The Franchise Memorandum

In Brown v. Moe’s Southwest Grill, LLC, 2009 WL 5175280 (N.D. Ga. Dec. 21, 2009), a Georgia federal court declined to dismiss several claims brought by a group of franchisees alleging that franchisor Moe’s Southwest Grill had made misrepresentations when they received copies of the UFOC and entered into their franchise agreements.  In analyzing Moe’s motion to dismiss, the court evaluated the sufficiency of the franchisees’ amended complaint under the “plausibility” standard set forth in the recent Iqbal and Twombly U.S. Supreme Court opinions, which requires the claimant to state a “plausible” claim for relief that can withstand a motion to dismiss.  The Georgia court dismissed the franchisees’ claims for wrongful termination and related fraud (finding the claims time-barred), tortious interference (finding an insufficient factual basis), and violation of the Kansas Consumer Protection Act (finding one franchisee’s claim time-barred).

As to the franchisees’ unfair and deceptive trade practices claim and other state consumer protection claims, the court rejected Moe’s assertion that the allegations in the complaint were “mere formulaic recitations of fact.”  Finding that it could “reasonably infer liability” from the allegations, the court determined that the franchisees had stated plausible claims.  In addition, the court rejected Moe’s argument that the choice of law provision in the franchise agreement barred tort and statutory claims arising in other states.  Because the choice of law provision did not specifically mention all claims or “any conflict of law,” the court reasoned that it did not bar the other state claims.  The court found the rest of the franchisees’ claims, including  Georgia Civil RICO and fraud allegations, negligent misrepresentation and negligent omissions, and intentional infliction of emotional distress, were plausible, and thus, sufficiently pled to withstand dismissal.