Westerfield v. Quizno's Franchise Co., LLC
| Citation | 527 F.Supp.2d 840 |
| Decision Date | 05 November 2007 |
| Docket Number | No. 06-C-1210.,06-C-1210. |
| Parties | Fred and Michana WESTERFIELD, et al., Plaintiffs, v. The QUIZNO'S FRANCHISE COMPANY, LLC, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Joseph S. Goode, Mark M. Leitner, Kravit Hovel & Krawczyk SC, Milwaukee, WI, Justin M. Klein, Marks & Klein LLP, Red Bank, NJ, for Plaintiffs.
Charles P. Graupner, Erin K. Dickinson, Jacob E. Miota, Michael Best & Friedrich LLP, Milwaukee, WI, Fredric A. Cohen, Cheng Cohen LLC, Chicago, IL, John R. Shull, Jr., Terwilliger Wakeen Piehler & Conway SC, Wausau, WI, Michael J. Happe, Ryberg & Happe SC, Eau Claire, WI, for Defendants.
Quizno's is the trade name for chain of fast-food restaurants known for their toasted submarine sandwiches. On November 20, 2006, twelve Wisconsin Quizno's franchisees brought this class action against The Quizno's Franchise Company LLC and related entities, two of its officers (hereinafter collectively Quizno's), and four of its Wisconsin Area Directors. Plaintiffs allege that Quizno's engaged in an illegal business scheme in which it "fraudulently induced plaintiffs and the Class to purchase franchises and thereafter exploited their control and economic power in order to extract exorbitant and unjustifiable payments from their franchisees." (Compl.¶ 1.) The fifty-six-page, one-hundred-ninety-one-paragraph, complaint asserts claims against the defendants for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Sherman Act, the Wisconsin Anti-Trust Act, the Wisconsin Fair Dealership Law, the Wisconsin Deceptive Trade Practices Act, and common law claims for fraud and breach of contract. Plaintiffs seek certification as a class action, preliminary and permanent injunctive relief, and statutory, compensatory and punitive damages. Federal jurisdiction is predicated on 28 U.S.C. §§ 1331 and 1367.
Referring to their current relationship with their franchisor, plaintiffs state that for them, "Quizno's advertising slogan `Get Toasted' had taken on a new and unhappy meaning." (Br. In Opp. at 1.) Quiznos, on the other hand, has responded to plaintiffs' lawsuit with the legal equivalent of another fast food restaurant's advertising slogan: "Where's the beef?" It has filed a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Arguing that each of the plaintiffs' claims "is conclusively gutted by the explicit disclosures each plaintiff received, the express terms of the Franchise Agreement, and each plaintiff's acknowledgment of the risk associated with his business and disclaimer of the very sort of purported representations alleged in the complaint," Quiznos urges that the complaint be dismissed.
Having considered fully the arguments of counsel, I conclude that claims of fraud on which plaintiffs' civil RICO claims rest are fatally undermined by the exhaustive disclosures and specific disclaimers and non-reliance clauses set forth in the franchise agreements they signed. I also conclude that the complaint fails to state a claim under the Sherman Act and its Wisconsin equivalent. With plaintiffs' federal claims gone, I then dismiss the remaining state law claims without prejudice to allow plaintiffs to pursue them in state court under whose law they arise.
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted. See Fed.R.Civ.P. 12(b)(6). In ruling on a motion to dismiss under Rule 12(b)(6), a court views all of the facts alleged in the complaint, as well as any inferences reasonably drawn from them, in the light most favorable to the plaintiff. Mosley v. Klincar, 947 F.2d 1338, 1339 (7th Cir.1991). In general, "[t]he federal rules require ... only that the complaint state a claim, not that it plead the facts that if true would establish (subject to any defenses) that the claim was valid." Higgs v. Carver, 286 F.3d 437, 439 (7th Cir.2002). All that need be specified is the bare minimum facts necessary to put the defendant on notice of the claim so that he can file an answer. Beanstalk Group, Inc. v. AM General Corp., 283 F.3d 856, 863 (7th Cir. 2002). As the appellate courts have consistently reminded us, plaintiffs "don't have to file long complaints, don't have to plead facts, don't have to plead legal theories." Kirksey v. R.J. Reynolds Tobacco Co., 168 F.3d 1039, 1041 (7th Cir.1999).
A critical exception to this general rule of notice pleading exists for claims of fraud and other claims sounding in fraud. Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir.2007). Rule 9(b) of the Federal Rules of Civil Procedure provides: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." This heightened pleading requirement is a response to the "great harm to the reputation of a business firm or other enterprise a fraud claim can do." Id. ). A complaint alleging fraud must provide "the who, what, when, where, and how." Id. (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.1990)).
In addition to this explicit heightened pleading standard in cases of fraud, the Supreme Court has recently explained that in the anti-trust context, Rule 8(a)'s general requirement for a "plain statement" of the claim means "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007). Noting the high cost of discovery in anti-trust litigation, the Court held that in this area a complaint must set forth sufficient facts to show plausible grounds exist for believing a violation has occurred. To survive a Rule 12(b)(6) motion to dismiss, a plaintiff claiming an anti-trust violation must allege "enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Id. And in Jennings v. Auto Meter Products, Inc., 495 F.3d 466, 473 (7th Cir.2007), the Seventh Circuit applied the same pleading standard to a civil RICO claim.
Finally, also critical to the motion filed in this case is the rule that "documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim." Wright v. Associated Ins. Companies, Inc., 29 F.3d 1244, 1248 (7th Cir.1994). "[T]o the extent that the terms of an attached contract conflict with the allegations of the complaint, the contract controls." Centers v. Centennial Mortg., Inc., 398 F.3d 930, 933 (7th Cir.2005); see also Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir.2002) ().
With these principles in mind, I proceed to consideration of plaintiffs' federal claims.
Plaintiffs assert a claim of fraud in the inducement and two claims under RICO predicated on allegations of mail and/or wire fraud. Plaintiffs allege that the defendants first conducted the affairs of the Quiznos franchise system, an "association in fact" enterprise, so as to "fraudulently and deceptively induce them to purchase Quiznos franchises by intentionally misrepresenting the true nature of the contractual relationship as well as the financial prospects for the franchise and the likelihood of success." (Compl.¶ 2.) Although some of the plaintiffs allege that Quiznos, through its Area Directors, made certain oral misrepresentations concerning such matters as the future profitability of the franchises, the fraudulent inducement RICO claim is primarily based on what plaintiffs claim they were not told. All of the plaintiffs claim that Quiznos fraudulently withheld information it was required to disclose. For example, each of the plaintiffs claims that the defendants failed to disclose "the substantial markups and kickbacks that add to the price of food, supplies, services and other materials that must be purchased from Quiznos or its approved suppliers." (Comp.¶¶ 115(d), 117(c), 119(e), 121(b), 123(e), 125(b), 127(b), 129(d), 131(b), 133(b), 135(c), 137(c)).
As a second RICO violation, plaintiffs claim that once they became franchisees, the Quiznos defendants "exploited their control and economic power in order to extract exorbitant and unjustifiable payments from their franchisees." (Compl.¶ 1.) Under the terms of the franchise agreements, plaintiffs were required to purchase products, services and materials from suppliers that were either affiliated with or approved by Quiznos. Plaintiffs allege that they were overcharged for the products, services and materials they were required to purchase in order to operate their restaurants and that Quiznos profited from the excess payments either directly when the supplier was one of its affiliated companies, or indirectly in the form of "kickbacks" from its approved suppliers. Plaintiffs allege that both schemes—the scheme to fraudulently induce individuals to purchase franchises, and the scheme to fraudulently extract from franchisees exorbitant payments for essential goods and services, were carried out through the use of the United States mail and interstate wire facilities—thus making them actionable under RICO as a violation of 18 U.S.C. § 1962(c).
The problem with plaintiffs' claims of fraud, however, is that they are fatally undermined by the express disclosures, disclaimers and non-reliance...
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