The Franchise Memorandum

In a case litigated by Gray Plant Mooty, the United States Court of Appeals for the Sixth Circuit recently reversed a federal trial court’s judgment in favor of a franchisee in a dispute over a development contract on the grounds that its claims were barred by the agreement’s two-year limitations provision. The franchisee in Progressive Foods, LLC v. Dunkin’ Donuts, Inc., 2012 WL 3241696 (6th Cir., Aug. 9, 2012), had opened three stores under a six-store development contract before Dunkin’ terminated the deal for nonpayment of fees associated with the agreement. The franchisee then sued Dunkin’ for alleged wrongdoing associated with the development process, seeking more than $6 million in damages and the right to develop the three remaining stores. Dunkin’ brought a counterclaim to enforce the termination of the development agreement and to obtain payment of the required fees. The development agreement contained a limitations provision which required any claims to be brought “within two years after the discovery of facts giving rise to such claim and action.” The franchisee, however, claimed that it had notified Dunkin’ of “all of the issues and problems and their claims” on a date that was more than two years before the filing of the franchisee’s initial complaint. Although Dunkin’ had repeatedly raised the limitations issue both before and during trial, the district court ignored the issue entirely. Instead, it awarded the franchisee $336,000 in damages and an injunction to allow the franchisee to develop three additional stores. The court also ordered the franchisee to pay the $100,000 in fees it owed Dunkin’ under the development contract.

The Sixth Circuit reversed the judgment, holding that the franchisee’s claims were completely barred by the limitations provision. The court found that the franchisee’s allegation that it had notified Dunkin’ about all of the facts and issues in the case by a particular date was not factually correct. The statements parties make in their pleadings, the panel noted, are “judicial admissions.” The court commented that although such admissions must be shown to have been deliberate, clear, and unambiguous, “they do not also have to be true” since a “judicial admission trumps the evidence.” It concluded that there was “no doubt” that the franchisee’s admissions in this case were deliberate since it had repeated the same statement multiple times in its pleadings. Moreover, the franchisee had not sought to amend its complaint to correct any alleged errors despite the fact that Dunkin’ had highlighted the limitations issue in its answer, its motion for summary judgment, and its post-trial proposed findings of facts and conclusion of law. Thus, the panel concluded that the franchisee’s statement was “a binding admission as to when it discovered the factual basis for all of its claims against [Dunkin’].” On that basis, the district court’s award of damages and injunctive relief was reversed in its entirety and judgment was entered in Dunkin’s favor.