859 Boutique Fitness, LLC v. CycleBar Franchising, LLC
Filing
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MEMORANDUM OPINION AND ORDER: (1) Dft's 9 Motion to Dismiss is GRANTED. (2) Pla's Counts I, II, III, V, VI and VII are DISMISSED WITH PREJUDICE. (3) Pla's Count IV is DISMISSED WITHOUT PREJUDICE with leave to file an amended misrepresentation claim within 30 days of entry of this order. Signed by Judge Karen K. Caldwell on May 5, 2016. (AWD) cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
859 BOUTIQUE FITNESS LLC,
CIVIL ACTION NO. 5:16-cv-018-KKC
Plaintiff,
V.
MEMORANDUM OPINION AND
ORDER
CYCLEBAR FRANCHISING, LLC,
Defendant.
This matter is before the Court on Defendant CycleBar Franchising, LLC’s
(“CycleBar”) Motion to Dismiss Plaintiff 859 Boutique Fitness LLC’s (“Boutique Fitness”)
Complaint. (DE 9). For the reasons set forth below Defendant’s motion will be granted.
I. BACKGROUND
On January 19, 2016, CycleBar removed this action from the Fayette Circuit Court.
(DE 1.) With its Complaint, Boutique Fitness seeks damages in excess of $25,000,000 for
lost profits and detrimental reliance following CycleBar’s refusal to make Boutique Fitness
its franchisee in the St. Louis area. (DE 1-1 at 3–6.) In September of 2015, CycleBar
entered into negotiations with Boutique Fitness regarding the possibility of granting a 10year franchise to Boutique Fitness for an indoor cycling studio in the St. Louis area. (DE 11 at 3.) During a November 11, 2015, “Closing Call” Boutique Fitness’s members signed a
Franchise Agreement (the “Agreement”) and CycleBar allegedly represented that its
executives “had executed the Franchise Agreement immediately.” (DE 12 at 1.) However,
two days later, CycleBar’s general counsel informed Boutique Fitness that it had decided
not to grant Boutique Fitness a franchise, stated that CycleBar would be refunding
Boutique Fitness’s franchise fees, and attached a voided copy of the Agreement signed only
by Boutique Fitness’s members. (DE 1-1 at 72.)
With its motion, CycleBar seeks dismissal of all seven Counts set forth in the
Complaint. CycleBar represents (1) that Boutique Fitness’s breach of contract and
promissory estoppel claims are barred by Kentucky’s statute of frauds; (2) that the
Complaint fails to identify any warranty upon which the breach of warranty claim might
succeed; (3) that neither the Kentucky Consumer Protection Act provisions, nor the
deceptive trade practices regulations cited by Boutique Fitness create private rights of
action; (4) that punitive damages are a remedy rather than an independent cause of action;
and (5) that Boutique Fitness’s misrepresentation claim does not satisfy the particularity
requirements of Federal Rule of Civil Procedure 9(b). (DE 9-1.)
II. ANALYSIS
A. FEDERAL RULE 12(B)(6) DISMISSAL
A court may dismiss a complaint pursuant to Federal Rule of Civil Procedure
12(b)(6) if the plaintiff fails to provide “enough facts to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The court must
construe the complaint in the light most favorable to the plaintiff and accept all factual
allegations as true, but the factual allegations must “raise a right to relief above the
speculative level.” Id. at 555. The complaint must “contain either direct or inferential
allegations respecting all material elements necessary for recovery under a viable legal
theory.” D’Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014) (internal quotation marks
omitted). Failure to include plausible factual allegations for all material elements necessary
for recovery warrants dismissal. Id.
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B. STATUTE OF FRAUDS
KRS § 371.010 sets forth Kentucky’s statute of frauds, it provides that:
No action shall be brought to charge any person . . . [u]pon any
agreement that is not to be performed within one year from the
making thereof; unless the promise, contract, agreement,
representation,
assurance,
or
ratification,
or
some
memorandum or note thereof, be in writing and signed by the
party to be charged therewith, or by his authorized agent.
KRS § 371.010(7). A statute of frauds defense, while not normally part of a motion to
dismiss for failure to state a claim, “is appropriate where the allegations of the complaint
itself set forth everything necessary to satisfy the affirmative defense[.]” Andonissamy v.
Hewlett-Packard Co., 547 F.3d 841, 847 (7th Cir. 2008). The Complaint attaches the
allegedly breached Agreement, which was to be effective for a ten year term. (DE 1-1 at 22.)
Yet, this writing is signed only by Boutique Fitness’s members, and Boutique Fitness does
not allege that a writing signed by CycleBar or any of its authorized representatives exists.
Consequently, Count I must be dismissed as the breach of contract claim is barred by the
statute of frauds.
Boutique Fitness’s Count II pursues a promissory estoppel theory as an alternative
basis for recovery. (DE 1-1 at 5–6) Boutique Fitness contends that it justifiably relied on
Cyclebar’s promise to execute the franchise agreement and, thus, that it may still recover in
equity. (DE 12 at 6–7.) Boutique Fitness’s assertion that the statute of frauds does not bar a
promissory estoppel claim is belied by 2005 and 2009 Kentucky Supreme Court decisions
that significantly narrow, if not entirely abrogate, the 1999 decision upon which Boutique
Fitness relies. See Sawyer v. Mills, 295 S.W.3d 79, 90 (Ky. 2009), as modified (Nov. 2, 2009);
Farmers Bank & Trust Co. of Georgetown, Kentucky v. Willmott Hardwoods, Inc., 171
S.W.3d 4, 10 (Ky. 2005); United Parcel Service Co. v. Rickert, 996 S.W.2d 464 (Ky. 1999).
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The Willmott Hardwoods Court held that: “[t]he Court of Appeals incorrectly inferred from
Rickert that detrimental reliance is a bar to the statute of frauds; [a]ll that may be deduced
from Rickert concerning the statute of frauds is that in a fraud or promissory estoppel
action involving a promise of employment, it does not act as a bar.” Willmott Hardwoods,
171 S.W.3d at 10 (emphasis added). More recently, the Sawyer Court characterized the
Rickert Court’s position on the statute of fraud’s effect as “dicta,” and went on to cite with
approval the Seventh Circuit’s position that “the statute of frauds is applicable to a promise
claimed to be enforceable by virtue of the doctrine of promissory estoppel.” Sawyer, 295
S.W.3d at 90 (quoting Architectural Metal Systems, Inc. v. Consolidated Systems, Inc., 58
F.3d 1227, 1231 (7th Cir. 1995) (Posner, J.)). This Court joins with other federal district
courts in this state in holding that promissory estoppel cannot be used to enforce an
agreement that is left otherwise unenforceable by Kentucky’s statute of frauds. See, e.g., In
re Ziegler, No. 12-50915, 2013 WL 66078, at *4 (Bankr. E.D. Ky. Jan. 4, 2013); Equiventure,
LLC v. Wheat, No. 5:09-CV-93, 2012 WL 2089532, at *8 (W.D. Ky. June 8, 2012). Thus,
Count II will also be dismissed.
C. BREACH OF WARRANTY
Count III alleges breach of “actual and implied warranties made by CycleBar to
[Boutique Fitness], when CycleBar offered a franchise to [Boutique Fitness] . . . and
subsequently wrongfully terminated the contract.” (DE 1-1 at 7.) Boutique Fitness concedes
that “[u]nder Kentucky law, liability for breach of warranty is governed by the terms of the
contract and statutory provisions of Kentucky's Uniform Commercial Code.” Waterfill v.
Nat'l Molding Corp., 215 F. App'x 402, 405 (6th Cir. 2007) (citing Williams v. Fulmer, 695
S.W.2d 411, 413 (Ky. 1985)). Notwithstanding Boutique Fitness’s contention that the
“Franchise Agreement was to be executed during the Closing Call in accordance with the
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express representations of CycleBar,” there remains no allegation that the Agreement was
ever actually executed. (DE 12 at 9.) As explained above, this deficiency is fatal to Boutique
Fitness’s breach of contract and promissory estoppel claims, and it is equally determinative
for Boutique Fitness’s Count III. There is no enforceable contract between the parties, and
Boutique Fitness has not offered any theory for relief under Kentucky’s Uniform
Commercial Code. Because Count III does not identify any warranty that could be enforced
under Kentucky law, it fails to state a claim upon which relief could be granted.
D. KENTUCKY CONSUMER PROTECTION ACT
Boutique Fitness’s Count V contends that CycleBar made false, misleading, and
deceptive representations in violation of the Kentucky Consumer Protection Act (“KCPA”).
(DE 1-1 at 8.) However, the KCPA only provides a private cause of action for an individual
“who purchases or leases goods or services primarily for personal, family or household
purposes[.]” KRS § 367.220(1). The Complaint reveals no such purchase or lease and thus,
the KCPA authorizes no claim upon which relief could be granted.1
E. COUNTS VI & VII
Boutique Fitness has acknowledged that the deceptive trade practice allegations
contained in Count VI are based on regulations, 16 C.F.R. Part 436, that do not create a
private right of action. (DE 12 at 11.)2 Although Boutique Fitness seeks to voluntarily
The Court notes that CycleBar has requested attorney’s fees as the “prevailing party” on this claim.
(DE 13 at 9.) The statute places discretion for such awards in the hands of the trial court. See
Alexander v. S & M Motors, Inc., 28 S.W.3d 303, 305 (Ky. 2000) (interpreting the text of KRS
367.220(3)). However, Kentucky’s highest court has held that “a trial court's polar star when
considering a motion for attorney fees under the KCPA is keeping the courthouse door open for those
aggrieved by violations of the act.” Id. at 306. This Court does not find that an award of attorney’s
fees under the circumstances presented would advance the animating purpose of the KCPA’s fee
shifting provision. Accordingly, to the extent this motion to dismiss seeks attorney’s fees, it is denied.
2 Plaintiff seeks voluntary dismissal without prejudice. Given that Plaintiff has not filed a notice of
dismissal, an order of this Court is necessary to effectuate a voluntary dismissal. Fed. R. Civ. P.
41(a). This Court has discretion to condition dismissal on terms it considers appropriate. Since
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dismiss Count VI, it maintains that the punitive damages claim set forth in Count VII need
not be dismissed—notwithstanding its concession that no separate cause of action is
available for a punitive damages claim. (DE 12 at 13.) Boutique Fitness contends that
dismissal of this Count would needlessly exalt substance over form because the remedy of
punitive damages would remain available if its other claims were successful. (DE 12 at 13.)
Whether or not punitive damages would be available to Boutique Fitness as a remedy, the
fact remains that Boutique Fitness styled Count VII as a separate cause of action. (DE 1-1
at 10.) Consequently, to the extent Boutique Fitness asserts punitive damages as a
separate cause of action, the claim must be dismissed. See Toon v. City of Hopkinsville, No.
5:09-CV-37, 2011 WL 1560590, at *3 n.6 (W.D. Ky. Apr. 14, 2011), on reconsideration in
part, No. 5:09-CV-37, 2011 WL 1885406 (W.D. Ky. May 18, 2011) (“A claim for punitive
damages is not a separate cause of action, but rather an available remedy.”).
E. MISREPRESENTATION CLAIMS
Defendant’s challenge to Count IV requires separate consideration because it seeks
dismissal under Federal Rule of Civil Procedure 9(b)’s (“Rule 9(b)”) heightened pleading
standards. “Under this rule, a plaintiff must specify 1) what the fraudulent statements
were, 2) who made them, 3) when and where the statements were made, and 4) why the
statements were fraudulent.” Morris Aviation, LLC v. Diamond Aircraft Indus., Inc., 536 F.
App'x 558, 562 (6th Cir. 2013) (internal citation omitted). This Circuit’s precedent counsels
application
of
Rule 9(b)’s
fraud
pleading
requirements
to
both
the
negligent-
misrepresentation and fraudulent-misrepresentation claims alleged in Count IV. Id.
Plaintiff has conceded that there is no private right of action under 16 C.F.R. Part 436, it is unclear
what purpose would be served by dismissing this claim without prejudice. In any event, Plaintiff’s
concession provides grounds for dismissal with prejudice, whether voluntary or involuntary.
Accordingly, Count VI will be dismissed with prejudice.
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This Court finds that Boutique Fitness has met its burden, though narrowly, to
identify the alleged fraudulent statements. The first prong of the pleading requirement is
adequately addressed by Count IV’s reference to the “representations made by CycleBar to
859 Boutique Fitness, which are described herein.” (DE 1-1 at 7.) Given the lenient lens
through which a Complaint must be viewed on a motion to dismiss, this general statement
will be construed to reference the only potentially relevant express statements identified in
the Complaint: CycleBar’s alleged representations that the Franchise Agreement’s terms
were agreeable, “and that CycleBar executives had executed the Franchise Agreement
immediately.” (DE 1-1 at 3.) Prongs two and three of Rule 9(b) are similarly satisfied. The
Complaint alleges these statements were made during a “closing call with the CycleBar
executive team on or about November 11, 2015[.]” (DE 1-1 at 3.)
Rule 9(b)’s fourth prong is more substantial than its three predecessors, what makes
a given representation “fraudulent,” and by implication whether a given plaintiff has
adequately alleged fraudulence, must be determined in reference to the legal basis for the
claim asserted. In Kentucky, a fraudulent misrepresentation claim requires clear and
convincing evidence:
(1) that the declarant made a material representation to the
plaintiff, (2) that this representation was false, (3) that the
declarant knew the representation was false or made it
recklessly, (4) that the declarant induced the plaintiff to act
upon the misrepresentation, (5) that the plaintiff [reasonably]
relied upon the misrepresentation, and (6) that the
misrepresentation caused injury to the plaintiff.
Flegles, Inc. v. TruServ Corp., 289 S.W.3d 544, 548–49 (Ky. 2009). Assuming that the
statements were made as alleged, the Complaint clearly satisfies the first four elements of
the prima facie claim. If the Franchise Agreement was claimed to have been signed
immediately, Boutique Fitness’s attachment of the unsigned, voided Contract is a sufficient
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showing of falsity. Likewise, the CycleBar executive’s representation that the Agreement
was signed immediately was at least reckless. A corporate executive would, at minimum,
have to recklessly disregard his or her surroundings to “honestly” claim the existence of an
ongoing or “immediately” impending act that never actually occurred. Finally, inducement
is sufficiently alleged by Boutique Fitness’s immediate wiring of $59,500.00 in franchise
and training fees to Defendant (“Franchise Fees”).
However, even ignoring this Court’s concerns about the reasonableness of Boutique
Fitness’s reliance on the alleged misrepresentations,3 Boutique Fitness has not alleged any
causal relationship between CycleBar’s statements and any injury with sufficient
particularity to avoid dismissal. See Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th
Cir. 2003) (“The Sixth Circuit interprets Rule 9(b) as requiring plaintiffs to allege . . . the
injury resulting from the fraud.”) (internal quotation omitted). The only act that Boutique
Fitness alleges it was induced to take during the period when reliance might have been
reasonable—from the alleged misrepresentation on November 11, 2015, and its receipt of
an e-mail eliminating any doubt as to whether the Agreement had actually been executed—
was to wire the $59,500.00 in franchise fees. Yet, the Complaint does not allege an injury
resulting from this transfer; instead it quotes CycleBar’s expressed intention to refund the
franchise fees. Because Boutique Fitness fails to allege a nexus between any purported
misrepresentation and any injury it suffered with reasonable particularity, Count IV will
“[T]he law imposes upon recipients of business representations a duty to exercise common sense.
Flegles, Inc. v. TruServ Corp., 289 S.W.3d 544, 549 (Ky. 2009). Given the importance of the alleged
misrepresentation’s subject matter—an Agreement Plaintiff now values at $2,500,000—and the ease
with which this essential claim might have been verified—the parties were clearly utilizing an
electronic contract transfer service—the Court must question whether Plaintiff has adequately pled
“justifiable” reliance. See Morris Aviation, LLC v. Diamond Aircraft Indus., Inc., 536 F. App'x 558,
565 (6th Cir. 2013) (“[Plaintiff] was making a significant investment and spent months researching
and negotiating. Such an individual is not relieved of [its] duty to perform due diligence[.] [Plaintiff]
had some obligation to exercise [its] common sense and obtain confirmation of readily available,
independently verifiable facts.”)
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also be dismissed.4 See Fed. R. Civ. P. 9(b) (“In alleging fraud . . . a party must state with
particularity the circumstances constituting fraud[.]).
Finally, Count IV is the only portion of the Complaint for which dismissal with
prejudice appears inappropriate. This Circuit favors a liberal policy towards allowing
amendment unless such amendment would clearly be futile. Newberry v. Silverman, 789
F.3d 636, 646 (6th Cir. 2015) (holding that dismissal “without leave to amend is not
appropriate unless it is clear on de novo review that the complaint could not be saved by
amendment”) (internal citations omitted). Accordingly, although Boutique Fitness’s
misrepresentation fails under Rule 9(b)’s heightened pleading standard, Count IV will be
dismissed without prejudice and with leave to amend.
III. CONCLUSION
In sum, none of the Counts alleged state a claim upon which relief could be granted.
Boutique Fitness’s contract and promissory estoppel claims are barred by Kentucky’s
statute of frauds. Boutique Fitness’s breach of warranty claim fails to identify any
applicable warranty. Counts V, VI, and VII set forth theories of liability for which there are
no independent, private rights of action. Finally, Boutique Fitness’s misrepresentation
claims fail to identify with particularity any damages that stemmed from reliance on
CycleBar’s statements, the Complaint’s “formulaic recitation of the [causation] element[] . .
. will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Although Count IV asserts an alternative negligent misrepresentation theory, as noted previously,
Rule 9(b)’s particularity requirement is equally applicable to a negligent misrepresentation claim. A
prima facie negligent misrepresentation claim would also require a causation allegation. See Presnell
Const. Managers, Inc. v. EH Const., LLC, 134 S.W.3d 575, 580 (Ky. 2004) (adopting the tort of
negligent misrepresentation and creating “liability for pecuniary loss caused to them by their
justifiable reliance upon” negligently provided information). Thus, separate analysis of the
negligence theory is unnecessary because it would fail for the same reasons as the fraud theory.
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Accordingly, IT IS ORDERED as follows:
1. Defendant’s Motion to Dismiss (DE 9) is GRANTED;
2. Plaintiff’s Counts I, II, III, V, VI, and VII are DISMISSED WITH
PREJUDICE;
3. Plaintiff’s Count IV is DISMISSED WITHOUT PREJUDICE with leave to file
an amended misrepresentation claim within 30 days of the entry of this order.
Dated May 5, 2016.
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