Franchise, Dealer & Antitrust Decisions in One Sentence

In the case BrightStar Franchising, LLC v. Foreside Mgmt. Co., No. 1:25-cv-08741, 2025 U.S. Dist. LEXIS 213306 (N.D. Ill. Oct. 29, 2025) the federal court faced the issue of determining whether Illinois or California law applied to the non-compete clauses in the franchise agreements. The agreements included an Illinois choice-of-law provision, which the franchisees challenged, arguing for the application of California law. Illinois generally honors such provisions unless the chosen state has no substantial relationship to the parties or the transaction, or if applying the chosen law would contravene a fundamental public policy of a state with a materially greater interest.

The franchisees argued that California law, specifically Section 16600 of the California Business Code, per se invalidates the restraints on competition in the franchise agreements. However, the court found that the California Supreme Court’s decision in Ixchel Pharma, LLC v. Biogen, Inc. clarified that Section 16600 does not per se invalidate such restraints in a commercial context, applying a reasonableness standard instead. The court determined that the relationship between BrightStar and the franchisees was a business relationship, not an employment relationship, and thus subject to the reasonableness standard under Ixchel. Consequently, the court concluded that the franchisees did not demonstrate a conflict of laws that would affect the outcome, and therefore, the Illinois choice-of-law provision in the franchise agreements was applied.

Regarding the preliminary injunction, the court found a strong likelihood of success on the merits for BrightStar’s breach of contract claims under Illinois law. The franchise agreements were deemed valid and enforceable, with the restrictive covenants being reasonable in scope and duration to protect BrightStar’s legitimate business interests. BrightStar demonstrated irreparable harm, as the franchisees’ actions threatened its business interests, including the use of confidential information and goodwill. The court noted that violations of non-compete clauses are a canonical form of irreparable harm, making them prime candidates for injunctive relief. The balance of harms favored BrightStar, as the franchisees’ alleged harm was self-inflicted by their failure to renew the franchise agreements and adhere to post-termination requirements. The public interest also supported enforcing valid commercial agreements, including non-compete clauses.

The court granted the preliminary injunction in part, focusing on Count I, as BrightStar had not demonstrated a strong likelihood of success on the merits for Count II related to the Mission Viejo Agreement. The scope of the injunction was limited to the remaining terms and timetable for enforcement. In summary, the court applied Illinois law based on the choice-of-law provision in the franchise agreements and granted a preliminary injunction to protect BrightStar’s business interests, finding the restrictive covenants enforceable under Illinois law.

Pro-Franchisor Elements

The court upheld the enforceability of non-compete clauses under Illinois law, which is generally more favorable to franchisors. This decision supports franchisors by protecting their business interests and preventing former franchisees from competing directly after termination.

By honoring the Illinois choice-of-law provision, the court reinforced the franchisor’s ability to select a legal framework that may be more favorable to their interests. This can provide consistency and predictability for franchisors in enforcing agreements across different jurisdictions.

The court’s decision to grant a preliminary injunction based on the potential harm to BrightStar’s business interests, including the use of confidential information and goodwill, underscores a pro-franchisor stance. It emphasizes the importance of protecting the franchisor’s brand and business model.

Anti-Franchisee Elements

The court assigned little weight to the potential harm to the franchisee, viewing it as self-inflicted. This approach may be seen as less sympathetic to the challenges faced by franchisees, particularly in transitioning away from a franchise system.

The enforcement of restrictive covenants can be seen as limiting the franchisee’s ability to operate independently post-termination. This may be viewed as anti-franchisee, as it restricts their business opportunities and mobility.

Overall Assessment

The court’s decision in this case leans towards a pro-franchisor stance. By upholding the enforceability of non-compete clauses and honoring the choice-of-law provision favoring the franchisor, the ruling supports in general the protection of franchisor interests and contractual rights, while ignoring some of the legal nuances in non-compete jurisprudence necessary to protect the parties and competition specifically. While the decision provides stability and predictability for franchisors, it may impose significant limitations on franchisees, particularly in their ability to compete and operate independently after the termination of the franchise agreement.

The case of McLaren v. UPS Store, Inc., No. 21-14424 (RMB/MJS), 2025 U.S. Dist. LEXIS 228406 (D.N.J. Nov. 20, 2025) centers on allegations that The UPS Store, Inc. (TUPSS) and certain of its New Jersey franchisees systematically overcharged consumers for notary services, in violation of New Jersey law capping notary fees. Plaintiffs Barbara McLaren and Vincent Tripicchio, representing themselves and a putative class, claimed that for over a decade, TUPSS and its franchisees charged notary fees exceeding the statutory maximum, thereby violating the New Jersey Consumer Fraud Act (CFA), the Truth-in-Consumer Contract, Warranty, and Notice Act (TCCWNA), and principles of unjust enrichment. The plaintiffs sought relief for themselves and similarly situated consumers.

The facts established that New Jersey law, specifically N.J. Stat. Ann. § 22A:4-14, set a maximum fee of $2.50 for certain notarial acts. Despite this, McLaren was charged $10 for two acknowledgments (instead of $5), and Tripicchio was charged $15 for a power of attorney notarization (including a $12.50 “Notary Convenience” fee), both at TUPSS franchise locations. The franchisees provided no additional services beyond the notarial act itself.

TUPSS operated through a network of franchisees, requiring them to execute a Franchise Agreement and adhere to an Operations Manual. The agreement mandated compliance with all applicable laws, including those governing notary fees, and required franchisees to offer notary services, maintain certain staffing levels, and use a uniform point-of-sale system. TUPSS also provided extensive training, issued directives on notary pricing, and closely monitored franchisee operations, including notary transactions and revenues. TUPSS collected royalties and marketing fees based on store revenues, including those from notary services, and sometimes directly addressed customer complaints about overcharges, even issuing refunds.

The defendants moved to dismiss, arguing that the plaintiffs failed to state viable claims, that TUPSS as franchisor was not vicariously liable for franchisee conduct due to lack of day-to-day control, and that class allegations should be struck. The court addressed each claim in turn.

On the CFA claim, the court found that the plaintiffs had pled with sufficient particularity under Rule 9(b), detailing the who, what, when, where, and how of the alleged overcharges. The court reasoned that overcharging for notary services in violation of a statute could constitute an “unconscionable commercial practice” under the CFA, even if the statute was not enacted under the CFA itself. The court analogized to cases where overcharging in violation of rent control ordinances supported CFA liability, emphasizing that notaries are public officers with duties to the public, and that the statutory cap on fees serves a public benefit. The court concluded that the plaintiffs plausibly alleged unlawful conduct, ascertainable loss, and causation, and thus denied the motion to dismiss the CFA claim.

Regarding the TCCWNA claim, the court dismissed it, finding that the plaintiffs failed to allege the required “writing” (such as a contract, notice, or sign) containing a provision that violated a clearly established legal right. Receipts for the notary transactions were deemed insufficient to meet this requirement.

On the unjust enrichment claim, the court held that, while unjust enrichment is not an independent tort in New Jersey, it may be available outside the quasi-contractual context, including where a party overcharges for services beyond what the law allows. The court found that the plaintiffs had plausibly alleged that defendants were unjustly enriched by retaining fees in excess of the statutory maximum, and that it was too early to apply the voluntary payment rule, as the complaint did not establish that the payments were truly voluntary or made without mistake of fact.

The court also addressed the issue of vicarious liability. It explained that a franchisor may be held vicariously liable for a franchisee’s conduct if the franchisor has the right to control the day-to-day operations of the franchisee, particularly as to the instrumentality at issue. The court found that TUPSS exercised more direct involvement than typical, mandating notary services, controlling staffing, marketing, training, and pricing, monitoring transactions, and collecting a share of notary revenues. TUPSS also had the contractual right to terminate franchisees for overcharging but did not do so. These facts supported a plausible inference of an agency relationship and the right to control, sufficient to survive a motion to dismiss on vicarious liability grounds.

On the civil conspiracy claim, the court found that the plaintiffs had alleged sufficient facts to infer an agreement between TUPSS and its franchisees to overcharge for notary services, noting that direct evidence of conspiracy is rarely available and circumstantial evidence may suffice. The court held that the conspiracy claim could proceed, as the underlying CFA claim was viable.

The court denied the motion to strike class allegations, finding it premature to do so at the pleading stage, as class certification issues are better addressed after discovery.

In conclusion, the court granted the motion to dismiss only as to the TCCWNA claim, allowing the CFA, unjust enrichment, and civil conspiracy claims to proceed, and denied the motion to strike class allegations.

The policies and goals underlying the court’s reasoning reflect a strong commitment to consumer protection and the enforcement of statutory limits designed to prevent abuse by those providing essential public services. By holding that overcharging for notary services can constitute an unconscionable commercial practice under the CFA, the court reinforced the principle that statutory caps serve a public benefit and that those who act as public officers must adhere strictly to the law. The court’s willingness to consider vicarious liability for franchisors who exercise significant control over franchisee operations signals that franchisors cannot insulate themselves from liability simply by structuring their businesses as franchises, especially when they direct, monitor, and profit from the very conduct at issue.

This decision is potentially unfavorable for both franchisees and franchisors. For franchisees, it underscores the risk of liability for statutory violations, even when acting under the direction or with the knowledge of their franchisor. For franchisors, the decision demonstrates that significant operational control, especially over pricing and compliance with law, may expose them to vicarious liability for franchisee conduct or misconduct. The court’s approach may encourage franchisors to exercise greater oversight to ensure compliance with applicable laws, but it also increases franchsiors’ potential exposure to class action litigation and damages arising from the acts of their franchisees. While this enhances consumer protection, it may increase compliance costs and legal risks for franchise systems.

Massage Heights Franchising, LLC v. Hagman (2025 Tex. LEXIS 359):

• Negligence and Duty of Care:

The central legal issue was whether Massage Heights Franchising, LLC (the franchisor) owed a duty of care to Hagman, a customer who was sexually assaulted by a massage therapist employed by MH Alden Bridge, a franchisee. The court examined whether the franchisor had sufficient control—either contractually or through actual exercise—over the hiring process of the franchisee to give rise to such a duty.

• Control Over Franchisee’s Operations:

The court analyzed whether the franchisor’s franchise agreement and operations manual gave it the right or actual control over the specific activity (hiring of employees) that led to the injury. It was determined that the franchisee was designated as an independent contractor with sole responsibility for employment decisions, including hiring, firing, training, and supervision. The franchisor’s role was limited to providing guidance and advice, which was deemed insufficient to establish a duty of care.

• Negligent Undertaking:

The issue of whether Massage Heights undertook a duty to protect customers by providing training and operational standards was considered. The court found no evidence that any failure by the franchisor to train or investigate the franchisee’s operations proximately caused the injury, nor that the franchisor undertook to make the premises safe for customers.

• Vicarious Liability and Proximate Cause:

The court addressed whether the franchisor could be held vicariously liable for the acts of the franchisee or its employees. It was held that, absent control over the injury-causing conduct, such liability could not be imposed. The only plausible proximate cause of the assault was the franchisee’s decision to hire the therapist, which the franchisor did not control.

• Existing Duty Rules and Precedent:

The court applied established Texas law, holding that a general contractor or franchisor does not owe a duty to ensure an independent contractor safely performs work unless there is control over the specific activity that caused the injury. The court distinguished this case from prior precedent (e.g.,  Read v. Scott Fetzer Co., 990 S.W.2d 732), where the franchisor retained control over the injury-causing activity.

• Procedural Outcome:

The Supreme Court of Texas reversed the lower court’s judgment in part, holding that Massage Heights did not owe a duty of care to Hagman regarding the hiring of the massage therapist and that there was no legally sufficient evidence to support liability under a negligent undertaking theory. Judgment was rendered that Hagman take nothing from Massage Heights on her claims.

Letip World Franchise LLC v. Long Island Soc. Media Grp. LLC_2025 U.S. Dist. LEXIS 95666 (July 2025)

LeTip World Franchise LLC (“LeTip Franchise”), a business leads networking organization with over 250 franchises, filed a lawsuit against Long Island Social Media Group LLC (“LISMG”), BxB Professionals LLC, Clifford Pfleger, Heather Pfleger, and Saranto Calamas. The dispute centered around allegations that LISMG, operated by Clifford Pfleger and Saranto Calamas, breached their franchise agreement with LeTip Franchise by modifying the franchise’s logo and improperly competing through BxB Professionals LLC.

LeTip Franchise, based in Arizona, entered into a franchise agreement with LISMG on April 10, 2020, granting them the right to operate a LeTip franchise in Suffolk County, New York, for five years. The agreement prohibited LISMG and its operators from running a competing business in the same area during the agreement’s term and for two years after its termination. The agreement also allowed the use of LeTip trademarks and logos but prohibited any modifications to them.

In 2021, Clifford Pfleger modified the LeTip logo by adding the word “Just” above it on his boat, claiming he had permission from LeTip International’s CFO, John Pokorny, via a text message. The boat was drydocked until April 2023, when Pfleger moved it to a private marina and posted a picture on social media. Upon seeing the modified logo, LeTip’s owner, Summer Middleton, and an officer, Paul Della Valle, requested its removal, both in person and through a letter from LeTip’s trademark counsel, threatening termination of the franchise agreement.

Pfleger claimed Middleton orally gave him 30 business days to remove the logo, which she disputed. Although Pfleger began removing the logo, he did not complete the task until after receiving a termination notice on June 12, 2023, which cited the failure to remove the logo by June 2 as the reason for termination. The notice stated that the altered logo could harm LeTip Franchise’s reputation, allowing termination without a cure period.

In December 2023 or January 2024, Pfleger announced a new role as Regional Director at BxB, a networking organization with the same address as LISMG and Calamas’s CPA license. Pfleger planned a launch party for BxB at the same venue used by LeTip’s Suffolk County chapters, prompting LeTip Franchise to seek a temporary restraining order to prevent the operation of BxB. The court granted the order, prohibiting the defendants from engaging in any competitive business activities.

On December 13, 2024, LISMG, Pfleger, and Calamas filed counterclaims against LeTip Franchise, LeTip International, Middleton, and Della Valle, alleging breach of the franchise agreement, wrongful termination, and defamation. They claimed the LeTip parties created a competing chapter and defamed them by labeling the modified logo as “sexually suggestive” and “vulgar.” The counterclaimants sought injunctive relief to prevent enforcement of the non-compete clause.

The court dismissed the breach of contract and defamation claims with leave to amend, and the claim for injunctive relief was dismissed without leave to amend. The court ordered that any amended counterclaims be filed by June 3, 2025.

In TKG Assocs., LLC v. MBG Monmouth, LLC, No. 24A-PL-1270, 2025 Ind. App. LEXIS 121 (Ct. App. Apr. 16, 2025), TKG Associates, LLC (“Buyer”) appealed the trial court’s judgment in favor of MBG Monmouth, LLC and other related entities (“Seller”) regarding a dispute over the purchase of four Sky Zone franchises. The disagreement arose during the due diligence period concerning the accuracy of financial information provided by Seller. The trial court ruled in favor of Seller, allowing them to retain Buyer’s deposit, but the appellate court found this judgment to be clearly erroneous due to Seller’s material breach of the agreement.

Facts

Buyer, operated by Ajay Keshap and his family, and Seller, consisting of several LLCs operated by Barbara and Mark Glazer, entered into an Asset Purchase Agreement on January 19, 2022, for $6,500,000. The purchase price was based on Seller’s EBITDA, which was later found to be inflated due to undisclosed rent abatements and deferments. Buyer discovered these discrepancies during a site visit from February 22 to February 24, 2022.

Due Diligence and Breach

The Agreement required Seller to provide all due diligence materials within ten days of execution, but Seller failed to disclose certain lease amendments and rent abatements until February 28, 2022. Buyer did not receive the required thirty days to review these documents, which constituted a material breach by Seller. Despite this, the trial court initially found that Buyer breached the Agreement by not providing written notice of conditions satisfied or waived by March 5, 2022.

Court’s Decision

The appellate court determined that Seller’s failure to provide accurate financial data and due diligence materials constituted a material breach, which precluded Seller from enforcing the contract against Buyer. The court reversed the trial court’s judgment, ruling that Buyer was entitled to judgment on its breach of contract counterclaim. The case was remanded for a hearing to determine Buyer’s damages and attorney fees.

Conclusion

The appellate court concluded that Seller was the first to materially breach the Agreement, and thus, the trial court’s findings were clearly erroneous. The judgment for Seller was vacated, and the case was remanded for further proceedings consistent with the appellate court’s opinion.

Little Caesar Enterprises, Inc. v. S&S Pizza Enterprises, Inc., 2024 U.S. Dist. LEXIS 89645 (E.D. Mich. May 17, 2024)

Prior ruling challenged by the Franchisee Defendants:

In the original Judgment, the Court:

• granted Plaintiffs’ request for declaratory relief that S & S committed material breaches of the franchise agreements between the parties, giving Plaintiffs good cause to terminate the agreements;
• ordered Defendants and anyone acting in active concert or participation with them to immediately and fully comply with the post-termination obligations in the franchise agreements;
• entered Judgment in favor of Plaintiffs and against Defendants S & S, Claeys, and Matthews, jointly and severally, in the amount of $128,818.56, plus interest, representing the liquidated damages due under the franchise agreements.

After the ruling against them, the Franchisee Defendants challenged the initial ruling arguing the following:

Defendants, through counsel, now seek to alter or amend the judgment pursuant to Federal Rule of Civil Procedure 59(e) or request relief from judgment pursuant to Federal Rule of Civil Procedure 60(b)(1) or (2). (ECF No. 37.) In support of their motion, Defendants assert that Claeys and Matthews discovered previously misplaced documents during the past several weeks suggesting that Matthews was released and discharged from any obligation as a personal guarantor. Defendants attach these three documents to their motion: two franchise agreements and a document terminating a franchise located in Troy, Michigan. (ECF Nos. 37-2, 37-3, and 37-4.) They attach no evidence, however, supporting their assertion that these documents were only recently discovered.

Defendants further state that “Claeys has suffered from various physical and mental health setbacks over the past several years which made it difficult or impossible to present defenses to Plaintiffs’ claims for liquidated damages.” (Id. at PageID. 392.) These alleged setbacks include anxiety and depression, failed suicide attempts, mild restrictive lung disease, a fall from a bicycle due to dizziness, trace leakage of her mitral, tricuspid, [*5]  and pulmonic valves, scoliosis, osteoarthritis, white matter changes to her brain, complications from physical therapy causing dizziness, vertigo, and ears ringing, adult onset inattentive ADHD, and sleep apnea. (Id. at 398.) Defendants offer no documentation supporting Claeys’ asserted mental and physical issues or their assertion that these conditions interfered with their ability to defend this action. Defendants indicate that Claeys’ affidavit will be forthcoming (see ECF No. 37 at PageID. 398 n.1); however, a month after their motion was filed, no such affidavit has been presented.

1. Parties InvolvedA. Plaintiff: Little Caesar Enterprises, Inc. B. Defendants: S&S Pizza Enterprises, Inc., Sheryl Claeys, and Suzanne L. Matthews
2. JurisdictionA. United States District Court for the Eastern District of Michigan, Southern Division B. Case Number: 21-cv-11776

III. Franchisees’ Alleged Conduct Defendants, including S&S Pizza Enterprises, were accused of the following misconduct:

1. Breach of the franchise agreements: The defendants were contractually obligated under agreements with Little Caesar Enterprises and were accused of not fulfilling these obligations.
2. Trademark infringement: The defendants allegedly used Little Caesar Enterprises’ trademark unlawfully.
3. Unfair competition: The conduct of the defendants was alleged to be unlawful or deceptive, negatively affecting Little Caesar Enterprises’ competitive advantage.
4. Trade dress infringement: The defendants were accused of using product design or packaging that was too similar to that of Little Caesar Enterprises, causing confusion among consumers as to the source of the products.
5. BackgroundA. Involvement of two Little Caesar franchise locations in Michigan B. Allegations by the plaintiff include: 1. Breach of contract 2. Trademark infringement 3. Unfair competition 4. Trade dress infringement
6. Procedural HistoryA. Defendants’ failure to respond to the motion for partial summary judgment B. Court’s grant of summary judgment due to no genuine issue of material fact C. Awarding of liquidated damages, costs, and attorneys’ fees to plaintiffs
7. Plaintiff’s MotionA. To remove all claims but breach of contract from the complaint B. Granted by the court

VII. Court Judgment A. In favor of the plaintiffs, with post-termination obligations and damages imposed on the defendants

VIII. Defendants’ Motion for Alteration or Amendment of Judgment

1. Based on “newly discovered” evidence suggesting release from personal guarantor obligations
2. Setbacks including mental and physical health issues claimed by the defendants
3. Evidence and Standard of LawA. Lack of “newly discovered” evidence as per court’s finding B. Applicable standards for Rule 59(e) (alteration/amendment due to error, new evidence, change in law, or to prevent injustice) C. Rule 60(b) allows for relief from a judgment for mistake or new evidence, which was not adequately demonstrated
4. Court’s Ruling
5. Defendants’ documents do not suggest release from guarantees or contracts
6. Assertions regarding Claeys’ health challenges are unsupported by evidence
7. Defendants fail to demonstrate grounds for relief
8. The motion to amend or correct the judgment is denied
9. Conclusion
10. Defendants do not meet the legal threshold for post-judgment relief
11. The court maintains the original judgment in favor of Little Caesar Enterprises, Inc.

LeTip World Franchise LLC v. Long Island Soc. Media Grp. LLC, 2024 U.S. Dist. LEXIS 53489 (D.Ariz., March 26, 2024), involved a legal dispute where LeTip World Franchise LLC (LeTip) accused Long Island Social Media Group LLC and others (LISMG) of violating terms of a franchise agreement. The agreement allowed LISMG to operate a LeTip business and use its trademarks in a designated area of Suffolk County, New York, subject to certain operational standards, advertising approvals, and restrictions on the use of LeTip Marks.

Key points from the summary include:

• Alleged Contract Breaches:The defendants are accused of operational failures, improper use of intellectual property, violating advertising approvals, and running a competing business post-termination, contradicting the non-compete clause.
• Preliminary Injunction:LeTip’s motion for a preliminary injunction was granted, restraining the defendants from conducting competing business activities in Suffolk County, in order to prevent loss of business and damage to goodwill pending the trial’s outcome.
• Legal Considerations:The summary highlights the court’s consideration of legal standards for a preliminary injunction, with emphasis on the four elements like the likelihood of success, irreparable harm, balance of hardships, and public interest.
• Defendants’ Counterarguments:The defendants contended that LeTip first breached the agreement by transferring members out of their chapter and that they had permission to modify the LeTip logo. The court, however, found these arguments unconvincing due to inadequate evidence or misinterpretation of permissions involved.
• Enforceability of Contractual Provisions:The court examined the reasonability and enforceability of post-termination restrictive covenants related to time and geographic limitations, ultimately siding with the plaintiff on their reasonableness.

• Legal Arguments and Court Findings:
  • The restrictive covenants are found to be reasonable and legally enforceable.
  • LeTip demonstrated a strong likelihood of success on the merits of their breach of contract and tortious interference claims.
  • LeTip likely to suffer irreparable harm in the absence of an injunction, as it could lose customers and goodwill.
  • The balance of hardships favors LeTip since non-compliance by LISMG mainly leads to loss of unlawfully gained revenue, whereas LeTip could suffer harm to reputation and business stability.
  • The public interest is served better by upholding the Franchise Agreement’s terms as negotiated by the parties.
• Defendants’ Contentions:
  • LISMG claims LeTip first breached the agreement by taking members from LISMG’s chapter, which the court refutes due to insufficient evidence.
  • LISMG asserts they had permission to modify the LeTip logo, a claim dismissed by the court due to lack of proper authorization.
• Contract Terms and Violations:
  • Non-compete clauses prohibit engagement in any competitive business during the agreement and for two years after termination.
  • Sections of the franchise agreement detail the ownership and permissible use of LeTip’s intellectual property.
• Next Actions:
• LeTip’s motion for a preliminary injunction has been granted, which forbids the defendants from engaging in competitive activities within the restricted area and preventing any diversion of LeTip’s business.

Overall, LeTip presented a strong case for contract breaches around trademark misuse and competitive actions forbidden by the non-compete agreement. The decision to grant a preliminary injunction reflects the court’s agreement with LeTip’s argument that their business would suffer irreparable harm without such an order and their likelihood to succeed on the merits of the case.

Tim Hortons Franchisee Association Hits Brick Wall on Case Against Franchisor

In a scathing rejection of a complex case filed by an international franchise association, the US District Court for the Southern District of Florida refused to recognize that the franchisee association of Tim Hortons members had associational standing to sue for myriad alleged unfair acts and practices including supply price-gouging, franchisee equity-stripping, and misuse of the franchise advertising fund; similarly, the court rejected the viability of those same claims on substantive grounds as well.

Great White N. Franchisee Ass’n-USA v. Tim Hortons USA, Inc., No. 20-cv-20878, 2020 U.S. Dist. LEXIS 239160 (S.D. Fla. Dec. 18, 2020)

Excerpts of the Case:

Franchisee Counsel:  

For Great White North Franchisee Association-USA, Inc., Plaintiff: Natalie Marlena Restivo, LEAD ATTORNEY, Adam Gruder Wasch, Wasch Raines, LLP, Boca Raton, FL; Gerald A. Marks, PRO HAC VICE, Marks & Klein, LLP, Red Bank, NJ.

Franchisor Counsel:

For Tim Hortons USA, Inc., Defendant: Michael D Joblove, LEAD ATTORNEY, Aaron Seth Blynn, Genovese Joblove & Battista, Miami, FL; Adam Acosta, John Mark Gidley, PRO HAC VICE, White & Case LLP, Washington, DC.
For Jose E. Cil, Defendant: Aaron Seth Blynn, Genovese Joblove & Battista, Miami, FL.

Judges: BETH BLOOM, UNITED STATES DISTRICT JUDGE.
Opinion by: BETH BLOOM
Opinion

1. BACKGROUND

This case involves an allegedly illegal and predatory business scheme implemented by THUSA’s holding company to convert the Tim Hortons franchise system into a supply chain business resulting in large profits at the expense of Plaintiff’s franchisee members.

Tim Hortons restaurants are quick service restaurants with a convenience store element that includes, coffee, tea, espresso-based hot and cold drinks, baked goods, and items typically found at a convenience store. See Second Amended Complaint (“SAC”), ECF No. [62] ¶ 12. Plaintiff is a not-for-profit franchisee association that was formed as a direct result of its members’ common grievances with respect to certain practices and operations of Defendants. Id. ¶¶ 8-9. Plaintiff was organized and exists for the purpose of protecting and preserving the rights of Tim Hortons U.S. franchisees and was created to serve as an official voice of the Tim Hortons U.S. franchisee community. Id. ¶ 10. As stated in the Association’s [*3]  Articles of Incorporation, the Association’s purpose is “[t]o provide a common interest organization for Tim Hortons franchisees, creating a forum for discussion, education and advocacy for franchise owners.” Id. ¶ 74.

In the SAC, Plaintiff alleges that non-party Restaurant Brand International, Inc. (“RBI”), THUSA’s holding company, was formed upon purchasing the Tim Hortons franchise system in 2014. Id. ¶¶ 1-2. In an apparent attempt to off-set the brand growth in the U.S. and stagnant sales in both the U.S. and Canada, RBI commenced its predatory strategy to convert the Tim Hortons franchise system into a supply chain business disguised as a franchise system and reaped outrageous profits through its supply chain. Id. ¶ 3 This was done by price-gouging U.S. franchisees on all essential goods necessary to operate their Tim Hortons restaurants. Id. Cil operated and managed RBI, THUSA, and its affiliates in the implementation of the business practices at issue in this case and had substantial operational control over THUSA operations. Id. ¶¶ 54, 84.

Plaintiff alleges that RBI set up a vertically integrated supply chain for its Tim Hortons business, through which RBI manufactures, warehouses, [*4]  and distributes most of the food and restaurant supplies to Plaintiff’s franchisee members. Id. ¶ 25. For example, TDL Group Corp. (“TDL”), THUSA’s Canadian affiliate and primary supplier under RBI, imports and sells certain essentials (“Selected Goods”) for everyday operations to THUSA, which in turn either directly or through a distributor re-sells those items to a U.S. franchisee for a profit. Id. ¶¶ 31-32, 34. Since RBI’s takeover, Tim Hortons franchisees have been forced to purchase more items from THUSA, or a newly designated sole supplier, at substantial mark-up from market rate. Id. ¶ 37. THUSA engages in a similar practice with respect to equipment, which results in sales of equipment to U.S. franchisees at double mark-up. Id. ¶ 39. Similarly, THD, the affiliate utilized by RBI to serve as master coffee supplier to THUSA franchisees, sells coffee to THUSA franchisees for approximately 50% more for the same quality coffee than close competitors. Id. ¶¶ 46, 50.

Plaintiff alleges that RBI has implemented an “equity stripping” strategy that occurs upon franchise renewal, in that THUSA’s franchise agreements contain a right of first refusal requiring existing franchisees to offer [*5]  their store(s) to THUSA for the five-year declining depreciated value of furniture, fixtures, and equipment. Id. ¶ 57.

Plaintiff further alleges that all THUSA franchisees are required to contribute a portion of monthly sales into an “Advertising Fund” referred to in the franchise agreements. Id. ¶ 60. The contributions to the Advertising Fund and any earnings are to be used by THUSA exclusively for costs of maintaining, administering, directing, conducting and developing advertising, marketing, public relations, and/or promotional programs and materials, and any other activities and related investments and/or initiatives. Id. ¶ 62. Since acquisition by RBI, the Advertising Fund has been used in ways not historically or contractually permitted. Id. ¶ 63. For example, Plaintiff alleges that monies from the Advertising Fund were used to improperly pay employees, hire RBI analysts to analyze operational data points, for costs of THUSA franchisee training, for research and development by RBI, for customer service functions and evaluating THUSA franchisees, to private label products and for grocery store listings to allow RBI to sell through non-franchised channels and compete directly with [*6]  THUSA franchisees, and for expenses related to pre-loaded debit cards known as “TimCards.” Id. ¶ 69.

As a result, Plaintiff asserts two claims for declaratory and injunctive relief based upon violations of Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”), Florida Statutes §§ 501.201, et seq. In Count 1, Plaintiff asserts per se violations of FDUTPA premised upon violations of the FTC Franchise Rule regarding certain disclosures or omissions in the franchise documents, and in Count 2, Plaintiff’s FDUTPA claim is premised upon THUSA’s and Cil’s alleged predatory business schemes. THUSA and Cil request dismissal with prejudice of the SAC, claiming that Plaintiff lacks standing and fails to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

1. Standing

One element of the case-or-controversy requirement under Article III of the United States Constitution is that plaintiffs “must establish that they have standing to sue.” Raines v. Byrd, 521 U.S. 811, 818, 117 S. Ct. 2312, 138 L. Ed. 2d 849 (1997). It is a threshold question of “whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.” Sims v. Fla. Dep’t of Highway Safety & Motor Vehicles, 862 F.2d 1449, 1458 (11th Cir. 1989) (en banc). “‘The law of Article III standing . . . serves to prevent the judicial process from being used to usurp the powers of the political branches,’ and confines the federal courts to a properly judicial [*7]  role.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547, 194 L. Ed. 2d 635 (2016) (citing Clapper v. Amnesty Int’l USA, 568 U.S. 398, 408, 133 S. Ct. 1138, 185 L. Ed. 2d 264 (2013); Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975)). Further, “standing requirements ‘are not mere pleading requirements but rather [are] an indispensable part of the plaintiff’s case.'” Church v. City of Huntsville, 30 F.3d 1332, 1336 (11th Cir. 1994) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 561, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992)). “Indeed, standing is a threshold question that must be explored at the outset of any case.” Corbett v. Transp. Sec. Admin., 930 F.3d 1225, 1232 (11th Cir. 2019) (citing Bochese v. Town of Ponce Inlet, 405 F.3d 964, 974 (11th Cir. 2005)), cert. denied, 140 S. Ct. 900, 205 L. Ed. 2d 467 (2020). “In its absence, ‘a court is not free to opine in an advisory capacity about the merits of a plaintiff’s claim.'” Id. (quoting Bochese, 405 F.3d at 974). “In fact, standing is ‘perhaps the most important jurisdictional’ requirement, and without it, [federal courts] have no power to judge the merits.” Id. (footnote omitted) (quoting Bochese, 405 F.3d at 974).

[A]t an irreducible minimum, Art. III requires the party who invokes the court’s authority to “show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant,” and that the injury “fairly can be traced to the challenged action” and “is likely to be redressed by a favorable decision.”

Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, 454 U.S. 464, 472, 102 S. Ct. 752, 70 L. Ed. 2d 700 (1982) (quoting Gladstone, Realtors v. Vill. of Bellwood, 441 U.S. 91, 99, 99 S. Ct. 1601, 60 L. Ed. 2d 66 (1979)). In other words, to establish standing, a plaintiff must allege that: (1) it “suffered an injury in fact that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical;” (2) “the injury is fairly traceable [*8]  to conduct of the defendant;” and (3) “it is likely, not just merely speculative, that the injury will be redressed by a favorable decision.” Kelly v. Harris, 331 F.3d 817, 819-20 (11th Cir. 2003).

“The party invoking federal jurisdiction bears the burden of proving standing.” Fla. Pub. Int. Rsch. Grp. Citizen Lobby, Inc. v. E.P.A., 386 F.3d 1070, 1083 (11th Cir. 2004) (quoting Bischoff v. Osceola Cnty., 222 F.3d 874, 878 (11th Cir. 2000)). “Because standing is jurisdictional, a dismissal for lack of standing has the same effect as a dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1).” Cone Corp. v. Fla. Dep’t of Transp., 921 F.2d 1190, 1203 n.42 (11th Cir.1991). “If at any point in the litigation the plaintiff ceases to meet all three requirements for constitutional standing, the case no longer presents a live case or controversy, and the federal court must dismiss the case for lack of subject matter jurisdiction.” Fla. Wildlife Fed’n, Inc. v. S. Fla. Water Mgmt. Dist., 647 F.3d 1296, 1302 (11th Cir. 2011) (citing CAMP Legal Def. Fund, Inc. v. City of Atlanta, 451 F.3d 1257, 1277 (11th Cir. 2006)). “In assessing the propriety of a motion for dismissal under Fed. R. Civ. P. 12(b)(1), a district court is not limited to an inquiry into undisputed facts; it may hear conflicting evidence and decide for itself the factual issues that determine jurisdiction.” Colonial Pipeline Co. v. Collins, 921 F.2d 1237, 1243 (11th Cir. 1991). “When a defendant properly challenges subject matter jurisdiction under Rule 12(b)(1) the district court is free to independently weigh facts, and ‘may proceed as it never could under Rule 12(b)(6) or Fed. R. Civ. P. 56.'” Turcios v. Delicias Hispanas Corp., 275 F. App’x 879, 880 (11th Cir. 2008) (quoting Morrison v. Amway Corp., 323 F.3d 920, 925 (11th Cir. 2003)).

III. DISCUSSION

In the Motions, Defendants mount a facial attack on the Court’s subject matter jurisdiction, arguing that Plaintiff lacks associational standing to assert claims on behalf of its members, a group of THUSA franchisees.

1. Associational Standing

“[A]n association has standing to bring suit on behalf of its members when: (a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.” Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 343, 97 S. Ct. 2434, 53 L. Ed. 2d 383 (1977); see also Arcia v. Fla. Sec’y of State, 772 F.3d 1335, 1342 (11th Cir. 2014). “The possibility of such representational standing, however, does not eliminate or attenuate the constitutional requirement of a case or controversy.” Warth, 422 U.S. at 511.

In the SAC, Plaintiff seeks injunctive and declaratory relief under FDUTPA on behalf of its members for Count 1, asserting [*11]  violations of the FTC Franchise Rule; and Count 2, asserting violations of FDUTPA based upon Defendants’ specific deceptive practices. See ECF No. [62], Prayer for Relief ¶¶ 1-2.

1. Count 1 — per se violations of FDUTPA

Defendants argue that Plaintiff lacks standing because (1) the Association’s members do not have standing to seek declaratory and injunctive relief for violations of the FTC Franchise Rule arising from alleged misrepresentations in the current Franchise Disclosure Document (“FDD”), which they will not be provided in the future; (2) the interests sought to be protected in Count 1 are not germane to the Association’s purpose; and (3) the participation of the Association’s individual members will be required.² The Court considers each argument in turn.

According to Defendants, Plaintiff must establish that its members would have standing to maintain the action and Plaintiff’s conclusory allegations are insufficient. In the SAC, Plaintiff alleges in that “[a]t least one of its members (indeed, all its members) will suffer an injury-in-fact by the real and immediate, threatened harm from Defendants’ conduct.” ECF No. [67] at 8 (quoting ECF No. [62] ¶ 72). Defendants argue further [*12]  that because Plaintiff is seeking injunctive relief, it must also satisfy the requirement of showing a threat of future harm, and Plaintiff cannot because its members are existing franchisees who will not be provided a Tim Hortons FDD in the future. In response, Plaintiff argues that it need not allege future harm of its members, and even if required to, the allegations in the SAC are sufficient. Plaintiff argues further THUSA deliberately misconstrues the claim in Count 1. Thus, the Court considers whether Plaintiff’s members have standing to assert Count 1.

1. Plaintiff’s members do not have standing to assert Count 1

In order to establish Article III standing, an individual member must allege that it suffered an injury in fact. Spokeo, 136 S. Ct. at 1547. “Where the plaintiff seeks declaratory or injunctive relief, as opposed to damages for injuries already suffered, . . . the injury-in-fact requirement insists that a plaintiff ‘allege facts from which it appears there is a substantial likelihood that he will suffer injury in the future.'” Strickland v. Alexander, 772 F.3d 876, 883 (11th Cir. 2014) (quoting Malowney v. Fed. Collection Deposit Grp., 193 F.3d 1342, 1346 (11th Cir. 1999)).

The FDUTPA provides that “anyone aggrieved by a violation of this part may bring an action to obtain a declaratory judgment that an act or practice violates this [*13]  part and to enjoin a person who has violated, is violating, or is otherwise likely to violate this part.” Fla. Stat. § 501.211(1). As is evident from the parties’ briefing, courts in this district appear to be split on whether a plaintiff has standing to seek declaratory and injunctive relief under FDUTPA if the plaintiff does not demonstrate a threat of future injury. Compare Gastaldi v. Sunvest Cmtys. USA, LLC, 637 F. Supp. 2d 1045, 1057 (S.D. Fla. 2009) and Dye v. Bodacious Food Co., No. 14-80627-CIV, 2014 U.S. Dist. LEXIS 180826, 2014 WL 12469954, at *3 (S.D. Fla. Sept. 9, 2014) with Dapeer v. Neutrogena Corp., 95 F. Supp. 3d 1366, 1373 (S.D. Fla. 2015) and Seidman v. Snack Factory, LLC, No. 14-62547-CIV, 2015 U.S. Dist. LEXIS 38475, 2015 WL 1411878, at *5 (S.D. Fla. Mar. 26, 2015).

In Gastaldi and Dye, the courts concluded that based upon FDUTPA’s broad wording, plaintiffs need not show an ongoing practice or irreparable harm in order to establish standing for injunctive and declaratory relief under FDUTPA. Gastaldi, 637 F. Supp. 2d at 1057; Dye, 2014 U.S. Dist. LEXIS 180826, 2014 WL 12469954, at *3-4. However, the court in Dye did not specifically address Article III standing, and the court’s discussion in Galstaldi demonstrates that standing under FDUTPA is a separate inquiry from Article III standing. See 637 F. Supp. 2d at 1057-58 (“Any person aggrieved by a violation of the FDUTPA may seek declaratory and/or injunctive relief under the statute. . . . Plaintiffs also satisfy the requirements for threshold standing under Article III.”). This distinction is what the court in Dapeer explicitly recognized and emphasized.

“Although [*14]  the FDUTPA allows a plaintiff to pursue injunctive relief even where the individual plaintiff will not benefit from an injunction, it cannot supplant Constitutional standing requirements. Article III of the Constitution requires that a plaintiff seeking injunctive relief allege a threat of future harm.” Dapeer, 95 F. Supp. 3d at 1373; see also Ohio State Troopers Assoc, Inc. v. Point Blank Enterps., Inc., 347 F. Supp. 3d 1207, 1227 (S.D. Fla. 2018) (where individual plaintiffs failed to show a sufficient likelihood of being affected in the future, association lacked standing). Therefore, Plaintiff’s reliance on language from Gastaldi regarding the broadness of the FDUTPA is misplaced. Plaintiff’s allegations must not only satisfy FDUTPA standing requirements but must also satisfy the threshold requirements for standing under Article III. Upon review, the Court agrees with Defendants that, notwithstanding FDUTPA’s broad application, Plaintiff must allege a plausible threat of future harm based upon the alleged disclosure violations in Count 1.

Defendants argue that because Plaintiff’s members are existing franchisees and will not be provided franchise disclosure documents in the future, none of Plaintiff’s members has standing to seek an injunction to prevent future violations of the FTC Franchise Rule. Plaintiff contends that a violation of the [*15]  FTC Franchise Rule alleges a plausible per se violation of FDUTPA, and that Defendants deliberately misconstrue the claim asserted in Count 1. Thus, the Court looks to the allegations in the SAC.

In Count 1, Plaintiff alleges that its members’ injuries arising from Defendants’ non-disclosure or misrepresentations consist of excess mark-ups for Selected Goods, loss of equity from Defendant’s right of first refusal, and diminished benefits from Defendants’ misuse of monies in the Advertising Fund. ECF No. [62] ¶ 89. Plaintiff alleges further that, as a result of the non-disclosures and misrepresentations, “the Association’s franchisee members have and will continue to sustain damages and irreparable harm to their businesses.” Id. ¶ 90. However, as Plaintiff itself points out, the claim in Count 1 is premised upon per se FDUTPA violations arising from Defendants’ alleged violations of the FTC Franchise Rule, which requires that certain information be provided in a FDD. See 16 C.F.R. § 436.5. Therefore, the relevant injurious act in this case is the failure to comply with the FTC Franchise Rule by making the requisite disclosures or accurate representations, not the three alleged deceptive and unfair practices [*16]  that form the basis of Count 2. As such, Plaintiff’s members’ injuries in Count 1 stem from Defendants’ past non-compliance with disclosure requirements, not any subsequent actions.

Plaintiff alleges that Defendants made several false disclosures and omissions in the FDD, and therefore has stated a claim for per se violations of FDUTPA. However, while the FTC Franchise Rule requires a franchisor to provide a prospective franchisee with a current FDD, see 16 C.F.R. § 436.2, there is no ongoing disclosure requirement or requirement that a franchisor provide FDDs to existing franchisees. As alleged in this case, Plaintiff is a group of the majority of the franchisees in the Tim Hortons restaurant chain in the United States. ECF No. [62] ¶ 1 (emphasis added). Thus, it is not a misreading of the allegations in the SAC to conclude that if Plaintiff’s members are already franchisees, as opposed to prospective franchisees, they have already received FDDs. There is no allegation in the SAC to the contrary, nor does Plaintiff argue otherwise. Rather, Plaintiff alleges that the Association’s express purpose is “[t]o provide a common interest organization for Tim Hortons franchisees, creating a forum for discussion, [*17]  education and advocacy for franchise owners.” Id. ¶ 74 (emphasis added). Taking these allegations as true, Plaintiff’s members are all existing franchisees, and therefore, they will not be provided FDDs again in the future. As such, Plaintiff’s allegations of ongoing injury to its members as a result of Defendants’ per se violations of FDUTPA is a conclusion that is simply not supported by the facts in this case.

Defendants contend that because Plaintiff’s members are existing franchisees who will not receive FDDs, the injury-in-fact—the failure to disclose in compliance with the FTC Franchise Rule—is neither sufficiently actual or imminent to satisfy Article III’s requirements with respect to Plaintiff’s members. The Court agrees. See Nat’l Parks Conservation Ass’n v. Norton, 324 F.3d 1229, 1241 (11th Cir. 2003) (“where a plaintiff seeks prospective injunctive relief, it must demonstrate a ‘real and immediate threat’ of future injury in order to satisfy the ‘injury in fact’ requirement”) (citing City of Los Angeles v. Lyons, 461 U.S. 95, 103-04, 103 S. Ct. 1660, 75 L. Ed. 2d 675 (1983) and Wooden v. Bd. of Regents, 247 F.3d 1262, 1283-84 (11th Cir. 2001)). Because Plaintiff cannot plausible allege that its members likely suffer a real and immediate threat from Defendants’ future non-compliance with the FTC Franchise Rule, Plaintiff’s members lack Article III standing to seek the relief requested. As a result, Plaintiff [*18]  lacks standing to seek either injunctive or declaratory relief as to Count 1.

1. The interests sought to be protected in Count 1 are not germane to Plaintiff’s purpose

Defendants argue next that the interests sought to be protected in Count 1 of the SAC are not germane to the Association’s purpose and, therefore, Plaintiff cannot satisfy the second prong of associational standing. As alleged in the SAC, Plaintiff’s purpose is “[t]o provide a common interest organization for Tim Hortons franchisees, creating a forum for discussion, education and advocacy for franchise owners.” ECF No. [62] ¶ 74. Thus, Defendant argues that because the Association is for the benefit of existing franchisees, as opposed to the general public or prospective franchisees, the interests sought to be protected in Count 1 are not germane to the Association’s purpose. The Court agrees. Since Plaintiff’s members fail to show an injury in fact with respect to Count 1 because they will not receive FDDs in the future, the interests sought to be protected in Count 1 are not the interests of current franchise owners. As a result, Plaintiff fails to satisfy the second prong of associational standing with respect to Count [*19]  1.

1. Participation of individual members

Because the Court finds that Plaintiff fails to satisfy the first two prongs for associational standing with respect to Count 1, alleging per se violations of FDUTPA based upon noncompliance with the FTC Franchise Rule, the Court need not consider whether Plaintiff can satisfy the third prong with respect to Count 1.

As a result, Count 1 is due to be dismissed for lack of standing.

1. Count 2 — unfair and deceptive practices

   a. Plaintiff’s members have standing to assert Count 2

Defendants do not appear to challenge the first prong of associational standing with respect to Count 2 of the SAC. Nevertheless, upon review, the Court finds that with respect to Count 2, Plaintiff’s members do have standing to assert claims for declaratory and injunctive relief. Plaintiff’s claim in Count 2, unlike Count 1, is premised upon several allegedly deceptive and unfair trade practices that Defendants engaged in after Plaintiff’s members had established franchisee relationships with Defendants. According to the SAC, Defendants engage in these practices with respect to franchisees, including marking up prices of Selected Goods, misappropriating Advertising Fund [*20]  monies, and enacting an equity-stripping policy, and therefore the SAC alleges a real or imminent threat of future injury to Plaintiff’s members. As a result, Plaintiff satisfies the first prong of the associational standing inquiry with respect to Count 2.

1. The interests sought to be protected in Count 2 are germane to the Association’s purpose

The Defendant does not appear to challenge the second prong of associational standing with respect to Count 2. Nevertheless, upon review, the Court determines that in contrast to Count 1, Plaintiff satisfies the second prong with respect to Count 2. The SAC alleges that one of the main purposes of the Association is “advocacy for franchise owners.” As previously noted, Count 2 seeks relief for alleged deceptive or unfair practices by Defendants related to the franchise relationship. Accordingly, the allegations in the SAC are sufficient to establish that the interests sought to be protected in Count 2 are germane to Plaintiff’s purpose.

1. Participation of individual members

Defendants argue that many of Plaintiff’s claims of alleged wrongdoing will require the participation of individual franchisees for proof. In response, Plaintiff argues that [*21]  the individual participation limitation to associational standing does not prevent standing where some individual participation may be necessary. Moreover, Plaintiffs contend that the fact that money damages are not being sought in the SAC should be dispositive with respect to this prong of the Court’s inquiry.

“[W]hether an association has standing to invoke the court’s remedial powers on behalf of its members depends in substantial measure on the nature of the relief sought. If in a proper case the association seeks a declaration, injunction, or some other form of prospective relief, it can reasonably be supposed that the remedy, if granted, will inure to the benefit of those members of the association actually injured.” Warth, 422 U.S. at 515; see also Hunt, 432 U.S. at 343. However, when the “individual participation of each injured party [is] indispensable to proper resolution of the cause” an association will lack standing. Id. As Plaintiff points out, the third prong of associational standing is prudential, rather than constitutional. United Food & Com. Workers Union Local 751 v. Brown Grp., Inc., 517 U.S. 544, 555, 116 S. Ct. 1529, 134 L. Ed. 2d 758 (1996). “[P]rudential limitations are rules of ‘judicial self-governance; that ‘Congress may remove . . . by statute.” Id. at 558 (quoting Warth, 422 U.S. at 509).

At the outset, the Court notes that, contrary to Plaintiff’s [*22]  assertion, “[a] court’s inquiry into the extent of individual participation is required does not end . . . simply because a claim seeks declaratory relief.” Nat’l Franchisee Ass’n v. Burger King Corp., 715 F. Supp. 2d 1232, 1239 (S.D. Fla. 2010). Therefore, Plaintiff’s suggestion that the Court’s inquiry ends simply because Plaintiff seeks only declaratory and injunctive relief is incorrect. Indeed, the Court’s determination depends not only on the nature of the relief sought, but also upon the nature of the claims asserted. See Hunt, 432 U.S. at 343. Thus, the Court looks to the nature of Plaintiff’s claim in Count 2.

To state a FDUTPA claim for injunctive relief, a party must allege a deceptive act or unfair practice, and that the party was aggrieved by the act or practice. CareerFairs.com v. United Bus. Media LLC, 838 F. Supp. 2d 1316, 1324 (S.D. Fla. 2011) (citing Kelly v. Palmer, Reifler, & Assoc., P.A., 681 F.Supp.2d 1356, 1366 (S.D. Fla. 2010)). A deceptive practice is one that is “likely to mislead” consumers. Davis v. Powertel, Inc., 776 So. 2d 971, 974 (Fla. 1st DCA 2000). An unfair practice is “one that ‘offends established public policy’ and one that is ‘immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'” Samuels v. King Motor Co. of Fort Lauderdale, 782 So.2d 489, 499 (Fla. 4th DCA 2001) (quoting Spiegel, Inc. v. Fed. Trade Comm’n, 540 F.2d 287, 293 (7th Cir. 1976)). In the SAC, Plaintiff alleges that Defendants engaged in price gouging and a predatory pricing scheme through their mark-ups on Selected Goods, an equity-stripping policy based upon a right of first refusal, and misappropriation and misuse of Advertising Fund [*23]  monies to the detriment of its franchisee members, and that these practices are deceptive or unfair.

As an example of why individual participation is indispensable in this case, Defendants point to Plaintiff’s price-gouging claim based upon allegations that its members are forced to purchase supplies from a sole supplier at a substantial mark-up from the market rate, and that the mark-up eliminates the ability of franchisees to turn a profit. ECF No. [67] at 11. Defendants contend that at least two individualized inquiries would be required with respect to this claim — what the market rate was at the time the supplies were purchased, and characteristics and circumstances of individual franchisees, such as business management and individual sales practices, with respect to determining the effects on the franchisees’ ability to turn a profit. However, Defendants’ argument misses the mark. Plaintiff’s claim in Count 2 does not seek damages, and as previously noted, to state a claim for injunctive relief under FDUTPA, a plaintiff need only allege that it is a party aggrieved by a deceptive or unfair trade practice. Plaintiff has done so here. Thus, assuming that Count 2 otherwise sufficiently [*24]  states a FDUTPA claim, Defendants fail to persuade the Court that individualized inquiries from each of Plaintiff’s franchisee members would be required. Accordingly, at this juncture, Plaintiff satisfies the third prong for associational standing with respect to Count 2. Therefore, the Court will not dismiss Count 2 for lack of standing.

1. The SAC fails to state a FDUTPA claim in Count 2 against THUSA or Cil

Defendants also challenge the sufficiency of the FDUTPA claim alleged in Count 2 of the SAC, arguing that the allegations in the SAC are simply different versions of the same allegations underlying Plaintiff’s breach of contract claims in previous complaints in this case and two previous lawsuits. Defendants argue further that the practices alleged to be unfair and deceptive are clearly disclosed in the FDD and Franchise Agreements. As such, Plaintiff’s FDUTPA claim based on these practices fails because a FDUTPA claim will not lie when the acts complained of comply with the terms of a contract.³ See Zlotnick v. Premier Sales Grp., 431 F. Supp. 2d 1290, 1295 (S.D. Fla. 2006) (plaintiff failed to state FDUTPA claim where defendant acted in accordance with express terms of contract) aff’d, 480 F.3d 1281 (11th Cir. 2007); [*25]  see also Amar Shakti Enters., LLC v. Wyndham Worldwide, Inc., No. 6:10-cv-1857-Orl-31KRS, 2011 U.S. Dist. LEXIS 93676, 2011 WL 3687855, at *3 (M.D. Fla. Aug. 22, 2011) (FDUTPA claim did not lie where franchise agreement permitted conduct alleged to be unfair or deceptive). Conduct constituting a breach of contract is actionable under FDUTPA if the conduct underlying the breach is, by itself, unfair or deceptive. PNR, Inc. v. Beacon Prop. Mgmt., Inc., 842 So. 2d 773, 777 n.2 (Fla. 2003). Here, Plaintiff has not plausibly alleged conduct that by itself is unfair or deceptive in conjunction with its claims of a price-gouging scheme, equity-stripping policy, or misuse of the Advertising Fund.

1. Price-gouging scheme

As a part of Defendants’ price-gouging scheme, Plaintiff contends that Defendants marked up prices of Selected Goods to effectively eliminate the ability of franchisees to make a profit, collected undisclosed royalties from franchisees through predatory pricing on Selected Goods, and utilized their buying power solely for the benefit of the franchisor and not the Tim Hortons franchise system as a whole. ECF No. [62] ¶ 93(a)-(c).⁴

However, the Franchise Agreement discloses specifically with respect to the provision of Selected Goods that franchisees may be required to purchase directly from the franchisor, and that the franchisor may make a profit. The Agreement, in pertinent [*26]  part, states as follows:

[T]he Franchisee specifically agrees that the Franchisor may require that any and all Items, including ingredients and commodities which may form any part of the Items or the whole product of any food or beverage made, sold or consumed on the Premises or from the Franchised Restaurant . . . be purchased solely from the Franchisor, TH or a third party.

[. . .]

It is hereby acknowledged by the Franchisee, that in purchasing such Items, the Franchisor or TH may make a profit or may receive an allowance, commission, rebate, advantage or other benefit on the price of Items sold to the Franchisee.

ECF No. [67-6] at 4 § 5.07(c). In addition, the Agreement provides that franchisees may seek approval to purchase supplies from sources other than those already designated by the franchisor:

If the Franchisee desires to purchase Items for which the Franchisor has not approved only a single supplier from other than an Approved Supplier, the Franchisee shall submit (or request its proposed supplier to submit) to the Franchisor a written request to approve the proposed supplier . . . .

Id. at 5 § 5.07(h). Plaintiff has not alleged that its members attempted to request alternate suppliers. In addition, the [*27]  mere fact that Defendants obtained a larger profit than Plaintiff’s members would like does not in and of itself constitute a deceptive or unfair practice. See, e.g. Stubblefield v. Follette Higher Educ. Grp., Inc., No. 8:10-CV-824-T-24-AEP, 2010 U.S. Dist. LEXIS 50393, 2010 WL 2025996, at * (M.D. Fla. May 20, 2010) (underlying act of making higher profit margin where agreement specified a profit margin did not constitute unfair and deceptive trade practice).

1. Equity-stripping policy

As part of the equity-stripping policy, Plaintiff alleges that Defendants enacted a policy to strip equity from franchisees including the valuable goodwill of owning a franchise business. ECF No. [62] ¶ 93(g).

However, the Agreement again specifically provides for the allegedly equity-stripping right of first refusal, stating the following:

In the event that the Franchisee wishes to transfer the Franchised Restaurant business carried on at the Premises pursuant to this Agreement, the Franchisee shall do so only by first offering to resell the Franchised Restaurant business to the Franchisor at the depreciated value of the furniture, equipment, signs and improvements.

Id. at 9 § 11.02. The SAC alleges no more than the fact that Defendants may act in accordance with this [*28]  provision in the Agreement, which in and of itself does not plausibly constitute an unfair or deceptive practice.⁵

1. Misuse of the Advertising Fund

Plaintiff alleges that Defendants misused the Advertising fund by failing to provide any benefit to franchisees with regard to marketing, misappropriating Advertising Funds monies for improper uses, and failing to properly account for Advertising Fund monies. ECF No. [62] ¶ 93(d)-(f).

With respect to the Advertising Fund, the Franchise Agreement provides that no benefit is guaranteed to franchisees, as follows:

The Franchisee acknowledges that . . . the Franchisor accordingly undertakes no obligation to ensure that the Franchisee or any individual Tim Hortons franchisee benefits directly or indirectly in its local market or otherwise from the placement of such advertising and, for greater clarity, the Franchisee acknowledges that this Agreement confers no right to benefit directly or indirectly, in a pro-rata manner or otherwise, from the Franchisee’s Advertising Contribution or any general or specific use thereof and/or the Advertising Fund at large.

[. . .]

[T]he Franchisor assumes no direct or indirect liability or obligation to the Franchisee [*29]  with respect to the maintenance, administration or direction of the Advertising Fund . . . .

Id. at 7-8 §§ 8.01, 8.02(f). That Plaintiff’s members allegedly derived no benefit from the Advertising Fund based on Defendants’ alleged misuse of funds alone does not plausibly constitute an unfair or deceptive trade practice.⁶

1. Plaintiff fails to allege actions independent from breaches of contract

Indeed, Plaintiff does not dispute that the language in the Franchise Agreements deals specifically with the practices it alleges are deceptive and unfair, but instead argues that “no reasonable reading of the disclosures would suggest that THUSA would be contractually allowed to engage in the . . . schemes implemented by THUSA to the detriment of the Association’s franchisee members.” ECF No. [71] at 16 (emphasis added). Plaintiff’s reliance upon Kenneth F. Hackett & Associates, Inc. v. GE Capital Information Technology Solutions, Inc., 744 F. Supp. 2d 1305, 1312 (S.D. Fla. 2010) is misplaced because the deceptive and unfair practices alleged there were not specifically encompassed with the parties’ agreement. 744 F. Supp. 2d at 1312-13. Here, by contrast, although Plaintiff attempts to recast its claim as independent from the Franchise Agreements, the alleged practices relate directly to Defendants’ performance pursuant to the terms of those Franchise Agreements. [*30]  Thus, taking Plaintiff’s allegations as true regarding the price-gouging scheme, equity-stripping policy, and misuse of the Advertising Fund, the SAC states claims that amount to no more than breaches of the Franchise Agreements. See Sweeney v. Kimberly-Clark Corp., No. 8:14-CV-3201-T-17EAJ, 2015 U.S. Dist. LEXIS 123080, 2015 WL 5446797, at *7 (M.D. Fla. Sept. 15, 2015) (“a claim under FDUTPA does not arise merely from an alleged breach of warranty or a breach of contract claim.”) (citation omitted). As a result, Count 2 fails to state a plausible claim for violation of FDUTPA. See Hogan v. Praetorian Ins. Co., No. 1:17-cv-21853, 2018 U.S. Dist. LEXIS 232708, 2018 WL 8266803, at *11 (S.D. Fla. Jan. 11, 2018) (dismissing FDUTPA claim where allegations were conclusory and, even if accepted as true, did not create plausible inference of unfair or deceptive acts). Count 2 is due to be dismissed.

Because the Court determines that Count 2 fails to state a plausible claim under FDUTPA based on the alleged practices, the Court does not reach Defendant THUSA’s argument regarding the choice-of-law provision or consider Defendant Cil’s arguments regarding the sufficiency of the allegations against him individually.

² Defendants also argue, regarding the first prong of the standing inquiry, that because the franchise agreements, which all of Plaintiff’s members signed, contain an Ohio choice-of-law provision, Plaintiff’s members are barred from asserting FDUTPA claims in the first instance. However, this argument is more relevant to Plaintiff’s ability to state a claim, rather than to Plaintiff’s standing.

³ THUSA has provided exemplars of the language in the FDDs and Franchise Agreements that refer specifically to these practices, which the Court may properly consider at this juncture. See Harris v. Ivax Corp., 182 F.3d 799, 802 n.2 (11th Cir.1999) (court may properly consider a document attached to a motion to dismiss in a case in which a plaintiff refers to a document in its complaint, the document is central to its claim and its contents are not in dispute); Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1368-69 (11th Cir. 1997).

⁴ Plaintiff also claims that Defendants forced renovations and renewals of equipment at prices that are substantially above market rates, ECF No. [62] ¶ 93(h), but other than the SAC stating that equipment is included within the Selected Goods, see id. ¶ 32, there are no factual allegations supporting the forced renovations aspect of Plaintiff’s claim.

⁵ With respect to Plaintiff’s claim regarding equity-stripping, there is the added concern that there are no allegations in the SAC that any of Plaintiff’s members in fact attempted to sell their franchises, and thus, any purported injury based upon Defendants’ alleged policy would be merely conjectural. Thus, Plaintiff has not sufficiently alleged an injury in fact with respect to its claim based upon equity-stripping.

⁶ Moreover, Plaintiff’s Advertising Fund claim suffers from an additional flaw. Plaintiff alleges that non-party RBI manages the advertising funds for each of its brands, ECF No. [62] ¶ 19. RBI has used various strategies to extract more money from the Tim Hortons franchise system by using the Advertising funds in ways never before used or contractually permitted. Id. at ¶ 63. It funnels money to itself, THUSA, and non-party TDL, at the expense of franchisees, ECF No. Id. ¶¶ 63-64. Nevertheless, Plaintiff alleges further that THUSA controls the annual contributions to the Advertising Fund, and immediately following RBI’s takeover, made several changes to the administration of the Fund that included using monies from the fund for items unrelated to marketing and advertising. Id. ¶¶ 67-68. Taken as true, these allegations are inconsistent, and at best, the plausible inference to be drawn from them is that non-party RBI, not Defendants in this case, is the allegedly responsible party. Indeed, the heading in Plaintiff’s SAC on this issue is telling: “RBI Misappropriates Advertising Fund Monies.” See ECF No. [62] at 11.

FLORIDA FEDERAL COURT REJECTS FRANCHISE LAWYERS’ FEE REQUEST AS ‘TOO HIGH’

In a recent franchise case in Florida, a federal district court refused to grant the fees requested by the franchisee lawyers’ in their fee petition because the franchisee lawyers’ fees were “too high” when viewed against the rates charged by other lawyers in the area who are experienced in complex litigation; in slashing the lawyers’ requested fees by almost 40% across the board, the court stated: “The case at bar was not complex, and Defendant Childress won on the basis of default [with the other side not putting up a defense].”

Drone Nerds Franchising Llc v. Childress

United States District Court for the Southern District of Florida

October 7, 2020, Decided; October 7, 2020, Entered on Docket

Case No. 19-CV-61153-RUIZ/STRAUSS

Excerpts of the Case:

REPORT AND RECOMMENDATION

THIS CAUSE came before me upon Defendant/Counter-Plaintiff’s [(“Defendant Childress'”)] Motion for Attorneys’ Fees and Costs (DE 83) (the “Motion”). The Motion has been referred to me to take all action as required by law pursuant to 28 U.S.C. § 636(b)(1)(A) and the Magistrate Judge Rules of the Local Rules of the Southern District of Florida. (DE 84). I have reviewed the Motion, the record in this case and am otherwise duly advised. For the [*3]  reasons discussed herein, I RECOMMEND that the Motion (DE 83), be GRANTED IN PART and DENIED IN PART. Specifically, I recommend that attorneys’ fees be awarded in the amount of $20,947.50 and that no costs be awarded.

1. DISCUSSION

Defendant Childress’ Motion seeks $38,095.00 in attorney’s fees and $2,435.15 in costs. (DE 83 at 3). “Courts have discretion to award fees under FDUTPA.” Hard Rock Cafe Int’l USA, Inc. v. RockStar Hotels, Inc., No. 17-CV-62013, 2019 U.S. Dist. LEXIS 85437, 2019 WL 3412155, at *9 (S.D. Fla. May 20, 2019), report and recommendation adopted, No. 17-CV-62013, 2019 WL 3408888 (S.D. Fla. June 4, 2019) (citation omitted). Also, “Fla. Stat. § 817.416(3) explicitly permits one who demonstrates a violation under the Act to recover ‘all moneys invested in such franchise or distributorship’ plus ‘reasonable attorney’s fees.'” Burger King Corp. v. Austin, 805 F. Supp. 1007, 1026 (S.D. Fla. 1992). Thus, as the Court previously found, Defendant is entitled to an award of reasonable attorneys’ fees and costs against the Default Plaintiff.

1. Reasonableness of Fees

When determining the reasonableness of attorneys’ fees, courts begin by multiplying a reasonable hourly rate by the number of hours reasonably expended. Norman v. Housing Auth. of Montgomery, 836 F.2d 1292, 1299 (11th Cir. 1988) (citing Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983)). The result of that calculation is known as the lodestar, see id. at 1301-02, which is “strongly presumed to be reasonable.” Martinez v. Hernando Cnty. Sheriff’s Office, 579 F. App’x 710, 715 (11th Cir. 2014) (citations [*6]  omitted).

The party seeking an award of fees has the burden of documenting the hours incurred and the applicable hourly rates. Norman, 836 F.2d at 1303 (citing Hensley, 461 U.S. at 437). Fee applicants are required to exercise billing judgment and to exclude entries that are excessive, redundant, or otherwise unnecessary. Am. Civil Liberties Union v. Barnes, 168 F.3d 423, 428 (11th Cir. 1999) (citing Hensley, 461 U.S. at 434). Entries for clerical or administrative tasks should also be excluded. See Ortega v. Berryhill, No. 16-24697-CIV, 2017 WL 6026701, at *2 (S.D. Fla. Dec. 5, 2017) (“Purely clerical or secretarial tasks that require no legal skill or training, such as converting pleadings to PDF, faxing and mailing, updating lists and calendars, and filing or e-filing documents, should not be billed at a paralegal rate regardless of who performs them.” (citing Spegon v. Catholic Bishop of Chicago, 175 F.3d 544, 553 (7th Cir. 1999))).

It is axiomatic that hours that are unreasonable to bill to one’s client are unreasonable to bill to an adversary, “irrespective of the skill, reputation or experience of counsel.” Barnes, 168 F.3d at 428 (quoting Norman, 836 F.2d at 1301). If fee applicants fail to exercise billing judgment, courts must do it for them. Id. A court “is itself an expert on the question and may consider its own knowledge and experience concerning reasonable and proper fees and may form an independent judgment either with or without the aid of witnesses as to value.” Norman, 836 F.2d at 1303 (citations [*7]  omitted).

A fee summary from Attorney Robert M. Einhorn’s Affidavit is shown below reflecting the rates, hours, and amounts billed by attorneys, a law clerk, and a paralegal in this case:

Summary by Attorney/Paralegal:

(DE 83-1 at ¶9).

1. Reasonableness of Hourly Rate

Defendant Childress requests that this Court find the hourly rates above to be reasonable stating in support the following:

1. Robert M. Einhorn, named partner and highly experienced commercial trial lawyer and member of the Florida Bar since 1990; $750.00 per hour . . .;
2. Alejandro Brito, named partner and highly experienced commercial trial lawyer and member of the Florida Bar since 1996; $725.00 per hour . . .;
3. Alaina B. Karsten, former partner and member of the Florida Bar since 2009; $500.00 per hour . . .;
4. Cecilia Hernandez, law clerk and recent law school graduate; $200.00 per hour . . .; and
5. (sic) Aude Piriou, paralegal; $150 per hour . . .;

(DE 83 at [*8]  3). In a separate filing, counsel states that none of the attorneys in this case have received a fee award for their services in cases in the Southern District of Florida in the last two years. (DE 86).

I should consider several factors in determining the prevailing market rate, such as “the attorney’s customary fee, the skill required to perform the legal services, the attorney’s experience, reputation and ability, the time constraints involved, preclusion of other employment, contingency, the undesirability of the case, the attorney’s relationship to the client, and awards in similar cases.” Mallory v. Harkness, 923 F. Supp. 1546, 1555 (S.D. Fla. 1996) (referring to factors set out in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717-18 (5th Cir. 1974), abrogated in part by Blanchard v. Bergeron, 489 U.S. 87, 90, 109 S. Ct. 939, 103 L. Ed. 2d 67 (1989)). As the party seeking an award of fees, [Movant] has the burden of “supplying the court with specific and detailed evidence from which the court can determine the reasonable hourly rate.” Barnes, 168 F.3d at 427 (quoting Norman, 836 F.2d at 1303). “A reasonable hourly rate is ‘the prevailing market rate in the relevant legal community for similar services by lawyers of reasonably comparable skills, experience, and reputation.'” Id. at 436 (quoting Norman, 836 F.2d at 1299). “The general rule is that the ‘relevant market’ for purposes of determining the reasonable hourly rate for an attorney’s services is ‘the place [*9]  where the case is filed.'” Id. at 437 (citing Cullens v. Georgia Dep’t. of Transp., 29 F.3d 1489, 1494 (11th Cir.1994)).

Here, Defendant Childress does not carry his burden to justify the requested rates. Attorney Einhorn’s Affidavit does nothing to further explain why the listed timekeepers are entitled to the hourly rates requested beyond what is in the Motion. (DE 83-1). Further, I find that the requested rates are too high. Recent awards for lawyers experienced in complex areas of law, such as intellectual property, have been less. Boigris v. EWC P&T, LLC, No. 19-21148-CIV, 2020 U.S. Dist. LEXIS 32941 , 2020 WL 1692013, at *2-3 (S.D. Fla. Feb. 25, 2020), report and recommendation adopted, No. 19-21148-CIV, 2020 U.S. Dist. LEXIS 63035, 2020 WL 1692080 (S.D. Fla. Mar. 16, 2020) (finding the appropriate rate at the partner level to be in the $400 range in a traditional intellectual property case and awarding $475 per hour for partner work and $350 per hour for associate work); Newman v. Eduardo Meloni, P.A., No. 0:20-CV-60027-UU, 2020 U.S. Dist. LEXIS 163064 , 2020 WL 5269442, at *2 (S.D. Fla. Sept. 4, 2020) (finding a $450 per hour requested rate reasonable in class action lawsuit for senior partner with sixteen years of experience and a $350 per hour requested rate reasonable for associate with more than five years of experience); Berkley Vacation Resorts, Inc. v. Castle Law Grp., P.C., No. 18-CV-60309, 2019 WL 7344834, at *2-3 (S.D. Fla. Nov. 18, 2019), report and recommendation adopted, No. 18-60309-CIV, 2019 WL 7344793 (S.D. Fla. Dec. 11, 2019) (finding the reduced hourly rates that were requested to be reasonable as follows: 1) $400 for partner and chair of litigation [*10]  department with more than 41 years of experience litigating in state and federal courts; 2) $375 for partner with more than 15 years of experience litigating in state and federal courts; 3) 275 for senior counsel with more than 11 years of experience litigating in state and federal courts).

I find that a reasonable hourly rate for professionals assisting in this case are as follows based upon the above and my own knowledge regarding reasonable hourly rates in this community:

The case at bar was not complex, and Defendant Childress won on the basis of default. Defendant Childress argues that the work was performed in an efficient manner, but efficiency does not justify the requested hourly rates. Accordingly, I recommend the above-reflected rates be awarded as reasonable hourly rates in this case.

² Alaina B. Siminovsky is referenced as Alaina B. Karsten in Attorney Einhorn’s Affidavit that was submitted in support of the Motion.

Virtual Healthcare Franchisee’s Fraud Claims Based on Franchisor’s Financials Must be Reasserted

 A virtual healthcare franchisee’s common law fraud claim that the franchisor of a cloud-based marketplace for telehealth services fraudulently induced the franchisee to invest in the franchise and in so doing also violated the anti-fraud provision of the New York Franchise Sales Act (NYFSA) based on statements allegedly made at a Franchise Expo regarding future performance were mere puffery under Missouri law, and to the extent other similar claims were based on the franchisor’s misrepresentations made during the negotiations and execution of the parties’ franchise agreement (including specific representations about future revenue and expense ‘projections’), the allegations were insufficient to sufficiently identify which individual defendants made which statements; further, issues of fact remained as to whether the franchisee’s alleged reliance on the representations made by the defendants was reasonable.

 CHARLES FABIUS, ET AL., PLAINTIFFS V. MEDINEXO USA, LLC, ET AL., DEFENDANTS, U.S. District Court, E.D. Missouri, Eastern Division. No. 4:19CV2526 JCH. Dated April 3, 2020

 ———————————————–

 Excerpts from case:

DISCUSSION

 Fraud In The Inducement

 As noted above, in Count III of their Complaint Plaintiffs assert a claim for fraud in the inducement. (Compl., ¶¶ 86-92). Specifically, Plaintiffs allege as follows:

87. In the initial meeting between Mr. Fabius and defendants Toro and Adelman, the defendants made several false, misleading and fraudulent statements and representations of material facts to him, including unsupported statements about the potential earning capacity as a [] Medinexo franchisee.
88. Subsequently during the negotiation of the parties’ franchise agreement, defendants again provided plaintiffs with false, misleading and fraudulent information in the form of a “Budget Example” that provided a completely fabricated two-year earnings projection.

( Id., ¶¶ 87, 88).

Under Missouri law, in order to succeed on their claim for fraudulent inducement Plaintiffs must establish facts in support of the following elements: “(1) that [Defendants] made certain material representations to [Plaintiffs]; (2) such representations were false when made; (3) that [Defendants] knew the representations were false; (4) that the representations were made with the purpose of deceiving [Plaintiffs]; (5) that [Plaintiffs were], in fact, deceived; (6) [Plaintiffs] reasonably relied on the representations in signing the [Franchise Agreement]; and (7) [Plaintiffs] suffered damage as a proximate result of the fraudulent misrepresentations.” Bracht v. Grushewsky, 448 F.Supp.2d 1103, 1110 (E.D. Mo. 2006) (citing Trotter’s Corp. v. Ringleader Restaurants, Inc., 929 S.W.2d 935, 939 (Mo. App. 1996)). “As with any cause of action, ‘[a] failure to establish any one of the essential elements of fraud is fatal to recovery.”’ Argus Health Systems, Inc. v. Benecard Services, Inc., No. 10-00187-CV-W-JTM, 2011 WL 5570064, at *2 n. 4 (W.D. Mo. Nov. 16, 2011) (quoting Emerick v. Mutual Benefit Life Ins. Co., 756 S.W.2d 513, 519 (Mo. 1988) (en banc)).

In their Motions to Dismiss, Defendants claim Plaintiffs’ fraud in the inducement claim is subject to dismissal for several reasons. The Court will address Defendants’ assertions in turn.

1. Statements Made At The Franchise Expo

As noted above, Plaintiffs assert Defendants stated at the Franchise Expo that, during the first year of operation Fabius would earn approximately $75,000, during the second year he would earn approximately $400,000, and he “would make so much money” as a Medinexo franchisee that he would not consider renewing the franchise agreement after five years. (Compl., ¶ 20). In their Motions to Dismiss Defendants argue these alleged misrepresentations are not actionable, because they constituted “mere puffery.” ( See Adelman’s Memo in Support, P. 6; Memorandum in Support of Defendants Medinexo USA, LLC’s and Jorge Toro’s Motion to Dismiss (“Medinexo’s Memo in Support”), PP. 5-6).

Under Missouri law, “predictions of future success and profitability…are not misrepresentations of past or existing fact and cannot be the subject of a fraud action.” Trotter’s Corp., 929 S.W.2d at 940.

To constitute fraud, the alleged misrepresentation must relate to a past or existing fact. Mere statements of opinion, expectations, and predictions for the future are insufficient to authorize a recovery for fraudulent misrepresentation. In particular, predictions and opinions regarding future profitability of a business cannot form a basis for fraud as a matter of law.

Id. (citations omitted). See also Morrison v. Back Yard Burgers, Inc., 91 F.3d 1184, 1186 (8 th Cir. 1996) (applying Arkansas law8 , and holding that representations relating solely to future events, such as projections related to franchise profits, cannot support an action for fraud); VT Investors v. R & D Funding Corp., 733 F.Supp 823, 837-38 (D. N.J. 1990) (holding a statement that the company in which plaintiffs invested would “in the near future, realize a positive cash flow in excess of $60,000 per month”, could only be characterized as non-actionable puffery “because it is such an emphatic statement of opinion”).

In response to Defendants’ motions Plaintiffs do not dispute, but rather appear to concede, that the statements regarding potential profitability allegedly made during the Franchise Expo cannot serve as the basis for a claim of fraud, as they constituted at most puffery on Defendants’ part. Specifically, Plaintiffs claim they do not allege only that Defendants “made vague statements of potential[] profitability that in some circumstances could amount to mere ‘puffery’; rather defendants provided what appeared to be an empirical analysis in support of these representations and agreed to append them to the parties’ agreement.” (Plaintiffs’ Adelman Opp., P. 12 (emphasis added), citing Franchise Agreement, Exh. C, “Budget Example”).9

Upon consideration, the Court agrees the statements allegedly made at the Franchise Expo constituted mere puffery, insufficient to sustain a claim of fraud in the inducement. The Court finds this to be especially true because, as noted by Defendant Adelman, Plaintiffs allege Defendants made the initial profit representations “without knowledge of Plaintiffs’ business plans, experience, and expected level of investment in the franchise.” (Adelman’s Memo in Support, P. 7). Under these circumstances, this portion of Defendants’ Motions to Dismiss will be granted.

1. Misrepresentations Made During the Negotiation And Execution Of The Franchise Agreement

As noted above, in their Complaint Plaintiffs further allege that during the negotiation of the Franchise Agreement, Defendants provided ”  additional written financial performance representations , once again, making specific representations about and providing additional future revenue and expense ‘projections.”’ (Compl., ¶ 34 (emphasis in original)). Plaintiffs claim the executed Franchise Agreement incorporated by reference one such representation, a “Budget Example” expressly stating earnings projections for the first two years of franchise operation. ( Id., ¶ 35). Plaintiffs maintain Defendants included said projections despite knowing that the data as provided was deceptive, overstated and not based in facts. ( Id., ¶¶ 36-38).

In their Motions to Dismiss, Defendants assert that with these allegations Plaintiffs fail to state a claim for relief, for two reasons.

1. The Alleged Statements Attributed To The Various Defendants Are Not Pleaded With Sufficient Particularity

Allegations of fraud are subject to a heightened pleading requirement under Federal Rule of Civil Procedure 9(b), which states in relevant part as follows: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” To meet the requirements of Rule 9(b), a pleading must include “such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” Abels v. Farmers Commodities Corp., 259 F.3d 910, 920 (8 th Cir. 2001) (internal quotations and citations omitted). “In other words, the complaint must plead the who, what, where, when, and how of the alleged fraud.” Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8 th Cir. 2009) (internal quotations and citations omitted).

In their Motions to Dismiss, Defendants contend Plaintiffs’ fraud in the inducement claim fails because they rely on collective allegations rather than individualized statements of fact. (Adelman’s Memo in Support, P. 5; Medinexo’s Memo in Support, P. 8). In other words, Defendants claim Plaintiffs impermissibly attribute the alleged misrepresentations to Defendants Toro and Adelman together, without specifying which individual in fact made the statements or provided the allegedly fraudulent materials. ( Id.).

In their response to Defendants’ motions, Plaintiffs do not deny that they group Defendants Adelman and Toro together in their fraud in the inducement claim. ( See, e.g., Plaintiffs’ Adelman Opp., PP. 12-13). Instead, Plaintiffs persist in their failure to distinguish between Defendants, stating that “at the initial meeting between Mr. Fabius and defendants Toro and Adelman, the defendants made three very specific statements regarding potential profitability and/or financial success as a franchisee [].” ( Id., P. 12 (emphasis added)).

Upon consideration, the Court finds Plaintiffs have not stated their claim for fraud in the inducement with sufficient particularity to satisfy the heightened pleading requirements of Rule 9(b). See Level One Technologies, Inc. v. Penske Truck Leasing Co., L.P., No. 4:14CV1305 RWS, 2015 WL 1286960, at *7-8 (E.D. Mo. Mar. 20, 2015). This failure becomes especially important in light of Defendant Adelman’s contention that he is not specifically alleged to have had any involvement in the supposed “financial performance representations”, or provision of the “Budget Example”, the sole remaining instances of purported fraud. ( See Adelman’s Memo in Support, P. 6). Rather than dismiss Plaintiffs’ Complaint outright, however, the Court will grant Plaintiffs leave to file an Amended Complaint, in which they state with particularity the misrepresentations attributable to each Defendant.

2. Any Purported Reliance By Plaintiffs Was Not Reasonable

Defendants finally argue that Plaintiffs’ fraud in the inducement claim is subject to dismissal because Plaintiffs could not reasonably have relied on Defendants’ speculative approximations of future performance. (Adelman’s Memo in Support, PP. 7-8; Medinexo’s Memo in Support, PP. 6-9). As support for this contention, Defendants note Plaintiffs allege the following in their Complaint: that at that time he encountered Defendants, Fabius had a background and experience in the telehealth business, and considered himself well qualified to own and operate the kind of franchised virtual healthcare business being sold by Defendants (Compl., ¶ 17); that Fabius performed due diligence prior to making his franchise investment, including approaching certain professions that performed analyses of franchised businesses, and retaining counsel to review the form franchise agreement and FDD provided by Defendants ( Id., ¶ 24); that Item 19 of Medinexo’s FDD specifically stated that neither Medinexo nor its employees made any representations about a franchisee’s future financial performance or past financial performance of company-owned or franchised outlets ( Id., ¶ 32); and that Fabius himself acknowledged lingering concerns regarding Medinexo’s lack of historical data ( Id., ¶ 24).

Upon consideration, the Court finds an issue of fact remains as to whether Plaintiffs’ alleged reliance on representations made by Defendants was reasonable. The Court notes Item 26 of the parties’ Franchise Agreement provides in relevant part as follows: ” Other than Exhibit D hereto, You have not relied on any warranty or representation or guaranty, expressed or implied, as to the potential success or projected income or profits of the business venture contemplated hereby, and You acknowledge that, other than Exhibit D hereto, Our sales staff, personnel, employees, officers and representatives are not permitted to make claims or statements as to earnings, sales, income, profits, prospects or chances of Your success that are not disclosed in Our Franchise Disclosure Document, nor are they authorized to represent or estimate sales figures as to any particular franchise.” ( See Franchise Agreement, ECF No. 33-1, P. 44 (emphasis added)). The Court agrees with Plaintiffs that the quoted provision creates an issue of fact as to whether the parties carved out an exception to Item 19 of Medinexo’s FDD, sufficient to permit Plaintiffs reasonably to rely on the Budget Example as a projection of future income and expenses. While it ultimately may prove difficult for Plaintiffs to demonstrate the requisite reasonable reliance in light of Fabius’s admitted expertise in the subject matter at issue, his engagement in extensive due diligence, his review of the disclosure documents, his participation in the negotiation of the integrated Franchise Agreement, and his execution of the Franchise Agreement despite his admitted concerns regarding Medinexo’s lack of historical data, the Court finds it inappropriate to deem such reliance absent as a matter of law at this time. This portion of Defendants’ Motions to Dismiss will therefore be denied.