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DUNKIN' DONUTS INC. v. PRIYA ENTERPRISES

March 11, 2000

DUNKIN' DONUTS INCORPORATED, PLAINTIFF,
V.
PRIYA ENTERPRISES, INC., DEFENDANT.



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

MEMORANDUM OF DECISION AND ORDER

This case involves a contract dispute between the Plaintiff Dunkin' Donuts, ("Dunkin Donuts"), and one of its franchisees, Defendant Priya Enterprises, ("Priya"), regarding the terms of a franchise agreement. Presently before the Court are Dunkin' Donuts' motion for summary judgment on its entitlement to attorneys' fees and costs and Priya's cross-motion for summary judgment dismissing the action.

BACKGROUND

Priya is a franchisee of Dunkin' Donuts, operating stores in Coram, New York ("the Coram shop") and Lake Ronkonkoma, New York ("the Lake Ronkonkoma shop") pursuant to two separate franchise agreements dated June 13, 1996. Dunkin' Donuts provides manuals and guidelines to its franchisees which detail the requirements for operation of a Dunkin' Donuts shop. These manuals contain various requirements for cleaning and maintaining production and sales area equipment; production and handling of food products; and receiving and storing raw materials. Under the franchise agreements, franchisees agrees to operate their shops in accordance with the specifications and standards provided by Dunkin' Donuts and to maintain the Shop "in the highest degree of cleanliness, orderliness, sanitation and repair, as reasonably required by Dunkin' Donuts."

Section 9 of the franchise agreement governs the procedures to be followed if the franchisee is alleged to have violated the franchise agreement. According to Section 9.1.2, any franchisee's violation of a Dunkin' Donuts standard for health, sanitation, or safety must be cured within 24 hours of the time Dunkin Donuts gives the franchisee written notice of the violation. Pursuant to Section 9.3

[i]f FRANCHISEE fails to cure a default, following notice, within the applicable time period set forth in paragraph 9.1 . . . FRANCHISEE shall pay to DUNKIN' DONUTS all damages, costs, and expenses, including, without limitation, interest at eighteen percent (18%) per annum, or the highest permissible rate, and reasonable attorneys' fees incurred by DUNKIN' DONUTS as a result of any such default or termination; and said interest and all damages, costs and expenses, including reasonable attorneys' fees, may be included in and form part of the judgment awarded to DUNKIN' DONUTS in any proceeding brought by DUNKIN' DONUTS against FRANCHISEE.

Neither party contests the validity of the Franchise Agreement. Rather, the parties dispute the applicability of the default provision to the facts of this case. Dunkin' Donuts commenced this action on June 1, 1999, alleging that Priya had failed to cure sanitation violations found after inspections of both of its stores. These inspections were conducted in the Spring of 1998 by Dean Marino and Josh Robinson, Dunkin Donuts business consultants.

The Lake Ronkonkoma Shop

The Lake Ronkonkoma Shop was first inspected on April 10, 1998 by Josh Robinson. On April 13, 1998, Robinson sent the Priya a Notice to Cure several sanitation and food preparation violations that were discovered during that inspection. On April 24, 1998, Dean Marino inspected the Lake Ronkonkoma Shop and determined that many of the sanitation and food preparation violations that had been cited by Robinson on April 13 remained unremedied.

On June 1, 1998, Dunkin Donuts commenced this action alleging breach of the franchise agreement, and seeking injunctive relief requiring Priya to cure the alleged health, sanitation, and safety violations. In addition, Dunkin' Donuts sought an award of attorneys' fees and costs for the action pursuant to Section 9.3 of the franchise agreement.

Marino re-inspected the Lake Ronkonkoma Shop on August 6, 1998, at which time it was found to be "in substantial compliance with Dunkin' standards."

The Coram Shop

Marino inspected the Coram shop on May 3, 1998, and on May 11, 1998 issued a Notice to Cure to Priya citing numerous sanitation and physical plant violations. Marino re-inspected the Coram Shop on May 27, 1998 and found the violations remained uncured.

On June 15, 1998, Dunkin Donuts amended its complaint in this case to allege that Priya breached the franchise agreement for the Coram shop as well. The amended complaint again sought an injunction directing Priya to cure the violations and attorney's fees and costs for bringing the action. Priya answered the amended complaint and interposed a counterclaim, alleging that Dunkin Donuts' lawsuit ...


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