Brock v. Baskin-Robbins Usa Co.
| Decision Date | 18 September 2000 |
| Docket Number | No. 5:99-CV-274.,5:99-CV-274. |
| Citation | 113 F.Supp.2d 1078 |
| Parties | Larry BROCK, et al., Plaintiffs, v. BASKIN-ROBBINS USA CO., and Baskin-Robbins Incorporated, Defendants. |
| Court | U.S. District Court — Eastern District of Texas |
E. Ben Franks, Texarkana, TX, for Plaintiffs.
George L. McWilliams, Pattom Haltom, Texarkana, TX, for Defendants.
Defendants in this case are Baskin-Robbins Co. and Baskin-Robbins, Inc., which sell ice cream through franchises. Plaintiffs are owners of approximately forty-seven franchises located in New Mexico, Texas, Louisiana, Mississippi, and Alabama and the shareholders of corporate franchisees. In their Second Amended Complaint, the Plaintiffs allege that the defendants made various material misrepresentations and omissions about the purchase and operation of their franchises, tortiously interfered with contracts to sell certain franchises, and misapplied funds from an advertising trust fund set up for the Plaintiffs' benefit. Plaintiffs seek equitable relief, compensatory damages, and punitive damages of $40,000,000.
Before the Court is "Defendants' Motion to Dismiss with Respect to Certain Plaintiffs and Motion to Transfer Venue with Respect to the Remaining Plaintiffs." (Dkt. No. 12.) Defendants' motion is in four parts. First, Defendants move under FED. R. CIV. P. 12(b)(3) to dismiss the Plaintiffs whose franchise agreements contain a forum-selection clause requiring the parties to resolve their disputes in the judicial district where Baskin-Robbins has its principal office. Defendants contend that this clause requires these Plaintiffs to bring their claims in the Middle District of California, and therefore, venue is not proper in the Eastern District of Texas. Second, Defendants move to transfer the remaining Plaintiffs to the Middle District of California under 28 U.S.C. § 1404(a) arguing that the other Plaintiffs will likely refile their cases in that district and judicial economy is best served by keeping these cases together. Third, Defendants move to dismiss the claims of shareholders in corporate franchisees arguing that the Plaintiffs have failed to state a cause of action on behalf these parties as individuals and that they lack standing to sue for alleged wrongs committed by the Defendants against corporate franchisees. Finally, Defendants move to dismiss Plaintiff David Sturgeon on the ground that the Complaint does not identify David Sturgeon's relation to the case, and Defendants were unable to determine from their own records who David Sturgeon is.
In their Second Amended Complaint, the Plaintiffs assert thirteen state-law causes of action against the Defendants. These include fraud, fraud in the inducement, claims under various state consumer protection laws, intentional interference with contractual relations, breach of implied covenants of good faith and fair dealing, breach of fiduciary duty, and conversion. Plaintiffs also seek an injunction against enforcement of noncompete agreements within their franchise agreements and rescission of their franchise agreements.
Plaintiffs' claims stem from four alleged courses of conduct by the Defendants. The first course of conduct forming the basis of the complaint occurred in 1999. In October of that year, a Baskin-Robbins representative, Connie Burkhart, gave the Plaintiffs written notice that Baskin-Robbins would not renew their franchise agreements. The reason she gave was that these franchises are located in what Baskin-Robbins referred to as "non-strategic markets." Plaintiffs allege that Defendants knew for at least several months prior to October that they would not renew the agreements but withheld this information from the Plaintiffs. They further allege that Baskin-Robbins required its representatives, including Connie Burkhart, to execute confidentiality agreements preventing them from disclosing, prior to October Baskin-Robbins' plans not to renew these franchises or its determination that these franchises were located in nonstrategic markets. Plaintiffs state that during these months between Defendants' decision not to renew these franchises and Connie Burkhart informing Plaintiffs of this decision, Defendants continued to sell ice cream to the Plaintiffs. While it appears at first glance that Defendants were merely continuing to perform under the existing franchise agreements, Plaintiffs characterize this practice as "unconscionable." (Pls.' 2d Am. Compl. at 15.) Based on these actions by the Defendants, Plaintiffs assert causes of action for breach of implied covenant of good faith and fair dealing and violation of various state consumer protection laws.
The second alleged course of conduct involves the purchase and renewal of Plaintiffs' franchises between 1994 and 1997. During this time period, Baskin-Robbins offered three different types of franchises: "basic retail units," also called "single-brand" franchises, which are Baskin-Robbins ice cream stores located in a mall or strip shopping center; "drive-thru retail units," which are stand-alone stores with drive-through windows; and "combo-brand" stores, which offer other products, such as donuts or sandwiches, in addition to ice cream.
Plaintiffs allege that at some point between January 1, 1994 and May 8, 1997, the Defendants, together with representatives of Dunkin Donuts, Inc., concluded that the combo store was a more profitable business model and that single-brand stores were obsolete. (Pls.' 2d Am. Compl. at 17). Plaintiffs further allege that, based upon its conclusion that the single-brand stores were obsolete, Defendants decided to rapidly expand the number of combo stores and phase out single-brand stores between 1997 and 2000.
Plaintiffs are franchisees who purchased or renewed single-brand franchises between January 1, 1994 and May 8, 1997. Plaintiffs complain that Baskin-Robbins sold them these franchises even though Baskin-Robbins planned to phase out this type of store within the next few years and that Baskin-Robbins never disclosed these plans to the Plaintiffs. Based upon this alleged course of conduct, Plaintiffs assert claims for fraud and fraudulent inducement claiming that they would never have invested in these franchises had the Defendants disclosed their attitude toward the single-brand franchises or their intention to phase them out.
The third course of conduct of which the Plaintiffs complain involves attempts by some of the franchisees to sell their franchises. The Second Amended Complaint states that during negotiations to sell a number of the franchises, the Defendants contacted the potential buyers and informed them that these particular franchises were located in nonstrategic markets. These potential buyers later refused to go ahead with their purchases. Based upon this alleged conduct, these franchisees assert claims of tortious interference with contract.
The last course of conduct about which the Plaintiffs complain relates to the Baskin-Robbins System and Product Advertising Trust Fund ("trust fund"). Baskin-Robbins set up this trust fund in 1985 to provide national marketing and advertising support for its franchisees. The franchisees finance this fund through mandatory contributions based upon a percentage of sales. Baskin-Robbins, Inc. acts as trustee.
On January 1, 1997, the trust fund began to account for the funds used for regional advertising as well. Baskin-Robbins, Inc. previously held these funds, which the franchisees also contribute under their franchise agreements based on a percentage of sales. Plaintiffs allege that after January 1, 1997, Baskin-Robbins changed the scope of media coverage to include only regional advertising. They further allege that Baskin-Robbins divided franchises into three tiers based upon the size of the media market in which a franchise was located—Tier I being located in the larger markets and Tiers II and III being located in smaller markets. All of the Plaintiffs are located in Tier II and III markets. Plaintiffs allege that Baskin-Robbins then channeled the bulk of the trust's funds into Tier I markets. Plaintiffs contend that the termination of national advertising and the concentration of advertising in the larger media markets had a detrimental impact to their sales growth. While franchises in the Tier I markets showed sales increases on average of 5.1% from September to August 1997, Plaintiffs' sales increased only 2.6% in Tier II markets and 2.0% in Tier III markets. (Pls.' 2d Am. Compl., Ex. 10). Plaintiffs claim that the discontinuation of national advertising and the focus on regional advertising in the Tier I markets violated their franchise agreements. They also bring claims for breach of fiduciary duty and conversion of their trust fund contributions.
Each of these forty-seven franchises operates under a franchise agreement. Thirty-seven of these agreements contain a forum selection clause, which reads as follows:
Any dispute arising under or in connection with the Agreement and any claim affecting its validity, construction, effect, performance or termination (collectively, "Claim") shall be resolved exclusively by the federal or state courts in the judicial district in which Baskin-Robbins has its principal place of business, to the jurisdiction of which the parties hereby irrevocably submit; provided that if Baskin-Robbins is a party to such a Claim, the matter shall be resolved exclusively by, as the case may be, (a) the United States District Court, Central District of California or (b) the North Central District, Glendale, of the Los Angeles County Superior Court ..., which courts are within the judicial district in which Baskin-Robbins has its principal place of business. Both Franchisees and Baskin-Robbins hereby waive any rights each may have to request a jury trial....
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