Court Opinion

ID: 3009617
Source: CourtListenerOpinion
Date Created: 2015-10-13 20:46:15.132856+00
Date Added: 2024-06-11T18:03:36.878443
License: Public Domain

Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

8-4-1994

J&R Ice Cream Corp. v. California Smoothie
Licens. Corp.
Precedential or Non-Precedential:

Docket 93-5516, 93-5547

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994

Recommended Citation
"J&R Ice Cream Corp. v. California Smoothie Licens. Corp." (1994). 1994 Decisions. Paper 102.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/102

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1994 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
          UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT

             Nos. 93-5516 and 93-5547

         J & R ICE CREAM CORPORATION,
     a Corporation of the State of Florida

                                v.

   CALIFORNIA SMOOTHIE LICENSING CORPORATION,
   a Corporation of the State of New Jersey;
    CALIFORNIA SMOOTHIE INTERNATIONAL, INC.,
   a Corporation of the State of New Jersey,

                         Defendants/Third-Party
            Plaintiffs

                         v.

                JEFFREY K. BAUGHER;
                 RICHARD ROSSETTI,

                         Third-Party Defendants

   California Smoothie Licensing Corporation
  and California Smoothie International, Inc.,

                         Appellants-Cross-Appellees

           J & R Ice Cream Corporation,

                         Appellee-Cross-Appellant

On Appeal from the United States District Court
        for the District of New Jersey
            (D.C. Civ. No. 89-4638)

               Argued June 23, 1994

BEFORE:   GREENBERG and STAPLETON, Circuit Judges,
            and FARNAN, District Judge*

             (Filed:   August 4, 1994)

                         1
* Honorable Joseph J. Farnan, Jr., United States District Judge
for the District of Delaware, sitting by designation.

                                 Samuel B. Santo, Jr. (argued)
                                 Gregory B. Reilly
                                 Lowenstein, Sandler, Kohl,
                    Fisher & Boylan
                                 65 Livingston Avenue
                                 Roseland, N.J. 07068

                                        Attorneys for Appellants-
                                        Cross-Appellees
                                        California Smoothie
                                        Licensing Corp. and
                                        California Smoothie
                                        International, Inc.

                                   Brian P. Sullivan (argued)
                                   Jay M. Zuckerman
                                   Smith, Stratton, Wise, Heher &
                         Brennan
                                   600 College Road East
                                   Suite 4200
                                   Princeton, N.J. 08540

                                        Attorneys for Appellee-
                                        Cross-Appellant J & R
                                        Ice Cream Corporation

                       OPINION OF THE COURT

GREENBERG, Circuit Judge.

               I.   FACTUAL AND PROCEDURAL HISTORY

          A.   Factual History

          This appeal arises from an unsuccessful attempt of a

franchisee to operate a restaurant in Florida.    The appellants-

cross-appellees are California Smoothie International, Inc.

(CSI) and its wholly-owned subsidiary, California Smoothie

                                 2
Licensing Corporation (CSLC).   As a matter of convenience, we

sometimes will refer to CSI and CSLC singularly as "California

Smoothie".   CSI owns and operates California Smoothie

restaurants, and CSLC franchises California Smoothie restaurants.

The appellee-cross-appellant is J & R Ice Cream Corporation, the

franchisee, which Jeffrey Baugher and Richard Rossetti founded in

1984.   We note that in the business, restaurants sometimes are

called "stores" and thus we will use that term.

           We recite the facts taken from the perspective of J & R

Ice Cream as the verdict winner.    Baugher and Rossetti are

longtime friends who decided in the 1980's to open an ice cream

shop together.   Soon after incorporating J & R Ice Cream for that

purpose, they decided that to secure a desirable location and

financing, they would try to acquire a franchise.     They initiated

preliminary discussions with a number of franchisors, including

Frusen Gladje and Steve's Ice Cream.    However, during the summer

of 1985, Robert Keilt, a childhood acquaintance of the Baugher

and Rossetti families who was the president of CSI and CSLC,

learned from Baugher's brother that Baugher and Rossetti were

considering acquiring a franchise.     Subsequently, Joseph Kennedy,

vice president of franchising and development for CSLC, contacted

Baugher and suggested that they consider acquiring a California

Smoothie franchise in the Boca Town Center in Boca Raton,

Florida.   Baugher agreed to attend a meeting at California

Smoothie's headquarters in Clifton, New Jersey, to discuss that

possibility.   Prior to the meeting, California Smoothie sent

Baugher brochures regarding California Smoothie franchises which

                                3
contained representations concerning California Smoothie's

expertise in site selection.

          The first meeting regarding the acquisition of a

California Smoothie franchise by Baugher and Rossetti was on

August 8, 1985.    On that date, Baugher met first with Kennedy,

then with Keilt, and then with Kennedy again.   According to

Baugher, in their initial discussions Kennedy told him that the

average California Smoothie franchise accrued $300,000 in sales

per year, that a store at the Boca Town Center would produce at

least that level of sales and probably more, and that all

existing stores were earning between 18 and 20 percent profit.

Baugher then met with Keilt who reiterated Kennedy's

representations.   Finally, when Baugher met with Kennedy again

after speaking with Keilt, Kennedy gave Baugher documents

containing sales and profit figures for California Smoothie

company-owned stores earning substantial profits.    Some of the

documents contained a "disclaimer" stating that prospective

franchisees should not rely on the figures.   Nonetheless, Kennedy

told Baugher to ignore the disclaimer because it was merely a

legal requirement.   Kennedy also told Baugher that the

distribution of the documents containing sales and profit figures

to prospective franchisees violated FTC regulations and

California Smoothie policy.    Moreover, he gave Baugher CSLC's

Uniform Offering Circular, which included the following

statement:
               [t]he Franchisor does not disclose to
          prospective Franchisees the actual, average
          or projected sales, profits or earnings of

                                 4
          existing California Smoothie restaurants. In
          the event that a prospective Franchisee
          should obtain such information, it should not
          be relied upon, since any information
          pertaining to sales, profits, or earnings is
          intended for internal use only as a basis for
          the Franchisor's management decisions.

Uniform Offering Circular § 19, app. at 105.

          The second meeting regarding the acquisition of a

California Smoothie franchise by Baugher and Rossetti involved

Rossetti and California Smoothie representatives, James Skouras

and Gary Goddard.     Goddard assured Rossetti that he and Baugher

could match the profit and sales figures on certain documents

Goddard showed him.    There was a third meeting on August 26,

1985, when Baugher met with Keilt and Skouras who suggested that

Baugher consider the Pompano Fashion Square Shopping Center site

in Pompano Beach, Florida, for a franchise and indicated that a

store at that site would have sales in excess of $300,000 per

year.

          In September 1985, Baugher and Rossetti submitted

franchise applications to California Smoothie, expressing

interest in acquiring a franchise at the Boca Raton site.    On

November 22, 1985, California Smoothie notified Baugher and

Rossetti that their applications had been approved.    However,

shortly thereafter California Smoothie informed them that Keilt

had decided not to locate a "full-line-menu" restaurant at the

Boca Town Center due to the lease economics of the site.0
0
 California Smoothie Restaurants served items including pita
sandwiches, yogurt and blended fruit drinks. Their menus varied,
however, from full-line menus including the greatest variety of
products, to menus limited almost exclusively to the California
Smoothie blended fruit drinks.

                                  5
Meanwhile, in November 1985, CSI leased space in the food court

scheduled to open at the Pompano Fashion Square Shopping Center

some time in 1986.   In late December 1985, Keilt and Skouras

contacted Baugher and Rossetti and told them that a store at the

Pompano mall would produce at least $300,000 in sales per year.

Moreover, Keilt told Baugher that California Smoothie had

conducted a full investigation of the Pompano mall site,

including studies of demographic information.

          Baugher and Rossetti retained an accountant, Thomas

Maniscalo, to evaluate the Pompano mall site and to help them get

financing should they choose to acquire a California Smoothie

franchise.   Maniscalo had several conversations with Keilt and

another representative of California Smoothie, who indicated to

him the level of gross sales and expenses associated with a

franchise.   In these discussions, the California Smoothie

representatives understated the expenses and failed to mention

that certain California Smoothie restaurants were operating at a

loss or had closed due to financial failure.    Based on the

misleading information he received, Maniscalo advised Baugher and

Rossetti to acquire the Pompano mall California Smoothie

franchise.

          On January 28, 1986, Baugher and Rossetti entered into

a site selection agreement with CSLC, and made a $5,000

downpayment on CSLC's $25,000 franchise fee.    Subsequently, on

February 21, 1986, Baugher and Rossetti paid the remaining

$20,000 of the franchise fee and executed a franchise agreement

and a sublease entitling and obligating them to operate a

                                6
California Smoothie Restaurant at the site leased by CSI in the

food court at the Pompano mall.       Prior to executing these

agreements, Baugher and Rossetti expressed concern that the lease

negotiated by CSI with the Pompano mall's landlord did not

contain a cap on the common area maintenance fees.       Indeed,

California Smoothie's guidelines indicated that common area

maintenance fees for a food court should not exceed two per cent

of gross sales.    Keilt responded to their concern by stating that

he and the landlord had reached an oral agreement providing that

common area maintenance fees would not exceed three percent of

gross sales.

          Baugher and Rossetti opened their California Smoothie

restaurant at the Pompano mall on June 8, 1986, and on August 6,

1986, they assigned their rights in the franchise agreement to       J

& R Ice Cream.    By the end of 1986, the franchise was operating

at a loss.   Baugher and Rossetti complained to CSLC about their

gross sales and about the level of the food court maintenance

fees which the mall collected from food court tenants.0      These

fees totaled more than the promised three percent of the

restaurant's gross sales.    After unsuccessfully seeking a

reduction in the fees from the agent representing the mall's

landlord, CSLC filed a lawsuit against the landlord and its agent

in a Florida state court, alleging that the agent had made

material misrepresentations to CSI during the lease negotiations.

0
 The mall's landlord assessed CSI for the food court maintenance
fees, and then CSI assessed Baugher and Rossetti for them
pursuant to the sublease.

                                  7
At that time, CSI began making reduced rent payments to the

landlord and, in turn, began collecting reduced rent payments

from J & R Ice Cream.

            However, in October 1988, when settlement negotiations

between CSI and the landlord proved unsuccessful, CSLC demanded

that J & R Ice Cream pay the full amount owed under the sublease,

including all past-due amounts.        But J & R Ice Cream refused to

pay the full amount due and continued to make reduced rent

payments.    J & R Ice Cream incurred losses in 1987, 1988, and

1989.    On November 6, 1989, J & R Ice Cream brought suit against

CSI and CSLC.    Subsequently, in December 1989, CSLC terminated J

& R Ice Cream's franchise, and in February 1990, J & R Ice Cream

gave CSLC notice of its intent to abandon the premises and cease

operations, and it did so by March 1990.

            B.   Procedural History

            As we have indicated, J & R Ice Cream filed the

complaint in this diversity of citizenship action on November 6,

1989.    The complaint alleged violations of the Florida Franchise

law, the Florida Business Opportunity Law, the Florida Deceptive

and Unfair Trade Practices Act, the New York Consumer Protection

from Deceptive Practices Act, and the New Jersey Consumer Fraud

Act.    See app. at 6-10, 12-15.   The complaint also contained an

equitable fraud count and a count alleging that California

Smoothie was negligent in its selection of the Pompano mall site

and its negotiation of the lease there.       Id. at 11-12, 15-17.      At

a settlement conference in early August 1991, the district court

                                   8
indicated that it would entertain choice-of-law motions, but not

motions for summary judgment.   Later that month, the parties

filed choice-of-law motions and ultimately the court ruled that

New Jersey law governed the action.   Thus, the claims under

Florida and New York law were dismissed.   In September 1992, the

parties consented to a jury trial before a magistrate judge.     The

trial began in the district court on May 3, 1993.   Before the

court submitted the case to the jury, J & R Ice Cream decided to

forego its equitable fraud claim, and thus the court submitted

only the New Jersey Consumer Fraud Act claim and the negligence

claim to the jury.

          On May 19, 1993, the jury found that CSI and CSLC

violated the New Jersey Consumer Fraud Act by: (1) representing

to J & R Ice Cream, without a reasonable basis in fact, that J &

R would accrue gross sales of no less than $250,000 in its first

year of operation at the Pompano location, and was likely to

accrue more than $300,000 in gross sales; (2) representing,

without a reasonable basis in fact, that they had acquired

expertise in selecting profitable locations for franchises and

had utilized that expertise in selecting the Pompano mall site;

and (3) representing, without a reasonable basis in fact, that

the food court common area maintenance fees at the Pompano mall

would not exceed three percent of gross sales.   Moreover, as

noted above, the jury also found that CSI and CSLC had been

negligent in the manner in which they selected the Pompano mall

location and in the manner in which they negotiated the terms of

the lease for that location.

                                9
             Based on its findings, the jury awarded J & R Ice Cream

$200,000 for California Smoothie's violations of the New Jersey

Consumer Fraud Act, and $55,000 for California Smoothie's

negligent conduct.    The $200,000 verdict was a lump sum which did

not distinguish among the liability theories under the Consumer

Fraud Act.    The court trebled the damages for the New Jersey

Consumer Fraud Act violations pursuant to N.J. Stat. Ann. § 56:8-

19 (West 1989), and, in a post-trial hearing, the court awarded J

& R Ice Cream $287,455.83 in attorney's fees and costs.    However,

the court struck the jury's award of $55,000 on the negligence

count and refused to award J & R Ice Cream prejudgment interest

on the verdict.    Thus, the total award to J & R Ice Cream as

reflected in the court's order of judgment, was $887,455.83.       CSI

and CSLC appeal from the judgment entered on July 20, 1993, on

the jury's verdict, and J & R Ice Cream cross-appeals from the

court's denial of prejudgment interest and its decision to strike

the jury's award of negligence damages.

                            II.   DISCUSSION

             A. An Overall View
             The district court's jurisdiction was based upon 28

U.S.C. § 1332.     Plaintiff J & R Ice Cream is a citizen of

Florida, with its principal place of business in that state, the

defendants CSI and CSLC are citizens of New Jersey with their

principal places of business in that state, and the amount in

                                   10
controversy exceeds $50,000.0   Our jurisdiction is based on 28

U.S.C. § 636(c)(3) and 28 U.S.C. § 1291 inasmuch as this is an

appeal from a final order of judgment in a trial presided over by

a magistrate judge pursuant to 28 U.S.C. § 636(c)(1).

          California Smoothie challenges the jury's verdict on

six grounds:   (1) that the court erred in admitting testimony by

unrelated former California Smoothie franchisees as to

misrepresentations California Smoothie made to them; (2) that the

court erred in applying the New Jersey Consumer Fraud Act to the

sale and acquisition of a franchise; (3) that the proof that

California Smoothie falsely represented that it had acquired

expertise in selecting profitable locations for franchises and

that it had utilized that expertise in selecting the Pompano mall

site did not establish a violation of the Consumer Fraud Act; (4)

that the evidence did not support the jury's finding that

California Smoothie represented to Baugher and Rossetti that

"they could expect gross sales of $250,000 and likely in excess

of $300,000";0 (5) that the court erred in admitting parol

0
 The complaint stated that CSLC had "a" principal place of
business in New Jersey, leaving open the possibility that it had
"its" principal place of business in Florida. Thus, the
complaint did not properly plead diversity jurisdiction. See
Hunt v. Acromed Corp., 961 F.2d 1079, 1080, 1082 n.7 (3d Cir.
1992). However, letters and supporting material submitted to
this court indicate that at the time the complaint was filed,
CSLC's principal place of business was in New Jersey. Therefore,
we regard the jurisdictional problem as cured. See 28 U.S.C.
§1653. Baugher and Rossetti, who were additional defendants on a
counterclaim, are citizens of New York and Florida, respectively.
0
 The quotation which we take from California Smoothie's brief is
a paraphrase of J & R Ice Cream's complaint and of an
interrogatory to the jury.

                                11
evidence of one of the three misrepresentations allegedly made by

California Smoothie; and (6) that the court erred in concluding

that California Smoothie had a duty to select a franchise site

and negotiate a lease for Baugher and Rossetti.

            For reasons which we set forth below, we conclude that

the district court abused its discretion by permitting J & R Ice

Cream to introduce the testimony by former California Smoothie

franchisees who were unrelated to J & R Ice Cream and its

founders.   Moreover, we find that the introduction of this

evidence was prejudicial with regard to the Consumer Fraud Act

count, a conclusion that standing alone would require a new trial

on that count.

            However, as we noted above, California Smoothie argues

that the Consumer Fraud Act does not apply to the sale and

acquisition of a franchise.   We agree.   Therefore, we will not

remand for a new trial on the Consumer Fraud Act count.     Rather,

we will remand the matter for entry of a judgment for California

Smoothie on that count.   Nevertheless, we will remand this case

to the district court for a hearing to determine whether J & R

Ice Cream is entitled to a new trial on its equitable fraud

claim, as J & R Ice Cream contended at oral argument before us

that it only abandoned this cause of action after learning that

the district court would not entertain motions for summary

judgment and after it reasonably concluded that California

Smoothie did not intend to challenge the Consumer Fraud Act's

                                 12
applicability to this case.0   If the district court agrees with

these factual contentions, it may deem it appropriate to

reinstate the equitable fraud claim.   We will reinstate the

jury's verdict against California Smoothie on the negligence

count, as the testimony by former California Smoothie franchisees

did not taint the judgment on this count, and the district court

was correct in concluding that California Smoothie had a duty to

select a franchise site and negotiate a lease for Baugher and

Rossetti.

            In its cross-appeal, J & R Ice Cream challenges the

district court's denial of prejudgment interest on the Consumer

Fraud Act damages and the court's decision to strike the jury's

award of negligence damages because they were duplicative of the

Consumer Fraud Act damages.    In light of our decision that the

district court's admission of testimony by former franchisees

requires reversal of the Consumer Fraud Act judgment and that the

0
 We recognize that in view of our conclusion that the Consumer
Fraud Act does not apply to the sale of a franchise that we
probably could avoid deciding the admissibility of the testimony
of the former franchisees. Nevertheless we reach that question
because the evidence issue raises an important question of
federal law which we think that we should decide. In light of
our decision, however, we need not reach California Smoothie's
claims: that the proof that California Smoothie falsely
represented that it had acquired expertise in selecting
profitable locations for franchises and that it had utilized that
expertise in selecting the Pompano mall site did not establish a
violation of the Consumer Fraud Act; that the evidence did not
support the jury's finding that California Smoothie represented
to Baugher and Rossetti that "they could expect gross sales of
$250,000 and likely in excess of $300,000"; and that the court
erred under New Jersey law in admitting parol evidence of one of
the three misrepresentations allegedly made by California
Smoothie. None of these claims raise important federal
questions.

                                 13
Consumer Fraud Act is inapplicable to the sale and acquisition of

a franchise, we need not reach these claims and we will dismiss

the cross-appeal as moot.0

          Instead, we will vacate the district court's order

striking the negligence damages and remand with instructions to

reinstate the negligence damages, enter a judgment for them, and

award prejudgment interest on these damages.   We follow this

course because the district court concluded that the damages

awarded on the negligence claim against California Smoothie

duplicated the damages awarded on the Consumer Fraud Act claim

against California Smoothie.   It reached this conclusion as it

reasoned that "the damages which would proximately flow from a

misrepresentation as to expertise in site selection and failure

to utilize that expertise properly [are] the same damages which

would flow from a negligence claim" based on California

Smoothie's alleged negligence in selecting the site.   See supp.

app. at 519.   For this reason, the district court refused to

enter judgment on the $55,000 awarded by the jury on the

0
 CSI and CSLC have filed proceedings under Chapter 11 of the
Bankruptcy Code but on November 29, 1993, they obtained an order
from the bankruptcy court permitting them to continue this
appeal. They contend that the order does not allow J & R Ice
Cream to prosecute its cross-appeal. We need not consider this
point because we are dismissing the cross-appeal. While we
recognize that we are requiring entry of a judgment in favor of J
& R Ice Cream on the negligence claim, we do not reach that
result by reversing on the cross-appeal. Rather, we are
remanding for entry of the judgment because we are reversing on
California Smoothie's appeal and a consequence of that reversal
is a reinstatement of the negligence verdict and the entry of a
judgment thereon. We do not regard that outcome as implicating
the automatic stay.

                                14
negligence count.   Id. at 520; app. at 42-43 (order of judgment).

Thus, the negligence damages should be reinstated because, based

on our decision, they no longer are duplicative.0

          Prejudgment interest should be allowed on the judgment

on the negligence claim pursuant to N.J. Ct. R. 4:42-11(b) which

provides that prejudgment interest shall be awarded in all but

"exceptional" circumstances.   In reaching this conclusion, we

have considered the district court's reasoning in disallowing

interest on the Consumer Fraud Act judgment:
               [u]nder the circumstances where a treble
          damage award is made to a prevailing
          plaintiff, . . . to additionally award
          prejudgment interest would in effect provide
          such a windfall and double recovery and this
          does indeed constitute exceptional
          circumstances.

               As noted by counsel for plaintiff, the
          purpose behind the rule is twofold; to
          encourage settlement and to make the
          plaintiff whole. In the situation where
          treble damages are awardable, the treble
          damages [are] more than adequate to make a
          plaintiff whole; and indeed the prospect of
          treble recovery is also more than adequate to
          make a defendant focus on settlement and
          encourage settlement.

See supp. app. at 522.   But based on our decision that J & R Ice

Cream is no longer entitled to treble damages, the district

court's reasoning is no longer applicable.   Thus, J & R Ice Cream

is entitled to prejudgment interest on the negligence damages

pursuant to the ordinary application of N.J. Ct. R. 4:42-11(b).

0
 Of course, if the district court grants J & R Ice Cream a new
trial on its equitable fraud claim and enters judgment against
California Smoothie on this claim, a portion of the relief on the
fraud claim may be duplicative of the negligence damages.

                                15
          B.    The Testimony from Former Franchisees

          California Smoothie objected to the admission of the

testimony of former California Smoothie franchisees on multiple

occasions.   See e.g., supp. app. at 13 (motion in limine), id. at

283 (prior to testimony of former franchisees), id. at 505

(charge conference), id. at 517-18 (post-trial motion).

Nevertheless, J & R Ice Cream argues that we should not address

California Smoothie's claim that the district court erred in

admitting this testimony.   In this regard, J & R Ice Cream

contends that even if the testimony was inadmissible for purposes

of its Consumer Fraud Act claim, California Smoothie is barred

from challenging the admission of this testimony on appeal,

because the evidence was admissible for purposes of its equitable

fraud claim and California Smoothie failed to request a limiting

or curative instruction after J & R Ice Cream voluntarily

dismissed its equitable fraud claim.   See br. at 23.   However,

the record indicates that California Smoothie continued to object

to the admission of the testimony after J & R Ice Cream dismissed

its equitable fraud claim, see supp. app. at 505 (charge
conference), that the district court continued to hold that the

testimony was admissible, id. at 505 (charge conference), 517-18

(post-trial motion), and that J & R Ice Cream capitalized on the

admission of the testimony by arguing in its closing that the

former franchisees's testimony regarding misrepresentations made

to them by California Smoothie was evidence that California

Smoothie made misrepresentations to Baugher and Rossetti, id. at

                                16
509.0   Thus, California Smoothie is not barred from challenging

the admission of this testimony on appeal.

           The district court allowed J & R Ice Cream to introduce

testimony by two former California Smoothie franchisees, Jean

Dunlop and Charles McRae, both of whom testified that California

Smoothie made representations to them regarding the sales and

profits a franchise would produce.   See id. at 280-355.   Although

California Smoothie objected to this testimony, the district

court ruled that it was admissible as evidence of "intent" and a

"common plan or scheme."   Id. at 283, 307, 517-18.   Subsequently,

during argument on the post-trial motions, the court stated that

"it became clear at the charge conference" that intent was not an

element of a Consumer Fraud Act violation, but it reiterated that

the testimony of the two former franchisees was admissible as

evidence of California's common plan or scheme or business

0
 Moreover, although J & R Ice Cream's brief refers to its non-
statutory fraud claim as a common law fraud claim, the complaint
identifies it as an equitable fraud claim. The testimony of the
former franchisees was inadmissible for purposes of J & R Ice
Cream's equitable fraud claim because although "[a] plaintiff
asserting a claim of legal fraud must show that the defendant
acted with scienter, . . . a plaintiff advancing a claim of
equitable fraud need not demonstrate scienter." Lightning Lube,
Inc. v. Witco Corp., 4 F.3d 1153, 1182-83 (3d Cir. 1993)
(citations omitted) (applying New Jersey law). Thus, for
purposes of J & R Ice Cream's equitable fraud claim, the
testimony of the former franchisees was not admissible as
evidence of California Smoothie's intent. Finally, our
discussion below concluding that the testimony was not admissible
as evidence of a "common plan" or "scheme" for purposes of the
Consumer Fraud Act claim applies with equal force to the
equitable fraud claim. Thus, J & R Ice Cream's contention that
the testimony of the former franchisees was admissible at the
time it was introduced because J & R Ice Cream was still
prosecuting its equitable fraud claim lacks merit.

                                17
practice of representing sales and profit figures to potential

franchisees.   Id. at 517.

          We review the district court's decision to admit

testimony by former California Smoothie franchisees regarding

California Smoothie's prior "bad acts" for abuse of discretion.

See United States v. Console, 13 F.3d 641, 659 (3d Cir. 1993),

cert. denied, 114 S. Ct. 1660 (1994).   As we indicated in Console,
13 F.3d at 659 (quoting United States v. Sampson, 980 F.2d 883,

886 (3d Cir. 1992)):
          [f]our guidelines set forth by the Supreme
          Court govern the admission of prior 'bad
          acts': '(1) the evidence must have a proper
          purpose under Rule 404(b); (2) it must be
          relevant under Rule 402; (3) its probative
          value must outweigh its prejudicial effect
          under Rule 403; and (4) the court must charge
          the jury to consider the evidence only for
          the limited purpose for which it is
          admitted.'

Rule 404(b) provides that:
          [e]vidence of other crimes, wrongs, or acts
          is not admissible to prove the character of a
          person in order to show action in conformity
          therewith. It may, however, be admissible
          for other purposes, such as proof of motive,
          opportunity, intent, preparation, plan,
          knowledge, identity, or absence of mistake or
          accident.

          The testimony given by Dunlop and McRae was not

admissible as evidence of "intent" because, as the district court

recognized subsequent to its initial ruling on the evidence,

intent is not an essential element of a Consumer Fraud Act

violation consisting of an affirmative act.   See Fenwick v. Kay

American Jeep, Inc., 371 A.2d 13, 16 (N.J. 1977); D'Ercole Sales,
Inc. v. Fruehauf Corp., 501 A.2d 990, 996 (N.J. Super. Ct. App.

                               18
Div. 1985).   There is no doubt that the alleged Consumer Fraud

Act violations in this case consist of affirmative

misrepresentations.

          Moreover, the testimony was not admissible as evidence

of a "common plan or scheme."

          Ordinarily, when courts speak of 'common plan

          or scheme,' they are referring to a situation

          in which the charged and the uncharged . . .

          [acts] are parts of a single series of

          events.     In this context, evidence that the

          defendant was involved in the uncharged . . .

          [act] may tend to show a motive for the

          charged . . . [act] and hence establish the

          commission of the . . . [act], the identity

          of the actor, or his intention.

Government of the Virgin Islands v. Pinney, 967 F.2d 912, 916 (3d

Cir. 1992) (citing Edward W. Cleary et al., McCormick on Evidence

§ 190, at 559 (3d ed. 1984)).    Alternatively a "common plan or

scheme" may consist of "incidents [that] were sufficiently

similar to earmark them as the handiwork of the same actor," and

thus constitute "'signature evidence'" of identity.        Id.0   "With

the possible exception of prosecutions for conspiracy, plan or

design is not an element of the offense; therefore, evidence that

0
 This method of proving identity through the use of other bad
acts is "sometimes labelled proof of 'modus operandi'" and
distinguished from the use of a common plan or scheme to prove
identity. See 22 Wright and Graham, Federal Practice and
Procedure § 5244, at 501 (1978).

                                  19
shows a plan must be relevant to some ultimate issue in the

case."    See 22 Wright and Graham, Federal Practice and Procedure

§ 5244, at 500-01 (1978).

           Dunlop and McRae testified that California Smoothie

made representations to them regarding the sales and profits they

would achieve if they acquired franchises.      This testimony was

not relevant to an ultimate issue in this case, such as motive,

identity or intent.   These issues were not in dispute.     See

Pinney, 967 F.2d at 917.    Furthermore, the testimony was not

germane to the negligence count.       Therefore, the evidence was

admitted for "exactly the purpose Rule 404(b) declared to be

improper," id., namely to establish the defendants' propensity to

commit the charged act.     See United States v. Jemal, No. 93-5172,

slip op. at 8 (3d Cir. June 21, 1994).      The district court

acknowledged that it admitted the former franchisees' testimony

for this purpose, stating: "in the context of this case, I

believe that it was proper to show that it was more likely that

representations of sales figures were made to . . . [J & R Ice

Cream] by demonstrating that the officials of California Smoothie

had a practice of making such representations."       See supp. app.
at 518.   Thus, the district court abused its discretion in

admitting this testimony for an improper purpose.

           Although J & R Ice Cream contends that the testimony

was harmless because it was cumulative and accounted for only

half an hour of a two-week trial, see br. at 28-29, we conclude

that the testimony was prejudicial because it portrayed

California Smoothie as an organization engaged in a large-scale

                                  20
scheme to defraud prospective franchisees by using

misrepresentations to persuade them to acquire franchises.0

Although the testimony of the former franchisees only addressed

representations made by California Smoothie regarding the sales

and profits that a franchise would produce, we are satisfied that

the testimony prejudiced California Smoothie on the two aspects

of the Consumer Fraud Act verdict which the testimony did not

address directly, the representations with respect to California

Smoothie's expertise in site selection and the representation

regarding the limitation on the maintenance charges.    We take

this view because we believe that the jury could have used the

highly prejudicial, indeed almost inflammatory evidence to

conclude that California Smoothie used misrepresentations in

multiple aspects of its sales efforts.   At the very least, we

cannot say with any confidence that it is highly probable that

the error did not substantially affect California Smoothie's

rights on all the Consumer Fraud Act issues.    See Lippay v.

Christos, 996 F.2d 1490, 1500 (3d Cir. 1993).    Thus, the district

court's abuse of discretion requires reversal of the judgment

against California Smoothie on the Consumer Fraud Act count.

0
 Moreover, as we noted above, J & R Ice Cream used the testimony
of the former franchisees to support this inference in its
closing argument, stating, "Did Mr. Keilt make representations to
them that they would make specific numbers, whether it be 320 to
350, which I believe was Miss Dunlop's testimony and I think Mr.
McRae would make $300,000. That's all that's relevant. From
that you can deduce that he probably made the same or similar
representations to Mr. Baugher and Mr. Rossetti." See supp. app.
at 509.

                               21
          The admission of this testimony does not, however,

require reversal of the judgment against California Smoothie on

the negligence count because the evidence of California

Smoothie's alleged misrepresentations was quite distinct from the

evidence supporting the jury's determination that California

Smoothie was negligent in its selection of a franchise site and

negotiation of a Pompano mall lease.   We also point out that

there was sufficient evidence supporting this determination.0

          C.   Applicability of the Consumer Fraud Act

          California Smoothie argues that the district court

erred in applying the New Jersey Consumer Fraud Act to the sale

and acquisition of a franchise because: (1) purchasers of a

franchise are not the "ordinary consumers" that the Act was

intended to protect, and (2) a sale of a franchise does not

qualify as either a sale of real estate or a sale of merchandise,

the only two types of transactions to which the Act applies.    J &

R Ice Cream answers that California Smoothie should be barred

from challenging the applicability of the New Jersey Consumer

Fraud Act to this case because "[t]he first time this issue was

raised was by way of post-trial motion."   See br. at 15.
          However, we are satisfied that California Smoothie

preserved its objection to the applicability of the Act.    As the

0
 Moreover, in determining that the district court was correct in
finding that California Smoothie assumed the duty to select a
franchise site and negotiate a lease for Baugher and Rossetti, we
do not rely on the evidence of California Smoothie's
misrepresentations to other former franchisees.

                               22
district court declined to entertain motions for summary

judgment, California Smoothie objected to the Act's application

to the case in its trial brief, see trial br. at 34 n.9, and

cited its trial brief as the basis for its motion for a judgment

as a matter of law at the conclusion of J & R Ice Cream's case.

Moreover, at the post-trial motions hearing, the district court

rejected on the merits California Smoothie's argument that the

Consumer Fraud Act improperly was applied to the case, stating to

counsel for J & R Ice Cream, "your waiver argument . . . is made

very clear.   I just, in fact, preferred to decide this on the

merits rather than dealing with the waiver issue."   Thus, its

treatment of the argument suggests that the district court did

not believe that California Smoothie had waived the argument. See

Griffiths v. CIGNA Corp., 988 F.2d 457, 468 n.8 (3d Cir.)

("because the district court acknowledged during oral argument on

the appellants [sic] post-trial motions that the 'contention

about the, but for charge, I think that was reasonably well

preserved' . . . , we will consider the appellants' exception to

the retaliatory discharge instruction on the merits"), cert.
denied, 114 S. Ct. 186 (1993); see also Lippay v. Christos, 996
F.2d at 1497 n.8 ("we are satisfied from our review of the record

that . . . [appellant] objected on the ground of hearsay at the

time of the testimony.   Furthermore, the district court noted in

its opinion denying . . . [appellant's] motion for a new trial

that although 'defendant's counsel objected somewhat belatedly to

                                23
the admission of this testimony, [he] nevertheless preserved his

objection on the record'").0

          The Consumer Fraud Act provides in relevant part that:
          [t]he act, use or employment by any person of
          any unconscionable commercial practice,
          deception, fraud, false pretense, false
          promise, misrepresentation, or the knowing
          concealment, suppression, or omission of any
          material fact with intent that others rely
          upon such concealment, suppression, or
          omission, in connection with the sale or
          advertisement of any merchandise or real
          estate, or with the subsequent performance of
          such person as aforesaid, whether or not any
          person has in fact been misled, deceived or
          damaged thereby, is declared to be an
          unlawful practice.

N.J. Stat. Ann. § 56:8-2 (West 1989).   The Act defines

"merchandise" to include "any objects, wares, goods, commodities,

services or anything offered, directly or indirectly to the

public for sale."   See N.J. Stat. Ann. § 56:8-1(c) (West 1989).

It defines "person" to include "any natural person or his legal

representative, partnership, corporation, company, trust,

business entity or association, and any agent, employee,
salesman, partner, officer, director, member, stockholder,

0
 We also point out that the district court's case management
techniques with respect to declining to entertain motions for
summary judgment may have interfered with California Smoothie's
ability to raise its objection to the applicability of the
Consumer Fraud Act. Furthermore, it is possible that inasmuch as
we are reversing the judgment on the Consumer Fraud Act claim
because the court erroneously admitted prejudicial evidence from
the former franchisees, California Smoothie might have been able
to raise the issue of the applicability of the Act on remand if
we ordered a new trial.

                                24
associate, trustee or cestuis que trustent thereof."   See N.J.

Stat. Ann. § 56:8-1(d) (West 1989).

           The parties have not cited any Supreme Court of New

Jersey cases addressing the application of the Act to the sale

and acquisition of franchises.   In fact, we are aware of only one

case, Morgan v. Air Brook Limousine, Inc., 510 A.2d 1197 (N.J.

Super. Ct. Law Div. 1986), which has addressed the question

explicitly.   Morgan involved an agreement between Air Brook

Limousine and Morgan, providing that Morgan would lease a

limousine from Air Brook and accept only limousine rides referred

to him by Air Brook.   Morgan later filed suit against Air Brook,

alleging inter alia, that Air Brook violated the Consumer Fraud

Act.   Air Brook moved for summary judgment, arguing that the Act

applied only to retail consumer sales or advertising and that a

franchise did not qualify as merchandise under the Act.

           However, the court rejected these arguments and held

that the Act applied to the agreement.   The court concluded that

because the Act's definition of "person" includes business

entities and the Act contains no "retail restriction" or

definition of the term "consumer," the "Act is not restricted to

retail consumer consumption transactions and its protective sweep

includes transactions in which a person, like Morgan, makes an

investment rather than a consumption purchase."   Morgan, id.     The

court also concluded that "[a]lthough the term 'franchise' is not

included within § 1(c)'s definition of 'merchandise,' it is

subsumed within the terms 'commodities', 'services' or 'anything

                                 25
offered, directly or indirectly to the public for sale.'"    Id. at

1204.

           We also consider a second inferior court case, Kugler

v. Koscot Interplanetary, Inc., 293 A.2d 682 (N.J. Super. Ct. Ch.

Div. 1972), which involved practices used by a cosmetics

manufacturer to recruit distributors for the cosmetics and to

promote the sale of distributorships.   The Koscot court held the

"referral or pyramid sales practice" employed by the cosmetics

manufacturer violated the Consumer Fraud Act as did the

misrepresentations made to prospective cosmetics distributors.

Id. at 691-92.   Thus, the Koscot court applied the Consumer Fraud

Act to the sale and acquisition of cosmetics distributorships.

However, the court did so without analysis of the definition of

"merchandise" under the Act or reference to the Act's underlying

purpose.

           We are exercising plenary review over the legal issue

of whether the Consumer Fraud Act is applicable.   Nonetheless,

"'in the absence of any indication that the highest state court

would rule otherwise,'" we must attribute "'significant weight'"

to the decisions by the lower state courts.    Nationwide Mut. Ins.
Co. v. Budd-Baldwin, 947 F.2d 1098, 1101 n.6 (3d Cir. 1991)

(quoting Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273-74

(3d Cir. 1985)).   In this case, however, we see many indications

that the Supreme Court of New Jersey would not adopt the

reasoning in Morgan or apply the result in Koscot, and thus we

reject a construction of the Consumer Fraud Act's definition of

"merchandise" that would include franchises.   See Dillinger v.

                                26
Caterpillar, Inc., 959 F.2d 430, 435 n.11 (3d Cir. 1992) ("In

deciding this case [under Pennsylvania law] we must give due

consideration to the decisional law of inferior state courts but

we need not give those decisions binding effect.    A decision of

'an intermediate appellate state court . . . is a datum for

ascertaining state law which is not to be disregarded by a

federal court unless it is convinced by other persuasive data

that the highest court of the state would decide otherwise'")

(quoting West v. American Telephone & Tel. Co., 311 U.S. 223,

237, 61 S. Ct. 179, 183 (1940)).    See also Blanding v.

Pennsylvania State Police, 12 F.3d 1303, 1306 (3d Cir. 1993).

          As the Supreme Court of New Jersey stated in Daaleman

v. Elizabethtown Gas Co., 390 A.2d 566, 568 (N.J. 1978), the

Consumer Fraud Act was "aimed basically at unlawful sales and

advertising practices designed to induce consumers to purchase

merchandise or real estate."   "[T]he legislative concern

[underlying the Act] was over sharp practices and dealings in the

marketing of merchandise and real estate whereby the consumer

could be victimized by being lured into a purchase through

fraudulent, deceptive or other similar kind of selling or

advertising practices."   Id. at 569.   Based on this understanding

of the purpose of the Act, the court in Daaleman held that the

Act did not apply to a privately owned public utility company's

alleged overstatement of the costs and quantity of gas it

purchased, although the overstatement was reflected in the

monthly bills sent to its customers.    We recognize that, as J & R

Ice Cream points out, this holding also was based on the court's

                                  27
conclusion that inasmuch as the utility operated under the

jurisdiction of the Board of Public Utility Commissioners of the

State of New Jersey (the "PUC"), "the subject matter of

plaintiff's complaint . . . [was] within the exclusive

jurisdiction of PUC."   Id. at 570.   This distinction, however,

does not undercut the Supreme Court's conclusion that the Act was

designed to protect consumers.

          Moreover, in an earlier case holding that house-to-

house sales of books at an "exorbitant price" was "a fraud . . .

within the contemplation" of the Consumer Fraud Act, Kugler v.

Romain, 279 A.2d 640, 653-54 (N.J. 1971), the Supreme Court cited

the following statement from the legislative history of the Act:
          [t]he purpose of this bill is to permit the
          Attorney General to combat the increasingly
          widespread practice of defrauding the
          consumer. The authority conferred will
          provide effective machinery to investigate
          and prohibit deceptive and fraudulent
          advertising and selling practices which have
          caused extensive damage to the public.

Id. at 653 (emphasis added).   This statement of the Act's purpose

and the Supreme Court's reading of the Act in Daaleman both

indicate that although the Consumer Fraud Act does not define the

term "consumer" or contain an explicit "retail restriction," it

was intended to protect persons engaging in "consumer"

transactions, not those acquiring businesses.

          The New Jersey Superior Court, Appellate Division,

adopted this reading of the Act in Neveroski v. Blair, 358 A.2d
473 (N.J. Super. Ct. App. Div. 1976), abrogated by Arroyo v.

Arnold-Baker & Assocs., Inc., 502 A.2d 106 (N.J. Super. Ct. Law

                                 28
Div. 1985) (abrogating Neveroski in light of the 1976 amendment

adding "the sale or advertisement of . . . real estate" to the

provisions of N.J. Stat. Ann. § 56:8-2 (West 1989)).   Neveroski

involved a suit by a home buyer against his real estate broker,

the seller of his home, and the termite exterminator, all of whom

allegedly concealed the termite damage at the home he purchased.

At the time of the sale, the Consumer Fraud Act did not include

the term "real estate," and thus the Neveroski court was

confronted with the question of whether the term "merchandise"

included real estate.   The court held that the phrase "anything

offered, directly or indirectly, to the public for sale", which

is included in the Act's definition of "merchandise," was not a

"catch-all phrase" which included real estate, but instead should

be "construed under the doctrine of ejusdem generis as a

comprehensive definition intended to incorporate other products

or services similar in nature to those enumerated by the specific

words" which precede it.   Id. at 480.

          The court based its holding in part on its
          considered opinion that the entire thrust of
          the Consumer Fraud Act is pointed to products
          and services sold to consumers in the popular
          sense. Such consumers purchase products from
          retail sellers of merchandise consisting of
          personal property of all kinds or contract
          for services of various types brought to
          their attention by advertising or other sales
          techniques. The legislative language
          throughout the statute and the evils sought
          to be eliminated point to an intent to
          protect the consumer in the context of the
          ordinary meaning of that term in the market
          place.

                                29
Id. (first emphasis added).     Moreover, construing the definition

of the term "merchandise" under the doctrine of ejusdem generis,

the court concluded that real estate did not qualify as

"merchandise" under the Act because it "is not included in the

definition of the products encompassed by the act, nor is it a

commodity which can be considered included within the more

general statutory language" of the definition.     Id. at 481.   The

court concluded that real estate was not covered by the phrase

"anything offered, directly or indirectly, to the public for

sale," because "[r]eal estate is wholly foreign to any of the

listed examples specifically referred to in the definition."     Id.

at 480.

          Like the Supreme Court in Daaleman and Romain, and the

Appellate Division in Neveroski, we conclude that the term

"merchandise" must be construed in light of the overriding

purpose of the Act, which was "to protect the consumer in the

context of the ordinary meaning of that term in the market

place."   Neveroski, 358 A.2d at 480 (emphasis added).   The

ordinary meaning of the consumer in the marketplace does not

include a purchaser of a franchise.     Moreover, like "real

estate," "franchises" are not included expressly in the Act's

definition of "merchandise" and are "wholly foreign to any of the

listed examples specifically referred to in the definition."     Id.
It is true that on January 19, 1976, the New Jersey Legislature

amended section 2 of the Consumer Fraud Act to bar the enumerated

practices "'in connection with the sale or advertisement of any

merchandise or real estate.'"    Id. at 479 n.3 (emphasis added).

                                  30
See Arroyo v. Arnold-Baker & Assocs., Inc., 502 A.2d at 107-08.

However, the legislature has not amended the Act to cover

franchises.   Thus, we hold that J & R Ice Cream is not entitled

to a new trial on its Consumer Fraud Act claim because the Act

does not apply to the sale and acquisition of a franchise.0

            We realize that, as the court in Morgan noted, the

Consumer Fraud Act's definition of "person" includes business

entities.   Thus, as the court concluded in BOC Group, Inc. v.

Lummus Crest, Inc., 597 A.2d 1109, 1112-13 (N.J. Super. Ct. Law

Div. 1990), "[i]t is clear that a corporation may qualify as a

person under the Act when it finds itself in a consumer oriented

situation," id., such as when it acts as the purchaser of a tow

truck, D'Ercole Sales, Inc. v. Fruehauf Corp., 501 A.2d 990, 996-

97 (N.J. Super. Ct. App. Div. 1985), as the purchaser of a yacht,

Perth Amboy Iron Works, Inc. v. American Home Assur. Co., 543
A.2d 1020, 1024-25 (N.J. Super. Ct. App. Div. 1988), aff'd, 571
A.2d 294 (N.J. 1990), or as the purchaser of computer

0
 In its brief J & R Ice Cream argues without citation of
authority that "[s]ince the inducement of [J & R Ice Cream by
California Smoothie] also involved inducing [J & R Ice Cream]
into taking the lease for real property at Pompano, this stands
as an independent justification for application of the Act to
this transaction." Br. at 37 n.6. While there is authority for
the application of the Act to a lease, 316 49 St. Assocs. Ltd.
Partnership v. Galvez, 635 A.2d 1013, 1019 (N.J. Super. Ct. App.
Div. 1994), in our view this authority is not applicable here
because the sublease was merely incidental to the basic
relationship between the franchisee, J & R Ice Cream, and the
franchisor, California Smoothie. Thus, if J & R Ice Cream had
not acquired a franchise there would not have been a sublease.
See BOC Group, Inc. v. Lummus Crest, Inc., 397 A.2d 1109, 1112
(N.J. Super. Ct. Law Div. 1990) (services collateral to sale of
technology not subject to Act).

                                 31
peripherals, Hundred East Credit Corp. v. Eric Schuster Corp.,

515 A.2d 246, 247-49 (N.J. Super. Ct. App. Div.), certif. denied,

526 A.2d 146 (N.J. 1986).    See also Coastal Group, Inc. v. Dryuit

Systems, Inc.,        A.2d   , No. A-5028-92T5 (N.J. Super. Ct.

App. Div. June 23, 1994) (purchase by corporation of

prefabricated panels for exterior wall system for condominium

project subject to Consumer Fraud Act).     However, we conclude

that when an individual or a corporation purchases a franchise,

it is not a person in a "consumer oriented situation," and thus

the transaction is not covered by the Act.     In short, it is the

character of the transaction rather than the identity of the

purchaser which determines if the Consumer Fraud Act is

applicable.     See, e.g., Daaleman, 390 A.2d at 570 (concurring

opinion) (a utility may be subject to Consumer Fraud Act when it

sells merchandise though it is not subject to the Act in making

computations for monthly service bills).

          The BOC Group court's decision that a corporation that

purchased technology and certain support services through an

"Engineering Services Agreement and Licensing Agreement" was not

protected by the Consumer Fraud Act in that transaction supports

our decision.    The court based its decision on the "'need to

place reasonable limits upon the operation of the Act . . . so

that its enforcement properly reflects legislative intent,'" id.
at 1112 (quoting DiBernardo v. Mosley, 502 A.2d 1166, 1167 (N.J.

Super. Ct. App. Div.), certif. denied, 511 A.2d 673 (N.J. 1986)),

and the conclusion that the term "merchandise" did not apply to

                                  32
the technology and services acquired in BOC Group, id. at 1112-

13.

          The court determined that the technology and services

acquired in BOC Group were not merchandise because they were not

"available to the public at large and sold in large quantities"

or "mass produced."    Id. at 1113.    The court also based its

conclusion on the rules promulgated by the New Jersey Division of

Consumer Affairs pursuant to the Consumer Fraud Act, N.J. Stat.

Ann. § 56:8-4 (West 1989).    See BOC Group, 597 A.2d at 1113.    "In

developing these rules, the Division of Consumer Affairs

identified 21 types of consumer transactions for goods and/or

services ranging from defective automobile parts to the sale of

meat and health club services."    Id.   See N.J. Admin, Code tit.

13, § 45A-1, et seq.    Construing the rules under the doctrine of

ejusdem generis, the court concluded that the technology and

services acquired in BOC Group bore "no similarity whatsoever to

any of these 21 comprehensive definitions," and thus were not

covered by the Act.    Id.

          We conclude that even where franchises or

distributorships are available to the public at large in the same

sense as are trucks, boats or computer peripherals, they are not

covered by the Consumer Fraud Act because they are businesses,

not consumer goods or services.    They never are purchased for

consumption.0   Instead, they are purchased for the present value

0
 As the court in Hundred East Credit Corp. stated, the "generally
recognized meaning [of the term 'consumer'] is 'one who uses
(economic) goods, and so diminishes or destroys their
utilities.'" 515 A.2d at 248 (quoting Webster's New

                                  33
of the cash flows they are expected to produce in the future and,

like the technology and services acquired in BOC Group, bear no

resemblance to the commodities and services listed in the

statutory definition of "merchandise" or the rules promulgated by

the Division of Consumer Affairs.0    Thus, J & R Ice Cream is not

entitled to a new trial on its Consumer Fraud Act claim.

          D.   The Negligence Count

          The district court deferred ruling on a motion in

limine regarding whether California Smoothie had a duty to select

a franchise site and negotiate a lease for Baugher and Rossetti.

See supp. app. at 12.   Subsequently, the district court ruled

that California Smoothie had assumed this duty,0 and instructed

the jury accordingly, see id. at 511-12.    While California

Smoothie, citing Rustay v. Consolidated Rail Corp., 775 F. Supp.
161, 163 (D.N.J. 1991), concedes that the court was required to

International Dictionary, 2d edition). Under this definition,
the purchaser of a franchise does not qualify as a "consumer"
because its use of the franchise does not "diminish" or "destroy"
the franchise's "utilities." We point out, however, that some
consumer goods may not be diminished or destroyed through use and
that our result is not dependent on the acceptance of this
definition.
0
 In BOC Group the court suggested that the sale of "franchises"
could be subject to the Consumer Fraud Act. 597 A.2d at 1112.
But this statement was not necessary to its opinion and
apparently the court included it because it had cited Morgan
which it did not find controlling. Thus, we do not find the
reference to franchises in BOC Group to be significant.
0
 Neither party has pointed us to the precise point in the record
reflecting this ruling, but both parties proceed on the basis
that the court made it.

                                34
determine whether it had the duty, it urges that the court erred

in its conclusion.

             California Smoothie makes a strong paper argument that

its relationship with Baugher and Rossetti, and thus with J & R

Ice Cream as their assignee, was primarily contractual as it was

based on the Site Selection Agreement and the Franchise

Agreement.    See br. at 42-43.   The Site Selection Agreement

provides that California Smoothie grants Baugher and Rossetti

"the right to obtain a Franchise to establish and operate a

Restaurant if . . . [they] (a) identif[y] a specific location for

the restaurant within the Assigned Area and (b) obtain[] the

Franchisor's approval of the site."    See app. at 179-80.       Thus,

Baugher and Rossetti were contractually responsible for proposing

a site, and California Smoothie retained the right to reject the

proposed site based on certain criteria identified in the

agreement.     The agreement also provides that within 30 days of

California Smoothie's approval of the site, Baugher and Rossetti

must negotiate a lease for the site, and that this lease must be

approved in writing by California Smoothie.     Id.   Finally, the

agreement provides that upon request from Baugher and Rossetti,

California Smoothie will provide "any additional guidelines and

reasonable site selection assistance and counseling."      Id.    Thus,

the Site Selection Agreement does not impose a duty on California

Smoothie to select a site for Baugher and Rossetti or to

negotiate a lease for their site.

             However, even where a relationship is "essentially

contractual [in] nature," a party may be "subject to a negligence

                                  35
action if the 'act complained of was the direct result of duties

voluntarily assumed . . . in addition to the mere contract.'"

Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 562 A.2d 208,

221 (N.J. 1989) (quoting Brown's Tie & Lumber v. Chicago Title

Co., 764 P.2d 423, 426 (Idaho 1988)); see also Gudnestad v.

Seaboard Coal Dock Co., 99 A.2d 201, 204 (N.J. Super. Ct. App.

Div. 1953), aff'd in part and rev'd in part on other grounds, 104
A.2d 313 (N.J. 1954) ("[i]t is undoubtedly the established rule

of law that one who in the absence of a legal obligation to do so

voluntarily undertakes to render a service for the protection of

the safety of another may become liable to him for the failure to

perform or the failure to exercise reasonable care in the

performance of that service, although the volunteer is not the

owner or in control of the property with respect to which the

service is to be performed").   As the district court concluded,

the record indicates that the site selection and lease

negotiation processes did not follow the pattern described in the

Site Selection Agreement.   California Smoothie concedes that it

already had selected the Pompano mall site and negotiated a lease

for the site prior to the execution of the Site Selection

Agreement.   See br. at 43 n.42.

          Moreover, the evidence indicates that when California

Smoothie selected and leased the Pompano mall site: (1)

California Smoothie intended to sublease it to a prospective

franchisee, see supp. app. at 137; and (2) already had begun

negotiations with Baugher and Rossetti regarding their

acquisition of a franchise in Florida and suggested the Pompano

                                   36
mall site to them.   The evidence also indicates that Keilt made a

deliberate decision not to include Baugher and Rossetti in

negotiations for the lease, see supp. app. at 383-84.   Thus, we

conclude that the district court did not err in holding that

California Smoothie assumed a duty to select the Pompano mall

site for Baugher and Rossetti and to negotiate the lease for

them.   As a result, we will affirm and reinstate the jury's

verdict on the negligence count and will remand the matter to the

district court to enter judgment against California Smoothie on

that count.

                          III. CONCLUSION

          In view of the foregoing discussion, we will reverse

the judgment of July 20, 1993, in favor of J & R Ice Cream on the

Consumer Fraud Act count and will remand the matter to the

district court for entry of a judgment in favor of CSI and CSLC

on that count and for entry of a judgment for $55,000 in favor of

J & R Ice Cream on the negligence count with prejudgment interest

up to and including July 20, 1993.0   Thereafter interest shall

accrue on the judgment.   See Fed. R. App. P. 37.   On the remand,
0
 In its brief, California Smoothie does not ask for any relief
with respect to the attorney's fee awarded in the judgment
entered July 20, 1993, to J & R Ice Cream under N.J. Stat. Ann.
§56:8-19 (West 1989). Consequently, we do not deal with those
fees even though the basis for them has been eliminated. Of
course, we do not preclude California Smoothie from moving under
Fed. R. Civ. P. 60(b) for an order vacating the fees. We also
note that California Smoothie indicates that "[a]s a result of
the jury's finding, the jury was not permitted to consider CSLC's
counterclaims, which were dismissed." CSLC does not seek a
reinstatement of the counterclaims, and thus we do not consider
them.

                                37
J & R Ice Cream may move for reinstatement of its equitable fraud

claim.    J & R Ice Cream's cross-appeal from the denial of

prejudgment interest on the Consumer Fraud Act judgment and from

the striking of its judgment based on negligence is dismissed as

moot.    The parties will bear their own costs on this appeal.

                                 38