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X Dunkin' Donuts Incorporated v. Got-A-Lot-A-Dough

December 18, 2006

X DUNKIN' DONUTS INCORPORATED, PLAINTIFF,
v.
GOT-A-LOT-A-DOUGH, INC., CATHERINE KUNCMAN, AND BEN-ZION C. KUNCMAN, A/K/A BEN KUNCMAN, DEFENDANTS.



The opinion of the court was delivered by: Hurley, Senior District Judge

MEMORANDUM & ORDER

In a Memorandum and Order dated February 10, 2006, familiarity with which is presumed, the Court directed the parties to address the question of the appropriate temporal parameters for the trial of this matter. The parties having made their submissions, the Court finds, for the reasons set forth below, that, subject to certain exceptions by way of providing background information, the trial will be limited to the events that post-date November 23, 2004.

BACKGROUND

Plaintiff Dunkin' Donuts Incorporated ("Plaintiff") is the franchisor of Dunkin' Donuts franchises and the exclusive licensee of the Dunkin' Donuts trademarks. Defendants Got-a-Lota-Dough Inc., Catherine Kuncman and Ben Kuncman (collectively "Defendants") have owned/operated two Dunkin' Donuts franchises in Nassau County, New York since 1998 and 1999, respectively, pursuant to two franchise agreements with Plaintiff.

I. Prior Actions Between the Parties

A little more than one year after the second franchise agreement was signed, disputes arose between the parties. As a result, three civil actions were filed in this District, to wit: Civil Actions Nos. 01-4956; 01-6329; and 02-1098. Among other things, these actions sought judgments that the franchise agreements were terminated and prohibiting the Defendants from using the Dunkin' Donuts trademarks. Defendants answered the complaints and interposed counterclaims. For example, in Civil Action No. 02-1098, Defendants averred that Plaintiff did not provide the support and services which were outlined in the franchise agreement which would enable Defendants to avoid alleged violations and that it was Plaintiff's intent to rid itself of a successful franchisee and take back the stores to itself so it could reap the benefit of the increased value of the stores. (Answer, dated Mar. 2, 2002). The three actions were resolved by Settlement Agreement dated November 15, 2002 (the "2002 Settlement Agreement").

The 2002 Settlement Agreement provided for, among other things, the reinstatement of the franchise agreements for the purpose of allowing the Defendants to sell the franchises. It was agreed that in the event the Defendants did not transfer the franchises in accordance with the terms set forth therein, they were obligated to de-identify the franchises and comply with all post- termination obligations set forth in the Franchise Agreement. Further, the Defendants were to execute a general release. The parties also agreed that 1) once the terminations provided for therein were released from escrow, Defendants were not entitled to remain in any franchise relationship or use the Dunkin' Donuts trademark, name, or dress and 2) in the event of breach by the Plaintiff, Defendant's exclusive remedy was a claim for monetary damages. Both parties acknowledged they had the opportunity to obtain independent legal advice of their own selection and choosing and that "[b]oth the legal and practical effect of this Agreement in each and every respect have been fully explained to the respective parties by counsel, and they acknowledge that it is not the result of any fraud, duress or undue influence exercised by either party upon the other party." (Emphasis added)

II. The Current Action

On September 22, 2004, Plaintiff commenced the instant action alleging that the Defendants breached the 2002 Settlement Agreement. Plaintiff sought to enforce the 2002 Settlement Agreement and moved for a preliminary injunction.

A. The Motion for a Preliminary Injunction

Defendants opposed the motion for a preliminary injunction*fn1 and submitted, inter alia, the affidavit of Defendant Ben Kuncman. In his affidavit, Ben Kuncman sets forth "Dunkin Donuts' scheme to terminate and appropriate our Franchises" and refers to the three federal lawsuits brought against Defendants on "trumped-up grounds." (Aff. of Ben Kuncman, sworn to Nov.17, 2004, at p. 4 (the "2004 Affidavit")).

The 2004 Affidavit also discusses the Defendants' efforts to sell the franchises - which efforts were allegedly the result of "Plaintiffs' unlawful scheme to financially destroy the defendants and coerce them into selling their franchises." (Id. at ¶ 21.) It recites how Plaintiff allegedly refused to consider a July 2002 contract of sale unless there was agreement on a global settlement. That global settlement was the 2002 Settlement Agreement which provided for the mandatory sale of the franchises. (Id. at ¶¶ 22 - 24.) The Affidavit goes on to state how the Defendants sold the franchises and submitted the agreement to Plaintiff in December 2002 in accordance with Plaintiff's contractual right of first refusal. Plaintiff allegedly did not timely exercise its right of first refusal and instead proceeded to "ruin" the deal by trying to "flip" the franchises to the vendee at a higher price. (Id. at ¶¶ 26 - 27.) The Defendants again sold the franchises in March 2004 and submitted the contract of sale to Plaintiff. But Plaintiff refused to take any action with respect to the March 2004 contract unless Defendants agreed to sign a proposed "First Amendment to Agreement" and "give up more of their hard-earned rights." (Id. at ¶¶ 29 - 31.) Finally, Kuncman contended that the 2002 Settlement Agreement was designed to be their exit from the franchise system with all monies owed to Plaintiff to be paid from the proceeds of a sale and when Plaintiff did not entertain the sale of the stores, it knew it would trigger a default. ( Id. at ¶ 34.)

B. The 2004 Settlement

On November 23, 2004, the day of the preliminary injunction hearing, the parties settled. Several settlement documents were executed: a Stipulation of Settlement, a "First Amendment" to the 2002 Settlement Agreement, a Consent Judgment and a General Release (collectively the "2004 Settlement Documents"). Both the Stipulation of Settlement and the Consent Judgment were presented to the Court.

The Stipulation of Settlement provided that 1) Defendants consented to the entry of a judgment for both monetary damages and an injunction; 2) the parties consented to the signing of a judgment by the Court incorporating the terms of the Stipulation; and that 3) the "Stipulation and the annexed proposed judgment are subject to a Settlement Agreement dated November 15, 2002 and a First Amendment dated November 24, 2004 (collectively the "Agreement"). The judgment cannot be executed upon, except pursuant to the terms of the Agreement."

Under the terms of the First Amendment, the Defendants consented to entry of a judgment, which was signed by this Court, that provided for 1) a money judgment; 2) a judgment terminating their franchise; and 3) a permanent injunction prohibiting them from using Dunkin' Donuts' trademarks, name and dress. In exchange, Plaintiff reinstated the franchises to enable their sale and agreed to hold the Consent Judgment in escrow provided the Defendants did not breach their franchise agreements. Plaintiff was also required to consider a sales agreement between Defendants and Pradeepsinll Gohil et al ("Gohil Sale Agreement"). Except as specifically modified, the First Amendment ratified and confirmed the 2002 Settlement Agreement.

As part of the 2004 Settlement, the Defendants contemporaneously signed a General Release, dated November 23, 2004, which provides in pertinent part:

GOT-ALOT-DOUGH, Inc., a New York corporation, and Ben Kuncman and Catherine Kuncman, . . . hereby release and forever discharge Dunkin' Donuts Incorporated from all debts, demands, actions, causes of action, contracts, claims, obligations and liabilities which they now have or ever had against Dunkin' Donuts Incorporated or any corporation affiliated therewith from the beginning of the world to this date arising from or in connection with the Franchise Agreements or any other agreements or transactions among the parties, including, but not limited to, any and all state or federal antitrust claims, securities law claims, breach of contract claims, fraud or misrepresentation, breach of fiduciary duty, unfair trade practices (state or federal) and all other claims and causes of action whatsoever.

C. The Notices of Default

Little more than three months later, on February 15, 2005, Plaintiff sent Defendants a notice of default. Other notices followed on April 15, 2005 and June 6, 2005. The notices charged Defendants with failing to pay franchise and advertising fees. Meanwhile, by letter dated April 28, 2005, Plaintiff informed the Defendants that the contract for sale of the franchises to Gohil was not being approved because "the financial terms and conditions of the proposed transfer will jeopardize the ability of the buyer to maintain, operate and meet the buyer's financial obligations." Also, "[w]hile the purchase and sale agreement referred to the sale of additional term for the transferee, we are not offering the buyer additional franchise term."

On July 5, 2005, Plaintiff advised Defendants that because of their noncompliance, it was releasing the Consent Judgment from escrow. Consequently, Plaintiff demanded that Defendants: (1) de-identify the franchises within seven days; (2) comply with all post-termination obligations set forth in the Franchise Agreements; and (3) immediately pay Dunkin' Donuts all ...


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