Hasko v. FranChoice, Inc.
| Decision Date | 19 December 2019 |
| Docket Number | Case No. 19-cv-702 (MJD/ECW) |
| Parties | GEORGE HASKO and GEORGE HASKO ENTERPRISES, INC, Plaintiffs, v. FRANCHOICE, INC. and CAREYANN GOLLIVER, Defendants. |
| Court | U.S. District Court — District of Minnesota |
This matter is before the Court on Defendants' Motion for Partial Dismissal Pursuant to Rule 12(b)(6). (Dkt. 16.) This case has been referred to the undersigned United States Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. § 636 and Local Rule 72.1. For the reasons discussed below, the Court recommends that Defendants' Motion for Partial Dismissal Pursuant to Rule 12(b)(6) be denied.
Plaintiffs initiated this action on March 15, 2019. (Dkt. 1.) Defendants subsequently moved to dismiss the Complaint. (Dkt. 8.) That motion was withdrawn after Plaintiffs filed an Amended Complaint. (Dkt. 20.)
The operative Amended Complaint alleges as follows: Plaintiff George Hasko ("Hasko"), who resides in and is a citizen of New Jersey, owns George Hasko Enterprises, Inc., a New Jersey corporation with its principal place of business in New Jersey. (Dkt. 15 ¶¶ 4-5.) Hasko became interested in purchasing a franchise in late 2015. (Id. ¶ 11.) To this end, he was introduced to Defendants FranChoice, Inc. ("FCI") and Careyann Golliver ("Golliver"). (Id.) FCI is a corporation formed under the laws of Minnesota, with its principal place of business in Eden Prairie, Minnesota. (Id. ¶ 6.) It is a franchise broker that assists prospective franchisees in identifying, investigating, selecting, and acquiring franchises. (Id.) Golliver, an FCI representative, is an individual residing in Parker, Colorado, and is a citizen of that state. (Id. ¶ 7.)
Through its website (https://www.franchoice.com/), FCI held itself out as directing prospective franchisees to "high quality franchise businesses that match your requirements" and represented that it would match "entrepreneurs like you with the perfect franchise business." (Id. ¶ 12.) FCI stressed that Plaintiffs could "avoid the confusion of researching" franchise opportunities and could focus on those franchises that FCI had "selected . . . as franchise businesses matching [their] requirements." (Id.) FCI further represented that "[t]hey will be by your side coaching you and making sure you are getting the information you need in order to make the best decision for you." (Id.)
Golliver held herself out on her own website, www.franchise-logic.com, as a "franchise expert," an "award-winning franchise consultant," and a "former franchisor" who was "in continuous contact with the safest, most lucrative and fastest-growing franchises." (Id. ¶ 13.) Golliver stated that she prides herself on "working with only the best of the best franchise organizations represented today." (Id.)
Golliver emailed Hasko on January 20, 2016, introducing herself and representing that Guidant Financial asked that she reach out to Hasko directly given that he was "inthe market looking for some solid business opportunities to research." (Id. ¶ 14.)
On February 9, 2016, Hasko had an introductory phone call with Golliver, after which she emailed Hasko. (Id. ¶ 15.) Golliver asked Hasko to go to the FCI website where he could complete a questionnaire about his franchise search. (Id.) After Hasko completed the FCI questionnaire, he had another phone call with Golliver on February 23, 2016. (Id. ¶ 16.) During this call, Golliver mentioned a "boutique fitness" opportunity called ILoveKickBoxing, which offered fitness studios featuring kickboxing. (Id.) She also provided Hasko with the names of two other unrelated and unnamed companies. (Id.) Although she encouraged Hasko to contact all three, she pushed ILoveKickBoxing as the best choice for him. (Id.) Non-party ILKB, LLC ("ILKB") is the franchisor of "iLoveKickboxing.com" franchises, which are fitness facilities dedicated to kickboxing, a form of physical fitness. (Id. ¶ 8.) At all relevant times, ILKB was a New York limited liability company with its headquarters in New York State. (Id.) ILKB offered and sold franchises only in and from New York State. (Id.)
On February 23, 2016, Golliver emailed Hasko stating, "[a]s I mentioned during our conversation, the companies we discussed are not only great matches to your model, but they are also some of the fastest growing franchises in the United States." (Id. ¶ 17.) Golliver also encouraged Hasko in this email to act quickly in making a purchase, saying "these companies are experiencing tremendous demand for franchises" and (Id.)
On February 23, 2016, in a phone call, Golliver made several representations toHasko, including that: the ILKB franchise business was suitable for absentee ownership, meaning that Hasko would only need to put in 5 to 10 hours a week supervising a manager; marketing was the key to ILKB and if Hasko followed the franchisor's instructions, the concept was 93 percent successful; ILKB had never had a single closure; the average net profit was about $10,000 per month; and owners could expect to make a six figure income easily. (Id. ¶ 19.) Had the representations of FCI and Golliver concerning the franchise's revenue and profitability been true, Plaintiffs would have had annual profits totaling $120,000 per studio for a period of 5 years, or a total of $3 million. (Id. ¶ 21.)
After speaking with ILKB, Hasko sent Golliver a text message on March 1, 2016, stating that he had just gotten off the phone with an ILKB representative and was very excited about the business. (Id. ¶ 18.) Golliver responded, (Id. (alterations in original).)
In reliance upon FCI and Golliver's representations that they were "franchise experts" with decades of experience, that they had superior knowledge, and that Golliver would coach him through the due diligence process, Hasko believed all of FCI and Golliver's representations as statements of fact, and relied upon Golliver's superior knowledge of franchising and professed expertise, and upon the specific representations that Golliver had made in deciding to purchase an ILKB franchise. (Id. ¶ 20.) Based on this reliance, Hasko invested $145,000 in franchise fees for five territories; over $250,000 in outfitting his first studio; and undertook substantial lease and loan obligations. (Id.) Plaintiffs' location opened on July 31, 2017. (Id.) Contrary to FCI and Golliver'srepresentations, Plaintiffs' franchise has not been profitable and has accumulated operating losses in excess of $300,000, which are continuing, and Plaintiffs owe a minimum of $370,000 on their lease. (Id. ¶ 22.)
After opening the business, Plaintiffs learned that the representations that FCI and Golliver had made to Hasko relating to ILKB franchises were untrue, including: that the franchise was suitable for absentee ownership (instead requiring constant attention by the owner); representations relating to the marketing of the franchise; representations that there had been no closures of ILKB franchises; the expected profit of ILKB franchises; and the costs to franchisees. (Id. ¶ 23.) In addition, FCI never disclosed that attrition made it impossible to attain or maintain the levels of membership needed to "break even." (Id. ¶ 24.) Plaintiffs were unable to maintain income from existing members because of member attrition and failures to pay, and the franchisor's undisclosed policy of not enforcing, or permitting enforcement of, member contracts and payment obligations. (Id.) Defendants also failed to do or disclose their due diligence by not discovering or communicating to Plaintiffs the existence of lawsuits and a bankruptcy related to ILKB's founder and its affiliates. (Id. ¶ 25.) Plaintiffs assert that had they known of this information they would not have purchased any franchises from ILKB. (Id.)
Plaintiffs assert claims for relief against Defendants for their alleged violations of the New York Franchise Sales Act, N.Y. Gen. Bus. L. 680 et seq. and the New Jersey Consumer Fraud Act, NJSA § 56:8-1. Plaintiffs also assert claims against Defendants for common law fraud and negligent misrepresentation.
Defendants move to dismiss Plaintiffs' New York Franchise Sales Act ("NYFSA") and New Jersey Consumer Fraud Act ("NJCFA") claims.
In considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the pleadings are construed in the light most favorable to the non-moving party, and the facts alleged in the complaint must be taken as true. See Ashley County, Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009). In addition, a court must afford the plaintiff all reasonable inferences from those allegations. See Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir. 2010). At the same time, to withstand a motion to dismiss under Rule 12(b)(6), litigants must properly plead their claims under Federal Rule of Civil Procedure 8 and meet the principles articulated by the United States Supreme Court in Iqbal and Twombly.
Under Rule 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The pleading standard articulated by Rule 8 "does not require detailed factual allegations, but it [does demand] more than an unadorned, the-defendant-unlawfully-harmed-me-accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citations omitted). A "pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Thus, to "survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on...
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