The opinion of the court was delivered by: JOHN FULLAM, Senior District Judge
Plaintiffs are RAECO Investment Partnership, Michael Crawford,
Steven Belli and Dirk Flote, who owned Data Dynamics, Inc., and
its successor-in-interest, Titan Technologies Group, LLC
("Titan"). Defendants are SAP AG, a large German software
concern, its wholly-owned subsidiary SAP America, Inc., and Hasso
Plattner, a German citizen who is co-Chairman and CEO of SAP AG
and Chairman of SAP America.
In March 1997, Data Dynamics entered into a "Provider
Agreement" with SAP America to act as SAP's exclusive sales agent
for computer software in a specified territory. A couple of
months later, before any significant sales had occurred,
plaintiffs decided to form a new company, Titan, to carry out the
contract, independently from Data Dynamics' other activities, and
SAP thereupon consented to the assignment of the Provider
Agreement to Titan. SAP had previously been very successful in marketing its
software program to large companies ("Fortune 500 companies");
its Provider Agreement was part of an effort by SAP America to
market its software program to smaller end-users, (i.e., those
having less than $200 million in annual revenues). Titan enjoyed
considerable success in marketing SAP's program, and the
"Provider Agreement" was proving quite profitable to both Titan
and SAP. In late 1998, however, plaintiffs sought to sell their
ownership interests in Titan to another company, Modis.
Defendants objected to the proposed sale, and Modis decided not
to go through with the purchase. A few months later, in mid-1999,
plaintiffs did sell their ownership interests in Titan to another
firm, Condor. Plaintiffs then brought this action, asserting
numerous claims arising out of their former relationship with
In its final form plaintiffs' (fourth) amended complaint
asserts claims for negligent misrepresentation, fraud and
misrepresentation, interference with contract, interference with
prospective advantage, violation of the New Jersey Franchise
Practices Act, breach of contract, breach of contract implied
covenant of faith and fair dealing, promissory estoppel,
equitable estoppel and breach of fiduciary duty. Defendants have
moved for summary judgment on all counts.
Most of plaintiffs' claims require little discussion. Since the plaintiffs were not parties to the Provider Agreement,
they cannot successfully assert claims for breach of that
contract. Neither can they successfully contend that they were
fraudulently induced to enter into the Provider Agreement.
Moreover, the summary judgment record is conspicuously lacking in
any evidence to support any claim of fraud or misrepresentation
by anyone in connection with the Provider Agreement.
If anyone was induced to enter into the Provider Agreement, it
was Titan. If there was a breach of the Provider Agreement, only
Titan has standing to complain. It is reasonably well settled
that a corporate shareholder does not have "standing to maintain
an action in his own right, as a shareholder, when the alleged
injury is inflicted upon the corporation and the only injury to
the shareholder is the indirect harm which consists in the
diminution of value of his corporate shares resulting from the
impairment of corporate assets." Kauffman v. Dreyfus Fund,
Inc., 434 F.2d 727, 732 (3d Cir. 1970), cert. denied,
401 U.S. 974 (1971). See also eds Adjusters, Inc. v. Computer Sciences
Corp., 818 F. Supp. 120 (E.D. Pa. 1993).
If, however, the Provider Agreement constituted a franchise
within the ambit of the New Jersey Franchise Practices Act, NJSA
56:10-1 et seq., plaintiffs would, at least under some
circumstances, have standing to complain about violations of that
statute, since it protects not only corporate franchisees, but "the individual officers, directors and other persons in active
control of the activities of each such entity," NJSA 56:10-3(b).
And plaintiffs undoubtedly have standing to pursue claims that
their individual rights were infringed because defendants
tortiously interfered with their contacts actual or prospective
to sell their shares in Titan to the Modis firm. These two sets
of potential claims will now be discussed.
I. Claims under the New Jersey Franchise Practices Act
Read literally, it would seem that the statute is sufficiently
broad to encompass the Provider Agreement arrangements. The
statute defines "franchise" as follows:
"A written arrangement for a definite or indefinite
period, in which a person grants to another person a
license to use a trade name, trade mark, service
mark, or related characteristics, and in which there
is a community of interest in the marketing of goods
or services at wholesale, retail, by lease,
agreement, or otherwise." (§ 10-3).
The statute applies to any such arrangement where it is
contemplated that the franchisee will establish or maintain a
place of business in the State of New Jersey, and where the gross
sales exceed $35,000 per year and more than 20 percent of
revenues are generated by the franchise.
The Provider Agreement with Titan may very well not have been
the type of arrangement contemplated by the Legislature in enacting the franchise statute: Although Titan maintained a
place of business in New Jersey, most of its sales and other
activities took place at its customers' establishments; and the
computer software industry differs markedly from the kinds of
businesses which typically involve franchises, such as fast-food
chains or automobile dealerships.
The Provider Agreement between Titan and SAP included the
"¶ 18.9 Relationship. This Agreement shall not be
construed as creating a partnership, joint venture,
agency relationship, or granting a franchise under
any applicable laws."
For reasons not immediately apparent, the parties' briefs do not
focus upon the import of this language. The contract provision
may have been viewed as running afoul of a provision in the New
Jersey Franchise Practices Act which makes it a violation of the
statute for any franchisor:
"(a) To require a franchisee at the time of entering
into a franchise arrangement to assent to a release,
assignment, novation, waiver or estoppel which would
relieve any person from liability imposed by this
An argument can be made that when sophisticated businessmen,
after prolonged negotiations, agree that they are not entering
into a franchise, the Act simply has no application. There is
also room for argument that an agreement not to enter into
franchise arrangement cannot plausibly be regarded as "a release, assignment, novation, waiver or estoppel which would relieve any
person from liability imposed by [the act]."
For present purposes, I will assume that plaintiffs may be able
to demonstrate at trial that they were "required" to accept that
provision in the contract, and that they were pressured into
surrendering their rights under the franchise statute.
Since the Provider Agreement can be regarded as fitting the
definition of a franchise, I shall assume that the Act does