APFA Inc. v. UATP Mgmt., LLC
| Decision Date | 06 May 2021 |
| Docket Number | Civil Action No. 4:21-cv-00108-O |
| Citation | 537 F.Supp.3d 897 |
| Parties | APFA INC., Plaintiff, v. UATP MANAGEMENT, LLC, Defendant. |
| Court | U.S. District Court — Northern District of Texas |
Andrew P. Bleiman, Pro Hac Vice, Marks & Klein LLP, Northbrook, IL, Brent Merrill Davis, Justin M. Klein, Marks & Klein, LLP, Red Bank, NJ, Carrie P. Kitner, Robert L. Chaiken, Chaiken & Chaiken PC, Plano, TX, for Plaintiff.
David S. Sager, William J. Diggs, DLA Piper LLP, Short Hills, NJ, Marc D. Katz, Maria Garrett, DLA Piper LLP, Dallas, TX, Norman M. Leon, DLA Piper LLP, Chicago, IL, for Defendant.
Reed O'Connor, UNITED STATES DISTRICT JUDGE Before the Court are Defendant UATP Management, LLC's Motion to Dismiss Plaintiff's Complaint or, in the Alternative, to Stay This Action Pending Arbitration (ECF No. 31), filed February 26, 2021; Plaintiff APFA Inc.’s Memorandum of Law in Opposition ("Response") (ECF No. 36), filed March 29, 2021; and Defendant's Reply (ECF No. 37), filed April 13, 2021. Having considered the motion, briefing, and applicable law, the Court GRANTS the motion to dismiss, DENIES as moot the alternative motion to stay the suit pending arbitration, and DENIES without prejudice the motion for attorneys’ fees.
This case arises out of a dispute between a franchisor and an association of franchisees. Defendant UATP Management, LLC ("Defendant") nationally franchises nearly two hundred "Urban Air" locations—indoor adventure parks. Plaintiff Adventure Park Franchisee Association Inc. ("APFA" or "Plaintiff") represents more than fifty Urban Air franchisees in the United States, with its mission to "protect[ ] and preserv[e] the rights of Urban [A]ir franchisees[.]" Compl. ¶¶ 6–7, ECF No. 1.
Before Defendant enters a franchise agreement with a potential franchisee, Defendant provides the potential franchisee with a Franchise Disclosure Document ("FDD") which contains a form Franchise Agreement. Under its 2016 FDD, Defendant disclosed (1) a Royalty Fee of "6% of weekly Gross Sales," (2) a Development Fund Fee of "1% of weekly Gross Sales," (3) an Administrative Fee of the "pro-rata portion of call centers hourly rate plus a $5.00 commission," and (4) a "Local Marketing Expenditure" of "5% of monthly Gross Sales ... [p]ayable to the person providing services, which may be [Defendant]." Under the 2017 FDD, Defendant disclosed removal of the Developmental Fund Fee and a raise of the Royalty Fee to "7% of weekly Gross Sales."
In April 2019, Defendant started a Membership Program for its customers through which it collects all revenues of memberships sold by franchisees and distributes a portion of the revenues to the individual franchisees. Defendant levied a Membership Program Fee of 2.5% and a "NAF Fee" of 5% on all its franchisees to fund the Membership Program. Defendant, through its General Counsel Stephen Polozola, proposed to its franchisees an "Amendment to Franchise Agreement (Membership Program)" and a new "ACH Authorization," allegedly misrepresenting the Amendment and Authorization and withholding membership revenues until the franchisees agreed to the new terms. Some franchisees signed the Amendment and Authorization while others have refused. Plaintiff maintains that both documents are overly broad, improper, and inconsistent with the express terms and provisions of the form Franchise Agreement and the FDDs.
Defendant also implemented a new local marketing program with a vendor Zimmerman at a rate of "four percent (4%) of monthly Gross Sales" paid directly to Defendant. Plaintiff alleges the new fees, proposed terms, ban on direct interfacing with Zimmerman representatives, and Defendant's profit from its relationship with vendors are improper, are unlawful, and run afoul of the form Franchise Agreement and of Defendant's CEO Michael O. Browning, Jr.’s promises that the franchisee local marketing expenditure would be capped at $7,000 per month and that Defendant would not make money from markups with vendors and suppliers, like its competitors.
The imposition of mandatory vendors goes beyond Zimmerman; Defendant has imposed several other mandatory vendors on franchisees—for socks, construction, and insurance. One vendor is mandated for the over 8,000 pairs of socks purchased by franchisees each month which charges approximately $0.50 per pair above comparable alternative suppliers while Defendant receives a rebate of $0.25 per pair. Another since-terminated vendor Leap of Faith was required for the over $500,000 in construction and installation costs while Leap of Faith allegedly paid revenues and rebates to Defendant up to 60% of its contract price with franchisees. Not knowing the heightened cost due to the rebate, many franchisees sought and were given financing through Defendant backed by promissory notes and an additional 1.5% royalty fee on gross sales, but Defendant never paid Leap of Faith invoices. Plaintiff maintains that the purported financing runs afoul to the FDD and the form Franchise Agreement which claim not to offer direct or indirect financing.
Defendant similarly imposed a mandatory insurance broker, which allegedly overcharged franchisees and made several mistakes, errors, and omissions in procurement of its insurance coverages. Franchisees are forbidden from choosing a broker to procure insurance with superior coverage and at a lower cost even though the form Franchise Agreement said otherwise and Defendant represented to franchisees on December 18, 2019, that "[f]ranchisees are free to shop all other insurance through the broker of their choice, assuming such policies contain the various terms and endorsements required by [Defendant]." Defendant intends to introduce a "captive" insurance program, by which Defendant will create its own insurance company and profit from franchisees, but the new insurance company is not licensed in every state with a franchise and lacks the rating required by the Franchise Agreement.
According to Plaintiff, in the aggregate these actions show wrongful and bad faith conduct by Defendant to generate its own profits with disregard for its agreements and the unfair and material effects on franchisees. Plaintiff maintains that Defendant breached the franchisees’ rights in the form Franchise Agreement and violated the FTC's Amended Franchise Rule for lack of proper disclosures in the FDDs. Defendant has also allegedly inflicted retaliatory and bullying tactics on individual franchisees dampening their association and communication among each other.
In response, Plaintiff sued Defendant in the United States District Court for the District of New Jersey, seeking several declarations including that Defendant has breached an implied covenant of good faith and fair dealing, violated the Texas Deceptive Trade Practices Consumer Protection Act (TDTPCA), violated the New Jersey Franchise Practices Act (NJFPA), engaged in common-law fraud, and breached the franchise agreements. Compl. ¶¶ 131–40, ECF No. 1. Based on the requested declarations, Plaintiff also seeks injunctive relief to enjoin Defendant "from seeking to enforce the unconscionable arbitration provisions contained in its unlawfully-obtained amendments to some—but not all—of [Plaintiff's] members’ franchise agreements." Mot. for Prelim. Inj., ECF No. 10. In the District of New Jersey, Plaintiff sought a preliminary injunction, which the court denied; Defendant sought dismissal of the complaint or transfer of the case to the Northern District. See id. , ECF No. 10; Def.’s Mot. to Dismiss, ECF No. 11. On forum non conveniens grounds limiting its discussion to the effect of the existence of a forum-selection clause, the District of New Jersey court transferred the case here under 28 U.S.C. § 1404(a). See Mem. Op. 1, ECF No. 21.
Before this Court, Defendant now again moves to dismiss Plaintiff's claims for lack of standing under Federal Rule of Civil Procedure 12(b)(1) and alternatively requests a stay of the case pending arbitration. See Mot., ECF No. 31. The parties have briefed the motion, and it is ripe for the Court's consideration. See Resp., ECF No. 36; Reply, ECF No. 37.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges a federal court's subject-matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). A court dismisses a case under Rule 12(b)(1) for lack of subject-matter jurisdiction if it "lacks the statutory or constitutional power to adjudicate the case." Home Builders Ass'n of Miss. v. City of Madison , 143 F.3d 1006, 1010 (5th Cir. 1998) (citation omitted). A court should "consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits." Ramming v. United States , 281 F.3d 158, 161 (5th Cir. 2001) (citation omitted)."It is the responsibility of the complainant clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers," Renne v. Geary , 501 U.S. 312, 316, 111 S.Ct. 2331, 115 L.Ed.2d 288 (1991) (citation omitted), so "[t]he burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction." Ramming , 281 F.3d at 161 (citation omitted).
"Every party that comes before a federal court must establish that it has standing to pursue its claims." Cibolo Waste, Inc. v. City of San Antonio , 718 F.3d 469, 473 (5th Cir. 2013) ; see also Barrett Comput. Servs., Inc. v. PDA, Inc. , 884 F.2d 214, 218 (5th Cir. 1989). In claims for declaratory or injunctive relief, standing may be satisfied by the presence of "at least one individual plaintiff who has demonstrated standing to assert the[ ] [contested] rights as his own." Vill. of Arlington Heights v. Metro. Hous. Dev. Corp. , 429 U.S. 252, 264 & n.9, 97 S.Ct. 555, 50 L.Ed.2d 450 (1977) ; see also Horne v. Flores , 557 U.S. 433, 446–47, 129 S.Ct. 2579, 174 L.Ed.2d 406 (2009). "The...
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