The Eastern District of Wisconsin dismissed six counterclaims brought by Texas-based franchisee MKD Investment Holdings against Wisconsin-based franchisor Verlo Mattress, Verlo executive Dirk Stallman, and Verlo’s members Marcus Investments and Marcus Corporation. Marcus Corp. v. MKD Invest. Holdings, 2026 WL 1746951 (E.D. Wis. June 17, 2026). After MKD shut down due to financial struggles, it filed an arbitration demand against Verlo, Stallman, Marcus Investments, and Marcus Corporation. Stallman and the Marcus entities sued in federal court for a declaration that they were not obligated to arbitrate. MKD countersued, alleging fraud and misrepresentation under the Wisconsin Franchise Investment Law (WFIL), Wisconsin and Texas Deceptive Trade Practices Acts, and negligent misrepresentation, intentional misrepresentation, and civil theft under Wisconsin law. Stallman and the Marcus entities moved to dismiss all MKD’s counterclaims.
First, the court determined that none of MKD’s fraud claims were sufficiently particular to satisfy Rule 9(b)’s heightened pleading standards for fraud. The court dismissed MKD’s negligent misrepresentation claim with prejudice because MKD’s franchise agreements had an integration clause disavowing any prior oral or written statements not set out in the franchise agreements themselves. The court dismissed MKD’s intentional misrepresentation claim without prejudice, however, because “exculpatory clauses are not enforceable when the fraud is carried out intentionally or recklessly,” and MKD could conceivably plead an intentional misrepresentation claim that satisfied Rule 9(b). The court also dismissed MKD’s WFIL claim without prejudice. The WFIL imposes liability for fraudulent statements made during franchise sale negotiations. While the court found that MKD’s WFIL claim, as pleaded, did not satisfy Rule 9(b), the court rejected Stallman and the Marcus entities’ argument that the WFIL did not apply to MKD’s franchise agreement because MKD did not “receive” an offer to purchase a franchise in Wisconsin. Thus, the court concluded that MKD could potentially state a WFIL claim if MKD could plead its claim with sufficient particularity. The court dismissed MKD’s remaining claims with prejudice, finding that MKD’s Texas Deceptive Trade Practices Act claim was precluded by a statutory exemption, and that MKD’s Wisconsin Deceptive Trade Practices Act and civil theft claims failed for insufficient factual support.
*Maddie Kleven is a Summer Associate for Lathrop GPM who contributed to the writing of this post.