Fabius v. Medinexo USA, LLC
| Decision Date | 03 April 2020 |
| Docket Number | No. 4:19CV2526 JCH,4:19CV2526 JCH |
| Parties | CHARLES FABIUS, et al., Plaintiffs, v. MEDINEXO USA, LLC, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
This matter is before the Court on Defendant Ron Adelman's Motion to Dismiss Plaintiffs' Complaint with Prejudice, filed November 14, 2019, and Defendants Medinexo USA, LLC's and Jorge Toro's Motion to Dismiss, filed January 10, 2020. (ECF Nos. 32, 52). The motions are fully briefed and ready for disposition.
Defendant Medinexo USA, LLC, is a limited liability company that provides a cloud-based virtual care platform, or "doctor to doctor marketplace", through which hospitals, doctors, and other practitioners can connect with other medical professionals and provide medical care to their patients. (Compl., ¶¶ 3, 11). Medinexo purports to create a runway for telehealth expansion, by dramatically lowering the barriers to the delivery of cost-effective telehealth services. (Id., ¶ 13).
In 2016, after purportedly developing successfully operations in many other countries, Medinexo began selling franchise opportunities in defined territories to prospective franchisees in the United States. (Compl., ¶ 14). Plaintiff Charles Fabius first learned of Medinexo, and metDefendants Jorge Toro (Medinexo's Founder, President, and CEO), and Ron Adelman (then Medinexo's Senior Vice-President of Sales and Marketing), when he attended the annual Franchise Expo in New York City in late-June, 2017. (Id.., ¶¶ 5, 7, 15, 16). At that time, Fabius had a background and experience in the telehealth business, having worked for several firms providing IT services and health and financial management applications to hospitals. (Id., ¶ 17). He thus considered himself well qualified to own and operate the kind of franchised virtual healthcare business being sold by Defendants. (Id.).
According to Plaintiffs, during the initial meeting Defendants Toro and Adelman made several misrepresentations2, including the following: (1) that during the first year of operation, Fabius would earn approximately $75,000; (2) that during the second year, he would earn approximately $400,000; and (3) that he "would make so much money" as a Medinexo franchisee that he would not consider renewing the franchise agreement after five years. (Compl., ¶ 20). Toro and Adelman further led Fabius to believe that Medinexo had previous sales data to support their claims. (Id., ¶ 21). According to Plaintiffs, however, Toro and Adelman knew their representations were false and fraudulent, as they had no data from any previous franchise sales in the United States. (Id., ¶ 22).
Fabius performed due diligence prior to making his franchise investment. (Compl., ¶ 24). He approached certain professions that performed analyses of franchised businesses, and retained counsel to review the form franchise agreement and Franchise Disclosure Document ("FDD") provided by Defendants in or about late July, 2017. (Id., ¶¶ 24, 26).3 Fabius personally reviewedthe FDD, and reviewed and negotiated the Franchise Agreement directly with Defendants' attorney. (Id., ¶ 33). While certain issues concerning the franchise's lack of historical data persisted, Fabius believed Defendants would provide the sound business model they promised in their statements, literature, financial performance representations, and FDD. (Id, ¶ 24). He ultimately decided to invest in the business, and formed Plaintiff FabCorpNY for the purpose of operating a Medinexo franchise. (Id., ¶ 25).4
In or around September, 2017, Fabius signed a Franchise Agreement, and paid Defendants a franchise fee of $49,500, for a "multi-regional Designated Territory." (Compl., ¶ 42).5 According to Plaintiffs, despite the language contained in Medinexo's FDD Item 19, Defendants provided additional written financial performance representations, "making specific representations about and providing additional future revenue and expense 'projections.'" (Id., ¶ 34). Plaintiffs claim the Franchise Agreement incorporated by reference an attached "Budget Example", that expressly stated earnings projections for the first two years of franchise operation. (Id., ¶ 35).6 Fabius alleges he subsequently learned the market data used for the projections wasbased on data from sales outside the United States, and further, that the data was deceptive, overstated and not based in facts. (Id., ¶¶ 37, 38).
Plaintiffs began operating their franchise by contacting end-user physician clients, and sending those leads to Defendants in exchange for agreed-upon compensation. (Compl., ¶ 44). According to Plaintiffs, however, their efforts failed because Defendants provided neither the sales support nor the viable saleable product that was guaranteed under the Franchise Agreement. (Id., ¶ 45). Plaintiffs incurred numerous additional expenses in connection with the operation of the business between September, 2017, and September, 2019, including capital infusion, various forms of advertising (recommended by Defendants), payroll, travel expenses, and legal fees. (Id., ¶¶ 46, 48). As a result of Defendants' failure to comply with their obligations under the Franchise Agreement, including requirements that they provide Plaintiffs with training and guidance and make timely payments, Plaintiffs maintain they were forced to cease their formal operations as a Medinexo franchisee. (Id., ¶¶ 48, 49).
Plaintiffs filed their Complaint in this matter on September 9, 2019. (ECF No. 1).7 In their Complaint Plaintiffs assert the following causes of action: Violations of the New York State Franchise Sales Act ("NYFSA"), §§ 683 and 687 (Count I); Violations of the New Jersey Consumer Fraud Act ("NJCFA"), §§ 56.8-1, et seq. (Count II); Fraud in the Inducement (Count III); and Breach of Contract (Count IV). As stated above, Defendants filed the instant Motions to Dismiss on November 14, 2019, and January 10, 2020, claiming Plaintiffs' Complaint should bedismissed in its entirety because Plaintiffs fail to allege facts plausibly establishing any claim against Defendants. (ECF Nos. 32, 52).
In ruling on a motion dismiss, the Court must view the allegations in the complaint in the light most favorable to plaintiff. Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008). The Court, "must accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party." Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005) (citation omitted). The complaint's factual allegations must be sufficient "to raise a right to relief above the speculative level," however, and the motion to dismiss must be granted if the complaint does not contain "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007) (). Furthermore, Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) ().
As noted above, in Count III of their Complaint Plaintiffs assert a claim for fraud in the inducement. (Compl., ¶¶ 86-92). Specifically, Plaintiffs allege as follows:
(Id., ¶¶ 87, 88).
Under Missouri law, in order to succeed on their claim for fraudulent inducement Plaintiffs must establish facts in support of the following elements: "(1) that [Defendants] made certain material representations to [Plaintiffs]; (2) such representations were false when made; (3) that [Defendants] knew the representations were false; (4) that the representations were made with the purpose of deceiving [Plaintiffs]; (5) that [Plaintiffs were], in fact, deceived; (6) [Plaintiffs] reasonably relied on the representations in signing the [Franchise Agreement]; and (7) [Plaintiffs] suffered damage as a proximate result of the fraudulent misrepresentations." Bracht v. Grushewsky, 448 F.Supp.2d 1103, 1110 (E.D. Mo. 2006) (citing Trotter's Corp. v. Ringleader Restaurants, Inc., 929 S.W.2d 935, 939 (Mo. App. 1996)). "As with any cause of action, '[a] failure to establish any one of the essential elements of fraud is fatal to recovery.'" Argus Health Systems, Inc. v. Benecard Services, Inc., No. 10-00187-CV-W-JTM, 2011 WL 5570064, at *2 n. 4 (W.D. Mo. Nov. 16, 2011) (quoting Emerick v. Mutual Benefit Life Ins. Co., 756 S.W.2d 513, 519 (Mo. 1988) (en banc)).
In their Motions to Dismiss, Defendants claim Plaintiffs' fraud in the inducement claim is subject to dismissal for several reasons. The Court will address Defendants' assertions in turn.
As noted above, Plaintiffs assert Defendants stated at the Franchise Expo that, during the first year of operation Fabius would earn approximately $75,000, during the second year he would earn approximately $400,000, and he "would make so much money" as a Medinexo franchiseethat he would not consider renewing the franchise...
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