled to Summary Judgment on Plaintiffs’ Tortious Interference with a Contract Claim.
Because plaintiffs have failed to provide evidence that FGE intentionally procured a breach of contract, FGE is entitled to summary judgment on plaintiffs’ tortious interference claim. See Am. Compl. ¶¶ 107-114 (Count VIII). A breach of contract or failure of performance is a prerequisite for tortious interference claims. Casco Marina Dev., LLC. v. D.C. Redevelopment Land Agency, 834 A.2d 77, 83 (D.C. 2003);
V. Defendants Are Entitled to Summary Judgment on Plaintiffs’ Common Law and Statutory Business Conspiracy Claims.
Plaintiffs have also failed to provide sufficient evidence to support their conspiracy claims. Am. Compl. ¶¶ 115-119 (Count IX, Common Law Conspiracy), ¶¶ 120-24 (Count X, Statutory Business Conspiracy).19 Under District of Columbia law, the elements of civil conspiracy are: “(1) an agreement between two or more persons; (2) to participate in an unlawful act, or in a lawful act in an unlawful manner; and (3) an injury caused by an unlaw-
Even if plaintiffs’ tortious interference or fraud claims were viable, plaintiffs have failed to provide any evidence of an agreement to participate in an unlawful act. Instead, plaintiffs’ cited evidence relates only to lawful actions conducted in a lawful manner. See Weishapl, 771 A.2d at 1023. First, plaintiffs claim that at all relevant times, the defendants knew about the planned 1400 Eye Street restaurant and that its Trade Area would encompass plaintiffs’ restaurants. See Pls.’ Opp‘n Beresford 22. But, defendants had no duty to disclose that information, and the restaurant‘s Trade Area is irrelevant under the Covenants.20 Plaintiffs also contend that FGE‘s act of granting Froda a right-of-first-refusal if B & H National defaulted on its lease permits an “inference that Sellers and FGE expected Plaintiffs to fail.” Pls.’ Opp‘n Beresford 23. But, the fact that the defendants prepared for this contingency does not indicate any unlawful act. Moreover, it borders on the absurd to claim that FGE would consciously act in such a way to harm one of its own franchisees. Defendants are therefore entitled to judgment on the conspiracy claims.
VI. Plaintiffs and Third-Party Defendants Are Entitled to Summary Judgment on FGE‘s Counterclaims and Third Party Claims.
Finally, Plaintiffs and the Chos are entitled to summary judgment on FGE‘s counterclaims and third-party complaint. These claims hinge entirely on plaintiffs’ allegedly breaching the Transfer and Release Agreement by filing this suit. Def. FGE Answer & Countercl. 13-15; Def. FGE Third Party Compl. ¶¶ 1, 10-20. But, because plaintiffs’ claims are based in part on events that occurred after the Transfer and Release Agreement‘s effective date of October 14, 2008, that agreement does not bar plaintiffs’ claims. See Am. Compl., Ex. C ¶ 1-2.21 Therefore,
CONCLUSION
For all of the foregoing reasons, the Court GRANTS the defendants’ motions for summary judgment [Dkt. ## 51, 52] and DENIES in part and GRANTS in part the plaintiffs and third-party defendants’ motion for summary judgment [Dkt. # 62]. An Order consistent with this decision accompanies this Memorandum Opinion.
ORDER
For the reasons set forth in the Memorandum Opinion entered this 24 day of March, 2012, it is hereby
ORDERED that the defendants’ Motions for Summary Judgment [# 51 and # 52] are GRANTED; and it is further
ORDERED that the plaintiffs and third-party defendants’ Motion for Summary Judgment [# 62] is DENIED in part and GRANTED in part; and it is further
ORDERED that final judgment be entered for the defendants on all counts in the Amended Complaint; and it is further
ORDERED that final judgment be entered for the plaintiffs and third-party defendants on Five Guys Enterprises, LLC‘s counterclaims and third-party claims.
SO ORDERED.
RICHARD J. LEON
UNITED STATES DISTRICT JUDGE