Creative American Education, LLC v. The Learning Experience Systems, LLC et al
Filing
170
ORDER granting in part and denying in part 101 Motion for Summary Judgment. Signed by Judge Robin L. Rosenberg on 5/11/2015. (bkd)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 9:14-CV-80900-ROSENBERG/BRANNON
CREATIVE AMERICAN EDUCATION, LLC,
a Colorado Limited Liability Company,
Plaintiff,
v.
THE LEARNING EXPERIENCE SYSTEMS,
LLC, a Delaware Limited Liability Company,
ANTHONY KORDA, an individual & KORDA,
ZITT & ASSOCIATES,
Defendants.
__________________________________________/
THE LEARNING EXPERIENCE SYSTEMS, LLC,
a Delaware Limited Liability Company and
TLE AT PARKER, LLC, a Delaware Limited Liability
Company, & TLE AT AURORA, LLC, a Delaware
Limited Liability Company,
Counter-plaintiffs,
v.
CREATIVE AMERICAN EDUCATION, LLC, a
Colorado Limited Liability Company,
BERNARD LOGANATHAN, an individual, &
KATIJAH BEEVE SHAIK ALUDEENLOGANATHAN a/k/a KATIJAH SHAIK ALUDEEN,
an individual,
Counter-defendants,
_____________________________________________/
BERNARD LOGANATHAN, an individual, &
KATIJAH BEEVE BINTE SHAIK ALAUDEEN,
an individual,
Counterclaim plaintiffs,
v.
THE LEARNING EXPERIENCE SYSTEMS, LLC,
a Delaware Limited Liability Company, ANTHONY
KORDA D/B/A KORDA, ZITT & ASSOCIATES, &
THE LAW OFFICES OF ANTHONY KORDA, LLC,
D/B/A KORDA, ZITT & ASSOCIATES, a Florida
Limited Liability Company,
Counterclaim defendants.
_____________________________________________/
ORDER GRANTING IN PART AND DENYING
IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendant’s (The Learning Experience Systems, LLC)
Motion for Summary Judgement [DE 101]. The Motion has been fully briefed by both sides and
the Court heard oral argument on the Motion on May 5, 2015. The Court has reviewed the
documents in the case file and is fully advised in the premises. For the reasons set forth below, the
Motion is GRANTED as to the fraudulent misrepresentation claims (Count I), GRANTED as to
the negligent misrepresentation claims (Count II), DENIED as to the contract rescission claim
(Count III), GRANTED IN PART AND DENIED IN PART as to the FDUTPA claims (Count
IV), GRANTED as to the securities fraud claim (Count V), DENIED as to the power of attorney
claim (Count VI), and DENIED as to the breach of contract claims (Count VII, Count VIII, Count
IX, and Count X).
I.
BACKGROUND
This case is about the acquisition of a childcare franchise. Plaintiff, Creative American
Education, LLC (“CAE”), is a business entity created by foreign investors (Mr. Loganathan and
Ms. Alaudeen, collectively, the “Loganathans”), citizens of Singapore, who sought to obtain EB-5
visas that would allow them to immigrate to the United States. Acquisition of this visa requires,
inter alia, investment in a business in the United States, active participation in the business by the
investor, and the creation of at least ten full-time jobs for American citizens. The Loganathans
therefore investigated the possibility of starting a childcare business in the United States through a
franchise, The Learning Experience. The Learning Experience franchise (“TLE”) is owned by
Defendant Learning Systems Experience, LLC.
2
The Loganathans executed several agreements with TLE, including a Franchise
Agreement, which were subsequently assigned to CAE. The agreements were assigned for the
stated purpose of establishing two separate childcare franchises in Colorado. Although it was the
Loganathans’ intent to actively participate in the franchise (such participation was required for an
EB-5 visa), the Loganathans were unable to arrive in the United States prior to the completion of
the build-outs for their franchise locations. The Loganathans1 and CAE therefore executed a
Management Agreement with TLE that authorized TLE to manage the franchises for a certain
period of time. The Management Agreement contemplated that the Loganathans eventually would
co-manage the businesses with TLE and, after additional time, the Loganathans exclusively would
manage the businesses and TLE would no longer be involved with any management
responsibilities.
The Loganathans eventually obtained visas, immigrated to the United States, received
training from TLE, and assumed certain managerial responsibilities for their franchises (although
the parties dispute the level of management responsibilities the Loganathans’ assumed). A plethora
of complications with the operation of the franchises occurred during this period of time. After a
series of staffing problems and warnings from state inspectors, Mr. Loganthan sent an e-mail to
TLE that read in part as follows:
1
Ms. Alaudeen-Loganathan signed the Management Agreement in both her individual capacity and her capacity as the
managing member of CAE.
3
In response, TLE sent a letter to the Loganathans that read as follows:
4
After sending this letter, TLE assumed full managerial control of CAE’s franchises on May
2, 2014. Although TLE subsequently sent several e-mails to the Loganathans requesting certain
documentation and funds, the Loganathans declined to respond and instead initiated the instant
suit.
II.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if “the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). The existence of a factual dispute is not by itself sufficient grounds to defeat a motion for
summary judgment; rather, “the requirement is that there be no genuine issue of material fact.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A dispute is genuine if “a
reasonable trier of fact could return judgment for the non-moving party.” Miccosukee Tribe of
Indians of Fla. v. United States, 516 F.3d 1235, 1243 (11th Cir. 2008) (citing Anderson, 477 U.S. at
247-48). A fact is material if “it would affect the outcome of the suit under the governing law.” Id.
5
(citing Anderson, 477 U.S. at 247-48).
In deciding a summary judgment motion, the Court views the facts in the light most
favorable to the non-moving party and draws all reasonable inferences in that party’s favor.
See Davis v. Williams, 451 F.3d 759, 763 (11th Cir. 2006). The Court does not weigh conflicting
evidence. See Skop v. City of Atlanta, 485 F.3d 1130, 1140 (11th Cir. 2007). Thus, upon
discovering a genuine dispute of material fact, the Court must deny summary judgment. See id.
The moving party bears the initial burden of showing the absence of a genuine dispute of
material fact. See Shiver v. Chertoff, 549 F.3d 1342, 1343 (11th Cir. 2008). Once the moving party
satisfies this burden, “the nonmoving party ‘must do more than simply show that there is some
metaphysical doubt as to the material facts.’” Ray v. Equifax Info. Servs., LLC, 327 F. App’x 819,
825 (11th Cir. 2009) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 586 (1986)). Instead, “[t]he non-moving party must make a sufficient showing on each
essential element of the case for which he has the burden of proof.” Id. (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986)). Accordingly, the non-moving party must produce evidence,
going beyond the pleadings, to show that a reasonable jury could find in favor of that party. See
Shiver, 549 F.3d at 1343.
III.
ANALYSIS AND DISCUSSION
TLE argues it is entitled to summary judgment as to each count in CAE’s Amended
Complaint: (1) the fraudulent and negligent misrepresentation claims (Count I and Count II), (2)
the contract rescission claim (Count III), (3) the FDUTPA claims (Count IV), (4) the securities
fraud claim (Count V), (5) the power of attorney claim (Count VI), and (6) the breach of contract
6
claims (Count VII, Count VIII, Count IX, and Count X). TLE’s arguments are each addressed in
turn.
1. The Fraudulent and Negligent Misrepresentation Claims, Count I and Count II.
CAE alleges 2 that TLE fraudulently and negligently induced CAE to enter into the
Franchise Agreement, the Management Agreement, the Lease Agreement and related
assignments,3 a power of attorney agreement, and certain personal guarantees. In order to state a
claim for fraudulent misrepresentation, a party must allege: (1) misrepresentation of a material fact,
(2) that the representor knew or should have known of the statement’s falsity, (3) that the
representor intended that the representation would induce another to rely on it, and (4) that the
plaintiff suffered injury in justifiable reliance4 on the representation. Output, Inc. v. Danka Bus.
Sys., Inc., 991 So. 2d 941, 944 (Fla. Dist. Ct. App. 2008). Importantly, a party cannot recover in
fraud for alleged oral misrepresentations that are adequately covered or expressly contradicted in a
later written contract. See Hillcrest Pac. Corp. v. Yamamura, 727 So. 2d 1053, 1056 (Fla. Dist. Ct.
App. 1999).
2
At the hearing on May 5, 2015, CAE clarified that it intended to bring Count I and Count II on behalf of CAE and the
Loganathans individually. For the sake of simplicity, the Court refers to Plaintiff and the Counterclaim-plaintiffs (the
Loganathans) collectively as CAE when distinction is unnecessary.
3
In an abundance of caution, the Court attempts to construe CAE’s misrepresentation claims as to the Lease
Agreement, despite the fact that CAE’s arguments on this point are rife with confusion. This confusion stems from the
fact that CAE did not execute the lease assignment directly; instead, TLE executed the lease assignment on CAE’s
behalf through a power of attorney. By virtue of the power of attorney, CAE was bound to the terms of the assignment.
DE 41-12. Therefore, to the extent CAE’s misrepresentation claim is that it was unaware that property taxes would be
owed, this claim fails because no record evidence has been cited to support this allegation and also because CAE was
bound to the terms of the assignment which clearly specified that property taxes would be paid by CAE. See footnote 5.
Alternatively, to the extent CAE’s misrepresentation claim is that the amount of property taxes was misrepresented,
this misrepresentation goes to the power of attorney agreement—not the lease assignment—because the power of
attorney is what granted TLE the authority to execute the assignment, and is addressed below. Alternatively, to the
extent CAE’s misrepresentation claim is that TLE failed to properly select a suitable site (with suitable property taxes),
this claim goes to TLE’s alleged breach of fiduciary duty under the power of attorney—not the lease assignment—and
is the subject of Count VI.
4
The Court addresses the state of the law in Florida on justifiable reliance at length below.
7
With respect to CAE’s negligent misrepresentation claim, the necessary elements for this
claim are similar to the elements for fraudulent misrepresentation and are as follows: (1) a
misrepresentation of a material fact; (2) the representor either knew of the misrepresentation, or
made the representation without knowledge as to its truth or falsity, or made the representation
under circumstances in which he or she ought to have known of its falsity; (3) the representor
intended that the representation induce another to act on it; and (4) injury must result to the party
acting in justifiable reliance on the misrepresentation. See Wallerstein v. Hosp. Corp., 573 So. 2d
9, 10 (Fla. Dist. Ct. App. 1990). Similar to a claim for fraudulent misrepresentation, a party cannot
recover under a theory of negligent misrepresentation for misrepresentations that are adequately
dealt with or expressly contradicted in a later written contract. See TRG Night Hawk Ltd. v.
Registry Dev. Corp., 17 So. 3d 782, 784 (Fla. Dist. Ct. App. 1999).
TLE argues that the misrepresentations it is alleged to have made are addressed in the
relevant agreements and, as a result, CAE is precluded from bringing its misrepresentation claims.
It is therefore necessary to compare CAE’s specific allegations with the text of the agreements.
CAE has alleged TLE is responsible for:
making false or misleading representations as to the EB-5 investment requirements and
leading CAE and the Loganathans to believe that they were required by law to make a
million-dollar investment in order for the Loganathans to qualify for an EB-5 visa;
falsely asserting that it could get the Loganathans a “fast track to a Green Card” through
CAE’s and the Loganathans’ investment;
falsely telling CAE and the Loganathans that their investment would be “fully refundable”
and that TLE would sell the centers and refund the money, if a refund was needed;
failing to disclose to CAE or the Loganathans that they would almost certainly be required
to execute a management agreement and powers of attorney which would give TLE
extraordinary power over CAE and the Loganathans’ centers and investment and would
8
require CAE and the Loganathans to deposit the full one-million dollar investment into a
bank account, under CAE’s name, created by TLE and that TLE would have full access to,
90 days before CAE and the Loganathans’ first center even opened;
failing to disclose to CAE or the Loganathans that they would be required to pay property
taxes for the property at the centers;5
falsely stating to CAE and the Loganathans that as one-million-dollar investors, CAE’s
principal, Ms. Alaudeen, would be granted a green card to citizenship; and
falsely stating that TLE had experience and expertise in managing centers
for new franchisees.
DE 41 ¶ 78. These allegations are supported by evidence in the record. See DE 94-1 at 38-52, DE
94-2 at 150-52.
In refutation of these allegations, TLE cites to several contract provisions which it asserts
expressly contradict CAE’s claims. The majority of the contract provisions cited by TLE have no
relevance, but the following provisions have merit:
12.11 Entire Agreement. This Agreement, including the introduction, addenda and
Attachments to it, constitutes the entire agreement between you and us. There are no
other oral or written understandings or agreements between you and us concerning
the subject matter of this Agreement. However, nothing in this Agreement or in any
related agreement is intended to disclaim the representations we made in our
Franchise Disclosure Document, including any exhibits or amendments thereof.
...
12.16 Disclaimer of Representations. YOU ACKNOWLEDGE, AGREE AND
REPRESENT THAT NO REPRESENTATIONS OR PROMISES OF ANY KIND
HAVE BEEN MADE BY US TO INDUCE YOU TO SIGN THIS AGREEMENT
EXCEPT THOSE SPECIFICALLY SET FORTH IN THE FRANCHISE
DISCLOSURE DOCUMENT THAT HAS BEEN DELIVERED TO YOU. YOU
FURTHER ACKNOWLEDGE, AGREE AND REPRESENT THAT NEITHER
WE NOR ANY OTHER PERSON HAS GUARANTEED THAT YOU WILL
SUCCEED IN THE OPERATION OF YOUR CENTER OR HAS PROVIDED
5
After discovery, CAE’s claim on this point appears to have been narrowed to the allegation that comparable property
taxes were not researched and that the facility selected had unusually high property taxes. See DE 128 ¶ 48. As a
result, this allegation is more pertinent to CAE’s fiduciary duty claim.
9
ANY SALES OR INCOME PROJECTIONS OF ANY KIND TO YOU. YOU
FURTHER AGREE THAT IF THE ABOVE IS NOT TRUE, YOU ARE
OBLIGATED TO NOTIFY OUR PRESIDENT, IN WRITING OF ANY
VIOLATION OF THIS SECTION. YOU HAVE MADE AN INDEPENDENT
INVESTIGATION OF ALL IMPORTANT ASPECTS OF YOUR CENTER. YOU
UNDERSTAND THAT WE ARE NOT A FIDUCIARY AND HAVE NO
SPECIAL RESPONSIBILITIES BEYOND THE NORMAL RESPONSIBILITIES
OF A SELLER IN A BUSINESS TRANSACTION. MOST IMPORTANTLY,
YOU ACKNOWLEDGE, AGREE AND UNDERSTAND THAT WE HAVE
BEEN INDUCED INTO EXECUTING THIS AGREEMENT BY VIRTUE OF
THE ABOVE REPRESENTATIONS MADE BY YOU IN THIS SECTION.
The most pertinent portions of these clauses are: (i) that the Franchise Agreement constituted the
entire agreement between the parties, (ii) that there were no oral or written understandings that
induced CAE to enter into the agreement other than those set forth in the agreement (and a certain
franchise disclosure document), and (iii) that CAE’s agreement that there were no other
representations (other than those delineated above) expressly induced TLE to enter into the
Franchise Agreement and, without such a representation by CAE, TLE would not have entered into
the Franchise Agreement.
CAE argues that these provisions do not address and contradict its specific claims. For
example, CAE argues that the provisions do not specifically refute the allegation that TLE
misrepresented its experience in managing and transitioning franchises to foreign investors
obtaining visas. There is case law that contradicts CAE’s position. In Garcia v. Santa Maria
Resort, Inc., 528 F. Supp. 2d 1283 (S.D. Fla. 2007), the district court considered a real estate
purchasing contract. The contract contained the following block of bolded, capitalized text
immediately above the signature block:
ORAL REPRESENTATIONS CANNOT BE RELIED UPON AS
CORRECTLY STATING THE REPRESENTATIONS OF THE
DEVELOPER. FOR CORRECT REPRESENTATIONS, REFERENCE
10
SHOULD BE MADE TO THIS CONTRACT AND THE DOCUMENTS
REQUIRED BY SECTION 718.503, FLORIDA STATUTES, TO BE
FURNISHED BY A DEVELOPER TO A BUYER OR LESSEE.
Id. at 1289.
Other provisions in the real estate contract in Garcia also addressed oral
representations, including the disclaimer that “Purchaser has not relied upon any prior agreements
or representations made by anyone other than Developer, or oral statements (including oral
statements of sales representatives), except as specifically stated in this Contract.” Id. The Garcia
court compared the above-cited clauses, together with additional clauses of a more general nature
(including a general integration clause) and concluded as a matter of law that any reliance upon the
alleged fraudulent misrepresentations would have been unreasonable. Id. at 1295. In Garcia the
court held that the plaintiffs’ reliance was unreasonable due to express disclaimers in the
agreement; other courts have noted that even mere silence in a contract may render similar reliance
unreasonable. See Barnes v. Burger King Corp., 932 F. Supp. 1420, 1428 (S.D. Fla. 1996) (“[I]t is
a basic tenant of contract law that reliance on representations by a contracting party in a suit based
on the contract is unreasonable where the representations are not contained in the subsequent
written agreement between the parties.”).
CAE attempts to distinguish Garcia by arguing the specific terms of the contract (in that
case) clearly contradicted the specifics of plaintiffs’ allegations. The Court finds this reading of
Garcia to be shortsighted. In Garcia, the plaintiffs’ claims were numerous and varied:
Plaintiffs also allege that “Defendants” claimed that they had an agreement with a
management company for an adjacent property to rent units for unit owners, that
the common management would result in excess rentals for Santa Maria unit
owners, that unit owners would have access to the adjacent property’s amenities,
that the condominium was a residential building, and that the condominium
complied with the applicable building code requirements. Plaintiffs further allege
that, again, “Defendants” advertised that they had contracted with a “long
11
established high-end restaurant called The Queens Table [to] operate out of the
Santa Maria resort.”
Garcia, 528 F. Supp. 2d at 1289. There is no indication in the Garcia decision that these allegations
were clearly addressed in the agreement. Instead, the Garcia court determined that plaintiffs’
reliance upon the above-quoted representations was unreasonable as a matter of law because
disclaimers in the purchase contract limited the scope of actionable representations. See id. at 1295.
CAE also argues against the application of Garcia by citing to two district court cases:
Natarajan v. Paul Revere Life Insurance Co., 720 F. Supp. 2d 1321 (S.D. Fla. 2010) and Galstadi v.
Sunvest Communities, USA, LLC, 637 F. Supp. 2d 1045 (S.D. Fla. 2009).6 Neither of these cases is
persuasive. In Natarajan the district court considered a contract that contained a merger and
integration clause only—there is no indication in the Natarajan decision that a disclaimer was also
at issue.7 Natarajan, 720 F. Supp. 2d at 1329. Galstadi has even less persuasive value than
Natarajan. In Galstadi, the defendants took the position that they were not parties to the relevant
contract and, as a result, the district court refused to give the defendants the benefit of using clauses
in the contract in their defense. Galstadi, 637 F. Supp. 2d at 1055.
6
CAE also makes the inconsistent argument that a court can never find as a matter of law that reliance upon an oral
misrepresentation is unreasonable. Despite the fact that this contention would result in cases such as Garcia being
wrongly decided, the authority CAE relies upon for this proposition, Hetrick v. Ideal Image Development Corp. and
Romo v. Amdex Insurance Co., are both distinguishable. In Hetrick, the disclaimers at issue were not included in the
franchise agreement contract—they were located in a separate questionnaire executed by the plaintiffs. No.
07-CV-871, 2008 WL 5235131, at *3 (M.D. Fla. Dec. 13, 2008). In Romo, the defendants limited their argument to the
merger clause in the contract issue. 930 So. 2d 643, 651 (Fla. Dist. Ct. App. 2006). In this sense, Romo is consistent
with cases that focus on the sufficiency of merger and integration clauses. See footnote 7. Ultimately, as discussed
below, the line of demarcation separating cases such as Hetrick and Garcia is the specificity of the terms of the
agreement that contradict alleged misrepresentations.
7
Cases akin to Natarajan are not uncommon. For example, in Wilson v. Equitable Life Assurance Society, 622 So. 2d
25 (Fla. Dist. Ct. App. 25) the appellate court found that a merger clause did not preclude claims arising from the
allegation of oral promises that preceded the agreement. Even so, the Wilson court noted that the claims could have
been precluded if that agreement had stated that there were no other agreements or promises. Id. at 28 n.2.
12
Ultimately, the issue before the Court is one of specificity. A specific disclaimer brings the
instant case in line with Garcia and other cases that preclude misrepresentation claims that
contradict written agreements, and a lack of specificity would cause this issue to be decided by a
trier of fact. CAE argues that the clauses at issue are general while TLE characterizes the clauses as
specific. Upon review of the Franchise Agreement, the Court finds that the agreement contains
sufficient specificity to preclude CAE’s misrepresentation claims. Although the relevant text in the
Franchise Agreement is perhaps less visually striking than the text in Garcia, the disclaimer in the
Franchise Agreement resembles the disclaimer in Garcia in the most important respects. In Garcia,
the real estate purchase contract clearly limited the universe of potential misrepresentation claims:
“For correct representations, reference should be made to this contract and the documents required
by section 718.503, Florida Statutes.” Garcia, 528 F. Supp. 2d at 1289. Similarly, the Franchise
Agreement in this case expressly limits the universe of potential misrepresentations to the
agreement itself and concrete documentation—just like the disclaimer in Garcia.
The
documentation CAE was directed to in the instant case was a franchise disclosure document which
was, by all indications, a lengthy and thorough document that disclosed a voluminous amount of
information about the TLE franchise. See DE 94-5 at 20. CAE does not base any of its claims on
misrepresentations in the franchise disclosure document.8
Furthermore, the Franchise Agreement expressly stated that CAE’s agreement to limit the
universe of potential misrepresentation claims induced TLE to enter into the agreement. CAE has
raised no legal argument refuting the significance of this provision, nor has CAE argued that the
8
This document appears to have contained representations on a wide variety of subjects including, without limitation,
representations as to specific TLE programs, the selection of suitable leased space, financial statements, and
bookkeeper services. DE 94-5 at 20.
13
Loganathans were somehow surprised or unaware of this provision when they executed the
Franchise Agreement. See Franze v. Equitable Assurance, 296 F.3d 1250, 1254 (11th Cir. 2002)
(noting that it is the duty of a signatory to read the contents of an agreement).
The Court’s decision on this matter is strengthened by a survey of case law. Garcia has
received favorable treatment in this district. For example, in Gentry v. Harborage Cottages-Stuart,
LLLP, the district court examined a disclaimer provision that read as follows:
This Agreement contains the entire understanding between Buyer and Seller. Any
current or prior agreements, representations, understandings or oral statements of
sales representatives or others, if not expressed in this Agreement, the
Condominium Documents or in brochures for the Condominium, are void and have
no effect. Buyer agrees that Buyer has not relied on them.
602 F. Supp. 2d 1239, 1258 (S.D. Fla. 2009). Citing Garcia, the district court held that the
disclaimer precluded any justifiable reliance on oral representations.9 Id. Similarly, in Weaver v.
Opera Tower, LLC, the district court considered a disclaimer that read as follows:
This Agreement contains the entire understanding between [Plaintiffs] and
[Defendant], and [Plaintiffs] hereby acknowledge that the displays, architectural
models, artist renderings and other promotional materials contained in the sales
office and model suite are for promotional purposes only and may not be relied
upon. [Plaintiffs] ha[ve] not relied upon any verbal representations, advertising,
portrayals or promises other than as expressly contained herein and in the
Condominium Documents.
No. 07-23333-CIV, 2008 WL 4145520, *2 (S.D. Fla. Aug. 1, 2008). Like Garcia and the instant
case, the agreement in Weaver limited the universe of potential misrepresentation claims to a finite
subset of documents. Citing Garcia, the court concluded that any reliance upon a brochure would
9
The Gentry court permitted other representations that violated Florida Statute section 718.506 because the agreement
at issue “did not deny or abridge the rights” granted under that statute. Although Gentry was later reversed on other
grounds, this portion of the court’s decision (which excluded oral representations and permitted representations that
violated section 718.506) was undisturbed. See Gentry v. Harborage Cottages-Stuart, LLLP, 654 F.3d 1247, 1260
(11th Cir. 2011).
14
be unreasonable as brochures were not included in the finite list of actionable documents in the
disclaimer clause. See id.
In another case that examined Garcia, Trilogy Properties LLC v. SB Hotel Associates LLC,
No. 09-21406-CIV, 2010 WL 7411912 (S.D. Fla. Dec. 23, 2010), the district court applied Garcia
without questioning its reasoning or holding. In Trilogy, the district court considered allegations
pertaining to misrepresentations in a brochure. Like Garcia and like the instant case, the contract at
issue limited the universe of potential misrepresentation claims to a finite number of documents.
The court concluded that the representations were not precluded, unlike Garcia, because “[i]n
Garcia, the representations were oral representations.” Trilogy, 2010 WL 7411912 at *10. The
Trilogy court noted that the brochure at issue in that case was within the universe of potential
misrepresentation claims permitted by contract, because the contract limited representations to the
“Agreement, the Condominium Documents, or . . . brochures for the condominium.” Id. at *9. In
the instant case, although CAE has cited to representations other than oral representations (such as
the TLE website), the TLE website was not included in the universe of representations subject to
litigation in the Franchise Agreement.
In summary, case law buttresses the Court’s conclusion that the Franchise Agreement
contained sufficient specificity in this case to preclude the misrepresentation claims brought by
CAE and the Loganathans. Although some courts have described this area of law as “murky,” G
Barrett LLC v. Ginn Co., No. 09-CV-374, 2011 WL 6752551, at *4 (M.D. Fla. Dec. 13, 2011), the
reason for such a pronouncement is primarily that the Florida Supreme Court has held that
justifiable reliance is not an element of fraudulent inducement. See Butler v. Yusem, 44 So. 3d 102,
105 (Fla. 2010). Although justifiable reliance is not a necessary element, reliance is, and courts
15
have dealt with this confusion by finding that when a contract contradicts an alleged representation,
a plaintiff cannot rely on the misrepresentation. G Barrett, 2011 WL 6752551 at *5. Although
there are some characteristics in other cases (that upheld broad disclaimers to misrepresentation
claims) that are not present in this case, such as agreements with an express covenant that
extra-agreement promises are void or agreements with a highly visible disclaimer immediately
above a signature block, there are sufficient factors and sufficient specificity in this case to preclude
reliance: the disclaimer in this case clearly limited the universe of potential claims to two concrete
documents and, importantly, TLE represented that without such a limitation it would have refused
to grant CAE a franchise. CAE agreed to these terms. Accordingly, for all of the foregoing
reasons, neither CAE nor the Loganathans could rely upon representations outside of the Franchise
Agreement and franchise disclosure document and TLE is entitled to summary judgment as to
Count I and Count II with respect to the Franchise Agreements.
CAE has also brought misrepresentation claims as to the personal guarantees executed by
the Loganathans. The guarantees were executed in the context of the Franchise Agreement,
however, and both guarantees include the following language: “All terms, covenants, provisions,
and conditions of the Franchise Agreement are hereby incorporated with the same force and effect
as of [sic] set forth at length in this Addendum.” DE 41-7 at 7. Accordingly, the disclaimers in the
Franchise Agreement apply to the guarantees and the Court finds that TLE is entitled to summary
judgment as to Count I and Count II with respect to the guarantees.
CAE has also brought misrepresentation claims as to the Management Agreement. CAE’s
misrepresentation allegations, however, would facially only appear to apply to their inducement to
enter into the Franchise Agreement. For example, CAE’s allegations are that the Loganathans were
16
misled about TLE’s experience in the context of immigration and visas, that they were misled
regarding the amount of investment necessary to obtain visas, that they were misled regarding
TLE’s ability to facilitate their acquisition of visas, that TLE misrepresented the refundability of
the Loganathans’ investment, that TLE misrepresented the likelihood a Management Agreement
would be necessary, and that TLE misrepresented property tax obligations.10 Only one of these
allegations, the allegation concerning the likelihood a Management Agreement would be
necessary, bears any apparent connection to the Management Agreement.
Problematically, CAE has failed to direct the Court to any record evidence of a
misrepresentation that the Loganathans or CAE relied upon in the context of executing the
Management Agreement. Instead, the record evidence (as more fully discussed below in section 4)
is that once the Loganathans became aware of the need for a management agreement due to delays
in the processing of their visa applications, the parties quickly agreed to and executed the
Management Agreement. DE 94-2 at 160-69, 173-75. Prior to this exchange, it was clearly the
intent of all parties, based upon record evidence, for CAE and the Loganathans to manage the
franchises—not TLE. DE 94-2 at 12.
The Court therefore finds that there is no record evidence to support the allegations in
Count I and Count II as to the Management Agreement, nor has CAE pressed any argument of note
in this regard; CAE’s focus on the misrepresentation claims has consistently been in the context of
the first transaction in this case, the Franchise Agreement, together with the documents that
supported the Franchise Agreement. Alternatively, the Court finds that the disclaimer in the
Management Agreement, which is contained in section 9(k) and which disavowed the existence of
10
With respect to the property tax issue, see footnote 5.
17
extra-agreement representations, precluded any reliance upon the alleged misrepresentations as a
matter of law.11 The Court’s decision as to Count II is alternatively based on another aspect as
well—the waiver provision in section 8 of the Management Agreement.
Section 8 of the Management Agreement reads as follows:
Release and Indemnification. Franchisee does hereby agree to indemnity, [sic]
release, cancel, forgive, forever discharge and hold harmless Manager, its
predecessors, parent corporations, holding companies, divisions, subsidiaries,
affiliates, franchises, heirs, successors and assigns, and all of their respective
officers, directors, employees, shareholders, representatives, insurers and agents
from and against any and all existing actions, claims, demands, damages,
obligations, liabilities, controversies and executions, of any kind or nature
whatsoever, whether known or unknown, whether suspected or not, arising under,
resulting from or in any way connected to the Franchise Agreements, this
Agreement, the Leases, the Centers, its operations and Manager’s management
thereof, and does specifically waive any claim or right to assert any cause of action
or alleged case of action or claim or demand which has, through oversight or error,
intentionally or unintentionally, or through a mutual mistake, been omitted from
this release.
Florida law, however, does not allow a party to contract against liability for its own fraud absent
specific contractual language to the contrary. Bank of America, N.A. v. GREC Homes IX, LLC, No.
13-CV-21718, 2014 WL 351962, at *6 (S.D. Fla. Jan 23, 2014). Since the release does not include
an express release for fraud, CAE’s fraudulent misrepresentation claim would not be waived.
CAE’s negligent misrepresentation claim, however, is another matter.
Neither party has provided the Court with authority as to whether a negligent
misrepresentation claim may be waived through a general waiver. Although minimal authority
exists on this topic, the Court finds that the reasons for requiring an express waiver, namely the
11
CAE’s misrepresentation claims as to the power of attorney agreement fail for the same reasons because the power of
attorney was executed in conjunction with the Management Agreement. CAE’s claims against TLE under the power of
attorney agreement, however, are another matter and those claims are addressed below.
18
strong public policy of prohibiting a fraudulent actor from benefitting from their own fraud, does
not exist in the context of a negligent misrepresentation claim which, by definition, does not
involve the same level of intent. See Windstar Club, Inc. v. WS Realty, Inc., 886 So. 2d 986, 987-88
(Fla. Dist. Ct. App. 2004). Accordingly, the Court finds in the alternative that CAE’s negligent
misrepresentation claim, Count II, is precluded by the scope of the general release contained in
section 8 of the Management Agreement, which was sufficiently broad to encompass claims arising
under the Franchise Agreement, Management Agreement, and all other related agreements.12
In summary, the Franchise Agreement precludes CAE and the Loganathans from bringing
misrepresentation claims under the Franchise Agreement and related guarantees. CAE and the
Loganathans have failed to provide record evidence in support of their misrepresentation claims
under the Management Agreement and power of attorney agreement. Alternatively, the terms of
the Management Agreement preclude CAE and the Loganathans from bringing misrepresentation
claims under those agreements. The Court therefore grants summary judgment in TLE’s favor as
to Count I and Count II.
2.
CAE’s Contract Rescission Claim, Count III.
TLE argues that it is entitled to judgment in its favor with respect to CAE’s Count III, which
seeks rescission of the agreements that are the focus of this case. The elements of a cause of action
for rescission of contract are: (1) the character or relationship of the parties; (2) the making of a
contract; (3) the existence of fraud, mutual mistake, false representation, impossibility of
12
The general release applied to the franchisee, which was a defined term that included CAE and Ms. Katijah
Alaudeen-Loganathan individually. DE 41-11 at 2. Although at the hearing on this matter CAE asserted that Mr.
Loganathan was also bringing misrepresentation claims in connection with the Management Agreement, Mr.
Loganathan was not a signatory to that agreement. As a final matter, the release provision would also waive negligent
misrepresentation claims as to all other prior agreements, albeit only as to CAE and Ms. Alaudeen-Loganathan.
19
performance, or other ground for rescission or cancellation; (4) the party seeking rescission had
rescinded the contract and notified the other party to the contract of such rescission; (5) if the
moving party has received benefits from the contract, he should further allege an offer to restore
these benefits to the party furnishing them, if restoration is possible; and (6) the moving party has
no adequate remedy at law. Bland v. Freightliner LLC, 206 F. Supp. 2d 1202, 1206 (M.D. Fla.
2002) (interpreting Florida law).
TLE takes issue with the third, fourth, and sixth elements cited above. With respect to the
third element, TLE argues there is no cognizable claim for fraud in this case. As discussed above in
section 1, the Court agrees. The parties have failed to address the issue, however, of impossibility
of performance. “Impossibility of performance refers to those factual situations, too numerous to
catalog, where the purposes, for which the contract was made, have, on one side, become
impossible to perform.” Crown Ice Mach. Leasing Co. v. Sam Senter Farms, Inc., 174 So. 2d 614,
617 (Fla. Dist. Ct. App. 1965) (quotations omitted). Given the circumstances in this case, which
include TLE’s unilateral seizure of managerial control, CAE’s subsequent withdrawal from its role
as a franchisee, and the passage of one year’s worth of time, the Court finds, at the very least, a
question of material fact remains as to whether the parties’ performance under the relevant
agreements has become impossible. As such, CAE is not precluded from rescission on this
element.
With respect to the fourth element, which concerns notification, TLE argues that it was not
timely notified that CAE sought rescission. Notification can be satisfied, however, by the filing of
a complaint that includes a count for rescission. See Bank of America v. GREC Homes IX, LLC,
No. 13-21718-CIV, 2014 WL 351962, at *9 (S.D. Fla. Jan. 23, 2014). In Bank of America, a
20
complaint that was filed four months after a dispute was considered proper notice for rescission.
Id. Here, an amended complaint with a count for rescission was filed less than four months after
the events in this case reached critical mass and, as such, the Court finds that CAE is not precluded
from rescission on this element.
Finally, TLE argues that the sixth element for rescission—whether there is an available
remedy at law—is not met in this case. The Court notes that this element has received minimal
attention in the papers before the Court and minimal attention at oral argument, with both sides
relying upon conclusory statements. The Court finds that TLE has failed to meet its burden on
summary judgment to establish as a matter of law that CAE possesses an adequate remedy at law.
With respect to CAE’s Amended Complaint containing claims both for rescission and damages,
counsel for CAE conceded at oral argument that these claims are exclusive and subject to the
election of remedies doctrine. See generally 25 Am. Jur. 2d § 10. For all of the foregoing reasons,
the Court finds that there are sufficient questions of material fact that the Court cannot grant
summary judgment as to Count III.
3.
CAE’S FDUTPA Claim, Count IV.
A “claim for damages under FDUTPA has three elements: (1) a deceptive act or unfair
practice; (2) causation; and (3) actual damages.” Tracfone Wireless, Inc. v. GSM Group, Inc., 555
F. Supp. 2d 1331, 1337 (S.D. Fla. 2008) (quoting Rollins, Inc. v. Butland, 951 So. 2d 860, 869 (Fla.
Dist. Ct. App. 2006)). Here, TLE raises the same arguments against CAE’s FDUTPA claims that it
raised against CAE’s misrepresentation claims—essentially that CAE’s allegations are
contradicted by the express terms of the relevant agreements in this case. A FDUTPA claim does
not require justifiable reliance. Fitzpatrick v. General Mills, Inc., 635 F.3d 1279, 1282-83 (11th
21
Cir. 2011). Instead, a FDUTPA claim requires that an objectively reasonable consumer would be
deceived by the complained-of practice.
Id.
When an ordinary consumer relies upon
representations that are contrary to a subsequent written agreement, the consumer’s behavior is no
longer reasonable as a matter of law:
A party has no right to rely upon alleged oral misrepresentations that are adequately
covered and expressly contradicted in a later written contract. Hillcrest Pacific
Corp. v. Yamamura, 727 So. 2d 1053, 1056 (Fla. Dist. Ct. App. 1999). Plaintiff's
reliance upon oral statements which were at variance with the written documents
were not reasonable as a matter of law.
Rosa v. Amoco Oil Co., 262 F. Supp. 2d 1364, 1368-69 (S.D. Fla. 2003).
As with CAE’s misrepresentation claims, the ultimate question is one of specificity. For
the same reasons as set forth above in section 1, the Court finds that the written agreements in this
case contained sufficient specificity that an ordinary consumer would be unreasonable to rely upon
TLE’s alleged misrepresentations as a matter of law.
CAE’s FDUTPA claim is not limited, however, to alleged misrepresentations prior to the
formation of the contracts in this case. CAE has also alleged that TLE engaged in deceptive
practices during its management of the franchises. As more particularly described above in section
1 and in the Court’s prior order of May 7, 2015 [DE 169], these allegations have support in the
record. TLE argues that these allegations may only be brought under a breach of contract
claim—not FDUTPA. “[C]onduct constituting a breach of contract is actionable under FDUTPA
only if the conduct underlying the breach is, by itself, unfair or deceptive.” N. Am. Clearing, Inc. v.
Brokerage Computer Sys., Inc., 666 F. Supp. 2d 1299, 1310 (M.D. Fla. 2009). The Court may not
weigh the evidence in the record, and construing all evidence in the record in the light most
favorable to CAE, the Court declines to find that the CAE’s FDUTPA allegations (independent of
22
extra-agreement representations) are not actionable under FDUTPA for the same reason that the
Court finds TLE is not entitled to summary judgment as to Count VII, Count VIII, Count IX, and
Count X. Accordingly, summary judgment is granted in TLE’s favor as to Count IV with respect
to all extra-agreement representations (for the same reasons TLE is entitled to judgment as to Count
I and Count II) but denied as to TLE’s performance under the relevant agreements (for the same
reasons the Court denies summary judgment as to Count VII, Count VIII, Count IX, and Count X).
4.
CAE’s Securities Claim, Count V.
In Count V, Creative American alleges that TLE’s sale of a franchise under the Franchise
Agreement, combined with the later-executed Management Agreement, effectively gave total
control of the franchise to TLE, thereby transforming the sale of the franchise into an investment
with profits to come solely from the efforts of TLE. As such, CAE argues that this sale constitutes
the sale of a security and violates the Securities Act of 1933, 15 U.S.C.A. § 77(b), the Securities
Act of 1934, 15 U.S.C.A. § 78(c), and the Florida Securities and Investor Protection Act. See Fla.
Stat. § 517.301.
Although the Securities Act of 1933 broadly defines securities to include the term
“investment contract,” the act itself does not define investment contracts. Recognizing this
shortcoming, the Supreme Court promulgated a definition of investment contracts under the act in
S.E.C. v. W.J. Howey Co., stating “an investment contract for purposes of the Securities Act means
a contract, transaction or scheme whereby a person invests his money in a common enterprise and
is led to expect profits solely from the efforts of the promoter or third party.” 328 U.S. 293, 298-99
(1946).13 Using this definition, the Court created a three part test to determine whether a security is
13
The Howey standard applies to CAE’s claims under Florida law. See Rudd v. State, 386 So. 2d 1216 (Fla. Dist. Ct.
23
involved, which requires (1) an investment of money, (2) in a common enterprise (3) with an
expectation of profits to come solely from the efforts of others. Id. at 301; see also Martin v. T. V.
Tempo, Inc., 628 F.2d 887, 889 (5th Cir. 1980) (applying the Howey test in the franchise context).
The only issue in dispute in the instant Motion is the third element in Howey—whether
profits were made solely from the efforts of others. CAE does not argue that the Franchise
Agreement in this case, standing alone, is an investment where profits are made solely from the
efforts of others. Instead, CAE’s contention is that the Franchise Agreement and Management
Agreement together form an investment. Both parties argue that the case of Bamert v. Pulte Home
Corp., 445 F. App’x 256 (11th Cir. 2011), although an unpublished decision, resolves this question
in their favor.
In Bamert, the plaintiffs purchased condominium units from a defendant, Pulte Homes. Id.
at 257. The plaintiffs in that case also entered into a separate management agreement with another
defendant, a real estate management company. Id. The thrust of the scheme at issue in Bamert14
was that purchasers were induced to purchase condominiums “risk free” so that all of the costs
normally associated with the purchase of real estate, such as mortgage payments, taxes, and
association dues, would be fully paid. Id. at 258. Under this system, the purchased units would be
rented for twenty-four months, with the profits from the rental being retained by the management
company. Id. The benefit for the plaintiffs, as the purchasers, was that they would enjoy the
appreciation of the real estate during that period of time. Id.
App. 1980).
14
The procedural posture of the appeal in Bamert was that of an appeal of a motion to dismiss and the facts considered
by the appellate court were the facts in the plaintiffs’ complaint, accepted as true.
24
The Eleventh Circuit examined the purchase contract in Bamert and found that, standing
alone, it was not an investment contract. See id. at 263-64. In reaching this conclusion, the
Eleventh Circuit noted that the purchasing homeowner did retain discretion over what could be
done with the condominium. See id. The court’s analysis did not end there, however, since an
investment contract may be found by looking to an entire transaction as a whole. See id. at 264.
Accordingly, the court turned its attention to the relationship between Pulte and the real estate
management company, and found that the plaintiffs had alleged sufficient, plausible facts to
establish that Pulte was linked to the real estate management company and otherwise promoted the
properties as investment opportunities. Id. at 265.
In the instant case, the facts are only partially analogous to the facts in Bamert. CAE’s
reliance on Bamert is supported by the fact that there is no need to link multiple defendants together
in a single investment offering—the Franchise Agreement and Management Agreement were both
executed with TLE in this case. In this sense, the case for an investment contract is stronger than
the case in Bamert. In TLE’s favor, the execution of the Franchise Agreement and Management
Agreement were separated by several months’ worth of time and, moreover, these agreements were
executed under different circumstances.
There is no evidence in the record that TLE
simultaneously marketed its Franchise Agreement and Management Agreement to CAE or the
Loganathans—instead the evidence in the record is that the facts of this case resulted in a highly
unusual situation for TLE, insofar as TLE had never before offered to transition management in the
manner that was contemplated in this case. DE 127-16 at 10-12. Finally, the record is also
clear—regardless of which party suggested the Management Agreement—that it was the original
intention of the Loganathans to manage their franchises themselves. DE 94-2 at 12. Indeed, the
25
evidence before the Court is that the Loganathans’ acquisition of visas depended upon their active
involvement in their franchises. DE 94-1 at 88. The Court therefore finds that, all factors
considered, the instant case is distinguishable from Bamert.
CAE makes one other argument (in passing) under Bamert that bears consideration.
Noting the plaintiffs’ attempt to link multiple agreements in Bamert, the Eleventh Circuit stated:
“Plaintiffs cannot create an investment contract by bootstrapping their separate voluntary
transaction with [management companies] to their condominium purchase from Pulte.” Id. at
264-65 (emphasis added). CAE therefore argues that the execution of the Management Agreement
was not a voluntary transaction. More specifically, CAE argues that once the Loganathans learned
that they would not have visas by the time the build-out for their franchises was completed, they
had no choice but to enter into the Management Agreement. To the extent CAE briefly presses the
argument that the execution of the Management Agreement was a non-voluntary transaction, CAE
has failed to adequately develop the record, direct the Court’s attention to specific portions of the
record in this regard, and brief this issue with persuasive authority. For example, CAE has not
brought record evidence to the Court’s attention that the Loganathans explored possibilities other
than the Management Agreement that proved futile or that TLE refused to consider any alternatives
to the execution of the Management Agreement; instead the record evidence is that the
Loganathans quickly executed the Management Agreement without protest, without expressing
substantive reservations, and without seeking legal counsel, notwithstanding their representations
that they utilized legal counsel. DE 94-2 at 160-69, 173-75. The record also shows that the
Loganathans’ execution of the Management Agreement accomplished their goal of obtaining a
childcare franchise in the United States that would allow them to obtain a visa. DE 94-1 at 42. The
26
Court therefore finds that CAE has not met its burden as the non-moving party on this issue and
declines to find that an issue of facts remains as to whether the Management Agreement
represented a non-voluntary transaction. See Ray v. Equifax Info. Servs., LLC, 327 F. App’x 819,
825 (11th Cir. 2009). Alternatively, even if a question of fact does exist, the Court finds that the
question of fact is non-material for the reasons set forth in this section.
CAE’s sole remaining argument rests upon Albanese v. Florida National Bank of Orlando.
823 F.2d 408 (11th Cir. 1987). In that case, investors executed multiple agreements (including a
management agreement, lease agreement, and an equipment lease agreement) in what was later
determined to be a variation upon a ponzi scheme. Id. at 410. Although at least one agreement in
that case was held as a matter of law to be an investment contract due to the lack of control the
investor retained, the agreements in that case were all executed as part of a single transaction or
scheme. See id. at 410-12. The record evidence in Albanese also showed the investors had no
realistic alternative other than to surrender their control. See id. at 412. By contrast, the
agreements in the instant case were executed at different times and record evidence as to the issue
of whether CAE had realistic alternatives to the execution of the Management Agreement is
unclear at best. Moreover, in relying upon Albanese CAE avoids the fact that the “delegation of
rights and duties—standing alone—does not give rise to the sort of dependence on others which . .
. [satisfies] Howey.” Williamson v. Tucker, 645 F.2d 404, 423 (11th Cir. 1981). The proper
question is not whether an investor has delegated management authority, but whether the investor
has retained “ultimate authority” and whether the investor “is so dependent on a particular manager
that they cannot replace him or otherwise exercise ultimate control.” Id. at 424.
27
Applying Albanese to the instant case, CAE retained power under the Management
Agreement to terminate the agreement:
3(b) Upon expiration of the initial term, this Agreement shall thereafter be
automatically renewed for successive periods of six (6) months each unless either
party provides the other with a thirty (30) day written notice to terminate, subject to
Section 3(c) below.
3(c) In the event the Franchisee terminates this Agreement as provided for above,
then at such time this Agreement shall be null, void and of no further force or effect
provided Franchisee strictly follow [sic] Manager’s operational guidelines with
respect to the operations of the Centers, Franchisor’s System and Manuals.
DE 41-11 at 4. Thus, CAE’s ultimate control was constrained to the extent that (i) termination of
the Management Agreement could only be accomplished at certain intervals and (ii) management
of the franchises subsequent to termination of the Management Agreement would still have to
comply with the terms of the Franchise Agreement, which in turn required, inter alia, certain levels
of training. Alternatively, TLE’s control under the Management Agreement could be removed by
virtue of the limited term of the Management Agreement and the “co-management” period. With
respect to these limitations on CAE’s managerial control, CAE presses no cohesive argument—for
example that the training restrictions somehow divested CAE of ultimate control. Instead, CAE
relies upon conclusory statements and the subjective belief of the Loganathans that they had no
alternative to the execution of the Management Agreement.
After consideration, the Court finds that the Management Agreement and Franchise
Agreement are sufficiently distinct that, unlike Bamert, no investment contract was formed. The
Franchise Agreement and the Management Agreement represent two separate transactions.
Although it could be inferred that CAE’s theory of the case is that TLE somehow knowingly
anticipated, at the signing of the Franchise Agreement, that it would later be required to enter into a
28
Management Agreement (due to its knowledge of the period of time visa acquisition would
require), there is no evidence of note in the record to support this contention. Instead, the evidence
in the record is that TLE entered into the Management Agreement as a unique accommodation.15
DE 127-16 at 10-12. The record also shows that the Loganathans had experience in owning,
operating, and managing childcare businesses before they approached TLE which, by extension,
means that the Loganathans executed the Management Agreement from the perspective of having
previously managed a comparable business themselves, albeit in a different country. DE 94-1 at
12-22.
Furthermore, the Court finds that CAE’s contention that the Management Agreement
completely divested CAE of all control over its franchise investment goes too far.
The
Management Agreement clearly contemplated a transition in management from TLE to CAE. DE
41-11 at 3-4. When the limited term of the Management Agreement is considered in the context of
the facts of this case and this transaction, the purpose of the limited term of the Management
Agreement is clear. Stated another way, TLE characterizes the Management Agreement as a
temporary “gap filler” measure to help the Loganathans obtain visas (after delays accrued), and the
Court agrees. Moreover, under Howey, an agreement is only an investment contract when it
generates profits solely from the efforts of others. Howey, 328 U.S. at 301. This standard cannot be
squared with the record in this case which establishes that the Loganathans intended to manage the
franchises, needed to manage the franchises, and ultimately (at a minimum) participated in the
management of the franchises to the extent profits were not generated solely from the efforts of
15
As an aside, the Court notes the inconsistency, on CAE’s part, in arguing that TLE knew it would later need to
execute the Management Agreement with CAE (due to its knowledge pertaining to visas) when it is CAE’s allegation
in other counts that TLE had no knowledge or experience with visa acquisition.
29
others.
Finally, the Court finds that although the Franchise Agreement and Management
Agreement placed certain restraints upon CAE’s management of the franchises, CAE nonetheless
retained ultimate control and, moreover, CAE has failed to develop record evidence on the issue of
ultimate control to the contrary. Accordingly, the Court grants summary judgment in favor of TLE
as to Count V.
5.
CAE’s Power of Attorney Claim, Count VI.
TLE argues that CAE’s power of attorney claim fails as a matter of law. This claim stems
from the fact that at the time CAE executed the Management Agreement CAE also appointed TLE
as its attorney-in-fact.16 An appointment of power of attorney confers certain fiduciary duties by
statute, including the duty to act in good faith and the duty not to act contrary to a principle’s
reasonable expectations. Fla. Stat. § 709.2114(1)(a). The power of attorney conferred on TLE was
broad in scope. CAE empowered TLE, for example, to “act generally in relation to all matters of
every kind in which Franchisor may be interested or concerned with respect to the operation and
management of the [franchise].” DE 41-12.
TLE’s arguments in opposition to this count lack clarity. TLE’s arguments appear to be
based, at least in part, on the fact that TLE was empowered to conduct a large variety of tasks
related to management under the Management Agreement (which was not subject to statutory
fiduciary duties). But TLE was also appointed as an attorney-in-fact to “act generally” in relation
to the operation and management of the center, which was subject to statutory fiduciary duties. Fla.
Stat. § 709.2114. TLE appears, therefore, to have placed itself in the uncertain position of having
16
The motivating factor behind the power of attorney appears to have been that, at that time, the Loganathans still
lacked the necessary visas to immigrate to the United States and perform the necessary (local) tasks to launch their
franchises.
30
potentially two different authorizations for its actions. To the extent this question may be resolved
as a matter of law, TLE has provided no authority for the proposition that doubts should be
construed in favor of TLE and against any finding of fiduciary duty.17 Contra Citibank, N.A. v.
Data Lease Fin. Corp., 828 F.2d 686, 691 (11th Cir. 1987) (applying Florida law) (“The existence
of an agency relationship, the nature and extent of the agent’s authority, and the inclusion within
the scope of that authority of a particular act are ordinarily questions to be determined by the jury or
by the trier of facts in accordance with the evidence adduced in the particular case.” (citation
omitted)). To the extent this question may be resolved as a matter of fact, the Court finds that TLE
has not met its burden on summary judgment to establish the absence of any material fact on this
issue and, as a result, only a trier of fact may determine (i) which actions of TLE were subject to the
power of attorney, (ii) which actions were subject to the Management Agreement, and (iii) whether
any fiduciary duty was violated. See Shiver v. Chertoff, 549 F.3d 1342, 1343 (11th Cir. 2008).
Accordingly, the Court cannot grant summary judgment as to Count VI.
6.
CAE’s Breach of Contract Claims, Counts VII, VIII, IX, and X.
TLE argues that CAE’s breach of contract claims are deficient because (i) TLE’s actions
were authorized by contract, (ii) CAE executed a general waiver in favor of TLE,18 and (iii) there is
no record evidence that TLE breached any agreement. TLE’s position, succinctly stated, is that the
record clearly shows (without any dispute of material fact) that CAE’s breach of contract claims
17
Instead, the Court notes that TLE drafted the relevant agreements, and ambiguities in drafting are generally
construed against the drafter when a provision would benefit the drafting party. See Terminix Int’l Co., L.P. v. Palmer
Ranch Ltd. P’ship, 432 F.3d 1327, 1329 n.2 (11th Cir. 2005). It is possible, however, that a finder of fact could
determine after reviewing evidence of intent that the scope of the power of attorney was intended to be limited to a
small subset of TLE’s actions in connection with the launch and operation of the franchises.
18
To the extent TLE’s argument could be construed to include the interpretation that the general waiver executed by
CAE releases it from all possible claims arising under the agreements in this case whatsoever, the Court finds any such
interpretation of the waiver to be unreasonable.
31
fail as a matter of law. The Court has considered at length the evidence in the record in both the
instant order and an order entered on May 7, 2015 [DE 169]. Suffice it to say that TLE’s
characterization of the record is incorrect.
In the interest of brevity, the Court does not restate here all of the reasons the Court
previously found (at docket entry 169) that issues of material fact remain as to which party is
responsible for breach of the contracts at issue in this case. Briefly summarized, the unique facts of
this case have resulted in the question of who is responsible for the origination of the breaches at
issue. Here, TLE was unilaterally responsible for the management of the franchises before granting
certain management responsibilities (the parties dispute the extent of the management
responsibilities) to CAE. While the record does contain evidence of multiple breaches of the
relevant agreements, the breaches could originate, as TLE argues, from CAE’s actions when CAE
was participating in the management of the franchises. Alternatively, the breaches could originate,
as CAE argues, from the decisions that TLE made when it unilaterally managed the franchises
(prior to granting some control to CAE). Only a trier of fact can determine the origination of the
disputed breaches. Accordingly, the Court incorporates and adopts the reasoning in the Order of
May 7, 2015 [DE 169] and finds, for the same reasons as delineated in that Order, that questions of
material fact remain as to Count VII, Count VIII, Count IX, and Count X. As such, summary
judgment cannot be granted as to these counts.
IV.
CONCLUSION AND RULING
In summary, Defendant TLE’s Motion for Summary Judgement [DE 101] is GRANTED
IN PART AND DENIED IN PART. TLE’s Motion is GRANTED as to CAE’s fraudulent
misrepresentation claims (Count I), GRANTED as to CAE’s negligent misrepresentation claims
32
(Count II), DENIED as to CAE’s contract rescission claim (Count III), GRANTED IN PART
AND DENIED IN PART as to CAE’s FDUTPA claims (Count IV), GRANTED as to CAE’s
securities fraud claim (Count V), DENIED as to CAE’s power of attorney claim (Count VI), and
DENIED as to CAE’s breach of contract claims (Count VII, Count VIII, Count IX, and Count X).
DONE and ORDERED in Chambers, Fort Pierce, Florida, this 11th day of May, 2015.
_______________________________
ROBIN L. ROSENBERG
UNITED STATES DISTRICT JUDGE
Copies furnished to: Counsel of Record
33
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