Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Fla.: Principals not individually liable for violations of franchise, business opportunity, unfair trade practices laws, (Sep 17, 2013)

By John W. Arden, J.D., LL.M.

Principals of a provider of home and business security and electronics systems were not individually liable for alleged violations of the Florida Franchise Act, Florida Sales of Business Opportunities Act, or the Florida Deceptive and Unfair Trade Practices Act, according to the federal district court in Miami (SIG, Inc. v. AT&T Digital Life, Inc., September 12, 2013, Rosenbaum, R.). However, the corporate provider (Xanboo, Inc.) and its successor (AT&T Teleholdings, Inc.) could be held liable for the Florida statutory claims brought by a terminated authorized dealer.

The two plaintiff dealers failed to adequately plead that the principals made intentional presale misrepresentations in violation of the Franchise Act, that the principals were personally involved in the provider’s failure to disclose terms of termination or to deliver presale disclosure documents in violation of the Business Opportunities Act, or that the principals failed to provide FTC franchise disclosure documents in violation of the Deceptive and Unfair Trade Practices Act. Therefore, the Florida statutory claims, unjust enrichment claims, contract and quasi contract claims, negligent misrepresentation claims, and tortious interference claims against the principals were dismissed.

While the unjust enrichment claims, negligent misrepresentation claims, and tortious interference claims against AT&T were also dismissed, the breach of contract, breach of implied contract, promissory estoppel, and Florida statutory claims against the corporate defendants were allowed to proceed.

Background. SIG, Inc. is a distributor and installer of home and business electronic systems, including home security and broadband products and services, doing business under the name ViSonic Systems. It participated in a “Dealership Feasibility Study” and contacted Xanboo about becoming a dealer of its security and energy management products and services. Xanboo responded by sending ViSonic an email describing a “Xanboo Dealership Special Offer,” representing that ViSonic could become an authorized dealer by purchasing an “Enhanced Security Starter Kit WiFi Upgrade” for $299. ViSonic accepted the offer and placed its first order on August 13, 2010.

AT&T Teleholdings acquired Xanboo sometime after December 3, 2010. Prior to the purchase Xanboo did not disclose that it was considering a possible sale of stock or assets to AT&T Teleholdings. On December 7, 2010, ViSonic received an email relating that “AT&T had bought this company after having invested in it in 2006.” The email noted that William Diamond, co-founder and president of Xanboo, was excited and that “from the small dealer perspective, it would only get better.”

On March 3, 2011, an attorney for AT&T sent a certified letter to ViSonic Systems, indicating that AT&T had acquired Xanboo, that AT&T intended to modify or eliminate Xanboo products and services, and that ViSonic’s agreement would be terminated on July 5, 2011.

ViSonic contended that it was a “franchisee” and that Xanboo and its principals were required to comply with the FTC franchise disclosure rule but that they never provided a written disclosure document in either the FTC disclosure format or the Uniform Franchise Offering Circular.

On October 22, 2012, ViSonic filed a ten-count complaint against AT&T Digital Life (f/k/a, Xanboo, Inc.), AT&T Teleholdings, and the principals of Xanboo. The complaint alleged breach of contract, breach of the duty of good faith and fair dealing, breach of an implied-in-fact contract, unjust enrichment, promissory estoppel, violation of the Florida Franchise Act, violation of the Florida Sale of Business Opportunity Act, violation of the Florida Deceptive and Unfair Trade Practices Law, negligent misrepresentation, and tortious interference with a business relationship. The defendants made a motion to dismiss all claims.

Breach of contract. The AT&T defendants sought dismissal of all contract-related claims and statutory claims on the basis that the only contractual relationship between the parties was governed by a “click through” agreement executed by ViSonic on Xanboo’s website. AT&T maintained that the termination clause of the click through agreement precluded the breach of contract claims. And that the termination and merger clauses in the agreement thwarted ViSonic’s quasi-contract and equitable claims.

The court found that the complaint did not mention the click through agreement but alleged that ViSonic received Xanboo’s offer by email and accepted it through an email indicating it wanted to become a Xanboo dealer and by placing an order for the starter kit. Thus, the click through agreement was not at issue. Accordingly, there were genuine issues about the contract and its terms that precluded dismissal of the claims at this stage.

Unjust enrichment. AT&T argued that the unjust enrichment claim had to fail because the plaintiffs did not allege that AT&T was enriched at their expense. The allegations that ViSonic invested time, money, and effort in marketing, selling, installing, and servicing Xanboo products—only to be unilaterally terminated—did not state an unjust enrichment claim. The incidental benefits provided by plaintiffs as dealers could not support an unjust enrichment claim as a matter of law.

Contract, quasi-contract claims against principals. The individual defendants asserted that they could not be held liable based solely on their status as officers of the corporation. They claim that plaintiffs only alleged claims against the business entity, Xanboo, and not against the individual principals. The plaintiffs countered that individual liability of corporate officers is a factual issue, that the claims were sufficiently pled to entitle them to discovery, and that the principals were on notice of the claims against them.

The court observed that a corporate officer is not liable for a corporation’s contracts unless he or she signed on an individual basis, unless the corporate veil was pierced, or where the corporation was merely an alter ego of the owner. According to the complaint, the dealership contract was between Xanboo and the plaintiffs. There was no suggestion that the principals entered the contract as individuals. Thus, the breach of contract claims were dismissed.

The breach of good faith and fair dealing claims failed against the principals in absence of an express contractual obligation on their part. The unjust enrichment claims failed because the plaintiffs had not set for the benefits that were directly conferred on the principals.

Florida Franchise Act claims. In support of Franchise Act claims, the dealers alleged that the principals had misrepresented the prospects of success or the dealership. The principals moved to dismiss the claim on the ground that the plaintiffs failed to identify any intentional misrepresentations made by any of the individuals. Under the law, a franchisor’s corporate officer may not be held individually liable unless he or she “personally participated in the fraud.” In this instance, the complaint was completely devoid of any facts regarding the principals’ personal participation “in anything, let alone any intentional misrepresentation as to the continued success of the Xanboo dealerships.” Thus, the Franchise Act claims against the principals were dismissed.

Florida Sale of Business Opportunities Act. Claims that the principals violated the Florida business opportunity law failed for the same reason as the Franchise Act claims—that the dealers failed to allege a plausible basis for attributing liability to the principals on an individual basis. The complaint contained no factual allegation regarding the personal participation of the principals in any action with regard to the dealership. Thus, the business opportunity law claims against the principals were dismissed.

Florida Deceptive and Unfair Trade Practices Act. The deceptive and unfair trade practices claims were based on the defendants’ failure to adhere to the FTC franchise disclosure rule, their misrepresentations about the duration of the dealership, their nondisclosure of the termination terms, and their alleged violations of the Florida franchise and business opportunity laws. The court found that a claim under the Florida Deceptive and Unfair Trade Practices Act requires allegations that an individual was “a direct participant in the improper dealings.” In this case, the claims were unsuccessful because they stated only in a conclusory fashion that the principals “participated directly in the violations.”

To the extent that the dealers believed they could amend the contract and statutory claims to state sufficient factual matter to support their claims, the district court gave them 14 days to do so.

This case is No. 12-62080-CIV-ROSENBAUM/SELTZER.

Attorneys: Barry R. Eichen (Eichen, Crutchlow, Zaslow & McElroy) for SIG, Inc. Audra A. Dial (Kilpatrick, Townsend & Stockton, LLP) for AT&T Digital Life, Inc.

Companies: SIG, Inc.; ViSonic Systems; AT&T Digital Life, Inc.; AT&T Teleholdings, Inc.

Cases: FranchisingDistribution StateUnfairTradePractices FloridaNews