2016-00204562-CU-BC

Kulbir Singh vs. Wal-Mart Stores, Inc.

Nature of Proceeding: Hearing on Demurrer to Plaintiff’s Second Amended Complaint

Filed By: Welke, Eleanor M.

Defendant KBI Holdings, LLC’s (“KBI”) demurrer to plaintiff Kulbir Singh’s (“Plaintiff”) second amended complaint (“SAC”) is sustained as follows.

Plaintiff alleges that defendant Wal-Mart Stores Inc. and Blimpie International, Inc. entered into a Master Relationship Agreement (“Master Agreement”) in November 21. (SAC ¶7.) The Master Agreement granted Blimpie International the exclusive right to lease spaces inside of Wal-Mart stores for the purpose of operating food service businesses inside Wal-Mart’s retail locations. (Id. ¶8.) In June 2005, Wal-Mart granted

written approval for an agreement between Blimpie International and Blimpie Association LTD, which permitted Blimpie Associates to offer its franchisees the opportunity to own and operate Blimpie restaurants in Wal-Mart stores. (Id. ¶10.) KBI was eventually assigned Blimpie International’s interests in the Master Agreement. (Id. ¶12.)

In August 2006, Plaintiff entered into an agreement with KBI, which permitted Plaintiff to operate a Blimpie restaurant on the premises of the Sacramento Wal-Mart on Florin Road (the “Franchise Agreement”). (Id.) On that same date, Plaintiff and KBI entered into a sublicensing agreement (the “Sublicensing Agreement”), which states, among other things, that Wal-Mart has the same rights and privileges granted to KBI in the Master Agreement and that KBI has the right to operate or license a food service business within “certain retail establishments” of Wal-Mart. (Id. ¶14.)

Plaintiff alleges that the Master Agreement was necessarily intended to benefit a class of third parties – i.e., the Blimpie franchise owners, such as Plaintiff – who was induced to enter into the Franchise Agreement and Sublicensing Agreement in reliance on the exclusivity clause in the Master Agreement between Wal-Mart and KBI. (Id. ¶20.)

Plaintiff alleges that Wal-Mart and KBI induced his reliance on the exclusivity clause by making “explicit representations . . . in writing” at the time he signed his agreements with KBI. (Id.) As Plaintiff explains in his opposition, these explicit written representations are in the Master Agreement itself.

In 2016, Plaintiff alleges that in violation of the exclusivity clause, Wal-Mart allowed the installation and operation of a “CoffeeBay” restaurant inside the same Wal-Mart location as Plaintiff’s Blimpie restaurant. (Id. ¶23.) Plaintiff further alleges that “KBI knew about the above installation, construction, and full operation of a “CoffeeBay” restaurant, and despite its knowledge, continued to allow the same to proceed in violation of Plaintiff’s rights.” (Id.)

Plaintiff brings two causes of action against KBI for (1) breach of contract, and (2) breach of the implied covenant of good faith and fair dealing. KBI demurrers to both causes of action on the grounds that they fail to state facts sufficient to constitute a cause of action.

Breach of Contract

KBI argues that Plaintiff’s breach of contract claim fails because he fails to allege a breach by KBI. In opposition, Plaintiff argues that it sufficiently pled that KBI failed to prevent Coffeebay from opening and operating in the Wal-Mart, in breach of the Master Agreement to which Plaintiff is a third party beneficiary.

The elements of the cause of action for breach of contract are (1) the existence of the contract, (2) performance by the plaintiff or excuse for nonperformance, (3) breach by the defendant and (4) damages. (First Commercial Mortgage Co. v. Reece (2001) 89 Cal. App. 4th 731, 745.))

Here, the SAC fails to allege a breach by KBI. The SAC alleges that Wal-Mart entered into an agreement with CoffeeBay and Wal-Mart permitted the installation and operation of CoffeeBay, in violation of the exclusivity clause – not KBI. (SAC ¶¶23-28.) Although Plaintiff attempts to allege a breach by KBI, he alleges only that “KBI knew about the above installation, construction, and full operation of a ‘CoffeeBay’

restaurant, and despite its knowledge, continued to allow the same to proceed in violation of Plaintiff’s rights.” (Id. ¶23.) He further alleges that KBI “was aware of the above transactions and allowed such transactions to proceed and injure Plaintiff, and therefore KBI intentionally breached its Master Agreement . . .” (Id. ¶27.)

KBI’s alleged knowledge that Wal-Mart was installing a CoffeeBay is not sufficient to allege that KBI breached the Master Agreement. Moreover, the exclusivity clause in the Master Agreement confers a right to KBI, and does not confer an obligation.

Specifically, in the exclusivity clause in the Master Agreement, Wal-Mart confers the exclusive right to KBI to sublicense the licensed premises, though Wal-Mart retains the right to sell foods from its deli counter. (SAC ¶19.) Thus, Plaintiff does not plead that KBI is under a contractual obligation to prevent Wal-Mart from contracting with another food vender for the benefit of Plaintiff.

Additionally, Plaintiff does not allege that KBI had any control over Wal-Mart’s decision or ability to enter into the agreement with CoffeeBay, or that KBI was a party to the agreement between Wal-Mart and CoffeeBay. Plaintiff does not allege that KBI has any obligation or authority to stop Wal-Mart from contracting with CoffeeBay. KBI’s alleged knowledge of Wal-Mart’s breach is insufficient to allege that KBI itself breached the Master Agreement.

Plaintiff has been given multiple chances to plead a cause of action for breach of contract against KBI and has failed to do so. Accordingly, the demurrer to the breach of contract claim is sustained without leave to amend.

Breach of Covenant of Good Faith and Fair Dealing

KBI’s demurrer to the breach of the implied covenant cause of action is sustained without leave to amend. The implied covenant of good faith and fair dealing is “a supplement to an existing contract.” (McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784,799.) Thus, in the absence of a valid claim for breach of contract, the third cause of action fails as well.

Leave to Amend – Negligence

Plaintiff asks that if the Court sustains the demurrer, the Court nonetheless grant leave to amend so he can allege a cause of action for negligence. Plaintiff argues that under Biakanja v. Irving (1958) 49 Cal.2d 647, 650, he can allege that KBI owed Plaintiff a duty and breached his duty by negligently failing to discharge his duty of care to prevent others from selling food services at Wal-Mart. As leave to amend is to be liberally granted, and Plaintiff has set forth a detailed argument regarding his proposed claim, the Court reluctantly grants Plaintiff’s request for leave to amend to allege a cause of action for negligence against KBI.