Velicer v. Falconhead Capital, LLC

• Decision Date: 11 March 2020
• Docket Number: CASE NO. C19-1505JLR
• Court: U.S. District Court — Western District of Washington
• Parties: MARK VELICER, et al., Plaintiffs, v. FALCONHEAD CAPITAL, LLC, Defendant.

MARK VELICER, et al., Plaintiffs, v. FALCONHEAD CAPITAL, LLC, Defendant.

CASE NO. C19-1505JLR

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

March 11, 2020

ORDER ON DEFEINDANT'S MOTION TO DISMISS

I. INTRODUCTION

Before the court is Defendant Falconhead Capital, LLC's ("Falconhead") motion to dismiss Plaintiffs Mark Velicer, Velicer Ice, Inc., Velicer Ice Mariners, LLC, and Velicer Ice Kent, LLC's (collectively, "Plaintiffs") complaint. (See MTD (Dkt. # 9); see also Compl. (Dkt. # 1-1).) The court has reviewed the motion, Plaintiffs' opposition to the motion (see Resp. (Dkt. # 17)), other relevant portions of the record, and the

//

// applicable law. Being fully advised,¹ the court GRANTS in part and DENIES in part Falconhead's motion as more fully described herein.

II. BACKGROUND

This lawsuit arises out of four franchise agreements and an Area Development Agreement ("ADA") that Mr. Velicer and non-party Rita's Water Ice Franchise Company ("Rita's") executed in September 2015. (See Compl. ¶¶ 4, 8, 16; see also Oates Decl. (Dkt. # 10) ¶ 4, Exs. 5-9 (attaching copies of the franchise agreements and the ADA).) Plaintiffs' allege that Mr. Velicer signed the franchise agreements and the ADA after Falconhead—"acting through Rita's"—made fraudulent representations or omissions to Mr. Velicer. (See Compl. ¶¶ 2-3, 16-17, 40.)

Plaintiffs own and operate several franchised Rita's Water Ice locations and part of a franchised chain of frozen dessert stores. (Id. ¶ 1.) Falconhead is a former part-owner of non-party Rita's Holdings, LLC ("Rita's Holdings") with a majority interest therein. (Id. ¶ 8.) In turn, Rita's Holdings is the corporate parent of Rita's. (Id.) Rita's is a former franchisor of Rita's Water Ice stores. (Id. ¶¶ 1, 8.)

In 2015, Mr. Velicer approached Rita's to inquire about purchasing one or more of Rita's franchise outlets in Washington State. (See id. ¶¶ 1, 16.) Mr. Velicer was also interested in acquiring an ADA, which would permit him to open multiple locations in a larger territory. (See id. ¶¶ 11, 16.) Plaintiffs allege that Rita's provided Mr. Velicer

//with copies of its franchise disclosure document ("FDD") for a single franchise and its FDD for an area development agreement. (Id. ¶ 17; see also Oates Decl. ¶ 2, Exs. 1-2 (attaching copies of the FDD for a single franchise and the FDD for an ADA that Rita's provided to Mr. Velicer on or about April 30, 2015).) An FDD is a document that all franchisors are required to provide to prospective franchisees pursuant to Federal Trade Commission ("FTC") regulations, known as the "Franchise Rule." See 16 C.F.R. § 436 (setting forth the Franchise Rule). In addition to the original FDDs, on September 10, 2015, Rita's provided Mr. Velicer two addenda to the FDDs, which disclosed a consumer class action against Rita's alleging violations of the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227. (See Oates Decl. ¶ 3, Exs. 3-4 (attaching copies of the addenda).)

On September 10, 2015, Mr. Velicer executed an ADA and four franchise agreements with Rita's for locations in Washington State. (See id. ¶ 4, Exs. 5-9 (attaching copies of the franchise agreements and the ADA).) In conjunction with those agreements, Mr. Velicer signed a release of all claims that he may have had against Rita's and its affiliated entities prior to that date. (See id. ¶ 5, Ex. 10 (attaching a copy of the release).)

The franchise agreements and the ADA were originally between Mr. Velicer and Rita's only. (See id. ¶ 4, Exs. 5-9.) On March 22, 2016, Mr. Velicer transferred the franchise agreements and the ADA to his corporations, which are also plaintiffs in this lawsuit. (See Compl. ¶¶ 4-7; Oates Decl. ¶ 6, Exs. 11-12 (attaching copies of the signed transfer agreements for the ADA and franchise agreements).) On the same day, Mr.Velicer executed two additional releases "discharg[ing]" Rita's and its "affiliates" "of and from all claims, obligations, actions or causes of action (however denominated), whether in law or in equity, and whether known or unknown, present or contingent, for any injury, damage, or loss whatsoever arising from any acts or occurrences occurring as of or prior to the date of this Agreement . . . ." (See Oates Decl. ¶ 7, Ex. 13 at 997, Ex. 14 at 999.)² Plaintiffs also agreed "not to sue any of the Releasees," which included Rita's and its "affiliates," "regarding any of the claims being released under this Agreement." (Id.)

Rita's, Rita's Holdings, and Falconhead are no longer involved with the Rita's franchise system. (See Compl. ¶¶ 8, 34; Resp. at 3 (acknowledging that "this implication is accurate").)

On August 15, 2019, more than four years after receiving the FDDs, Plaintiffs filed this lawsuit against Falconhead in Washington state court. (See generally Compl.) Plaintiffs allege that the FDDs omitted the following facts:

a. That Falconhead owned a majority interest in Rita's Holdings, the parent company of [Rita's];

b. The position and employment history for all individuals required to be listed in Item 2 [of the FDD], including Mr. [Mo] Boutara,³ and others directly involved in the sales process with management responsibilities;

c. That Mr. Velicer would be required to register as a sub-franchisor;

d. That the "confidential systems manuals" provided guidance and operational standards for the Rita's Water Ice Franchise and that there was no operations manual specific to a Rita's Area Developer; ande. The lack of training, systems manual, and promised sales support.

(Id. ¶ 40 (footnote added).) The complaint is devoid of allegations that Falconhead made any direct representations to Plaintiffs. (See generally id.) Nevertheless, based on the foregoing alleged omissions in the FDDs Rita's provided to Mr. Velicer, Plaintiffs assert (1) a claim for violation of Washington's Franchise Investment Protection Act ("FIPA"), RCW 19.100.080, in the sale of the franchises and ADA (Compl. ¶¶ 39-40); (2) a second claim for violation of FIPA, RCW 19.100.170(2), for omitting material facts in the FDDs (Compl. ¶¶ 41-45); (3) a third claim for violation of FIPA, RCW 19.100.170(4), for engaging in a deceptive business practice (Compl. ¶¶ 46-49); (4) a claim for violation of Washington's Consumer Protection Act ("CPA"), RCW 19.86.020 (Compl. ¶¶ 50-51); (5) a claim for common law fraud (id. ¶¶ 52-54); and (6) a claim for negligent misrepresentation (id. ¶¶ 55-56).

On October 28, 2019, Falconhead moved to dismiss Plaintiff's claims arguing that (1) Plaintiffs released the claims (see MTD at 6-9); (2) the applicable statutes of limitation bar Plaintiffs' FIPA claims and claims for fraud and negligent misrepresentation (see id. at 9-11), (3) Plaintiffs failed to sufficiently plead their fraud-based claims under Federal Rule of Civil Procedure 9(b) (see MTD at 11-18); and (4) Plaintiffs failed to plead facts sufficient to state a claim for violation of the CPA and, in any event, violations of FIPA, without more, do not give rise to a cognizable CPA claims (see id. at 18-21). Plaintiffs concede that the court should dismiss their FIPA claim brought under RCW 19.100.080 (see Resp. at 2 n.1; see also Compl. ¶¶ 39-40), and so the court dismisses this claim with prejudice and does not discuss it further. Except forthis claim, Plaintiffs oppose Falconhead's motion. (See generally Resp.) The court now considers Falconhead's motion.

III. ANALYSIS

A. Standard

Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). When considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded facts as true and draw all reasonable inferences in favor of the plaintiff. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court, however, is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

"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.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). "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." Iqbal, 556 U.S. at 677-78. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will notdo.'. . . Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. at 678 (quoting Twombly, 550 U.S. at 555, 557).

Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion to dismiss. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001) (citations omitted). The Ninth Circuit, however, carves out certain exceptions to this rule. For example, a court may consider "documents whose contents are alleged in the complaint and whose authenticity no party questions, but which are not physically attached to the pleading[.]" Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002); see also S.M. ex rel. Allen v. W. Contra Cty. Unified Sch. Dist. Fin. Corp., No. C 07-5829 CW, 2009 WL 1033826, at *3 (N.D. Cal. Apr. 16, 2009) ("The purpose of this rule is to prevent plaintiffs 'from surviving a Rule 12(b)(6) motion be deliberately omitting references to documents' that are...