A franchisor, F, owns a restaurant brand called The Burger Company. The plaintiff, P, has purchased a 10-year franchise from F to operate a Burger Company restaurant. A Burger Company franchise costs $200,000. The franchise agreement between F and P specifies that F will not permit another Burger Company franchise to operate within a 10-mile radius of P’s restaurant.
Three years after P’s franchise begins, F sells another Burger Company franchise, this one to D. The franchise agreement between F and D allows D to operate D’s restaurant at a location five miles from P’s restaurant. When P complains to F, F asserts that (1) a clause in P’s franchise agreement nullifies the 10-mile restriction if the local population grows beyond a specified number, and (2) the population has now grown beyond that number. P disputes this interpretation, and believes that F has breached the franchise agreement.
P and D are citizens of State A, and F is a citizen of State B. P files a diversity suit against F in the appropriate U.S. district court. (Assume that the court has personal and subject-matter jurisdiction, and that venue is proper.) The complaint includes two claims: (1) breach of contract and (2) violation of the duty of good faith and fair dealing. Under applicable law, the duty of good faith and fair dealing is defined as a duty to avoid arbitrary behavior that violates the spirit of a contractual agreement.
Among the remedies P seeks is specific performance of P’s franchise agreement with F. As part of this remedy, P asks the court to order F to rescind its franchise agreement with D. (Assume that if the court were to award damages, it would need to calculate how much money P would lose, over time, because of D’s franchise. Also assume that applicable law recognizes the principle that a plaintiff can generally seek whatever remedies it prefers.)
Regarding the claim for breach of the duty of good faith and fair dealing, P’s complaint includes the following language:
Good Faith and Fair Dealing: Defendant F sold a competing franchise, in violation of the agreement between F and P. Defendant F thereby breached its duty of good faith and fair dealing toward P by acting in an arbitrary and capricious manner, and failing to honor the spirit of its agreement with P.
The complaint includes no further description of this claim or of the relevant facts.
After P serves F with the summons and complaint, but before F files its answer, F files two motions to dismiss. First, F moves under Fed. R. Civ. P. 12(b)(6) (Rule 12(b)(6)) to dismiss P’s claim for breach of the duty of good faith and fair dealing. In support, F argues that P has not pleaded this claim with sufficient specificity. Second, F moves to dismiss the entire case under Fed. R. Civ. P. 12(b)(7) (Rule 12(b)(7)). In support, F argues that P has failed to join D, who is a Rule 19 indispensable party.
- How should the judge rule on F’s Rule 12(b)(6) motion? Explain.
- How should the judge rule on F’s Rule 12(b)(7) motion? Explain.