Opinion
CASE NO.:05-61306-CIV-COHN/JOHNSON.
May 25, 2006
THIS CAUSE is before the Court upon Plaintiff's Motion for Summary Judgment [DE 45], Defendant's Cross-Motion thereto [DE 50], and Defendant/Counterclaimant's Motion for Partial Summary Judgment as to Counterclaim Count II [DE 43]. The Court has carefully considered the Motions, Responses, and Replies and the oral arguments heard by the undersigned on May 23, 2006, as well as the Statements of Undisputed Material Facts and objections thereto, and the exhibits, depositions, and record in the above-captioned case, and is otherwise fully advised in the premises.
Plaintiff's Response to Defendant's Motion for Partial Summary Judgment [DE 55] asserts that Arcese's Motion should be denied for her failure to comply with the United States District Court for the Southern District of Florida Local Rules 7.5.A and 7.5.C. The Court finds that Arcese sufficiently complied with the Local Rules of this Court and therefore, will evaluate the Motion on its merits.
LOAFC also argues that Arcese's declaration [DE 43 Exh. SJ-C] conflicts with her deposition testimony [DE 49, Exh. A] and should therefore be stricken from the record. After a complete review of Defendant's deposition transcript [DE 49, Exh. A], the Court finds that this argument is without merit. As noted by Arcese in her Reply, Arcese's deposition does not indicate that she intended to sign a Franchise Agreement with LOAFC after reviewing the website. (Reply [DE 57], pp. 3-4.) Rather, it states that she made a decision to complete the form in order to further investigate the possibility of opening a LWE franchise. (Arcese's Dep., pp. 25-27.) Arcese's declaration which states that she decided to purchase the franchise in reliance on the representations made during the Virtual Discovery Day presentation does not conflict with her deposition. (Arcese Decl. [DE 43, Exh. SJ-C], ¶ 13.) Therefore, Plaintiff's motion to strike Defendant's declaration [DE 55] is denied.
I. BACKGROUND
Plaintiff/Counterdefendant Lady of America Franchise Corp. ("LOAFC") is the franchisor of fitness centers using the "Lady of America" ("LOA") and "Ladies Workout Express" ("LWE") trade name and marks. (Compl. ¶ 6.) Defendant/Counterclaimant Jane Arcese ("Arcese") was a LOAFC franchisee. (Compl. ¶ 8.) Sometime in early to mid 2004, Arcese became interested in opening a fitness franchise. (Arcese Dep. [DE 49, Exh. A], pp. 21-23.) After using the internet to research various franchises, Arcese was attracted to the LOAFC franchise. (Id., p. 25.) Arcese completed an online form available on LOAFC's website to indicate to LOAFC that she was interested in learning more about the franchise opportunities. (Id., pp. 25-26.)In late May 2004, Arcese was contacted by Ann Powers, a LOAFC franchise salesperson. (Id., p. 26.) Powers briefly told Arcese about the franchise and its startup costs, and then provided her with a password to view the Virtual Discovery Day slideshow. (Id., p. 27.) Arcese spent between one-and-a-half and two hours viewing the slides which provided information about LOA and LWE franchises and the benefits of becoming a franchisee. (Id., p. 28.) Arcese directs the Court to seven of the slides which she alleges provide the basis for her counterclaim. The parties do not dispute the contents of the slides. The details of these seven slides [DE 43, Exh. SJ-A] are as follows:
LOAFC does not contest Arcese's representation that the term "draft" refers to the revenue stream being remitted to the franchisee by the money management firm engaged by LOAFC and the franchisee.
On June 11, 2004, approximately three weeks after her initial contact with LOAFC, Arcese executed a Franchise Agreement with LOAFC for the operation of a LWE fitness club in Framingham, Massachusetts and forwarded a check to LOAFC in the amount of $25,000.00 for the rights to open a total of four franchises. (Arcese Dep., pp. 41-43, 82, 123.) The Agreement was for a 10-year period. (Agreement, Compl., Exh. 1, § 9.1(a).) It contained the following statement regarding representations:
THE FRANCHISEE AND ALL PERSONS SIGNING WITH OR FOR HIM OR HER ACKNOWLEDGE THAT THEY HAVE CONDUCTED AN INDEPENDENT INVESTIGATION OF THE SYSTEM AND THIS BUSINESS VENTURE; THIS AGREEMENT INVOLVES A HIGH DEGREE OF BUSINESS AND FINANCIAL RISK; AND ITS SUCCESS WILL BE LARGELY DEPENDENT ON THEIR ABILITY AS INDEPENDENT BUSINESSPERSONS, THEIR FINANCIAL STRENGTH AND LOCAL MARKET CONDITIONS. THE FRANCHISEE HAS INVESTIGATED HIS OR HER TRADE AREA AND BELIEVES IT WILL SUPPORT THE BUSINESS VENTURE. THE FRANCHISOR EXPRESSLY DISCLAIMS THE MAKING OF, AND THE FRANCHISEE ACKNOWLEDGES THAT HE OR SHE HAS NOT RECEIVED, ANY PROMISES OR REPRESENTATIONS, EXPRESS OR IMPLIED, ORALLY, IN WRITING OR OTHERWISE OF ASSISTANCE, EXPENSES, BENEFITS, SALES VOLUMES, PROFITS, SUCCESS OR ANY OTHER MATTER EXCEPT AS EXPRESSLY MADE IN THIS AGREEMENT OR THE FRANCHISOR'S FRANCHISE OFFERING CIRCULAR. IF ANY PROMISES OR REPRESENTATIONS HAVE BEEN MADE, THE FRANCHISEE MUST LIST THEM BELOW.
(Franchise Agreement [DE 1, Exh. A], § 12.2.)
On February 18, 2005, Arcese advised LOAFC via e-mail that she was closing her LWE fitness center franchise by the end of March 2005. (Compl., Exh. B.) The e-mail sent by Arcese to a LOAFC employee stated, in relevant part:
. . . Please contact me today regarding the sale of my licences (4 Pk), my club and/or equipment. I do not need to be bludgeoned [sic] to death to realize that I was lied to during discovery days. I am out by end of March — closing — and going to visit an attorney.
(Id.) On March 15, 2005, LOAFC sent a letter to Arcese stating that pursuant to § 9.5 of the Agreement, the agreement was automatically terminated for voluntarily suspension of normal business operations by the franchisee and therefore, in accordance with § 9.8 of the Agreement, Arcese was responsible to LOAFC for all future royalties. (Compl., Exh. C.) The center closed on March 31, 2005. (Arcese Dep. p. 94.)
Thereafter, on August 3, 2005, LOAFC filed this lawsuit alleging that Arcese breached the parties' Franchise Agreement. (Compl., ¶ 20.) LOAFC seeks payment for the 111 months remaining on the Franchise Agreement pursuant to § 9.8 of the Agreement which states, in relevant part, that upon termination of the agreement, "[t]he Franchisee will immediately pay the Franchisor all monies then due and fully prepay any notes or other agreements to pay monies over time to the Franchisor including Future Royalties and Advertising Contributions." On October 13, 2005, Arcese responded to LOAFC's Complaint by filing an Answer and Counterclaim [DE 11] alleging violation of the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201, et. seq ("FDUTPA"). Arcese alleges that the representations made during the Virtual Discovery Day violate FDUTPA. Arcese seeks to recover actual damages and attorneys' fees and costs. (Counterclaim [DE 11], ¶ 71.)
Arcese's Counterclaim contained seven counts. Five of the counts, Counts I, III, IV, V, and VI were dismissed by this Court in its February 10, 2006 Order on Plaintiff's Motion to Dismiss Counterclaim [DE 33]. Count VII was dismissed by this Court on April 18, 2006 pursuant to the Parties Joint Stipulation of Dismissal with Prejudice as to Counterclaim VII [DE 42]. The only remaining counterclaim is Count II, Arcese's FDUTPA claim.
Both parties seek summary judgment on the two remaining issues in this case. LOAFC's Motion for Summary Judgment [DE 45] seeks summary judgment on its breach of contract claim and Arcese's counterclaim for violation of FDUTPA. Arcese's Cross-Motion [DE 50] seeks summary judgment on LOAFC's breach of contract claim. Arcese's Motion for Summary Judgment [DE 43] seeks summary judgment on her counterclaim for violation of FDUTPA.
II. ANALYSIS A. Summary Judgment Standard
The Court may grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The stringent burden of establishing the absence of a genuine issue of material fact lies with the moving party.Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The Court should not grant summary judgment unless it is clear that a trial is unnecessary, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986), and any doubts in this regard should be resolved against the moving party. Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970).
The movant "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323. To discharge this burden, the movant must point out to the Court that there is an absence of evidence to support the nonmoving party's case. Id. at 325.
After the movant has met its burden under Rule 56(c), the burden of production shifts and the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electronic Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). According to the plain language of Fed.R.Civ.P. 56(e), the non-moving party "may not rest upon the mere allegations or denials of the adverse party's pleadings," but instead must come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Matsushita, 475 U.S. at 587.
Essentially, so long as the non-moving party has had an ample opportunity to conduct discovery, it must come forward with affirmative evidence to support its claim. Anderson, 477 U.S. at 257. "A mere `scintilla' of evidence supporting the opposing party's position will not suffice; there must be a sufficient showing that the jury could reasonably find for that party."Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990). If the evidence advanced by the non-moving party "is merely colorable, or is not significantly probative, then summary judgment may be granted." Anderson, 477 U.S. 242, 249-50.
B. Breach of Contract Claim
Both parties move for summary judgment on LOAFC's breach of contract claim. Under Florida law, to recover damages for lost profits in a breach of contract action, the movant must establish: "1) a breach of contract occurred, 2) [the movant] sustained a loss as a proximate result of the breach, 3) the loss was or should have been within the reasonable contemplation of the parties, and 4) the alleged loss is not remote, contingent, or conjectural and the damages were reasonably certain." Burger King Corporation v. Hinton, Inc., 203 F. Supp. 2d 1357, 1366 (S.D. Fla. 2002) (citing Frenz Enter., Inc. v. Port Everglades, 746 So. 2d 498, 504 (Fla. 4th DCA 1999)).In this case, the parties do not dispute that a valid contract existed between the parties. Arcese also does not dispute that she closed her store before the 10-year contractual period had lapsed. Therefore, Arcese did breach the contract. The Court must address the remaining issues of: 1) whether the loss of future royalties and advertising fees was a proximate result of Arcese's actions, 2) whether the loss was or should have been within the reasonable contemplation of the parties, 3) whether the future royalties sought were reasonably certain, and 4) whether LOAFC had a duty to mitigate its damages.
1. Future Lost Profits
Pursuant to Florida law, the non-breaching party may choose between seeking lost profits in order to be placed in the position it would have been in had the contract been fully performed or to be placed in the position it was in prior to entering the contract by seeking the reasonably foreseeable damages flowing from the breach. Plantation Key Developers v. Colonial Mortgage Co. of Indiana, 589 F.2d 164, 169 (5th Cir. 1979) (citations omitted); Hinton, 203 F. Supp. 2d at 1366 (citations omitted). In this case, LOAFC seeks an award of future lost profits.
The decisions of the United States Court of Appeals for the Fifth Circuit, as that court existed on September 30, 1981, handed down by that court prior to the close of business on that date, shall be binding as precedent in the Eleventh Circuit, for this court, the district courts, and the bankruptcy courts in the circuit. Bonner v. Pritchard, 661 F.2d 1206, 1207 (11th Cir. 1981) (en banc).
A review of the case law indicates that whether the loss sustained by the franchisor was a proximate result of the breach rests on which party decided to terminate the franchise agreement. See id. at 1366-67; Sealy, 51 Cal. Rptr. 2d at 369-70. In Hinton, another court in this District was faced with whether to grant summary judgment in favor of the franchisor for breach of contract and to award future profits. Id. Although the franchisee breached the contract, the court denied the franchisor's request for an award of lost future profits. Id. In so holding, the court distinguished Hinton from a similar case decided previously by the same court, Burger King Corp. v. Barnes, 1 F. Supp. 2d 1367 (S. D. Fla. 1998).
In Barnes, the court awarded the franchisor future lost profits after the franchisee breached the franchise agreement when he notified the franchisor, in writing, that he would be closing his franchise and suspending performance of his obligations under the agreement. Id. at 1368, 1370. However, the court refused to extend its holding in Barnes to the facts in Hinton. In Hinton, the franchisee failed to make payments pursuant to the terms of the franchise agreement. 203 F. Supp. 2d at 1358. After the franchisee failed to cure the default, the franchisor terminated the franchise agreement. Id. at 1358-59. The court awarded the franchisor past-due fees, but refused to award the franchisor future lost profits. In so holding, the court found that unlike in Barnes where the letter of the franchisee terminated the agreement, in Hinton the franchisor decided to terminate the agreement due to the franchisee's breach. Id. at 1366. Therefore, the court in Hinton found that the franchisor's termination of the agreement, not the breach by the franchisee, was the proximate cause of the loss of future profits. Id.
A similar line of case law exists in California. In Sealy, the case relied on by Arcese, the court found that the franchisee's failure to timely make past royalty payments was not the "`natural and direct' cause of the franchisor's failure to receive future royalty payments." 51 Cal. Rptr. 2d at 369-70. Rather, the court found that the franchisor's decision to terminate the agreement deprived it of its entitlement to the future profits. Id. However, in It's Just Lunch Franchise, LLC v. BLFA Enterprises, LLC, Case No. 03CV0561 (S.D. Cal. July 21, 2003) (unpublished decision), the court denied the franchisee's motion to dismiss noting that "[t]he Sealy court expressly refused to consider whether damages for future profits would be available where . . . the franchisee terminated the agreement."
In this case, there is no dispute that Arcese informed LOAFC via e-mail on February 18, 2005 of her intent to close her franchise. The e-mail asked an employee of LOAFC to contact her regarding the sale of her licenses and equipment and stated, "I am out by end of March — closing — and going to visit an attorney." (February 18, 2005 e-mail [DE 1, Exh. B].) In response to this e-mail, LOAFC sent Arcese a letter on March 15, 2005 stating that Arcese's decision to close her franchise resulted in automatic termination of the Franchise Agreement pursuant to § 9.5 of the Agreement. Arcese argues that she should not be liable for future lost profits because it was LOAFC, not Arcese, who terminated the Agreement. The Court finds that although LOAFC's March 15 letter confirmed the automatic termination, it was not the vehicle for termination. Rather, as in Barnes, Arcese's decision to close the franchise and to seek LOAFC's aid in selling the remaining licenses was the act that caused the termination of the Franchise Agreement. It is clear from the contents of Arcese's e-mail that she did not intend to continue to operate her current franchise or to utilize any of the remaining licenses she had purchased. Unlike the facts in Hinton, this case presents a situation where the franchisee voluntarily notified the franchisor of her desire to cease all operations. Section 9.5 of the Agreement specifically states that the agreement is automatically terminated if the franchisee "voluntary suspends normal business operations." [DE 1, Exh. A]. Therefore, the Court finds as a matter of law that Arcese's actions were the proximate cause of the termination of the agreement and LOAFC's loss of future royalties.
The Court notes that § 9.5 also states that the agreement automatically terminates if the franchisee is unable to pay debts as they become due. This provision may serve to vitiate the effect of the holding in Hinton. However, the Court does not reach this issue because in this case, as in Barnes, Arcese closed her business. She did not fail to pay a debt as inHinton.
2. Reasonable Contemplation of the Parties
LOAFC states that the damages of future lost profits were clearly within the contemplation of the parties because § 9.8 of the Franchise Agreement states that upon termination of the Agreement all future royalties are due immediately to LOAFC. Additionally, LOAFC alleges that Item 17 of the UFOC which discusses specific provisions in the Franchise Agreement pertaining to termination and refers the potential franchisee to § 9.8 of the Franchise Agreement was sufficient notice to Arcese. Arcese argues that the damage was not within her reasonable contemplation because LOAFC failed to include future royalties as a franchise fee in Item 6 of the UFOC and did not specifically list it as a fee owed upon termination in Item 17 of the UFOC.
Arcese alleges that she did not contemplate future royalties because LOAFC failed to include termination fees in Items 6 and 17 of its UFOC as required by the UFOC Guidelines of the North American Securities Administrators Association ("NASAA") as adopted by the FTC. 16 U.F.C. § 436.1; 58 F.R. 69224-01 (adopting the UFOC Guidelines as a means for franchisors to comply with the disclosure requirements of 16 C.F.R. § 436.1). Whether LOAFC complied with the UFOC Guidelines does not impact whether, as a result of the plain language of the parties' agreement, Arcese contemplated the possibility of paying future royalties upon breach of the agreement. Additionally, Arcese did not raise this issue in Count II of her Counterclaims for violation of FDUTPA. Therefore, the Court will not address whether LOAFC's UFOC violated FDUTPA for its failure to plainly state that the franchisee was required to pay future royalties upon termination.
In this case, Arcese's duty to pay future lost profits was within the plain language of § 9.8 of the Franchise Agreement. Additionally, although Item 17 does not specifically list future royalties as a fee due upon termination of the agreement, Item 17 does not contradict § 9.8. In fact, Item 17 clearly directs the prospective franchisee to § 9.8. Arcese does not dispute that she received both these documents and that the Franchise Agreement was a valid contract between Arcese and LOAFC. Therefore, Arcese cannot now state that the future royalties were not within the reasonable contemplation of the parties.
3. Reasonable Certainty of the Future Royalties
Arcese also argues that the amount owed in future royalties could not be calculated with reasonable certainty because LOAFC never provided her with the calculation they intended to use in determining future royalties owed upon termination of the Agreement. When seeking future lost profits, a plaintiff "may recover the value of his contract, and this may be measured by the value of the expected profits." HGI Associates, Inc. v. Wetmore Printing Co., 427 F.3d 867, 879 (11th Cir. 2005). This amount may be "estimated `in any manner which is reasonable under the circumstances.'" Id. (quoting U.C.C. § 2-715 cmt. 4). In this case, § 6.3 of the Franchise Agreement states that royalties shall be paid at a rate of $500 per month for the first year and then 5% of member registration fees and dues or $500, whichever is greater for each year thereafter. Therefore, the amount of royalties that must be paid over the term of the contract is contained within the plain language of the contract. The amount due under the contract either over the 10-year term of the agreement or upon early termination was clearly within the reasonable certainty of the parties.
LOAFC also seeks future lost advertising fees. Section 6.5 of the Franchise Agreement [DE 1, Exh. A] states in relevant part: "The Franchisee may be additionally required to pay the Franchisor an `Advertising Contribution' for Advertising Costs of up to 3% of its his or her Gross Receipts in the same manner as the Franchisee pays Royalty." Unlike the royalty fee, the Agreement states that this amount is not required and is contingent on the franchise's gross income. During oral argument and in its pleadings LOAFC alleges that LOAFC charges $195/month in advertising fees. This assertion is not supported by any documents signed between Arcese and LOAFC such as an addendum to the Agreement. Therefore, the Court finds that unless LOAFC establishes otherwise during the trial on damages, Arcese is only bound to pay those fees required by § 6.5. Now that it is closed, Arcese's location is no longer generating income and Arcese is not responsible for any future advertising contributions.
4. Mitigation of Damages
Arcese also argues that LOAFC's Motion should be denied because LOAFC failed to mitigate its damages. Generally, the non-breaching party in a breach of contract action has a duty to mitigate its damages to prevent a party from recovering damages which could have been "`avoided without undue risk, burden, or humiliation." Graphic Assocs., Inc. v. Riviana Restaurant Corp., 461 So. 2d 1011, 1014 (Fla. 4th DCA 1984) (quoting Restatement (Second) of Contracts § 305(1) (1979)). However, when the contract involved in the breach of contract action is a non-exclusive contract, an exception to the requirement to mitigate damages exists.Barnes, 1 F. Supp. 2d at 1372 (citing Gary Massey Chevrolet, Inc. v. Ritch, 507 So. 2d 713, 715 (Fla. 1st DCA 1987); Graphic Assocs., 461 So. 2d at 1014). Whether a contract is non-exclusive requires a case-by-case determination of whether "`the relation between the parties is such that the wronged party was legally free to enter into similar contracts with others.'" Graphic Assocs., 461 So. 2d at 1014 (citations omitted).Arcese argues that this was an exclusive contract because the Agreement was for a protected geographical area. Therefore, Arcese states that although LOAFC was entitled to enter into other franchise agreements, LOAFC was prohibited from entering into an agreement for the geographic area where Arcese's franchise was located. To support this argument, Arcese relies onPIP where the court found that granting an award of future royalty payments could result in "double profits" to the franchisor because with the termination of the agreement, the franchisor was entitled to open a new franchise in the same geographic area as the defendant's store was located. 51 Cal. Rprtr. 2d at 371 n. 5. LOAFC, on the other hand, relies on Barnes, in which the court summarily found that the franchise agreement at issue was a non-exclusive contract. 1 F. Supp. 2d at 1372.
In this case, the Court finds that although LOAFC was free to enter into other franchise agreements, the Franchise Agreement with Arcese precluded LOAFC from authorizing another franchisee to open a fitness center anywhere within a five mile radius of Arcese's location. (Franchise Agreement [DE 1, Exh. A], § 3.1.) The contract was exclusive insofar as LOAFC could not legally enter into a similar contract for a similar geographic location with another franchisee. Therefore, LOAFC had a duty to mitigate its damages. As stated in PIP, if LOAFC now signs a franchise agreement with another franchisee for the same geographic area, it will receive double profits. Consequently, LOAFC's damages must be offset by the profits they would have received if they had fulfilled their duty to mitigate. The Court will address the damages LOAFC is entitled to, in light of this Order, during a bench trial on damages.
C. FDUTPA Claim
Both parties also move for summary judgment on Arcese's counterclaim alleging violation of FDUTPA. Arcese alleges that the representations made through the Virtual Discovery Day slides were "earnings claims" made in violation of the Federal Trade Commission Act, 15 U.S.C. 41, et seq. ("FTC Act"). Additionally, Arcese states that if the Court does find that the slides were "earnings claims," then LOAFC further violated the FTC Act by failing to reference the slides in Item 19 of the UFOC as required by the UFOC Guidelines. Finally, Arcese alleges that if LOAFC's actions can be interpreted as violations of the FTC Act, it follows that it violated FDUTPA. LOAFC argues that Arcese's counterclaim cannot survive because 1) Arcese cannot bring a private cause of action for violation of the FTC Act, and 2) the Virtual Discovery Day slides are not "earnings claims."
1. Private Cause of Action under FDUTPA
FDUTPA, namely Fla. Stat. § 501.204(1) prohibits "unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce." In deciding what is an unlawful act under § 501.204(1), § 501.204(2) states that "great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to § 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1)." The Eleventh Circuit has held that FDUTPA provides victims of deceptive or unfair acts or practices in trade or commerce with private causes of action that are unavailable under federal law.Nieman v. Dryclean U.S.A. Franchise Co., Inc., 178 F.3d 1126, 1128-29 (11th Cir. 1999). Subsection 501.204(2) was not intended to preclude private causes of action under FDUTPA or to limit standing of private persons under FDUTPA. Mack v. Bristol-Myers Squibb Co., 673 So. 2d 100, 104-05 (Fla. 1st DCA 1996). Rather, its purpose is to instruct courts that when deciding whether a particular conduct violates FDUTPA to look to whether the FTC Act and federal courts find such conduct to be an unfair method of competition or an unconscionable, unfair, or deceptive act or practice under the FTC Act. Id. Therefore, Arcese is correct in framing her counterclaim as a violation of FDUTPA and relying on the FTC Act and its progeny in determining whether a violation of FDUTPA has occurred. LOAFC's argument that Arcese lacks standing to bring this claim is misplaced.
2. Earnings Claims
Having found that Arcese had standing to bring this claim, the Court must next determine whether LOAFC's actions violated FDUTPA. As stated above, to determine whether an act or practice was unconscionable, unfair or deceptive, courts must look to the FTC Act and the interpretations of federal courts thereto. A violation of the FTC Act is a per se violation of FDUTPA. See Fla. Stat. § 501.203(3) (defining "violation of this part" as used in FDUTPA, in part, as a violation of "[a]ny rules promulgated pursuant to the Federal Trade Commission Act").
In this case, Arcese alleges that LOAFC violated FDUTPA by making "earnings claims" during the Virtual Discovery Day and failing to disclose those claims in Item 19 of the UFOC as required by the UFOC Guidelines. "Earning claims" are considered unfair or deceptive acts or practices within the meaning of § 5(a) of the FTC Act. 16 C.F.R. § 436.1. "Earnings claims" are defined to include: "any oral, written, or visual representations to a prospective franchisee which state specific actual or potential levels of sales, income, gross or net profits, or to make representations that state other facts that suggest such specific levels" or which state "a specific level of sales, income, gross or net profits of existing outlets . . . of the named franchise, or which states other facts which suggest such a specific level." 16 C.F.R. § 436.1(b) — (c). Not all claims falling into these definitions are prohibited. Such representations are permissible under the FTC Act, if: 1) they are relevant to the geographic market in which the prospective franchise is to be located; 2) a reasonable basis exists for the representations, supported by material in the franchisor's possession, and such material is available to the prospective franchisee upon reasonable demand; 3) the data on the existing franchises is prepared in accordance with generally accepted accounting principles; and 4) the franchisor discloses the statement in full either consistent with the requirements of 16 C.F.R. § 436.1 or with the UFOC Guidelines of the North American Securities Administrators Association ("NASAA") as adopted by the FTC. 16 U.F.C. § 436.1; 58 F.R. 69224-01 (adopting the UFOC Guidelines as a means for franchisors to comply with the disclosure requirements of 16 C.F.R. § 436.1).
LOAFC does not dispute that the slides and Item 19 of the UFOC did not contain the language required by 16 C.F.R. § 436.1 and the UFOC Guidelines for earnings claims. The Court agrees. However, LOAFC states that it did not violate FDUTPA because the statements in the slides were not "earnings claims" as defined by the FTC Act and its progeny and Item 19 was therefore not misleading. If LOAFC's statements are found to be "earnings claims," LOAFC will be found in violation of FDUTPA for use of the slides and failure to comply with the disclosure requirements in Item 19 of the UFOC.
The NASAA UFOC Guidelines states that "[a]n earnings claim made in connection with an offer of a franchise must be included in full [in Item 19] in the offering circular and must have a reasonable basis at the time it is made. If no earnings claim is made, Item 19 . . . must contain the negative disclosure prescribed in the instruction." Reprinted in CCH Business Franchise Guide, § 5771.
FDUTPA does not require subjective evidence of reliance. Davis v. Powertel, Inc., 776 So. 2d 971, 974 (Fla. 1st DCA 2000). Rather, determining whether a practice is deceptive requires an objective determination of whether that practice is "likely to mislead" a reasonable consumer. Id. (relying on the decisions of the FTC and federal courts interpreting the FTC Act).
In this case, Arcese asserts that the statements were clearly earnings claims because they were in writing and their sole purpose was to induce potential franchisees to enter into franchise agreements. LOAFC argues that based upon Arcese's acceptance of § 12.2 of the Franchise Agreement and the statements during her deposition that she did not consider the slides to be representative of what her franchise would achieve, it is clear that she did not rely upon the slides. Additionally, LOAFC asserts that a reasonable potential franchisee would have taken the UFOC to a professional for assistance in reviewing the documents.
Regardless of whether Arcese actually relied on the slides in making her decision, during oral argument LOAFC conceded that the analysis under FDUTPA and the FTC Act requires an objective determination of whether a reasonable potential franchisee would likely have been misled by the slides. Based upon the representations by the parties, a clear issue of material fact exists as to whether this objective standard has been met. It is for the trier of fact to decide whether these slides are "earnings claims" by determining whether they were likely to mislead a reasonable potential franchisee. If the slides are determined to be earnings claims, then LOAFC's failure to comply with the UFOC Guidelines in Item 19 of the UFOC may be found to be a further violation of FDUTPA.
III. CONCLUSION
Based on the foregoing, it is hereby ORDERED AND ADJUDGED as follows:
1. Plaintiff's Motion for Summary Judgment [DE 45] is hereby GRANTED in part as to Plaintiff's breach of contract claim.
2. Defendant's Cross-Motion to Plaintiff's Motion for Summary Judgment [DE 50] is GRANTED in part as to Plaintiff's duty to mitigate its damages.
3. Plaintiff's Motion for Summary Judgment [DE 45] is hereby DENIED in part as to Defendant's Counterclaim Count II for violation of the Florida Unfair Trade Practices Act.
4. Defendant/Counterclaimant's Motion for Partial Summary Judgment as to Counterclaim Count II [DE 43] is DENIED.
5. Consistent with this Order, the Court shall proceed to a bench trial to determine the following remaining issues:
a. Plaintiff's entitlement to damages for Defendant's breach of the Franchise Agreement.
b. Whether the slides and statements contained within Item 19 of Plaintiff's UFOC statement are earnings claims as defined in this Order. The trial shall be limited to the issue of whether the representations made by Lady of America Franchise Corp. were likely to mislead a reasonable potential franchisee and whether Item 19 of Plaintiff's UFOC violated FDUTPA.
c. Defendant's entitlement to damages if it is found that Plaintiff violated FDUTPA.
DONE AND ORDERED in Chambers at Fort Lauderdale, Broward County, Florida.