The Franchise Memorandum

A federal court in Washington denied a product supplier's motion for partial summary judgment on numerous claims related to an oral contract. Mastaba v. Lamb Weston Sales, 2014 U.S. Dist. LEXIS 72865 (E.D. Wash. May 27, 2014). Mastaba, a seller of frozen potato products in the Philippines, brought an action against Lamb Weston, its sole supplier of potatoes, for breach of contract, promissory estoppel, quantum meruit, unjust enrichment, negligent representation, and fraud, all based on the supplier's alleged oral representations that it would enter into a written, five-year contract in exchange for Mastaba making certain capital investments, including constructing a test kitchen, hiring additional staff, and creating a succession plan. After Mastaba began making significant investments, Lamb Weston declined to enter into the agreement.

The court allowed Mastaba's lawsuit to proceed because of genuine issues of material fact regarding most of the claims. In reaching its conclusion, the court found significant the allegation that Lamb Weston made multiple oral promises, the existence of which were supported by emails between the parties, indicating Lamb Weston's awareness that Mastaba was investing significantly in the construction of a test kitchen, and even took a hands-on approach to the kitchen's development by directing Mastaba to take specific actions for its construction. The court noted that the construction of a test kitchen is not a "typical" exchange between business associates; rather, it was specific to each party's unique circumstances. The court also rejected Lamb Weston's arguments that any discussions were merely "mutual expressions of an expectation of a long-term business relationship," and the discussions were merely agreements to agree, which are unenforceable in Washington. The court, however, denied Mastaba's unjust enrichment claim, which sought recovery based on establishing the potato market in the Philippines to Lamb Weston's benefit, because it determined that the benefit was not distinct from Mastaba's duties created under previous contracts made during the twelve-year relationship between the parties.