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Dunkin' Donuts Franchised Restaurants LLC v. Nader

United States District Court, D. Massachusetts

September 17, 2014

ANTON NADER, et al., Defendants.


LEO T. SOROKIN, District Judge.

In this action, the plaintiffs (collectively, "Dunkin'") assert breach of contract and violations of the Lanham Act by defendant Anton Nader and nine corporate entities purportedly controlled by him, each of which owns and operates a Dunkin' franchise in Staten Island, New York. The claims arise from Dunkin's allegation that Nader transferred interests in the corporate entities (and, thus, the Dunkin' franchises owned by them) to an individual named Leonard Tallo without Dunkin's knowledge or consent, contravening the relevant franchise agreements.[1] See generally Doc. No. 1.[2] Dunkin' claims it learned of Tallo's interest in the entities during a review of corporate documents it initiated in September 2012. Id . at ¶¶ 46-48.[3]

Within two months of the initial scheduling conference, Dunkin' filed a motion seeking leave to amend its complaint to add twenty-four more corporate defendants, each purportedly controlled by Nader and associated with a Dunkin' franchise in either New York or New Jersey. See generally, Doc. Nos. 37, 38, 38-1. The amendment is necessary, Dunkin' claims, because it learned after filing this action that Tallo is a minority owner of these additional entities as well. Doc. No. 38 at 2. Dunkin' filed its motion on the deadline set by the Court for any amendments to the pleadings by the defendants, after the parties exchanged initial disclosures but before discovery began. Id . at 1; Doc. No. 32.

The defendants have opposed Dunkin's motion to amend and cross-moved to dismiss the original complaint pursuant to Federal Rule of Civil Procedure 12(c). Doc. No. 39. The Court heard the parties on both motions on September 16, 2014. The defendants oppose the motion to amend on four grounds. For the following reasons, three of the defendants' arguments are meritless, and the fourth - which is also the basis for the motion to dismiss - is raised prematurely. Accordingly, Dunkin's motion (Doc. No. 37) is ALLOWED, and the defendants' cross-motion (Doc. No. 39) is DENIED without prejudice to the defendants raising their statute of limitations challenge at summary judgment.[4]

First, the defendants urge the Court to deny leave to amend "because [Dunkin'] missed the filing deadline." Doc. No. 40 at 1; see id. at 6 n.2. This assertion is based on the fact that Dunkin' filed its motion two weeks after a date the parties included in the "Joint Discovery Plan and Proposed Pretrial Schedule" they filed before the Rule 16 conference. See Doc. No. 29 at 2. This particular "deadline, " however, apparently was not adopted by the Court. See Doc. No. 32. Dunkin' filed its motion on the date when any motions to amend by the defendants were due - the only date reflected on the docket governing any sort of amendments to the pleadings. Id . The defendants do not suggest that the Court explicitly adopted the earlier deadline, but that the docket erroneously omits it. In any event, Dunkin' has filed its motion at the start of the litigation, before the parties have embarked on any significant discovery. In these circumstances, and in light of the Court's discretion pursuant to Rule 15(a) to "freely" grant leave to amend "when justice so requires, " the timing of Dunkin's motion does not warrant denial thereof.[5]

Second, the defendants suggest that the amendment is futile because the New Jersey Franchise Practices Act ("NJFPA") "mandates that any claims against [the ten New Jersey franchises Dunkin' seeks to add as defendants] to terminate their franchises be filed in New Jersey." Id . at 7. The NJFPA, however, contains no such mandate. Cf. N.J. Stat. Ann. § 56:10-4 (identifying franchisees to which the NJFPA applies, but not specifying where litigation against such franchisees should occur); § 56:10-10 (permitting franchisees to seek injunctive relief against franchisors for alleged violations of the NJFPA via actions in New Jersey state court, but not requiring franchisors to sue there).

Perhaps recognizing the absence of any such statutory requirement, the defendants rely on Kubis & Perszyk Assocs., Inc. v. Sun Microsystems, Inc. , 680 A.2d 618 (N.J. 1996). But that decision does not stand for the proposition that a franchisor must, as a matter of New Jersey law, sue a New Jersey franchisee in New Jersey. In Kubis, the New Jersey Supreme Court held "that forum-selection clauses in franchise agreements [subject to the NJFPA] are presumptively invalid, and [generally] should not be enforced, " as such clauses would "den[y] a franchisee's right to obtain injunctive and other relief from a New Jersey court." Id . at 628. Dunkin' has not invoked a forum selection clause here. It simply has sued the defendants in a court with jurisdiction over the parties and the claims. See Doc. No. 1 at ¶¶ 17-19. This Court, like federal courts before it, can and will apply the requirements of the NJFPA if appropriate in the context of this action. See Doc. No. 45 at 7 (collecting cases). Accordingly, neither Kubis nor the NJFPA justify a finding that any portion of the proposed amendment is futile.[6]

Third, the defendants attempt to invoke the "first-filed rule, " citing an action filed by the proposed defendants against Dunkin' in the Superior Court of New Jersey. Doc. No. 40 at 10-11. According to the defendants, the New Jersey action presents "substantially similar claims, " rendering Dunkin's proposed amendment futile and "a waste of judicial resources." Id . There are two problems with the defendants' effort to apply the first-filed rule here. One is that the First Circuit and various trial courts in this jurisdiction consistently have defined the first-filed rule as follows: "Where identical actions are proceeding concurrently in two federal courts, entailing duplicative litigation and a waste of judicial resources, the first filed action is generally preferred in a choice-of-venue decision. " Cianbro Corp. v. Curran-Lavoie, Inc. , 814 F.2d 7, 11 (1st Cir. 1987) (emphasis added); see OsComp Sys., Inc. v. Bakken Express, LLC, 930 F.Supp.2d 261, 273-74 (D. Mass. 2013) (refusing to apply first-filed rule where the cited action was pending in Texas state court).[7] The rule has no application where one of the pending actions is in state court, as the proposed defendants' action is here. Additionally, the proposed defendants filed their New Jersey complaint on May 27, 2014 - six months after Dunkin' filed this action, and nearly two weeks after Dunkin' sought leave to amend. Thus, even if the rule were implicated where one case is pending in a state court, the action pending in this Court is more appropriately considered the "first-filed" one here. See OsComp Sys., 930 F.Supp.2d at 274 (noting the rule should not apply "where a party engages in procedural fencing in order to preempt the other party's potential lawsuit against it" (internal quotations and alterations omitted)).

Finally, the defendants challenge Dunkin's claims against all original and proposed defendants as untimely under the applicable statutes of limitations. In the defendants' view, this renders the proposed amendment futile and justifies dismissal of the original complaint. The defendants base their statute of limitations challenge on the fact that Dunkin' invoked its right under the relevant franchise agreements to review documents pertaining to twenty-nine shops owned by Nader and his corporate entities in January 2008. Doc. No. 24, Countercl. at ¶¶ 28-29. Six of the entities (none of which are current or proposed defendants) produced corporate tax returns, and at least five of those included Schedule K-1s showing that Tallo was a minority owner of the entities. Id . at ¶¶ 31-32; Doc. No. 28 at ¶ 28. According to the defendants, this disclosure constituted inquiry notice to Dunkin' of Tallo's interest in any and all of Nader's enterprises, thus triggering the statute of limitations as to all claims and proposed claims in this suit. Doc. No. 40 at 14-16. Dunkin' disagrees, urging it received notice of Tallo's role in the relevant entities only during its 2012 document review or after filing this lawsuit. Dunkin' supports its view by citing Nader's certifications of his sole ownership at the time each franchise agreement was signed, and noting that twenty-one of the entities here were formed after the 2008 document review had concluded. Doc. No. 45 at 11-16.

Any assessment of when the relevant limitations period began to run, however, implicates a number of fact questions that cannot be resolved on the record as it now stands. For example:

• What was the purpose of the 2008 review? Who received the documents involved, including the tax returns, and what was done with them?
• Did Dunkin' treat Nader's shops as individual businesses or as a common group? How did it treat other groups of shops with a common owner?
• When and in what forms did Nader certify to Dunkin' that he was the sole owner of each relevant entity?
• Did Dunkin' receive information during either review confirming that Nader was the exclusive owner of any ...

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