Mak Marketing, Inc. v. Kalapos

Decision Date08 May 2009
Docket NumberCivil Action No. 08-cv-1008 (JCH).
Citation620 F.Supp.2d 295
CourtU.S. District Court — District of Connecticut
PartiesMAK MARKETING, INC., Plaintiff, v. Steven KALAPOS, et al., Defendants.

Jane I. Milas, Nicole Liguori Micklich, Garcia & Milas, New Haven, CT, for Plaintiff.

Stephen P. Fogerty, Halloran & Sage, Westport, CT, for Defendants.

RULING RE: DEFENDANTS' MTION TO DISMISS (DOC. NO. 16) AND MOTION TO TRANSFER VENUE (DOC. NO. 18)

JANET C. HALL, District Judge.

I. INTRODUCTION

Plaintiff MAK Marketing, Inc. ("MAK") brings this suit against defendants Steven Kalapos, Kevin Smith, Secure Eco Shred America, LLC ("SES America"), Secure Eco Shred, LLC ("SES"), and Better Shredder Solutions, LLC ("BSS") (collectively "defendants"). MAK is a Connecticut corporation with a principal place of business in Brookfield, Connecticut. Kalapos and Smith are residents of Michigan. SES America is a limited liability company organized under the laws of Delaware. SES and BSS are limited liability companies organized under the laws of Michigan.

In its Complaint, MAK asserts nine causes of action based on its dealings with defendants during the initiation and operation of a paper shredding business. Defendants have moved to dismiss the suit for improper venue pursuant to Fed. R.Civ.P. 12(b)(3), or, alternatively, to transfer venue pursuant to 28 U.S.C. § 1404(a). They claim that two binding forum-selection clauses preclude MAK from litigating in Connecticut, and further, that Michigan is a more convenient and just forum in which to adjudicate this dispute. In response, MAK argues that the forum-selection clauses in question are either non-binding or inapplicable, and that convenience and justice favor resolving its claims in Connecticut. For the reasons stated herein, defendants' Motion to Dismiss is granted in part and denied in part, and defendants' Motion to Transfer Venue is denied.

II. STANDARD OF REVIEW
A. Motion to Dismiss

Although defendants have specified that they are seeking dismissal based on improper venue under Fed. R. Civ P. 12(b)(3), when considering motions to dismiss based on the existence of a binding forum-selection clause, the Second Circuit has "refused to pigeon-hole" these claims into a particular clause of Rule 12(b). Asoma Corp. v. SK Shipping Co., Ltd., 467 F.3d 817, 822 (2d Cir.2006). The Second Circuit simply requires that, "where one party has shown an apparently governing forum-selection clause, the party opposing litigation in the so designated forum must make a strong showing to defeat that contractual commitment." Id.

B. Motion to Transfer Venue

Under 28 U.S.C. § 1404(a), "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). The objectives of section 1404(a) are "to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense." Van Dusen v. Barrack, 376 U.S. 612, 616, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964) (internal quotations omitted). The movant bears the burden of establishing the propriety of transfer by a clear and convincing showing. Excelsior Designs, Inc. v. Sheres, 291 F.Supp.2d 181, 185 (E.D.N.Y.2003) (citing Ford Motor Co. v. Ryan, 182 F.2d 329, 330 (2d Cir.1950)); see also United Rentals, Inc. v. Pruett, 296 F.Supp.2d 220, 228 (D.Conn.2003) (placing burden on movant despite presence of forum-selection clause); O'Brien v. Okemo Mountain, Inc., 17 F.Supp.2d 98, 102 (D.Conn.1998) (same). "Section 1404(a) reposes considerable discretion in the district court to adjudicate motions for transfer according to an individualized, case-bycase consideration of convenience and fairness." Red Bull Associates v. Best Western Int'l, 862 F.2d 963, 967 (2d Cir.1988) (internal quotation omitted).

III. BACKGROUND

According to MAK's Complaint, around April 2000, Kalapos and Smith started a paper shredding business in Detroit, Michigan. See Complaint (Doc. No. 1) at ¶¶ 10, 20. They operated the business through various entities, including defendants SES and SES America, until January 8, 2007. See id. On October 31, 2001, Secure Safe Ecoshred (an assumed name of defendant SES) registered the mark SECURE ECO SHRED and design ("the Marks") in the United States Patent and Trademark Office for services of destruction of confidential information. See id. at ¶¶ 13, 14.

Secure Eco Shred businesses provide document shredding and recycling services for customers through the use of large trucks with built-in shredders. See id. at ¶ 17. The trucks permit Secure Eco Shred businesses to shred documents at a customer's location and then transfer the shredded product to a recycling plant. See id. Kalapos and Smith formed defendant BSS to manufacture these trucks and distribute them to Secure Eco Shred businesses. See id. at ¶ 18.

Around September 21, 2004, Kalapos and Smith formed defendant SES America for the purpose of franchising Secure Eco Shred businesses. See id. at ¶ 22. Kalapos and Smith successfully promoted the sale of a Secure Eco Shred franchise business in Illinois in 2004, although the Illinois franchise operated without a written franchise agreement. See id. at ¶ 21.

Kalapos and Smith individually, and on behalf of SES and SES America, also took steps to develop a Secure Eco Shred franchise in Connecticut. See id. at ¶ 23. Specifically, Kalapos and Smith promoted the concept of a Secure Eco Shred franchise to Smith's brother, Michael Smith, as well as to Theodore Rosen and Richard Koffman. See id. at ¶ 24. They did so during both in-person meetings and telephone conversations. See id. According to MAK, Kalapos and Smith used deceptive practices and made various misrepresentations and omissions in the course of promoting the franchise investment to Michael Smith, Rosen, and Koffman. See id. at ¶ 31. This deception included omissions as to the risky nature of the franchise investment, omissions and deliberate misrepresentations as to realistic projected earnings of the franchise, deliberate misrepresentations as to the forecasting of franchisee profit based on the earnings of the franchisor, and misrepresentations about the profits and expenses the franchisee would face during its first three to five years of operation. See id. at ¶¶ 32, 33.

In December 2004, MAK incorporated for the purpose of operating a Secure Eco Shred business in Connecticut and New York. See id. at ¶¶ 25, 40. Michael Smith, Elaine Smith, Theodore Rosen, and Richard Koffman are officers of MAK. See id. at ¶ 26. After incorporating, MAK immediately began doing business pursuant to verbal assurances and agreements with defendants SES, Kalapos, and Smith. See id. at ¶ 25. Specifically, during numerous telephone conversations and in-person meetings, Kalapos and Smith told the MAK officers that, in exchange for franchise fees, Kalapos, Smith and/or SES and SES America would provide MAK with all the benefits of a franchised business, including, inter alia, the right to use the Secure Eco Shred trademarks; information and training on the business methods used by successful Secure Eco Shred businesses; marketing and advertising strategy and assistance; and other information regarding running a successful Secure Eco Shred franchise. See id. at ¶ 27.

On or about January 5, 2005, MAK paid defendants $12,500.00—one-half of the initial franchise fee of $25,000.00—in consideration for the right to conduct a Secure Eco Shred franchise business. See id. at ¶ 29. For approximately one year following this initial payment, Kalapos and Smith accepted franchise fees, royalties, and other consideration from MAK without providing MAK with necessary and relevant franchise disclosure documents, including, inter alia, a franchise agreement. See id. at ¶ 30.

On or about March 1, 2006, MAK and defendant SES America executed a Secure Eco Shred America, LLC Franchise Agreement (the "Franchise Agreement"). See id. at ¶ 39. The Franchise Agreement granted MAK a nonexclusive right and license to use the Secure Eco Shred licensed trademarks and the Secure Eco Shred System in the operation of a Secure Eco Shred franchised business in seven counties in New York and Connecticut (the "Territory"). See id. at ¶ 40.

As part of the Franchise Agreement, MAK was required to purchase shredding trucks from BSS. See id. at ¶ 43. Kalapos and Smith intentionally and knowingly made misrepresentations to MAK regarding the trucks built by BSS to induce MAK to purchase two shredding trucks at an inflated price. See id. at ¶ 47. Specifically, Kalapos and Smith represented to MAK that BSS built two new trucks for MAK—trucks which MAK subsequently purchased—when in fact one of the vehicles was not new, but rather built from remanufactured parts, some of which were defective. See id. at ¶¶ 44-46. MAK was eventually forced to sell one of the trucks at a loss and is continually forced to repair the other truck. See id. at ¶ 50.

On January 8, 2007, defendant Smith telephoned his brother, Michael Smith, and informed him that SES America had sold its corporate locations in Detroit, Michigan and Cleveland, Ohio to Iron Mountain, a business competitor of the Secure Eco Shred businesses. See id. at ¶ 62. The sale to Iron Mountain resulted in the disclosure of all of the Secure Eco Shred businesses' trade secrets, confidential manuals, business plans, formulas, and other inside information. See id. at ¶ 63. Thereafter, defendants ceased use of the Secure Eco Shred Marks, ceased to control the nature and quality of the services associated with the Marks, terminated the Franchise Agreement with MAK, ceased conducting themselves as a franchisor, and undertook to completely dismantle and shut down the Secure Eco Shred business. See id. at ¶¶ 65-71. Nevertheless, even after the sale to Iron Mountain, defendants continued...

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