242 F. Supp. 3d 245
S.D.N.Y.2017Background
- Safe Step (Tennessee) licensed trademarks to CKH (New York) via multiple regional "Dealership/License" agreements (2009–2010) giving CKH exclusive territories, minimum sales/advertising obligations, and a licensing/entry fee; agreements contained arbitration, Tennessee choice‑of‑law, and renewal-in-writing provisions.
- A 2014 Marketing Addendum modified lead handling and instituted monthly fees for "unique leads" generated by national/regional advertising.
- Safe Step sued CKH for unpaid marketing fees; CKH counterclaimed (22 counts) alleging breach, franchise law violations (federal and state), unfair/deceptive practices, fraud, unjust enrichment, and seeking damages and injunctive relief.
- Safe Step moved to dismiss CKH’s counterclaims under Fed. R. Civ. P. 12(b)(6); Court evaluated pleading sufficiency, contract existence/interpretation, choice of law, and viability of statutory and tort claims.
- The Court held Tennessee law governs (per the contracts’ choice‑of‑law/arbitration provisions), found CKH plausibly pleaded franchise relationships under FTC and several state statutes, dismissed certain claims (Section 349 and R.I. Little FTC, implied covenant duplicates, and unfair competition), and otherwise denied dismissal, granting CKH leave to amend limited claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law | New York law governs because suit filed in NY | Contracts select Tennessee law; arbitration clauses specify Tennessee law/venue | Tennessee law governs pursuant to contract choice‑of‑law/arbitration provisions |
| Are the parties’ relationships franchises under FTC/state laws? | The agreements are licenses/supplier‑dealer arrangements, not franchises | Agreements confer trademark use, control/assistance, and required fees — satisfying FTC and state franchise tests | On the pleadings, CKH plausibly alleged franchisor–franchisee relationships under FTC Rule and relevant state statutes |
| Liability under "Little FTC" consumer‑protection statutes (N.Y. GBL § 349; R.I. statute) | Violations of franchise disclosure and related conduct constitute per se consumer deception | Disputes are private, contract‑centered and not consumer‑oriented | Claims under N.Y. GBL § 349 and R.I. Little FTC dismissed as not consumer‑oriented |
| Fraud, unfair competition, and contract‑based claims | CKH alleges scheme to escalate costs, constructively terminate franchises, and misappropriate leads/customers | Safe Step: many allegations are contractual or conclusory and thus not torts; fraud must meet Rule 9(b) particularity | Fraud claims survive to extent they allege pre‑contractual/negotiation misrepresentations with specificity; fraud grounded in performance of contract barred; unfair competition dismissed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility and conclusory allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (federal courts in diversity apply forum state choice‑of‑law rules)
- Primex Int’l Corp. v. Wal‑Mart Stores, Inc., 89 N.Y.2d 594 (arbitration clauses survive contract termination)
- Fireman’s Fund Ins. Co. v. Great Am. Ins. Co. of N.Y., 822 F.3d 620 (New York enforces reasonable choice‑of‑law clauses)
- Shah v. Racetrac Petroleum Co., 338 F.3d 557 (Tennessee part‑performance exception to Statute of Frauds)