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Friedman v. Yula

January 15, 2010

ALLAN FRIEDMAN, ET AL., PLAINTIFFS,
v.
ANTHONY YULA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Eduardo C. Robreno, J.

MEMORANDUM

I. BACKGROUND

Plaintiffs Allan and Cherie Friedman (collectively, "Plaintiffs")*fn1 initiated this action against corporate Defendant Power to the Games, Inc. ("PGI") and individual Defendants Anthony Yula ("Yula"), Christopher Vecchione ("Vecchione"), Steven Comer, Rayna Comer and Barry Green ("Green") (collectively "Defendants"),*fn2 alleging that Defendants conspired in a scheme to defraud Plaintiffs and other business owners, with the goal of acquiring Plaintiffs' vending business, in violation of RICO and various state common laws.*fn3 Plaintiffs seek damages in excess of $1 million for the allegedly fraudulent acts of Defendants, spanning from 2002 to the present.

In 2002, Defendant PGI was formed by the individual defendants*fn4 for the purpose of acquiring Apple Vending ("Apple"), a profitable Philadelphia vending company. In order to raise the capital needed to purchase Apple, Plaintiffs allegedly granted Defendant Green both the stock block and Board control to insure his financial commitment, later memorialized in the PGI Shareholder Agreement, dated September 22, 2003. Id. Ex. A.

In January 2004, PGI formally acquired Apple with Defendant Green agreeing to act as the largest financial backer. See Amend. Compl. 8. Shortly thereafter, PGI expanded by purchasing other vending companies and/or enlarging those vending routes. Plaintiffs contend that PGI acquired companies by, each time, forming a new corporation as a wholly-owned subsidiary and/or affiliate company, fully owned and run by Defendants, which PGI would control through a management contract.*fn5

For the past two decades, Plaintiff Allan Friedman was the sole proprietor of Delaware County Amusements ("DCA"), a business that provided coin-operated vending machines to commercial establishments. In early 2004, Defendant Vecchione approached Plaintiff Robert Friedman and proposed a merger between PGI and DCA, alleging Apple was worth $6 million of which Robert would become an equity partner.*fn6 See Amend. Compl. 11.

To effectuate the acquisition, Allan Friedman transferred sole ownership of DCA to his son, Robert Friedman,*fn7 who then executed the merger with PGI by signing a Letter of Intent and a Confidentiality Agreement on August 20, 2004. See Amended Compl. Exs. B & C.

On September 1, 2004, Plaintiff Robert Friedman signed a one-year Employment Agreement with Defendants, naming him the sole owner and President of Del Amusement, Inc. ("DAI"), the successor to DCA. Id. According to the Employment Agreement, Plaintiff Robert Friedman would receive a salary of $150,000 in exchange for performing sales, merchandising, and customer relations functions for DAI, "as defined by PGI."*fn8 Additionally, under the Employment Agreement, Robert Friedman would receive profit sharing interest, to be triggered at the expiration of the Employment Agreement if Plaintiff Robert Friedman's employment was extended.*fn9 Id. Ex. D.

On October 14, 2004, the parties executed a Management Agreement, referenced in the Employment Agreement, giving PGI control over the essential functions of DAI's business. Id. Ex. E. Once the Management Agreement was executed, Defendants sold a key DCA asset, its cigarette route, cigarette machines and inventory, with no prior notice to, permission of, or compensation of Plaintiffs. Then, in 2005, upon the expiration of the Employment Agreement, Plaintiff Robert Friedman's profit participation interest was triggered, allegedly by adoption of the Phantom Stock Plan. Id.

From December 6, 2004, through present, Defendants have created eight (8) known companies, for the alleged purpose of acquiring other corporations. Id. at 15.*fn10 Plaintiff Robert Friedman was allegedly guaranteed a 5% profit interest at the end of the first-year of the Employment Agreement and 20% ownership interest in the 8 other companies. However, Plaintiffs allege that by manipulating and under-reporting DAI and PGI entities' revenues, Steven and Rayna Comer not only refused to honor Robert's 5% profit interest, but induced him to "buy in" again for an additional $140,000 in cash based on the alleged under-performance of DAI, as memorialized in the "Joinder Agreement," on September 9, 2005. Id. at Ex. G at ¶ 98. Plaintiff Allan Friedman provided $75,000 of the $140,000 for his son to "buy in," for a second time, his interest in DAI. Id. at ¶ 97.

The "Joinder Agreement" bound Plaintiff Robert Friedman to other restrictive covenants, including but not limited to a covenant not to compete. Further, the Joinder Agreement explicitly stated that Plaintiff Robert Friedman's "rights under his Employment Agreement, the Profit Participation Agreement, the Phantom Stock Agreement, and the Management Agreement, shall be subject to the arbitration provisions of Section 11 of the Shareholders Agreement." See Pls.' Amended Compl., Ex. G. at ¶ 2(e). Here, Plaintiffs argue that because Plaintiff Robert Friedman never actually saw a physical copy of the PGI Shareholders' Agreement, he cannot be bound by the provisions therein.

On June 28, 2007, Plaintiff Robert Friedman was allegedly wrongfully terminated from his employment at PGI.*fn11

Plaintiffs aver that, based on the cash nature of the vending industry, Defendants have conspired and perpetrated a large-scale scheme wherein PGI effectuates takeovers of vending businesses, creates wholly-owned subsidiaries and affiliates, skims cash off the top to falsely declare under-performing,*fn12 and then invokes performance-based agreements from the owner-sellers. In doing so, Plaintiffs aver that Defendants strip the sellers of "their businesses for a small fraction of the negotiated sale price." Id. at 20.

In September 2007, Defendant Green approached Plaintiffs and confessed to the fraudulent vending machine activity. Green and his counsel met with Plaintiffs and agreed to a collaboration on a RICO-complaint, with Green providing insider knowledge. However, Green ultimately refused to join the instant litigation as a Plaintiff once he had restored his relationship with Defendants.

On October 17, 2008, Plaintiffs Robert and Allan Friedman commenced this action and, on March 2, 2009, Defendants responded by filing motions to dismiss, pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), or, alternatively, to stay proceedings and compel arbitration.*fn13

On June 16, 2009, after the sudden death of Plaintiff Robert Friedman, the Court granted Plaintiffs' motion to substitute, Cherie A. Friedman, as executrix, pursuant to Fed. R. Civ. P. 25.

II. ANALYSIS*fn14

A. DEFENDANTS' MOTIONS TO DISMISS OR, IN THE ALTERNATIVE, STAY AND ...


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