A federal court in California recently declined to dismiss a former franchisee’s suit against Nadia Gruzd, the CEO and COO of AllMed Search, a healthcare recruitment franchise system. Pasture Gate Holdings, Inc. v. Gruzd, 2025 WL 1435526 (S.D. Cal. May 19, 2025).
Pasture Gate Holdings, Inc. sued Gruzd personally, asserting California Franchise Investment Law (CFIL) and Unfair Competition Law claims. With respect to the CFIL, Pasture Gate alleged that Gruzd made misleading representations concerning four of the twenty-three disclosures mandated by the FTC’s Franchise Rule. Specifically, Pasture Gate alleged misrepresentations with respect to the identity of predecessor businesses (Item 1); prior litigation (Item 3); prior bankruptcies (Item 4); and financial performance (Item 19). Pasture Gate alleged that Gruzd violated California’s Unfair Competition Law by unlawfully accessing Pasture Gate’s computer system and manipulating its data, thereby prohibiting Pasture Gate from operating its business. Gruzd asked the court to take judicial notice of the franchise agreement and a separate arbitration award between Medical Search Consultants LLC (the AllMed Search franchisor) and Pasture Gate. Gruzd then moved to dismiss all Pasture Gate’s claims.
The court denied Gruzd’s request for judicial notice because Gruzd sought to introduce the documents for the truth of the matter asserted in the documents. The court then denied Gruzd’s motion to dismiss Pasture Gate’s claims concerning misleading disclosures, concluding that Pasture Gate pled allegations sufficient to state a claim with respect to the disclosures required under FDD Items 1, 3, 4, and 19. In so doing, the court rejected Gruzd’s argument that Pasture Gate’s claims were time barred because Pasture Gate received the FDD at issue in 2020 and the CFIL contains a one-year after discovery of the violation limitations period. The court determined that it was not apparent on the face of the complaint when Pasture Gate had knowledge of the misrepresentations sufficient to trigger the limitations period. Finally, the court rejected Gruzd’s argument that Pasture Gate’s Unfair Competition Law claim was preempted by the CFIL and FTC Franchise Rule. The court concluded that the alleged conduct—invasion of Pasture Gate’s computer system—was outside the scope of the CFIL and FTC Franchise Rule.
*Angela Pandit is a Summer Associate for Lathrop GPM who contributed to the writing of this post.