Bishop v. Gnc Franchising LLC

• Decision Date: 01 December 2005
• Docket Number: No. 05CV0827.,05CV0827.
• Parties: Harold E. BISHOP, Patricia Bishop and Alternative Health Inc. Plaintiffs, v. GNC FRANCHISING LLC, General Nutrition Corp., General Nutrition Distribution Corp., and Apollo Management LP Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

403 F.Supp.2d 411

Harold E. BISHOP, Patricia Bishop and Alternative Health Inc. Plaintiffs, v. GNC FRANCHISING LLC, General Nutrition Corp., General Nutrition Distribution Corp., and Apollo Management LP Defendants.

No. 05CV0827.

United States District Court, W.D. Pennsylvania.

December 1, 2005.

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Jeffrey M. Goldstein, Goldstein Law Group, Washington, DC, for Plaintiffs.

Curtis L. Frisbie, Jr., Randy D Gordon, Samuel E. Joyner, Gardere & Wynne, Dallas, TX, Gerald J. Stubenhofer, Gordon W. Schmidt, McGuire Woods, Pittsburgh, PA, for Defendants.

MEMORANDUM OPINION

SCHWAB, District Judge.

I. Introduction

Defendants have filed a motion to dismiss (document no. 9) all counts of plaintiffs' first amended complaint. After careful consideration of defendants' motion and plaintiffs' response, and their respective memoranda of law, this Court will grant in part and deny in part defendants' motion to dismiss.

II. Statement of Facts

According to their amended complaint, plaintiffs Harold E. Bishop, Patricia Bishop and Alternative Health, Inc., own and operate two franchises under franchise agreements with GNC Franchising LLC, General Nutrition Corporation, and General Nutrition Distribution Corporation, (collectively, "GNC"). Plaintiffs allege that GNC uses and manipulates its franchise system unfairly and unlawfully to benefit its company-owned stores which compete directly with plaintiffs' and other franchisees' non-company stores.

The Bishops signed two franchise agreements with GNC. On November 20, 1997 and November 21, 1997, GNC granted the Bishops the right to operate GNC stores in West Lafayette, Indiana and Kokomo, Indiana, respectively. The Bishops assigned their franchise rights in the West Lafayette store to Alternative Health, Inc. on December 9, 1999. Plaintiffs' first amended complaint sets forth various federal statutory causes of action, and Indiana statutory and common law causes of action, based on predatory marketing, pricing, and other unfair trade practices.

III. Standards

In deciding a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court accepts the well-pleaded factual allegations of the complaint as true, and draws all reasonable inferences therefrom in favor of the plaintiff. Armstrong Surgical Center, Inc. v. Armstrong County Memorial Hospital, 185 F.3d 154, 155 (3d. Cir.1999). A claim should not be dismissed for failure to state a claim unless it appears beyond a doubt that the non-moving party can prove no set of facts in support of its allegations which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Marshall-Silver Construction Co. v. Mendel, 894 F.2d 593, 595 (3d. Cir.1990).

In making this determination, the court must construe the pleading in the light most favorable to the non-moving party. Budinsky v. Pennsylvania Dept. of Environmental Resources, 819 F.2d 418, 421 (3rd Cir.1987). Further, the Federal Rules of Civil Procedure require notice pleading, not fact pleading, so to withstand a Rule 12(b)(6) motion, the plaintiff "need only make out a claim upon which relief can be granted. If more facts are necessary to resolve or clarify the disputed issues, the parties may avail themselves of the civil discovery mechanisms under the Federal Rules." Alston v. Parker, 363 F.3d 229, 233 n. 6 (3d Cir.2004), quoting Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) ("This simplified notice pleading standard relies on liberal discovery rules ... to define facts and issues and to dispose of unmeritorious claims.").

IV. Discussion

Choice of Law: Counts II, III, VIII, and IX

At the threshold, the Court must determine whether Indiana or Pennsylvania law governs the franchise agreements and operations in this case. The agreements provide that, unless any provision would not be enforceable outside of Pennsylvania, the agreement "shall be interpreted and construed under the laws of the Commonwealth of Pennsylvania, which laws shall prevail in the event of any conflict of law...." Franchise Agreement, ¶ XXXVI (A), Defendants' App. at 51-52, 108-09.

Where, as here, jurisdiction is based upon diversity, a federal court should apply the choice of law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Kruzits v. Okuma Machine Tool, Inc., 40 F.3d 52, 55 (3d Cir.1994). Under Pennsylvania law, "courts generally honor the intent of the contracting parties and enforce choice of law provisions in contracts executed by them." Id.

Pennsylvania courts have adopted section 187 of the Restatement, Second, Conflict of Laws, which honors choice of law clauses unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue. Restatement (Second) of Conflict of Laws § 187 (1971). Pennsylvania courts have traditionally held that a choice of law provision in a contract will be upheld as long as the transaction bears a "reasonable relationship to the state whose law is governing." Novus Franchising Inc. v. Taylor, 795 F.Supp. 122, 126 (M.D.Pa.1992) (citing Churchill Corp. v. Third Century, Inc., 396 Pa.Super. 314, 578 A.2d 532, 537 (1990), app. Denied, 527 Pa. 628, 592 A.2d 1296 (1991)); Instrumentation Assoc. Inc. v. Madsen Elecs. Ltd., 859 F.2d 4, 5-6 (3d Cir.1988). Thus, Pennsylvania courts will uphold contractual choice-of-law provisions where the parties have sufficient contacts with the chosen state. Jaskey Fin. and Leasing v. Display Data Corp., 564 F.Supp. 160 (E.D.Pa.1983). In Kruzits, the United States Court of Appeals for the Third Circuit stated: "Pennsylvania courts will only ignore a contractual choice of law provision if that provision conflicts with strong public policy interests." 40 F.3d at 56.

Here, Pennsylvania has a substantial relationship to the parties, and plaintiffs do not argue to the contrary: the GNC defendants are Pennsylvania corporations with their principal place of business in Pennsylvania, and these Pennsylvania defendants have an interest in uniformity in dealings with their franchisees who are scattered in numerous states throughout the country.

Plaintiffs argue that application of Pennsylvania law would be contrary to some unidentified fundamental policy of Indiana that would otherwise protect them. In support, plaintiffs rely primarily on Stone St. Servs. v. Daniels, 2000 WL 1909373, 2000 U.S. Dist. LEXIS 18904 (E.D.Pa. 2000), which held that application of Pennsylvania law to the contract in that case would be contrary to the fundamental consumer protection laws of Kansas. It should be obvious that the choice of laws analysis between the respective consumer laws of Kansas versus those of Pennsylvania is not germane to the choice of laws analysis as between the respective laws of Indiana versus Pennsylvania. Plaintiffs do not even attempt: (i) to articulate the difference between the consumer protection statutes of the two states; (ii) to identify any public policies of Indiana that would be defeated by application of Pennsylvania laws; or (iii) to suggest how plaintiffs might fare better under the laws of Indiana than those of Pennsylvania. Accordingly, the Court sees no reason to disturb the parties' contractual choice of law, and holds that, because all of the claims herein arise from operation of the franchise agreements, the state claims will be governed by the laws of the Commonwealth of Pennsylvania and, therefore, counts II, III, VIII and IX will be dismissed with prejudice.

Count I: Breach of Contract

Three elements are necessary to properly plead a cause of action for breach of contract: (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages. J.F. Walker Co., Inc. v. Excalibur Oil Group, 792 A.2d 1269, 1272 (Pa.Super.2002). The contracts at issue are the franchise agreements. Plaintiffs identify several franchise agreement provisions that GNC allegedly breached: Section III.E., which requires GNC to "seek to maintain high standards of quality, appearance, and service of the System ..."; Section III.G., which obligated GNC to comply, inter alia, with the procedures in the Operations Manual, including the procedures regarding the approval of third-party products; and Section 1.D, in which GNC purports to retain certain rights to compete with Bishop, a set of rights that does not include the right to use Bishop's customer lists.

Viewed in light of the liberal pleading standards of Rule 12(b)(6), this Court simply cannot say, at this early stage in the proceedings, that plaintiffs will be able to state no set of facts in support of the breach of contract claim. Accordingly, defendants' motion to dismiss this claim will be denied.

Counts IV (Fraud) and V (Negligent Misrepresentation)

Plaintiffs allege that GNC, by failing to disclose the alleged predatory pricing and marketing schemes in its Uniform Franchise Offering Circular ("UFOC"), committed fraud and negligent misrepresentation that induced plaintiffs to enter into the franchise agreements. This Court holds, however, that the "gist of the action" doctrine bars these tort claims.

The "gist of the action" rule has not been addressed by the Supreme Court of Pennsylvania, but the United States Court of Appeals for the Third Circuit recently stated: "[W]e predict that the state supreme court would adopt the doctrine as set out in the Superior Court's cases." Williams v. Hilton Group PLC, 93 Fed.Appx. 384, 385 (3d Cir.2004). The primary case cited by the Third Circuit is eToll, Inc. v. Elias/Savion Advertising,...