Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:04-cv-01062-ZLW-BNB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-cv-01062-ZLW-BNB THE QUIZNO'S MASTER LLC and THE QUIZNO'S FRANCHISE COMPANY LLC, Plaintiffs, v. R&B MANAGEMENT GROUP, LLC, an Alabama limited liability company, ROYCE GWIN, an individual, and REBECCA GWIN, an individual Defendants. PLAINTIFFS' REPLY TO DEFENDANTS' RESPONSE TO MOTION FOR SUMMARY JUDGMENT

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I.

THE STANDARDS GOVERNING SUMMARY JUDGMENT ARE DIFFERENT THAN THE STANDARDS GOVERNING A MOTION TO DISMISS Defendants argue that because this Court denied Quizno's Motion to Dismiss brought

pursuant to Fed.R.Civ.P. 12(b)(6), this Court should deny Quizno's Motion for Summary Judgment. However, the standards and burdens governing the two Motions are different and, therefore, the prior denial provides no authority to deny the present Motion. Quizno's did not include evidentiary material with its Motion to Dismiss. And although Defendants responded to Quizno's Motion to Dismiss with evidentiary material, this Court excluded that material because it was inappropriate in a motion to dismiss context. See Order filed December 15, 2004. Now, after significant discovery, Quizno's has filed a Motion for Summary Judgment pursuant to Fed.R.Civ.P. 56(b), which permits a party against whom claims have been asserted to challenge the claiming party's ability to prove all essential elements of the claim. Defendants do not dispute any material facts with respect to their claims for breach of the implied covenant of good faith and fair dealing, oral modification, waiver/estoppel and misrepresentation. Rather, they present legal argument only. For the reasons set forth in Quizno's Motion and as will be elucidated at the oral argument on this Motion, the undisputed facts demonstrate that Quizno's is entitled to judgment as a matter of law on these claims under summary judgment standards. In addition: II. DEFENDANTS' RELEASED THEIR COUNTERCLAIM THAT THE DEVELOPMENT QUOTA WAS UNCONSCIONABLE. Defendants initially recite the correct legal issue with respect to whether the release bars Defendants' claim that the development quota was unconscionable. "[t]he question for the court is whether the Letter Agreement is `clear and unambiguous' so as to be enforceable." Response,

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p. 5. However, Defendants do not stick to their correct assessment of the issue. Rather, Defendants rely on several cases to suggest that the court must review numerous factors in determining whether to enforce a release and Defendants argue these factors are "highly fact specific" and preclude summary judgment. Defendants first ask this Court to apply the factors set forth in Anderson v. Eby, 998 F.2d 858 (10th Cir. 1993). However, the issue in Anderson was not whether the court should enforce a release of prior or existing claims, like here, but rather whether the court should enforce a waiver of future claims that may arise due to future negligence of the purported released party. Defendants also cite to several cases involving federal employment claims which are governed by federal statutory law requiring additional analysis by the court before enforcing the release of those claims. See e.g., Wright v. Southwestern Bell Telephone Co., 925 F.2d 1288, 1289 (10th Cir. 1991) and Troung v. Smith, 28 F.Supp.2d 262 (D.Colo. 1998). While all of these decisions provide persuasive authority with respect to the interpretation of releases, they contain additional requirements with respect to whether a party knowingly and voluntarily entered into the release. Under Colorado law, the enforcement of a release of an existing claim that is not tied to a federal statutory employment right is governed by standard contract interpretation rules. Artery v. Allstate Ins. Co., 984 P.2d 1187, 11991 (Colo. App. 1999); Bunnett v. Smallwood, 793 P.2d 157, 159 (Colo. 1990). When, as here, a valid and unambiguous release bars the cause of action, the court has a duty to grant judgment based thereon. See Truong, 28 F.Supp.2d at 630; DeJean v. United Airlines, Inc., 839 P.2d 1153, 1161 (Colo. 1992). Defendants release is clear and unambiguous: In addition to the consideration of agreeing to approve you for a franchise agreement, you and your respective heirs, successors, -2-

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assigns, agents and representatives, hereby fully and forever unconditionally release and discharge Quizno's, and its successors, assigns, agents, representatives, officers, and directors (collectively "Quizno's Affiliates") from any and all claims, demands, obligations, actions, liabilities and damages of every kind or nature whatsoever, in law or in equity, whether known or unknown to them, which may hereinafter be discovered, in connection with, as a result of, or in any way arising from, any relationship or transactions with Quizno's or Quizno's Affiliates, however characterized or described, which relate in any way to the franchise or area director relationship created thereby, from the beginning of time until the Effective Date off this Letter Agreement. Letter Agreement, ¶ 2. (attached to Quizno's Motion as Exhibit 5). Defendants incorrectly argue that the scope of the release is ambiguous for two reasons. First, Defendants argue that paragraph 4 of the Letter Agreement, in which the parties acknowledged that they were not waiving or varying any rights and obligations arising from any present or future franchise agreement or the ADMA between them, creates an ambiguity. But, the purpose and intention of this agreement is clear and in no way undercuts the validity of the release contained in paragraph 2. The parties agreed that they were not changing the terms of the other contracts governing their relationship. Second, Defendants argue that the language within paragraph 2 indicating that the parties agreed to release claims which may "hereinafter be discovered" creates an ambiguity. This language is clear, especially when read in context. Immediately proceeding that phrase is the statement that the parties were releasing all claims ". . . in law or in equity, whether known or unknown to them, which may hereafter be discovered. . . ." (Emphasis added). The phrase ties to the agreement that known and unknown claims, including those discovered later, were released. This language is clear and often contained within general releases so that the parties

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know that any and all claims existing between them whether known or unknown are being released. Defendants also challenge the enforceability of the release on the basis that Mr. Gwin did not "knowingly and voluntarily" enter into it because he now claims not to have understood the terms, and he did not have a lawyer. Under Colorado law, a party is presumed to know the contents of the document he signs and is bound by that document if it is clear and unambiguous. As such, Defendants cannot be relieved from the release by claiming they did not understand the clear terms of the document or claiming they did not hire a lawyer to review the document.1 III. DEFENDANTS' COUNTERCLAIM THAT THE DEVELOPMENT QUOTA WAS UNCONSCIONABLE IS BARRED BY THE ONE YEAR CONTRACTUAL STATUTE OF LIMITATIONS. In response to Defendants' argument that Quizno's waived this affirmative defense, Quizno's is filing a motion for leave to amend their affirmative defenses to assert the statute of limitations defense. For the reasons set forth in that Motion, Quizno's should be provided leave to make this amendment to conform the pleadings to the evidence developed in discovery. Defendants' argument that their claim that the development quota was unconscionable accrued when Quizno's terminated the ADMA is wrong. They claim they were not damaged until Quizno's terminated the ADMA and that it was that action that caused their claim that the development quota was unconscionable to accrue. To the contrary, a cause of action accrues when the party knew or should have known of the facts giving rise to the claim. A claim for breach of contract accrues when the non-breaching
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Defendants also appear to challenge the enforceability of the release on the basis of duress. Defendants failed to set forth any facts that would support a finding of duress and, therefore, to the extent Defendants make this claim it must be rejected. See DeJean v. United Airlines, Inc., 839 P.2d 1153, 1160 (Colo. 1992).

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party knew or should have known of the breach. See Colo.Rev.Stat. § 13-80-108 (6th) (2002); Grant v. Pharmacia & Upjohn Company, 314 F.3d 488, 493 (10th Cir. 2002).2 Under Colorado law a plaintiff may not wait until he has incurred damages before the cause of action will accrue as long as the facts underlying the cause of action were known or should have been known. See Grant, 314 F.3d 493-94 (stating that "[p]laintiffs' argument that the cause of action did not accrue until 1996 because damages did not occur until 1996 is unpersuasive; "[u]ncertainty as to the precise extent of damage neither precludes the filing of a suit nor delays the accrual of a claim for purposes of the statute of limitations." Citing Broker House International Ltd. v. Bendelow, 952 P.2d 860, 863 (Colo. App. 1998)). It is undisputed that Defendants knew the facts they claim give rise to their unconscionability defense in November and December 1998. They cannot rely on their inability to know the precise extent of their damages to delay the accrual of the claim for statute of limitation purposes. Id. See also, Smith v. City of Enid, 149 P.3d 1151, 1154 (10th Cir. 1998) (holding that the termination of the employee's employment was not the date on which his claim that the city violated his constitutional right by amending the compensation plan accrued--rather the claim accrued when the city changed the plan).

See also Bennett v. Coors Brewing Co., 189 F.3d 1221, 1230-31 (10th Cir. 1999) (affirming this court's conclusion that plaintiffs failed to establish that they signed releases under duress pursuant to Colorado law).
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Likewise, the statute of limitations for a tort action commences running at the time the client discovers, or through use of reasonable diligence should have discovered, the negligent act. Colo.Rev.Stat. § 13-80-108(1); Broker House International Ltd. v. Bendelow, 952 P.2d 860, 863 (Colo. App. 1998).

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Dated this 2nd day of August 2005 Respectfully submitted, /s/ Leonard H. MacPhee_________________ Leonard H. MacPhee Attorney for Plaintiffs Perkins Coie LLP 1899 Wynkoop Street, Suite 700 Denver, CO 80202 Telephone: (303) 291-2300 Facsimile: (303) 291-2400 Email: [email protected] and Fredric A. Cohen DLA Piper Rudnick Gray Cary 203 North LaSalle Street, Suite 1800 Chicago, IL 60601 (312) 368-4000

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CERTIFICATE OF SERVICE I hereby certify that on August 2, 2005 I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses:


Gilbert R. Egle [email protected] [email protected]\ Dennis Kaw [email protected] Eldon E. Silverman [email protected] [email protected]



and hereby certify that on August 2, 2005 I have mailed the foregoing to the following non EM/ECF participant via U.S. Mail, postage prepaid: J.E. Sawyer, Jr. Attorney at Law 203 South Edwards Street Enterprise, AL 36330

/s/ Leonard H. MacPhee Leonard H. MacPhee Attorney for Defendant Perkins Coie LLP 1899 Wynkoop Street, Suite 700 Denver, CO 80202 Telephone: (303) 291-2300 Facsimile: (303) 291-2400 Email: [email protected]

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