Jury Awards $8.8M Damages to El Pollo Loco Franchisees over Encroachment

A California jury has now awarded El Pollo Loco franchisees $8.8 million in the damages phase of a bifurcated trial finding that the franchisor did encroach on their two existing restaurants when it built two competing company-store units in the same territory.

Law360 reported yesterday that El Pollo Loco Inc. breached the implied covenant of good faith and fair dealing in its franchise agreement with franchisees Michael and Janice Bryman, husband and wife, by not offering them the right to operate the new locations built in their restaurants’ immediate vicinity. The Brymans filed their breach of contract lawsuit in February 2016 to protect their Lancaster, California restaurants.

The article explained the award stating,

Impact damages suffered by the Brymans totaled $2.63 million due to El Pollo Loco Inc.’s breach of the implied covenant of good faith and fair dealing when the company built the corporate restaurant at the Costco Center, and lost opportunity damages totaled $2.78 million after the franchisor did not offer the location to the Brymans when it became available, the jury said. Impact damages totaled $1.72 million, and lost opportunity damages totaled $1.70 million for the restaurant at Avenue J, according to the verdict.

Attorney Robert Zarco of Zarco Einhorn Salkowski & Brito told Law360 that El Pollo Loco did not undertake any significant efforts to develop new restaurants in Lancaster for more than 15 years. He said, “But after the company’s then owner, private equity shops Trimaran Capital Partners, took the company public in 2014, El Pollo Loco began an aggressive campaign to grow its restaurants.”

In the first liability phase of the trial last December, the same 12-member Lancaster jury ruled in favor of the franchisees after four weeks of proceedings. Zarco said the jury “sympathized” with his clients after hearing that they had already done their due diligence on opening another store in Lancaster, which later was used by El Pollo Loco for its own benefit.    

Zarco emphasized that this is a “precedent-setting case where the doctrine of the implied covenant of good faith and fair dealing has been reaffirmed and upheld.” The franchisees are seeking $2 million in attorneys’ fees and costs in addition to the $8.8 million damages award.

Attorneys James M. Mulcahy and Kevin A. Adams of Mulcahy LLP, representing El Pollo Loco, did not respond to a request for comment by Law360.

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