ERA Franchise Sys., LLC v. Hoppens Realty, Inc.

• Decision Date: 31 July 2013
• Docket Number: 12-cv-594-slc
• Parties: ERA FRANCHISE SYSTEMS, LLC, Plaintiff and Counterdefendant, v. HOPPENS REALTY, INC., f/d/b/a ERA HOPPENS REALTY GROUP and MICHAEL S. HOPPENS, an individual, Defendants and Counterplaintiffs, and WILSON MUTUAL INSURANCE COMPANY, Intervenor.
• Court: U.S. District Court — Western District of Wisconsin

ERA FRANCHISE SYSTEMS, LLC, Plaintiff and Counterdefendant,

v. HOPPENS REALTY, INC., f/d/b/a ERA HOPPENS REALTY GROUP andMICHAEL S. HOPPENS, an individual, Defendants and Counterplaintiffs,and WILSON MUTUAL INSURANCE COMPANY, Intervenor.

12-cv-594-slc

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN

Entered: July 31, 2013

OPINION AND ORDER

On August 16, 2012, plaintiff ERA Franchise Systems, LLC commenced this civil action against defendant Hoppens Realty, Inc. and its owner, Michael S. Hoppens, alleging, among other things, that defendants had breached a franchise agreement and were violating trademark laws by continuing to use ERA's marks without authorization. Dkt. 1. Defendants filed an answer on September 7, 2012, which they amended on September 28, 2012. Dkt. 9. On November 30, 2012, defendants filed a counterclaim, asserting causes of action for breach of contract, conversion, unjust enrichment, misrepresentation and violation of the Wisconsin Fair Dealership Act. This court has subject matter jurisdiction over the trademark claims pursuant to 28 U.S.C. §§ 1331, 1338 and 15 U.S.C. § 1121 and supplemental jurisdiction over the state law claims and counterclaims pursuant to 28 U.S.C. § 1367.

Before the court is ERA's motion for judgment on the pleadings with respect to the counterclaim, filed pursuant to Fed. R. Civ. P. 12(c). Dkt. 32. Also pending is a recently-filed motion by ERA for leave to file a summary judgment motion with respect to its own claims for breach of contract. Dkt. 46.

As will be discussed below, I am treating ERA's motion for judgment on the pleadings as a motion to dismiss under Rule 12(b)(6) because ERA filed it before the pleadings were closed, making a Rule 12(c) motion premature. ERA also mis-stepped by presenting arguments in its supporting documents that rely on certain pieces of evidence not referred to in the counterclaim and by contesting the factual accuracy of defendants' allegations. ERA obviously wants quick disposition of what appear to be weak claims, but the proper method for ERA to present its own version of the facts is in a motion for summary judgment, not a motion to dismiss on the pleadings. Accordingly, I have disregarded the evidence submitted by ERA that was not referred to in the counterclaim and I have disregarded its arguments based on that evidence. That evidence can be re-presented to the court in a summary judgment motion, which I will allow for reasons discussed below. Even without resort to evidence outside the pleadings, however, I agree with ERA that defendants' tort counterclaims must be dismissed.

ALLEGATIONS OF DEFENDANTS' COUNTERCLAIM

I. The Parties

Defendant/counterclaimant Hoppens Realty, Inc. is a corporation organized under the laws of Wisconsin with its principal place of business located in Onalaska. Defendant/ counterclaimant Michael Hoppens is an adult resident of Onalaska. He is a real estate broker and the owner and operator of Hoppens Realty. Plaintiff/counterdefendant ERA Franchise Systems, LLC is a limited liability company existing under the laws of the State of Delaware with its principal place of business located in New Jersey. ERA sells real estate franchises.

II. ERA's Representations to Hoppens

In late 2007, Michael Hoppens met with an unnamed ERA representative (whom plaintiff does not/cannot identify) to discuss Hoppens Realty becoming an ERA Franchise. This representative told Hoppens that if Hoppens Realty would become an ERA franchise, it would receive a non-exclusive license to use the ERA trade name and trademarks. This representative also told Hoppens that ERA would provide the following training and support:

• Extensive sales training and skill development programs for Hoppens Realty agents and employees;

• Regular onsite visits from experienced ERA business consultants, field service managers, and other team members;

• Internet support and online training;

• Search engine exposure;

• Business planning;

• Networking events;

• One-on-one consultations;

• "Agent acquisition," whereby ERA representatives would recruit real estate agents to join Hoppens Realty and pay sales commissions to Hoppens Realty; and

• "Lead generation," whereby ERA representatives would provide Hoppens Realty with leads on new properties for sale.

In exchange, Hoppens Realty would agree to pay an initial $20,000 franchise fee plus eight percent of its gross revenue to ERA over the course of the franchise agreement.

The representations that the ERA representative made about training and support were untrue, known to be untrue or made in reckless disregard of their truth, and made with intent to deceive and induce Hoppens and Hoppens Realty to enter into the Franchise Agreement.ERA had no intention of providing training and support to Hoppens Realty at the time it made the representation.

Based on and in reliance upon these representations, on or about March 1, 2008, Hoppens Realty entered into a 10-year Franchise Agreement with ERA, secured by a personal guaranty signed by Michael Hoppens. Section 6 of the Agreement describes ERA's "services and obligations" to Hoppens Realty. Specifically, ERA agreed to:

• pay for two Hoppens Realty employees to attend a new franchisee Implementation seminar, § 6.1.1;

• provide access to the P&P Manual, § 6.1.2;

• produce and maintain an inventory of advertising and marketing materials, sales promotion items and training aids for purchase or for license to use, § 6.2.1;

• maintain a staff to consult with Hoppens Realty on advertising, marketing and technical matters, by telephone, in writing or in person "as [ERA] deems appropriate and necessary," § 6.2.2; and

• maintain on its staff or appoint as its representative an individual with a valid real estate broker's license, §6.2.3.

This section of the franchise agreement further provided that ERA retained sole discretion to develop or discontinue optional programs to enhance the business and to condition Hoppens Realty's participation in such programs upon its being in compliance with the agreement. §6.2.4.

The franchise agreement contains an integration clause, set forth at § 22.15, which provides:

You acknowledge that our operations have been fully explained to you; that you understand their uses, benefits and limitations; and that you have received no representations from us as to the particular type or amount of benefit to be gained under thisAgreement. You have not relied on any written or oral representations except those specifically included in or made a part of this Agreement in writing. Except as expressly provided herein, this Agreement and any written Addendum signed by our authorized officer and by you represents the entire integrated agreement between us and you and supersedes all prior negotiations, representations or agreements, either written or oral , between the parties and their respective representatives. DO NOT SIGN THIS AGREEMENT IF YOU BELIEVE WE OR ANY OF OUR REPRESENTATIVES HAS PROMISED YOU SOMETHING THAT IS NOT PART OF THIS AGREEMENT, ANY ATTACHED ADDENDUM OR THE FRANCHISE OFFERING CIRCULAR.

Michael Hoppens spent approximately $5,000 to build a group training room in anticipation of ERA training sessions. However, with the exception of an introductory meeting with a business consultant and two training sessions for Hoppens Realty's clerical staff concerning the use of ERA's accounting software, the onsite support promised by the ERA representative never materialized. Shortly after Hoppens Realty became an ERA franchise, ERA eliminated its onsite training and support programs and switched to an online consulting service and telephone help hotline. Michael Hoppens contacted ERA on many occasions and asked its representatives to provide the onsite and training and support that had been promised him, but he was ignored. As a result of ERA's failure to honor its promises, Hoppens Realty stopped making payments under the franchise agreement.

III. "Settlement" Agreement

On or about January 26, 2010, ERA contacted Michael Hoppens and demanded that he pay approximately $108,664.55 in unpaid franchise payments. Hoppens responded that he would not make payment until ERA met its obligations under the franchise agreement. In May2012, the parties reached a settlement agreement: ERA agreed to settle its claims for unpaid franchise payments in exchange for $3,000, to be paid in three equal monthly installments, and would begin providing onsite training and support as promised. Although Michael Hoppens made the first payment of $1,000 to ERA, ERA still did not provide the promised support. Hoppens did not make the last two settlement payments. By letter dated July 30, 2012, ERA terminated the franchise agreement, without Hoppens Realty's consent.

IV. Relief Requested

Hoppens and Hoppens Realty seek judgment dismissing ERA's claims on the merits and with prejudice and for an award of damages in the amount of at least $38,808, which represents the total of franchise payments made, the cost of the unused training room and other unusable miscellaneous items, wages paid to employees related to the "failed franchise" and lost revenue as a result of three agents leaving because of the "failed franchise." Counterclaim, dkt. 30, at 9.

OPINION

I. Motion for Judgment on the Pleadings

A. Standard and Scope of Review

ERA asks the court to enter judgment in its favor on the counterclaim, pursuant to Fed. R. Civ. P. 12(c). In ruling on a 12(c) motion, the court employs the same standards for a motion to dismiss for failure to state a claim brought under Federal Rule of Civil Procedure 12(b)(6). Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007). When reviewing a 12(b)(6) motion, the court takes all well-pleaded allegations in the counterclaim as true anddraws all inferences in favor of the non-movant. Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008) (citations omitted). The counterclaim must include "enough facts to state a claim to relief that...