In a recently concluded case, AFC Enterprises, Inc., the franchisor of the POPEYES franchise system, obtained the dismissal of claims filed by a former franchisee, as well as nearly $200,000 in attorneys' fees. In Shahbaz v. AFC Enterprises, Inc., No. 1:04-CV-2421 (N.D. Ga. 2005), aff'd No. 06-13387 (11th Cir. 2006), cert. denied No. 06-1395 (2007), a former multi-unit operator of POPEYES restaurants in Houston, Texas, sued AFC for a variety of perceived wrongs. First, he contended that AFC had improperly encroached on one of his units by permitting another franchisee to open a POPEYES restaurant in close proximity (he contended at different times that the new unit was either 0.8 or 1.8 miles away), despite the absence of any contractually granted exclusive territory. Second, he alleged that AFC had not performed its obligations under a multi-unit development agreement. Finally, he contended that AFC had fraudulently induced him to acquire a piece of real property and then denied him the right to develop that site.
The case has a number of interesting facets. The franchisee brought the case in the United States District Court for the Southern District of Texas, the district in which it operated its units. Pursuant to the forum selection clauses contained in some (but not all) of the agreements between the parties, AFC moved to transfer the case to the Northern District of Georgia, where AFC's corporate headquarters are now located. The court granted AFC's motion, finding that the franchisee had not shown that the transfer would cause him undue hardship. The court agreed to transfer the case to Georgia despite the fact that AFC's headquarters had been in Louisiana when the first agreement containing a forum selection clause was executed.
The district court in Georgia entered summary judgment for AFC dismissing all of the franchisee's claims. The court's rulings on the encroachment and fraud claims did not go to the merits, though AFC showed that the franchisee had put forth no evidence to support either one. The court dismissed the encroachment claim based on a release contained in the consent to transfer agreement that the franchisee signed when he sold his restaurants, including the allegedly encroached-upon unit, for over $10 million. The court rejected the franchisee's contention that AFC had somehow waived the release.
The court then dismissed the fraud claim based on the statute of limitations. Throughout the case, the franchisee had contended that the transaction at issue had taken place in 2001 or 2002, which would put it within the limitations period. After discovery closed, however, he produced documents, pursuant to an order compelling production, that placed the transaction in 1998, well outside the limitations period.
Finally, the court dismissed on the merits the claim that AFC had not performed its obligations under a development agreement. The franchisee contended that AFC had failed to inspect a site he wanted to develop. The court held that the agreement did not obligate AFC to conduct an inspection until the franchisee made a request in writing and provided basic demographic information about the site and the surrounding area. The franchisee had not done so. The court also rejected the franchisee's contention that, despite the provisions of the development agreement, the parties' course of dealing included the performance of site inspections before the submission of written materials.
The court granted AFC's request for attorneys' fees with respect to all of the franchisee's claims even though only the development agreement contained a provision requiring the award of attorneys' fees. AFC contended that it should be awarded its fees for all the claims because: (1) the claims were so muddled and confused that it was late in the case before it was clear which claims arose under which theory; and (2) the work done defending the claim under the development agreement was largely the same as that done with respect to the other claims. The court agreed and awarded AFC over $173,000 in fees expended defending against all the franchisee's claims. The court rejected, however, AFC's contention that, in addition to attorneys' fees under the agreement, sanctions should be awarded under Rule 11 of the Federal Rules of Civil Procedure. Although the court noted that it was "less than impressed" with the pre-filing investigation undertaken by plaintiff's counsel, it refused to award sanctions in part because the award of attorneys' fees compensated AFC. Coupled with a previous award of about $6,000 as a discovery sanction, the court entered judgment against the franchisee for $179,000.
The franchisee appealed to the United States Court of Appeals for the Eleventh Circuit on all issues except the encroachment claim. In an unpublished decision, the court affirmed the district court's holdings on all issues, including the award of attorneys' fees. The Court of Appeals subsequently granted AFC's petition for attorneys' fees on appeal and remanded to the district court to determine the amount. The district court awarded AFC over $20,000 in additional attorneys' fees. The franchisee filed a petition for certiorari with the United States Supreme Court, which was denied on June 4, 2007.