Apfa, Inc. v. UATP Management, LLCApfa, Inc. v. UATP Management, LLC
Case Information
*1 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION
APFA INC., §
§
Plaintiff, §
§
v. § Civil Action No. 4:21-cv-00108-O
§
UATP MANAGEMENT, LLC, §
§
Defendant. §
MEMORANDUM OPINION & ORDER
Before the Court are Defendant UATP Management, LLC’s Motion to Dismiss Plaintiff’s Complaint or, in the Alternative, to Stay This Action Pending Arbitration (ECF No. 31), filed February 26, 2021; Plaintiff APFA Inc.’s Memorandum of Law in Opposition (“Response”) (ECF No. 36), filed March 29, 2021; and Defendant’s Reply (ECF No. 37), filed April 13, 2021. Having considered the motion, briefing, and applicable law, the Court GRANTS the motion to dismiss, DENIES as moot the alternative motion to stay the suit pending arbitration, and DENIES without prejudice the motion for attorneys’ fees.
I. BACKGROUND
This case arises out of a dispute between a franchisor and an association of franchisees. Defendant UATP Management, LLC (“Defendant”) nationally franchises nearly two hundred “Urban Air” locations—indoor adventure parks. Plaintiff Adventure Park Franchisee Association Inc. (“APFA” or “Plaintiff”) represents more than fifty Urban Air franchisees in the United *2 States, with its mission to “protect[] and preserv[e] the rights of Urban [A]ir franchisees[.]” Compl. ¶¶ 6–7, ECF No. 1.
Before Defendant enters a franchise agreement with a potential franchisee, Defendant provides the potential franchisee with a Franchise Disclosure Document (“FDD”) which contains a form Franchise Agreement. Under its 2016 FDD, Defendant disclosed (1) a Royalty Fee of “6% of weekly Gross Sales,” (2) a Development Fund Fee of “1% of weekly Gross Sales,” (3) an Administrative Fee of the “pro-rata portion of call centers hourly rate plus a $5.00 commission,” and (4) a “Local Marketing Expenditure” of “5% of monthly Gross Sales . . . [p]ayable to the person providing services, which may be [Defendant].” Under the 2017 FDD, Defendant disclosed removal of the Developmental Fund Fee and a raise of the Royalty Fee to “7% of weekly Gross Sales.”
In April 2019, Defendant started a Membership Program for its customers through which it collects all revenues of memberships sold by franchisees and distributes a portion of the revenues to the individual franchisees. Defendant levied a Membership Program Fee of 2.5% and a “NAF Fee” of 5% on all its franchisees to fund the Membership Program. Defendant, through its General Counsel Stephen Polozola, proposed to its franchisees an “Amendment to Franchise Agreement (Membership Program)” and a new “ACH Authorization,” allegedly misrepresenting the Amendment and Authorization and withholding membership revenues until the franchisees agreed to the new terms. Some franchisees signed the Amendment and Authorization while others have refused. Plaintiff maintains that both documents are overly broad, improper, and inconsistent with the express terms and provisions of the form Franchise Agreement and the FDDs.
Defendant also implemented a new local marketing program with a vendor Zimmerman at a rate of “four percent (4%) of monthly Gross Sales” paid directly to Defendant. Plaintiff alleges the new fees, proposed terms, ban on direct interfacing with Zimmerman representatives, and Defendant’s profit from its relationship with vendors are improper, are unlawful, and run afoul of the form Franchise Agreement and of Defendant’s CEO Michael O. Browning, Jr.’s promises that the franchisee local marketing expenditure would be capped at $7,000 per month and that Defendant would not make money from markups with vendors and suppliers, like its competitors.
The imposition of mandatory vendors goes beyond Zimmerman; Defendant has imposed several other mandatory vendors on franchisees—for socks, construction, and insurance. One vendor is mandated for the over 8,000 pairs of socks purchased by franchisees each month which charges approximately $0.50 per pair above comparable alternative suppliers while Defendant receives a rebate of $0.25 per pair. Another since-terminated vendor Leap of Faith was required for the over $500,000 in construction and installation costs while Leap of Faith allegedly paid revenues and rebates to Defendant up to 60% of its contract price with franchisees. Not knowing the heightened cost due to the rebate, many franchisees sought and were given financing through Defendant backed by promissory notes and an additional 1.5% royalty fee on gross sales, but Defendant never paid Leap of Faith invoices. Plaintiff maintains that the purported financing runs afoul to the FDD and the form Franchise Agreement which claim not to offer direct or indirect financing.
Defendant similarly imposed a mandatory insurance broker, which allegedly overcharged franchisees and made several mistakes, errors, and omissions in procurement of its insurance coverages. Franchisees are forbidden from choosing a broker to procure insurance with superior *4 coverage and at a lower cost even though the form Franchise Agreement said otherwise and Defendant represented to franchisees on December 18, 2019, that “[f]ranchisees are free to shop all other insurance through the broker of their choice, assuming such policies contain the various terms and endorsements required by [Defendant].” Defendant intends to introduce a “captive” insurance program, by which Defendant will create its own insurance company and profit from franchisees, but the new insurance company is not licensed in every state with a franchise and lacks the rating required by the Franchise Agreement.
According to Plaintiff, in the aggregate these actions show wrongful and bad faith conduct by Defendant to generate its own profits with disregard for its agreements and the unfair and material effects on franchisees. Plaintiff maintains that Defendant breached the franchisees’ rights in the form Franchise Agreement and violated the FTC’s Amended Franchise Rule for lack of proper disclosures in the FDDs. Defendant has also allegedly inflicted retaliatory and bullying tactics on individual franchisees dampening their association and communication among each other.
In response, Plaintiff sued Defendant in the United States District Court for the District of New Jersey, seeking several declarations including that Defendant has breached an implied covenant of good faith and fair dealing, violated the Texas Deceptive Trade Practices Consumer Protection Act (TDTPCA), violated the New Jersey Franchise Practices Act (NJFPA), engaged in common-law fraud, and breached the franchise agreements. Compl. ¶¶ 131–40, ECF No. 1. Based on the requested declarations, Plaintiff also seeks injunctive relief to enjoin Defendant “from seeking to enforce the unconscionable arbitration provisions contained in its unlawfully- obtained amendments to some—but not all—of [Plaintiff’s] members’ franchise agreements.” Mot. for Prelim. Inj., ECF No. 10. In the District of New Jersey, Plaintiff sought a preliminary *5 injunction, which the court denied; Defendant sought dismissal of the complaint or transfer of the case to the Northern District. See id. , ECF No. 10; Def.’s Mot. to Dismiss, ECF No. 11. On forum non conveniens grounds limiting its discussion to the effect of the existence of a forum- selection clause, the District of New Jersey court transferred the case here under 28 U.S.C. § 1404(a). See Mem. Op. 1, ECF No. 21.
Before this Court, Defendant now again moves to dismiss Plaintiff’s claims for lack of standing under Federal Rule of Civil Procedure 12(b)(1) and alternatively requests a stay of the case pending arbitration. See Mot., ECF No. 31. The parties have briefed the motion, and it is ripe for the Court’s consideration. See Resp., ECF No. 36; Reply, ECF No. 37.
II. LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(1)
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges a federal
court’s subject-matter jurisdiction.
See
Fed. R. Civ. P. 12(b)(1). A court dismisses a case under
Rule 12(b)(1) for lack of subject-matter jurisdiction if it “lacks the statutory or constitutional
power to adjudicate the case.”
Home Builders Ass’n of Miss. v. City of Madison
,
*6 B. Standing
“Every party that comes before a federal court must establish that it has standing to
pursue its claims.”
Cibolo Waste, Inc. v. City of San Antonio
,
III. ANALYSIS
At the outset, the parties disagree whether this Court may review Plaintiff’s standing in light of the District of New Jersey’s transfer under 28 U.S.C. § 1404(a). Invoking the law of the case doctrine, Plaintiff contends that Defendant presents “subject matter jurisdiction arguments that the District of New Jersey already rejected[,]” and “‘carefully considered[.]’” Resp. 4, ECF *7 No. 36 (quoting Mem. Op. 1, ECF No. 21). Defendant disagrees, arguing that “the District of New Jersey’s opinion is clear that the court did not consider those issues.” Reply 2, ECF No. 37. No matter the characterization of the District of New Jersey’s transfer, this Court has an independent duty to analyze whether any plaintiff before it has standing.
“Federal courts are courts of limited jurisdiction. They possess only that power
authorized by the Constitution and statute, which is not to be expanded by judicial decree.”
Kokkonen v. Guardian Life Ins. Co. of Am.
,
In this case, whether the District of New Jersey fulfilled its obligation of analyzing and concluding that this Court has subject matter jurisdiction before transferring on forum non conveniens grounds is of no moment now. To scrutinize its own jurisdiction, the Court need not re-litigate whether Plaintiff made a prima facie showing that this Court is a venue where the *8 action “might have been brought” and, in practice, reverse the District of New Jersey’s transfer order; the Court need only sua sponte consider its own jurisdiction—an essential obligation of all federal courts. See Gasch v. Hartford Acc. & Indem. Co. , 491 F.3d 278, 281 (5th Cir. 2007) (quoting Ruhrgas AG v. Marathon Oil Co. , 526 U.S. 574, 583 (1999)) (“[S]ubject-matter delineations must be policed by the courts on their own initiative.”). The Court cannot blindly bypass a jurisdictional question without scrutiny and then exercise its judicial power. See Tangipahoa Par. Sch. Bd. , 494 F.3d at 496 n.1, 499. Thus, the Court first addresses whether Plaintiff has standing to bring this suit.
A. Motion to Dismiss for Lack of Associational Standing Plaintiff’s alleged basis for standing is associational standing on behalf of its members— all of whom are franchisees of Defendant. See Compl. 5–7, ECF No. 1. The parties disagree whether Plaintiff has met its burden of establishing associational standing to sue in a representative capacity. See Mot. 9, ECF No. 31; Resp. 7–19, ECF No. 36. For the forthcoming reasons, the Court concludes Plaintiff does not have associational standing in this case.
“There is no question that an association may have standing in its own right to seek
judicial relief from injury to itself and to vindicate whatever rights and immunities the
association itself may enjoy, but even in the absence of injury to itself, an association may have
standing solely as the representative of its members.”
Ass’n of Am. Physicians & Surgeons, Inc.
v. Tex. Med. Bd.
, 627 F.3d 547, 550 (5th Cir. 2010) (internal quotation marks and brackets
omitted) (quoting
Warth v. Seldin
, 422 U.S. 490, 511, (1975));
see also Tex. Ass’n of Mfrs. v.
United States Consumer Prod. Safety Comm’n
,
(a) First Prong of Associational Standing
As to the first prong, Defendant briefly argues that Plaintiff’s allegations lack the
specificity to show that “its members would otherwise have standing to sue in their own right.”
Mot. 17, ECF No. 31 (quoting
Hunt
,
“The first prong requires that at least one member of the association have standing to sue
in his or her own right.”
Nat’l Rifle Ass’n of Am., Inc. v. Bureau of Alcohol, Tobacco, Firearms,
& Explosives
,
Here, the Court finds the pleadings sufficient to show, at this stage, that Plaintiff’s
members would otherwise have standing to sue. Plaintiff identifies Powell, one of its members
and a franchisee of Defendant, and “[o]ne of [Plaintiff’s] representatives who attended [a March
2020] meeting [in Dallas] was a representative of two (2) franchise locations who have not
signed the . . . Amendment.”
See
Resp. 18, ECF No. 36 (citing Powell Dec., ¶¶ 5, 14–16, ECF
*11
No. 15-1). As franchisees, these members have suffered and continue to risk suffering an alleged
economic injury in the form of increased fees and inflated vendor payments, allegedly outside
the scope of the Franchise Agreement and not properly disclosed in the FDD.
See Davis v. Fed.
Election Comm’n
,
(b) Third Prong of Associational Standing
Defendant argues more substantially that Plaintiff’s assertion of standing fails Hunt ’s third prong because “Plaintiff’s claims and relief requested require individualized, fact-intensive inquiries.” Mot. 10, ECF No. 31. Focusing on the varied contractual relationships and representations between the franchisor Defendant and its individual franchisees, Defendant highlights the individualized inquiries required for the Court’s finding (1) which franchisees signed the Amendment and new Authorizations, (2) which franchisees were defrauded into signing the Amendment and new Authorizations, (3) which franchisor representations and to which franchisees violated the TDTPCA or the NJFPA or constituted other torts, and (4) which franchisees are bound by arbitration provisions. Mot. 10–17, ECF No. 38. In response, Plaintiff puts forth four theories why individual franchisee participation is not warranted. First, Plaintiff only requests declaratory and injunctive relief, see id. at 9–10; second, at best, discovery requests may lead to resolution without member participation at all and, at worst, only members who *12 executed the Amendment or new Authorization, not all members, will need to participate, see Resp. 12, ECF No. 36; third, Plaintiff’s claims center on only Defendant’s “uniformly and in bad faith” actions, not the franchisees’, see id. ; and fourth, although the franchise agreements differ slightly among the franchisees, the franchisees are “substantially similarly . . . affected by [Defendant]’s machinations,” see id. at 17.
“Because
Hunt
’s third prong is prudential, the general prohibition on a litigant’s raising
another person’s legal rights is a judicially self-imposed limit on the exercise of federal
jurisdiction, not a constitutional mandate.”
Ass’n of Am. Physicians
, 627 F.3d at 551 (quoting
Brown Grp.
,
“[A]n association may assert a claim that requires participation by
some
members.”
Hosp.
Council of W. Pa. v. City of Pittsburgh,
949 F.2d 83, 89 (3d Cir. 1991) (cited approvingly by
Ass’n of Am. Physicians
, 627 F.3d at 551–52);
see also Retired Chi. Police Ass’n v. City of
Chicago
, 7 F.3d 584, 601–02 (7th Cir. 1993) (“We can discern no indication . . . that the
Supreme Court intended to limit representational standing to cases in which it would not be
necessary to take any evidence from individual members of an association.”). Thus, courts focus
on “matters of administrative convenience and efficiency . . . by examining both the relief
*13
requested and the claims asserted.”
Id.
(internal quotation marks omitted) (quoting
Brown Grp.,
For the few courts that have addressed a franchisee association’s standing to sue on
behalf of its members, the hang-up often occurs at this third prong. Courts faced with the issue
have aired prudential concerns about conflicting state law in multiple interested jurisdictions
[7]
;
claims of tortious conduct and breach of contract instead of discrete legal issues like challenges
to statutes and regulations
[8]
; a party to a contract not present to litigate that contract
[9]
; the risk in
[6]
While the legal standard set forth in
Ass’n of Am. Physicians
controls the analysis, the healthcare market
and its relationship with the state medical board is patently distinct from the franchisor-franchisee
relationship here.
See Mich. Dairy Queen Operators’ Ass’n v. Int’l Dairy Queen Inc.
, No. 1:08-cv-36,
See, e.g., Ass’n of Merger Dealers, LLC v. Tosco Corp.
, 167 F. Supp. 2d 65, 73–74 (D.D.C. 2001)
(“[T]here is a conflict between the law of the several potentially interested jurisdictions [Virginia,
Maryland, and the District of Columbia] respecting associational standing.”);
DDFA of South Florida,
Inc. v. Dunkin’ Donuts, Inc.
, No. 00-7455-civ,
See, e.g., DDFA
, 2002 WL 1187207, at *7 (finding the allegations of tortious conduct and breach of
contract would require individual determinations as to whether the franchisor committed those torts and
whether the members or the franchisor complied with provisions of the franchise agreement);
Shrijee Inv.
,
[9]
See, e.g., Mich. Dairy Queen Operators’ Ass’n
,
[11] See, e.g., Mich. Dairy Queen Operators’ Ass’n , 2008 WL 2566547, at *2–3 (concluding declaratory relief was inappropriate because it would do nothing other than frame the controversy between the parties).
See, e.g., Shrijee Inv.
,
Resp. 16, ECF No. 36 (citing
EA Indep. Franchisee Ass’n
,
Here, Plaintiff’s fourteen declaratory requests raise the identical prudential concerns without the safeguards found by the two departing courts. See Resp. 12–15, ECF No. 36. The Court echoes the wisdom of the majority of courts best summarized by the Eastern District of Michigan:
Even if each of the individual members agrees with the [franchise association]’s assessment of the facts of their case and its assessment of how they may be remedied, an umbrella organization such as a franchisee association simply is not in as good a position to present such subtleties to a Court.
Dunkin’ Donuts , 2008 WL 5384077, at *11–12. This Court, too, concludes that Plaintiff is simply not in the best position to present the subtleties of the franchisees’ individualized contract and tort claims proffered as declarations and that Plaintiff has failed to show that “neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit[.]” Ass’n of Am. Physicians , 627 F.3d at 550; see Compl. ¶¶ 131–40, ECF No. 1. Accordingly, Plaintiff has failed to demonstrate associational standing to pursue its claims against Defendant, so the Court will grant Defendant’s motion to dismiss.
B. Motion for Attorneys’ Fees
Defendant contends that it is entitled to attorneys’ fees and costs it incurred with
connection with the motion because the form franchise agreement requires franchisees to pay
Defendant “all costs and expenses incurred by [Defendant] in enforcing the terms of [the
Franchise] Agreement including, without limitation . . . reasonable attorneys’ fees.” Mot. 24,
agreements and lack of ambiguity of the only challenged provision, the opportunity to expand to a class
certification for all franchisees, the need to reference only to the franchisor’s internal documents and
data).
See also Dealer Store Owners Ass’n
,
breach caused a [franchisee] damage, each [franchisee]’s own Agreement with [the franchisor] would have to be explained, along with any actions by [the franchisor] which caused the breach, followed by an examination of the [franchisee] to determine what damages it incurred. This is precisely the type of scenario associational standing cases seek to avoid.”).
ECF No. 31 (citing Def.’s App. 003, ¶ 14, ECF No. 32). Plaintiff argues that it “has established that not all of its members have executed the Purported Amendment and, as a result, [Defendant] is not entitled to seek counsel fees to enforce an agreement not all [Plaintiff’s] members have executed as against [Plaintiff].” Resp. 21, ECF No. 36 (emphasis removed) (citing Powell Decl., ¶ 14, ECF No. 15-1). Based on the briefing, the Court lacks the relevant facts and law to consider in granting attorneys’ fees based on a form franchise agreement to which Plaintiff and Defendant are not in privity of contract. Thus, the Court will deny Defendant’s motion for attorneys’ fees without prejudice. To the extent Defendant still believes it is entitled to attorneys’ fees, it may move for the relief and fully brief the issue as proscribed by Federal Rule of Civil Procedure 54(d)(2).
IV. CONCLUSION
Based on the foregoing, the Court finds Plaintiff lacks associational standing to bring this suit. Thus, the Court GRANTS Defendant UATP Management, LLC’s Motion to Dismiss (ECF No. 31) with respect to all of Plaintiff’s claims, which are hereby DISMISSED without prejudice . Defendant’s motion for attorneys’ fees is DENIED without prejudice . Defendant’s alternative motion to stay this suit pending arbitration is DENIED as moot . Pursuant to Federal Rule of Civil Procedure 58(a), a final judgment shall issue separately.
SO ORDERED on this 6th day of May, 2021 .
Notes
[1] In its discretion, the Court relies upon the Complaint in its recitation of the facts without presuming the
truthfulness of Plaintiff’s allegations.
See Williamson v. Tucker
,
[2] The “law of the case” doctrine “posits that when a court decides upon a rule of law, that decision should
continue to govern the same issues in subsequent stages in the same case.”
Christianson v. Colt Indus.
Operating Corp.
,
[3] Indeed, the Court is left with—at best—an ambiguous implication that the District of New Jersey
decided that this Court has jurisdiction or, more likely, no determination or decision at all about this
Court’s jurisdiction or Plaintiff’s standing because the District of New Jersey expressly declined to
address the associational standing issue before transferring it here.
See
Order 1, ECF No. 21;
see also
Propes v. Quarterman
, 573 F.3d 225, 228 (5th Cir. 2009) (citing
Goodwin v. Johnson
, 224 F.3d 450,
457–58 (5th Cir. 2000)) (noting that the law of the case doctrine is implicated only when an earlier court
makes “determinations” of law);
Christianson
,
[4] For the same reasons, the Court declines Plaintiff’s similar invitation to consider “judicial economy alone” as the reason “to retain jurisdiction[.]” Resp. 19, ECF No. 36.
[5] The Court’s first-prong conclusion aligns with other courts to have addressed a franchisee association’s
standing on behalf of its members.
See, e.g., Dunkin’ Donuts Franchised Rests. LLC v. Shrijee Inv., Inc.
,
Nos. 08-12836, 08-14213,
[15] Federal courts generally give a plaintiff an opportunity to cure pleading defects before dismissing with
prejudice unless the defect is incurable.
Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co
.,