Opposition Brief — Arby's, Inc. v. Kitchens Foods, Inc.
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FILED
AUG 5 1982
— OFFICE OF THE CLERK
No. 92-41 - —
In The
Supreme Court of the United States
October Term, 1992
S
ARBY’S, INC. and FRED BARTLIFF,
Petitioners,
VS.
KITCHENS FOODS, INC., et al,
Respondents.
.
Petition For Writ Of Certiorari To The
United States Court Of Appeals
For The Eleventh Circuit
+
RESPONDENTS’ BRIEF IN OPPOSITION
*
ANDREW T. CrtrRin MicHAEL A. YOUNGPETER
RICHARD BouNDs (Counsel of Record)
Grecory B. BREEDLOVE Srrote & Permutt, P.C.
CUNNINGHAM, Bounpbs, YANcE, One St. Louis Centre
CROWDER, AND BROWN Suite 1000
1601 Dauphin Street Post Office Drawer 2025
Post Office Box 66705 Mobile, AL 36652
Mobile, AL 36660 (205) 432-1671
(205) 471-6191
Counsel for Respondents, Doyle Kitchens,
Morgan Kitchens, Pauline Kitchens,
Blake Kitchens, and Kitchens Foods, Inc.
—————
COCKLE LAW BRIEF PRINTING CO. (800) 225.6964
OR CALL COLLECT (402) 342-283
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES... ........0.0cccccccccece ii
STATEMENT OF THE CASE.....................5. 1
A. Preservation of Constitutional Challenges.... 1
B. Statement of the Facts....................... 1
SUMMARY OF ARGUMENT....................... 4
REASONS FOR DENYING THE PETITION......... 7
I. RETROACTIVITY/DUE PROCESS ARGUMENT 7
A. Petitioners Failed to Preserve Their Retroac-
tivity/Due Process Argument.............. 7
B. Petitioners Have Not Suffered a Retroactive
Imposition of Punitive Damages............. 11
1. Intentionally false opinions have been
actionable in Alabama for over a century 12
2. The jury verdict was not based solely on
_Claims for misrepresentation of opinion 16
3. Petitioners knew in 1985 that their
actions were unlawful and could subject
Se WII ci ain Kiwi oe cndnn ck scks 17
Il. POST-VERDICT REVIEW OF PUNITIVE DAM-
TORRE HI sone hase kA eynndhbatananeiaekcn 20
A. Petitioners Failed to Request a Post-Verdict
Review of the “Reasonableness” of the Puni-
tive Damages Award... ...........0..0000. 20
B. Petitioners Presented no Evidence that the
Punitive Damages Award was Excessive... 24
C. The Lack of a Post-Verdict Review of the
“Reasonableness” of the Punitive Damages
Award Does Not Warrant Review By This
Ns 5k0s KAR yeeuxA ee ehaekeoedenccssas 28
ii
TABLE OF AUTHORITIES
Page
Cases
Associates Financial Services Co. of Alabama, Inc. v.
Barbour, 592 So. 26R T9i Giees BUMP cha ve cae ce sss 27
Bankers Life and Casualty v. Crenshaw, 486 U.S. 71
Ob) IE 7.2
Bradfield v. Elyton Land Co., 93 Ala. 527, 8 So. 383
(1890) ...... «s:s:0:2 kone ks 9's 13
Dewey v. Des Moines, 173 U.S. 193, 43 L. Ed. 665, 19
S. Ct. 379 (1999)... ea 23
Fraser v. Reynolds, 588 So. 2d 442 (Ala. 1990)...... 9, 10
Fuller v. Preferred Risk Life Insurance Co., 577 So. 2d
878 (Ala. 1991) ... ssn eee eee ee ees ss 25, 26
Green Oil Co. v. Hornsby, 539 So. 2d 218 (Ala. 1989) .25, 26
Griel v. Lomax, 89 Ala. 420, 6 So. 741 (1889)......... 13
Illinois v. Gates, 462 U.S. 213 (89GB) ................. 24
Industrial Chemical & Fiberglass Corp. v. Chandler,
547 So. 2d 812 (AMR. Tite eee k sae ee eae h sa sss 26
Keller v. Security Federal Savings & Loan Association,
555 So. 2d 151 GARR. gee ee aa 9, 10
Kentucky v. Stincer, 482 U.S. 730 (1987)............... 7
McDowell v. Key, 557 So. 2d 1243 (Ala. 1990)..... 24, 27
Miller v. Florida, 482 U.S. 423 (1987)..............0.. 20
Montgomery Southern Railway Co. v. Matthews, 77
Ala. 357 (1684) ....:isas .eneeeen ee 42, 13, 19
iii
TABLE OF AUTHORITIES - Continued
Page
Pacific Mutual Life Insurance Co. v. Haslip, 111 S. Ct.
| EE eee ees ee eee eee ee 21, 22
Patrick v. Burget, 486 U.S. 94 (1988) ...........----+-- 7
Randell v. Banzhoff, 375 So. 2d 445 (Ala. 1979)....... 14
Reynolds v. Mitchell, 529 So. 2d 227 (Ala. 1988) .. passim
Ringer v. First National Bank, 291 Ala. 364, 281 So.
ee eee eee eee eT eee 14
Rodopoulos v. Sam Piki Enterprises, Inc., 570 So. 2d
OS er ee eee eee Tee 9, 10
Scholz Homes, Inc. v. Hooper, 287 Ala. 628, 254 So.
gee a ae eee ee 14
Shepherd v. Kendrick, 236 Ala. 289, 181 So. 782
ee chat cha sack ec 4s eis sawikees 13, 14, 15
Stephens v. Hill, 249 Ala. 299, 31 So. 2d 136 (1947) ....14
Tillis v. Smith Sons Lumber Co., 188 Ala. 122, 65 So.
eee ee eee ee 14
MIscELLANEOUS
eh cea ee eho ew 4
eS) A) |) ee eee oo oer 6
37 Am. Jur. 2d, Fraud and Deceit § 53 (1968)......... 19
STATEMENT OF THE CASE
A. Preservation of Constitutional Challenges
In their petition for writ of certiorari, Petitioners
assert matter-of-factly:
At all stages of the proceedings below, Petitioners
asserted that the imposition of punitive damages
has violated due process. Petitioners consistently
maintained a due process objection to any award
of punitive damages before both the District Court
and the Court of Appeals. . . . Thus, both of the
questions presented in this Petition are properly
before the Court.
[Pet. for Cert. at pp. 4-5.] These statements are extremely
misleading. Respondents do not contend that Petitioners
failed to raise “a due process objection” in the courts
below. However, as more fully explained infra, Petitioners
have not timely pressed the particular due process issues
asserted in their petition, and those issues were not
passed upon by the courts below. Consequently, both of
the questions presented in the petition for writ of cer-
tiorari are not properly before the Court.
B. Statement of the Facts
Petitioners misstate several facts and omit other
material facts in their petition. Petitioners present the
facts as if there were no claims submitted to the jury
other than the claim based on projections of future sales
and profits. Petitioners flatly state: “Respondents tried
their fraud claim in the District Court solely on the basis
of Bartliff’s alleged projections concerning future sales
and profits at a hypothetical restaurant. ... ” [Pet. for
Cert. at p. 5.] This statement is patently false. In addition
to the claim based on projections, Respondents asserted
1
2
(and proved) claims for misrepresentation of existing
fact! and fraudulent suppression.
! Furthermore, Petitioners misleadingly assert that
4 “Respondents’ fraudulent suppression claim cannot sup-
4 port the verdict because Respondents’ admissions at trial
plainly establish that any ‘suppression’ claim was time-
barred.” [Pet. for Cert. at p. 5 n. 2.] Remarkably, Peti-
tioners fail to note that the jury specifically found Peti-
tioners guilty of fraudulent suppression and specifically
found that this claim was not time-barred. The interrogato-
ries to the jury include the following specific findings:
I1.(A) Have the plaintiffs established by a pre-
ponderance of the evidence that the
:! defendants fraudulently suppressed
information defendants had a duty to
disclose?
4 ANSWER: (x) Yes (__) No
* * *
IV. Have the plaintiffs established by a pre-
ponderance of the evidence that they
were not aware of facts which would
have led a reasonably prudent person to
have discovered such fraudulently sup-
pressed facts the defendant had a duty
to disclose on or before July 28, 1986?
ANSWER: (x) Yes (__) No
[Pet. for Cert. at pp. 5a-6a.]
1 Petitioners misrepresented to the Kitchens that the aver-
age annual sales of Arby’s franchises were between $750,000.00
and $1,000,000.00, when the actual average annual sales were
only between $500,000 and $600,000. (App. at 4a).
3
Petitioners misstate the facts for the purpose of “set-
ting up” their retroactivity /due process argument. How-
ever, Petitioners’ retroactivity /due process issue does not
arise (and cannot be presented) under the correct facts
because the jury’s award of punitive damages is fully and
independently supported by the jury’s verdict on the
fraudulent suppression claim, a cause of action which
Petitioners cannot dispute existed under Alabama law in
1985.
Additionally, Petitioners fail to note that the jury
found Petitioners guilty of intentional fraud and deceit.”
Petitioners present their case as though they simply made
“honest” guesses or projections to the Respondents.
However, Respondents proved by clear and convincing
evidence that Petitioners deliberately lied to Respondents
(and to at least four other former Arby’s franchisees who
testified at trial) and intentionally and fraudulently
induced Respondents to make substantial financial
investments in an Arby’s franchise by providing Respon-
dents with blatantly false financial information.
¢
2 Under Alabama law, punitive damages may be imposed
for false representations in the form of an opinion only where
the evidence establishes that the defendant stated the false
opinions with an intent to deceive. Reynolds v. Mitchell, 529 So.
2d 227, 231 (Ala. 1988).
semen ep ans i aa es ag un iaaa aie an
—— a
4
SUMMARY OF ARGUMENT
Petitioners propose to raise substantial constitutional
challenges to the Eleventh Circuit’s Rule 36-1 “no opin-
ion” affirmance of the jury’s verdict.? Petitioners premise
their due process challenges upon assertions of fact
which are completely at odds with the evidence of record
in this case and well-established Alabama law. Moreover,
Petitioners at no time effectively raised or pressed these
issues in the courts below. Consequently, neither of the
courts below considered these issues. Due to the absence
of a properly developed record, there is nothing for this
Court to review and Petitioners’ petition for writ of cer-
tiorari is due to be denied.
Petitioners’ retroactivity/due process argument is
based on the legal and factual premises that representa-
tions in the form of opinions were not actionable under
3 Under certain circumstances, the Eleventh Circuit Court
of Appeals will affirm a judgment of a district court without
opinion. Eleventh Circuit Rule 36-1, reads, in part, as follows:
When the court determines that any of the following
circumstances exist:
* * *
(b) the evidence in support of the verdict is suffi-
cient;
” * +
(e) judgment has been entered without an error of
law;
and an opinion would have no precedential value, the
judgment or order may be affirmed or enforced with-
out opinion.
11th Cir. R. 36-1 (emphasis added).
5
any circumstances in Alabama in 1985, and that Peti-
tioners were unaware in 1985 that the conduct alleged
(and proved) by the Respondents could subject the Peti-
tioners to liability for fraud and punitive damages. These
premises are unsupported and incorrect.
Alabama courts have held for more than 100 years
that a representation in the form of an opinion can sup-
port a claim for fraud in certain circumstances. Contrary
to Petitioners’ assertions, the 1988 Reynolds decision was
not the first Alabama decision which permitted a fraud
claim to be based on an opinion. The Reynolds decision
simply applied a well-recognized exception to the general
rule against allowing a fraud claim to be based on an
opinion.
Additionally, it is clear that Petitioners had actual
and constructive knowledge, in 1985 when they dealt
with Respondents, that their conduct could subject them
to liability for compensatory and punitive damages. The
jury found Petitioners guilty of intentional, deceitful and
fraudulent misconduct. Petitioners presented no evidence
whatsoever that they were unaware of the consequences
of this type of misconduct. Moreover, Petitioners’ retroac-
tivity/due process argument completely ignores the fact
that the jury specifically found that Petitioners were
guilty of fraudulent suppression. Fraudulent suppression
was undeniably actionable under Alabama law in 1985.
Petitioners’ second constitutional challenge is like-
wise without merit. Petitioners contend that they were
denied due process by the lower courts’ failure to review
the “reasonableness” of the amount of the jury’s punitive
damages award. As with the first issue, Petitioners failed
to raise this issue in the courts below. Most likely, the
lower courts failed to review the “reasonableness” of the
6
punitive damages award because Petitioners never
requested it. Consequently, Petitioners waived any argu-
ment regarding the reasonableness of the punitive dam-
ages award. Moreover, under Alabama law, Petitioners
bore the burden of articulating reasons why the jury
verdict is excessive, yet Petitioners presented no evidence
whatsoever as to why the punitive award was excessive
under the facts and circumstances of this case.
This Court’s rules provide that “[a] petition for writ
of certiorari will be granted only when there are special
and important reasons therefor.” Sup. Ct. R. 10. The
instant petition fails to meet the criteria enumerated in
Rule 10. The Eleventh Circuit’s decision does not conflict
with any decision of a federal court of appeals or any
decision of this Court. Indeed, contrary to Petitioners’
assertions, the lower courts’ decisions are fully consistent
with the well-established law in the State of Alabama, as
well as other state and federal appellate decisions.
At best, Petitioners seek to have this Court render an
“advisory opinion” regarding constitutional issues that
do not arise within the context of this case. At worst,
Petitioners seek to have this Court address a fact-bound
dispute about whether the jury’s verdict and punitive
damages award is supported by the record. In any event,
Petitioners failed to preserve either of their constitutional
arguments for review, and Petitioners have failed to dem-
onstrate that this case presents any issue which would
warrant review by this Court.
¢
7
REASONS FOR DENYING THE PETITION
I. RETROACTIVITY/DUE PROCESS ARGUMENT
A. Petitioners Failed to Preserve Their Retroac-
tivity/Due Process Argument
Petitioners expressly concede that they raised their
retroactivity challenge for the first time on appeal to the
Eleventh Circuit. [Pet. for Cert. at p.5.] The trial court had
no opportunity to consider or rule on this issue. Conse-
quently, the Eleventh Circuit was under no obligation to
consider this issue and, from aught that appears from its
“no opinion” affirmance, the court did not consider it. As
a result, the record has not been properly developed for
this Court to consider this issue. For this reason alone,
this Court need not consider Petitioners’ retroactivity
argument. Kentucky v. Stincer, 482 U.S. 730, 747 n. 22
(1987); see also Patrick v. Burget, 486 U.S. 94, 99 n. 5 (1988)
(“This Court usually will decline to consider questions
presented in a petition for certiorari that have not been
considered by the lower court.”); Bankers Life and Casualty
v. Crenshaw, 486 U.S. 71, 79 (1988) (“[T]he policies that
animate the ‘not pressed or passed upon below’
rule . . . [include] a constellaiion of practical consider-
ations, chief among which is our own need for a properly
developed record on appeal.”).
Petitioners contend that the “earliest opportunity”
they had to raise their retroactivity/due process argu-
ment was before the Eleventh Circuit Court of Appeals.
[Pet. for Cert. at pp. 4-5.] However, Petitioners’ assertion
that they could not have raised their retroactivity /due
process argument in the trial court is based on an irra-
tional interpretation of Alabama case law. Petitioners’
retroactivity argument is based on Petitioners’ suggestion
8
that a case decided by the Alabama Supreme Court in
1988 [Reynolds v. Mitchell, 529 So.2d 227 (Ala. 1988)] cre-
ated a new cause of action in Alabama. Petitioners allege
that in Reynolds the court “first suggested that a fraud
claim could be based on an opinion.” [Pet. for Cert. at
p-8.] According to Petitioners, under no circumstances
prior to the Reynolds decision, could a litigant in Alabama
have based a fraud claim on a statement of opinion.
Building on this erroneous premise, Petitioners contend
that this “new cause of action” was applied retroactively
at trial in 1990 to impose punitive damages against them
for their 1985 conduct. [Pet. for Cert. at p. 7-8.]4
However, even if the 1988 Reynolds decision had cre-
ated a new cause of action as Petitioners suggest, then
Petitioners’ retroactivity/due process argument should
have been raised during the July 1990 trial of this matter.
Petitioners were fully aware of the Reynolds decision
before the trial of this case®, but Petitioners never raised
this issue to the trial court. Petitioners now contend that
they raised this issue at the “earliest opportunity” before
the Eleventh Circuit.
4 As discussed in more detail infra, Petitioners simply mis-
state Alabama law and the holding in Reynolds. The Reynolds
case did not change the iaw in Alabama. The Alabama Supreme
Court in Reynolds did not state or indicate in any way that the
court was changing the law or creating a new cause of action, as
Petitioners suggest. The law in Alabama has always been, and it
is now, that while generally an action for fraud may not be
based on a statement of an opinion, there are circumstances
under which a representation in the form of an opinion is
actionable under Alabama law.
> Respondents cited and relied upon the Reynolds decision
in opposing the summary judgment motion filed by Petitioners
in early 1989.
9
To excuse their failure to raise this issue in the trial
court, Petitioners argue that the Alabama Supreme Court,
after supposedly changing the law in the 1988 Reynolds
case, promptly reversed Reynolds in the December, 1989
case of Keller v. Security Federal Savings & Loan Assn, 555
So. 2d 151 (Ala. 1989). Petitioners argue that Keller “rein-
stated” the rule that under no circumstances could a
fraud claim be predicated on a representation in the form
of an opinion. According to the Petitioners, the Keller case
was the controlling precedent at the time of the July 1990
trial of this case, and thus there was no retroactivity
argument to be made by Petitioners at the time of trial.
According to Petitioners, the retroactivity argument
became ripe only after the Alabama Supreme Court sup-
posedly overruled Keller in the September 1990 cases of
Rodopoulos v. Sam Piki Enterprises, Inc., 570 So.2d 661 (Ala.
1990) and Fraser v. Reynolds, 588 So.2d 442 (Ala. 1990),
wherein, Petitioners contend, the Alabama Supreme
Court reinstated the “new law” supposedly created in
Reynolds.
However, Petitioners’ interpretation of the Alabama
Supreme Court's intentions in the above-referenced cases
is nonsensical. The supreme court in Keller made no men-
tion of overruling Reynolds or any other decision. The
court in Keller simply stated the general rule that fraud
may not be predicated on an opinion. Keller, 555 So.2d at
155.6 Likewise, the supreme court in Fraser and
6 Petitioners contend that the Alabama Supreme Court's
failure in Keller to recite any and all applicable exceptions to the
general rule amounted to an implicit overruling of any and all
such exceptions. Petitioners’ argument is disingenuous at best.
If Petitioners’ reasoning were correct, any time a court states a
bare principle of law without reciting the attendant litany of
une
10
Rodopoulos simply stated the exception to the general
rule, and the court in no way stated an intent to overrule
Keller or the general rule against allowing fraud to be
based on an opinion. See Rodopoulos, 570 So.2d at 663-64.
See also Fraser, 588 So.2d at 445-46 (The trial court’s jury
instruction “told the jury .. . everything it needed to
know in this case as to when a statement of opinion can
constitute actionable fraud.”) Nevertheless, Petitioners’
argue that the Alabama Supreme Court continues to
“silently” reverse itself back-and-forth on this issue, and
that every time the Alabama Supreme Court recites the
general rule without mentioning the exceptions to the
rule, the general rule is overruled, and vice versa.”
Petitioners’ unreasonable interpretation of the Ala-
bama Supreme Court’s intentions in the above-referenced
hundreds of years of qualifications, exceptions and refinements,
the same would be implicitly overruled. Such reasoning is with-
out support or merit.
7 Interestingly, Petitioners argued throughout the course of
this case (prior to the appeal to the Eleventh Circuit) that the
Reynolds decision did not represent a change in Alabama law. In
May, 1989 (six months before the Keller decision), Petitioners
specifically argued that the Alabama Supreme Court had not
created a “new cause of action” in Reynolds, stating instead:
“Reynolds does not purport to override the longstand-
ing rule that claims for fraud normally must be predi-
cated on representations pertaining to existing
material facts; indeed, the Court specifically reite-
rates this general rule.”
[Petitioners’ reply brief in support of Petitioners’ Motion for
Summary Judgment, p. 7] It was not until Petitioners concocted
their retroactivity /due process argument on appeal to the Elev-
enth Circuit that the Petitioners argued that the Reynolds deci-
sion had changed the law in Alabama.
eee aaa ean nian ——
11
cases is designed to (but does not) explain why Peti-
tioners did not raise the retroactivity/due process issue
before the trial court. The Eleventh Circuit likely rejected
Petitioners’ claim that the retroactivity /due process argu-
ment was timely raised,* as should this Court. Accord-
ingly, the Court should decline review on that basis
alone.
B. Petitioners Have Not Suffered a Retroactive
Imposition of Punitive Damages
Even if Petitioners had preserved their retroactivity /
due process argument, there is no basis in fact or law to
entitle Petitioners to present such an argument in this
case. Petitioners’ retroactivity argument rests on the fol-
lowing premises:
(1) fraudulent representations in the form of
an opinion were not actionable under any
circumstances in Alabama in 1985 at the
time the fraudulent statements were made,
(2) the jury verdict against Petitioners was
based solely on the Plaintiff’s claim for mis-
representation of opinion, and
(3) Petitioners were unaware in 1985 that their
conduct could subject them to liability for
fraud and punitive damages.
8 The Eleventh Circuit specifically requested that the par-
ties submit briefs addressing whether Petitioners timely raised
their retroactivity/due process argument. The Eleventh Cir-
cuit’s “no-opinion” affirmance and summary denial of Peti-
tioners’ suggestion for rehearing in banc demonstrates that the
court either determined that the Petitioners had not timely
raised the retroactivity argument or that the argument was
without merit, or both.
a mm
12
As shown below, each of these premises is unsupported
and incorrect.
1. Intentionally false opinions have been
actionable in Alabama for over a century.
Respondents have never disputed (and do not now)
the general rule in Alabama that an action for fraud may
not be based on a statement of an opinion. However, the
Alabama Supreme Court has recognized exceptions to
this general rule for as long as the general rule has
existed. In the 1884 case of Montgomery Southern Railway
Co. v. Matthews, 77 Ala. 357 (1884), the Alabama Supreme
Court addressed the issue of whether the following repre-
sentation could support a claim for fraud:
That the said railroad, for stock in which the
said note was given, would run near [defen-
dant’s}] land, within one to two miles thereof,
substantially along the 18th range line, and
would be built within two years from the date of
said note... .
Id. at 359 (emphasis added). The railroad asserted that the
representation was mere opinion and therefore could not
support a claim of fraud. Id. at 359-60, 366. Rejecting the
railroad’s argument, the Alabama Supreme Court held:
An opinion expressed, even if not realized, can-
not, without more, become a fraudulent repre-
sentation. [Citation omitted.] If, however, such
opinion is falsely expressed, with intent to
deceive, and does deceive, this constitutes such
opinion or representation a false statement of
fact, and vitiates a contract thereby procured
unless the representation relates to a matter
equally open to both parties.
* * *
13
If... the representation be made as a matter of
opinion only, then, to obtain any relief, the pur-
chaser must show that the representation was
made knowing its falsehood. Less than an inten-
tional deception, in such conditions, gives no
right of action.
Id. at 364-65, 366. Cases decided subsequent to Matthews
confirm that this longstanding exception to the general
rule has existed in-Alabama since before the turn of the
century. See, e.g., Griel v. Lomax, 89 Ala. 420, 426, 6 So. 741
(1889) (“If the alleged representation is construed as an
opinion, to be fraudulent, it must be shown to be know-
ingly false, made with intent to deceive, and to have been
accepted and relied on by the plaintiffs as true.”); Brad-
field v. Elyton Land Co., 93 Ala. 527, 529, 8 So. 383 (1890)
(“An opinion ‘to be the basis of a legal right in any case,
must be knowingly false, and uttered with intent to
deceive.’ ”).
In the 1938 case of Shepherd v. Kendrick, 236 Ala. 289,
181 So. 782 (1938), the Alabama Supreme Court explained
the rationale for allowing an opinion to serve as the basis
for a fraud claim:
‘It is material to observe that it is often falla-
ciously assumed that a statement of opinion
cannot involve the statement of a fact. * * * If the
facts are not equally known to both sides, then a
statement of opinion by the one who knows the
facts best involves very often a statement of
material fact, for he impliedly states that he
knows facts which justify his opinion.’
Shepherd, 236 Ala. at 293 (quoting Kefuss v. Whitley, 220
Mich. 67, 189 N.W. 76 [which in turn quoted from the
English common law decision of Lord Bowen in Smith v.
Land & House Property Corp., L.R., 28 Ch. Div. 15]). The
rationale espoused in Shepherd reconciles the idea of
ee
14
allowing recovery in fraud based on an opinion with the
longstanding requirement that a fraud claim be based on
a statement of fact. Statements of opinion which fall
within the ambit of the exception stated in Shepherd, in
effect, become statements of fact and therefore do not
violate the requirement that fraud must be based on a
statement of existing fact. See Randell v. Banzhoff, 375 So.
2d 445, 448 (Ala. 1979) (“In the instant case, any ‘opin-
ions’ of appellant in this regard were reasonably treated
by appellee as existing facts.”); Tillis v. Smith Sons Lumber
Co., 188 Ala. 122, 134, 65 So. 1015 (1914) (“Under such
circumstances the affirmation of a definite opinion as to
value becomes an affirmation of fact, that is, of the fact of a
bona fide opinion; and if it is falsely and fraudulently made
‘to mislead or cheat another, to abuse his confidence, or
to blind his judgmeni, it is in law and morals as reprehen-
sible as if any other fact were affirmed for the like pur-
pose.’ ”) (emphasis added).
The court in Shepherd held that the defendant’s repre-
sentation about the permanency of the water supply on
the land the defendant sold to plaintiff, though opinion,
could amount to actionable fraud since the facts regard-
ing the water supply were not equally known to both
sides, and the opinion involved the implied statement
that the defendant knew facts which justified his opinion.
Id. See also Ringer v. First National Bank, 291 Ala. 364, 369,
281 So. 2d 261 (1973) (A bank’s opinion as to the financial
stability and dependability of third persons could serve
as the basis of a fraud claim.); Scholz Homes, Inc. v. Hooper,
287 Ala. 628, 632-33, 254°So. 2d 328 (1971) (Opinion as to
the projected cost of a house to be built in the future
could serve as the basis of a fraud claim.); Stephens v. Hill,
249 Ala. 299, 301, 31 So. 2d 136 (1947) (“Here the facts
15
were not equally well known to both sides. Appellee did
not know the land, but the vendors knew it, and the
statement as to the amount of timber on the land and the
amount of cultivatable land on the farm involved a state-
ment of fact, for the vendors impliedly stated they knew
facts which justified their opinion.”).
The Alabama Supreme Court's decision in Reynolds v.
Mitchell, 529 So. 2d 227 (Ala. 1988), is consistent with this
well-established line of authority. Citing its 1938 decision
in Shepherd, the court stated:
The representations that the apartments would
be financially successful could be considered
simply statements of opinion. Normally, the
courts will not allow a statement of opinion to
be a basis on which to predicate a claim of
fraud. However, if there is proof of actual fraudulent
intent at the time the representation is made and the
person succeeds in the deception and injury results,
an action for fraud may be predicated on such a
representation, notwithstanding the opinion nature
of the representation.
* * *
In certain situations a person may reasonably
rely on the representation of an opinion. For
instance, where the facts are not equally known
to both sides, a statement of opinion by the one
who knows the facts better, often involves a
statement of material fact that justifies his opin-
ion. .
Id. at 231 (emphasis added).
The trial court’s instructions to the jury essentially
mirror the language employed by the Alabama Supreme
Court in Shepherd and Reynolds to articulate the circum-
stances in which a fraud claim can be predicated on an
—————————
16
opinion.? Thus, contrary to Petitioners’ contentions, the trial
court did not retroactively apply a new rule of law in this
case.
2. The jury verdict was not based solely on
claims for misrepresentation of opinion.
At trial, Respondents asserted two additional fraud
theories, independent of their claim based on misrepre-
sentation of an opinion. First, the jury specifically
returned a verdict against Petitioners on a fraudulent
suppression claim. [Pet. for Cert. App. at 5a.] The fraudu-
lent suppression claim, standing alone, supports the
jury’s verdict against the Petitioners. Petitioners’ retroac-
tivity/due process argument disregards the jury’s finding
of liability on the fraudulent suppression claim. Peti-
tioners have not argued (and cannot successfully argue)
that fraudulent suppression is a new or expanded tort
created by the Alabama Supreme Court since 1985.
° The trial court’s charge to the jury included the following
instruction:
In certain situations a person may justifiably rely on
the representation of an opinion. For instance, where
the facts are not equally known to both sides, a state-
ment of opinion by the one who knows the facts
better, often involves a statement of material fact that
justifies his opinion. Therefore, in such a situation, an
action for fraud may be based on an opinion, depend-
ing on whether the reliance on the representation of
the opinion is justifiable.
If it’s been established by a preponderance of the
evidence that the defendants made representations of
opinions with the intent to deceive . . . and the decep-
tion was successful and the plaintiffs suffered injuries
as a proximate result, then the defendants in such
event would be guilty of legal fraud. (App. at
10a-11a.)
_
—————a~,
17
Second, Respondents’ pursued (and proved) a claim
against Petitioners for misrepresentation of an existing
fact. One of the Respondents, Doyle Kitchens, testified
during trial (and during his deposition) that Petitioner
Bartliff represented to him that the average annual sales
of Arby’s restaurants ranged between $750,000.00 and
$1,000,000.00. (App. at 4a.) The undisputed testimony at
trial established that the average annual sales of Arby’s
restaurants during the relevant time periods was between
$500,000.00 and $600,000.00. (App. at 4a.) Petitioners can-
not deny that a misrepresentation concerning the actual
annual sales of Arby’s restaurants was actionable in Ala-
bama in 1985. For this reason, too, Petitioners’ retroac-
tivity/due process argument is without merit.
3. Petitioners knew in 1985 that their actions
were unlawful and could subject them to
liability.
Petitioners argue that they were unaware in 1985 that
the conduct alleged (and proved) by Respondents could
subject them to liability for fraud and punitive damages.
Specifically, Petitioners contend that they were not aware
that they were engaging in wrongful conduct (1) when
they projected that the Respondents’ restaurant would
generate over $1 million in annual sales, even though the
average annual sales for Arby’s restaurants in the south-
east region was only about $500,000.00 (App. at la-2a,
4a-6a); (2) when they projected annual net profit percent-
ages of 10 to 18% even though Bartliff acknowledged at
trial that he had no basis for making such projections
(App. at la, 8a); (3) when they misrepresented the aver-
age annual sales generated by Arby’s restaurants (App. at
4a); (4) when they told the Respondents about specific
18
successful Arby’s restaurants while failing to disclose the
numerous failures of Arby’s restaurants owned by indi-
vidual operators like the Respondents (App. at 1la-3a);
and (5) when they failed to disclose that an operator such
as the Respondents had less than a 1% chance of generat-
ing one million dollars in annual sales. (App. at 6a-8a.)
Petitioners present the facts as though they were
simply making “honest” guesses or projections to the
Respondents. However, as the jury found, Petitioners
were guilty of intentional deceit and fraud. The evidence
at trial overwhelmingly established that Petitioners delib-
erately lied to the Respondents (and other Arby’s fran-
chisees) and provided the Respondents with blatantly
false financial information and projections. '°
Given the intentional, deceitful nature of their con-
duct, Petitioners’ assertion that they had no notice that
their conduct could subject them to liability for fraud and
punitive damages is not credible. In any event, there is
not one iota of evidence —- documentary, testimonial, or
otherwise — to support Petitioners’ contention that they
were ignorant of the wrongfulness of their conduct.
Indeed, their own testimony at trial belies such an asser-
tion.!!
10 Pursuant to the trial court’s charge, the jury found that
Respondents satisfied a heightened standard of proof — clear and
convincing evidence — with respect to the punitive damages claim.
(App. at 10a.)
11 Petitioners acknowledged at trial that they were aware in
1985 that FTC regulations prohibited franchisors from giving
oral projections of earnings and sales to prospective franchisees.
(App. at 8a-10a.)
19
Moreover, Petitioners do not contend they were
unaware in 1985 that they could be held liable for com-
pensatory and punitive damages for fraudulent suppres-
sion and misrepresentation of existing fact.’ Accordingly,
Petitioners have no basis in fact or law for complaining
that they had no “notice” in 1985 that their conduct was
actionable. Petitioners’ due process argument is wholly
without foundation or merit.
To summarize, in order to reach Petitioners’ retroac-
tivity/due process argument, this Court would have to
find:
(1) that the Reynolds decision created “new
law” or a “new cause of action”,
(2) that the so-called “new cause of action”
was the sole basis of Petitioners’ liability for
punitive damages,
(3) that Petitioners were unaware prior to
Reynolds that their conduct could subject them
to liability for fraud and punitive damages, and
(4) that Petitioners timely raised this issue in
the courts below.
12 Petitioners cannot (and do not) dispute that “fraudulent
suppression” and “misrepresentation of existing fact” were
well-recognized causes of action in Alabama in 1985. Further-
more, although Petitioners dispute that they had constructive
knowledge in 1985 that representations in the form of an opin-
ion could serve as the predicate of fraud claim in Alabama,
Petitioners could have referred to the American Jurisprudence
legal encyclopedia which states: “It is usually held . . . and it is
the position taken by the courts in the recent decisions, that the
expression of an opinion not in reality entertained may consti-
tute actionable fraud where it is stated falsely and with intent to
deceive....” 37 Am. Jur. 2d, Fraud and Deceit § 53 (1968) (citing
the Alabama case of Montgomery S.R. Co. v. Matthews, 77 Ala. 357
(1884)).
eo
20
However, not one of the above statements is correct.
Consequently, there is no factual or legal predicate upon
which Petitioners may assert their retroactivity /due pro-
cess argument.!5
Il. POST-VERDICT REVIEW OF PUNITIVE DAM-
AGES AWARD
A. Petitioners Failed to Request a Post-Verdict
Review of the “Reasonableness” of the Puni-
tive Damages Award
In their petition for writ of certiorari, Petitioners
assert for the first time at any stage of these proceedings the
argument that the punitive damages award was excessive
and that the lower courts inadequately reviewed the rea-
sonableness of the punitive damages award. Petitioners
never raised this issue in the trial court.'* Indeed, Peti-
tioners did not even file a motion for remittitur.
The only due process argument ever asserted by Peti-
tioners in the District Court appeared in their motion for
13 Additionally, even if Petitioners’ retroactivity/due pro-
cess argument could have been made in this case, there has been
no ex post facto violation with respect to Petitioners’ situation.
Petitioners cannot show they were “disadvantaged” by the
so-called “new law” in Reynolds, since the punitive damages the
jury could have awarded as a result of Petitioners’ misrepresen-
tation of opinion were no more onerous than the punitive dam-
ages the jury could have awarded with respect to the fraudulent
suppression claim. See Miller v. Florida, 482 U.S. 423, 429 (1987).
14 The only excessiveness issue raised by Petitioners
related to the compensatory award. Petitioners vigorously
asserted that the jury unjustifiably awarded $20,750 to Pauline
Kitchens, arguing that Mrs. Kitchens’ failure to testify pre-
cluded as a matter of law the jury’s finding of Mrs. Kitchens’
reliance and damage.
21
judgment notwithstanding the verdict and new trial, and
read as follows:
The award of punitive damages in this case is
unconstitutional in that it is a violation of due
process guaranteed under the Fifth and Four-
teenth Amendments to the Constitution of the
United States and under Article I and VI of the
Constitution of Alabama of 1901, upon the fol-
lowing grounds separately and severally:
a. The trial procedures and jury instruc-
tions fail to provide specific standards for
the imposition of an award of punitive dam-
ages;
b. The trial procedures and jury instruc-
tions fail to provide specific standards for
the amount of any award of punitive dam-
ages;
c. The trial procedures and jury instruc-
tions fail to provide a limit on the amount of
the award;
d. The trial procedures and jury instruc-
tions permitted the award of punitive dam-
ages solely upon the grounds of respondent
[sic] superior;
e. The trial procedures and jury instruc-
tions fail to provide a clear standard for
appellate review of the award of punitive
damages;
f. The trial procedures and jury instruc-
tions allowed imposition of punishment on
a reduced standard of proof.
Regardless of how Petitioners would now like to charac-
terize the above-quoted language, these allegations con-
stitute nothing more than the boilerplate “inadequate
guidelines” arguments addressed by this Court in Pacific
Mutual Life Ins. Co. v. Haslip, 111 S.Ct. 1032 (1991). At the
j il
22
time Petitioners filed their post-trial motion, the Haslip
case had not yet been decided, and it is clear that Peti-
tioners simply were attempting to preserve their “ Haslip”
arguments in the event this Court found merit to such
arguments.
After the District Court denied Petitioners’ post-trial
motion, this Court decided the Haslip case. Consequently,
in their appeal to the Eleventh Circuit, Petitioners did not
raise any Haslip arguments. Instead, this Court having
rejected the Haslip arguments (at least with respect to
Alabama law), Petitioners asserted for the first time their
retroactivity/due process argument. Petitioners did not
in any manner argue to the Eleventh Circuit that the
punitive damages award was unconstitutionally exces-
sive, or that the trial court erred by failing to review sua
sponte the reasonableness of the punitive damages award.
Petitioners now contend that their due process chal-
lenge to the post-verdict review of the punitive award is a
“mere enlargement” of their retroactivity/due process
argument. Such a contention stretches the truth and logic
beyond any reasonable bounds. Petitioners retroactivity /
due process argument in no way alerted the Eleventh
Circuit that Petitioners were seeking review of the
amount of the punitive award, or that Petitioners were
seeking review of the trial court’s failure to review the
reasonableness of the award.!5
15 Even if the Haslip arguments could have been deemed
sufficient to raise the issue of excessiveness of the punitive
award to the trial court, Petitioners cannot seriously or truth-
fully contend that they raised the issue of excessiveness of the
punitive award (or the trial court’s review of the punitive
award) to the Eleventh Circuit.
23
i Banker's Life & Casualty Co. v. Crenshaw, 486 U.S.
71, 77 (1988), this Court held that “a vague appeal to
constitutional principles” does not preserve specific con-
stitutional claims. In Crenshaw, the Court determined that
an appellant who complained in the court below that the
punitive damages award “was clearly excessive . . . and
violates constitutional principles[,]” failed to preserve for
appeal a due process claim based on the alleged exces-
siveness of the punitive damages award. Id. (quoting
Taylor v. Illinois, 484 U.S. 400, 407 n. 9 (1988) (“A generic
reference to the Fourteenth Amendment is not sufficient
to preserve a constitutional claim based on an uniden-
tified provision of the Bill of Rights . . . “).
Likewise, Petitioners’ excessiveness argument is by
no means a “mere enlargement” of the very specific retro-
_activity/due process argument asserted by Petitioners in
their appeal to the Eleventh Circuit. The Court in
Crenshaw stated:
Similarly, appellant’s challenges in this Court to
the size of the punitive damages award in no
way qualify as ‘mere enlargements’ of claims
; made before the Mississippi Supreme Court.
Under the mere enlargement doctrine, ‘[p)arties
are not confined here to the same arguments
which were advanced in the courts below upon
a Federal question there discussed Dewey » Des
Moines, 173 U.S. 193, 198. 43 L.Ed 665 19S-Ct
379 (1899) [citation omrtted ewey makes
clear, however, that the ‘ederaqgguesmor Must De
brought to the attemmoy below in
some manner A © a™ as never
been made or assertec “9m : have
been denied by 2 pecemen e refer
to it.’
ie
24
Crenshaw, 486 U.S. at 78 n. 2. There is no connection
between Petitioners’ retroactivity/due process argument
and their excessiveness/due process argument, and Peti-
tioners have no basis for relying on the “mere enlarge-
ment” doctrine to preserve their excessiveness/due
process argument. See, e.g., Illinois v. Gates, 462 U.S. 213,
220 n. 2 (1983).16
Petitioners have long since waived any arguments
regarding the alleged excessiveness of or inadequate
review of the punitive damages award. Accordingly, cer-
tiorari is due to be denied on this issue.!”
B. Petitioners Presented no Evidence that the
Punitive Damages Award was Excessive
Under Alabama law, a defendant bears the burden of
proving that a jury’s verdict is excessive. McDowell v. Key,
557 So. 2d 1243, 1249 (Ala. 1990). It is not sufficient for a
16 In support of their “mere enlargement” contention, Peti-
tioners cite Justice White’s concurrence in Illinois v. Gates, in
which Justice White criticized the majority’s strict adherence to
the “not pressed or passed upon below” rule. However, Justice
White stated in that same concurrence that to properly preserve
an issue for appeal, the issue must be brought to the attention of
the lower court “with fair precision.” Illinois, 462 U.S. at 247.
Petitioners cannot credibly argue that their excessiveness/due
process argument was brought to the attention of the Eleventh
Circuit with fair precision or any precision.
17 Petitioners do not contend that this is an “exceptional
case” and that the Court should consider overlooking Peti-
tioners’ failure to preserve their constitutional issues. Appar-
ently, not even the resourceful Petitioners could devise a reason
why this Court should deviate from its normal practice of refus-
ing to consider issues which have not been properly raised
below. Consequently, Petitioners must steadfastly assert that
they preserved their constitutional arguments.
25
defendant to simply file a motion for new trial and/or
remittitur and claim that the amount of the jury’s verdict
is, ipso facto, excessive. Instead, the defendant must prove
that the verdict is excessive. To do this, the defendant
must submit evidence as to certain factors'® it wishes the
trial court to consider in evaluating the size of the jury’s
verdict. Id. In the absence of such evidence, the trial court
will not be in a position to evaluate the size of the jury’s
verdict.
In the instant case, Petitioners failed to present any
evidence at any time that the punitive damages award
was excessive. Petitioners never requested the trial court
to hold a hearing regarding the reasonableness of the
punitive damages award. Petitioners never complained to
the Eleventh Circuit that the punitive damages award
was excessive or that the trial court failed to review the
reasonableness of the punitive damages award. Now, for
the first time, Petitioners seek review of the reasonable-
ness of the punitive damages award, and ask this Court
to remand the case for that purpose.
However, the consequence under Alabama law of
Petitioners’ failure to submit any evidence of the alleged
excessiveness of the punitive damages award is dramati-
cally illustrated by the recent decision in Fuller ». Preferred
18 The factors which a trial court may consider in determin-
ing whether the jury award of punitive damages is excessive
include: (1) the relationship between the punitive award and the
harm from defendant’s conduct; (2) the degree of reprehen-
sibility of the defendant’s conduct; (3) the pecuniary gain by the
defendant through the wrongful conduct; (4) the financial posi-
tion of the defendant; (5) the costs of litigation; and (6) criminal
sanctions and/or other civil awards levied against the defen-
dant for the same conduct. Green Oil Co. v. Hornsby, 539 So.2d
218, 223 (Ala. 1989).
26
Risk Life Ins. Co., 577 So. 2d 878 (Ala. 1991). In Fuller, the
court, reinstating a $1,000,000 fraud verdict, held:
In this case, the trial judge failed to make
the finding required by Hammond v. City of Gad-
sden, supra, and Green Oil Co. v. Hornsby, supra.
Does this require a remand as argued by Prefer-
red Risk? We hoid that it does not in the posture |
of this case. When the jury returned its verdict,
Preferred Risk filed its motion for new trial, a
judgment notwithstanding the verdict, or a
remittitur. Preferred Risk argued only that,
because the verdict exceeded the amount
claimed in the complaint, it was due to be
reduced. It did not offer any evidence in sup-
port of its contention that the verdict was exces-”
sive, and instead argued that it was entitled to a
reduction of the verdict as a matter of law.
+ * *
This Court observed in Industrial Chemical &
Fiberglass Corp. v. Chandler, 547 So. 2d 812 (Ala.
1988), as follows: r
‘Nothing prevents the defendant, at a hear-
ing on a motion for new trial based on an
allegedly flawed verdict, from presenting
evidence to prove one or more of the above
considerations [Hammond factors], and, by
doing so, to guarantee that his rights to due
process of law in regard to the jury’s award
is protected. In sum, “fundamental fairness”
requires that defendant be given the oppor-
tunity to present proof to the trial court
during post-judgment review of the verdict
that the award is unreasonable, dispropor-
tionate, or economically destructive .. . ’
547 So. 2d at 838. Preferred Risk had this oppor-
tunity and elected to present no evidence at all.
—————
27
* * *
The record is devoid of any evidence that
will justify interference with the verdict under
the criteria established in Hammond, Green Oil
Co. and their progeny.
Id. at 885-86.
The Alabama-Supreme Court followed its Fuller hold-
ing in Associates Financial Services Co. of Alabama, Inc. v.
Barbour, 592 So. 2d 191 (Ala. 1991):
Like the defendant in Fuller, supra, Associ-
ates was given the opportunity to present evi-
dence concerning the factors identified by this
court in Hammond and Green Oil Co., yet Associ-
ates consciously elected not to do so. The trial
court was presented no evidence concerning
Associates’ financial position, the availability of
liability insurance, the existence of other civil
litigation, criminal sanctions, or profit derived
from real estate transactions. In the absence of
such evidence, as noted by the trial court, ‘the
court is in no position to evaluate or consider
these factors.’ McDowell v. Key, 557 So. 2d 1243,
1246 (Ala. 1990).
* * *
Under these circumstances, the trial court cor-
rectly refused to remit the jury’s verdicts.
Id. at 198-99. In short, Petitioners bore the burden of
presenting evidence that the jury’s verdict was excessive.
Petitioners failed to present any such evidence to the trial
court, despite ample opportunity to do so. Further, Peti-
tioners made no complaint to the Eleventh Circuit that
they did not have an opportunity to present evidence of
the alleged excessiveness of the punitive award. Indeed,
Petitioners’ failure to present any evidence of alleged
excessiveness underscores that the punitive award was
28
not excessive.'? In any event, by failing to present evi-
dence (or to attempt to present evidence) regarding the
alleged excessiveness of the punitive award, Petitioners
waived any arguments regarding the alleged excessive-
ness of the punitive award and the post-verdict review ot
that award.
C. The Lack of a Post-Verdict Review of the “Rea-
sonableness” of the Punitive Damages Award
Does Not Warrant Review By This Court
Even if Petitioners had preserved the excessiveness/
due process issue for review, it does not warrant review
by this Court. Petitioners attempt to create an issue wor-
thy of certiorari by suggesting that lower federal courts
are confused about how or whether to apply state-law
procedures for post-verdict review of punitive damages
awards. [Pet. for Cert. at p.17.] However, this is not a case
where the trial or appellate court exhibited any confusion
about what standards to apply because no review of the
reasonableness of the punitive damages award was
requested or conducted. Im the absence of such review,
this Court would be issuing an advisory opinion to
address an alleged confusion regarding federal court
review of punitive damages awards.
#
19 A simple comparison of the punitive award ($1,500,000)
and the compensatory award ($383,000) demonstrates that the
punitive award was not out-of-line, particularly in light of the
jury’s finding that Petitioners intentionally defrauded the
Respondents (as well as numerous other former Arby’s fran-
chisees).
29
CONCLUSION
The petition for writ of certiorari should be denied.
Respectfully submitted,
ANDREW T. CITRIN MicHaAEL A. YOUNGPETER
RICHARD BouNDs (Counsel of Record)
Grecory B. BREEDLOVE Sirote & Permutt, P.C.
CUNNINGHAM, Bounps, YANcE, One St. Louis Centre
CROWDER, AND BROWN Suite 1000
1601 Dauphin Street Post Office Drawer 2025
Post Office Box 66705 Mobile, AL 36652
Mobile, AL 36660 (205) 432-1671
(205) 471-6191
Counsel for Respondents, Doyle Kitchens,
Morgan Kitchens, Pauline, Kitchens,
Blake Kitchens, and Kitchens Foods, Inc.
APPENDIX
la
Excerpts from Transcript of Trial Proceedings
[Testimony of Morgan Kitchens]
[282] Q. During the time of your meeting with him
[284]
[286]
and riding around with him, did y’all discuss the
issues of, you know, ‘how much money can we
make on this thing?’
A. Yes, I did. And he said that I could expect a
net profit of 10 to 18 percent of sales. And | also
asked him various figures relating to food costs
and paper costs and he was very informative
about that.
* * +
Q. And what did he tell you the estimated sales
would be for the site that y’all discussed, based on
his knowledge with Arby’s and his expertise?
A. At least a million dollars.
+ * *
Q. Did he tell you that the sales figure of a mil-
lion dollars one time, or was it something that was
mentioned more than one time?
A. He repeatedly said that figure to us.
Q. Did you all question him as far as, “Well, how
come you think we’ll make a million dollars at this
location?”
A. He really liked the area because he said that
Burger King was located next to it, there was a
Delchamps Shopping Center, and said that we
would be the first fast-food that you’d approach
into town, and basically he felt very [297] comfort-
able with that figure, because Burger King was
[300]
[301]
2a
doing such a strong business at the time and just
his knowledge of what the Arby’s stores make in
his area.
Q. Did he indicate that he had knowledge of
what Arby’s stores made?
A. Yes, he did. And | had asked him and he had
mentioned that - talked about the Deuprees in
Sylacauga. He said that their store was about
seven hundred and fifty thousand to eight hun-
dred thousand dollars. 3
Q. Now, is that the same Chuck Deupree who
just came here and testified that they really made
about three hundred thousand dollars a year, in
one year, or maybe four hundred?
A. Yes, sir.
Q. He told you back then they were making how
much?
A. Seven hundred and fifty thousand or more; to
eight hundred thousand.
* * *
Q. What number did you put in there [Site
Acceptance Request], based on your conversation
with Arby’s that the projected annual sales for that
site would be?
They said -
What did you write down there?
A million dollars plus.
It says a million plus?
Yes, sir.
Or OF DO PY
Any where did you get that figure?
3a
A. From Arby’s.
Q. And is this a document, please, sir, that was
sent to FFCA, or was this sent on May 31st, back
up to Atlanta to Arby’s?
A. Sent back to Atlanta to Arby’s.
Q. Did anybody from Arby’s at that time call you
and say, “Hey, wait a minute, man, you've got a
projection of a million dollars on this little store in
Gulf Shores. What are you thinking of?” That
there’s no way that you would make a million
dollars or even close to it at that store?
A. No, sir, they did not.
* * *
\
[Testimony of Doyle Kitchens]
[867]
Q. But did you rely on Mr. Bartliff’s knowledge
and expertise in dealing with Arby’s in order to
make those projections for you?
A. Totally.
Q. And did he tell you - this is the issue in this
case — Did he tell you, looking you in the eye, that
an Arby’s at that location that you showed him
would make, in his opinion, based on what he
knew about the company sales, in excess of a
million dollars?
A. Yes, sir. More than one time.
Q. Did you rely on it?
A. Yes, sir, I did.
Q. Did he tell you that an average Arby’s made
10 to 18 percent net profit?
A. Yes, he did.
ee
4a
Q. Did you rely on it?
A. Yes, | did.
Q. Did he tell you that an average store in Arby’s
made $750,000 to a million dollars a year in sales? |
A. Yes, he did. |
* * .
[868] Q. Have you learned later that the average
Arby’s store really makes, as they told us in their
sworn interrogatory answers in this case, average
sales of about five hundred to six hundred thou-
sand dollars?
A. Yes, sir. | learned that in some of the deposi-
tions or later.
[Testimony of Douglas Southard]
[363] A. As part of our work, we were asked to
analyze some data provided by Arby’s with
respect to the sales revenues of their licensees in
Alabama, Florida, Georgia, and Mississippi. That
data was provided from 1984 through 1987.
* * *
[368] Q. What was the average [annual sales] of a
small franchisee in 1984?
A. Four hundred thirty-six thousand dollars.
+ * .
Q. I’m going to put a K right there for Kitchens,
because that would be the group they’d be in;
right?
A. That’s the group they’re in, yes.
* * .
(370]
(371]
[372]
5a
Q. All right. And if you exclude those stores that
make less than two hundred thousand dollars a
year in gross sales, what does that do to the aver-
age sales over here?
A. For any particular group?
‘
Q. For 1984. I’m sorry. When you exclude those
making less than two hundred thousand dollars.
A. Okay. The average for all goes up to about
five hundred sixty thousand dollars.
Q. Okay. And what was the average for the
Kitchens group, the small franchisee?
A. It goes to four hundred eighty-nine thousand
dollars.
* * *
Q. What was the average of all! stores based on
the data that they gave you, the data that you
reviewed in 1985?
A. Five hundred six thousand dollars.
Q. Right here?
A. Yes.
Q. That’s the blue one. Okay.
What was average for all small franchisees like the
Kitchens in 1985?
A. Four hundred twenty-one thousand.
Q. Now, can you tell me — [| think it’s in your
report somewhere - do you know what the
Kitchens’ average — not average but what their
actual sales were in 1986?
A. Okay.
(373]
[380]
6a
Q. Their first year of operation, first full year.
A. 1986 calendar year from Arby’s or their 1986
fiscal year? Which one? | think I’ve got both.
Q. All right. Fiscal year.
A. Their fiscal year ended — that actually ends
June 1987, which was their first full year, they did
four hundred sixty thousand dollars.
Q. Four hundred sixty thousand dollars?
A. That’s correct.
* * *
Q. What was average for all small franchisees
like the Kitchens in 1986?
A. Four hundred sixty-seven.
* * *
Q. What about in 1985? If you exclude the two
hundred thousand dollars and less, what percent-
age or what probability was it that you’d make a
million dollars in sales in 1985, based on this infor-
mation?
It was .57 percent.
A half a percent?
Right.
Is that one out of two hundred?
Roughly, yeah.
What about in 1986?
It’s .35 percent.
ODF OPO P&H PY
Which is even worse; right?
[381]
7a
A. About one out of three hundred.
Q. And in 1987, we peaked up a little bit to about
1985; is that right?
A. To about a half a percent.
Q. Okay. Again, one out of two hundred?
(Witness nods affirmatively.)
Q. Oh, I meant to ask you this, another thing.
Look at, if you will, page - I think it’s page 9. |
guess it is, isn’t it?
A. Yes.
Q. Page 9. And you’ve broken down the same
type calculations into small franchisees, people
that have less than seven stores?
A. Right.
Q. Six or less. What was the chance or the proba-
bility in 1984 that somebody in the small group
like the Kitchens had, based on this information
that we got from Arby’s, now, of making a million
dollars in gross sales?
A. It was about .13 percent.
Q. And what is .13 percent? If .5 percent’s one
out of two hundred, what’s .13 percent?
A. It’s about one out of eight hundred.
Q. One out of eight hundred. Okay.
In 1985, what was the chance of somebody with a
small franchisee of making a million dollars in
gross sales, based on this information by Arby’s.
A. About one out of a thousand.
8a
Q. That’s .10 percent; right?
A. Right.
[Testimony of Fred Bartliff]
[703]
[732]
Q. Go to page 93, line 12.
“Did you ever tell the Kitchenses that all or most
of Arby’s franchise restaurants generate a net
profit of between 10 and 18 percent [704] annu-
ally?”
A. “No. I did not tell them that. | would have no
reason to tell them that.”
Q. “Because you don’t know whether that’s true
or untrue?”
A. “I don’t have access to the franchisee’s P &
L’s, and I would not have any way to know
whether that was true or not.”
* * *
Q. All right. You spoke about a Federal Trade
Commission regulation. What does it say?
A. Federal Trade Commission is the governing
body as to your offering circular that you hand out
to prospective franchisees.
They have a section in your offering circular item
19, I believe. That is an earnings claim statement
and basically what they’re saying is that what you
put in your earnings claims statement, if you
chose to provide numbers, then you are able to
provide the numbers that are in the earnings claim
statement. And if you do provide those numbers,
then you do need to have [733] backup informa-
tion to support those numbers. If you chose not to
9a
provide numbers, then you may not tell people
numbers.
[Testimony of Karen Shellady]
[788] Q. And you mentioned the FTC. Would you tell
[789]
the jury what the FTC is?
A. The FTC is the Federal Trade Commission
who governs or.issues rulings on franchising.
Q. And the FTC is a group by the United States
government that issues rules and regulations
about what you can tell franchisees and what you
can’t tell them; right?
A. Yes.
Q. And you told us there were two methods that
the FTC says that you can do, if you want to;
right?
A. Right.
Q. So there are two methods. One is tell them
and, [790] two, you don’t, about profits and sales
forecasts and sales figures; right?
A. Yes.
* * *
Q. And if Arby’s in Atlanta, Georgia wanted to
tell the people what the true average store volume
was for the years ‘84, ’85, ‘86 and ’87, if they
wanted to teil them, they could do that if they did
it in writing under the FTC rules, could they not?
A. Yes.
Q. But Arby’s chose not to tell them; right?
[791]
10a
A. Well, our franchisees can.
Q. Sure. Well, let’s talk about Arby’s. Arby’s
chose in your offering circular —
A. Not to disclose.
Q. - not to tell them that information; right?
A. Yes.
* * +
Q. Okay. ... the rezional franchise managers are
told that they can’t tell that information about
profits and projected sales; right?
A. Yes.
[Trial Court’s Charge to the Jury]
[1148]
[1160]
For the plaintiff to be entitled to recover punitive
damages, the plaintiff must prove by clear and
cofivincing evidence that a defendant consciously
had an intent to deceive.
* * *
In certain situations a person may justifiably rely
on the representation of an opinion. For instance,
where the facts are not equally known to both
sides, a statement of opinion by the one who
knows that facts better, often involves a statérnent
of material fact that justifies his opinion. There-
fore, in such a situation, an action for fraud may
be based on an opinion, depending on whether the
reliance on the representation of the opinion is
justifiable.
If it’s been established by a preponderance of the
evidence that the defendants made representations
of opinions with the intent to deceive —- now you
lla
have to consider this together with all the instruc-
tions, just don’t take out one — there also must be
an intent to deceive or defraud the [1161] plaintiffs
and the deception was successful and the plaintiffs
suffered injuries as a proximate result, then the
defendants in such event would be guilty of legal
fraud.
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.