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Dos Beaches, LLC and Melinda M. Rayter v. Mail Boxes Etc.

February 15, 2012


The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge


I. Introduction

Through her LLC, Dos Beaches, Melinda Rayter opened a franchise of The UPS Store in Indiana. The UPS Store is actually franchised by Mail Boxes Etc., itself a subsidiary of UPS. The core of Rayter's complaint is that Defendants breached the Franchise Agreement that she signed in September 2004, prior to opening her franchise of The UPS Store.*fn1

The Court dismissed Rayter's original complaint, without prejudice, because it was simply too unwieldy to even consider. It explained:

The problem with Dos Beaches' complaint ought to be plain to any reader. At 30 pages and over 300 paragraphs, it reads as a running commentary of grievances rather than a thoughtful account of what precisely the Defendants did that entitles Dos Beaches to legal relief. The main cause of action for breach of contract only exacerbates this problem. Not only does it allege new facts that don't appear in the body of the complaint, it contains, on the Court's count, twelve distinct grievances, only some of which have an alleged basis in contracts entered into by the parties . . . .

Neither Mail Boxes Etc. nor the Court should have to cull through Dos Beaches' complaint and attach factual allegations to legal claims. The complaint should come pre-assembled, stating as succinctly as possible the facts giving rise to the claims and then the claims themselves, with reference back to the underlying facts. Frankly, the complaint appears to be the product of Dos Beaches' counsel simply downloading into a pleading form notes from client interviews, taking little time to condense, polish, and strategically arrange them. It is imperative that Dos Beaches do more than paint a sinister picture of Mail Boxes Etc. and its various alleged agents; it is imperative that Dos Beaches offer a short and succinct statement of the facts relevant to her claims, followed by a short and succinct statement of those claims themselves. (Dkt. No. 23 at 2--4.) Now pending before the Court is Defendants' motion to dismiss Rayter's First Amended Complaint.

II. Legal Standard

A 12(b)(6) motion to dismiss for failure to state a claim challenges the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering such a motion, the Court accepts all allegations of material fact as true and construes them in the light most favorable to Rayter. Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). To defeat a 12(b)(6) motion, a complaint's factual allegations needn't be detailed; they must simply be sufficient to "raise a right to relief above the speculative level . . . ." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, "some threshold of plausibility must be crossed at the outset" before a case can go forward. Id. at 558 (internal quotations omitted). A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. ----, 129 S.Ct. 1937, 1949 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.

While the Court must draw all reasonable inferences in Rayter's favor, it need not "necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal quotations omitted). In fact, the Court does not need to accept any legal conclusions as true. Iqbal, 129 S.Ct. at 1949. A complaint does not suffice "if it tenders naked assertions devoid of further factual enhancement." Id. (internal quotations omitted). Nor does it suffice if it contains a merely formulaic recitation of the elements of a cause of action. Bell Atl. Corp., 550 U.S. at 555.

III. Requests for Judicial Notice

Defendants have asked the Court to take judicial notice of the Franchise Agreement and an exhibit to the Uniform Franchise Offering Circular that Rayter received before she executed the Franchise Agreement. Both of these documents are specifically referenced in Rayter's complaint, and Rayter does not object to the Court taking judicial notice of them. In fact, Rayter's and the Defendants' arguments rely equally upon the documents. The Court therefore takes judicial notice of the documents. Defendants' request is GRANTED. See U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) ("Even if a document is not attached to a complaint, it may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or document forms the basis of the plaintiff's claim.").

Rayter has asked the Court to also take judicial notice of the Defendants' websites and their contents pursuant to Fed. R. Ev. 201, which allows for courts to take notice of facts "either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Rule 201 only pertains to adjudicative facts-those facts that are "simply the facts of the particular case." See Rule 201, 1972 Advisory Committee notes. "They are the facts that normally go to the jury in a jury case. They relate to the parties, their activities, their properties, their businesses." Id. (quoting 2 Administrative Law Treatise 353). The Court finds that the website contents are not "the facts of this case," and therefore not the kind of adjudicative facts of which it can take notice. Nowhere in Rayter's complaint does she mention the Defendants' websites or their contents, which means that, as stated, her claims do not rely upon them and they are not noticeable. See Ritchie, 342 F.3d at 908; Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994) (holding that "documents whose contents are alleged in a complaint . . . may be considered in ruling on a Rule 12(b)(6) motion to dismiss"). The websites are mentioned for the first time in her opposition brief, and even then only in their current form, not their form at the time that her claims allegedly arose. Finally, as Defendants point out, the timing of Rayter's request for judicial notice-after Defendants filed their reply brief-is suspicious. The request is therefore DENIED.

IV. Discussion

Rayter's complaint is leaner this time around, but it still has problems. The biggest is that the complaint still lacks the kind of narrative structure that makes it clear just what happened in this case and why Rayter believes she was wronged. It appears that every last grievance she has with Defendants has made its way into her First Amended Complaint, irrespective of its connection to a particular cause of action.

A. Breach of Contract

Rayter's most substantial claim against Defendants is that they breached the Franchise Agreement, which she executed on behalf of Dos Beaches on September 7, 2004, in a number of ways. Below, the Court will identify and name each of them, and then consider whether Rayter has alleged adequate facts with respect to each.

* The Franchise Agreement allowed Rayter to choose the location of her UPS Store franchise. Defendants, however, did not allow her to do so. Rayter does not identify a section of the Franchise Agreement that made this allowance, and her complaint implies this was actually an oral representation made to her by Defendants, rather than an explicit term of the Franchise Agreement itself. (Compl. ¶ 56.) ("Choice of Location Claim")

* The Franchise Agreement allowed Rayter, indeed recommended that Rayter, retain her own attorney or real estate broker to negotiate a commercial lease. Defendants, however, did not allow her to do so. (Compl. ¶ 57.) ("Attorney and Broker Claim")

* The Franchise Agreement gave Rayter the right to make use of "The UPS Store" logo on her storefront. Defendants, however, determined the location of her store, and then negotiated a lease that did not allow for her to display "The UPS Store" on the outside of the location. (Compl. ¶¶ 58--61.) ("Logo Claim")

* The Franchise Agreement, § 3.3, stipulated that Defendants would provide a "Center Design." Rayter alleges they did not properly do this. (Compl. ¶ 62.) ("Center Design Claim")

* The Franchise Agreement, § 3.4, stipulated that Defendants would provide "Center Development Coordination," whatever that is. Again, Rayter alleges they did not properly do this. (Compl. ¶ 63.) ("Center Development Coordination Claim")

* The Franchise Agreement, § 3.5, stipulated that Rayter would be allowed to employ her own architects and contractors, but Defendants did not allow her to do so. (Compl. ¶ 64.) This same allowance was made, according to Rayter, in Exhibit 11 to Defendants' Offering Circular, which was incorporated into the Franchise Agreement. (Compl. ¶ 65.) ("Architect and Contractor Claim")

* Under the Franchise Agreement, § 2.1, the term of the Franchise is ten years. Rayter alleges Defendants violated this term by simply telling her during her first year in business that she would have to relocate her franchise at the expiration of the five-year term of her lease. (Compl. ¶ 68.) ("Agreement Term Claim")

* The Franchise Agreement provided that the Area Franchise Manager would coordinate a Grand Opening, but he or she failed to do so. (Compl. ¶ 69.) Actually, Rayter merely alleges that the Grand Opening was "supposed to be coordinated" by the Area Manager, not that the Franchise Agreement promised it would be. She does not specify a particular term of the Franchise Agreement that was violated here. ("Grand Opening Claim")

* The Franchise Agreement provided that Defendants would supply Rayter with certain marketing materials, and they did not do so. Here again, Rayter does not identify the relevant term of the Franchise Agreement, or the basis in the Franchise Agreement for the alleged obligation. (Compl. ¶ 70.) Rayter also alleges that the marketing materials she did receive were inadequate were inferior to those received by other franchisees, but she doesn't explain how or why this violated the Franchise Agreement. ("Marketing Materials Claim")

* Defendants allowed a competitor, Max Molinaro, to relocate his franchise within the territory of Rayter's customer base and "improperly favored" Molinaro. (Compl. ¶ 72.) Rayter does not identify the term of the Franchise Agreement that gives her exclusive rights to operate a franchise in a given area, nor does she identify the term that precludes the kind of favoritism she alleges. ("Molinaro Claim")

* Defendants interfered with Rayter's relationship with the landlord. (Compl. ¶ 66.) While Rayter alleges that Defendants had no positive right under the Franchise Agreement to interfere with the franchisee/landlord relationship, she does not explain how such interference actually violated the Franchise Agreement. ("Landlord Interference Claim")

* Defendants provided Max Molinaro with Rayter's confidential operational and financial information. (Compl. ¶ 73.) Rayter alleges that there is no provision in the Franchise Agreement that entitled them to do this, but she does not allege that the Franchise Agreement prohibits such disclosure. ("Confidentiality Claim")

* Defendants refused to allow Rayter to relocate her franchise before she was called to active duty military service on September 18, 2009. (Compl. ¶ 74.) Rayter does not allege that Defendants were duty-bound, under the Franchise Agreement, to approve the relocation she requested. ("Relocation Claim")

1. Choice of Location Claim

This claim is a peculiar one. The Franchise Agreement itself, executed by Rayter on September 7, 2004 and Defendants on September 29, 2004, provided the location of Rayter's franchise on the first page: 341 East 81st Street, Merrillville, IN, 46410. (FA at 1.) The Franchise Agreement later provides "The location of Franchisee's Center, set forth on page one of this Agreement, has been accepted by MBE . . . . Upon MBE's acceptance of such proposed location, such location shall be deemed to be the 'Location', as defined herein." (FA at 6.) The location was therefore settled even before the Franchise Agreement was a binding contract; if Rayter wasn't happy with it, as Defendants argue, she shouldn't have signed it.

In her First Amended Complaint, and in her opposition brief, Rayter had the opportunity to direct the Court to that provision of the Franchise Agreement that entitles her to choose the location of her franchise. She hasn't done that. She references sections 1.1, 3.1, and 3.5 in her opposition brief, but none of those sections, as the Court reads them, invest her with the right to choose the best location for her franchise. And then Rayter argues that "[o]nce Defendants decided where Plaintiffs' franchise was to be located, Defendants waived any provision of the franchise agreement that might act to protect them. The order of who signed the franchise agreement at what time does not change Defendants' actions and the effect of them." (Opp'n Br. at 4.) Frankly, it is not clear to the Court what Rayter even means here. She has simply failed to allege adequate facts to support a breach of contract claim based on Defendants' alleged unwillingness to allow her to choose the location of her franchise.

2. Attorney and Broker Claim

This claim is also peculiar, for the same reason as the Choice of Location claim. Rayter signed a lease on September 7, 2004. (FA at Ex. I.) This was before Defendants signed the Franchise Agreement and it became a binding contract. Indeed, the language Rayter relies on is not even found in the Franchise Agreement, but in an Offering Circular provided to her that detailed the risk factors associated with opening a franchise of The UPS Store in the first place. That Offering Circular (which Rayter identified in her complaint only as "[o]ne of the documents that Defendants provided to Plaintiffs to induce the purchase of the franchise") explained:

You understand that while MBE or its Area Franchisee may assist you in selecting a site for your Center and provide input regarding the terms and conditions of the lease and may assist in negotiating the lease, the ultimate decision and final responsibility on whether to accept the site and the lease is yours . . . . You further understand that MBE recommends that you retain your own attorney, real estate broker or business advisor to negotiate the lease and explain to you any provisions of the lease that you do not understand. (OC ¶ 3.) Rayter, aware that the Offering Circular was not included in the Franchise Agreement, asserts that it "is part of the terms, conditions and covenants of the Franchise Agreement." (Compl. ¶ 57.) She runs into the same problem, though, as with her Choice of Location claim: Defendants' conduct before the Franchise Agreement was even a binding contract cannot give rise to a claim that the Franchise Agreement itself was breached. If Rayter was unhappy with the lease agreement because she was unable to negotiate the lease herself, with the assistance of her own attorney or real estate broker, she should have simply refused to sign the lease. Alternatively, she could have refused to sign and present to Defendants the Franchise Agreement that incorporated the lease. The paragraph Rayter relies on, excerpted above, is explicit that the ultimate decision whether to accept the lease was hers.

On top of this, Rayter's allegation that she was not allowed to employ her own attorney and real estate broker, and to negotiate the lease herself, is pled quite thin. She alleges nothing more than that she wanted to do the above and Defendants did not allow her to. (See Compl. ¶¶ 29, 31, 32.) She does not explain how this wish was communicated or, for that matter, how it was rejected, leaving the Court and Defendants with little other than the conclusory allegation that Defendants breached a term of the Franchise Agreement. It's no rebuttal, at all, to say that because her original complaint contained "too many details" her First Amended complaint cannot be criticized for containing too few. (Opp'n Br. at 5.) The problem with Rayter's original complaint wasn't just its volume; it also lacked organization and contained many factual allegations that were ostensibly not relevant to any of her claims. There is nothing that excuses Rayter's failure, now, to allege actual facts that explain how exactly she was denied the opportunity to have her own attorney or real estate broker negotiate a lease on her behalf.

For these reasons, the Court finds that Rayter's breach of contract claim cannot be based upon Defendants' alleged unwillingness to permit Rayter to retain her own attorney and real estate broker.

3. Logo Claim

The Franchise Agreement gave Rayter "the right and license during the Term [of the franchise] to use and display the Marks." (FA at 2.) Once again, with very little factual support, Rayter alleges that Defendants breached this term of the Franchise Agreement. Rayter's allegation appears to be that when Defendants negotiated the lease for the location of her franchise, they "failed to secure permission for the placement of the UPS Shield/logo on the outside of the store." (Compl. ¶¶ 32.) Later in her complaint, the allegation isn't that Defendants simply failed to secure permission for the logo display, but that they negotiated a lease that "did not permit Plaintiffs to display or be associated with the UPS Shield/logo on the outside of the store." (Compl. ¶ 58.) Rayter does not explain how exactly the lease prohibited the logo display in the manner that she preferred.

The Court has already determined, however, that Rayter signed the lease before the Franchise Agreement was accepted and became binding. It therefore can't be a breach of the Franchise Agreement that the lease - which the Offering Circular explained was ultimately Rayter's to accept - in some sense obstructed the exercise of rights granted to Rayter in the Franchise Agreement. The Franchise Agreement merely granted Rayter the "right and license" to "use and display" the Marks. The mere fact that a lease she signed didn't allow for the logo display she preferred does not mean that her right or license to display the logo was infringed by Defendants. It just means that she wasn't able to exercise the right as fully as she hoped. Rayter does not allege adequate facts to stake a breach of contract claim on the allegation that her lease prevented her from displaying the logo of The UPS Store.

4. Center Design Claim

Rayter alleges that the "Center Design" promised in the Franchise Agreement "was not properly done." (Compl. ΒΆΒΆ 34, 62.) She does not allege any facts that add substance to this bare allegation. She does not allege, for example, that she received no Center Design, nor does she allege why the Center Design that was provided to her was ...

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