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McKinney-Drobnis v. Massage Envy Franchising, LLC

United States District Court, N.D. California

April 5, 2017

BAERBEL MCKINNEY-DROBNIS, ET AL., Plaintiffs,
v.
MASSAGE ENVY FRANCHISING, LLC, Defendant.

          ORDER DENYING DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS OR, ALTERNATIVELY, TO STRIKE CLASS ALLEGATIONS; GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION TO STRIKE AFFIRMATIVE DEFENSES RE: DKT. NOS. 24, 26

          MAXINE M. CHESNEY, UNITED STATES DISTRICT JUDGE

         Before the Court are two motions: (1) defendant Massage Envy Franchising, LLC's ("MEF") "Motion for Judgment on the Pleadings or, in the Alternative, to Strike Class Allegations, " filed January 27, 2017; and (2) plaintiffs Baerbel McKinney-Dropnis ("McKinney-Dropnis"), Joseph B. Piccola ("Piccola") and Camille Berlese's ("Berlese") "Motion to Strike Affirmative Defenses in Defendants' [sic] Answer to Plaintiffs' Class Action Complaint, " filed January 27, 2017. The motions have been fully briefed. Having read and considered the papers filed in support of and in opposition to the motion, the Court rules as follows.[1]

         BACKGROUND

         In their complaint, plaintiffs allege MEF is a "membership based franchise that, by its standard business practices, attracts customers to join its program that, basically, entitles members to receive one fifty minute massage per month in exchange for a monthly fee that ranges between approximately $30.00 to $59.00 (depending on geographic location)." (See Compl. ¶ 1.) According to plaintiffs, when a person enrolls as a member, the person executes MEF's "form Membership Agreement." (See id.)

         Plaintiffs allege the Membership Agreement provides for an "initial term" of months (see Compl. ¶ 2), the length of which can vary (see Compl. ¶¶ 9, 11), during which period the customer may cancel for limited, specified reasons (see Compl. ¶¶ 2, 4).[2] If the customer chooses to pay on a monthly basis during the initial term, the following provision applies: "Your membership dues of $[X dollar amount] (not including any additional applicable taxes) are due on or after the ___ day of each month hereafter until your membership expires or is terminated in accordance with this agreement." (See Compl. ¶ 1 (alteration in original).) Alternatively, if the customer chooses to pay for the initial term "in full, " the following provision applies: "Your payment of $[X dollar amount] is due today." (See id. (alteration in original).) Plaintiffs also allege that, upon expiration of the initial term, the "membership is automatically renewed, " and the following provision governs the monthly amount due: "Following the initial term, your membership will automatically continue on a month-to-month basis at $[X dollar amount] per month until your membership is cancelled." (See Compl. ¶ 2 (alteration in original).) According to plaintiffs, the above-quoted clauses, read together, provide that "a customer contracts to pay an explicit, locked in fee for the entire membership term" (see Compl. ¶ 1), "both for the original term and renewal term(s)" (see Compl. ¶ 3).

         Plaintiffs allege that each of the three plaintiffs is currently a member of MEF. See Compl. ¶¶ 9-14).[3] Plaintiffs allege that although McKinney-Dropnis' Membership Agreement provided for a monthly fee of $59, MEF, during the sixth year of her membership, "unilaterally increased" the fee to $59.99, which increase she has paid. (See Compl. ¶ 10.) Plaintiffs allege that although Piccola's Membership Agreement provided for a monthly fee of $49, MEF, during the fourth year of his membership, "unilaterally increased" the fee to $49.99, and, during the fifth year, "unilaterally increased" the fee to $59.99, which increases he has paid. (See Compl. ¶ 12.) Plaintiffs allege that although Berlese's Membership Agreement provided for a monthly fee of $39, MEF, during the second year of her membership, "unilaterally increased" the fee to $39.99, which increase she paid, and, during the sixth year, "unilaterally increased" the fee to $55. (See Compl. ¶ 14.) According to plaintiffs, such increases are "part of a concerted plan to extract as much money from its captive membership base as possible" and "millions of individuals have suffered from [MEF's] failure to abide by the proper contractual obligations." (See Compl. ¶ 23.)

         Based on the above-referenced allegations, plaintiffs assert six causes of action, two of which are alleged on behalf of the three plaintiffs and a putative nationwide class, specifically, "Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing" ("Count One") and "Declaratory Relief Pursuant to 28 U.S.C. § 2201 - The Declaratory Judgement Act" ("Count Six"). The remaining four causes of action are alleged on behalf of McKinney-Dropnis and a putative sub-class consisting of California residents (see Compl. ¶ 26), specifically, "Violation of Cal. Civ. Code §§ 1750, et seq. -Consumer Legal Remedies Act" ("Count Two") and three claims each titled "Violation of Cal. Bus. & Prof. Code §§ 17200, et seq. - Unlawful Business Acts and Practices" ("Counts Three, Four, and Five").[4]

         DISCUSSION

         A. MEF's Motion

         MEF seeks judgment on the pleadings or, in the alternative, an order striking the class action allegations.

         1. Judgment on the Pleadings

         In contrast to Rule 12(b) of the Federal Rules of Civil Procedure, which provides for the filing of a motion to dismiss prior to the filing of an answer, Rule 12(c) provides that "[a]fter the pleadings are closed . . . a party may move for judgment on the pleadings." See Fed.R.Civ.P. 12(c). "The principal difference between motions filed pursuant to Rule 12(b) and Rule 12(c) is the time of filing." See Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). As the motions are "functionally identical, " federal courts, in considering motions under Rule 12(c) that are based on an asserted failure to state a claim, apply the same analysis as that applicable to motions under Rule 12(b)(6), see id., which rule provides that a dismissal may be based on, inter alia, an affirmative defense, where "the defendant shows some obvious bar to securing relief on the face of the complaint, " see ASARCO, LLC v. Union Pacific Railroad Co., 765 F.3d 999, 1004 (9th Cir. 2014), or where the affirmative defense can be established by documents of which a district court can take judicial notice, such as court filings in other actions, see Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038, 1040-41 (9th Cir. 2010).

         Here, MEF argues, the claims of the named plaintiffs are barred in light of the resolution of a class action filed in the Southern District of California, titled Zizian v. Massage Envy Franchising, LLC, Civ. No. 16-CV-00783 DMS-BGS, either under the doctrine of claim preclusion or in light of the court-approved settlement agreement.[5]

         In Zizian, the plaintiff, a "current" member of MEF who proceeded on behalf of a class of members whose accounts were "active as of June 30, 2016" (see Def.'s Req. for Judicial Notice, filed January 27, 2017, Ex. J ¶¶ 5, 16), [6] alleged that MEF "uniformly interprets its Membership Agreement to provide that if a member has not paid all charges when due, misses a monthly payment, and/or cancels their account, all prepaid massages in the member's account will have to be redeemed within a very short 60-day window or be forfeited" (see Def.'s Req. for Judicial Notice, filed January 27, 2017, Ex. J ¶ 14). The plaintiff therein further alleged that said interpretation, when applied to a member whose membership had been terminated, constituted a breach of a clause in the Membership Agreement providing as follows: "If you have Paid in Full for your membership services, you will be refunded the unused portion of your membership dues for any actual services you have not yet received." (See id. Ex. J ¶ 2.) The district court, after certifying a class for purposes of settlement, approved a settlement entered on behalf of the class (see id. Ex. P), and thereafter, on January 13, 2017, entered its "Final Judgment" dismissing the class claims "with prejudice on the merits" (see id. Ex. Q).

         a. Claim Preclusion

         The "claim-preclusive effect" of a judgment entered by a federal district court sitting in diversity is determined by the law of the forum state. See Semtek Int'l, Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508-09 (2001). Here, as the Southern District of California had diversity jurisdiction over the claims alleged in Zizian (see Def.'s Req. for Judicial Notice, filed January 27, 2017, Ex. J ¶ 3), the preclusive effect of the final judgment entered therein is determined by California law.

         Under California law, the doctrine of claim preclusion bars an action where "(1) [a] claim . . . raised in the present action is identical to a claim . . . litigated in a prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding." See Boeken v. Philip Morris USA, Inc., 48 Cal.4th 788, 797 (2010). Here, the parties agree the Zizian dismissal constitutes a final judgment on the merits and that plaintiffs, as class members, were parties thereto. (See Def.'s Mot. at 11:25 - 12:6; Pls.' Opp. at 8:10-14.) The parties disagree, however, as to whether the claims alleged in the instant complaint are identical to a claim litigated in Zizian.

         "To determine whether two proceedings involve identical causes of action for purposes of claim preclusion, California courts have consistently applied the primary rights theory." Boeken, 48 Cal.4th at 797 (internal quotation and citation omitted). Under the primary rights theory, "a cause of action arises out of an antecedent primary right and corresponding duty and the delict or breach of such primary right and duty by the person on whom the duty rests." See id. at 797-98 (internal quotation, alterations and quotation omitted). In the context of successive lawsuits alleging breach of the same contract, the California Supreme Court, applying the primary rights theory, has held that, although a plaintiff may not file a second lawsuit seeking different remedies for the same breach of a contractual provision, see Mycogen Corp. v. Monsanto Co., 28 Cal.4th 888, 908 (2002), a plaintiff may bring a second lawsuit alleging breach of the same contract on which it relied in the first lawsuit, so long as "[e]ach action is based on a breach of a separate covenant at different times, " see id.

         MEF argues the claims alleged in the instant action are barred because "the primary right at issue here is the same primary right at issue in the Zizian [a]ction." (See Def.'s Mot. at 14:25.) The Court disagrees.

         As set forth above, the Zizian action asserted claims arising from an alleged breach of a provision in the Membership Agreements concerning the rights a member has upon termination of a membership, whereas the claims in the instant action arise from the alleged breach of provisions concerning the amount of the monthly fee MEF may charge its current members. Consequently, the two actions are based on breaches of separate covenants. Further, MEF has not shown the asserted breaches of the separate covenants occurred at the same time, as the contractual provision at issue in Zizian can only be breached after a membership is terminated, whereas the contractual provisions at issue in the instant case can only be breached while a customer is still a member.

         Accordingly, MEF has failed to show plaintiffs' claims are barred by the doctrine of claim preclusion.

         b. Release

         MEF argues the Zizian settlement agreement unambiguously provides that plaintiffs, as Zizian class members, nonetheless waived the claims alleged in the instant complaint. As discussed below, the Court disagrees.

         The Zizian settlement agreement provides that the class members "fully release and forever discharge" MEF from "causes of action, claims, damages, equitable, legal and administrative relief . . ., whether based on federal, state, or local law, statute, ordinance, regulation, the Constitution, contract, common law, or any other source, that relate to the Released Claims." (See Def.'s Req. for Judicial Notice, filed January 27, 2017, Ex. M ¶ 59.) Additionally, the settlement agreement provides that "[i]t is the intention of plaintiffs in executing this release on behalf of themselves and the Settlement Class to fully, finally, and forever settle and release all matters and all claims relating to the Released Claims in every way." (See id. Ex. M ¶ 62.)

         The term "Released Claims" is defined in the settlement agreement as follows:

'Released Claims' means all claims, demands, rights, and liabilities asserted in the [Zizian action] including, but not limited to, claims under the common laws and statutes of all fifty (50) states concerning (a) the terms and conditions of the Membership Agreements between the Settlement Class and MEF Franchisees concerning the cancellation, renewal, termination, and/or expiration of or ability to use any Unutilized Massage(s); (b) alleged misrepresentations concerning the terms and conditions of the Membership Agreements between the Settlement Class and MEF Franchisees concerning the cancellation, renewal, termination, and/or expiration of or ability to use any Unutilized Massage(s); and/or (c) any fact or circumstance that relates to the cancellation, renewal, termination, and/or expiration of or ability to use any Unutilized Massage(s) or any claim asserted or that could have been asserted in the [Zizian action]. The Released Claims include, but are not limited to, claims that any Membership Agreement contained an illegal ...

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