American Casual Dining v. Moe's Southwest Grill

• Decision Date: 05 April 2006
• Docket Number: No. Civ.A. 1:04CV3356TWT.,Civ.A. 1:04CV3356TWT.
• Citation: 426 F.Supp.2d 1356
• Parties: AMERICAN CASUAL DINING, L.P., a Texas limited partnership, Plaintiff v. MOE'S SOUTHWEST GRILL, L.L.C., Defendant.
• Court: U.S. District Court — Northern District of Georgia

426 F.Supp.2d 1356

AMERICAN CASUAL DINING, L.P., a Texas limited partnership, Plaintiff v. MOE'S SOUTHWEST GRILL, L.L.C., Defendant.

No. Civ.A. 1:04CV3356TWT.

United States District Court, N.D. Georgia, Atlanta Division.

April 5, 2006.

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Harold Stephen Harris, Jr., Alston & Bird, Atlanta, GA, Jason R. Asmus, Matthew D. Forsgren, Briggs & Morgan, Minneapolis, MN, for Plaintiff.

Jason S. Bell, Smith Gambrell & Russell, Atlanta, GA, for Defendant.

OPINION AND ORDER

THRASH, District Judge.

This is a breach of contract action arising out of a franchise agreement. It is before the Court on the Defendant's Motion to Dismiss [Doc. 3]. The Joint Motion For Extension of Stay [Doc. 33] is DENIED. For the reasons set forth below, the Defendant's Motion to Dismiss is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

Plaintiff American Casual Dining, L.P. ("American Casual") is a Texas limited partnership with its principal place of business in Dallas, Texas. Larry Klinghoffer and James Hammond are American Casual's principals. Defendant Moe's Southwest Grill, L.L.C. ("Moe's") is a Georgia limited liability corporation with its principal place of business in Atlanta, Georgia. Moe's is in the business of franchising quick service Mexican restaurants that operate under the franchise name of "Moe's Southwest Grill." (Compl., Ex. E.) In December of 2002, American Casual began discussions with Moe's regarding American Casual's interest in becoming a franchisee for Moe's Southwest Grill restaurants. The Federal Trade Commission requires a franchisor to disclose certain information to prospective franchisees, typically in the form of a Uniform Franchise Offering Circular ("UFOC"). Thus, in connection with their discussions, Moe's presented American Casual with its 2002 UFOC. (Compl., Ex. A.) The UFOC contained information regarding the initial franchise fee, royalty fees, and advertising fees. (Compl., Ex. A Item 5-6.) In addition, the UFOC provided an estimate of the "initial investment" required to develop and open a Moe's Southwest Grill restaurant. The initial investment figure included such things as the franchise fee lease payments, construction costs, furniture and equipment expenses, and opening inventory expenses. (Compl., Ex. A Item 7.) According to American Casual, Moe's also made oral representations during the negotiations regarding the food and labor costs that a franchisee should expect to incur in association with a Moe's Southwest Grill restaurant.

On April 25, 2003, American Casual executed a Market Development Agreement¹ and a Franchise Agreement.² Pursuant to the Market Development Agreement, Moe's agreed to grant exclusive territorial rights to American Casual provided that American Casual develop, open, and operate twenty Moe's Southwest Grill restaurant franchises in and around the Dallas/Fort Worth area over a specified time period. The Market Development Agreement reduced the required franchise fee per restaurant and stated that a separate franchise agreement would be provided for each restaurant developed by American Casual. (Compl., Ex. D.) The parties also executed a Development/Exclusivity Agreement that reiterated the grant of the exclusive franchise territory and provided that "[u]pon execution of this Agreement, Moe's shall undertake the appropriate acts to make Klinghoffer and Hammond members of Moe's governing board." (Compl., Ex. E ¶¶ 1, 4, 11.) Pursuant to these agreements, American Casual opened three Moe's Southwest Grill restaurants in the Dallas/Fort Worth area between November 2003 and April 2004. According to American Casual, the initial investment expenses associated with these restaurants far exceeded the estimates included in the UFOC. (Compl. ¶¶ 64-66.) American Casual alleges that Moe's represented that the maximum initial investment for three franchise restaurants was $814,500, but that it has spent in excess of $1,430,000 to date. (Compl. ¶ 67-68.) American Casual further alleges that its actual food and labor costs exceeded those represented during the franchise negotiations, resulting in substantial monthly losses at its three locations. (Compl. ¶¶ 74-78.)

American Casual asserts a number of claims arising out of the Franchise Agreement and related documents. Specifically, American Casual asserts a claim for violation of the Georgia Sale of Business Opportunities Act, O.C.G.A. § 10-1-417; fraud; negligent misrepresentation; breach of contract; breach of the duty of good faith and fair dealing, O.C.G.A. § 11-1-203; promissory estoppel; and unjust enrichment. Moe's moves to dismiss these claims. American Casual also asserted a claim under the Texas Deceptive Trade Practices Act, Tex. Bus. & Com.Code § 17.46. However, the parties jointly stipulated to dismissal of that claim with prejudice [Doc. 17].

II. MOTION TO DISMISS STANDARD

A complaint should be dismissed under Rule 12(b)(6) only where it appears beyond doubt that no set of facts could support the plaintiff's claims for relief. Fed.R.Civ.P. 12(b)(6); see Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Linder v. Portocarrero, 963 F.2d 332 (11th Cir.1992). In ruling on a motion to dismiss, the court must accept the facts pleaded in the complaint as true and construe them in the light most favorable to the plaintiff. See Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir.1983). Generally, notice pleading is all that is required for a valid complaint. See Lombard's, Inc. v. Prince Mfg., Inc., 753 F.2d 974, 975 (11th Cir. 1985), cert. denied, 474 U.S. 1082, 106 S.Ct. 851, 88 L.Ed.2d 892 (1986). Under notice pleading, the plaintiff need only give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. Id.

III. DISCUSSION

A. Georgia Sale of Business Opportunities Act

The Georgia Sale of Business Opportunities Act ("GSBOA"), O.C.G.A. § 10-1-410 et seq., prohibits a "business opportunity seller or multilevel distribution company" from using untrue or misleading statements in connection with a business opportunity. O.C.G.A. § 10-1-417(a). Moe's argues that the GSBOA does not apply in this case because the sale of a franchise does not constitute a "business opportunity." For purposes of the GSBOA, "business opportunity" is defined, in relevant part, as follows:

[T]he sale or lease of, or offer to sell or lease, any products, equipment, supplies, or services for the purpose of enabling the purchaser to start a business and in which the seller or company represents . . . [t]hat the company, in conjunction with any agreement which requires a total initial payment of an amount exceeding $500.00, will provide a sales program or marketing program; provided, however, that this subparagraph shall not apply to the sale of a sales program or a marketing program made in conjunction with, the licensing of a registered trademark or service mark.

O. C. G. A. 10-1-410(2)(A)(iii) (emphasis added). Moe's contends that franchises fall within the exemption of sales and marketing programs made in conjunction with the licensing of registered trademarks and service marks. This exemption has not been interpreted by the Georgia courts; however, a Florida district court, interpreting nearly identical language in an analogous Florida statute, held that the sale of a restaurant franchise fell within the exception.³ Barnes v. Burger King Corp., 932 F.Supp. 1420, 1433-34 (S.D.Fla. 1996); see Fla. Stat. Ann. § 559.801(1)(a)(4). Although it appears that most franchise operations would fall outside the definition of "business opportunity," the Court need not decide whether franchises are per se exempted. See 4 Ga. Jur. Private Franchise Agreements § 3:11 ("O.C.G.A. § 10-1-410(2)(A)(iii) provides an exemption for most franchise operations by excluding the sale of marketing programs made in conjunction with the licensing of registered trademarks and registered service marks."). Even if the exemption was limited, the sale at issue here is clearly excepted from the GSBOA definition of "business opportunity." It is undisputed that the sales and marketing programs associated with the Moe's franchise system were provided to American Casual in conjunction with the licensing of registered trademarks and service marks. (Compl., Ex. A Item 13; Compl., Ex. G ¶ 13.)⁴ Thus, the GSBOA does not apply here and the claim fails as a matter of law.

B. Fraud

To establish a fraud claim under Georgia law, a plaintiff must establish: (1) a false representation by the defendant; (2) scienter; (3) an intent to induce the plaintiff to act or refrain from acting; (4) justifiable reliance by the plaintiff; and (5) damage to the plaintiff proximately caused by the reliance. Next Century Commc'ns Corp. v. Ellis, 318 F.3d 1023, 1027 (11th Cir.2003); Smiley v. S & J Invs., Inc., 260 Ga.App. 493, 499, 580 S.E.2d 283 (2003). American Casual's fraud claim is predicated on the following alleged misrepresentations: (1) the "initial investment" costs associated with developing and opening a Moe's Southwest Grill restaurant were between $164,500 and $271,500; (2) Moe's had the experience, knowledge, and expertise necessary to estimate the "initial investment" costs accurately; (3) Moe's had perfected a system of opening and operating its restaurants; and (4) Larry Klinghoffer and James Hammond would be appointed to Moe's governing board. (Compl. ¶¶ 117-21.)

Fraud cannot be based on misrepresentations that the plaintiff could not justifiably rely upon. GCA Strategic Inv. Fund, Ltd. v. Joseph Charles & Assocs., Inc., 245 Ga.App. 460, 464, 537 S.E.2d 677 (2000). Thus, "a false representation made by a defendant, to be actionable, must relate to an existing fact or a past event. Fraud cannot consist of mere broken promises, unfulfilled predictions or erroneous...