Menu icon Access the Business Officer Magazine menu by clicking or touching here.
Colorado Lawyer Magazine logo, click or touch this logo to return to the homepage Click or touch the Colorado Lawyer Magazine logo to return to the homepage. Search

Kazi v. KFC US, LLC.

No. 22-1017. 8/4/2023. D.Colo. Judge Hartz. Franchise Agreement— Breach of Implied Covenant of Good Faith and Fair Dealing—Kentucky Law.

August 4, 2023

Kazi, through co-plaintiff KFC of Pueblo, Inc., owned and operated four Kentucky Fried Chicken restaurants in Pueblo. In 2012 and 2013 three of Kazi’s four restaurants closed, leaving his south Pueblo location the only Kentucky Fried Chicken restaurant there. Kazi’s restaurant is licensed under the Kentucky Fried Chicken Franchise Agreement (the franchise agreement), which provides that it is governed by Kentucky law. By 2019, KFC US, LLC (KFC) wanted to expand its presence in Pueblo, and it licensed a second Kentucky Fried Chicken restaurant in Pueblo 5.3 miles away from Kazi’s restaurant. Kazi believed that KFC improperly licensed the second restaurant and sued KFC for breach of contract, bad faith (breach of the implied covenant of good faith and fair dealing), promissory estoppel, and unjust enrichment. Only the bad faith claim went to trial. A jury found in favor of Kazi and his company and awarded damages of $792,239. KFC filed a post-trial motion under Fed. R. Civ. Proc. 50(b) and 59, arguing, among other things, that Kazi had not proved bad faith. The court denied the motion and entered final judgment.

On appeal, KFC argued that the district court erred in determining that Kazi’s claim for breach of the implied covenant of good faith and fair dealing was permitted under Kentucky law. Kentucky recognizes that contracts contain an implied covenant of good faith and fair dealing. To bring a claim for breach of the implied duty of good faith and fair dealing under Kentucky law, a party must show an expectation created by the contract’s language that was defeated by the other party’s bad faith. The franchise agreement prohibits KFC from licensing a new franchise within 1.5 miles of Kazi’s present restaurant but does not imply that KFC is restricted in granting licenses for new locations outside that area. The franchise agreement also contains a right-to-negotiate provision, which gives Kazi a right to negotiate for a franchise that has been conditionally approved for someone else’s restaurant if he has the licensed restaurant closest to the proposed new location. No other contractual term relates to franchises outside the 1.5-mile radius. Here, KFC notified Kazi of its approval of the second location and advised him of his rights under the franchise agreement to apply to operate the new restaurant and request an impact study under KFC’s guidelines. Kazi did not apply to operate the new restaurant but requested an impact study, which was performed. Accordingly, Kazi had no reasonable expectation of further protections against having a nearby competitor, and KFC’s alleged bad faith did not undermine any benefit or protection afforded to Kazi by the franchise agreement. Therefore, Kazi’s claim of breach of the implied covenant is barred as a matter of law.

The final judgment was vacated and the case was remanded for entry of judgment in favor of KFC and against Kazi and KFC of Pueblo, Inc.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

Back to the From the Courts Page