Ellering v. Sellstate Realty Systems Network, Inc.
801 F. Supp. 2d 834
D. Minnesota2011Background
- Ellerings sue Sellstate Realty Systems Network, Inc. and officers for fraud and related claims, seeking rescission and damages, including a Minnesota Franchise Act (MFA) Count VIII claim.
- Sellstate is a Florida franchisor; Ellerings granted exclusive Minnesota rights under an Area Representative Agreement signed February 2007, with a promissory note of about $168,000.
- November 19, 2006 email offered Master Territories with growth graphs and promising earnings; UFOC later provided disclosures stating no earnings projections and prohibiting claims of earnings.
- By end of 2007 only one franchise opened in Ellerings’ territory; 2008 termination of the relationship; Ellerings stopped payments on the note.
- Plaintiffs filed Florida action July 2009 for breach, fraudulent inducement, and statutory claims; voluntarily dismissed without prejudice in March 2010; instant action filed March 30, 2010 with Count VIII retained.
- Motions: plaintiffs move for summary judgment on Count VIII; defendants move for summary judgment on Count VIII and counterclaims; court ultimately addresses only Count VIII.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the registration-offer claim is time-barred | Discovery tolls MFA limitations for fraud claims (registration construed as fraud). | Claim untimely since filed after 3-year period from Nov 19, 2006 email; no tolling. | Partial dismissal: registration claim untimely. |
| Whether discovery rule applies to the registration claim | Discovery of lack of registration occurred in March 2011, tolling the period. | Discovery rule does not apply to nonregistration claims; even if applicable, tolling insufficient. | Discovery rule does not apply; registration claim time-barred. |
| Whether the future-earnings-projection claim is timely | Fraud discovery tolls until realization that projections were false. | Filed more than three years after December 2006; tolling applies since March 2007. | The future-earnings projection claim is timely. |
| Whether the MFA future-income projection claim survives on merits | Defendants misrepresented future earnings during face-to-face meeting. | UFOC disclaims and forbids such representations; reliance required but disclaimed by contract. | Claim fails on merits due to the UFOC disclaimer and lack of reasonable reliance as a matter of law. |
| Whether the unrevealed, untimely MFA theories should be entertained | New theories should toll or relate back. | New theories are time-barred and improper; need not consider. | Untimely and unavailing; theories time-barred. |
Key Cases Cited
- Merck & Co. v. Reynolds, 130 S. Ct. 1784 (U.S. 2010) (discovery rule for fraud; limits tolling in fraud context)
- Randall v. Lady of America Franchise Corp., 532 F. Supp. 2d 1071 (D. Minn. 2007) (anti-waiver defense and reliance in MFA context)
- Commercial Prop. Invs., Inc. v. Quality Inns Int'l, Inc., 938 F.2d 870 (8th Cir. 1991) (fraud-based reliance and contract considerations in MFA context)
- Industrial Indem. v. Arena Auto Auction, 638 F. Supp. 1030 (D. Minn. 1986) (reliance and contract-based defenses in MFA claims)