Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mich.: Franchisee suit against Spray Foam Genie officers and affiliates stayed pending arbitration, (Aug 26, 2025)

By Martin A. Steinberg, J.D.

Franchisee alleges Spray Foam Genie officers and affiliates misrepresented costs, failed to provide promised management services, and left them with over $1.3 million in losses.

The federal district court in Detroit, Michigan granted a motion to stay but denied without prejudice a motion to dismiss, pending resolution of the related arbitration against spray foam installation business franchisor Spray Foam Genie International (SFGI). Plaintiffs Tim and Lisa Jamil allege that SFGI and its affiliates, including officers, parent companies, and franchise consultants, misrepresented the actual costs of opening franchises, promised a “hands-off” investor model that never materialized, and failed to deliver contractual management and support services. The Jamils claimed they were induced to invest more than $1.3 million, ultimately working long hours each week on their Florida franchise while their D.C. franchise never opened. Their complaint asserts fraud, embezzlement/conversion, breach of contract, and violations of the Michigan Franchise Investment Law. The court concluded the claims are “inextricably intertwined” with the pending arbitration, and that staying the case promotes judicial economy while preserving plaintiffs’ ability to proceed later (Jamil v. Longe, No. 2:24-cv-13029-LJM-KGA (E.D. Mich. Aug. 21, 2025)).

Background. Spray Foam Genie International, LLC (SFGI), based in Michigan, is described as the franchisor of spray foam insulation businesses across the U.S. SFGI is owned and operated by its officers Kevin Longe, Chris Ryan, Keith Ryan, and Gregory Longe. SFGI is also partially owned by Rhino7 Consulting Company and Phoenix Franchise Consulting LLC, which in turn is operated by Gregory and Maria Longe. SFGI’s parent company is Long Acquisitions, LLC. All of these parties, except for SFGI, are named as Defendants in this suit. In addition, Shelly Chavez and Steven and Riley McEntire (who are named as franchise sellers in Spray Foam Genie’s Franchise Disclosure Document) and SFGM are also named as Defendants.

SFGI advertises itself as the “leading spray foam insulation contractor” and offers franchise opportunities under several models, including the “Franchisee Investor” model. Under this model, franchisees provide the upfront capital to open a location. At the same time, SFGI promises to manage operations, supply support services, and allow franchisees to participate only part-time, keeping their other jobs.

Tim and Lisa Jamil, through their company TL Jamil LLC, were attracted to this investor model. They contracted with SFGI and its affiliate, Spray Foam Genie Managed Services (SFGM), to open franchises in Florida and Washington, D.C. They allege that the “hands-off” model was illusory. Despite paying a $2,000 monthly use fee for management services, the Jamils claim that SFGI failed to deliver the technology, support, and marketing it had promised; they claim they were forced to spend 40–50 hours per week managing the Florida franchise themselves. They also assert that they invested more than $1.3 million, far exceeding the $100,000 to $650,000 range advertised by SFGI. The Washington, D.C. franchise never opened as a result.

Because the franchise contracts contained arbitration clauses, the Jamils initiated arbitration proceedings against SFGI, along with claims against several officers, related entities, and parent companies. The arbitration tribunal dismissed the non-signatory defendants, leaving only SFGI in arbitration. To pursue the other defendants, including SFGI officers (Kevin Longe, Chris Ryan, Keith Ryan, and Gregory Longe), parent company Long Acquisitions, Rhino7 Consulting, Phoenix Franchise Consulting, SFGM, and franchise sellers Steven and Riley McEntire and Shelly Chavez, the Jamils filed this separate federal action.

Claims. The plaintiffs allege that the defendants misrepresented the actual costs and management structure of the franchises, leading them to commit far more money and labor than promised. They contend that SFGI promised “semi-absentee” ownership but instead failed to provide adequate training, support, or operational systems, leaving them to run the business themselves. They allege fraud, misrepresentation, embezzlement/conversion, breach of contract against SFGM, and violations of the Michigan Franchise Investment Law.

Defendants responded with motions to dismiss for lack of jurisdiction and failure to state claims, and alternatively sought to stay the litigation pending resolution of the arbitration against SFGI. The court noted that although SFGI itself is not a party to this federal case, it remains at the center of the allegations, and the claims against its affiliates are closely tied to the arbitration proceedings.

Stay of proceedings. The court noted that it has broad discretion to stay proceedings in the interests of judicial economy. While courts must carefully weigh a plaintiff’s right to timely adjudication, federal precedent recognizes that, in cases where arbitration and litigation overlap, a stay may be prudent to avoid duplicative proceedings and inconsistent outcomes.

The dispute involves arbitrable and non-arbitrable claims arising from the same facts. The Jamils are arbitrating their claims against SFGI, but their federal lawsuit names SFGI’s officers, affiliates, and related entities, who were dismissed from arbitration as non-signatories. Because the arbitration demand and the complaint in this case are nearly identical, the court found that the claims are “inextricably intertwined.” For example, the Michigan Franchise Investment Law (MFIL) allows officers and affiliates to be held jointly and severally liable for violations, but only if the franchisor itself is found liable. Thus, the arbitration against SFGI will directly resolve issues necessary to adjudicate the MFIL claims against the defendants here.

The Jamils argued that staying or dismissing their MFIL claims would effectively force franchise plaintiffs into two separate suits, one against the company and another against individual officers. The court rejected this, clarifying that absent the arbitration clause, both sets of claims could have proceeded together, as they initially did in arbitration before the non-signatory defendants were dismissed. The split here arises solely from the arbitration agreement, and the stay does not create a general rule requiring MFIL claims to be litigated separately.

The court emphasized that although arbitration rulings often lack claim preclusive effect on non-parties, they may carry issue preclusive effect. While an arbitrator cannot bar new claims against individuals not a party to the arbitration agreement, arbitration findings may nevertheless bind the parties on overlapping factual issues. This reinforces the efficiency of allowing arbitration to proceed before resuming litigation.

Pleading deficiencies. While there were deficiencies in the complaint, the court found that dismissal at this stage was premature. In addition, a stay is warranted here because the discovery obtained during the arbitration proceedings will conserve judicial and litigant resources and greatly aid the court’s ability to decide several of the key issues here.

The Jamils’ complaint currently contains broad generalizations and group pleading about what “the Defendants” did, collectively. The Jamils’ pleading relied heavily on “group allegations” against “the defendants” collectively. Fraud claims in federal court must meet Rule 9(b)’s heightened pleading standards, requiring plaintiffs to specify the speaker, the content of the misrepresentation, when and where it occurred, and why it was fraudulent. By attributing most statements to SFGI or Rhino7 (rather than to the moving defendants individually), the complaint failed to particularize who made which misrepresentations. Similarly, personal jurisdiction requires proof that each non-resident defendant had purposeful contacts with Michigan. Merely being officers of a Michigan corporation is not enough. The complaint did not allege where the challenged documents were prepared, whether they were sent to Michigan, or where alleged conversions of funds occurred. These pleading gaps hinder a jurisdictional analysis.

Defendants argued that these deficiencies warranted dismissal. The court, however, found dismissal premature. Because discovery in the arbitration will clarify which individuals made specific misstatements, handled funds, or otherwise directed franchise operations, waiting for that discovery will allow the Jamils to amend their complaint with greater particularity. The court observed that allowing dismissal now would be inefficient, as the plaintiffs might later be able to cure deficiencies through amendment. The judge highlighted the liberal amendment policy in federal practice, favoring resolution on the merits rather than technical pleading standards.

Prejudice. Plaintiffs argued that a stay would delay their claims without a binding effect because arbitration results are not directly enforceable against these defendants. The court rejected this argument, stressing that, unlike abstention-based stays, this stay does not effectively dismiss the federal claims. Instead, it merely pauses proceedings until arbitration clarifies factual and legal issues at the heart of both disputes. Once arbitration concludes, plaintiffs remain free to proceed against the affiliates, possibly with stronger factual bases for pleading personal jurisdiction and fraud claims over several of the defendants.

Conclusion. The court granted the motion to stay the litigation but denied their motion to dismiss without prejudice. The ruling preserves plaintiffs’ ability to refile claims but postpones litigation until arbitration against SFGI resolves overlapping issues of liability, fraud, and misrepresentation.

The Case is No. 2:24-cv-13029-LJM-KGA.

Judge: Michelson, L.

Attorneys: Joshua F. Brown (Taft Stettinius & Hollister LLP) for Tim Jamil. Louis G. Fiorilla (Saxton & Stump LLC) for Kevin Longe.

Cases: FranchisingDistribution MichiganNews