Doctor's Assocs. Inc. v. Desai (In re Patwari)
| Decision Date | 07 April 2016 |
| Docket Number | Adv. Pro. No.: 09-1022,Case No.: 08-26178 (JKS) |
| Parties | IN RE: Jesal Patwari, Debtor. Doctor's Associates Inc., Plaintiff, v. Jesal Desai a/k/a Jesal Patwari, Shapat, Inc., Shapat II, LLC, Shapat III, LLC and Patwari, LLC, Defendants. Jesal Desai a/k/a Jesal Patwari, Shapat, Inc., Shapat II, LLC, Shapat III, LLC and Patwari, LLC, Third-Party Plaintiffs, v. Subway Real Estate Corp., Yogesh Dave and Subway Development Co., Third-Party Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
NOT FOR PUBLICATION
Forrest Scott Turkish, Esq.
Law Office of Scott Turkish
595 Broadway
Bayonne, NJ 07002
Attorney for Doctor's Associates, Inc.
and Subway Real Estate Corp
Michael S. Waters, Esq.
McElroy, Deutsch, Mulvaney & Carpenter, LLP
Three Gateway Center
100 Mulberry Street
Attorney for Eric R. Perkins, Esq. Chapter 7 Trustee, and
Trustee for Shapat, Inc., Patwari, LLC, Shapat II, LLC and
David M. Kohane, Esq.
Ryan T. Jareck, Esq.
Cole, Schotz, Meisel,
Forman and Leonard, PA
Court Plaza North
25 Main Street, PO Box 800
Hackensack, NJ 07602
Attorneys for Yogesh Dave and
Subway Development Co.
THE HONORABLE JOHN K. SHERWOOD, BANKRUPTCY JUDGE
This matter is before the Court upon the motion of Doctor's Associates, Inc. ("DAI") and Subway Real Estate Corporation ("SREC") for the following relief against chapter 7 debtor Jesal Patwari, formerly Jesal Desai ("Desai-Patwari" or the "Debtor")1:
Also before the court is the motion of Yogesh Dave ("Dave") and Subway Development Co. to dismiss the claims against them brought by Desai-Patwari and the Operating Entities. Eric R. Perkins, chapter 7 trustee for the estate of Desai-Patwari, and Catherine Youngman, chapter 7 trustee for the Operating Entities' estates (collectively, the "Trustees"), oppose the motions.2
For the reasons set forth below, the Court will grant in part the motion of DAI and SREC and will grant the motion to dismiss of Dave and Subway Development Co.
The Court has jurisdiction over the motions pursuant to 28 U.S.C. §§ 1334(b), 157(a), and the Standing Order of Reference from the United States District Court for the District of New Jersey. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (C). Venue is proper under 28 U.S.C. §§ 1408 and 1409(a).
Initially, the Court did not believe it had the ability to enter a final judgment on the within matter in light of the United States Supreme Court's holding in Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011) limiting bankruptcy judges to rendering proposed findings of fact and conclusions of law where they have subject matter jurisdiction but lack the Constitutional authority to enter a final judgment in a statutory core matter. However, the United States Supreme Court recently issued an opinion in Wellness International Network, Ltd. v. Sharif holding that "Article III is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge." 135 S. Ct. 1932, 191 L. Ed. 2d 911 (2015). Here, the parties expressly consented to this Court's jurisdiction. Accordingly, what follows is the Court's final adjudication of this matter.
DAI is the trademark holder of the Subway® name and the franchisor of the sandwich shops bearing the name Subway®. DAI entered into four separate franchise agreements with Desai-Patwari for the operation of Subway® sandwich shops in Northern New Jersey (the "Franchise Agreements"). (Certification of Tricia Lee ("Lee Cert."), Exs. A-D, ECF No. 68). Although each Franchise Agreement was executed solely by Desai-Patwari between 2002 and2006, she formed the Operating Entities to operate the four sandwich shops, as permitted by the agreements.3 Each Franchise Agreement contains an arbitration clause at paragraph 10 that provides all disputes between DAI and Desai-Patwari are subject to arbitration and that any arbitration award may be confirmed by a judgment in any court of competent jurisdiction. (See e.g., id., Ex. B at ¶ 10). The only claims excluded from the arbitration clauses are landlord-tenant actions commenced by SREC and claims by DAI for injunctive relief related to its trademarks. (Id., Ex. B at ¶¶ 10(b), (d)).4
The arbitration clauses further preclude Desai-Patwari from suing any of DAI's agents (here, Dave and Subway Development Co.) for disputes related to the Franchise Agreements:
You may only seek damages or any remedy under law or equity for any arbitratable claim against us or our successors or assigns. You agree that our Affiliates, shareholders, directors, officers, employees, agents and representatives, and their affiliates, shall not be liable nor named as a party in any arbitration or litigation proceeding commenced by you where the claim arises out of or relates to this Agreement. You further agree that the foregoing parties are intended beneficiaries of the arbitration clause; and that all claims against them that arise out of or relate to this Agreement must be resolved with us through arbitration. If you name a party in any arbitration or litigation proceeding in violation of this Subparagraph 10c, you will reimburse us for the reasonable costs incurred, including but not limited to, arbitration fees, court costs, lawyers' fees, management preparation time, witness fees, and travel expenses incurred by us or the party.
In connection with each Franchise Agreement, Desai-Patwari also executed a franchise disclosure questionnaire. (See e.g., id., Ex. R). The answers on all four questionnaires state that Desai-Patwari "consulted with attorneys, and/or professional advisors, as well as existingfranchisees, and fully read and understood the Franchise Agreement and offering circular, understood the risks, and understood that any disputes would ultimately be resolved through arbitration in Connecticut." (Id. ¶ 8).
Desai-Patwari also executed separate subleases for each store with SREC. Each sublease provides that its sole purpose is for Desai-Patwari to operate a Subway® sandwich store pursuant the Franchise Agreement. Paragraph 6 provides:
(6) If at any time during the term of this Sublease, [Desai-Patwari] shall default in the performance of any of the terms of the Master Lease of the Franchise Agreement, [SREC] may terminate this Sublease on ten (10) days written notice to [Desai-Patwari], and upon such termination, [Desai-Patwari] shall quit and surrender the leased premises to [SREC] but [Desai-Patwari] shall remain liable for the balance of the rent due as provided in this Sublease. The parties agree that trial by jury shall be waived in the event of litigation.
(Id., Ex. E at ¶ 6).
Around July 2007, DAI alleged various defaults under the Franchise Agreements, including non-payment of rent, with respect to the three Subway® locations in Montclair and Bloomfield. In August 2007, DAI sent notices of default and brought four landlord-tenant actions against Desai-Patwari. (Id., Ex M).5 Further, DAI commenced arbitration proceedings against Desai-Patwari and each sandwich store before the American Dispute Resolution Center in Connecticut. (Id. ¶ 10). Ultimately, on September 6, 2007, four arbitration awards (one for each store location) were entered against Desai-Patwari, providing for monetary and injunctive relief. (Id., Ex. O). Among the relief granted was: (1) each Franchise Agreement was terminated and Desai-Patwari was directed to disidentify the stores and cease use of alltrademarks and tradenames; and (2) Desai-Patwari was directed to pay to DAI under-reported fees, royalties, advertising fees and certain costs of the arbitration. (Id.).
From the history recited in the arbitration awards it is evident that Desai-Patwari was afforded ample opportunity to appear and defend against the claims of DAI. Each arbitration award recites the following:
(Id., Ex. O). It appears that all four awards were sent to Desai-Patwari and her counsel by first class mail and certified mail on September 6, 2007. (Id.).
In early October 2007, Desai-Patwari and the Operating Entities filed a one-count verified complaint against DAI and SREC in the Superior Court of New Jersey, Chancery Division (the "Chancery Action") seeking "temporary restraints and preliminary injunctive relief to enjoin enforcement of an...
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