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COTTMAN TRANSMISSION SYSTEMS, LLC v. BENCE

April 5, 2004.

COTTMAN TRANSMISSION SYSTEMS, LLC, Plaintiff,
v.
RONALD BENCE, Defendant



The opinion of the court was delivered by: BERLE M. SCHILLER, District Judge

MEMORANDUM AND ORDER

This action arises out of a dispute between Plaintiff Cottman Transmission Systems, LLC ("Cottman") and its franchisee, Defendant Ronald Bence. In response to Plaintiff's complaint, Defendant asserted the following counterclaims: breach of contract; violation of the Michigan Franchise Investment Law ("MFIL"); tortious interference with existing contracts; and tortious interference with prospective contracts. Presently before this Court is Plaintiff's motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) on all of Defendant's counterclaims except for breach of contract. For the following reasons, Plaintiff's motion is granted.

I. BACKGROUND

  In September 2000, Defendant entered into several agreements with Cottman to acquire and operate a Cottman Transmission Center in East Lansing, Michigan. As part of this transaction, the parties executed a license agreement ("License Agreement") that granted Defendant the right to use the Cottman name and trademarks. The License Agreement also contained a choice of law provision that specified that "any matter whatsoever which arises out of or is connected in any way with the Agreement or the franchise shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania." (License Agreement ¶ 28.) The License Agreement, including its choice of law provision, was reviewed by Defendant's Michigan-based attorney before it was executed. (Todd Leff Aff. ¶ 6.)

  In November 2002, Cottman initiated an audit of Defendant's franchise which, in turn, provoked a series of events that culminated in the instant action. According to Cottman, the audit revealed that Defendant was under-reporting sales in violation of the License Agreement, a charge that Defendant has consistently denied. Nonetheless, on February 3, 2003, Cottman responded by disconnecting the telephone lines at Defendant's franchise and redirecting all calls to nearby franchises until February 7, 2003, when Cottman assumed management of Defendant's franchise.

 II. STANDARD OF REVIEW

  Federal Rule of Civil Procedure 12(c) permits a party to move for judgment "after the pleadings are closed but within such time as not to delay the trial." FED. R. CIV. P. 12(c). A party moving for judgment on the pleadings under Rule 12(c) must demonstrate that there are no disputed material facts and that judgment should be entered in its favor as a matter of law. See Jablonski v. Pan Amer. World Airways, Inc., 863 F.2d 289, 290 (3d Cir. 1988). In evaluating a Rule 12(c) motion, a court must view the pleadings in the light most favorable to, and draw all inferences in favor of, the nonmoving party. See Soc'y Hill Civic Ass'n v. Harris, 632 F.2d 1045, 1054 (3d Cir. 1980).*fn1 III. DISCUSSION

  Plaintiff moves for judgment on the pleadings with respect to Defendant's counterclaim under the MFIL and his counterclaims for tortious interference with both current and prospective contracts. I will address each claim in turn.

  A. Michigan Franchise Investment Law

  Plaintiff asserts that Defendant's counterclaim under Michigan law is barred by the choice of law provision contained in the License Agreement. In opposition, Defendant argues that his claim under MFIL is not barred as there is no similar protection provided under Pennsylvania law.*fn2 Pennsylvania courts generally enforce express choice of law provisions in contracts provided that: (1) the transaction bears a "reasonable relationship" to the state whose law is chosen to govern; and (2) the chosen law does not violate a "strong public policy" that would otherwise protect a party.*fn3 Cottman Transmission Sys., Inc. v. Melody, 869 F. Supp. 1180, 1183 (E.D. Pa. 1994). This standard is designed to honor the intent of contracting parties, Nationwide Mut. Ins. Co. v. West, 807 A.2d 916, 920 (Pa. Super. 2002), particularly where, as in this case, both parties to the contract were represented by counsel. In determining if application of the chosen law would be contrary to a fundamental policy of the other state, a court must examine whether there are "significant differences" between the two states' laws and whether "the choice of Pennsylvania law would cause a `substantial erosion' of the quality of protection afforded" under the other state's law. Cottman, 869 F. Supp. at 1186 (citing Banek Inc. v. Yogurt Ventures, U.S.A., Inc., 6 F.3d 357, 362 (6th Cir. 1993)).

  In the present case, the first prong of the choice of law inquiry is clearly satisfied. Defendant's purchase of the Cottman franchise bears a reasonable relationship to Pennsylvania because Cottman's principal place of business is located in Pennsylvania, the License Agreement, Note and other contract documents were executed at Cottman's home office in Pennsylvania, and Defendant attended Cottman's training program at the Pennsylvania office. Cottman, 869 F. Supp. at 1184 (finding reasonable relationship in similar circumstances.)

  Under the second prong, this Court must decide whether applying Pennsylvania law in lieu of the Michigan Franchise Investment Law, MICH. COMP. LAWS ANN. § 445.1501 (2004), would violate the strong public policy of Michigan. Defendant's claim under MFIL is that Cottman failed to provide the requisite disclosures pursuant to MICH. COMP. LAWS ANN. § 445.1508(1)-(3) (2004). (Compl. ¶¶ 156-162.) The main thrust of these MFIL claims, however, is that Defendant was not provided with sufficient and accurate information when he entered into the franchise relationship with Cottman. As Cottman points out, under Pennsylvania common law, Defendant may pursue a claim for fraud or material misrepresentation and still be eligible for damages or rescission, the same remedies that are available under MFIL for a violation of disclosure obligations. See MICH. COMP. LAWS ANN. § 445.1531; Nat'l Bldg. Leasing v. Byler, 381 A.2d 963, 965 (1977).

  Thus, even though Pennsylvania does not have a law mandating disclosure requirements analogous to the MFIL, Bence has not demonstrated that he will suffer a substantial erosion of the protections afforded a franchisee if left to a common law action for fraud and material misrepresentation. See Banek, 6 F.3d at 363 (holding that application of Georgia law instead of MFIL would not violate fundamental policy of Michigan and noting that plaintiff could pursue common law fraud claim); Cottman, 869 F. Supp. at 1187 ("[M]erely because Pennsylvania does not have a statute analogous to the CFIL [California Franchise Investment Law] does not mean that there has been a `substantial erosion' of protections afforded a franchisee."). Furthermore, while the MFIL exhibits Michigan's public policy of protecting franchisees, it demonstrates a simultaneous desire to make Michigan an attractive location for such businesses by permitting franchisors to include choice of law clauses in their franchise contracts. Banek, 6 F.3d at 360. Thus, Defendant will not suffer a ...


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