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Harold Seltzer, et al v. Dunkin' Donuts

April 20, 2011

HAROLD SELTZER, ET AL.,
PLAINTIFFS,
v.
DUNKIN' DONUTS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Pratter, J.

MEMORANDUM

INTRODUCTION

This is a dispute over a franchising relationship gone awry. Two of the Plaintiffs, Harold Seltzer and Saul Levitt (together, "the Franchisees"), allege that Dunkin' Donuts, Inc., Baskin-Robbins USA, and Dunkin' Donuts Franchised Restaurants (collectively, "Dunkin' Donuts") breached a contract pursuant to which Messrs. Seltzer and Levitt would have opened a number of Dunkin' Donuts or Baskin-Robbins franchises in the area of York, Pennsylvania.

The four remaining Plaintiffs -- AAA Development & Management, AAA Development Group, AAA Yowza and Yowza Enterprises (collectively, "the Entity Plaintiffs"), a collection of business entities related to the Franchisees -- each assert a set of four nearly-identical claims against Dunkin' Donuts, all stemming from the breakdown of the franchising relationship between the Franchisees and Dunkin' Donuts.

Dunkin' Donuts has moved to dismiss all of the Entity Plaintiffs' 16 claims. For the reasons set forth below, the Motion to Dismiss will be granted in part and denied in part.

JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. The Dunkin' Donuts Defendants are Delaware corporations based in Massachusetts; Mr. Seltzer is a citizen of New Jersey; Mr. Levitt is a citizen of Maryland; the Entity Plaintiffs are citizens of New Jersey; and the amount in controversy substantially exceeds $75,000.*fn1

FACTUAL AND PROCEDURAL BACKGROUND

For the purposes of a motion to dismiss, facts alleged in the complaint are considered to be true. On that basis, the facts are as follows.

In July of 2005, the Franchisees entered into a Store Development Agreement ("the SDA") with Dunkin' Donuts. The SDA granted the Franchisees the right to open a specified number of Dunkin' Donuts shops pursuant to a schedule, but required that they obtain Dunkin' Donuts' written approval for each location at which they proposed to develop a shop. Article 6 of the SDA notes that "each [franchise] location proposed to be acquired by [the] Developer shall be submitted in writing in advance to [the] Licensor [i.e., Dunkin' Donuts] for approval." Article 19 specifies that "[n]o amendment, change, or variance from this Agreement shall be binding on either party unless executed in writing."*fn2

The Entity Plaintiffs were not parties to the SDA between the Franchisees and Dunkin' Donuts. (In fact, each of them appears to have been created after it was signed.) Based upon the Complaint and the Motion to Dismiss, however, it is clear that they were intimately related to the Franchisees, and indeed existed principally or solely to develop, own and/or operate franchises that would be created pursuant to the SDA. The Complaint indicates that AAA Development & Management ("AAA Development") contracted with the Franchisees to develop all of the shops contemplated by the SDA; that the AAA Development Group ("the AAA Group") was created to operate a specific shop on South George Street in York ("the South George Property"); that AAA Yowza was created to own another on Mount Rose Avenue in York ("the Yowza Property"); and that Yowza Enterprises was created to operate the Yowza Property.*fn3

According to the Plaintiffs, Dunkin' Donuts provided "unconditional" approval of the South George Property, as was required under the terms of the SDA. The Complaint alleges that after receiving this approval, and in reliance upon its legal force, and with the full knowledge of Dunkin' Donuts, the AAA Group leased the South George Property from its owner, and the AAA Group, AAA Development, and the Franchisees expended time and money on its development. Yet, according to the Plaintiffs, Dunkin' Donuts reversed itself without warning or justification, revoking its approval and thus harming the Plaintiffs involved in this project.*fn4

The Plaintiffs claim that despite this setback, they continued to operate in accordance with the terms of the SDA. According to the Complaint, Dunkin' Donuts "unconditionally" approved a second store site, on the Yowza Property, and after receiving this approval, and in reliance upon its legal force, and with the full knowledge of Dunkin' Donuts, AAA Yowza, Yowza Enterprises and Mr. Levitt entered into some kind of lease and operation agreement in regard to the Yowza Property, and AAA Development, AAA Yowza, Yowza Enterprises and the Franchisees spent time and money on its development. (The Plaintiffs assert, for example, that they began the arduous process of obtaining development approval from township regulators, which was required before a store could open for business on the Yowza Property.)

Although the Complaint is not a model of narrative or terminological clarity, the Plaintiffs evidently believe that as they were preparing to open a store on the Yowza Property, Dunkin' Donuts undertook a clandestine plot to undermine the Plaintiffs' business interests and rights under the SDA. The goal of this alleged plot was to install another franchisee company, Men at Work, Inc., as the franchisee for all Dunkin' Donuts and Baskin-Robbins stores in the geographic area covered by the Franchisees' SDA. In service of this objective, Dunkin' Donuts allegedly began to inform the Franchisees that they were in danger of violating the SDA, so as to lay a foundation for the Agreement's future termination.*fn5

In the summer of 2007, after a period of tension regarding the pace of development of new properties under the SDA, Dunkin' Donuts allegedly threatened -- during a meeting with the Franchisees and "a representative of AAA Development and AAA Yowza" (viz., Mr. Glassman, referenced in fn. 3, supra) -- that it would claim breach of contract and terminate the SDA if the Franchisees refused to transfer their rights and obligations under the SDA either to Men at Work or to Dunkin' Donuts itself. When the Plaintiffs responded that they were already aware of other potential third-party assignees, Dunkin' Donuts allegedly told them that they should not sell their rights to any of these candidates, because Dunkin' Donuts now sought to work exclusively with larger franchisees (a category which presumably included Men at Work).

At this same meeting, Dunkin' Donuts allegedly informed the Plaintiffs that the SDA would be "extended," partly for the purpose of allowing the Franchisees to sell their rights to Men at Work or Dunkin' Donuts prior to any contractual breach (which could complicate the assignment).*fn6 The Plaintiffs also allege that they insisted, and that Dunkin' Donuts agreed, that any third-party buyer of the Franchisees' rights and obligations under the SDA would agree to develop the Yowza Property -- thereby, it seems, ...


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