JAMES O. BROWNING, District Judge.
On June 20, 2009, Stephanie Anderson was working at a Denny's restaurant located at 1602 Coors Boulevard, N.W. in Albuquerque, New Mexico. See MSJ 11, at 2 (setting forth this fact); Response to Defendant Denny's Inc. Motion for Summary Judgment ¶ 1, at 1, filed January 10, 2013 (Doc. 55)("Response")(stipulating to this fact); Response of Plaintiff Estate of Stephanie
On July 13, 1989, Denny's, Inc., or its predecessor in interest, entered into a Franchise Agreement with Frank H. and June R. Barreras, the Barreras Enterprises' predecessor in interest, to operate the Denny's Restaurant at 1602 Coors Boulevard in Albuquerque. See Franchise Agreement Greenfield [sic] at 5, filed October 26, 2012 (Doc. 40-1 at 5)("Franchise Agreement"); MSJ ¶ 2, at 3 (setting forth this fact); Response ¶ 2, at 2 (stipulating to this fact); Second Response 12, at 3 (stipulating to this fact).
Under the Franchise Agreement, the parties agreed:
Franchise Agreement § 1.3, at 6; MSJ ¶ 7, at 3-4 (setting forth this fact); Response ¶ 7, at 2 (stipulating to this fact).
Franchise Agreement § 2.4, at 7; MSJ ¶ 8, at 4 (setting forth this fact); Response ¶ 8, at 3 (stipulating to this fact). Denny's, Inc. does not own the building, real property, or the restaurant located at 1602 Coors Boulevard in Albuquerque. See Boudakian Aff. ¶ 5, at 2; MSJ ¶ 9, at 4 (setting forth this fact); Response ¶ 9, at 3 (stipulating to this fact).
In exchange for allowing Barreras Enterprises the right to operate a restaurant using the Denny's, Inc.'s Marks, Barreras Enterprises must pay a franchise fee and other consideration, see Franchise Agreement § 6, at 11-12; MSJ ¶ 12, at 5 (setting forth this fact); Response ¶ 12, at 3 (stipulating to this fact), including four percent of weekly gross sales in exchange for using Denny's, Inc.'s Marks and other company-provided supervision and training, and two percent of weekly gross sales for institutional advertising, public relations, and promotion, see Franchise Agreement §§ 6.1.b. and 6.1.C, at 11. The Franchise Agreement requires Barreras Enterprises to send Denny's, Inc. a cumulative cash register tape to show the weekly sales. See Franchise Agreement § 7.3, at 12; Response ¶ 16, at 3-4 (setting forth this fact); Reply at 3 (not disputing this fact). For purposes of the Barreras Enterprises' obligations of royalty payments under the Franchise Agreement, Denny's, Inc. tracks sales, but does not control Barreras Enterprises' net cash deposits. See Boudakian Depo. at 28-29; Second Reply ¶ 26, at 9 (setting forth this fact).
The Franchise Agreement states Denny's, Inc. has a unique and particular plan for the operation of family style restaurants. See Franchise Agreement at § 1.4, at 5; MSJ ¶ 5, at 3 (setting forth this fact); Response ¶ 5, at 2 (stipulating to this fact).
Franchise Agreement § 1.4, at 5.
To protect its brand and marks, Denny's, Inc. controls various aspects restaurant site development, including construction and remodeling, which must be done at Barreras Enterprises' sole expense. See Franchise Agreement § 5, at 8-11; MSJ ¶ 10, at 4 (setting forth this fact); Response ¶ 10, at 3 (not disputing this fact). Denny's, Inc. has the right to "enter the premises to make any [m]odifications necessary to protect the Denny's Marks and related proprietary rights," among other things. Franchise Agreement § 4.3.E, at 8; MSJ ¶ 11, at 4 (setting forth this fact); Response ¶ 11, at 3 (stipulating to this fact). The Franchise Agreement also sets forth detailed provisions requiring Barreras Enterprises to comply with Denny's, Inc.'s operations manual, food service standards, restaurant maintenance and repair, hours of operation, personnel standards, inspections, and training. See Franchise Agreement §§ 11-16; MSJ ¶ 14, at 5 (setting forth this fact); Response ¶ 14, at 3 (stipulating to this fact).
Arthur Boudakian, the regional director of franchise operations for Denny's, Inc., is responsible for oversight and operations of certain franchisees. Boudakian Aff. ¶ 1, at 1. Denny's, Inc.'s oversight and training of franchisees and their employees is necessary "to ensure brand integrity and a uniform application of the Denny's system." Boudakian Aff. ¶¶ 1-2, at 1. See MSJ ¶ 15, at 5 (setting forth this fact); Response ¶ 15, at 3 (stipulating to this fact). The Denny's, Inc.'s brand is "the service standards, the food quality, the timing standards, making sure that we're providing across the United States an experience to the guests that's as consistent as — as possible." Boudakian Depo. at 35:20-24. See Second Response at 11 (setting forth this fact); Second Reply ¶ 29, at 10 (setting forth this fact). Denny's Marks are "[o]ur signs, our menus, our service standards, our — we have a number of menu items that are specifically, you know, copywrited, our Denny's Marks: Grand Slam Breakfast, Grand Slam Slugger, Moon's over my Hammy." Boudakian Depo. at 35:12-16. See Second Reply ¶ 28, at 10 (setting forth this fact). The Denny's, Inc. System is "a system in regards to food handling, in regards to menu items, in regards to recipes, in regards to what we offer the guests in terms of, you know, service standards and timing standards in protecting our
Barreras Enterprises and its managers must attend training to learn the Denny's System. See Franchise Agreement § 16, at 22-24; Response at 6-7 (setting forth this fact); Reply ¶ C, at 6 (not disputing this fact). Denny's, Inc. does not allow Barreras Enterprises' restaurant to open until it is satisfied that Barreras Enterprises and its managers have been adequately trained. See Franchise Agreement § 16.1.c, at 23; Response at 6-7 (setting forth this fact); Second Reply ¶ C.2., at 4 (setting forth this fact). As new developments in the Denny's System occur, Denny's, Inc. may require Barreras Enterprises and its personnel to attend refresher or additional training, at Barreras Enterprises' expense. See Franchise Agreement § 16.2, at 19; Second Response at 7-8 (setting forth this fact); Second Reply ¶ C.3, at 5 (admitting this fact). Denny's, Inc. also may offer optional training programs and seminars for Barreras Enterprises, and Barreras Enterprises' managers or other personnel. See Franchise Agreement § 16.3, at 19; Response at 7 (setting forth this fact); Second Response at 8 (setting forth this fact); Reply ¶ C, at 6 (not disputing this fact); Second Reply ¶ C.3 (admitting this fact).
Denny's, Inc. inspects Barreras Enterprises for quality control, hazard analysis and other matters through its "HACCP"
Boudakian Depo. at 18:-19. See Second Reply ¶ 23, at 9 (setting forth this fact).
The Franchise Agreement states that Denny's, Inc. has the option to terminate the agreement if: (i) Barreras Enterprises fails, within ten days after notification of non-compliance, to comply with any federal, state, or local law applicable to the operation and maintenance of the restaurant, including but not limited to, public health and safety requirements; (ii) Denny's, Inc. reasonably determines that Barreras Enterprises' continued operation of the restaurant will result in an imminent danger to public health or safety; or (iii) Barreras Enterprises fails after having received a reasonable opportunity, no more than thirty days, to correct a deficiency or unsatisfactory condition referenced in an inspection report. See Franchise Agreement § 12.1, at 19-20; Response at 6 (setting
If Denny's, Inc. terminates the agreement, whether Barreras Enterprises agrees or defaults or otherwise, Denny's, Inc. reserves the right, at its option, to
Franchise Agreement § 19.1.d. See Response at 6 (setting forth this fact); Reply ¶ B, at 6 (not disputing this fact); Second Reply at ¶ B.1, at 3-4 (setting forth this fact).
The Franchise Agreement requires Barreras Enterprises to obtain various forms of comprehensive general liability insurance. See Franchise Agreement § 9, at 16-17; MSJ ¶ 13, at 5 (setting forth this fact); Response ¶ 13, at 3 (stipulating to this fact). Denny's, Inc. requires Barreras Enterprises to obtain and maintain insurance of at least one million dollars, combined single limit; to name Denny's, Inc. as an additional insured on such policies; and to defend, indemnify, and hold harmless Denny's, Inc. against any and all loss, costs, "expenses (including attorney's fees), damages and liabilities, however caused, resulting directly or indirectly from or pertaining to the use, condition,... or operation of the Restaurant...." Franchise Agreement §§ 9.1, 9.3, at 16, 17. See Response at 7 (partially setting forth this fact); Second Response at 8 (partially setting forth this fact); Reply ¶ D, at 6 (not disputing this fact) Second Reply ¶ C.5, at 5 (partially setting forth this fact).
The Franchise Agreement requires Barreras Enterprises to ensure that the employees are neat, clean, and adequately trained and supervised; that they wear neat, clean, and uniform attire; and that they serve the public in a courteous, efficient, and skilled manner, all in accordance with the Operations Manual. See Franchise Agreement §§ 14.1-14.2, at 20-21; Response at 8 (setting forth this fact); Second Response at 9 (setting forth this fact); Reply ¶ F, at 6 (not disputing this fact); Second Reply ¶ C.9 (not disputing this fact).
Franchise Agreement § 14.5, at 21. Denny's, Inc. does not hire or fire Barreras
The Franchise Agreement requires Barreras Enterprises' restaurant to operate twenty-four hours a day and seven days a week. See Franchise Agreement § 13.1, at 20; Response at 7 (setting forth this fact); Second Response at 8 (setting forth this fact); Second Response ¶ 1, at 20 (setting forth this fact); Reply ¶ E, at 6 (not disputing this fact); Second Reply ¶ C.6, at 5 (admitting this fact); Second Reply ¶ 1 at 7 (admitting this fact). "If the franchisee, or if it's a company restaurant, feels that it's a danger to the employees or the guests, they can go through a process ... at which our assets protection folks determine whether the restaurant can close or not close." Boudakian Depo. at 21:14-19. See Second Response at 9 (setting forth this fact); Second Reply ¶ D.1, at 7 (setting forth this fact). Before changing the operating-hours requirement, Barreras Enterprises must produce evidence of 911 calls, incidents when police were involved, and what Barreras Enterprises did to solve the problem without closing, such as adding extra managers, extra employees, or security. See Boudakian Aff. at 21:14-23:15; Second Response at 9-10 (setting forth this fact); Second Reply at 6-7 (not disputing this fact).
Denny's, Inc. provides security for its corporate-owned restaurants. See Boudakian Depo. at 27; Second Response ¶ 2, at 20 (setting forth this fact); Second Reply ¶ D.2, at 7 (not disputing this fact). Corporate-owned restaurants are separate and apart from franchisee-owned restaurants. See Boudakian Depo. at 27; Second Reply ¶ 25 (setting forth this fact). For corporate-owned restaurants, Denny's, Inc. trains the managers on security issues related to cash, such as "cash control" and "how to go to the bank." Boudakian Depo. at 106:16-21. See Second Response at 14 (setting forth this fact); Second Reply at 6-7 (not disputing this fact). Denny's, Inc. has policies for hiring security guards at corporate-owned restaurants, but does not get involved in Barreras Enterprises' security. See Boudakian Depo. at 135:11-14, 137:1-3; Second Response at 17-18 (setting forth this fact); Second Reply at 6-7 (not disputing this fact). Regarding security measures, Denny's, Inc. may hire security guards only in corporate-owned stores, not franchisee-owned stores. Boudakian Depo. at 133-137; Second Reply ¶ 35 (setting forth this fact).
Denny's, Inc. does not have the right to control decisions regarding security at Barreras Enterprises' restaurant, such as employing security guards, security warning or alarm systems, or security cameras. See Boudakian Aff. ¶ 11, at 3; MSJ ¶ 19, at
Boudakian Depo. at 23:8-24:9; Second Response at 10 (setting forth this fact); Second Reply ¶ 24, at 9 (setting forth this fact).
Denny's, Inc. does not receive information from franchisees when owners, operators, or employees are victims of crime because "they do not work for us." Boudakian Depo. at 29:16-19; Second Response at 11 (setting forth this fact). Denny's, Inc. did not know of any criminal activity in or around the 1602 Coors Boulevard Denny's restaurant before June 20, 2009. See Boudakian Aff. ¶¶ 14-15, at 4; MSJ ¶ 21, at 6 (setting forth this fact); Response ¶ 21, at 4 (not controverting this fact). Denny's, Inc. was not aware of any series of armed robberies taking place at Denny's franchised restaurants in Albuquerque before Anderson's death. See Boudakian Depo. at 139-142; Second Reply ¶ 36 (setting forth this fact).
The Anderson Estate is bringing a suit for wrongful death against Denny's, Inc., Barreras Enterprises, F. Barreras, J.R. Barreras, and J.A. Barreras (collectively, "Barreras"), alleging that their "intentional act or omission proximately caused Stephanie Anderson's death." Amended Complaint ¶ 34, at 6. The Anderson Estate argues that Denny's, Inc. and the Barreras caused Anderson's death, through failing to properly train personnel on emergency procedures, failing to implement adequate security measures, failing to exercise due care in respect to Anderson, and willfully ignoring the foreseeability of the crime which took place on June 20, 2009. See Amended Complaint ¶ 28-31, at 5-6.
Denny's, Inc. filed its MSJ on October 26, 2012, arguing that it does not owe a duty to Barreras Enterprises or to Barreras Enterprises' employees "to safeguard the work premises from the criminal acts of third parties," and that the Court should thus dismiss the Anderson Estate's claims against Denny's, Inc. MSJ at 2.
Denny's, Inc. frames the issue as "whether the franchisor should be held vicariously liable for any negligence committed by the franchisee in failing to provide appropriate security measures, which results in personal injury or death to business invitees or employees." MSJ at 7. According to Denny's, Inc., the clear majority
Denny's, Inc. cites Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062, 122 N.M. 537, 928 P.2d 263, as the leading case in New Mexico for franchisor vicarious liability to franchisee employees and business invitees for third parties' criminal acts. See MSJ at 9. In that case, a third party shot and injured a gas station attendant and a customer at a Chevron gas station during the course of an armed robbery. See MSJ at 9. The Supreme Court of New Mexico affirmed the trial court's decision to grant Chevron U.S.A, Inc.'s motion for summary judgment, because it franchisor "did not have the necessary control or right of control governing the gas station's operations to create a duty," MSJ at 9, even though the plaintiffs demonstrated that Chevron U.S.A.: (i) sent inspectors to the gas station twice a year to inspect, among other things, the gasoline and oil products, (ii) provided a toll-free number for customers to voice concerns regarding the station's operations, and (iii) prohibited the station from selling or providing pornographic material, see MSJ at 10. The Supreme Court of New Mexico said those activities did not provide Chevron U.S.A. sufficient control over the station to create a jury question on the right of control, because Chevron U.S.A. was simply protecting its trademark. See MSJ at 10. Dennys, Inc. argues that this represents the majority rule, in which a "franchisor's `control' to ensure the franchisee upholds the quality and operations standards of the brand or marks does not alone establish a franchisor's vicarious liability for injuries to invitees or employees of the franchisee...." MSJ at 11. Citing a case with facts that it says are similar to the current case, Denny's, Inc. argues that, when a franchisor requires the franchisee to remain open twenty-four hours a day and makes recommendations for security, rather than mandatory requirements, the franchisor is not exposed to vicarious liability for the franchisee's negligence resulting in death or injury to employees or invitees. See MSJ at 12 (citing Wendy Hong Wu v. Dunkin' Donuts, Inc., 105 F.Supp.2d 83 (E.D.N.Y.2000)). Denny's, Inc. explains that these cases are in contrast to a small minority of courts that have held franchisors vicariously liable for a franchisee's negligence. See MSJ at 13.
Denny's, Inc. argues that the franchise agreement with Barreras Enterprises allows Denny's, Inc. to protect its brand and marks, but the agreement does not give Denny's, Inc. control over the restaurant's day-to-day operations or security. See MSJ at 14. Those decisions, in its view, "are solely within the authority and control of Barreras." MSJ at 14. Denny's, Inc. acknowledges that it has the ability to review the criminal activity history if a franchisee requests a waiver of the twenty-four-hour operating requirement, but it
As of November 26, 2012, the Anderson Estate had not responded to the MSJ. See Notice of Completion of Briefing at 1, filed November 26, 2012 (Doc. 43). Instead, the Anderson Estate moved the Court to strike the Notice of Completion of Briefing. See Motion to Strike Notice of Completion of Briefing on Summary Judgment filed by Denny's Inc., filed November 27, 2012 (Doc. 44)("Motion to Strike"). The Court indicated at a hearing on January 7, 2013, and then formalized its ruling in a Memorandum Opinion and Order, filed February 7, 2013, 291 F.R.D. 622 (D.N.M. 2013) (Doc. 65)("Motion to Strike MOO"), that it would not strike the Notice of Completion of Briefing, but it would construe the Motion to Strike as a request for extension of time to respond to the MSJ. See Clerk's Minutes at 1-2, filed January 7, 2013 (Doc. 63); Motion to Strike MOO, 291 F.R.D. at 624-25. The Court noted that it was "bound to adjudicate motions for summary judgment on their merits...." Motion to Strike MOO, 291 F.R.D. at 624.
On January 10, 2013, the Anderson Estate filed its initial response to the MSJ. See Response. The initial Response points out that the Franchise Agreement that Denny's, Inc. attached to its MSJ has numerous typographical mistakes and errors, uses different typefaces throughout the document, and inconsistently shows a two-hole punch photocopied onto some copied pages but not others. See Response at 4-5. The Anderson Estate argues that "[i]t appears on examination that provisions and pages in the Franchise Agreement were changed or modified after execution." Response at 5.
Turning to the substance of the Franchise Agreement, the Anderson Estate argues that the agreement gives Denny's, Inc. "extensive control ... over the day-to-day operations of a Denny's restaurant." MSJ at 5. For example, "[t]he Franchise Agreement is elaborate concerning the procedures to be followed to implement `The Denny's System.'" Response at 5.
Franchise Agreement ¶ 1.4, at 5. The Anderson Estate points to other provisions in the Franchise Agreement to demonstrate the "control" Denny's, Inc. has over Barreras Enterprises: (i) Denny's, Inc. may terminate the agreement if Barreras Enterprises fails to comply with the agreement's standards and requirements, see Response at 6 (citing Franchise Agreement § 18.2, at 28-29
The Anderson Estate draws several distinctions between this case and the facts in Ciup v. Chevron U.S.A., Inc. to support its argument that Denny's, Inc. has control over the Barreras Enterprises' day-to-day operations. In Ciup v. Chevron U.S.A., Inc., the agreement between Chevron U.S.A. and the franchisee limited Chevron U.S.A.'s control of the daily operations; there is no such limitation in the agreement between Denny's, Inc. and Barreras Enterprises. See Response at 9. Chevron U.S.A. did not train Barreras Enterprises' employees or managers; Denny's, Inc. trains the managers on how to implement the Denny's System. See Response at 9. Further, Denny's, Inc. inspects Barreras Enterprises' restaurant, and requires Barreras Enterprises to operate its restaurant twenty-four hours a day and seven days a week. See Response at 9. The Anderson Estate argues that all of these distinctions taken together create factual issues that preclude summary judgment. See Response at 9-10. The Anderson Estate did not attach any evidence to its initial Response, but stated that "Denny's Inc. has not provided a copy of the Denny's Operations Manual, has not described the Denny's System or detailed the subjects and substance of the thirty day training all managers of a Denny's Franchise are required to complete to the Company's Satisfaction." Response at 9. The Anderson Estate argues that these additional facts will control Denny's, Inc.'s liability. See Response at 9.
Denny's, Inc. replies that the "Plaintiff largely responds through factual interpretation," noting that the Anderson Estate did not move to strike Denny's, Inc.'s exhibits nor did it offer any new evidence. Reply at 2. Denny's, Inc. also points out that the Anderson Estate requested further discovery, but failed to attach a sworn affidavit under rule 56(d) of the Federal Rules of Civil Procedure, which would have allowed the Court to defer ruling on the MSJ until discovery is complete. See Reply at 2-3. It is unclear, from Denny's, Inc.'s perspective, how additional discovery will change the Court's analysis when the Anderson Estate has stipulated to the Franchise Agreement, and for most of the facts it disputed, did so only by denying the facts without any support or evidence. See Reply at 3-4. "The responding party may not rely on conclusory allegations or unsubstantiated statements of denial but, rather must come forth with admissible evidence, such as affidavits, documents and the like, in order to properly carry its burden of rebutting the moving party's prima facie case." Reply at 4 (citing Scotto
Although the Anderson Estate highlighted specific aspects of the Franchise Agreement "apparently in an effort to demonstrate support for the conclusion that Denny's control is greater than that necessary merely for the protection of its brand and marks," Denny's, Inc. argues that the terms in the Franchise Agreement, including those relating to the appearance and cleanliness of the franchisee restaurants, are necessary to protect the Denny's brand, and are typical in the trade. Reply at 5. Denny's, Inc. argues that it does not control aspects beyond what is necessary to protect its brand, such as hiring and firing employees; construction, remodeling, and other improvements; and whether Barreras Enterprises provides security or otherwise tries to prevent criminal activity on its premises. Reply at 6-7. Denny's, Inc. urges the Court to consider the out-of-jurisdiction cases on which the Supreme Court of New Mexico relied on in Ciup v. Chevron USA, Inc., which explored the limits of franchisor control. See Reply at 8-11 (citing Wood v. Shell Oil Co., 495 So.2d 1034 (Ala.1986); Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874 (1975); Cislaw v. Southland Corp., 4 Cal.App.4th 1284, 6 Cal.Rptr.2d 386 (1992)). For example, in Murphy v. Holiday Inns, Inc., the agreement between the franchisor and franchisee described the "Holiday Inn `system' which was designed to provide `to the public... an inn service ... of distinctive nature, of high quality, and of other distinguishing characteristics.'" Reply at 9 (quoting Murphy v. Holiday Inns, Inc., 219 S.E.2d at 876). The Supreme Court of Virginia referenced the Lanham Act, 15 U.S.C. §§ 1051-1141, which requires a trademark owner to regulate the licensees' activities, because the owner may lose its mark by abandonment if the mark is used in a manner which causes the mark to lose its significance. See Reply at 10 (citing Murphy v. Holiday Inns, Inc., 219 S.E.2d at 877). In ruling as a matter of law that the franchise agreement did not create a principal/agent relationship between the franchisor Holiday Inns and the franchisee, the Supreme Court of Virginia said "the purpose of those provisions was to achieve a system wide standardization of business identity, uniformity of commercial service, and optimum public good will, all for the benefit of both contracting parties." Reply at 10-11 (citing Murphy v. Holiday Inns, Inc., 219 S.E.2d at 878). In Cislaw v. Southland Corp., the California Court of Appeals affirmed summary judgment for the franchisor even though, among other things, the franchisor could terminate the franchise agreement and required the franchisee to attend an operations training program, keep the store clean and equipment in good repair, open the gas station from 7 a.m. to 11 p.m., 364 days a year, and make daily deposits into accounts the franchisor designated. See Reply at 11 (citing Cislaw v. Southland Corp., 6 Cal. Rptr.2d at 393). "Because the franchise agreement `withheld from the franchisor control over decisions relating to employment, inventory and day to day operations of the 7-Eleven store,' there was no agency relationship, as a matter of law, sufficient to impose vicarious liability against Southland...." Reply at 11 (quoting Cislaw v. Southland Corp., 6 Cal.Rptr.2d at 394). Denny's, Inc. argues that, especially in light of the cases upon which the Supreme Court of New Mexico relied in Ciup v. Chevron USA, Inc., the Anderson Estate has not pointed to any factual disputes on the agency issue in this case. See Reply at 12.
Denny's, Inc. emphasizes that recent cases have narrowed the inquiry to whether the franchisor controls the specific aspect
Reply at 13. Denny's, Inc. argues that it did not take on any duties to provide security at the Barreras Enterprises restaurant. See Reply at 14.
One day after Denny's, Inc. filed its Reply, the Anderson Estate filed a Motion to Continue Defendant Denny's Inc. Summary Judgement[sic] Hearing, filed January 29, 2013 (Doc. 60)("Motion to Continue"). The Anderson Estate asked the Court to continue the hearing for the MSJ that was set for February 8, 2013, because it requested discovery from Denny's, Inc. that it believed would better allow the parties and the Court to determine Denny's, Inc.'s involvement in the franchisee restaurant. See Motion to Continue ¶¶ 1, 7, at 1-2. For example, the Anderson Estate wanted to complete its deposition with Boudakian, Denny's, Inc.'s compliance officer, and wanted more information on the Denny's System and the Denny's Operating Manual. See Motion to Continue ¶¶ 2, 3, 6, at 1-2.
Denny's, Inc. responded that the Anderson Estate did not make its requests for discovery until after it filed its Response and that it did not request more time to respond within the Response, nor did it file a rule 56(d) affidavit outlining the need for further discovery. See Response in Opposition of Denny's, Inc. to Plaintiff's Motion to Continue Summary Judgment Hearing ¶¶ 3, 5, at 1-2, filed February 5, 2013 (Doc. 61)("Motion to Continue Response"). Denny's, Inc. argues that the Anderson Estate's efforts to continue the hearing are untimely and that the pleadings are ready for the Court's consideration. See Motion to Continue Response ¶ 6, at 2.
At a hearing on February 8, 2013, the Court first turned to the Motion to Continue. The Anderson Estate re-urged the arguments it made in its motion, namely that it needed more discovery to determine Denny's, Inc.'s involvement in the franchisee restaurant. See Transcript of Hearing at 4:14-5:14, taken February 8, 2013 ("Feb. Tr.")(Robinson).
Turning to the MSJ, Denny's, Inc. argued that the franchisee controlled the day-to-day operations, such as the right to hire and fire employees, and Denny's, Inc. was nothing more than a franchisor protecting its brands and its marks. See Feb. Tr. at 13:5-21 (Hatcher). Denny's, Inc. said that all of the control that it had over the franchisee, such as the right to train managers and control hours of operation, signage, menus, and food, was insufficient to impose vicarious liability. See Feb. Tr. at 14:1-19 (Hatcher). "But the overriding area that — and this is absolutely undisputed on the record before the Court — is that Denny's has absolutely no control over security measures." Feb. Tr. at 14:20-22 (Hatcher). Looking to Ciup v. Chevron USA, Inc., Denny's, Inc. argued that, although the case was from 1996, the trend since then has been to focus on whether the franchisor controls the specific aspect of the operation alleged to have caused the harm. See Feb. Tr. at 17:22-18:16 (Hatcher). The cases on which the Supreme Court of New Mexico relied in Ciup v. Chevron USA, Inc. were also more detailed, in Denny's, Inc.'s view, revealing that franchisors may train franchisee managers or employees and control the hours of operation without risking vicarious liability. See Feb. Tr. at 20:14-22:4 (Hatcher). Denny's, Inc. argued that, although each case depends on its facts, Denny's, Inc. exercised control over Barreras Enterprises to the extent necessary to protect its brand. See Feb. Tr. at 22:14-23:8 (Hatcher). The Court asked at what point Denny's, Inc.'s control over the franchisee would lead to vicarious liability under New Mexico law. See Feb. Tr. at 23:10-15 (Court). Denny's, Inc. said that, if it had analyzed all the franchisee operations, determined that it needed to implement security measures to protect franchisee employees, and then designed security measures or protocols and required the franchisees to adopt those measures, then it would be an easy case to establish vicarious liability. See Feb. Tr. at 23:16-24:3 (Hatcher). Denny's, Inc. argued that, because Denny's, Inc. was not aware of criminal activity at the Barreras Enterprises' franchise, and did not attempt to implement security measures there, Denny's, Inc. argued that the Court should not hold it vicariously liable for the Barreras Enterprises' failure to provide proper security. See Feb. Tr. at 26:8-11 (Hatcher).
The Court asked why the Franchise Agreement had so many typographical errors and inconsistent fonts, see Feb. Tr. at 15:19-20 (Court); Denny's, Inc. said it did not know, but contended that the errors did not take away from the substance, see Feb. Tr. at 15:23-16:5 (Hatcher). When the Court asked the Anderson Estate whether it disputed the authenticity of the Franchise Agreement, see Feb. Tr. at 27:8-13 (Court), the Anderson Estate said it questioned its authenticity, because the
The Anderson Estate argued that Denny's, Inc. was aware of the criminal activity at the Barreras Enterprises' restaurant: Denny's, Inc. required it to be open twenty-four hours a day and seven days a week; the Franchise Agreement required Barreras Enterprises to report gross receipts to Denny's, Inc.; and when Barreras Enterprises reported its weekly gross receipts, it would have told Denny's, Inc. that it was robbed, explaining the lower gross receipts. See Feb. Tr. at 29:12-30:9 (Robinson). According to the Anderson Estate, the Franchise Agreement provided Denny's, Inc. control over security: if Barreras Enterprises failed inspections relating to health and safety requirements, Denny's, Inc. could terminate the agreement. See Feb. Tr. at 31:22-32:13 (Robinson). The Anderson Estate reiterated its arguments that it needed more discovery to know the full relationship between Denny's, Inc. and the Barreras Enterprises' franchise, specifically indicating that the operating manual and inspections might reveal that Denny's, Inc. was involved in security at the franchisee restaurant. See Feb. Tr. at 33:2-14 (Robinson). The Court asked, if it froze the record at that time without allowing further discovery, whether Ciup v. Chevron USA, Inc. would control and require it to grant the MSJ. See Feb. Tr. at 39:21-40:1 (Court). The Anderson Estate said that the Franchise Agreement raised many questions that would preclude summary judgment, such as what the inspections involved and that, further, the Franchise Agreement shows that Denny's, Inc. had more control over Barreras Enterprises than what Chevron U.S.A. had in Ciup v. Chevron USA, Inc. See Feb. Tr. at 40:4-25 (Robinson). The Anderson Estate agreed that the Court would need to analyze and apply Ciup v. Chevron USA, Inc. See Feb. Tr. at 41:11-18 (Robinson).
Denny's, Inc. discussed Holiday Inns, Inc. v. Shelburne, 576 So.2d 322 (Fla.App. 1991), a case which it identified in its MSJ as in the minority of jurisdictions, holding the franchisor liable for its own direct negligence for failing to provide proper security. See Feb. Tr. at 45:9-15 (Hatcher). Denny's, Inc. argued that, unlike that case, it did not do anything to directly cause Anderson's death, and further, that case found the franchisor liable based on apparent authority, which would not apply in this case, because the injured plaintiff is an employee rather than a customer. See Feb. Tr. at 45:14-46:11 (Hatcher). Although the Anderson Estate argued that Denny's, Inc. would have had knowledge of prior crimes at the Barreras Enterprises' franchise restaurant, Denny's, Inc. points out that the Anderson Estate raised that argument for the first time at the hearing and did not support it with evidence; there is thus no evidence to dispute Boudakian's testimony in his affidavit that Denny's, Inc. did not have knowledge of any prior crimes. See Feb. Tr. at 47:1-14. Of the remaining points that the Anderson Estate raised — that Denny's, Inc. could inspect Barreras Enterprises' restaurant for health and safety, could terminate the Franchise Agreement, and required the restaurant operate twenty-four hours a day and seven days a week — Denny's, Inc.
The Court noted that the record included only the Franchise Agreement and the Boudakian Aff., but it would allow the Anderson Estate to conduct additional discovery and submit additional evidence to the Court. See Feb. Tr. at 51:9-25.
The Anderson Estate filed its Second Response to the MSJ on May 14, 2013, and repeats many of its same arguments regarding what the Franchise Agreement requires. Second Response at 6-9. The Anderson Estate said it deposed Boudakian and described his testimony, but the Anderson Estate failed to attach the deposition transcript to its Second Response. See Second Response at 9-18. It described several times in the deposition where Boudakian said that Denny's, Inc. does not inspect or require security at the franchisee restaurants, see Second Response at 10, 12, and that the franchisee employees do not work for Denny's, Inc., see Second Response at 11, but detailed what Denny's, Inc. examines during inspections, such as the temperature of food serviced, whether the restaurant carpet bunched up, whether there was a thermometer in the butter cooler, and how long it took for employees to bus the tables after guests left the restaurant, see Second Response at 11-12. The Anderson Estate explained that Denny's, Inc. teaches its managers of corporate-owned restaurants certain security measures, such as how to manage cash and make bank deposits securely. See Second Response at 14. Denny's, Inc. also provides the corporate-owned restaurants with "Best Practices" in dealing with security issues, such as a disruptive guest, but it directs the franchisee managers to talk to the franchisee about how to deal with those situations rather than requiring adherence to the "Best Practices." Second Response at 15-16.
The Anderson Estate notes that Ciup v. Chevron USA, Inc. controls this case, but that the control Denny's, Inc. has over the franchisee restaurant is much greater than what Chevron had over the franchisee gas station. See Second Response at 20. It argues that Denny's, Inc. requires security at the company-owned restaurants, but instructs franchisee employees "not to provide the answers that are available to corporate employees." Second Response ¶ 2, at 20. The Anderson Estate attached several documents to its Second Response, including the security policy for corporate-owned restaurants, see Denny's, Inc. Policy Security Service Agency Policy for Security Guards, filed May 14, 2013 (Doc. 75-1 at 1); Best Practice Learning Aid: Disruptive Guest, filed May 14, 2013 (Doc. 75-1 at 8); Hospitality, Quality & HACCP Review, filed May 14, 2013 (Doc. 75-2); and Food Safety, Standards & Regulatory Review, filed May 14, 2013 (Doc. 75-3).
Denny's, Inc. argues that the Anderson Estate has not demonstrated any qualitative distinction between this case and Ciup v. Chevron USA, Inc., and that the Anderson Estate has failed to respond to the argument that Denny's, Inc. does not have control over Barreras Enterprises' security measures. See Second Reply at 13. Denny's, Inc. argues that ensuring uniformity in customer experience does not open up the company to vicarious liability: "`The clear trend in the case law in other jurisdictions is that the quality and operational standards and inspection rights do not establish a franchisor's control
The Court held a hearing on November 5, 2013. See Transcript of Hearing, taken November 5, 2013 ("Nov. Tr."). The Court opened the hearing by asking the parties what law should apply to determine Denny's, Inc.'s and the Barreras' relationship: the Franchise Agreement included a provision stating that California law governs the agreement, but the parties had been analyzing the issue using New Mexico law. See Nov. Tr. 3:16-25 (Court). Denny's, Inc. acknowledged the provision in the Franchise Agreement choosing California law, but said that it would not apply in this case, because the incident arose in New Mexico, with a New Mexico restaurant and a New Mexico resident. See Nov. Tr. 11:15-12:5 (Hatcher). The Court said that its first reaction was likewise to apply New Mexico law, because "this is a tort case," and the agreement that the corporation entered into with another party does not govern a New Mexico resident bringing a tort case against the corporation; but its second thought is that this question involves a determination of agency law and how the agreement governs the relationship of the parties. Nov. Tr. 12:6-24 (Court). Denny's, Inc. argued that, even if California law should apply, the analysis remains the same, because the leading New Mexico case, Ciup v. Chevron USA, Inc., cites and relies on a California case, Cislaw v. Southland, indicating that applying New Mexico law or California law would bring the Court to the same conclusion. See Nov. Tr. 13:1-14 (Hatcher). Going on to analyze the facts of that case, Denny's, Inc. argued that, even when the franchisor has authority to terminate a franchise agreement and require the franchisee to participate in a training program, keep the store clean and equipment in good repair, operate from 7:00 a.m. to 11 p.m., 364 days a year, make daily deposits into a franchisor-designated account, pay royalty fees, and provide copies of purchase and sales records, similar to the relationship between Denny's, Inc. and the Barreras Enterprises, the California Court of Appeals affirmed the grant of summary judgment to the franchisor, holding that there was not an agency relationship. See Nov. Tr. 13:20-14:22 (Hatcher). Denny's, Inc. discussed the trend in the law that it saw: that even large companies such as McDonald's can require the franchisees to abide by the franchisor's system, and not subject itself to vicarious liability, and that courts are narrowing the circumstances in which they find vicarious liability, looking specifically to whether the franchisor controls the specific instrumentality alleged to have caused an injury or death. See Nov. Tr. 15:1-19 (Hatcher). Denny's, Inc. summed up its position by emphasizing Boudakian's testimony that Denny's, Inc. imposes certain standards on the franchisees to protect its mark, because it wants customers to have the same experience in Maine as in Los Angeles. See Nov. Tr. at 16:13-21 (Hatcher). In Denny's, Inc.'s view, this amount of control is necessary to protect its trademark under the Lanham Act and, further, to enable the franchise business model to flourish, creating tens of thousands of small business owners around the country. See Nov. Tr. at 17:1-18:1 (Hatcher). The Court asked why, if it found that Denny's, Inc. was involved in
The Anderson Estate expressed concern that Denny's, Inc. could intentionally choose to teach security issues to its company-owned restaurants, and then turn around and intentionally withhold that information from its franchisee-owned restaurants. See Nov. Tr. at 19:23-20:4 (Robinson). It stated its belief that New Mexico liability law would follow insurance, and so requested that Denny's, Inc. produce the insurance policy and indicate whether Denny's, Inc. purchased liability insurance to cover security issues that occur at franchisee-owned restaurants. See Nov. Tr. at 20:8-13 (Robinson). Regarding which law should apply, the Anderson Estate argued that California law should apply, because Denny's, Inc. chose that law when it entered into the Franchise Agreement, and that, if any jurisdiction were to create liability for failing to provide proper security, it would be California. See Nov. Tr. at 21:1-7, 21:23-22:10 (Robinson). The Anderson Estate argued that Denny's, Inc. was involved in the day-to-day operations, especially because of the specific training and requirements, such as how often the manager should touch a table when interacting with guests and the temperature of the cooler. See Nov. Tr. at 20:19-24 (Robinson). The Court asked how a franchisor could protect its trademark and not expose itself to vicarious liability, see Nov. Tr. at 22:15023 (Court), to which the Anderson Estate responded that, "in this day and age," when a company creates a national chain that may attract criminal activity, the company should not be able to avoid getting involved in security issues as it argues Denny's, Inc. has, Nov. Tr. at 22:24-24:9 (Robinson). When asked how the security measures taken at company-owned restaurants impacts the analysis for franchisee-owned restaurants, see Nov. Tr. at 24:24-25:1 (Court), the Anderson Estate responded that Denny's, Inc. has carefully tried to insulate itself on franchisee-owned restaurants, and it should not be able to do so when it has information about how to provide proper security, as demonstrated through the company-owned restaurants, see Nov. Tr. 25:2-24 (Robinson).
Denny's, Inc. responded that it does not insure the Barreras Enterprises' operations in any way, and so the Anderson Estate's argument about looking to Denny's, Inc.'s insurance would not expose it to vicarious liability. See Nov. Tr. at 26:24-27:4 (Hatcher).
On November 8, 2013, the Court issued a Minute Order:
Minute Order, filed November 8, 2013 (Doc. 96). Denny's, Inc. and the Barreras Defendants, including Barreras Enterprises, Frank H. Barreras, June R. Barreras, and Judith A. Barreras, said that they agreed to be bound by the stipulation order. See Letter to District Judge James O. Browning from Scott P. Hatcher, filed November 11, 2013 (Doc. 98)("In response to the Court's directive, be advised that Denny's, Inc. wishes to remain bound by the party's stipulation in the Joint Status Report that New Mexico law applies on this issue."); Letter to District Judge James O. Browning from Paul Maestas ("I am writing to let you know that the Barreras Defendants agree to be bound by the stipulation continued in the Joint Status Report and Provisional Discovery Plan `that the law governing this case is the law of the State of New Mexico.'"). The Anderson Estate said that it "chooses to reject the parties' stipulation in the Joint Status Report that New Mexico law applies and requests the Court look to California Law." Letter to District Judge James O. Browning from Shannon Robinson, filed November 12, 2013 (Doc. 99).
Rule 56(a) of the Federal Rules of Civil Procedure states: "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(a). "The movant bears the initial burden of `show[ing] that there is an absence of evidence to support the nonmoving party's case.'" Herrera v. Santa Fe Pub. Schs., 956 F.Supp.2d 1191, 1221, 2013 WL 3462484, at *23 (D.N.M.2013)(Browning, J.)(quoting Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991)). See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the movant meets this burden, rule 56 requires the non-moving party to designate specific facts showing that there is a genuine issue for trial. See Celotex Corp. v. Catrett, 477 U.S. at 324, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The party opposing a motion for summary judgment must "set forth specific facts showing that there is a genuine issue for trial as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990). See Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir.1993)("However, the nonmoving party may not rest on its pleadings but must set forth specific facts showing that there is a genuine issue for trial as to those dispositive matters for which it carries the burden of proof." (internal quotation marks omitted)). Rule 56(c)(1) provides: "A party asserting that a fact ... is genuinely disputed must support the assertion by .... citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory
To deny a motion for summary judgment, genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. at 250, 106 S.Ct. 2505. A mere "scintilla" of evidence will not avoid summary judgment. Vitkus v. Beatrice Co., 11 F.3d at 1539 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505). Rather, there must be sufficient evidence on which the factfinder could reasonably find for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 251, 106 S.Ct. 2505 (quoting Schuylkill & Dauphin Improvement Co. v. Munson, 81 U.S. 442, 448, 14 Wall. 442, 20 L.Ed. 867 (1871)); Vitkus v. Beatrice Co., 11 F.3d at 1539. "[T]here is no evidence for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable ... or is not significantly probative, ... summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. at 249, 106 S.Ct. 2505 (citations omitted). Where a rational trier of fact, considering the record as a whole, could not find for the non-moving party, there is no genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When reviewing a motion for summary judgment, the court should keep in mind certain principles. First, the court's role is not to weigh the evidence, but to assess the threshold issue whether a genuine issue exists as to material facts requiring a trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 249, 106 S.Ct. 2505. Second, the ultimate standard of proof is relevant for purposes of ruling on a summary judgment, such that, when ruling on a summary judgment motion, the court must "bear in mind the actual quantum and quality of proof necessary to support liability." Anderson v. Liberty Lobby, Inc., 477 U.S. at 254, 106 S.Ct. 2505. Third, the court must resolve all reasonable inferences and doubts in favor of the non-moving party, and construe all evidence in the light most favorable to the non-moving party. See Hunt v. Cromartie, 526 U.S. 541, 550-55, 119 S.Ct. 1545, 143 L.Ed.2d 731 (1999); Anderson v. Liberty Lobby, Inc., 477 U.S. at 255, 106 S.Ct. 2505 ("The evidence of the non-movant is to be believed,
Where a plaintiff invokes a federal district court's diversity jurisdiction, the district court looks to the forum state's choice-of-law rules to determine which state's substantive law to apply. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Pepsi-Cola Bottling Co. v. PepsiCo, Inc., 431 F.3d 1241, 1255 (10th Cir.2005). The first step in a New Mexico choice-of-law analysis is to characterize the claim by "area of substantive law — e.g., torts, contracts, domestic relations — to which the law of the forum assigns a particular claim or issue." Terrazas v. Garland & Loman, Inc., 140 N.M. 293, 296, 142 P.3d 374, 377 (Ct.App.2006). There are only a few categories within which claims might fall — "[t]ort cases, i.e. all `civil wrongs,' are one class; contracts, i.e., every kind of enforceable promise, is another single class." J. McLaughlin, Conflict of Laws: the Choice of Law Lex Loci Doctrine, the Beguiling Appeal of a Dead Tradition, Part One, 93 W. Va. L.Rev. 957, 989 (1991)(describing the categories as "tort, contract, or some other"). The court is then to apply the New Mexico choice-of-law rule applicable to that category of claim to determine what state's substantive law to apply. See Guidance Endodontics, LLC v. Dentsply Intern., Inc., 749 F.Supp.2d 1235, 1257 (D.N.M.2010) (Browning, J.).
When a claim sounds in contract, New Mexico will generally apply the choice-of-law rule of lex loci contractus — the law of the place of contracting. See Ferrell v. Allstate Ins. Co., 144 N.M. 405, 421, 188 P.3d 1156, 1172 (2008). Like most states, however, "New Mexico respects party autonomy; [therefore] the law to be applied to a particular dispute may be chosen by the parties through a contractual choice-of-law provision." Fiser v. Dell Computer Corp., 144 N.M. 464, 467, 188 P.3d 1215, 1218 (2008) (citing NMSA 1978, § 55-1-301(A)). See United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 108 N.M. 467, 470, 775 P.2d 233, 236 (1989). "[W]hen application of the law chosen by the parties offends New Mexico public policy," however, a New Mexico court "may decline to enforce the choice-of-law provision and apply New Mexico law instead." Fiser v. Dell Computer Corp., 144 N.M. at 467, 188 P.3d at 1218. "New Mexico courts will not give effect to another state's laws where those laws would violate some fundamental principle of justice." Fiser v. Dell Computer Corp., 144 N.M. at 467, 188 P.3d at 1218 (internal quotations omitted). Where the plaintiff has invoked the federal district court's diversity jurisdiction, the court will accept New Mexico's law regarding whether to honor a contractual choice-of-law provision. See MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257, 1260 (10th Cir.2006) ("In cases like this one, where subject matter jurisdiction is based on diversity of citizenship, federal courts must look to the forum state's choice-of-law rules to determine the effect of a contractual choice-of-law clause.").
On the other hand, if the underlying claim is categorized as a tort, "New Mexico courts follow the doctrine of lex loci delicti commissi — that is, the substantive rights of the parties are governed by the law of the place where the wrong occurred." Terrazas v. Garland & Loman, Inc., 140 N.M. at 296, 142 P.3d at
Generally, a negligence claim requires the existence of a duty from a defendant to a plaintiff, breach of that duty, which is typically based on a standard of reasonable care, and the breach being a cause-in-fact and proximate cause of the plaintiff's damages. See Coffey v. United States, 870 F.Supp.2d 1202, 1225 (D.N.M.2012) (citing Herrera v. Quality Pontiac, 134 N.M. 43, 47-48, 73 P.3d 181, 185-86 (2003)). "In New Mexico, negligence encompasses the concepts of foreseeability of harm to the person injured and of a duty of care toward that person." Ramirez v. Armstrong, 100 N.M. 538, 541, 673 P.2d 822, 825 (1983), overruled on other grounds by Folz v. State, 110 N.M. 457, 460, 797 P.2d 246, 249 (1990). Generally, negligence is a question of fact for the jury. See Schear v. Bd. of County Comm'rs, 101 N.M. 671, 672, 687 P.2d 728, 729 (1984). "A finding of negligence, however, is dependent upon the existence of a duty on the part of the defendant." Schear v. Bd. of County Comm'rs, 101 N.M. at 672, 687 P.2d at 729. "Whether a duty exists is a question of law for the courts to decide." Schear v. Bd. of County Comm'rs, 101 N.M. at 672, 687 P.2d at 729 (citation omitted). Once courts recognize that a duty exists, that duty triggers "a legal obligation to conform to a certain standard of conduct to reduce the risk of harm to an individual or class of persons." Baxter v. Noce, 107 N.M. 48, 51, 752 P.2d 240, 243 (1988).
New Mexico courts have stated that foreseeability of a plaintiff alone does not end the inquiry into whether the defendant owed a duty to the plaintiff. See Herrera v. Quality Pontiac, 134 N.M. at 48, 73 P.3d at 186. The New Mexico courts have recognized that, "[u]ltimately, a duty exists only if the obligation of the defendant [is] one to which the law will give recognition and effect." Herrera v. Quality Pontiac, 134 N.M. at 49, 73 P.3d at 187 (internal quotation marks omitted). To determine whether the defendant's obligation is one to which the law will give recognition and effect, courts consider legal precedent, statutes, and other principles of law. See Herrera v. Quality Pontiac, 134 N.M. at 48, 73 P.3d at 186.
"As a general rule, an individual has no duty to protect another from harm." Grover v. Stechel, 132 N.M. 140, 143, 45 P.3d 80, 84 (Ct.App.2002). "[C]ertain relationships, however, that give rise to such a duty [include]: (1) those involving common carriers, innkeepers, possessors of land; and (2) those who voluntarily or by legal mandate take the custody of another so as to deprive the other of his normal opportunities for protection." Grover v. Stechel, 132 N.M. at 143, 45 P.3d at 84. "[W]hen a person has a duty to protect and the third party's act is foreseeable, `such an act whether innocent, negligent, intentionally tortious, or criminal does not prevent the [person who has a
"[T]he responsibility for determining whether the defendant has breached a duty owed to the plaintiff entails a determination of what a reasonably prudent person would foresee, what an unreasonable risk of injury would be, and what would constitute an exercise of ordinary care in light of all the surrounding circumstances." Herrera v. Quality Pontiac, 134 N.M. at 56, 73 P.3d at 194. "The finder of fact must determine whether Defendant breached the duty of ordinary care by considering what a reasonably prudent individual would foresee, what an unreasonable risk of injury would be, and what would constitute an exercise of ordinary care in light of all surrounding circumstances of the present case...." Herrera v. Quality Pontiac, 134 N.M. at 57, 73 P.3d at 195.
"A proximate cause of an injury is that which in a natural and continuous sequence [unbroken by an independent intervening cause] produces the injury, and without which the injury would not have occurred." Herrera v. Quality Pontiac, 134 N.M. at 57, 73 P.3d at 195. "It need not be the only cause, nor the last nor nearest cause." Herrera v. Quality Pontiac, 134 N.M. at 57, 73 P.3d at 195. "It is sufficient if it occurs with some other cause acting at the same time, which in combination with it, causes the injury." Herrera v. Quality Pontiac, 134 N.M. at 57, 73 P.3d at 195.
"Franchising is a system for the selective distribution of goods and/or services under a brand name through outlets owned by independent businessmen, called `franchisees.'" Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874, 877 (1975) (citing R. Rosenberg, Profits From Franchising 41 (1969)). The franchisor provides the "knowhow and brand identification," and the franchisee "enjoys the right to profit and runs the risk of loss." Murphy v. Holiday Inns, Inc., 219 S.E.2d at 877. "The franchisor controls the distribution of his goods and/or services through a contract which regulates the activities of the franchisee, in order to achieve standardization." Murphy v. Holiday Inns, Inc., 219 S.E.2d at 877. The existence of a franchise agreement does not, however, insulate the contracting parties from an agency relationship or vicarious liability. See Murphy v. Holiday Inns, Inc., 219 S.E.2d at 877. Franchisors are in a unique position regarding potential vicarious liability, because the Lanham Act "places an affirmative duty upon a licensor of a registered trademark to take reasonable measures to detect and prevent misleading uses of his mark by his licensees or suffer cancellation of his federal registration." Rainey v. Langen, 998 A.2d 342, 348 (Me.2010) (quoting Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358, 366 (2d Cir.1959)). "The criteria regarding the control necessary to satisfy the Lanham Act is whether such control guarantees that third parties dealing with the franchisee will receive goods or services of the quality which they have learned to associate with the trademark." Greil v. Travelodge Intern., Inc., 186 Ill.App.3d 1061, 133 Ill.Dec. 850, 541 N.E.2d 1288, 1292 (1989). "[F]ranchisors are often caught between the Scylla of failing to exercise sufficient control to protect their marks, and the Charybdis of exercising so much control they are vicariously liable for the torts of the franchisees or other licensees." People v. JTH Tax, Inc., 212 Cal.App.4th 1219,
There are few cases and limited guidance in New Mexico addressing franchisor vicarious liability. A franchisor may be vicariously liable for the franchisee's torts, depending on the degree of control the franchisor exercises or has a right to exercise over the franchisee. See Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 5. Whether the franchisee is the franchisor's agent centers primarily on whether the franchisor has right to control the day-to-day operations of the franchisee. See Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 5. The analysis distinguishes controlling the "result to be procured" from controlling "the means to be used in reaching that result," as the latter indicates control over the day-to-day operations.
Shaver v. Bell, 1964-NMSC-255, 74 N.M. 700, 704, 397 P.2d 723, 727 (using the terms "employer," "independent contractor," and "employee" in the context of franchisor vicarious liability). "The degree of control giving rise to liability depends on the particular facts of each case." Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 5. Franchise agreements may provide a franchisor with control over a franchisee's day-to-day operations, see Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 10, but exercising control to protect the franchisor's trademark is insufficient to lead to vicarious liability, see Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 13.
In Chevron Oil Co. v. Sutton, 1973-NMSC-111, 85 N.M. 679, 515 P.2d 1283, the plaintiff's wife died in a car accident when a wheel that the franchisee's employee repaired came off the vehicle. See Chevron Oil Co. v. Sutton, 85 N.M. at 681, 515 P.2d at 1285. Although Chevron Oil Company, the franchisor, and Lee Sharp, the lessee/franchisee, had an agreement that stated that Sharp was an independent business and that nothing in the agreement should be construed as giving Chevron Oil any right to control Sharp's business or operations, the Supreme Court of New Mexico said that "the manner in which the parties designate a relationship is not controlling, and if an act done by one person on behalf of another is in its essential nature one of agency, the one is the agent of the other, notwithstanding he is not so called." 85 N.M. at 681, 515 P.2d at 1285. "Furthermore, it has long been the rule that a third person who deals with an agent is not bound by any secret or private instructions given to an agent by the principal." 85 N.M. at 681, 515 P.2d at 1285. The Supreme Court of New Mexico concluded that there was a substantial dispute as to a material fact — "whether or not Chevron exercised such control over Sharp as to bring the doctrine of respondeat superior into play" — precluding summary judgment. 85 N.M. at 682, 515 P.2d at 1286. The Supreme Court of New Mexico noted that so-called "independent stations" were required to:
85 N.M. at 682, 515 P.2d at 1286. The Supreme Court of New Mexico did not rely specifically on one factor, but considered all of the factors together and determined that there was "a sufficient factual question as to whether or not there was an actual master-servant relationship." 85 N.M. at 682, 515 P.2d at 1286. After finding that a factual question existed on actual agency, the Supreme Court of New Mexico stated that, even if there was not a material issue for actual agency, there was a material issue regarding whether Chevron Oil "had clothed the lessee with apparent authority." 85 N.M. at 682, 515 P.2d at 1286. Apparent agency exists when the principal "by his acts or conduct has clothed the agent with the appearance of authority," and a third party is "justified in believing that the agent is acting within his authority." Chevron Oil Co. v. Sutton, 85 N.M. at 682, 515 P.2d at 1286 (quoting 3 Am.Jur.2d Agency § 74). Chevron Oil knew that Sharp was opening an automobile repair shop, allowed Sharp to open and run the repair shop, and advertised that the repairmen were skillful, and the plaintiff relied on such statements and additional signs indicating that Chevron Oil controlled the repair shop. See Chevron Oil Co. v. Sutton, 85 N.M. at 683, 515 P.2d at 1287. The Supreme Court of New Mexico concluded that a material question of fact existed as to "whether or not Sharp had been clothed with apparent authority by Chevron to act as Chevron's agent." Chevron Oil Co. v. Sutton, 85 N.M. at 683, 515 P.2d at 1287.
The next, and most recent, Supreme Court of New Mexico case on the issue of vicarious liability for franchisors is from 1996: Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062. In Ciup v. Chevron U.S.A., Inc., a gas station attendant and the personal representative for a visitor to the gas station sued Nicolae Spilca, the operator and lessee of the gas station, Rio Grande Oil, the owner-lessor of the gas station and distributor of Chevron, and Chevron U.S.A., who manufactured the gasoline sold at the Chevron-branded station, for personal injury and wrongful death arising from an attempted robbery of the station. See 1996-NMSC-062 ¶ 2. The Supreme Court of New Mexico analyzed whether Chevron U.S.A. "retained sufficient control to give rise to a duty to ensure that the Spilca gas station was operated in a safe manner." 1996-NMSC-062 ¶ 6. Chevron U.S.A. argued that its involvement with the Spilca station was limited to protecting its trademark, which could not give rise to a duty to protect the premises. See 1996-NMSC-062 ¶ 6. To carry its burden on that point, Chevron U.S.A. submitted contracts between it and Rio Grande Oil to demonstrate that it did not control the day-to-day activities of the station, including an agreement that stated:
1996-NMSC-062 ¶ 12. The Supreme Court of New Mexico rejected the plaintiffs' arguments that these steps demonstrated sufficient control over the gas station's operation, because "protecting a trademark does not constitute sufficient control over the gas station's operation under existing case law." 1996-NMSC-062 ¶ 13. The Supreme Court of New Mexico affirmed the trial court's decision to grant Chevron U.S.A.'s motion for summary judgment. See 1996-NMSC-062 ¶ 20.
"Generally, whether an employee is acting in the course and scope of employment is a question of fact." Rivera v. N.M. Highway and Transp. Dept., 115 N.M. 562, 564, 855 P.2d 136, 138 (Ct.App. 1993) (citing Narney v. Daniels, 115 N.M. 41, 48, 846 P.2d 347, 354 (Ct.App. 1992)). "However, when no reasonable trier of fact could conclude that an employee is acting in the course and scope of employment," the conduct was not in the scope of employment as a matter of law. Rivera v. N.M. Highway and Transp. Dept., 115 N.M. at 564, 855 P.2d at 138 (citing Narney v. Daniels, 115 N.M. at 49-50, 846 P.2d at 355-56). "Under basic respondeat superior principles, an employer is liable for an employee's torts committed within the scope of his or her employment." Lymon v. Aramark Corp., 728 F.Supp.2d 1222, 1271 (D.N.M.2010) (Browning, J.)(quoting Ocana v. Am. Furniture Co., 2004-NMSC-018, ¶ 29, 135 N.M. 539, 91 P.3d 58). However, "an employer is not generally liable for an employee's intentional torts because an employee who intentionally injures another individual is generally considered to be acting outside the scope of his or her employment." Ocana v. Am. Furniture Co., 2004-NMSC-018, ¶ 29, 135 N.M. 539, 91 P.3d 58 (citing Martin-Martinez v. 6001, Inc., 1998 NMCA-179, ¶ 13, 126 N.M. 319, 968 P.2d 1182 ("In most instances, the intentional conduct of an employee injuring another employee is not the intentional conduct of the employer.")). New Mexico uses a four-part test to determine whether an employee's acts were performed within the scope of employment:
Lessard v. Coronado Paint & Decorating Ctr., Inc., 2007-NMCA-122, ¶ 12, 142 N.M. 583, 168 P.3d 155 (citing Narney v. Daniels, 115 N.M. at 49, 846 P.2d at 355; Restatement (Third) of Agency § 7.07(2) (2006)). The New Mexico Civil Uniform
An act of an employee is within the scope of employment if:
Civ. U.J.I. 13-407 N.M.R.A. See Childers v. S. Pac. Co., 20 N.M. 366, 372-73, 149 P. 307, 308 (1915) (same).
The Supreme Court of New Mexico has also recognized that New Mexico courts' adoption of the "aided-in-agency theory of vicarious liability.... would [not] be a radical departure." Ocana v. Am. Furniture Co., 2004-NMSC-018, ¶¶ 30-31, 135 N.M. 539, 91 P.3d 58. The Supreme Court of New Mexico stated that, under the aided-in-agency theory, "an employer may be held liable for the intentional torts of an employee acting outside the scope of his or her employment if the employee `was aided in accomplishing the tort by the existence of the agency relation [between the employer and employee].'" Ocana v. Am. Furniture Co., 2004-NMSC-018, ¶ 30, 135 N.M. 539, 91 P.3d 58 (quoting Restatement (Second) of Agency § 219(2)(d)).
The Court will deny the MSJ. The Court concludes that New Mexico choice-of-law rules require application of New Mexico substantive law to determine whether there is vicarious liability, and although there is less than robust guidance from New Mexico law, the Court concludes that New Mexico courts would find a factual issue regarding Denny's, Inc.'s relationship with Barreras Enterprises sufficient to preclude summary judgment on vicarious liability and submit to the jury the question whether Denny's, Inc. controlled the day-to-day operations of the franchisee restaurant. Although modern cases have recognized an instrumentality rule, the most recent Supreme Court of New Mexico case relied on the traditional rule, and the Court is not free to deviate from that rule; moreover, the Court predicts that, if confronted by the issue, the Supreme Court of New Mexico would adopt the instrumentality rule only as an alternative test to the means test set forth in Ciup v. Chevron U.S.A., Inc. and only then to the extent it helps the individual plaintiff, not the franchisor.
The Court has diversity jurisdiction over this wrongful death and negligence action under 28 U.S.C. § 1332(a)(1). The Anderson Estate, the Plaintiff in this case, takes on the decedent's citizenship, see 28 U.S.C. § 1332(c)(2); because Stephanie Anderson was domiciled in New Mexico at the time of her death, the Anderson Estate is deemed to be a New Mexico citizen. The Anderson Estate is suing Denny's, Inc., a Florida corporation with its principal place of business in South Carolina; Barreras Enterprises, Inc., a Texas corporation; Frank H. Barreras, June R. Barreras, and Judith A. Barreras, Texas citizens; and Jose Humberto Melgar-Cabrera, Marvin Antonio Aguilar-Lopez, and Pablo de Leon Ortiz, El Salvador citizens who were in the United States illegally. There is complete diversity between the plaintiffs and the defendants, and the amount in controversy exceeds $75,000.
Because the Court has diversity jurisdiction over this case, it must apply New
The first step of characterizing the issue or claim is, in many cases, "simple and uncontroversial: a self-evident intuition." J. McLaughlin, supra, at 988. The Restatement (First) of the Conflict of Laws and Professor Joseph H. Beale of Harvard Law School, author of an exhaustive treatise on the conflict of laws and "the grand guru of lex loci," J. McLaughlin, supra at 966, did not view this characterization as a difficult question: neither mention how to characterize the cause of action, but "apparently followed the `just know' rule (e.g., `you just know that's a tort case,' `that there's a property case,' etc.)," J. McLaughlin, supra at 989. Not every case is so clear, however, and this case raises a difficult question of characterization. "Any case involving vicarious liability for tortious conduct is a problem in classification; does liability grow out [of] the contractual relationship between the defendant and tortfeasor, or does liability grow out of the tortious conduct?" J. McLaughlin, supra at 989. There is no doubt that the overall claim before the Court sounds in tort law: the Anderson Estate alleges that Denny's, Inc. and Barreras Enterprises negligently failed to provide proper security at the Denny's restaurant, leading to Anderson's wrongful death. See Amended Complaint ¶ 27, at 7. Between the Anderson Estate and Barreras Enterprises, that ends the analysis: New Mexico choice-of-law rules would apply New Mexico substantive law as the lex loci delicti, the law of the place of the wrong. See Torres v. State, 1995-NMSC-025, 119 N.M. 609, 613, 894 P.2d 386, 390.
Between the Anderson Estate and Denny's, Inc., however, the characterization is more difficult. Denny's, Inc. argues that it does not have control over security issues at the Denny's restaurant, and does not control the day-to-day operations beyond what is necessary to protect its brand and marks. See MSJ at 2. Denny's, Inc. argues that Barreras Enterprises is not its agent. The Franchise Agreement between Denny's, Inc. and Barreras Enterprises informs, at least in part, the relationship between the two, including whether Denny's, Inc. has control over the franchisee's day-to-day operations. If characterized as a contract issue, New Mexico will generally apply the lex loci contractus — the law of the place of contracting, see Ferrell v. Allstate Ins. Co., 144 N.M. at 421, 188 P.3d at 1172; or will apply the law the parties chose through a contractual choice-of-law provision, see Fiser v. Dell Computer Corp., 2008-NMSC-046 ¶ 7 (citing NMSA 1978, § 55-1-301(A)). Although it is not clear from the record where Denny's, Inc. and Barreras Enterprises contracted, the Franchise Agreement indicates that it
Although the Supreme Court of New Mexico addressed a similar situation in Ciup v. Chevron U.S.A., Inc., that case does not answer the choice-of-law question the Court faces today. In that case, a plaintiff was injured at a gas station and sued Spilca, the operator and lessee of the gas station; Rio Grande Oil, the owner-lessor of the station; and Chevron U.S.A., who manufactured the gasoline sold at the Chevron-branded station. See 1996-NMSC-062 ¶ 2. Chevron U.S.A. moved for summary judgment, asserting that although it allowed Spilca to use its logo and products, it did not exercise sufficient control to give rise to an agency relationship or vicarious liability. See 1996-NMSC-062 ¶¶ 3, 4, 6. The Supreme Court of New Mexico did not discuss its choice-of-law analysis, but applied New Mexico law in determining whether Spilca was Chevron U.S.A.'s agent. See 1996-NMSC-062 ¶ 5. In that case, however, Chevron U.S.A. "did not directly enter into any contract with Spilca." 1996-NMSC-062 ¶ 10. Although there were contracts between Chevron U.S.A. and Rio Grande Oil, and contracts between Rio Grande Oil and Spilca, there was not a contract between Chevron U.S.A. and Spilca governing their relationship. See 1996-NMSC-062 ¶¶ 9-10. Because there was not a franchise agreement or other contract governing their relationship, the question remains as to what New Mexico courts would do if faced with the question whether a franchisee who entered a franchise agreement with a franchisor is the franchisor's agent for purposes of vicarious liability.
For choice-of-law analysis, "New Mexico has traditionally followed the Restatement (First)." Ferrell v. Allstate Ins. Co., 2008-NMSC-042 ¶ 50, 144 N.M. 405, 188 P.3d 1156. New Mexico courts have "been willing to consider the Restatement (Second) approach" in certain circumstances, Ferrell v. Allstate Ins. Co., 2008-NMSC-042 ¶ 56 n. 3, such as when determining what law to apply in multi-state class actions, Ferrell v. Allstate Ins. Co., 2008-NMSC-042 ¶ 56; forum non conveniens, Buckner v. Buckner, 1981-NMSC-007, 95 N.M. 337, 339, 622 P.2d 242, 244; and jurisdiction, Worland v. Worland, 89 N.M. 291, 293, 295, 551 P.2d 981, 983, 985 (1976). Although the Supreme Court of New Mexico "has not embraced the Restatement Second with respect to choice-of-law issues in either tort or contract," Estate of Gilmore, 1997-NMCA-103, 124 N.M. 119, 125, 946 P.2d 1130, 1136, New Mexico courts not rigidly applied the Restatement (First) of Conflict of Laws in certain areas; see City of Raton v. Ark. River Power Auth., 760 F.Supp.2d 1132, 1150 (D.N.M.2009) (Browning, J.). For example, in Estate of Gilmore, which was a tort case, the Honorable Harris Hartz, then New Mexico Court of Appeals Judge and now Circuit Judge for the United States Court of Appeals for the Tenth Circuit, explained:
In Estate of Gilmore, 124 N.M. at 125, 946 P.2d at 1136. Thus, New Mexico courts recognize that, under some circumstances, rigid adherence to the Restatement (First) of Conflict of Laws is not appropriate, and that other considerations, such as policy, might govern a choice-of-law analysis. The Court anticipates that New Mexico courts thus would look to the Restatement (First) of Conflict of Laws absent compelling policy reasons to deviate from that approach.
In its contracts provisions, the Restatement (First) states: "Whether an agreement between two or more persons constitutes an authorization by one person that another may perform an act on his behalf is determined by the law of the place where the agreement is made." Restatement (First) of Conflict of Laws § 343. This rule seems to answer the question before the Court — whether the franchise agreement authorized Barreras Enterprises to act on Denny's, Inc.'s behalf as Denny's, Inc.'s agent — and contemplates following the contract choice-of-law analysis, which would likely lead to application of California Law. The Restatement (First) also provides the following rule for vicarious liability: "When a person authorizes another to act for him in any state and the other does so act, whether he is liable for the tort of the other is determined by the law of the place of wrong." Restatement (First) of Conflict of Laws § 387. This rule does not seem to address the underlying question whether the franchise agreement authorized Barreras Enterprises to act on Denny's, Inc.'s behalf or the relationship between the parties, such as whether one is an agent or an independent contractor, but the third illustration in the comments contemplates this question:
Restatement (First) of Conflict of Laws § 387 cmt. c. 3. Following this illustration, the law of the place of the wrong would apply, requiring application of New Mexico law. Although sections 343 and 387 both seem to address the question before the Court, section 387 is more specific to the context of this case, which arises out of vicarious liability. Section 343 would be helpful in analyzing whether Barreras Enterprises could bind Denny's, Inc. on a contract or whether, between themselves, they are in an agency relationship, but how they define their relationship does not necessarily preclude vicarious liability if Denny's, Inc. has sufficient control over Barreras Enterprises. In other words, California law governs the issue "[w]hether [the] agreement between [Denny's, Inc.] and [Barreras Enterprises] constitutes an authorization by [Denny's, Inc.] that [Barreras Enterprises] may perform an act on [Denny's, Inc.'s] behalf," Restatement (First) of Conflict of Laws § 343; New Mexico law decides the separate question: "When [Denny's, Inc.] authorize[d] [Barreras Enterprises] to act for [Denny's, Inc.] in [New Mexico] and [Barreras Enterprises] does so act, whether [Denny's, Inc.] is liable for the tort of [Barreras Enterprises] is determined by [New Mexico law]," Restatement (First) of Conflict of Laws § 387.
Stated differently, the relationship between the franchisor and franchisee is only important to the extent that the relationship affects whether the franchisor
Looking to other jurisdictions, the Court finds only one instance where a court analyzes the choice-of-law problem in determining whether a franchisee is a franchisor's agent for purposes of vicarious liability. In Greil v. Travelodge Intern., Inc., 186 Ill.App.3d 1061, 133 Ill.Dec. 850, 541 N.E.2d 1288 (1989), a paying guest at a Travelodge motel sued the franchisor Travelodge International, Inc. and the franchisee LaSalle Ohio Enterprises, Inc. for negligence in failing to provide proper security. See 133 Ill.Dec. 850, 541 N.E.2d at 1289. The trial court granted the franchisor's motion for summary judgment, because "it could find nothing in the pleadings or the franchise/license agreement that indicated International may have been responsible for the safety provisions alleged to have been breached." 133 Ill.Dec. 850, 541 N.E.2d at 1292. The Illinois Appellate Court reversed, in part because it determined that the trial court applied the wrong law:
133 Ill.Dec. 850, 541 N.E.2d at 1292. This analysis assumes that whether the franchisee is the franchisor's agent answers the vicarious liability question, thus causing the Illinois Appellate Court to look to the parties' choice-of-law provision in the franchise or license agreement. One other case, Drexel v. Union Prescription Centers, Inc., 582 F.2d 781 (3d Cir.1978), mentions that the agreement between the franchisor and franchisee included a choice-of-law provision, stating that "it could be argued" that the district court should have applied that provision and looked to Wisconsin law, the law chosen in the agreement, rather than Pennsylvania law, the law of the forum. 582 F.2d at 785. The Court of Appeals for the Third Circuit avoided analyzing which was correct, however, because it determined that "the laws of both states are in accord in their treatment of the matters before us." 582 F.2d at 785. "Having therefore concluded that no conflict of law exists, we find no reason to diverge from the position of both parties and the district court that Pennsylvania law governs in this case." 582 F.2d at 785.
Greil v. Travelodge Intern., Inc. and Drexel v. Union Prescription Centers, Inc. are the only opinions which the Court has found that mentions a choice-of-law provision in the franchise agreement, even though similar provisions likely appear in most franchise agreements. The Court is hard pressed to believe that companies like McDonalds Corporation, Burger King Corporation, and Dunkin' Donuts, Inc. do not include choice-of-law provisions in their franchise agreements; yet courts that have reviewed those agreements do not discuss such provisions in determining which state's law to apply when evaluating the franchisor-franchisee relationship for purposes of vicarious liability. See Wendy Hong Wu v. Dunkin' Donuts, Inc., 105 F.Supp.2d 83 (E.D.N.Y.2000); Hoffnagle v. McDonald's Corporation, 522 N.W.2d 808 (Iowa 1994); Folsom v. Burger King, 135 Wn.2d 658, 958 P.2d 301 (1998). It is possible that the litigants failed to raise the issue and the courts did not identify it on their own, but it is also likely that the courts did not separate the question of agency from the duty analysis in determining vicarious liability, thus applying whatever substantive law controlled the tort issues.
The Court concludes that New Mexico choice of law would dictate that the court should analyze the relationship between Denny's, Inc. and Barreras Enterprises under California law to determine what they intended between themselves. The larger issue in this case is whether Denny's, Inc. owed Anderson a duty of care, a tort issue, which means that this is a torts issue to which New Mexico would apply the law of the place of the wrong — in this case, requiring application of New Mexico substantive law to determine the vicarious-liability issue.
Although there are few Supreme Court of New Mexico cases
A number of facts potentially demonstrate Denny's, Inc.'s control over the day-to-day operations of the franchisee restaurant: (i) Barreras Enterprises must pay Denny's, Inc. franchise fees and other consideration, measured by a percentage of weekly gross sales; (ii) Barreras Enterprises must send a cumulative cash register tape to show weekly sales; (iii) Barreras Enterprises must strictly adhere to the standards, policies, procedures, and requirements for the operation, maintenance or improvement of Denny's restaurants, using the Denny's System and Denny's Marks; (iv) Denny's, Inc. must approve restaurant site development, construction, and remodeling; (v) Denny's, Inc. can enter the premises to make modifications necessary to protect the Denny's marks and related proprietary rights; (vi) Barreras Enterprises must comply with Denny's operations manual, food service standards, restaurant maintenance and repair, hours of operation, personnel standards,
If the amount of control a franchisor may have over a franchisee is seen as a spectrum, where one end shows a lack of control over the day-to-day operations, and the other end shows the right to control the day-to-day operations, determining where along the spectrum New Mexico would place this case, especially considering the age of the relevant Supreme Court of New Mexico cases, presents challenges. That the Anderson Estate can point to a number of facts it alleges demonstrates Denny's, Inc.'s control over the day-to-day operations does not necessarily mean that Denny's, Inc. has such control — all of the facts may delineate Denny's, Inc.'s protection of its trademark rather than its right to control the day-to-day operations. Instead of resting solely on the spectrum demonstrated by Ciup v. Chevron U.S.A., Inc. and Chevron Oil Co. v. Sutton, the Court will do as the parties requested, which is to look at the cases the Supreme Court of New Mexico cited favorably in Ciup v. Chevron U.S.A., Inc., specifically those out-of-state cases it cited for the proposition that "protecting a trademark does not constitute sufficient control" over the franchisee's operation. 1996-NMSC-062 ¶ 13 (citing Wood v. Shell Oil Co., 495 So.2d 1034 (Ala.1986); Cislaw v. Southland Corp., 6 Cal.Rptr.2d 386; Greil v. Travelodge Int'l, Inc., 133 Ill.Dec. 850, 541 N.E.2d 1288; Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874 (Va. 1975)).
In Wood v. Shell Oil Co., the Supreme Court of Alabama affirmed the trial court's decision to grant summary judgment to the franchisor, because the plaintiff, who slipped and fell on ice or other substances while purchasing gasoline at the franchisee station, could not provide "a scintilla of evidence to make the existence of an agency relationship between Shell Oil [the franchisor] and Parker Shell [the franchisee] a jury question." 495 So.2d at 1035. Although the plaintiff could list over fourteen reasons from the franchise agreement and depositions in evidence to support his argument that Parker Shell was Shell Oil's agent, the Supreme Court of Alabama rejected them, stating that,
495 So.2d at 1037 (emphasis in original). In so holding, the Supreme Court of Alabama rejected many of the facts similar to what the Anderson Estate argues establish control, including: (i) requirements to keep the station open twenty-four hours each day; (ii) contract provisions that Shell Oil had to approve all alterations on the premises; (iii) requirements that the station had to conform to Shell Oil's standards and specifications regarding architectural design, style, color scheme, and layout; (iv) requirements of high standards for service, specifically that the mechanical work performed had to be done in a workmanlike manner using only first-class materials and parts; (v) requirements that Shell Oil reserved the right to offer supplemental training to the dealer's employees; (vi) requirements that the employees must wear clean uniforms of a type and style Shell Oil approved; (vii) requirements that Shell Oil had to approve all the signs and posters on the premises; (viii) requirements that Shell Oil adhere to an Appearance Guide for the station; (ix) requirements that the dealer notify Shell Oil of all occurrences of injury, death, or damage to persons within 24 hours; (x) contract provisions that Shell Oil retained the right to inspect the dealer's premises, and the dealer's books and records, to ensure compliance with the agreement; and (xi) contract provisions that Shell Oil could terminate the agreement, at its option, for the dealer's failure to comply with the agreement. See 495 So.2d at 1036-37. Also similar to this case, Shell Oil pointed to the following evidence from the lease agreement and dealer agreement to establish that it was not in an agency relationship with Parker Shell: (i) provisions that Shell Oil did not reserve any right to exercise control over the business or operations of Parker Shell and that the dealer was an independent businessman; (ii) Parker Shell employees received compensation and benefits exclusively from Parker Shell; and (iii) Parker Shell retained exclusive control to hire and fire employees. This case demonstrates some of the activities a franchisor may do to protect its trademark without opening itself to vicarious liability.
In Cislaw v. Southland Corp., a California Court of Appeal affirmed the trial court's determination that the franchisee 7-Eleven store was not The Southland Corporation's agent for purposes of finding vicarious liability when a customer of the 7-Eleven store died after smoking a clove cigarette he purchased from the store. 6 Cal.Rptr.2d at 387. The California court examined the history of agency law in the state and concluded that "[t]he cases, taken as a whole, impliedly recognize that the franchisor's interest in the reputation of its entire system allows it to exercise certain controls over the enterprise without running the risk of transforming its independent contractor franchisee into an agent." 6 Cal.Rptr.2d at 391. The plaintiff argued that many provisions in the franchise agreement gave Southland Corp. control over the daily operations, such as provisions that required: (i) attendance at operations training programs; (ii) keeping the store and its surroundings clean and maintaining the equipment in good repair; (iii) carrying an inventory of the type, quality, quantity and variety consistent with the 7-Eleven image; (iv) operating the store from 7:00 a.m. to 11:00 p.m. 364 days a year; (v) making daily deposits of receipts into a designated account; (vi) providing Southland Corp. with copies of purchase and sales records; (vii) making the books available
The Supreme Court of New Mexico described the holding from Murphy v. Holiday Inns, Inc.: "[F]ranchisor's protection of the trademark does not create a principal-agent or master-servant relationship; use of [the] trademark was to benefit both parties, and franchisor lacked control over the motel's daily operations." Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 13. In Murphy v. Holiday Inns, Inc., the Supreme Court of Virginia affirmed the trial court's decision to grant Holiday Inns, Inc.'s motion for summary judgment where a guest at a Holiday Inn brand motel sued Holiday Inns for personal injuries sustained when she fell on an area of a walk where air conditioner water accumulated. 219 S.E.2d at 875. The Supreme Court of Virginia noted that, even if the franchisor and franchisee disclaimed an agency relationship in a franchise agreement, a court must consider the agreement as a whole to determine the relationship of the parties. See 219 S.E.2d at 876. The franchise agreement in that case required: (i) that the licensee construct its motel according to plans, specifications, feasibility studies, and locations under the licensor's approval; (ii) that licensee pay a fee for the right to use the Holiday Inn marks; (iii) that Holiday Inns., Inc. would provide training for the licensee's manager, housekeeper, and restaurant manager at the licensee's expense; and (iv) that the licensee conduct its business under the Holiday Inn system. See 219 S.E.2d at 876-77. In affirming the grant of summary judgment, the Supreme Court of Virginia said that, "from the face of the document, the purpose of those provisions was to achieve system-wide standardization of business identity, uniformity of commercial service, and optimum public good will, all for the benefit of both contracting parties." 219 S.E.2d at 878.
The Supreme Court of New Mexico cited Greil v. Travelodge Int'l, Inc. for the proposition that an actual agency exists only if the franchisor "imposed controls beyond those necessary to protect its trademark." Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 13. Greil v. Travelodge Int'l, Inc. demonstrates how a franchisor can step beyond the control necessary to protect its trademark. The Appellate Court of Illinois listed several terms within franchise agreements that indicated control: (i) "that the facility be built and maintained according to specifications and requiring certain operational procedures"; (ii) "the requirement that the franchisee permit regular inspections by franchisor's inspectors to ensure compliance with procedures"; (iii) "terms providing that substantial violations of any of the covenants of the franchise agreement gives the franchisor the right to cancel the license"; (iv) minimum price fixing; (v) franchisor approval of all advertising; (vi) profit sharing; (vii) and book auditing. 133 Ill.Dec. 850, 541 N.E.2d at 1292-93 (citations omitted). The plaintiff in Greil v. Travelodge Intern., Inc. was staying at a Travelodge brand hotel when a robber entered his room; in an attempt to escape,
133 Ill.Dec. 850, 541 N.E.2d at 1293. Although the Illinois court discussed California substantive law as requiring that the franchisor be involved in the day-to-day operations, its analysis focused more on the specific involvement the franchisor had in providing security, through its requirement that the franchisee maintain "clean, safe and orderly" accommodations and the franchisor's right to inspect the premises, including the safety of the rooms. 133 Ill.Dec. 850, 541 N.E.2d at 1293.
These cases, upon which the Supreme Court of New Mexico relied and cited favorably in Ciup v. Chevron U.S.A., Inc., demonstrate that there is not a consensus among even those few courts on how to characterize similar facts, as one court may interpret a fact as giving the franchisor control over daily operations, while another court may interpret that same fact as simply protecting a trademark. This inconsistency is especially apparent in cases involving restaurant franchises. For example, in Butler v. McDonald's Corp., 110 F.Supp.2d 62 (D.R.I.2000), the Honorable Judge Lagueux, United States District Judge for District of Rhode Island, observed that "courts have reached different conclusions" as to whether the following facts created an agency relationship between McDonald's Corporation and the franchisee restaurants:
110 F.Supp.2d at 67. Judge Lagueux noted that, in Hoffnagle v. McDonald's Corp., 522 N.W.2d 808 (Iowa 1994), the Supreme Court of Iowa characterized these facts as assuring the uniformity and standardization of the products and services that the franchisee restaurant offered, and granted summary judgment to the franchisor. See Butler v. McDonald's Corp., 110 F.Supp.2d at 67. On the other hand, the Court of Appeals of Oregon in Miller v. McDonald's Corp., 150 Or.App. 274, 945 P.2d 1107 (1997)(Warren, P.J., with Edmonds, J., and Armstrong, J.), reached the opposite conclusion. That court "noted that the franchise agreement `did not simply set standards that the franchisee had to meet. Rather, it required the franchisee to use the precise methods that the franchisor established....'" Butler v. McDonald's Corp., 110 F.Supp.2d at 67 (quoting Miller v. McDonald's Corp., 945 P.2d at 1111). The Court of Appeals of Oregon found that the franchisor could enforce its control through regular inspections and the ability to cancel the franchise agreement, leading that court to deny the franchisor's motion for summary judgment. See Butler v. McDonald's Corp., 110 F.Supp.2d at 67. Faced with two competing interpretations of the same facts, Judge Lagueux concluded that the reasoning in Miller v. McDonald's Corp. was more persuasive, and likewise denied summary judgment, because "a reasonable jury could find that an agency relationship exists and that defendant can be held vicariously liable." Butler v. McDonald's Corp., 110 F.Supp.2d at 67-68.
With the limited, and aged, New Mexico case law, along with the discrepancies between how courts view similar facts, it is difficult to know exactly how a New Mexico court would analyze the facts in this case. As a federal court sitting in diversity, the Court's role is, however, to determine what the Supreme Court of New Mexico would do in this situation. See Campos v. Las Cruces Nursing Center, 828 F.Supp.2d 1256, 1275-76 (D.N.M.2011)(Browning, J.). The Court recognizes that several out-of-state cases the Supreme Court of New Mexico cited favorably in Ciup v. Chevron U.S.A., Inc. hold that similar facts on which the Anderson Estate relies do not amount to control over the day-to-day operations, such as the requiring the franchisee to pay a percentage of weekly gross sales, see Cislaw v. Southland Corp., 6 Cal.Rptr.2d at 392; requiring Denny's, Inc.'s approval over site development, construction, and remodeling, see Wood v. Shell Oil Co., 495 So.2d at 1037; requiring franchisee managers to attend training, see Wood v. Shell Oil Co., 495 So.2d at 1037; Murphy v. Holiday Inns, Inc., 219 S.E.2d at 877-78; stating the general standards for franchisee employees and how they are to provide service, see Wood v. Shell Oil Co., 495 So.2d at 1037; allowing Denny's, Inc. to conduct inspections at the franchisee restaurants, see Wood v. Shell Oil Co., 495 So.2d at 1037; Denny's, Inc.'s ability to terminate the franchise agreement if it finds the franchisee failed to comply with certain requirements, see Wood v. Shell
It seems the best way to treat Chevron Oil Co. v. Sutton is to assume that Ciup v. Chevron U.S.A., Inc. is the only New Mexico case on franchisor liability, and basically ignore Chevron Oil Co. v. Sutton as a New Mexico case. On the other hand, even if Chevron Oil Co. v. Sutton were treated as another jurisdiction's case, it would have some value, because the Supreme Court of New Mexico relied heavily on cases from other jurisdictions in Ciup v. Chevron U.S.A., Inc. Accordingly, so long as there is other support for concluding that the Supreme Court of New Mexico, if making the decision that is before the Court today, would find Denny's, Inc.'s control over Barreras Enterprises a question of fact for the jury, the Court will include Chevron Oil Co. v. Sutton as part of the basis for making its determination, similar to the Court's ability to rely on out-of-jurisdiction cases if it determines that the Supreme Court of New Mexico would do the same. These franchise cases are on a spectrum, and Chevron Oil Co. v. Sutton is another case on the spectrum that would inform the Supreme Court of New Mexico's analysis and should inform this Court's analysis.
Looking more specifically to the guidance of Ciup v. Chevron U.S.A., Inc., the Court notes that Chevron U.S.A. did not have a franchise agreement with Spilca, the gas station operator, and that factual difference from the current case is important: the franchise agreement here gives Denny's, Inc. much more opportunity to be involved in Barreras Enterprises' restaurant operations. Denny's, Inc.'s control and involvement in Barreras Enterprises' restaurant is similar to the relationship between Rio Grande Oil, the owner-lessor of the station and distributor of Chevron gasoline, and Spilca, the gas station operator and lessee: the Supreme Court of New Mexico was not asked to analyze that relationship, because the plaintiffs in that case
Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062 ¶ 14. Similarly, Denny's, Inc. has the right to regularly inspect Barreras Enterprises' restaurant and require certain hours of operation.
The Court recognizes that many of the facts that the Anderson Estate has identified can be understood as simply protecting Denny's, Inc.'s trademark, and while it might agree with that characterization generally, the Court's role is not to decide what it determines to be the preferable interpretation, but to decide how the Supreme Court of New Mexico would likely decide the issue. The parties have not argued that ambiguities in the contract lead to disputed material facts, but they disagree whether the facts support a finding that Denny's, Inc. did not have the right to control the day-to-day operations of the Barreras Enterprises' restaurant. The Court concludes that the Supreme Court of New Mexico would not grant summary judgment, but would view as a disputed fact whether Denny's, Inc. has control over the day-to-day operations of Barreras Enterprises' restaurant.
The Supreme Court of New Mexico would no doubt, as it did in Ciup v. Chevron U.S.A., Inc., look at cases on a spectrum, and Chevron Oil Co. v. Sutton is a
While most cases discuss whether the franchisor has control or the right to control the day-to-day operations of the franchisee, it is difficult to understand what exactly is meant by that statement. The Supreme Court of New Mexico stated it slightly differently in 1964, albeit using the terms "employer," "employee," and "independent contractor" rather than terms of agency, but the context involved similar questions of the relationship between a franchisee and franchisor:
Shaver v. Bell, 74 N.M. at 705, 397 P.2d at 727. Other courts have stated it similarly, recognizing that
Rainey v. Langen, 998 A.2d 342, 349 (Me. 2010). This standard, too, suffers from being difficult to understand and apply, because it is not clear when a franchisor is controlling the method or when it is controlling the end result. This case requires this difficult analysis: Denny's, Inc., through its inspections, has instructed Barreras Enterprises to change how it operates its restaurant, noting things such as how employees wash their hands and whether the freezer was the appropriate temperature. In one sense, these facts protect the Denny's, Inc. brand, because Denny's, Inc. is interested in the quality of the final product, but in another sense, Denny's, Inc. is controlling the methods by which Barreras Enterprises creates the product. It may be difficult for a restaurant franchise to not get involved in the day-to-day operations and still ensure uniformity in the final product, but that is a critique of the current framework and application of the rules in New Mexico, something the Court is not free to change. In the end, the Court's view is that the traditional control test and instrumentality test are largely intellectually bankrupt. The courts probably should have bright-line rules: either all franchisors should be vicariously liable or none should. Either rule is defensible, and would produce certainty to the franchise industry and to the insurance industry that insures the participants. The test that most jurisdictions are employing, however, are so malleable and manipulable that they create confusion, litigation, and uncertainty, and, worse, any result from the tests looks result oriented, either pro-plaintiff or pro-industry, thus undermining the integrity of the court process.
The Court concludes that the Supreme Court of New Mexico, if confronted with the facts of this case, would not decide as a matter of law there is no control, as it did on the unusual facts under Ciup v. Chevron U.S.A., Inc., but would find itself back to where it was in Chevron Oil Co. v. Sutton, on facts more similar to those here. Even if Chevron Oil Co. v. Sutton is merely an apparent authority case, it gives the Court more guidance on what the Supreme Court of New Mexico would do on these facts than Ciup v. Chevron U.S.A., Inc. on its unusual facts. Accordingly, the Court concludes that the Supreme Court of New Mexico would deny summary judgment and submit the issue of control to the jury.
Denny's, Inc. argues that the current trend in franchisor vicarious liability suits is toward an instrumentality rule, which would expose the franchisor to vicarious liability only if "the franchisor had control or right of control over the daily operation of the specific aspect of the franchisee's business that is alleged to have caused the harm." Rainey v. Langen, 998 A.2d 342, 348 (Me.2010). This modified rule is a response to the difficult line franchisors must walk between their affirmative duties to protect their trademarks under the Lanham Act, and the risk of opening themselves up to vicarious liability for franchisees' acts. See Rainey v. Langen, 998 A.2d at 348. "As one commenter has noted, broadly extending vicarious liability could improperly penalize a franchisor for exercising the degree of control necessary to protect the integrity of its trademark." Rainey v. Langen, 998 A.2d at 348 (citing Michael R. Flynn, Note, The Law of Franchisor Liability: A Critique, 1993 Colum. Bus. L.Rev. 89, 99 (1993)). When faced with the opportunity to adopt the modified approach, the Supreme Judicial Court of Maine said that the traditional right-to-control approach
Rainey v. Langen, 998 A.2d at 349 (internal citations omitted)(emphasis in original). The Supreme Judicial Court of Maine declined the opportunity to adopt the modified approach, finding that the traditional test "allows a franchisor to regulate the uniformity and the standardization of products and services without risking the imposition of vicarious liability." 998 A.2d at 349. The traditional test allows the franchisor to control the day-to-day activities only to the extent necessary to protect its trademark; anything beyond that and the franchisor may be vicariously liable for the franchisee's acts, while the modified
It would not be proper for the Court to adopt this instrumentality test when the latest Supreme Court of New Mexico case states and applies a traditional vicarious liability test, and does not indicate that it would adopt the modified test. See Ciup v. Chevron U.S.A., Inc., 1996-NMSC-062. Federal courts sitting in diversity must determine what a state's highest court would do if confronted with the same issue, and must follow the most recent decisions of the state's highest court. See Campos v. Las Cruces Nursing Center, 828 F.Supp.2d at 1275-76 (Browning, J.). If the Supreme Court of New Mexico did anything with this suggested approach, it would likely apply it to require more from the franchisors and not less. For example, in Greil v. Travelodge Intern., Inc., the Appellate Court of Illinois, in interpreting California law, set out the traditional rule, but then when it came to the analysis, concluded that the franchisor was involved in the day-to-day operation of the motel based on the franchisor's involvement in the security at the franchisee. See 133 Ill.Dec. 850, 541 N.E.2d at 1293 (discussing that, during inspections, the franchisor called to the franchisee's attention "matters involving the safety of guests"). The Court thinks that, if New Mexico were to do adopt the instrumentality test, it would adopt it in a similar fashion, as an alternative test; if the plaintiff could not meet the traditional control test, it might still secure vicarious liability if the franchisor had retained control over security and the case involved security. Hence, even if the Supreme Court of New Mexico concluded that the franchisor was not involved in the day-to-day operations, vicarious liability might still be available if the franchisor was involved in the specific instrumentality. On the other hand, the Supreme Court of New Mexico would not require, for there to be vicarious liability, that the franchisor have the to control that instrumentality if it otherwise has control over the day-to-day operations.
This analysis may seem like an unfair outcome to Denny's, Inc., which attempted to protect itself from vicarious liability through provisions in the Franchise Agreement limiting its relationship to Barreras Enterprises: several times, they defined the relationship as one of an independent contractor status rather than an agency status. Denny's, Inc. as a franchisor may justifiably ask what it can do to protect itself from vicarious liability for its many franchisees: the Court notes that, although Denny's, Inc. can neither change the tort law, nor demand that the law treat its agreements a certain way — the way it wants — it is not without some protection. As it has done in this Franchise Agreement, Denny's, Inc. can require the franchisee restaurants to obtain insurance and to indemnify Denny's, Inc. for any loss, costs, expenses, damages, or liabilities resulting from the franchisee's operation.
This may not be entirely satisfactory to franchisors like Denny's, Inc., but the Court is not free to decide this issue on a blank slate — it must apply New Mexico's substantive law, and concludes that the Supreme Court of New Mexico would find a question of fact to submit to the jury regarding whether Denny's, Inc. controlled or had the right to control the day-to-day operations of Barreras Enterprises' restaurant. The Court will thus deny the MSJ.
The Anderson Estate moved the Court to continue the hearing on the MSJ,
D.N.M.L.R.-Civ. 56.1(b). The local rules regarding summary judgment thus require the responding party to "specifically controvert[]" the fact or else the fact is deemed admitted. N.M.L.R.-Civ. 56.1(b).
Denny's, Inc. notes that the Anderson Estate, in requesting further discovery, did not attach a rule 56(d) affidavit pursuant to the Federal Rules of Civil Procedure. See Reply of Defendant Denny's, Inc., in Support of Motion for Summary Judgment ¶ 3, at 2-3, filed January 28, 2013 (Doc. 59)("Reply"). Further, Denny's, Inc. argues that "[i]t is immaterial to a determination of this Motion whether or not the `franchisee assignment fee' was charged, whether Denny's properly investigated Barreras Enterprises, or whether the assigned entity was a viable and legally formed corporation." Reply ¶ 3, at 3.
Even after the Anderson Estate had an opportunity to conduct discovery, it did not submit evidence to controvert this fact; it is thus undisputed.
483 F.3d at 665-66 (citations omitted)(internal quotation marks omitted).
