MTR Capital, LLC v. Lavida Massage Franchise Development, Inc. et al

Filing 101

OPINION and ORDER DENYING 90 , 93 Motions for Reconsideration, and DENYING 89 MOTION for Attorney Fees. Signed by District Judge Terrence G. Berg. (AChu)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
MTR CAPITAL, LLC,

2:17-CV-13552-TGB-EAS

Plaintiff,
ORDER DENYING MOTIONS
FOR RECONSIDERATION
AND DENYING MOTION FOR
ATTORNEY FEES

vs.
LAVIDA MASSAGE FRANCHISE
DEVELOPMENT, INC., ET AL.,
Defendants.

The Court issued its order and judgment in this case on November
6, 2020. ECF Nos. 87, 88. Subsequently, both Plaintiff (ECF No. 93) and
Defendants (ECF No. 90) filed timely motions to alter or amend the
judgment, and Plaintiff also filed a timely Motion for Attorney Fees and
Costs (ECF No. 89). Because they do not raise any issues that meet the
high standard for obtaining a new or modified judgment, both Plaintiff
and Defendants’ motions are DENIED. Additionally, Plaintiff’s Motion
for Attorney Fees1 is DENIED.
In addition to the Motion for Attorney Fees, Plaintiff filed a Bill of Costs
under Fed. R. Civ. P. 54(d)(1). ECF No. 92. Because the clerk has not yet
taxed these costs, Defendants’ “Objection” (ECF No. 97) is premature and
will be stricken.
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I.

BACKGROUND

Plaintiff MTR Capital (“MTR”) invested in a franchise opportunity
with

Defendant

LaVida

Massage

Franchise

Development,

Inc.

(“LaVida”). After the venture failed, MTR brought this lawsuit claiming
that Defendants induced MTR to invest in a LaVida franchise by making
false statements and fraudulent omissions. The Court held a bench trial
over four days between January 27-31, 2020, and subsequently issued its
findings of fact and conclusions of law awarding $39,000 in damages to
MTR. ECF No. 87. Plaintiff prevailed on one claim: the Court found that
in failing to provide Plaintiff with an updated Franchise Disclosure
Document (“FDD”) that accurately reflected a number of recent franchise
closures, Defendants committed a deceptive or unfair trade practice in
violation of the Florida Deceptive and Unfair Trade Practices Act
(“FDUTPA”). Id. at PageID.2062. The Court also found Plaintiff
sufficiently alleged a causal relationship between this violation and at
least some of its financial losses, resulting in a damage award equal to
the franchise fee Plaintiff originally paid. Id. at PageID.2065-66.
Both Parties bring their motions under Fed. R. Civ. P. 59(e), which
allows a Court to alter or amend its judgment, and Fed. R. Civ. P. 60(b),
which lists various grounds for relief from judgment. Normally responses
to these motions are not allowed under LR 59.1, but the Court granted
extended briefing. ECF No. 96. These motions are fully briefed and
properly before the Court.
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II.

STANDARD OF REVIEW

The Court “may grant a Rule 59(e) motion to alter or amend
judgment only if there is: ‘(1) a clear error of law; (2) newly discovered
evidence; (3) an intervening change in controlling law; or (4) a need to
prevent manifest injustice.’” Henderson v. Walled Lake Consol. Sch., 469
F.3d 479, 496 (6th Cir. 2006) (quoting Intera Corp. v. Henderson, 428 F.3d
605, 620 (6th Cir. 2005)). This standard is consistent with the “palpable
defect” standard found in this District's Local Rules. Id. Under Local Rule
7.1, the Court generally
will not grant motions for rehearing or reconsideration that
merely present the same issues ruled upon by the Court,
either expressly or by reasonable implication. The movant
must not only demonstrate a palpable defect by which the
Court and the parties and other persons entitled to be heard
on the motion have been misled but also show that correcting
the defect will result in a different disposition of the case.
E.D. Mich. LR 7.1(h)(3). Rule 59(e) motions “cannot be used to present
new arguments that could have been raised prior to judgment.” Howard
v. United States, 533 F.3d 472, 475 (6th Cir. 2008). Similarly, Rule 59(e)
is not a procedural vehicle for parties to relitigate previously considered
issues. Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d
367, 374 (6th Cir. 1998). District courts have a great deal of discretion in
deciding whether to grant a Rule 59 motion. Leisure Caviar, LLC v. U.S.
Fish & Wildlife Serv., 616 F.3d 612, 615 (6th Cir. 2010).

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Rule 60(b) provides another mechanism for parties to seek relief
from a final judgment, “under a limited set of circumstances including
fraud, mistake, and newly discovered evidence.” Gonzalez v. Crosby, 545
U.S. 524, 528 (2005). Because the rule undermines finality, relief
pursuant to Rule 60(b) is an “extraordinary remedy that is granted only
in exceptional circumstances.” McAlpin v. Lexington 76 Auto Truck Stop,
Inc., 229 F.3d 491, 502-03 (6th Cir.2000). The party that seeks to invoke
Rule 60(b) bears the burden of establishing that its prerequisites are
satisfied. Jinks v. Alliedsignal, Inc., 250 F.3d 381, 385 (6th Cir. 2001). A
Rule 60(b) motion is properly denied where the movant attempts to use
the motion to relitigate the merits of a claim and the allegations are
unsubstantiated. Miles v. Straub, 90 Fed. App'x 456, 458 (6th Cir. 2004).
A movant under Rule 60(b) likewise fails to show entitlement to relief by
simply rephrasing the allegations in the original complaint. Johnson v.
Unknown Dellatifa, 357 F.3d 539, 543 (6th Cir. 2004).
III. ANALYSIS
A. Plaintiff’s Motion
Plaintiff’s motion argues that (1) Defendants violated the Florida
Franchise Act (“FFA”), (2) certain statements Defendants made
constituted deceptive acts and practices in violation of the FFA and the
FDUTPA, (3) the individual Defendants should be held liable for any

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damages,2 and (4) the Court incorrectly assessed the damages owed to
Plaintiff. ECF No. 93, PageID.2168-73.
But these are all previously considered issues, and Plaintiff
acknowledges as much with citations to the Court’s Order. See, e.g., id.
at PageID.2169-70. The Court carefully considered the FFA (ECF No. 87,
PageID.2066-68) and the FDUTPA (id. at PageID.2055-62), and outlined
in detail its rationale for the amount of damages awarded to Plaintiff (id.
at PageID.2063-66). Plaintiff simply disagrees with the Court’s
interpretation of statutes or evidence, indicating that the Court “does not
analyze” some issue Plaintiff believes it should have. Id. at PageID.2170.
But without indicating with more specificity why any of these choices in
assessing the facts and the law were patently incorrect (i.e., with
citations to controlling caselaw demonstrating the correct approach),
Plaintiff has not shown that the Court committed the kind of “clear error”
Rule 59(e) is meant to correct. Neither do any of the Plaintiff’s arguments
raise newly discovered evidence, intervening changes in the law, or issues
of “manifest injustice.” The Court does not find grounds to alter or amend
the judgment under Rule 59(e).
Similarly, Plaintiff does not raise any claims of “fraud, mistake, or
newly discovered evidence” that might merit relief under Rule 60(b). It

The Court’s judgment was in fact entered against both the corporate
entities and the individuals, so it is unclear what Plaintiff seeks
reconsideration of as to this point. ECF No. 88.
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merely seeks to “relitigate the merits” of its claims, and therefore the
Motion will be denied.
B. Defendants’ Motion
Defendants’ motion focuses only on the Court’s award of damages.
i.

Basis for a damages award

Defendants’ first argument is that the Court incorrectly interpreted
the relevant caselaw in finding that Defendants are liable to MTR under
the FDUTPA in the amount of the initial franchise fee. ECF No. 90,
PageID.2113-18. Defendants cite Rollins, Inc.’s description of the two
ways that damages under the FDUTPA can be calculated:
The standard for determining the actual damages recoverable
under FDUTPA is: "the difference in the market value of the
product or service in the condition in which it was delivered
and its market value in the condition in which it should have
been delivered according to the contract of the parties. [. . .] A
notable exception to the rule may exist when the product is
rendered valueless as a result of the defect—then the
purchase price is the appropriate measure of actual damages."
Rollins, Inc. v. Heller, 454 So.2d 580, 585 (Fla. 3d DCA 1984).
ECF No. 90, PageID.2114. Defendants then conclude that the Court’s
award of $39,000, the amount Plaintiffs initially paid as a franchise fee,
is “Rollins, Part Two: the purchase price.” Id. Because the chain of
causation does not indicate that “the product”—here, the franchise—“was
rendered valueless” as a result of Defendants’ conduct, they argue the
Court erred in awarding damages because the requirements of the
FDUTPA as interpreted by caselaw were not met. Id. at PageID.2115-17.
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But the Court explicitly stated it was using the first, not the second,
measure of damages, precisely because it recognized that the franchise
was not rendered totally valueless by Defendants’ FDUTPA violation.
Admittedly, “difference in the market value” is an awkward formulation
to apply to a franchise, and the Court acknowledged this in its original
order. ECF No. 87, PageID.2065. But the damage award essentially
conceptualizes the condition in which the franchise “should have been
delivered” as including a full disclosure of risk as mandated by Florida
law. Looking at the timeline of events, and indeed considering causation
issues as Defendants urge, the Court identified the point in time when
there was an unbroken chain of causation leading to a gap between the
franchise’s market value and what was delivered: when Plaintiff initially
signed the franchise agreement. The Court would have included “any
financial expenditures prior to the signing of the Franchise Agreement”
in the damages calculation. Id. It just so happens the only expenditure
alleged by Plaintiff up until this time was the franchise fee itself.
Defendants do not specifically provide caselaw or other support for
their implied contention that the Court erred in using the first measure
of damages. The rest of their argument addresses why it would be
incorrect to award damages under the second formulation, but the Court
never applied that method to determine the damages. This argument
therefore fails to identify any “clear error” in determining the amount of
damages.
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ii. Basis for an FDUTPA claim
Defendants next argue that the Court misinterpreted the Cluck-U
Chicken case when it determined that their conduct was the basis for an
FDUTPA violation. The Court’s original citation of this case is as follows:
Information on the number of franchise units open and closed
at any given time is a material fact about the franchise
opportunity. See, e.g., Cluck-U Chicken, Inc. v. Cluck-U Corp.,
358 F. Supp. 3d 1295, 1313 (M.D. Fla. 2017) (finding an
actionable FDUTPA claim when franchisor failed to provide
franchisee with updated disclosure document showing
closures from that year).
Findings of Fact and Conclusions of Law, ECF No. 87, PageID.2062.
Defendants point out that in Cluck-U Chicken, the court denied
summary judgment for the plaintiffs on an FDUTPA claim. Although the
defendants in that case failed to update their franchise disclosure
document, just as Defendants here, the court found that issues of
material fact remained as to the claim because the plaintiffs in turn
“fail[ed] to offer evidence that Defendants’ alleged violations of the
Franchise Rule would have misled a consumer acting reasonably in the
same circumstances.” ECF No. 90, PageID.2199 (quoting Cluck-U
Chicken, 358 F. Supp. 3d at 1313). Defendants argue that MTR similarly
did not provide any such evidence in this case, and therefore the Court
erroneously cited this case to support a finding of a violation. Id.
Defendants are incorrect. First, the Court cited Cluck-U only for the
proposition that failure to update a franchise disclosure document is an
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example of conduct that can be the source of an actionable FDUTPA
claim. Second, unlike the situation before the court in Cluck-U, here the
Court did consider evidence presented by Plaintiff that the nature of
misrepresentation made by Defendants would have misled a reasonable
consumer. ECF No. 87, PageID.2060-62 (“When questioned by the Court,
even Ms. Davis confirmed that whether franchise closures had occurred
is something that ‘a reasonable person would probably want to know’
before buying a franchise.”). Defendants have failed to show any “clear
error” in the Court’s application of this case.
iii. Liability of the individual Defendants
Lastly, Defendants state that the Court erred in entering a
judgment against “Defendants” as a group, because only the corporate
Defendant LaVida received the franchise fee. They also argue that MTR
did not put forward sufficient evidence to establish liability against the
individual Defendants (Duane Goodwin and Peggy Davis), citing caselaw
indicating that “in order to proceed against an individual using a
FDUTPA violation theory an aggrieved party must allege that the
individual was a direct participant in the improper dealings.” KC Leisure,
Inc. v. Haber, 972 So. 2d 1069, 1074 (Fla. Dist. Ct. App. 2008).
But it is incorrect to say that Plaintiff never alleged, or the evidence
never showed, that the individual Defendants were “direct participants”
in the conduct alleged. The Complaint charges that “Defendants have
never provided the Plaintiff with a compliant FDD” (franchise disclosure
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document) and does not distinguish between the individual and corporate
Defendants. ¶ 21, ECF No. 1, PageID.6. The Court noted in its Findings
of Fact the Defendants collectively failed to make certain disclosures in
the FDD (ECF No. 87, PageID.2036), and that Duane Goodwin first sent
the FDD to Plaintiff (Id. at PageID.2036). It was also established through
testimony that Peggy Davis was responsible for preparing and updating
the FDD. Test. of Peggy Davis, Tr. 1/28/20, ECF No. 73, PageID.1387.
Establishing “direct participation” does not require finding an
intent to deceive: it is enough for the plaintiff to show “the defendant had
or should have had knowledge or awareness of the misrepresentations.”
KC Leisure, 972 So. 2d at 1073 (emphasis added) (outlining the standard
for holding an individual liable under the Federal Trade Commission Act
and indicating that the standard for individual liability under the
FDUTPA is similar). Defendants correctly state that the Court did not
find the evidence “sufficient to show that LaVida intended to make such
a false statement or intended for Plaintiff to rely on it.” ECF No. 90,
PageID.2121 (quoting ECF No. 87, PageID.2049). But the very nature of
the violation establishes there were rules the individual Defendants
should have had knowledge of regarding the requirements for keeping an
FDD updated and providing potential franchisees with an up-to-date
copy. ECF No. 87, PageID.2060-62. Because they did not do so, they can
be held liable just as the corporate Defendant can. There is no “clear
error” in holding all Defendants liable for the damage award.
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Overall, none of Defendants’ arguments indicate clear error, new
evidence, changes in the law, or manifest injustice such that the Court’s
judgment should change. There is also no “fraud, mistake, or newly
discovered evidence” that might merit relief under Rule 60(b). Therefore,
the Defendants’ motion is denied.
C. Plaintiff’s Motion for Attorney Fees
Lastly, the Court will consider Plaintiff’s Motion for Attorney Fees
under Fed. R. Civ. P. 54(d)(2) and Fla. Stat. § 501.2105. The statute
provides that a trial judge “may award the prevailing party” reasonable
costs and fees in an FDUTPA matter. Fla. Stat. § 501.2105; see also ECF
No. 89, PageID.2082. Under Florida law, “the party prevailing on the
significant issues in the litigation is the party that should be considered
the prevailing party for attorney's fees.” Moritz v. Hoyt Enterprises, Inc.,
604 So. 2d 807, 810 (Fla. 1992). Factors that courts consider in
determining whether to award fees under the FDUTPA include:
(1) the scope and history of the litigation;
(2) the ability of the opposing party to satisfy an award of fees;
(3) whether an award of fees against the opposing party would
deter others from acting in similar circumstances;
(4) the merits of the respective positions—including the
degree of the opposing party's culpability or bad faith;
(5) whether the claim brought was not in subjective bad faith
but frivolous, unreasonable, groundless;
(6) whether the defense raised a defense mainly to frustrate
or stall;
(7) whether the claim brought was to resolve a significant
legal question under FDUTPA law.
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Humane Soc. of Broward Cty., Inc. v. Fla. Humane Soc., 951 So. 2d 966,
971-72 (Fla. Dist. Ct. App. 2007).
Initially, the Court is skeptical Plaintiff can reasonably be said to
have prevailed on “significant issues in the litigation,” given that the
Court only found in its favor on one of eight issues (only three of which
were FDUTPA-related). Indeed, the requested fee award is roughly ten
times what Plaintiff’s Counsel were able to recover for their client.
Even if the Court were to decide Plaintiff was a prevailing party,
however, with one exception the Humane Society factors either do not
apply or do not militate in favor of a fee award. Regarding factor (1), this
was a contested and lengthy case, but not so much so as to make it outof-the-ordinary and meriting a fee award. There is no conclusive evidence
presented either way regarding factor (2)—Plaintiff says Defendants
could pay, and Defendant says it would be difficult for them as a small
business—making it neutral at best. Factor (3) weighs slightly in
Plaintiff’s favor, but the Court does not give it heavy consideration
because Defendants’ conduct here was not malicious—deterrence is not
as much of a concern as it would be if their failures in disclosure were
deliberately deceptive. There is no evidence under factor (4) that
Defendant’s overall legal position was “so clearly without merit”—this
was a hard-fought case that went all the way to trial where both sides
had tenable positions. ECF No. 89, PageID.2089. Factor (5) does not seem
to apply, as there is no evidence of bad-faith claims made by either side.
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There is also no compelling evidence that defenses were raised
merely to “frustrate or stall” under factor (6)—Defendants engaged in
mediation as was their right under their agreement with Plaintiff, and
subsequently engaged in a vigorous, but not particularly unusual,
motions practice. As to factor (7), the FDUTPA claim was a small portion
of this case that did not resolve any “significant legal question.” The
Court in its discretion declines Plaintiff’s request for attorney fees.
CONCLUSION
Neither Plaintiff nor Defendants raise issues of clear error, new
evidence, changes in law, or manifest injustice as required by Fed. R. Civ.
P. 59(e), or fraud or mistake that would afford relief from judgment under
Fed. R. Civ. P. 60(b). Therefore, Plaintiff’s Motion to Alter or Amend
Judgment (ECF No. 93) is DENIED, and Defendants’ Motion (ECF No.
90) is similarly DENIED. Plaintiff’s Motion for Attorney Fees (ECF No.
89) is DENIED. No new judgment will issue and the case remains closed.
SO ORDERED this 27th day of April, 2021.
BY THE COURT:

/s/Terrence G. Berg
TERRENCE G. BERG
United States District Judge
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