Kahala Corp. et al v. Holtzman et al

Filing 38

OPINION AND ORDER: Holtzman's October 20 motion to dismiss is denied. Because Holtzman consented to personal jurisdiction, it is unnecessary to reach the plaintiffs' argument that long arm jurisdiction over Holtzman exists under New York law. (Signed by Judge Denise L. Cote on 12/3/2010) (lnl)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------X : KAHALA CORP., and KAHA ACQUISITIONS VI, : LLC, : Plaintiffs, : : -v: : WILLIAM B. HOLTZMAN, TRI-STATE POTOMAC, : INC., HOLTZMAN EXPRESS, LC, XPRESS : STOP, INC., and GETGO, LLC, : Defendants. : : ----------------------------------------X Appearances: For the plaintiffs: Vincent L. DeBiase William W. Frame Corbally, Gartland and Rappleyea, LLP 35 Market Street Poughkeepsie, NY 12601 For the defendants: Leonard D. Steinman Jeremy L. Reiss Blank Rome LLP 405 Lexington Avenue New York, NY 10174 -andThomas A. Schultz, Jr. Law Office of Thomas A. Schultz, Jr. 240 Merrifield Lane Winchester, VA 22602 DENISE COTE, District Judge:

10 Civ. 4259 (DLC) OPINION AND ORDER

The defendant William B. Holtzman ("Holtzman") has moved to dismiss the plaintiffs' second amended complaint for lack of

personal jurisdiction.1 denied.

For the following reasons, the motion is

BACKGROUND The plaintiffs Kahala Corp. and Kaha Acquisitions VI, LLC ("Kahala") are a franchising company for several quick-service restaurant brands and its wholly-owned subsidiary. In 2007,

Kahala acquired certain assets from Blimpie Associates Ltd. ("Blimpie"), including the entire Blimpie Subs & Salads brand, franchising system, intellectual property, and existing franchise agreements. The contracts at issue in this lawsuit

are franchising agreements between Blimpie and entities associated with Holtzman (the "Entity Defendants")2 that Kahala assumed as part of the acquisition. Between 1994 and 2003, the Entity Defendants entered into seven franchise agreements to operate Blimpie Subs & Salads quick-service restaurants ("Blimpie Stores") in various Virginia locations (the "Franchise Agreements"). The terms and

conditions of the Franchise Agreements are identical in all

1

The defendants' motion to dismiss the second amended complaint for failure to state a claim is denied in a Memorandum Opinion and Order of today's date.
2

The Entity Defendants are the remaining defendants in this action: Tri-State Potomac, Inc. ("Tri-State"), Holtzman Express, LC ("Express"), XPress Stop, Inc. ("XPress Stop"), and GetGo, Inc. ("GetGo"). 2

cases except for the name of the franchisee and the dates within the agreement. Pursuant to the terms of the franchise

agreement, Blimpie granted each of the Entity Defendants a license to operate a Blimpie Store for a period of 20 years. Holtzman signed at least two of the Franchise Agreements on behalf of the Entity Defendants. In addition, Holtzman signed

each Franchise Agreement in his individual capacity -- as William B. Holtzman, Individually -- beneath the following text (the "Individual Provision"): By execution of this Agreement, the undersigned stockholder(s) of the corporate Operator, or members of the LLC, or the individual Operator hereby personally accepts and agrees to comply with Articles 10 & 16 of this Agreement and acknowledges that the Franchisor has executed this Agreement in reliance upon the commitments contained in this paragraph. (Emphasis supplied.) Article 10 of the Franchise Agreements requires the Entity Defendants and their shareholders, officers, directors, partners, or members to keep certain information confidential and not to compete against Blimpie in the submarine sandwich business during the term of the agreement and for a certain period thereafter. Article 16 contains the parties' "Rights and That section states, among other

Obligations Upon Termination."

things, that "[u]pon the termination of Operator's rights

3

granted under this Agreement," that the Operator shall immediately pay any amount owing to Blimpie. The Franchise Agreements state that ceasing to operate or otherwise abandoning a Blimpie Store constitutes a default under the agreement. Between March 25, 2007 and October 28, 2009, the

Entity Defendants unilaterally closed the Blimpie Stores that were the subjects of all of the Franchise Agreements. On

December 23, 2009, Kahala notified the defendants that they had breached the Franchise Agreements by unilaterally closing the Blimpie Stores. The plaintiffs commenced this action on May 26, 2010. filed an amended complaint on June 16. They

On August 18, Holtzman

and the Entity Defendants3 each filed motion to dismiss the amended complaint. At an initial conference with the Court on

September 1, 2010, the plaintiffs were advised that any subsequent amendment of the complaint would be their final opportunity to amend. The plaintiffs filed a second amended The defendants filed a motion to

complaint on October 14, 2010.

dismiss the second amended complaint on October 20, and the motion was fully briefed on November 12.

3

At that time, Tri-State was not a named defendant. 4

DISCUSSION Holtzman moves to dismiss the complaint against him for lack of personal jurisdiction. "In order to survive a motion to

dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists." Penguin Grp.

(USA) Inc. v. American Buddha, 609 F.3d 30, 34-35 (2d Cir. 2010) (citation omitted). Where, as here, there has been no

discovery, the plaintiff need only make "legally sufficient allegations of jurisdiction" through its pleading and affidavits in order to survive a motion to dismiss. omitted). "Parties can consent to personal jurisdiction through forum-selection clauses in contractual agreements." D.H. Blair To Id. at 35 (citation

& Co., Inc. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006). enforce a forum selection clause, "[a] court must first determine that the existence of the clause was reasonably communicated to the parties." Id. If it was, the selection

"will be upheld unless the clause was obtained through fraud or overreaching," or if enforcement would be "unreasonable and unjust." Id. (citation omitted).

The Franchise Agreements contain the following provisions regarding execution and forum selection: [T]his Agreement shall be deemed to be executed and delivered in the City of New York, . . . regardless of the domicile of 5

the Operator, and shall be governed by and construed in accordance with the laws of the State of New York. .... Any and all claims asserted by or against the Operator, arising under this Agreement or related thereto, shall be heard and determined in either [federal or state courts] located in City and County of New York, State of New York[.] By virtue of signing the Individual Provision in the Franchise Agreements, Holtzman consented to personal jurisdiction in the Southern District of New York. The forum

selection clause was reasonably communicated to Holtzman; it appears in a well-marked section labeled "Legal Proceedings: Jurisdiction, Construction and Interpretation" four pages ahead of the signature page. There is no claim that the forum

selection clause was obtained through fraud. Nor would applying the forum selection clause to Holtzman individually be unreasonable or unjust. This is the case even

though, as he argues, the forum selection clause in the contract is not contained in either Article 10 or Article 16, the provisions named in the Individual Provision. It is reasonable

to enforce the forum selection clause against Holtzman for two reasons. First, because the Franchise Agreements make clear

that any claim "arising under" Article 10 or Article 16 will be heard in this jurisdiction, Holtzman agreed to be bound by the

6

forum selection clause when he agreed to comply with those provisions. Second, even if Holtzman was not a signatory to any portion of the Franchise Agreements except Articles 10 and 16, "the fact [that] a party is a non-signatory to an agreement is insufficient, standing alone, to preclude enforcement of a forum selection clause." Aguas Lenders Recovery Grp. v. Suez, S.A., Under New York law, a forum

585 F.3d 696, 701 (2d Cir. 2009).

selection clause may be enforced against a non-signatory who is "closely related" to the dispute such that enforcement of the forum selection clause against him is foreseeable. Firefly

Equities, LLC v. Ultimate Combustion, Inc., ___ F. Supp. 2d. ___, No. 10 Civ. 18