Fantastic Sams Salons Corp v Frank Moassesfar et al.
Filing
37
ORDER DENYING DEFENDANTS MOTION TO DISMISS 29 by Judge Otis D. Wright, II . (lc). Modified on 1/21/2015 (lc).
O
1
2
3
4
5
6
7
United States District Court
Central District of California
8
9
10
11
FANTASTIC SAMS SALONS CORP.,
Case No. 2:14-cv-06727-ODW(PJWx)
Plaintiff,
12
v.
13
ORDER DENYING DEFENDANTS’
14
FRANK MOASSESFAR; PARVANEH
15
MOTION TO DISMISS [29]
MOASSESFAR,
Defendants.
16
I.
17
INTRODUCTION
18
Plaintiff Fantastic Sams Salons Corp. (“Fantastic Sams”) brings this action
19
against husband and wife Defendants Frank and Parvaneh Moassesfar (collectively
20
“the Moassesfars”) for a dispute arising out of a hair salon franchise agreement.
21
Fantastic Sams’ Complaint raises claims for trademark infringement and breach of
22
contract (ECF No. 1), and in their Motion to Dismiss the Moassesfars argue that both
23
claims are barred by a contractual limitations period (ECF No. 29). For the reasons
24
discussed below the Court DENIES the Moassesfars’ Motion to Dismiss.1
II.
25
FACTUAL BACKGROUND
Fantastic Sams is a franchisor of family hair cutting salons throughout the
26
27
28
1
After carefully considering the papers filed related to the Motion, the Court deems the matter
appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.
1
United States. (Compl. ¶ 5.) In 2007, the Moassesfars became franchisees of two
2
Fantastic Sams salons in California—one in Tarzana and the other in Northridge. (Id.
3
¶ 6.) The Tarzana franchise agreement was entered into on February 13, 2007, and
4
expires on February 16, 2017, while the Northridge franchise agreement was entered
5
into on November 21, 2007, and expires on December 31, 2019 (collectively “the
6
Franchise Agreements”). (Id. ¶¶ 6, 25.) The Franchise Agreements for both salons
7
are identical except for the entered-into and expiration dates. (See ECF No. 1, Exs. A
8
and B.) Among other things, the Franchise Agreements require the Moassesfars to
9
pay a weekly licensee and advertising fee (collectively the “Fees”) for each franchise
10
11
location via electronic draft. (Compl. ¶ 26.)
The Franchise Agreements contain five critical provisions. First, Paragraph
12
3(b)(1) provides:
“Licensee shall continue to pay the Weekly License Fee to
13
[Fantastic Sams] throughout the term of this Agreement, or for so long as it uses any
14
part or all of the Fantastic Sams System or the Marks, which ever period is longer,
15
whether such use is authorized or not[.]” (ECF No. 1, Ex. A.) Second, Paragraph
16
12(b)(2) of the Franchise Agreements states that “[t]his agreement shall automatically
17
terminate, without notice from [Fantastic Sams] . . . If Licensee’s bank fails or refuses
18
to honor any authorized bank draft or other prepayment arrangement for any weekly
19
fee during the term of this Agreement for two (2) consecutive weeks . . . .” (Id.)
20
Third, Paragraph 12(e) states that “In no event will termination of this Agreement for
21
any reason relieve Licensee of its obligations, debts or responsibilities accrued under
22
this Agreement.” (Id.) Fourth, Paragraph 12(e)(2)(f) states that upon termination of
23
the Franchise Agreements the Moassesfars “[s]hall pay immediately, all fees and
24
monies due [Fantastic Sams], including all Weekly License and Adverting Fees for so
25
long as the Marks are used or until the expiration date of this Agreement, had this
26
Agreement not been terminated, whichever is later.”
27
importantly, Paragraph 13(c) contains the contractual limitations clause, which states:
28
Licensee and [Fantastic Sams] agree that any claim arising
2
(Id.)
Fifth, and most
1
out of this Agreement, whether for recission or damages or
2
any other type of remedy at law or in equity shall be brought
3
within the later of one (1) year from the date of the act or
4
failure to act by any person or six (6) months from the date
5
claimant knew or should have known of the act or failure to
6
act by the party sought to be charged.
7
(Id.)
8
During the week of January 13, 2011, Fantastic Sams’ attempt to draft the Fees
9
from the Tarzana salon failed because the Moassesfars’ bank account was allegedly
10
closed. (Compl. ¶ 32.) Fantastic Sams has allegedly not collected any of the Fees
11
from the Tarzana location since January 13, 2011. (Id. ¶ 33.) During the week of
12
February 19, 2012, Fantastic Sams’ attempt to draft the Fees from the Northridge
13
location failed because the Moassesfars’ bank account was also allegedly closed. (Id.
14
¶ 34.) Fantastic Sams has allegedly not collected any of the Fees from the Northridge
15
location since February 19, 2012. (Id. ¶ 33.) Despite not paying the Fees, the
16
Moassesfars allegedly continued to operate both locations as franchised Fantastic
17
Sams salons until October 2014. (Id. ¶ 41.)
18
On May 30, 2014, Fantastic Sams took its first legal action by sending the
19
Moassesfars a written notice of default which specified that the Moassesfars had five
20
days to cure the defaults for both locations. (Id. ¶ 36.) The Moassesfars did not cure
21
within five days, and Fantastic Sams filed the Complaint on August 27, 2014. On
22
October 24, 2014, the parties submitted (ECF No. 23), and the Court granted (ECF
23
No. 27), a Stipulation which effectively terminated both of the Moassesfars’ salons.
24
The Stipulation, among other conditions, required the Moassesfars to return all
25
confidential information related to franchise operations and all trademarked signage
26
and displays. (Id.) As a result of the Stipulation, the Moassesfars are no longer
27
operating any Fantastic Sams salons. All that remains before the Court—and is
28
subject to the pending Motion to Dismiss—is Fantastic Sams’ prayer for retrospective
3
1
relief.2
III.
2
LEGAL STANDARD
3
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to
4
dismiss an action for failure to allege “enough facts to state a claim to relief that is
5
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A
6
claim has facial plausibility when the plaintiff pleads factual content that allows the
7
court to draw the reasonable inference that the defendant is liable for the misconduct
8
alleged. The plausibility standard is not akin to a ‘probability requirement,’ but it asks
9
for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v.
10
Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). For purposes of ruling on
11
a Rule 12(b)(6) motion, the Court “accept[s] factual allegations in the complaint as
12
true and construe[s] the pleading in the light most favorable to the non-moving party.”
13
Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).
14
The Court is not required to “assume the truth of legal conclusions merely
15
because they are cast in the form of factual allegations.” Fayer v. Vaughn, 649 F.3d
16
1061, 1064 (9th Cir. 2011) (internal quotation marks and citations omitted). Mere
17
“conclusory allegations of law and unwarranted inferences are insufficient to defeat a
18
motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004) (internal
19
quotation marks and citations omitted). “If a complaint is accompanied by attached
20
documents, the court is not limited by the allegations contained in the complaint.
21
These documents are part of the complaint and may be considered in determining
22
whether the plaintiff can prove any set of facts in support of the claim.” Durning v.
23
First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987) (internal citations omitted).
24
The Court may consider contracts incorporated in a complaint without converting a
25
26
27
28
2
Count II of the Complaint is a cause of action for “Specific Performance.” (Compl. ¶¶ 56–62.)
This claim for prospective relief appears mooted as a result of the October 24th Order granting the
Stipulation. (ECF No. 27.) Because both parties’ briefs ignore the issue and the Court cannot find
any claim within Count II that was not specifically addressed by the Stipulation, the Court concludes
that Count II is moot.
4
1
motion to dismiss into a summary judgment hearing. United States v. Ritchie, 342
2
F.3d 903, 907–08 (9th Cir. 2003).
IV.
3
DISCUSSION
4
The Complaint contains two causes of action; Count I is for trademark
5
infringement under the Lanham Act, 15 U.S.C. §§ 1051, et seq., and Count III is for
6
breach of contract. (Compl. ¶¶ 45–55, 63–74.) In their Motion to Dismiss, the
7
Moassesfars argue that Fantastic Sams is not entitled to either claim for relief because
8
both claims are barred by the contractual limitations clause in the Franchise
9
Agreements.
(ECF. No. 29 [“Def. MTD Br.”] at 3.)
As explained below, the
10
contractual limitations clause does not bar both claims but limits the potential scope of
11
liability for the Moassesfars’ allegedly unlawful conduct.
12
A.
Count III—Breach of Contract
13
The Moassesfars argue that the breach of contract claim is barred by the
14
contractual limitations clause because the Franchise Agreements terminated in full
15
when the Moassesfars missed two consecutive payments. The Moassesfars rely on a
16
five-step rationale: (1) Paragraph 12(b)(2) states that the entire Franchise Agreement
17
automatically terminates when two consecutive payments are missed; (2) the
18
Moassesfars missed two consecutive payments on or around January 13, 2011, and
19
again on or around February 19, 2012, thereby automatically terminating all
20
contractual relationships between the parties; (3) Paragraph 13(c) of the Franchise
21
Agreements requires that “any claim arising out of this Agreement” must be brought
22
within one year of the “act”; (4) Fantastic Sams had to file suit on or before January
23
13, 2012, and February 19, 2013—one year from the date of the breaches—but did not
24
file Complaint until August 27, 2014; and therefore (5) the breach of contract claim is
25
barred by the contractual limitations period. (Def. MTD Br. at 6–10.)
26
This rationale fails at step one because the Court cannot ignore state law or read
27
one provision of the Franchise Agreement in isolation. See Am. Alternative Ins. Corp.
28
v. Superior Court, 37 Cal. Rptr. 3d 918, 922 (Cal. Ct. App. 2006) (“We consider the
5
1
contract as a whole and interpret the language in context, rather than interpret a
2
provision in isolation.”).
3
The Court first notes that California law prohibits a franchise agreement from
4
automatically terminating without notice to the franchisee and an opportunity to cure.
5
See Cal. Bus. & Prof. Code §§ 20020–21. The Moassesfars are asking the Court to
6
interpret and apply Paragraph 12(b)(2) as a harsh provision that terminates the entire
7
Franchise Agreement without notice and an opportunity to cure, which is contrary to
8
California law. The Court rejects this interpretation which is indispensable to the
9
Moassesfars argument. See JRS Prods., Inc. v. Matsushita Elec. Corp. of Am., 8 Cal.
10
Rptr. 3d 840, 848 (Cal. Ct. App. 2004) (“[A]ll contractual provisions which have for
11
their object, directly or indirectly, to exempt anyone from obeying the laws of
12
California are unlawful and void.”).
13
Interpreting Paragraph 12(b)(2) in a manner that does not violate California law
14
does not render the provision meaningless.
15
Paragraph 12(b)(2) triggers the acceleration clause found in Paragraph 12(e)(2)(f),
16
which states that upon “termination” of the Franchise Agreements the Moassesfars
17
“[s]hall pay immediately, all fees and monies due [Fantastic Sams], including all
18
Weekly License and Adverting Fees for so long as the Marks are used or until the
19
expiration date of this Agreement, had this Agreement not been terminated, whichever
20
is later.” (ECF No. 1, Ex. A.) “Termination,” for purposes of Paragraph 12(b)(2), is a
21
condition precedent to the automatic acceleration of all Fee payments running through
22
the expiration of the Franchise Agreements. To the extent that Fantastic Sams seeks
23
Fee payments running through the expiration dates—February 2017 and December
24
2019—the contractual limitations clause in Paragraph 13(c) bars such recovery. The
25
acceleration clause was triggered when the Moassesfars first “terminated” the
26
Franchise Agreements and any claim to damages for accelerated Fees is subject to the
27
contractual limitations clause. Because the Complaint was filed well over a year after
28
the acceleration clause was triggered, the contractual limitations clause thus precludes
6
An automatic “termination” under
1
Fantastic Sams from bringing any claim seeking Fee payments running through the
2
expiration dates of the Franchise Agreements.
3
The Moassesfars’ proposed interpretation of Paragraph 12(b)(2) would not only
4
violate California law, but would also contradict other provisions in the Franchise
5
Agreement. The entirety of the Franchise Agreement clearly indicates that the
6
automatic termination provision in Paragraph 12(b)(2) did not relieve the Moassesfars
7
from making Fee payments.
8
required to pay the weekly Fees throughout the term of the Franchise Agreement “or
9
for so long as [the Moassesfars] use[] any part or all of the Fantastic Sams System or
10
the Marks . . . whether such use is authorized or not[.]” (ECF No. 1, Ex. A [emphasis
11
added].) Paragraph 12(e) states that “[i]n no event will termination of this Agreement
12
for any reason relieve Licensee of its obligations, debts or responsibilities accrued
13
under this Agreement.” (Id.) These provisions demonstrate that the parties did not
14
intend the “termination” of the Franchise Agreements to end all legal responsibilities
15
and obligations. While the Moassesfars allegedly missed two consecutive weekly
16
payments thus “terminating” the Franchise Agreements, they also allegedly continued
17
operating their salons as Fantastic Sams franchises. The Moassesfars are bound by
18
Paragraph 3(b)(1) which requires weekly Fee payments for unauthorized, post-
19
termination salon operations, and are bound by Paragraph 12(e) which specifically
20
states that “termination” does not relieve the Moassesfars of their obligations under
21
the Franchise Agreements.
22
continue making the weekly Fee payments.
Paragraph 3(b)(1) states that the Moassesfars are
The Moassesfars therefore had a contractual duty to
23
The contractual limitations provision in Paragraph 13(c) limits the scope of
24
liability for missed Fee payments to the year preceding the filing of the Complaint.
25
Fantastic Sams concedes this liability limitation. (See ECF No. 33 [“Pl. Opp. Br.”] at
26
7 n.3 [“Accordingly, it seeks no monetary damages for unpaid fees due before August
27
27, 2013.”].) The Court concludes that Fantastic Sams’ prima facie case for breach of
28
contract is not barred by the contractual limitations provision, however, Fantastic
7
1
Sams may only recover alleged breach of contract damages from August 27, 2013, to
2
the date the Moassesfars ceased all salon operations. All claims to contract damages
3
occurring before August 27, 2013, and after the Moassesfars stopped operating their
4
franchises, are barred.
5
B.
Count I—Trademark Infringement
6
The Moassesfars argue that Count I of the Compliant—a claim for trademark
7
infringement under the Lanham Act—is also barred by the contractual limitations
8
clause.
9
limitations period required Fantastic Sams to bring its trademark infringement claim
10
within one year of the missed Fee payments which terminated the entire Franchise
11
Agreement, including the license to use Fantastic Sams’ trademarks. (Id.) The parties
12
do not dispute that the Franchise Agreements granted the Moassesfars a license to use
13
Fantastic Sams’ trademarks.
(Def. MTD Br. at 9.)
According to the Moassesfars, the contractual
14
Fantastic Sams responds that the contractual limitations period does not apply
15
to its trademark infringement claim because this claim does not “relate to any right or
16
obligation pursuant to the Franchise Agreements.” (Pl. Opp. Br. at 4.) According to
17
Fantastic Sams, Count I is based solely on the Moassesfars’ infringing conduct that
18
occurred after the Moassesfars failed to comply with Fantastic Sams’ written notice of
19
default in May 2014. (Id. at 5.) This legal theory for Count I is consistent with the
20
Complaint which seeks a court order for “any and all profits derived as a result of
21
marketing or promoting salon services since June 6, 2014, the date of termination of
22
the Moassesfars’ license to use the Fantastic Sams Marks.” (Compl. at 14.)
23
The Court accepts Fantastic Sams’ legal theory as a cognizable claim for
24
trademark infringement. To properly terminate a franchise agreement in California,
25
the franchisor must provide a written notice of breach and five days to cure. See Cal.
26
Bus. & Prof. Code § 20021(j). The Complaint alleges that Fantastic Sams complied
27
with California law in terminating the Franchise Agreements and the Moassesfars’
28
license to use Fantastic Sams’ trademarks, yet the Moassesfars continued to use
8
1
Fantastic Sams’ trademarks for some period thereafter. (See Compl. ¶¶ 36–44.) The
2
Moassesfars do not dispute that these allegations satisfy the prima facie elements for
3
trademark infringement. See 15 U.S.C. §§ 1051, et seq. This claim is not barred by
4
the contractual limitations period because Fantastic Sams’ legal theory sets the
5
unlawful conduct as beginning on June 6, 2014, which is a date within a year from
6
when the Complaint was filed. The Court concludes that Fantastic Sams stated a
7
claim for trademark infringement upon which relief can be granted, see Fed. R. Civ. P.
8
12(b)(6), and this claim is limited to harm occurring after June 6, 2014.
V.
9
10
11
12
CONCLUSION
For the reasons discussed above, the Court hereby DENIES Defendants Frank
and Parvaneh Moassesfar’s Motion to Dismiss. (ECF No. 29.)
IT IS SO ORDERED.
13
14
January 21, 2015
15
16
17
____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE
18
19
20
21
22
23
24
25
26
27
28
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?