GRE-TER ENTERPRISES, INC. v. MANAGEMENT RECRUITERS INTERNATIONAL, INC. et al

Filing 42

ORDER - granting in part and denying in part 9 Motion to Dismiss; denying 12 Motion; As to COUNT I, the motion to dismiss is DENIED. As to COUNTS II, III, IV, V, and VI, the motion to dismiss is GRANTED. COUNTS II, III, IV, V, and VI are DISM ISSED. Dismissal is without prejudice but without leave to replead. Such leave may be sought in the ordinary course and will be granted only on a clear showing that the above recited deficiencies as to these counts have been cured. The motion for oral argument is also DENIED. Signed by Judge Sarah Evans Barker on 6/26/2018. (CKM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
GRE-TER ENTERPRISES, INC.,

)
)
)
)
)
)
)
)
)
)
)
)

Plaintiff,
v.
MANAGEMENT RECRUITERS
INTERNATIONAL, INC.,
BROWNS CANYON CORPORATION,
FRANCHISE SERVICES OF OHIO, INC.,
Defendants.

No. 1:17-cv-03554-SEB-DLP

OPINION AND ORDER ON MOTION TO DISMISS (DKTS. 9, 12)
Plaintiff Gre-Ter Enterprises (“Gre-Ter”), an Indiana corporation, sued defendants
Management Recruiters International, a Delaware corporation, and its affiliates 1
(together, “Management Recruiters”) for breach of a franchise agreement and violations
of the Indiana Franchise Act (“Franchise Act”), Ind. Code ch. 23-2-2.5, and the Indiana
Deceptive Franchise Practices Act (“Practices Act”). Ind. Code ch. 23-2-2.7.
Management Recruiters has moved to dismiss Gre-Ter’s complaint for failure to state a
claim. Dkt. 9. Management Recruiters also seeks oral argument on its motion. Dkt. 12.

1

These are Browns Canyon Corporation and Franchise Services of Ohio. Management
Recruiters avers that Franchises Services of Ohio no longer exists as an independent concern and
Browns Canyon Corporation is now Browns Canyon, LLC. Br. Supp. 1; also Dkt. 13 (Fed. R.
Civ. P. 7.1 corporate disclosure statement).

1

For the reasons explained below, the motion to dismiss is granted in part and
denied in part. Because the briefs adequately present the issues for decision, we deny the
motion for oral argument.
Factual and Procedural Background
The complaint alleges the following, which, read together with the materials
attached to the complaint, 2 we take as true for the purposes of the instant motion.
Management Recruiters is a franchisor of recruiting and contract-staffing businesses. In
1998 and again in 2005, Gre-Ter entered into franchise agreements with Management
Recruiters (“the 1998 agreement” and “the 2005 agreement”; together, “the franchise
agreements”). For at least part of the terms of the franchise agreements, Gre-Ter’s
interest in the franchise has been shared with several individual franchisees, at least some
of whom were or are Gre-Ter shareholders. This lawsuit, however, has been brought by
Gre-Ter only.
The 1998 agreement granted Gre-Ter the exclusive right to operate a franchise
office in the territory of Boone County, Indiana. No restrictions were placed on Gre-Ter’s
right to do business outside the territory from its Boone County office, nor on the right of
other franchisees to do business within Boone County from offices outside the territory.
The 2005 agreement granted Gre-Ter the same rights for the territory of Hamilton
County, Indiana, excluding the city of Noblesville. But at the time this case was filed,

2

These are the franchise agreements and several amendments to them. They are properly
considered on a motion to dismiss, Fed. R. Civ. P. 10(c); Forrest v. Univ’l Sav. Bank, F.A., 507
F.3d 540, 542 (7th Cir. 2007), and are cited according to their CM/ECF filing pagination.

2

Management Recruiters’s website informed prospective franchisees that its franchises
have “no territory []or border restrictions[,]” and that their prospective “success is not
limited by restrictive franchise territories.” Compl. ¶ 50. In this way or in others,
Management Recruiters “ha[s] allowed other franchisees to locate their offices and
operate within” Gre-Ter’s exclusive territory. Id. ¶ 51.
The franchise agreements further provide that Gre-Ter would pay to Management
Recruiters a “national advertising fee,” Dkt. 1 Ex. A, at 22 (1998 agreement), or an
“advertising, marketing, and public relations fee,” id. at 159 (2005 agreement), equal to
one-half percent of Gre-Ter’s gross receipts from the franchise. Other than their
designation as advertising fees, the franchise agreements specified nothing about what
Management Recruiters was to do with the funds so collected. The 2005 agreement
provided that the fees were “for [Management Recruiters’s] benefit[.]” Id.
The franchise agreements were occasionally amended. In 2002, four new
shareholders purchased stock in Gre-Ter. In 2005, Gre-Ter’s majority shareholders
transferred control of the corporation to its minority shareholders. Both transactions were
memorialized in the second and fifth amendments to the franchise agreements,

3

respectively. See id. at 36 (second amendment), 3 174 (fifth amendment). 4 In 2015, the
thirteenth amendment to the franchise agreements memorialized the transfer of a portion
of the individual franchisees’ interest in the franchise to a new individual. See id. at 299.
Franchisors are required by state and federal law to make certain disclosures to
prospective franchisees. 16 C.F.R. § 436.2(a); Ind. Code § 23-2-2.5-13. The complaint
does not allege that Management Recruiters failed to make the required disclosures to
Gre-Ter before it became a franchisee of Management Recruiters in 1998 or 2005. The
complaint does allege that, in connection with the changes to Gre-Ter’s ownership
structure memorialized in the second and fifth amendments, Management Recruiters
supplied Gre-Ter with copies of its 2002 and 2004 disclosure statements (“the 2002
disclosure statement” and “the 2004 disclosure statement”; together, “the disclosure
statements”). The complaint alleges further that Management Recruiters failed to supply
Gre-Ter with its newest disclosure statement upon the 2015 transfer memorialized in the
thirteenth amendment.

3

The complaint designates the document cited here as the second amendment to the franchise
agreements, Compl. ¶ 14 (“Attached . . . is a true and correct copy of the Second Amendment.”),
but the record shows only the stock-purchase agreements between Gre-Ter and its new
shareholders. Neither Management Recruiters nor its affiliates are parties to, or even referenced
in, the cited document. As the document is marked “Exhibit A,” Dkt. 1 Ex. A, at 36, it appears
that the stock-purchase agreements were attached to the second amendment when it was
executed, but a copy of the second amendment itself has been omitted from Gre-Ter’s filing.
4

Unlike the “second amendment,” the “fifth amendment” appearing in the record does purport to
amend a franchise agreement, but one dated August 17, 1994. Dkt. 1 Ex. A, at 174. The same is
true for the “twelfth amendment” cited in the complaint. Id. at 296. The “thirteenth amendment”
cited in the complaint purports to amend “franchise agreement[s] dated February 28, 2005 [i.e.,
the 2005 agreement], August 17, 1994, and August 17, 1994 [sic].” Id. at 299. The confusion on
display here and in note 3 supra, on which the briefing is entirely silent, does not preclude our
decision on the instant motion, but surely does not facilitate it.

4

Among other requirements, federal regulation required the disclosure statements to
state “the franchisor’s principal assistance and related obligations” with respect to the
“franchisor’s assistance, advertising, computer systems, and training.” 16 C.F.R. §
436.5(k) (initial capitals omitted). The regulation instructed that, “[f]or each obligation,”
the franchisor was to “cite the section number of the [standard or form] franchise
agreement imposing the obligation.” Id. The disclosure statements dutifully included a
statement of the “FRANCHISOR’S OBLIGATIONS,” with sections for inter alia “Marketing
and Advertising.” Dkt. 1 Ex. A, at 191 (2004 disclosure statement), 54 (2002 disclosure
statement).
Under this heading, Management Recruiters disclosed that they administered an
“Advertising, Marketing and Public Relations Fund (the ‘Fund’),” id. at 191 (2004
disclosure statement), 54 (2002 disclosure statement), which was supported by
franchisees’ advertising fees. The disclosure statements represented that “[t]he Fund is
used exclusively” for advertising and “any other activities which [Management
Recruiters] believes will enhance the image of [its] offices.” Id. at 191 (2004 disclosure
statement), 54 (2002 disclosure statement). The disclosure statements represented further
that Management Recruiters would supply franchisees with an annual accounting of
payments into and from the Fund. While every other section of the disclosure statements
describing the franchisor’s obligations cited the section number of Management
Recruiters’s standard franchise agreement that imposed the particular obligation
described, none of the disclosures relating to advertising referred to any part of the
standard franchise agreement.
5

In April 2017, Gre-Ter received a “Rep Update article” from Management
Recruiters’s “U.S. Representative Council.” Compl. ¶ 55. The “Rep Update article” is not
attached to the complaint and the nature of the “U.S. Representative Council” is not
explained there. 5 “The April 2017 Article relay[ed] the representative council members
communicated their concerns regarding Fund assets being spent for meetings.” Id. ¶ 56.
Neither the nature of these meetings nor of the spending for them is further explained,
though the complaint alleges that the disclosure statements represented that the uses of
the Fund “did not include meetings.” Id. ¶¶ 23 (2002 disclosure statement), 42 (2004
disclosure statement). “The April 2017 Article note[d] both [Management Recruiters] and
the representative council agreed the Fund would ideally be spent marketing the brands
and offices rather than on meetings.” Id. ¶ 57.
Between 2012 and 2016, Management Recruiters spent $1,446,301 “on meetings.”
Id. ¶ 60. The complaint does not specifically allege what proportion of these expenditures
were made from the Fund. The complaint does allege that Management Recruiters has
failed to make an accounting of the Fund when requested to do so by Gre-Ter, despite
Management Recruiters’s representation of an annual accounting made in the disclosure
statements.

5

The disclosure statements note that some portion of moneys in the Fund were spent on
“administrative expenses[,] . . . includ[ing] the Regional Representative Council . . . [,]” which
“consists of seven Management Recruiters representatives and seven Sales Consultants
representatives from the United States[,]” plus “three representatives from the international
offices.” Dkt. 1 Ex. A, at 54 (2002 disclosure statement); see also id. at 191 (2004 disclosure
statement) (substantially same).

6

Gre-Ter filed suit in Hamilton Superior Court, Hamilton County, Indiana, on
September 7, 2017. Dkt. 1, at 1. Management Recruiters removed the case to this Court
on October 4, 2017, id., properly invoking our diversity jurisdiction. Id. at 4. Gre-Ter’s
six-count complaint charges Count I, breach of contract; Count II, violation of Section 3
of the Franchise Act; Count III, violation of the Practices Act; Count IV, violation of
Section 2 of the Practices Act; Count V, violation of Section 9 of the Franchise Act; and
Count VI, franchise fraud under Section 27 of the Franchise Act. On October 11, 2017,
Management Recruiters moved to dismiss the complaint for failure to state a claim. Dkt.
9; see Fed. R. Civ. P. 12(b)(6). The motion is now fully briefed and ripe for decision.
Standard of Decision
Federal Rule of Civil Procedure 8(a) requires “a short and plain statement showing
that the pleader is entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). To satisfy the requirements
of Rule 8(a) and withstand a motion to dismiss under Rule 12(b)(6), a complaint must
“state a claim to relief that is plausible on its face . . . .” Swanson v. Citibank, N.A., 614
F.3d 400, 404 (7th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A
claim is facially plausible when supported by sufficient factual allegations which, taken
as true, give rise to a reasonable inference of liability. Iqbal, 556 U.S. at 678 (citing Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). Legal conclusions, formulaic
recitation of elements of the cause of action, and speculative possibilities will not do. Id.
In all, the pleader must simply “give enough details about the subject-matter of the case
to present a story that holds together.” Swanson, 614 F.3d at 404.

7

Counts II, V, and VI of the complaint are subject to a heightened pleading
standard. Because such claims sound in fraud, the circumstances alleged to constitute the
fraud must be pleaded with “particularity.” Fed. R. Civ. P. 9(b). Under Rule 9(b), a
plaintiff must allege “‘the first paragraph of any newspaper story’”: “‘the who, what,
when, where, and how’” of the alleged fraud. United States ex rel. Lusby v. Rolls-Royce
Corp., 570 F.3d 849, 853 (7th Cir. 2009) (quoting DiLeo v. Ernst & Young, 901 F.2d 624,
627 (7th Cir. 1990)). While it is “erroneous[]” to “take an overly rigid view of th[is]
formulation,” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co.,
631 F.3d 436, 442 (7th Cir. 2011), the application of which “may vary on the facts of a
given case[,]” id., Rule 9(b) must require “some . . . means of injecting precision and
some measure of substantiation . . . [,]” id. (quoting 2 James W. Moore, Moore’s Federal
Practice § 9.03 (3d ed. 2010)), if it is to serve its important functions of “forc[ing] the
plaintiff to conduct a careful pretrial investigation” and “protect[ing] defendants from
[the] ‘privileged libel’” of fraud charges. Id. at 441 (quoting Fid. Nat’l Title Ins. Co. of
N.Y. v. Intercounty Nat’l Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005); Kennedy v.
Venrock Assocs., 348 F.3d 584, 594 (7th Cir. 2003)).
Analysis
I. Choice of Law
We address as a preliminary matter the law governing Gre-Ter’s claims. Indiana
courts (whose choice-of-law rules we adopt in diversity, Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941)) routinely enforce and, indeed, “favor[] contractual
stipulations as to governing law.” Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157,
8

1162 (Ind. 2002). By their terms, the franchise agreements “and all matters relating to or
arising out of the relationship between the parties” to them are governed by Ohio law.
Dkt. 1 Ex. A, at 170 (2005 agreement), 33 (1998 agreement).
Without developing an argument from it or explaining its relevance to this case,
Gre-Ter points us to (more accurately, pilfers from, by quoting it without quotation marks
and appending a “see” signal, Br. Opp. 3) Wright-Moore Corp. v. Ricoh Corp., 908 F.2d
128 (7th Cir. 1990). There, our federal court of appeals considered the interaction of
certain Practices Act prohibitions and an Indiana franchisee’s franchise agreement
purporting to be governed by New York law.
Specifically, the Practices Act prohibits franchise agreements “requiring the
franchisee to . . . assent to a release . . . [or] waiver . . . which purports to relieve any
person from liability to be imposed by” the Practices Act, Ind. Code § 23-2-2.7-1(5), or
“limiting litigation brought for breach of the agreement in any manner whatsoever.” Id. §
23-2-2.7-1(10). Because the franchise agreement permitted termination without good
cause and a unilateral change of credit terms, enforceable under New York law but in
violation of the Practices Act, and enforcement of the franchise agreement therefore
would have permitted the franchisor to contract away the franchisee’s statutory
protections in violation of the forum state’s declared public policy, the Seventh Circuit
held that an Indiana court would apply Indiana law to the franchise agreement. WrightMoore Corp., 908 F.2d at 133, 133 n.1.
However, whereas nothing in the franchise agreements here or their chosen law
conflicts with Indiana franchise law, to that extent the parties’ choice of law controls. Id.
9

at 133 n.1 (citing Sheldon v. Munford, Inc., 660 F. Supp. 130 (N.D. Ind. 1987) (no
Indiana public policy against contractual provisions at bar relating to territory and
noncompetition provisions)); Hubbard Auto Ctr., Inc. v. Gen. Motors Corp., 422 F. Supp.
2d 999, 1003 (N.D. Ind. 2006) (party choice controls where no conflict). State-specific
riders to the instant franchise agreements, purporting to rely on the statutory
interpretation of the Indiana securities commissioner, contemplate this result. Dkt. 1 Ex.
A, at 172 (Indiana rider to 2005 agreement) (citing Practices Act’s prohibitions on waiver
of Practices Act rights and litigation limitation, stating opinion of Indiana securities
commissioner that Indiana franchise law must prevail if in conflict with Ohio law), 35
(Indiana rider to 1998 agreement) (same).
In any event, federal “[c]ourts do not worry about conflict of laws unless the
parties disagree on which state’s law applies.” Wood v. Mid-Valley Inc., 942 F.2d 425,
427 (7th Cir. 1991). Here, the parties do not disagree; by failing to make any argument as
to which jurisdiction’s law applies to its case, Gre-Ter has only vaguely gestured in the
direction of a potential disagreement. 6 Thus, we hold, Ohio law governs the franchise
agreements without limitation of any Franchise or Practices Act liability.

6

Moreover, Indiana “permits state public policy [as that declared by the Franchise and Practices
Acts] to override contractual choice of law only if the state has a materially greater interest in the
litigation than the contractually chosen state.” Wright-Moore Corp., 908 F.2d at 132–33; see
Restatement (Second) of Conflict of Laws § 187(2)(b) (Am. Law Inst. 1988). As the presumable
proponent of applying Indiana law, it is Gre-Ter’s burden to plead facts suggesting, or otherwise
to show, that Indiana’s interest in this case is materially greater than Ohio’s. It has not done so.
However, as Management Recruiters has not argued that the Franchise and Practices Acts do not
apply, and in view of the express contractual contemplation of their application, we assume for
the sake of decision that they do.

10

II. Count I: Breach of Contract
Under Ohio law, “[i]n order to substantiate a breach of contract claim, a party
must establish four elements: (1) a binding contract or agreement was formed; ‘(2) the
nonbreaching party performed its contractual obligations; (3) the other party failed to
fulfill its contractual obligations without legal excuse; and (4) the nonbreaching party
suffered damages as a result of the breach.’” Carbone v. Nueva Constr. Grp., L.L.C., 83
N.E.3d 375, 380 (Ohio Ct. App. 2017) (quoting Textron Fin. Corp. v. Nationwide Mut.
Ins. Co., 684 N.E2d 1261, 1266 (Ohio Ct. App. 1996)) (alterations omitted).
The complaint, Gre-Ter asserts, sufficiently “alleges breaches of [the parties’]
contracts in numerous ways including provisions related to territory, use of the Fund, and
failure to provide an accounting.” Br. Opp. 9. The sufficiency of the latter two allegations
depends on Gre-Ter’s assertion that Management Recruiters’s disclosure statements are
enforceable against it as part of the parties’ contracts. We address that assertion below,
for Count I is saved by a single nonconclusory allegation of breach of the franchise
agreements themselves.
A. Breach of the Franchise Agreements
Gre-Ter alleges that Management Recruiters has “allowed other franchisees to
locate their offices . . . within [Gre-Ter’s] exclusive territory and borders.” Compl. ¶ 51.
If true, this practice would violate the franchise agreements. We observe that the balance
of Gre-Ter’s complaint and its briefing strongly suggest that this allegation refers only to
Management Recruiters’s current practice of offering franchise agreements without
territorial restrictions, not to any specific franchisee to whom Management Recruiters has
11

granted a franchise to operate an office within Gre-Ter’s territory—such that
Management Recruiters has, at most, invited rather than committed a breach of contract.
Nevertheless, we must take paragraph 51 of the complaint as pleaded and draw every
nonspeculative inference in Gre-Ter’s favor.
In a footnote in its opening brief, Management Recruiters argues that, “to the
extent that Gre-Ter’s claim arises from the allegation that [Management Recruiters] has
allowed other franchisees to locate their offices within Gre-Ter’s territory (see Compl. ¶
51), there is no breach because the franchise agreements were amended to allow for such
stores within Gre-Ter’s territory[.]” Br. Supp. 11 n. 6 (citing twelfth amendment to
franchise agreements, Dkt. 1 Ex. A, at 296–97). That does not quite tell the whole story,
however. By its terms, the twelfth amendment to the franchise agreements returned a
portion of Gre-Ter’s territory to Management Recruiters for the use of one prospective
franchisee “Ellis”; permitted Management Recruiters to grant an easement to Ellis to
operate an office at a certain address within Gre-Ter’s territory, on the condition inter
alia that Ellis be prohibited from operating offices both at the easement address and
within the transferred territory; and finally memorialized the right of one “Campeas” to
operate an office within Gre-Ter’s territory.
The upshot is that Management Recruiters is wrong to suggest that the twelfth
amendment extended blanket permission to other franchisees to operate within Gre-Ter’s
territory. Rather, the amendment appears to have redefined that territory and subjected its
exclusivity only to the circumscribed rights of Ellis and Campeas. None of this defeats or
is even inconsistent with Gre-Ter’s allegation that Management Recruiters has “allowed
12

other franchisees to locate their offices . . . within [its] exclusive territory and borders.”
Compl. ¶ 51. In its reply brief, Management Recruiters insists it has continued to honor
the terms of its agreements with Gre-Ter, including the twelfth amendment. Br. Reply 4.
If true, that is a good defense to the action; it is not grounds for dismissal. Count I
survives.
B. Enforceability of the Disclosure Statements
We turn here to the enforceability of the disclosure statements, a question which,
while strictly unnecessary to a resolution of Count I, bears on subsequent charges in the
complaint. “Clearly the disclosure statements are writings intended to be part of the
parties’ arrangement[,]” says Gre-Ter. Br. Opp. 11. But not even the adverb makes it so.
Gre-Ter’s opposition brief is wholly devoid of citations to controlling or, indeed, any law
of contract formation or contract integration.
Under Ohio law, contract formation requires “‘offer, acceptance, contractual
capacity, consideration, . . . a manifestation of mutual assent[,] and legality of object and
of consideration.’” Kostelnik v. Helper, 770 N.E.2d 58, 61 (Ohio 2002) (quoting
Perlmuter Printing Co. v. Strome, Inc., 436 F. Supp. 409, 414 (N.D. Ohio 1976)). It is
undisputed that the franchise agreements are enforceable. 7 The question here is whether
the complaint plausibly alleges that the parties manifestly mutually assented to the terms
of the disclosure statements as a part of their enforceable agreement. It does not.

7

Unless set aside for fraud or as contrary to public policy, a possibility discussed below. See
note 8 infra and accompanying text.

13

Absent grounds for invalidation, “the parties’ final written integration of their
agreement may not be varied, contradicted or supplemented by evidence of . . . prior
written agreements.” Galmish v. Cicchini, 734 N.E.2d 782, 788 (Ohio 2000) (quotations,
citation omitted). “[A] written contract which appears to be complete and unambiguous
on its face will be presumed to embody the final and complete expression of the parties’
agreement.” Fontbank, Inc. v. CompuServe, Inc., 742 N.E.2d 674, 678 (Ohio Ct. App.
2000) (citing inter alia Ayres v. Cook, 46 N.E.2d 629, 632 (Ohio Ct. App. 1941)). The
presumption of integration “is strongest where a written agreement contains a merger or
integration clause expressly indicating that the agreement constitutes the parties’
complete and final understanding regarding its subject matter.” Id. at 678–79.
Gre-Ter supplies no grounds for permitting the terms of the franchise agreements
to be supplemented by the terms of the disclosure statements. The franchise agreements
appear to be complete and unambiguous on their face. By their terms, as relevant here,
they raise no suggestion that they incorporate other provisions, written or oral. Indeed,
the franchise agreements’ integration clauses expressly provide the contrary: “ENTIRE
AGREEMENT. This Agreement contains the entire agreement among [Management
Recruiters] and [Gre-Ter], and there are no representations, inducements, arrangements,
promises or agreements outstanding between them, either oral or in writing, other than
those herein contained.” Dkt. 1 Ex. A, at 171 (2005 agreement), 33 (1998). Nothing in
the complaint plausibly overcomes the “strongest” presumption of integration created by
the terms of the franchise agreements. Fontbank, 742 N.E.2d at 678.

14

Moreover, the disclosure statements themselves give no indication that they were
intended to be an enforceable part of the parties’ contracts. As to their advertising
provisions in particular, they alone among the disclosed “franchisor’s obligations” are
unaccompanied by any corresponding reference to the section of the franchise
agreements purporting to impose them. Given the express command of federal regulation
to supply such references, see 16 C.F.R. § 436.5(k), as well as under a common-sense
reading of the disclosure statements as a whole, this is strong evidence, if any further
were needed, that the advertising provisions in the disclosure statements were not
intended to be an enforceable part of the parties’ contracts.
Accordingly, under Count I and elsewhere, we treat the disclosure statements as
wholly unenforceable, and disregard without further comment arguments predicated on
their enforceability or on any alleged “breach” of them.
III. Counts II, V, and VI: Franchise Act Violations
The Franchise Act generally requires franchisors to register with the Indiana
securities commissioner and to provide prospective franchisees with a disclosure
statement. Specifically, Section 9 of the Act provides that “[n]o person may offer or sell
any franchise” unless the franchise is registered with the commissioner and a disclosure
statement has been provided, or unless the franchisor is exempt from such requirements.
Ind. Code § 23-2-2.5-9. Section 3 of the Act establishes an exemption from the
requirements of Section 9 if certain conditions are met. The Act’s registration and
disclosure requirements are privately enforceable only through the Act’s antifraud
provision, Ind. Code § 23-2-2.5-27, “for acts which constitute fraud, deceit or
15

misrepresentation.” Cont’l Basketball Ass’n, Inc. v. Ellenstein Enters., Inc., 669 N.E.2d
134, 137 (Ind. 1996).
Section 27 provides as follows:
It is unlawful for any person in connection with the offer, sale
or purchase of any franchise . . . directly or indirectly:
(1)

to employ any device, scheme or artifice to
defraud;

(2)

to make any untrue statements of a material fact
or to omit to state a material fact necessary in
order to make the statements made, in the light
of circumstances under which they are made,
not misleading; or

(3)

to engage in any act which operates or would
operate as a fraud or deceit upon any person.

Ind. Code § 23-2-2.5-27. “The core elements” of franchise fraud under Subsections 2 and
3 are “a statement or omission, materiality, and falsity[,]” Enservco, Inc. v. Ind. Secs.
Div., 623 N.E.2d 416, 423 (Ind. 1993), as well as “harm caused by reliance on the
statement or omission.” Id. at 425. Fraud by “‘[a]ny promise or representation or
prediction as to the future’” requires that the prediction be “‘not made honestly or in good
faith[.]’” Id. at 423 (quoting Ind. Code § 23-2-2.5-1(f)); also id. at 423 n. 11. Subsection
1 franchise fraud requires these elements plus scienter. Id. at 423.
Counts II and V of the complaint charge violations of Section 3’s exemption
provision and Section 9’s registration and disclosure provisions, respectively.
Freestanding, these provisions are not privately enforceable. Cont’l Basketball Ass’n, 669
N.E.2d at 137. Nor does their violation per se render a franchise agreement void or

16

voidable. 8 Id. at 140–41. Violations of them may, however, be considered as evidence of
franchise fraud under Section 27.
But Gre-Ter has not adequately pleaded any failure of registration and disclosure
in violation of Section 3 or Section 9. Preliminarily, we note that, although their
violations are pleaded separately, these two statutory sections are not separately violable.
More specifically, as Management Recruiters points out, Br. Supp. 6, a franchisor cannot
independently “violate” Section 3. A franchisor is either exempt under Section 3 from the
requirements of Section 9, in which case its conduct cannot violate Section 9, or it is not
exempt under Section 3, in which case its conduct may violate Section 9. Any allegation
of a “violation” of Section 3 is merely a restated allegation of a violation of Section 9.
Section 9 provides, first, that “[n]o person may offer or sell any franchise . . .
unless the franchise is registered . . . or is exempt . . .” Ind. Code § 23-2-2.5-9(1). Under
Count V, “Violation of [Section 9],” Gre-Ter alleges, “[Management Recruiters] ha[s]
not and [is] not registered with Indiana governmental agencies” and “[Management
Recruiters is] not exempt from registration with Indiana governmental agencies.” Compl.
¶¶ 93–94. These barebones recitations, which merely negate the statutory language, are

8

Contrary to Gre-Ter’s expectation, it may not both disavow a contract—whether for fraud,
illegality, or another reason—and win damages for its breach; it must elect one of these
inconsistent remedies before final judgment. This is so no matter whether Indiana or Ohio law
applies. UFG, LLC v. Sw. Corp., 848 N.E.2d 353, 361–62, 364 (Ind. Ct. App. 2006) (citing
Cahoon v. Cummings, 734 N.E.2d 535, 542 (Ind. 2000)); Fenstermaker v. Elwood, 479 N.E.2d
908, 911 (Ohio Ct. App. 1984) (citing inter alia Frederickson v. Nye, 144 N.E. 299 (Ohio
1924)). We note that invalidation is not an available remedy under the Practices Act at all. Ind.
Code § 23-2-2.7-4 (creating cause of action for Practices Act violation) (“an action to recover
damages, or reform the franchise agreement”).

17

the first mention in the complaint of any nonexempt failure to register. They are
unsupported by any other complaint allegations and so legally conclusory as to be
disentitled to the presumption of truth on a motion to dismiss. We therefore disregard
them.
Section 9 provides, second, that “[n]o person may offer or sell any franchise . . .
without first providing to the prospective franchisee . . . a disclosure statement . . . .” Ind.
Code § 23-2-2.5-9(1); see id. § 23-2-2.5-9-13 (defining “disclosure statements”). Under
Count V, Gre-Ter conclusorily alleges that Management Recruiters failed to provide
disclosure statements to prospective franchisees. But in the body of the complaint, GreTer never alleges that Management Recruiters failed to provide disclosure statements to
Gre-Ter when it was a prospective franchisee, arguably, 9 in 1998 and 2005, before the
respective franchise agreements were concluded. The complaint does allege that no
disclosure statement was furnished upon the 2015 transfer of partial ownership interest
memorialized in the thirteenth amendment, but Gre-Ter was not then a prospective
franchisee. Accordingly, we find in the complaint no plausible allegation of a Section 9
violation.
More importantly, and no matter whether Gre-Ter has adequately pleaded
violations of Section 3 or Section 9, Gre-Ter has not come within a country mile of
alleging any fraud “in connection with the offer, sale or purchase of any franchise” as
would satisfy Rule 8(a), not to speak of Rule 9(b). Ind. Code § 23-2-2.5-27. Not a single

9

As noted above, but has gone unremarked-on in the briefing, Gre-Ter’s first franchise
agreement with Management Recruiters appears to have been executed in 1994.

18

one of the eight paragraphs set forth under Count VI, “Violation of [Section 27],”
contains a nonconclusory factual allegation of fraud. Gre-Ter has not identified with
particularity a single false statement or misleading omission allegedly made by an agent
or principal of Management Enterprises, by whom it was made, to whom it was made, or
when and where it was made; a single fact that would support an inference that any
prediction as to the future was not made honestly or in good faith; or a single fact that
would support an inference of scienter. We have not the faintest notion of Gre-Ter’s
theory of the alleged fraud. There are, in short, not even enough “details . . . to present a
story that holds together” so as to satisfy Rule 8(a). Swanson, 614 F.3d at 404.
Counts II and V charge wrongs which are not privately redressable. Count VI fails
to satisfy the applicable pleading standards. Counts II, V, and VI must therefore be
dismissed.
IV. Counts III and IV: Practices Act Violations
The Practices Act creates a private right of action for damages or reformation in
any franchisee who is party to a franchise agreement containing a provision prohibited by
Section 1 of the Act or who is injured by a practice prohibited by Section 2 of the Act.
Ind. Code § 23-2-2.7-4. See id. § 23-2-2.7-1 (prohibited provisions of franchise
agreement); id. § 23-2-2.7-2 (prohibited practices “in relation to [franchise] agreement”).
“No action may be brought for a violation of [the Practices Act] more than two . . .
years after the violation.” Id. § 23-2-2.7-7. 10 For the purposes of Section 1, a violation

10

Though the statute of limitations is an affirmative defense not ordinarily raised on a motion to
dismiss, the defense may be entertained if its predicates are established by the complaint as a
19

occurs, and the limitations period begins to run, when a franchise agreement containing
the prohibited provision is executed. Monroe Cty. Oil Co., Inc. v. Amoco Oil Co., 75 B.R.
158, 162 (S.D. Ind. 1987) (Steckler, J.); Anderson v. Indianapolis Ind. AAMCO Dealers
Advert. Pool, 678 N.E.2d 832, 836 (Ind. Ct. App. 1997). For the purposes of Section 2,
Management Recruiters argues that the limitations period “does not embody a discovery
rule” and the two-year period therefore begins to run from the time the franchisor
engages in the prohibited conduct, no matter whether an asserted injury has ripened, and
a claim for it accrued, within that time. Br. Supp. 7. 11
A. Count III: Section 1 Prohibited Provisions
Count III charges a violation of an unidentified provision of the Practices Act.
Under that heading, the complaint alleges that Management Recruiters has “made
substantial modifications of franchise agreements by the franchisor without the consent in

matter of law. Bader v. Air Line Pilots Assoc., 113 F. Supp. 3d 990, 997 (N.D. Ill. 2015) (citing
Jones v. Bock, 549 U.S. 199, 215 (2007)).
11

There is a dearth of precedent on this issue. But in the context of franchisee discrimination, a
prohibited practice under Section 2, in a different case we have previously accepted a
defendant’s contention that the limitations period is “occurrence-based” rather than a rule of
discovery, though plaintiffs’ claim would have been untimely under either construction. Craig &
Landreth, Inc. v. Mazda Motor of Am., Inc., 744 F. Supp. 2d 818, 831 (S.D. Ind. 2010) (Barker,
J.). Compare Ind. Code § 23-2-2.5-30 (Franchise Act limitations period) (“A person may not
maintain an action . . . unless brought before the expiration of three . . . years after discovery . . .
of the facts constituting the violation.”) and id. § 34-11-2-4(a) (general tort limitations period
held to be discovery rule, Barnes v. A.H. Robins Co., Inc., 476 N.E.2d 84, 86 (Ind. 1985)) (“An
action . . . must be commenced within two . . . years after the cause of action accrues.”) with id. §
23-2-2.7-7 (Practices Act limitations period) (“No action may be brought . . . more than two . . .
years after the violation.”) and id. § 34-18-7-1(b) (Medical Malpractice Act limitations period
held to be “occurrence” rule, Martin v. Richey, 711 N.E.2d 1273, 1278 (Ind. 1999)) (“A claim . .
. may not be brought . . . unless . . . filed within two . . . years after . . . the alleged act, omission,
or neglect[.]”).

20

writing of franchisees or Plaintiff.” Compl. ¶ 80. As this is not a prohibited practice under
Section 2, we take this allegation to be directed to the prohibition in Section 1 on
franchise agreement provisions “[a]llowing substantial modification of the franchise
agreement by the franchisor without the consent in writing of the franchisee.” Ind. Code §
23-2-2.7-1(3).
As Management Recruiters points out, the franchise agreements contain no such
prohibited provision. In fact, both agreements provide that “[a] modification or waiver of
any of the provisions of th[ese] Agreement[s] shall be effective only if made in writing
and executed with the same formality as th[ese] Agreement[s].” Dkt. 1 Ex. A, at 171
(2005 agreement), 33 (1998 agreement). That is the end of Count III. See Forrest v.
Univ’l Sav. Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007) (where conflict between
complaint and exhibit, exhibit “typically” controls). Even if it were not, both franchise
agreements were executed more than a decade before Gre-Ter filed this lawsuit; any
claim under Section 1 of the Practices Act is therefore untimely by at least three
presidential administrations. Gre-Ter’s attempts to resist this result are either not
comprehensible to the Court or else are the old wine of its breach-of-contract allegations
poured into the new skin of the Practices Act.
B. Count IV: Section 2 Prohibited Practices
Count IV charges violations of Section 2 of the Practices Act. The complaint
points specifically to Subsection 5, prohibiting a franchisor from “[d]iscriminating
unfairly among its franchisees or unreasonably failing or refusing to comply with any
terms of a franchise agreement[,]” Ind. Code § 23-2-2.7-2(5), and Subsection 8,
21

prohibiting a franchisor from “[u]sing deceptive acts in connection with the franchise or
the franchisor’s business.” Id. § 23-2-2.7-2(8).
As for franchisee discrimination under Subsection 5, the Seventh Circuit, in the
absence of guidance from the state courts, has held
that “discrimination among franchisees that as between two
or more similarly situated franchisees, and under similar
financial and marketing conditions, a franchisor engaged in
less favorable treatment toward the discriminatee than toward
other franchisees.” In order to prove discrimination, plaintiffs
must therefore make a showing of “arbitrary disparate
treatment among similarly situated individuals or entities.”
Andy Mohr Truck Ctr., Inc. v. Volvo Trucks N. Am., 869 F.3d 598, 604 (7th Cir. 2017)
(quoting Canada Dry Corp. v. Nehi Beverage Co., Inc. of Indianapolis, 723 F.2d 512,
521 (7th Cir. 1983)) (alteration, internal citation omitted). Without giving a full account
of “what it takes to ‘discriminate unfairly’ as the [Practices Act] uses the term[,]” id. at
605, the court pointed out that neither disparate treatment, id. at 606, nor even arbitrary
disparate treatment, id. at 607, necessarily suffices to make out a claim for unfair
disparate treatment.
The complaint raises no plausible inference that Gre-Ter has been injured by any
unfair disparate treatment by Management Recruiters. The nonconclusory factual
allegations set forth under Count IV do not relate to disparate treatment of any
description. See Compl. ¶¶ 88–89. In its brief, Gre-Ter argues that Management
Recruiters has discriminated against it by failing to honor its territorial exclusivity. But
this is nothing more than the breach of contract alleged in Count I and discussed above.
There are no factual allegations relating to similarly situated comparators, to how those
22

comparators have been arbitrarily treated more favorably than Gre-Ter, or to how such
disparate treatment has been unfair.
As for unreasonable failure or refusal to comply with the franchise agreement
under Subsection 5, again Gre-Ter adverts to its breach-of-contract allegations. Though
here as elsewhere we proceed with little precedent to guide us, it is clear at least that
Subsection 5 is not merely duplicative of the common-law action for breach of contract,
for Indiana courts presume that the Indiana General Assembly “did not enact a useless
provision.” Hinshaw v. Bd. of Comm’rs, 611 N.E.2d 637, 638 (Ind. 1993). The claim
under Subsection 5 is therefore presumptively narrower than the common-law action: the
franchisor’s breach of the franchise agreement must be due to an “unreasonable fail[ure]
or refus[al] . . . .” Ind. Code § 23-2-2.7-2(5) (emphasis added). And no allegations in the
complaint give rise to a plausible inference that Management Recruiters refused not to
grant a new franchisee an office in Gre-Ter’s exclusive territory after being asked not to
do so by Gre-Ter, or that Management Recruiters’s alleged breach was otherwise
“unreasonable,” beyond simply constituting a breach.
Finally, as for the use of deceptive acts in connection with the franchise or the
franchisor’s business under Subsection 8, the complaint alleges that Management
Recruiters “presented for signing a franchise agreement in which the terms and
conditions differed materially from those presented in the template contained in the
disclosure document, and [Management Recruiters] did not inform prospective
franchisees and [Gre-Ter] of the differences before execution of franchise agreements
[sic].” Compl. ¶ 89.
23

As to Management Recruiters’s conduct toward other franchisees or prospective
franchisees, Gre-Ter obviously cannot maintain an action for another’s injuries. See Ind.
Code § 23-2-2.7-4; also U.S. Const. art. III. As to Gre-Ter itself, even assuming that the
alleged bait-and-switch could constitute a deceptive act within the meaning of the
Practices Act, contra Volvo Trucks N. Am. v. Andy Mohr Truck Ctr., No. 1:12-cv-448,
2014 WL 4794185, at *13 (S.D. Ind. Sept. 25, 2014) (Lawrence, J.) (holding Subsection
8 applies only to deceptive acts occurring after execution of franchise agreement), aff’d in
relevant part, 869 F.3d 598 (7th Cir. 2017), such a claim is unambiguously barred by the
two-year limitations period, no matter whether the statute of limitations embodies a
discovery rule.
The 2005 agreement was executed on February 28, 2005. Dkt. 1 Ex. A, at 158.
Even if the limitations period is governed by a discovery rule, and thus did not begin to
run until Gre-Ter’s injury was discovered or discoverable with the exercise of reasonable
diligence, see Barnes v. A.H. Robins Co., Inc., 476 N.E.2d 84, 86 (Ind. 1985), any injury
flowing from a discrepancy between the disclosure statement and the franchise agreement
was discoverable with the exercise of reasonable diligence once Gre-Ter was handed the
franchise agreement to sign no later than February 28, 2005. A claim for such injury is
therefore more than a decade late.
The complaint contains no plausible allegations of an actionable Practices Act
violation. Counts III and IV must therefore be dismissed.
V. The 2010 Release

24

In its reply brief, Management Recruiters raises a new argument for dismissal: the
execution in 2010 of a general release of Management Recruiters by “Young,” a former
Gre-Ter shareholder. Management Recruiters points to the following language therein:
[Young] on behalf of [Young’s] affiliates, officers, directors,
shareholders, employees, agents, successors and assigns,
hereby releases [Management Recruiters], its affiliates,
officers, directors, shareholders, employees, agents,
successors and assigns from all claims and causes of action
which [Young] has or may have, whether known or unknown,
against [Young] [sic] relating to any occurrence or transaction
up to and including the date of this [release], including any
claims arising out of [Young’s] purchase of the franchises,
the acts of the parties during the term of the Franchise
Agreements, or the acts of any other franchisee of
[Management Recruiters], including any claim for breach of
contract, fraud, unfair competition, violation of any federal or
state antitrust, franchise, securities, and/or other law or
regulation.
Dkt. 22 Ex. 4, at 2.
This argument fails for four reasons which may be briefly stated. First, new
arguments may not be raised in reply. Autotech Techs. Ltd. P’ship v.
Automationdirect.com, Inc., 249 F.R.D. 530, 536 (N.D. Ill. 2008). Second, only
affirmative defenses established by the complaint (including documents attached to it)
will be heard on a motion to dismiss for failure to state a claim. Bader v. Air Line Pilots
Assoc., 113 F. Supp. 3d 990, 997 (N.D. Ill. 2015). Third, the release ineffectually releases
“[Management Recruiters] . . . from all claims and causes of action which [Young] has or
may have, whether known or unknown, against [Young] . . . [,]” Dkt. 22 Ex. 4, at 2
(emphasis added), not from all claims which Young had or may have had against
Management Recruiters. Fourth, even if the release were construed to release claims
25

against Management Recruiters, the release could only operate to release Management
Recruiters from “all claims and causes of action which [Young]” had or may have had, id.
(emphasis added), not those which Gre-Ter had or has now. 12 Management Recruiters is
not entitled to dismissal on the basis of the release.
Conclusion and Order
Despite its best efforts, Gre-Ter has narrowly avoided dismissal of its entire
complaint. For the sake of a “just, speedy, and inexpensive determination of [this]
action,” Fed. R. Civ. P. 1, we urge a disciplined cabining of discovery on the single
remaining question of whether Count I presents a triable issue. The Magistrate Judge’s
assistance will greatly enhance the march toward that goal. We urge as well a prompt
invocation of that help by the parties.
For the reasons explained above:
As to COUNT I, the motion to dismiss is DENIED.
As to COUNTS II, III, IV, V, and VI, the motion to dismiss is GRANTED.
COUNTS II, III, IV, V, and VI are DISMISSED. Dismissal is without prejudice but
without leave to replead. Such leave may be sought in the ordinary course and will be
granted only on a clear showing that the above recited deficiencies as to these counts
have been cured.

12

Management Recruiters argues that, as Young’s interest in the franchise was transferred to
Gre-Ter under the release, and “[t]he release is made on behalf of [Young’s] successors and
assigns, which include Gre-Ter[,]” therefore “Gre-Ter has released [Management Recruiters] . . .
.” Reply Br. 20. This is incorrect. Young’s release of Young’s claims bars any successors or
assigns of those claims from bringing them; Young’s release nowhere purports to release others’
claims against Management Recruiters, including Gre-Ter’s.

26

The motion for oral argument is also DENIED.
IT IS SO ORDERED.

Date:

6/26/2018

_______________________________
SARAH EVANS BARKER, JUDGE
United States District Court
Southern District of Indiana

Distribution:
Jonathan A. Becker
CHURCH CHURCH HITTLE & ANTRIM (Noblesville)
[e-mail]
Julia C. Colarusso
GRAY PLANT MOOTY MOOTY & BENNETT PA
[e-mail]
Eric Michael Douthit
CHURCH CHURCH HITTLE & ANTRIM (Noblesville)
[e-mail]
Maisa Jean Frank
GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A.
[e-mail]
Alexander Phillip Pinegar
CHURCH CHURCH HITTLE & ANTRIM
[e-mail]
Liberty L. Roberts
CHURCH CHURCH HITTLE & ANTRIM (Fishers)
[e-mail]
Jere A. Rosebrock
WOODEN & MCLAUGHLIN LLP (Indianapolis)
[e-mail]
John D. Waller

27

WOODEN & MCLAUGHLIN LLP (Indianapolis)
[e-mail]
Eric L. Yaffe
GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A.
[e-mail]

28