California Federal Judge Finds For Jack In The Box In Breach Of Contract Case

Mealey's (June 24, 2016, 3:08 PM EDT) -- SAN JOSE, Calif. — A California federal judge on June 21 granted Jack in the Box Inc.’s (JIB) motion for summary judgment on breach of contract and Lanham Act violation claims it brought against Northern California franchisees (Jack in the Box Inc. v. Deepak Mehta, et al., No. 5:13cv4444, N.D. Calif.; 2016 U.S. Dist. LEXIS 80759). (Order available. Document #98-160712-023R.) U.S. Judge Edward J. Davila of the Northern District of California also granted partial summary judgment to JIB on the defendants’ counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel and negligent interference with contract and economic advantage. JIB alleges that defendants Deepak Mehta, Kiran Mehta, Mehta Enterprises Inc. and Deepak Enterprises Inc. breached several provisions of the written franchise agreements that enabled the defendants to operate Jack in the Box restaurants throughout Northern California. Agreements The details of JIB’s relationship with the defendants were outlined in 19 written Jack in the Box Restaurant Franchise Agreements that the parties executed between Sept. 22, 1992, and May 19, 2011. Although JIB initially entered into the agreement with the Mehtas, the parties subsequently agreed to assign their rights to Mehta Enterprises and Deepak Enterprises. Therefore, all of the defendants became jointly and severally liable for the performance of the agreements’ terms and conditions. The franchise agreements authorized the defendants to use JIB’s commercial marks, format and restaurant operating system in exchange for the defendants’ monthly payments of royalty and marketing fees. They also obligated the defendants to maintain and submit certain records to JIB, pay all state and federal taxes associated with operation of the restaurants and to “comply and perform all covenants contained in any other agreement, instrument or other document between the parties, including any other franchise agreement, lease agreement or note.” The franchise agreements contained a termination clause that said JIB could terminate the franchise agreements at its option. The defendants, as tenants, and JIB, as landlord, also entered into lease agreements in conjunction with the franchise agreements that required the defendants to pay any taxes levied against the property, to make all utility payments and to maintain and pay for insurance coverage. Between Sept. 1, 2011, and Aug. 22, 2012, the defendants failed to pay rent, royalties, marketing fees and other charges due to JIB under the franchise and lease agreements totaling $567,092.45. After mediation, the Mehtas signed a promissory note for $576,173 payable to JIB and a general release discharging JIB from any liability arising out of any matter before Nov. 28, 2012. Notices Of Lien Not addressed by the 2012 note were two notices of lien recorded on Sept. 11, 2012, by the Contra Costa County Tax Collector against the defendants’ personal and real property for failure to pay property taxes. JIB sent the defendants several notices of default. On Sept. 17, 2013, JIB terminated the franchise and lease agreements because the defendants had not cured the default. In granting JIB’s motion for summary judgment on the breach of contract claim, Judge Davila said that there is no dispute of material fact that several contracts existed between JIB and the defendants or that JIB performed its obligations under the terms of those contracts. Judge Davila also found no dispute of material fact that the defendants breached the franchise and lease agreements. On JIB’s claims for trademark infringement under the Lanham Act, Judge Davila ruled that it is undisputed that the defendants continued to use the Jack in the Box marks after the franchise agreement was terminated. “Outside of arguments already rejected in relation to the breach of contract cause of action, Defendants do not point to any evidence establishing a disputed material fact as to trademark infringement or unfair competition,” he wrote. Counsel The defendants are represented by Al Mohajerian of Mohajerian Law Corp. in Los Angeles. JIB is represented by Robert Scott McWhorter and Kevin Thomas Collins of LeClairRyan in Sacramento, Calif. (Additional documents available:  Amended complaint.  Document #98-160712-024C. Answer to amended complaint.  Document #98-160712-025W.  Counterclaim against JIB.  Document #98-160712-026C.  JIB answer to counterclaim.  Document #98-160712-027W.  JIB summary judgment motion.  Document #98-160712-028M.  Answer to summary judgment motion.  Document #98-160712-029W.)...