Irwin Barkan's former franchise in Burrillville, RI, Photo/Barkan

PROVIDENCE, R.I. – After five years of legal wrangling with franchisor Dunkin’ Donuts, accumulating nearly $2 million in legal fees, and placing six franchised shops into bankruptcy after desperate attempts to sell them, Irwin J Barkan has been more than ready for his day in court. For the past year, he has been awaiting a judge to allow his case to go to a jury trial.

Last week he got his wish.

On September 15, Judge Ronald R. Lagueux issued an order denying Dunkin’ Donut’s motion for summary judgment based on the magistrate judge’s May 26 report and recommendation. He ruled that Barkan’s company D&D Barkan and his five separate entities would have a jury trial date set after pre-trial memorandums were submitted within the 30-day deadline from the date of his order. He also ruled that the testimony of Barkan’s substitute damage expert could be allowed in the case after his original expert died suddenly last year.

Barkan first entered into five franchise agreements with Dunkin’ Donuts in 2001-2002, to open five stores in Providence. Between that time and 2003 he also entered into several store development agreements (SDAs) to open additional shops within a specific time period. But Barkan experienced development disputes with Dunkin’ from the get go and his stores steadily operated at a loss, throwing him into financial stress. He then sought the help of Dunkin’ to refinance his debt through The CIT Group, a lender associated with Dunkin’ corporate.  After negotiations advanced, on June 15, 2004 the parties entered into a settlement agreement under terms that Dunkin’ would help Barkan refinance and amend his development agreements, postponing the dates by which he had to meet certain payments and store-opening obligations. In exchange, Barkan agreed to release any claims against Dunkin’ and to remain current on all obligations under the settlement agreement.  

However, after signing the new settlement agreement, things went badly astray. Dunkin’ informed Barkan that CIT would not refinance his debt. But Barkan alleges that what really happened was that CIT  rejected the refinancing because Dunkin’ employees did not provide the lender with the proper paperwork to evaluate the application, according to what a CIT employee told Barkan. In an effort to resolve this new set of financial difficulties, Barkan tried to sell his existing stores, along with the franchise agreements and related assets. But the sale did not happen and in January 2005 Dunkin’ informed him that he and his companies were in default due to his failure to make over $1 million in payments and threatened to terminate his agreements.

Barkan filed his original lawsuit against Dunkin’ on February 8, 2005, alleging the company had failed to make a good faith attempt to arrange refinancing, causing failure to his business. He also received a temporary injunction. Because Dunkin’ had sent out termination notices with a seven-day cure period on February 14, 2005, Barkan plaintiffs filed bankruptcy petitions for the stores in strategic Chapter 11 reorganization. Barkan did not file for personal bankruptcy and paid off creditors.  

Magistrate Judge’s Report and Recommendation

Judge Almond’s report tracked the negotiations and activities of Barkan, Dunkin’ and CIT, during three pertinent time periods: leading up to June 2004 settlement agreement; after the execution of that agreement and before CIT denied Barkan’s request for loan restructuring; and the aftermath, when Barkan’s businesses finally floundered. The judge stated that the essence of the dispute between the parties was whether Dunkin’ defendants fulfill their contractual obligation to “work with” CIT to arrange refinancing for Barkan and his entities.

Judge Almond also tracked the “murky” events of the various transactions, and characterized the conflicting allegations as a “factual quagmire”. He surmised, “Because these factual controversies could be reasonably resolved in favor of either party, summary judgment is not appropriate at this state of the proceedings.”

But Dunkin’s objection to the magistrate judge’s ruling, takes issue with the statement that Dunkin’ failed to request the financing from CIT, arguing that it has no evidentiary support and is contradicted by overwhelming evidence that Barkan himself participated in the flow of information to CIT and is contradicted by Barkan’s own testimony. It also states that the judge incorrectly accepted as creating a genuine issue of material fact the statement made that Dunkin’ failed to get the necessary paperwork in, without any acknowledgment that the employee swore out-of-court she never said it.

Dunkin’ also declares that the judge’s report has further missteps and concludes, “The Magistrate Judge failed to “pierce the pleadings and to assess the proof in order to see whether there is genuine need for trial.” And it adds, the report “finds issues of material fact where none exists by relying erroneously on inadmissible hearsay and on allegations wholly lacking factual support.”

In his court response to Dunkin’s filed objection to the decision, Barkan said that the magistrate judge got it correctly. “Not surprisingly, Magistrate Judge Almond found that whether Dunkin’ complied with the language which required it to work with’ Barkan to obtain refinancing with CIT ‘is rife with factual disputes.’” Barkan’s response emphasizes that the judge’s  use of the word “rife” was not an accident, saying, “Magistrate Judge Almond wanted to make it crystal clear to the parties that genuine issues of material fact are ‘prevalent, widespread, abundant, plentiful and numerous’ throughout the summary judgment record.”

During the legal disputes, Dunkin’ had portrayed Barkan as a failed business owner, showing he had to put his stores in bankruptcy. Dunkin’ attorney Jeffrey S Brenner, Nixon Peabody, was also quoted in a court transcript that Barkan plaintiffs’ tried to portray themselves as great operators, but said, “. . . there’s no evidence that he was a successful operator and that the bankruptcy of these stores is a much better barometer of Barkan’s ability to run a Dunkin’ network.”

But in his affidavit Barkan had explained, “Dunkin’ sent me termination notices for the store franchises, which forced me to seek bankruptcy protection.” After the ruling came down, Barkan said he was tired of being called a bad businessman by Dunkin’, but would only say, “I look forward to the day I get to debunk Dunkin’ defendants’ position that I was the one who didn’t know what I was doing.” 

Last year, Barkan stated that it was Dunkin’s intentional effort to eliminate him from the system while restructuring his debt in developing new shops.  Dunkin’ has been accused in various lawsuits of trying to squeeze out the small “mom and pop” store operators, only to resell them to large multi-unit franchisees. 

Senior Judge Lagueux stated in his decision last week, “The Settlement Agreement, as with all contracts governed by Rhode Island law, obligates both parties to fulfill its terms in good faith, using diligence and their best efforts.”  He said the notion of the implied "best efforts” term is particularly significant in contracts, such as the settlement agreement, that “require a party merely to seek a specific result rather than promising to achieve one.”

The judge concluded, “If the factual disputes between the parties are resolved in Plaintiff's’ favor, Plaintiffs may be able to demonstrate the Defendants failed to use their best efforts in fulfilling terms of the Settlement Agreement.”

Arthur Pressman, Nixon Peabody, attorney representing Dunkin’ Brands in the case, did not return telephone call or email requests.

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