Airport Mart Inc. v. Dunkin' Donuts Franchising LLC

• Decision Date: 16 September 2019
• Docket Number: No. 18-CV-170 (KMK),18-CV-170 (KMK)
• Parties: AIRPORT MART INC., Plaintiff, v. DUNKIN' DONUTS FRANCHISING LLC, Defendant.
• Court: U.S. District Court — Southern District of New York

AIRPORT MART INC., Plaintiff, v. DUNKIN' DONUTS FRANCHISING LLC, Defendant.

No. 18-CV-170 (KMK)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 16, 2019

OPINION & ORDER

Appearances:

Yenisey Rodriguez-McCloskey, Esq.

Rodriguez-McCloskey PLLC

Brooklyn, NY

Counsel for Plaintiff

Ronald D. Degen, Esq.

O'Rourke & Degen, PLLC

New York, NY

Counsel for Defendant

KENNETH M. KARAS, District Judge:

Plaintiff Airport Mart, Inc. ("Plaintiff") brings this Action against Defendant Dunkin' Donuts Franchising LLC ("Defendant") for breach of contract, fraud in the inducement, and violations of New York General Business Law ("NYGBL") § 349, in connection with a franchise agreement between the Parties. (Second Amended Complaint ("SAC") (Dkt. No. 26-1).)¹ Before the Court are Defendant's Motion To Strike Plaintiff's Demand for a Jury Trial and Request for Lost Profits and Punitive Damages pursuant to Rule 39(a)(2) of the Federal Rules ofCivil Procedure, (Not. of Mot. To Strike (Dkt No. 36)), and Defendant's Motion To Dismiss pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, (Not. of Mot. To Dismiss (Dkt. No. 38)). For the reasons stated below, Defendant's Motion To Strike Plaintiff's Demand for a Jury Trial and Request for Lost Profits and Punitive Damages is granted. Defendant's Motion To Dismiss is granted in part and denied in part.

I. Background

A. Factual Background

Defendant is engaged in franchising Dunkin' Donuts stores throughout the United States for the sale of donuts, coffee, and related products. (SAC ¶ 8.) Plaintiff and Defendant began discussing arrangements for Plaintiff to open a Dunkin' store (the "Store") in the Westchester County Airport ("Westchester Airport"). (Id. ¶ 9.)²

Plaintiff had an existing positive relationship with the Westchester Airport administration predating the contractual relationship with Defendant. (Id. ¶ 10.) Plaintiff leased and continues to lease a restaurant, a coffee shop, and a bar at the Westchester Airport. (Id.) The Store was located outside of the TSA area during construction at the Westchester Airport. (Id. ¶ 9.)

Plaintiff alleges that it was "always contemplated between the parties that the Store's location would ultimately move to inside the Westchester Airport's TSA area where maximum profits could be derived." (Id.) Plaintiff alleges that both Plaintiff and Defendant envisioned entering a long-term contract pursuant to which Plaintiff would operate several Dunkin' Donuts stores. (Id. ¶ 10.)

On December 30, 2009, Plaintiff entered into a five-year lease agreement (the "Lease") with the Westchester Airport to lease new space for the Store, from January 1, 2010 through December 31, 2014, with a five-year renewal option. (Id. ¶ 11.) On June 30, 2010, Plaintiff and Defendant executed a Franchise Agreement. (SAC ¶ 12.) Pursuant to the Franchise Agreement, Plaintiff was authorized to sell Dunkin' Donuts coffee only. (Id.) At the time, Plaintiff had a small existing space within the Westchester Airport where it intended to sell coffee in a self-serve area. (Id.) Plaintiff alleges that the Franchise Agreement provided that the initial term of the Agreement began ten years from the first date the Store opens. (Id. ¶ 13; see Mem. of Law in Supp. of Mot. To Dismiss ("Def.'s Mem. re Mot. To Dismiss") Ex. A (Franchise Agreement Signed June 30, 2010 ("Franchise Agreement")) (Dkt. No. 41-1).)³ Plaintiff alleges thatDefendant "represented that this would be a long-term relationship, exceeding the term stated in the Franchise Agreement and that it would assist [Plaintiff] in obtaining additional locations and expanding its business." (SAC ¶ 14.) Plaintiff points to the fact that its affiliated companies operated many gas stations where Dunkin' Donuts products could be sold. (Id.)

The Franchise Agreement contains mutual waivers of a trial by jury and lost profits and punitive damages. The Franchise Agreement reads in relevant part: "Waiver of Rights: Both we and you waive and agree not to include in any pleading . . . [a] demand for trial by jury; claims for lost profits; or claims for punitive, multiple, or exemplary damages." (Franchise Agreement at § 15.0.) The signature page of the Franchise Agreement also includes an acknowledgment in bold, capital letters reiterating the waiver provision: "YOU ACKNOWLEDGE SECTION 15 OF THE TERMS & CONDITIONS, WHICH PROVIDES FOR YOUR EXPRESS WAIVER OF RIGHTS TO A JURY TRIAL . . . [AND] TO OBTAIN PUNITIVE, MULTIPLE OR EXEMPLARY DAMAGES . . . ." (Franchise Agreement at Signature Page.)

The sale of Dunkin' Donuts coffee was scheduled to commence at the Store in or about January 2010. (SAC ¶ 15.) After Plaintiff was approved as a franchisee, Plaintiff alleges the business came to a standstill. (Id. ¶ 16.) Plaintiff alleges that Mike Quinn ("Quinn"), was the point of contact at that time, but that "Quinn was not the right contact for an airport or unique location [franchise]." (Id.) Plaintiff alleges that consequently Defendant did not offer the support, equipment, or approval necessary to proceed with the franchise relationship. (Id.)

In April 2011, a representative for Plaintiff and Defendant's Vice President of Operations, Bob Wiggins ("Wiggins"), met to discuss the franchise. (Id. ¶ 17.) By letter dated April 25, 2011, Plaintiff's representative memorialized the discussion of an expansion of the relationship with Defendant, including a condition that Plaintiff could proceed only if Plaintiff was willing to expand its operations to include "parbaking" at the Westchester Airport. (Id.) By email dated April 26, 2011, Wiggins confirmed that the "just baked on demand . . . option" ("JBOD") was available to Plaintiff if Plaintiff secured additional space at the Westchester Airport. (Id.)⁴ Plaintiff alleges that Defendant, for the first time, required Plaintiff to open a full-service Dunkin' Donuts Store. (Id.) Plaintiff agreed because it appeared that the investment could be justified as Plaintiff was in the process of obtaining additional space at Westchester Airport. (Id. ¶ 18.)

As a result of these discussions, the Franchise Agreement was amended to require Plaintiff to run a full-service Dunkin' Donuts Store at Westchester Airport. (Id. ¶ 19; Def.'s Mem. re Mot. To Dismiss Ex. C (First Amendment to the Franchise Agreement Signed January 20, 2012 ("First Amendment")) (Dkt. No. 41-3).) The First Amendment was executed on January 20, 2012, and in pertinent part provided that "[t]he approved source of bakery supply forthis Restaurant is: PC # 338698." (First Amendment ¶ 3.) Defendant states that PC # 338698 refers to the Beekman Group, (Mem. re Mot. To Dismiss 3), but nothing in the First Amendment states as much. The First Amendment also included a general release provision that provided in relevant part that Plaintiff released Defendant

from any and all claims, demands, causes of actions, suits, debts, dues, duties, sums of money, accounts, reckonings, covenants, contracts, agreements, promises, damages, judgments, extents, executions, liabilities and obligations . . . of any kind whatsoever in law or equity . . . [including but not limited to] breach of contract claims or causes of action; claims or causes of action based on fraud or misrepresentation, . . . unfair trade practices (state or federal), and all other claims and causes of action whatsoever.

(First Amendment ¶ 4.)

On November 4, 2010, based on the executed Franchise Agreement, Plaintiff amended the Lease with the Westchester Airport to add 150 additional square feet for the Store and accordingly to increase Plaintiff's annual license fee from $16,109 to $25,559 (the "First Lease Amendment"). (SAC ¶ 20.) On July 9, 2012, Plaintiff and the Westchester Airport executed a second amendment (the "Second Lease Amendment"), which stated in part that "the parties desire to amend the Agreement to increase the Licensed Premises, permit [Plaintiff] to operate as a full-service Dunkin' Donuts franchise, and increase the license fee." (Id. ¶ 21.) The Second Amendment added 300 square feet to the leased space, for an additional annual cost to Plaintiff of $18,900. (Id. ¶ 22.) Plaintiff alleges it spent in excess of $550,000 to build the Store, improve the location, and make it fit for Defendant's brand. (Id. ¶ 23.)

Plaintiff alleges that after it expended significant funds, Defendant disclosed for the first time that Defendant's other franchisees in the area viewed Plaintiff's franchise unfavorably, and Defendant therefore required Plaintiff to purchase certain products from these competing franchises. (Id. ¶ 24.) Plaintiff alleges Defendant amended the Franchise Agreement toauthorize JBOD and parbaking onsite, which Plaintiff accepted. (Id. ¶ 25.) Plaintiff alleges, however, that Defendant also forced Plaintiff to agree to an amendment stating Plaintiff must purchase all its baked goods—including, significantly, all donuts—from a separate bakery. (Id.) Plaintiff alleges that Defendant forced Plaintiff to purchase all baked goods from a competing franchise, Beekman Group LLC ("Beekman Group"), because the Westchester Airport was within "Beekman Group's area." (Id. ¶ 31.) This was never disclosed to Plaintiff prior to the signing of the Franchise Agreement. (Id.) Plaintiff alleges that Defendant "has similar arrangements with other bakeries, and forces its franchisors elsewhere into similar agreements with similar stores with [which Defendant] does business." (Id. ¶ 32.) Plaintiff alleges that this rendered the equipment which Plaintiff was required to buy from Defendant to open the franchise useless, and the expenses for such equipment, which Plaintiff had already paid, a total loss. (Id. ¶ 25.)

Plaintiff alleges that because at that point it had invested over $550,000, it continued to improve the leased space, and constructed and finished the Store, which was located in the pre-security area, on the first floor of the Westchester Airport. (Id. ¶ 26.) Plaintiff alleges that De...