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Derrick J. Johnson and F & J Holdings, Inc., and Charles v. Dunkin' Donuts Franchising L.L.C.

May 18, 2012

DERRICK J. JOHNSON AND F & J HOLDINGS, INC., AND CHARLES THOMPSON, PLAINTIFFS,
PITTSBURGH BAKER'S DOZEN, INC. AND EDWARD GANDY, INTERVENING PLAINTIFFS,
v.
DUNKIN' DONUTS FRANCHISING L.L.C., AKA DONKIN' BRANDS, INC., AKA DUNKIN' DONUTS, DEFENDANT.



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

MEMORANDUM OPINION

I. INTRODUCTION

This action involves claims of race discrimination and promissory estoppel arising from Plaintiffs Derrick J. Johnson, his entity, F & J Holdings, Inc., Charles Thompson, (collectively, "Plaintiffs") and Intervenor Plaintiffs Pittsburgh Bakers Dozen, Inc. ("PBD") and Edward Gandy's (collectively "Intervenor Plaintiffs") failed investments in renovating two buildings for the purpose of starting a donut commissary in the Pittsburgh area. (Docket Nos. 16, 27). They allege that they made the investments in the donut commissary in order to support a contractual relationship between PBD and Defendant Dunkin' Donuts ("Dunkin'"), making PBD an approved supplier to produce fresh donuts for Dunkin's local Pittsburgh franchisees. (Id.). Plaintiffs and Intervenor Plaintiffs contend that the contractual relationship was part of a broader Pittsburgh Supply Plan under which City of Pittsburgh officials and members of the Urban Redevelopment Authority ("URA") worked with Dunkin' to locate the donut commissary in an underdeveloped, minority-populated area of Pittsburgh. (Id.). They argue that Dunkin' unilaterally terminated the Pittsburgh Supply Plan as a result of the discriminatory motives of its franchisee, Heartland Coffee Company, and thereby breached certain promises to the Plaintiffs and committed race discrimination. (Id.).

Presently before the Court are Dunkin's motions to dismiss the amended complaints filed by Plaintiffs and the Intervenor Plaintiffs. (Docket Nos. 25, 31). The motions have been fully briefed and oral argument was held as to such motions on May 7, 2012. (See Docket Nos. 26, 28, 32, 33, 36, 37, 38). For the following reasons, Dunkin's motion to dismiss Plaintiffs' amended complaint [25] is granted and Dunkin's motion to dismiss Intervenor Plaintiffs' amended complaint [31] is granted, in part, and denied, in part.

II. FACTUAL BACKGROUND*fn1

As is noted above, Plaintiffs Johnson, Thompson and F & J and Intervenor Plaintiffs PBD and Gandy filed separate amended complaints against Dunkin'. (Docket Nos. 16, 27). The factual allegations set forth in these pleadings are largely the same as the Intervenor Plaintiffs have expressly incorporated many of the pertinent allegations made by Plaintiffs in their Amended Complaint, to the extent that such allegations are not inconsistent with their own allegations. (See Docket No. 27 at ¶ 3 ("Gandy and PBD incorporate by reference the following Paragraphs of the Plaintiffs' Amended Complaint: Paragraphs 1, 2, 3, 4, 5, 6, 7, 9, 10, 11, 12, 15, 17 through 69, and 75 through 90 except to the extent inconsistent with averments contained herein.")). To the extent that there are differences between the pleadings, the same are noted below.

A.The Parties

Dunkin' is a national franchisor of retail food establishments, headquartered in Massachusetts. (Docket No. 16 at ¶ 12). "Dunkin' develops and franchises retail stores that sell Dunkin' Donuts coffee, donuts, bagels, muffins, compatible bakery products, sandwiches and other beverages." (Docket No. 27 at ¶ 6). Dunkin's franchise agreements allegedly require that its franchisees only sell and source products from its approved suppliers. (Id. at ¶ 7-8). Dunkin' was purchased in 2006 by three equity capital firms which then allegedly began an extensive expansion of its franchise operations within the United States, including, among other areas, the Pittsburgh market. (Docket No. 16 at ¶ 12). As a part of this expansion into Pittsburgh, Dunkin' sought to establish relationships with potential suppliers in the Pittsburgh region to produce its products which were to be sold at the new franchise locations. (Docket No. 27 at ¶ 9).

PBD is a Pittsburgh-based entity owned by sole shareholder Edward Gandy and operated, in part, for the purpose of becoming an approved supplier of Dunkin' products and producing approved donuts and baked goods for local franchisees of Dunkin'. (Id. at ¶¶ 1-2). PBD and Gandy were assisted in their efforts for PBD to become an approved Dunkin' supplier by two independent contractors, Derrick J. Johnson and Charles Thompson. (Docket No. 16 at ¶¶ 9, 10). An entity owned and operated by Johnson, F & J Holdings, was created in July 2007 for the express purpose of purchasing PBD from Gandy. (Docket Nos. 16 at ¶¶ 10, 68; 27 at ¶¶ 4, 5). Gandy, Johnson and Thompson, are all African American businessmen in the Pittsburgh area. (Docket Nos. 16 at ¶¶ 9, 11; 27 at ¶ 2).

Although it is not named as a party in this action, Heartland Restaurant Group, LLC, f/k/a Heartland Coffee Company was also involved and is described as Dunkin's largest franchisee in the Pittsburgh area. (Docket No. 16 at ¶ 15).

B.The Pittsburgh Supply Plan & Initial Negotiations

During 2006, Dunkin' and most of the plaintiffs (including PBD, Gandy, Johnson, & Thompson) entered into negotiations concerning what became known as the Pittsburgh Supply Plan -- the purpose of which was to establish an approved bakery manufacturer for Dunkin's products which would supply and support its franchisees in the Pittsburgh area. (Docket No. 27 at ¶ 10). These plaintiffs maintain that there was an underlying social purpose of the Pittsburgh Supply Plan to bring jobs and prosperity to Homewood, an area of the City with a large minority population and also a high number of individuals who were unemployed or held low income jobs. (Docket No. 16 at ¶ 16). Thompson was the lead negotiator on behalf of PBD given his prior experience in securing contracts with UPMC and the City of Pittsburgh School District. (Docket No. 16 at ¶¶ 19, 21). Representatives from the City of Pittsburgh and the URA were also involved in these negotiations. (Id. at ¶ 17; Docket No. 27 at ¶ 10). (In addition, Gandy alleges that he borrowed $100,000.00 from the URA for the project). (Docket No. 27 at ¶ 15).

All of the plaintiffs allege that the Pittsburgh Supply Plan included, among other things, Dunkin's plan to build two commissaries in the Pittsburgh area -- one in the east and a second in the west. (Docket No. 16 at ¶¶ 13-16). PBD was ultimately selected to operate the east commissary while Lok Bakeries was selected to operate the west commissary. (Id. at ¶ 18). Plaintiffs aver that their understanding of the Pittsburgh Supply Plan was that Dunkin's local franchisees would be contractually required to purchase Dunkin' products for sale in their stores from the two commissaries -- which would be the exclusive suppliers of such goods in the area. (Id. at ¶¶ 23-24).

The parties engaged in extensive discussions throughout 2006 in order to negotiate the contract and foster business relationships. (Id. at ¶17). Johnson traveled to Detroit in September 2006, and met with one of Dunkin's consultants, Jim Green, of Jim Green and Associates. (Id. at ¶ 31). At that meeting, they toured a commissary and Green showed Johnson how it operated. (Id.).

C.Formation of Approved Bakery Manufacturing Agreement between Dunkin and PBD Dunkin and PBD entered into an Approved Bakery Manufacturing Agreement ("ABMA")*fn2 , effective December 31, 2006, which was executed by Gandy on behalf of PBD in December of 2006 and by a Dunkin' representative on January 4, 2007. See ABMA. The initial term of the ABMA is for ten (10) years to end on December 31, 2016 with an automatic renewal term of an additional ten (10) years if certain conditions specified in the ABMA were met. Id. at

2. As set forth in the Recitals portion of the ABMA, the stated purposes of the contract were that:

 Dunkin' "desires to designate an approved supplier that will manufacture and deliver approved baked goods and other products to Dunkin Donuts branded stores (the "Stores") from time to time designated by [Dunkin]. Most stores are independently owned and operated by [Dunkin's] franchisees."

 PBD "agrees to serve as such a supplier in accordance with the terms of this Agreement."

Id. The ABMA remarkably makes no mention of the fact that PBD did not have a facility at which to manufacture such products at the time of execution. It also contains no agreements, covenants, representations or warranties among the parties regarding the construction of such a facility. In all, the ABMA is silent as to construction of a commissary facility by PBD or any other person or entity. Instead, the focus of the ABMA is on PBD's manufacture of Dunkin' products in accordance with Dunkin's specifications and the supply of same to Dunkin' franchisees. To this end, the Agreement contained certain limitations, including that:

E. Manufacturer [PBD] acknowledges that Manufacturer is granted no exclusive territory or service area under this Agreement.

F. Manufacturer [PBD] acknowledges and agrees that Franchisor [Dunkin'] has made no commitment on its own behalf or on behalf of its franchisees to purchase, distribute, or to cause to be purchased or distributed any minimum amount of Products [donuts] or that Manufacturer's revenue will increase by a specified amount or percentage. To the extent that Franchisor may have provided Manufacturer with historical or estimated Product volumes, Franchisor will not be liable if Manufacturer's actual sales are less than the amount stated in such data, forecasts or projections.

ABMA, § 2, ¶¶ E and F. Additional provisions include an integration clause that states:

This Agreement sets forth the entire understanding of the parties in connection with the subject matter hereof. No party has made or relied on any statement, representation or warranty in connection herewith except as expressly set forth herein. This Agreement may only be modified in writing and signed by both parties.

Id. at § 25. A provision entitled "No Third Party Beneficiaries," provides that:

Nothing in this Agreement shall be construed to give any person or entity other than the parties hereto any legal or equitable claim, right or remedy; rather, this Agreement is intended to be for the sole and exclusive benefit of the parties hereto.

Id. at § 24.

The parties further stipulated that the ABMA was governed by Massachusetts law and that the parties specified that they would engage in alternative dispute resolution prior to initiating litigation, including mediation in Boston and if unsuccessful, arbitration. Id. at § 19. If litigation was necessary, they agreed that neither party would object to venue in Boston or Harrisburg, Pennsylvania.*fn3 Id.

D.Continuing Correspondence / Meetings

A meeting was held on February 15, 2007 between plaintiffs and a host of representatives of Dunkin and its consultants, including: Chris Powers, Manager of Manufacturing; Paul McFarlane, Manager of Manufacturing; Allen Leonard, Construction and Engineering Manager; Troy Volk, Manufacturing; Anthony Braun, Operations Manager; Jim Green; Fred Rheaume, Manufacturing Development Manager; and, Joe Koudelka, Director of Manufacturing. (Docket No. 16 at ¶¶ 25-33). The purpose of the meeting was to "achieve a clear understanding of what must be done and how it will be done to meet the demand plan for the Pittsburgh, PA market, specifically, who will do what and when." (Id. at ¶ 34). They also discussed, among other things, future development plans, market strategy, PBD's relationship with the city, execution planning, engineering and construction, building location; construction timelines; etc. (Id. at ¶ 35). Mandatory meetings were held every Thursday thereafter. (Id. at ¶ 36). Numerous smaller meetings were held. (Id. at ¶ 37). Indeed, Thompson had almost daily telephone conversations with Green. (Id. at ¶¶ 41-42). Plaintiffs also allege that Dunkin', through its representatives and agents, required Plaintiffs to not correspond with any third parties without receiving prior approval of the communications. (Id. at ¶¶ 38, 39).

E.Homewood Site & Alleged Race Discrimination

The initial site for the PBD commissary was 6947 Kelly Street, Homewood, Pennsylvania, 15208. (Docket No. 16 at ¶ 43). Plaintiffs and Intervenor Plaintiffs maintain that this building met all specifications that were previously communicated to them by Dunkin'. (Id. at ¶ 46). They aver that Dunkin's franchisee Heartland inspected the Homewood property in May of 2007. (Id. at ¶ 43). They contend that an unnamed Heartland representative made "unwelcome comments" about the commissary and neighborhood to Johnson, allegedly because he was African American, as were his associates and many of the other individuals in the neighborhood. (Id. at ¶ 44). Plaintiffs maintain that shortly after this visit, Thompson received a call from Green, who advised that "there is a problem, Heartland does not like the building. How can we solve it?" (Id. at ¶ 45). An unnamed representative of Dunkin' allegedly told Thompson that Heartland had an issue with the location because of the predominantly African American population in the area and its beliefs that it could not sell donuts in that area. (Id. at ¶ 48).

As a result, Dunkin's representatives, Green, Volk and Leonard advised Johnson and Thompson to explore new locations for the commissary. (Id. at ¶¶ 49-50). All of the plaintiffs contend that by taking such action, Dunkin' "tacitly approved" Heartland's race discrimination. (Id. at ¶ 47).

F.Braddock Site

As directed, Thompson found a new location for the projected commissary at 333 Braddock Avenue, Braddock, PA. (Id. at ¶ 50). Dunkin's representatives, Rheaume and Leonard, inspected the facility on May 23, 2007 to assess the "pros and cons" and the risks of the site. (Id. at ¶ 51). At this time, they instructed Johnson: to buyout Edward Gandy's stock in PBD; purchase a lease on the site; and retain an architect for construction of the facility. (Id. at ¶¶ 52, 53). Dunkin' representatives also provided Plaintiffs with boilerplate letters to send to Heartland, which in turn signed a third party management agreement and/or purchase commitment with PBD. (Id. at ¶¶ 55, 66).

Pursuant to the direction of Dunkin', the lease was executed by PBD at the site and demolition work quickly commenced. (Id. at ¶ 55). Plaintiffs also retained John Anthony of Robert L. Kimball & Associates to provide architectural services. (Id. at ¶¶ 53, 54). On June 6, 2007, Plaintiffs Johnson and Thompson attended a planning meeting with Heartland representatives Edward Jaten, President/C.E.O. and Michael Orie, V.P. -- Real Estate, as well as consultant, Chuck Powel of the URA and Ken Cuccaro of Cuccaro Construction Co. (Id. at ¶ 56). During the meeting, Jaten confirmed that Cuccaro Construction was prepared to begin construction and that the URA of Pittsburgh was involved. (Id. at ¶¶ 57, 58). He then approved the building of the commissary in Braddock. (Id. at ¶ 59). After the meeting, on June 13, 2007, Dunkin' representative Leonard provided specifications for the Braddock commissary to Anthony, Plaintiffs' architect. (Id. at ¶ 54). Architectural drawings were completed and the work on the site continued. (Id. at ¶ 61).

In June 25, 2007, Dunkin' Operations Manager Braun and three assistants visited 333 Braddock to oversee construction. (Id. at ¶ 60). They visited for such purpose on at least three occasions. (Id.). Work continued without any objections from Dunkin'. (Id. at ¶ 64). However, on August 20, 2007, certain correspondence between Green, Volk and Powers, indicated that Dunkin' was "thinking" about the disposition of business under the Pittsburgh Supply Plan. (Id. at ¶ 62). Then, in early September 2007, Dunkin' representatives Volk, Powers, Rheaume, Leonard and McFarlane telephoned Plaintiffs and advised that "it's over" -- "we are going in a different direction. How can we resolve this problem? It's our fault, we are sorry. How can we resolve it?" (Id. at ¶ 63). All of the plaintiffs allege that prior to this telephone conference, they had no notice that the deal was in jeopardy, let alone over. (Id. at ¶ 64).

They also maintain that there was no business reason to terminate the relationship. (Id. at ¶ 89). However, they concede that they were advised that the relationship was terminated because Dunkin' decided to "switch from fresh donuts to frozen donuts" -- which presumably did not require the building of a commissary in Braddock. (Id.). It is unclear from Plaintiffs' Amended Complaint whether they claim that the deal as it pertained to the Braddock site was cancelled for discriminatory reasons. (See Docket No. 16). However, the Intervenor Plaintiffs affirmatively allege that the Pittsburgh Supply Plan was terminated "because [Heartland] objected to being required to purchase [donuts and other baked goods] manufactured by the African American Community, including Gandy." (Docket No. 27 at ¶ 16).

G.Attempted Purchase of PBD by F & J

Plaintiffs allege that in May of 2007, Dunkin' instructed Johnson and Farhad Salari Lok (the owner of the west commissary under the Pittsburgh Supply Plan) to buy out Gandy's shares of PBD and to pay all of PBD's debts in full. (Docket No. 16 at ¶ 67). Intervenor Plaintiffs plead that Dunkin' only "suggested" that they make the acquisition. (Docket No. 27 at ¶ 4). To this end, and due to certain tax and financial issues, Johnson formed "F & J" in July of 2007. (Docket No. 16 at ¶ 68). Lok was initially a part of F & J but he withdrew from same on August 7, 2007. (Id. at ¶ 72). F & J never consummated the purchase of PBD. (Id. at ¶ 69; Docket No. 27 at ¶ 5). The Intervenor Plaintiffs allege that the terms of the deal with F & J included: F & J paying $400,000.00 to Gandy for his stock; $100,000 cash; and F & J paying the URA $100,000.00 to satisfy Gandy's debt to the URA. (Id. at ¶ 15).

H.Alleged Promises

Plaintiffs Johnson, Thompson and F & J acknowledge that PBD entered into the ABMA with Dunkin. (Id. at ¶ 22). However, they point out that they are not parties to that agreement and never entered into any written agreements with Defendant. (Id. at ¶¶ 73). They claim that Dunkin' made a "series of promises and orders" to them, which they relied on to their financial detriment. (Id. at ¶¶ 74, 76). Plaintiffs' Amended Complaint lacks specificity as to the precise promises that were made by Dunkin', but states that the "series of promises and orders" were made by Dunkin' "with the agreed upon goal of establishing a commissary for the purpose of producing fresh donuts." (Id. at ¶ 76). Plaintiffs allege that Dunkin' induced them to take reasonable actions such as to enter into leases and other agreements and renovating the commissaries. (Id. at ¶ 79). Plaintiffs contend that their actions were reasonable and that Dunkin's unilateral termination of the deal caused them to suffer financial harm including: construction bills; consulting fees; additional unspecified bills; time; lost profits; breached leases; as well as architect, construction and demolition costs. (Id. at ¶ 81). Specifically, Plaintiffs aver that they entered into agreements with Ken Cuccaro Construction; Berman Investment Group; Charles Thompson Consulting; Michael J. Howard -- Roofing Contractor; Robert J. Kimball & Associates -- Engineers; and Marco Remediation. (Id. at ¶ 82). Presumably, Plaintiffs have outstanding invoices with all of these entities. (Id.). Consequently, they seek an unspecified amount of damages from Dunkin'. (Id. at 13).

Intervenor Plaintiffs PBD and Gandy also acknowledge that PBD entered into the ABMA with Dunkin' and that PBD is bound by such agreement. (Docket No. 27 at ¶ 11). However, they also argue that they were promised that Dunkin's franchisees would be required to purchase donuts and other baked goods from PBD if a donut commissary was built according to Dunkin's specifications. (Id.). Intervenor Plaintiffs maintain that the east commissary was built based on their reasonable reliance on this promise. (Id. at ¶¶ 11, 12). They claim that the Pittsburgh Supply Plan was terminated because Dunkin's franchisee, Heartland "objected to being required to purchase such goods manufactured by members of the African American community, including Gandy." (Id. at ¶ 16). Gandy also claims that the termination of the deal caused the proposed purchase of PBD by F & J to fall through, causing him further harm. (Id. at ¶ 14).

PBD and Gandy claim that their damages are $775,332.00 consisting of $89,320.00 of expenses for the commissary and $689,000.00 in debt they incurred related to same. (Id. at ¶ 14). Gandy claims that his damages from the failed acquisition were $500,000.00, which includes $400,000.00 for his stock, and $100,000 in cash as well as the debt satisfaction of $100,000.00 that he personally owed to the URA. (Id. at ¶ 15).

III. PROCEDURAL HISTORY

Plaintiffs initiated this action by filing a Complaint against Dunkin' alleging promissory estoppel and race discrimination on August 31, 2011. (Docket No. 1). After service was made in November of 2011, Dunkin' sought an extension of one week to respond to the Complaint, which was granted by the Court, making its response due on January 13, 2012. (Docket Nos. 5, 6). In the interim, Intervenor Plaintiffs filed a motion to intervene in this case. (Docket No. 7). Counsel for Dunkin' advised the Court that it did not oppose the motion to intervene and the motion was granted on January 11, 2012. ...


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