JTH Tax, Inc. v. Hines

Filing 130

MEMORANDUM ORDER granting in part and denying in part 88 Motion to Dismiss for Failure to State a Claim; adopting Report and Recommendations re 120 Report and Recommendations. The court DIRECTS the Defendant, to the extent he wishes to purs ue those counterclaims that have been dismissed without prejudice, to raise such claims before an arbitrator. The Defendant is ADVISED that he may not appeal from this Memorandum Order, or from any other adverse order against him until entry of the Final Order in this case. Signed by Chief District Judge Rebecca Beach Smith on 3/1/18 and filed 3/2/18. Copies distributed to all parties 3/2/18. (ldab, )

FLED
UNITED

STATES DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

MAR - 2 2018

Norfolk Division

CLERK. U.S. DISTRICT COURT
NORFOLK. VA

JTH TAX, INC. d/b/a
LIBERTY TAX SERVICE,

Plaintiff,
CIVIL ACTION NO.

V.

2:15cv558

CHARLES HINES,
Defendant.

MEMORANDUM ORDER

This

Tax,

matter

Inc.,

comes

d/b/a/

Liberty

dismiss

or,

pending

arbitration

Support,

filed

September

28,

("Mines")
89,

90,

in

the

18,

United

pursuant

to

the

92.

States

se

Judge

U.S.C.
72(b),

§
to

the

proposed

applicable,
Motion

to

and

judge

recommendations

Dismiss.

ECF

No.

94.

for
On

the

89.

in
On

Mines

J.

88,

Krask,

636(b) (1) (B)
conduct

and to

findings

10,

and

hearings,

submit

to

fact,

if

of

disposition

October

to

the matter was

Robert

if necessary,

district

88,

Charles

2017,

including evidentiary hearings,
undersigned

Memorandum

Initial Response to ECFs

28

Procedure

motion

JTH

counterclaim

Nos.

Defendant,

Magistrate

of

and

EOF

On October 5,

provisions
Civil

Defendant's

2017.

pro

Plaintiff's,

("Liberty"),

Dismiss")

"Memorandum and

to

of

stay

to

the

on the

Service

("Motion

and 91." EOF No.

Rule

Tax

court

alternative,

2017,

referred

Federal

the

September

on

filed a

before

of

the

2017,

the

Plaintiff filed a
Deadline

Motion for Leave to File a

("Motion

November 6,

2017,

for

Leave

to

Reply Brief After

File").

ECF

No.

98.

On

the Motion for Leave to File was also referred

to United States Magistrate Judge Robert J. Krask.
The

United

Recommendations

States

("R&R")

Magistrate

Judge's

Report

regarding both the Motion to Dismiss and

the Motion for Leave to File was filed on December 15,

No.

120.

First,

the

and

Magistrate

Motion for Leave to File.

Judge

R&R at

4.

denied

Next,

the

2017.

ECF

Plaintiff's

the Magistrate Judge

recommended the Plaintiff's Motion to Dismiss be granted in part

and denied in part.

Id.

at 29.^ Lastly,

the Magistrate Judge

recommended that that the Plaintiff's alternative motion to stay

be denied as moot,
would

be

because all of the Defendant's counterclaims

dismissed,

Nonetheless,

the

either

with

Magistrate

or

Judge

without

recommended

Plaintiff's

alternative

motion

to

stay

because

arbitration

clauses

to

which

are

the

enforceable.

Defendant

pursue

Id.

The

any

of

^ Specifically,

Magistrate

his

prejudice.

be

Judge

counterclaims

that

granted

the

Id.

in

Defendant

directed

dismissed

the
part,
agreed

that

the

without

the Magistrate Judge recommended that the

Defendant's counterclaims brought pursuant to the
Franchise
Rule, the Virginia Retail Franchising Act, the Virginia Consumer
Protection
Act,
the
Maryland
Franchise
Registration
and
Disclosure Law, and the Maryland Consumer Protection Act be
dismissed with prejudice. The Magistrate Judge recommended that
the Defendant's remaining counterclaims be dismissed without
prejudice.

prejudice,

to

the

extent

he

so

desires,

before

an

arbitrator,

pursuant to the arbitration clauses in the franchise agreements.
Id.

By
were

copy

of

the

advised of

R&R

their

of

the

right

to

Magistrate
file

Judge,

the

parties

written objections

to

the

findings and recommendations made by the Magistrate Judge within
fourteen

(14)

days

from

the

date

of

the

R&R's

mailing

to

the

objecting party. Id. at 29-30.^ On January 9, 2018, the Defendant
filed

"Last

Delivery

January[]
Def.

Minute

of

for

Defendant's

9,

Leave

of

Reply

to

2018," subject to defect.

Objs.].

construed

Motion

The

the

court

subsequently

Defendant's

filing

the

Court

ECF

to

120

to

ECF No.

122

lifted

the

as

the

Extend

the

Tuesday,

[hereinafter
defect

entirety

of

and
the

Defendant's objections to the R&R. ECF No. 123.
I.

Pursuant

Procedure,

Rule

the

entirety,
portions

to

objected.

of

having

make

a

^

R&R

to

the

Fed.

72(b)

court,

shall
of

LEGAL STANDARDS

R.

Civ.

the

reviewed

novo
which

P.

Federal

Rules

the

record

determination
the

72(b).

Defendant
The

of

Civil

in

regarding
has

portions

of

its

those

specifically
the

R&R to

which no objections have been filed are reviewed by the court to
ensure

that

there

is

no

clear

error

on

the

face

of

the

record.

^ The court allows three (3) additional days for the mailing
of the R&R.

See Fed.

R.

Civ.

P.

6(d);

R&R at 30.

Fed.

R.

Civ.

addition.

P.

72(b)

advisory

The court may accept,

in part,

conunittee's

reject,

note

or modify,

II.

28 U.S.C.

§

1993

in whole or

the recommendation of the Magistrate Judge,

the matter to him with instructions.

to

or recommit

636(b)(1).

DISCUSSION

A. Motion for Leave to File

No
denial
see

the

of

the

R&R at

Rule

File

were

filed

Plaintiff's

3-4.

deadline

Civil
to

objections

Motion

The Motion

to

submit

7(F)(1).

against

for

for

Leave

Leave

such

a

to

motion,

Therefore,

the

the

Magistrate

to

File.

File was

in

Judge's

ECF No.

98;

submitted after

violation

of

Local

Plaintiff's Motion for

Leave

i s DENIED.
B. Motion to Dismiss

The

No.

82,

Defendant's

includes six

considered

by

the

Second

(6)

Amended

counts,

Magistrate

novo

determinations

recommendations

objected.

See

made

supra

for

the

Part

I.

in

ECF No.

regarding
counts

As

to

to

the

which no objections have been filed,

Magistrate

Judge's

findings

("SAC"),

ECF

many with multiple sub-counts,

Judge

Plaintiff's Motion to Dismiss,

de

Counterclaim

his
88.

evaluation

of

the

The court will make

the
which

findings
the

sections

Defendant

of

the court will

and recommendations

and

to

no clear error appears on the face of the record. Id.

the

has

R&R to

review the

ensure

that

For

the

the

reasons

Defendant's

stated

objections

below,

the

to the R&R,

court

hereby

OVEBIRULES

and ADOPTS AND APPROVES

IN PULL the findings and recommendations set forth in the R&R of

the United States Magistrate Judge,
ECF No.

filed on December 15, 2017.

120.

1. Factual History

The Defendant makes two objections to the "Factual History"
section of the R&R.

First,

in

"Liberty

the

R&R

that

the Defendant objects to the language

is

in

the

business

of

selling

franchises engaged in the preparation of tax returns." R&R at 2

(citing SAC 3 4;
at 4-6.

Second,

Compl.
the

statement that the
located inside

R&R at 2

findings

based

ECF No.

Defendant

seems

1);

see also Def.

to

dispute

Defendant operated three

Walmart

stores

for

four

(4)

(3)

the

Objs.

factual

Liberty kiosks

months

in

2014.

See

(citing SAC fSI 8-9); Def. Objs, at 8.

These

Further

1 7,

objections

or
the

on

Therefore,

do

not

recommendations
R&R's

the

materially

made

by

characterization

language

used

in

of

the

challenge

the
these

any

of

Magistrate
facts

Complaint

is

and

the

Judge.
correct,

the

SAC.

the Defendant's objections to specific language used

on page two (2) of the R&R are OVERRULED.^

^ Within the Defendant's objections to the "Factual History"
section of the R&R, the Defendant also alleges that Liberty
breached the franchise agreements by allowing other Liberty
franchisees to operate within his territory. Def. Objs. at 8. As

2. Procedural History

The

Defendant

makes

two

objections

to

the

"Procedural

History" section of the R&R. First, the Defendant objects to the
R&R's characterization of his "Motion to Stay or Pause this Case
for Fourteen Additional Days," ECF No.

93.

See R&R at 3

("[T]he

Court denied Hines' motion to stay or pause the case for 14 days
to

allow

Hines

to

file

motion to dismiss.");

an

additional

Def.

Objs.

opposition

at 10.

to

Liberty's

Such an objection does

not materially challenge any of the findings or recommendations
made by the Magistrate Judge.

Second,
prior Order,

the

Defendant

ECF No.

counterclaim without
Federal
at 10,

Rules

of

16.

This

August 24,

2017,

appropriate
Therefore,

84,

Civil
issue

2017,

object

to

this

court's

for

Procedure.
was

resolved

failure
See

to

comply with the

R&R at

with

the

2-3;

Def.

court's

Objs.

Order

of

and an objection to the present R&R is not an

for

Defendant's

language on page three
August 24,

to

which dismissed the Defendant's earlier

prejudice,

procedure
the

appears

(3)

contesting
objections

that
to

both

prior
the

Order.
specific

of the R&R and this court's Order of

are OVERRULED.

explained infra Part II.B.5. (addressing Defendant's breach of
contract objections), to the extent Hines wishes to allege that
Liberty breached the franchise agreements, he must specifically
allege which provision of the franchise agreements was breached,
when, and by whom. A conclusory statement that the agreements
were breached is insufficient.

3. Choice of Law

The

Defendant

Judge's

findings

this case.

makes

regarding

First,

Virginia

(2009));

Franchising

See R&R at

Def.

Objs.

determination,

to

appropriate

the

Act

6-7

court

does

the

law

Magistrate

applicable

not

(citing Va.

at 10-11.

that the Virginia Retail
Defendant's

the

objections

to

the Defendant objects to the finding that the

Retail

counterclaims.

several

Code Ann.

After

OVERRULES

apply

making

this

to

§

a

objection,

his

13.1-559

^

novo

and

FINDS

Franchising Act does not apply to the

counterclaims.

Second,

the Defendant objects to the R&R's characterization

of his argument regarding the correct venue for this case.

See

R&R at

for

4

("[H]e continues to insist

the case is Maryland.");

not

materially

Def.

challenge

that

Objs.

any

the

at 11.

of

the

correct venue

This objection does

ultimate

findings

or

recommendations made by the Magistrate Judge.

The determination

of

the

the

proper

determination
subject

See

ECF

of

venue
of

the

Nos.

Agreements")

at

for

which

this

case

state's

laws

apply.

The

agreements'

choice

of

franchise

1-5,
16.

1-6,

1-7

Accordingly,

the specific language on page four

The

Defendant

application

of

next

Hooper

v.

is

not

(collectively

same

as

the

latter

is

the

law provisions.

the

the

Defendant's

(4)

"Franchise

is OVERRULED.

objects
Musolino,

to

the

364

objection

Magistrate

S.E.2d

207,

to

Judge's
211

(Va.

1988),

because

the

Defendant

apply

Maryland

law

to

Objs.

at

11-12.

his

However,

maintains

counterclaims.

the

Virginia

enforced a choice of law provision,
laws being applied.

situation

is

See Hooper,

analogous

to

that

the

this

See

court

R&R

at

Supreme Court

should

5;

in

Def.

Hooper

which led to another state's

364

S.E.2d 207

Magistrate

(Va.

Judge's

1988).

The

finding;

the

Magistrate Judge recommends that the choice of law provisions be

enforced,

which

Defendant's

would

lead

counterclaims.

to

Virginia

The

law

Defendant's

applying

to

the

objection

to

the

application of Hooper is OVERRULED.

The

Defendant

challenging a
and

next

objects

choice of

convincing

to

the

finding

law provision must

evidence,

that

the

that

the

establish,

provision

by clear

itself

was

product of impropriety such as overreaching or fraud.
{quoting
2014

Zaklit

WL

3109804,

at 12-15.
showing
Objs.

at

Rule").

The

that

v.
at

Global
*7

Defendant

Linguist

(E.D,
argues

Va.

Sol.,
July

that

8,

he

has

Liberty has violated the

12-15;

see

generally

16

LLC,

No.

2014));
met

§ 436

Def.

Objs.

burden
See

by

Def.

"Franchise

For the same reasons that the Defendant's objections to

the finding regarding the Franchise Rule must be overruled,

infra

5

I:14cv314,

this

(the

the

R&R at

Franchise Rule.

C.F.R.

party

Part

II.B.5,

this

objection

to

the

finding regarding choice of law is OVERRULED.

Magistrate

see

Judge's

Lastly,

the Defendant objects to the application of Global

One Conununications,

(Va.

Cir. Ct.

May 5,

After making a ^
properly

LLC v. Ansaldi,

applies

2000).

the

contract

is

if

the

parties

See R&R at 5.

seeks

contract,

establish

that

unreasonable,

the

the

this

matter.

As

the

to

the

have

To the extent one party

the

burden

in

provision

contract

is

question

on

is

him

"to

unfair,

or affected by fraud or unequal bargaining power."

Global One Commc'n,
Parts II.B.5.

at 17-18.

Virginia courts do not presume that a

unenforceable

challenge

Def. Objs.

of

unequal bargaining power.
to

2000 WL 1210511

the court FINDS that this case

circumstances

Magistrate Judge states,

C165948,

See R&R at 5;

novo finding,
to

No.

2000 WL 1210511,

and II.B.6,

at *2.

As explained,

infra

the Defendant fails to allege a breach

of contract or fraud regarding the choice of law provisions with
sufficient

specificity

Accordingly,

the

to

court

survive

OVERRULES

the

the

Motion

Defendant's

to

Dismiss.

objection

to

the application of Global One Communications.

With all of the Defendant's objections to the choice of law
findings

overruled,

the

court

hereby

Magistrate Judge's findings that
Defendant's

claims,

breach

and

Disclosure

(2)

of

the

Law applies

statutes violations.

contract

(1)

to

the

See R&R at

and

related

Franchise

Defendant's
6-7.

the

Virginia law applies to the

claims

Maryland

ADOPTS AND APPROVES

non-contract

Registration

allegations

of

and
state

4. Standard of Review

The Defendant objects to the language of the Federal Rules
of Civil Procedure,

which govern the standard of review for a

Motion to Dismiss. See R&R at 7-9; Def. Objs. at 19-20. Such an
objection

does

granted.
the

not

state

Furthermore,

proper

Ashcroft
Twombly,

the

standard

V.

Iqbal,

550

a

of
556

U.S.

claim

for

Magistrate
review

U.S.

544

in

662

which

Judge
this

correctly

case.

See

Bell

Therefore,

the

can

be

explains

Atl.

(2009);

(2007).

relief

generally
Corp.

v.

Defendant's

objection to the standard of review in this case is OVERRULED.
5. Count I

The

Defendant

recommendations

-

Breach of Franchise Agreements

objects

regarding

claims. See R&R at 9-16;

to

all

the

Def.

of

the

Magistrate

Defendant's

Objs.

breach

at 22-23.

of

Judge's
contract

Specifically,

the

Defendant argues that he has shown a breach of contract pursuant

to Virginia law.

See Def.

Objs.

Defendant

that

has

states

he

at 22-23;

shown

R&R at 9.

the

expenditures

extensive

First,

and

losses suffered during the course of his franchise relationship
with

the

Liberty

Plaintiff.
breached

Franchise Rule.

a

legally

Trade
Rule.

the

Id.

at

Objs.

at

franchise

Third,

enforceable

Commission
Id.

Def.

Second,

agreements

by

he

states

violating

that
the

the Defendant states that Liberty has

obligation

("FTC")

22.

is

to

entitled

23.

10

him
to

because
enforce

the
the

Federal
Franchise

With

regard

obligation,

to

the

the

requirement

obligation

must

of

be

a

legally

evident

in

enforceable

a

particular

provision of the franchise agreements, in the form of a promise
or duty to perform.

With regard to the Defendant's allegation

regarding a breach of the Plaintiff's obligations, the Defendant
cannot

solely allege

breach

of

reasons

losses

the

violation

contract

described

alleged

a

between

infra.

by

the

and

breach

Lastly,

Therefore,
the

he

Franchise

and

do

to

not,

the

on

as

the

for

himself,

regard

they

Rule

the

financial

their

own,

because the legally enforceable

alleges

are

not

cognizable

claims.

the Defendant's general objection to this section of

R&R,

encompassing

recommendations
claims,

with

Defendant,

that

the

Liberty

entitle the Defendant to relief,

duty

of

all

regarding

the

of

the

Magistrate

Defendant's

breach

Judge's

of

contract

is OVERRULED.

More

specifically,

the

Defendant

first

objects

to

the

finding that neither the FTC nor the Franchise Rule allows for
franchisees

at 11;

to

bring

Def. Objs, at 9-10,

novo determination,

that

suit

the

Franchise

to

enforce

12-14,

20,

the

court

Rule.

R&R

23-24. After making a de

the court agrees with the Magistrate Judge,

Rule

does

not

create

action enabling franchisees to enforce it.
the

Franchise

OVERRULES

the

Defendant's

a

private

See R&R at 11.
objection

recommendation regarding the application of the

11

right

to

of

Thus,
the

Franchise Rule.

In

order

for

Plaintiff,

the

such

Franchise

enforcement

Rule
must

to
come

Senior Ride Connection v.

ITNAmerica,

(D.S.C.

it

2016)

("However,

be

is

enforced

from

the

against

FTC.

See,

225 F.Supp.3d 528,

well-settled

that

the

e.g.,

531 n.l

there

is

no

federal private right of action to enforce the Franchise Rule."
(citation

omitted)).

cannot

invoke

the

claim

against

Accordingly,

Franchise Rule

a

franchisor;

an

individual

in order to

simply

put,

enforce the Franchise Rule.^ Accordingly,
APPROVES

the

Defendant's
See R&R a t

The

Franchise

Defendant

customers.

does

claims

See

R&R

the

objects

that

be

at

the

to

franchisees

in a

cannot

recommendation

that

dismissed with

prejudice.

at 24-25.
materially

Judge,

the

finding

Plaintiff

12-13;

Def.

returns
However,
alter

the

than the

that

the

regarding

failed

Objs.

the

at

to

20,

the

generate

24-25.

the average H&R Bloclc
average

this fact,
Magistrate

recommendations regarding this claim.
Magistrate

relief

the court ADOPTS AND

Defendant states that

averaged more

not

Rule

also

claim

Specifically,

Def. Objs.

Judge's

obtain

12.

Defendant's

Office

Magistrate

franchisee

Liberty Office.

even if presumed true,
Judge's

findings

and

The court agrees with the

Defendant

does

not

identify

a

" To the extent the Defendant is attempting to allege a
violation of the Franchise Rule,
with the appropriate agency with
Franchise Rule, the FTC.

12

he must raise such an issue
the authority to enforce the

provision

of

the

allegedly

agreed

agreements

and

there

breached,

Defendant

franchise

success

that

stating that

or customers.

See

the

R&R at

is

failure

to

See R&R a t

to

be

not

Accordingly,

Plaintiff
which

the

guarantee
the

court

and ADOPTS AND APPROVES the

the Defendant's claim of

dismissed

without

prejudice.

13,

Third,

franchise

customers

language

12-13.

recommendation that

generate

the

Plaintiff does

OVERRULES the Defendant's objection,

Magistrate Judge's

that

the

Defendant

objects

agreements do not

fail

to

the

finding

that

the

to provide any consideration.

See R&R at 13-14; Def. Objs. at 20-22. The Defendant argues that
consideration must

be

tangible,

and

give you a damn thing!" Def. Objs.
novo determination,

the

court

that

"Liberty Tax doesn't

at 21-22. After making a de

agrees

with the Magistrate

Judge

in finding that there is no requirement that consideration be an
equal

exchange.

Bank,

N.A.,

See

596

F.

R&R

at

App'x

14;

194,

see

197

also

(4th

Neil

Cir.

v.

Wells

2014).

Farqo

Further,

neither the Defendant's SAC nor objection contains an allegation
that

the

required

Plaintiff
by

the

Defendant

with

support.

R&R

Accordingly,

did

not

franchise
training,

at
the

14
court

ADOPTS AND APPROVES

the

fulfill

any

agreements,
an

of
such

operations

{citing

the

Magistrate

13

obligations

as

as

providing

the

manual,

software,

and

Franchise

OVERRULES

its

Agreements

Defendant's

Judge's

at 6-8).

objection

recommendation

and
that

the

Defendant's

lack

of

consideration

claims

be

dismissed

without prejudice. See R&R at 14.
The

last

of

recommendations

claims

the

See R&R

objection

Defendant's

regarding

involves

dealing.

the

the

implied

at 14-16;

raises

no

new

Defendant's

covenant
Def.

allegations

making

a

^

novo

breach

of

Objs.

addressed by the Magistrate Judge.

after

objections

good
at

aside

to

of

the

from

court

and

However,
those

See R&R at 14-16.

finding,

contract

faith

22.

the

fair
this

already

Therefore,

OVERRULES

this

objection regarding the implied covenant of good faith and fair

dealing

and

ADOPTS

recommendation that

implied

covenant

AND

the

of

APPROVES

the

Magistrate

Defendant's claims of a

good

faith

and

fair

Judge's

violation of the

dealing

be

dismissed

without prejudice. See R&R at 16.
6. Count II -

Count

Magistrate

II

of

the

Judge

as

Agreement."

Magistrate

"Fraud of the Franchise Agreement"

Defendant's

a

See SAC

Judge

particularity

38,

finds

the

claim

that

time,

SAC

of

41-46,

the

place,

is

characterized

"Fraud
51;

of

the

R&R

at

Defendant does
contents,

or

by

the

Franchise
16-19.

not

The

state with

identity

of

the

person who allegedly fraudulently misrepresented aspects of the
franchise,
R&R

at

"used

18.
false

as required by Federal Rule of Civil Procedure 9(b).
The

Defendant

and

fake

objects,

numbers

in

14

the

stating

that

Disclosure

the

Plaintiff

Document's

Item

19." Def. Objs.
the

Defendant

Defendant

exhibit,
false.

at 30.
refers

has

not

However,
has

the Disclosure Document to which

never

provided

been

the

filed

document

with

as

the

an

court.

attachment

The

or

nor has he alleged how the figures in the document are
Therefore,

the

Defendant

relief with particularity.

fails

Accordingly,

Defendant's objection regarding this
APPROVES

the

Defendant's

Magistrate

"fraud

of

Judge's

the

to

state

a

claim

for

the court OVERRULES the

fraud claim and ADOPTS AND
recommendation

franchise

agreement"

that

the

claims

be

dismissed without prejudice. See R&R at 19.
7. Count III -

^^Fraud as a

^Legitimate' Business"

The Magistrate Judge characterizes Count III of the SAC as
"Fraud

as

a

objections
section

'Legitimate'

were

(b),

filed

to

Virginia

Protection Act.

Id.

Business."
section

Retail

at

19-21.

(a),

the

Defendant's
prejudice,
Virginia

Magistrate

"fee
and

Retail

the

Judge's

Intercepts,"
Act

after

claim

Act

at

19-22.

and

or

No
to

Consumer

reviewing the

the court hereby ADOPTS AND

recommendations

Defendant's

Franchising

"Fee

Accordingly,

intercepts"

(2)

R&R

Franchising

record for clear error on its face,

APPROVES

See

be

claims
and

the

that

dismissed
regarding
Virginia

(1)

the

without
both

the

Consumer

Protection Act be dismissed with prejudice. See R&R at 20-21.
The Defendant objects to the findings that an action under
the Maryland

Franchise

Registration and

15

Disclosure Law must

be

brought within three
and

that

the

(3)

years after the grant of the franchise,

Defendant's

first

attempt

this statute was after the three
ran.

See

R&R

at

21-22;

Defendant alleges
terminating

Objs.

at

FINDS

the

6-7.

that

Def.

Therefore,

franchise

the

the

court

Defendant's

(3)

6-7.

Specifically,

(3)

year delay in

constitutes

not

alleged

the

fraud.

with

Def.

the court
sufficient

year period before the Plaintiff
agreements

OVERRULES

the

constitutes

Defendant's

the Magistrate

Maryland

claim under

novo determination,

has

franchise

ADOPTS AND APPROVES
the

at

agreements

Defendant

a

year statute of limitations

Objs.

After making a ^

the

raise

that the Plaintiff's three

specificity how this three
terminated

(3)

to

Judge's

Franchise

fraud.

objections

recommendation

Registration

and

and

that

Disclosure

Law claims be dismissed with prejudice.
Additionally,

no

objections

were

filed

as

to

the

recommendation that the Defendant's Maryland Consumer Protection
Act

claims

Accordingly,

be

dismissed

finding

no

with

error

court ADOPTS AND APPROVES this

prejudice.

on

the

made

in

Defendant
Count

IV

raises
of

the

one
R&R.

of

R&R

the

at

22.

record,

the

recommendation.

8. Count IV -

The

face

See

Violations

objection
See

R&R

to
at

the
22-23.

recommendations
The

Defendant

alleges that the Plaintiff breached the franchise agreements by
failing

to

advertise.

Def.

Objs.

16

at

21-22.

However,

the

Defendant

does

not

specify

the

contract

provision

allegedly

breached by the Plaintiff's actions.

See R&R at 23, Accordingly,

after

a

^

objection

novo
to

determination,

the

court

the

recommendation

regarding

OVERRULES
the

failure

this
to

advertise contract claim.

No objections were filed to the recommendation regarding a
failure

to

advertise

tort

claim.

The

R&R states

claim must be dismissed without prejudice,

that

because

any

tort

in order to

bring a tort claim in relation to a contract under Virginia law,

the party must allege a breach of duty that is distinct from the
duty that exists by virtue of the contract
The

court

APPROVES
breach

of

agrees

the

with

this

Magistrate

contract

conclusion,

Judge's

claim

and

itself.

hereby ADOPTS AND

recommendations

relating

to

the

that

Plaintiff's

failure to advertise be dismissed without prejudice,
tort

claim based on a

failure

R&R at 23.

and

(1)

any

alleged
(2)

any

to advertise be dismissed without

prejudice. See id.
9. Count V -

"The System"

As to Count V of the R&R, the Magistrate Judge states that
the Defendant failed to raise any claims for which relief can be

granted.
finding.

R&R
The

at

23.

court

recommendation that

all

No

objections

agrees

and

allegations

were

as

to

this

APPROVES

the

ADOPTS

AND

in

section of the SAC

be dismissed without prejudice. See id.

17

raised

this

10.

Count VI -

^^Omnibus & General Points"

As to Count VI of the R&R, the Magistrate Judge states that

the Defendant has failed to provide any substantive allegations
beyond

listing

definitions

of

legal

terms.

objections were raised as to this finding.
ADOPTS

AND

raised

in

APPROVES
this

the

recommendation

section

of

the

SAC

R&R

at

24-25.

No

The court agrees and
that

be

all

allegations

dismissed

without

prejudice. See id.
C. Motion to Stay Pending Arbitration

Because

the

Plaintiff's

with prejudice as
supra

Parts

to all

II.B.5,

Motion

of

II.B.6,

the

to

Dismiss

Defendant's

II.B.7,

is

the

Plaintiff's

II.B.8,

alternative

II.B.9

motion

No.

1-6

at
at

3-5,
23;

ECF No.

ECF

No.

89;

1-7

see also

at

23

ECF

No.

(collectively

(dismissing

enforce

the

thereby staying

the Defendant's counterclaims pending arbitration.
Supp.

see

the court must

to

arbitration clauses of the franchise agreements,

in

granted

counterclaims,

the Defendant's counterclaims without prejudice),
address

not

See PI.

1-5

Mem.

at 21;

the

ECF

"Maryland

addenda," which contain the arbitration clauses).

The R&R first states that the Defendant,

attacking
argues

that
at 27

the

that

he

was

arbitration

the

franchise

fraudulently

(citing SAC SISl 22-26,

clauses

or

agreements

induced
41-46,

18

into

the
are

while not directly

Maryland

addenda,

unconscionable,

signing

them.

See

60) . As stated in the R&R,

and

R&R
"a

district

court

clause

is

result

of

fraud."

2001)).

Id.

Co.,

Corp.,

Conseco

adjudicate

unenforceable

Conklin Mfg.

Servs.

cannot

Fin.

because the
(citing

388 U.S.

811

F.3d

Paint

403-04

671-72

Corp.,

that

an

underlying

Prima

395,

666,

Servicing

Further,

claims

252

contract

Corp.

(1967);

{4th

v.

2016);

302,

is

the

Flood

Hayes v.

Cir.

F.3d

arbitration

Delbert

Sydnor

307

&

(4th

v.

Cir.

even if the Defendant had directly attacked the

arbitration clauses

in

the

such an attack would fail.

Maryland addenda

See R&R at 28

as

unconscionable,

n.l4.

The Defendant objects to this finding,

stating that he was

told he was required to sign the Maryland addenda, and that this
experience

shows

bargaining

power.

finding,

the

Plaintiff's

Def.

Objs.

at

clause

unconscionability

APPROVES the Magistrate Judge's
shown that

Additionally,

and

making

a

unequal
^

novo

were

not

of

However,

the

the

and

ADOPTS

AND

finding that the Defendant has

the

Defendant

in the Maryland addenda

originally

part

claims
of

individuals

Defendant

the

that

the

franchise

does

'slid into'

from Maryland,
not

19

claim

Def.

the

after

that

Maryland

agreements,

they may not be legitimate.

("[T]he Maryland Addendum was

Agreement

findings,

See R&R at 28.

perhaps suggesting that
at 7-8

power

After

the arbitration clauses

are unconscionable.

addenda

7-8.

of

the court OVERRULES the Defendant's objections to the

arbitration

not

abuse

Franchise

the

the

Objs.

fact.").

signatures

appearing

just

below

the

arbitration

Maryland addenda are not his own,
are

otherwise

acknowledges
Maryland

inaccurate

that

or

clauses

falsified.

Further,

remembers

the

meeting

were

signed.

See

Def.

District Meeting, we were told .

each

of

the

nor that the Maryland addenda

he

addenda

in

.

during

Objs.

. that,

the

at

Defendant

which
7

the

("At

a

^You have to sign the

Addendum.'") .

Accordingly,

the

the remainder of the Defendant's objections to

recommendation

Maryland

APPROVES

addenda

the

Plaintiff's

regarding

are

OVERRULED.

Magistrate
alternative

counterclaims

the

pending

arbitration
The

Judge's
motion

enforcement

court

clauses

hereby

recommendation
to

stay

the

the

arbitration

of

the

ADOPTS

AND

that

the

Defendant's

clauses

be

granted in part,

thereby finding the arbitration clauses of the

Maryland

enforceable.

the

addenda

court dismisses

to stay the
Defendant

R&R

at

Defendant's SAC,

28.
the

counterclaim is DENIED AS MOOT.

intends

dismissed without
an

the

See

arbitrator,

to

pursue

prejudice,

pursuant

to

any

of

he must
the

Maryland addenda.

20

the
raise

However,

Plaintiff's motion

To the extent

counterclaims
those

arbitration

because

the

hereby

claims before

clauses

of

the

III.

The

court

Plaintiff's

ADOPTS

CONCLUSION

for

Leave

to

APPROVES

AND

Motion

File

IN

FULL

the

is

DENIED.

Magistrate

The

Judge's

findings and recommendations regarding the Plaintiff's Motion to
Dismiss.

Accordingly,

the

Plaintiff's

GRANTED IN PART and DENIED IN PART.

the

Defendant's

DISMISSED

statutory

WITH

claims

PREJXTOICE,^

Motion

to

Dismiss

is

As outlined supra Part II. B,

as

and

presented

the

in

the

Defendant's

SAC are

remaining

non-statutory claims are DISMISSED WITHOUT PREJUDICE.®
Further,

the

court

GRANTS

IN

PART

the

Plaintiff's

alternative motion to stay the Defendant's counterclaim,
extent

that

Maryland

the

court

addenda

FINDS

enforceable.

DISMISSED,

the

Defendant's

counterclaims

the

Plaintiff's

Defendant,

the

to

the

is

arbitration

However,

alternative
DENIED

extent

AS

he

clauses

because
motion

MOOT.

The

wishes

to

the
to

to the
of

SAC
stay

court

pursue

the

is
the

DIRECTS

those

^ These claims are those brought pursuant to the Franchise
Rule, the Virginia Retail Franchising Act, the Virginia Consumer
Protection
Act,
the
Maryland
Franchise
Registration
and
Disclosure Law, and the Maryland Consumer Protection Act.
® These

claims

are:

breach

of

contract

for

failure

to

generate customers, failure to provide any consideration, breach
of the implied covenant of good faith and fair dealing, fraud
regarding
the
franchise
agreements,
fraud
regarding
the
Plaintiff's "fee intercepts," breach of contract for failure to
advertise,
any tort claim based on a failure to advertise,

claims

raised

in

Count

V

entitled

"The

System,"

raised in Count VI entitled "Omnibus and General

21

and

Points."

claims

counterclaims that have been dismissed without prejudice,^ to
raise

such

claims

before

an

arbitrator,

as

detailed

in

the

arbitration clauses of the Maryland addenda.

The Defendant is ADVISED
Memorandum Order,

that he may not appeal from this

or from any other adverse order against him,

see, e.g.. Order, ECF No. 129, until entry of the Final Order in
this case.

See 28 U.S.C.

§ 1291;

Fed.

R.

Civ.

P.

54(b).

The Clerk shall forward a copy of this Memorandum Order to
all parties.
IT IS

SO ORDERED.

Isl

Rebecca Beach Smith
Chief Judge
REBECCA BEACH SMITH
CHIEF

March

1-

2018

^ See supra note 6.
22

JUDGE