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Selzer v. Dunkin' Donuts, Inc.

United States District Court, Third Circuit

August 26, 2013

HAROLD SELZER, et al., Plaintiffs,
v.
DUNKIN' DONUTS, Inc., et al., Defendants.

MEMORANDUM

GENE E.K. PRATTER, UNITED STATES DISTRICT JUDGE.

In this highly contentious contract dispute, Plaintiffs have sued Franchisor Dunkin’ Donuts and other related entities for breach of their Store Development Agreement, as well as for various allegedly tortious conduct related to this breach. Defendants have moved for summary judgment as to all of the claims, and Plaintiffs have filed a cross motion for summary judgment as to the breach of contract claim. Following oral argument and multiple supplementary submissions, the matter is now ripe for decision.

Factual Background

On July 15, 2005, Harold Selzer and Saul Levitt (hereinafter “Individual Plaintiffs”) purchased a Store Development Agreement (“Agreement”) from Defendants. Plaintiff AAA Development & Management (“AAA Development”) is a corporate entity owned by Mr. Selzer and Joseph Glassman. It was formed to develop various franchises, including the Dunkin’ franchises that were formed pursuant to the Agreement. A day before the Agreement was executed, the Individual Plaintiffs entered into a development agreement with AAA Development, in which they agreed that AAA Development would be the exclusive developer of the shops opened pursuant to the Agreement and that they would pay AAA Development a fee for each shop in the range of $350, 000 to $400, 000. Although Defendants admit that they knew that there was a development arrangement between AAA Development and Individual Plaintiffs, the parties dispute whether Defendants knew about the development agreement itself or its terms.

Plaintiff AAA Yowza was formed to own a property at 2350 Mount Rose Avenue, York, Pennsylvania, which Plaintiffs hoped to develop into a Dunkin’ shop.[1] Mr. Levitt and AAA Yowza entered into a development agreement for Yowza on August 24, 2008. Plaintiff Yowza Enterprises, incorporated on August 18, 2008, was created to be the corporate franchisee for a Dunkin’ franchise located at the Yowza site. Collectively, AAA Yowza, Yowza Enterprises, and AAA Development comprise the Corporate Plaintiffs.

1.The Agreement

The Agreement, which ultimately cost Individual Plaintiffs $500, 000 (or $50, 000 per store) in nonrefundable franchise fees, granted them limited exclusivity to build ten Dunkin’ Donuts/Baskin-Robbins shops in the York, Pennsylvania area. The Agreement set forth various dates by which stores had to be opened. Before Defendants would approve a store site, the location proposed to be acquired had to be submitted in writing to Defendants. Upon approval of the site by Defendants, the Agreement required the developer of the site to enter into a Franchise Agreement with Defendants.

Under the Agreement, if the Individual Plaintiffs defaulted on the Agreement and did not cure that default within thirty days of Defendants sending them a notice to cure, Defendants had the right to terminate the Agreement. Plaintiffs state that Defendants were “required” to provide a notice to cure in the event of any default; however, the Agreement does not seem to explicitly “require” Defendants to do this unless they intended to terminate the Agreement because of that default. Under the Agreement, limited exclusivity could be revoked if Individual Plaintiffs failed to open the stores according to schedule, otherwise breached the Agreement or any franchise agreement, or failed to qualify for expansion under Defendants’ franchise performance rating system.[2] The Agreement also provided that it could be transferred with Defendants’ prior written consent.

Despite the fact that the Agreement purports to be the entire agreement between the parties, not to be amended without a fully executed written amendment, both sides point to other documents to dictate how the Agreement should be interpreted. For instance, Defendants point to Franchise Agreement language that states that site approval must be in writing from the Defendants and to Site Development Guide language that states the same. Defendants also point to the Site Development Guide as setting forth the site approval process in general; Plaintiffs contest that Defendants did not actually follow that process and that the Guide is nonbinding and even states that it is subject to change.[3]

Within the first three years that the Agreement was in effect, the Individual Plaintiffs opened three stores. On February 6, 2008, Defendants amended the Agreement by extending the store opening dates set forth in the original Agreement and also including “control dates, ” or deadlines by which Individual Plaintiffs were required to submit a control document – that is, a binding lease, an executed letter of intent, or a purchase contract. Defendants add that this control document must be for an approved or approvable site, citing to a Site Development Guide which includes a checklist that states that the control document must state that it is subject to Dunkin’ approval.[4] Plaintiffs argue that this control document definition was not included in the parties’ Agreement or the amendment and point out that none of their three operating stores were approved prior to the submission of a “control document.”

2. Yowza

Plaintiffs contend that as early as 2005, Michael Ryan, Defendants’ Director of Development, verbally approved the Yowza site while touring it with Mr. Glassman, and that Mr. Ryan continued to reassure Mr. Glassman that the site would become a Dunkin’ store. Mr. Ryan, however, contends that he never approved the site, and neither of the Individual Plaintiffs themselves nor any of the other individuals who Mr. Glassman said overheard the approval professed any personal knowledge of the verbal approval. Plaintiffs did submit a letter of intent for the Yowza site to Defendants in April 2007, after claiming that they had submitted a previous version “months ago, ” which Defendants stated they had not received. Defendants contend that this letter expired on May 20, 2007, but the language in the letter states that it would only expire if it was not executed by that date.

After Individual Plaintiffs missed a store opening deadline in July 2007, Mr. Ryan and Dunkin’ employee Deb Wawer held a meeting with them and Mr. Glassman in September 2007 to discuss the Agreement. At the meeting Defendants offered to help Individual Plaintiffs find a purchaser for the Agreement. The parties contradict one another when discussing just what this offer of help constituted – an actual promise to sell the Agreement or a simple offer of assistance. Contemporaneous emails include such statements as “Harold and I accept your offer to have Dunkin Brands locate a purchaser for the remaining 7 stores in our SDA.” See Docket No. 99-2, ¶ 88. No one mentioned large franchisee Men at Work at this meeting.[5] There is a dispute as to whether the Yowza site and the approval of the same were also discussed at this meeting; follow up emails suggest at a minimum that Defendants did not expressly state that Yowza would not be approved as a Dunkin’ site, and Plaintiffs claim Defendants said Yowza would be a Dunkin’ no matter what. By the time of this meeting, most of the land development work on Yowza had already been completed; Mr. Glassman testified at deposition that before the meeting even happened, he intended to see the land development process through.

Whether the statements about selling the Agreement were promises or not, by mid-November 2007, Mr. Ryan had informed Individual Plaintiffs that Defendants were not going to sell the Agreement. Despite this, Mr. Glassman continued to contact Defendants about selling the Agreement/Yowza to Men at Work. Ms. Wawer told him she would bring him in at the right time, and Mr. Ryan told him to be patient.

In early 2008, Individual Plaintiffs found their own prospective purchaser. As noted above, at about this time Defendants amended the Agreement in writing to extend deadlines, which would enable a purchaser to buy the Agreement without already being in default.[6] The prospective purchaser, however, ultimately did not complete the purchase. Defendants claim that the purchaser dropped out on his own and point to testimony and affidavits from their employees to that effect. Plaintiffs claim that this employee testimony is self-serving and not to be credited, and that Defendants were the ones who sabotaged the deal because they planned to terminate the Agreement, but Plaintiffs do not point to any evidence in the record to support ...


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