Gould v. ILKB LLC

• Decision Date: 09 June 2022
• Docket Number: 2:20-cv-5154 (DRH) (JMW)
• Parties: ROGER GOULD, and DOLPHIN KICKBOXING COMPANY, 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

ROGER GOULD, and DOLPHIN KICKBOXING COMPANY, 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-5154 (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 BY: PETER G SIACHOS, ESQ., DAVID OXAMENDI, ESQ.

MEMORANDUM AND ORDER

DENIS R. HURLEY UNITED STATES DISTRICT JUDGE

INTRODUCTION

Plaintiffs Roger Gould and Dolphin Kickboxing Company (collectively “Plaintiffs”) bring seven causes of action against Defendants ILKB, LLC (“ILKB”), Michael Parrella, Ryan Healy, and Scott Ferrari (together the “Predecessor Defendants”): violation of the New York State Franchise Sales Act, N.Y. Gen. Bus. L. § 680 et seq. (“NYSFSA”); breach of contract; common law fraud; negligent misrepresentation; violation of the Arizona Consumer Fraud Act, Ariz. Rev. Stat. § 44-1521 et. seq. (“ACFA”); tortious interference; and alter ego, veil piercing and agency liability. Plaintiffs also bring one cause of action-successor liability-against Defendants 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)(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.

Roger Gould (“Gould”) alleges Predecessor Defendants misrepresented and omitted material information about ILKB, inducing him to purchase and run an ILKB franchise. (Compl. ¶ 15 [DE 1]). On March 9, 2015, Scott Ferrari, President and Director of Franchise Development at ILKB, met Gould and stated:

1. “ILKB was the ‘hottest' fitness franchise around and that Gould would ‘make a ton of money, '”^[1] and

2. “ILKB had marketing expertise that would generate all the leads necessary for an ILKB studio to be profitable.”

(Id. ¶ 16). Ferrari then sent Gould an ILKB Financial Disclosure Document dated

April 11, 2014, that allegedly was not registered in New York State and contained misrepresentations and omissions. They include:

3. stating “there was no bankruptcy information to report and omitt[ing] the fact that ILKB franchise owner and founder, [Michael] Parrella, had filed for bankruptcy and had been discharged in 2008”;

4. stating “there was no litigation to report and omitted lawsuits in which 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”;

5. showing “buildout expenses to be a maximum of no more than $147, 500”;

6. stating “that ILKB and FCOM received no revenue, rebates or ‘kickbacks' from vendors who sold products or services to franchisees”; and

7. omitting “the fact that five ILKB franchised units had closed in 2014.”

(Id. ¶ 18). Later in March 2015, Ferrari allegedly added:

8. “ILKB franchisees, on average, made over $130, 000 a year in profits from a location”;

9. “If Gould bought three territories, ILKB would conduct initial training at his location”; 10. “If Gould purchased an ILKB franchise, he would make his investment back, make at least a few hundred thousand dollars profit, and have the opportunity to sell his ILKB franchise business back for multiples of what he purchased it for”;

11. “ILKB corporate had an ‘unheard of' marketing expertise and does all the marketing to generate all the leads necessary for an ILKB studio to be profitable”; and

12. “ILKB corporate trains instructors multiple times a year for each ILKB studio and visits each studio location to make sure they are operating ‘well above par.”

(Id. ¶ 19). On March 31, 2015, Ferrari gave Gould a “sample ILKB franchise business plan” that he claimed franchisees had used to get bank loans. (Id. ¶ 20). The plan showed:

13. “revenues in excess of $600, 000 a year in the second year of operation . . . and expenses of $25, 000 per month (including about $9, 000 per month in salaries for employees), ” “profits of over $190, 000 in the second and third years of operations, ” and “buildout expenses at $100, 000.”

(Id.).

On an unknown date, the Predecessor Defendants also allegedly misrepresented and failed to disclose that

14. “ILKB would retain profits at the expense of franchisees through Defendants' lead generation program.”

(Id. ¶ 21).

On April 16, 2015, the Predecessor Defendants invited Gould and other prospective franchisees to New York for its “Discovery Day.” (Id. ¶ 22). Ryan Healy, who identified himself as ILKB's Vice President of Franchise Operations, allegedly stated

15. “Gould would make $200, 000 in profit from one ILKB franchise location in his second year of operations.”

(Id.). Parrella and Healy also allegedly added that:

16. “[M]ost franchisees break even within two to four months of opening”;

17. “The ILKB franchise owner did not have to work full time in the business and the studio could be run successfully as an absentee owner”;

18. “ILKB corporate would bring in prospective customers for each ILKB franchise studio and generate enough leads for each franchisee to be as profitable as promised”;

19. “ILKB had signed deals with Amazon and Living Social to bring franchisees more leads and therefore more revenue”;

20. “38-55% of leads from FaceBook and Groupon customers converted to full paying members of ILKB franchise studios”;

21. “The ILKB business was not seasonal”;

22. “It is common for an individual ILKB franchise studio location to sell hundreds to thousands of deals through Groupon and when those leads enter ILKB's ‘proven sales process,' more than 50% of them convert into full members of the ILKB franchise studio. ILKB corporate offers this to its franchise studios combined with its multi-layered online and offline marketing systems”;

23. “No other fitness franchise provides as much done-for-you marketing support”; and

24. “[T]he only reason an ILKB franchisee would fail would be from not following ILKB corporate's system.”

(Id. ¶¶ 23-24).

On April 28, 2015, Plaintiff Dolphin Kickboxing Company (“Dolphin”)-an Arizona corporation Gould formed to purchase and run a franchise-signed a Franchise Agreement to open an ILKB studio covering three Arizona locations. (Id. ¶ 25; see Franchise Agreement (“Fr. Agmt.”), Ex. 2 [DE 35-2] to Decl. of Roger Gould [DE 35]^[2]). Gould spent more than $225, 000 in building out a kickboxing studio in Gilbert, Arizona and opened it on April 10, 2017. (Id. ¶¶ 25-26). Gould ended up having to do his own marketing after ILKB failed to provide support to that end. (Id.). The studio began losing money “rapidly” - ultimately $10, 000 a month during the fourth quarter of 2018. (Id. ¶ 27). Gould then started investigating the Predecessor Defendants and learned the alleged falsity of their representations. (Id.).

On January 9, 2019, Plaintiffs wrote to the Predecessor Defendants' counsel demanding, among other things, that they begin the dispute resolution process as set forth in the Franchise Agreement and that Predecessor Defendants purchase the Gilbert studio and assume its lease. (Id. ¶ 35(a), (c)). After they declined, Plaintiffs closed the studio on January 31, 2019. (Id. ¶ 36). With the space still under lease, Plaintiffs “designed a concept for a multi-use facility that would be called” Encore Group Fitness - leading the Predecessors Defendants to sue Plaintiffs for doing so. (Id. ¶¶ 37-38). Plaintiffs do not plead any further details about this legal action.

In March 2019, Plaintiffs commenced an arbitration pursuant to the Franchise Agreement against the Predecessor Defendants in the JAMS Resolution Center, JAMS Case No. 1425029100. (Id. ¶¶ 2, 42). The Predecessor Defendants, however, have refused to pay their portion of the required arbitration fees, and the proceeding has been held in abeyance. (Id. ¶ 44).

Plaintiffs further 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, 46-47). Castellini is ILKB Too's Chief Executive Officer and York its Chief Operating Officer. (Id.).

Plaintiffs brought this suit on October 26, 2020. [DE 1]. On December 28, 2021, the Moving Defendants filed the instant motion to dismiss. [DE 33].

DISCUSSION

The Court will address the issues in the following order: (I) personal jurisdiction over the Successor Defendants; and (II) 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 defendants moving to dismiss under Rule 12(b)(2). 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...