Smith v. Auto Club Services, Inc.

Filing 23

ORDER granting 15 Motion to Dismiss (Written Opinion) Signed by Senior Judge David S. Doty on 10/25/2017. (DLO)

United States District Court
District of Minnesota
Civil No. 17-1949(PAM/FLN)
Leslie L. Smith,
Plaintiff,
v.

ORDER

Auto Club Services, Inc.,
Defendant.

L. Kathleen Harrell-Latham, Esq. and Loop Legal PLLC, 2828
University Avenue SE, Suite 150, Minneapolis, MN 55414,
counsel for plaintiff.
William Roth Sampson, Esq. and Shook, Hardy, & Bacon LLP,
2555 Grand Blvd., Kansas City, MO 64108; Douglas R.
Boettge, Esq. and Stinson Leonard Street, LLP, 50 South 6th
Street, Suite 2600, Minneapolis, MN 55402; counsel for
defendant.

This matter is before the court on the motion to dismiss by
defendant Auto Club Services, Inc.
file,

record,

and

proceedings

Based on a review of the

herein,

and

for

the

following

reasons, the motion is granted.

BACKGROUND
This contract dispute arises out of the parties’ June 2014,
Entrepreneurial

Agent

Agreement

(Agreement),

which

authorized

plaintiff Leslie Smith to act as Auto Club’s agent in connection
with the sale of its insurance policies in Minnesota.

Compl.

¶ 7; Agreement § I(A).
was

required

to

In exchange for sales commissions, Smith

represent

Auto

Club

exclusively,

devote

“sufficient time” to selling its products, and maintain certain
quality

standards

set

by

Auto

Club.

Compl.

¶¶

8-10.

The

Agreement specified that Smith was “an independent contractor
and not an employee of [Auto Club] for any purpose.”

Agreement

§ IV(D).
Before
projections

Smith
for

signed

the

anticipated

Agreement,
sales

Auto

revenue.

Club

gave

Compl.

¶

her
18.

According to Smith, Auto Club told her that the projections were
“very conservative” and a “bare minimum.”

Id. ¶ 19.

not allege the specific sales revenue projected.

Smith does
Relying on

those projections and statements, Smith executed the Agreement.
Id. ¶ 20.
Smith alleges that after she signed the Agreement, Auto
Club failed to authorize necessary approvals that prohibited her
from immediately opening an office and making sales, even though
she was already incurring operating expenses.

Id. ¶¶ 21-23.

When Smith finally began selling Auto Club policies in November
2014, she learned that Auto Club only underwrites policies at a
“competitive price” for persons with high credit scores.
¶ 25.

Id.

Smith alleges that Auto Club knew that the credit-score

averages in her territory made it impossible for her to meet the
financial

projections,

but

purposefully
2

withheld

that

information from her so that she would sign the Agreement.

Id.

¶¶ 34-36.

She also alleges that Auto Club prevented her from

using

internal

its

system

to

generate

leads

with

qualifying

credit scores outside of her territory, even though other agents
were permitted to do so.

Id. ¶¶ 37-41.

In April 2017, after suffering “substantial losses” due to
“disappointing revenue,” Smith advised Auto Club that she was
closing her office and seeking other employment.
She

then

commenced

this

action

asserting

Id. ¶¶ 42-46.
seven

claims:

violation of the Minnesota Franchise Act, Minn. Stat. § 80C.01
et seq. (Count I); violation of the Minnesota Deceptive Trade
Practices Act, Minn. Stat. § 325D.44 (Count II); violations of
the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq.
(Counts III and IV); fraud (Count V); unjust enrichment (Count
VI); and declaratory judgment that she was fraudulently induced
to enter into the Agreement (Count VII).

Auto Club now moves to

dismiss.

DISCUSSION
I.

Standard of Review
To

claim,

survive
“‘a

a

motion

complaint

must

to

dismiss

contain

for

failure

sufficient

to

factual

state

a

matter,

accepted as true, to state a claim to relief that is plausible
on its face.’”

Braden v. Wal-Mart Stores, Inc., 588 F.3d 585,
3

594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662,
678

(2009)).

“A

claim

has

facial

plausibility

when

the

plaintiff [has pleaded] factual content that allows the court to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.”

Iqbal, 556 U.S. at 678 (citing Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

Although a

complaint need not contain detailed factual allegations, it must
raise a right to relief above the speculative level.
550

U.S.

recitation

at
of

555.
the

“[L]abels
elements

and
of

sufficient to state a claim.

a

conclusions
cause

of

or

a

action”

Twombly,
formulaic
are

not

Iqbal, 556 U.S. at 678 (citation

and internal quotation marks omitted).
The court does not consider matters outside the pleadings
under Rule 12(b)(6).

Fed. R. Civ. P. 12(d).

The court may,

however, consider matters of public record and materials that
are “necessarily embraced by the pleadings.”

Porous Media Corp.

v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (citation and
internal quotation marks omitted).
considers

the

Agreement,

which

is

Here, the court properly
referenced

throughout

the

complaint.
II.

The Fraud-Based Claims
Five

of

Smith’s

claims

are

fraudulent conduct by Auto Club.
Minnesota

Franchise

Act,

based
4

predicated

on

allegedly

Count I alleges breach of the
on

Auto

Club

“knowingly

and

intentionally ... engag[ing] in unfair and inequitable conduct
... [it] had reason to know . . . was deceiving” Smith.
¶ 52.

Similarly,

Count

II

alleges

Auto

Club

Compl.

engaged

in

“deceptive” practices, id. ¶ 58, Counts V and VI allege fraud
and unjust enrichment, respectively, based on allegedly false
representations,

id.

declaration

the

that

¶¶ 83,

89,

Agreement

is

and

Count

invalid

due

VII
to

seeks

a

fraudulent

inducement, id. ¶ 94.
Because these claims either allege fraud or sound in fraud,
Smith is required to plead them with particularity.

Fed. R.

Civ. P. 9(b); Drobnak v. Andersen Corp., 561 F.3d 778, 784 (8th
Cir. 2009).

In other words, she was required to plead “the who,

what, where, when, and how of the alleged fraud.”

U.S. ex rel.

Thayer v. Planned Parenthood of Heartland, 765 F.3d 914, 917
(8th

Cir.

omitted).

2014)

(internal

quotation

marks

and

citations

Auto Club argues that Smith has failed to support her

allegations with any of the required details.
meaningfully responded to that argument.

Smith has not

Failure to respond to

an argument in response to a motion to dismiss “amounts to a
waiver, and on that basis alone defendant’s motion to dismiss
... should be granted.”

Espey v. Nationstar Mortg., LLC, Civ.

No. 13-2979, 2014 WL 2818657, at *11 (D. Minn. June 19, 2014);
Zimmerschied v. JP Morgan Chase Bank, N.A., 49 F. Supp. 3d 583,
590-91 (D. Minn. 2014).
5

Even if the court were to undertake a Rule 9(b) analysis,
the

fraud-based

particularity.
conduct

was

claims

are

not

fraudulent

and

with

the

allegations

“Conclusory

pleaded

that

a

deceptive

are

not

requisite
defendant’s

sufficient.”

Ogletree, Abbott, Clay & Reed Law Firm, L.L.P. v. FindLaw, Civ.
No. 14-340, 2014 WL 2611862, at *3 (D. Minn. June 11, 2014).
The closest Smith comes to laying an adequate foundation for her
fraud-based claims is her allegation that Auto Club provided her
with

“very

conservative”

and

“bare

minimum”

projections, which proved to be unattainable.
she

never

alleges

with

any

specificity

financial

Compl. ¶ 19.

the

But

compensation

or

projections promised by Auto Club, nor does she allege that the
unspecified projections were false or misleading when they were
made.

Such vague allegations do not satisfy Rule 9(b).

Trooien

v.

(affirming

Mansour,
dismissal

608
of

F.3d
claims

1020,
based

1029
on

(8th

Cir.

allegedly

See
2010)

“false”

revenue projections and defendant’s statement that “significant
accounts

were

going

to

be

obtained,”

as

“[s]uch

...

general

allegation[s] do[] not satisfy the requirements of Rule 9(b)”).
Because Smith has failed to satisfy Rule 9(b), all of her
fraud-based claims fail.
12(b)(6), as well.

Each of those claims fails under Rule

The Minnesota Franchise Act claim (Count I)

fails because Smith has not adequately pleaded that she was a
franchisee.

See Clear Wave Hearing Instruments, Inc. v. Starkey
6

Holding Corp., Civ. No. 11-1562, 2012 WL 949953, at *6 (D. Minn.
Mar. 20, 2012) (“As a threshold matter, Plaintiffs must allege
that they have a franchise relationship with Defendants.”); see
also Minn. Stat. § 80C.01, subdiv. 4(a) (“‘Franchise’ means (1)
a contract or agreement, either express or implied, whether oral
or written, for a definite or indefinite period, between two or
more persons ....”).

The complaint does not allege a franchise

relationship, and neither does the Agreement.

Furthermore, the

court rejects Smith’s argument that costs she incurred operating
her

business

qualify

as

the

necessary

“franchise

fee.”

See

Coyne’s & Co. v. Enesco, LLC, 553 F.3d 1128, 1131 (8th Cir.
2009) (noting that a franchise fee “ordinarily [is] an up-front,
direct

fee

for

the

right

to

distribute

[the

defendant’s]

products”).
The Deceptive Trade Practices Act claim fails because Smith
has not alleged any public benefit from her cause of action.
See Select Comfort Corp. v. Sleep Better Store, LLC, 796 F.
Supp. 2d 981, 985-87 (D. Minn. 2011) (discussing cases).
The

fraud

and

declaratory

judgment

claims

fail

because

Smith has alleged only projections of future performance, not
any specific misrepresentations “of a past or present material
fact.”

Trooien, 608 F.3d at 1029; ADT Sec. Servs., Inc. v.

Swensen, 276 F.R.D. 278, 294-95 (D. Minn. 2011).

7

The

unjust

enrichment

claim

fails

because

the

Agreement

governed the parties’ relationship, and Smith has pleaded no
facts to undermine its validity.

See Integrity Bank Plus v.

Talking Sales, Inc., Civ. No. 04-4523, 2005 WL 419694, at *4 (D.
Minn. Feb. 22, 2005) (“[T]he existence of an express contract
between

the

parties

precludes

recovery

under

an

unjust

enrichment theory.”).
As a result, all of Smith’s fraud-based claims fail as a
matter of law.
III. The FLSA claims
The remaining two counts allege that Auto Club violated the
FLSA by (1) misclassifying her as an independent contractor and
(2) failing to pay her overtime.

These claims also fail as a

matter of law.
Initially, it is difficult to understand the assertion that
Smith

was

misclassified

given

that

she

knowingly

signed

the

Agreement, which states that she is an independent contractor.
Agreement § IV(D).

Even if the complaint plausibly alleged that

Smith was an employee of Auto Club rather than an independent
contractor,

neither

misclassification,

of

her

Smith

FLSA

seems

to

claims

survives.

contend

she

was

minimum wage for the hours she worked for Auto Club.
¶¶

69-73.

acknowledges

But

she

having

provides

received

no

further

commissions
8

for

not

for
paid

See Compl.

detail,
her

As

and

work.

she
Id.

¶ 69.

A minimum-wage claim is not viable if Smith received the

minimum necessary compensation – that is, “hours actually worked
... multiplied by the minimum hourly statutory [pay rate]” – no
matter

how

that

something else).

pay

is

denominated

(wages,

commissions,

or

Hensley v. MacMillan Bloedel Containers, Inc.,

786 F.2d 353, 357 (8th Cir. 1986).

It is not enough for Smith

simply to allege that she “received only commissions and did not
receive

any

wages

for

the

time

she

worked

under

the

[]

Agreement,” Compl. ¶ 69, without also alleging that she did not
receive minimum wage.

See Jones v. Casey’s Gen. Stores, 538 F.

Supp. 2d 1094, 1102-03 (S.D. Iowa 2008) (rejecting minimum-wage
claim, like the one asserted here, that was predicated on a
“mere allegation that certain hours actually worked by Plaintiff
went entirely unpaid”); see also Bailey v. Border Foods, Inc.,
Civ. No. 09-1230, 2009 WL 3248305, at *2 (D. Minn. Oct. 6, 2009)
(“To [plead] a viable FLSA claim for unpaid minimum wages, the
complaint should indicate the applicable rate of pay and the
amount of unpaid minimum ... wages due.”) (internal quotation
marks

and

citation

omitted).

Without

more

detail

about

the

hours she worked or the commissions she received from Auto Club,
her misclassification claim does not raise a right to relief
“above the speculative level.”

Twombly, 550 U.S. at 555.

A similar analysis applies to her unpaid overtime claim.
Smith must do more than allege that “at times, [she] worked more
9

than

forty

Compl.

¶¶

hours

per

76-77.

week”

See

and

Jones,

failed
538

F.

to

receive

Supp.

2d

overtime.

at

1102-03

(dismissing claim alleging that the plaintiffs “regularly worked
... overtime each week but were not paid ... overtime wages in
violation of the FLSA”).
that

several

statutory

Furthermore, Auto Club correctly notes
exceptions

to

the

FLSA’s

overtime-pay

requirements are implicated by the complaint, such as those for
outside sales and bona-fide executives.
those

arguments

in

her

briefing,

Smith did not address

tacitly

acknowledging

applicability and waiving any argument to the contrary.
2014 WL 2818657, at *11.

their
Espey,

As a result, the FLSA claim must be

dismissed.
CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that:
1.

The motion to dismiss [ECF No. 15] is granted; and

2.

The complaint [ECF No. 1] is dismissed with prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: October 25, 2017
s/David S. Doty
David S. Doty, Judge
United States District Court

10