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RICH FOOD SERVICES, INC. v. DARLING

United States District Court, N.D. New York


September 17, 2004.

RICH FOOD SERVICES, INC., a Wyoming Corporation; DEBRA K. SINGLETARY; and ROY A. BALDWIN; Plaintiffs,
v.
RICHARD H. DARLING; R. BRUCE EVANS, ROGER W. LORD; CHERYL A. THOMPSON; W.E. ADAMSON; DOUGLAS L. DAVIS; THOMAS A. VOKAS; BRENT R. ADAMSON; and BRYCE A. JOHNSON; Defendants.

The opinion of the court was delivered by: DAVID HURD, District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

  Plaintiffs filed this diversity action on November 15, 2002, alleging in a first cause of action fraud, intentional misrepresentation, and negligent misrepresentation by defendants to induce plaintiffs to enter into certain franchise agreements with Rich Plan Corporation ("RPC"). As a second cause of action plaintiffs alleged that defendants, corporate officers and/or directors of RPC, have individual liability for actions of RPC. Finally, as third and fourth causes of action plaintiffs allege violations of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1 et seq., and the New York Consumer Protection from Deceptive Acts & Practices Act, N.Y. Gen. Bus. L. § 349 et seq. Defendants answered denying the material allegations of the complaint and asserting various affirmative defenses. They now move for summary judgment pursuant to Fed.R. Civ. P. 56. Plaintiffs opposed the motion, and defendants replied. Oral argument was heard on August 27, 2004, in Albany, New York. Decision was reserved.

  II. BACKGROUND

  Plaintiffs Debra K. Singletary ("Singletary") and Roy A. Baldwin ("Baldwin") (collectively "plaintiffs") entered into a Franchise Agreement in 1992 with RPC. Plaintiffs operated their franchise in North Carolina as Rich Food Services, Inc. The 1992 Franchise Agreement was amended or extended in 1996.

  In the mid-1990s the North Carolina Attorney General investigated plaintiffs for multiple violations of North Carolina law related to their franchise operation. The attorney general determined that a "Full Service Agreement" developed by RPC and sold by plaintiffs constituted a sale of insurance under North Carolina law, requiring compliance with that state's insurance law. A consent judgment and injunction was entered against plaintiffs prohibiting continued operation in violation of North Carolina law.

  Plaintiffs instituted suit against RPC, the defendants in the instant action, and three additional individuals who were also officers and/or directors of RPC, in the United States District Court for the Eastern District of North Carolina ("the prior action"). The claims in the prior action included: (1) Count II — fraud, intentional misrepresentation, and negligent misrepresentation by defendants to induce plaintiffs to enter into the 1992 and 1996 franchise agreements; (2) Count III — violation of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1 et seq.; (3) Count IV — violations of the New York Consumer Protection from Deceptive Acts & Practices Act, N.Y. Gen. Bus. L. § 349 et seq.; and (4) Count VI — individual liability of officers and/or directors for actions of RPC. The defendants in the instant suit were dismissed from the prior action for lack of personal jurisdiction.

  The prior action then proceeded to trial. Prior to submission to the jury, the court granted judgment to all the defendants as a matter of law. This ruling was based upon several holdings. First the court held that the 1996 agreement was an extension of the 1992 agreement, and therefore any causes of action based upon defendants' violation of State of New York and federal disclosure laws are barred by the statute of limitations. The court further held that under the franchise agreement itself there was no duty to determine the legality of a particular contract in each individual state in which a franchise was offered. Next the court determined that under North Carolina law, the franchise agreement was legal so long as there was compliance with insurance law, and under the contract the defendants had no duty to comply with the insurance laws of North Carolina. Finally, the court found that defendants had no duty under the contract to resolve the plaintiffs' problem with the North Carolina insurance laws once it was discovered.

  The United States Court of Appeals for the Fourth Circuit affirmed the district court's dismissal of the prior action. See Rich Food Servs., Inc. v. Rich Plan Corp., 98 Fed. Appx. 206 (4th Circuit May 3, 2004) (unpublished, per curiam decision). The court found that Count II was properly dismissed because the statements relied upon as misrepresentations were too vague to be contractual promises or even misrepresentations. Id. at 211. The court also found Counts III and IV properly dismissed as barred by the statute of limitations. Id. at 210. Finally, the court held that Count VI was properly dismissed because there was no breach of contract or misrepresentation. Id. at 211.

  III. DISCUSSION

  A. Summary Judgment Standard

  Summary judgment must be granted when the pleadings, depositions, answers to interrogatories, admissions and affidavits show that there is no genuine issue as to any material fact, and that the moving party is entitled to summary judgment as a matter of law. Fed.R. Civ. P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Richardson v. New York State Dep't of Correctional Servs., 180 F.3d 426, 436 (2d Cir. 1999); Lang v. Retirement Living Pub. Co., 949 F.2d 576, 580 (2d Cir. 1991). The moving party carries the initial burden of demonstrating an absence of a genuine issue of material fact. Fed.R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Thompson v. Gjivoje, 896 F.2d 716, 720 (2d Cir. 1990). Facts, inferences therefrom, and ambiguities must be viewed in a light most favorable to the nonmovant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Richardson, 180 F.3d at 436; Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir. 1983).

  When the moving party has met the burden, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., 475 U.S. at 586. At that point, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R. Civ. P. 56; Liberty Lobby, Inc., 477 U.S. at 250; Matsushita Elec. Indus. Co., 475 U.S. at 587. To withstand a summary judgment motion, sufficient evidence must exist upon which a reasonable jury could return a verdict for the nonmovant. Liberty Lobby, Inc., 477 U.S. at 248-49; Matsushita Elec. Indus. Co., 475 U.S. at 587.

  B. Collateral Estoppel

  Defendants contend that all of the issues raised by the complaint were decided in the prior action and therefore cannot be relitigated here. Plaintiff argues that issue preclusion is not warranted because the defendants were not parties in the prior action and their liability is not predicated upon the actions of the defendants in the prior action.

  Collateral estoppel, or issue preclusion, bars a litigant who was a party to the prior proceeding from relitigating any issue which was previously decided against him on the merits if the issues to be decided are identical, the issue was fully and fairly litigated, and the issue was necessary to support a valid and final judgment on the merits. NLRB v. Thalbo Corp., 171 F.3d 102, 109 (2d Cir. 1999). Collateral estoppel "refers to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided." Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1 (1984). The first cause of action in the complaint alleges fraud, intentional misrepresentation, and negligent misrepresentation by defendants to induce plaintiffs to enter into the 1992 and 1996 franchise agreements with RPC. Essentially this cause of action is based upon representations in the franchise agreements that RPC had "a successful, efficient and unique system of merchandising and promoting" the product. In the prior action the same basis was set forth for the fraud/misrepresentation claim, Count II. See Rich Food Servs., 8 Fed. Appx. at 211. The issue was resolved by the Fourth Circuit with its finding that such representations in the agreements "are too vague to be contractual promises, [and] they are also too vague to be misrepresentations." Id. No other issue need be determined in order to resolve the first cause of action. Plaintiffs' arguments to the contrary fail because the cause of action is based upon the alleged misrepresentation in the agreements, which is independent of what any individual directors or officers of RPC did. Accordingly, relitigation of the same issue is precluded and the first cause of action must be dismissed.

  The second cause of action alleges individual liability for the actions of RPC. The same allegation was made in Count VI of the prior action. Similarly, the third and fourth causes of action in the instant matter (violations of the North Carolina Unfair and Deceptive Trade Practices Act and the New York Consumer Protection from Deceptive Acts & Practices Act) were alleged in Counts III and IV of the prior action. The Fourth Circuit resolved the identical three issues related to these three causes of action, finding that an underlying breach of contract was necessary to any finding of liability on each of the claims. Id. It further stated that because no breach or misrepresentation occurred, those counts could not survive. Id. Again, that is the only issue that would be determined to resolve these causes of action. Further, the resolution of this issue is independent of any actions of the individual defendants (here and in the prior action) and the corporation. Thus, relitigation of the identical issue is precluded and the second, third, and fourth causes of action must be dismissed.

  IV. CONCLUSION

  The identical issues raised by plaintiffs in the prior action are again raised here. These issues were all determined in the prior action. See id. Plaintiffs are precluded from relitigating the identical issues previously decided. See Thalbo Corp., 171 F.3d at 109. Therefore, defendants are entitled to summary judgment.

  Accordingly, it is

  ORDERED that

1. Defendants' motion for summary judgment is GRANTED, and
2. The complaint is DISMISSED in its entirety.
The Clerk is directed to enter judgment accordingly.
IT IS SO ORDERED.
20040917

© 1992-2004 VersusLaw Inc.



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