Prince Heaton Enterprises v. Buffalo's Franchise

• Decision Date: 17 March 2000
• Docket Number: No. CIV.A.1:99-CV-258-TWT.,CIV.A.1:99-CV-258-TWT.
• Parties: PRINCE HEATON ENTERPRISES, INC., et al., Plaintiffs, v. BUFFALO'S FRANCHISE CONCEPTS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

117 F.Supp.2d 1357

PRINCE HEATON ENTERPRISES, INC., et al., Plaintiffs, v. BUFFALO'S FRANCHISE CONCEPTS, INC., et al., Defendants.

No. CIV.A.1:99-CV-258-TWT.

United States District Court, N.D. Georgia, Atlanta Division.

March 17, 2000.

COPYRIGHT MATERIAL OMITTED

Jay D. Bennett, Alston & Bird, Atlanta, GA, David C. Butler, Office of David C. Butler, Marietta, GA, for Prince Heaton Enterprises Inc., Prince-Heaton Enterprises of Roswell Inc., Enterprises of Parkaire Inc., Prince-Heaton Enterprises of Douglasville Inc., Highway 41 Buffalo's Inc., Prince-Heaton Enterprises of Alpharetta, Inc., Burnt Hickory Buffalo's Inc., Grassland Crossing Buffalo's, Inc., Mcginnis Ferry Buffalo's, Inc., Prince-Heaton Enterprises of Mableton, Inc., Prince-Heaton Enterprises of Orlando, Inc., Prince-Heaton Enterprises of Sprayberry, Inc., James R. Prince, plaintiffs.

James C. Rubinger, Meredith Fuchs, Wiley Rein & Fielding, Washington, DC, Allan J. Tanenbaum, Cohen Pollack Marlin Axelrod & Tanenbaum, Atlanta, GA, for Buffalo's Franchise Concepts, Inc., David Hyde, Ralph Perrella, defendants.

ORDER

THRASH, District Judge.

This is an antitrust and civil RICO action with pendant state claims. The case is before the Court for consideration of Defendants' Motion to Dismiss the First Amended Complaint [Doc. 19]. For the reasons set forth below, the motion will be granted in part and denied in part.

I. BACKGROUND

This is a dispute between a group of Buffalo's Café franchisees and their franchisor.¹ Buffalo's Cafes are mediumpriced, casual dining restaurants specializing in Buffalo-style chicken wings. Plaintiffs are several incorporated Buffalo's Café franchisees, their parent corporation, and a principal. Plaintiff James R. Prince is a citizen of Georgia and the sole or majority shareholder of each of the corporate Plaintiffs. Plaintiff Prince Heaton Enterprises, Inc. (hereafter "Prince Heaton"), the parent corporation, is a Florida corporation with its principal place of business in Fulton County, Georgia. The remaining corporate plaintiffs, all Georgia corporations, each operate or have operated a Buffalo's restaurant in various locations. Defendants are Buffalo's Franchise Concepts, Inc. (hereafter "Buffalo's, Inc.") and two principals of that corporation. Buffalo's, Inc. is a franchisor that sells the rights to operate Buffalo's franchises and to use the Buffalo's Café restaurant system. Buffalo's, Inc. is a Georgia corporation with its principal place of business in Cobb County, Georgia. The individual Defendants are Messrs. David Hyde and Ralph Perrella. Mr. Hyde is Vice-President for International Development, Secretary and Director for Buffalo's, Inc. Mr. Perrella is Vice-President of Design, Architecture and Construction, Treasurer and Chairman of the Board of Directors for Buffalo's, Inc.

All Buffalo's franchises are operated pursuant to a franchise agreement prepared by Defendants. In addition to selling individual franchises, Defendants sell area development rights. These rights are memorialized in area development agreements which give the purchaser the exclusive right to operate franchises and enter into franchise agreements for defined areas. At issue here are two area development agreements Mr. Prince and Buffalo's, Inc. entered into in 1991. In January, 1991, Mr. Prince obtained the exclusive right to operate Buffalo's franchises in a portion of Fulton County, Georgia and all of Forsyth County, Georgia. In August, 1991, Mr. Prince and Buffalo's, Inc. entered into another area development agreement for a portion of Cobb County, Georgia and all of Paulding, Douglas and Carroll Counties.

Each of the corporate Plaintiffs — except for the parent company, Prince Heaton and Prince Heaton Orlando — operates or operated a Buffalo's restaurant. Between 1990 and 1997, the corporate Plaintiffs entered into eight or more franchise agreements with Buffalo's, Inc. for the operation of 12 franchise locations. Each of the 12 were opened and operated in accordance with the agreements. Presently, four of those 12 locations are in operation. Each of these corporate Plaintiffs alleges it paid at least fair market value for a Buffalo's, Inc. restaurant franchise. Alternatively, Plaintiffs allege that the sum they paid for all of their franchises equaled or exceeded the franchises' total fair market value. Plaintiffs allege, among other things, that Buffalo's, Inc. breached the franchise and development agreements entered into with Plaintiffs. Plaintiffs also allege fraud, negligent misrepresentation, conversion, breach of fiduciary duty, violations of federal and state RICO law, and antitrust violations

II. MOTION TO DISMISS STANDARD

A complaint should be dismissed under Rule 12(b)(6) only where it appears beyond doubt that no set of facts could support the plaintiff's claims for relief. Fed.R.Civ.P. 12(b)(6); see Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Linder v. Portocarrero, 963 F.2d 332 (11th Cir.1992). In ruling on a motion to dismiss, the court must accept the facts pleaded in the complaint as true and construes them in the light most favorable to the plaintiff. See Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir.1983). Notice pleading is all that is required for a valid complaint. See Lombard's, Inc. v. Prince Mfg., Inc., 753 F.2d 974, 975 (11th Cir.1985), cert. denied, 474 U.S. 1082, 106 S.Ct. 851, 88 L.Ed.2d 892 (1986). Under notice pleading, plaintiff need only give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. Id.

III. DISCUSSION

Plaintiffs allege 22 counts against Defendants. [Doc. 8]. Defendants have moved to dismiss ten of those counts: Counts II, III, IV, V, VI, VII, IX, X, XI, and XV. The Court will address first the allegations of fraud and negligent misrepresentation in Counts VII and XI, respectively. Next, the Court will address Counts V, VI, IX, and X concerning federal and state RICO violations. Third, the Court will address alleged antitrust violations in Counts II, III and IV. Finally, the Court will address the conversion and breach of fiduciary duty claims in Count XV.

A. FRAUD AND NEGLIGENT MISREPRESENTATION

Plaintiffs allege in Count VII that Defendants committed fraud during the franchise negotiations. Plaintiffs allege negligent misrepresentation in Count XI. In Georgia, the common law tort of fraud requires five elements: (1) a false representation by the defendant; (2) with scienter, or knowledge of the falsity; (3) with intent to deceive the plaintiff or to induce the plaintiff into acting or refraining from acting; (4) on which the plaintiff justifiably relied; (5) with the proximate cause of damages to the plaintiff. Williams v. Dresser Industries, 120 F.3d 1163 (11th Cir.1997); Sears Mortgage Corp. v. Leeds Bldg. Products, Inc., 219 Ga.App. 349, 464 S.E.2d 907 (1995), rev'd on other grounds by 267 Ga. 300, 477 S.E.2d 565 (1996). Each of these elements must be stated with particularity. Fed. R.Civ.P. 9(b); Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1370 (11th Cir.1997). Negligent misrepresentation is a similar cause of action substituting negligence for the intent to deceive element. See Robert & Co. Assoc. v. Rhodes-Haverty Partnership, 250 Ga. 680, 300 S.E.2d 503 (1983).

The first element requires a showing of an affirmative misrepresentation or, in appropriate cases, evidence of suppression of a material fact. See O.C.G.A. § 23-2-51 — 23-2-54. Plaintiffs allege the former. In the Complaint, Plaintiffs allege that Defendants misrepresented financial data on existing restaurants which concealed the fact that Buffalo's, Inc. had underwritten several of the restaurants' expenditures. [Doc. 8, ¶ 109]. Moreover, Plaintiffs allege that Defendants falsely represented estimates of the financial success of its franchisees. [Doc. 8, ¶ 108]. Further, Plaintiffs allege that Defendants have falsely represented that they would use a national advertising fund to promote the image, name recognition, and reputation of the franchises nationally. [Doc. 8, ¶ 121(c)]. Plaintiffs also allege that Defendants made these misrepresentations to induce Plaintiffs into entering the franchise agreements. These allegations satisfy the requirement to state with particularity the circumstances constituting fraud.

Defendants contend that the terms of the franchise agreement prevent Plaintiffs from pursuing their fraud claims. Specifically, Defendants argue that Section 27(a) of the franchise agreement precludes a showing by the Plaintiffs of reasonable reliance. Section 27(a) states:

Franchisee...hereby represents ...[t]hat he has conducted an independent investigation of the Franchisor's business and System and recognizes that the business venture contemplated by this Agreement involves business risks and that its success will be largely dependent upon the ability of the Franchisee as an independent businessman. Franchisor expressly disclaims the making of, and Franchisee acknowledges that it has not received any warranty or guarantee, express or implied, as to the potential volume, profits or success of the business contemplated by this Agreement.

[Doc. 19, Exh. 1]² The franchise agreement also expressly provides "[t]he Franchisor does not make any actual, average, projected, or forecasted sales, profits, or earnings information available to prospective Franchisees." [Doc. 19, Exh. 1, § 18]. Despite this language, Plaintiffs base their fraud claim on alleged misrepresentations regarding a "unique business program," "financial data on the existing restaurants," and "meaningful profits." [Doc. 8, ¶¶ 105, 107, 109]. Plaintiffs also allege that Defendants "falsely represented to Prince likely or factually supportable estimates or projection of the financial success or Buffalo's Café restaurants." [Doc. 8, ¶ 108]. Liability for this allegation is expressly...