GOTHAM PRINT v. AMERICAN SPEEDY PRINTING CENTERS

• Citation: 863 F. Supp. 447
• Decision Date: 15 March 1994
• Docket Number: No. 93-CV-70290-DT.,93-CV-70290-DT.
• Parties: GOTHAM PRINT, INC., Plaintiff, v. AMERICAN SPEEDY PRINTING CENTERS, INC., Vernon Buchanan, William McIntyre, Jr., Gerald Bergler, and Gary Shovlin, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

863 F. Supp. 447

GOTHAM PRINT, INC., Plaintiff, v. AMERICAN SPEEDY PRINTING CENTERS, INC., Vernon Buchanan, William McIntyre, Jr., Gerald Bergler, and Gary Shovlin, Defendants.

No. 93-CV-70290-DT.

United States District Court, E.D. Michigan, Southern Division.

March 15, 1994.

COPYRIGHT MATERIAL OMITTED

Allen J. Lippitt and William D. Riley, Riley & Roumell, Detroit, MI, for plaintiff, Gotham Print, Inc.

Kiernan F. Cunningham, Strobl & Manoogian, Bloomfield Hills, MI, for defendants American Speedy, Gerald Bergler and William McIntyre, Jr.

David L. Steinberg, Hertz, Schram, Bloomfield Hills, MI, for defendant Vernon Buchanan.

OPINION AND ORDER REGARDING DEFENDANTS' MOTIONS FOR DISMISSAL/SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

This securities fraud/RICO action is presently before the Court on three separately filed Motions for Dismissal/Summary Judgment:

1. Defendant Vernon Buchanan's Motion to Dismiss;

2. Defendant William McIntyre's Motion for Summary Judgment; and

3. Defendants American Speedy Printing Centers, Inc. ("ASPCI"), Gerald Bergler and William McIntyre's Motion for Summary Judgment on Count I.

Plaintiff has responded in writing to each of these Motions, to which Responses, each of the moving Defendants has replied.¹

Having reviewed and considered the parties' respective briefs and supporting documents, and having heard the oral arguments of the parties' attorneys at the hearing held on February 17, 1994, the Court is now prepared to rule on the subject motions. This Opinion and Order sets forth that ruling.

II. FACTUAL BACKGROUND

This action arises out of transactions and events surrounding a "Master Franchise Agreement" between Plaintiff GOTHAM PRINT, INC. and Defendant AMERICAN SPEEDY PRINTING CENTERS, INC. ("ASPCI"). The individual Defendants VERNON BUCHANAN, WILLIAM McINTYRE, JR., and GERALD BERGLER are all present and/or former directors/officers of ASPCI.² As alleged by Plaintiff in its First and Second Amended Complaint,³ the facts surrounding the transactions at issue are as follows.

ASPCI was in the business of franchising printing stores throughout the United States and other countries. In 1986, pursuant to a plan to expand the growth of the company, ASPCI began contracting with third parties to act as "middlemen" or "distributors" to develop new franchises and to support existing franchises through a series of "Master Franchise Distributorships." It appears that Master Franchise Distributors were given a geographic area in which to develop new ASPCI franchises. They also directed the functions of existing franchises in the territory. In turn, the Master Franchisees were entitled to a percentage of the franchise royalties paid by the franchisees to ASPCI.

With respect to the Master Franchise Agreement at issue in this lawsuit, in June of 1990, Thomas Tybinka, the president of Gotham Print, Inc., and another Gotham-affiliated individual, Tony Romano, met with Defendant Vernon Buchanan, the chairman of the board of directors and CEO of ASPCI, in ASPCI's offices in Bloomfield Hills, Michigan, to discuss the prospects of purchasing an ASPCI Master Franchise Distributorship in the New York City region. These discussions continued in July 1990.

According to Plaintiff's First Amended Complaint, a principal point of negotiation regarding Gotham Print's purchase of a Master Franchise Distributorship was the particular geographic region to be covered. Gotham wanted the territory to include all New York City zip codes, plus a part of New Jersey and two counties in Connecticut. Gotham was to have the exclusive right to control ASPCI franchise development in the geographical area. Gotham also was promised a working capital loan from ASPCI in the amount of $150,000.

On July 12, 1990, Defendants Buchanan, Bergler and Shovlin again met with Messrs. Tybinka and Romano. A proposed Master Franchise Agreement, which called for Gotham's payment of $1,800,000 to ASPCI, was presented to Tybinka and Romano to review. This draft Agreement provided for Gotham's exclusive rights to the New Jersey and Connecticut areas, as well as all New York City zip codes. Tybinka and Romano were also promised, both orally and in writing, the $150,000 working capital loan they wanted. More details were worked on at a meeting held on August 23, 1990.⁴

The parties met again a few days later to sign the final Master Franchise Agreement. However, the promised Connecticut territory was not included in the Agreement, nor was the promise of $150,000 working capital loan. The Defendants represented that amendments would be made to the Agreement. Mr. Tybinka executed the Agreement on behalf of Gotham. However, as a result of the omissions of the Connecticut territory and working capital loan provisions, only half of the required $250,000 down payment was given by Gotham; the balance of the downpayment was being withheld until such time as Connecticut was added and the working capital loan was arranged. As for the remaining $1,550,000 of the $1,800,000 purchase price, this amount was covered by two promissory notes for $775,000 each executed by Mr. Tybinka.

During the first two weeks of September 1990, Mr. Buchanan and Mr. Tybinka were in frequent contact regarding the Master Franchise Agreement. On September 21, Tybinka and Buchanan met again. At this meeting, Buchanan provided Tybinka with a letter promising to resolve all outstanding issues. Based on the representations in this letter, Tybinka paid in the $125,000 balance due on the down payment.

However, despite frequent meetings over the next three months, nothing was resolved.

On February 12, 1991, Tybinka met with Buchanan and with newly-appointed ASPCI President William McIntyre. At this meeting, Tybinka was informed that nothing could be done about adding Connecticut because that territory was already given to another Master Franchise Distributor. Tybinka offered to trade the two Connecticut counties Gotham was promised in exchange for all of New Jersey. Buchanan agreed and directed McIntyre to arrange for this compromise.

McIntyre and Buchanan also advised Tybinka at this meeting that they could not provide the promised $150,000 loan. Tybinka told them that he would arrange for his own loan if ASPCI would provide a guarantee of it. Buchanan and McIntyre agreed.

Despite meetings and discussions over the ensuing months, nothing was resolved. Finally, in late January 1992, McIntyre set up a meeting for early February 1992, with the assurance that he had resolved all of the issues and that Tybinka would leave the meeting satisfied. Before this meeting took place, however, ASPCI filed for bankruptcy protection, and Gotham was left with no direct remedies against ASPCI, other than filing a claim as an unsecured creditor.

III. PLAINTIFF'S CLAIMS IN THIS LAWSUIT

Plaintiff claims that during the pre-contract negotiations pertaining to the Master Franchise Agreement, Defendants made false representations on past successes of other then-existing Master Franchise Distributorships and provided Plaintiff with false and misleading financial projections for a New York City Distributorship. Gotham further contends that from the very beginning of the negotiations, Defendant Buchanan knew that the Connecticut area and two zip code areas of New York City, which Gotham desired and which was promised to Gotham in the proposed Master Franchise Agreement, were already under contract to other Master Franchise Distributorships, but Buchanan failed to reveal this information to Gotham's representatives. Gotham also contends that the Defendants fraudulently misrepresented the financial strength of ASPCI and failed to reveal to Plaintiff that ASPCI was considering filing for bankruptcy at the time of the negotiations and also failed to reveal that ASPCI was being sued by several other Master Franchise Distributors.

Based upon the above allegations of fraud, Gotham has filed a four-count Amended Complaint alleging two federal claims: securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 of the General Rules and Regulations under the Securities Exchange Act of 1934 (Count I) and violation of Section 1962(a) and (c) of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO") (Count II). Plaintiff also has alleged two state common law fraud claims: conspiracy to commit fraudulent misrepresentation (Count III) and fraudulent misrepresentation (Count IV).

Defendant ASPCI has filed a counterclaim/third-party claim against Plaintiff Gotham Print, Inc. and its president Thomas Tybinka based upon nonpayment of two promissory notes dated August 25, 1990, each in the face amount of $775,000.

IV. DEFENDANTS' SUMMARY JUDGMENT ARGUMENTS

Defendants seek dismissal of Plaintiff's Complaint on several grounds. First, with respect to Plaintiff's claims of securities fraud, Defendants argue that the Master Franchise Agreement at issue in this case is not a "security", as that term is defined in the statute or as the term has come to be defined by case law, and therefore, Plaintiff's Count I claims fail as a matter of law.⁵

With respect to Count II (violation of RICO), Defendants argue that Plaintiff has failed to establish any legally cognizable "predicate act". In Plaintiff's Complaint, the alleged RICO predicate acts are securities fraud, mail fraud and wire fraud. Defendant's securities fraud arguments are discussed above. With respect to the allegations of mail and wire fraud, Defendants argue that Plaintiff has failed to allege such claims with the requisite degree of specificity required by Fed.R.Civ.Pro. 9(b).

Defendants further argue that Plaintiff has failed to establish a RICO "pattern" of racketeering activity, pursuant to the requirements regarding that element set forth by the Supreme Court in H.J., Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S.Ct....