Randall v. Lady of America Franchise Corp.
| Citation | 532 F.Supp.2d 1071 |
| Decision Date | 24 July 2007 |
| Docket Number | No. 04-CV-3394 (PJS/RLE).,04-CV-3394 (PJS/RLE). |
| Parties | Deborah RANDALL, Stillwater Ladies, Inc., Barbara J. Wright, David Wright, Flamingo Express, Inc., Robin Allanson, Leo Neudecker, Audrey Hoglund-Ross, Angie Weeks, and Michelle Evans, Plaintiffs, v. LADY OF AMERICA FRANCHISE CORPORATION, Defendant. |
| Court | U.S. District Court — District of Minnesota |
J. Michael Dady and Scott E. Korzenowski, Dady & Garner, PA, fore plaintiffs.
Robert Zarco, Robert M. Einhorn, and Himanshu Patel, Zarco Einhorn Salkowski & Brito, PA; Lawrence R. Commers and Tim A. Staum, Mackall, Crouse & Moore, PLC, for defendant.
This matter is before the Court on the summary-judgment motion of defendant Lady of America Franchise Corporation ("Lady of America"). Lady of America asks the Court to enter judgment in its favor on all of plaintiffs' claims against it and on its breach-of-contract counterclaims against plaintiffs.1 For the reasons that follow, the Court grants in part and denies in part Lady of America's motion.
Lady of America is a Florida company that sells franchises for fitness centers marketed specifically to women. Larger fitness centers operate under the "Lady of America" name, while smaller centers use the name "Ladies Workout Express." The market for women-only fitness centers was largely created by, and is still dominated by, the Curves brand.
Plaintiffs in this case are disappointed current and former Lady of America franchisees. All of the plaintiffs opened Ladies Workout Express franchises in Minnesota. Most of the plaintiffs closed their franchises after finding them to be unprofitable.
In the course of negotiating with Lady of America to become franchisees, all of the plaintiffs received a document called the "Uniform Franchise Offering Circular" ("UFOC"), which includes information that Lady of America is required to provide to prospective franchisees under state and federal franchise laws. All of the plaintiffs — with the possible exception of Deborah Randall3 — also entered into a franchise agreement with Lady of America. That contract governed the franchisor-franchisee relationship. Because the franchise agreements signed by the various plaintiffs were essentially identical, the Court will refer generally to "the franchise agreement."
Plaintiffs allege that Lady of America duped them into becoming franchisees by misleading them in various ways. Plaintiffs seek to have their franchise agreements rescinded, to be relieved of any obligations to Lady of America, and to recover compensatory damages from Lady of America. Plaintiffs have filed a "kitchen-sink" complaint, raising numerous claims under Minnesota and Florida law. For its part, Lady of America denies liability, and argues that it is the real injured party because plaintiffs failed to honor their obligations as franchisees.
Lady of America's defenses to of plaintiffs' claims rely heavily on the terms of the UFOC and the franchise agreement, and thus, before turning to the factual allegations underlying plaintiffs' claims, the Court will set out the critical language from those two documents. The franchise agreement's integration clause provides in relevant part:
This Agreement, its exhibits and the Manual, as the Manual may be revised as permitted in this Agreement, comprise the entire agreement of the parties and supersede all prior representations and agreements with respect to its subject matter. No representations have been made to induce execution of this Agreement that are not included. The Agreement may not be amended or waived and no representations may be made by the Franchisor, except as stated in this Agreement or in writing signed by, the Franchisor's President.
Wright Aff. Ex. 1 at MIN0001531 [Docket No. 109].
The last section of the franchise agreement, § 12.2 (entitled "Representations"), includes the following disclaimer;4
The franchisee and all persons signing with or for him or her acknowledge that they have conducted an independent investigation of the system and this business venture; this agreement involves a high degree of business and financial risk; and its success will be largely dependent on their ability as independent businesspersons, their financial strength and local market conditions. The franchisee has investigated his or her trade area and believes it will support the business venture. The franchisor expressly disclaims the making of, and the franchisee acknowledges that he or she has not received, any promises or representations, express or implied, orally, in writing or otherwise of assistance, expenses, benefits, sales volumes, profits, success or any other matter except as expressly made in this agreement or the franchisor's franchise offering circular. If any promises or representations have been made, the franchisee must list them below. The franchisor is relying on the franchisee to see that all' matters are included in writing in this agreement, if they are not, the franchisee will not be able to rely in any way on any promises or representations and the franchisor will not be bound by them. The franchisee acknowledges that the franchisee has had ample time to consult with advisors of his or her own choosing about the potential benefits and risks of this agreement and that he or she has read and understood it.
Id. at MIN 0001533-34.
In addition, Item 19 of the UFOC (entitled "Earnings Claims") includes the following disclaimer of representations about franchisees' potential success:
We do not furnish or authorize [our] salespersons to furnish any oral or written information concerning the actual or potential sales, Costs, income or profits of your Franchise. Actual results vary from Franchise to Franchise, and we cannot estimate the results of any particular franchise.
Id. at MIN0001488. This type of "negative earnings claim" is contemplated under the rules governing UFOCs. See North American Securities Administrators Association, Uniform Franchise Offering Circular Guidelines — 1993 and Commentary, Item 19 — Earnings Claims, Bus. Franchise Guide (CCH) ¶ 5,771 (adopted April 25, 1993) ( ).
As noted above, all franchisees received the UFOC, and all (save perhaps Randall) signed the franchise agreement. Selected facts alleged by each plaintiff are set forth below.
David Wright and his wife, Barbara Wright, began looking into opening a women-only fitness center in the summer of 2002. Wright Aff. ¶ 4. David contacted a Lady of America representative by telephone and was told that, if he was interested in becoming a franchisee, he would have to act quickly because Minnesota franchises were being bought up rapidly. Id. ¶¶ 4-6.
In June 2002, David flew to Florida to attend "Discovery Day" — an event sponsored by Lady of America to inform and motivate potential franchisees. Id. ¶ 6. At Discovery Day, Lady of America's Marketing Director, Jeff Green, told David that he could expect to have 125 to 150 members when his franchise opened, and eventually to make $22,000 per month in profits. Id. ¶ 8. Another Lady of America representative, Larry Sargent, told David that he could expect to sign up 100 to 150 members when opening a franchise, and to add 15 to 20 members per week thereafter. Id. ¶ 11. Sargent predicted that David would be in great financial shape within a few months after opening his franchise. Id.
Sargent also showed David financial statements' of existing franchises and said that David should anticipate similar revenues. Id. ¶ 12. Sargent claimed that some Puerto Rico franchises took in about $23,000 per month. Id. ¶ 14. Unnamed Lady of America representatives showed David statements reporting that some high-performing ("Top Ten") franchises were generating revenues of over $10,000 per month. Id. ¶ 13. Another unnamed representative took David on a tour of a Ladies Workout Express franchise in Deerfield Beach, Florida, and said that the franchise had revenues of over $40,000 per month, and that David could expect to have a similarly successful franchise in Minnesota Id. ¶ 16.
David received a UFOC at Discovery Day. Id. ¶ 17. After he returned to Minnesota, he hired an attorney to review the UFOC. D. Wright Dep. at 44. David and Barbara executed a franchise agreement in August 2002 that gave them the right to open a Ladies Workout Express in Maplewood, Minnesota. Id. ¶ 18.
The Wrights opened their Ladies Workout Express in February 2004. Id. Their buildout costs exceeded the estimates made by Lady of America representatives. Id. ¶ 19. Their membership and revenue numbers were lower than the numbers given by Lady of America representatives at Discovery Day. Id. ¶ 20. The Wrights closed their doors in the summer of 2004, after having been open only a few months. Id. ¶ 22. According to the Wrights, Lady of America never delivered on promises of operational and advertising support. Id. ¶ 21.
Plaintiff Michelle Evans, like the Wrights, began investigating the possibility of opening a women-only fitness center in the summer of 2002. Evans Aff. ¶ 2 [Docket No. 110]. She filled out an online form at the Lady of America website to request information about its franchises. Id. ¶ 5. A Lady of America representative, Elliot Melement, contacted Evans in response. Id. ¶ 6.
Melement told Evans that she Would have to act quickly if she wanted a Minnesota franchise because they were in great demand. Id. ¶ 8. Melement told Evans that she could expect to have, 100 members signed...
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