Callen v. ILKB LLC

• Decision Date: 09 June 2022
• Docket Number: 2:20-cv-3345 (DRH) (JMW)
• Parties: THOMAS CALLEN, COURTNEY CALLEN, and GOLDEN POLAR BEAR, LLC, Plaintiffs, v. ILKB, LLC, MICHAEL PARRELLA, RYAN HEALY, and SCOTT FERRARI, each individually, and ILKB TOO, LLC, DANIEL CASTELLINI, and SHAUN YORK, each as successor by merger to ILKB, LLC, Defendants.
• Court: U.S. District Court — Eastern District of New York

THOMAS CALLEN, COURTNEY CALLEN, and GOLDEN POLAR BEAR, LLC, Plaintiffs,
v.
ILKB, LLC, MICHAEL PARRELLA, RYAN HEALY, and SCOTT FERRARI, each individually, and ILKB TOO, LLC, DANIEL CASTELLINI, and SHAUN YORK, each as successor by merger to ILKB, LLC, Defendants.

No. 2:20-cv-3345 (DRH) (JMW)

United States District Court, E.D. New York

June 9, 2022

ROSENBERG & ESTIS, P.C.

Attorneys for Plaintiffs

By: John D. Giampolo, Esq.

Justin Scott Weitzman, Esq.

GORDON REES SCULLY MANSUKHANI, LLP

Attorneys for Defendants ILKB, LLC, Michael Parrella, ILKB Too, LLC, Daniel Castellini, and Shaun York

By: Peter G. Siachos, Esq.

David Oxamendi, Esq.

Matthew P. Gallo, Esq.

MEMORANDUM AND ORDER

Denis R. Hurley, United States District Judge

INTRODUCTION

Plaintiffs Thomas Callen, Courtney Callen, and Golden Polar Bear, LLC (collectively, “Plaintiffs”) bring six causes of action against Defendants ILKB, LLC (“ILKB”), Michael Parrella, Ryan Healy, and Scott Ferrari (together the “Predecessor

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Defendants”): violation of the New York State Franchise Sales Act (“NYSFSA”), N.Y. Gen. Bus. L. § 680 et seq.; breach of contract; common law fraud; negligent misrepresentation; violation of the Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-101 et seq. (“CCPA”); and alter ego, veil piercing and agency liability. Plaintiffs also bring one cause of action-successor liability-against ILKB Too, LLC (“ILKB Too”), Daniel Castellini, and Shaun York, each as successor by merger to ILKB (together, the “Successor Defendants, ” and with the Predecessor Defendants, “Defendants”).

Presently before the Court is Defendants ILKB, Parrella, ILKB Too, Castellini, and York's (the “Moving Defendants”) motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1), ^[1] 12(b)(2), and 12(b)(6). For the reasons stated below, their motion is granted in part and denied in part.

BACKGROUND

The following facts from the Complaint, the exhibits attached thereto, and other materials properly considered on the Moving Defendants' motion are taken as true for the purposes of this Order.

Thomas and Courtney Callen allege the Predecessor Defendants misrepresented and omitted material information about ILKB, inducing the Callens to purchase and run an ILKB franchise. (Second Am. Compl. ¶ 15 (“SAC”) [DE 18]). Scott Ferrari, President and Director of Franchise Development at ILKB, for

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example, stated in February 2015 that [1] “90% of marketing was and would be accomplished by ILKB corporate, ”^[2] (id. ¶¶ 16, 20); [2] “55-68% of potential ILKB studio customers introduced through ILKB's marketing sign up for long term membership contracts, ” (id. ¶¶ 16, 21(h)); [3] “the average ILKB studio member stayed with the program for 14 months, ” (id. ¶ 16); [4] “no ILKB franchise locations struggled or went out of business, ” (id.); and [5] “all or the average ILKB franchises broke even with less than 200 members and receive six figure income with less than 300 members, ” (id.).

In March 2015, the Callens received an ILKB Financial Disclosure Document allegedly not registered in New York State that omitted that: [6] “ILKB franchise owner and founder, [Michael] Parrella, had filed for bankruptcy and had been discharged in 2008, ” (id. ¶ 18(a)); [7] “Parrella or FC Online Marketing, LLC, the predecessor affiliate of ILKB, had been the charged with fraud, violation of franchise laws or theft of services, ” (id. ¶ 18(b)); [8] “ILKB did not receive rebates from suppliers to franchisees, ” (id. ¶¶ 18(c), 20, 21(f)); and [9] “ten ILKB franchised units had closed in 2015 and five had closed in 2014, ” (id. ¶ 18(d)).

Defendants also allegedly misrepresented and failed to disclose that [10] “ILKB would retain profits at the expense of franchisees through Defendants' lead generation program.” (Id. ¶ 19).

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In February 2016, Defendants invited Plaintiffs and other prospective franchisees to New York for its “Discovery Day.” (Id. ¶ 20). Ryan Healy, who identified himself as ILKB's Vice President of Franchise Operations, allegedly repeated some of the above misrepresentations and added that [11] “the initial investment for an ILKB franchise studio was $228, 000 to $273, 000, ” (id. ¶¶ 20, 21(a)); [12] “all or the average ILKB franchise breaks even at 200 members, reaches profitability in four to six months, and experiences approximately 80% profit for each member beyond 200, ” (id. ¶¶ 20, 21(b)); [13] “ILKB corporate would negotiate with landlords for franchisees and the Callens would not need to sign a personal guarantee for a commercial lease for space for their ILKB studio, ” (id. ¶ 20); and [14] “the business worked with an absentee owner model, ” (id. ¶¶ 20, 21(c)). Around the same time, Parrella, Ferrari, Healy allegedly reiterated some of the above and further stated that [15] “the average ILKB franchise generated in excess of $130, 000 in profits for the owners per year, ” (id. ¶ 21(d)), and [16] ILKB's marketing “would result in at least 100 trials a month on the basis of a $2, 500 monthly marketing budget, ” (id. ¶ 21(e), (g)).

On February 29, 2016, the Callens signed an ILKB franchise agreement, enabling them to open a kickboxing studio covering three territories in Colorado Springs, Colorado. (Id. ¶ 22; see Franchise Agreement (“Fr. Agmt.”), Ex. A to SAC). They invested more than $364, 280.81 in building out, equipping and setting up the studio, and even signed a personal guarantee to lease the space. (SAC ¶ 23). They also formed Golden Polar Bear, LLC to conduct the business of their franchise. (Id.

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¶ 5). After the studio's June 2017 opening, the Callens learned that it would not be profitable with absentee ownership and instead “required 50 to 60 unpaid hours a week by owners.” (Id. ¶¶ 22-23). “Over the years, ” as their franchise struggled to remain viable, they further discovered the alleged falsity of the rest of the Representations. (Id. ¶¶ 23-25).

Pursuant to their Franchise Agreement, the Callens commenced an arbitration proceeding against the Predecessor Defendants on February 26, 2019. (Id. ¶ 27; Fr. Agmt. § 14.2). Defendants, however, have refused to deposit their portion of the arbitration fees, and the proceeding has been held in abeyance. (SAC ¶ 29).

Plaintiffs allege that, as of June 26, 2020, ILKB Too-through its limited liability company members Castellini, York, and Parrella-acquired “all assets” and had taken “full control” of ILKB, thereby becoming its successor. (Id. ¶¶ 10, 31-32). Castellini is ILKB Too's Chief Executive Officer and York its Chief Operating Officer. (Id.).

Plaintiffs brought this suit on July 24, 2020. [DE 1]. In response to the Court's Order to Show Cause concerning subject-matter jurisdiction, Plaintiffs amended their complaint on August 31, 2020. [DE 15]. Then, in response to the Moving Defendants' letters requesting leave to move to dismiss, Plaintiffs amended their complaint a second time. [DE 18]. On March 12, 2021, the Moving Defendants filed the instant motion to dismiss.

On February 17, 2022, the Court again ordered the parties to show cause as to whether the pending arbitration proceeding precludes further litigation in federal

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court and whether the Court should stay this case until its resolution. Order to Show Cause (“OTSC”) [DE 47]. In responding, both parties expressly contend that the Court “should hear and decide this case.” Pl. Resp. to OTSC at 1 [DE 49] (“[T]his Court should and must hear and decide this case rather than ....”); Def. Resp. to OTSC at 1 [DE 48] (“[T]his Court should hear and decide this case rather than staying it pending arbitration.”).

DISCUSSION

The Court will address the issues in the following order: (I) personal jurisdiction over the Successor Defendants; (II) Plaintiff Golden Polar Bear, LLC's standing; and (III) Plaintiffs' failure to state a claim.

I. Personal Jurisdiction

The Successor Defendants move the Court pursuant to Rule 12(b)(2) to dismiss them for lack of personal jurisdiction, both specific and general. Plaintiffs respond that personal jurisdiction exists pursuant to successor liability.

A. Legal Standard

Plaintiffs bear the burden of establishing the Court's personal jurisdiction over the Moving Defendants. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). Where the parties have not yet conducted discovery, a plaintiff may “mak[e her] prima facie showing of [personal] jurisdiction by way of the complaint's allegations, affidavits, and other supporting evidence.” Mortg. Funding Corp. v. Boyer Lake Pointe, L.C., 379 F.Supp.2d 282, 285 (E.D.N.Y. 2005). As such, the Court must view the pleadings in the light most favorable to the plaintiff, Sills v. The Ronald Reagan Presidential Found., Inc., 2009 WL 1490852, *5 (S.D.N.Y. May 27, 2009),

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“may rely on additional materials outside the pleadings, ” Minnie Rose LLC v. Yu, 169 F.Supp.3d 504, 510 (S.D.N.Y. 2016), and resolve doubts “in the plaintiff's favor, notwithstanding a controverting presentation [of evidence] by the moving party, ” A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 80 (2d Cir. 1993).

A court need not, however, “draw argumentative inferences in the plaintiff's favor” nor “accept as true a legal conclusion couched as a factual allegation.” In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir. 2013) (quoting Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994) and Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d Cir. 1998)). A plaintiff “may not rely on conclusory statements without any supporting facts, as such allegations would ‘lack the factual specificity necessary to confer jurisdiction.'” Art Assure Ltd., LLC v. Artmentum GmbH, 2014 WL 5757545, at *2 (S.D.N.Y. Nov. 4, 2014) (quoting Jazini 148 F.3d at 185); accord Cont'l Indus. Grp. v. Equate Petrochemical Co., 586 Fed. App'x 768, 769 (2d Cir. 2014) (“[A plaintiff]...