Vino 100, LLC v. Smoke on the Water, LLC, CIVIL ACTION NO. 09-4983

CourtUnited States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
Writing for the CourtBartle
PartiesVINO 100, LLC, et al. v. SMOKE ON THE WATER, LLC, et al.
Docket NumberCIVIL ACTION NO. 09-4983
Decision Date30 March 2012

VINO 100, LLC, et al.
v.
SMOKE ON THE WATER, LLC, et al.

CIVIL ACTION NO. 09-4983

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Dated: March 30, 2012


MEMORANDUM

Bartle, J.

This action involves a dispute between a franchisor, a franchisee, and the guarantors of the franchisee.

Plaintiffs Vino 100, LLC ("Vino 100") and The Tinder Box International, Ltd. ("Tinder Box") filed this action against defendants Smoke on the Water, LLC ("SOTW") and Thomas and Jane Slaterbeck for breach of five contracts related to the defendants' acquisition of Vino 100 and Tinder Box franchises in Atlanta, Georgia. Plaintiffs also claim that defendants engaged in unlicensed use of Vino 100 and Tinder Box trademarks while operating the franchise store, an alleged violation of the Lanham Act, 15 U.S.C. §§ 1114, 1125.

Defendants counterclaimed against plaintiffs for breach of their contractual obligations to provide defendants with marketing materials to be used in promoting the franchised businesses. Defendants further allege that plaintiffs violated Georgia's Fair Business Practices Act, GA. CODE ANN. § 10-1-390, et seq., by making certain false and misleading statements in the

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negotiations that led the defendants to purchase a Vino 100 franchise.

Before the court is the motion of plaintiffs for summary judgment as to all claims in their complaint and the defendants' counterclaim.1

I.

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986). Summary judgment is granted where there is insufficient record evidence for a reasonable jury to find for the moving party. Id. at 252. "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could

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reasonably find for the plaintiff." Anderson, 477 U.S. at 252. We view the facts and draw all inferences in favor of the non-moving party. Boyle v. Cnty. of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998). When ruling on a motion for summary judgment, we may only rely on admissible evidence. See, e.g., Blackburn v. United Parcel Serv., Inc., 179 F.3d 81, 95 (3d Cir. 1999).

II.

For present purposes, we recite the facts in the light most favorable to defendants, the non-movants.

Since 1965, Tinder Box has licensed franchises for retail stores that sell tobacco products and related goods. In July 2003, Vino 100 began franchising retail stores that purvey wine and wine-related gifts and accessories. The parties agree that Tinder Box and Vino are affiliated, but the extent and nature of their affiliation is unclear. It is undisputed that the two companies currently have a common president, Wayne Best. During the times relevant to this action, Tinder Box and Vino 100 also appear to have had some common employees, including Best, Robert Craft and Gary Blumenthal.

Beginning in January 2005, the Slaterbecks began discussing with Craft the possibility of investing in a Vino 100 or Tinder Box franchise. The Slaterbecks became interested in owning a joint Vino 100 and Tinder Box franchise store inside a casino similar to a store plaintiffs were operating in the Tropicana casino in Atlantic City, New Jersey. Following a series of telephone calls and meetings at the plaintiffs'

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Pennsylvania corporate offices, the Slaterbecks decided in February 2005 to invest in a joint Tinder Box and Vino 100 store in a casino.

The Slaterbecks formed SOTW on March 30, 2005 and became its only members. On April 22, 2005, SOTW entered into franchise agreements with Vino 100 and Tinder Box that permitted SOTW to open a joint franchise store inside a casino at a location to be determined later. For reasons that are disputed and are not relevant for present purposes, the defendants did not locate an acceptable casino venue for the joint Vino 100/Tinder Box franchise store.

In June 2005, Craft called Thomas Slaterbeck to inquire whether the Slaterbecks would be interested in acquiring from Tinder Box a company-owned retail business at the Lenox Square Mall in Atlanta, Georgia.2 The Tinder Box business at the Lenox Square Mall (the "Lenox store") had been in operation there for over 30 years. After several additional conversations with Craft, Thomas Slaterbeck had a conference call with Craft and Blumenthal. During this conference call, Craft and Blumenthal represented that the Lenox store "breaks even" and had a competent general manager. Craft and Blumenthal suggested the Slaterbecks add a Vino 100 franchise to the existing Tinder Box operation at the Lenox store. According to Slaterbeck, they told

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him that adding a Vino 100 franchise would contribute $400,000 in gross annual revenue to the store's existing sales. Craft and Blumenthal said that as a Vino 100 franchisee, the Slaterbecks would have access to private label wines that would not be available to other sellers. In subsequent phone conversations with Thomas Slaterbeck, Craft repeated his statement that the inclusion of a Vino 100 franchise at the Lenox store would add $400,000 in sales. In early June 2005, Thomas Slaterbeck met with Craft, Blumenthal, and Best at plaintiffs' offices. At this meeting, Slaterbeck was advised that of the $400,000 in sales a Vino 100 franchise would add to the Lenox store, $200,000 would be profit because the wines would be sold at "keystone" pricing.3

Thereafter, on June 15, 2005, the parties executed the series of contracts that give rise to the claims in this lawsuit. First, SOTW agreed to purchase all of the inventory, furniture, fixtures and other assets in the Lenox store for approximately $300,000. Next, SOTW signed franchise agreements with both Tinder Box and Vino 100. These franchise agreements permitted SOTW to operate both franchises for an initial term of 15 years.

Although these franchise agreements were lengthy, only a few provisions are relevant for present purposes. They licensed SOTW to use Vino 100 and Tinder Box trademarks in

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connection with the Lenox store. Vino 100 and Tinder Box promised to "make available to [SOTW], from time to time, at [SOTW's] expense, advertising plans and promotional materials."

The franchise agreements described a number of circumstances that would permit Vino 100 and Tinder Box to terminate those agreements immediately. One such event would occur if SOTW "is in default under its lease or sublease" for the Lenox store "and fails to cure said default within the time period, if any, provided in the lease or sublease." SOTW and plaintiffs also agreed that if "the appropriate licensing authorities refuse to grant [SOTW] the necessary licenses, permits and approvals required to operate the [Vino 100] Store," SOTW may immediately terminate the Vino 100 franchise agreement and obtain a partial refund of the franchisee fee.

The franchise agreements further obligated SOTW to pay royalty fees to Vino 100 and Tinder Box on a monthly basis. These fees were to be calculated as a percentage of the Lenox store's gross sales. The Tinder Box franchise agreement provided that SOTW must pay 4% of the store's gross sales, and the Vino 100 franchise agreement required SOTW to pay the greater of $1,000 or 5% of monthly gross sales. On June 15, 2005, the same day plaintiffs and SOTW signed the franchise agreements, plaintiffs and SOTW also signed an addendum that modified, among other things, the royalty terms in the franchise agreements. That modification read in part: "Notwithstanding the provisions ... of the Agreements (regarding "Fees"), the parties acknowledge

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and agree that [SOTW] shall pay a continuing monthly royalty fee in an amount equal to 5% of the combined Gross Sales ... of the Store."

In both franchise agreements was a provision that the written contract constituted the entire agreement between the parties and that "no other representations hav[e] induced Franchisee to execute this Agreement." Another provision in both stated that "Franchisor expressly disclaims the making of, and Franchisee acknowledges that it has not received, any warranty or guarantee, express or implied, as to the potential volume, profits, or success of the business venture contemplated by this Agreement."

Each of the franchise agreements contained a "franchise disclosure questionnaire" that the Slaterbecks signed on June 8, 2005. The Tinder Box questionnaire asked the following questions:

Has any employee or other person speaking on behalf of Tinder Box made any statement or promise concerning the revenue, profits or operating costs of Tinder Box [sic] store or cart operated by Tinder Box or its franchisees?
Has any employee or other person speaking on behalf of Tinder Box made any statement or promise concerning a Tinder Box store or cart that is contrary to, or different from, the information contained in the Offering Circular?
Has any employee or other person speaking on behalf of Tinder Box made any statement or promise
...

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