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Hiller & Associates, LLC v. Garden Fresh Restaurants, LLC

United States District Court, D. Delaware

August 9, 2018

HILLER & ASSOCIATES, LLC, Plaintiff,
v.
GARDEN FRESH RESTAURANTS, LLC, Defendant.

          REPORT AND RECOMMENDATION

          Mary Pat Thynge Chief U.S. Magistrate Judge.

         I. INTRODUCTION

         On January 28, 2018, Hiller & Associates (“plaintiff” or “Hiller”) brought this action against Garden Fresh Restaurants, LLC (“defendant” or “Garden Fresh”), alleging breach of contract.[1] Defendant answered the Complaint on February 16, 2018, and alleges counterclaims for: breach of contract, fraudulent inducement, and negligent misrepresentation.[2]

         Presently before the court is plaintiff's motion to dismiss defendant's counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6), [3] and defendant's motion to preclude D.I. 29, a declaration attached to plaintiff's reply brief on the motion to dismiss.[4] The court has jurisdiction under 28 U.S.C. § 1332, as the parties are residents of different states, and the amount in controversy exceeds $75, 000.[5] For the reasons that follow, the court recommends that the district court grant plaintiff's motion to dismiss and deny as moot defendant's motion to preclude.

         A. Background

         1. Factual background

         The following facts are alleged by Hiller in the Complaint or are included in documents attached to the Complaint.[6]

         Garden Fresh is a Delaware limited liability company, with headquarters in California.[7] Garden Fresh “operates a chain of approximately 100 fast casual restaurants[.]”[8] In October 2016, Garden Fresh sought Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware.[9] In early 2017, as part of its exit from Chapter 11, Garden Fresh investigated the potential to negotiate a new beverage contract with Coca-Cola, its contracted soft-drink provider at the time.[10] At the time, the CEO of Garden Fresh was Mr. Gene Baldwin (“Baldwin”).[11]

         Hiller “is [] in the business of consulting restaurants in connection with the negotiation of beverage sales agreements with major soft drink suppliers[.]”[12] In March 2017, the parties signed a “Beverage Consulting Agreement” (the “Beverage Consulting Agreement”).[13] The contract states in part:

RECITALS
Whereas, [Hiller] is engaged in the business of providing soft drink consulting services to customers; and
Whereas, the services provided by [Hiller] include an assessment of [Garden Fresh]'s current beverage program, and
Whereas, [Garden Fresh] desires to utilize [Hiller]'s expertise and services with respect to establishing and/or modifying the soft drink program of [Garden Fresh]'s business.
Now, therefore, it is mutually agreed as follows:
SERVICES
[Garden Fresh] hereby grants [Hiller] the right and authority to provide expertise and services to support [Garden Fresh] in the establishment and/or modification of its soft drink program(s). [Garden Fresh] agrees to provide [Hiller] with all relevant information including, but not limited to, all information regarding [Garden Fresh]'s current soft drink products, any funding provided for said products, as well as support premiums, marketing programs, etc.
COMPENSATION
[Hiller] shall be paid for its services as follows (a) if a new Coke contract is chosen by [Garden Fresh], $65, 000 in onetime fixed compensation plus discretionary bonus potential of up to $10, 000 that is fully controlled by [Garden Fresh] OR (b) if [Garden Fresh] decides to accept a new agreement with Pepsi, variable compensation calculated at the rate of 20% of all improvement above the per gallon total deal value of [Garden Fresh]'s current Coke master beverage program ($6.24 per gallon) times the total contracted gallonage. The current total deal value and improvement in the new program total deal value shall include all contracted compensation including but not limited to marketing, meeting, equipment, service, early renewal, and any other contracted funding.[14]

         Hiller claims that, prior to signing the contract, it obtained “detailed information from Garden Fresh regarding its beverage program with Coca-Cola, including historical and projected gallons of Coca-Cola product used at Garden Fresh's restaurants, historical and projected number of locations operated by Garden Fresh, and the dollar value of the funding that Coca-Cola had agreed to pay Garden Fresh.”[15]

         Specifically prior to signing the Beverage Consulting Agreement, in February 2017, Hiller alleges that it “conducted an analysis of the current and likely future value of Garden Fresh's current deal with Coca-Cola, which included an analysis of the projected number of gallons of Coca-Cola product that Garden Fresh was likely to use from 2018 to 2021.”[16] According to Hiller, Garden Fresh “confirmed [its] calculations.”[17]

         After signing the Beverage Consulting Agreement, Hiller “engaged both Pepsi and Coca-Cola in a competitive bid process.”[18] In April 2017, “Garden Fresh's executive team made the decision to move forward with Pepsi as their new beverage supplier.”[19]

         In May 2017, based upon the “historical and estimated figures provided to it by Garden Fresh[, ]” Hiller negotiated a “deal in principle with Pepsi that would pay Garden Fresh at least 54% more ‘funding' per gallon than Coca-Cola had paid Garden Fresh [in its prior contract], which represented millions of dollars of incremental revenue to Garden Fresh over the life of the agreement.”[20]

         In June 2017, facing a potential acquisition by a restaurant group with an established relationship with Coca-Cola, Garden Fresh asked Hiller “to negotiate a deal-in-principle with Coca-Cola that would be signed if the acquisition occurred[.]”[21] The Coca-Cola “proposal . . . had a total deal value that would have been approximately 28% less, on a dollars-per-gallon basis, than the agreement in principle that Hiller [] had negotiated with Pepsi, even though the proposed Coca-Cola agreement would have lasted twice as long[.]”[22] The acquisition did not transpire, and Garden Fresh returned to its plans with Pepsi.[23]

         Garden Fresh signed a beverage sales agreement with Pepsi in August 2017.[24]The agreement was substantially the same as the agreement-in-principle that Hiller had negotiated in May.[25] With the exception of Dr. Pepper, [26] Garden Fresh agreed to purchase soft drinks exclusively from Pepsi “[i]n exchange for substantial per gallon ‘funding' and other pecuniary value paid by Pepsi[.]”[27] The term of the Pepsi deal is “at least five years or until Garden Fresh use[s] a specified number of gallons of ‘post-mix products,' i.e., fountain soft drink syrup, whichever [i]s longer.”[28]

         In determining the volume commitments to Pepsi, Hiller alleges that “[t]he specified number of syrup gallons in the Pepsi contract was calculated and agreed to by all parties involved and was based on gallonage information provided by Garden Fresh.”[29] According to Hiller, the parties factored in “the closure of several Garden Fresh restaurants in 2016 and 2017 and [] the recent trend of Americans consuming fewer carbonated soft drinks.”[30] As a result, in the Pepsi contract, Garden Fresh committed to a number of syrup gallons per year that was “over 10% lower than the average number of committed gallons per year in the final five years of Garden Fresh's prior Coca-Cola agreement.”[31]

         After Garden Fresh signed the Pepsi deal, Garden Fresh asked Hiller to submit an invoice and to agree to payment over six months.[32] Hiller agreed to the payment terms and submitted an invoice for $485, 268 payable at $80, 878 monthly.[33] Garden Fresh paid the first two monthly installments in August and September.[34] During this time, Garden Fresh and Pepsi each contacted Hiller to raise issues with the conversion from Coca-Cola-Hiller agreed to work with Garden Fresh and Pepsi “to address some of these implementation issues.”[35] “During this same time period, Hiller [] also negotiated a separate agreement between Dr. Pepper and Garden Fresh for no additional compensation.”[36]

         In September 2017, Garden Fresh was sold to new owners who installed a new CEO, Mr. John W. Haywood (“Haywood”).[37] On September 13, 2017, Haywood approached Hiller to “discuss a renegotiation of [its] fee[]” and for the possibility that Hiller could “negotiate a potential ‘exit' from the Pepsi agreement on Garden Fresh's behalf.”[38] Garden Fresh did not pay Hiller in October 2017 or thereafter.[39] In response to subsequent requests by Hiller, Garden Fresh has refused to pay and has sought to renegotiate payments under the Beverage Consulting Agreement.[40] Hiller filed the present action on January 26, 2018, alleging that Garden Fresh breached the contract between the parties by refusing to pay the money it allegedly owes Hiller.[41]

         (a) Answer and Counterclaim

         Defendant answered the Complaint on February 16, 2018.[42] In the Answer, Defendant alleges counterclaims for: breach of contract, fraudulent inducement, and negligent misrepresentation.[43]

         (i) Counterclaims

         Garden Fresh alleges the following in its Counterclaims. Hiller allegedly represented in the Beverage Consulting Agreement that “the services it would provide would include ‘an assessment of [Garden Fresh's] current beverage program.'”[44] Based upon this representation, Garden Fresh contends that it “expected Hiller's assessment of Garden Fresh's soft drink program would include, at a minimum, a rigorous and careful examination and analysis . . . of the historic beverage data, as well as to include consideration of Garden Fresh's current and anticipated future needs, and market trends.”[45] Garden Fresh contends:

Hiller could not, in good faith, negotiate a new beverage contract for Garden Fresh without first evaluating Garden Fresh's existing beverage program, considering how factors such as Garden Fresh's Dr. Pepper soft drink program would impact its overall soft drink needs, and ensuring that any gallon commitment figure in a Pepsi or Coca-Cola agreement accurately reflected Garden Fresh's needs over five years.[46]

         Specifically, Garden Fresh alleges that Hiller did not “account for how Garden Fresh's Dr. Pepper usage would impact Garden Fresh's overall beverage program.”[47] Garden Fresh alleges that “Hiller rotely applied historical volume data that included Dr. Pepper product, as well as [Coke] product.”[48] As a result, Garden Fresh avers Hiller's deal for Garden Fresh paints far too rosy of a picture, because Hiller “overstated the amount of Pepsi syrup gallons Garden Fresh would require over the intended five-year life of the beverage sales agreement.”[49]

         Garden Fresh avers that, “[h]ad Hiller . . . [done] the contracted-for assessment and evaluation of the data and other information relating to Garden Fresh's beverage program, Hiller necessarily would have negotiated a different Pepsi agreement on behalf of Garden Fresh[.]”[50]

         Garden Fresh alleges that it did not discover “Hiller's gallonage error [until] October 2017.”[51] At approximately the same time, Hiller informed Garden Fresh that it “would no longer assist Garden Fresh with the Pepsi Contract or any additional negotiations with Pepsi[, ]” and Garden Fresh “had to engage a new consultant to help renegotiate the flawed Pepsi Contract. . . [at] additional expense[.]”[52] As of February 16, 2018, Garden Fresh stated that “[t]he renegotiations are ongoing.”[53]

         As to breach of contract, Garden Fresh alleges that Hiller's failure to perform the assessment is material, and as a result Garden Fresh suffered damages in the $162, 000 it paid Hiller as well as expectation damages.[54] Garden Fresh's claims for fraudulent inducement and negligent misrepresentation are also based on its allegations that Hiller represented that it would perform the “assessment” that Garden Fresh claims was either not done or was done improperly.[55]

         2. Procedural background

         Plaintiff moved to dismiss defendant's counterclaims on March 23, 2018 (the “motion to dismiss”).[56] Attached to its opening brief in support of the motion to dismiss, are six documents, which plaintiff contends are described in the Complaint and the Counterclaims.[57] Defendant opposes the motion to dismiss and argues that all six documents “are not authenticated and Garden Fresh's counterclaims are not based on those documents.”[58] In addition, defendant argues that the court should treat the motion to dismiss “as one for summary judgment under [Federal] Rule [of Civil Procedure] 12(d), as to arguments requiring consideration of the attached documents.”[59] Accompanying its reply brief, [60] plaintiff filed a Declaration by Mr. George C. Hiller authenticating the three undated documents-exhibits 3-5 (the “Hiller Declaration”).[61]

         On April 6, 2018, defendant moved to preclude the Hiller Declaration (the “motion to preclude”) under Local Rule 7.1.3(c)(2), which proscribes new arguments in reply briefs.[62] Plaintiff opposes the motion, [63] which was fully briefed on April 27, 2018.[64]

         II. STANDARD OF REVIEW

         A. Motion to Dismiss

         Federal Rule of Civil Procedure 12(b)(6) governs a motion to dismiss a complaint for failure to state a claim upon which relief can be granted. The purpose of a motion under Rule 12(b)(6) is to test the sufficiency of the complaint, not to resolve disputed facts or decide the merits of the case.[65] “The issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims.”[66] A motion to dismiss may be granted only if, after “accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to the plaintiff, plaintiff is not entitled to relief.”[67] While the court draws all reasonable factual inferences in the light most favorable to a plaintiff, it rejects unsupported allegations, “bald assertions, ” and “legal conclusions.”[68]

         To survive a motion to dismiss, a plaintiff's factual allegations must be sufficient to “raise a right to relief above the speculative level . . . .”[69] Plaintiffs are therefore required to provide the grounds of their entitlement to relief beyond mere labels and conclusions.[70] Although heightened fact pleading is not required, “enough facts to state a claim to relief that is plausible on its face” must be alleged.[71] A claim has facial plausibility when a plaintiff pleads factual content sufficient for the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.[72] Once stated adequately, a claim may be supported by showing any set of facts consistent with the allegations in the complaint.[73] Courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint, and matters of public record when reviewing a motion to dismiss.[74]

         B. Motion to Preclude

         Rule 7.1.3(c)(2) of this court's Local Rules states that “[t]he party filing the opening brief shall not reserve material for the reply brief which should have been included in a full and fair opening brief.”[75] Sanctions may be imposed for violations of the local rules, “at the discretion of the Court, for violations of the Rules, as well as for violations of the Fed.R.Civ.P. and any order of the Court. Such sanctions may include, but are not limited to, costs, fines and attorneys' fees imposed on the offending party and that party's attorney.”[76] “In addition . . . [the court may] determin[e] [] the motion against the offending party.”[77]

         III. DISCUSSION

         Hiller argues, in its opposition to the motion to preclude, that “there are numerous bases on which to dismiss all of Garden Fresh's counterclaims that would not require the Court to consider the Assessment Documents at all, . . . [t]herefore, the Court has ample grounds to deny Garden Fresh's motion [to preclude] as moot.”[78] First, before the court addresses the motion to preclude, which is effectively exhibits 3-5, it addresses whether it may consider exhibits 1, 2, and 6. Second, with those documents in hand, the court next addresses the motion to dismiss. Third, the court discusses the motion to preclude.

         A. Exhibits 1, 2, and 6

         As a preliminary matter, in its motion to preclude, Garden Fresh seeks to exclude the Hiller Declaration, which authenticates exhibits 3-5 attached to plaintiff's motion to dismiss.[79] The Hiller Declaration does not discuss exhibits 1, 2, or 6, and Garden Fresh did not move to preclude these documents.[80]

         Generally speaking, “a court may consider an undisputedly authentic document that a [moving party] attaches as an exhibit to a motion to dismiss if the [non-moving party]'s claims are based on the document.”[81] In the case at bar, Hiller argues that the court “may properly consider [these] documents in ruling on th[e] motion to dismiss[, ]” because “[e]xhibits 1-2 and 6 . . . are described in the Complaint and the Counterclaims and are incorporated by reference therein.”[82] Garden Fresh does not dispute the authenticity of exhibits 1, 2, and 6.[83]

         In addition, Garden Fresh's Counterclaims appear to be based, at least in part, on exhibits 1, 2, and 6. For example, Garden Fresh alleges that it “provided Hiller with open access to Garden Fresh's staff and to the company's historical beverage data[.]”[84]However, according to Garden Fresh, “Hiller overstated the amount of Pepsi syrup gallons Garden Fresh would require over the intended five-year life of the beverage sales agreement[, ]”[85] and as a result, Garden Fresh “enter[ed] into a Pepsi contract with unfavorable terms, including a longer effective term and substantially reduced cost savings.”[86]

         Exhibit 1 is a series of e-mail exchanges from November 2016 and ending on January 23, 2017 with a request from Hiller to Garden Fresh for information relating to historical and estimated (for 2017) “Total Garden Fresh system Coke gallons[, ]” the number of “system stores open (at the end of each year please)[, ]” and other details.[87]Exhibit 2 is an e-mail exchange from Baldwin to Hiller forwarding an e-mail from Garden Fresh's Susan Miille Hoffman, Vice President of Fresh Sourcing and Menu Innovation, containing a series of documents responding to Hiller's request, including a spreadsheet entitled “Coke Information for CR3.xlsx[, ]” which includes direct responses to each of Hiller's requests.[88] Thus, the court concludes that Garden Fresh's Counterclaims are based on exhibits 1 and 2, and the court may consider these documents in the motion to dismiss.

         Similarly, Garden Fresh alleges in the Counterclaims that Hiller negotiated a contract between Garden Fresh and Pepsi, which reflected an “overstated [] amount of Pepsi syrup gallons Garden Fresh would require over the intended five-year life of the beverage sales agreement.”[89] Exhibit 6, is a copy of this contract.[90] Therefore, Garden Fresh's Counterclaims are based on exhibit 6, and the court may also consider this document in the motion to dismiss.

         B. Dismissal of Garden Fresh's Counterclaims

         The gravamen of Garden Fresh's Counterclaims is its contention that the Beverage Consulting Agreement required Hiller to do an “assessment” of Garden Fresh's “current beverage program.” Garden Fresh alleges that “Hiller's assessment of Garden Fresh's soft drink program would [have] include[d], at a minimum, a rigorous and careful examination and analysis . . . of the historic beverage data, as well as to include consideration of Garden Fresh's current and anticipated future needs, and market trends.”[91] According to Garden Fresh, Hiller did not do that assessment, because it allegedly failed to subtract Dr. Pepper syrup volumes from the data it received from Garden Fresh and, thus, negotiated a deal with Pepsi that over-committed Garden Fresh to an unrealistic annual volume of Pepsi syrup.[92]

         Hiller argues that the assessment discussed in the Beverage Consulting Agreement is in the recitations and is not a term of the contract.[93] It avers that it was never obligated to conduct an assessment.[94] In addition, Hiller contends that at no point was it obligated “to audit Garden Fresh's gallonage information or to probe whether ‘Coke gallons' truly means what it says.”[95] Despite the lack of an obligation in the Beverage Consulting Agreement, Hiller argues, nonetheless, that it performed an assessment in February 2017, before it signed the Beverage Consulting Agreement.[96]

         In order to address the motion to dismiss, the court must first resolve the question of whether the alleged “assessment” is a term of the Beverage Consulting Agreement, and if so, whether Garden Fresh has pleaded facts sufficient to establish claims for breach of contract, fraudulent inducement, and negligent misrepresentation.

         1. The Beverage Consulting Agreement

         The Beverage Consulting Agreement includes the following recitals:

Whereas, [Hiller] is engaged in the business of providing soft drink consulting services to customers; and
Whereas, the services provided by [Hiller] include an assessment of [Garden Fresh]'s current beverage program, and
Whereas, [Garden Fresh] desires to utilize [Hiller]'s expertise and services with respect to establishing and/or modifying the soft drink program of [Garden Fresh]'s business.[97]

         Standing alone, the recitals appear to state that the objective of the contract is that Hiller will use its expertise and services to “establish[] and/or modify[]” Garden Fresh's soft drink program.[98] The services that Hiller provides include an “assessment” of Garden Fresh's “current beverage program[.]”[99]

         Garden Fresh argues that the recital of services including an assessment, should be used to define “services” and should be read into the operative portion of the contract as an obligation for Hiller.[100] The basis for this, according to Garden Fresh, is the premise cited by the Delaware Supreme Court in Osborn ex rel. Osborn v. Kemp that Delaware courts “will read a contract as a whole and [] will give each provision and term effect, so as not to render any part of the contract mere surplusage.”[101] However, there is no evidence that the parties considered the recitals to be “provisions” or “terms” of the Beverage Consulting Agreement. In addition, Delaware courts take the view that “[r]ecitals are not a necessary part of a contract and can only be used to explain some apparent doubt with respect to the intended meaning of the operative or granting part of the instrument[.]”[102]

         Viewed in the context of the entire agreement, including the two sections entitled “services” and “compensation, ” there is no doubt about the intended meaning of the operative part of the Beverage Consulting Agreement. From the language of the Beverage Consulting Agreement, it is apparent that the parties intended to provide a mechanism for Hiller to “establish[] and/or modif[y]” Garden Fresh's “soft drink program[, ]” by negotiating a new contract with either Coke or Pepsi.[103] The court discusses these three operative components below.

         First, under “services, ” Garden Fresh “hereby grants [Hiller] the right and authority to provide expertise and services to support [Garden Fresh] in the establishment and/or modification of its soft drink program(s).”[104] This is a grant of express “right and authority” for Hiller to act on Garden Fresh's behalf, specifically “to provide expertise and services” with respect to Garden Fresh's soft drink program.[105]However, as a grant of “right and authority” from Garden Fresh to Hiller, this language does not define which specific services Hiller is to use, nor does it obligate Hiller to perform specific tasks.[106]

         Second, also under “services, ” Garden Fresh “agrees to provide [Hiller] with all relevant information including, but not limited to, all information regarding [Garden Fresh]'s current soft drink products, any funding provided for said products, as well as support premiums, marketing programs, etc.”[107] As Garden Fresh alleges in its Counterclaims, Hiller would need this information in order to negotiate the best possible deal for Garden Fresh.[108] By making it Garden Fresh's responsibility to share the information, this term appears to give Hiller recourse if Garden Fresh does not share the information and Hiller is, therefore, unable to negotiate a deal for Garden Fresh.

         Third, in return, Garden Fresh agreed to pay Hiller a flat fee for a renegotiated (new) deal with Coke and a variable fee for a Pepsi deal-payment is contingent on Garden Fresh choosing to sign a deal with either Coke or Pepsi.[109] There is no obligation for Garden Fresh to pay Hiller in the event that it chose not to accept the deals with either Coke or Pepsi, and there is no mechanism in the Beverage Consulting Agreement that requires Garden Fresh to sign any deal.[110] Presumably, Hiller agreed to this term with the understanding that, in order to get paid, it would likely need to adjust the negotiated deals to meet Garden Fresh's changing requirements during the time from negotiation to signing.[111]

         Neither party has raised doubt about the intended meaning of the operative portions of the Beverage Consulting Agreement, including the “right and authority to provide expertise and services[.]” Absent this doubt, there is no reason for the court to rely upon the recitals to interpret the Beverage Consulting Agreement.[112] Therefore, the court concludes that the Beverage Consulting Agreement does not obligate Hiller to perform an “assessment” of Garden Fresh's “current beverage program.”

         2. Breach of Contract

         (a) Legal Standard

         “In order to survive a motion to dismiss for failure to state a breach of contract claim, the plaintiff must demonstrate: first, the existence of the contract, whether express or implied; second, the breach of an obligation imposed by that contract; and third, the resultant damage to the plaintiff.” VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003) (footnote and citations omitted).

         (b) Discussion

         Garden Fresh's breach of contract counterclaim is deficient because Garden Fresh is unable to identify a breach of an obligation imposed by the Beverage Consulting Agreement. The counterclaim is based upon reading a term into the Beverage Consulting Agreement that the parties clearly chose not to include. As a matter of law, therefore, Garden Fresh's breach of contract counterclaim is insufficient. Before moving to Garden Fresh's other counterclaims, for the sake of completeness, the court wishes to address Garden Fresh's factual basis for its claims.

         (c) Garden Fresh's ...


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