Van Saders v. FranChoice, Inc.
| Decision Date | 19 December 2019 |
| Docket Number | Case No. 19-cv-1414 (MJD/ECW) |
| Parties | STEPHEN VAN SADERS, JAMIE VAN SADERS, and BBJSC, Inc, Plaintiffs, v. FRANCHOICE, INC. and SCOTT JONES, 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. 11.) 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 granted in part and denied in part.
The operative Complaint alleges as follows: Stephen Van Saders is an individual citizen of New Jersey, and resides in Manalapan, New Jersey. (Dkt. 1 ¶ 4.) Stephen Van Saders, along with his wife Jamie Van Saders, formed BBJSC, Inc., a New Jersey Corporation, as a vehicle for acquiring a franchise from Non-Party ILKB, LLC, the franchisor of "iLoveKickboxing.com" franchises, which are fitness facilities dedicated to kickboxing, a form of physical fitness. (Id. ¶¶ 3-5.)
Stephen Van Saders became interested in purchasing a franchise in 2014; they engaged Franchoice, Inc. ("FCI") and, in turn, the FCI consultant and representative Scott Jones ("Jones"), to assist him in finding appropriate opportunities. (Id. ¶ 12.) 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.) Jones, an FCI representative, is an individual residing in Arvada, 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 that it would match "entrepreneurs like you with the perfect franchise business." (Id. ¶ 13.) 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 [his] 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.)
In a May 14, 2014 email to Van Saders, Jones stated that he would "find safe, proven franchises for you to investigate" and "use my 20 plus years of experience to guide you through the franchise investigation process." (Id. ¶ 14.) He also represented that he was "uniquely qualified to help you find your ideal franchise as I have been involved with franchising at every level"; that at "FranChoice we have pre-screened thousands of franchise companies to determine a select group that represent successfuland dynamic opportunities for the individuals we represent"; and he would "work with you through the entire investigation process from start to finish, ensuring you have proper information to make an informed and educated decision." (Id.)
Jones directed Van Saders to the FCI website to fill out a questionnaire about his needs and desires for a franchise. (Id. ¶ 15.) In May 2014, Jones introduced Van Saders to various franchise opportunities, including ILKB, and stated that these franchise opportunities, "are not only great matches to your model, they back up their system with superior training, marketing and operational support." (Id. ¶¶ 16-17.)
Prior to the purchase of a ILKB franchise, FCI and Jones made the following representations or omissions concerning the financial performance of the franchise: ILKB franchises have average annual revenues of $650,000, and average annual profits of $132,000; the average monthly expenses of running a studio were between $25,000 and $35,000; it would be possible to resell undeveloped franchise territories because the demand for territories exceeded the current supply; the cost to build out and open a studio was $150,000 and that it was only necessary to have $30,000 in working capital to cover expenses at the outset, because the franchise would break even in three months; ILKB franchises were not only suitable for absentee ownership, but that ILKB recommended owners not be present at the studio to let the manager run the business; ILKB franchise owners would work only 20 hours per month; no ILKB studio had ever closed; and that kickboxing was not a "fad." (Id. ¶¶ 18-21.)
After Jones put Van Saders in touch with ILKB, ILKB repeated the representations that Jones had made; as Van Saders continued to meet and communicatewith ILKB to discuss purchasing the franchise, he reported his discussions with ILKB to Jones, who "coached" him throughout those discussions toward a decision to purchase not only a single ILKB franchise, but the rights to open multiple units. (Id. ¶ 22.)
In reliance upon the representations by FCI and Jones, Plaintiffs invested $90,000 in franchise fees for three locations. (Id. ¶ 23.) Plaintiffs also spent over $360,000 in outfitting and opening the Hamilton, New Jersey location; and undertook substantial lease and loan obligations in excess of $550,000. (Id.) Plaintiffs' location in Hamilton, New Jersey opened in April 2016. (Id.) FCI and Jones received a commission from ILKB for the sale to Van Saders in an amount in excess of $50,000 of the $90,000 that Van Saders paid to ILKB for his franchise rights. (Id. ¶ 24.)
After opening the business, Plaintiffs learned that the representations that FCI and Jones had made relating to ILKB franchises were untrue, including: the representations regarding the claimed starting and operating costs; that the franchise was suitable for absentee ownership (instead requiring full-time attention by the owner); representations relating to the marketing of the franchise; representations that there had been no closures of ILKB franchises; and the expected income of ILBK franchises. (Id. ¶ 27.) In addition, FCI never disclosed that attrition made it impossible to attain or maintain the levels of membership needed to "break even." (Id. ¶ 27(e).) 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. ¶ 29.) Plaintiffs assert that had they known of this information they would not have purchased any franchises from ILBK. (Id.)
Plaintiffs assert claims for relief against Defendants for their alleged violations of the New Jersey Consumer Fraud Act § 56:8-1 and the Minnesota Franchise Act, Minn. Stat. §80C.01 et seq. Plaintiffs also assert claims against Defendants for common law fraud and negligent misrepresentation.
Defendants move to dismiss Plaintiffs' New Jersey Consumer Fraud Act ("NJSA") and Minnesota Franchise Act ("MFA") 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 ofthe 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 its face.'" Id. (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Twombly, 550 U.S. at 556). "[T]he plausibility standard, which requires a federal court complaint to state a claim for relief that is plausible on its face, . . . asks for more than a sheer possibility that a defendant has acted unlawfully." Ritchie v. St. Louis Jewish Light, 630 F.3d 713, 717 (8th Cir. 2011) (internal quotation and citation omitted). "Determining whether a complaint states a plausible claim for relief will, . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679 (citation omitted).
Following Twombly and consistent with Iqbal, the Eighth Circuit explained:
While a plaintiff need not set forth "detailed factual allegations," Twombly, 127 S. Ct. at 1964, or "specific facts" that describe the evidence to be presented, Erickson v. Pardus, 551 U.S. 89, 127 S. Ct. 2197, 2200 (2007) (per curiam), the complaint must include sufficient factual allegations to provide the grounds on which the claim rests. Twombly, 127 S. Ct. at 1965 n. 3. A district court, therefore, is not required "to divine the litigant's intent and create claims that are not clearly raised," Bediak...
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