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BALTIMORE – After a six-year legal battle with Coffee Beanery Ltd., franchisees Deborah Williams and Richard Welshans now have a court order allowing them to reopen their case in Maryland. They will also amend their complaint on their racketeering claim, which the judge threw out from their current petition.
In hearing the decision, Williams said, “Finally, we will have the opportunity to have a jury of our peers apply the law. Going forward, we are also confident in re-filing our RICO claim noting the judge’s constructive opinion.”
In his court memorandum, US District Judge William M. Nickerson prefaced his decision stating, “The attempted resolution of the dispute underlying this action has a long and somewhat complex history.” The dispute has been the subject of an eleven-day arbitration in Michigan and has generated judicial opinions from this Court, the United States District Court for the Eastern District of Michigan, the Sixth Circuit Court of Appeals and, most recently, the Fourth Circuit Court of Appeals.
Judge Nickerson said the case is presently before the District Court of Maryland on remand from the Fourth Circuit. While there are six pending motions, the judge said there are just two primary issues presented: whether his court or the court of Eastern District of Michigan is the proper venue; and whether the franchisees can amend their complaint to add a new cause of action.
With a thorough discussion of the motions at hand, Judge Nickerson issued his order and memorandum.
The judge denied franchisor Coffee Beanery’s motions to dismiss the case and/or to transfer the litigation back to the state of Michigan where it is headquartered. Although he granted the franchisees the right to amend their complaint, the judge ruled that the racketeering claim be stricken from their current petition.
The franchisees had first amended their complaint in April 2011, inserting the RICO (Racketeer Influenced and Corrupt Organization) count to correct and amend some of the factual allegations in their original complaint. The judge’s order acknowledges that the franchisees first learned facts supporting the RICO claim through the arbitration process back in 2008.
Coffee Beanery opposed the franchisees amending the complaint so many years after the original complaint. They argued that their claims have already been fully vetted in arbitration. They assert that adding a RICO claim would “severely prejudice” the case. But the judge’s ruling states that relying on the “full vetting” that occurred in arbitration completely ignores the fact that the award that came out of arbitration was vacated. He states, “While six years may have passed since this action was first filed, it essentially stands at square one.”
Harry Rifkin, attorney for the Maryland franchise owners, said the franchisees were pleased with the decision, even though the judge did strike their racketeering claim in the current complaint. “We believe there are ample facts that we can show that would establish RICO. And we do intend to file a motion for leave to allow the second amended complaint and put a reformulated RICO claim in it. We will insert the additional allegations to conform with what the judge said in his order regarding RICO.
Rifkin was also pleased to see the judge’s opinion on another issue. “When Coffee Beanery attorneys argued that the statutes of limitations had run out on RICO allegations, the judge didn’t buy it. He said the racketeering claim is not time barred because it relates back to their original complaint.” While the RICO statute does not contain an express statute of limitations, Judge Nickerson stated that the Supreme Court had established a four-year period under the act. Rifkin touted, “So, it is timely filed.”
Coffee Beanery also argued that the franchisees failed to state a valid RICO claim because the franchisees have not properly defined an “enterprise” under RICO. The order states that The Coffee Beanery cannot be part of an “enterprise” when it is already the “person” whose behavior the act is designed to punish. “The complaint clearly identifies The Coffee Beanery both as a “person” whose racketeering activity caused them harm. But now going forward, Rifkin said they will have to elect an “enterprise” separate and distinct from the entity. But he said it doesn’t have to be a formal entity, it can be a group of people.
Another element of RICO requirements is that the franchisees must identify in more detail other acts of wire and mail fraud within a ten-year period, and to prove there was a pattern of fraud by the franchisor. Rifkin said that was not a problem. “We can probably identify at least twenty other acts involving franchisees of The Coffee Beanery showing how they used mail service, email, and other electronic means that fit the requirements.” He said they were retaining a RICO expert to assist them in filing a second amended complaint. The judge will then have to determine if the amended RICO claim meets the requirements he set out in his memorandum order.
Karl Fink of Pears Sperling Eggan & Daniels, representing The Coffee Beanery, declined to make any comments regarding this latest order. Owner and CEO Joanne Shaw did not return a phone call to be interviewed.
Paul Bland, senior attorney for Public Justice, who defends cases for consumers, employees and other whistleblowers, has been a close supporter of the franchisees through their litigation. In hearing the decision he stated, "We have fought through a wall of unfairness that incredibly few people ever successfully navigate. This is really an accomplishment for the human spirit.”
|Memorandum Opinion in Coffee Beanery10-26-11.pdf||52.25 KB|
|Order Judge Nickerson 10-26-11.pdf||20.49 KB|