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WILSON v. SUBWAY SANDWICHES SHOPS

June 2, 1993

HAL E. WILSON and ROBERT L. ABBOTT, JR., Plaintiffs,
v.
SUBWAY SANDWICHES SHOPS, INC. and DOCTORS ASSOCIATES, INC., Defendants.


SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D.J.

 The Defendants, Subway Sandwich Shops, Inc. ("SSSI") and Doctor's Associates, Inc. ("DAI") (collectively, the "Defendants") have moved for an order to dismiss this action or, in the alternative, to stay this action in favor of arbitration.

 The Plaintiffs, Hal E. Wilson ("Wilson") and Robert L. Abbott, Jr. ("Abbott") (collectively, the "Plaintiffs"), have cross-moved for an order imposing sanctions against the Defendants pursuant to Rule 11, Fed. R. Civ. P.

 For the reasons set forth below, the Defendants' motion is denied and the Plaintiffs' motion is denied.

 Parties

 Wilson is an individual who is a citizen and resident of the State of North Carolina.

 Abbott is an individual who is a citizen and resident of the State of New York.

 SSSI is a corporation organized and existing under the laws of the State of Connecticut.

 DAI is a corporation organized and existing under the laws of the State of Florida. Prior to July 1991, DAI was a corporation organized under the laws of the State of Connecticut ("DAI Connecticut"). On July 1, 1991, DAI of Florida merged with DAI Connecticut, and the former emerged as the surviving corporate entity.

 Facts

 This is a diversity action on a money judgment against SSSI rendered in the State of South Carolina. Specifically, it is premised on the following alleged facts: first, a judgment was entered against SSSI and the Plaintiffs on February 18, 1991 in favor of a third party in the State of South Carolina; second, SSSI failed to satisfy the judgment for more than two years; third as a direct result of this failure on SSSI's part, post-judgment execution proceedings were commenced against the Plaintiffs; and fourth, as a direct result of those proceedings, the Plaintiffs were caused to sustained damages which they seek to recover in this present action.

 DAI is the national franchisor of Subway restaurants. It sells the right to operate a Subway restaurant which grants a franchisee a license to use nationally-known and federally-registered Subway trademarks. SSSI is a real estate leasing company allegedly affiliated with DAI. *fn1"

 On or about July 14, 1986, the Plaintiffs entered into a franchise agreement (the "Agreement") with DAI Connecticut for the purpose of operating a Subway restaurant (the "Restaurant") in South Carolina. On or about November 26, 1986, SSSI and Cypress Square Associates ("Cypress") entered into a contractual agreement (the "Lease") whereby the former as tenant leased certain property (the "Premises") from the latter as landlord, which was located in Florence, South Carolina. Days earlier, on or about November 18, 1986, the Plaintiffs had signed the Lease as personal guarantors of the performance of the obligations undertaken by the tenant of the Lease.

 On or about December 16, 1986, the Plaintiffs and SSSI entered into a contractual agreement (the "Sublease") whereby the former sublet the Premises from the latter for the purpose of locating the Restaurant there.

 The Plaintiffs operated the Restaurant in Florence, South Carolina, from about November 1986 to about March 1990. The Plaintiffs then decided to move the Restaurant to a new location.

 On or about May 15, 1990, Cypress commenced an action against SSSI and Plaintiffs in the Court of Common Pleas, Twelfth Judicial District, State of South Carolina ("Action"), to recover damages allegedly arising from the breach of the Lease. Both the Plaintiffs and SSSI appeared by counsel and fully participated in the Action.

 The Plaintiffs and SSSI answered Cypress' Complaint, and SSSI cross-claimed against the Plaintiffs and the Plaintiffs against SSSI, each alleging that if any recovery were obtained by Cypress, the other should provide indemnification with regard thereto. See Cypress Square Assoc. v. Subway Sandwich Shops, Inc., No. 90-CP-21-586, [slip op.] at 1-2 (S.C. Ct. C.P. Feb. 18, 1991).

 After a trial on the merits, the court rendered a decision granting Cypress a judgment against SSSI and the Plaintiffs in the amount of $ 70,422.00 (the "Judgment"). See [slip op.] at 5. With regard to SSSI's cross-claim against the Plaintiffs, the Judgment held that "Subway shall hold harmless Wilson and Abbott from and against any recovery of [Cypress] herein against [Wilson and Abbott]" by Cypress in connection with Cypress' claims. [slip op.] at 6.

 While DAI was neither named in the action nor a party to certain mutual releases agreed to by SSSI and the Plaintiffs on or about March 2, 1990 ("Mutual Release"), *fn2" the Plaintiffs' Complaint seeks relief against DAI on the theory that, as the South Carolina court observed, SSSI and DAI engaged in improper and fraudulent practices:


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