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July 13, 2004.


The opinion of the court was delivered by: SIDNEY STEIN, District Judge


Dupont Flooring Systems, Inc. brought this action in 1998 to recover $1.1 million allegedly due to it by Discovery Zone, Inc. as a result of a breach of contract. Discovery Zone counter-sued on six causes of action alleging, inter alia, the destruction of its business and lost profits resulting from Dupont's failure to perform under the contract. Plaintiff now moves pursuant to Fed.R.Civ.P. 56 for summary judgment dismissing Discovery Zone, Inc.'s fifth counter-claim for destruction of business and second and sixth counter-claims sounding in fraud. For the reasons set forth below, plaintiff's motion is granted.

I. Background

  Discovery Zone was a Delaware corporation that owned and operated more than 300 "pay-for-play children's entertainment centers" called "FunCenters." (Def. 56.1 State. ¶ 3). In March 1996, Discovery Zone went into Chapter 11 bankruptcy and emerged in 1997. (Def. 56.1 State. ¶ 36). In 1998, this action was initiated by plaintiff, and in 1999 Discovery Zone again went into Chapter 11 bankruptcy, and subsequently entered Chapter 7 liquidation.

  Before entering bankruptcy in 1999 Discovery Zone filed counter-claims in this action seeking to recover $9 million in damages based on Dupont's alleged failure to perform adequately pursuant to a contract by which Dupont was to install flooring in certain of the FunCenters. In 2001, Discovery Zone amended its counter-claims to seek over $20 million in damages caused by the destruction of its business.

  A. Discovery Zone's Emergence from Bankruptcy in 1997

  Discovery Zone emerged from its first bankruptcy in 1997 with a plan to reopen remodeled FunCenters with certain features that had not been present in the original stores (Def. 56.1 State. ¶ 4; Fontak Aff. ¶ 16), including laser tag and karaoke facilities. Discovery Zone also planned to improve the quality of food served and increase food sales revenues by installing Pizza Hut franchises at the centers. (Not. Mot., Exh. F, ("Nicholson Depo."), p. 14). Discovery Zone also reduced the number of stores in its chain from 326 to 205. (Def. 56.1 State. ¶ 3). Because Discovery Zone's most lucrative season typically extended from Christmas day through April, Discovery Zone planned to remodel prior to December 25, 1997. (Def. 56.1 State. ¶¶ 3, 4, 36). Discovery Zone hired David Nicholson in 1997 as Vice President of Design and Construction to oversee the implementation of the renovation plans for the FunCenters. (Def. 56.1 State. ¶ 8).

  The remodeling project was scheduled to take place in three phases. (Plt. 56.1 State. ¶ 9; Nicholson Depo. p. 49). The first phase was to include the installation of the "soft play" equipment. During the second phase, the FunCenters would be closed for the heavy construction. In the third and final phase — the phase that involved Dupont — the flooring and other incidentals would be completed. (Id.).

  The third phase included Discovery Zone's plan to install a special type of rubber flooring manufactured by Gerbert Limited in three areas. (Def. 56.1 State. ¶¶ 5-7; Fontak Aff. ¶ 22, Exh. F, 93-94). The first area would be a laser tag room that would require drywall partitions extending to the ceiling and rubber flooring. (Def. 56.1 State. ¶ 5). The panels were to be moveable, and therefore installed on top of the flooring, so that the room could be reconfigured to create different courses for laser tag. (Def. 56.1 State. ¶ 6). Additionally, the same rubber flooring would be installed in both the "toddler area" and in the area for older children, known as the "cage." (Def. 561. State. ¶ 7).

  B. Negotiations between Dupont and Discovery Zone

  The negotiations between Dupont and Discovery Zone were initiated in October of 1997 when Nicholson called Ronald Cassin, Vice President of Dupont. (Def. 56.1 State. ¶ 8; Fontak Aff. 137). Discovery Zone claims that Cassin "falsely represented to Mr. Nicholson at that time that Dupont was a national organization of many years experience that could immediately address the flooring work at all of the Discovery Zone fun centers . . ." when in fact Dupont had only come into existence that year. (Def. 56.1 State. ¶ 8). Discovery Zone further alleges that Cassin sent Discovery Zone a list of forty-six national retail chains and falsely claimed that he had "national contracts" with those chains. (Def. 56.1 State. ¶ 9; Discovery Zone Aff. Opp., Exh. 3).

  Subsequently, Nicholson and Cassin met in White Plains, New York. (Def. 56.1 State. ¶ 11). According to Dupont, at that meeting, Nicholson told Dupont that Discovery Zone had already hired architects, general contractors and suppliers, and that Dupont would only be responsible for installing "Gerbert rubber flooring" and vinyl tile, in coordination with those other parties. (Fontak Aff. Exh. M, "Master Flooring Installation Proposal").

  According to Discovery Zone, at that meeting Dupont was told the scope of the renovation project and "the critical nature of having the work completed by December 22, 1997, the related advertising schedule, that time was of the essence in the performance of the work, the anticipated quantity of new flooring material involved, and the types of flooring involved." (Def. 56.1 State. ¶ 11). Discovery Zone claims that Dupont made further false representations about its ability to manage the project at the meeting in White Plains. (Id.; Def. 56.1 State. ¶ 38).

  C. The Flooring Installation Contract

  On October 26, 1997, Nicholson signed a flooring installation agreement prepared by Cassin. (Fontak Aff. Exh. M, "Master Flooring Installation Proposal"). The Master Flooring Installation Proposal ("Flooring Installation Plan") describes the duties that Dupont contracted to perform. In that agreement, Dupont agreed to "manage, supervise and perform all aspects of the flooring project including the demolition of the old flooring system and installation of the new flooring system, all in conjunction with Discovery Zone's General Contractors, Architect and Material Suppliers." (Def. 56.1 State. ¶ 13; Fontak Aff. Exh M.). The plan provided that Dupont would be involved in this work at 180 of the 205 Discovery Zone locations. (Fontak Aff. Exh. M).

  The Master Flooring Installation Proposal establishes a "cost-plus" pricing method whereby Dupont was to be paid for the cost of labor, materials and installation plus an additional 10% for overhead and 22% for profit and Dupont was to submit an estimate particular to each location before beginning work. (Fontak Aff. Exh. M).

  Subsequent to that agreement, Dupont sent out a memorandum to its branch offices stating that it needed to complete the work in the Discovery Zone FunCenters by December 22, 1997, and that all work would be completed within two weeks of commencement. (Def. 56.1 State. ¶ 15; Def. Aff. Opp., Exh. 5, 6). On November 19, Discovery Zone, Dupont and other parties involved in the renovation of the FunCenters met in Chicago to discuss the project. (Def. 56.1 State. ¶ 16). Discovery Zone alleges that Dupont was further made aware at that meeting that Dupont controlled the construction schedule because it had to be the first party to complete its work before other elements of the project could be completed. (Id.). At that meeting, Dupont was also made aware of the importance of finishing the project before Christmas because Discovery Zone expected to have its highest revenues in the first quarter of the following year, and because Discovery Zone was scheduling an advertising campaign to coordinate with the start of the year, the FunCenter re-openings, and certain movie openings. (Def. 56.1 State. ¶ 17).

  D. The Construction

  Dupont hired David Alpy as Sales Account Manager to take charge of the installation program. (Def. 56.1 State. ¶ 18). Discovery Zone alleges that Alpy promised he would complete construction on 100 FunCenters by December 1997. (Id.). In December, general contractors had begun working on 109 FunCenters (Def. 56.1 State. ¶ 19), and those locations were available to Dupont and "over half had flooring material on hand at that time for Dupont." (Def. 56.1 State. ¶ 19). Thus, Discovery Zone alleges that Dupont could have begun flooring installation in at least fifty locations in December. However, Discovery Zone alleges that Dupont only began construction on twelve locations before 1998. (Def. 56.1 State. ¶ 19). By February 1998, Discovery Zone alleges that over 100 stores were available for Dupont to commence work, but that only twenty-two renovation projects had been commenced by Dupont. (Def. 56.1 State. ¶ 20). The parties further agree that Discovery Zone was responsible for at least some of that delay. Nicholson of Discovery Zone testified that in December 1997, he felt "there were enough mitigating circumstances with respect to supply and with respect to drawings that [Dupont] could be excused for the lack of installed flooring at a lot of the Funcenters" prior to 1998. (Fontak Aff. Exh. H at 187).

  Sometime in February 1998, Dupont halted work because of unpaid bills, and then discovered after an internal audit that the bill it had submitted to Discovery Zone was inflated by 10%. (Whitfield Aff. ¶¶ 41-42). Discovery Zone alleges that this temporary halt in the work caused further damages.

  Dupont made representations in March and April of 1998 that all construction would be finished in May of that year. (Def. 56.1 State. ¶ 28). Those representations also turned out to be false because work had not even begun on forty-three locations in May 1998. (Def. 56.1 State. ¶ 29). Where work had begun, it ...

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