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September 1, 1999


The opinion of the court was delivered by: Sprizzo, District Judge.


Plaintiff Eugene Feeley, individually and as assignee of the Peekskill Muffler Corporation ("PMC") (collectively "plaintiff") brings the instant action for damages against The Whitman Corporation, Midas International Corporation, Midas Realty Corporation, and Cosmic Enterprises, Inc. (collectively "Midas"), alleging claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., and claims for fraud and tortious interference with contract and prospective economic advantage under the common law of the State of New York. Pursuant to Rule 56, Fed.R.Civ.P., Midas moves for summary judgment dismissing the complaint. Plaintiff has brought a cross-motion for summary judgment or for default judgment pursuant to Rule 55(b)(2), Fed.R.Civ.P. In the alternative, plaintiff seeks further discovery under Rule 56(f), Fed.R.Civ.P. For the reasons set forth below, Midas's motion is granted and plaintiff's cross-motion is denied.


PMC is a New York corporation that owns and operates Midas muffler franchises in seven locations throughout New York. See First Amended Complaint, dated December 9, 1994 ("Compl.") ¶ 6. The shareholders of PMC are Eugene and Linda Feeley and Guy and Victoria Ballirano. See id. ¶ 7. PMC has assigned its claims against Midas to Feeley. See id. ¶ 10. Feeley is a citizen of New York. See id. ¶ 5.

Midas International Corporation is a wholly owned subsidiary of The Whitman Corporation and is responsible for issuing Midas franchises and providing Midas products and equipment to Midas franchisees. See id. ¶¶ 14-16. Midas International Corporation also sells and leases real estate to its franchisees. See id. ¶ 17. Its wholly owned subsidiary Midas Realty Corporation secures and develops real property for Midas franchises and also sells and leases property to those franchises. See id. ¶¶ 20, 22. Cosmic Enterprises, Inc., is a wholly owned subsidiary of The Whitman Corporation and Midas International Corporation. See id. ¶¶ 24-25. It owns and operates company-owned Midas Muffler Shops. See id. ¶ 26. All defendants are Delaware corporations. See id. ¶¶ 11, 13, 18, 23.

Between 1975 and 1986, PMC entered into a series of franchise agreements with Midas, pursuant to which PMC opened its seven Midas Muffler shops in New York. See Compl. ¶¶ 59-77. Plaintiff alleges that Midas fraudulently induced PMC to enter each of the seven franchise agreements. See Plaintiff's Statement Pursuant to Local Civil Rule 3(g) of the United States District Courts for the Southern and Eastern Districts of New York ("Pl.3(g) Stmt.") ¶ 2.

The first of these agreements was executed on February 6, 1975, and licensed PMC's Peekskill franchise. See Defendants' Statement Pursuant to Local Civil Rule 3(g) of the United States District Courts for the Southern and Eastern Districts of New York ("Def.3(g) Stmt.") ¶ 1. During the negotiations, Midas allegedly misrepresented to PMC that the franchise agreement gave PMC a specific and exclusive trade market area for its Peekskill franchise. See Pl. 3(g) Stmt. ¶ 2. Midas also presented to PMC a written initial entry and expansion market study describing the primary market and the secondary market for the Peekskill franchise, the closest existing Midas shop location and the location of other automobile muffler repair shops, and the projected market potential and first year's sales for the Peekskill franchise. See Compl. ¶ 163. Plaintiff alleges that the market study included false representations by Midas that PMC would receive a specific market area. See id. ¶ 166.

Each of the franchise agreements between Midas and PMC contained the following non-exclusivity clause:

  Non-exclusivity. The right, franchise, and license
  granted herein shall be non-exclusive. Midas shall at
  all times have the right to establish and operate
  itself, or to license any other party or parties to
  establish and operate, a Midas Muffler Shop or Shops
  at any other location or locations whatever.

Def.Ex. B, Trademark and Franchise Agreement ¶ 1.2. The agreements also included an integration clause which stipulates that the written trademark and franchise agreement, together with the written lease,

  constitute and contain the entire agreement and
  understanding of the parties with respect to the
  subject matter hereof and thereof. There are no
  representations, undertakings, agreements, terms or
  conditions not contained or referred to herein or in
  any such lease or sublease.

Def.Ex. B, Trademark and Franchise Agreement ¶ 9.9.

In alleged reliance on Midas's alleged oral and written misrepresentations, PMC executed the February 6, 1975, franchise agreement for the Peekskill, New York, Midas franchise shop. See Compl. ¶ 142. Plaintiff claims that Midas made comparable misrepresentations upon which PMC relied with respect to the Scarsdale franchise in 1982, the Bedford franchise in 1983, the Carmel and Tarrytown franchises in 1985, and the Poughkeepsie and Wappingers Falls franchises in 1986. See id. ¶¶ 139-166.

Plaintiff further claims that PMC was compelled to open its Scarsdale, Bedford Hills, Carmel, and Tarrytown Midas franchises in order to protect and preserve the economic viability of its existing and potential franchises. See Compl. ¶¶ 146, 150, 154, 158. Under the terms of the franchise agreements, Midas had complete access to PMC's business records, and plaintiff alleges that Midas misused this information to determine the location of new franchise shops that would compete with the existing PMC franchise shops. See Affidavit of Eugene Feeley ("Feeley Aff"), dated May 30, 1996, ¶ 16. According to plaintiff, following the purchase of the Peekskill shop in 1975, Midas used PMC's business records to expand their overall market share by establishing new shops in the same area. See id. ¶¶ 17-20. The addition of each new shop would have negatively impacted PMC's existing and potential businesses by siphoning off customers from the existing PMC shops to the new, more conveniently located shops. See id. ¶¶ 17, 20. As a result, plaintiff claims that Midas's business strategy allowed them no choice but to purchase the new franchise shops or suffer grave economic harm.

PMC challenged Midas's business practices of opening new franchise shops within the markets for existing franchise shops, and plaintiff claims that these challenges led to a confrontational relationship with Midas. See id. ¶¶ 7, 8. In response to PMC's challenges, Midas allegedly threatened to locate franchises in certain towns in order to draw additional customers away from PMC's existing shops. See id. ¶ 8.

Plaintiff also claims that Midas interfered with their negotiations to purchase a Midas franchise shop in Danbury, Connecticut. On January 24, 1984, plaintiff and Danbury Exhaust Specialists, Inc. ("Danbury Exhaust"), signed a letter of intent for the sale of the Danbury franchise to PMC, and PMC made a $10,000 deposit. See Affidavit of Robert J. Wolfe ("Wolfe Aff."), dated January 11, 1988 ¶ 3. That letter of intent provided that the parties would sign a contract to sell Danbury Exhaust's assets to Peekskill Muffler for $615,000, provided that Danbury Exhaust obtained a revised lease for its shop including certain terms, that Midas approved the transaction, and that the parties completed the transaction by April 15, 1984. See id. None of these conditions were met, however.

Thereafter, PMC expressed to Danbury Exhaust its continuing interest in purchasing the franchise shop. See Wolfe Aff. ¶¶ 6, 8, 17-19. On August 7, 1984, PMC sent Danbury Exhaust a letter proposing amendments to their original contract. See id. ¶ 8. On January 24, 1985, Danbury Exhaust sent plaintiff a revised contract with a purchase price of $420,000, almost $200,000 less than the price initially negotiated. See id. ¶ 15. In the transmittal letter, Danbury Exhaust stated that if the contract was not signed and returned by February 1, 1985, the deal could not go forward. See id.

When the contract was not signed by that date, Danbury Exhaust officially terminated the negotiations with plaintiff and returned PMC's deposit. See id. ¶ 16. On February 12, 1985, Danbury Exhaust received a letter from plaintiff dated February 7, 1985, enclosing a contract signed by plaintiff. See id. ¶ 17. Danbury Exhaust never signed the contract. Nonetheless, plaintiff claims that Danbury Exhaust had assented to the terms of the contract, and therefore, wrongfully refused to sign the February 7, 1985, contract executed by plaintiff. See Compl. ¶¶ 263, 264. ...

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