Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mich.: Franchisees’ claims against moving biz franchisor loaded with pleading deficiencies, (Aug 26, 2026)

By Martin A. Steinberg, J.D.

Units Franchising Group allegedly misrepresented its system, software, profitability, and revenues, violating its franchise agreements and the Michigan Franchise Investment Law.

The federal district court in Detroit dismissed without prejudice claims brought by three Michigan franchisees against Units Franchising Group, Inc., a franchisor of moving and portable-storage businesses, finding that the complaint failed to adequately plead fraudulent and negligent misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, an accounting claim, and violations of Michigan’s Franchise Investment Law. The franchisees alleged, among other things, that Units misrepresented aspects of its proprietary system, software, long-distance move revenues, and franchise profitability, improperly used national advertising funds, and restricted purchases from outside vendors. The court held that the misrepresentation claims lacked the specificity required by Rule 9(b) or otherwise failed to state actionable false statements or reasonable reliance; the contract claims did not identify breached contractual obligations; and South Carolina law did not recognize a separate implied-covenant claim. Because the deficiencies were potentially curable, the court granted the franchisees leave to file an amended complaint within 21 days (Scurryfunge Inc. v. Units Franchising Group, Inc., No. 2:25-cv-13577-SJM-DRG (E.D. Mich. Aug. 25, 2026)).

Background. Units, a South Carolina franchisor of “distinctive self-storage rental and moving business[es],” entered separate franchise agreements with three Michigan companies in 2022. Before signing, Plaintiffs reviewed a Franchise Disclosure Document describing the franchise system, obligations, and costs.

Plaintiffs alleged that Units represented at a pre-contract “Discovery Day” that franchisees would receive all revenue from long-distance delivery charges, but later retained most of that revenue. They also alleged that Units’ StoreSmart software, introduced in 2024, was defective and forced them to continue paying for the prior SiteLink system. Plaintiffs further claimed that Units misused a national advertising fund, including by spending more than half of 2024 contributions on corporate salaries, and required franchisees to purchase storage containers through approved vendors at substantial markups.

Based on these allegations, Plaintiffs asserted misrepresentation, contract, implied-covenant, accounting, and Michigan franchise-law claims. Plaintiffs asserted seven claims against Units: Counts I and II alleged fraudulent and, alternatively, negligent misrepresentation based on four statements by Units. Counts III and IV asserted breach of contract concerning the operating software and use of advertising funds. Count V alleged breach of the implied covenant of good faith and fair dealing based on the software, advertising fund, and vendor-approval practices. Count VI sought an accounting, and Count VII alleged violations of Michigan’s Franchise Investment Law. Units moved to dismiss, and Plaintiffs alternatively sought leave to amend.

Misrepresentation claims. The court dismissed Counts I and II without prejudice. Plaintiffs alleged fraudulent and, alternatively, negligent misrepresentation based on four statements by Units: (1) that its containers and equipment were proprietary; (2) that franchisees would receive all long-distance delivery revenue; (3) that its software was functional and operationally ready; and (4) that its franchises were profitable. Units argued that the claims were time-barred, insufficiently pleaded under Rule 9(b), and failed under Rule 12(b)(6). The court declined to reach the contractual limitations issue and dismissed the claims on pleading grounds.

Choice of law. The parties disputed whether Michigan or South Carolina law governed the misrepresentation claims. Because the elements of fraudulent misrepresentation were materially the same under both states’ laws, the court applied Michigan law as the forum law. It did not decide which state’s law governed the enforceability of the contractual limitations period because that question was unnecessary to the disposition.

Pleading standards. Under Michigan law, fraudulent misrepresentation requires a false material representation, knowledge or recklessness as to falsity, intent that the plaintiff rely on it, actual reliance, and resulting injury. Negligent misrepresentation requires substantially similar elements but does not require fraudulent intent. Because both claims sounded in fraud, Rule 9(b) required Plaintiffs to identify the allegedly false statements, the speaker, when and where they were made, and why they were fraudulent.

Proprietary containers and equipment. Plaintiffs claimed Units represented that its containers and equipment were “proprietary” and “custom-built.” The court found that the Franchise Disclosure Document did not make that representation. Rather, it described Units as operating a “proprietary system” that included branded containers, equipment, operating standards, signage, marketing methods, and business procedures. Because the incorporated document contradicted Plaintiffs’ characterization and Plaintiffs did not explain why the described proprietary system was false, the claim failed.

Long-distance move revenue. Plaintiffs alleged that Units promised at “Discovery Day” that franchisees would receive all delivery revenue from long-distance moves. The court held that the allegations lacked the particularity required by Rule 9(b) because Plaintiffs did not identify when or where the statements were made and did not clarify whether the three Plaintiffs attended the same or separate Discovery Days.

Software functionality. Plaintiffs argued that Units’ statement that its proprietary software had been used since 2005 led them to believe that any future software would be fully functional. The court found no allegation that the actual statement about the software’s historical use was false. It also held that reliance on that statement was unreasonable because the franchise agreements expressly permitted Units to modify its software system and required franchisees to accept and pay for such changes.

Franchise profitability. Plaintiffs alleged that Units misleadingly failed to address declining franchisee profit margins. The court found no actionable false statement, noting that failure to explain a profitability trend did not itself constitute a misrepresentation. Plaintiffs also could not show reliance on information that allegedly became misleading only after they entered their agreements. The court added that any general prediction of future profitability would likely constitute nonactionable opinion, and the agreements’ integration clauses would undermine reliance on representations outside the contracts.

Breach of contract and accounting claims. The court dismissed the contract and accounting claims because Plaintiffs failed to identify contractual obligations that Units breached. Plaintiffs asserted breach-of-contract claims based on Units’ operating software and its use of national advertising funds, along with a separate accounting claim. The parties agreed that South Carolina law governed the contract claims. The court declined to address Units’ contractual limitations defense.

Operating software. Plaintiffs alleged that the franchise agreement required Units to provide an adequate, properly functioning point-of-sale system and related support. The court disagreed. Section 11.5 required franchisees to purchase and use Units’ designated software and pay associated fees, but it did not guarantee any particular level of functionality or support. Other provisions cited by Plaintiffs likewise did not impose additional obligations on Units. Because Plaintiffs failed to identify a contractual promise that Units breached, the software claim was dismissed.

Advertising fund. Plaintiffs alleged that Units improperly used national advertising contributions, including by spending more than half of the 2024 fund on corporate salaries. But the agreement expressly permitted reasonable administrative expenses, including salaries of employees involved in managing the fund or marketing activities. The court found that Plaintiffs did not plead facts making it plausible that the challenged expenditures fell outside those permitted uses.

Plaintiffs also alleged that Units failed to provide the required annual accounting of the advertising fund. Section 10.3.4 required Units to prepare an annual accounting and make a “high-level summary” available to franchisees upon request. Because Plaintiffs acknowledged receiving summary data, and the contract did not require Units to provide the underlying accounting itself, the court found no breach.

Accounting claim. Plaintiffs clarified that their separate accounting count was not an independent equitable claim but instead sought enforcement of Units’ alleged contractual duty to prepare an accounting. Because that theory depended on the same contractual interpretation rejected in connection with the advertising-fund claim, the court dismissed Count VI as well.

Breach of implied covenant of good faith and fair dealing. Because Plaintiffs pleaded separate breach-of-contract claims and an independent implied-covenant claim, the court dismissed Count V. Plaintiffs alleged that Units breached the implied covenant of good faith and fair dealing in connection with its operating software, advertising fund, and approval or rejection of vendors. Units argued that South Carolina law does not recognize the implied covenant as an independent cause of action.

The court agreed. Under South Carolina law, the implied covenant is part of a contract claim, not a separate cause of action. Though Plaintiffs relied on King v. Carolina First Bank, 26 F. Supp. 3d 510, 518 (D.S.C. 2014), the court distinguished that case because the plaintiffs there asserted the implied-covenant theory within a breach-of-contract claim rather than as a standalone count.

Michigan Franchise Investment Law. The court held that Plaintiffs had not adequately pleaded a breach of the Michigan Franchise Investment Law. Plaintiffs alleged that Units violated this statute by making or omitting material statements concerning four subjects: its purported “proprietary system,” franchise profitability, use of advertising-fund contributions, and financial relationships with vendors.

Proprietary system, profitability, and advertising fund. The court rejected these theories largely for the same reasons it dismissed the corresponding misrepresentation and contract claims. Plaintiffs did not identify a false or misleading statement about proprietary equipment or profitability, and they did not plausibly allege that Units used advertising funds in a manner prohibited by the franchise agreements.

Vendor relationships. Plaintiffs also alleged that Units failed to disclose the financial terms and benefits it received from approved vendors and that franchisees were required to purchase non-proprietary goods and services at inflated prices. The court found that Plaintiffs did not allege that this omission rendered any other statement misleading, as required by the statute. The franchise agreement merely permitted purchases from third-party providers “if available” and did not promise that such alternatives would exist. The court therefore concluded that Plaintiffs could not show actionable reliance on the alleged omission and dismissed the Michigan Franchise Investment Law claim.

Leave to amend. The court granted the motion to dismiss because the claims either failed to state a claim or did not satisfy Rule 9(b)’s heightened pleading standard. The dismissal was without prejudice because the deficiencies were pleading defects. The court also granted Plaintiffs leave to amend under Rule 15, concluding that an amended complaint could potentially cure the deficiencies.

The Case is No. 2:25-cv-13577-SJM-DRG.

Judge: Murphy, S.

Attorneys: Himanshu M. Patel (Zarco Einhorn Salkowski & Brito, PA) for Scurryfunge Inc. Andrew Krieber (Gordon Rees Scully Mansukhani, LLP) for UNITS Franchising Group, Inc.

Companies: Scurryfunge Inc.; UNITS Franchising Group, Inc.

Cases: FranchisingDistribution MichiganNews