The Franchise Memorandum

McLane Foodservice, Inc., a regional distributor of raw produce to Taco Bell restaurants, was named as a defendant in several customer lawsuits arising out of a 2006 E. coli outbreak that was allegedly traced to lettuce served at the restaurants. McLane subsequently filed suit against Ready Pac Produce, Inc., who processed produce for Taco Bell, and Tanimura & Antle, Inc., the entity that procured the raw produce processed by Ready Pac. McLane sought to recover inventories, profits, and goodwill that it lost as a result of the outbreak. McLane also asserted claims for indemnification and contribution for money it spent defending and settling the E. coli lawsuits. In McLane Foodservice, Inc. v. Ready Pac Produce, Inc., 2012 U.S. Dist. LEXIS 89087 (D.N.J. June 27, 2012), the court granted portions of Tanimura’s motion to dismiss certain counts alleged by McLane.

The court granted Tanimura’s motion to dismiss McLane’s claim for breach of a supplier agreement for the franchise system. The court held that, even if McLane could claim third-party beneficiary status under the contract, Tanimura could not be held liable because it was not a party to that agreement. With respect to a Safe Produce Guarantee signed by the supplier, the court found that the complaint did not state any facts that could lead to the possible conclusion that the parties intended McLane to have contractual rights thereunder. McLane’s quasi contract and unjust enrichment claims also failed, because the complaint did not contain necessary allegations that McLane reasonably expected compensation for defending and settling the legal actions, or that Tanimura accepted those benefits. In addition, the court denied the motion to dismiss McLane’s claims for negligence and breach of the implied warranty of merchantability.

This case demonstrates the complexity of liability issues when a food safety incident occurs within a franchise system.