JTKB, LLC v. Franchoice, Inc.
- Michael Davis
- 0:19-cv-00919
- U.S. District Court · District of Minnesota
- 15
In JTKB v. Franchoice, Judge Wright recommended denying defendants’ partial dismissal motion, finding franchise-broker allegations plausibly stated a Connecticut business-opportunity claim.
JTKB, LLC and Jeffrey Tyrrell’s Connecticut Business Opportunity Investment Act claim was allowed to proceed past the pleading stage under the recommendation; Franchoice, Inc. and Scott Jones did not obtain the requested partial dismissal. The recommendation was subject to objections and was not itself a final district-court order.
What happened
JTKB, LLC v. Franchoice, Inc. concerns allegations that Franchoice, Inc. and Scott Jones made misleading statements while helping Jeffrey Tyrrell find and buy an ILKB franchise. The plaintiffs claimed the defendants misrepresented the franchise’s costs, profitability, marketing, ownership demands, and franchise history.
The defendants asked the court to dismiss the plaintiffs’ claim under Connecticut’s Business Opportunity Investment Act. They argued that the law applied only to the franchisor that ultimately sold the franchise, not to a broker or its representative. The plaintiffs argued that the law also covered people who solicited buyers and helped arrange a business-opportunity sale.
Judge Elizabeth Cowan Wright recommended denying the motion. She concluded that the plaintiffs plausibly alleged that Franchoice and Jones solicited the franchise purchase and could be covered by the statute, even though ILKB—not the defendants—ultimately sold the franchise. The report and recommendation was not itself a final district-court order, and the opinion states that parties could file objections.
The detailed version
- JTKB, LLC v. Franchoice, Inc. · No. 0:19-cv-00919
- Michael Davis
- Dec. 19, 2019
Background
JTKB, LLC and Jeffrey Tyrrell sued Franchoice, Inc. and Scott Jones. The amended complaint alleged that Tyrrell hired Franchoice, a franchise broker, and Jones, a Franchoice representative, to help him identify and acquire a franchise. Franchoice allegedly advertised that it directed prospective franchisees to high-quality businesses and helped them make informed decisions. Jones allegedly described himself as uniquely qualified, said Franchoice had pre-screened hundreds of franchise companies, and provided information about its franchise-investigation process.
Franchoice and Jones introduced Tyrrell to ILKB, LLC, the franchisor of iLoveKickboxing.com franchises. The plaintiffs alleged that, before the purchase, the defendants made or repeated statements about the franchise, including that it could operate with an absentee owner, had not lost any franchises, would cost no more than $190,000, had effective marketing, and achieved a 50-percent conversion rate from trial memberships to regular memberships. They also alleged that the defendants failed to disclose membership attrition, bad debts, lawsuits, and a bankruptcy involving ILKB’s founder and affiliates.
The plaintiffs alleged that they relied on these statements, paid franchise fees, spent money outfitting the business location, and took on loan and lease obligations. After opening the business, they allegedly learned that several representations were untrue. The amended complaint asserted claims under the Connecticut Business Opportunity Investment Act, as well as common-law fraud and negligent misrepresentation.
Motion and Legal Standard
The defendants moved under Federal Rule of Civil Procedure 12(b)(6) for partial dismissal of the Connecticut Business Opportunity Investment Act claim. A Rule 12(b)(6) motion tests whether the complaint plausibly states a legal claim. At this stage, the court accepts the complaint’s factual allegations as true, views them in the plaintiffs’ favor, and asks whether the alleged facts support a reasonable inference that the defendants may be liable.
Analysis
The defendants argued that the Connecticut statute applied only to people who sell or offer to sell a business opportunity, and that Franchoice and Jones did not qualify because ILKB—not them—sold the franchise. The plaintiffs responded that the statute’s definition of an offer includes soliciting an offer to buy a business opportunity and that its definition of a seller includes agents or others acting directly or indirectly for a seller.
The court focused on the statute’s broad language. The statute prohibits a person, in connection with the sale or offer for sale of a business opportunity, from using a scheme to defraud, making an untrue material statement or omitting necessary information, or engaging in conduct that operates as fraud or deceit. It broadly defines “person” to include individuals and legal entities. It also defines “offer” to include an attempt or solicitation of an offer to buy a business opportunity.
The court concluded that the complaint plausibly alleged that Franchoice and Jones solicited Tyrrell’s offer to ILKB. Their alleged advertising, screening, introduction of Tyrrell to ILKB, and representations encouraging him to buy the franchise were sufficient at the pleading stage. The court rejected the argument that only the franchisor could be liable, explaining that the statute’s references to “persons,” “offers,” and solicitation were not limited to the owner of the business opportunity or the party that completed the final sale.
The court also rejected the defendants’ argument based on the statute’s remedies. Although one remedy allows a purchaser to void the contract and recover amounts paid to the business-opportunity seller, the statute also allows an injured purchaser to seek damages and preserves other legal or equitable remedies. The court reasoned that these remedies did not establish that only franchisors could be liable for misrepresentations made during solicitation.
Recommendation and Procedural Status
Judge Elizabeth Cowan Wright recommended that the defendants’ Motion for Partial Dismissal Pursuant to Rule 12(b)(6) be denied. The document is a magistrate judge’s report and recommendation, not a final district-court order or judgment. The notice states that it was not directly appealable to the Eighth Circuit and that the parties could file written objections within the specified time.
The court did not decide whether the plaintiffs would ultimately prove their Connecticut statutory, fraud, or negligent-misrepresentation claims. It decided only that the amended complaint plausibly alleged a Connecticut Business Opportunity Investment Act claim against the defendants.
Read the full 15-page opinion on CourtListener, the free public archive maintained by the Free Law Project.