Takeaway
In short, this case shows that a franchisor may recover future royalties as lost profits after a franchisee abandons a nonexclusive franchise agreement, provided it supports projected revenue and deducts relevant expenses with reasonable certainty.
Burger King franchised Zuri Barnes to operate a Burger King restaurant in Los Angeles under a twenty-year agreement. Barnes agreed to operate the restaurant for the entire term and to pay Burger King monthly royalties equal to 3.5 percent of gross sales. In June 1995, Barnes informed Burger King that he would close the restaurant and suspend his contractual performance. He made no royalty payments after June 14, 1995.
The court had already granted Burger King summary judgment on liability in 1996, holding that Barnes's closure and suspension of performance constituted abandonment and a material breach. The remaining question was damages. At the breach, 210 months remained on the agreement. Based on the restaurant's average monthly sales during its twenty-nine months of operation, Burger King projected future sales, calculated the resulting royalties, deducted franchise-management and operations-training costs, and discounted the resulting amount to present value. It sought $247,870.13.
Issue #1
Whether Burger King established its future lost-profit damages with reasonable certainty and was entitled to summary judgment on the amount of damages.
Holding
Yes. Burger King proved recoverable lost profits with reasonable certainty and was entitled to $247,870.13 in damages.
Reasoning
Florida law permits a nonbreaching party either to seek the benefit of its bargain through lost profits or to seek foreseeable damages that restore its precontract position. Burger King elected lost profits. To recover them, it had to move beyond gross expected royalties and account for expenses that it avoided or would incur in earning those royalties.
Burger King supported its calculation with undisputed testimony from its Franchise Financial Analysis Manager. Using the restaurant's average monthly sales from January 1993 through May 1995, Burger King projected sales over the 210 months remaining on the franchise term. Applying the contractual 3.5 percent royalty rate produced projected royalty revenue of $555,129, which was then discounted at 9 percent to a present value of $279,070.18.
Burger King also supplied evidence of the direct, continuing expenses associated with a franchise: annual per-restaurant costs for a Franchise Manager and an Operations Trainer. Subtracting those costs produced a net royalty loss of $493,064.71, or $247,870.13 when reduced to present value. That methodology met the governing standard of reasonable certainty; damages need not be proved with absolute precision.
Barnes did not offer specific admissible facts sufficient to create a genuine factual dispute under Rule 56. His reliance on deposition testimony that Los Angeles was a difficult or changing market did not undermine Burger King's calculation. The testimony was taken out of context and, in fact, included the witness's view that the relevant market could support five to ten additional Burger King restaurants. General claims about competition and uncertainty did not permit a reasonable factfinder to reject the undisputed damages proof.
Issue #2
Whether In re Mid-America Corp. made Burger King's future-royalty damages too speculative.
Holding
No. Unlike in In re Mid-America, Burger King provided evidence of relevant expenses and deducted them from its projected royalty revenue.
Reasoning
In re Mid-America denied Burger King's claim for future royalties because Burger King had supplied no evidence identifying the expenses paid from royalty income. Without such evidence, the court could not determine net lost profits with reasonable certainty.
Here, Burger King corrected that evidentiary deficiency. It identified the per-franchise costs of personnel who directly and continuously worked with franchisees and deducted those expenses from projected royalties. Because Barnes did not produce evidence challenging that calculation, In re Mid-America was distinguishable rather than controlling.
Issue #3
Whether judicial estoppel barred Burger King from presenting expense evidence after its earlier inability to provide comparable evidence in In re Mid-America.
Holding
No. The elements of judicial estoppel under Florida law were not satisfied.
Reasoning
Judicial estoppel protects courts from litigants who deliberately take inconsistent sworn positions to gain an unfair advantage. In this diversity contract action, Florida law governed the doctrine. Florida requires, among other things, prejudice to an adverse party who acquiesced in the prior position and successful maintenance of that prior position.
Barnes was not a party to In re Mid-America and did not acquiesce in any position Burger King took there. Further, Burger King did not successfully maintain a position that expense data could not be supplied; its inability to provide that data caused the denial of future damages in that case. Even assuming the newer evidence reflected an inconsistent position rather than a correction of an earlier evidentiary failure, judicial estoppel did not apply.
Issue #4
Whether Burger King had a duty to mitigate its lost royalties by replacing Barnes with another franchise arrangement.
Holding
No. Because the franchise agreement was nonexclusive, Burger King had no duty to mitigate by entering similar contracts.
Reasoning
Florida recognizes an exception to the ordinary duty to avoid foreseeable losses when the breached agreement is nonexclusive and the injured party remains free to make similar contracts. In that setting, a replacement transaction does not necessarily reduce the damages caused by the particular breach.
Burger King's agreement with Barnes was nonexclusive. Burger King could enter other franchise agreements without surrendering the royalties Barnes had promised to pay. Barnes's mitigation defense therefore did not preclude summary judgment.