Specialty Bakeries, Inc. v. Robhal, Inc., Civil Action No. 97-1057.

• Decision Date: 15 April 1997
• Docket Number: Civil Action No. 97-1057.
• Citation: 961 F.Supp. 822
• Parties: SPECIALTY BAKERIES, INC., et al. v. ROBHAL, INC., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

961 F.Supp. 822

SPECIALTY BAKERIES, INC., et al. v. ROBHAL, INC., et al.

Civil Action No. 97-1057.

United States District Court, E.D. Pennsylvania.

April 15, 1997.

Arthur L. Pressman, Abraham, Pressman & Bauer, P.C., for Plaintiffs.

Roger P. Cameron, Mark A. Lublin, Obermayer, Rebmann, Maxwell & Hippel, L.L.P., Philadelphia, PA, for Defendants.

MEMORANDUM

BARTLE, District Judge.

This matter may be succinctly summarized as a biting battle over bagels between a franchisor and franchisee. Not surprisingly, each side argues that the other's case is full of holes.

The court has subject matter jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332.¹ After a hearing on franchisor's motion for a preliminary injunction, the court makes the following findings of fact and conclusions of law, pursuant to Rule 52 of the Federal Rules of Civil Procedure.

I

The plaintiffs in this action are Specialty Bakeries, Inc. ("Specialty Bakeries"), Rocco Fiorentino ("Fiorentino"), Frank Guglielmo ("Guglielmo"), John Gerber, Jr. ("Gerber"), and Manhattan Bagel Company, Inc. ("Manhattan Bagel Company") (hereinafter collectively "franchisor").² Specialty Bakeries formerly traded as "Bagel Builders," a franchise system of retail bagel stores. On May 22, 1996, through a merger transaction, Specialty Bakeries became a wholly-owned subsidiary of Manhattan Bagel Company. Specialty Bakeries, Guglielmo, Fiorentino, and Gerber thereupon became employees and shareholders of Manhattan Bagel Company. Defendants are HalRob, Inc. ("HalRob") and RobHal Management, Inc. ("RobHal") (hereinafter collectively "HalRob").³

In September, 1995 HalRob and RobHal entered into a written franchise agreement with Specialty Bakeries entitled "Bagel Builders Franchise Agreement" as well as a first amendment thereto. As a result, HalRob obtained the right to operate a franchise for a Bagel Builders Restaurant in Broomall, Pennsylvania. The Broomall location, with which we are concerned here, opened as a Bagel Builders in April, 1996.

The franchise contract contains an arbitration provision which is at the heart of the controversy before the court. It reads:

A. AGREEMENT TO ARBITRATE

All disputes and claims under this Agreement, the rights and obligations of the parties hereto, your purchase of goods or other claims or causes of action relating to the performance of either party, and/or the purchase of the franchise shall be settled by arbitration at the office of the American Arbitration Association in Philadelphia, Pennsylvania, in accordance with the Federal Arbitration Act and the Commercial Rules of the American Arbitration Association. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. This agreement to arbitrate shall survive any termination or expiration of this Agreement.

B. PRELIMINARY RELIEF

Nothing contained herein shall prevent us from applying to or obtaining from any court having jurisdiction a writ of attachment, temporary injunction, preliminary injunction and/or other emergency relief available to safeguard and protect our interest before the filing of any arbitration proceeding or pending the trial or handing down of a decision or award pursuant to any arbitration proceeding conducted hereunder.

Franchise Agreement ¶ XXVIII.

The parties also agreed to a first amendment which added the following to the above provisions:

A. AGREEMENT TO ARBITRATE

The following language is to be added to this Paragraph:

Any arbitration award shall be final, binding, and non-appealable. The fees of the Association and the arbitrator shall be paid by the losing party as designated by the arbitrator. The arbitration hearing shall be conducted pursuant to the Federal Arbitration Act.

B. PRELIMINARY RELIEF

The following language is to be added to this Paragraph:

Franchisor and Franchisee shall have the right to apply to any court having jurisdiction for a writ of attachment, temporary injunction, preliminary injunction, and/or other emergency relief available to safeguard and protect their rights, prior to the filing of any arbitration proceeding or pending the trial, or handing down of a decision or award pursuant to the any [sic] arbitration proceeding conducted hereunder.

First Amendment ¶ XXVIII. In the first amendment, the parties also agreed to a non-compete clause which HalRob contends gave it an exclusive territory within a four mile radius of their Broomall restaurant. The amendment states in relevant part, "... nor shall Franchisor, within four (4) miles of the Franchisee's restaurant location, approve another Bagel Builders Franchise restaurant location for a third party, or execute a written Lease Agreement for a restaurant location as a company-owned, Bagel Builders location." First Amendment ¶ XXIV(B).

Prior to Manhattan Bagel Company's acquisition of Specialty Bakeries in May, 1996, the former had two franchisees operating under the name of "Manhattan Bagel" within four miles of HalRob's Bagel Builders Restaurant. Manhattan Bagel Company also had an agreement dated July, 1995, with a new franchisee. That franchisee opened a Manhattan Bagel store on June 18, 1996 within the same area.

The Bagel Builders trade name was discontinued after Manhattan Bagel Company acquired Specialty Bakeries. In their August 1, 1996 Addenda to their franchise agreement, Specialty Bakeries and HalRob agreed to: (1) change the exterior sign of their Bagel Builders' Restaurants to "Manhattan Bagel" at Specialty Bakeries' expense; (2) change the designated supplier of bagels and bagel products from Specialty Bakeries to Manhattan Bagel Company; and (3) change the royalty and advertising requirements under the franchise agreements. Otherwise, the earlier contracts with Specialty Bakeries remained in full force. Because of Manhattan Bagel Company's acquisition of Specialty Bakeries, four Manhattan Bagel stores now coexist in the Broomall vicinity. This state of affairs has led to the present controversy between HalRob and the franchisor.

Instead of immediately proceeding to arbitration as provided in the franchise agreement, HalRob filed suit on February 7, 1997 in the Superior Court of New Jersey, Camden County, Chancery Division. HalRob, Inc. v. Manhattan Bagel Co., Civil Action No. C1697. In the New Jersey complaint, HalRob alleges that as a result of Manhattan Bagel Company's ownership of Specialty Bakeries, three Manhattan Bagel businesses now illegally compete with HalRob's store within four miles of its situs. HalRob's New Jersey complaint alleges seven causes of action: (1) breach of contract; (2) intentional interference with economic advantage; (3) unjust enrichment; (4) recoupment/constructive termination; (5) conspiracy and concerted action; (6) intentional or negligent misrepresentation; and (7) recision. It also makes a jury demand and seeks injunctive relief, compensatory damages, punitive damages, attorney's fees, and costs.

Counts one and two of the New Jersey complaint also request the court to "permanently enjoin Defendants Manhattan Bagel Company, Inc. and Specialty Bakeries, Inc. during the term of the [franchise] agreement and any extension or renewal of that agreement." New Jersey Complaint ¶¶ 40, 42. Specifically, HalRob asks the state court to restrain Specialty Bakeries and Manhattan Bagel Company from:

a. directly or indirectly having, receiving or obtaining any financial or other interests in any business offering bagels other than Plaintiff HalRob, Inc.'s business, within four (4) miles of Plaintiff HalRob, Inc.'s place of business;

b. approving and/or continuing the approval for another restaurant location for any third party, which location is within four (4) miles of Plaintiff HalRob, Inc.'s place of business in Broomall;

c. executing and/or continuing to perform pursuant to a written lease agreement for another restaurant location within four (4) miles of Plaintiff HalRob, Inc.'s place of business in Broomall;

d. selling any goods, services or other things to or buying any goods, services or other things from any business offering bagels, other than Plaintiff HalRob, Inc.'s business, within four (4) miles of Plaintiff HalRob, Inc.'s place of business;

e. advertising any goods, services or other things offered by any business offering bagels, other than Plaintiff HalRob, Inc.'s business, within four (4) miles of Plaintiff HalRob, Inc.'s place of business;

f. receiving any royalty payments from any business offering bagels, other than Plaintiff HalRob, Inc.'s business, within four (4) miles of Plaintiff HalRob, Inc.'s place of business;

g. disbursing, using or accruing interest on any royalty payments received from any business offering bagels, other than Plaintiff HalRob, Inc.'s business, within four (4) miles of Plaintiff HalRob, Inc.'s place of business;

h. authorizing and/or continuing to authorize any business offering bagels, other than Plaintiff HalRob, Inc.'s business, within four (4) miles of Plaintiff HalRob, Inc.'s place of business from displaying, using or otherwise profiting from any trademark of or sign for Defendants Manhattan Bagel Company, Inc. and/or Specialty Bakeries, Inc., including but no limited to "Manhattan Bagel," "Bagel Builders," and/or "New York Style Bagels";

i. disseminating any information about Plaintiff HalRob, Inc. to any person other than Defendants; and

j. requiring or authorizing any other business offering bagels within four (4) miles of Plaintiff HalRob, Inc.'s place of business to pay royalties to Defendants Manhattan Bagel Company, Inc. and/or Specialty Bakeries, Inc. at a percentage of gross revenues less than Plaintiff HalRob, Inc. is required to pay.

New Jersey Complaint ¶¶ 40, 42.

HalRob requests that the individuals Fiorentino, Guglielmo and Gerber, who are now employees and shareholders of Manhattan Bagel Company, be enjoined from:

a. working for, consulting with, being employed by or acting as...