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Williams v. Stone

March 26, 1997

MICHAEL WILLIAMS; MARILYN WILLIAMS, H/W, SOLE SHAREHOLDERS IN AND ON BEHALF OF HELENED INCORPORATED, A DISSOLVED PENNSYLVANIA CORPORATION,

APPELLANTS

v.

ELLIOTT W. STONE; HAROLD G. STONE; RICHARD ABT; JOHN L. BARRY; AL BISCARDI



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 96-cv-00014)

BEFORE: COWEN, ALITO and ROSENN, Circuit Judges

COWEN, Circuit Judge.

Argued January 9, 1997

Filed March 26, 1997

OPINION

Plaintiffs appeal from the April 16, 1996, judgment of the district court granting defendants' motion to dismiss the amended complaint pursuant to Fed. R. Civ. P. 12(b)(6). See Williams v. Stone, 923 F. Supp. 689 (E.D. Pa. 1996). We will affirm the judgment of the district court, although on different grounds than those relied upon by the district court.

I.

West Coast Video Enterprises, Inc. ("WCVE") is a Pennsylvania corporation with its principal place of business in Pennsylvania. WCVE sells franchises for retail video rental businesses operating under the name "West Coast Video." WCVE supplies its franchisees with equipment, computers, software, video films, expertise, and training in the operation of retail video rental businesses. By September of 1986, WCVE had at least 221 franchises in fourteen states, including eleven in Maryland. Defendants are executives, employees, and agents of WCVE (collectively "WCV").

In June of 1985, plaintiffs Michael and Marilyn Williams, residents of Pennsylvania, visited a WCVE store located in Philadelphia for the purpose of investigating the purchase of a WCVE franchise. By November of 1988, defendant John Barry, Vice President of Franchise Development for WCVE, had written the Williamses twice and phoned them six times concerning their prospective purchase of a franchise.

In March of 1989, the Williamses visited WCVE corporate headquarters in Philadelphia to further investigate the purchase of a WCVE franchise. At that time executives of WCVE made a number of representations alleged to have been fraudulent. On March 29, 1989, the Williamses, acting through their wholly-owned corporation, Helened, Inc., purchased a WCVE franchise located in Ocean City, Maryland pursuant to a written franchise agreement ("the Franchise Agreement"). The Franchise Agreement was executed in Pennsylvania. Article IX, paragraph 2 of the Franchise Agreement provides: "[N]either this Agreement nor any of its rights or privileges . . . shall be assigned, transferred, mortgaged, charged, encumbered or divided in any manner by the Franchisee or anyone else unless the prior written approval of the Franchisor is obtained." App. at 209. Article IX, paragraph 2E of the Franchise Agreement provides that such approval may be conditioned on [t]he Execution by the Franchisee of a release of any and all claims against Franchisor, and the Franchisor's officers, directors, agents and employees, arising out of or related to this Agreement, which release shall contain such language and be of the form chosen by Franchisor. The release shall not release any liability specifically provided for by any state statute regulating franchising. Id. at 210.

Article XIII of the Franchise Agreement provides, in part:

"This Agreement shall be construed according to the laws of the Commonwealth of Pennsylvania . . . ." Id. at 214.

The Williamses opened the store in September of 1989. They claim that WCVE failed in several respects to abide by its obligations as set forth in the Franchise Agreement, and they sold the store to a third party some 27 months later. As a condition of WCVE's consent to this sale, the Williamses signed a release of any and all claims against WCVE and its officers, directors, agents, and employees ("the Release"). The Release was executed in Ocean City, Maryland. At the time the Release was signed, more than seven years remained on the Franchise Agreement.

The Williamses brought this action in the district court on January 2, 1996. In an amended complaint containing ten causes of action, the Williamses alleged that defendants operated WCVE as an "enterprise" in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Section(s) 1962(c) (1984). In support of their RICO claims, they alleged that WCV engaged in the following "racketeering activity," within the meaning of 18 U.S.C. Section(s) 1961(1) (Supp. 1997): (1) criminal violations of the Maryland Franchise Registration and Disclosure Act ("MFRDA"), Md. Code Ann., Bus. Reg. Section(s) 14-201 et. seq. (1992); *fn1 (2) violations of Federal Trade Commission regulations promulgated at 16 C.F.R. Section(s) 436.1 et seq., pursuant to 15 U.S.C. Section(s) 45(a)(1) (Supp. 1996); (3) violations of the Aid to Small Businesses Act, 15 U.S.C. Section(s) 645(a) (1976); ...


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