Yumilicious Franchise, L.L.C. v. Matthew Barrie, e
2016 U.S. App. LEXIS 6310
| 5th Cir. | 2016Background
- Yumilicious, a Texas frozen-yogurt franchisor, entered franchise agreements with Why Not, LLC and its principals to operate two South Carolina stores; the principals personally guaranteed Why Not’s obligations.
- Why Not closed a store and failed to make royalty/product payments; Yumilicious sued for breach of contract and obtained judgment on breach claims.
- Why Not counterclaimed for breach of contract, fraud, fraudulent and negligent inducement, violations of the Texas DTPA and Business Opportunity Act, and alleged noncompliant Franchise Disclosure Documents (FDD) under the FTC Franchise Rule.
- The district court dismissed many counterclaims under Rule 12(b)(6) and granted Yumilicious partial summary judgment on tort claims, consequential/punitive damages, and attorneys’ fees; Why Not appealed only the counterclaim dismissals and adverse summary-judgment rulings.
- The Fifth Circuit reviewed de novo: it found Why Not failed to plead elements required for DTPA claims, there is no private right of action under the FTC Act (so Franchise Rule-based claims fail under Texas law), Why Not produced no summary-judgment evidence of fraudulent inducement, and the principals’ guarantees incorporated a conspicuous waiver of punitive/consequential damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Valid DTPA/BOA claim based on FDD disclosures/omissions | Yumilicious misstated/omitted supplier/financial/start-up cost info in FDD and oral assurances about national supply | Statements were true (negotiations ongoing); Why Not knew about pallet-size supply limits; no showing Yumilicious knew of omitted facts or that Why Not detrimentally relied | Dismissed with prejudice: pleadings lacked misrepresentation/intentional omission and failed to allege consumer status, detrimental reliance, or injury under §17.50 |
| Private cause of action for violations of FTC Franchise Rule via Texas law | Texas BOA/DTPA incorporates FTC rules, so Franchise Rule violations are actionable | FTC Act has no private right; Texas law does not incorporate Franchise Rule as independently actionable under DTPA | Dismissed: no private right under FTC Act and Texas law does not make Franchise Rule violations independently actionable; alternatively failed §17.50 elements |
| Leave to amend counterclaims after successive dismissals | Why Not sought leave implicitly/briefly in response | District court: request was casual, not a proper Rule 15 motion; long delay and prior opportunities to amend | Affirmed: denial of leave not an abuse of discretion; dismissal with prejudice appropriate |
| Fraudulent inducement/negligent misrepresentation and damages | Why Not claims Yumilicious’ CEO promised supply/pricing parity; seeks tort damages including punitive/consequential and attorneys’ fees | Yumilicious: no evidence in summary-judgment record of misstatements; economic-loss rule bars tort recovery on contract-based economic losses; contract contains conspicuous no-reliance and waiver provisions | Affirmed: summary judgment for Yumilicious—no evidence of fraudulent statements, negligent misrep. barred by economic-loss rule, fraud claims barred by no-reliance waiver; personal guarantees incorporate waiver of punitive/consequential damages and attorneys’ fees not shown to be recoverable |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard applies)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must show factual content permitting inference of liability)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard where nonmovant bears burden)
- Sidco Prods. Mktg., Inc. v. Gulf Oil Corp., 858 F.2d 1095 (intentional omission requirement for DTPA claim)
- Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (fraudulent inducement vs. economic-loss rule; limited scope)
- Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (disclaimers of reliance can bar fraudulent inducement claims)