United States District Court, W.D. Kentucky, Louisville Division
RAHEEL FOODS, LLC, ET AL. PLAINTIFFS
YUM! BRANDS, INC., ET AL. DEFENDANTS
MEMORANDUM OPINION & ORDER
N. Stivers, Judge United States District Court
matter is before the Court upon Defendants' Renewed
Motion to Dismiss for Failure to State a Claim (DN 32), which
is ripe for adjudication. For the reasons stated below, it is
GRANTED IN PART and DENIED IN PART.
STATEMENT OF FACTS
Raheel (“Raheel”) originally filed this action in
his own name against Yum! Brands, Inc. (“Yum”) in
Los Angeles Superior Court. (Notice of Removal Ex. A, at 12,
DN 1). On January 13, 2016, Raheel amended the Complaint to
add KFC Corporation (“KFC”), Taco Bell
Corporation, and Pizza Hut, Inc. as defendants. (Notice of
Removal Ex. B, at 33). Subsequently, he amended the First
Amended Complaint to remove Taco Bell Corporation and Pizza
Hut, Inc., withdraw as Plaintiff, and add Raheel Foods, LLC;
Raheel Foods 2 Inc.; Raheel Realty, Inc.; and Raheel Realty,
LLC as Plaintiffs. (Notice of Removal Ex. N, at 103-04, DN
1-1 [hereinafter 2d Am. Compl.]).
Foods, LLC (“Raheel Foods FL”) is a Florida
limited liability company that owned Long John Silver's
franchises in Florida. (2d Am. Compl. ¶ 8). Raheel Foods
2, Inc. (“Raheel Foods 2 IL”) is an Illinois
corporation that owned Long John Silver's and A&W
franchises and operated those stores in Illinois, Wisconsin,
and Indiana. (2d Am. Compl. ¶ 9). Raheel Foods FL and
Raheel Foods 2 IL are referred to collectively as
“Raheel Foods.” Additionally, several Yum
franchises, including KFC restaurants, were owned by Raheel
Foods entities that are not parties to this case
(collectively, “Non-Party Raheel Foods”). (2d Am.
Compl. ¶ 2).
Realty, Inc. (“Raheel Realty AR”) is an Arkansas
corporation that owned the real property upon which two
unspecified franchises were located. (2d Am. Compl. ¶
10). Raheel Realty, LLC (“Raheel Realty IL”) is
an Illinois limited liability company that owned the real
property upon which fourteen unspecified franchises were
located. (2d Am. Compl. ¶ 11). Raheel Realty AR and
Raheel Realty IL are referred to collectively as
“Raheel Realty.” Together, Raheel Foods and
Raheel Realty are referred to as “Plaintiffs.”
to the Second Amended Complaint, Raheel entered into
franchise agreements with Defendants for certain stores in
1994. (2d Am. Compl. ¶ 12). Initially, Raheel was the
approved franchisee and contracting party with Defendants.
(2d Am. Compl. ¶ 12). Over time, however, Raheel
established distinct business entities, including those
listed above. (2d Am. Compl. ¶ 12). With Defendants'
consent, Raheel transferred all of the franchises at issue to
the Raheel Food entities, which made those entities the
franchisees, and Raheel apparently remained involved as
Raheel Foods' approved “Control Person, ”
defined as the person who directs the business affairs of the
corporate franchisee. (2d Am. Compl. ¶¶ 12-13).
2008, Raheel Foods, Non-Party Raheel Foods, and Raheel Realty
began a quest to sell their franchises and the underlying
real estate. (2d Am. Compl. ¶ 24). Plaintiffs allege
they were able to find qualified buyers willing to purchase
all stores owned by Raheel Foods and Non-Party Raheel Foods,
as well as the underlying real estate, as a package deal. (2d
Am. Compl. ¶ 24). Pursuant to the terms of the franchise
agreements and Defendants' standard operating procedure,
however, a franchisee is required to obtain two levels of
approval before it can sell its franchise: Defendants must
approve the potential purchaser as a franchisee and must also
approve the deal as a whole. (2d Am. Compl. ¶ 4).
Plaintiffs allege that Defendants routinely approved
franchise sales, especially when the proposed purchaser was
already approved as a Yum franchisee-which was the case here
with two of the potential purchasers. (2d Am. Compl.
¶¶ 5, 31, 42).
2009 and 2012, Raheel Foods and Non-Party Raheel Foods
submitted at least ten prospective buyers to Yum, Long John
Silver's, and KFC for approval. (2d Am. Compl. ¶
28). At least four of these purchasers engaged in extensive
negotiations with Raheel Foods, Non-Party Raheel Foods, and
Raheel Realty. (2d Am. Compl. ¶ 28). According to
Plaintiffs, instead of giving genuine consideration to the
proposed sales, Defendants denied the deals and diverted
those four buyers by either selling them corporate-owned
stores at a discount or refusing to approve the buyers as
franchisees when submitted by Plaintiffs, but later approving
them for purchase of their own stores. (2d Am. Compl.
¶¶ 6, 28-46). Plaintiffs allege that Yum was
informed of, and actively involved in, the approval process.
They further claim that Yum's Vice-President of Franchise
Recruiting took an active role in screening proposed
purchasers and, in collaboration with KFC, diverted
Plaintiffs' proposed purchasers. (2d Am. Compl. ¶
describe the circumstances surrounding the transactions in
the Second Amended Complaint. (2d Am. Compl. ¶¶
31-44). For example, Plaintiffs allege that one potential
purchaser, J.A., made an offer to purchase all franchises
owned by Raheel Foods and Non-Party Raheel Foods, as well as
the underlying real estate for nineteen of the properties.
(2d Am. Compl. ¶ 31). Apparently, J.A was already
approved as a Yum franchisee and, around July 2010,
Defendants approved the sale. (2d Am. Compl. ¶ 31). In
May 2011, however, Defendants withdrew their approval and
instructed Non-Party Raheel Foods to terminate their contract
with J.A. (2d Am. Compl. ¶ 32). Plaintiffs allege that
because the sale of Raheel Foods franchises and the
underlying real estate was contingent on approval of the
entire sales package-including Non-Party Raheel Foods'
KFC stores-Raheel Foods and Raheel Realty were also forced to
stop communicating with J.A. (2d Am. Compl. ¶ 32).
Sometime between January 2011 and October 2011, however,
Defendants offered J.A. seventy of their corporate-owned
stores and eleven underlying properties at a substantial
discount. J.A. accepted the offer in December 2011. (2d Am.
Compl. ¶ 33).
upon these facts, Plaintiffs assert the following claims: (1)
intentional interference with prospective economic advantage;
(2) negligent interference with prospective economic
advantage; and (3) unfair competition based on Kentucky
common law and California Business & Professions Code
Section 17200 (the “UCL”). Plaintiffs also ask
the Court to pierce the corporate veil of KFC and hold Yum
liable on alter-ego grounds.
April 27, 2016, Defendants removed this case to the United
States District Court for the Central District of California
and subsequently moved to dismiss the Second Amended
Complaint on the pleadings under Fed.R.Civ.P. 12(b)(6).
(Notice of Removal 1; Defs.' Mot. Dismiss, DN 10).
Defendants then moved to transfer venue to the Western
District of Kentucky, which Plaintiffs did not oppose.
(Defs.' Mot. Transfer, DN 14). Judge R. Gary Klausner of
the Central District of California granted Defendants'
motion to transfer on July 12, 2016, and held that
Defendants' Motion to Dismiss was moot. (Order, DN-20).
Defendants have now renewed that motion. (Defs.' Renewed
Mot. Dismiss, DN 32).
Court has jurisdiction under 28 U.S.C. § 1332(a)(1)
because there is diversity of citizenship between the parties
and the amount in controversy exceeds §75, 000,
exclusive of interest and costs.
STANDARD OF REVIEW
complaint must contain “a short and plain statement of
the claim showing that the pleader is entitled to relief,
” and is subject to dismissal if it “fail[s] to
state a claim upon which relief can be granted.”
Fed.R.Civ.P. 8(a)(2); Fed. R. Civ. P 12(b)(6). When
considering a motion to dismiss, courts must presume all
factual allegations in the complaint to be true and make all
reasonable inferences in favor of the non-moving party.
Total Benefits Planning Agency, Inc. v. Anthem Blue Cross
& Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008)
(citing Great Lakes Steel v. Deggendorf, 716 F.2d
1101, 1105 (6th Cir. 1983)). To survive a motion to dismiss
under Rule 12(b)(6), the plaintiff must allege “enough
facts to state a claim to relief that is plausible on its
face.” Traverse Bay Area Intermediate Sch. Dist. v.
Mich. Dep't of Educ., 615 F.3d 622, 627 (6th Cir.
2010) (internal quotation marks omitted) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A
claim becomes plausible “when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citing Twombly, 550 U.S. at 556).
Choice of Law
that this is a diversity case that began in California, it
must first determine what law applies. When parties acquiesce
to the application of a particular state's law, courts
need not address choice of law questions. In re Korean
Air Lines Disaster, 932 F.2d 1475, 1495 (D.C. Cir. 1991)
(“Unlike jurisdictional issues, courts need not address
choice of law questions sua sponte.”); see
also GBJ Corp. v. E. Ohio Paving Co., 139 F.3d 1080,
1085 (6th Cir. 1998) (citing In re Korean Air Lines
Disaster, 932 F.2d at 1495). While the parties analyze
their claims under both California and Kentucky law, they
concede that Kentucky law applies. (Pls.' Opp'n
Defs.' Renewed Mot. Dismiss 23-24, DN 39 [hereinafter
Pls.' Opp'n]; Defs.' Mem. Supp. Renewed Mot.
Dismiss 6 n.1, DN 40). Therefore, the Court will apply