859 Boutique Fitness, LLC v. CycleBar Franchising, LLC

Filing 26

MEMORANDUM OPINION AND ORDER: (1) Dft's 20 Motion to Dismiss is GRANTED. (2) This matter is DISMISSED WITH PREJUDICE and STRICKEN from this Court's active docket. Signed by Judge Karen K. Caldwell on August 18, 2016. (AWD) cc: COR,D,JC

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
859 BOUTIQUE FITNESS LLC,

CIVIL ACTION NO. 5:16-cv-00018-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”)
First Amended Complaint. (DE 20). 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 sought damages in excess of $2,500,000 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.)
CycleBar filed a motion to dismiss on January 26, 2016. (DE 9-1). CycleBar argued
that there was no enforceable franchise agreement between the parties because the
agreement was never signed by CycleBar and was marked “void” on every page. (DE 13).
This Court dismissed six of seven counts with prejudice and granted Boutique Fitness leave
to amend the remaining fraudulent/negligent misrepresentation count. (DE 15). The
original dismissal of this count was primarily based upon Boutique Fitness’s failure to
plead

with

particularity

a

causal

relationship

between

CycleBar’s

alleged

misrepresentations and any injury it suffered. (DE 15 at 8.) However, this Court also noted
its concern that any reliance on the alleged misrepresentation would have been
unreasonable. (DE 15 at 8 n.3.) The veracity of any claim that the agreement was executed
was independently verifiable via the electronic contract transfer service utilized by both
parties. (DE 15 at 8 n.3.) Thus, a prima facie valid misrepresentation claim would require:
(1) an allegation that reliance on the alleged misrepresentation was reasonable
notwithstanding the apparent availability of actual signatory information; and (2) a
particularized allegation of an injury that occurred prior to Boutique Fitness’s receipt of
CycleBar’s rejection, and that was traceable to the misrepresentation.
On June 2, 2016, Boutique Fitness filed an amended complaint, stating that it
“expended tremendous resources in furtherance of its contractual relationship with
CycleBar . . . in amount not exceeding $74,383.79.” (DE 16 at 3.) Subsequently, Boutique
Fitness filed the instant motion, alleging that the amended complaint suffers from the same
deficiencies as the original. (DE 20-1.)
2

II. ANALYSIS
A. STANDARD OF REVIEW
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.
B. MISREPRESENTATION CLAIMS
Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”) creates heightened pleading
standards for fraud claims. “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 negligentmisrepresentation and fraudulent-misrepresentation claims. Id. This Court previously
found that Boutique Fitness satisfied three of the four elements necessary to state a fraud
claim. The issue now before the Court is whether the amended complaint cures Boutique
Fitness’s deficiency in pleading the fourth element.

3

Rule 9(b)’s fourth element is more stringent than the first three. Whether a given
plaintiff has adequately alleged fraud, must be analyzed in the context of the particular
claim asserted. To plead fraudulent misrepresentation in Kentucky, a plaintiff must allege:
(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). The Court previously
found the first four elements of this claim satisfied by the original complaint.
Boutique Fitness’s amended complaint adds a single paragraph that, it claims,
provides the necessary specificity to support its claim of injury caused by CycleBar’s alleged
misrepresentation. (DE 21 at 3.) However, neither the amended complaint nor Boutique
Fitness’s response to the instant motion sets forth a causal relationship between the alleged
misrepresentation and an injury during the two day period within which reliance upon that
misrepresentation could possibly have been justified. 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).1
The amended complaint states that Boutique Fitness relied upon CycleBar’s
representations to expend “tremendous resources in furtherance of its contractual
relationship with CycleBar; including, without limitation, monies paid to [its] employees . . .
and travel expenses associated with meeting with CycleBar in an amount not exceeding
$74,383.79.” (DE 16 at 3.) What this addition fails to include is any specific allegation that
Given this deficiency, it is unnecessary for the Court to address Boutique Fitness’s additional
failure to allege that its reliance “in fact” was reasonable under the circumstances. (DE 16 at 4; DE
21 at 5.)
1

4

Boutique Fitness was induced to pay salary or travel expenses during the two day period
when reliance might have been reasonable—from November 11, 2015, the date of the
alleged misrepresentation until November 13, the date CycleBar notified Boutique Fitness
that the contract had not and would not be executed. See Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007) (“a “formulaic recitation of the [causation] element[] . . . will not do.”).
Boutique Fitness does not indicate that it took any affirmative steps based on the
statement that the contract had been signed. For example, Boutique Fitness does not claim
that the alleged misrepresentation caused it to hire employees, enter into contracts, or to
improve space. Rather, it merely summarily states that it paid its employees and incurred
travel expenses, which appear to be ordinary routine business expenses.
Because Boutique Fitness fails to allege a nexus between any purported
misrepresentation and any specific injury it suffered with reasonable particularity, the
amended complaint will be dismissed. See Fed. R. Civ. P. 9(b) (“In alleging fraud . . . a party
must state with particularity the circumstances constituting fraud[.]).
Accordingly, IT IS ORDERED as follows:
1. Defendant’s Motion to Dismiss (DE 20) is GRANTED; and
2. This matter is DISMISSED WITH PREJUDICE and STRICKEN from this
Court’s active docket.
Dated August 18, 2016.

5