Case Report – JRUCW, Inc. v. Starbucks Corporation

Prepared by Michelle Emeterio

An October 17, 2024 court order in JRUCW, Inc. v. Starbucks Corporation, No. CV 22- 7374-DMG (KSx), 2024 WL 5338586 (C.D. Cal. Oct. 17, 2024) granted defendant Starbuck’s Corporation’s motion for summary judgment on California Franchise Relations Act (“CFRA”) and related claims.

Claims

Plaintiffs JRUCW, Inc., JRUCW Pizza, Inc., and others (“Plaintiffs”) filed an action against Starbucks Corporation (“Starbucks”) in the Los Angeles County Superior Court on September 8, 2022, which was later removed to the United States District Court, Central District of California on the basis of diversity jurisdiction.

The action alleged:

1. declaratory relief in the form of a declaration that Plaintiffs were entitled to the rights under the CFRA;
2. intentional interference with contracts;
3. negligent interference with contracts;
4. breach of contract including under California law’s implied covenant of good faith and fair dealing and the CFRA; and
5. negligence per se under the CFRA.

This summary focuses on the claims brought under the CFRA—declaratory relief, breach of contract, and negligence.

Background

Plaintiffs and Starbucks entered a contract called a “master licensing agreement” (“MLA”) in March 2011 for the operation of a Starbucks location at Universal City Walk. The MLA was for a term of 10 years and explicitly stated there were no renewal rights.

Plaintiffs concurrently entered into a 10-year lease agreement with Universal Studios, LLC to lease the location space at Universal City Walk. The lease required Plaintiffs to always operate a Starbucks store at the location, and contained an option to extend the lease for another 5 years.

During the terms of the MLA and the lease, Starbucks notified Plaintiffs that it did not intend to renew the MLA. Plaintiffs extended their lease anyway. Plaintiffs were later given an opportunity to rescind the lease extension, but declined it.

Ultimately, Plaintiffs argued that Universal Studios and Starbucks conspired to manufacture a default under the lease and remove Plaintiffs from the premises “so that Universal [Studios] could retake possession of the store,” and that these actions were in violation of the CFRA.

Declaratory Relief

The Court dismissed this claim as duplicative of Plaintiffs’ other claims reasoning that “declaratory relief is a remedy and not a separate cause of action.”

Breach of Contract

The court held that Plaintiffs’ argument for breach of contract failed because the MLA clearly indicated that renewal was not mandatory and because “California law’s implied covenant of good faith and fair dealing does not create any obligation to renew a franchise,” citing Boat & Motor Mart v. Sea Ray Boats, Inc., 825 F.2d 1285, 1292 (9th Cir. 1987). The Court reasoned that “[b]ecause there was no wrongful termination or wrongful failure to renew,” and because “[n]either California law’s implied covenant of good faith and fair dealing nor the CFRA provides a remedy in the absence of any injury,” Plaintiffs were not entitled to any remedy.

Moreover, the Court disagreed with Plaintiffs’ contention that Starbucks violated Sections 20022, 20025, and 20035 of the CFRA “by failing to properly notify [Plaintiffs] of its intent not to renew and by not offering to purchase the Universal Store’s inventory upon notice of nonrenewal”:

• Regarding Section 20022, Plaintiffs alleged that it created an obligation for Starbucks to purchase Plaintiffs’ inventory, but the Court pointed out that under Section 20041(b), that obligation only applies to franchise agreements “entered into or renewed on or after January 1, 2016.” Since the MLA was from March of 2011, Section 20022 did not apply.
• Regarding Section 20025 (notice), the court pointed out that the CFRA “only requires that a franchisor provide the franchisee with at least a 180-day notice of its intent not to renew” whereas Starbucks provided approximately one-and-a-half years’ notice.
• Regarding Section 20035, it “provides remedies to franchisees whose franchisors violated the CFRA,” but the Court held that Starbucks did not violate the CFRA, and therefore Section 20035 was inapplicable.

Negligence

The Court also found that Plaintiffs’ negligence claim failed because it appeared to be premised on Starbucks’ alleged breach of contract and violations of the CFRA. The Court pointed out that the same evidence for breach of contract cannot also be used for tort liability simply “by claiming that the breach interfered with the promisee’s business.” Here, the allegedly wrongful conduct was the nonrenewal of an MLA—any effect that nonrenewal had on Plaintiffs’ finances and business were “simply results of the alleged contract breach.” Accordingly, Plaintiffs could not prevail on a negligence claim.

Conclusion

The Court granted Starbucks’ motion for summary judgment in its entirety.

Michelle Emeterio is an intellectual property associate in Snell & Wilmer’s Orange County office. Her practice focuses on trademark and copyright counseling and application prosecution.