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GNC Franchising LLC v. Khan

March 3, 2008

GNC FRANCHISING LLC, FORMERLY KNOWN AS GNC FRANCHISING INC., AND GENERAL NUTRITION CORP., PLAINTIFFS,
v.
SOHAIL KHAN, SALEEM KHAN, AND CHAUDHRY BROTHERS CORP., DEFENDANTS,
AND SOHAIL KHAN AND SALEEM KHAN,
v.
GNC FRANCHISING LLC, FORMERLY KNOWN AS GNC FRANCHISING INC.



The opinion of the court was delivered by: Nora Barry Fischer United States District Judge

Judge Nora Barry Fischer

OPINION

The instant action arises out of a series of franchise agreements as well as other accompanying agreements entered into between Plaintiffs GNC Franchising LLC and General Nutrition Corporation (collectively, "Plaintiffs" or "GNC") and Defendants Sohail Khan and Saleem Khan ("Khans") as well as Chaudhry Brothers Corporation (collectively, "Defendants"). According to the Plaintiffs, Defendants failed to make payments on all of their agreements, leading to the instant federal action in which GNC alleges five counts of breach of contract. According to the Khans, Plaintiffs' engaged in deceptive business practices including its corporate competition program favoring corporate stores over franchise stores making it impossible for them to fulfill their contractual obligations, which led to the Khans Defendants filing a separate action in state court alleging breach of contract, negligent misrepresentation, and tortious interference with existing/prospective business relations, which GNC abruptly removed to this Court. In short, the business relationship between the parties deteriorated, culminating in two federal actions, consolidated herein.

For the following reasons, GNC's Motion for Summary Judgment [DE 56] will be granted in part and denied in part and GNC's Motion to Strike the Declarations of Sohail Khan, Saleem Khan, and Choudhury Muzaffer [DE 66] will be denied as moot.

FACTS

The Court notes that Defendants failed to provide a concise statement of material facts in response to GNC's Statement of Material Facts (Docket No. 58) ("SOF") in violation of Local Rule 56.1(E).*fn1 See W.D. Pa. L.R. 56.1(E) ("Alleged material facts set forth in the moving party's Concise Statement of Material Facts or in the opposing party's Responsive Concise Statement, which are claimed to be undisputed, will for the purposes of deciding the motion for summary judgment be deemed admitted unless specifically denied or otherwise controverted by a separate concise statement of the opposing party"). As a consequence, for purposes of the instant motion, the facts set forth in Plaintiffs' SOF are deemed admitted by Defendants. See Ferace v. Hawley, No. 05-1259, 2007 U.S. Dist. LEXIS 71437, at *2 n.1 (W.D. Pa. Sept. 26, 2007); Benko v. Portage Area School Dist., No. Civ. A. 03-233J, 2006 WL 1698317 (W.D. Pa. June 19, 2006); Smith v. Burrows Corp., No. Civ. A. 00-1972, 2005 WL 2106594 (W.D. Pa. Aug. 31, 2006); Loving v. Borough of East McKeesport, No. 2:02CV1727, 2005 WL 3560661 (W.D. Pa. Dec. 29, 2005).

Plaintiffs are Pennsylvania corporations with their principal place of business located at 300 Sixth Avenue, Pittsburgh, PA 15222. (Docket No. 4, Plaintiff's Amended Complaint, at ¶¶ 1-2) (hereinafter, "Amended Complaint"). Plaintiff General Nutrition Corporation is a retailer of nutritional and specialty supplements and sports nutrition, diet, and energy products. (Amended Complaint, at ¶ 8). Plaintiff GNC Franchising LLC franchises outlets for the retail sale of nutritional and specialty supplements and sports nutrition, diet and energy products. (Amended Complaint, at ¶ 9). Defendant Sohail Khan is a resident of Chicago, Illinois and acting President of Defendant Chaudhry Brothers Corporation. (Amended Complaint, at ¶ 3). Defendant Saleem Khan is a resident of Des Moines, Iowa and acting Secretary and/or Director of Defendant Chaudhry. (Amended Complaint, at ¶ 4). Defendant Chaudhry is an Iowa corporation with its principal place of business located at 3401 Valley Ridge Court, West Des Moines, IA 50265. (Amended Complaint, at ¶ 5).

Plaintiffs assert that they entered into a series of contracts with Defendants for four GNC franchise stores at the following locations: (1) Ames, Iowa; (2) Altoona, Iowa; (3) Skokie, Illinois; and (4) Des Moines, Iowa. On June 28, 2001, GNC and Defendant Sohail Khan entered into a Franchise Agreement granting Defendant Sohail Khan the right to operate a GNC store located in Ames, Iowa (the "Ames Franchise Agreement"). (SOF at ¶ 1). On September 27, 2001, GNC and Defendant Chaudhry entered into a Franchise Agreement granting Defendant Chaudhry the right to operate a GNC store located in Altoona, Iowa (the "Altoona Franchise Agreement"). (SOF at ¶ 32). On March 22, 2002, GNC and Defendant Sohail Khan entered into a Franchise Agreement granting Defendant Sohail Khan the right to operate a GNC store located in Skokie, Illinois (the "Skokie Franchise Agreement"). (SOF at ¶ 65). On September 19, 2002, GNC and Defendant Sohail Khan entered into a Franchise Agreement granting Defendant Sohail Khan the right to operate a GNC store located in Des Moines, Iowa (the "Des Moines Franchise Agreement"). (SOF at ¶ 90). In connection with each of the franchise agreements, the parties executed promissory notes*fn2 (see SOF at ¶¶ 16, 49, 106) and product sales agreements (see SOF at ¶¶ 11, 44, 75, 100) (hereinafter collectively, "Associated Agreements") as well as subleases (see SOF at ¶¶ 28, 61, 86, 112).

On January 20, 2005, as a result of non-payment, Plaintiffs served Defendants with financial default notices for all four stores, in which, Plaintiffs stated that Defendants did not dispute the outstanding financial balances but they failed to cure the deficiencies. (SOF at ¶¶ 116-118). On March 1, 2005, Plaintiffs prepared a short-term payment plan requiring Defendants Sohail Khan and Saleem Khan to make certain note, rent, royalty, and advertising payments ("Payment Plan"). (SOF at ¶ 119). Plaintiffs assert that Defendants Sohail Khan and Saleem Khan failed to fully discharge their obligations listed in the Payment Plan. (SOF at ¶ 121). As a result, on June 17, 2005, Plaintiffs terminated each Franchise Agreement and Sublease. (SOF at ¶ 122).

PROCEDURAL HISTORY

On September 26, 2005, Plaintiffs filed their original Complaint. (Docket No. 1). On January 11, 2006, Plaintiffs filed an Amended Complaint. In their Amended Complaint, Plaintiffs assert the following claims: (1) breach of contract against Defendant Sohail Khan for the Ames, Skokie, and Des Moines Franchise Agreements as well as the Skokie and Des Moines Product Sales Agreements and Promissory Notes, in which Plaintiffs claim that Plaintiff GNC Franchising performed all obligations under each agreement and Defendant Sohail Khan failed to make payments for royalties, advertising, and finance fees and therefore is in default of his obligations; (2) breach of contract against Defendant Chaudhry for the Ames and Altoona Franchise Agreements, in which Plaintiffs claim that Plaintiff GNC Franchising performed all obligations under each agreement and Defendant Chaudhry failed to make payments for royalties, advertising, and finance fees and therefore is in default of its obligations; (3) breach of contract against Defendants for the Ames and Altoona Product Sales Agreements, Promissory Notes, and Revised Promissory Notes, in which Plaintiffs claim that Plaintiff GNC Franchising performed all obligations under each agreement and Defendants failed to make payments for royalties, advertising, and finance fees and therefore are in default of their obligations; (4) breach of contract against Defendant Sohail Khan for the Ames, Skokie, and Des Moines Subleases, in which Plaintiffs claim that Plaintiff GNC Franchising performed all obligations under each agreement and Defendant Sohail Khan failed to make payments and therefore is in default of his obligations; (5) breach of contract against Defendants for the Altoona Sublease, in which Plaintiffs claim that Plaintiff GNC Franchising performed all obligations under each agreement and Defendants failed to make payments and therefore is in default of his obligations. (Amended Complaint at 8-14). On February 1, 2006, Defendants filed their Answer to Amended Complaint. (Docket No. 7).

On March 3, 2006, GNC Franchising LLC, formerly known as GNC Franchising, Inc., removed to this Court a Complaint originally filed in the Court of Common Pleas of Allegheny County, Pittsburgh, Pennsylvania, filed by the Khans on or about January 4, 2006. This second action was filed at Civil Action No. 06-00283.

Subsequently, on March 21, 2006, Judge Arthur J. Schwab, the former presiding Judge on the instant matter*fn3 , ordered that the Complaint at Civil Action No. 06-283 filed by the Khans be consolidated with this action (as the lead case) "for all purposes." (Docket No. 14, at 1).*fn4

On July 16, 2007, Plaintiffs filed GNC's Motion for Summary Judgment and Brief in Support. (Docket Nos. 56 & 57) (collectively, "Plaintiffs' Motion"). On August 10, 2007, Defendants filed their Memorandum of Law in Opposition to Motion for Summary Judgment. (Docket No. 63) ("Defendants' Opposition"). On August 17, 2007, Plaintiffs filed their Reply in Support of GNC's Motion for Summary Judgment, (Docket No. 64), as well as GNC's Motion to Strike the Declarations of Sohail Khan, Saleem Khan, and Choudhury Muzaffer. (Docket No. 65). On August 27, 2007, Plaintiffs filed a Notice of Recent Third Circuit Opinion, attaching a recent, not precedential Opinion, which, Plaintiffs assert, support their position. (Docket No. 67). On August 28, 2007, Defendants filed their Response in Opposition to GNC's Motion to Strike the Declarations of Sohail Khan, Saleem Khan and Choudhury Muzaffar. (Docket No. 68). On September 4, 2007, Plaintiffs filed their Reply in Support of GNC's Motion to Strike the Declarations of Sohail Khan, Saleem Khan and Choudhury Muzaffar. (Docket No. 71).

Accordingly, both motions are fully briefed and ripe for disposition.

CHOICE OF LAW

The Franchising Agreements as well as the Sales Agreements and the Sublease Agreements provide for the application of the law of the Commonwealth of Pennsylvania. Moreover, neither of the parties raise choice of law but instead both Plaintiffs and Defendants cite to and rely upon Pennsylvania law. Rochez Bros., Inc. v. North American Salt Co., Inc., Civ. A. No. 94-1131, 1994 WL 735932, at *6 n.8 (W.D. Pa. 1994) (citing Schiavone Construction Co. v. Time, Inc., 735 F.2d 94, 96 (3d Cir. 1984)) ("Because the parties appear to implicitly agree on the applicable choice of law, this Court will not challenge their decision"). Therefore, the Court finds that Pennsylvania law applies in all instances in this matter.

STANDARD

Summary judgment may only be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Pursuant to Rule 56, the Court must enter summary judgment against the party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A motion for summary judgment will not be defeated by the mere existence of some disputed facts, but will be defeated by the mere existence of some disputed facts, but will be defeated when there is a genuine issue of material fact. Anderson v. Liberty Lobby, 477 U.S. 242 (1986).

In evaluating the evidence, the Court must interpret facts in the light most favorable to the non-moving party, and draw all reasonable inferences in their favor. Watson v. Abington Twp., 478 F.3d 144, 147 (3d Cir. 2007). Initially, the burden is on the moving party to demonstrate that the evidence in the record creates no genuine issue of material fact. Conoshenti v. Public Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir. 2004). The dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). In determining whether the dispute is genuine, the court's function is not to weigh the evidence or to determine the truth of the matter, but only to determine whether the evidence of record is such that a reasonable jury could return a verdict for the non-moving party. Id. at 249. The court may consider any material or evidence that would be admissible or usable at trial in deciding the merits of a motion for summary judgment. Horta v. Sullivan, 4 F.2d 2 (1st Cir. 1993) (citing Wright and Miller, Federal Practice § 2721); Pollack v. City of Newark, 147 F. Supp. 35, 39 (D.N.J. 1956), aff'd, 248 F.2d 543 (3d Cir. 1957), cert. denied, 355 U.S. 964 (1958) ("in considering a motion for summary judgment, the court is entitled to consider exhibits and other papers that have been identified by affidavit or otherwise made admissible in evidence").

While the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing that the admissible evidence in the record would be insufficient to carry the non-movant's burden of proof at trial. Celotex, 477 U.S. at 322-323. Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond its pleadings, and designate specific facts by the use of affidavits, depositions, admissions, or answers to interrogatories showing that there is a genuine issue for trial. Id. at 324. The nonmoving party "cannot simply reassert factually unsupported allegations contained in its pleadings." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989).

ANALYSIS

The Plaintiffs seek summary judgment as to the claims alleged in their Amended Complaint as well as the counterclaims alleged by the Khans. ...


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