Gnc Franchising, Inc. v. O'Brien

• Decision Date: 05 July 2006
• Docket Number: No. Civ.A. 05-0270.,Civ.A. 05-0270.
• Citation: 443 F.Supp.2d 737
• Parties: GNC FRANCHISING, INC. Plaintiff, v. Tim O'BRIEN, Dorothy O'Brien, and Biscayne Nutritional Services, Inc., Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

443 F.Supp.2d 737

GNC FRANCHISING, INC. Plaintiff, v. Tim O'BRIEN, Dorothy O'Brien, and Biscayne Nutritional Services, Inc., Defendants.

No. Civ.A. 05-0270.

United States District Court, W.D. Pennsylvania.

July 5, 2006.

Gordon W. Schmidt, Kevin S. Batik, Amy Kerr Parker, McGuire Woods, Robert W. Pritchard, Littler Mendelson, Pittsburgh, PA, for Plaintiff.

William J. Witte, Riley, Hewitt & Sweitzer, Pittsburgh, PA, for Defendants.

MEMORANDUM ORDER

LANCASTER, Chief Judge.

Plaintiff GNC's Complaint was received by the Clerk of Court on March 1, 2005, and was subsequently referred to United States Magistrate Judge Lisa Lenihan for pretrial proceedings in accordance with the Magistrates Act, 28 U.S.C. § 636(b)(1), and Rules 72.1.3 and 72.1.4 of the Local Rules for Magistrates. Defendants filed an amended Answer and Counterclaim, with this Court's approval, on October 25, 2005

The Magistrate Judge's Report and Recommendation (the "R & R"), filed on June 1, 2006, recommended that GNC's November 4, 2005 Motion to Dismiss the majority of Defendant's counter-claims be treated as follows:

Count II—Negligent Misrepresentation: Plaintiff's Motion to Dismiss that portion of this Count alleging a claim as to information provided by GNC to induce Defendants to expand one franchise to include a "Smoothie Bar" should be denied without prejudice, as this Court should decline to determine on this abbreviated record the complex and novel question of whether the Pennsylvania Supreme Court would bar Defendants' negligent inducement claim under the "gist of the action" doctrine.

Count III-Breach of the Covenant of Good Faith and Fair Dealing: the Court should deny without prejudice Plaintiff's Motion to Dismiss this Count, as the Court should decline to determine on this abbreviated record the complicated and novel question of whether Pennsylvania law would recognize an independent cause of action by a franchisee against a franchisor for breach of the covenant of good faith and fair dealing.

Count IV—Breach of Fiduciary Duty: as Defendants present no relevant authority for their proposition that GNC owed a fiduciary duty to them and, to the contrary, the imposition of this degree of duty appears inappropriate in the commercial franchise context, the Court should grant Plaintiffs Motion to Dismiss Count IV.

Count VI—Common Law Fraud: as Defendants have failed to allege any reliance as to the remodeling/reset fees, and, moreover, the claim is barred by the gist of the action doctrine, the Court should grant Plaintiffs Motion to Dismiss Count VI.

In addition, the R & R recommended that absent Defendant's amendment of Count I of their Counterclaim (asserting a cause of action for violation of a class action settlement) to allege standing, this Court should dismiss this Count sua sponte for lack of standing.

Service was made on all counsel of record. Objections to the R & R were filed by GNC on June 19, 2006, well outside the time prescribed for filing objections. Defendants' Response to the Objections was filed on June 28, 2006.

In its Objection to the R & R as to Defendants' counterclaim of fraudulent/negligent misrepresentation in the inducement, GNC appears to ignore the social policy versus contractual obligation distinctions of Pennsylvania law, as thoroughly discussed in the R & R. Rather, GNC largely reiterates its assertion that it is entitled to dismissal of Count II because "Defendants have failed to identify any non-contractually imposed duty to provide accurate information... ." Plaintiffs Objection to Magistrate Judge's Report and Recommendation at 3.¹ The Court takes a moment to respond because it seems imperative that Plaintiffs apparent misunderstanding of the background rules of business dealings be, again, addressed. As this Court understands Pennsylvania law, it is clear, as indeed it should be, that in every solicitation of business dealings, the soliciting party owes a duty to refrain from carelessness in its generation of information and representations to others for profit, and that this duty exists independent of any enforceable promise to do so. Clearly, the preparation and provision/publication of economic projections to a stranger to induce a contractual relationship encompasses a duty of reasonable care. Plaintiffs apparent suggestion— that the presence of an antecedent relationship with the recipient of its economic information, which relationship does not govern the new business it is trying to conclude, relieves it of any duty of good care under the law—is a novel and socially undesirable view.²

In its Objection to the R & R as to Defendants' counterclaim for breach of a duty of good faith and fair dealing, GNC takes issue with the R & R's analysis of Witmer v. Exxon Corp., 495 Pa. 540, 434 A.2d 1222 (1981). In particular, Plaintiff asserts that the R & R "overlooks" Witmer's silence on the "alternative good faith standards that would apply in a non-termination" franchise case. Plaintiffs Objection at 7. Plaintiff concludes that Witmer's "failure to provide" such standard "indicates that the Court did not intend" for any such standard to apply outside the termination context. Here again, GNC appears largely to ignore the language of the R & R. The R & R explains, in detail, that the Court in Witmer distinguished that case from Atlantic Richfield Co. v. Razumic, 480 Pa. 366, 390 A.2d 736 (1978) (in which it earlier expressly recognized an underlying duty of good faith and fair dealing in a franchise termination context) on two grounds: (1) Witmer involved neither direct nor indirect termination, and (2) even if it had, Witmer contained express contract provisions and express obligations of good faith under both those contract provisions and applicable statute. Moreover, Plaintiffs suggestion—that the Witmer Court's failure to include dicta defining standards of good faith and fair dealing for non-termination, non-express-contract franchise cases constitutes a determination that no such standards should apply—is fundamentally erroneous. More particularly, GNC fundamentally misapprehends the judicial function. Courts decide issues brought before them by the parties; they do not ordinarily look to anticipate other questions that may arise in a general field of law and to propound rules in advance for such issues. In Witmer, the case before the Court was fully resolved by the observation that a duty of care was expressly provided and it would be highly unusual for a court—as opposed to a legislature or administrative agency—to propound rules for circumstances not present before it.

Accordingly, after review of the pleadings and documents in the case, together with the Report and Recommendation and the parties' pleadings subsequent thereto, the following Order is entered:

AND NOW, this 29^th of, 2006:

IT IS HEREBY ORDERED that Plaintiffs Motion to Dismiss certain of Defendants' counterclaims is GRANTED as to Counts IV and VI and DENIED without prejudice as to Counts II and III, as more fully set forth above.

IT IS FURTHER ORDERED that Count I of Defendants' Counterclaim is dismissed, sua sponte, for lack of standing.

IT IS FURTHER ORDERED that the Report and Recommendation of Magistrate Judge Lenihan is adopted as the Opinion of the Court.

MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

LENIHAN, United States Magistrate Judge.

I. RECOMMENDATION

It is respectfully recommended that the Motion to Dismiss filed by Plaintiff GNC Franchising, Inc. ("GNC") as to the counter-claims raised by Defendants be granted in part and denied in part, as more fully set forth below. It is also respectfully recommended that the Court grant Defendants an appropriate opportunity to amend their counter-claims to allege standing as to class action claims but that, in the absence of such amendment, those claims be dismissed sua sponte.

II. REPORT

This case involves a somewhat complicated history of the franchise relationship between GNC, as franchisor, and Defendants, as franchisee. At bottom, Defendants allege that GNC manipulates its franchise system unfairly and/or unlawfully and to the benefit of company-owned stores in direct competition with the franchisees.

Presently before this Court is GNC's November 4, 2005 Motion to Dismiss the majority of Defendant's counter-claims. For the reasons discussed in Section V, infra, it is recommended that those counter-claims be treated as follows:

Count I—Violation of Class Action Settlement—Defendants should be given twenty (20) days from the date of this Report and Recommendation to amend their counter-claims to allege standing; absent such amendment, this Court should dismiss this Count sua sponte for lack of standing.

Count II—Fraudulent Inducement and Negligent Misrepresentation—Defendants bring this counter-claim as to both (a) information allegedly withheld from/misrepresented on GNC's Uniform Franchise Offering Circular ("UFOC") documents, upon which Defendants relied in deciding to enter into franchise agreements for one or more of their three franchise locations; and (b) information provided by GNC to induce Defendants to expand one franchise to include a "Smoothie Bar". GNC seeks dismissal of this Count as to only the latter, and this Court should deny that request without prejudice, declining to determine on this abbreviated record the complex and novel question of whether the Pennsylvania Supreme Court would bar Defendants' fraudulent inducement claim under the "gist of the action" doctrine.

Count III-Breach of the Covenant of Good Faith and Fair Dealing—Here again, because Defendants' breach of contract claim will proceed, this Court need not, and therefore should not, determine on this abbreviated record the complicated and novel question of whether Pennsylvania law would recognize an independent cause of action by a franchisee against a franchisor for breach of the covenant of good faith and fair dealing. The interests of judicial economy...