Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Cal.: Fashion boutique franchisee’s claims against franchisor survive dismissal, (Apr 28, 2016)

By Michael Menzhuber, J.D., LL.M.

A motion to dismiss a fashion boutique franchisee’s complaint against the franchisor, for lack of support and misuse of website development information, was granted in part and denied in part by the federal district court in Sacramento, California (R. North Beach, Inc. v. Country Visions, Inc., April 27, 2016, Nunley, T.).

In 2010, R. North Beach (North Beach), through its principal Rod Dixon, entered into a franchise agreement with Country Visions, Inc. (CVI) to operate an Apricot Lane women’s fashion boutique. According to North Beach: (1) it entered into the franchise agreement based on representations made by CVI’s president Kenneth Peterson; (2) it was not given the support provided for by the franchise agreement; and (3) the website development information that it provided CVI was used to create another company.

In September of 2015, North Beach filed a ten-count complaint against CVI and Peterson for claims relating to CVI’s alleged failure to provide certain materials and support, as well as the use of information intended for CVI’s website. CVI moved to dismiss.

The court dismissed the first three counts (breach of contract, declaratory relief, and breach of the implied covenant of good faith) against Peterson after North Beach stated that it did not intend to bring these causes of action against Peterson. The court also dismissed the third count (breach of the implied covenant of good faith) against CVI, but denied its motion to dismiss the second and third counts (breach of contract and declaratory relief).

Although the court determined that North Beach’s fourth and fifth causes of action (fraud and negligent misrepresentation) were not barred by the economic loss rule because CVI’s conduct fell under an exception to the rule, it dismissed them because North Beach failed to meet the heightened pleading standard for averments of fraud.

The court also dismissed North Beach’s: (1) sixth cause of action (violation of the Illinois Franchise Disclosure Act (IFDA)) because it was barred by statute of limitations for IFDA claims, which is three years; and (2) seventh cause of action (breach of fiduciary duty) because the franchisor/franchisee relationship between the parties did not create a fiduciary relationship and the franchise agreement specifically stated that it did not create a fiduciary duty between the parties.

The court determined that North Beach’s eighth cause of action (promissory estoppel) was not barred by a valid contract governing the same subject matter because there was no discussion of website information in the franchise agreement. However, the court granted CVI’s motion to dismiss the action because North Beach’s allegation that CVI, through its conduct, “represented” something to North Beach was insufficient to show an “unequivocal promise,” a required element of a promissory estoppel claim.

The court denied CVI’s motion to dismiss North Beach’s ninth cause of action (unjust enrichment) because: (1) it could be construed as a claim for quasi-contract; and (2) CVI did not argue that North Beach failed to allege the necessary elements of quasi-contract.

The court dismissed North Beach’s tenth cause of action (violation of California’s Unfair Competition Law (UCL)) under each prong of the UCL. It dismissed: (1) the “fraudulent” prong because it did not specify which of CVI’s actions were fraudulent; (2) the “unlawful” prong because North Beach’s IFDA claim, which was dismissed because it was not viably pleaded, could not serve as a predicate for the UCL claim and “unlawful” claims cannot be predicated on common law violations; and (3) the “unfair” prong because North Beach failed to identify any “established policy” that CVI violated and did not allege any injury to consumers.

The case is No. 2:15-cv-2014-TLN-CKD.

Attorneys: Elizabeth B. Stallard (Downey Brand, LLP) for R. North Beach, Inc. Robert D. Swanson (Boutin Jones Inc.) for Country Visions, Inc.

Companies: R. North Beach, Inc.; Country Visions, Inc.

Cases: FranchisingDistribution CaliforniaNews