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Burger King Corp. v. Family Dining, Inc.

United States District Court, Eastern District of Pennsylvania
426 F.Supp. 485 (1977)


Facts

In 1963, Burger King Corp. (Burger King) (plaintiff) entered an exclusive territorial agreement with Family Dining, Inc. (Family Dining) (defendant). The territorial agreement provided that if Family Dining opened one Burger King restaurant per year for the next ten years and agreed to operate those restaurants according to the requirements of Burger King’s franchise agreement, Family Dining would enjoy exclusivity of operations within Bucks and Montgomery Counties in Pennsylvania for a period of 90 years. Family Dining opened its first three restaurants on time and in compliance with the terms of the territorial agreement. Family Dining began experiencing problems with its fourth and fifth restaurants, and contacted Burger King’s founder, James McLamore, about its issues. Even though Family Dining experienced a delay of 19 months in opening its fourth and fifth restaurants, McLamore still believed Family Dining had “substantially met” its obligations under the territorial agreement. McLamore stated that the development schedule requiring Family Dining to open one restaurant per year for ten years was more for the purpose of encouraging development by Family Dining of franchises that would be profitable to both Family Dining and Burger King, rather than about accomplishing a certain level of development within a finite time frame. Family Dining received a similar response from McLamore when it experienced delays with its sixth restaurant, though it opened its seventh and eighth restaurants ahead of schedule. By 1973, Burger King had substantially grown in size and complexity of operations, and Family Dining ceased dealing directly with McLamore on the terms of its territorial agreement. When Family Dining failed to open an eighth restaurant on time, it received a letter dated May 23, 1973 which stated that Burger King considered Family Dining to have breached the territorial agreement and was revoking the exclusivity guarantee. From November 1973 to early 1975, Family Dining and Burger King engaged in unsuccessful negotiations to resolve their differences. During this time, Family Dining also opened its ninth and tenth restaurants. In May 1975, Burger King filed an action for a declaratory judgment in federal district court. Burger King sought a determination that the territorial agreement with Family Dining had been terminated due to Family Dining’s failure to strictly comply with the development schedule. Family Dining filed a motion to dismiss on the ground that holding the territorial agreement to be terminated would cause a forfeiture by Family Dining of its rights under the agreement.

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Holding and Reasoning (Hannum, J.)

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