Opinion
03 Civ. 10027 (RWS)
May 19, 2004
MITCHELL J. KASSOFF, ESQ., South Orange, NJ, for Plaintiffs
ARTHUR L. PRESSMAN, ESQ., GREGG A. RUBENSTEIN, ESQ., NIXON PEABODY, Boston, MA, of Counsel for Defendant
OPINION
Defendant MaggieMoo's International, LLC ("MMI"), has moved to stay, dismiss and/or transfer the claims of plaintiffs GR Moojestic Treats, Inc. ("GR"), George Lisi, Rosemarie Lisi, JI International, LLC, Jun Iwata and Wataru Iwata (collectively, "Franchisee Plaintiffs") and to dismiss the claims of plaintiff Wataru Iwata for failure to state a claim upon which relief may be granted pursuant to Fed.R.Civ.P. 12 (b)(6), and for attorney's fees. All plaintiffs have moved to stay or dismiss the suit brought by MMI in the District of Maryland.
Parties
MMI is a Delaware limited liability company with its principal offices in Columbia, Maryland. MMI is a franchisor of specialty ice cream stores.
GR is a New York corporation with its principal offices in Syracuse, New York. George Lisi and Rosemarie Lisi are citizens of New York and are the sole shareholders and officers of GR. On April 10, 2001, a Franchise Agreement was executed between MMI and GR (the "GR Franchise Agreement").
Jun Iwata resides in Pennsylvania and is a member of JI International, LLC ("JI"), a Pennsylvania limited liability company with its principal offices in Pennsylvania. On March 25, 2002, a Franchise Agreement was executed between MMI and Jun Iwata, on behalf of an entity to be later named (the "JI Franchise Agreement"). The entity to be later named was JI. JI is an intended beneficiary of the Franchise Agreement.
Wataru Iwata, a citizen of New York, is the brother of Jun Iwata and is alleged by Plaintiffs to be the provider of funds for the purchase of the franchise by Jun Iwata and a "silent partner" in the franchise, although his name is not on the JI Franchise Agreement.
Prior Proceedings
On December 11, 2003, Plaintiffs filed an action in this Court alleging that MMI breached both Franchise Agreements, committed fraud, breached an implicit covenant of good faith, caused Plaintiffs not to pursue other business opportunities, and violated the Federal Trade Commission Rule on Franchising, the Sherman Anti-Trust Act, the Clayton Act, the Robinson-Patman Act and the Racketeer Influenced and Corrupt Organizations Act.
In addition, GR, George Lisi, and Rosemarie Lisi allege that MMI violated Article 33 of the New York State General Business Laws. JI, Jun Iwata, and Wataru Iwata allege that MMI violated the Maryland Franchise Registration and Disclosure law.
On February 13, 2004, MMI commenced separate actions in the United States District Court for the District of Maryland to compel mediation pursuant to identical mediation clauses in the Franchise Agreements of both sets of Plaintiffs, captioned Maqqiemoo's International, LLC v. GR Moojestic Treats Inc., et. al., WMN-04-392, and Maggiemoo's International, LLC v. JI International, Inc., et. al., WMN-04-393, respectively. On March 8, 2004, the Honorable William M. Nickerson of the District of Maryland ordered that:
In the interests of judicial economy, I will delay the scheduling of a hearing concerning MMI's Motion (s) to Compel Mediation until after Judge Robert Sweet of the Southern District of New York has had a chance to hear arguments and make rulings on related motions before him on March 31st, 2004.
On March 22, 2004, Judge Nickerson denied the motion of MMI to reconsider the March 8 Order.
On February 28, 2004, Plaintiffs filed an amended complaint. Following the filing of the amended complaint, MMI then filed amended versions of its briefs in support of its two motions. On March 26, 2004, MMI's interim motion to stay discovery pending the determination of the instant motions was denied.
Following the submission of briefs, oral argument on the motion was heard on March 31, 2004. On April 26, 2004, MMI's motion to supplement its memorandum of law in support of the motion to stay, dismiss or transfer the action was granted, at which time the motion was deemed fully submitted.
Facts
The following facts are drawn from Plaintiffs' amended complaint (the "Amended Complaint") and accompanying exhibits and do not constitute findings of fact by the Court.
The Amended Complaint alleges that after GR entered the Franchise Agreement with MMI, MMI rejected more than fifteen sites that were submitted by GR, George Lisi and Rosemarie Lisi to open the franchise, effectively taking their money and refusing to allow an opening of a franchise. Because another ice cream specialty store subsequently signed a lease for one of the spots they had chosen, Plaintiffs claim that the competitive nature of the business was forever altered, damaging their ability to successfully introduce MMI's franchise system in the area.
The Amended Complaint also alleges that MMI intended to deceive Jun Iwata with a misleading Uniform Franchise Offering Circular ("UFOC"), and intended to deceive any lenders Jun Iwata would employ, such as Wataru Iwata. Further, the lack of support from MMI in granting approval for a site led to another specialty ice cream store signing a lease for the site chosen by JI, thereby damaging Plaintiffs' ability to successfully introduce MMI's franchise system in the area. Upon executing a lease at another location, JI claims that losses were incurred in the amount of rental payment made during months when construction of the store could not begin due to MMI's actions and that construction estimates were more than 51% higher than MMI's UFOC had disclosed, forcing them to terminate the lease.
Paragraph 24.2 of both the GR and the JI Franchise Agreements provides that "all controversies, disputes, and claims arising out of or related to this Agreement (including any claim that the Agreement or any of its provisions is invalid, illegal, or otherwise voidable or void). . . shall first be subject to non-binding mediation."
Paragraph 24.4 of both the GR and the JI Franchise Agreements provide that, "Any legal action brought by Franchisee against Franchisor in any forum or court, whether federal or state, shall be brought exclusively in the federal district court covering the location at which Franchisor has its principal place of business at the time of the action."
MMI's Motion to Stay, Dismiss and/or Transfer the Claims of GR, George Lisi, Rosemarie Lisi, JI and Jun Iwata
MMI has moved to stay the instant litigation or to dismiss the claims on the basis of the mediation clauses in both the GR and the JI Franchise Agreements. However, because of the pending actions in the District of Maryland and the forum selection clause providing that all litigation between MMI and the Franchisee Plaintiffs must be brought in that District, MMI's motion to dismiss or transfer pursuant to the forum selection clause will be considered first.
The Forum Selection Clause is Enforceable
Forum selection clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances. See The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). This rule has been extended to diversity and other non-admiralty cases. See Jones v. Weibrecht, 901 F.2d 17 (2d Cir. 1990);Karl Koch Erecting Co. v. New York Convention Center Dev. Corp., 838 F.2d 656, 659 (2d Cir. 1988). "The Second Circuit, moreover, has a `strong policy' in favor of giving effect to such a clause." Sun Forest Corp. v. Shvili, 152 F. Supp.2d 367, 380-81 (S.D.N.Y. 2001) (citing Weiss v. Columbia Pictures Sys. of America, 801 F. Supp. 1276, 1278 (S.D.N.Y. 1992)).
Forum selection clauses are considered "unreasonable" (1) if their incorporation into the agreement was the result of fraud or overreaching, (2) if the complaining party "will for all practical purposes be deprived of his day in court," due to the grave inconvenience or unfairness of the selected forum, (3) if the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy, or (4) if the clauses contravene a strong public policy of the forum state. See Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1363 (2d Cir. 1993) (citations omitted).
The Franchisee Plaintiffs have not challenged the forum selection clause on the basis of hardship and contest only the first factor of the reasonableness test, claiming that they were fraudulently induced into accepting the forum selection clauses, that the forum selection clause is unconscionable and unenforceable, and that all plaintiffs were coerced into accepting the forum selection clause. Amended Complaint, ¶¶ 13-16, 90-93. In addition, the Franchisee Plaintiffs argue that the entire Franchise Agreement is a contract of adhesion.
A "forum-selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion." Scherk v. Alberto-Culver Co., 417 U.S. 506, n. 14 (1974) (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, (1967). In other words, "[a] claim of fraud in the inducement of a contract is insufficient to invalidate a forum selection . . . clause found in that contract. Rather, it is the inclusion of those specific clauses plaintiffs seek to avoid that must have been induced by fraud."Stamm v. Barclays Bank of New York, 960 F. Supp. 724, 729 (S.D.N.Y. 1997). The party seeking to invalidate a forum selection clause on grounds of fraud or coercion "must specifically prove that but for the drafter's misconduct, it would not have been included in the agreement." Sun Forest, 152 F. Supp.2d at 381.
The forum selection clause in both Franchise Agreements is labeled "Applicable Law," and is set apart in a separate numbered paragraph. The language of the clause itself provides that "any legal action . . . shall be brought exclusively in the federal district court covering the location at which Franchisor has its principal place of business at the time of the action." Plaintiffs have made no claim that they were not on notice as to the provision.
The Franchisee Plaintiffs have not made the "strong showing" required to prove that the forum selection clause was the result of fraud or coercion. The Bremen, 407 U.S. at 12. Rather, Plaintiffs have made conclusory allegations of fraud and coercion. Such bare bones allegations are insufficient to invalidate the forum selection clause. See, e.g., National School Reporting Services, Inc. v. National Schools of California, Ltd., 924 F. Supp. 21, 24 (S.D.N.Y. 1996) ("conclusory statements of duress are insufficient to show fraud or overreaching in agreeing to the forum selection clause"); Composite Holdings v. Westinghouse Elec. Corp., 992 F. Supp. 367, 371 (S.D.N.Y. 1988) (refusing to invalidate forum selection clause where allegation of fraud "is entirely conclusory No facts are set forth that logically give rise to an inference of fraudulent intent, particularly given that the designated forum is [where defendant] is headquartered and thus a quite natural selection for entirely ordinary reasons.")).
The Franchisee Plaintiffs' arguments that the forum selection clause is unconscionable and that it is a contract of adhesion may be taken together. "An unconscionable bargain is one which no man in his senses and not under delusion would make on the one hand, and . . . no honest and fair man would accept on the other." Doctor's Associates, Inc. v. Jabush, 89 F.3d 109, 113 (2d Cir. 1996) (quoting Hume v. United States, 132 U.S. 406, 411 (1889)). The fact that the Franchise Agreement was presented on a take it or leave it basis and was not subject to negotiation renders it neither a contract of adhesion nor unconscionable. See, e.g., Novak v. Overture Services, Inc., CV 02-5164, 2004 WL 613001 (E.D.N.Y. Mar. 25, 2004) ("An `agreement cannot be considered procedurally unconscionable, or a contract of adhesion, simply because it is a form contract.'") (quoting Rosenfeld v. Port Authority of New York and New Jersey, 108 F. Supp.2d 156, 164 (E.D.N.Y. 2000));Stamm, 960 F. Supp. at 733 (finding forum selection clause not unconscionable despite the fact that the clause is "now disadvantageous to Plaintiffs" and that it was presented to plaintiffs on a take it or leave it basis).
The Franchisee Plaintiffs also argue that even if the forum selection is enforceable, the clause does not cover their non-contractual claims. The clause states that "any legal action brought by Franchisee against Franchisor" is subject to the clause. Reading this broad clause to apply at least to actions arising from the Franchise Agreement, non-contractual claims are deemed to arise from the agreement for the purposes of the forum selection clause. See Bense v. Interstate Battery System of America, Inc., 683 F.2d 718, 720 (2d Cir. 1982) (holding that plaintiff's action arises from the agreement "although the complaint was brought pursuant to federal antitrust law, the gist of [plaintiff's] claim is that [defendant] wrongfully terminated the agreement, thereby damaging [plaintiff]."). In Young Women's Christian Ass'n of U.S., Nat. Bd. v. HMC Entertainment, Inc., 91 Civ. 7943, 1992 WL 279361, at *4 (S.D.N.Y. Sept. 25, 1992), the court found that plaintiff's claims for a declaratory judgment with respect to defendant's potential unfair competition, trademark infringement, misappropriation and implied contract claims arose pursuant to the contract, and were therefore within the scope of the forum selection clause because "[a]ny determination with respect to plaintiff's claims will require consideration of the contract and of the parties' respective rights pursuant to the contract." The Franchisee Plaintiffs have conceded that the causes of action in "the Amended Complaint that concern the defendant's breach of contract are inextricably woven with the other actions of defendant." Franchise Plaintiff's Mem. of Law in Opposition to Def.'s Motion to Stay, Dismiss and/or Transfer at 6. It is therefore determined that the forum selection clause agreed to by the Franchisee Plaintiffs (other than Waturu Iwata) is enforceable and that each of Plaintiffs' claims is within the scope of the clause.
The Franchisee Plaintiffs Claims are Transferred to the District of Maryland
Having found the forum selection clause enforceable as to Plaintiffs' claims, it remains to decide whether to dismiss the case pursuant to the forum selection clause or to transfer it pursuant to 28 U.S.C. § 1404(a). "A district court may `dismiss on the grounds that the parties have agreed in advance that some other forum is the more convenient location for resolution of the dispute.'" GMAC Commercial Credit, LLC v. Dillard Dep't Stores, Inc., 198 F.R.D. 402, 405 (S.D.N.Y. 2001) (quoting Ulysses Cruises, 131 F. Supp. at 408). Resolution of this issue shall be determined by "weigh[ing] in each case whether dismissal or transfer is the most efficient and just means of enforcing the clause." Ulysses Cruises, 131 F. Supp.2d at 409. The forum selection clause in this case specifies that any litigation between franchisee and franchisor shall be brought in the "federal district court" where franchisor has its place of business, which is the District of Maryland. JI and GR Franchise Agreements, ¶ 24.2. Transfer of the claims of the Franchisee Plaintiffs to the District of Maryland is therefore the most "appropriate remedy for effectuating [the] forum-selection clause." Ulysses Cruises, 131 F. Supp.2d. at 407.
Following the instructive discussion by the Honorable Gerard E. Lynch in Licensed Practical Nurses, Technicians and Health Care Workers of New York, Inc. v. Ulysses Cruises, Inc., 131 F. Supp.2d 393, 402-09 (S.D.N.Y. 2000), it is determined that "[t]he presence of a forum-selection clause does not deprive the disfavored forum of jurisdiction or venue, where the conditions of subject matter and in personam jurisdiction are otherwise met." Id. at 409. Therefore, "dismissal may be based on either the court's inherent power to decline jurisdiction, by analogy to the traditional doctrine of forum non conveniens, or on the power under Rule 12(b)(6) for failure to state a claim." Id. Although MMI does not specify by what authority it seeks transfer as an alternative remedy, it is presumed to invoke the Court's power to transfer pursuant to § 1404(a). Id.
An enforceable forum selection clause is "not dispositive as to transfer under § 1404(a)", Falconwood Financial Corp. v. Griffin, 838 F. Supp. 836, 840 (S.D.N.Y. 1993) (citing Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29-30 (1988)), and "the court must still `take account of factors other than those that bear solely on the parties' private ordering of their affairs,' such as the convenience of the witnesses and . . . other factors . . . " Mpower Communications Corp. v. Voipld.com, Inc., 304 F. Supp.2d 473, 475 (W.D.N.Y. 2004) (quoting Stewart, 487 U.S. at 30). However, "it is clear that such clauses are not lightly disregarded; a party opposing enforcement of a forum selection clause must "demonstrate exceptional facts explaining why he should be relieved from his contractual duty." Id. (quoting Weiss, 801 F. Supp. at 1278); see also Stewart, 487 U.S. at 33 ("a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases") (Kennedy, J., concurring)). The Franchisee Plaintiffs have not shown any exceptional facts, arguing only that the plaintiffs' choice of forum is entitled to deference. As the Franchise Agreements show, however, the Franchisee Plaintiffs' contractual choice of forum is the District of Maryland. Accordingly, the claims of the Franchisee Plaintiffs will be transferred there.
MMI's Motion to Dismiss the Claims of Wataru Iwata
Because Waturu Iwata was not a party to a Franchise Agreement, his claims are not bound by the terms of the forum selection clause. MMI has not moved to transfer Waturu Iwata's claims to the District of Maryland and has instead moved to dismiss under Fed.R.Civ.P. 12(b)(6).
In reviewing a 12(b)(6) motion, courts must "accept as true the factual allegations of the complaint, and draw all inferences in favor of the pleader." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993) (citing IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052 (2d Cir. 1993). However, "legal conclusions, deductions or opinions couched as factual allegations are not given a presumption of truthfulness."L'Europeenne de Banque v. La Republica de Venezuela, 700 F. Supp. 114, 122 (S.D.N.Y. 1988). The complaint may only be dismissed when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1956); see also Berheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996).
Review must be limited to the complaint and documents attached or incorporated by reference thereto. Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991). In this context, the Second Circuit has held that a complaint is deemed to "include . . . documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the suit." Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000).
Choice of Law
As an initial matter, it must be determined what law applies to Waturu Iwata's state law claims for breach of contract, breach of an implied contract of good faith and fair dealing, and fraud. MMI's briefs cite to New York law without addressing the issue. Waturu Iwata is a resident of New York. However, the parties to the contract, JI and MMI, are residents of Pennsylvania and Maryland, respectively, and the proposed franchise location is in Pennsylvania.
A federal court sitting in diversity must apply the choice-of-law rules of the forum state, in this instance New York. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). "The first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved. Where no [such] conflict exists . . . there is no reason to engage in a choice of law analysis." Smith v. Mitlof, 148 F. Supp.2d 279, 285 (S.D.N.Y. 2001) (quoting Elson v. Defren, 283 A.D.2d 109, 114, 726 N.Y.S.2d 407, 411 (1st Dep't 2001)). The elements of a contract claim are the same in Pennsylvania, New York and Maryland, see Morgan Stanley High Yield Securities v. Seven Circle Gaming Corp., 269 F. Supp.2d 206, 213 (S.D.N.Y. 2003); J.F. Walker Co., Inc. v. Excalibur Oil Group, Inc., 792 A.2d 1269, 1272 ( Pa. Super. 2002); Yousef v. Trustbank Sav., F.S.B., 568 A.2d 1134, 1137 (Md.App. 1990), and in each jurisdiction a claim for breach of an implied duty of good faith cannot be brought in the absence of an underlying contract. See Sheth v. New York Life Ins. Co., 273 A.D.2d 72, 73, 709 N.Y.S.2d 74 (1st Dep't 2000); Landmesser v. United Air Lines, Inc., 102 F. Supp.2d 273, 280 (E.D. Pa. 2000); Swedish Civil Aviation Admin. v. Project Mgmt. Enters., Inc., 190 F. Supp.2d 785, 794 (D. Md. 2002). In the absence of a conflict, New York law will be applied to the contract claims.
Without comparing the substantive doctrine with respect to common law fraud claims in the various jurisdictions, New York law applies because
"fraud claims are governed by the laws of the jurisdiction where the injury is deemed to have occurred — which usually is where the plaintiff is located." Pinnacle Oil Co. v. Triumph Oklahoma, L.P., 93 Civ. 3434, 1997 WL 362224, at *1 (S.D.N.Y. Jun. 27, 1997) (citing Sack v. Low, 478 F.2d 360, 366 (2d Cir. 1973) (Friendly, J.)); Cooney v. Osgood March., Inc., 81 N.Y.2d 66, 72, 595 N.Y.S.2d 919, 612 N.E.2d 277 (1993) ("If conflict-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders."). Indeed, "[t]he traditional view has been that . . . when a person sustains loss by fraud, the place of wrong is where the loss is sustained, not where fraudulent misrepresentations are made." Sack, 478 F.2d at 366 (citations omitted).PPI Enterprises (U.S.), Inc. v. Del Monte Foods Co., 99 Civ. 3794, 2003 WL 22118977, at *17 (S.D.N.Y. Sept. 11, 2003). Because Waturu Iwata is a New York resident, any alleged loss was sustained in New York, making New York law applicable.
A. Breach of Contract
In order to recover on a claim for breach of contract, Waturu Iwata must allege, among other elements, the existence of a valid contract. See Morgan Stanley High Yield Securities v. Seven Circle Gaming Corp., 269 F. Supp.2d 206, 213 (S.D.N.Y. 2003). The relevant contract is the JI Franchise Agreement. Although a copy of the Agreement was not attached to the Amended Complaint, it is clearly incorporated by reference, and may be considered on a motion to dismiss. See Rothman, 220 F.3d at 88. On March 25, 2002, MMI entered into the Franchise Agreement with Jun Iwata on behalf of an entity to be named later. See Declaration of Gregg Rubenstein, Exhibit 1. That entity is JI. Waturu Iwata is not a party to the JI Franchise Agreement, although he is alleged to be Jun Iwata's lender, and to have reviewed and relied upon the information in the UFOC. Amended Complaint ¶ 99. The Amended Complaint alleges, however, that Waturu Iwata is a "silent partner," and "is more than simply a provider of funds for the purchase of the franchise." Id. at ¶¶ 100, 101. As a silent partner, Waturu Iwata is alleged to be "the equivalent of an owner of the franchise," and to have the "equivalent of a contractual relationship" with MMI and "the equivalent of a direct relationship" with MMI. Id. at ¶¶ 102-104.
The allegations in the Amended Complaint are insufficient to establish that there was a valid contract between Waturu Iwata and MMI. The term "silent partner" is not defined in the complaint, but there is no allegation that a contractual relationship was formed. Nor does the allegation that Waturu Iwata and MMI had "the equivalent of a contractual relationship" give rise to a legally recognizable relation. In his brief, Waturu Iwata argues that he "had the same possibility of loss due to an improper action or inaction on the part of" MMI as Jun Iwata. Memorandum of Waturu Iwata in Opposition to Defendant's Motion to Dismiss, at 3. Such a theory of contract liability would give standing to sue for breach of contract to every creditor to a party to a contract. Waturu Iwata has cited no caselaw to support his theory. Accordingly, the breach of contract claim is dismissed.
B. Breach of Implicit Covenant of Good Faith
In the absence of a valid contract, Waturu Iwata's claim for a breach of an implied covenant of good faith must also be dismissed. See Sheth v. New York Life Ins. Co., 273 A.D.2d 72, 73, 709 N.Y.S.2d 74 (1st Dep't 2000) ("cause of action for breach of the implied covenant of good faith and fair dealing . . . may not be used as a substitute for a nonviable claim of breach of contract."); Lakeville Pace Mech., Inc. v. Elmar Realty Corp., 276 A.D.2d 673, 676, 714 N.Y.S.2d 338 (2d Dep't 2000) ("there can be no covenant of good faith and fair dealing implied where there is no contract").
C. Claim for Violation of the Maryland Franchise Registration and Disclosure Law
Waturu Iwata has alleged that MMI violated the Maryland Franchise Registration and Disclosure Law ("MFRDL"). See Md. Bus. Reg. Code Ann. §§ 14-201 to 14-233. Section 14-227(a)(1) of the MFRDL provides that "A person who sells or grants a franchise is civilly liable to the person who buys or is granted a franchise if the person who sells or grants a franchise offers to sell or sells a franchise . . . " There is no allegation in the Amended Complaint that Waturu Iwata was sold or granted a franchise by MMI. Accordingly, this claim is dismissed for lack of standing. See In re Matterhorn Group, Inc., 2000 WL 1174215 (Bankr. S.D.N.Y. Aug. 17, 2000) ("The plain language of the [MFRDL] grants a civil remedy only to purchasers and grantees . . . The `purchase' requirement simply recognizes that a non-purchaser does not rely on an unregistered or fraudulent prospectus, and hence, does not suffer the type of injury that Maryland franchise law, and similar laws in other states, are designed to prevent."); Flynn v. Everything Yogurt, C.A. No. HAR92-3421, 1993 WL 454355, at *4-5 (D. Md. Sept. 14, 1993) (dismissing MFRDL claim by plaintiff whose "only connection with the circumstances that gave rise to the matter at bar is his pledge of certain security in connection with the loan obtained by [franchisees] to purchase the franchise.").
D. Lost Opportunities
Waturu Iwata has alleged a claim for lost opportunities. Waturu Iwata has not cited any caselaw supporting the existence of a distinct claim for lost opportunities. Accordingly, the claim for lost opportunities is dismissed.
E. Fraud
MMI argues that the fraud claim can be dismissed because, under New York law, tort claim liability based solely on economic loss is limited to those in privity with the alleged tortfeasor. Because Waturu Iwata has no direct relationship to the defendant, MMI argues, he is not entitled to relief on his fraud claim. While "it is well-established under New York law that, where a plaintiff alleges only economic damage resulting from a defendant's alleged negligence, defendants owe no duty to plaintiffs with whom they are not in contractual privity," The Jordan (Bermuda) Inv. Co., Ltd. v. Hunter Green Invs. Ltd, 00 Civ. 9214, 2003 WL 1751780, at *11 (S.D.N.Y. Apr. 1, 2003) (quoting Land Mine Enters. v. Sylvester Builders, Inc. 74 F. Supp.2d 401, 407 (S.D.N.Y. 1999), aff'd, 234 F.3d 1262 (2d Cir. 2000)), the doctrine does not extend to tort claims for fraud. See Metral v. Horn, 213 A.D.2d 524, 526, 624 N.Y.S.2d 177 (2d Dep't 1995) ("a cause of action sounding in fraud does not require the existence of a relationship of privity or something close to privity between the parties.") (citing Credit Alliance Corp. v. Andersen Co., 65 N.Y.2d 536, 547, 493 N.Y.S.2d 435, 483 N.E.2d 110 (1985)); Shafran v. Rule, 159 A.D.2d 263, 265, 552 N.Y.S.2d 263 (1st Dep't 1990) ("Lack of privity is not a viable defense to fraud.").
MMI also argues that Waturu Iwata fails to allege a viable fraud claim. To state a claim for fraud under New York law, a plaintiff must allege: "(1) a misrepresentation or a material omission of fact which was false and known to be false by defendant; (2) made for the purpose of inducing the other party to rely upon it; (3) justifiable reliance of the other party on the misrepresentation or material omission; and (4) injury." Flash Electronics, Inc. v. Universal Music Distribution Corp., CV01-979, 2004 WL 764584, at *19 (E.D.N.Y. Mar. 31, 2004) (citingAUSA Life Ins. Co. v. Ernst and Young, 206 F.3d 202, 208 (2d Cir. 2000). Under Fed.R.Civ.P. 9(b), "the circumstances constituting fraud . . . shall be stated with particularity." However, "malice, intent, knowledge, and other condition of mind may be averred generally."Id. "To satisfy Rule 9(b)'s particularity requirement, a plaintiff's complaint must: Ml) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Flash Electronics, 2004 WL 764584, at *20 (quotingStevelman v. Alias Research Inc., 174 F.3d 79, 84 (2d Cir. 1999)).
Drawing all inferences in favor of Waturu Iwata, the Amended Complaint states a valid claim for fraud. The alleged fraudulent misrepresentation made by MMI was the inaccurate estimates of construction and equipment costs for the operation of the franchise, and was made in the UFOC provided to Jun Iwata on January 19, 2002 at MMI headquarters. Amended Complaint ¶¶ 145-48. The fact that the representation was not made directly to Waturu Iwata is not fatal to the claim because he has alleged "that he relied upon it to his detriment, and that the defendant intended the misrepresentation to be conveyed to him." Cement Concrete Workers Dist. Council Welfare Fund v. Lallo, 148 F.3d 194, 196 (2d Cir. 1998) (quoting Rosen v. Spanierman, 894 F.2d 28, 33 (2d Cir. 1990)); see also Eaton, Cole Burnham Co. v. Avery, 83 N.Y. 31, 33-34 (1880) ("it is not essential that a representation should be addressed directly to the party who seeks a remedy for having been deceived and defrauded by means thereof."). The Amended Complaint also alleges that MMI knew that Jun Iwata was going to finance the purchase of the franchise and that the lender would review the information in the UFOC. Amended Complaint ¶¶ 95, 97. It is also alleged that MMI knew the UFOC to be inaccurate, and intended to deceive any lenders reviewing the information. Id. at ¶¶ 96, 165-66. Finally, it is alleged that Waturu Iwata reviewed and relied on the information, and that he was injured as a result. Id. at ¶¶ 99, 168.
F. Claim for Violation of Federal Trade Commission Rules
Waturu Iwata alleges that MMI violated Federal Trade Commission ("FTC") regulations, in particular the "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventres," 16 C.F.R. § 436.1-438.10, promulgated pursuant to the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 41-58, by failing to provide accurate information in the UFOC. The FTC disclosure requirements provide that "it is an unfair or deceptive act or practice" to fail to furnish any prospective franchisee with accurate information related to the terms of the franchise agreement and the financial condition of the franchisor. 16 C.F.R. § 436.1. However, there is no private right of action to enforce the Disclosure Requirements of § 436, or any other regulation promulgated under the Federal Trade Commission Act. See Alfred Dunhill Ltd, v. Interstate Cigar Co., 499 F.2d 232, 237 (2d Cir. 1974) ("Nowhere does the [FTCA] bestow upon either competitors or consumers standing to enforce its provisions."); Brill v. Catfish Shaks of America, Inc., 727 F. Supp. 1035, 1041 (E.D. La. 1989) ("there is no private right of action for violation of the FTC's franchise disclosure rules") (citing Freedman v. Meldy's, Inc., 587 F. Supp. 658 (E.D. Pa. 1984)).
In the brief by the Franchisee Plaintiffs in opposition to MMI's motion to stay, dismiss and/or transfer, it is argued that plaintiffs are not alleging that they can sue for violation of FTC regulations, but the allegation is made to provide "information to the Court" to show that MMI committed fraud by failing to follow the rule's requirements. While the existence of the FTC regulations is hereby noted, Waturu Iwata's claim for violation of the rule is dismissed for failure to state a claim.
G. Claims for Violations of Antitrust Laws
Waturu Iwata has alleged violations of the Section Two of the Sherman Act, 15 U.S.C. § 2, the Clayton Act, 15 U.S.C. § 14 and 15, and the Robinson-Patman Act, 15 U.S.C. § 13. Waturu Iwata has alleged that he provided substantial funding to JI and that the damages sustained by JI "are the equivalent of losses sustained by . . . Waturu Iwata." Amended Complaint ?? 108, 110.
The Second Circuit has held that "merely derivative injuries sustained by . . . creditors of an injured company do not constitute antitrust injury sufficient to confer antitrust standing." G.K.A. Beverage Corp. v. Honickman, 55 F.3d 762, 766-67 (2d Cir. 1995); see also Schwimmer Corp. v. Sony Corp. of America, 637 F.2d 41, 46-47 (2d Cir. 1980) ("it is recognized that treble damage actions, effective and attractive as they are in deterring violations of the federal antitrust laws, must have some boundaries. Consequently, the standing requirement is designed, in essence, to limit access to treble recovery to a target of the anticompetitive conduct. Thus, the standing rules exclude a non-target whose damages are more difficult to prove and, in all likelihood, highly speculative."). Each of Waturu Iwata's antitrust claims must be dismissed because he has failed to plead a direct injury or to show that he was a target of anticompetitive conduct, and therefore lacks standing under the antitrust laws.
H. RICO Claims
Waturu Iwata has alleged that defendants violated the Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. § 1961,et seq.
To state a RICO claim under § 1962(b) and (c), a plaintiff must plead seven elements: "(1) that the defendant (2) through the commission of two or more acts (3) constituting a `pattern' (4) of `racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an `enterprise' (7) the activities of which affect interstate or foreign commerce."The Jordan (Bermuda) Inv. Co., Ltd, v. Hunter Green Invs. Ltd, 154 F. Supp. 682, 690 (S.D.N.Y. 2001) (quoting Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983). Moreover, "RICO is a specialized statute requiring a particular configuration of elements. These elements cannot be incorporated loosely from a previous narration, but must be tightly particularized and connected in a complaint. Parroting statutory language while generally referring the reader back to the previous 100 paragraphs in a complaint is inadequate." Lesavoy v. Lane, 304 F. Supp.2d 520, 532 (S.D.N.Y. 2004) (quoting Zaro Licensing, Inc. v. Cinmar, Inc., 779 F. Supp. 276, 284 (S.D.N.Y. 1991)).
Waturu Iwata's RICO allegations are insufficient to state a valid claim. No particularized allegation is made. Instead, the factual information is incorporated by reference from the previous paragraphs in the complaint, and the enumeration of the statutory elements are conclusorily alleged. The entities alleged to have conspired with MMI are not named, the predicate acts alleged to form the basis of the claim are not specified, and it is not alleged that "the predicate acts are related and that they amount to, or pose a threat of, continuing criminal activity." GICC Capital Corp. v. Technology Fin. Group, Inc., 67 F.3d 463, 465 (2d Cir. 1995). Accordingly, Waturu Iwata's RICO claim is dismissed.
MMI's Motion for Attorney's Fees is Denied
MMI argues that it should be awarded attorney's fees for responding to Waturu Iwata's complaint. Federal Rule of Civil Procedure 11 has been violated, and sanctions are appropriate "where it is patently clear that a claim has absolutely no chance of success under the existing precedents, and where no reasonable argument can be advanced to extend, modify or reverse the law as it stands." Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985). While several of Waturu Iwata's claims have been dismissed for failure to state a claim upon which relief can be granted, his fraud claim has been validly pleaded. MMI's motion for attorney's fees is therefore denied.
Plaintiffs' Motion to Stay or Order Defendant to Dismiss Suits Brought in the District of Maryland
The plaintiffs argue that MMI may not institute new actions duplicating existing litigation and that the actions in federal court in Maryland should therefore be stayed and MMI should be ordered to dismiss the Maryland actions. No adequate basis for a stay has been submitted, and the request is accordingly denied.
Conclusion
MMI's motion to transfer the claims of the Franchisee Plaintiffs to the United States District Court for the District of Maryland is granted. Except for the common law fraud claim, each of Wataru Iwata's claims are dismissed for failure to state a claim. MMI's motion for attorney's fees against Waturu Iwata is denied. Plaintiffs' motion to stay and order MMI to dismiss its lawsuits in the District of Maryland is denied.
It is so ordered.