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Chicken Franchiseesí Squawks About Bad Faith Silenced by Court
Description Court of appeals affirmed lower court finding that merger between chicken parent companies which resulted in losses to Detroit franchisees does not breach implied covenant of good faith and fair dealing in franchise agreement.
Topic Business Organization
Key Words Fair Dealing, Franchises
C A S E   S U M M A R Y
Facts Clark and other franchisees owned Popeyes Chicken franchises in Detroit. Later, Popeyes and Churchs merged into AFC (America's Favorite Chicken) as the parent company. AFC's strategy was to have Popeyes focus on a more upscale market; Churchs focus on the "low-end" market. Clark claimed that the AFC strategy was detrimental to the Popeyes he owned, which were more suited to a "low-end" strategy, so he lost business to near-by Churchs. He sued AFC, claiming breach of the implied covenant of good faith and fair dealing.
Lower Court Decision Summary judgment for AFC. Clark appealed.
Court of Appeals Decision Affirmed. The franchise agreement contained an express reservation of AFC's right "to develop and establish competing franchise systems" within the franchisee's territory, so the contract was quite clear. The franchisees' "contention that the content and timing of AFC's advertising for the Popeye's system made them less competitive in the market area does not establish bad faith or unfair dealing." AFC believed its plan was best for their Popeyes and Churchs chains overall. The fact that "AFC's marketing strategy for the Popeye's system had made [Clark] less competitive" in his market does not mean there was any bad faith in AFC's dealings with Clark.
Citation Clark v. America's Favorite Chicken Co., 110 F.3d 295 (5th Cir., 1997)

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