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Hameed v. IHOP Franchising

October 28, 2010


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


Plaintiff Sultan Hameed brings suit on behalf of himself and other similarly situated franchisees (hereinafter, "Plaintiff") pursuant to California Code of Civil Procedure § 382. (ECF No. 1, Ex. 1.) Plaintiff alleges several violations against Defendants IHOP Franchising, LLC, Dineequity, Inc., IHOP Properties, LLC, and International House of Pancakes, Inc. (collectively "IHOP," and hereinafter "Defendants"), including unjust enrichment, statutory violations, accounting, and breach of contract.

Plaintiff is seeking monetary damages and equitable and declaratory relief. Defendants removed the case from the Superior Court of the State of California for the County of Sacramento to this Court pursuant to the Class Action Fairness Act of 2005*fn1 ("CAFA").

Defendants have filed a Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted pursuant to Federal Rule of Civil Procedure Rule 12(b)(6)*fn2 , and a Motion to Strike Improper Requests For Relief pursuant to Rule 12(f). (ECF. No. 7.) Plaintiff filed an opposition to those motions. (ECF No. 11.) For the reasons set forth below, Defendants' Motion to Dismiss is granted in part and denied in part. Defendants' Motion to Strike is denied as moot.*fn3


Plaintiff's complaint alleged that Defendants violated state law in relation to his management of an IHOP franchise restaurant.

On or about July 8, 1998, Plaintiff entered into a 25-year Franchise Agreement, Equipment Lease, and Property Sublease with Defendants, whereby Plaintiff agreed to operate an IHOP restaurant in Sacramento. Plaintiff has fulfilled, and continues to fulfill, all obligations under the terms of all three agreements.

Under the terms of the Franchise Agreement, Plaintiff is required to refurbish or remodel the restaurant at his sole cost every five years. Thus, Plaintiff has replaced virtually all of the equipment Defendants initially provided him, and either owns the restaurant's current equipment outright, or leases it from third parties not parties to this suit. Regardless, Defendants have required Plaintiff to pay $740.00 per week agreed to under the terms of the Equipment Lease signed in 1998, and have refused to renegotiate the lease's terms.

Pursuant to ¶ 7.01(b) of the Franchise Agreement, Plaintiff has made weekly contributions to Defendants for advertising services. Defendants are obligated under ¶ 7.01(d)(iii) of the Franchise Agreement to provide documentation accounting how the advertising funds have been used or disbursed. Plaintiff has not received the proper, required accounting of the use or disbursement of these advertising funds.

As an IHOP franchisee, Plaintiff is eligible for participation in IHOP's Development Impact Assistance Program ("DIAP"). The DIAP provides monetary aid to an affected existing franchisee when a new IHOP restaurant opens in a specified proximity to the existing restaurant. Plaintiff qualified for, but was denied eligibility in the DIAP due to discriminatory practices by Defendants.

As part of the franchise deal, Plaintiff entered into the Sublease Agreement for rental of the restaurant premises. The terms of the agreement obligate Plaintiff to pay the real estate property taxes and assessments on the franchise property. In March 2008, the real property upon which the restaurant rests was sold to a third party not a party to this suit, while Defendants remained the sublessor under Plaintiff's sublease ("sale/leaseback"). A "New" Master Lease reflected the March 2008 sale. Due to the sale, real estate taxes on the property more than doubled. Defendants passed-through the increased taxes to Plaintiff, in violation of the implied covenant of good faith and fair dealing.


A. Motion to Dismiss under Rule 12(b)(6)

A party may seek dismissal of a claim if the pleadings are insufficient because they fail to state a claim upon which relief may be granted. On a motion to dismiss for failure to state a claim under Rule 12(b)(6), "all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party." Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the...claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957).

Although "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and quotations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level." Id. (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) ("[T]he pleading must contain something more...than...a statement of facts that merely creates a suspicion [of] a legally cognizable right of action.") If the "plaintiffs...have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Twombly, 550 U.S. at 570.

If the court grants a motion to dismiss, it must then decide whether to grant leave to amend. Rule 15(a) authorizes the court to "freely give[]" leave to amend when there is no "undue delay, bad faith[,] dilatory motive on the part of the movant,...undue prejudice to the opposing party by virtue of...the amendment, [or] futility of the amendment...." Foman v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied when it is clear that the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight ...

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