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Johnson v. Dunkin' Donuts Franchising L.L.C.

United States District Court, W.D. Pennsylvania

June 30, 2014

DERRICK J. JOHNSON, F & J HOLDINGS, INC., and CHARLES THOMPSON, Plaintiffs,
v.
DUNKIN' DONUTS FRANCHISING L.L.C., aka DUNKIN' BRANDS, INC., aka DUNKIN' DONUTS, Defendant. PITTSBURGH BAKER'S DOZEN, INC. and EDWARD GANDY, Intervenor Plaintiffs,

MEMORANDUM OPINION

NORA BARRY FISCHER, District Judge.

I. INTRODUCTION

This action involves promissory estoppel claims arising from Plaintiffs Derrick J. Johnson, his entity, F & J Holdings, Inc. ("F&J"), and Charles Thompson's, (collectively, "Plaintiffs") and Intervenor Plaintiff Pittsburgh Baker's Dozen, Inc.'s ("PBD") failed investments in renovating two buildings for the purpose of starting a donut commissary in the Pittsburgh area. (Docket Nos. 43, 48). Plaintiffs and PBD 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 PBD contend that the contractual relationship was part of a broader Pittsburgh Supply Plan ("PSP") under which City of Pittsburgh officials and members of the Urban Redevelopment Authority ("URA") worked with Dunkin' to locate the donut commissary in Pittsburgh. ( Id. ). They argue that Dunkin' unilaterally terminated the PSP as a result of the introduction of Iditarod, a new frozen donut technology, and thereby breached certain promises to Plaintiffs and PBD. ( Id. ).

Presently before the Court are Dunkin's Motions for Summary Judgment in regards to the Second Amended Complaint filed by Plaintiffs and the Third Amended Complaint filed by PBD; Plaintiffs' Partial Motion for Summary Judgment; and, a Rule 12 Motion to Strike filed by Dunkin'. (Docket Nos. 99, 102, 105 and 132). The motions have been fully briefed.[1] ( See Docket Nos. 100, 101, 103, 104, 106, 134). For the following reasons, Dunkin's Motion to Strike [132] and Motions for Summary Judgment [99], [102] are granted, and Plaintiff's Partial Motion for Summary Judgment [105] is denied.

II. FACTUAL BACKGROUND

A. The Parties

Dunkin' is a national franchisor of retail stores that sell coffee, donuts, and other bakery items. (Docket Nos. 101 at ¶ 1; 104 at ¶ 1). Around 2006, Dunkin' sought to increase the number of retail stores in the greater Pittsburgh area. (Docket Nos. 109 at ¶ 3; 115 at ¶ 2). Hence, the PSP was pursued by Dunkin' in order to supply the additional stores with fresh donuts and other bakery products for resale to customers. ( Id. ). Several Dunkin' representatives and consultants played a role during the development of the PSP, including: Scott Murphy, Vice President of Strategic Manufacturing and Supply; Jim Green, Consultant for Dunkin'; Chris Powers, Manager of Manufacturing; Paul McFarlane, Manager of Manufacturing; Allen Leonard, Construction and Engineering Manager; Troy Volk, Manufacturing; Anthony Braun, Operations Manager; Fred Rheaume, Manufacturing Development Manager; and, Joe Koudelka, Director of Manufacturing. (Docket Nos. 104 at ¶¶ 10, 45-46; 109 at ¶¶ 1, 9, 19, 23-25).

PBD is a Pennsylvania corporation that started business in January 2005 and operated a bakery at 6947 Kelly Street, Pittsburgh, PA. (Docket Nos. 101 at ¶¶ 2-3; 104 at ¶¶ 2-3; Def. Ex. B (Thompson Dep. 7:18-8:4)). PBD sold bakery products to approximately thirty (30) to forty (40) accounts, including restaurants and state institutions and PBD serviced these accounts for approximately three to four years. (Docket Nos. 101 at ¶ 3; 104 at ¶ 3; Def. Ex. B (Thompson Dep. 8:5-8)). Edward Gandy is, and always has been, the president, owner, and sole shareholder of PBD. (Docket Nos. 101 ¶ 4; 104 at ¶¶ 3, 8; Ex. D (Gandy Dep. 8:5-16)). PBD admits that Charles Thompson "acted in the capacity of Consultant to PBD, and in that capacity, directed and promoted the business of PBD" and Gandy, the president and owner of PBD, "deferred to Thompson believing that [he] had superior business acumen." (Docket No. 104 at ¶ 8). Gandy testified that "[PBD] was my business, but I entrusted it to Charles Thompson. He was the one that did everything. I really didn't stay on top of it because I trusted him." ( Id . at ¶ 9; Def. Ex. D (Gandy Dep. 8:10-16)).

Thompson served as a consultant/independent contractor for PBD, F&J, and a company called Lok Bakery.[2] (Docket Nos. 101 at ¶ 14; 123 at ¶ 14). Thompson's role as a consultant/agent for PBD consisted of: securing contracts; managing the business; and training employees. ( Id . at ¶ 15; Ex. B. (Thompson Dep. 18:20-19:5); 123 at ¶ 19 (Thompson Dep. at 229-223)). Thompson also signed documents identifying himself as a Vice President of PBD. (Docket No. 109 at ¶ 11, Ex. DBI 130). Thompson did not have a consulting agreement with PBD and apparently did not receive a salary. (Docket Nos. 101 at ¶¶ 14-16; 104 at ¶ 7; Def. Ex. A (Thompson Dep. 105:22-106:2); Def. Ex. B (Thompson Dep. 7:5-8, 18:20-19:5)). Instead, Thompson and Gandy had an informal arrangement whereby Thompson made renovations to a home owned by Gandy and would have been provided with the home for his residence if the deal with Dunkin' succeeded. (Gandy Dep. 15:5-12, 35:22-36:6). Despite the lack of an agreement, Thompson seeks recovery of $600, 000.00 in consulting fees he allegedly lost as a result of Dunkin's termination of the PSP. Thompson was never a shareholder, officer or employee of PBD, F&J or Lok Bakery. ( Id . at ¶ 17; Ex. A (Thompson Dep. 105:12-15); Ex. B (Thompson Dep. 19:11-20)). Thus, Thompson did not share in the profits or losses of PBD, F&J or Lok Bakery and was not legally responsible for the debts of PBD. ( Id . at ¶ 18; Ex. B (Thompson Dep. 19:21-23)).

Johnson testified that he served as an independent contractor for PBD, delivering products for PBD. (Docket Nos. 101 at ¶¶ 5, 6; 104 at ¶ 4; Ex. F (Johnson Dep. 29:15-30:4, 24:21-25:8)). Johnson was neither an employee nor an owner of PBD and had no written agreement setting forth how he was to be paid by PBD for his services. ( Id . at ¶¶ 8-9; Ex. F (Johnson Dep. 27:4-19, 29:23-30:1.)). Johnson also was not responsible for the debts of PBD. ( Id . at ¶ 10; Ex. F (Johnson Dep. 30:5-8)).

Plaintiffs admit that the majority of PBD's debts, since its inception and through the course of the PSP, were not their responsibility. (Docket No. 127 at ¶¶ 9-10). However, Plaintiffs contend that Johnson began to pay PBD's bills in June 2007, citing a water bill paid on PBD's behalf. ( Id . at ¶ 10). Thompson also arranged for financial support from Farhad Salari Lak to pay the debts of PBD. (Docket Nos. 127 at ¶¶ 10, 19; 101 at ¶ 55; Ex. A (Thompson Dep. 229: 21-233:13, 435:23-436:9)).

F&J Holdings, Inc. is a Pennsylvania corporation. (Docket Nos. 101 ¶ 12; 104 at ¶ 5). Johnson and non-party Farhad Salari Lak were the two shareholders of F&J. ( Id . at ¶ 13; Id . at ¶ 6; Ex. F (Johnson Dep. 44:13-45:21)). F&J was formed by Johnson and Lak in July 2007 to replace PBD in the PSP. ( Id . at ¶ 53; Id . at ¶ 42). Plaintiffs admit that Thompson acted as the lead negotiator and was "in charge" of the PSP for both F&J and Lok Bakery. (Docket Nos. 101 at ¶ 24; 123 at ¶ 24).

Although it is not named as a party in this action, Heartland Restaurant Group, LLC, f/k/a Heartland Coffee Company ("Heartland"), was also involved and is described as Dunkin's largest franchisee in the Pittsburgh area. (Docket No. 16 at ¶ 15). Ed Jaten was the primary Heartland representative involved in communications with Dunkin' and PBD. (Docket No. 109 at ¶ 11).

B. The Pittsburgh Supply Plan

As noted, in the summer of 2006, Dunkin' was working toward expanding the number of its franchisees in the Pittsburgh market with a target goal of adding 100 retail stores. (Docket Nos. 104 at ¶¶ 11, 13; 123 at ¶¶ 11, 13; 109 at ¶ 3; 119 at ¶ 3). In order to accomplish this expansion, Dunkin' needed a baking solution to produce enough of its donuts and other baked goods to support the expected sales at these additional retail stores. (Docket No. 109 at ¶ 3). At the time, the primary strategy utilized by Dunkin' was to establish approved bakery manufacturers within the geographical area of a large number of its franchisees for the purpose of manufacturing and delivering fresh donuts and other baked goods to the franchisees on a daily basis. ( Id .).

Around August 18, 2006, Dunkin' consultant Jim Green contacted PBD and Thompson regarding the creation of a bakery/commissary to supply prospective Dunkin' franchisees with fresh donuts and other baked goods. (Docket No. 109 at ¶ 1). Green approached Thompson about potentially using the baking facility on Kelly Street owned by Gandy where PBD operated as an approved bakery manufacturer commissary and inquired if Thompson and Gandy would be interested. (Docket Nos. 109 at ¶ 1; 114 at ¶ 3).

This was the start of the discussions and efforts among the parties to develop what has to come to be known as the PSP. (Docket No. 109 at ¶ 3). The parties dispute the exact purpose of the PSP. Dunkin' claims that the purpose of the PSP was to supply a large Dunkin' franchisee expected to enter the Pittsburgh market, Heartland. (Docket Nos. 101 at ¶ 22; 104 at ¶ 11; Ex. A (Thompson Dep. 354:8-24); Ex. LL.). Plaintiffs and PBD contend that the PSP was initiated so that Dunkin' could induce prospective franchisees to enter into Store Development Agreements ("SDA's") with Dunkin' in order to expand the number of franchisees in greater Pittsburgh. (Docket No. 115 at ¶ 11). It is uncontested that the PSP envisioned the establishment of two commissaries, one located in the west of Pittsburgh and one located in the east of Pittsburgh. (Docket Nos. 101 at ¶ 23; 123 at ¶ 23; 104 at ¶ 13; 115 at ¶ 13). Eventually, it was determined that the east commissary was to be opened by PBD, and the west commissary was to be operated by Lok Bakery. ( Id .).

During this time frame, Dunkin' was advised by its consultant Green that local, state and federal entities were supporting the development and construction of the commissary through low to no interest loans, low cost commercial property and favorable tax treatment. (Docket Nos. 109 at ¶ 7; 119 at ¶ 7; 117 at DBI 00017). Thompson hoped to receive support from the City and the Urban Redevelopment Authority for funding the project. ( Id. at ¶ 4; 117 at DBI 00017).

C. Initial Negotiations

On August 30, 2006, Thompson provided Green with a Letter of Intent which set forth PBD's proffered terms and conditions for its pursuit of the opportunity to become an approved baking manufacturer for Dunkin'. (Docket Nos. 109 at ¶ 2; 114 at ¶ 4). The Letter of Intent states:

Letter of Intent-PBD's intent is to enter into a relationship with Dunkin' Brands whereby PBD will:
1) Manufacture and deliver products to Dunkin' Donuts retail stores, as required and specified, in the Pittsburgh, PA market.
2) Utilize and equip existing space adjacent to PBD 6947 Kelly Road Facility to address Dunkin' Brands short and long needs for the Pittsburgh, PA market.
3) Utilize Urban Development funds to support effort.
4) Achieve Dunkin' Brands short and long term unfinished donut target pricing aligned with volume milestones:

5) Achieve finished donut and other bakery item pricing targets, being compensated with a margin equal to or greater than that of unfinished donuts.
6) Adjust pricing to reflect changes in ingredient and distribution costs on an ongoing basis and utility cost as required.
7) With prior approval of Dunkin' Brands, utilize capabilities to pursue other non-competitive donut opportunities in the Pittsburgh, PA market.
8) Make best efforts to execute a supply agreement by September 31, 2006.

(Docket No. 117 at DBI 3).

Dunkin' never executed the Letter of Intent, through its consultant Jim Green or otherswise. (Docket No. 119 at ¶ 2). Instead, PBD's Kelly Street site was informally selected to be considered as an approved bakery manufacturer. Dunkin' also obtained a Consent and Release to obtain a credit report on Gandy. (Docket No. 117 at DBI 12). Dunkin' then provided multiple documents to PBD related to the potential relationship, including: plans, models, equipment checklists and approval agreements. (Docket No. 109 at ¶ 5). Within these materials was a ten year profit and loss estimate titled "Hypothetical 10 year pro forma." ( Id .). This document referenced potential revenues and profits to be generated by the approved bakery manufacturer but also contained, among other things, the following Financial Disclaimer:

This financial analysis was developed using hypothetical expenses, sales and other figures. Dunkin' Donuts makes no projections or representations, express or implied as to current or future financial results, sales, shop penetration, advertising, market share or other aspects of this financial analysis.

(Docket Nos. 109 at ¶ 5; 119 at ¶ 5).

In September 2006, Johnson and Gandy traveled to Michigan with Green in order to view an operating Dunkin' commissary. (Docket Nos. 101 ¶ 35; 104 ¶ 24). Upon their return, Thompson contacted Hanson Design Group Limited in regards to preparing layout drawings for PBD's Kelly Street site. (Docket No. 117 at DBI 19-20). Around October 12, 2006, Hanson Design Group Limited prepared a layout drawing of the PBD facility and delivered the same, a copy of which was provided to Dunkin'. (Docket No. 117 at DBI 19-20).

D. ABMA

In October 2006, Dunkin' provided Thompson with an Approved Bakery Manufacturer Agreement ("ABMA") to be executed by Gandy as President of PBD. (Docket Nos. 101 at ¶ 37; 123 at ¶ 37; 104 at ¶ 26; 115 at ¶ 26). The ABMA was an arrangement between Dunkin' and PBD that outlined its duties as an approved bakery manufacturer. (Docket No. 104 at ¶ 27; 115 at ¶ 27). The ABMA, among other things, designated PBD as an approved supplier to manufacture and deliver approved baked goods and other products to Dunkin' branded stores. (Docket Nos. 101 at ¶ 38; 104 at ¶ 27; 115 at ¶ 27; Def. Ex. O).

The initial term of the ABMA was projected as 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. (Def. Ex. O 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 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.

PBD was provided with the ABMA in December of 2006 for execution. (Docket Nos. 104 at ¶ 28; 115 at ¶ 28). On December 15, 2006, Gandy, as president of PBD, signed the ABMA on behalf of PBD. (Docket Nos. 101 at ¶ 39; 123 at ¶ 39; 104 at ¶ 28; 115 at ¶ 28; Def. Ex. O).[3] On or about January 4, 2007, Scott Murphy signed the ABMA on behalf of Dunkin'. ( Id . at ¶ 40; Id . at ¶ 29; Def. Ex. O).

E. Continuing Correspondence/Meetings

PBD initially identified its Kelly Street facility in Homewood to be the site of the east commissary. (Docket Nos. 101 at ¶ 46; 104 at ¶ 35; Def. Ex. E (Gandy Dep. 103:25-104:12)). A meeting was held on February 15, 2007 between Thompson, PBD and several Dunkin' employees. (Doc. No. 109 at ¶ 8). Dunkin' admits only that a meeting was held on February 15, 2007, during which a list of "next steps" regarding the "PBD east facility" were discussed. (Docket No. 119 at ¶ 8). However, the record clearly demonstrates that, at the very least, a tentative timeline was debated whereby construction on the renovations of the facility would be commenced by June 4, 2007, and the commissary would be operational and supplying donuts to franchisees by November 5, 2007. (Docket Nos. 109 at ¶ 8; 117 at DBI 71). On February 21, 2007, in furtherance of the development of the Kelly Street facility, PBD entered into a contract with architect Marvin Miller. (Docket No. 115 at ¶ 32). Miller designed a layout for the placement of all necessary equipment in the facility, both the equipment then owned by PBD, as well as the equipment anticipated to be necessary to accomplish PBD's supply duties under the ABMA. ( Id .).

The PSP progressed with representatives of PBD (including Thompson and Gandy, at times), participating in weekly meetings with Dunkin' at its request. (Docket Nos. 109 at ¶ 9; 119 at ¶ 9; Pl. Ex. A at DBI 89). From March 7, 2007 until the PSP was cancelled, Dunkin' representatives (including Allen Leonard and Troy Volk), were in communication with Thompson and the architects and contractors retained by PBD. (Docket No. 109 at ¶ 9). Their correspondence demonstrates that Dunkin' representatives were actively involved in reviewing ...


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