Petition for Writ of Certiorari — Gregory v. Popeyes Famous Fried Chicken & Biscuits, Inc.

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In The

Supreme Court of the United States

@ctober Germ, 1988

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WILLIAM F. GREGORY, MICHAEL C. SULLIVAN

and SULLIVAN-GREGORyY, INC.,

a Michigan corporation,

-Vs- Petitioners,

POPEYES FAMOUS FRIED CHICKEN & BISCUITS, INC.,

a Louisiana corporation,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SIXTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

connate pieninine

— AND APPENDICES —

ROBERT V. SEYMOUR (P20251)

Counsel of Record

Attorney for Petitioners

15565 Northland Drive, Suite 201E

Southfield, Michigan 48075-5394

(313) 569-6060

Interstate Brief & Record Company, a division of North American Graphics, Inc.

1629 West Laf. tte Boulevard, Detroit, MI 48216 (313) 962-6230

QUESTIONS PRESENTED

Whether Petitioners, Citizens of and Governed by the

Laws of the State of Michigan, Have Been Denied Due

Process of Law Where, in a Diversity Case Tried by the

United States District Court in the State of Michigan,

the District Court Imposed a Remedy on Petitioners,

Which is Contrary to the Laws and is Not Available in

the Courts of the State of Michigan?

IT.

Whether The Mandate of Erie was Violated Where, in a

Diversity Case, the District Court Imposed on Peti-

tioners a Harsh Remedy, Which is Contrary to the Laws

and is Not Available in the Courts of the State of Mich-

igan and Where the Court of Appeals Affirmed the

District Court, by Misstating the Record and by Errone-

ously Fabricating an Unknown and Unrecognized Cate-

gory of Contract?

PARTIES TO THE PROCEEDINGS BELOW

The parties to the proceeding in the United States

District Court were:

i) William FE. Gregory, Michael C. Sullivan and

Sullivan-Gregory, Inc., residents of the State of

Michigan, Petitioners herein;

ii) Popeyes Famous Fried Chicken & Biscuits, Inc., a

resident of the State of Louisiana, Respondent

herein.

ili

DESIGNATION OF CORPORATE RELATIONSHIPS

The Sullivan-Gregory, Inc. corporation, filing this

Petition for Writ of Certiorari as a Petitioner in this

proceeding, states that:

This is its original Designation of Corporate Relation-

ships.

Sullivan-Gregory, Inc. is not a subsidiary or an

affiliate of a publicly-owned corporation.

There is not a publicly-owned corporation not a party

to the appeal that has a financial interest in the outcome.

/s/ ROBERT V. SEYMOUR (P20251)

Attorney for Petitioners

15565 Northland Drive, Suite 201E

Southfield, Michigan 48075-5394

(313) 569-6060

DATED: January 30, 1989

TABLE OF CONTENTS

COR PIN oi oo kos ks vt ee ee

Parties to the Proceedings Below...............

Designation of Corporate Relationships .........

ee a Sod oo oo a ce ee eien eas

SN SR och dca soe wa ac sane ce eee

I one cvs a ke ohne

Constitutional Provision Involved..............

Statement of the Case:

EINES 6b ccc sce ner seeseeee eee

COURSE OF PROCEEDINGS

EES EEGE RD EURCE GRMEPRD 6b ek b accu eees

A. Petitioners’ Claim ..................

B. Respondent’s Counterclaim ..........

PROCEEDINGS IN THE COURT OF APPEALS

Reasons for Granting the Writ ................

Il.

PETITIONERS, CITIZENS OF AND GOVERNED

BY THE LAWS OF THE STATE OF MICHIGAN,

HAVE BEEN DENIED DUE PROCESS OF LAW

WHERE, IN A DIVERSITY CASE TRIED BY THE

UNITED STATES DISTRICT COURT IN THE

STATE OF MICHIGAN, THE DISTRICT COURT

IMPOSED A REMEDY ON PETITIONERS, WHICH

IS CONTRARY TO THE LAWS AND IS NOT

AVAILABLE IN THE COURTS OF THE STATE

i rr ee re ty

THE MANDATE OF ERIE WAS VIOLATED

WHERE, IN A DIVERSITY CASE, THE DISTRICT

Page

COURT IMPOSED ON PETITIONERS A HARSH

REMEDY, WHICH IS CONTRARY TO THE LAWS AND

IS NOT AVAILABLE IN THE COURTS OF THE STATE

OF MICHIGAN AND WHERE THE COURT OF

APPEALS AFFIRMED THE DISTRICT COURT, BY MIS-

STATING THE RECORD AND BY ERRONEOUSLY

FABRICATING AN UNKNOWN AND UNRECOG-

NIZED CATEGORY OF CONTRACT. ............--. 20

CCIIIO ng oc cc cei ncesseceunessvesanee 24

APPENDICES:

Appendix A —- TRANSCRIPT of the Hearing in the

United States District Court for the

Eastern District of Michigan on

Respondent’s Motion for Summary

Judgment .............. A-1-A-15

Appendix B — JUDGMENT of the United States

Eorrict COGS ow cic dewsays B-1-—B-2

Appendix C — PER CURIAM OPINION of the

United States Court of Appeals for

the Sixth Circuit ......... C-1-C-9

Appendix D — ORDER of the Court of Appeals

Denying Rehearing ............ D-1

Appendix E — ORDER of the Court of Appeals

Denying the Petition for Rehearing

SOE. noucnceesb eacweererces E-1

Appendix F — ORDER of the Court of Appeals

Granting the Motion to Stay

ee re ee err F-]

Vil

TABLE OF AUTHORITIES

CASES:

Boling v. Sharpe, 347 U.S. 497 (1954) .......... 13

Day & Zimmermann, Inc. v. Challoner, 423 U.S.

eGT EE Cex cde akc es oo sake eee eee 21

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) 11, 20, 24

Farrington v. State of Tennessee, 95 U.S. 558

PTE soso dae ene pei cae oe 10, 21

Klaxon Company v. Stentor Electric Manufac-

turing Co., Inc., 313 U.S. 487 (1941) ....... 20-21

Mt. Ida School for Girls v. Rood, 253 Mich. 482

| AR aa elon nae 8-9, 16, 17, 22, 23, 24

Rubin v. Gallagher, 294 Mich. 124 (1940) ...... 23

Schneider v. Rush, 377 U.S. 163 (1964) ...... 13, 14

School of Commerce v. Stroud, 248 Mich. 85

PN ar ee ee ieie Oa Cc one ae Be 8, 14, 15, 16, 22

CONSTITUTIONAL

AND STATUTORY PROVISIONS:

United States Constitution, Amendment5 .... 2, 13

ee a es ns ln ae sk oa eh 2

ee oe vena os Wen baa tae ks 3

Michigan Franchise Investment Law of 1984,

ee ces hc once ees we aes ean 12

gk eT on eco ce eae eee 12

In The

Supreme Court of the United States

cxnininaf pomsena

October Term, 1988

WILLIAM F. GREGORY, MICHAEL C. SULLIVAN

and SULLIVAN-GREGORy, INC.,

a Michigan corporation,

-VS- Petitioners,

POPEYES FAMOUS FRIED CHICKEN & BISCUITS, INC.,

a Louisiana corporation,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SIXTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

OPINION BELOW

The transcript of the hearing in the United States

District Court for the Eastern District of Michigan on

Respondent’s motion for summary judgment is in-

cluded in App. A, infra, pp. A-1 to A-15. This transcript

includes argument of counsel and conclusions of law of

the district court. The district court made no findings

of fact and issued no separate opinion. The Judgment of

the district court (App. B, infra, pp. B-1 to B-2) is

unreported.

The per curiam Opinion of the United States Court

of Appeals for the Sixth Circuit (App. C, infra, pp. C-1

to C-9) is unreported. The Order of the Court of Appeals

denying rehearing (App. D, infra, p. D-1) is unreported. The

Order of the Court of Appeals, denying the petition for re-

hearing en banc (App. E, infra, p. E-1) is unreported. The

Order of the Court of Appeals granting the motion to

stay mandate (App. E infra, p. F-1) is unreported.

JURISDICTION

The per curiam Opinion of the United States Court

of Appeals for the Sixth Circuit was entered on Sep-

tember 9, 1988. The Order cf the Court of Appeals

denying the petition for rehearing was entered on Nov-

ember 4, 1988. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1)}.

CONSTITUTIONAL PROVISION INVOLVED

The applicable provision of the United States Consti-

) tution, fifth amendment, is:

;

“No person shall be ... deprived of life, liberty,

or property, without due process of law; ... ”

STATEMENT OF THE CASE

BACKGROUND

Sullivan-Gregory, Inc. is a Michigan corporation,

which was formed for the purpose of owning and oper-

ating franchise stores selling Popeyes Famous Fried

Chicken and Biscuits at certain locations in Oakland

County, Michigan. Michael C. Sullivan, a resident of

the State of Michigan is an individual shareholder of

Sullivan-Gregory, Inc. William FE Gregory is also a resi-

dent of the State of Michigan and an individual share-

holder of Sullivan-Gregory, Inc. (Sullivan-Gregory, Inc.,

Michael C. Sullivan and William FE Gregory will herein-

after be referred to collectively as “Petitioners” ).

Popeyes Famous Fried Chicken & Biscuits, Inc. is a

Louisiana corporation, and the franchisor of the

“Popeyes Famous Fried Chicken System”, with 670

stores located throughout the United States (Popeyes

Famous Fried Chicken & Biscuits, Inc. will hereinafter

be referred to as “Respondent” ).

During the period 1979 to 1983, Petitioners entered

into six franchise agreements with Respondent and

opened six franchise stores. The material provisions of

the six franchise agreements were identical.

On March 28, 1985, pursuant to 28 U.S.C. § 1332,

Petitioners commenced a lawsuit against Respondent in

the United States District Court for the Eastern Dis-

trict of Michigan. Petitioners’ claim against Respondent

concerned the obligation of Respondent to provide

advertising under the franchise agreements. Juris-

diction in the district court was based on diversity of

citizenship.

On May 22, 1985, Respondent filed a counterclaim

against Petitioners demanding damages for breach of

the franchise agreements. Respondent claimed that

Petitioners failed to pay certain royalty and advertising

fees.

COURSE OF PROCEEDINGS IN THE DISTRICT COURT

A. Petitioners’ Claim

Trial before the district court took place on the morn-

ings of March 26, 27 and 30, 1987. During the trial,

Petitioners claimed that Respondent breached the

franchise agreements by failing to provide advertising.

Respondent denied that it had a duty to provide

advertising under the franchise agreements. William

Copeland, Respondent’s Executive Vice President, testi-

fied: “... if money was paid [by Petitioners], we would

provide advertising for them”.

At the close of Petitioners’ proofs, Respondent made

an oral motion to dismiss Petitioners’ claim. The dis-

trict court ruled that under the franchise agreements

Respondent had no duty to provide advertising for the

benefit of Petitioners. The Court granted Respondent’s

motion and dismissed Petitioners’ claim.

This petition for writ of certiorari is not concerned

with the district court’s dismissal of Petitioners’ claim.

B. Respondent’s Counterclaim

The following day, on March 31, 1987, the parties

returned for trial on Respondent’s counterclaim.

Respondent then made an oral motion for summary

judgment. The hearing on the motion lasted some fifty-

five minutes. (The transcript of the hearing is included

in App. A, infra, pp. A-1 to A-15.) In its motion,

Respondent demanded judgment against Petitioners in

the full contractual amount under the franchise agree-

ments, namely, three percent of gross sales for adver-

tising and five percent of gross sales for royalties.

Petitioners opposed Respondent’s motion for sum-

mary judgment, on the ground that Respondent had

“not sustained any damage”. Petitioners’ argument was

based on the district court’s prior ruling that

Respondent had no duty to provide advertising for the

benefit of Petitioners and on Respondent’s admission

that it did not provide advertising unless and until the

fees for advertising were paid.

The district court made no findings of fact. More

particularly, the court neither made a finding of perfor-

mance on the part of Respondent nor a finding of the

amount of damages sustained by Respondent. In addi-

tion, the court did not construe the contract (App. A,

infra, pp. A-1 to A-15).

The court did, however, grant summary judgment in

favor of Respondent for the total contract price under

the franchise agreements.

On April 3, 1987, the court entered judgment against

Petitioners William F Gregory, Michael C. Sullivan and

Sullivan-Gregory, Inc., jointly and severally, in the

amount of Nine Hundred Twenty Six Thousand Four

Hundred Twenty and 79/100 ($926,420.79) Dollars

(App. B, infra, pp. B-1 to B-2).

On May 4, 1987, pursuant to 29 U.S.C. § 1291, Peti-

tioners duly filed their appeal with the United States

Court of Appeals for the Sixth Circuit from the judg-

ment entered by the district court.

PROCEEDINGS IN THE COURT OF APPEALS

Petitioners’ principal argument on appeal was that

the law of the forum, namely, the law of the State of

Michigan, governs the remedy for breach of the

franchise agreements.

Petitioners are all residents of the State of Michigan.

Suit was brought in the United States District Court

for the Eastern District of Michigan. Jurisdiction was

based on diversity of citizenship. It is the well-settled

law of the State of Michigan that a party to an

executory contract is liable only for damages resulting

from breach of the contract and not for the total con-

tract price. In addition, the party seeking damages has

the burden of proving its damages.

In their respective appellate briefs, neither Petitioners

nor Respondent disputed the fact that the franchise

agreements were executory on the part of both parties.

On the one hand, Petitioners had not performed

because they had not paid certain fees. On the other

hand, Respondent had not performed because it

provided advertising only after the fees were paid by

Petitioners.

In its per curiam Opinion, the Court of Appeals

acknowledged that “{u|]nder Michigan law, a party to an

executory contract is liable only for actual damages

resulting from a breach, and not necessarily for the full

contract price”. (App. C, infra, p. C-6).

Nevertheless, the Court of Appeals affirmed the judg-

ment of the district court in favor of Respondent for

the full contract price. (App. C, infra, p. C-9.) The Court

of Appeals did so by ruling:

“We believe there was no error demonstrated in

the district court’s construing the contract to be

indivisible and nonexecutory in its nature.”

(App. C, infra, p. C-6.) (Emphasis added)

The Court of Appeals’ ruling misstates the record.

The district court record on Respondent's oral motion

for summary judgment clearly indicates that the dis-

trict court did not construe the contract. On the con-

trary, the district court granted summary judgment for

the full contract price merely on the basis that the

contract called for payment of certain fees. (App. A,

infra, pp. A-1 to A-15.)

On September 21, 1988, Petitioners duly filed a peti-

tion for rehearing and, thereafter, a supplement thereto

including suggestion for rehearing en banc. Petitioners’

petitions were denied on November 4, 1988 and Nov-

ember 9, 1988, respectively. (App. D, infra, p. D-1 and

App. E, infra, p. E-1.)

On November 11, 1988, Petitioners filed a motion to

stay the issuance of the mandate pending application

for writ of certiorari. By an Order dated November 29,

1988, the Court of Appeals granted Petitioners’ motion

to stay the issuance of the mandate for a period of sixty

days. (App. EF infra, p. F-1.)

Now, Petitioners file this Petition for Writ of Cer-

tiorari to this Court. This Petition is concerned only

with the counterclaim of Respondent and not with the

claim of Petitioners.

REASONS FOR GRANTING THE WRIT

The facts of the instant case are essentially not in

dispute. Respondent filed a counterclaim against Peti-

tioners based on breach of certain franchise agreements

in the United States District Court in Michigan. Juris-

diction was based on diversity of citizenship.

Respondent is a resident of Louisiana. Petitioners are

residents of Michigan. As residents and citizens of the

State of Michigan, Petitioners have the right to be gov-

erned by the laws of the State of Michigan.

In determining the appropriate remedy for breach of

contract, Michigan law recognizes contracts which are

“executed” and, alternatively, contracts which are

“executory”. There is no case in Michigan which has

defined or recognized a contract which is “nen-

executory in its nature”. Under well-settled Michigan

law, once it is determined that a contract is executory,

the appropriate remedy for breach is actual, proven

damages and not the full contract price. In addition, it

is the burden of the party seeking a remedy for breach

to prove any damages arising from the breach.

In Michigan, it is a rule of law, which has been

unequivocally and definitively stated by the Michigan

Supreme Court, that where there is breach of an

executory contract the only remedy available is the

actual proven damages and not the contract price. In

1929, in a leading case, School of Commerce v. Stroud,

248 Mich. 85 (1929), the Supreme Ca@urt of Michigan

declared the law of Michigan to be:

“It is the rule in this State that a party to

an executory contract may always stop per-

formance by the other party by an explicit

direction or renunciation of the contract,

and refusal to perform further on his part,

and that he is thereafter liable only upon

the breach of the contract.’” Id at 88.

The Court concluded:

“Plaintiff having no right to maintain any other

action against defendant than for breach of con-

tract, and having adduced no proof of any

damage resulting from such breach, none may be

awarded.” Id at 90.

Two years later, the Michigan Supreme Court decided

a second leading case, Mt. Ida School for Girls v. Rood,

253 Mich. 482 (1931). Again, the Court declared:

“.. in Michigan it is a rule of law, and we think

a rule of procedure or remedy, that a party to an

executory contract may always stop performance

by the other party and refuse further to perform

on his part, and after his refusal, he is ‘liable

only upon the breach of the contract’; and fur-

ther, quoting from cases cited, it is said: ‘The

contract price is recoverable only upon the

theory of performance, never upon the theory of

inability to perform.’” Id at 486.

The Supreme Court rejected the plaintiff’s claim of

recovery based upon “defendant’s independent promise

to pay the contract price, regardless of nonperformance

by plaintiff”. Id at 485.

“This question was squarely ruled upon in /nter-

national Text-book Co. v. Jones, 166 Mich. 86;

and the plaintiff’s claim of right to recovery on

the theory of an independent promise was

rejected.” Jd at 488.

The Court ruled that, “... the established rule of law

in Michigan is otherwise,” and that,

“The burden is upon plaintiff not only to estab-

lish a right to recover but likewise to establish

the extent of recovery.” Id at 489.

In its conclusion, the Court affirmed Stroud, supra,

and affirmed judgment for the defendant. Id at 490.

The salient undisputed fact in the instant case is that

a material provision of the franchise agreements,

namely, the advertising provision, had not been per-

formed either by Petitioners or by Respondent. Peti-

tioners had not paid the advertising fees. Conversely,

Respondent had not provided advertising services,

where and because it had not received the advertising

fees.

Nevertheless, the district court granted summary

judgment for the full amount of the contract. The court

made no findings, either as to whether the contracts

were executed or executory or whether the contracts

had been performed. The court summarily entered a

nee b

judgment based on the total contract price in the

amount of $926,420.79. Such granting of summary

judgment and entry of judgment based thereon were

clearly contrary to and not available as a remedy under

Michigan law.

On review, the Court of Appeals fabricated a new

category of contract. Theretofore, under Michigan law, a

contract was either executed or executory. However, the

Court of Appeals ruled that a contract may be “. . . non-

executory in its nature”. This new category is not rec-

ognized either in Michigan law or in federal law.

In 1877, this Court itself declared that contracts are

either “executed” or “executory”, and contrasted “exe-

cuted” and “executory” contracts in the following

terms:

“Contracts are executed or executory. A contract

is executed where everything that was to be

done is done, and nothing remains to be done.”

Farrington v. State of Tennessee, 95 U.S. 558, 559

(1877).

In contrast,

“An executory contract is one where it is stipu-

lated by the agreement of minds, upon a suffi-

cient consideration, that something is to be

done or not to be done by one or both the

parties.” Ibid.

The Court of Appeals’ ruling in the instant case that

the contract was “... nonexecutory in its nature” is

meaningless and self-contradictory. A contract is either

executory or executed in fact, depending upon the fact

of performance by the parties. Farrington v. State of

Tennessee, supra.

In addition, it is a clear misstatement of the record to

rule that the district court construed the contract “to

be indivisible and nonexecutory in its nature”. (App. C,

infra, p. C-6.)

A reading of the entire proceeding before the district

court on Respondent’s motion for summary judgment

shows unequivocally that the district court neither

made findings of fact nor did it construe the contract.

(App. A, infra, pp. A-1 to A-15.)

By affirming the judgment of the district court, by

inventing a new category of contract and by misstating

the record, the Court of Appeals affirmed a remedy

against Petitioners which is not available in the courts

of the State of Michigan and is contrary to the laws of

the State of Michigan. In effect, the Court of Appeals’

ruling denies Petitioners due process of law.

Respondent has been granted a remedy against resi-

dents and citizens of the State of Michigan in a federal

court which clearly would be unavailable in a Michigan

court.

Furthermore, the courts below clearly violated the

mandate of Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).

Both the district court and the Court of Appeals failed,

refused, avoided and did not follow the clear and un-

equivocal law of the forum, namely, the law of the

State of Michigan. Review by this Court is necessary to

protect Petitioners’ constitutional right to due process,

to uphold Erie and to prevent a gross injustice.

Finally, review by this Court is necessary to correct a

situation which will severely impair the ability of the

State of Michigan, and perhaps other states, to regulate

the business of franchising. Franchising is a rapidly

expanding form of business activity, involving thou-

sands of franchisees. Franchises and the respective

rights, duties and obligations of franchisees and fran-

chisors raise questions of exceptional and fundamental

importance for the courts, for the parties and for the

public.

For these reasons, in 1974, the State of Michigan

enacted the Michigan Franchise Investment Law.

M.C.L. § 455.1501 et seq. The declared purpose of the

act 1S,

“.. to regulate the offer, sale, and purchase of

franchises, to prohibit fraudulent practices in

relation thereto; ...”

Furthermore,

“This act shall be broadly construed to effec-

tuate its purpose of protection to the public.”

Michigan Franchise Investment Law, preamble

and § 455.1501.

In 1984, in order to regulate further the business of

franchising, the State of Michigan enacted an amend-

ment to the Michigan Franchise Investment Law. This

amendment states that a provision in a franchise agree-

ment which requires that litigation be conducted out-

side the State of Michigan is void and unenforceable.

“Each of the following provisions is void and

unenforceable if contained in any documents

relating to a franchise.

+* & *

(f) A provision requiring that arbitration or liti-

gation be conducted outside this state.”

Michigan Franchise Investment Law, M.C.L.

§ 455.1527.

If a federal court sitting in the State of Michigan

refuses to follow the law of the State of Michigan in a

diversity case, how then can the Legislature of the

State of Michigan protect its citizens and residents and

regulate the business of franchising?

PETITIONERS, CITIZENS OF AND GOVERNED BY THE

LAWS OF THE STATE OF MICHIGAN, HAVE BEEN

DENIED DUE PROCESS OF LAW WHERE, IN A DIVER-

SITY CASE TRIED BY THE UNITED STATES DISTRICT

COURT IN THE STATE OF MICHIGAN, THE DISTRICT

COURT IMPOSED A REMEDY ON PETITIONERS, WHICH

IS CONTRARY TO THE LAWS AND IS NOT AVAILABLE IN

THE COURTS OF THE STATE OF MICHIGAN.

The due process clause of the fifth amendment to the

United States Constitution states in relevant part:

“No person shall be ... deprived of life, liberty,

or property, without due process of law; .. .”

The due process clause encompasses the constitu-

tional guarantee of equal protection of the laws and

forbids discrimination by the federal government,

where the discrimination is:

“id

. SO unjustifiable as to be violative of due

process.’” Schneider v. Rush, 377 U.S. 163, 168

(1964); Boling v. Sharpe, 347 U.S. 497, 499 (1954).

In the instant diversity case, Petitioners have been

denied their constitutional guarantee of due process of

law for the following reasons:

1) That they have been subjected to invidious and

unreasonable discrimination because the harsh

remedy imposed by the United States District

Court could not have been granted by the state

courts of Michigan;

2) that the discrimination by the District Court

was sanctioned by the Court of Appeals by a

misstatement of the record; and

3) that the discrimination by the District Court

was sanctioned by the Court of Appeals by the

fabrication of a category of contract which is

unknown and unrecognized in the laws of the

State of Michigan.

In the instant case, the district court entered judg-

ment in favor of Respondent against Petitioners. That

judgment awarded damages measured by the total con-

tract price. That judgment could not have been granted

by the courts of the State of Michigan. Consequently,

Petitioners have been deprived of their property with-

out due process of law because of the fortuitious cir-

cumstance that the instant diversity case was tried in a

federal court.

The issue to be determined is whether the actions of

the district court and the Court of Appeals in the

instant case are “so unjustifiable as to be violative of

due process.” Schneider, supra, 377 U.S. at 168. In order

to determine this issue, the law governing the proper

remedy for breach of an executory contract, as declared

by the Michigan Supreme Court, must be examined.

The law governing the proper remedy for breach of an

executory contract has been declared by the Michigan

Supreme Court in two leading cases. The first leading

case is School of Commerce v. Stroud, 248 Mich. 85

(1929). There, the defendant entered into a contract, in

which he subscribed to three courses of instruction.

The defendant then breached the contract, “by his own

refusal to perform.” The plaintiff stopped performance

and sued the defendant. /d at 86.

The trial court entered judgment for the defendant.

On appeal, the Michigan Supreme Court affirmed:

“Plaintiff contracted with defendant with full

knowledge of defendant’s rights, which it must

be presumed to know. It knew defendant had a

right to renounce the contract and refuse to per-

form further, and that he thereafter was liable

only tor damages for breach of contract. Plaintiff

made no proof of any damages arising from

breach of contract.” Id at 88.

Thus, the defendant was liable only for “damages for

breach of contract,” not for the contract price. The

plaintiff failed to prove “any damages” and, con-

sequently, judgment was properly entered for the

defendant.

The Michigan Supreme Court went on to say:

“By comity, citizens of Illinois may sue in the

courts of Michigan, but the law of Illinois has

no extraterritorial force. The courts of this State

may not be used to prosecute to effect a cause of

action in a manner contrary to the laws of Mich-

igan. A foreign citizen cannot avail himself in

the courts of this State of remedies which are

denied to our own citizens.” Jd at 89.

The Supreme Court stated the law of Michigan to be:

“‘It is the rule in this State that a party to

an executory contract may always stop per-

formance by the other party by an explicit

direction or renunciation of the contract,

and refusal to perform further on his part,

and that he is thereafter liable only upon

the breach of the contract.

‘The contract price is recoverable only upon

the theory of performance, never upon the

theory of inability to perform.’” Id at 88.

The Court concluded:

“Plaintiff having no right to maintain any other

action against defendant than for breach of con-

tract, and having adduced no proof of any

damage resulting from such breach, none may be

awarded.” Id at 90.

Two years later, the Michigan Supreme Court decided

the second leading case, Mt. Ida School for Girls v.

Rood, 253 Mich. 482 (1931). There, the defendant

entered into a contract with the plaintiff in which it

was agreed that the defendant’s daughter would attend

the plaintiff's school. The contract price was $1,200 for

the school year; the defendant paid $550; the

remaining balance was $650. The defendant’s daughter

attended only until Christmas; she did not return for

the remaining portion of the school year. The plaintiff

brought suit in Michigan, claiming the remaining bal-

ance of $650. During the trial, the plaintiff “planted its

right to recover solely upon defendant’s contract to

pay”. Id at 484 (emphasis added).

The trial court entered judgment in favor of the

defendant, for the reason that the plaintiff had offered

no proof of damages resulting from the breach of con-

tract. On appeal, the Michigan Supreme Court affirmed.

Following Stroud, supra, the Court declared:

. in Michigan it is a rule of law, and we think

a rule of procedure or remedy, that a party to an

executory contract may always stop performance

by the other party and refuse further to perform

on his part, and after his refusal, he is ‘liable

only upon the breach of the contract’; and fur-

ther, quoting from cases cited, it is said: ‘The

contract price is recoverable only upon the

theory of performance, never upon the theory of

inability to perform.’” Id at 486 (Emphasis added).

The Michigan Supreme Court spoke in unequivocal

terms:

“What remedy do the courts of Michigan pro-

vide for such cases? Plaintiff is here asserting its

right to a remedy by means of which it can re-

cover the full contract price. The courts of Mich-

igan do not provide such a remedy.”

“... Since the law of this State has fixed the

remedy provided in such cases, plaintiff must be

content with such remedy if it elects to prose-

cute its claim in the courts of this jurisdiction;

and the rule is not affected by the fact, if it is a

fact, that the parties contemplated performance

of their executory contract in Massachusetts.”

Id at 487, 488.

Thus, the law of the State of Michigan, which deter-

mines the remedy for breach of an executory contract,

is clear and unequivocal. Applying this law to the

instant case, the bottom line then is whether there is a

rational basis or justification for the decision by the

district court to award Respondent damages in the full

contractual amount, rather than actual proven damages,

for breach of an executory contract.

The facts in the instant case are not in genuine dis-

pute. The parties agree that Respondent did not provide

advertising services, unless and until Petitioners paid

“money in”. That Petitioners had not paid the “money

in” was the reason for Respondent’s counterclaim. The

contract was clearly executory on the part of both Peti-

tioners and Respondent. Given these undisputed facts,

there was no rational basis or justification for the deci-

sion by the district court to award Respondent damages

in the full contractual amount, rather than actual

proven damages, for breach of an executory contract.

On appeal, the Court of Appeals affirmed the deci-

sion by the district court by stating:

“We believe there was no error demonstrated in

the district court’s construing the contract to be

indivisible and nonexecutory in its nature.”

(App. C, infra, p. C-6).

However, reading the entire transcript of the argu-

ment on Respondent’s oral motion for summary judg-

ment (App. A, infra, pp. A-1 to A-15) shows that there

was no instance when the district court construed the

contract.

Surely, if due process is to have any meaning, it

embraces the fundamental principle of fairness. For the

Court of Appeals to affirm the unfair and dis-

criminatory decision by the district court and to assert

that the district court had construed the contract when

such statement is without any basis in fact, and is in

tact a misstatement of the record, is a violation of due

process.

Furthermore, not only did the district court fail to

construe the contract, there is no mention in the dis-

trict court record that the contract was “nonexecutory

in its nature”. The very concept of a contract being

“nonexecutory in its nature” is a total fabrication by

the Court of Appeals.

No law or authority is cited by the Court of Appeals

to support its assertion that the contract was “non-

executory in its nature”. The question, whether a con-

tract is executory or executed, cannot be answered

merely by construing the written agreement. A contract

is not “nonexecutory in its nature”. On the contrary, a

contract is executory or executed in fact, based on the

fact of performance by the parties.

In sum, the category of a contract which is

“nonexecutory in its nature” is a fabrication by the

Court of Appeals, without basis in law, and is meaning-

less, self-contradictory nonsense.

There is no rational basis or justification for the

district court’s awarding a harsh remedy in favor of

Respondent, in a diversity case, which is contrary to

the laws and is not available in the courts of the State

of Michigan. The action of the district court, imposing

a judgment on Petitioners for the full contract price,

rather than the actual, proven damages, was without

any rational basis “... and was so unjustifiable as to be

violative of due process.” In the instant case, Peti-

tioners have been deprived of their property without

due process of law.

Likewise, there was no rational basis or justification

for the assertion by the Court of Appeals that the dis-

trict court had construed the contract.

Finally, there was no rational basis or justification for

the determination by the Court of Appeals that the

contract was “nonexecutory in nature”.

II.

THE MANDATE OF ERIE WAS VIOLATED WHERE, IN A

DIVERSITY CASE, THE DISTRICT COURT IMPOSED ON

PETITIONERS A HARSH REMEDY, WHICH IS CONTRARY

TO THE LAWS AND IS NOT AVAILABLE IN THE COURTS

OF THE STATE OF MICHIGAN AND WHERE THE COURT

OF APPEALS AFFIRMED THE DISTRICT COURT, BY MIS-

STATING THE RECORD AND BY ERRONEOUSLY FABRI-

CATING AN UNKNOWN AND UNRECOGNIZED CATE-

GORY OF CONTRACT.

In 1938, in its landmark decision, Erie R. Co. v.

Tompkins, 304 U.S. 64 (1938), the Supreme Court of the

United States declared:

“Except in matters governed by the Federal Con-

stitution or by acts of Congress, the law to be

applied in any case is the law of the state. And

whether the law of the state shall be declared by

its Legislature in a statute or by its highest

court in a decision is not a matter of federal

concern. There is no federal general common

law.”

During the past fifty years, Erie has become the

established law of the land. Thus, the Erie doctrine

requires that in a diversity case, the federal court must

tollow and apply the law of the state where the federal

court sits.

The explicit purpose of the Erie doctrine is to prevent

the accident of diversity of citizenship from under-

mining the equal administration of justice in coordi-

nate state and federal courts sitting side by side. Erie,

supra, 304 US. at 74-77.

Following Erie, this Court decided Klaxon Company

v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487,

496 (1941). There, this Court held:

“The conflict of laws rules to be applied by the

federal court in Delaware must conform to those

prevailing in Delaware’s state courts.”

Thirty-five years later, this Court reiterated:

“A federal court in a diversity case is not free to

engraft onto those state rules exceptions or

modifications which may commend themselves

to the federal court, but which have not com-

mended themselves to the State in which the

federal court sits.” Day & Zimmermann, Inc. v.

Challoner, 423 U.S. 3, 4 (1975).

How then, in the instant case, did the Sixth Circuit

Court of Appeals affirm the obvious departure by the

district court from the law of the State of Michigan, as

stated by the Michigan Supreme Court?

The Court of Appeals did so by asserting that the

district court had construed “the contract to be indivis-

ible and nonexecutory in its nature”. (App. C, infra,

p. C-6.}

This assertion misstates the record and is erroneous.

A reading of the entire transcript of the hearing in the

district court will confirm that neither the parties, nor

the district court made such a statement or arrived at

such a conclusion.

The concept of a contract being “nonexecutory in its

nature” was fabricated in total in the Court of Appeals.

More than 100 years ago, this Court declared that a

contract is either executed or executory. On the one

hand, a contract is executed when “nothing remains to

be done”; and on the other hand, a contract is

executory when “something is to be done”. Farrington

v. State of Tennessee, 95 U.S. 558, 559 (1877). The ques-

tion of whether a particular contract is executed or

executory is inherently, therefore, a factual one.

In the instant case, it was the plain unambiguous

testimony of Respondent that it did not provide adver-

tising services under the franchise agreements, unless

and until the advertising fees were “paid in”. Since

Respondent was suing for nonpayment of the adver-

tising fees, it necessarily follows that the advertising

services were never performed.

However, the answer to the factual question of

whether the franchise agreements were executory or

executed did not commend itself to the Court of

Appeals. In addition to fabricating a new and thereto-

fore unrecognized category of contract, namely, “non-

executory in its nature”, the Court of Appeals erred by

basing its ruling on exceptions and modifications to the

law of Michigan which had already been rejected by the

Supreme Court of Michigan.

For example, the Court of Appeals ruled that there

was no error “in the district court’s construing the

contract to be indivisible ...” (App. C, infra, p. C-6).

However, the Supreme Court of Michigan has already

held that whether a contract is indivisible is irrelevant

in determining the rule of law in Michigan concerning

the appropriate measure of damages for breach of an

executory contract.

Because Rood, supra, was decided two years after

Stroud, supra, the plaintiff-appellant in Rood strenu-

ously insisted that the Rood case should be distin-

guished from the Stroud case on several grounds,

including:

“(3) That notwithstanding this contract covers

both board and tuition, it is an indivisible

contract, and plaintiff is entitled to recover

the full consideration.” Rood, supra, 253

Mich. at 485.

The Supreme Court of Michigan acknowledged that

it was “mindful of plaintiff’s contention that the in-

stant contract covering both board and tuition is indi-

visible.” Rood, supra, 253 Mich. at 489. However, the

Court ruled:

“We think this does not change the rule of law

that plaintiff must prove the amount of its

damages. It has been repeatedly applied by the

courts of this State to contracts which were

indivisible in the same sense appellant contends

this contract is indivisible. [Citing two Michigan

Supreme Court cases].” [bid.

Clearly, the distinction as to whether a contract is

divisible or indivisible is not one which has com-

mended itself to the Supreme Court of Michigan.

In addition, the Court of Appeals considered it to be

significant that there was a provision in the franchise

agreements that the contracts would be interpreted

according to Louisiana law. The Court of Appeals

stated:

‘i

. we must determine, from the nature and

language of the contract, the parties’ intent in

entering into the franchise agreement under

Louisiana law.” (App. C, infra, C-6)

The Supreme Court of Michigan does recognize a

provision in a contract that the contract be interpreted

according to the laws of a foreign state. Rubin v. Gal-

lagher, 294 Mich. 124 (1940). However, even in that

instance, “... the procedure and remedy for the enforce-

ment of such substantive rights in Michigan are gov-

erned by the laws of ... [the] State jof Michigan].” Jd

at 127.

The Court of Appeals affirmed the clear departure

from Stroud and Rood by the district court and, there-

tore, “contravene|d] the fixed policy of the law” of the

State of Michigan. Rood, supra, 253 Mich. at 490.

As discussed above, the Erie doctrine mandates that,

in a diversity case, the federal court must follow and

apply the law of the state where the federal court sits.

In the instant diversity case, the mandate of Erie was

violated where the district court imposed on Petitioners

a harsh remedy for breach of an executory contract,

which remedy is contrary to the law and is not avail-

able in the courts of the State of Michigan.

Moreover, the Court of Appeals erroneously affirmed

this violation of the Erie doctrine by misstating the

record, by fabricating a new and theretofore unrecog-

nized category of contract, and by adding exceptions

and modifications which have not commended them-

selves to the Michigan Supreme Court.

CONCLUSION

This Court should review the instant case for the

reason that the conflict between the applicable law of

the State of Michigan and the harsh remedy imposed

by the district court is clear and unmistakeable. The

district court, sitting in Michigan, deprived Petitioners

of their property without due process of law and sub-

jected Petitioners to invidious and unreasonable dis-

crimination. The district court flagrantly violated the

Erie doctrine.

i omen

In addition, the Court of Appeals affirmed this denial

of due process, discrimination and violation of the Erie

doctrine, by misstating the record and by erroneously

fabricating a category of contract which had theretofore

been unknown and unrecognized.

There has been a gross miscarriage of justice!

For all the foregoing reasons, Petitioners respectfully

urge this Honorable Court to grant this petition for a

writ of certiorari.

Respectfully submitted,

By: /s/ ROBERT V. SEYMOUR (P20251)

Counsel of Record

Attorney for Petitioners

15565 Northland Drive, Suite 201E

Southfield, Michigan 48075-5394

(313) 569-6060

DATED: January 30, 1989

A-1

APPENDICES TO PETITION FOR CERTIORARI

APPENDIX A

MOTION FOR SUMMARY JUDGMENT

ON COUNTERCOMPLAINT

(United States District Court —

Eastern District of Michigan — Southern Division)

(Proceedings of March 31, 1987)

(WILLIAM F. GREGORY, MICHAEL C. SULLIVAN and

SULLIVAN-GREGORY, INC., a Michigan corporation,

Plaintiffs, vs. POPEYE’S FAMOUS FRIED CHICKEN &

BISCUITS, INC., formerly known as POPEYE’S FAMOUS

FRIED CHICKEN CORPORATION, a Louisiana corpora-

tion, Defendant — Case No. 85-CV 71383 DT)

Proceedings had in the above-entitled cause before the

Honorable Lawrence P. Zatkoff, on March 31, 1987.

APPEARANCES: On Behalf of Plaintiff, RALPH W.

BARBIER, JR., 34820 Harper Avenue, Mt. Clemens, MI

48043; On Behalf of Defendant, LAWRENCE R.

ABRAMCZYK, Suite 1100, 400 Renaissance Center,

Detroit, MI 48243.

+ + +

(3) Detroit, Michigan

March 31, 1987

CLERK: Civil Action Number 85-71383, William E

Gregory versus Popeye’s Famous Fried Chicken and

Biscuits, Incorporated.

A-2

MR. ABRAMCZYK: May it please the Court, at this

stage, the Court has dismissed the complaint. It has

before it the defendant’s counterclaim. It is our position

there are no genuine issues as to any material fact

relative to the claims made in the counterclaim and

that defendants are — or defendant is entitled to judg-

ment as a matter of law pursuant to Rule 56.

Your Honor, the counterclaim has eight counts. I

have an additional copy for the Court if the Court

desires to look at this while I speak.

THE COURT: Yes. I have a copy, of course, in the

file, but it would be more convenient to receive it in

this form.

MR. ABRAMCZYK: Before we begin reviewing it, I’ll

give the Court an overview. There are eight counts. The

first six counts relate to the six stores, specifically the

six franchise agreements. The last two counts relate to

the two promissory notes.

In those first six counts, Popeye’s claims there have

been defaults by all three defendants of each franchise

\4) agreement and specificaliy the defaults consist of

the failure to pay franchise royalties and advertising

fees. We plead (a) the existence of the contract and its

execution of the counterdefendants; (b) the inclusion of

the contract of the provisions to pay the franchise roy-

alty of 5 percent gross sales and advertising fees on a

weekly basis of 3 percent gross sales.

Count III, the counterdefendants have failed to pay

the franchise royalties and advertising fees as specified

in the counterclaim over the period of which the non-

payment occurred through the date of filing. We then

allege that the nonpayment constitutes an event of

default and find Popeye’s has been damaged in the

amount of that payment.

Now, let’s talk for a moment about where we were in

terms of the counterdefendants’ position before this

trial began, let’s talk about how the counterdefendants

A-3

responded to the counterclaim. This will take but a

moment and I’m going to run this first through the first

count because Counts III, IV, V and VI are identical in

terms of the allegations and replies to those allegations.

Your Honor, paragraph one of this counterclaim is

admitted. Paragraph 2 is admitted. Paragraph 3 is admit-

ted. Paragraph 4 is admitted. Paragraph 5 is admitted.

Paragraph six is admitted. Paragraph 7 we will show in

Count I is admitted. Paragraph 8 is admitted. Paragraph

9 is (5) admitted. Paragraph 10 is admitted.

At this point, the manner of pleading by the counter-

defendants changes a little bit so we get into the substance

of each paragraph of the countercomplaint. And para-

graph 11 says as of May 14, 1985 counterdefendants were

delinquent in the payment of 144 weeks franchise royal-

ties totaling 98,899.18. And that paragraph the counter-

defendants neither admit nor deny the allegation.

They also admit, however, they made — they did not

pay the franchise royalties, but they neither admit nor

deny the amount. So we have an admission of the fact

of nonpayment and then I’m left to my proofs on the

amount. First this represents the first issue of disputed

fact that I faced before trial began.

Now, at this point in trial, where are we on that

allegation? I’ve noted in my margin on the counter-

claim we have Exhibit 184, a stipulated exhibit, perhaps

we could get that in front of us. And I have an addi-

tional copy, if the Court needs it.

THE COURT: No. I have it.

MR. ABRAMCZYK: All right. Stipulated Exhibit 184

indicates, first, with respect to advertising fees and at

the bottom of the page with respect to royalties, the

delinquencies broken down by store, by total amount

per store and then by the opening periods, that is the

weeks in which (6) payments did not occur.

A-4

At this point in time of the counterclaim we are only

talking about the bottom part of that sheet, franchise

royalties. It’s a stipulated exhibit. Counterdefendants

admit, by virtue of the fact of nonpayment, they’ve

already admitted that in the pleading. But now they

admit further they have not paid franchise royalties for

Store 208, Troy store, in the amount of $139,139.22 for

the weeks that are listed on the right-hand side.

Counterdefendants admit they have not paid

franchise royalties for Store 311, Pontiac store. in the

amount of $102,687.77 for the period referenced in the

right-hand side.

Counterdefendants admit that they have not paid

franchise royalties for Store 361, the amount showing

on the sheet for the weeks showing on the sheet. They

admit — and Store 361 is the West Bloomfield store.

They make a comparable admission of nonpayment

for the Mt. Clemens store, number 377, in the amount

shown for the weeks shown.

Make an admission of the fact of nonpayment for the

period of nonpayment for store 430, the Southfield

store, in the amount shown for the weeks shown.

And finally they admit, by virtue of admission of this

exhibit, the fact of nonpayment, amount of nonpay-

ment (7) for the period of nonpayment for the Utica

store tor the last year. The store was closed and the

Court will note this exhibit does not reflect delin-

quency for the franchise royalties after the date of

closure, so we are not seeking royalties beyond the date

of closure.

THE COURT: Is there any dispute as to what this

exhibit means?

MR. BARBIER: No.

THE COURT: You agree with what Mr. Abramczyk

has said.

A-5

MR. BARBIER: I agree the amounts aren't paid. I

don’t agree nor do I dispute the amounts that are on

there.

MR. ABRAMCZYK: So I would submit at this point,

paragraph 11 of that counter claim has been covered.

The only open area was the counterdefendants refusing

to admit or deny as of the date of filing their answer to

the counterclaims the amounts or periods. involved. We

are now over that hurtle, that’s no longer a disputed

fact. We now move to paragraph 12 of the counterclaim.

At that point, Popeye’s has plead delinquency of fees

of advertising fees over a 144 week period in the

amount of $85,003,514 for this particular store covered

by Count I. And Count II, Ill, IV, V and VI have the

same kinds of allegations relative to the nonpayment of

advertising fees for the other stores. We had a reply, an

answer to the (8) counterclaim which admitted the fact

of nonpayment of advertising fees in each count, but

again left us to our proofs as to the amounts and the

periods.

I would submit again that stipulated Exhibit 184

overcomes the need at this point in time for proofs as

to the amounts of advertising fees that haven’t been

paid and the periods to which and stores to which they

relate. Now of course I’m addressing the Court’s atten-

tion to the top half of Exhibit 184 wherein there is

detail for advertising fee delinquencies. I’m not going to

go through this the second time, the format is exactly

the same.

I submit, with respect to paragraph 12 of the coun-

terclaim and the corresponding paragraphs in Count II,

III, IV, V and VI, there are no facts to try. The amounts

that have not been paid are stipulated to, stores to which

they relate have been stipulated to by virtue of this

exhibit. Periods of which the stores are delinquent have

A-6

been stipulated in which they occur. So paragraph 12 is

no longer a subject of the trial.

Let’s move to paragraph 13. Paragraph 13, I plead the

counterdefendants failure to pay the advertising fees

and royalties are defects of the franchise. Paragraph 3

the counterdefendants admitted their failure to pay, but

they neit’:er admitted or denied the legal conclusion

that the failure to pay these royalties and fees consti-

tuted an event of (9) default. Let’s address that issue.

Is the failure to pay royalties and advertising funds an

event of default? At this point, I would address the

Court’s attention to the franchise agreements them-

selves. As the Court will recall, the franchise agree-

ments are identical in content from store to store. That

being the case, we need look at only one. I would

address the Court’s attention to Exhibit 3 which is the

franchise agreement for the Troy store and I would ask

that the Court look specifically at page 19 of Exhibit 3.

Does Your Honor have that page?

THE COURT: Yes, I do.

MR. ABRAMCZYK: Paragraph 13 is titled termina-

tion and I would like to read — I believe it is the third

sentence which is about five lines down and starts with

the word franchisee. It says:

“Franchisee shall be in default hereunder for any

failure substantially to comply with any of the

requirements imposed by this franchise agreement,

as it may from time to time reasonably be supple-

mented by the confidential operating manual or

otherwise in writing, or to carry out the terms of

the franchise agreement in good faith, including,

without limitation. Any of the following events:

“Number 1, if franchisee fails or refuses promptly

to pay any monies owing to franchisor or its (10)

subsidiaries” ...

A-7

There’s more in the sentence, but that’s the relevant

portion.

So, counterdefendants in paragraph 13 of their answer

say their nonpayment — or don’t admit their nonpay-

ment isn’t an event of default.

I submit the contract language that I have just quoted

makes it very clear that the nonpayment is an event of

default. So far as I’m concerned, there’s nothing to try

at this point in time under paragraph 13.

We move to paragraph 14 which is the final paragraph

of the counterclaim. At that point, I plead that as a

result of their breach we have been damaged in the

amounts that haven’t been paid and the counterdefen-

dants deny that there’s been any breach and they

neither admit nor deny or make allegations.

I pointed out that that pattern of pleading goes right

through their answer and, at the end of the answer, an

affirmative defense is raised. And that affirmative

defense — and I’ll paraphrase — we don’t owe the

money because of the breach of contract we have plead

in our complaint against Popeye's. As the Court is obvi-

ously aware they were given their day in court on the

complaint and they didn’t carry their burden of proof

and that complaint was dismissed. With that dismissal

came the basis for their refusal and failure to pay. The

Court found that they haven’t proven any breach of

contract (11) by Popeye’s.

So, at this point in time, with respect to Counts I

through VI, they’ve admitted the contract, they have

admitted the provisions in the contract requiring the

many payments, they have admitted the fact of nonpay-

ments, they have stipulated the amounts of nonpay-

ment. I have shown that nonpayment is an event of

default. What’s left to try? I submit at this point in

time we are entitled to judgment, that’s with respect to

Counts I through VI.

——————————————

A-8

Counts VII and VIII deal with the two promissory

notes that were signed in 1982. And their admissions of

the execution of the promissory notes are made, admis-

sions of the fact that the promissory notes have not

been repaid in accordance with their terms. And then

in 184 at the bottom we have an admission as to the

amounts due on the notes. For purposes of this stipu-

lated Exhibit 184, we put the two notes together. It says

amount due on notes, $5,358.66. That represents the

balance on the two promissory notes by the admission

of the defendants. I submit, again, the compilation of

the admissions in the exhibits preclude the need for

any proofs at this time.

What else am I asking for? I’m asking for interest on

the unpaid fees. Does the contract call for the payment

of interest? Is this a question of what the contract says?

Look at paragraph III(C) page 4 of Exhibit 3, page 4 of

(12) the franchise agreement. At that point, about two

thirds of the way down, contract reads:

“If any monetary obligations owed by franchisee to

franchisor and its subsidiaries and affiliates are

more than seven days overdue, franchisee shall, in

addition to the obligation, pay to franchisor, a sum

equal to one and one half percent of the overdue

balance per month, or the highest rate permitted

by law, whichever is less.”

So there is a predicate in the contract for the imposi-

tion of interest.

Exhibit 184 contains the stipulation of the parties as

to the amount of interest that’s due and I would just

add, parenthetically, certain amounts of interest have

been waived by plaintiff. These are the amounts of

interest due by stipulation of the parties.

I would ask in my motion for summary judgment

that all three defendants, Michael Sullivan and William

Gregory and their corporation Sullivan and Gregory,

A-9

Inc., be found liable for these sums jointly and sever-

ally. And the basis for that claim again is contract

language. The opening language contained in the con-

tract makes it very clear that these gentlemen are

signing jointly and severally. If the Court will look at

page one of the Exhibit 3, franchise agreement, I think

it is very clear the words jointly and severally have

been (13) typed in after their names in capital letters.

And, if the Court will recall, there was testimony at

trial elicited by Mr. Barbier from his own clients that

they indeed signed the agreements in their individual

capacities, obligating them in their individual

capacities. And so, I would submit that on the question

of joint and several liability, there is no need for proofs.

So, Your Honor, that’s the basis for the motion. At

this point in time, I don’t feel there are any disputed

issues of fact to be tried.

THE COURT: Mr. Barbier?

MR. BARBIER: For the record, we have put in our

proofs and would adopt our position we took in our

original complaint. Obviously, I would not take the

time to reargue that. I have argued it to the Court, the

Court has ruled against me.

But I do add, as far as the franchise — excuse me, as

far as the advertising fees are concerned, it really is a

illusory contract. By their own admission during trial,

they in fact said that it is money in-money out. They

have not sustained any damage with regard to the con-

tract and in fact, the other exhibits which we had

marked and had been admitted show that the owner of

Popeye’s in fact owes well over, I think it is, two

million dollars to the fund. And therefore, it is our

position and I will not — The case law we cited on

page 10 (14) and 11 and 12 of our trial brief sets forth

our position that they should not be entitled to this

because in fact they have not sustained any damage.

A-10

The contract does in fact call for a three percent

advertising fee. We do not dispute that. But notwith-

standing that the Louisiana law is well settled, there

must be mutuality of obligation in order to enforce a

contract and it should not be illusory. In fact, this one

is. They wish us to now come back and pay funds that

they did not pay, they did not use, they did not suffer

any damages as a result of this alleged breach in the

countercomplaint. And, therefore, a logical construction

of this would mean it is not due and owing. The simple

fact a contract calls for payments when nothing in fact

is paid or used, then I don’t see how they can argue

there has been any damage.

Secondly, as far as the administrative fee which was

supposed to be one percent or one third of the amount

owing in 184, there’s been nothing to administer. And I

would submit to the Court again, in their own account-

ings that have been submitted in this trial, it shows

that there are millions owing in that particular fund to

the owner of Popeye’s, that funds are used out of that

particular Advertising Fund from our dollars to pay his

expenses and therefore I do not think they’re entitled to

collect something they haven’t used and haven’t been

damaged.

(15) And, therefore, our position is, on the Adver-

tising Fund, in addition to what we have argued before,

they are not entitled to any amounts.

THE COURT: Do you wish to respond to that?

MR. ABRAMCZYK: Yes, sir.

The argument seems to be that if you don’t pay the

advertising fees in, then they can’t be spent on local

and regional advertising and weren’t spent on local and

regional advertising, therefore, we don’t owe them, we

haven’t been damaged.

That argument fails because the advertising fees fund

advertising on an ongoing basis. And the testimony

A-11

shows that production and administration costs are

charged back to franchisees on an ongoing basis.

Deficits grow per those accounting statements and the

franchisees local and regional advertising accounts and

the production and administration expense category

were not paid. So, with respect to one percent of the

three percent, there’s no question the client has been

damaged.

The money has been spent, it has been charged back

to the franchisees. And what happens is that when it is

not paid, it is charged to other franchisees system wide

to a reserve, so the damages are very real.

What about the other two percent that Mr. Barbier

claims should not have to be paid because when it was

(16) paid, no advertising was done on a local and reg-

ional level? It is Popeye’s intention and desire to utilize

that money for spending in this marketplace, for hard

spending in this marketplace, when it is paid, that’s

why that provision is in the contract. That’s why the

contract says that the money doesn’t have to relate to a

particular accounting period and Mr. Jorgensen testified

about it being rolled over in the early stages of these

franchisees franchise existence.

So, if a franchisee doesn’t pay it, it is not just for-

gotten about. That money is denied to this marketplace

in the future. And it is the franchisors intent per this

contract provision to insure that advertising is going to

be placed in this marketplace in the future by requiring

the payment of fees.

Popeye — the other franchisees in this marketplace,

Mr. McMurtry and Clark are denied advertising to

which they’re entitled when these franchisees’ adver-

tising fee indebtedness is forgiven by the Court vis a

vis the argument made by Mr. Barbier. That is a hard

debt. The contract calls for the payment of franchise

and advertising fees every week in the amounts speci-

A-12

fied for every week, that the franchisee uses the fran-

chise. That’s the way the contract reads and that’s what

we're asking. And if, after they paid the monies that

they owed and it is not spent in accordance with the

contract, then they have a cause of action for breach of

contract by (17) Popeye’s. But at this point in time they

don’t have that cause of action.

Popeye’s has the cause of action for collection, con-

tract calls for payment on a weekly basis. They’ve said

we don’t owe it because you breached the contract

Popeye’s. The Court said yesterday, Popeye’s — the

Court said to the plaintiff you didn’t meet your burden

of proof, you didn’t show any breaches. So the obstacle

to payment is removed. We have a contract calling for

weekly payment, the fact of nonpayment, the reason for

nonpayment given is the breach by Popeye’s, that reason

has been eliminated.

So, what’s before the Court is the obligation to pay

advertising fees on a weekly basis per this contract

provision and that’s what we’re asking be enforced. If

the advertising fees, if the Advertising Fund isn’t

administered in accordance with the terms of the con-

tract after the monies are paid, then they have another

day in court to come in and say we paid, whatever the

figure is, 350 some thousand dollars of advertising fees

per the contract per the instructions of the court

enforcing this contract and per the fund that Popeye’s

has established.

I submit, Your Honor, they are indeed required to pay

the fees.

THE COURT: What about the two million dollars

that’s owed by another franchisee that was not col-

lected.

(18) MR. ABRAMCZYK: If the Court will remember,

that was the testimony of one of these gentlemen. It

wasn’t the testimony of anyone from Popeye's.

A-13

THE COURT: That was an exhibit.

MR. ABRAMCZYK: That was a Coopers and Lybrand

statement. It is my understanding that’s just a snapshot

as to a particular date a period in time, end of years.

There’s a drag on receivable that shows as to the end of

the fund, it shows as a liability to the fund. In fact,

that’s a good argument why they have to pay it.

Coopers-Lybrand come in, they audit the fund, they see

this receivable and they show the world at large that it

is an asset of the fund. What does that tell the world at

large? The fund is going to collect that money, it is an

asset of the fund’s, that’s why it is shown as an asset of

the fund.

The auditors say the money is owed and it’s got to be

paid. And it was going to be paid. If it wasn’t going to

be paid, it wouldn’t show it as an asset. That argument

mitigates against what they’re saying. If what they’re

Saying is true, if the monies aren’t paid and after a

passage of time the advertising isn’t placed and money

is not due, Coopers and Lybrand would not have re-

ceived the two million dollars from Copeland Enter-

prises as an asset. But Coopers and Lybrand do carry it

as an asset, it is an asset to the fund, it is a corres-

ponding liability to Copeland Enterprises. It has got to

(19) be paid. That’s why we’re standing here.

I’m saying that to the fund, the advertising fees that

these men owe is an asset. To them, just as to Cope-

land Enterprises, it is a liability to Mr. Gregory and

Sullivan. I’m asking the Court make them pay that

admitted liability to the fund so the fund can take that

asset and spend it. I’m asking the Court to enforce the

Coopers and Lybrand audit.

MR. BARBIER: May I respond breifly?

THE COURT: You may.

MR. BARBIER: Your Honor, not only will the exhibit

clearly show that the — I refer the Court to Exhibit 182

— 181 which is for the years 1984 and ’85.

ee ay Te F

A-14

MR. ABRAMCZYK: What’s the number, counsel? |

MR. BARBIER: 181.

THE COURT: I have it. '

MR. BARBIER: It says that related party receivables i

for ’84 and ’85 and they not only show the money isn’t

paid, but now they’re letting him write it off to the

tune of almost a half a million dollars, quarter of a

million before that as doubtful receivable. Which is

very convenient for the owner and not to pay into the

fund and simply write it off. On related party transac-

tions, you will see that they have expended money to

A. Copeland Enterprises. In a closely-held corporation,

Your Honor, there’s a lot of stuff (20} that can be used

to protect someone and I would suggest to this Court

that again, it is an illusory contract that hundreds of

dollars of thousands of dollars owed by the Copeland

Enterprises as per these exhibits clearly show there is

no intent te ever collect this money, but in fact write it

off over a period of time letting Mr. Copeland off the

hook and therefore to come into this Court and suggest

that now my clients should now pay into the fund

when it’s not in fact used the way counsel has sug-

gested.

MR. ABRAMCZYK: Mr. Barbier is dead wrong on

that footnote. The receivable from Copeland Enter-

prises, the company operated stores that Copeland :

Enterprises runs and others are receivables from people

like Mr. Gregory and Mr. Sullivan. That’s others. And

there’s an accounting charge to a loss reserve when the

others, like Mr. Gregory and Mr. Sullivan, go delin-

quent for three years. We have heard no testimony at all

about a charge off of the Copeland Enterprises receivable.

I'm prepared to offer proofs if you want to get into it.

Now counsel is arguing beyond the exhibit. The only

testimony was his own client’s impression of this foot-

note. But the language here is A. Copeland Enterprises

i rneenreeeenineeninnainl

A-15

receivable in the amount of $100,666. Others — some-

thing other than A. Copeland Enterprises, Inc. — a

receivable of $1,219,573.

(21) THE COURT: Gentlemen, I see that as acollat-

eral issue, whether it may or may not be something

that the franchisees would want to take up as a group,

if what counsel for plaintiff says is true, that’s a collat-

eral issue, in my opinion, to this litigation.

For the reasons stated on the record by counsel for

the defendant and counterplaintiff, this Court is going

to enter a summary judgment in favor of the defendant

in the counterclaim in the amount set forth in the

Joint Exhibit 184.

MR. ABRAMCZYK: Does the Court find the liability

to be joint and severable.

THE COURT: The Court finds the liability to be

joint and several.

MR. ABRAMCZYK: Thank you.

THE COURT: Gentlemen. What would you like to

do with the exhibits pending an appeal in this action?

MR. ABRAMCZYK: I would request that Mr. Barbier

keep them, if that is ail right with them, or I’ll take them.

MR. BARBIER: No, no. I'll take them.

THE COURT: I’m going to retain the Court copy of

exhibits that have been furnished to me and we will

retain these for approximately six months or there-

abouts. I’m going to order then that counsel for the plain-

tiff take custody of the exhibits that have been received

here during this trial. Is there anything that either

counsel wishes to place on the (22) record at this time?

MR. ABRAMCZYK: Defendants do not, Your Honor.

MR. BARBIER: Nothing, Your Honor.

THE COURT: Thank you for your attention in this

matter, gentlemen.

(Proceedings concluded at 8:55 am.)

(Certificate of Reporter Omitted)

B-|

APPENDIX B

JUDGMENT

(United States District Court —

Eastern District of Michigan — Southern Division)

(April 3, 1987)

(WILLIAM F. GREGORY, MICHAEL C. SULLIVAN and

SULLIVAN-GREGORY, INC., a Michigan corporation,

Plaintiffs/Counter-Defendants, vs. POPEYES FAMOUS

FRIED CHICKEN & BISCUITS, INC., formerly known as

POPEYES FAMOUS FRIED CHICKEN CORPORATION, a

Louisiana corporation, Defendant/Counter-Plaintiff —

CASE NO. 85-CV-71383-DT; HON. LAWRENCE P. ZATKOFF]

AT A SESSION of said Court held in the United States

Courthouse in the City of Detroit, State of Michigan,

on the 3rd day of April, 1987.

RESENT: THE HONORABLE LAWRENCE P. ZATKOFF

UNITED STATES DISTRICT JUDGE.

This matter having come before the Court for trial;

Defendant having made a motion to dismiss at the

conclusion of Plaintiffs’ case; the Court, in a ruling

from the bench on March 30, 1987, having granted

Defendant’s motion to dismiss for the reasons stated on

the record; Defendant thereafter having moved for sum-

mary judgment on Defendants’ counterclaim; the

Court, in a ruling from the bench on March 31, 1987,

having granted Defendant’s motion for summary judg-

ment for the reasons stated on the record, said judg-

ment being in the specific amounts detailed on stipu-

lated trial exhibit 184,

B-2

IT IS HEREBY ORDERED that Plaintiffs’ Complaint is

dismissed with prejudice, and

JUDGMENT IS HEREBY ENTERED in tavor of

Defendant/Counter-Plaintiff Popeyes Famous Fried

Chicken & Biscuits, Inc., and against Plaintiffs/

Counter-Defendants William F Gregory, Michael C.

Sullivan and Sullivan-Gregory, Inc., jointly and sever-

ally, in the amount of Nine Hundred Twenty Six

Thousand Four Hundred Twenty and 79/100 ($926,-

420.79) Dollars, together with interest from the date

hereof computed in accordance with the provisions |[of|

28 USC 1961, to wit, five and 68/100 (5.68%) percent,

computed daily and compounded annually.

/s/ LAWRENCE P. ZATKOFF

UNITED STATES DISTRICT JUDGE

(Certification Omitted)

C-1

APPENDIX C

OPINION

NOT FOR PUBLICATION

NOT RECOMMENDED FOR FULLTEXT PUBLICATION

Sixth Circuit Rule 24 limits citation to specific situations. Please see Rule 24

before citing in a proceeding in a court in the Sixth Circuit. If cited,

a copy must be served on other parties and the Court.

This notice is to be prominently displayed if this decision is reproduced.

\ i

(United States Court of Appeals — Sixth Circuit)

(Filed September 9, 1988)

(WILLIAM F GREGORY, MICHAEL C. SULLIVAN, and

SULLIVAN-GREGORY, INC., Plaintiffs and Counter-

Defendants-Appellants, v. POPEYES FAMOUS FRIED

CHICKEN AND BISCUITS, INC., formerly known as

POPEYES FAMOUS FRIED CHICKEN CORPORATION,

Defendant and Counter-Plaintiff-Appellee — No. 87-1461;

ON APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE EASTERN DISTRICT OF MICHIGAN)

BEFORE: KEITH and WELLFORD, Circuit Judges;

and EDWARDS, Senior Circuit Judge.

PER CURIAM.

We are concerned in this appeal with a dispute over res-

taurant franchises centering upon the plaintiff/franchisee’s

nonpayment of advertising fees and the defendant/fran-

chisor’s duty to advertise. Sullivan-Gregory, Inc. (SGI) sued

Popeyes, Inc. (Popeyes), alleging breach of Popeyes’ duty to

provide adequate advertising, and Popeyes counterclaimed

for franchise royalties and advertising fees due under the

franchise agreements. The district court dismissed SGI’s

action against Popeyes for failure to establish a prima facie

C-2

case, and then proceeded to enter summary judgment

for Popeyes on its counterclaim. We affirm the district

court’s decisions in both respects.

Popeyes is a Louisiana franchisor of spiced fried

chicken restaurants. SGI is a Michigan corporation

whose sole shareholders are two businessmen, Sullivan

and Gregory. In 1978, SGI entered into franchise option

agreements with Popeyes for the development of

Popeyes franchises in Detroit suburban areas. Over the

next five years, SGI developed six Popeyes franch::es in

the area, each covered by a separate agreement. Under

these franchise agreements, SGI was obligated to pay an

initial franchise fee of $20,000, a weekly royalty fee in

the amount of 5% of gross sales for the preceding week,

and a weekly advertising fee in the amount of 3% of

gross sales for the preceding week.

Even as SGI began opening additional new restau-

rants in the early 1980s, it was experiencing losses in

its existing stores. Business suffered from economic

recession in Detroit and from the entry of Kentucky

Fried Chicken into the spicy chicken market in the

Detroit area. Shortly after opening its first restaurant,

the franchisee fell behind in its payment of royalties

and advertising fees. Over the years these delinquencies

increased, until at the time of trial, the combined delin-

quencies (including the amount of promissory notes

executed embodying delinquencies) amounted to more

than $900,000. Notwithstanding these delinquencies,

SGI continued to operate the Popeyes franchises and to

receive operational support from Popeyes. During the

early 1980s, Popeyes also provided advertising and mar-

keting support and, eventually, radio and television

advertising in the Detroit area.

In March 1985, SGI filed its complaint against Popeyes,

alleging that Popeyes had breached its duty under the

C-3

franchise agreements to provide adequate advertising or

promotion. Popeyes counterclaimed against SGI for

failure to pay franchise royalties and advertising fees

due under the six franchise agreements and to collect

money due under two defaulted promissory notes. Fol-

lowing SGI’s presentation of proof at trial, Popeyes

moved the district court to dismiss the action. The

motion was granted on the ground that SGI had failed

to establish that Popeyes had breached any provision of

the franchise agreements regarding advertising. Fol-

lowing an oral hearing, the court granted Popeyes’

motion for summary judgment on its counterclaim and

entered judgment against SGI in the amount of

$926,420.79.

SGI argues that the district court erred in its construc-

tion of the franchise agreements. First, it contends that

the agreements should have been construed against

Popeyes as drafter thereof and, further, that they should

have been read to require what SGI considered to be

“adequate” advertising. The agreements each contain

an integration clause and a choice of law provision

stating that Louisiana law shall govern the interpreta-

tion of the agreement. The agreements state the fol-

lowing with regard to advertising by Popeyes:

... Franchisee, recognizing the value of adver-

tising and the importance of the standardization

of advertising and promotion to the goodwill

and public image of the POPEYES Famous Fried

Chicken System, agrees to pay to The POPEYES

Famous Fried Chicken Advertising Fund a recur-

ring, non-refundable advertising fund contribu-

tion to be paid on a weekly basis, ... of three

percent (3%) of the gross sales for the preceding

week ..., which sum shall be expended by

The POPEYES Famous Fried Chicken Advertising

C-4

Fund ..., administered for national, regional

and local advertising and promotional materials

for the POPEYES Famous Fried Chicken System.

All reasonable costs incurred by Franchisor ...

for the production and dissemination of such

advertising and promotional materials may be

charged to The Advertising Fund .... There

shall be no requirement that all or any part of

the Fund be disbursed within any accounting

period. Selection of media and locale for media

placement shall be at the sole discretion of the

Administrator of The Fund. Franchisee under-

stands that such advertising is intended to maxi-

mize the public’s awareness of POPEYES Famous

Fried Chicken restaurants, and that Franchisor

accordingly undertakes no obligation to insure

that any individual franchisee benefits directly

or on a pro rata basis from the placement, if

any, of such advertising in his local market.

(Emphasis supplied).

SGI complained that Popeyes failed to commit funds

to broadcast media advertising in the Detroit area when

SGI first opened its stores (the first in the Detroit area),

instead waiting until 1981 when several of SGI’s

Popeyes franchises had opened. Essentially, it asserts

also a failure to provide adequate advertising in the

Detroit area to counter competitive entries into the

spicy chicken market. The district court interpreted the

above stated provision of the franchise agreement to

leave to the Fund Administrator’s discretion the timing,

selection, and placement of advertising. Furthermore,

the district court held that the agreement did not

require the Administrator to undertake the duty to

please individual franchisees, including SGI, by

selecting advertising that specifically benefitted a par-

ticular market or a particular store. SGI did not allege

or prove a complete failure by Popeyes to provide adver-

tising and promotional materials; instead, it alleged

that Popeyes had provided too little advertising in

Detroit and not as much promotional assistance as SGI

believed was necessary to give it the “help” needed.

We find no error in the district court’s conclusion

that SGI failed to establish a prima facie case of

Popeyes’ breach of any contractual obligation relating to

the franchises. SGI’s argument that the franchise agree-

ments were contracts of adhesion to be construed in

the franchisee’s favor is not persuasive. Plaintiff's com-

plaint was not, therefore, improperly dismissed.

The franchise 2greement between the parties provides

that the agreement “shall be interpreted and con-

strued” under Louisiana law. Michigan courts hold such

contractual choice of law provisions importing a foreign

state’s substantive law to be valid and enforceable. See,

e.g., Hardy v. Monsanto Enviro-Chem Systems, Inc., 414

Mich. 29, 323 N.W.2d 270, 294 (1982); Rubin v. Gal-

lagher, 294 Mich. 124, 127, 292 NW. 584 (1940). There-

fore, Michigan courts would honor the parties’ intent

that obligations under the contract be resolved under

Louisiana law.

Even when the parties have chosen a foreign law to

govern the interpretation of their contract, however,

Michigan law, as lex fori, still governs questions of

procedure and of the remedies available to the parties.

See Rubin, 294 Mich. at 128; Mt. Ida School for Girls v.

Rood, 253 Mich. 482, 486, 253 NW. 227 (1931). In an

action such as this, the remedy available to the plaintiff

is the remedy afforded by Michigan law. Rubin, 294

Mich. at 128.

The choice of law question in this case relates to the

question of damages owed by SGI arising from its delin-

———————— SSS

C-6

quency in payment of advertising fees due under the

franchise agreements. SGI contends that the district

court erred in finding it ltable in the total amount of

delinquent fees claimed. It claims that the agreement

to pay advertising fees was executory because Popeyes

administered the advertising fund on a “money in,

money out” basis; therefore Popeyes’ performance of

the franchise agreement was dependent on and would

occur after SGI’s payment of advertising fees. Under

Michigan law, a party to an executory contract is liable

only for actual damages resulting from a breach, and

not necessarily for the full contract price. See Rood,

253 Mich. at 486; Walton School of Commerce v.

Stroud, 248 Mich. 85, 88-89, 226 NW. 883 (1929). There-

fore, SGI maintains that it should be held liable only

for actual damages suffered by Popeyes and not for the

total delinquency claimed (There was no real dispute

as to the total amount claimed under the agreements.]

We must therefore decide whether the advertising

fees provision in the franchise agreements was in fact

an executory agreement that was independent of the

rest of the terms of the franchise agreement. To do this

we must determine, from the nature and language of

the contract, the parties’ intent in entering into the

tranchise agreements under Louisiana law.

Under Louisiana law, an agreement which contains

several different undertakings is construed generally

contrary to the notion that the different undertakings

are independent and divisible. Cf Stockstill v. Byrd, 132

La. 404, 61 So. 446 (1913). SGI’s several undertakings, as

well as Popeyes’, would therefore be considered as

dependent and part of the whole agreement absent

language indicating the contrary. We believe there was

no error demonstrated in the district court’s construing

the contract to be indivisible and nonexecutory in its

C-7

nature. Cf. S&W Investment Co. v. Otis W. Sharp &

Son, Inc., 247 La. 158, 170 So.2d 360 (1964). Louisiana

law enforces a contractual requirement in accordance

with the plain language of the agreement and in order

to ratify the expressed intent of the parties. Domed

Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480,

484 (5th Cir. 1984). We believe the district court has

followed this precept in this case.

Considering the question of damages to be a matter

of remedy governed by Michigan law, as that of the

forum state, we note that SGI did not contest Popeyes’

claim by asserting before the district court that Popeyes

had not proved its performance. Rather, SGI claimed

that Popeyes was required to establish the amount of

actual damages caused by SGI’s default in paying the

contractual royalties and advertising allowances. It also

claimed a defense against Popeyes of “supervening

impossibility of performance,” asserting that payment

of the fees was impossible because it was “losing

thousands of dollars and was closing its stores,” citing

Bissell v. L. W. Edison Co., 9 Mich. App. 276, 284-85,

156 NW.2d 623 (1967). (See appellant’s reply brief at pp.

19, 20).' We conclude that an “impossibility” defense

based upon economic recession and the failure of a

franchise business to live up to its hoped for potential

is not a viable affirmative defense to a claim of debt for

failure to pay an unambiguous contractual obligation.”

The agreements in question indicated the parties’

intent that advertising fees (and royalty fees) were to be

' $GI's other affirmative defense, that Popeyes had breached the

agreements, was foreclosed by the district court’s finding that SGI

had failed to make out a prima facie case on its original claim.

A part of SGI's claimed defense of impossibility of perfor-

mance pertained to its assertion that the advertising fund was

mismanaged. We perceive no error in the district court’s decision

that this was a collateral, and essentially immaterial, issue.

C-8

utilized for the ongoing promotion of the Popeyes

system as a whole. They did not provide that adver-

tising and promotion services were first to be per-

formed in the Detroit area before SGI’s obligations to

pay the fees were triggered. During the entire period in

dispute, SGI was accorded the franchisor’s product line,

food techniques and formulas, restaurant design and

operating procedures, logo, store manuals, and the like.

Whether SGI's stores directly received $925,000 worth

of Detroit area newspaper, television andothe: media

advertising is not the question; under the franchise

agreements, Popeyes was not obligated to allocate SGI’s

payments to Detroit area advertising. SGI utilized

Popeyes’ services and name during the period involved,

and it had an interrelated, dependent obligation to

make the prescribed payments for these services, even

though the services were not as extensive or “helpful”

as SGI desired. SGI incidentally acknowledged its

ongoing liability from time to time by executing prom-

issory notes representing unpaid and accrued cash obli-

gations. The Michigan authority cited by SGI does not,

in our view, support any contrary principles to those

expressed herein.

SGI did not repudiate the franchise agreements

during the period in dispute. It continued to operate

the Popeyes franchise restaurants and continued to

receive the benefits of the Popeyes support system. It

cannot now complain that Popeyes must prove actual

damages rather than the agreed contract fees due and

payable arising out of SGI’s ongoing breaches.

Nor do we find error in the grant of summary judg-

ment by the district court. In reviewing the motion for

summary judgment, we consider the evidence in the

light most favorable to SGI, but we discern no genuine

issue of material fact regarding SGI's liability on the

C-9

contract delinquencies. The district court found that

SGI had not established a prima facie case of Popeyes’

breach of contract. The fact and amount of nonpayment

of franchise agreement fees were not disputed. Because

SGI failed to allege any specific facts that could estab-

lish a genuine defense to its liability or to the amount

thereof, we conclude that the district court’s grant of

summary judgment was proper. See Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 250 (1986); Celotex Corp. v.

Catrett, 477 U.S. 317, 322-24 (1986).

We accordingly AFFIRM the judgment for Popeyes.

D-1

APPENDIX D

ORDER

(United States Court of Appeals — Sixth Circuit)

(Filed November 4, 1988)

(WILLIAM E GREGORY, ET AL., Plaintiffs and Counter-

Defendants-Appellants vs. POPEYES FAMOUS FRIED

CHICKEN & BISCUITS, INC., Defendant and Counter-

Plaintiff-Appellee — NO. 87-1461)

BEFORE: KEITH and WELLFORD, Circuit Judges;

EDWARDS, Senior Circuit Judge.

The appellants have petitioned the court to rehear its

decision of September 9, 1988, affirming the judgment

of the district court.

The court has considered the petition for rehearing

offered in support thereof. Finding no issue of law or

fact that was overlooked or misapprehended, the peti-

tion is found not to be well taken.

It is therefore ORDERED that the petition for re-

hearing is denied.

ENTERED BY ORDER OF THE COURT

/s/ Leonard Green

Clerk

E-1]

APPENDIX E

ORDER

(United States Court of Appeals — Sixth Circuit)

(Filed November 9, 1988)

(WILLIAM F. GREGORY, ET AL., Plaintiffs and Counter-

Defendants-Appellants vs. POPEYES FAMOUS FRIED

CHICKEN & BISCUITS, INC., FORMERLY KNOWN AS

POPEYES FAMOUS FRIED CHICKEN CORPORATION,

Defendant and Counter-Plaintiffs-Appellees [sic] —

No. 87-1461)

BEFORE: KEITH and WELLFORD, Circuit Judges,

and EDWARDS, Senior Circuit Judge.

The Court having received a petition for rehearing en

banc, and the petition having been circulated not only

to the original panel members but also to all other

active judges of this Court, and no judge of this Court

having requested a vote on the suggestion for rehearing

en banc, the petition for rehearing has been referred to

the original hearing panel.

The panel has further reviewed the petition for

rehearing and concludes that the issues raised in the

petition were fully considered upon the original sub-

mission and decision of the case. Accordingly, the peti-

tion is denied.

ENTERED BY ORDER OF THE COURT

/s/ Leonard Green

Clerk

F-]

APPENDIX F

ORDER

\United States Court of Appeals — Sixth Circuit)

(Filed November 29, 1988)

(‘WILLIAM FE GREGORY, ET AL., Plaintiffs and Counter

Detendants-Appellants vs. POPEYES FAMOUS FRIED

CHICKEN & BISCUITS, INC., Defendant and Counter

Plaintiff-Appellee — NO. 87-1461)

Upon consideration of the motion of the appellants

to stay issuance of the mandate pending application for

writ of certiorari, as well as the response of the

appellee in opposition thereto,

It is ORDERED that the motion be and hereby is

granted for a period of sixty (60) days from the date

herein.

ENTERED BY ORDER OF THE COURT

/s/ Leonard Green

Clerk

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.