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Raheel Foods LLC, v. Yum! Brands, Inc.

United States District Court, W.D. Kentucky, Louisville Division

January 18, 2017

RAHEEL FOODS, LLC, ET AL. PLAINTIFFS
v.
YUM! BRANDS, INC., ET AL. DEFENDANTS

          MEMORANDUM OPINION & ORDER

          Greg N. Stivers, Judge United States District Court

         This 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.

         I. STATEMENT OF FACTS

         Syed 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.]).

         Raheel 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).

         Raheel 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.”

         According 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).

         In 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).

         From 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. ¶ 25).

         Plaintiffs 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).

         Based 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.

         On 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).

         II. JURISDICTION

         This 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.

         III. STANDARD OF REVIEW

         A 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).

         IV. DISCUSSION

         A. Choice of Law

         Given 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 Kentucky law.

         B. Plaintif ...


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