Fantastic Sams Salons Corporation v. PSTEVO, LLC et al

Filing 40

ORDER. Fantastic Sams Salons' Motion to Dismiss 26 is granted and Defendants PSTEVO, LLC and Jeremy Baker's fraudulent misrepresentation counterclaim is dismissed with prejudice. See Statement for further details. Signed by the Honorable Sara L. Ellis on 1/15/2016:Mailed notice(rj, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FANTASTIC SAMS SALONS CORP.,
Plaintiff/Counter Defendant,
v.
PSTEVO, LLC and JEREMY BAKER,
Defendants/Counter Claimant.

)
)
)
)
)
)
)
)
)

No. 15 C 3008
Judge Sara L. Ellis

ORDER
Fantastic Sams Salons’ Motion to Dismiss [26] is granted and Defendants PSTEVO, LLC
and Jeremy Baker’s fraudulent misrepresentation counterclaim is dismissed with prejudice. See
Statement for further details.
STATEMENT
Fantastic Sams Salons (“Fantastic Sams”) and Defendants PSTEVO, LLC and Jeremy
Baker (collectively, “PSTEVO”) entered into a franchise agreement pursuant to which Fantastic
Sams granted PSTEVO a franchise to operate a Fantastic Sams Salon. Fantastic Sams initiated
the present lawsuit against PSTEVO seeking declaratory relief with regard to various terms of
the franchise agreement. PSTEVO answered Fantastic Sams’ complaint and asserted several
counterclaims, one of which was for fraudulent misrepresentation.
PSTEVO alleges that prior to entering into the franchise agreement, Baker met with two
agents of Fantastic Sams – Tom and David Boitz, Vice President and Regional Director of
Fantastic Sams, respectively. At the meeting, Boitz – PSTEVO does not specify which Boitz –
presented Baker with various financial disclosure documents that allegedly stated that PSTEVO
only needed three months of working capital to open the salon, and thereafter PSTEVO could
expect the salon to be profitable. PSTEVO alleges that Fantastic Sams’ website contained the
same misrepresentation and that Boitz – again PSTEVO does not specify which Boitz – also told
Baker that he only needed three months of working capital before he could expect the salon to be
profitable. PSTEVO further alleges that Boitz and Fantastic Sams knew that these statements
were false and that it would take longer than three months for the salon to become profitable, and
that these misrepresentations were material in that PSTEVO relied on them in deciding whether
to enter into the franchise agreement.
Fantastic Sams moves to dismiss PSTEVO’s fraudulent misrepresentation counterclaim
pursuant to Federal Rule of Civil Procedure 12(b)(6). A motion to dismiss under Rule 12(b)(6)
challenges the sufficiency of the complaint, not its merits. Fed. R. Civ. P. 12(b)(6); Gibson v.

City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to
dismiss, the Court accepts as true all well-pleaded facts in the plaintiff’s complaint and draws all
reasonable inferences from those facts in the plaintiff’s favor. AnchorBank, FSB v. Hofer, 649
F.3d 610, 614 (7th Cir. 2011). Legal conclusions, however, are not entitled to the same
presumption of truth. Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S. Ct. 1937, 173 L. Ed. 2d 868
(2009). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant
with fair notice of a claim’s basis but must also be facially plausible. Iqbal, 556 U.S. at 678; see
also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007).
“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556
U.S. at 678.
Fantastic Sams advances several arguments in support of its motion to dismiss
PSTEVO’s fraudulent misrepresentation claim, one of which is that the claim is barred by two
disclaimers contained in the agreements signed by the Parties. 1 The relevant disclaimers state as
follows: (1) “NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH
CONTRADICTED THE DISCLOSURE DOCUMENT WAS MADE TO ME, EXCEPT:” and
(2) “NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH STATED
OR SUGGESTED ANY SALES, INCOME, OR PROFIT LEVELS WAS MADE TO ME,
EXCEPT:”. Doc. 26 at 9. Each disclaimer provided several lines for written responses. After
each disclaimer Baker wrote the word “none,” and initialed his response. Id. Fantastic Sams
thus argues that PSTEVO is precluded from claiming that it relied on Fantastic Sams’ or its
agents’ representations regarding projected profitability. Because reliance is a necessary element
of a fraudulent misrepresentation claim, Fantastic Sams argues that PSTEVO’s claim necessarily
fails. See Bonhomme v. St. James, 970 N.E.2d 1, 11, 2012 IL 112393, 361 Ill. Dec. 1 (2012).
PSTEVO does not dispute that Baker indicated “none” after each disclaimer. Nor does
PSTEVO dispute the general enforceability of the disclaimers. Rather, PSTEVO argues that the
disclaimers do not apply to the particular misrepresentations alleged. Specifically, PSTEVO
argues that the first disclaimer does not bar its fraudulent misrepresentation claim because
PSTEVO does not allege that the misrepresentations contradicted the disclosure documents.
Rather, PSTEVO asserts that the disclosure documents contained the same alleged
misrepresentation as those made by Boitz and contained on Fantastic Sams’ website. In other
words, the alleged misrepresentations made by Boitz and Fantastic Sams’ website were
consistent with, rather than contradicted by, the disclosure documents. The Court agrees and
finds that the first disclaimer does not bar PSTEVO’s fraudulent misrepresentation claim.
With regard to the second disclaimer, PSTEVO argues that it does not preclude its
fraudulent misrepresentation claim because its claim is premised on “minimum viability,” not
guaranteed income. In making this argument, PSTEVO does not cite to its counterclaim, which
upon the Court’s review does not contain the words “minimum viability.” Nor does PSTEVO
cite to any portion of the disclosure documents or website that allegedly discusses “minimum
viability.” Either way, the Court finds that PSTEVO’s argument directly contradicts the
allegations found in PSTEVO’s counterclaim. PSTEVO’s fraud counterclaim is clearly
1

Because the Court finds that one of the disclaimers bars Defendants’ fraudulent misrepresentation counterclaim, it
declines to address Fantastic Sams’ other bases for dismissal.
2

premised on the assertion that Fantastic Sams misrepresented projected profit levels, i.e., that
PSTEVO could expect to be profitable three months after opening the salon. See Doc. 24 ¶ 28
(PSTEVO “only needed 3 months of working capital, which is the average length of time for
salons to break even on the costs of opening and operating”); id. ¶ 30 (“[the] materials also
presented 3 months of working capital as the average amount needed to become profitable.”); id.
¶ 36 (“The statements by Boitz and Fantastic Sams that only three months of working capital
would be needed, and thereafter Baker could expect to be profitable, were material.”). The
second disclaimer expressly disclaims that any such representations regarding projected sales,
income, or profit levels were made. It is undisputed that Baker affirmed in response to this
disclaimer that no such representations were made to him. PSTEVO’s claim that Fantastic Sams
represented that PSTEVO could expect to be profitable after three months of operating is thus
barred. See Pardo v. Mecum Auction Inc., 77 F. Supp. 3d 703, 709 (N.D. Ill. 2014) (finding
disclaimer prohibited oral misrepresentation claim); Adler v. William Blair & Co., 648 N.E.2d
226, 232–33, 271 Ill. App. 3d 117, 207 Ill. Dec. 770 (1995) (dismissing fraudulent
misrepresentation claim as to oral statements where plaintiffs signed “agreement warranting that
they relied only on the information contained in the [contract].”).
For the foregoing reasons, Fantastic Sams’ Motion to Dismiss [26] is granted and
PSTEVO’s fraudulent misrepresentation claim is dismissed with prejudice.

Date: January 15, 2016
/s/ Sara L. Ellis_______

3