American Nursing Care of Toledo v. Leisure

• Decision Date: 15 November 1984
• Docket Number: No. C 83-972,C 83-1060 and C 83-1135.,C 83-972
• Citation: 609 F. Supp. 419
• Parties: AMERICAN NURSING CARE OF TOLEDO, INC., et al., Plaintiffs, v. Edward D. LEISURE, et al., Defendants. AMERICAN NURSING CARE OF COLUMBUS, INC., et al., Plaintiffs, v. Edward D. LEISURE, et al., Defendants. ACME HEALTH SERVICES, INC., et al., Plaintiffs, v. Edward D. LEISURE, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

609 F. Supp. 419

AMERICAN NURSING CARE OF TOLEDO, INC., et al., Plaintiffs, v. Edward D. LEISURE, et al., Defendants.

AMERICAN NURSING CARE OF COLUMBUS, INC., et al., Plaintiffs, v. Edward D. LEISURE, et al., Defendants.

ACME HEALTH SERVICES, INC., et al., Plaintiffs, v. Edward D. LEISURE, et al., Defendants.

Nos. C 83-972, C 83-1060 and C 83-1135.

United States District Court, N.D. Ohio, W.D.

November 15, 1984.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Kenneth J. White, Spengler, Nathanson, Heyman, McCarthy & Durfee, Toledo, Ohio, for plaintiffs.

David F. Cooper, Eastman & Smith, Toledo, Ohio, for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JOHN W. POTTER, District Judge.

The plaintiffs and the defendants in the three consolidated cases which make up this action are former franchisees of a temporary health care franchisor, Nursing Staff, Inc., a Maryland corporation. Three lawsuits were filed in the fall of 1983 against defendants Edward D. Leisure and American Nursing Care, Inc. The Court consolidated the three causes by orders of December 15, 1983 and December 27, 1983.

Plaintiffs in No. C 83-972 (sometimes hereinafter the Toledo case) are American Nursing Care of Toledo, Inc. (now called ABC Health Care, Inc.) and its two fifty percent shareholders, Jagdish U. Patel and his cousin Ghanshyan G. Patel; plaintiffs in No. C 83-1060 (sometimes hereinafter the Columbus case) are American Nursing Care of Columbus, Inc. (now called A-1 Nursing Care, Inc.) and its president and fifty percent shareholder, Naresh N. Patel; plaintiffs in No. C 83-1135 (sometimes hereinafter the Dayton case) are Acme Health Services, Inc. (formerly American Nursing Care, Inc. of Dayton) and its president and forty percent shareholder, Jagdish P. Patel.

The occurrences out of which these lawsuits arose are related to attempts of defendant Edward D. Leisure (Leisure) and the Patels, all of whom are immigrants from India and some of whom are relatives and long term acquaintances, to organize a new franchisor corporation after Leisure, through American Nursing Care, Inc., had purchased the franchises of Toledo, Columbus and Dayton, as well as his own franchise in Cincinnati, from Nursing Staff, Inc. This purchase was part of the settlement of a lawsuit in which Nursing Staff, Inc. sued Leisure in 1982.

To simplify somewhat the positions of the parties, plaintiffs assert that the above mentioned franchise agreements (in the Columbus case, an agreement signed in April, 1983) were terminated and were replaced by a detailed oral agreement which defendants breached by, inter alia, failing to provide the plaintiffs with stock in American Nursing Care, Inc. Defendants deny that there was an oral agreement, although admitting that protracted negotiations among the parties occurred, and assert that the written franchise agreements remain in effect.

In their complaints in each case, the plaintiffs assert that defendants violated the following federal statutes: the Securities Act of 1933, 15 U.S.C. § 77a et seq. (Counts III and IV of all complaints); the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (Count V of all complaints); the Racketeer-Influenced and Corrupt Practices Act, 18 U.S.C. § 1961 et seq. (Count VI of all complaints). Plaintiffs also assert the following pendent state law claims: common law fraud (Count I, No. C 83-972 and No. C 83-1060); breach of contract (Count II, No. C 83-972 and No. C 83-1060; Count I, No. C 83-1135); breach of oral agreement (Count I, No. C 83-1135, Count IX, No. C 83-972); violation of Ohio's Blue Sky Law, Ohio Revised Code § 1707.01 (Count VIII, No. C 83-972; Count VII, No. C 83-1060, No. C 83-1135). Plaintiffs in No. C 83-972 also assert that defendants violated the Ohio Business Opportunity Purchaser's Protection Act, Ohio Revised Code Chapter 1334.01(D) (Count VII).

Defendants assert counterclaims in all three causes. In Case Nos. C 83-972 and C 83-1135, defendants seek enforcement of the licensing agreements (franchise contracts) between the plaintiffs and Nursing Staff, Inc. as well as monetary relief in the form of damages. In Case No. C 83-1060, defendants seek enforcement of a franchise agreement entered into by Naresh Patel on April 12, 1983 as well as monetary damages.

Defendants also filed third party complaints against Jagdish P. Patel in Case Nos. C 83-972 and C 83-1060 asserting that he is liable over to defendants should they be found liable on Count I (common law fraud) of the respective complaints.

In No. C 83-972 two hearings on motions for temporary restraining orders were held and two TROs were granted. By agreement of the parties, these orders of the Court regarding the operation of the parties' businesses remain in effect until the Court makes its determination on the merits. An agreed order regarding operation of the businesses remains in effect in No. C 83-1060 pending final disposition of this cause, as is an order regarding the manner in which A-1 Nursing Care (Columbus) is to answer incoming telephone calls.

The parties submitted trial briefs and proposed findings of fact and conclusions of law. A preliminary injunction hearing was begun on November 22, 1983. Trial on the merits was advanced and consolidated with the preliminary injunction hearing. Fed.R.Civ.P. 65(a)(2). The cause was heard by the Court on January 5, 6, 13, 17, 18, 19 and February 21, 22, 23, 24, 28, 29 and March 1, 1984.

At the end of plaintiffs' case, the Court granted motions under Fed.R.Civ.P. 41(b), dismissing Counts I, II and VII in the Toledo case (No. C 83-972) and Count I in the Dayton case (No. C 83-1135). Motions to dismiss the remaining counts in all cases were denied at that time and at the end of all evidence.

All parties filed post-trial briefs and revised findings of fact and conclusions of law. Plaintiffs filed supplemental proposed findings of fact and conclusions of law. Plaintiffs also filed an answer to defendants' post-trial brief and a post-trial reply in opposition to defendants' counterclaim. Defendants filed a post-trial reply brief. Defendants also filed a supplemental post-trial memorandum to which plaintiffs responded. The Court has considered all of the above and has made its own independent determinations.

Findings of Fact

Plaintiff American Nursing Care of Toledo, Inc., since October 25, 1983 known as ABC Health Care, Inc. (hereinafter ABC) is an Ohio corporation with its principal place of business in Toledo, Ohio. It is in the business of providing temporary nursing services in the Toledo metropolitan area. Until June, 1983, plaintiff ABC was known as Nursing Staff of Toledo, Inc.

Plaintiff Jagdish U. Patel (hereinafter J.U. Patel) is the president of ABC and a fifty percent shareholder in that company. J.U. Patel is a resident of the State of Ohio. Plaintiff Ghanshyam Patel (hereinafter G. Patel) is a fifty percent shareholder in ABC and is the cousin of J.U. Patel. G. Patel is a resident of the State of Ohio.

Plaintiff American Nursing Care of Columbus, Inc., since November 19, 1983 known as A-1 Nursing Care, Inc. (hereinafter A-1), is an Ohio corporation with its principal place of business in Columbus, Ohio. It is in the business of providing temporary nursing services in the Columbus metropolitan area. Prior to the time it became American Nursing Care of Columbus, Inc., plaintiff A-1 was known as Nursing Staff of Columbus, Inc.

Plaintiff Naresh Patel (hereinafter N. Patel) is the president of A-1 and holds fifty percent of the shares of that company. N. Patel is a resident of the State of Ohio. N. Patel is not related to any of the other litigants.

Plaintiff Acme Health Care Services, Inc. (hereinafter Acme) is an Ohio corporation with its principal place of business in Dayton, Ohio. It is in the business of providing temporary nursing services in the Dayton area. Acme was, until December 15, 1983, known as American Nursing Care of Dayton, Inc. and, prior to that, as Nursing Staff of Dayton, Inc.

Plaintiff Jagdish P. Patel (hereinafter J.P. Patel) is a principal shareholder and chief executive officer of Acme. He is a resident of the State of Ohio.

Defendant American Nursing Care, Inc. (hereinafter ANC), is an Ohio corporation with its principal place of business in Cincinnati, Ohio. It was established to act as a franchisor of temporary nursing service businesses.

Defendant Edward Leisure (hereinafter Leisure) is the controlling shareholder and chief executive officer of ANC, and is a resident of the State of Ohio.

In 1976, Leisure became a franchisee of Nursing Staff, Inc. (hereinafter NSI). NSI is a Maryland corporation with its principal place of business in Fairfax, Virginia. NSI was in the business of franchising offices which provided temporary nursing care services. One of the principals of NSI, Robert Bainum, is a cousin of Leisure.

In 1976, Leisure opened his first Nursing Staff office in Cincinnati, Ohio (NS Cinci.) and was its one hundred percent shareholder. He conducted this business pursuant to a written franchise and licensing agreement with Nursing Staff, Inc. Prior to the time Leisure became a Nursing Staff franchisee in 1976, he had had no previous experience in the health care field.

Since December 1, 1982, NS Cinci. has been known as American Nursing Care of Cincinnati, Inc. (ANC Cinci).

Leisure had an agreement with NSI under which he would receive a percentage of the monthly franchise fees paid by any new franchisee of NSI whom Leisure would recruit and assist.

The first franchisee recruited by Leisure was J.P. Patel. Leisure and J.P. Patel met in 1976 when Leisure leased office space for NS Cinci. in a building owned by J.P. Patel. In 1978, Leisure and J.P. Patel discussed the possibility of J.P. Patel opening a Nursing Staff office in Dayton. This office was opened in September, 1978. A license agreement, which provided for monthly payment of franchise fees at 3% of gross receipts...