The case of Simpson v. Osteostrong Franchising, LLC, Civil Action No. 4:19-CV-02334, 2025 U.S. Dist. LEXIS 187471 (S.D. Tex. Sep. 23, 2025) centers on a dispute between a franchisor, Osteostrong, and several of its former franchisees and regional developers, including Sean and Charla Simpson, over the enforceability of franchise agreements, alleged misrepresentations, and the consequences of franchisee conduct following the breakdown of their business relationship.
The franchisor, Osteostrong, operates a global franchise system offering wellness services through specialized equipment. Between 2013 and 2017, the franchisees entered into agreements to operate Osteostrong franchises in various states, and some, like the Simpsons, also entered into regional development agreements. Before entering these agreements, the franchisor provided Franchise Disclosure Documents (FDDs), which, as later discovered, failed to disclose that a key executive, Manny Butera, had a felony conviction and bankruptcy history within the prior ten years—information required to be disclosed under federal and state franchise laws.
The franchisees alleged that this nondisclosure rendered the franchise agreements illegal, void, and unenforceable, and sought summary judgment on the franchisor’s breach of contract counterclaims and on the enforceability of general releases they had signed. The franchisor, in turn, sought summary judgment on the franchisees’ claims for fraud, fraudulent inducement, negligent misrepresentation, unjust enrichment, and statutory violations, arguing that these claims were barred by the general releases, limitations, and the law of the case.
The court’s analysis began with the franchisees’ argument that the agreements were illegal and unenforceable due to the franchisor’s failure to comply with disclosure requirements. The court rejected this argument, reasoning that a contract is only illegal and void if it cannot be performed without violating the law. Here, the agreements themselves did not require illegal acts; rather, the alleged violations occurred during the negotiation process. The court noted that neither the Federal Franchise Rule nor the Texas Business Opportunity Act provides a private right of action for such violations, and that courts have generally refused to void franchise agreements solely for disclosure violations.
The court also addressed the enforceability of the general releases signed by most franchisees. These releases broadly discharged the franchisor from claims arising out of the franchise relationship. The court found the releases valid and enforceable as to claims, but not as to affirmative defenses, because the language of the releases did not expressly include defenses. The franchisees’ argument that the releases were unenforceable under the Franchise Rule was rejected, as only the Federal Trade Commission, not private parties, may enforce the Rule.
On the franchisor’s breach of contract counterclaims for “injurious acts” (such as closing franchise locations or disparaging the brand), the court distinguished between the conduct of the Simpsons and that of other franchisees. The court found insufficient evidence that franchisees other than the Simpsons engaged in injurious acts beyond merely closing their centers, which alone did not constitute a breach. However, as to the Simpsons, evidence suggested they actively encouraged other franchisees to abandon their agreements and disparaged the franchisor, raising a genuine issue of material fact for trial.
The court further considered whether the judicial proceedings privilege or the common interest privilege shielded the franchisees’ conduct. The court held that the franchisees failed to meet their burden to establish these privileges, particularly as they did not identify the specific statements or provide sufficient context.
Regarding the franchisees’ claims for fraud, fraudulent inducement, unjust enrichment, negligent misrepresentation, and statutory violations, the court made several key findings. The unjust enrichment claims were dismissed because the subject matter was governed by valid contracts, precluding equitable relief. The negligent misrepresentation claims were found to be time-barred, as the franchisees failed to establish that the discovery rule or fraudulent concealment tolled the statute of limitations; the court noted that the franchisees had represented in their agreements that they conducted independent investigations, and the relevant information was publicly available. Claims under the California Unfair Competition Law (UCL) were dismissed for nonresident franchisees due to the statute’s limited extraterritorial reach, and for the California franchisees as time-barred, since they failed to plead facts supporting tolling under the discovery rule.
In conclusion, the court granted in part and denied in part both parties’ motions for summary judgment. The franchisees’ arguments that the agreements and releases were void or unenforceable were rejected, and their claims for unjust enrichment, negligent misrepresentation, and UCL violations were dismissed. The franchisor’s “injurious acts” claims were dismissed as to all franchisees except the Simpsons, whose conduct raised factual issues for trial. The general releases barred the franchisees’ claims but not their affirmative defenses.
The court’s reasoning reflects a policy of upholding the enforceability of franchise agreements and releases unless performance of the contract itself violates the law or public policy. The decision emphasizes the limited circumstances under which franchisees may avoid contractual obligations based on disclosure violations, reserving enforcement of franchise disclosure laws to regulatory authorities rather than private litigants.
Overall, although the strident decision arguably favors predictability and enforceability in franchise relationships, it will be viewed as unfavorable to franchisees seeking judicial remedies for disclosure violations as alleged in this case.
