Haywood v. Massage Envy Franchising, LLC

• Decision Date: 10 April 2018
• Docket Number: No. 17-2402,17-2402
• Citation: 887 F.3d 329
• Parties: Kathy HAYWOOD and Lia Holt, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. MASSAGE ENVY FRANCHISING, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

887 F.3d 329

Kathy HAYWOOD and Lia Holt, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.MASSAGE ENVY FRANCHISING, LLC, Defendant-Appellee.

No. 17-2402

United States Court of Appeals, Seventh Circuit.

Argued February 7, 2018

Decided April 10, 2018

Richard Steven Cornfeld, Attorney, Law Office of Richard S. Cornfeld, Ryan L. Bruning, Attorney, Bruning Law Firm, St. Louis, MO, Amit R. Vora, Brian Wolfman, Attorneys, Georgetown University Law Center, Washington, DC, for Plaintiffs–Appellants.

Luanne Sacks, Attorney, Sacks, Ricketts & Case LLP, San Francisco, CA, Joseph E. Collins, Attorney, Fox Rothschild LLP, Chicago, IL, Cynthia Ann Ricketts, Esq., Attorney, Sacks, Ricketts & Case LLP, Phoenix, AZ, for Defendant–Appellee.

Before Bauer, Rovner, and Sykes, Circuit Judges.

Bauer, Circuit Judge.

Kathy Haywood and Lia Holt filed this putative class action alleging that Massage Envy Franchising, LLC ("Massage Envy"), committed unfair and deceptive business practices by advertising and selling one-hour massages but providing massages that lasted only 50 minutes. They now appeal from the district court’s order granting Massage Envy’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. We affirm.

I. BACKGROUND

Massage Envy is a franchisor based in Scottsdale, Arizona, that grants licenses to independently owned and operated entities for use of its name, trademark, and standardized business operations. Haywood is an Illinois resident and Holt is a Missouri resident. Massage Envy has multiple franchise locations in both states that offer massages and other related services.

On November 16, 2016, Haywood and Holt filed their first amended complaint which is the subject of Massage Envy’s motion to dismiss and this appeal. It alleges that Massage Envy violated numerous provisions of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILCS 505/1 et seq. , and the Missouri Merchandising Practices Act ("MMPA"), Mo. Rev. Stat. § 407.010 et seq. , when it offered and sold "what it stated were one-hour massages or ‘massage sessions’ that provided no more than 50 minutes of massage time."

Before detailing Haywood’s and Holt’s specific experiences, the complaint explains how Massage Envy advertised massage services on its website between May 2007 and September 2016. It focuses primarily on the advertisement on the website’s homepage for an "Introductory 1-hour Massage Session*" at the price of $50. Clicking the asterisk after the word "Session" led the user to a separate web page that did not contain information about the length of a massage. However, at the bottom of the homepage there was a link that stated "*View pricing and promotional details." That link led to a separate page with a number of disclaimers. One disclaimer titled "Session" explained that a "[s]ession includes massage or facial and time for consultation and dressing

." The complaint alleges that the multiple asterisks confused the average consumer and that Massage Envy deceptively hid the disclosures where they were "nearly impossible" to find.

Haywood’s first encounter with Massage Envy came after receiving an electronic gift card for $75 from her daughter via email. The email provided instructions for downloading the gift card and scheduling an appointment. The complaint notes that "[a] line buried in fine print at the bottom of the email stated, ‘Session includes massage or facial and time for consultation and dressing

.’ " Haywood visited the Massage Envy website and booked a one-hour massage session at a franchise location in O'Fallon, Illinois. She did not see a disclaimer either on the website or at the O'Fallon location stating that the massage time would be less than 60 minutes. Haywood went for her massage on May 11, 2016. After speaking briefly with the massage therapist, she was given time to undress and then received a massage that lasted no more than 50 minutes.

Haywood scheduled another appointment at the same location on September 8, 2016, "to verify that Massage Envy provided only 50 minutes' massage time for a one-hour massage." She booked a one-hour massage session, this time via phone, for $90. She did not see any sign or display at the location noting that the massage time would be less than one hour. She received another massage that lasted no more than 50 minutes.

Holt’s allegations regarding her experience are less detailed than Haywood’s. The complaint alleges that in April 2012, Holt "accessed Massage Envy’s website to research the prices for a one-hour massage" and learned that the nearest franchise location was in Oakville, Missouri. She telephoned that location and made an appointment for a one-hour massage. Sometime during that same month, she went to the Oakville location and received a massage that lasted no more than 50 minutes.

On behalf of Haywood and all other similarly situated Illinois residents, the complaint alleges counts of Affirmative Deception, Material Omissions of Fact, and Unfair Practices in violation of the IFCA. It alleges the same three counts in violation of the MMPA on behalf of Holt and all other similarly situated Missouri residents. Massage Envy moved to dismiss the complaint arguing both a lack of subject matter jurisdiction and failure to state a claim on which relief may be granted.

On June 9, 2017, the district court granted Massage Envy’s motion and dismissed the complaint with prejudice. The court first held that Haywood and Holt had standing, rejecting Massage Envy’s argument that they had not pleaded a cognizable injury that was fairly traceable to Massage Envy. However, when analyzing the requirements for pleading damages under the IFCA and the MMPA, the court held that both Haywood and Holt’s allegations failed to meet the standards set forth by those statutes and the corresponding case law. The court also found that Holt’s claims did not meet the heightened pleading standard required under Federal Rule of Civil Procedure 9(b), as she did not allege a time or a place for the fraudulent conduct, nor did she state particularly how she was deceived. Haywood and Holt timely appealed.

II. DISCUSSION

We review de novo a district court’s ruling that a complaint fails to state a claim upon which relief may be granted under Rule 12(b)(6). Camasta v. Jos. A. Bank Clothiers, Inc. , 761 F.3d 732, 736 (7th Cir. 2014). We "may affirm the district court’s dismissal on any ground supported by the record, even if different from the grounds relied upon by the district court." Slaney v. The Intern. Amateur Athletic Fed'n , 244 F.3d 580, 597 (7th Cir. 2001). "To survive a motion to dismiss under Rule 12(b)(6), the complaint must provide enough factual information to state a claim to relief that is plausible on its face and raise a right to relief above the speculative level." Camasta , 761 F.3d at 736 (internal quotation marks and citation omitted). Because Haywood and Holt bring their claims under different statutes, we will analyze the sufficiency of their allegations separately.

A. Haywood’s ICFA Claims

We analyze ICFA claims of deception under the heightened pleading standard of Federal Rule of Civil Procedure 9(b). Id. Although Haywood brings one ICFA claim alleging unfair practices, that claim still sounds in fraud because it relies upon the same baseline allegation that Massage Envy intentionally misled consumers by hiding information on the length of massage time. Therefore, it too is subject to Rule 9(b) ’s requirements. See id. at 737 (holding that an unfairness claim that "sounds in fraud" can implicate Rule 9(b) ). Rule 9(b) requires the complaint to "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). That means that it must specifically allege the "who, what, when, where, and how of the fraud." Camasta , 761 F.3d at 737 (internal quotation marks and citation omitted).

To state a claim under the ICFA as a private party, Haywood must plausibly allege: (1) a deceptive act or promise by Massage Envy; (2) Massage Envy’s intent that she rely on the deceptive act; (3) the deceptive act occurred during a course of conduct involving trade or commerce; and (4) actual damage as a result of the deceptive act. Camasta , 761 F.3d at 739 ; see also 815 ILCS 505/10a (providing individual cause of action for violation resulting in "actual damages"). "Actual damage" in this context means that Haywood must have suffered actual pecuniary loss. Camasta , 716 F.3d at 739. Additionally, the deceptive act must have been the "but-for" cause of the damage. Mulligan v. QVC, Inc. , 382 Ill.App.3d 620, 321 Ill.Dec. 257, 888 N.E.2d 1190, 1199 (2008).

As an initial matter, Haywood cannot obtain relief based on her second visit to Massage Envy because after her first visit, she cannot plausibly allege that she was deceived regarding the length of the massage. In fact, she states in the complaint that she booked the second massage "to verify that Massage Envy provided only 50-minutes' massage time." Because she knew how long the massage would last, she cannot maintain a claim based on the second visit. Oliveira v. Amoco Oil Co. , 201 Ill.2d 134, 267 Ill.Dec. 14, 776 N.E.2d 151, 164 (2002) (holding that those who "know the truth" do not have a valid ICFA claim). Therefore, we need only focus on the allegations regarding Haywood’s first visit.

Much of the district court’s decision, as well as the briefing before this court, was dedicated to a discussion of the requirements for pleading damages under the ICFA. The district court held that Haywood could not establish that she suffered an actual pecuniary loss because she did not spend any money on the massage, but instead used the gift card her daughter gave her. Additionally, the court found that Haywood’s allegations failed to establish that the value of the massage she received was "worth less than what [she] actually paid," citing Kim v. Carter’s Inc. , 598 F.3d 362,...