Manjit Singh Sarna v. GNC Franchising, Inc.
Published: Jan. 1, 2000 | Result Date: Dec. 31, 1999 | Filing Date: Jan. 1, 1900 |Case number: 713823 Bench Verdict – $429,872
Judge
Court
San Diego Superior
Attorneys
Plaintiff
Jon B. Miller
(Miller Johnson Law)
Defendant
Howard A. Kroll
(Tucker Ellis LLP)
Experts
Plaintiff
Howard Bassuk
(technical)
Cheri L. Carroll
(technical)
James H. West
(technical)
Defendant
George E. Miller
(technical)
Edward Kushell
(technical)
Michael D. Feinstein
(technical)
Anthony V. Aaron
(technical)
Facts
In 1991, plaintiff Manjit Singh Sarna, was interested in becoming a franchisee of the defendant GNC Franchising, Inc. a Pittsburg-based specialty retailer of nutritional supplements and other health and self-care products. As part of the oral written presentation to Sarna, GNC represented that any franchise awarded would be afforded a "protected territory." The protected territory would allow Sarna, a right of first refusal on any store to be opened within a specified area. Although GNC's oral representations were that the procted territory would consist of a three- to five-mile radius measured froms Sarna's franchised store, the written advertisement materials simply confirmed that a protected territory would be provided. On Sept. 6, 1991, Sarna was awarded a franchise on an existing GNC store on Fifth Avenue in downtown in San Diego. Sarna paid $150,000 (payable over five years) for the store's goodwill and inventory and paid a $17,500 franchise fee to GNC. The franchise award was for ten years, plus two additional five-year renewal options. Before Sarna was awarded his franchise, GNC had made a decision it would open a company-owned GNC store at the Horton Plaza shopping center, only two blocks away from the Fifth Avenue store. This fact was not disclosed to Sarna. GNC's demographic studies had also shown that the opening of a Horton Plaza store would have an immediate and significant adverse effect (estimated at 50 percent reduction in gross profits) on the income of Sarna's store. In 1996, GNC sent a letter to Sarna advising him of the company's decision to open a Horton Plaza store and offering Sarna the opportunity to operate this store. Sarna confirmed his interest in operating the Horton Plaza store. However, GNC withdrew its offer to plaintiff, stating that the size of the shopping center required the new store to be company-owned. Within four days after withdrawing its offer as to the Horton Plaza store, GNC demanded that Sarna immediately commence a $100,000 renovation of his 1,500 square foot store or face revocation of his franchise rights. GNC then opened a GNC Superstore in Horton Plaza, which resulted in an immediate 50 percent reduction in gross profits at Sarna's store. The plaintiff brought this action aganist the defendant based on ____________ theories of recovery.
Settlement Discussions
The plaintiff's initial demand was $750,000. The defendant initially offered $75,000 to repurchase the rights of the Fifth Avenue store, including inventory.
Damages
The plaintiff claimed damages for lost profits through the year 2011, the final option year under the Franchise Agreement.The plaintiff also claimed attorney's fees under the terms of the Franchise Agreement.
Other Information
The verdict was reached approximately one year after the case was filed. The parties appeared at five separate settlement conferences in the matter. On Oct. 9, 1998, a settlement was placed on the record whereby plaintiff was to relinquish his rights as a franchisee in exchange for payment of $400,000 cash, forgiveness of an unrelated obligation plaintiff owed to GNC in the amount of $18,577.16, and reimbursement for all viable GNC invetory in the store. The total value of the settlement package was approximtely $450,000. GNC later attempted to have the settlement "set aside" contending it made an "erroneous assumption" that lost profits should be calculated through the year 2011 (i.e., the end of plaintiff's options under the Franchise Agreement) rather than the year 2007 (the final option year on the lease for the store). GNC motion for relief from settlement was denied on Nov. 11, 1998. Sarna's motion to render the settlement into a judgment was granted on Dec. 18, 1998. Judgment was entered on Dec. 31, 1998, for the full amount of the settlement, plus pre-judgment interest of $4,475.26. A mandatory settlement conference was held on Oct. 9, 1998 before the Hon. Sheridan E. Reed. GNC subsequently refused to honor settlement.
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