Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Pa.: Sanctions for withholding relevant trial documents denied, (Jun 16, 2015)

By Michael Menzhuber, J.D., LL.M.

A motion for sanctions for withholding documents, filed by former franchisees against a donut shop franchisor, was denied by the federal district court in Philadelphia. Although the court determined that there was no substantial justification for withholding the documents, it held that the franchisor did not act in bad faith in doing so (Selzer v. Dunkin’ Donuts, Inc., June 15, 2015, Pratter, G.).

Background. Harold Selzer and Saul Levitt (plaintiffs) entered into a store development agreement with Dunkin’ Donuts, Inc., an international franchisor of eateries, by which they became Dunkin’ Donuts franchisees. A day prior to executing the agreement, they entered into development agreement with AAA development, a corporate entity owned by Selzer and Joseph Glassman. Levitt and AAA Yowza, a corporate entity formed to own a property that the plaintiffs hoped to develop into a Dunkin’ Donuts shop, then entered into a development agreement for the Yowza site. Collectively, AAA development and Yowza comprised the “corporate plaintiffs”.

After the relationship between the plaintiffs and Dunkin’ Donuts began to deteriorate, the franchisor terminated their store development agreement. The plaintiffs brought a claim of action against Dunkin’ Donuts for breach of contract and the corporate plaintiffs brought two claims of action for tortious interference with contractual relations.

At the trial, the franchisor’s counsel asked permission to use a small collection of documents to examine Glassman. The documents bore dates less than one year prior to the date of the store development agreement with the plaintiffs, dealt with the denial of Glassman’s application to become a Dunkin’ Donuts’ franchisee, and contradicted the impressions Glassman tried to give during his testimony.

After an in camera review, the court determined the documents were relevant and privileged, excluded them, as well as any topic they covered from trial, and invited the plaintiffs to file a motion for sanctions. The plaintiffs filed the motion and Dunkin’ Donuts responded a few days later.

Between the filing of the sanctions motion and Dunkin’ Donuts’ response, the plaintiffs settled their breach of contract action with Dunkin’ and one of the tortious interference claims was dropped. After the trial ended with a defense verdict on the remaining tortious interference claim, the plaintiffs filed a reply to the defense opposition to the sanctions motion.

Motion for Sanctions. The plaintiffs contended that it was obvious that the documents were relevant and that Dunkin’ Donuts acted in bad faith by withholding them. They argued that, had they known about the documents, they would have jettisoned claims by the corporate plaintiffs which would have resulted in a simpler case that would have moved more quickly to conclusion. They also argued that they would have made different choices about: (1) whether to seek a limited bench trial or arbitration; (2) whether to rely on Glassman’s testimony; and (3) how to approach settlement negotiations and trial preparation.

After Dunkin’ Donuts filed its opposition to the motion, the plaintiffs replied with a renewed motion for sanctions in which they acknowledged that many of the requested sanctions were rendered moot by the settlement of the individual plaintiff’s claims. In their renewed motion, the plaintiffs: (1) sought to preclude the franchisor from submitting a bill of costs; and (2) require the franchisor to take certain steps to either confirm that there were no more relevant withheld documents or to produce any relevant documents not yet produced.

The court once again concluded that Dunkin’ was not substantially justified in withholding the documents because they related directly to the corporate plaintiffs’ relationship with Dunkin’. The court did not agree that the plaintiffs’ years of trial preparation and strategy would have been fundamentally changed if they had known about the documents but, nevertheless, determined that withholding the documents was not harmless.

The court, however, was not persuaded that Dunkin’ Donuts acted in bad faith by withholding the documents. Because the court concluded that the franchisor did not act in bad faith by withholding the documents, it was satisfied that the sanction of excluding the documents, and the topics they discussed, at trial was sufficient punishment.

The case is No. 09-5484

Attorneys: Stephen T. Carpenito (Law Offices of Stephen T. Carpenito) for Harold Selzer. Craig R. Tractenberg (Nixon Peabody LLP) for Dunkin' Donuts Inc.

Companies: Dunkin' Donuts Inc.

Cases: FranchisingDistribution PennsylvaniaNews