Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Pa.: Mixed decision on dismissal in spray insulation franchise dispute as court permits limited fraud claims, (Jul 10, 2025)

By Seth Abrams, J.D., M.A.

Court also denied a motion to dismiss breach of contract and implied covenant of good faith and fair dealing claims against franchisor.

The federal district court in Philadelphia denied in part and granted in part defendants HPB Foam LLC (“HPB Foam”), JEZ Investments LLC, Horsepower Nation LLC, SVHB Marketing LLC d/b/a Horsepower Brands, HPB Foam Holdings LLC, Joshua Skolnick, Zachary Beutler, and Anthony Hulbert’s motion to dismiss claims brought by plaintiffs Werner Schaefer, Leah Shaefer, and Shepard International Innovations (“S3I”). The court held that: (1) the Texas Deceptive Trade Practices Act (“DTPA”) did not apply due to the transaction size; (2) the Pennsylvania Unfair Trade Practices & Consumer Protection Law (“UTPCPL”) did not apply to business purchases; (3) while claims against several entities and individuals should be dismissed, plaintiffs had adequately pleaded fraud and negligent misrepresentation as to HPB Foam based on alleged misstatements in the Franchise Disclosure Document (“FDD”); and (4) a release only applied to claims that had accrued or could have reasonably been discovered. (Schaefer v. HPB Foam LLC, No. 2:24-cv-06298-HB (E.D. Pa. July 8, 2025)).

Background. The dispute arose out of a franchisor-franchisee relationship between the plaintiffs and HPB Foam. Plaintiffs entered into five franchise agreements with HBP Foam in March 2023 to operate iFoam, a spray insulation product and services company for residential and commercial customers, in the Houston, Texas area. iFoam is owned by HBP Foam. These agreements followed a series of promotional discussions, videos, and presentations by HPB Foam. They were informed that the business was semi-absentee, turnkey, and suitable for individuals without construction experience. HPB Foam provided the plaintiffs with the FDD, which allegedly contained material misstatements in three separate provisions. After operating for over a year, plaintiffs closed its iFoam business in September 2024, allegedly due to HPB Foam’s “contractual breaches and unfair dealings.”

Plaintiffs brought claims under the DTPA and the UTPCPL. They also asserted common law claims of fraud and negligent misrepresentation. Finally, S3I asserts that HPB Foam breached the franchise agreements at issue and the implied covenants of good faith and fair dealing.

DTPA. The court found that the DTPA did not apply to the transaction due to an exemption in Section 17.49(g), which excludes transactions over $500,000. When considering required payments over the term of the agreements, the former franchisee had committed to over $2.2 million in payments. Because this was more than the statutory limit, the claim under the DTPA was dismissed by the court.

UTPCPL. The court found that the UTPCPL did not apply to the transaction at issue because the statute protects consumers who purchase goods or services “primarily for personal, family, or household purposes.” The court rejected the argument that the purchase was personal because the plaintiffs sought to “provide long-term stability and security for their family and provide structured and manageable work-life balance.” It reasoned that the purchase of five commercial franchise units could not be characterized as personal or household in nature.

Fraud and misrepresentation claims. Plaintiffs agreed in Section 23.4 of the Franchise Agreements that “the representatives and agents of HPB Foam LLC would not be personally liable to them for any reason.” As a result, the court dismissed the fraud and negligent misrepresentation claims against the named executives. JEZ Investments LLC, Horsepower Nation LLC, SVHB Marketing LLC, and HPB Foam Holdings, LLC also had the claims against them dismissed. There is “nothing pleaded as to these defendants’ participation in any misrepresentations.” As to HPB Foam, the court dismissed claims to the extent that plaintiffs’ claims rely on misrepresentations made outside of the FDD and the Franchise Agreements. However, it permitted the claims to the extent that they are contained within the relevant parts of these agreements.

General release upon transfer of ownership. In March 2023, the Schaefers transferred ownership to S3I and signed a general release. The court found that this release waived all known and unknown claims that were reasonably discoverable by the date of the transfer. It, however, did not block unaccrued claims that were not yet discovered or knowable.

Breach of contract claims/attorney fees. The court permitted the breach of contract claims to go forward. The allegations in the complaint were sufficient for breach of contract and breach of the implied covenant of good faith. Finally, a request for attorneys’ fees was deemed premature and denied without prejudice.

The Case is No. 2:24-cv-06298-HB.

Judge: Bartle, H.

Attorneys: James Lewis Griffith, Jr. (Reger Rizzo Darnall LLP) for Werner Schaefer. Christopher B. Alexander (Fisher Zucker LLC) for HPB Foam LLC.

Companies: HPB Foam LLC

Cases: FranchisingDistribution PennsylvaniaNews