FLB, LLC v. 5LINX

• Decision Date: 16 May 2011
• Docket Number: No. 06–CV–6463 CJS(P).,06–CV–6463 CJS(P).
• Citation: 821 F.Supp.2d 548
• Parties: FLB, LLC, Francine Bergami, Individually and as Administrator of the Estate of Ronald Bergami, Plaintiffs v. 5LINX and Craig J. Jerabeck, Defendants.
• Court: U.S. District Court — Western District of New York

821 F.Supp.2d 548

FLB, LLC, Francine Bergami, Individually and as Administrator of the Estate of Ronald Bergami, Plaintiffs

v.5LINX and Craig J. Jerabeck, Defendants.

No. 06–CV–6463 CJS(P).

United States District Court, W.D. New York.

May 16, 2011.

Eddi Z. Zyko, Esq., Middlebury, CT, Jules L. Smith, Esq., Blitman & King, Rochester, NY, for plaintiffs.

Paul R. Braunsdorf, Esq., Harris Beach LLP, Pittsford, NY, for defendant Craig J. Jerabeck.

Ellen J. Coyne, Esq., Rochester, NY, for defendant 5LINX.

DECISION AND ORDER

CHARLES J. SIRAGUSA, District Judge.

INTRODUCTION

This is a diversity action for breach of contract and related state-law torts, arising from a franchise agreement between @Wireless Enterprises, Inc. (“@Wireless”) and FLB, LLC (“FLB”), involving the operation of a retail cellular telephone services shop in Cromwell, Connecticut. Now before the Court are the following motions: 1) Craig J. Jerabeck's (“Jerabeck”) motion for summary judgment [# 49]; 2) Jerabeck's motion for Rule 11 sanctions [# 55]; 3) 5Linx's motion for summary judgment [# 56]; and 4) Plaintiffs' cross-motion to strike Jerabeck's affidavit [# 63]. For the reasons that follow, Jerabeck's and 5Linx's applications are granted, Plaintiffs' application is denied, and this action is dismissed.

BACKGROUND

Unless otherwise stated, the following are the undisputed facts of this case, viewed in the light most-favorable to Plaintiffs. At all relevant times, Cellco Partnership doing business as Verizon Wireless (“Verizon”), was a wireless communications service provider, which sold cellular radio service and equipment through its own retail stores, as well as through agents. @Wireless was a seller of cellular communications services. In August 2000, Verizon and @Wireless entered into an “Authorized Agency Agreement” (“the Verizon Agreement”) (Docket [# 16–5] ), in which Verizon appointed @Wireless as a “non-exclusive sales agent” for Verizon's cellular radio service. The agreement was for a term of three years. However, the agreement further provided that Verizon could terminate the agreement, “ without cause, upon six (6) months written notice to” @Wireless. Id. at ¶ 9.1 (emphasis added). Additionally, the agreement stated that Verizon could “immediately terminate” the agreement upon written notice to @Wireless, if @Wireless breached the agreement. Id. § 9.1.1. Significantly, in that regard, the agreement indicated that: 1) @Wireless could only sell Verizon's products within specified geographic areas; 2) @Wireless could not sell the products of Verizon's competitors; and 3) @Wireless could not sell Verizon's products over the internet. See, Fitzsimmons Affidavit [# 59–9] ¶¶ 4, 6–7.

The Verizon Agreement provided that @Wireless could delegate its obligations under the contract to “a subcontractor or sub-agent,” by written contract, subject to the express written approval of Verizon. The agreement further stated: “Personnel employed by, or acting under the authority of, Agent shall not be or be deemed to be employees or agents of Verizon Wireless, and Agent assumes full responsibility for their acts and shall have sole responsibility for their supervision and control.” Agency Agreement § 2. The Verizon Agreement included an addendum, entitled “Addendum Permitting Agent [@Wireless] to Distribute Cellular Radio Service Through Sub–Agents.” Pl. Memo of Law (05–CV–6176, Docket No. [# 72–5], Ex. C). Such addendum (“the Sub-agency Addendum”) indicated that @Wireless could contract with sub-agents to sell Verizon's services, subject to Verizon's approval. Verizon was designated as “the beneficiary” of the addendum. Id. at ¶ 3(f). The addendum indicated that the Verizon Agreement would be attached to, and incorporated by reference into, any agreement between @Wireless and its sub-agents. However, the addendum further stated that @Wireless could “delete from [the copy of the Verizon Agreement provided to the subagent] all references to commissions, quotas, and related confidential information.” Id. at ¶ 5. Finally, the addendum stated: “Except to the extent set forth herein, Verizon Wireless shall not be considered a party to any contract or [illegible] between Agent [@Wireless] and subagent and shall assume no obligations or liabilities under any such contracts.” Id.

Subsequently, on February 1, 2002, @Wireless entered into a franchise agreement with FLB (“the Franchise Agreement”). Specifically, @Wireless and FLB executed the subject Franchise Agreement, pursuant to which FLB obtained the right to sell “cellular telephones, pagers and accessories and ... cellular telephone services, pager services and other related goods and services.” Franchise Agreement ¶ 1.1. Specifically, FLB agreed that it would sell @Wireless's “authorized products” and services. See, e.g., id. at ¶ 8.1.3. The agreement did not, however, indicate that FLB was specifically obtaining the right to sell Verizon products.¹ In fact, the Franchise Agreement does not mention Verizon or any other particular service provider, though a financial statement attached to the agreement, dated December 31, 2000, indicates that @Wireless sold “wireless equipment and access to wireless service through a variety of different carriers including Verizon Wireless, its major carrier.” Financial Statement, Note 1. The agreement also indicated that franchisees were considered independent contractors, and that no fiduciary relationship existed between the parties. Id. at ¶ 16.1. The Franchise Agreement was signed by Ronald Bergami ² on behalf of FLB, and by Michael Battaglia, @Wireless's Vice President of Franchise Development. The Franchise Agreement did not mention, and was not signed by, Jerabeck, who was President of @Wireless at all relevant times. Subsequently, FLB operated a retail outlet as an @Wireless franchisee. On a few occasions, during the course of the business relationship between FLB and @Wireless, FLB dealt directly with Jerabeck. According to Plaintiffs, Jerabeck told Ronald Bergami that he would “protect the interests” of FLB. However, it is unclear how Plaintiffs would know this, since Mr. Bergami is now deceased and Mrs. Bergami does not appear to have any personal knowledge on this point.

Unbeknownst to FLB, between 2002 and 2004, @Wireless breached its agreement with Verizon by, for example, selling products and services of Verizon's competitors. See, Affidavit of Timothy Fitzsimmons [# 59–9] ¶¶ 10–21. Defendant 5Linx, of which Jerabeck was the President and sole shareholder, in addition to being President of @Wireless, and which was “affiliated” with @Wireless, also made unauthorized sales of Verizon's products on its website during this period. Verizon complained to Jerabeck about the actions of both @Wireless and 5Linx, and Jerabeck admitted that @Wireless had breached its agreement with Verizon, and indicated that @Wireless and 5Linx would cease making unauthorized sales. Id. However, both @Wireless and 5Linx continued to make unauthorized sales of Verizon's products. Id. Jerabeck did not inform FLB of the unauthorized sales by @Wireless and 5Linx, or of the resulting warnings from Verizon. For example, Jerabeck did not inform FLB that, on July 30, 2004, Verizon sent Jerabeck a “cease and desist” letter, which stated, in pertinent part, that: 1) @Wireless has breaching the agreement with Verizon; 2) that @Wireless was required to immediately cease and desist from breaching the agreement; and 3) that “[s]hould [@Wireless] continue its current practice, Verizon Wireless will consider its options.” FLB Memo of Law in Opposition to Summary Judgment, Exhibit I, New Jersey Complaint, Exhibit B. Instead, on or about September 10, 2004, Jerabeck sent an email to FLB, stating that @Wireless was in the process of negotiating a new contract with Verizon, which would not affect FLB's “day to day operations.” It is undisputed that @Wireless was in fact attempting to negotiate such a contract with Verizon.

However, on or about September 16, 2004, Verizon cut off service to @Wireless and its franchisees, including FLB. Verizon purportedly terminated its agreement with @Wireless because of the aforementioned breaches of the Verizon Agreement by @Wireless, including the sale of competitors' products, and the sale of Verizon's products over the internet. (FLB Memo of Law in Opposition to Summary Judgment, Exhibit I, New Jersey Complaint, Exhibit C). Verizon also simultaneously commenced an action against @Wireless in United States District Court for the District of New Jersey. Id. On or about September 21, 2004, @Wireless counter-sued Verizon in New York State Supreme Court, Monroe County. @Wireless and Verizon subsequently settled the lawsuits and terminated their agreement. In connection with the settlement, Verizon reinstated service to @Wireless's franchisees, including FLB, through November 24, 2004. After that date, FLB and other franchisees were not able to sell Verizon products or services as subagents for @Wireless. @Wireless offered franchisees monetary compensation for business that was lost during the period that Verizon service was cut off. Additionally, @Wireless attempted to negotiate new agreements with service providers other than Verizon.³ On January 4, 2005, @Wireless stopped doing business.

On September 15, 2006, Plaintiffs commenced this action, against Jerabeck, 5Linx, @Wireless, and Verizon. Plaintiffs later voluntarily discontinued the claims against Verizon and @Wireless ⁴, and all but one of the claims against 5Linx. Consequently, the claims remaining in this action are as follows: 1) constructive fraud against Jerabeck; 2) actual fraud against Jerabeck; 3) constructive trust against Jerabeck; 4) breach of contract against Jerabeck; 5) breach of implied covenant of good faith against Jerabeck; 6) tortious interference with contract against Jerabeck; 7) violation of New York General Business Law sections 349– 350 against Jerabeck; 8) negligent...