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Kahala Corp., and Kaha Acquisitions Vi, LLC v. William B. Holtzman

December 3, 2010


The opinion of the court was delivered by: Denise Cote, District Judge:


The defendant William B. Holtzman ("Holtzman") has moved to dismiss the plaintiffs' second amended complaint for lack of personal jurisdiction.*fn1 For the following reasons, the motion is denied.

BACKGROUND The plaintiffs Kahala Corp. and Kaha Acquisitions VI, LLC ("Kahala") are a franchising company for several quick-service restaurant brands and its wholly-owned subsidiary. In 2007, Kahala acquired certain assets from Blimpie Associates Ltd. ("Blimpie"), including the entire Blimpie Subs & Salads brand, franchising system, intellectual property, and existing franchise agreements. The contracts at issue in this lawsuit are franchising agreements between Blimpie and entities associated with Holtzman (the "Entity Defendants")*fn2 that Kahala assumed as part of the acquisition.

Between 1994 and 2003, the Entity Defendants entered into seven franchise agreements to operate Blimpie Subs & Salads quick-service restaurants ("Blimpie Stores") in various Virginia locations (the "Franchise Agreements"). The terms and conditions of the Franchise Agreements are identical in all cases except for the name of the franchisee and the dates within the agreement. Pursuant to the terms of the franchise agreement, Blimpie granted each of the Entity Defendants a license to operate a Blimpie Store for a period of 20 years.

Holtzman signed at least two of the Franchise Agreements on behalf of the Entity Defendants. In addition, Holtzman signed each Franchise Agreement in his individual capacity -- as William B. Holtzman, Individually -- beneath the following text (the "Individual Provision"):

By execution of this Agreement, the undersigned stockholder(s) of the corporate Operator, or members of the LLC, or the individual Operator hereby personally accepts and agrees to comply with Articles 10 & 16 of this Agreement and acknowledges that the Franchisor has executed this Agreement in reliance upon the commitments contained in this paragraph. (Emphasis supplied.)

Article 10 of the Franchise Agreements requires the Entity Defendants and their shareholders, officers, directors, partners, or members to keep certain information confidential and not to compete against Blimpie in the submarine sandwich business during the term of the agreement and for a certain period thereafter. Article 16 contains the parties' "Rights and Obligations Upon Termination." That section states, among other things, that "[u]pon the termination of Operator's rights granted under this Agreement," that the Operator shall immediately pay any amount owing to Blimpie.

The Franchise Agreements state that ceasing to operate or otherwise abandoning a Blimpie Store constitutes a default under the agreement. Between March 25, 2007 and October 28, 2009, the Entity Defendants unilaterally closed the Blimpie Stores that were the subjects of all of the Franchise Agreements. On December 23, 2009, Kahala notified the defendants that they had breached the Franchise Agreements by unilaterally closing the Blimpie Stores.

The plaintiffs commenced this action on May 26, 2010. They filed an amended complaint on June 16. On August 18, Holtzman and the Entity Defendants*fn3 each filed motion to dismiss the amended complaint. At an initial conference with the Court on September 1, 2010, the plaintiffs were advised that any subsequent amendment of the complaint would be their final opportunity to amend. The plaintiffs filed a second amended complaint on October 14, 2010. The defendants filed a motion to dismiss the second amended complaint on October 20, and the motion was fully briefed on November 12.

DISCUSSION Holtzman moves to dismiss the complaint against him for lack of personal jurisdiction. "In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists." Penguin Grp. (USA) Inc.

v.American Buddha, 609 F.3d 30, 34-35 (2d Cir. 2010) (citation omitted). Where, as here, there has been no discovery, the plaintiff need only make "legally sufficient allegations of jurisdiction" through its pleading and affidavits in order to survive a motion to dismiss. Id. at 35 (citation omitted).

"Parties can consent to personal jurisdiction through forum-selection clauses in contractual agreements." D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006). To enforce a forum selection clause, "[a] court must first determine that the existence of the clause was reasonably communicated to the parties." Id. If it was, the selection "will be upheld unless the clause was obtained through fraud or overreaching," or if enforcement would be "unreasonable and unjust." Id. (citation omitted).

The Franchise Agreements contain the following provisions regarding execution and forum selection:

[T]his Agreement shall be deemed to be executed and delivered in the City of New York, . . . regardless of the domicile of the Operator, and shall be governed by and construed in ...

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