Coffee Beanery Counsel Wins on Statute of Limitations

BALTIMORE, Maryland – Yesterday, a federal judge ruled that claims brought by franchisees against Coffee Beanery attorneys be dismissed, ordering the file closed. Richard Welshans and Deborah Williams, through attorney Harry M. Rifkin, filed their complaint last March alleging their franchisor’s legal counsel knew that the franchise disclosure documents they received when purchasing their franchise violated Maryland state law. They allege that they have suffered damages as a result of the deficiencies in the Uniform Franchise Offering Circular (now referred to under new FTC guidelines as the Franchise Disclosure Document) presented to them by Coffee Beanery, and they are seeking recovery for alleged negligent misrepresentation and fraudulent inducement, in purchasing their franchise.

The couple has been engaged in litigation and arbitration with Coffee Beanery for over five years.

U.S. District Judge Andre M. Davis ordered that the motion to dismiss filed on May 12 by Paul R. Fransway and his law firm, Pear, Sperling, Eggan & Daniels, PC, is granted and dismissed with prejudice, making this statement in her memorandum to counsel:

“The simple, straightforward issue presented is whether the gloss placed on the three year statute of limitations by the “discovery rule” tolls the accrual of a cause of action until a plaintiff discovers the identity of an additional alleged  tortfeasor  (here, the lawyers who represented the principal alleged tortfeasor).”

But in even simpler terms she explained that a person who knows he has been injured has a duty to investigate and discover the identity of the tortfeasor within the statutory time constraints. She said, “While there may be some circumstances in which the facts comprising a cause of action are inextricably intertwined with the facts identifying the tortfeasor . . .  as a matter of law, this is not such a case.”

Coffee Beanery’s counsel asserted that the complaint filed by Welshans and Williams is barred by the applicable statute of limitations.  They also claim Richard Welshans lacks standing to sue and the Maryland court lacks subject matter jurisdiction over his claim because the claim is property of his bankruptcy estate.  They quote the Maryland Code:

A civil action at law shall be filed within three years from the date it accrues unless some other provision of the Code provides a different period of time within which an action shall be commenced.

Counsel for The Coffee Beanery gave a timeline of events showing that the franchisees had retained at least two attorneys to investigate and pursue their claims arising from the alleged deficiencies in the disclosure documents in 2005, and that they had filed two claims seeking damages that year, proving their complaint should be barred under the limitations. They further declare that the negligent misrepresentation should also be dismissed because the franchisees lack standing under Maryland law as non-clients of Pear, Sperling and Fransway to pursue such a claim arising from the legal services they provided to Coffee Beanery. They assert that the franchisees’ claim for fraudulent inducement should also be dismissed for substantive reasons which exist independent of the statute of limitations.

Rifkin and the Franchise and Business Law Group filed their memorandum in opposition of the motion to dismiss last week stating their clients do have standing to assert their claims against Coffee Beanery counsel. Rifkin contends that the franchisees could not have been aware that the law firm was responsible for the wrongful acts rather than their client. Rifkin states, “It was not until Joanne Shaw testified at the arbitration hearing in January 2007 and laid the blame directly on defendants herein for any disclosure violations that plaintiffs became aware of or could have become aware of defendants involvement in and commission of wrongful acts.”

He further asserts that during the time from March 28, 2007, when the arbitrator ruled against his clients in their lawsuit against Coffee Beanery and its senior executives for the false and fraudulent misrepresentations and omissions in the UFOC prepared by Fransway and his firm until March 2, 2009, at which time the Sixth Circuit issued its mandate vacating the arbitration award, limitations were tolled. He says that the arbitration award bars the claim they asserted.

Regarding the fraudulent inducement allegations against Coffee Beanery counsel, Rifkin states that their complaint gives extensive detail of the claims and should not be dismissed. Fransway, as a shareholder of the Pear Sperling firm, directed the preparation of the franchise offering circular for The Coffee Beanery, Ltd. and decided what should be included in it. When it was delivered to the Welshans in 2003 by the franchisor for the State of Maryland, they did not know it was prepared by Fransway. Again, Rifkin claims the Coffee Beanery counsel knew it omitted Kevin Shaw’s felony conviction for grand larceny as well as other pertinent information, and that it violated Maryland law. He states the franchisees relied on that information, to their detriment, in purchasing their franchise. 

Kathleen Howard Meredith, Iliff & Meredith, PC, representing Fransway and Pear Sperling, did not comment on the litigation except to point to the judge’s order and letter memorandum.

Regarding the court order, Rifkin stated, “We haven’t made a decision on what we are going to do with that yet.  We will make a decision in due time. But is clear to us that Pear, Sperling acted illegally and improperly, and if they are going to get cover under the statute of limitations, obviously that is going to be court decided.  Now we will consider our position. If we decide to appeal, it’s a matter of application of resources.”

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