Barkan, et al v. Dunkin' Donuts Inc, et al

Filing 139

ORDER denying 110 Motion for Summary Judgment; finding as moot 114 Motion to Strike ; adopting Report and Recommendations re 129 Report and Recommendations.. So Ordered by Judge Ronald R Lagueux on 9/15/09. (Farrell Pletcher, Paula)

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UNITED STATES D I S T R I C T COURT FOR THE D I S T R I C T OF RHODE ISLAND IRWIN J . BARKAN a n d D&D BARKAN LLC, Plaintiffs , v. DUNKIN' DONUTS, I N C . a n d BASKIN-ROBBINS USA, CO . , Defendants. C . A . N o . OS-OSOL MEMORANDUM AND ORDER R o n a l d R. L a g u e u x , S e n i o r D i s t r i c t J u d g e . This matter i s before the Court on an appeal from the Report and Recommendation ("R & R") i s s u e d b y Magistrate Judge Lincoln D. A l m o n d o n May 2 6 , 2 0 0 9 . I n t h e R & R, J u d g e A l m o n d d e n i e d t h e motion for summary judgment brought b y Defendants Dunk i n ' Donuts, I n c . , a n d B a s k i n - R o b b i n s USA, C o . ("Defendants"), denied Plaintiffs' Motion to Strike, and granted Plaintiffs' Motion for Leave to Designate a Substitute Damages Expert. Defendants timely appealed the denial of their motion for summary judgment. P u r s u a n t t o F e d . R. C i v . P . 7 2 ( b ) ( 3 ) I this Court has undertaken a de novo review of Magis t r a t e Judge A l m o n d ' s R & R. The Court heard o r a l arguments, reviewed the record, and has determined that i t will adopt the R & R in i t s ent irety for reasons outlined below. Background P l a i n t i f f s i n t h i s c a s e a r e I r w i n J . B a r k a n , a n d h i s wh o l l y o w n e d R h o d e I s l a n d l i m i t e d l i a b i l i t y c o m p a n y , D & D B a r k a n LLC, (collectively, " P l a i n t i f f s " ) . In 2002 and 2003, five separate legal e n t i t i e s , a l l owned by Barkan , entered i n t o franchise agreements with Defendants to operate five existing Dunkin' Donut shops i n Providence, Rhode Island. Also during this time period, Plaintiffs entered into four Store Development Agreements ("SDAs") with Defendants, which contemplated the de velopment of additional Dunkin ' Donuts shops around the state within specified time frames. In 200 4, P l a i n t i f f s opened two new s t o r e s , pursuant t o t h e terms o f two o f t h e SDAs. Financing f o r a l l these e n t e r p r i s e s was provided by The CIT Group ("CIT") , a lender associated with Defendants . Defendants helped P l a i n t i f f s arrange financing through CIT, and guaranteed the loan. In 2003, i n the face of some f i n a n c i a l d i s t r e s s and with the backdrop of some developing disputes with Defendants, P l a i n t i f f s sought to restructure t h e i r loan with CIT. On J u n e 1 5 , 2 0 0 4 , D e f e n d a n t s a n d P l a i n t i f f s e n t e r e d i n t o a Settlement Agreement. According to the terms of the Settlement Agreement, Defendants agreed to help Plaintiffs refinance their d e b t w i t h C I T , l a n d t o a m e n d t h e SDAs b y , i n t e r a l i a , p o s t p o n i n g 1 This portion of the Settlement Agreement reads : FRANCHISOR h e r e b y a g r e e s t o w o r k w i t h -2- the d a t e s b y w h i c h P l a i n t i f f s h a d t o m e e t c e r t a i n p a y m e n t a n d store-opening obligations. In e xchange, Plaintiffs agreed to r e l e a s e a ny c l a i m s a g a i n s t D e f e n d a n t s , a n d t o r e m a i n c u r r e n t o n a l l obligations under the Settlement Agreement, as well as the franchise agreements and other related agreements. From P l a i n t i f f s ' point of view, Defendants' promise to a s s i s t them in obtaining refinancing from CIT was the key inducement to e n t e r into the Agreement. Moreover, Plaintiffs believed that obtaining the refinancing was assured, based on Defendants' longstanding r e l a t i o n s h i p with CIT and the f a c t t h a t Defendants had previously guaranteed Plaintiffs' debt. However, in Jul y 2004, Defendants informed P l a i n t i f f s t h a t CIT would not refinance the debt . Plaintiffs claim that they were l a t e r t o l d b y a CIT employee t h a t the refinancing was rejected because Defendants never requested the refinancing from CIT and never provided CIT with the paperwork necessary to evaluate the application. In an effort to resolve their resulting financial difficulties, Plaintiffs tried to sell the existing donut shops, along with the franchise agreements and related assets . For FRANCHISEES a n d C I T t o a t t e m p t t o r e - f i n a n c e such existing debt. S p e c i f i c a l l y , FRANCHISOR wi l l r e q u e s t t h a t C I T i s s u e a n e w n o t e f o r the current balance of the financing, including interest and cure payments . . . FRANCHISOR m a k e s n o r e p r e s e n t a t i o n t h a t C I T will provide such financing. -3- various r e a s o n s , m a n y o f w h i c h P l a i n t i f f s b l a m e o n D e f e n d a n t s , n o s a l e t o o k p l a c e .. In January 2005, Defendants notified P l a i n t i f f s that they were in default of the Settlement Agreement, due to t h e i r f a i l u r e t o make over $1 m i l l i o n i n payments. Defendants threatened to terminate the franchise agreements unless Pla i n t i f f s caught up with t h e i r payments. In February 2005, P l a i n t i f f s , and the r e l a t e d e n t i t i e s t h a t owned the franchises, filed the original Complaint in this case, as well as a motion for a temporary restraining order, alleging that the Defendants' f a i l u r e t o make a good f a i t h attempt to arrange refinancing would result in the collapse of Plaintiffs' business. Soon a f t e r the Complaint was f i l e d , the Barkan corporate e n t i t i e s t h a t owned the franchises f i l e d for Chapter 11 bankruptcy protection. In January 2006, this Court granted Defendants' motion to dismiss the bankrupt corporate e n t i t i e s from the original Complaint . P l a i n t i f f s f i l e d an Amended Complaint i n August 2006. In October 2006, Defendants filed a Motion to Dismiss three counts of the Amended Complaint. As a r e s u l t , t h i s C o u r t i s s u e d an Order dismissing P l a i n t i f f s ' Count IV, for v i o l a t i o n of M a s s a c h u s e t t s l a w G . L . c . 9 3 A , a n d C o u n t V, w h i c h c l a i m e d t h a t Defendants tortiously interfered with the sale of Plaintiffs' donut shops. (D . R . I . 2 0 0 7 ) . Barkan v. Dunkin' Donuts, Inc . , 520 F. Supp.2d 333 The Court denied Defendants' Motion to dismiss Count I I I for breach of the Settlement Agreement's implied -4- covenant o f g o o d f a i t h a n d f a i r d e a l i n g . The Court also denied D e f e n d a n t s ' M o t i o n t o S t r i k e P l a i n t i f f s ' D e m a n d f o r a J u ry T r i a l . Id. at 343. In September 2008, Defendants renewed t h e i r objections to P l a i n t i f f s ' claims, moving for summary judgment on the three remaining counts of the F i r s t Amended Complaint. Defendants argued that Plaintiffs have not developed suff icient evidence to support t h e i r claims, and that t h e i r claim for damages, based on future l o s t p r o f i t s from the unbuilt stores, i s too speculative . The R & R I n t h e R & R, i s s u e d May 2 6 , 2 0 0 9 , J u d g e A l m o n d t r a c k s t h e negotiations and other activi ties of the Plaintiffs, the Defendants and CIT, du ring three pe r t i n e n t time periods: 1) l e a d i n g u p t o t h e J u n e 2 0 0 4 S e t t l e m e n t A g r e e m e n t ; 2) after the e xecution of the Settlement Agreement and before CIT denied Pla i n t i f f s ' request for loan r e s t r u c t u r i n g ; and 3) the aftermath when P l a i n t i f f s ' businesses f i n a l l y foundered. Barkan has e xplained that he decided to pursue t h i s lawsuit a f t e r he was a l l e g e d l y t o l d b y a C I T e m p l oy e e i n D e c e m b e r 2 0 0 4 t h a t t h e ref inancing failed to go through because Defendants had not sent in adequate or complete paperwork on Barkan's behalf. d e ny t h e a c c u r a c y o f t h i s c o m m u n i c a t i o n . Defendants This alleged statement , the admissibility and veracity of which would have to be established at t r i a l , goes to the essence of the dispute between -5- the p a r t i e s : d i d D e f e n d a n t s f u l f i l l t h e i r c o n t r a c t u a l o b l i g a t i o n to "work with" CIT to arrange refinancing f o r P l a i n t i f f s ? While most of what t r a n s p i r e d among the p a r t i e s and CIT i s indeed undisputed r the significance of those events is subject to varying interpretations. For example r during June 2004, CIT employee Shelly Rush asked Defendants' employee Bethany Blowers about a couple of Barkanrs stores that had closed, and about his general financial situation. forthcoming. In response r Blowers was not Defendants characterize Blowers' reaction as Plaintiffs respectful discretion r out of loyalty to Barkan. c h a r a c t e r i z e Blowers r r e a c t i o n as a f a i l u r e t o cooperate with CIT - a failure which contributed to CIT's eventual denial of Plaintiffs r refinancing application. Another transaction during the course of these negotiations raises similar questions: Blowers communicated t o Barkan t h a t CIT had requested an updated business plan. Barkan, in turn, e-mailed Blowers, attaching a He a s k e d B l o w e r s t o It turned out business plan and financial statement. review the attachments and forward them to CIT. that Barkan had inadvertently attached two copies of the financial statement to the e-mail and had failed to attach the business plan. Without discovering the mistake r Blowers Consequently, CIT never forwarded Barkan's e-mail to CIT. received Barkan's business plan. The R & R d e t a i l s these events, and others t h a t are -6- similarly m u r k y . Characterizing the conflicting allegations as a "Because these factual "factual quagmire," Judge Almond writes, controversies could be reasonably resolved in favor of either party, summary judgment i s not appropriate a t t h i s stage of the proceedings ." R & R, p . 1 8 . This Court concurs. Best Efforts The Settlement Agreement, as with a l l contracts governed by Rhode Island law, 2 obligates both p a r t i e s to f u l f i l l i t s terms i n good faith, using diligence and t h e i r best e f f o r t s . Bradford D y e i n g v . J . S t o g T e c h GmbH, 7 6 5 A . 2 d 1 2 2 6 , 1 2 3 7 ( R . I . 2 0 0 1 ) . The notion of the implied ' b e s t e f f o r t s ' term i s p a r t i c u l a r l y significant in contracts, such as the Settlement Agreement, that "require a party merely to seek a specific result (rather than promising to achieve one)." (1st Cir. 2008). Reyelt v. Danzell, 533 F.3d 28, 33 This Court has recently held that 'best e f f o r t s ' comprises "a party's diligent, reasonable, good f a i t h effort to f u l f i l l the obligations imposed by the contract . . . " Reyelt v. Danzell, 509 F. Supp. 2d 156, 165 (D.R.I. 2007). the factual disputes between the parties are resolved in P l a i n t i f f s ' favor, P l a i n t i f f s may be a b l e t o demonstrate t h a t Defendants failed to use their best efforts in fulfilling the If 2 This Court has previously held t h a t Rhode Island law governs t h i s dispute, as provided by the p a r t i e s i n paragraph 20 of the Settlement Agreement. Barkan v. Dunkin' Donuts, I n c . , 520 F. Supp. 2d 333, 340 (D.R.I. 2007). -7- terms o f t h e S e t t l e m e n t A g r e e m e n t . Conclusion For these reasons, the Court adopts the Report and Recommendation of Magistrate Judge Almond i n i t s e n t i r e t y . No judgment shall enter in this case until a l l claims are resolved. The p a r t i e s s h a l l submit p r e - t r a i l memoranda within t h i r t y days of the date of the entry of this Order. This matter will then be s e t down f o r j u r y t r i a l a t the C o u r t ' s e a r l i e s t convenience. I t is so ordered. R o n a l d R. L a g u e u x Senior United States District Judge S e p t e m b e r )~-, 2 0 0 9 -8-

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