Opinion
CASE NO. 03-60176-CIV-ALTONAGA/Bandstra
October 3, 2003
ORDER ON DEFENDANTS' MOTION TO DISMISS FIRST AMENDED COMPLAINT
THIS CAUSE came before the Court on Defendants, Very Beary Venture I, LLC (hereinafter "VBV"), and Stanley M. Block's (hereinafter "Block") Motion to Dismiss Plaintiffs' First Amended Complaint and Demand for Jury Trial (D. E. #15). The undersigned has carefully reviewed the memoranda filed by the parties and considered applicable law.
Allegations of the First Amended Complaint
Plaintiffs, Gold X-Press Corporation (hereinafter "Gold X-Press"), Rajesh Vaswani and Anita R. Vaswani (hereinafter "the Vaswanis"), have sued Defendants seeking damages for losses they claim to have suffered arising from an alleged franchise relationship they had with Defendants. On or about April 3, 2001, the parties entered into the first of three agreements whereby Plaintiffs paid Defendants money for the use in their South Florida stores of "The Stuffer," a teddy bear stuffing machine licensed and sold by VBV. Plaintiffs label the agreements a franchise, whereas Defendants call them licensing agreements.
Prior to signing the contracts, and prior to Plaintiffs' delivery of substantial monies to VBV, Defendants had been involved in a dispute with Build-A-Bear Workshop, Inc., wherein Build-A-Bear maintained that Defendants were infringing on certain trademarks, trade dress and patents, by passing off Build-A-Bear proprietary marks as their own marks. Defendants did not reveal this information to Plaintiff's before the agreements at issue were executed. After the contracts were executed, Gold X-Press was sued by Build-A-Bear and was forced to cease doing business.
The First Amended Complaint raises the following claims against both Defendants: Fraud in the Inducement and Concealment in Count I; Negligent Misrepresentation and Omission in Count II; Rescission in Count III; Violation of the Florida Franchise Act in Count IV; Violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA") in Count V; Violation of the Florida Sale of Business Opportunities Act in Count VI; Violation of the California Franchise Investment Law in Count VII; and Violation of the California Unfair Practices Act in Count VIII. Defendants initially seek dismissal of the First Amended Complaint on the ground of Forum Non Conveniens, and alternatively, a dismissal of each count for failure to state a claim and a dismissal of the claims stated against Block for lack of personal jurisdiction.
Standard of Review on a Motion to Dismiss
For purposes of a Motion to Dismiss, the Court must accept the allegations of the complaint as true. United States v. Pemco Aeroplex, Inc., 195 F.3d 1234, 1236 (11th Cir. 1999) (en banc). Moreover, the complaint must be viewed in the light most favorable to the Plaintiffs. St. Joseph's Hospital, Inc. v. Hospital Corp. of America, 795 F.2d 948, 953 (11th Cir. 1986). To warrant a dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure, it must be "clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Blackston v. Alabama, 30 F.3d 117, 120 (11 th Cir. 1994) (quoting Hishon v. King Spaulding, 467 U.S. 69, 73 (1984)). Nonetheless, to survive a motion to dismiss, Plaintiffs must do more than merely label their claims. Blumel v. Mylander, 919 F. Supp. 423, 425 (M.D. Fla. 1996). Thus, dismissal of a complaint or a portion thereof is appropriate when, on the basis of a dispositive issue of law, no construction of the factual allegations will support the cause of action. Marshall County Board of Education v. Marshall County Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993).
The parties have submitted affidavits or exhibits with their respective memoranda. Only those portions that relate to the issue of personal jurisdiction over Defendant Block have been considered. Posner v. Essex Ins. Co., 178 F.3d 1209, 1214 (11th Cir. 1991).
Forum Non Convenient Does Not Compel a Dismissal of this Action
A party moving to dismiss on the basis of forum non conveniens must demonstrate: (1) that an adequate alternative forum is available; and (2) that private and public interest factors weigh in favor of dismissal. Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 951 (11th Cir. 1997), As to the first element, Defendants have consented to, indeed suggested, jurisdiction in California as contained in the parties' recognition in their agreements that California law applies and in Defendants' memoranda.
As to the second element, however, a review of the private and public interest factors militates against a dismissal. Private factors include such variables as "the relative ease of access to sources of proof, ability to obtain witnesses, and `all other practical problems that make trial of a case easy, expeditious and inexpensive.'" Republic of Panama, 119 F.3d at 952 (quoting Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947)). Public factors include a sovereign's interest in deciding the dispute, the administrative burdens posed by the trial and the need to apply foreign law. See La Seguridad v. Transytur Line, 707 F.2d 1304, 1307 (11th Cir. 1983). Although Defendants maintain that the vast majority of the sources of proof are located in California, they fail to indicate the location or volume of such documents. Furthermore, they fail to identify those fact witnesses who are located "on the west coast including California," or the substance of their testimony. See Princess House, Inc. v. Lindsey, 136 F.R.D. 16, 18 (D. Mass. 1991) (noting that moving party must specify witnesses and provide general statement as to substance of testimony). When contrasted with the fact that Plaintiffs are located in Florida, the cause of action is alleged to have taken place in Florida, and a majority of the statutory claims are based on Florida law, Plaintiffs' choice of forum is certainly entitled to deference. Magnin v. Teledyne Continental Motors, 91 F.3d 1424, 1430 (11th Cir. 1996).
The public factors also favor Plaintiffs' choice of forum. Six of the eight counts in the First Amended Complaint are based on Florida law, which this Court is suited to apply. Although the agreements specify the application of California law, none of Gold X-Press' claims under the agreements require the application of California law. See, e.g., Green Leaf Nursery v. E.I. Dupont De Nemours and Co., 341 F.3d 1292, 1300-1301 (11th Cir. 2003) (choice of law pro vision in release indicating Delaware law would govern construction of release, was narrow and did not apply to fraud or tort claims arising out of release or out of relationship of parties). Lastly, the Gold X-Press stores were located in Florida malls and in locations that jurors may be familiar with. See Flinkote Co. v. Allis-Chalmers Corp., 73 F.R.D. 463, 466 (S.D.N.Y. 1977) (citing Gulf Oil, 330 U.S. at 508-509 for proposition that jury duty is a burden that should not be imposed on people in community that have no relation to litigation). Thus, Defendants have failed in their burden of establishing that Florida is not the proper forum for this action.
Counts I and II, Stating Claims for Fraud in the Inducement and Concealment, and Negligent Misrepresentation and Omission, Respectively, Fail to State A Claim With Particularity and Must Be AmendedAs to Count I, to state a claim for fraudulent inducement, a plaintiff must allege that (1) Defendants made a false statement or omission of a material feet; (2) that was intended to induce the plaintiff to act; (3) that was relied upon by plaintiff; and (4) that caused damages to plaintiff. Brough v. Imperial Sterling Ltd., 297 F.3d 1172, 1182 (11th Cir. 2002). To state a claim for fraudulent concealment a plaintiff must similarly establish:
(1) a misrepresentation of material fact or suppression of the truth; (2) [a] knowledge of the representor of the misrepresentation, or [b] representations made by the representor without knowledge as to either the truth or falsity, or [c] representations made under circumstances in which the representor ought to have known, if he did not know, of the falsity thereof; (3) an intention that the representor induce another to act on it; and (4) resulting injury to the party acting in justifiable reliance on the representation.Jones v. General Motors Corp., 24 F. Supp.2d 1335, 1339 (M.D. Fla. 1998). As to Count II, to state a claim for negligent misrepresentation or omission, a plaintiff must allege: (1) a misrepresentation of material fact; (2) that the representor either knew or should have known was false or made without knowledge of truth or falsity; (3) the representor intended to induce another to act on the misrepresentation; and (4) that injury resulted to plaintiff acting in justifiable reliance on the misrepresentation. See Florida Women's Med. Clinic, Inc. v. Sultan, 656 So.2d 931, 933 (Fla. 4th DCA 1995). The merger and integration clause of the parties' agreements, contrary to Defendants' assertions, is not a bar to a properly pled claim of fraud or negligent misrepresentation. See MeterLogic, Inc. v. Copier Solutions, Inc., 126 F. Supp.2d 1346, 1363 (S.D. Fla. 2000); Acquisition Corp. of America v. Federal Deposit Ins. Corp., 760 F. Supp. 1558, 1561 n. 6 (S.D. Fla. 1991).
Plaintiffs have alleged that Block provided inflated figures regarding estimated revenues and profits and that a teddy bear stuffing business required only a very low investment. Plaintiffs further allege that Defendants failed to disclose the infringement dispute with Build-A-Bear, despite their legal obligation to do so. Plaintiffs allege they were misled by the fraudulent and negligent misrepresentation and concealment of material facts that led to the signing of the agreements and the resulting damages.
These allegations, while providing the Defendants with notice, do not satisfy the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure:
Rule 9(b) is satisfied if the complaint sets forth: "(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud."Ziemba v. Cascade International, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (quoting Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1371 (11th Cir. 1997). Here, the allegations do not contain this required level of detail. Furthermore, the present allegations consist, in large part, of statements of opinions or promises of future action, rather than statements concerning existing or pre-existing facts, and do not support a claim for fraud. Cavic v. Grand Bahama Devel. Co., Ltd., 701 F.2d 879, 883 (11th Cir. 1983) ("[P]rediction of future events cannot, standing alone, be a basis for fraud because it is not a representation, there is no right to rely on it, and it is not false when made"). Counts I and II are therefore dismissed with leave to amend.
The only allegations that comply with Rule 9(b) are related to Plaintiffs' claim that Defendants failed to disclose the infringement dispute with Build-A-Bear. (Am. Compl. ¶ 14). However, Plaintiffs allege that Defendants concealed several material facts. To the extent that the other material misrepresentations occurred, Plaintiffs must provide further detail if an amendment is filed.
By granting leave to amend, the Court does not conclude whether, at this stage, Plaintiffs' claims survive application of the Florida Economic Loss Rule.
Count III Properly States A Claim For Rescission Against VBV
Count III properly recites the allegations necessary to state a claim for rescission and Defendants' argument is unavailing. Counts IV and V State Causes of Action for Violations of the Florida Franchise Act. And the Florida Deceptive and Unfair Trade Practices Act. Respectively, Against VBVPlaintiffs maintain throughout their pleading that the relationship they had with Defendants was that of a franchisee-franchisor. Defendants' requested dismissal of Count IV is predicated upon their characterization of the relationship as a licensing arrangement rather than a franchise. The characterization of the parties' relationship is an issue of proof. On a motion to dismiss, the court accepts Plaintiffs' allegations as true. Plaintiffs have alleged the existence of a franchisor-franchisee relationship and that Defendants violated §§ 817.416(2)(a) and (3), Florida Statutes. The allegations in the First Amended Complaint sufficiently state a claim against VBV in Count IV.
Admittedly, the pleading does not specifically allege that the relationship of the parties was of continuing and indefinite duration; that Gold X-Press was granted the right to offer, sell and distribute VBV's products under the licensing agreements, and that Gold X-Press was a component of VBV's franchise system, reliant on VBV for the supply of goods. These are the three basic elements of a franchise: a continuing commercial relationship whereby a franchisee offers, sells, or distributes goods, commodities, or services which are identified by a trademark, service mark, trade name, advertising or other commercial symbol of the franchisor; payment of a franchise fee; and significant authority of the franchisor over and/or providing significant assistance to the franchisee in the operation of the franchise business. See 16 C.F.R. § 436.2. Nonetheless, the First Amended Complaint alleges the existence of a franchise relationship that adequately meets the requirements of Rule 8, Federal Rules of Civil Procedure.
As to Count V, stating a claim under the Florida Deceptive and Unfair Trade Practices Act, this, too, is dependent on the existence of a franchise as defined by 16 C.F.R. § 436.2 et seq., rather than a licensing arrangement. The FDUPTA is violated if there is a violation of the rules promulgated by the Federal Trade Commission. Section 501.204, Fla. Stat. This claim, like the claim in Count IV, is properly pled against VBV and its resolution will become a matter of proof, not appropriate on a motion to dismiss.
Count VI Does Not State a Claim Under the Florida Sale of Business Opportunities Act
The Florida Sale of Business Opportunities Act, § 559.801, Florida Statutes, contemplates the existence of a "business opportunity," which is defined in part as:
[t]he sale or lease of any products, equipment, supplies, or services which are sold or leased to a purchaser to enable the purchaser to start a business for which the purchaser is required to pay an initial fee or sum of money which exceeds $500 to the seller, and in which the seller represents:
1. That the seller or person or entity affiliated with or referred by the seller will provide locations or assist the purchaser in finding locations for the use or operation of vending machines, racks, display cases, currency or card operated equipment, or other similar devices . . .;
2. That the seller will purchase any or all products made, produced, fabricated, grown, bred, or modified by the purchaser using in whole or in part the supplies, services, or chattels sold to the purchaser,
3. That the seller guarantees that the purchaser will derive income from the business opportunity which exceeds the price paid or rent charged for the business opportunity or that the seller will refund all or part of the price paid or rent charged . . . if the purchaser is unsatisfied with the business opportunity; or
4. That the seller will provide a sales program or marketing program that will enable the . . . purchaser to derive income from the business opportunity.
Plaintiffs do not allege that Defendants represented they would provide locations or assist Plaintiffs in selecting the locations where The Stuffer would be operated. See Fla. Stat. § 559.801(1)(a)(1). While Gold X-Press maintains that Defendants provided it with information regarding estimated revenues and profits, it has not alleged that Defendants made any guarantees with respect to income earned by the franchise. See Fla. Stat. § 559.801(1)(a)(3). In fact, the terms of the licensing agreement attached to the First Amended Complaint would directly contradict Plaintiffs' attempt to so allege. Plaintiffs have not alleged that Defendants represented that they would provide a sales or marketing program. See Fla. Stat. § 559.801(1)(a)(4). Accordingly, Plaintiffs cannot meet one of the four requirements, outside the requisite $500 minimum payment, to allege a "business opportunity," State v. Herman, 466 So.2d 435 (Fla. 5th DCA 1985), and do not state a claim in Count VI.
Counts MI and VIII State a Cause of Action for Violation of the California Franchise Investment Law and the California Unfair Practices Act, Respectively. Only Against VRVThe First Amended Complaint states a claim under the Florida Franchise Act in Count IV, and FDUPTA in Count V, by alleging a franchisee-franchisor relationship. Thus, the pleading also states a claim in Counts VII and VIII, under the corresponding California statutes, against VRV.
There is No Personal Jurisdiction Over Defendant Block
Plaintiffs have failed to prove that Block conducted business on his own account in Florida. See Posner, 178 F.3d at 1214 (plaintiff bears the burden of proving allegations when a defendant challenging jurisdiction files affidavits supporting its position); Sculptchair, Inc. v. Century Arts, Ltd., 94 F.3d 623, 628 (11th Cir. 1996) ("[U]nless [a corporation's] agents transact business on their own account in the state, as opposed to engaging in business as representatives of the corporation, they are not engaged in business so as to be individually subject to the state's long-arm statute."). Because Plaintiffs have not proven that any provision of the Florida long-arm statute is satisfied, see Sculptchair, 94 F.3d at 629 (finding no basis for personal jurisdiction under section 48.193(1)(f), Fla. Stat, because plaintiff did not allege or prove personal jurisdiction or property damage in Florida), dismissal of Block as a party-defendant is required.
Contrary to Plaintiffs' assertion, the Court may resolve this issue solely on the affidavits submitted. See Musiker v. Project a vision, Inc., 960 F. Supp. 292, 295 (S.D. Fla. 1997) (citing Venetian Salami Co. v. Parthenais, 554 So.2d499, 503 (Fla. 1989) (court should hold evidentiary hearing when affidavits conflict).
Conclusion
For the foregoing reasons, it is ORDERED AND ADJUDGED as follows:1. The Motion to Dismiss on Forum Non Convenient grounds is DENIED.
2. Counts I, II, and VI are DISMISSED with leave to amend.
3. The Motion to Dismiss as to Defendant Block is GRANTED with prejudice.
Plaintiffs have fourteen (14) days within which to file their Second Amended Complaint, and are not to add any new claims not previously raised, as the time for amendments to the pleadings has passed. Defendant shall have fourteen (14) days thereafter to file a response.