Summary
finding that plaintiff had standing to bring a claim under the FDUTPA because it was in the process of purchasing a franchise from the defendant, not goods or services
Summary of this case from In re Maxxim Medical Group, Inc.Opinion
Case Number: 03-61933-CIV-MARTINEZ-KLEIN.
December 6, 2004
REPORT AND RECOMMENDATION THAT DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT BE GRANTED AS TO COUNTS I AND II AND DENIED AS TO COUNT III
This matter is before the Court upon Defendant Motiva Enterprises, LLC's ("Defendant") Motion to Dismiss Amended Complaint (D.E. No. 41); Plaintiff S B Investments, L.L.C.'s ("Plaintiff") Memorandum in Opposition to Defendant's motion to dismiss (D.E. No. 62); Defendant's Reply thereto (D.E. No. 70); Defendant's Notice of Filing Supplemental Authority (D.E. No. 73); Plaintiff's Response to the Notice of Filing Supplemental Authority (D.E. No. 74); Plaintiff's Notice of Filing Discovery Documents for Consideration with Defendant's Motion to Dismiss (D.E. No. 57); Defendant's Motion to Strike the Notice of Filing Discovery Documents (D.E. No. 69); Plaintiff's Opposition thereto (D.E. No. 71); and Defendant's Reply thereto (D.E. No. 72). Based on a review of the file and written arguments of counsel, the undersigned Magistrate Judge reports and recommends that Defendant's Motion to Dismiss Amended Complaint be GRANTED in part, and that Counts I and II of the Amended Complaint be DISMISSED, for the reasons set forth below.
This matter was referred to the undersigned for submission of proposed findings of fact and recommendation for disposition pursuant to 28 U.S.C. § 636(b)(1) and the Magistrate Rules of the Local Rules of the Southern District of Florida. (D.E. No. 67.)
FACTUAL BACKGROUND
This is an action that arises out of a franchise relationship established under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801, et seq. The PMPA permits petroleum suppliers and prospective franchisers to enter into a trial franchise for up to one year as a method of testing the relationship. At the conclusion of the trial term, the franchisor may elect not to renew the franchise relationship provided it gives proper notification. 15 U.S.C. §§ 2803(c)(1) and 2804.
Plaintiff operated and leased a gasoline station under various agreements with Defendant. The Amended Complaint alleges that Plaintiff was induced into signing a Trial Retail Franchise Agreement ("Trial Lease") and into purchasing the prior franchisee's goodwill by various representations made by Defendant, all of which were false. See Amended Complaint ("Compl."), ¶¶ 8-13. They consisted of statements that if Plaintiff did a good job, it would receive a three-year franchise; that Plaintiff could replace the inoperable car wash to make the station profitable; and that Defendant intended to enter into a long-term relationship with Plaintiff. See Compl., ¶¶ 22, 30, 40. Plaintiff also alleges that Defendant failed to disclose numerous facts relating to prior performance by prior franchisees at that same location; that Defendant had targeted the station for closure under a strategic plan designed to eliminate low-volume, low-profit stations; and that placing a car wash at the location would not likely change Defendant's decision to continue the lease. Id.
Plaintiff did not attach a copy of this agreement to its Amended Complaint, however, Defendant provided a copy with its motion to dismiss. See Defendant's Motion to Dismiss Amended Complaint ("Def's Mot. Dism."), Ex. A. The Court notes that the correct title of the agreement is "Trial Retail Facility Lease." Defendant also provided a copy of another relevant agreement between the parties, the Trial Retail Sales Agreement ("Sales Agreement"). Id. Although Plaintiff did not attach copies of these agreements to the Amended Complaint, the Court may consider them without converting Defendant's Motion to Dismiss into a motion for summary judgment. Brooks v. Blue Cross and Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997);Flamenbaum v. Orient Lines, Inc., 2004 WL 1773207, *4 (S.D. Fla. July 20, 2004); Jackson v. BellSouth Telecomms., Inc., 181 F.Supp.2d 1345, 1353-54 (S.D. Fla. 2001).
The Amended Complaint also alleges that Defendant breached the Trial Retail Sales Agreement ("Sales Agreement") and Trial Lease by directing Plaintiff's conduct with respect to the car wash and otherwise preventing Plaintiff from pursuing its business plan as approved by Defendant. See Compl., ¶¶ 9, 46, 49. These acts, Plaintiff alleges, were in contravention of Paragraph 25 of the Sales Agreement, which restricted Defendant from any right to control and direct operation of Plaintiff's business. See Compl., ¶¶ 47-48.
The Amended Complaint seeks relief in four counts. Count I is for common law fraud. Count II is for negligent misrepresentation. Count III alleges Defendant violated the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"). Count IV is for breach of the Sales Agreement.
Defendant moved to dismiss the first three counts of the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Its motion raises four separate defenses to the fraud claims: (1) absence of duty of Defendant to disclose matters alleged by Plaintiff; (2) Plaintiff's claims are barred by the economic loss doctrine; (3) Plaintiff's claims are barred by the merger doctrine; and (4) Plaintiff's claims are barred by the parol evidence rule. Defendant also maintains that Plaintiff failed to state a claim under FDUTPA. For the reasons stated below, Defendant's motion to dismiss Counts I and II should be granted, and denied as to Count III.
LEGAL STANDARD
A motion to dismiss will be granted where it is "clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984). For purposes of a motion to dismiss, the complaint must be construed in the light most favorable to the plaintiff, and all facts alleged therein are accepted as true. Id. It is well-established that a complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the Plaintiff can prove no set of facts" entitling him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
DISCUSSION
A. Duty of Disclosure
Defendant's first point is that since it was entering into an arms-length business relationship with a prospective franchisee, it had no fiduciary relationship with Plaintiff, and therefore had no pre-contractual duty to disclose the items which form the basis of Plaintiff's fraud and negligent representation claims contained in Counts I and II. It relies primarily on two cases,Reyes v. Atlantic Richfield Co., 12 F.3d 1464 (9th Cir. 1993), and Barnes v. Burger King Corp., 932 F.Supp. 1420 (S.D. Fla. 1996), for these propositions. This Court agrees that no fiduciary relationship existed between the parties, thus eliminating any general free-floating pre-contractual duty to disclose.
Plaintiff claims Defendant's cases are inapposite, since they only deal with a franchisor who has chosen to say nothing on particular issues at the pre-contract stage. But, Plaintiff argues, once Defendant chose to speak, it had to be truthful and forthcoming. Indeed, the Reyes court, relied on by Defendant, stated:
If ARCO was not silent, but instead made representations about the store's potential profitability based on past performance, ARCO would then have a duty to disclose [former franchisee] Attiyeh's poor bookkeeping regardless of whether a confidential or fiduciary relationship existed between ARCO and the appellants.12 F.3d at 1472. Plaintiff has cited other cases to similar effect, for example, Moldofsky v. Stregack, 449 So.2d 918 (Fla. 3d DCA 1984), and Vokes v. Arthur Murray, Inc., 212 So.2d 906 (Fla. 2d DCA 1968). See also Restatement (Second) of Torts § 551(2)(a) (1977).
Plaintiff correctly states that a party can stay silent, but it cannot lie or tell a half-truth. Plaintiff has alleged that Defendant's agent represented to it that the station was a good one, and was only unprofitable because of the current operator; with a new car wash and a good operator the station would become very profitable; Defendant was "thrilled" to have Plaintiff's principals as operators; Defendant's long-term strategy was to have as many stations as possible selling gasoline; and Defendant intended to enter into a long-term relationship with Plaintiff, and would follow the trial period with a three-year franchise.
Taking Plaintiff's allegations as true, as is required at this stage of the proceedings, Defendant's statements are at best half-truths. Given the subsequent averments that in fact Defendant intended to close this station and consolidate operations into fewer, more profitable stations, and adding a new car wash would have no effect on Defendant's pre-ordained decision, Plaintiff has adequately pled sufficient facts to invoke the concept that Defendant undertook to make certain representations and failed to fulfill its legal obligation to make them completely and truthfully. Accordingly, Defendant's motion to dismiss should be denied on this ground.
B. The Economic Loss Doctrine
Besides Plaintiff's PMPA contract claim, it is also suing in tort on various grounds described above. Defendant maintains these claims are barred under the economic loss rule. That doctrine operates to bar tort claims when contract principles are more appropriate than tort principles to resolve purely economic claims. Eye Care Int'l, Inc. v. Underhill, 92 F.Supp 2d 1310, 1314 (M.D. Fla. 2000). That does not mean the end of all tort claims when there is a contract involved. If the tort is independent of the contract claim, it will not be barred by the economic loss rule. HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238, 1239 (Fla. 1996). A claim for fraudulent inducement which requires proof of facts separate and distinct from the breach is not barred. Moransais v. Heathman, 744 So.2d 973 (Fla. 1999).
The Court must look at the facts alleged and the relief sought to see if the fraudulent inducement claims are extraneous to the breach of contract or so closely interwoven with the breach to determine whether the economic loss rule bars the pleading of a separate tort claim. Eclipse Medical, Inc. v. American Hydro-Surgical Instruments, Inc., 262 F.Supp.2d 1334, 1354-55 (S.D. Fla. 1999); Leisure Founders, Inc. v. CUC Int'l, Inc., 833 F.Supp. 1562, 1572-73 (S.D. Fla. 1993). The best way to give life to this abstraction is to see whether the misrepresentations relate to the Defendant's failure to perform the contract. If they do, then Plaintiff cannot maintain an independent tort. If they relate to promises made to induce the other party to enter into the contract, the tort claim is not barred. Hotels of Key Largo, Inc. v. RHI Hotels, Inc., 694 So.2d 74, 76-77 (Fla. 3d DCA 1997). The court in Allen v. The Stephan Co., 784 So.2d 456 (Fla. 4th DCA 2000), aptly stated and illustrated this principle:
The law is well established that the economic loss rule does not bar tort actions based on fraudulent inducement and negligent misrepresentation. If the fraud occurs in connection with misrepresentations, statements or omissions which cause the complaining party to enter into a transaction, then such fraud is fraud in the inducement and survives as an independent tort. However, where the fraud complained of relates to the performance of the contract, the economic loss doctrine will limit the parties to their contractual remedies.
* * * *
To determine whether the economic loss rule bars recovery under fraud, the question is simply this: is the fraud alleged in an act of performance or in a term of the bargain? Where, as here, the representation is simply made and relied upon in inducing the completion of the transaction, then clearly it is a term of the bargain. Nothing further was required of the Allens in connection with this contract term after they made the representation that all SRP's taxes had been paid. If, however, the misrepresentation had been in connection with the seller's performance — such as the ability to provide increased reservations and better hotel management services in Hotels of Key Largo, which required continuing action on the part of the seller, then the fraud is in the performance and the economic loss rule bars recovery sounding in tort.784 So.2d at 457-58 (citations omitted).
Employing the foregoing principles, it is clear that the fraud claims here are unrelated to the alleged breach of performance of the contract. The tort claims are that Defendant promised Plaintiff a long-term franchise following expiration of the one-year trial agreement, and failed to disclose that it intended all along to shut down this station because it was unprofitable and did not fit into Defendant's strategic plan. These claims have nothing to do with performance of the contract itself. The alleged breach of contract, i.e., the performance issues, consist of claims that Defendant prevented Plaintiff from constructing a new car wash and otherwise prevented Plaintiff from pursuing its own business plan. These are clearly separate spheres of conduct, and thus, the tort claims are not barred by the economic loss rule. Accordingly, the Court recommends denial of Defendant's motion to dismiss on this ground.
The only tangential point that arguably interweaves the tort claim and the breach of contract claim is the promise to allow Plaintiff to build a new car wash. However, the car wash is a relatively minor point among Plaintiff's claimed misrepresentations, and can be effectively excised from the list of Plaintiff's claims without significant impact on the ruling herein. To the extent the car wash promise relates to performance of the contract, it would be barred by the economic loss doctrine. In any event, its inclusion becomes irrelevant in view of the Court's recommendations in the next section.
C. The Merger Doctrine
Defendant maintains that the gravamen of Plaintiff's claimed misrepresentations were dealt with and specifically negated in the Trial Lease, and therefore Plaintiff's tort claims are barred by the merger doctrine. That doctrine precludes reliance on a prior representation if the subject matter of the representation is adequately covered in the subsequent agreement entered into by the parties. Schubot v. McDonalds Corp., 757 F.Supp. 1351, 1358 (S.D. Fla. 1990). There are numerous cases which so hold:Flamenbaum, supra; Rosa v. Amoco Oil Co., 262 F.Supp.2d 1364 (S.D. Fla. 2003); Eclipse Med., supra; Excess Risk Underwriters, Inc. v. Lafayette Life Ins. Co., 208 F.Supp.2d 1310 (S.D.Fla. 2002); Barnes, supra; Bates v. Rosique, 777 So.2d 980 (Fla. 3d DCA 2001); and Hillcrest Pacific Corp. v. Yamamura, 727 So.2d 1053 (Fla. 4th DCA 1999). Some of the foregoing cases couch the principle as a branch of the economic loss rule, while others formulate it in terms of holding it to be unreasonable for a party to rely on prior representations when the subject matter is covered in the agreement and is expressed contrary to the representation. Regardless of how the issue is framed, i.e., economic loss rule, merger, integration, reasonableness of reliance, the rule is still the same: a fraud action may not be maintained based on the subject matter of a prior representation if it is covered in the subsequent agreement entered into by the parties.
Plaintiff attempts to avoid the impact of this rule by advancing the principle that if a party alleges a contract was procured by fraud or misrepresentation as to a material fact, an integration or merger clause will not make the contract incontestible. It cites several cases for this proposition. First, it relies on Golden v. Mobil Oil Corp., 882 F.2d 490 (11th Cir. 1989), for the point that a pre-contract promise of a "long term relationship" to induce a franchisee to sign a franchise agreement was sufficient to support a claim for fraud in the inducement. Next, it cites Meterlogic, Inc. v. Copier Solutions, Inc., 126 F.Supp.2d 1346 (S.D.Fla. 2000), Mejia v. Jurich, 781 So.2d 1175 (Fla. 3d DCA 2001), Noack v. Blue Cross and Blue Shield of Fla., Inc. 742 So.2d 433 (Fla. 1st DCA 1999), and Bird Lakes Dev. Corp. v. Meruelo, 626 So.2d 234 (Fla. 3d DCA 1993), for the proposition that
[t]he existence of a merger or integration clause, which purports to make oral agreements not incorporated into the written contract unenforceable, does not affect oral representations which are alleged to have fraudulently induced a person to enter into the agreement.Mejia, 781 So.2d at 1178. However, all those cases, and their progeny on which they rely, have one crucial distinguishing characteristic: none of them involved contracts which specifically covered the subject matter of the alleged false representation. Instead, these cases focused on apparent boilerplate integration clauses, which in essence merely recited that the signed document embodied the entire agreement of the parties, and that there were no other agreements or understandings between the parties.
By contrast, the Trial Lease here makes specific reference to the term of the lease and the conditions of renewal or non-renewal. The Lease provides in relevant part:
This Lease constitutes a trial franchise under the Petroleum Marketing Practices Act ("PMPA"). The term of this lease and trial franchise is for a period of not more than one year. Lessor may not renew the franchise relationship at the end of the term by notifying lessee in accordance with the provisions of § 2804 of the PMPA.See Def's Mot. Dism, Ex. A. This provision specifically deals with and informs the franchisee that it is a trial for one year, and that the franchise is subject to non-renewal by a simple notification procedure under the PMPA. Given this express notice to Plaintiff, it was unreasonable for it to rely on prior representations which are inconsistent with and expressly contradicted by the later written contract. Barnes, supra at 1427. The Agreement also contains an integration clause, and while under Flamenbaum, supra, and Hazara Enters., Inc. v. Motive Enterprises LLC, 126 F.Supp.2d 1365 (S.D. Fla. 2000), that fact is relevant, it is not nearly as important as the fact that the alleged misrepresentations are later explicitly covered by unambiguous provisions in the written contract. Thus, the Court concludes that Plaintiff's claims for fraud and negligent misrepresentation are barred by the merger doctrine, and accordingly recommends that Defendant's motion to dismiss Counts I and II be granted.
In addition, all parties are put on notice that a trial franchise under the PMPA is just that. It may be terminated at its conclusion with no continuing obligation by the franchisor. That is one of the primary objectives of the PMPA, and to allow a franchisee to maintain a fraud action based on an alleged promise of a long-term franchise when it is told otherwise in the written agreement would substantially undercut the reasons for the PMPA.Golden, supra, is not to the contrary, since it did not involve a trial franchise, and the promises did not contradict express provisions of the written agreement.
D. Parol Evidence
Although there are cases such as Hazara, supra, which exclude fraudulent representations such as those here if they contradict express provisions of a written agreement, it is unnecessary to reach this point because of the prior rulings. However, the Court does note that the earlier representations are specifically contradicted by the later written instrument.
E. FDUTPA
Defendant also moves to dismiss Count III which alleges that Defendant engaged in deceptive and unfair trade practices in violation of Fla. Stat. § 501.204(1). Initially, Defendant contends that Plaintiff lacks standing to bring suit under FDUTPA because, in the context of their business dealings, Plaintiff was not an unwary consumer but rather a sophisticated retailer, and as such, does not meet the definition of a "consumer" entitled to sue under the Act. As Plaintiff has pointed out, FDUTPA was substantially revised in 1993 and the Act now protects both individual consumers and "legitimate business enterprises" from deceptive and unfair trade practices. Tampa Bay Storm, Inc. v. Arena Football League, Inc., 1998 WL 182418, *7 (M.D. Fla. Mar. 19, 1998); Fla. Stat. §§ 501.202(2) 501.203(7) (2003). Since the statute was amended, courts have interpreted "consumer" to mean one engaged in the purchase of goods or services. See e.g., Burger King Corp. v. Ashland Equities, Inc., 161 F.Supp.2d 1331, 1338 (S.D. Fla. 2001) (plaintiffs who owned and operated several restaurants pursuant to franchise agreements with defendant and who claimed that defendant interfered with the sale of the franchised restaurants to a third party were in the process of selling, not buying, the restaurants, and thus were not "consumers" under FDUTPA); N.G.L. Travel Assoc. v. Celebrity Cruises, Inc., 764 So.2d 672, 674 (Fla. 3d DCA 2000) (travel agencies which provided services to cruise lines, rather than purchased services from them, were not "consumers" entitled to protection under FDUTPA). In this instance, Plaintiff purchased a franchise from Defendant and is considered a "consumer" under the Act. Accordingly, Plaintiff has standing to pursue a claim under FDUTPA.
In addition, Defendant argues that Plaintiff has failed to state a claim under FDUTPA. Defendant claims that Plaintiff must, but has not and cannot, plead and prove that it was actually aggrieved by any unfair and deceptive acts of Defendant; has failed to identify which specific representations rise to the level of unfair or deceptive trade practices; has not shown it was aware of any specific deceptive or unfair trade practices act committed by Defendant at the time the parties entered into their agreement; and has not shown that Defendant's alleged conduct deceived Plaintiff into executing a trial agreement for a one-year term.
To defeat this motion to dismiss, Plaintiff need only allege sufficient facts to show it was actually aggrieved by the unfair or deceptive act committed by Defendant in the course of trade or commerce. Tuckish v. Pompano Motor Co., 337 F.Supp.2d 1313, 1320 (S.D. Fla. 2004); In re Crown Auto Dealerships, Inc., 187 B.R. 1009, 1018 (M.D. Fla. 1995). The Court finds that Plaintiff has set forth sufficient facts in its Amended Complaint to maintain a FDUTPA claim. As recited earlier in this opinion, Plaintiff alleges that Defendant made several misrepresentations including: if Plaintiff did a good job it would be given a three-year franchise after the trial period; it could replace the inoperable car wash; and Defendant intended to enter into a long-term relationship with it. See Compl., ¶ 40. Plaintiff also asserts Defendant failed to disclose its long-term plans for the station. Id. These misrepresentations and omissions "deceived [Plaintiff] into entering into the Trial Franchise, expending funds to purchase the business and to attempt to make the business run." Id., ¶¶ 40, 42. Plaintiff further alleges it would not have purchased the station "but for [Defendant's] commitment to allow it to improve the station and the commitment to have a long-term relationship." Id., ¶ 12. These allegations state that Defendant engaged in unfair and deceptive acts, and that Plaintiff was actually aggrieved by these acts. Cf. Macias v. HBC of Fla., Inc., 694 So.2d 88, 90 (Fla. 3d DCA 1997) (radio listener sued radio station under FDUTPA after station prematurely terminated contest prior to awarding all of the advertised prize money; listener suffered only speculative losses as a result of missed opportunities and was not an "aggrieved party" under Act). Accordingly, the Court recommends that the motion to dismiss Count III on the grounds raised by Defendant be denied.
The Court will not entertain dismissal on grounds not raised by Defendant. To the extent that the economic loss or merger doctrines would also bar the FDUTPA claim, Defendant did not raise these grounds and, therefore, the Court will not consider them at this juncture. That is not to say these issues could not be raised at a later stage in the proceedings, which may also dispose of Count III as well.
CONCLUSION
Based upon a review of the record as a whole, the undersigned Magistrate Judge does hereby RECOMMEND that1) Defendant's Motion to Dismiss Amended Complaint (D.E. No. 41) be GRANTED in part and that Counts I and II be DISMISSED, and that the Motion be DENIED as to Count III.
The undersigned Magistrate Judge FURTHER ORDERS that
2) Defendant's Motion to Strike Plaintiff's Notice of Filing Discovery Documents for Consideration with Defendant's Motion to Dismiss (D.E. No. 69) is DENIED as moot; and
3) Plaintiff's Motion for Oral Argument on Motion to Dismiss Amended Complaint (D.E. No. 58) is DENIED.
DONE AND SUBMITTED.