Opinion
Civil Action No. 99-5281 (JBS)
Filed: March 31, 2000
MEMORANDUM OPINION
In this case, plaintiffs Mark R. Kazmierski, individually and Cherry Springs, Inc., d/b/a GNC Store #6441 and Cherry Springs II, d/b/a GNC Store #6835 (herein referred to as plaintiffs or Kazmierski) bring causes of action against defendants General Nutrition Companies, Inc, General Nutrition Corporation, GNC Franchising, Inc., (collectively referred to as "defendants" or GNC), Rite Aid Corp. ("Rite Aid"), and John Does 1-10, based on acts which are alleged to constitute breach of a franchise contract, fraud, and tortious interference with prospective economic advantage, among others. In an Opinion and Order dated February 9, 2000, this Court discussed defendant GNC's motion to dismiss portions of the complaint, granting it in part and denying it in part, such that plaintiffs may not pursue their breach of contract claim in Count I on the basis of alleged false demographic information, failure to provide inventory, or tortious interference with prospective economic advantage, and such that Count VI for antitrust violations was dismissed. Currently before the Court is defendant Rite Aid's motion to dismiss Count VIII of the complaint, which, for reasons discussed below, this Court will consider as a motion for summary judgment. Because this Court finds that none of plaintiff's contractual or otherwise protectable rights of which Rite Aid should have been aware were breached, this Court will grant summary judgment on Count VIII in favor of defendant Rite Aid. The case will otherwise continue against defendant GNC to the extent allowed by this Court's February 9, 2000 Opinion and Order.
1. Background
Defendant General Nutrition Companies, Inc. ("GNC"), a Delaware Corporation with its principal place of business in Pittsburgh, Pennsylvania, and licensed to do business in New Jersey, is a nationwide speciality retailer of vitamins and mineral supplements, sport nutrition products, and herbs and a provider of personal care, fitness and other health related products. General Nutrition Corporation, GNC's subsidiary, operates stores throughout the United States where these products are sold. GNC Franchising, Inc., another GNC subsidiary, awards franchises to operate GNC stores, including in New Jersey. GNC generates revenues and profits for itself through direct sales in company-owned stores, as well as through sales to franchisees as wholesale prices, royalties on franchisees' retail sales, license fees, sales of stores, fixtures and graphic materials, and various other means. Plaintiffs Kazmierski owns plaintiffs Cherry Springs, Inc. and Cherry Springs II, Inc., GNC franchises in New Jersey.
Although plaintiffs have separate franchise agreements with GNC for each of the two stores, the language of the contracts are largely the same. Both contracts provide that
For a period of two years, Franchisor, shall not itself operate, nor grant a franchise for the operation of, another General Nutrition Center under the System within the Protected Territory, as described on page 1. If after expiration of such two year period Franchisor identifies within the Protected Territory a site for development of a franchised GNC store which is (1) a new available site or an existing company-owned GNC store; (2) a transfer of an existing franchised GNC store repurchased by or made available to Franchisor; or (3) an existing independent store that does not convert to a GNC store but is made available to Franchisor, then Franchisor shall grant to Franchisee the right and option to franchise such site by providing to Franchisee a written notice and a completed agreement or Development Agreement for such site along with Franchisor's then current Uniform Franchise Offering Circular ("UFOC"). To exercise its right and option to franchise such site, Franchisee must execute the agreement or Development Agreement, UFOC receipt and return a the agreement and receipt to Franchisor together with the then-current Initial Franchise Fee or Development Fee on or before expiration of thirty (30) days from receipt of the notice. If Franchisee does not exercise its right to elect within such period, or waives its right to elect within such period, then Franchisor shall be free to develop such site or to grant it to another party, which may be Franchisor's affiliate, and Franchisee's right and option to such site shall expire and be of no further force or effect.
(Singer Decl. Exs. A B, § II, ¶¶ I.C.) These contracts further provide that
[f]ranchisor retains the right, among others, on any terms and conditions Franchisor deems advisable, and without granting Franchisee any rights therein, (i) to use, and to license others to use, the System and Proprietary Marks for the operation of General Nutrition Centers at any location outside of the Protected Territory; (ii) to sell and distribute, directly or indirectly, any goods or services, including, without limitation, GNC Brand Vitamins under the Proprietary Marks or any other proprietary marks to business or individual consumers located within or outside the Protected Territory, through the use of direct mail, mail order, Internet, catalog sales or any other similar method and (iii) to use and license the use of other proprietary marks in connection with the operation of retail vitamin, health food, nutrition, or fitness stores which are the same as, similar to, or different from the Franchised Business, and which may be located at any location; provided, however, that such stores shall not carry or offer for sale GNC Brand Vitamins if located within the Protected Territory. . . .
(Singer Decl. Exs. A B, § Phase II, ¶¶ I.D.) Both contracts define the Protected Territory as areas "having a radius of two (2) miles from the entrance of the franchised business, excluding currently operating GNC company owned or franchised stores or stores currently under Franchise, Development or Lease Obligation." (Singer Decl. Ex. A, Addendum B; Defendants' Ex. B, p. 1.)
The complaint implies that defendant Rite Aid is selling GNC Brand vitamins in its stores within the Protected Territory. However, in their brief opposing Rite Aid's motion and in argument to the Court in an informal telephone conference on March 28, 2000, plaintiffs clarified this assertion. Rather than selling GNC Brand vitamins, plaintiffs say, Rite Aid is selling vitamins under the name PharmAssure which are identical to the vitamins sold in plaintiffs' stores, except under a different name. In support of this contention, plaintiffs attach a copy of a press release dated January 7, 1999 announcing Rite Aid's alliance with GNC and Rite Aid's sale of PharmAssure products, as well as excerpts from GNC's web page, which openly markets the PharmAssure brand. (Pls.' Exs. B C.) Plaintiffs also submitted the Affidavit of Mark Kazmierski (dated February 7, 2000) which describes his factual assertions about the offending products in Rite Aid's stores, namely the PharmAssure vitamin, mineral, and nutritional supplements. (Kazmierski Aff. ¶¶ 3-6.) He described finding the PharmAssure products in the two Rite Aid stores (in Voorhees and Mt. Laurel). (Id. at ¶ 6.) He found the PharmAssure products to be identical to the GNC Brand products he sells in his GNC franchise stores. (Id.) There is no assertion that PharmAssure products bear the GNC Brand. Plaintiffs' theory of Count VIII, then, is that Rite Aid tortiously interfered with their contractual relations and economic advantage by "selling GNC items under another name," namely, PharmAssure. (Pls.' Br. at 8.)
On February 24, 2000, Rite Aid filed the instant motion to dismiss Count VIII, the only count of the complaint brought against it, attaching copies of the relevant agreements between plaintiffs and GNC and between GNC and Rite Aid, all of which were relied upon in the complaint. In responding to the motion, plaintiffs' brief made arguments based upon, and attached for this Court's consideration, matters outside of the pleadings. Defendant responded on the merits of the documents which plaintiffs attached. In a telephone conference call on March 28, 2000, this Court gave notice to the parties that it intended to convert the motion to one for summary judgment as permitted under Rule 12(b)(6), in order to consider these extra-pleading materials (as confirmed in the Court's letter to counsel dated March 28, 2000). For the reasons herein stated, this Court will grant summary judgment in favor of defendant Rite Aid and against plaintiffs.
2. Discussion
A court may grant summary judgment when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In deciding whether there is a disputed issue of material fact the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
Count VIII of the complaint alleges that defendant Rite Aid is liable for both tortious interference with contract and tortious interference with prospective economic advantage. The common law of New Jersey protects an individual's right to pursue a lawful business against unjustified interference. There are five elements to a claim of tortious interference with prospective economic advantage: (1) plaintiffs' existing or reasonable expectation of economic benefit or advantage; (2) defendant's knowledge of that expectancy; (3) defendant's wrongful, intentional interference with that expectancy; (4) causal connection between the interference and failure to receive the anticipated benefit; and (5) actual damages. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 751 (1989). The only difference between a tortious interference with prospective economic advantage claim and a tortious interference with contractual relations claim is simply the existence of a contract. See, e.g., Coast Cities Truck Sales, Inc. v. Navistar Intern. Transp. Co., 912 F. Supp. 747, 772 (D.N.J. 1995).
Under either tort, it is necessary that the plaintiffs "show some protectable right — a prospective economic or contractual relationship," MacDougall v. Weichert, 144 N.J. 380, 404 (1996), defendant's knowledge of that expectancy, and intentional, unjustified acts by the defendant that interfere with that right. In the instant case, plaintiffs contend that Rite Aid's contract with GNC, in the face of Rite Aid's alleged knowledge that its stores would be in plaintiffs' protected territories, interferes with plaintiffs' contractual rights to protected territories and reasonable prospects (based on that contractual right to a protected territory) of business from customers in the territories. Based on the evidence and arguments that plaintiffs themselves placed before this Court, however, plaintiffs cannot sustain these tort claims because the Rite Aid-GNC agreement did not interfere with any of plaintiffs' contractual rights or reasonable prospects of economic advantage.
Paragraph I.D.(iii) of the Kazmierski-GNC franchise agreements sets forth the exceptions to the grant of a "Protected Territory": GNC may sell any GNC Brand products outside of plaintiffs' protected territories; GNC may sell GNC Brand products to people in plaintiffs' protected territories so long as done by direct mail, internet, or similar means; and, most relevant for the purposes of this case, GNC may
use and license the use of other proprietary marks in connection with the operation of retail vitamin, health food, nutrition, or fitness stores which are the same as, similar to, or different from the Franchised Business, and which may be located at any location; provided, however, that such stores shall not carry or offer for sale GNC Brand Vitamins if located within the Protected Territory. . . . [Emphasis added.]Id. The Kazmierski-GNC franchise agreements were explicit in protecting Kazmierski from the prospect that other stores in the protected territory would sell GNC Brand products, referred to as the "proprietary marks." The term "proprietary marks" includes "the trademarks, trade names, service marks, logos and other indicia of origin, including but not limited to GNC and GENERAL NUTRITION CENTER marks, and such other trade names, service marks, and trademarks as are now designated (and may hereafter be designated by Franchisor) for use in connection with the System." (Kazmierski-GNC Franchise Agreement, Recitals, p. 2.) Paragraph I.D.(iii) distinguishes the brands that may be sold without regard to the protected territory by permitting "other proprietary marks," i.e., non-GNC Brand products.
As plaintiffs have pointed out, Rite Aid does not sell GNC Brand Vitamins. Rather, Rite Aid sells vitamins and nutritional supplements essentially identical to those sold at GNC stores, at a lower price, under the name PharmAssure. Plaintiffs' franchise agreements with GNC specifically allow GNC to enter into such an arrangement. Given that the Kazmierski-GNC franchise agreements leave GNC free to enter into an agreement such as the one it made with Rite Aid, it cannot be said that Rite Aid intentionally took actions which interfered with protected rights that it knew plaintiffs had.
Plaintiffs argue that this contract provision should be deemed invalid, or at least viewed with suspicion as a contract of adhesion. Even if this provision is later deemed invalid vis-a-vis GNC, however, Rite Aid would still not be liable for tortious interference, despite plaintiffs' novel argument that, as another large corporation, Rite Aid should not be entitled to rely on the validity of the agreement GNC reached with the plaintiffs. Rite Aid was not a party to the plaintiffs' agreements with GNC, nor is there any allegation that Rite Aid helped procure plaintiffs' entrance into the franchise agreements with GNC. Even if we assume, as plaintiffs allege, that Rite Aid knew about the Kazmierski-GNC franchise agreements and the terms of those agreements, as a true third-party outsider to the Kazmierski-GNC agreements, Rite Aid was entitled to rely upon the validity of the language of those franchise agreements. The Kazmierski-GNC franchise agreements, in Paragraph I.D.(iii), gave GNC the right to sell other brands of GNC's vitamin products, so long as the GNC Brand could not be sold within the Protected Territory. The PharmAssure label, then, is one of GNC's "other proprietary marks" which may be sold by others even within the protected area, pursuant to Paragraph I.D.(iii), supra. Given the contractual language which allowed for the sale of non-GNC Brand vitamins in the protected territory, this Court cannot find that Rite Aid knew that plaintiffs had a reasonable expectation of economic benefit of all vitamin customers in the protected territories. Therefore, this Court will grant summary judgment for defendant Rite Aid as to Count VIII of the complaint.
ORDER
This matter having come before the Court upon a motion by defendant Rite Aid Corp. for dismissal of Count VIII of the complaint, which this Court has considered as a motion for summary judgment pursuant to Fed.R.Civ.P. 56; and the Court having considered the parties' submissions and arguments in a phone conference of March 28, 2000; and for the reasons expressed in an Opinion of today's date;
IT IS this day of March, 2000, hereby
ORDERED that the motion by defendant Rite Aid Corp. be, and hereby is,GRANTED; and summary judgment shall be entered in favor of defendant Rite Aid Corp. and against plaintiffs.