Wednesday, November 9, 2022
Thanks to OCU 1L Lacy Kelly, I have learned of a food fight near my old stomping grounds in Indiana. As Joseph S. Pete, of the Northwest Indiana Times reports, Raising Cane's (RC) a fast-food chain, wanted to open a new location in Hobart, Indiana. It entered into a fifteen-year lease with the owner of a strip mall near a major shopping center. The owner did not disclose that its predecessor had granted McDonald's the exclusive right to sell chicken products at the shopping center.
RC is alleging that it was fraudulently induced into the lease, and it has brought suit in the jurisdiction where its corporate headquarters are located, Dallas, Texas. RC points out that its entire business model is built on selling chicken fingers. It claims that it first learned of McDonald's exclusive chicken deal eight-months after the lease was executed and after RC had already expended over one million dollars on restaurant development. According to the complaint, a 1994 lease agreement with a nearby McDonald's prohibits the owner from leasing or selling property to any rival “fast good or quick service restaurant which prepares, serves, or sells de-boned chicken products." RC alleges that the owner knew of the McDonald's deal and nonetheless represented to RC that it could operate a chicken-finger based restaurant at the location. RC's theory is that the owner did this in order to secure RC as an anchor tenant so that it could attract additional tenants to the location.
The owners would have to be some dumb clucks to perpetrate such an obvious fraud, but there it is. Under the Restatement approach, there should be liability, even if the misrepresentation was negligent but material, so somebody's head could be on the chopping block even if the nondisclosure or misrepresentation was the result of inattention, as seems likely in this case. But I do wonder whether RC had a due diligence obligation in this context. Surely the Hobart/Merrillville McDonald's is not the only one that has negotiated a restrictive covenant relating to chicken. This restrictive covenant came to light when Chipotle wanted to open a restaurant, and the owner asked McDonald's to waive its exclusive chicken deal. McDonald's refused and also pointed out that an RC franchise was right out. Why did Chipotle know to ask when RC didn't? Also, I know for a fact that there is a Chipotle in that shopping center, and I think it's been there since around the time we moved there in 2004. Did Chipotle want to move? Set up yet another location? Would the RC franchise be okay if it were just on the south side of Route 30? So many questions!
I have never eaten at an RC and do not expect to do so in this lifetime. I suppose it would not be good for their brand to argue that chickens don't have fingers and that a chicken finger is really mostly breading, and so arguably RC would not really be selling chicken at all.