Williams v. Stone, 96-1433

• Decision Date: 26 March 1997
• Docket Number: No. 96-1433,96-1433
• Citation: 109 F.3d 890
• Parties: RICO Bus.Disp.Guide 9240 Michael WILLIAMS; Marilyn Williams, h/w, sole shareholders in and on behalf of Helened Incorporated, a dissolved Pennsylvania Corporation, Appellants, v. Elliott W. STONE; Harold G. Stone; Richard Abt; John L. Barry; Al Biscardi.
• Court: U.S. Court of Appeals — Third Circuit

Page 890

109 F.3d 890

RICO Bus.Disp.Guide 9240

Michael WILLIAMS; Marilyn Williams, h/w, sole shareholders in and on behalf of Helened Incorporated, a dissolved Pennsylvania Corporation, Appellants, v. Elliott W. STONE; Harold G. Stone; Richard Abt; John L Barry; Al Biscardi.

No. 96-1433.

United States Court of Appeals Third Circuit.

Argued Jan. 9, 1997.

Decided March 26, 1997.

Ralf W. Greenwood, Jr. (argued), Ralf W. Greenwood & Associates, Philadelphia, PA, for Appellants Michael Williams and Marilyn Williams.

C. Joseph Curran, Jr., Attorney General of Maryland, Dale E. Cantone (argued), Office of Attorney General of Maryland, Baltimore, MD, for State of Maryland Amicus Curiae In Support of Appellant.

Benjamin A. Levin (argued), Levin & Hluchan, Voorhees, NJ, for Appellees Elliott W. Stone, Harold G. Stone, Richard Abt, John L. Barry and Al Biscardi.

BEFORE: COWEN, ALITO and ROSENN, Circuit Judges.

OPINION OF THE COURT

COWEN, Circuit Judge.

Plaintiffs appeal from the April 16, 1996, judgment of the district court granting defendants' motion to dismiss the amended complaint pursuant to FED. R. CIV. P. 12(b)(6). See Williams v. Stone, 923 F.Supp. 689 (E.D.Pa.1996). We will affirm the judgment of the district court, although on different grounds than those relied upon by the district court.

I.

West Coast Video Enterprises, Inc. ("WCVE") is a Pennsylvania corporation with its principal place of business in Pennsylvania. WCVE sells franchises for retail video rental businesses operating under the name "West Coast Video." WCVE supplies its franchisees with equipment, computers, software, video films, expertise, and training in the operation of retail video rental businesses. By September of 1986, WCVE had at least 221 franchises in fourteen states, including eleven in Maryland. Defendants are executives, employees, and agents of WCVE (collectively "WCV").

In June of 1985, plaintiffs Michael and Marilyn Williams, residents of Pennsylvania, visited a WCVE store located in Philadelphia for the purpose of investigating the purchase of a WCVE franchise. By November of 1988, defendant John Barry, Vice President of Franchise Development for WCVE, had written the Williamses twice and phoned them six times concerning their prospective purchase of a franchise.

In March of 1989, the Williamses visited WCVE corporate headquarters in Philadelphia to further investigate the purchase of a WCVE franchise. At that time executives of WCVE made a number of representations alleged to have been fraudulent. On March 29, 1989, the Williamses, acting through their wholly-owned corporation, Helened, Inc., purchased a WCVE franchise located in Ocean City, Maryland pursuant to a written franchise agreement ("the Franchise Agreement"). The Franchise Agreement was executed in Pennsylvania. Article IX, paragraph 2 of the Franchise Agreement provides: "[N]either this Agreement nor any of its rights or privileges ... shall be assigned, transferred, mortgaged, charged, encumbered or divided in any manner by the Franchisee or anyone else unless the prior written approval of the Franchisor is obtained." App. at 209. Article IX, paragraph 2E of the Franchise Agreement provides that such approval may be conditioned on

[t]he Execution by the Franchisee of a release of any and all claims against Franchisor, and the Franchisor's officers, directors, agents and employees, arising out of or related to this Agreement, which release shall contain such language and be of the form chosen by Franchisor. The release shall not release any liability specifically provided for by any state statute regulating franchising.

Id. at 210. Article XIII of the Franchise Agreement provides, in part: "This Agreement shall be construed according to the laws of the Commonwealth of Pennsylvania...." Id. at 214.

The Williamses opened the store in September of 1989. They claim that WCVE failed in several respects to abide by its obligations as set forth in the Franchise Agreement, and they sold the store to a third party some 27 months later. As a condition of WCVE's consent to this sale, the Williamses signed a release of any and all claims against WCVE and its officers, directors, agents, and employees ("the Release"). The Release was executed in Ocean City, Maryland. At the time the Release was signed, more than seven years remained on the Franchise Agreement.

The Williamses brought this action in the district court on January 2, 1996. In an amended complaint containing ten causes of action, the Williamses alleged that defendants operated WCVE as an "enterprise" in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) (1984). In support of their RICO claims, they alleged that WCV engaged in the following "racketeering activity," within the meaning of 18 U.S.C. § 1961(1) (Supp.1997):(1) criminal violations of the Maryland Franchise Registration and Disclosure Act ("MFRDA"), MD.CODE ANN., BUS. REG . § 14-201 et. seq. (1992); ¹ (2) violations of Federal Trade Commission regulations promulgated at 16 C.F.R. § 436.1 et seq., pursuant to 15 U.S.C. § 45(a)(1) (Supp.1996); (3) violations of the Aid to Small Businesses Act, 15 U.S.C. § 645(a) (1976); and (4) bank fraud in violation of 18 U.S.C § 1344 (Supp.1996). The Williamses further alleged that WCV conspired to engage in the above-described racketeering activity in violation of 18 U.S.C. § 1962(d) (Supp.1996).

On April 16, 1996, the district court granted WCV's motion to dismiss the amended complaint on the grounds that the Release bars any action by the Williamses against WCV. See Williams, 923 F.Supp. at 693. ² This appeal followed.

II.

The district court had subject matter jurisdiction over this federal RICO action pursuant to 28 U.S.C. § 1331 (1993). Pursuant to 28 U.S.C. § 1291 (1993), we exercise appellate jurisdiction over the district court's final order dismissing the amended complaint.

A.

The parties agree that, even though this matter is premised on federal causes of action, state law governs the applicability of a release to those causes of action. See Three Rivers Motors Co. v. Ford Motor Co., 522 F.2d 885, 892 n. 15 (3d Cir.1975). The parties disagree over which state law applies--Pennsylvania or Maryland. WCV claims that Pennsylvania law applies, given the choice-of-law provision in the Franchise Agreement, while the Williamses claim Maryland law applies. ³

Before engaging in an extensive and complex analysis of the thorny choice-of-law questions this case presents, we must first determine whether there exists a true conflict between the application of Pennsylvania and Maryland law. Under general conflict of laws principles, where the laws of the two jurisdictions would produce the same result on the particular issue presented, there is a "false conflict," and the Court should avoid the choice-of-law question. See Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir.1994) (applying Pennsylvania choice-of-law rules); Coons v. Lawlor, 804 F.2d 28, 30 (3d Cir.1986) (same); In re Complaint of Bankers Trust Co., 752 F.2d 874, 882 (3d Cir.1984) (same); Rohm and Haas Co. v. Adco Chem. Co., 689 F.2d 424, 429 (3d Cir.1982) (applying New Jersey choice-of-law rules).

As the Williamses essentially concede, if Pennsylvania law applies, the Release is valid and bars their action. ⁴ However, the parties disagree over whether the Release is valid pursuant to Maryland law as well. Thus, in order to determine whether a true conflict is presented, we must decide which party proffers the correct interpretation of Maryland law.

B.

Section 14-226 of the Maryland Code Annotated, Business Regulations provides: "As a condition of the sale of a franchise, a franchisor may not require a prospective franchisee to agree to a release, assignment, novation, waiver, or estoppel that would relieve a person from liability under this subtitle " (emphasis added). The Williamses contend that this provision renders the Release invalid if Maryland law applies.

WCV argues that because section 14-226 protects only "prospective" franchisees, and because the Release was signed when the Williamses were already franchisees, the Williamses may not rely on section 14-226 to avoid the Release, even assuming arguendo that Maryland law applies. The district court agreed with this reasoning and relied on it, in part, in dismissing the amended complaint. See Williams, 923 F.Supp. at 692-93. WCV also argues that, assuming Maryland law applies, section 14-226 invalidates the Release only as to causes of action grounded in the MFRDA, and that the Release still bars the Williamses from bringing this federal RICO action. Because we agree with this second contention, we do not address whether the district court correctly held that section 14-226 is inapplicable to this matter on the ground that the Williamses were not "prospective franchisee[s]" when they executed the Release.

1.

The plain language of section 14-226 supports WCV's contention that that provision invalidates the Release only insofar as the Release purports to waive a cause of action pursuant to the MFRDA. Maryland could have, but chose not to, forbid a franchisor from requiring a franchisee to agree to a release or waiver "that would relieve a person from liability." Cf. 815 ILL. COMP. STAT. ANN. 705/41 (West 1996) ("Any condition ... purporting to bind any person acquiring any franchise to waive compliance with any provision of this Act or any other law of this State is void.") (emphasis added); S.D. CODIFIED LAWS § 37-5-12 (Michie 1996) ("Any condition ... in any agreement evidenced by a franchise agreement ... purporting to waive compliance with any provision of this chapter, or other provision of state law applying to such agreements [,] is void as a matter of public policy.") (emphasis added); VA.CODE ANN. § 59.1-21.11(10) (Michie 1996) ("Any provision in any agreement or franchise purporting to waive any right or remedy...