Bayit Care Corp. v. Tender Loving Care Health Care Services of Nassau Suffolk, LLC.
Filing
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ORDER re 9 : For the reasons set forth in the attached Memorandum & Order, Tender Loving's motion to stay is deemed moot and its motion to dismiss Bayit's Fourth Cause of Action is granted. Ordered by Senior Judge Denis R. Hurley on 2/17/2012. (Monaco, Laura)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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BAYIT CARE CORP.,
Plaintiff,
MEMORANDUM & ORDER
11-CV-3929 (DRH) (ARL)
-againstTENDER LOVING CARE HEALTH CARE
SERVICES OF NASSAU SUFFOLK, LLC,
Successor in Interest to Staff Builders
International, Inc.,
Defendant.
--------------------------------------------------------X
TENDER LOVING CARE HEALTH CARE
SERVICES OF NASSAU SUFFOLK, LLC,
and AMEDISYS, INC.,
Plaintiffs,
11-CV-5600 (DRH) (ARL)
-againstBAYIT CARE CORPORATION
Defendant.
--------------------------------------------------------X
APPEARANCES:
EINBINDER & DUNN, LLP
Attorneys for Bayit Care Corporation
104 West 40th Street, 20th Floor
New York, New York 10018
By:
Michael Einbinder, Esq.
FARRELL FRITZ, P.C.
Attorneys for the Tender Loving Care Health Care Services of Nassau Suffolk, LLC
1320 RXR Plaza
Uniondale, New York 11556
By:
James M. Wicks, Esq.
Aaron E. Zerykier, Esq.
HURLEY, Senior District Judge:
Plaintiff Bayit Care Corp. (“plaintiff” or “Bayit”) commenced this diversity action
against defendant Tender Loving Care Health Care Services of Nassau Suffolk, LLC
(“defendant” or “Tender Loving”) asserting three causes of action for breach of contract based
upon defendant’s alleged breach of the parties’ franchise agreement. In its Fourth Cause of
Action, Bayit seeks damages for Tender Loving’s alleged failure to provide Bayit with certain
disclosure documentation as required by New York General Business Law § 683. Presently
before the Court is Tender Loving’s motion pursuant to Federal Rule of Civil Procedure 12(b)(6)
to dismiss Bayit’s Fourth Cause of Action as time-barred.1 For the reasons discussed below,
Tender Loving’s motion is granted.
1
Just prior to the commencement of this action, Tender Loving brought a suit against Bayit
in Louisiana state court (the “Tender Loving Action”), where it sought, inter alia, a declaratory
judgment that it did not breach its franchise agreement with Bayit. (See Def.’s Mem. at 4.)
Bayit removed the case to the United States District Court of the Middle District of Louisiana
and filed a motion to dismiss or, in the alternative, to transfer venue to this Court. When the
present motion to dismiss was filed, Tender Loving requested in its moving papers that this
Court stay the action pending a decision on Bayit’s motion to transfer venue by the Louisiana
District Court. Bayit did not oppose this request. Before the motion to stay was fully briefed,
however, the Louisiana District Court granted Bayit’s motion to change venue, and the Tender
Loving action was transferred to this court as a related case under Civil Docket No. 11-CV-5600.
Bayit’s Answer in the Tender Loving Action contained four counterclaims identical to the four
causes of action pled in its Complaint here. Tender Loving has moved to dismiss Bayit’s Fourth
Counterclaim in the Tender Loving Action, which is identical to Bayit’s Fourth Cause of Action
in this case, for the same reasons asserted herein. Accordingly, this Memorandum and Order is
being simultaneously docketed in 11-CV-5600 and grants Tender Loving’s motion to dismiss
Bayit’s Fourth Counterclaim.
2
BACKGROUND
The following factual recitation is drawn from the allegations contained in the Complaint
as well as documents referenced therein, which are integral to Bayit’s allegations.2
I.
The Parties
Bayit is a New York corporation with its principal place of business in Huntington, New
York. (Compl. ¶ 1.) On or about April 1, 1992, Bayit entered into a franchise agreement
(“Franchise Agreement”) with Staff Builders International, Inc. (“Staff Builders”). On or about
February 14, 2005, defendant succeeded to the interests of Staff Builders; the two merged and
Tender Loving is the surviving entity.3 (Id. ¶ 3.) Pursuant to the Franchise Agreement, Bayit
was granted the right to operate a franchised health center and to offer health care personnel
services, programs, products, and activities. (Id. ¶ 6.) At the outset of their relationship, the
parties recognized that “due to changes in competitive circumstances . . . [Tender Loving] must
not remain static.” (Id. ¶ 8.) Accordingly, the parties agreed that Tender Loving may modify its
practices or services, and Bayit would abide by those modifications to the extent that they did
not “unreasonably and materially increase [Bayit’s] obligations” under the Franchise Agreement.
(Id.)
2
In deciding a Rule 12(b)(6) motion, the Court may rely on the facts alleged in the
Complaint, documents attached to the Complaint or incorporated by reference, and documents
“integral” to the Complaint and relied upon in it, even if not attached or incorporated by
reference. In Re Merrill Lynch & Co., Inc. 273 F. Supp. 2d 351, 356 (S.D.N.Y. 2003). Here, the
Court has considered not only the factual allegations contained in the Complaint, but has also
reviewed the Franchise Agreement and the subsequent management fee amendments, as those
extraneous documents are both “integral” to Bayit’s claims and referenced in the Complaint. Id.
3
In their briefs, the parties use “Tender Loving” to refer to either Staff Builders or Tender
Loving, whichever was the relevant entity at the time. (See Def.’s Mem. at 1 n.1.) The Court
will do the same for purposes of this Memorandum and Order.
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II.
The Management Fee Amendments
On November 4, 2004, the parties entered into a management fee amendment to the
Franchise Agreement, which was effective February 14, 2005.4 (Id. ¶ 9). The parties entered
into four subsequent management fee amendments for each of the years between 2006 and 2009.
(Id. ¶ 10) The sixth management fee amendment (“Sixth Fee Amendment”) was executed on
June 14, 2010. According to Bayit, the Sixth Fee Amendment “fundamentally altered the
financial structure” of the Franchise Agreement, and “created a completely different contractual
relationship between the parties, which was tantamount to an offer of a new franchise.” (Id.)
III.
The Complaint
In its first three causes of action, Bayit asserts that Tender Loving committed various
breaches of the Franchise Agreement. (Id. ¶¶ 18-20.) In the Fourth Cause of Action, which is at
issue in the present motion, Bayit alleges that Tender Loving violated New York’s Franchise
Sales Act, N.Y. General Business Law § 680 et. seq. (“FSA”), by failing to provide Bayit with a
“Franchise Disclosure Document” or “Uniform Franchise Offering Circular” prior to entering
into the Sixth Fee Amendment. (Compl. ¶ 32.)
DISCUSSION
I.
Legal Standard
Federal Rule of Civil Procedure 8(a)(2) provides that a pleading shall contain “a short
and plain statement of the claim showing that the pleader is entitled to relief.” The Supreme
Court has recently clarified the pleading standard applicable in evaluating a motion to dismiss
under Rule 12(b)(6).
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The parties assert that pursuant to the Franchise Agreement, Bayit received a percentage
of the health care center’s revenues. (Def.’s Mem. at 3; Pl.’s Opp’n at 2.) The November 4,
2004 management fee amendment replaced this payment structure with a fixed annual fee.
(Def.’s Mem. at 3; Pl.’s Opp’n at 2.) .
4
First, in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), the Court disavowed the wellknown statement in Conley v. Gibson, 355 U.S. 41, 45-46 (1957) that “a complaint should not be
dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him to relief.” See Twombly, 550 U.S.
at 561 (quoting Conley, 355 U.S. at 45-46). Instead, to survive a motion to dismiss under
Twombly, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its
face.” Id. at 570.
While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, a
plaintiff’s obligation to provide the grounds of his
entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do. Factual allegations must be
enough to raise a right to relief above the speculative level,
on the assumption that all the allegations in the complaint
are true (even if doubtful in fact).
Id. at 555 (citations and internal quotation marks omitted).
More recently, in Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937 (2009), the Supreme
Court provided further guidance, setting forth a two-pronged approach for courts deciding a
motion to dismiss. First, a court should “begin by identifying pleadings that, because they are no
more than conclusions, are not entitled to the assumption of truth.” Iqbal, 129 S. Ct. at 1950.
“While legal conclusions can provide the framework of a complaint, they must be supported by
factual assumptions.” Id. Thus, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id. at 1949 (citing Twombly, 550 U.S.
at 555).
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Second, “[w]hen there are well-pleaded factual allegations, a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. at
1950. The Court defined plausibility as follows:
A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged. The plausibility standard is not akin to a
“probability requirement,” but it asks for more than a sheer
possibility that a defendant has acted unlawfully. Where a
complaint pleads facts that are “merely consistent with” a
defendant’s liability, it “stops short of the line between
possibility and plausibility of ‘entitlement to relief.’”
Id. at 1949 (quoting Twombly, 550 U.S. at 556-57) (internal citations omitted); see also Ortiz v.
City of New York, 755 F. Supp. 2d 399, 401 (E.D.N.Y. 2010) (“[A] complaint must contain
factual allegations to support the legal conclusions and the factual allegations must plausibly
give rise to an entitlement of relief.”) (internal quotation marks omitted).
II.
The Parties’ Contentions
Tender Loving asserts that Bayit’s FSA claim is barred by the applicable three-year
statute of limitations. (Def.’s Mem. at 10 (citing N.Y. Gen. Bus. Law § 691(4) (“An action shall
not be maintained to enforce a liability created under this section unless brought before the
expiration of three years after the act or transaction constituting the violation.”)).) According to
Tender Loving, “the limitations period [began] to run when the franchise [was] entered into” in
1992. (Def.’s Mem. at 10.) Bayit maintains that its FSA claim is timely because the Sixth Fee
Amendment “so altered the financial structure of the franchise relationship that it constituted an
offer of a new franchise, [thereby triggering] the disclosure requirements of the FSA.” (Pl.’s
Opp’n at 9). According to Bayit, because the alleged FSA violation occurred in connection with
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the parties’ execution of the Sixth Fee Amendment, the three-year limitations period began to
run in 2010, and this cause of action is therefore timely. (Id. at 10.)
III.
Bayit’s FSA Claim is Dismissed
The FSA seeks to regulate the “offer and sale of franchises” in order to provide
“prospective franchises and potential franchise investors with material details of the franchise
offering so that they may participate in the franchise system in a manner that may avoid
detriment to the public interest and benefit the commerce and industry of the state.” N.Y. Gen.
Bus. Law § 680(2). To further this goal, the statute contains disclosure requirements, which
prohibit any entity from selling a franchise:
without first providing to the prospective franchisee, a copy of the offering
prospectus, together with a copy of all proposed agreements relating to the sale of
the franchise at the earlier of (a) the first personal meeting between the franchisor
or its agent and the prospective franchisee, (b) at least ten business days prior to
the execution of a binding franchise or other agreement, or (c) at least ten days
prior to the receipt of any consideration in connection with the sale or proposed
sale of a franchise.
N.Y. Gen. Bus. Law § 683(8). As noted above, Bayit alleges that Tender Loving did not make
these required disclosures when the parties agreed upon the Sixth Fee Amendment.
In assessing the timeliness of claims made under the FSA, courts have generally
determined that the three-year limitations period “begins to run when the franchise contract is
entered into, and that continuous violations do not toll the statute of limitations.” United
Magazine Co. v. Murdoch Magazine Distrib., Inc., 146 F. Supp. 2d 385, 407 (S.D.N.Y. 2001),
aff’d, 279 Fed. Appx. 14 (2d Cir. 2008); accord Rich Food Servs., Inc. v. Rich Plan Corp., 98
Fed. Appx. 206, 210 (4th Cir. 2004) (noting franchisor’s duty under the FSA “to make certain
basic disclosures at the beginning of the franchise relationship”) (emphasis added).
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If the Sixth Fee Amendment was simply a renewal or extension of the Franchise
Agreement, which was signed by the parties in 1992, Bayit’s FSA claim is time-barred. See
Rich Food, 98 Fed. Appx. at 209 (finding FSA claim time-barred when parties entered into an
agreement that was merely “a renewal or extension for purpose of the franchise disclosure laws”
and not a “new agreement”); N.Y. Gen. Bus. Law § 681(11) (definition of “offer to sell”
excludes “the renewal or extension of an existing franchise where there is no interruption in the
operation of the franchised business by the franchisee”). Here, Bayit alleges that the Sixth Fee
Amendment “fundamentally altered the financial structure of the [Franchise] Agreement.”
(Compl. ¶ 10.) Bayit does not allege, however, that the Sixth Fee Amendment resulted in “any
interruption in the operation of the franchised business” that could potentially re-trigger the
disclosure requirements of the FSA. See N.Y. Gen. Bus. Law § 681 (11). Nor does Bayit cite
any case law or other relevant legal authority for the proposition that “changes to the financial
structure of a franchise relationship could be so radical as to essentially remake the franchise
relationship entirely,” (see Pl.’s Opp’n at 10), thereby implicating the FSA disclosure
requirements. See United Magazine, 146 F. Supp. 2d at 407 (rejecting, as unsupported by case
law, plaintiff’s claim that “changes to their alleged franchise agreements created entirely new
agreements or restarted the [FSA] limitations period in some other fashion”).
Accordingly, Bayit’s FSA Claim is dismissed as time-barred.
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CONCLUSION
For the reasons set forth above, Tender Loving’s motion to stay is deemed moot and its
motion to dismiss Bayit’s Fourth Cause of Action is granted. For the same reasons, Tender
Loving’s motion filed in 11-CV-5600 seeking dismissal of Bayit’s Fourth Counterclaim is
granted.
SO ORDERED
Dated: Central Islip, New York
February 17, 2012
/s/
Denis R. Hurley
United States District Judge
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