AFC Franchising LLC v. Fabbro
Filing
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MEMORANDUM OPINION and ORDER: Fabbro's #24 MOTION to Dismiss is DENIED; Fabbro is ORDERED to file her answer to the complaint by December 20, 2019; and the parties are DIRECTED to submit by December 31, 2019 a Rule 26 report that sets a discovery cutoff of March 30, 2020; This case is SET for a pretrial conference on June 4, 2020 at 1:30 p.m., and a bench trial on July 13, 2020 at 9 a.m.,both at the Hugo Black Courthouse in Birmingham. Signed by Judge Abdul K Kallon on 12/6/2019. (KAM)
FILED
2019 Dec-06 PM 03:07
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
AFC FRANCHISING, LLC,
Plaintiff,
v.
LAURA FABBRO,
Defendant.
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Case No.: 2:18-cv-00743-AKK
MEMORANDUM OPINION AND ORDER
Laura Fabbro operates an urgent care franchise on behalf of AFC Franchising,
and is purportedly in breach of the franchise agreement for refusing to use the
franchise name.
Doc. 1.
AFC Franchising filed this lawsuit to enforce the
agreement. Id. Presently before the court is Fabbro’s motion to dismiss the case,
arguing that AFC waited too late to file.1 Doc. 24. Although AFC Franchising filed
the claim within the relevant statute of limitations, the current motion centers on
whether it filed this lawsuit within the abbreviated period provided for in the
franchise agreement. More specifically, the issue is choice of law: Maryland law,
which the parties agreed would govern the contract, would honor the contract’s
1
Fabbro previously moved to dismiss the case for failure to state a claim, or alternatively
to transfer the case to New Jersey. Doc. 7. The court denied these motions. Doc. 23.
1
abbreviated period, but Alabama law, the law of the forum, would not. For the
reasons stated below, the motion to dismiss is due to be denied.
I.
JURISDICTION
The amount in controversy exceeds $75,000, and the parties are completely
diverse, as AFC Franchising is a citizen of Alabama and Fabbro is a citizen of New
Jersey. Doc. 1 at 1; see also Docs. 20, 21-1. Consequently, diversity jurisdiction
exists because “the matter in controversy exceeds the sum or value of $75,000” and
is between “citizens of different States.”
28 U.S.C. § 1332(a)(1); see
also Underwriters at Lloyd's, London v. Osting-Schwinn, 613 F.3d 1079, 1085 (11th
Cir. 2010).
II.
STANDARD OF REVIEW
A complaint must contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A defendant may move
to dismiss a complaint that fails “to state a claim upon which relief can be granted.”
Fed. R. Civ. P. 12(b)(6). “To survive a motion to dismiss,” and to meet the pleading
requirements of Rule 8(a)(2), “a complaint must contain sufficient factual matter,
accepted as true, to state a claim that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citation omitted). A “complaint does not need detailed factual
allegations, but the allegations must be enough to raise a right to relief above the
speculative level.” Speaker v. U.S. Dep’t of Health & Human Servs. Centers for
2
Disease Control & Prevention, 623 F.3d 1371, 1380 (11th Cir. 2010) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)).
Mere “labels and
conclusions” or “a formulaic recitation of the elements of a cause of action” are
insufficient. Iqbal, 556 U.S. at 678 (citation omitted). In reviewing a motion to
dismiss under Rule 12(b)(6), the court “must accept all facts in the complaint as true
and view those facts in the light most favorable to the plaintiff.” Sun Life Assurance
Co. v. Imperial Premium Fin., LLC, 904 F.3d 1197, 1207 (11th Cir. 2018).
III.
BACKGROUND
The underlying dispute is a curious case of a franchisee refusing to use the
franchise name. Fabbro operates an urgent care facility pursuant to a franchise
agreement with AFC Franchising. The agreement grants Fabbro a license to own
and manage an urgent care facility, and in exchange Fabbro agrees to operate the
facility consistent with AFC Franchising’s rules and to pay an annual royalty. See
doc. 1-1 at 6–7, 13. Under the agreement, Fabbro consents to use the franchise’s
“Marks” as the “sole identification” of the business.2 Doc. 1-1 at 18.
When Fabbro first executed the agreement in 2009, it was with Doctors
Express Franchising, a limited liability company based in Maryland. Doc. 1 at 2;
The term “Marks” is commonly used as a shorthand for trademarks. Trademark, Black’s
Law Dictionary, p. 1530 (8th ed. 2004) (“Often shortened to mark.”). Likewise, the agreement
defines the franchise’s “Marks” as “certain trademarks, service marks, and other commercial
symbols including the mark ‘DOCTORS EXPRESS’.” Doc. 1-1 at 6.
2
3
Doc. 1-1 at 6. The mark for Doctors Express Franchising was “Doctors Express,”
and Fabbro used this mark when she opened her facility in 2010. Doc. 1 at 2; Doc.
1-1 at 6.
The franchise later changed hands beginning in 2012, when DRX Urgent
Care, LLC acquired the Doctors Express system. Doc. 1 at 3. Then, in 2013, “an
affiliate” of AFC Franchising acquired the Doctors Express system from DRX. Id.
These acquisitions included the assignment of the Doctors Express franchise
agreements, including the agreement with Fabbro. Id. As a result, AFC Franchising
assumed the rights of the franchisor under the agreement with Fabbro.3 Id.
In 2015, AFC Franchising decided to discontinue the use of the “Doctors
Express” name and mark. Doc. 1 at 5. As an interim measure, AFC Franchising
directed its franchisees to change their names to “AFC Doctors Express.” See id.
Shortly thereafter, AFC Franchising directed its franchisees to complete the
transition to the names and marks “American Family Care” and “AFC Urgent Care.”
See id. Both times, Fabbro refused. Id. at 7. Nearly 200 clinics operate under the
“American Family Care” or “AFC Urgent Care” name, id. at 3, and apparently
Fabbro’s “clinic is the only former ‘Doctor’s Express’ clinic nationwide that is still
using the ‘Doctors Express’ name and mark,” id. at 8.
The agreement provides that the franchisor may “assign this Agreement and any other
agreement to a third party without restriction.” Doc. 1-1 at 31.
3
4
The franchise agreement permits the franchisor to order the franchisee to
change its name:
If it becomes advisable at any time for us and/or you to modify or
discontinue using any Mark and/or to use one or more additional or
substitute trade or service marks, you agree to comply with our
directions within a reasonable time after receiving notice.
Doc. 1-1 at 18. The agreement continues in broad terms:
Our rights in this [section] apply to any and all of the Marks (and any
and all portion of any Mark) that we authorize you to use in this
Agreement. We may exercise these rights at any time and for any
reason, business or otherwise that we think best. You acknowledge
both our right to take this action and your obligation to comply with our
directions.
Id. Leaving no doubt that she was aware of her obligation under this provision,
Fabbro negotiated an amendment to the agreement, which required AFC Franchising
to split the costs involved with any requested name change.4 Doc. 1 at 6–7.
Despite the clarity of the agreement, AFC Franchising afforded Fabbro
“numerous opportunities to change the name of her clinic, and she repeatedly
refused.” Doc. 1 at 8. Finally, in January 2017, AFC Franchising sent Fabbro a
notice of default under the franchising agreement, id.; see doc. 7-2, followed by an
The amendment states: “Franchisor agrees to equally share in the direct out-of-pocket
expenses related to changing the Franchised Business’s signs or complying with the request to
discontinue use of the Marks.” Doc. 1-1 at 64. Consistent with this amendment, AFC Franchising
offered to share the cost of the name change. Doc. 1 at 7.
4
5
amended notice of default the following month, doc. 1 at 8; see doc. 7-4.5 The notice
pointed out that Fabbro’s clinic “should have been rebranded to an American Family
Care clinic by January 1, 2017,” and it gave Fabbro sixty days to “cure such default.”
Doc. 7-4. Fabbro failed to do so. Doc. 1 at 10.
AFC Franchising took no action after the 60 day period. Instead, in July 2017,
it withdrew the notice of default without prejudice. Doc. 1 at 9. Fabbro had
reportedly entered into negotiations to sell her clinic to another franchisee, and AFC
Franchising did not want to interfere with a potential sale. Id. AFC Franchising
believes those negotiations have since fallen through, and accordingly filed this
action against Fabbro. Id. AFC Franchising seeks two forms of relief: specific
performance and declaratory judgment, as well as reimbursement for the costs of
pursuing this action. Doc. 1.
IV.
DISCUSSION
Fabbro argues in its motion that AFC Franchising failed to file this action
within the period of limitations established in the franchise agreement.
The
agreement states that “all claims . . . arising out of or relating to this agreement . . .
must be brought or asserted before the expiration of the earlier of”:
5
In the original notice of default, AFC Franchising gave Fabbro thirty days to cure. Doc.
7-2. Thereafter, Fabbro sued in New Jersey state court seeking to enjoin the termination of the
agreement, arguing that New Jersey’s Franchise Practices Act requires giving franchisees sixty
days to cure. Doc. 1 at 8; Doc. 7-3; see also N.J.S.A. § 56:10-5. In response, AFC Franchising
sent the amended notice of default, which gave Fabbro sixty days to cure the default and also
pointed out that Fabbro no longer had authorization to use the “Doctors Express” mark. Doc. 7-4.
6
• (A) The time period for bringing an action under any applicable state or
federal statute of limitations;
• (B) One year after the date upon which a party discovered, or should have
discovered, the facts giving rise to an alleged claim; or
• (C) Two years after the first act or omission giving rise to an alleged claim.
Doc. 1-1 at 46 (all caps omitted). Any claims filed outside of the period provided
are “irrevocably barred.” Id.
Fabbro maintains that the one-year period applies. In her view, the clock
started when AFC Franchising discovered that she was refusing to change her
clinic’s name—her refusal is “the fact[] giving rise to an alleged claim.” Doc. 1-1
at 46. And the complaint reveals that AFC Franchising discovered that fact in 2015.
See doc. 1 at 5, 8. Thus, under Fabbro’s interpretation, the period lapsed long before
AFC Franchising filed this complaint on May 15, 2018.6
But the analysis is a bit more complicated than Fabbro is willing to admit.
6
Neither party is precise about when the clock starts. The contract says the clock starts
when the party discovers “the facts giving rise to an alleged claim.” Doc. 1-1 at 46. The facts that
give rise to a claim are those that establish breach. As the contract requires the franchisee to change
her marks “within a reasonable time” of the request, a breach seemingly would not occur until a
reasonable time elapsed. Doc. 1-1 at 18.
Fabbro’s position seems to be that when the franchisee unequivocally refuses, as she did,
the breach is complete and there is no need to wait for a reasonable time to pass. Maybe so.
Arguably, by making repeated requests, AFC Franchising extended the period for Fabbro to
comply. In the notice of default, AFC Franchising gave Fabbro one last chance to comply within
sixty days of February 22, 2017. Doc. 7-4. Conceivably, then, the clock did not start until April
24, 2017. But even under the most generous interpretation for AFC Franchising, the one-year
period would have lapsed on April 24, 2018—before the complaint was filed. Thus, no matter
when the clock started, if the contract’s period of limitations applies, AFC’s claims are barred.
7
More specifically, Alabama law would not enforce the abbreviated period of
limitations established in the franchise agreement. Alabama law states:
Except as may be otherwise provided by the Uniform Commercial
Code, any agreement or stipulation, verbal or written, whereby the time
for the commencement of any action is limited to a time less than that
prescribed by law for the commencement of such action is void.
Ala. Code § 6-2-15. Put simply, Alabama voids a contract provision that shortens
the applicable statute of limitations. And the applicable statute of limitations in
Alabama provides six years to file a claim for breach of contract. Ala. Code § 6-234(9) (“Actions upon any simple contract or speciality not specifically enumerated
in this section . . . must be commenced within six years.”).
To get around the Alabama law, Fabbro contends that Maryland law should
control based on the agreement’s choice-of-law provision. The agreement’s choiceof-law provision indeed states that “this Agreement, the Franchise, and all claims
arising from the relationship between us and you will be governed by the laws of the
State of Maryland.” Doc. 1-1 at 45. And Maryland law generally enforces contract
provisions that shorten statutes of limitations. Ceccone v. Carroll Home Servs.,
LLC, 454 Md. 680, 693–94 (Md. 2017) (“Parties may agree to a provision that
modifies the limitations result that would otherwise pertain provided (1) there is no
controlling statute to the contrary, (2) it is reasonable, and (3) it is not subject to
other defenses such as fraud, duress, or misrepresentation.”) (citation omitted). The
issue is thus choice of law: should the court apply the Alabama law that voids
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abbreviated periods or the Maryland law that enforces them?
A federal court sitting in diversity applies the choice-of-law rules of the state
in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S 487, 496 (1941);
Michel v. NYP Holdings, Inc., 816 F.3d 686, 694 (11th Cir. 2016). In matters of
procedure, “Alabama applies its own procedural law, i.e., the law of the forum.”
Precision Gear Co. v. Cont’l Motors, Inc., 135 So. 3d 953, 957 (Ala. 2013). For
substantive law, since this is a contract case, “Alabama follows the principle of ‘lex
loci contractus,’ which states that a contract is governed by the laws of the state
where it is made except where the parties have legally contracted with reference to
the laws of another jurisdiction.” Cherry, Bekaert & Holland v. Brown, 582 So. 2d
502, 506 (Ala. 1991). That is, when there is a valid choice-of-law provision,
Alabama courts will apply the substantive law of the chosen jurisdiction. 7
Accordingly, if the Alabama law that voids abbreviated periods of limitations in
contracts is procedural, it controls. If it is substantive, the Maryland law enforcing
such provisions applies.
In Alabama, “[m]atters are sometimes said to be procedural if they concern
methods of presenting to a court the operative facts upon which legal relations
7
AFC Franchising points out that there is an exception to this rule. Alabama will not
enforce a choice-of-law provision if (1) the chosen law is contrary to the fundamental public policy
of Alabama, (2) Alabama “has a materially greater interest in the determination of the particular
issue,” and (3) Alabama law would otherwise apply. See Brown, 582 So. 2d at 507 (quoting
Restatement (Second) of Conflicts of Laws § 187 cmt. g (1971)). The court does not reach this
exception.
9
depend; whereas substantive matters are those which concern the legal effect of
those facts after they have been established.” Scrushy v. Tucker, 70 So. 2d 289, 299
(Ala. 2011) (citation omitted). For example, laws determining the validity of a
contract are substantive. See Colonial Life & Accident Ins. Co. v. Hartford Fire Ins.
Co., 358 F.3d 1306, 1308 (11th Cir. 2004) (noting that, in Alabama, the substantive
law of the place where the contract was made “governs the validity” of the contract).
In contrast, Alabama considers statutes of limitations to be procedural. Precision
Gear, 135 So. 3d at 957 (“[I]n most instances, statutes of limitations are procedural
matters.”).8
AFC Franchising contends that because Alabama treats statutes of limitations
as procedural, and the court must apply Alabama procedural law, the court should
ignore the contract’s period of limitations. This misses the issue. If the question
were whether to apply Alabama’s statute of limitations or Maryland’s, the answer
would be clear. But the question is whether to enforce the contract’s period of
limitations. Alabama law would void the contract’s period of limitations, while
Maryland law would enforce it. Thus, the precise issue is whether to apply Alabama
or Maryland law regarding the validity of contract provisions that shorten the period
8
Alabama recognizes an exception by which it treats a statute of limitations as substantive.
Precision Gear, 135 So. 3d at 957 (“[W]e will apply another state’s statute of limitations only
when it is demonstrates that the limitation is so inextricably bound up in the statute creating the
right that it is deemed a portion of the substantive right itself.”) (citation omitted). This exception
is not at issue here.
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of limitations.
Fabbro argues that the Alabama law voiding contract provisions that establish
an abbreviated limitations period is substantive. The quintessential example of a
substantive contract law is one determining the contract’s validity. See Colonial
Life, 358 F.3d at 1308; see also Rayle Tech, Inc. v. DEKALB Swine Breeders, Inc.,
133 F.3d 1405, 1409 (11th Cir. 1998) (“The rule of lex loci contractus mandates that
the validity, nature, construction, and interpretation of a contract are governed by
the substantive law of the state where the contract was made.”). That is precisely
what Alabama’s law does. It announces that contract provisions establishing an
abbreviated period of limitations are “void.” Ala. Code § 6-2-15. In that regard,
Fabbro’s argument is persuasive; unfortunately, it is foreclosed by Alabama
precedent.
In Galliher v. State Mutual Life Insurance Company, 150 Ala. 543 (1907), the
contract at issue, executed in Georgia, also contained a clause “shortening the statute
of limitations” that was enforceable in Georgia. Galliher, 150 Ala. at 545. However,
the suit was filed in Alabama, and Alabama law (then as now) “expressly prohibited”
such shortening clauses. Id. (citing “section 2802 of the Code of 1896,” the
precursor to § 6-2-15). Faced with the same issue and law, the court noted that “the
lex loci contractus must govern as to the validity, interpretation, and construction of
the contract; but the remedy to enforce it . . . must be pursued according to the law
11
of the forum where the suit is brought.” Id. at 545 (citation omitted). Because a
statute of limitations “does not annul the contract itself, but only takes away the
remedy provided by law for its enforcement,” the court held that the law of the forum
governs statutes of limitations. Id. at 546. Translating into modern parlance, statutes
of limitations affect the remedy, rather than the validity of a contract, and are thus
procedural, rather than substantive.
The Galliher court equated the contract provision with a statute of limitations
and found it conclusive that Alabama law governs statutes of limitations. One can
argue that the period of limitations was contractual, rather than statutory. And that
the choice of law was not between an Alabama statute of limitations and a Georgia
statute of limitations; it was instead between a Georgia law enforcing such contract
provisions, and an Alabama law voiding them. Under this view, because the laws at
issue went to the validity of a contract provision—one law said the provision was
valid, the other law said it was void—an argument can be made that the Galliher
court ruled incorrectly.
But even if this alternate contention is correct, this court is bound by the
decision of the Alabama Supreme Court. “[A]s a federal court, our role in diversity
cases is to interpret state law, not to fashion it.” Simmons Foods, Inc. v. Indus. Risk
Insurers, 863 F.3d 792, 798 (8th Cir. 2017) (citation omitted). And this court is not
12
inclined to take the extraordinary step, pursuant to an Erie guess,9 of presuming that
the Alabama Supreme Court would decide the issue differently today. The court is
especially reluctant to do so given that other states, citing Galliher, have reached the
same result. See Simmons Foods, 863 F.3d at 797 & n.6 (citing Galliher and holding
that Arkansas law treats laws voiding shortened periods in contracts as procedural);
see also Sun Ins. Office, Ltd. v. Clay, 133 So. 2d 735, 738 (Fla. 1961) (citing Galliher
and holding that “[w]here the statutes of the forum make void all agreements
whereby the time for the brining of actions is fixed at a period less than that
prescribed by law, a contractual stipulation made in another jurisdiction is not
available as a defense.”) (quoting 29A Am. Jur., Insurance, § 1794, p. 865). In the
end, “[i]f the [Alabama] Supreme Court or legislature wants to change state law,
then they can do so—[this court] cannot.” Simmons Foods, 863 F.3d at 798.
Bound by Galliher, this court finds that § 6-2-15 of the Alabama Code
controls.10 As such, the period of limitations established in the contract is void.
9
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
As an afterthought, Fabbro argues that § 6-2-15 violates § 95 of the Alabama
Constitution. Section 95 states: “There can be no law of this state impairing the obligation of
contracts by destroying or impairing the remedy for their enforcement.” Ala. Const. art. 4, § 95.
The court is skeptical that § 6-2-15 violates this provision. However, Fabbro offers no support or
analysis for her argument, and AFC Franchising does not even bother to respond to it. It is not the
court’s job to develop arguments for the parties, and the court is not willing to potentially strike
down a statute as unconstitutional with so little input from the adversarial process. Because Fabbro
failed to substantiate this argument, the court deems it waived. See NLRB v. McClain of Ga., Inc.,
138 F.3d 1418, 1422 (11th Cir. 1998) (“Issues raised in a perfunctory manner, without supporting
arguments and citation to authorities, are generally deemed to be waived.”).
10
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Under the applicable statute of limitations, AFC Franchising had six years to bring
its claims. Ala. Code § 6-2-34(9). AFC Franchising complied with the statute of
limitations.
V.
CONCLUSION AND ORDER
For the foregoing reasons, Fabbro’s motion to dismiss, doc. 24, is DENIED.
Fabbro is ORDERED to file her answer to the complaint by December 20, 2019,
and the parties are DIRECTED to submit by December 31, 2019 a Rule 26 report
that sets a discovery cutoff of March 30, 2020. This case is SET for a pretrial
conference on June 4, 2020 at 1:30 p.m., and a bench trial on July 13, 2020 at 9 a.m.,
both at the Hugo Black Courthouse in Birmingham.
DONE the 6th day of December, 2019.
_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE
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