United Consumers Club, Inc. v. Bledsoe

Decision Date17 July 2006
Docket NumberNo. 2:97 CV 276.,2:97 CV 276.
Citation441 F.Supp.2d 967
PartiesUNITED CONSUMERS CLUB, INC., United Consumers Club Franchising Corporation, Beta Financing Company, and National Management Corporation, Counterplaintiffs, v. Mark BLEDSOE, Kelly Bledsoe n/k/a Buckley, Kellmark Corporation d/b/a/ United Consumers Club of Buffalo, New York, Eng Lim, Dennis Gain, Persona Grata North America d/b/a United Consumers Club of Providence, Rhode Island, Steven Adolphi, Carrie Adolphi, S.A.C.A., Inc., d/b/a United Consumers Club of Syracuse, Rhode Island, Thomas Callahan, Sr., Thomas Callahan, Jr., Tec Associates d/b/a United Consumers Club of Baltimore, Maryland, James Cochran, Monica Cochran, Cochran Management Services d/b/a United Consumers Club of Ann Arbor, Michigan, and the Emancipation Trust, Counterdefendants.
CourtU.S. District Court — Northern District of Indiana

C. Joseph Yast, Northfield, IL, John F. Dienelt, Hogan and Hartson LLP, Washington, DC, for Counterplaintiffs.

OPINION and ORDER

RODOVICH, United States Magistrate Judge.

This matter is before the court on the Motion for Summary Judgment filed by the counterdefendants, Mark Bledsoe et al., on February 22, 2006; the Motion to Strike filed by the counter-plaintiffs, United Consumer Club, Inc. et al. (collectively "UCC") on April 29, 2006; and the Motion to Strike contained within the counterdefendants' Reply Brief filed on May 27, 2006. For the reasons set forth below, the motion for summary judgment is GRANTED IN PART and DENIED IN PART, and both motions to strike are GRANTED.

Background

This case began in 1997 as a nine-count complaint in which eight United Consumers Club ("UCC") franchises and 15 individual officers of the franchises claimed that they were the victims of a fraudulent scheme devised by the defendants, UCC, and related individual officers and corporate entities UCC Franchising Corporation, National Management Corporation, and Beta Finance Company, regarding the nature of the franchises and UCC memberships.

The plaintiffs' original complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) and (d), fraudulent misrepresentation of facts, negligent misrepresentation, breach of the implied covenant of good faith, deceptive business acts and practices, and false advertising. (DE 1) On June 23, 1998, this court granted in part and denied in part the defendants' motion to dismiss. (DE 43) In that opinion, the court found that the two RICO claims survived dismissal insofar as they asserted causes of action against five individual defendants, the claim for fraudulent misrepresentation survived against the corporate defendants and some individual defendants, and the state law claims for negligent misrepresentation and breach of the implied covenant of fair dealing survived for failure to brief a conflict of law issue. (See DE 43, pp. 31-32, 35) On August 17, 1998, the plaintiffs filed an amended complaint dropping the later two state law claims from the original complaint. However, the amended complaint retained the two RICO claims and the claim for fraudulent misrepresentation. It also added plaintiffs James Cochran, Monica Cochran, and Cochran Management Services. (DE 50)

Three years after the court ruled on the motion to dismiss, the defendants sought reconsideration in light of a subsequent Seventh Circuit opinion addressing a nearly identical lawsuit. See Stachon v. United Consumers Club, Inc., 229 F.3d 673, 674 (7th Cir.2000). The Seventh Circuit's opinion in Stachon compelled this court to reconsider and dismiss the plaintiffs' RICO claims against all defendants on April 25, 2001, leaving only the claims for fraudulent misrepresentation. (DE 125, p. 9) On March 5, 2001, this court further narrowed the remaining fraud claims. (DE 139) In that opinion, the court held that the Cochran individual and corporate claims were barred by the statute of limitations, the Callahan individual plaintiffs lacked standing to sue, and that summary judgment was appropriate against corporate plaintiff TEC Associates because the company had signed a release of claims. (DE 139)

On July 16, 2001, the defendants filed a second motion for summary judgment on the fraud claims of the remaining plaintiffs: 1) Steven and Carrie Adolphi and their club S.A.C.A., Inc.; 2) Mark and Kelly Bledsoe n/k/a Buckley and their club Kellmark Corp.; and 3) Eng Lim and Dennis Gain and their club Persona Grata North America, Inc. (DE 142) By stipulation of the parties on August 28, 2002, the remaining individual plaintiffs dropped their suit, leaving only the associated corporate claims. (DE 152) By orders dated September 3, 2003 and December 7, 2005, the only claim which survived summary judgment was Kellmark's single fraud claim under New York Law pertaining to UCC's "proven marketing system." (DE 157, 218) The court granted a directed verdict in favor of the defendants on this claim at trial on July 27, 2005. (DE 208)

After this lengthy history, the only remaining issue is the defendants' expansive counterclaim alleging conspiracy to commit various torts and breaches of contract. Pursuant to the parties' August 28, 2002 stipulation, the only counterdefendants on this counterclaim are the individual defendants, Eng Lim, Dennis Gain, Steven and Carrie Adolphi, Mark and Kelly Bledsoe n/k/a Buckley, Thomas Callahan Sr., Thomas Callahan Jr., and James and Monica Cochran. (DE 152) The remaining corporate counterdefendants are Persona Grata North America, Kellmark, TEC Associates, S.A.C.A., Inc., and Cochran Management Services. The "Emancipation Trust," created to fund the plaintiffs' suit, also remains a counterdefendant. In addition to the procedural background outlined above, the following facts relate to the counterclaim.

At least as early as May 26, 1997, some of the counterdefendants were contemplating action against UCC and had formed the Emancipation Trust. (UCC Exh. E) On June 2, 1997, Mark Bledsoe of Kellmark notified counterdefendants' counsel that the counter-defendants unanimously had determined not to assist other franchises in potential actions that may arise against UCC due to conflict-of-interest and funding concerns. Bledsoe also reported the counterdefendants' desire to have "complete authority to coordinate timing and choice of media coverage and publicity as we deem necessary to protect the trust indenture." (UCC Ex. E)

On August 7, 1997, the counterdefendants filed this suit. On August 14, 1997, the counterdefendants notified UCC of their "intent to rescind their respective franchise agreements with UCC based on fraud in the inducement of said agreements" by letter from counterdefendants' counsel. (UCC Exh. A) This letter outlined the closure plans for seven counter defendant franchises, including servicing only existing members through September 1, 1997, and the termination of all operations by October 31, 1997. Attorney Mario Herman enclosed copies of letters the counterdefendants planned to send to 1) the Office of the Attorney General in the four states where the counterdefendants' franchises operated, and 2) the individual consumers who were franchise members. (UCC Exh. A)

At some point between August 14 and 25, 1997, UCC began withholding revenues and accounts receivable due the counterdefendant clubs. (Pl. Exh. 8; UCC Exh. F) On August 25, 1997, the counterdefendants notified UCC that, due to UCC's actions, the counterdefendants were unable to close in stages as planned and instead would cease all business immediately. (UCC Exh. B) The same day, the counterdefendants sent letters to the State Attorney General indicating that suit had been filed, that UCC was withholding funds, and that the franchises had intended to close by November 1, 1997, but were now closing immediately. (Pl.Exh.8) Also on August 25, 1997, the counterdefendants notified UCC of their actions. (UCC Exh. B) Finally, in an undated letter presumably sent at the same time (as it references immediate closure), the counterdefendants notified their club members: 1) a lawsuit had been filed with "causes of action for fraud and violations of the Federal RICO statute, including an allegation that UCC is buying second quality products from sources other than direct from the manufacturers and adding markup to those prices;" 2) a copy of the federal complaint had been sent to the state attorney general; and 3) UCC had withheld operating funds in retaliation for the lawsuit, forcing the clubs to close immediately. The member letter then clarified the status of purchase orders, membership payments, and incoming merchandise. The letter also gave members several phone numbers at UCC to call with questions. (UCC Exh. C)

During their depositions, the individual counterdefendants denied knowledge of a pre-planned, coordinated agreement to close seven franchises at a designated point in time. (Thomas Callahan Dep. p. 190; Mark Bledsoe Dep. p. 401; Eng Lim Dep. p. 367; Steven Adolphi Dep. p. 281) These denials came in spite of the letters from plaintiffs' counsel outlining the coordinated activities.

Discussion
A. Motions To Strike

The counterdefendants have not responded to UCC's motion to strike, subjecting it to summary ruling pursuant to Local Rule 7.1(a). Accordingly, this motion is granted.

In support of its brief in response to summary judgment, UCC includes a photograph allegedly depicting counterdefendant Eng Lim in the hallway of the Westin Rosemont Hotel on November 23, 1997, the date of a UCC franchisee conference. This photograph has not been authenticated as required by Federal Rule of Evidence 901, and Lim denies any recollection of being at the Westin. (Eng Lim Dep. pp. 173-75) Therefore, the court excludes the photograph from evidence, as well as UCC's contention in part I(G) of its brief that Lim distributed information about lawsuits against...

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