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Carolina Restaurant Group, Inc. v. Pepsico Sales, Inc.

United States District Court, W.D. North Carolina, Charlotte Division

July 13, 2015

PEPSICO SALES, INC., Defendants.


GRAHAM C. MULLEN, District Judge.

THIS MATTER comes before the Court upon Defendant's Motion to Dismiss (Doc. No. 23), Defendant's Memorandum in Support (Doc. No. 24), Plaintiff's Response in Opposition (Doc. No. 25), and Defendant's Reply Memorandum in Further Support of Defendant's Motion to Dismiss (Doc. No. 26.) Defendant asks this Court to dismiss each of Plaintiff's claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.


On November 4, 2014, Plaintiff Carolina Restaurant Group, Inc. ("CRG"), filed this action against Pepsico Sales, Inc. ("Pepsi") in Mecklenburg County Superior Court. Pepsi timely removed this action to this Court. Plaintiff thereafter filed its Amended Complaint alleging (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) declaratory judgment; (4) unfair and deceptive trade practices; and (5) unlawful restraint on trade.

CRG operates Wendy's fast food restaurants in North and South Carolina. On August 1, 1998, CRG entered into a contract with Defendant Pepsi that contained an exclusive dealings provision requiring CRG to serve only Pepsi postmix fountain beverage products at its Wendy's franchise restaurants. (Doc. No. 21 ¶ 7-11; see generally Doc. No. 7-1, "The Agreement".) Furthermore, the contract required CRG to sell Pepsi products in accordance with the conditions set forth in the contract, including the manner in which each party would receive payment. (Doc. No. 21 ¶ 12-13.) The contract provided that Pepsi would advance marketing funds to CRG to help grow the sales of Pepsi fountain beverage products. CRG would "earn" the marketing funds over time through the purchase of specified gallons of Pepsi product.

The contract was set to last until "the later of (i) July 31, 2008 and (ii) the date on which CRG has purchased 10, 000, 000 Gallons." (Doc. No. 7-1 at 2; Doc. No. 21 ¶ 14.) However, CRG was permitted to terminate its relationship with Pepsi early with minimal penalty through application of the Permitted Termination clause which stated: "CRG shall have the right to terminate this Agreement (a Permitted Termination') shall not be a Default [sic], upon 90 days' prior notice to [Pepsi] in the event that CRG has made the reasonable, good faith determination that the continuation of this Agreement will materially and adversely affect the ability of CRG to achieve the Outlet Growth Targets." (Doc. No. 7-1 at 7; Doc. No. 21 ¶ 15.) These "Outlet Growth Targets" were defined by the contract as "the operation by CRG of at least the following numbers of Outlets as of the end of the following respective years: third year -200; fourth year -250; fifth year - 400." (Doc. No. 7-1 at 2.) The contract defined "Outlets" as "all present and future Wendy's concept food service outlets operated by CRG and located" in the United States. (Doc. No. 7-1 at 2.)

In the event of an early termination, the type of termination undertaken by the parties would affect the monetary compensation owed by the terminating party. (Doc. No. 21 ¶ 19.) If CRG engaged in a Permitted Termination, CRG would repay Pepsi all of the advanced but unearned funding it had received from Pepsi. (Doc. No. 7-1 at 8.) However, if the termination was not a Permitted Termination,

[t]hen, in addition to any other remedies to which Pepsi-Cola may be entitled (including without limitation the payment to Pepsi-Cola for any amount by which the Equipment and/or Service Amounts exceed the amount of Marketing Funds withheld respect thereto), CRG shall immediately pay to Pepsi-Cola an amount, as liquidated damages and not as a penalty, for lost profits and/or expenses suffered or incurred by Pepsi-Cola as a result of such breach, which amounts would be difficult or impossible of determination, equal to the product of (i) $0.75 multiplied by (ii) the amount by which 10, 000, 000 exceeds the number of gallons as of the date of termination.

(Doc. No. 7-1 at 8.) Essentially, Pepsi would be awarded both the payment of funds advanced to CRG as well as substantial funds in the form of liquidated damages. (Doc. No. 21 ¶ 20.)

The parties subsequently amended the Agreement on January 13, 2012, changing some funding provisions, but leaving intact the provisions on Default, CRG's Outlet Growth Targets, and CRG's Permitted Termination rights. (Doc. No. 21 ¶ 21-22; see Doc. No. 7-2, Amendment of Agreement.)

After the parties entered into the Agreement, CRG's national franchisor, Wendy's, signed national contracts with Coca-Cola, obligating franchisees to offer Coca-Cola fountain products at their restaurants. (Doc. No. 21 ¶ 24.) CRG asserts that this move has reduced CRG's marketing rebates, slowed CRG's expansion to much less than previously anticipated, hindered CRG's relationship with Wendy's national advertising committee and fellow franchisees, hurt sales, and left CRG's Wendy's outlets out of alignment with Wendy's national promotional and advertising efforts. (Doc. No. 21 ¶ 25-6.)

In light of the slowed growth, CRG has missed all Outlet Growth Targets set out in the Agreement. (Doc. No. 21 ¶ 28.) Despite this fact, CRG did not attempt to claim a Permitted Termination during the period from 1998-2003; rather, CRG sent its first letter to Pepsi on April 3, 2013, expressing interest in terminating the relationship. (Doc. No. 21 ¶ 23-24.) CRG alleges that it subsequently contacted Pepsi on numerous occasions to discuss a mutual termination of their contract and Pepsi intentionally delayed these deliberations. (Doc. No. 21 ¶ 38-41.)

On June 24, 2013, Pepsi responded and requested the amount of $2, 637, 000 as a termination payment. (Doc. No. 21 ¶ 37.) On May 27, 2014, Pepsi sent a letter to CRG asking for $3, 360, 000 as a termination payment and $5, 500, 000 in liquidated damages. (Doc. No. 21 ¶ 42-43.) After more letters were exchanged, CRG unilaterally terminated the Agreement on February 2, 2015 asserting that it had done so as a Permitted Termination. (Doc. No. 21 ¶ 48.)

CRG then filed this lawsuit in November of 2014, alleging that Pepsi's refusal to accept a Permitted Termination has harmed CRG's business, that Pepsi's demand for liquidated damages and advanced revenues and funds lacks any foundation under the Agreement, and that Pepsi's increased demands were made to intimidate CRG and coerce them into paying more money. (Doc. No. 21 ¶ 50.) CRG asserts claims of breach of contract, breach of implied covenant of good ...

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