Cousin Subs Sys. Inc. v. Better Subs Dev. Inc.
| Decision Date | 30 September 2011 |
| Docket Number | Case No. 09-C-0336 |
| Parties | COUSIN SUBS SYSTEMS INC., Plaintiff, v. BETTER SUBS DEVELOPMENT INC., BETTER SUBS RESTAURANT LLC, JAMES B. RAILING, KAREN E. RAILING, SHANTEL E. VAUGHN, Defendants and Counterclaim Plaintiffs, v. WILLIAM F. SPECHT, ESTATE OF JAMES F. SHEPPARD, DONALD A. MORELLO, and MORELLO FRANCHISE DEVELOPMENT CO., INC Counterclaim Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
AND SETTING TELEPHONIC STATUS CONFERENCE
Cousins Subs, Inc. sued defendants for breach of various contracts related to the failure of the defendants to appropriately develop Cousins Subs franchises in Indiana. Defendants counterclaimed, joining former and current representatives of Cousins, alleging that Cousins and its representatives induced defendants to sign the contracts withfraudulent representations regarding personnel and profit forecasts.1 The estate of James Sheppard was dismissed from the counterclaims by a stipulation (Doc. 53) and order dated August 26, 2010. Plaintiffs move for summary judgment and dismissal of the complaint, the counterclaims, as well as an order striking defendants' jury demand. Because the three motions are intertwined with similar legal arguments and facts, the court decides them together.
This dispute involves three contracts that appear to waive the grounds for defendants' counterclaims. However, there is conflicting evidence of what was said between Cousins' area developer Donald Moreno and defendant James Railing, such as whether Moreno intentionally gave Railing false data knowing that Railing would rely on the data to develop profit forecasts for the proposed franchises.
Notwithstanding the wide discrepancy between the parties' version of the facts, plaintiffs maintain that they are entitled to summary judgment. Plaintiffs' motion for summary judgment and dismissal of the complaint must be denied, as well as the motion for summary judgment and dismissal of the counterclaims involving intentional fraud. As to the remaining counterclaims, plaintiffs' motion for summary judgment will be granted. Plaintiffs' motion to strike defendants' jury demand will be granted as well.
FINDINGS OF FACT
This once promising relationship gone terribly wrong has a wide and sometimes confusing array of parties. Cousins Subs, Inc., a Wisconsin corporation with its principalplace of business in Menomonee Falls, WI, is a restaurant franchise that sells submarine sandwiches. (Resp. to Pl. SOF ¶ 5.) William Specht was the Chief Executive Officer of Cousins at all relevant times. (James B. Railing Decl. ¶ 118.)
Donald Morello played various roles. First, he was a Cousins' franchise owner of several restaurants in the Madison, WI area. (James B. Railing Decl. ¶ 14.) He was also the President of Dane County Franchise Development Co (James B. Railing Decl. ¶ 19) and the owner of Morello Franchise Development Co., Inc. (James B. Railing Decl. ¶ 154.)2Morello acted as a franchise broker for Cousins, and performed consulting services for Cousins. (Pl. PFOF ¶ 25.) Finally, he was a Selling Agent for Cousins, through which he received fees and commissions from Cousins. (James B. Railing Decl. ¶ 28.)
Finally, Morello Franchise Development Co., Inc. is an area development company in southern Wisconsin, including the area around Madison, WI. (James B. Railing Decl. ¶ 154.) The company owns several Cousins restaurants, and its representatives have consulted for Cousins. (James B. Railing Decl. ¶ 154; Pl. PFOF ¶ 25.)
On the side of defendants, James Railing was a citizen and resident of Indiana, as well as a former practicing attorney. (James Railing Decl. ¶¶ 3, 6.) Independent of his law practice, he worked with financial matters related to existing franchises. (James B. Railing Decl. ¶¶ 6, 8-11.) Among the several defendants, Railing had the most interaction with the plaintiffs, as described below.
Railing's wife, Karen Railing, and daughter in law, Shantel Vaughn, were citizens and residents of the State of Indiana. (Def. PFOF ¶¶ 4, 5.) Both women had limited contact with plaintiffs.
Railing, his wife, and daughter in law contributed to create Better Subs Development, Inc. ("BSD") and Better Subs Restaurants, LLC ("BSR") under Indiana law. (Def. PFOF ¶¶ 1, 2.) BSD's principal place of business is in Indiana, and Railing is the president and sole shareholder of BSD. (Def. PFOF ¶¶ 1, 3.) Railing, his wife, and daughter in law are all members of BSR. (Def. PFOF ¶¶ 3-5.)
The saga begins in earnest on August 23, 2006. (James B. Railing Decl. ¶ 12.) That day, Railing, his wife and daughter in law all attended a Cousins Discovery Day to learn more about becoming Cousins franchisees. (James B. Railing Decl. ¶ 12.) They were taken on a tour of eight regional Cousins Subs stores by Patrick McCabe, who was the Real Estate Manager for Cousins Subs. (James B. Railing Decl. ¶ 14.) Conversations took place, and Cousins was generally introduced, but these conversations contain disputed statements.
Between this first day and the signing of the contracts, there were numerous phone conversations between Railing and various representatives of Cousins. Additionally, Railing reviewed significant amounts of information regarding Cousins stores, potential sites, and other matters necessary to start a restaurant. These issues are hotly debated, and will be discussed below.
In less dispute is the paperwork that passed between the parties. In addition to his phone conversations, Railing had several email exchanges. (See, e.g., Def. PFOF ¶ 15.) Also, Cousins representatives sent several documents to the defendants, some of whichrequired defendants to respond with information. The first important document received was the Uniform Franchise Offering Circular, which stated in relevant part that (Pl. PFOF ¶ 18.) Additionally, the UFOC indicated that "[T]he Franchise Agreement and the Area Development Agreement contain a number of provisions that may affect your legal rights, including a waiver of a right to jury trial, ... Cousins recommends that you carefully review all of these provisions, and the entire contracts, with a lawyer." (Pl. Jury Demand Br. at 3.)
Next, defendants received and executed the franchise disclosure questionnaire. Railing, his wife, and daughter in law received and executed their separate questionnaires. (Pl. PFOF ¶ 19.) Each person stated that they "discussed the benefits and risks of operating a Cousins Subs shop with an attorney, accountant, or other professional advisor" and they understood "the risks of operating a Cousins Sub Shop." (Pl. PFOF ¶ 20.) They admitted that no representative of Cousins "made any statement or promise concerning the total amount of revenue the Cousins Subs will generate" and that no representative of Cousins "made any statement of the likelihood of success that you might expect to achieve from operating a Cousins Subs." (Pl. PFOF ¶ 22.)
The third document received prior to the execution of the contracts was an updated September 5, 2006, UFOC. (Pl. PFOF ¶ 24.) This UFOC identified Morello and Morello Franchise Development Co. as Franchise brokers for Cousins, and stated that Morello Franchise Development Co. engaged in franchise development services for Cousins. (Pl.PFOF ¶ 25.) Railing reviewed this document prior to executing the contracts. (Pl. PFOF ¶ 26.)
But Railing was considering more than opening a few franchises. He was also considering the creation of an area development company that would establish multiple stores. Accordingly, Railing executed an Area Developer Questionnaire. (Pl. PFOF ¶ 59.) This questionnaire provides in pertinent part that no representative of Cousins "made any statement or promise concerning the revenues, profits or operating costs of a Cousins subs Shop Operated by Cousins Subs Systems, Inc. or its franchisees," and that no representative of Cousins "made any statement or promise regarding the amount of money you may earn in developing and/or operating Cousins Subs." (Pl. PFOF ¶ 61.)
After this research period, Cousins and defendants entered three contracts. First, they executed a franchise agreement for a restaurant in Columbus, Indiana ("Columbus Agreement"). Second, they executed a franchise agreement for a restaurant in Scottsburg, Indiana ("Scottburg Agreement"). Third, Cousins and BSD executed an Area Development Agreement ("ADA").
On September 20, 2006, BSR and Cousins executed the Columbus Agreement. (Pl. PFOF ¶ 27.) Moreover, Railing, his wife and daughter in law executed a personal guaranty. (Pl. PFOF ¶ 30.) The franchise agreement provides in relevant part:
FRANCHISEE acknowledges that it has not received, any warranty or guaranty, express or implied, as to the potential volume, profits, or success of the business venture contemplated by this Agreement[.] FRANCHISEE acknowledges that it has read this Agreement and the FRANCHISOR'S Uniform Franchise Offering Circular and that it has no knowledge of any representation by the FRANCHISOR, or its officers, directors, shareholders, employees, or agents that are contrary to the statements madein the FRANCHISOR'S Uniform Franchise Offering Circular or the terms herein."3
(Pl. PFOF ¶ 40.) Additionally, the Columbus Agreement indicated that "FRANCHISOR AND FRANCHISEE IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR...
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