Wagner v. FranChoice, Inc.

Background

Stephen Wagner sued FranChoice, Inc. (FCI) and Careyann Golliver over their referral of an iLoveKickboxing.com franchise opportunity. Wagner’s existing complaint included fraud-related allegations. He later moved to amend the complaint again, proposing to expand his theory that FCI and Golliver made actionable misrepresentations about FCI’s franchise-screening services and to assert punitive damages under common-law claims. The proposed complaint deleted the existing punitive-damages count and proposed a new punitive-damages claim.

The court’s scheduling orders set deadlines for amendments. The relevant deadline was January 18, 2020, following the court’s report and recommendation on the defendants’ partial dismissal motion. Wagner filed the present motion on August 24, 2020. He argued that he needed later depositions of FCI’s founder and chief executive officer and of Golliver to learn that the statements about FCI’s services were false and supported a fraud claim.

Rule 16 and diligence

The court applied Federal Rule of Civil Procedure 16, which requires a party seeking to amend after a scheduling-order deadline to show “good cause.” Good cause primarily depends on the moving party’s diligence—whether the party tried to meet the deadline and could not reasonably do so despite those efforts.

The court found that Wagner had not shown the required diligence. It questioned why he waited until November 2019 to begin depositions despite the parties’ May 2019 joint discovery plan. The court also found that Wagner had known from the beginning of the case about the website statements and statements he said Golliver made to him. According to the court, the proposed allegations were largely reworded versions of existing allegations and newly characterized FCI’s service-related statements as misrepresentations in their own right.

The court further found that Wagner had enough information before the amendment deadline to assert the proposed allegations. November 2019 depositions provided information about FCI’s screening process, its review of franchise disclosure documents, its treatment of ILKB’s bankruptcy and litigation history, and the fact that those documents were not generally provided to FCI consultants. The court also found that relevant franchise disclosure documents, bankruptcy information, litigation information, and allegations about FCI’s lack of due diligence were available before the deadline and were referenced in an earlier amended complaint.

The court concluded that Wagner’s failure to move to amend for more than six months, or to seek an extension of the amendment deadline, showed a lack of diligence incompatible with good cause. It also rejected the apparent strategic decision to wait and expand the alleged misrepresentations after defendants raised arguments in a related case and after the court limited Wagner’s earlier punitive-damages amendment.

Alternative futility analysis

The court stated in a footnote that, even assuming Wagner had satisfied Rule 16’s good-cause requirement, the proposed punitive-damages claim was futile. “Futile” means that the proposed claim would not be legally sufficient even if added. The court found that the allegations about FCI’s screening services plausibly showed, at most, gross negligence. It stated that negligence, including gross negligence, was insufficient to support punitive damages and that the allegations resembled allegations the court had rejected in Wagner’s earlier motion to add punitive damages.

Disposition

The court denied Plaintiff’s Motion to Amend Complaint, Docket 77. The order did not state that the denial was with or without prejudice.