Kiddie Acad. Domestic Franchising, LLC v. Wonder World Learning, LLC
| Decision Date | 31 March 2019 |
| Docket Number | Civil Action No. ELH-17-3420 |
| Parties | KIDDIE ACADEMY DOMESTIC FRANCHISING, LLC Plaintiff, v. WONDER WORLD LEARNING, LLC, et al. Defendants. |
| Court | U.S. District Court — District of Maryland |
Plaintiff Kiddie Academy Domestic Franchising, LLC ("Kiddie" or "Kiddie Academy") has sued defendants, Wonder World Learning, LLC ("Wonder World" or "WWL"), its former franchisee, and the franchisee's principals, Sumanth Nandagopal ("Mr. Nandagopal") and Supriya Sumanth ("Ms. Sumanth"). The suit alleges trademark and copyright infringement, breach of contract, breach of guaranty, and seeks a declaratory judgment. ECF 1 (the "Complaint").1 Several exhibits are appended to the suit, including the Franchise Agreement between Kiddie and WWL, signed in March 2014 (ECF 1-1 at 59), and the Personal Guaranty executed on March 6, 2014, by Ms. Sumanth and Mr. Nandagopal, who are husband and wife. ECF 1-1 at 64; ECF 1, ¶3.2
Kiddie "owns a national educational child care franchise system . . . ." ECF 1 at 2. WWI opened a Kiddie franchise in Texas on August 15, 2015. WWI and the Guarantors allegedly defaulted on their financial obligations under their Franchise Agreement, and have refused to return copyrighted materials. ECF 1.3
Defendants filed a combined answer to the suit and a counterclaim and third-party complaint. ECF 22. Plaintiffs moved to dismiss. ECF 23. However, Judge Garbis, to whom the case was then assigned, permitted defendants to amend, by Order of April 27, 2018. ECF 24. Thereafter, defendants filed an Amended Counterclaim and Amended Third-Party Complaint ("Amended Counterclaim"). ECF 25. In particular, they filed a counterclaim against Kiddie Academy and a third-party complaint against Greg Helwig, Kiddie's President and Chief Executive Officer; Lene Steelman, Kiddie's Controller/Vice President ("VP") of Accounting; Joshua Frick, Kiddie's VP of Real Estate; David Gould, Kiddie's former Development Manager; Susan Wise, the Chief Financial Officer and Chief Operating Officer; Kevin Murphy, the VP of Operations; Chris Commarota, the VP of Construction; Anthony F. Malizia, former Construction Manager; and William Huggins, Franchise Business Consultant.
The Amended Counterclaim contains ten counts under federal and Maryland law. ECF 25. Count One asserts a claim of "(Intentional Misrepresentation) Fraud or Deceit" against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy. Id. ¶¶ 62-67. Count Two alleges a claim of"(Fraud in the Inducement)" against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy. Id. ¶¶ 68-70. Count Three asserts a claim of "(Intentional Misrepresentation) (Concealment or Non-Disclosure)" against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy. Id. ¶¶ 71-81. In Count Four, counterclaimants assert a "Negligent Misrepresentation" claim against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy. Id. ¶¶ 82-88. Count Five, lodged against Kiddie, Commarota, Malizia, and Huggins, asserts "(Defamation Per Se of a Private Individual) Supriya Sumanth." Id. ¶¶ 89-92. Count Six contains a claim of "Detrimental Reliance" against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy. Id. ¶¶ 93-96.
Counts Seven, Eight, and Nine allege violations of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy, based on mail fraud and wire fraud. Id. ¶¶ 97-114. In Count Ten, also under RICO, counterclaimants allege that Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy conspired to violate 18 U.S.C. § 1962(c), in violation of 18 U.S.C. § 1962(d). Id. ¶¶ 115-20.
Kiddie has moved to dismiss the Amended Counterclaim, pursuant to Fed. R. Civ. P. 12(b)(6). Fed. R. Civ. P. 12(b)(6). ECF 27. The motion is supported by a memorandum of law (ECF 27-1) (collectively, the "Motion") and an exhibit. See ECF 27-2 (the "Franchise Agreement"). Kiddie contends that contractual and statutory limitations bar all but one count. ECF 27-1 at 10-16. Alternatively, Kiddie argues that counterclaimants fail to state a claim as to all counts. Id. at 16-39. Counterclaimants oppose the Motion (ECF 30, the "Opposition"), to which Kiddie has replied. ECF 31 (the "Reply").
According to the Docket, the third-party defendants were never served. Pursuant to Fed. R. Civ. P. 4(m), the counterclaimants were required to serve the third-party defendants within 90days of filing the counterclaim, i.e., by June 24, 2018.4 If any defendant is not served within that time, "the court . . . must dismiss the action without prejudice against that defendant or order that service be made within a specified time." Id.
In view of the foregoing, I shall dismiss the claims against the third-party defendants, without prejudice. Therefore, I shall consider the Motion only with regard to the Amended Counterclaim filed by the defendants.
No hearing is necessary to resolve the Motion. See Local Rule 105(6). For the reasons that follow, I shall grant the Motion.
The Guarantors, husband and wife, "began researching child care franchise companies" in January 2011. ECF 25, ¶ 16. They sought a company "that would provide knowledge and support for inexperienced owner operators" because they are not "sophisticated investors." Id. In February 2011, the Guarantors submitted a franchise application to Kiddie Academy. Id. ¶ 17. Kiddie was the "first and only franchisor" that the couple "had ever purchased." Id. ¶ 18. At the time, the Guarantors "were not familiar with the laws or with the practices of franchisors." Id.
Gould, who then served as Kiddie's Director of Franchise Sales, spoke with the couple on the phone and provided them an overview of the franchise. Id. But, he indicated that he would disclose additional details after they "complete sign [sic], and return to him a document called a preliminary questionnaire and personal financial statement." Id. ¶ 17. After the Guarantorscompleted the requisite paperwork, "Gould consulted with Wise." Id. ¶ 19. Gould then told the couple that in order "to qualify for a bank loan" they "would need to increase their net worth on their personal financial statement." Id.
Between February 24, 2011 and May 9, 2011, Gould told the Guarantors that the "site selection process takes anywhere from 3 to 9 months, and that when sites are selected that the Real Estate Manager provides a Site Analysis Report . . . ." ("SAR" or "Report"). Id. ¶ 21. The SAR "would tell [the applicants] if the site would support a daycare business from the demographics, and competition compared to the number of pre-school age children in the area." Id.
The counterclaimants allege that Frick, the VP of Real Estate, "intentionally withheld important information from [them] as to the time it actually could take Franchisees to find sites." Id. ¶ 21. Further, the Sumanths allege that they "reasonably relied on Frick's representations to their detriment and reasonably believed that their experience was unusual for Kiddie." Id. They assert that it was not until several years later that they learned from other franchisees that it was "quite common for site selection to take two or three years or longer, a fact known to Kiddie." Id. ¶ 22.
On or about May 9, 2011, the Guarantors visited Kiddie's corporate office in Maryland. Id. ¶ 20. Steelman, Kiddie's VP of Finance, advised the Guarantors that "she would help them produce the financial documents that lenders would require for approval of their loan application and would also provide bookkeeping training and support through her department." Id. ¶ 23.
Commarota, the VP of Construction, also advised the Sumanths that Kiddie Academy would assist them in finding and interviewing architects and contractors and "in reviewing construction plans for new construction to retrofit an existing space." Id. ¶ 24. Further, Commarota told them "not to worry because 'his team' would guide them through the entireconstruction process." Id. However, the Guarantors "did not choose Kiddie's preferred vendors[.]" Id. ¶ 25. Thereafter, according to the counterclaimants, Kiddie provided only "minimal" support and its representatives "acted in a hostile manner" towards the couple. Id.
In its marketing, Kiddie allegedly advised the Guarantors "that its school curriculum was as good or better than its best competitor . . . ." Id. ¶ 26. Additionally, Kiddie's "marketing department stated that its education department would conduct owner and director training and continue to provide training as needed" for the franchise. Id. Moreover, Murphy, the VP of Operations, promised to "appoint a Franchise Business Consultant to provide ongoing operational support." Id. ¶ 27. However, counterclaimants allege that Kiddie's designated consultant, Will Huggins, "had no franchise experience, no experience in operating or managing a business, and no experience, training or knowledge with daycare centers or pre-school education and had never managed people in a supervisory role[.]" Id. According to counterclaimants, before Huggins joined Kiddie, he was a "Sales Consultant with a publishing house in Florida[.]" Id. And, he did not "know the local Texas market" because he was based in Maryland and had never lived in Texas. Id. Further, they assert that they reasonably relied, to their detriment, on Kiddie's representations. Id.
Further, the counterclaimants allege that Helwig and Wise "falsely assured" the Guarantors that "their lack of industry experience would not be an issue due to Kiddie's proven curriculum, marketing, and support from all Kiddie's departments." Id. ¶ 28. Kiddie and the third-party defendants also told the Sumanths that Kiddie had "a platform which would guide them to success." But, according to the counterclaimants, no such platform existed. Id. Moreover, after defendants opened the Franchise on August 15, 2015, "they received no material support from Kiddie." Id. ¶...
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