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WATER ENERGIZERS LTD. v. WATER ENERGIZERS

April 2, 1992

WATER ENERGIZERS LTD., Plaintiff, against WATER ENERGIZERS, INC., ESTATE OF ROBERT E. HARRIS, RONALD D. HARRIS, LAHNA HARRIS, RHONDA HARRIS FRAZIER, WALTER EDWARDS, and ROBERT E. HARRIS, JR., Defendants.


The opinion of the court was delivered by: PIERRE N. LEVAL

OPINION AND ORDER

 PIERRE N. LEVAL, U.S.D.J.

 Defendants move to dismiss for lack of personal jurisdiction, pursuant to Fed. R. Civ. P. 12(b)(2), or to transfer pursuant to 28 U.S.C. § 1404(a) or dismiss pursuant to 28 U.S.C. § 1406(a) or the doctrine of forum non conveniens.

 BACKGROUND

 This is an action for breach of a franchise agreement, fraudulent inducement, and violations of various state statutes relating to franchise agreements. The following facts are uncontested or appear from the submissions of plaintiff.

 Defendant Water Energizers, Inc. ("WEI") is a manufacturer and franchisor of a commercial water treatment system that is marketed as the "Water Energizer." WEI is owned and managed by numbers of the Robert E. Harris family. Plaintiff Water Energizers Ltd. ("WEL") is a franchisee of WEI for the marketing of the Water Energizer.

 A Water Energizer consists of a brass tube filled with a compound of finely ground minerals, cellulose and a petroleum solvent. WEI's promotional literature claims that when the Water Energizer is properly installed in a boiler, heat exchanger, cooling tower, or other "water related equipment," it prevents scaling, corrosion and rust, removes already existing scale. WEI markets and leases the Water Energizer to the ultimate customers through its franchisees. WEI uses a standard franchise agreement which provides that a franchisee will pay WEI a set royalty payment for each Water Energizer the franchisee leases to a customer. Franchisees have the right to set lease prices to customers.

 Robert E. Harris ("Robert Sr."), was the founder, CEO and president of WEI until his death in 1989. The complaint names his estate as a defendant. Three of Robert Sr.'s children, defendants Rhonda Harris Frazier ("Rhonda"), Ronald D. Harris ("Ronald"), and Lhana Harris Barnes ("Lhana") are officers of WEI. Defendant Robert E. Harris, Jr. ("Robert Jr."), another Robert Sr. offspring, has been hired at times by WEI as a consultant. Defendant Walter F. Edwards ("Edwards"), Robert Sr.'s brother-in-law, has also been hired by WEI at times as a consultant.

 In February 1988, Lawrence Gerard, (who later founded and became president of plaintiff WEL), was approached by a business acquaintance, who owned a WEI subfranchise licensed by Water Energizer Technology ("WET"), a WEI franchise. The acquaintance sought Gerard's financial assistance in operating the subfranchise. In late February, Gerard contacted Robert Sr. at WEI's headguarters to verify that WET was a lawful franchise. During that telephone call, and in a subsequent conversation in March 1988, Robert Sr. described the Water Energizer and how WEI's franchise system operated. Robert Sr. informed Gerard which franchises were still available in the United States and offered to send Gerard more information. Following the conversation, Robert Sr. sent Gerard a brochure describing the Water Energizer, testimonials, and sample franchise agreements. Gerard and Robert Sr. began exchanging telephone calls between New York and Indiana on a regular basis to discuss franchise opportunities.

 On April 6, 1988, Gerard visited WEI headquarters in Indiana to inspect the operation before making an investment. Gerard met with Robert Sr. to discuss their respective businesses.

 Robert Sr. returned to Indiana and mailed a signed copy of a franchise agreement dated June 8, 1988, to Lawrence and Mark Gerard in New York, which they signed (the "Franchise Agreement"). An addendum to the Franchise Agreement set payment terms.

 On June 8, 1988, the Gerards entered into an option contract with WEI for Water Energizer franchises in eighteen other states.

 Sometime in June, 1988, Mark and Lawrence Gerard entered into an agreement with WEI, and Water Energizers, USA, Inc. ("WEUSA") whereby WEUSA, which held the franchise from WEI for the installation of Water Energizers in all United States government facilities, granted the Gerards the right to distribute Water Energizers to government facilities in the District of Columbia and adjacent territories. On June 29, 1988, the ...


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