Live Cryo LLC v. CryoUSA Import and Sales, LLC et al

Filing 12

ORDER granting in part and denying in part 2 defendant's Motion to Dismiss. Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

LIVE CRYO, LLC,
Plaintiff,
v.

CASE NO. 17-CV-11888
HON. GEORGE CARAM STEEH

CryoUSA IMPORT AND
SALES, LLC ET AL.,
Defendants.
________________________/
OPINION AND ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’ MOTION TO DISMISS (Doc. 2)

This lawsuit arises out of the parties’ agreement whereby defendants
provided cryotherapy chambers to plaintiff Live Cryo, LLC. (“Live Cryo”) for
use at its Michigan locations. Cryotherapy chambers, which use liquid
nitrogen to maintain a temperature of about 240 degrees below zero, are
used by clients for alleged health benefits. One of the defendants herein,
defendant CryoUSA Import and Sales LLC, filed a related lawsuit in Texas
state court three days before plaintiff Live Cryo filed this federal lawsuit. As
a result, defendants argue that this court should abstain under the
Colorado River doctrine. Alternatively, defendants seek dismissal of all
claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a
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claim. After defendants filed their motion for abstention or dismissal,
plaintiff filed a First Amended Complaint without leave of court. As such,
plaintiff alleges defendants’ motion is now moot.
In their reply brief, defendants assert that the time period for filing an
amended complaint without leave of court had expired. Nevertheless, they
agree to have the court consider the First Amended Complaint in deciding
their motion to dismiss, and urge the court to consider their motion this way
rather than elevating form over substance and delaying resolution of the
issues pending here for a second round of briefing. Because plaintiff had
an adequate opportunity to respond to defendants’ arguments, and filed its
First Amended Complaint and Response brief in response to defendants’
motion to dismiss, the court finds it appropriate to adjudicate the present
dispute on the merits. For the reasons set forth below, the court shall grant
defendants’ motion to dismiss for failure to state a claim with respect to the
tort and quasi-contract claims, and shall deny the motion as to the breach
of contract and breach of warranty claims. Oral argument was heard on
August 29, 2017 and informs the court’s decision here.
I.

Background

Because the court is addressing a motion to dismiss, the factual
allegations set forth below are those set forth in the First Amended
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Complaint. Plaintiff Live Cryo, LLC is a Michigan corporation. Defendants
CryoUSA Import and Sales (“Cryo Import”), CryoUSA Franchising, LLC,
CryoUSA Holding, LLC, and CryoUSA Mobile, LLC are Texas corporations.
Defendants Eric Rauscher and Mark Murdock are the owners of defendant
corporations. Plaintiff alleges that the parties entered into a franchise
agreement. Defendants, on the other hand, deny this and assert that the
two share a distribution agreement, as the parties’ agreement is entitled.
Whole body cryotherapy exposes the entire body to temperatures as
cold as 240 degrees below zero for about three minutes. The alleged
benefits of cryotherapy are more restful sleep, improved mood, enhanced
athletic performance, increased energy, a stronger immune system, and
faster healing of injuries and muscle aches. Defendants market
themselves as experts in whole body cryotherapy businesses. Plaintiff
alleges that it entered into a franchise agreement with the defendants
following its attendance at a seminar meeting in Texas in 2016. The
agreement is memorialized in writing in a document entitled, “Distribution
Agreement,” and which was executed on July 15, 2016.
According to the First Amended Complaint, at the business meeting,
they received a fifty-three page booklet which included a return on
investment worksheet on one of the pages. The investment worksheet
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projected that plaintiff could earn as much as $30,350 per month, assuming
fifty clients per day at a cost of $45.00 per session. The workbook further
represented that most locations average 10 clients a day within 90 days,
that some locations reach the 25 per day mark fairly quickly, and that its
Dallas location averages about 50 clients per day. Plaintiff does not allege
that the statements regarding the Dallas location and others were
fraudulent, only that they were designed to induce reliance on plaintiff’s
part.
Plaintiff claims that there was no factual basis for the prediction that it
could replicate the Dallas location’s success, or that it could service as
many as 25 clients per day. Plaintiff also claims that representations about
the effectiveness of the chambers were fraudulent, and that the chamber at
its West Bloomfield location only operated properly for seven days since its
January 16, 2017 opening. Plaintiff hired an HVAC technician to examine
the chamber, and he concluded that it never reached below negative 166
degrees Fahrenheit on any of the five tests he performed.
The Distribution Agreement provides that plaintiff may exclusively
distribute cryotherapy chambers in Michigan for a twenty-four month period
that may be renewed upon the payment of $10,000. The Distribution
Agreement further provides that plaintiff must purchase 15 chambers within
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the first six months to maintain its exclusive dealership status. The
Agreement provides that defendants control marketing and training, and all
of its chambers bear its name and mark. In order to purchase a chamber,
plaintiff executes a Purchase Agreement. The cost of a chamber is
$50,000.
Defendants train and certify five individuals on chamber operations as
part of the purchase price, charge $250.00 for each subsequent person
trained, and require that only trained and certified individuals operate the
chambers in order for the limited warranty to remain in effect.
The Distribution Agreement contains a choice-of-law provision and
forum selection clause:
10.3 Venue/Governing Laws. This Agreement is governed
by the laws of the State of Texas. Any legal action
concerning this Agreement shall be brought in the state
and federal courts in Dallas, Texas.
(Doc. 4-1 at PgID 160). The Purchase Agreement also contains a choiceof-law provision and forum selection clause. Specifically, Paragraph 12.4
of the Purchase Agreement provides:
12.4 Governing Law and Forum Selection
This Agreement shall be construed in accordance with the
Law of Texas, without regard to its conflicts of laws
provisions. The exclusive forum for any litigation arising
from or relating to the Agreement and/or for resolving any
related disputes shall be Dallas County, Texas state district
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court (the “Dallas Courts.”) All parties irrevocably consent
to the exclusive jurisdiction of the Dallas Courts for such
purposes.
(Doc. 4-2 at PgID 172).
Plaintiff experienced numerous difficulties with the chambers. On
April 26, 2017, plaintiff sent Rauscher and Murdock a letter, through
counsel, alleging that defendants had engaged in fraud, were in violation of
the Michigan Franchise Investment Law (“MFIL”), had breached the
Purchase Agreement, and had breached the warranty. On May 2, 2017,
Cryo Import brought suit against plaintiff in the state district court of Dallas
County, Texas. Before receiving notice of that lawsuit, plaintiff filed this
action in Wayne County Circuit Court on May 4, 2017, which defendants
timely removed here.
In the Texas lawsuit, Cryo Import alleges breach of contract arising
out of the parties’ Distribution Agreement on the grounds that plaintiff did
not live up to its end of the bargain to purchase a sufficient quota of
cryotherapy machines, and breached the Purchase Agreements by failing
to comply with its obligations to submit timely warranty claims and repairs.
In their First Amended Complaint filed in federal court, plaintiff has pled
eleven claims: (I) violation of the MFIL, Mich. Comp. Laws § 445.1501 et
seq., (II) violation of the MFIL, Mich. Comp. Laws § 445.1532, (III) fraud,
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(IV) silent fraud, (V) innocent misrepresentation, (VI) tortious interference
with business relationship with Orchard Fitness, (VII) tortious interference
with business relationships with its customers, (VIII) breach of warranty,
(IX) breach of contract, (X) promissory estoppel, and (XI) unjust
enrichment.
II. Standard of Law
Rule 12(b)(6) allows the Court to make an assessment as to whether
the plaintiff has stated a claim upon which relief may be granted. Under the
Supreme Court’s articulation of the Rule 12(b)(6) standard in Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 554-56 (2007), the court must construe
the complaint in favor of the plaintiff, accept the allegations of the complaint
as true, and determine whether plaintiff’s factual allegations present
plausible claims. “‘[N]aked assertions’ devoid of ‘further factual
enhancement’” are insufficient to “‘state a claim to relief that is plausible on
its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,
550 U.S. at 557, 570). To survive a Rule 12(b)(6) motion to dismiss,
plaintiff’s pleading for relief must provide “‘more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action
will not do.’” D’Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014)
(quoting Twombly, 550 U.S. at 555). Even though the complaint need not
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contain “detailed” factual allegations, its “‘factual allegations must be
enough to raise a right to relief above the speculative level on the
assumption that all of the allegations in the complaint are true.’” New
Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir.
2011) (quoting Twombly, 550 U.S. at 555). 
III. Analysis
A.

Choice of Law
Defendants argue that the Distribution Agreement’s and Purchase

Agreement’s choice-of-law provisions calling for the application of Texas
law, and forum selection clauses requiring litigation related to the
Agreements to be filed in Texas, require dismissal of this action. Plaintiff
has not responded to the argument that Texas law would govern their
claims under the choice-of-law provision in the Agreements. An analysis of
whether Texas or Michigan law controls is important to the court’s
determination of whether plaintiff’s claims survive defendants’ motion to
dismiss.
Federal courts sitting in diversity apply the choice of law principles of
the forum state. See Wallace Hardware Co. v. Abrams, 223 F.3d 383, 391
(6th Cir. 2000) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487
(1941)). Michigan’s conflict of law rules follow the approach articulated in 1
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Restatement (Second) of Conflict of Laws § 187, which provides that a
contractual choice-of-law provision will govern unless the chosen state,
here Texas, has no substantial relationship to the parties or the transaction,
or Michigan has a materially greater interest and application of Texas law
would be “contrary to a fundamental policy” of Michigan. Banek Inc. v.
Yogurt Ventures USA, Inc., 6 F.3d 357, 361 (6th Cir. 1993).
Here, Texas has sufficient ties to the Distribution Agreement as
plaintiff’s corporate representatives traveled to Texas to obtain information
about cryotherapy and to analyze the business opportunity there, and
defendants are Texas corporations who are located in Texas. Also, there
has been no showing that a dominating public interest of Michigan would
be contravened by permitting the contractual dispute to be resolved under
the law of Texas. Accordingly, the parties’ choice-of-law clause in the
Agreements may be enforced with respect to the parties’ contractual
dispute, and Texas law governs the contractual claims. The court notes
that neither side has suggested breach of contract claims are analyzed
differently under Texas or Michigan law.
The question then becomes whether the choice-of-law provision in
the parties’ Agreements govern plaintiff’s tort claims under MFIL, common
law fraud, tortious interference with business relationships, promissory
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estoppel, and unjust enrichment. The choice-of-law provision in the
Distribution Agreement provides: “This Agreement is governed by the laws
of the State of Texas.” The Purchase Agreement provides that “[t]he
Agreement shall be construed in accordance with the Law of Texas.” The
Sixth Circuit has at least twice addressed similar issues in determining
whether a choice-of-law provision is limited to contractual claims arising out
of the agreement or whether it also applies to tort claims.
In Moses v. Bus. Crd Express, Inc., 929 F.2d 1131, 1140 (6th Cir.
1991), the Sixth Circuit found that a choice-of-law provision applied to
plaintiff’s fraud and misrepresentation claims and was not limited to purely
contractual claims. In that case, the choice-of-law provision in the parties’
agreement stated, “This Franchise and License Agreement and the
construction thereof shall be governed by the laws of the state of
Michigan.” Id. at 1139. In reaching its conclusion, the court distinguished
the choice-of-law provision from one analyzed by the Fifth Circuit in Caton
v. Leach, 896 F.2d 939 (5th Cir. 1990), which the Fifth Circuit construed
narrowly, holding the provision only applied to contractual claims and did
not apply to plaintiff’s tort and quantum meruit claims where the clause
provided that “[t]his agreement shall be construed under the laws of the
State of California.” Caton, 896 F.2d at 942 (emphasis added). The
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choice-of-law provision in Caton mirrors the clause at issue here. Thus,
under the Sixth Circuit’s holding in Moses, the choice-of-law provision
requiring the application of Texas law is limited to contract claims and does
not cover plaintiff’s tort and quasi-contract claims.
The Sixth Circuit addressed a similar issue in Banek, supra, and held
that a choice-of-law provision in a franchise agreement was sufficiently
broad to cover plaintiff’s claims for fraud and misrepresentation. 6 F.3d at
363. In that case, the choice-of-law clause provided,”[t]his Agreement was
made and entered into in the State [of] Georgia and all rights and
obligations of the parties hereto shall be governed by and construed in
accordance with the laws of the State of Georgia.” Id.at 359. The court
also found that the fraud and misrepresentation claims were directly related
to the franchise agreement, and thus, applied the choice-of-law clause to
cover those tort claims as well. The choice-of-law provision in Banek was
much broader in scope than the clause at issue here.
Other district courts faced with a narrowly defined choice-of-law
provision like that present here, have decided that the provision does not
apply to tort claims. See Touch-n-Buy, Ltd. P’ship v. Girocheck Fin., Inc.,
No. 15-10863, 2016 WL 2957930, at *2 (E.D. Mich. May 23, 2016)
(agreement’s choice-of-law clause limited to purely contractual claims as
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fraud claim involved representations made prior to entering into the
contract and choice-of-law provision merely provides that Florida law
“governs” the agreement); AGA Gas, Inc. v. Wohlert Corp., No. 5:98-CV155, 2000 WL 1478466, at *2 (W.D. Mich. July 21, 2000) (agreement’s
choice-of-law clause governed only contract claims, and the law of the
forum applied to claims of fraud and misrepresentation). These cases,
although not binding, are persuasive authority and support the conclusion
here that the narrowly drafted choice-of-law provision does not apply to
plaintiff’s tort and quasi-contractual claims.
Based on the above analysis, the court determines that the choice-oflaw provisions in the Distribution Agreement and Purchase Agreements are
limited to contractual claims and thus, Texas law governs the breach of
contract and warranty claims. However, the law of the forum, namely
Michigan law, governs plaintiff’s tort and quasi-contract claims. Having
determined that Michigan law applies to the majority of plaintiff’s claims, the
court turns now to the question of whether the forum selection clauses
require dismissal of this action.
B.

Forum Selection Clause
Defendants argue that the forum selection clause in the parties’

Agreements require dismissal of this matter in total. Plaintiff responds that
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such clauses are void under the MFIL which provides that such clauses are
negated when set forth in a franchise agreement. Specifically, MCL §
445.1527(f) provides that if contained in a document relating to a franchise,
“[a] provision requiring that arbitration or litigation be conducted outside this
state” is void and unenforceable. Defendants contend that MFIL does not
apply because plaintiff is not a franchisee and Texas law controls. For the
reasons set forth below, the forum selection clause is void and
unenforceable as an issue of fact exists as to whether the parties share a
franchisor/franchisee relationship and Michigan’s prohibition of such
clauses in franchise agreements controls.
1.

Franchisor/Franchisee Relationship

Defendants seek dismissal of Counts I and II, which assert claims
under the MFIL, arguing that plaintiff is not its franchisee, and that the
parties share a distribution agreement, not a franchise agreement. Under
MCL § 445.1502(3), a “franchise” is defined as “a contract or agreement,
either express or implied, whether oral or written, between 2 or more
persons to which all of the following apply:”
(a) A franchisee is granted the right to engage in the
business of offering, selling, or distributing goods or
services under a marketing plan or system prescribed in
substantial part by a franchisor;

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(b) A franchisee is granted the right to engage in the
business of offering, selling, or distributing goods or
services substantially associated with the franchisor's
trademark, service mark, trade name, logotype,
advertising, or other commercial symbol designating the
franchisor or its affiliate;
(c) The franchisee is required to pay, directly or indirectly,
a franchise fee.
All three elements must be present in order for a relationship to be
governed by the MFIL. Bye v. Nationwide Mut. Ins. Co., 733 F. Supp. 2d
805, 827 (E.D. Mich. 2010).
According to the First Amended Complaint, all three factors are alleged
as follows.

First, Paragraph 3.1 of the Distribution Agreement gives

defendants control over the marketing aspect of the business. Paragraph
3.1 provides:
Marketing. Distributor shall be allowed to further the
promotion, marketing, sale and other distribution of the
Products in the Territory and to keep CryoUSA informed of
marketing developments.
(Doc. 4-1 at PgID 154). Second, all products sold by plaintiff contains the
CryoUSA name and logo and CryoUSA specifically provides plaintiff with a
license to use marks, including “Cryosense” and “CryoUSA E Tablet.” It
appears that plaintiff satisfactorily alleged the first two elements. The court
turns now to the third factor which presents the closest question.

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As to the third factor, plaintiff alleges three methods of indirect
payment of a franchise fee: (1) defendants charge a “mark up” on the
purchases of their chambers, (2) defendants require that training fees of
$250 be paid in order for any warranty to be honored, and (3) plaintiff must
pay $10,000 to renew the Distribution Agreement. Defendants respond
that plaintiff has failed to allege payment of a franchise fee within the
strictures of Iqbal because (1) the chambers were sold at a bona fide
wholesale price, (2) the training fee was part of the purchase fee of every
chamber and additional training was optional and the amount of the fee
was insufficient to amount to a hidden charge for the right to do business,
and (3) the $10,000 renewal fee is not a hidden franchise fee because the
only thing plaintiff loses upon non-renewal is the loss of exclusivity — the
right to be the sole cryotherapy chamber distributor in the entire state of
Michigan.
The MFIL defines “franchise fee” as “a fee or charge that a franchisee
or subfranchisor is required to pay or agrees to pay for the right to enter
into a business under a franchise agreement, including but not limited to
payments for goods and services.” MCL. § 445.1503. Although a
franchise fee may include payments for goods or services, MFIL
specifically exempts “[t]he purchase or agreement to purchase goods,
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equipment, or fixtures directly or on consignment at a bona fide wholesale
price.” MCL § 445.1503(1)(a). Having set forth the statutory definition of
franchise fee, the court considers now defendants’ arguments that plaintiff
has failed to adequately plead the existence of any such fee.
As to defendants’ first argument, whether or not the chambers were
sold at a bona fide wholesale price is an issue of fact that cannot be
decided at the pleadings stage. However, the court tends to agree with
defendants that the training fee is probably insufficient to amount to a
franchise fee. See Boeve v. Nationwide Mut. Ins. Co., No. 08-cv-12213,
2008 WL 3915011, at *5 (E.D. Mich. Aug. 20, 2008) (costs incurred during
training only amount to a franchise fee where the costs are substantial and
unrecoverable.) It appears unlikely the $250 training fee at issue here
would meet that standard. The court turns now to the question of whether
the $10,000 renewal fee amounts to an indirect franchise fee.
Defendants claim the $10,000 fee cannot be considered because
MFIL does not apply to “the renewal or extension of an existing franchise
where there is no interruption in the operation of the franchised business by
the franchise.” MCL § 445.1503(3). The court is not convinced that
Section 445.1503(3) informs this court’s decision about whether plaintiff
pays an indirect franchise fee. Section 445.1503(3) does not address
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franchise fees at all, but defines the terms “offer” and “offer to sell.”
Specifically, Section 445.1503(3) states:
(3) “Offer” or “offer to sell” includes an attempt to offer to
dispose of or solicitation of an offer to buy, a franchise or
interest in a franchise for value. The terms defined in this
act do not include the renewal or extension of an existing
franchise where there is no interruption in the operation of
the franchised business by the franchisee.
MCL § 445.1503(3). The Michigan Court of Appeals has explained that the
above exclusion of renewal or extensions of a franchise agreement from
the definitions of the terms “offer” and “offer to sell,” indicates the
Legislature’s intent to restrict liability under MFIL to conduct at the time of a
sale. Franchise Mgmt. Unlimited, Inc. v. America’s Favorite Chicken, 221
Mich. App. 239, 251 (1997). A careful review of the First Amended
Complaint indicates that plaintiff bases its MFIL claims on alleged
misrepresentations at the time of the sale. Accordingly, at this pleadings
stage, plaintiff has sufficiently pled that it paid an indirect franchise fee
based on the alleged “mark up” of the cryotherapy chambers and the
$10,000 renewal fee. Also, the First Amended Complaint attaches a copy
of CryoUSA’s website page which advertises, “Own a Franchise.” (Doc.
403 at PgID 181). In addition, one of the defendants is known as CryoUSA
Franchising, LLC. Based on the allegations of the First Amended

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Complaint, a question of fact exists as to whether the parties bear the
relationship of franchisor and franchisee.
2.

Choice of Law

Having found that a question of fact exists as to whether the parties
entered into a franchise agreement, the court turns now to the question of
whether the forum selection clauses in the parties’ Agreements are void.
Defendants argue the provision voiding such clauses does not apply
because Texas law governs. For the reasons discussed previously, Texas
law does not govern plaintiff’s MFIL claim. In addition, under Section 187
of the Restatement (Second) of Conflict of Laws, Michigan has a
substantially greater interest than Texas in protecting the rights of its
franchisees and preventing them from being haled into an inconvenient
forum far from the place when they operated their franchise. As the Sixth
Circuit noted in Banek, the Michigan legislature prohibited such clauses in
franchise agreements because, “the Michigan legislature understood the
burdens of being forced to arbitrate a claim in a foreign forum are
significant.” 6 F.3d at 360. Accordingly, the court will not enforce the forum
selection clause set forth in the parties’ Agreements and will allow plaintiff’s
claims to proceed on the merits here.

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C.

MFIL and Common Law Fraud Claims
Because the matter is properly before this court, the court now

addresses defendants’ argument that plaintiff’s tort and quasi-contract
claims should be dismissed for failure to state a claim. For the reasons set
forth below, plaintiff has failed to plead fraud with requisite particularity and
the statements alleged to be fraudulent are not actionable because they
are merely forward looking projections of future conduct, and the parties’
integration clause makes any reliance on any alleged misrepresentations
made prior to the Agreements unreasonable.
Count I alleges violation of Section 5 of MFIL which prohibits
fraudulent conduct “in connection with the filing, offer, sale, or purchase of
any franchise.” MCL § 445.1505 and Count II alleges derivative liability for
a “person who directly controls a person liable under this act.” MCL §
445.1532. Section 5 sounds in fraud:
445.1505. Filing, offer, sale, or purchase of franchise;
prohibited conducts
Sec. 5. A person shall not, in connection with the filing,
offer, sale, or purchase of any franchise, directly or
indirectly:
(a) Employ any device, scheme, or artifice to defraud.
(b) Make any untrue statement of a material fact or omit to
state a material fact necessary in order to make the
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statements made, in the light of the circumstances under
which they are made, not misleading.
(c) Engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any
person.
MCL § 445.1505. The MFIL expressly states that “fraud” and “deceit” are
not limited to common law fraud or deceit, thus, dictating that the court
should construe the terms more broadly. MCL § 445.1503(2).
Even construing Section 5 of MFIL broadly, plaintiff’s MFIL claims
must meet the heightened pleading standard of Rule 9(b). See Republic
Bank & Trust Co. v. Bear Stearns & Co., Inc., 683 F.3d 239, 247 (6th Cir.
2012). The analysis below applies to the MFIL claims as well as the
common law claims for fraud, silent fraud, and innocent misrepresentation.
The First Amended Complaint alleges that defendants misrepresented the
quality of the cryotherapy chambers, which allegedly never reached a low
enough temperature to be effective, and that through statements made in
the workbook, at the seminar, and in negotiations leading up to the parties’
agreement, defendants provided false earnings projections, return on
investment numbers, and number of customers to be expected.
Defendants claim the allegations are deficient because plaintiff engages in
“group pleading” by treating all six defendants en masse, and that the

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statements could not be said to be fraudulent as they were merely forward
looking statements or “puffery.”
1.

Group Pleading

In order to state a claim for fraud under Federal Rule of Civil
Procedure 9(b), a plaintiff, at a minimum, must “allege the time, place, and
content of the alleged misrepresentation on which he or she relied; the
fraudulent scheme; the fraudulent intent of the defendants; and the injury
resulting from the fraud.” U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc.,
501 F.3d 493, 504 (6th Cir. 2007) (quoting Coffey v. Foamex L.P., 2 F.3d
157, 161-62 (6th Cir. 1993)). “Rule 9(b) is not to be read in isolation, but is
to be interpreted in conjunction with Federal Rule of Civil Procedure 8.” Id.
at 503. Even construing the requirements of Rule 9(b) liberally in
conjunction with Rule 8, plaintiff’s fraud claims are woefully deficient here.
Defendants argue that plaintiff has engaged in impermissible “group
pleading” by alleging that all four corporate defendants, and the two
individual defendants, are liable for fraud, without articulating with any
particularity the identity of the speaker of the alleged fraudulent statements.
Although the name of a specific employee need not always be alleged to
meet the strictures of Rule 9(b), for example where only one corporation is
a named defendant, Bledsoe II, 501 F.3d at 508, plaintiff has introduced no
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authority to suggest that fraud claims are sufficiently particular when
directed generally at four corporations and two individuals in the same
breath. Numerous courts have found allegations of fraud to be deficient
when the speaker is not identified individually, but the claims are directed at
the defendants en masse. See Cataldo v. U.S. Steel Corp., 676 F.3d 542,
551 (6th Cir. 2012); D.E. & J Ltd. P’ship v. Conaway, 284 F. Supp. 2d 719,
730 (E.D. Mich. 2003). Under these cases, plaintiff’s fraud claims here are
deficient as they fail to specify the defendants allegedly responsible for the
allegedly fraudulent misrepresentations and which statements they made.
2.

Future Promises

In addition, the fraud claims are deficient because they contain
merely forward looking projections which are not actionable. Under the
Michigan Supreme Court’s seminal fraud case, the law is well settled that:
An action for fraudulent misrepresentation must be
predicted upon a statement relating to a past or an existing
fact. Future promises are contractual and do not constitute
fraud.
Hi-Way Motor Co. v. International Harvester Co., 398 Mich. 330, 336 (1976).
In Hi-Way Motor, the court found that defendant’s verbal promise that plaintiff
would have an exclusive heavy-duty truck dealership for the Alpena area so
long as the plaintiff did a reasonably good job, was not actionable in fraud
when defendant granted another party a dealership in the same area,
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because the statement was a future promise. Id. at 337-39. Similarly, in Van
Tassel v. McDonald Corp., 159 Mich. App. 745, 752-53 (1987), the court
found representations that a Baskin-Robbins store would be a “gold mine,”
that plaintiff had a bright future, that she would soon be driving a big car and
living in a big home, and that she could make more money owning her own
business than at Chrysler, were merely expressions of opinion or puffing and
were not actionable in fraud.
The Sixth Circuit addressed similar promises in Busch v. Dyno Nobel,
Inc., 40 F. App’x 947, 964 (6th Cir. 2002) where it found that defendant’s
promise that it knew how to create a plant successfully, and its estimate of
future costs did not amount to fraud because they were not known untruths
at the time made, but amounted to promises of future capabilities, which are
not actionable.
The same result should be reached here. Plaintiff alleges that it was
induced to enter into a cryotherapy business based on estimates of its
possible future earnings, but these estimates of future profits are merely
erroneous conjectures as to future events which are not actionable.
Although misrepresentations about the actual earnings of defendants’ Dallas
location might amount to actionable fraud, plaintiff does not allege that those

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figures were in any way false, but only that defendants’ projections plaintiff
could do as well as the Dallas location did not pan out.
Even taking into account that Section 5 of MFIL may be read more
broadly than common law fraud claims, the Michigan Court of Appeals has
held that opinions, sales puffery, and predictions of future events are not
actionable under MFIL as well. Shanafan, L.L.C. v. Vanrenterghem, No.
294923, 2011 WL 1564613, at *1 (Mich. Ct. App. Apr. 26, 2011). In that
case, plaintiff relied on statements that food costs would be low and “there
is a great potential to make six figures,” which the court found were not
false statements, and thus were not actionable under Section 5 of MFIL.
Id. Plaintiff has not directed the court to any cases for the proposition that
Section 5 of MFIL allows recovery for expressions of opinion about future
earnings and sales puffery made to induce a franchisee to enter into a
franchise agreement.
Plaintiff claims that Rutan v. Straehly, 289 Mich. 341 (1939), Crook v.
Ford, 249 Mich. 500 (1930), and Hensley v. Colonial Dodge, Inc., 69 Mich.
App. 597, 604 (1976) support its fraud claims, but those cases are
inapposite. In Rutan, the defendant promised to purchase certain notes in
plaintiff’s name, but never did so, and the notes were uncollectible. 289 Mich.
at 346. The Michigan Supreme Court recognized that fraud claims could not
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generally be based on future promises, but found as exception existed
because “defendant’s promise was the device used to accomplish the fraud
which consisted of obtaining his own notes from plaintiff and promising, but
failing, to give her any obligation of value in return.” Id. at 349. This case is
unlike Rutan and its holding is inapplicable here.
Likewise, Crook fails to support plaintiff’s fraud claims here. In Crook,
defendants, experienced builders, represented that they could finish the
second story of plaintiff’s house and later represented that the house was
complete, whereas it had no proper foundations, the wall cracked, the house
was out of plumb and had to be jacked up, among other serious deficiencies.
249 Mich. at 501-03. The court recognized that breach of an agreement
does not generally constitute fraud, but found that where the builders gave
false opinions of matters of fact, namely that the foundation had been
completed when it had not, and falsely promised to repair the foundation but
did not, and where defendants had exclusive knowledge about the state of
the foundation when the plaintiff entered the purchase agreement, an action
for fraud could lie. Id. at 588. Unlike Crook, plaintiff here does not allege
that defendants fraudulently misrepresented existing facts which could not
be known to a buyer with significantly less bargaining power, but involve

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merely unknowable estimates of possible future earnings. Simply put, such
statements do not amount to actionable fraud.
The court also finds plaintiff’s reliance on Hensley, supra, for the
proposition that statements of fact susceptible of knowledge are actionable
is misplaced. First, plaintiff has not alleged that defendants misrepresented
facts susceptible of knowledge, but merely seeks to recover for forward
looking projections of possible returns on their investment in the cryotherapy
chambers. Second, Hensley is inapposite on its face. In that case, the court
found that a misrepresentation claim was viable where the plaintiff
purchased a used car from a car lot with a prominent sign advertising, “USED
CARS 1 YEAR WARRANTY” yet plaintiff signed a purchase agreement that
contained fine print on the back stating that no warranties, express or
implied, were made by the dealer. 69 Mich. App. at 600. Because no express
warranty existed, plaintiff could not sue in contract, and his remedy lied in
tort. By contrast, in this case, the Purchase Agreements contain an express
warranty; thus, plaintiff may recover in contract.
Next, the court considers whether plaintiff’s allegations that
defendants had no intention of abiding by the warranty at the time made
amounts to fraud. This is simply a breach of warranty claim, and does not
give rise to a fraud claim. The economic loss doctrine bars a fraudulent
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misrepresentation claim where the alleged fraud is interwoven with the
contract. Huron Tool & Eng’g Co. v. Precision Consulting Servs., Inc., 209
Mich. App. 365 (1995). In Huron Tool, the plaintiff alleged that defendant
had misrepresented the abilities of its software program which did not
operate as promised. Id. at 367-68. In that case, the court emphasized
that in order for a fraud claim to fall outside the economic loss doctrine, the
fraud had to be extraneous to the contract itself. Id. at 374. Here, plaintiff’s
claim that defendants did not abide by the warranty, is simply a claim that
defendants intentionally breached the parties’ contract and warranty.
Plaintiff has failed to allege a viable fraud claim based on breach of
warranty.
3. Reasonable Reliance
Plaintiff’s MFIL and common law fraud claims also must be dismissed
as plaintiff cannot show reasonable reliance on any of the alleged
misrepresentations because it agreed that there were no such promises in
the written Distribution Agreement and Purchase Agreements. (Dist. Agmt.
¶¶ 10.1, 10.4; Purch. Agmt. ¶ 3.1). Reasonable or justifiable reliance is
necessary for a MFIL claim. Cook v. Little Caesar Enter., Inc., 210 F.3d
653, 659 (6th Cir. 2000). “Reliance upon oral representations or prior
documents, even if false, is unreasonable if the party enters into a
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subsequent agreement.” Id.at 658; see Partner & Partner, Inc. v.
ExxonMobil Oil Corp., 326 F. App'x 892, 900 n. 4 (6th Cir. 2009) (“MFIL
requires reasonable reliance, and that it is not reasonable to rely on oral
promises that were not incorporated into the fully integrated written
franchise agreement”).
In sum, plaintiff has failed to plead fraud with sufficient particularity
under Rule 9(b) because of impermissible group pleading, the claims are
premised on non-actionable predictions of future earnings, the claims
amount to breach of warranty claims under the economic loss doctrine, and
plaintiff has failed to show reasonable reliance on any alleged
misrepresentations. Accordingly, the MFIL claims pled in Count I and II,
and the common law fraud claims pled in Counts III, IV, and V shall be
dismissed.
D.

Tortious Interference with Contractual Relationships
Counts VI and VII allege tortious interference with contractual

relationships. Plaintiff’s claims for tortious interference with contractual
relationships must also be dismissed under the economic loss doctrine as
they seek recovery in tort for a warranty claim. See Neibarger v. Universal
Coops., Inc., 439 Mich. 512, 527-28 (1992) (tort claims are precluded
where the alleged economic loss is “caused by a defective product
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purchased for commercial purposes.”). Also, plaintiff expressly agreed that
Cryo Import could not be liable for any “special,” “incidental,”
“consequential,” “lost profits,” or “lost business” damages arising from any
defect in a chamber. (Dist. Agmt. ¶ 2.7; Purch. Agmt. ¶ 10.5). Limitations
of remedies are valid and enforceable. Uniform Comm. Code 2-719; see
also Kvaerner U.S. v. Hakim Plast. Co., 74 F. Supp. 2d 709, 722 (1999)
(enforcing disclaimer of consequential damages). Accordingly, the court
shall dismiss Counts VI and VII.
E.

Quasi-Contract Claims
Count X pleads promissory estoppel and Count XI pleads unjust

enrichment. These claims are barred in light of the parties’ express
Distribution Agreement and Purchase Agreements which plaintiff has
attached to its First Amended Complaint, has pled is valid and binding, and
relies upon it in its breach of contract and breach of warranty claims.
“Under Michigan law this court may not imply a contract where an express
contract covers the same subject matter.” Aron Alan, LLC v. Tanfran, Inc.,
240 F. App'x 678, 684 (6th Cir. 2007) (citing Belle Isle Grill Corp. v. Detroit,
256 Mich. App. 463 (2003)).

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F.

Colorado River Abstention
Having found that all of plaintiff’s tort and quasi-tort claims should be

dismissed for the various reasons discussed above, the court turns now to
the question of Colorado River abstention warrants dismissal of plaintiff’s
claims of breach of warranty pled in Count VIII, and breach of contract pled
in Count IX of the First Amended Complaint, and finds that it does not. A
federal court has a “virtually unflagging obligation” to exercise the
jurisdiction bestowed upon it. Colorado River Water Conservation Dist. v.
United States, 424 U.S. 800, 817–18 (1976). This obligation should be
avoided in only a few “extraordinary and narrow” circumstances. Id. Under
the Colorado River doctrine, the federal court may decline to exercise
jurisdiction where a parallel state matter is pending. Id.
The threshold inquiry in deciding whether to abstain in deference to
ongoing proceedings in state court is whether the actions are truly parallel.
Romine v. Compuserve Corp., 160 F.3d 337, 340 (6th Cir. 1998). To
answer that question, the court must find that the two proceedings are
“substantially similar.” Id. The parties need not be identical as long as they
are substantially similar and the two suits involve the same allegations as
to the same material facts. Id. at 340. Although the cases need not be
identical, the resolution of the state court action must provide complete
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relief for the federal action. See Baskin v. Bath Twp. Bd. of Zoning
Appeals, 15 F.3d 569, 572 (6th Cir. 1994); Heitmanis v. Austin, 899 F.2d
521, 528 (6th Cir. 1990). “Broadly, the relevant inquiry is whether
resolution on the state case will resolve the contested issues in the federal
action.” Cass River Farms, LLC. v. Hausbeck Pickle Co., No. 16-cv-12269,
2016 WL 5930493, at *2 (E.D. Mich. Oct. 12, 2016).
Once the court determines that the two actions are indeed parallel,
the court considers the eight combined factors, the first five identified by the
Court in Colorado River, and the last three added by the Court in Moses H.
Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 23-26
(1983). These include:
(1) whether the state court has assumed jurisdiction over
any res or property; (2) whether the federal forum is less
convenient to the parties; (3) avoidance of piecemeal
litigation; ... (4) the order in which jurisdiction was
obtained[;]... (5) whether the source of governing law is
state or federal; (6) the adequacy of the state court action
to protect the federal plaintiff's rights; (7) the relative
progress of the state and federal proceedings; and (8) the
presence or absence of concurrent jurisdiction.
PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206–07 (6th Cir. 2001) (quoting
Romine, 160 F.3d at 340–41). These factors, however, are not to be
applied mechanically and no one factor is determinative. “Rather, they
require ‘a careful balancing of the important factors as they apply in a given
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case, with the balance heavily weighed in favor of the exercise of
jurisdiction.
As the federal lawsuit now stands, having been reduced to solely
contractual claims, the two lawsuits are quite similar; however, the parties
in the two lawsuits are different. Only defendant CryoUSA Import and
Sales is a party in the Texas lawsuit while in the federal suit, plaintiff seeks
relief not only against CryoUSA Import and Sales, but also has named five
other defendants: CryoUSA Mobile, LLC, CryoUSA Holding, LLC, CryoUSA
Franchising, LLC, Eric Rauscher, and Mark Murdock. Thus, even if plaintiff
were to prevail in the Texas lawsuit, it would not receive complete relief
sought here. Thus, the two cases are not parallel and the inquiry ends.
However, even if the two cases were parallel, consideration of the eight
factors above militates in favor of the court exercising jurisdiction.
The first factor is neutral as neither court has assumed jurisdiction
over property. The second factor favors exercising jurisdiction over the
case pending here as the contract called for performance in Michigan, the
chambers were used in Michigan, tested and allegedly repaired in
Michigan; thus, most of the witnesses are located here. Third, although it
may be undesirable to have virtually the same litigation pending in two
courts at once, plaintiff is entitled to bring his contractual claims here in light
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of the MFIL which protects franchisees by prohibiting the enforcement of
forum selection clauses. Fourth, because the Texas lawsuit was filed a
mere three days before the federal lawsuit, this factor does not weigh in
favor of abstention and there has been no suggestion that there has been
any progress in that matter which exceeds the progress of the federal suit.
As to the fifth and sixth factors, defendants argue choice-of-law
provisions in the Distribution Agreement and Purchase Agreements call for
application of Texas law, thus requiring abstention in favor of the Texas
lawsuit. But as a federal court sitting in diversity, the court is perfectly able
to apply Texas law. In any event, the court is not aware of any difference
between Texas and Michigan law regarding breach of contract.
This brings us to the last two factors for the court’s consideration of
whether it should abstain under the Colorado River doctrine. As to whether
the state court action may protect the federal plaintiff’s rights, the court
notes that plaintiff seeks to proceed in its home state for transactions taking
place in Michigan. Thus, this factor weighs against abstention. Finally, the
court considers the presence or absence of concurrent jurisdiction. This
factor is neutral as both Texas and this court have concurrent jurisdiction.
In sum, although the Texas lawsuit and this lawsuit are quite similar
now that plaintiff’s tort and quasi-contract claims have been dismissed,
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abstention is not warranted. The two lawsuits were commenced within
three days of each other, thus interests of comity owe no deference to the
Texas litigation, and Michigan has a strong interest in allowing the case to
proceed here under its prohibition of forum selection clauses in franchise
agreements. Under these circumstances, Colorado River abstention is not
warranted and the court shall deny defendants’ motion to dismiss on the
basis of abstention.
IV. Conclusion
For the reasons set forth above, defendants’ motion to dismiss (Doc.
2) is GRANTED IN PART and Counts I through VII, and Counts X-XI are
DISMISSED WITH PREJUDICE for failure to state a claim, and is DENIED
IN PART as to Counts VIII and IX which remain viable and pending in this
court.
IT IS SO ORDERED.
Dated: September 15, 2017
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
September 15, 2017, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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