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Tuesday, June 28, 2011

NY Appellate Division Upholds Dismissal of Franchisee's Claims

Moe_Szyslak Moes_logo In 2003, Jeffrey Yamin and others (Yamin) entered into an agreement with Moe's Southwest Grill (Moe's -- see official logo at left) to open up to three restaurants in Albany County by 2005.  This establishment is not to be confused with Moe's Tavern, which has only one location in Springfield and is operated by the gentleman at right.  After that agreement terminated, and only one restaurant had been established, the parties entered into a second agreement permitting Yamin to establish two more restaurants by the end of 2006.  Moe's rejected one location, as it was permitted to do under the agreement, but a second restaurant opened in December 2006.  Negotiations continued as to whether the parties would negotiate a new agreement.

Meanwhile, Moe's had entered into a separate agreement with Jonathan Trager permitting Trager to open restaurants nearby.  In 2007, Moe's and Trager renewed their agreement, this time granting Trager exclusive rights to open restaurants within a five-mile radiius of his area of responsibility.  Under this agreement, Trager opened a restaurant on the same street (although at a different place on that street) as the location Moe's had rejected when Yamin had suggested it.  Yamin sued for breach of contract and for bad faith in refusing to approve his proposed location.  

Applying Georgia law, the court had to determine what constituted "bad faith" in rejecting a proposed restaurant site where the agreement provided that the decision: 1) was in Moe's "sole discretion" and 2) was to be made in accordance with Moe's "then-current site selection policies and procedures."  The court's gloss on this language is that Moe's retained discretion to reject a site based on virtually any reason.  Moe's provided some factual justifications for its decision, and as those facts were undisputed, the trial court found no breach of the duty of good faith, and the Appellate Division affirmed.  

The Appellate Division also affirmed the trial court's ruling that Moe's did not breach its agreement with Yamin by entering into an exclusive agreement with Trager because the former agreement had expired at the time that Moe's entered into the latter agreement.

The opinion is Yamin v. Moe's Southwest Grill, LLC.

[JT & Jared Vasiliauskas]

http://lawprofessors.typepad.com/contractsprof_blog/2011/06/ny-appellate-division-upholds-dismissal-of-franchisees-claims.html

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Comments

It its opinion, the court gave signs of being too willing to consider that "sole discretion" could effect a waiver of the implied duty of good faith. My article on this issue was published yesterday. It deals with a California case, but the California and Georgia caselaw are broadly comparable. You can find links to the article in the following blog post: http://www.koncision.com/revisiting-cussler-v-crusader-entertainment/.

Posted by: Ken Adams | Jun 29, 2011 8:17:42 AM

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