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,
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
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.
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.
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.
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
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.
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