LaFortune v. Ebie

Opinion

FLEMING, J.

Kenneth LaFortune and Lillian Ebie owned adjoining Chicken Delight food service franchises in Whittier and La Mirada. When

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Ebie delivered Chicken Delight chicken to homes in LaFortune’s franchise territory, LaFortune brought this action against Ebie for intentional interference with an advantageous business relationship, and obtained judgment for $25,000 ($17,885 loss of profits, $7,115 punitive damages). Ebie appeals.

The franchise contracts entered into by Chicken Delight, Inc. with LaFortune and Ebie provide that the franchisee shall have “exclusive right and franchise to use” the Chicken Delight system, of operation within a particular territory, and that the business of a franchisee shall “be conducted and operated only at a location within” its franchise territory approved by the franchisor. Two alternative constructions of the basic contracts are possible: (1) the franchisee has the exclusive right to operate a place of business within the franchise territory; (2) the franchisee has the exclusive. right to conduct all Chicken Delight business within the territory and may prevent neighboring franchise holders from making deliveries inside his territory. The trial court adopted this latter view and construed the franchise contract to mean that a Chicken Delight franchisee could not deliver chicken to customers located, in another franchisee’s territory; the judgment for damages was based wholly on this construction of the franchise contract.

In our view the franchise contracts, as construed by the trial court, violate the antitrust laws in that they are contracts in. restraint of trade. Chicken Delight, Inc. sells to its franchisees the supplies of their business. Under the Sherman Antitrust Act, “it is unreasonable without more for a manufacturer to seek to restrict and confine areas or persons with whom an article may be traded after the manufacturer has parted with dominion over it.”

(United States

v.

Arnold, Schwinn & Co.

(1967) 388 U.S. 365, 379 [18 L.Ed.2d 1249, 1260, 87 S.Ct. 1856].) “Territorial limitations bear at least a superficial resemblance to horizontal divisions of markets among competitors, which we have held to be tantamount to agreements not to compete, and hence inevitably violative of the Sherman Act, . . .” (Brennan, L, concurring in