United States District Court, D. Maryland
Lipton Hollander United States District Judge.
Kiddie Academy Domestic Franchising, LLC ("Kiddie"
or "Kiddie Academy") has sued defendants, Wonder
World Learning, LLC ("Wonder World" or
"WWL"), its former franchisee, and the
franchisee's principals, Sumanth Nandagopal ("Mr.
Nandagopal") and Supriya Sumanth ("Ms.
Sumanth"). The suit alleges trademark and copyright
infringement, breach of contract, breach of guaranty, and
seeks a declaratory judgment. ECF 1 (the
"Complaint"). Several exhibits are appended to the
suit, including the Franchise Agreement between Kiddie and
WWL, signed in March 2014 (ECF 1-1 at 59), and the Personal
Guaranty executed on March 6, 2014, by Ms. Sumanth and Mr.
Nandagopal, who are husband and wife. ECF 1-1 at 64; ECF 1,
"owns a national educational child care franchise system
...." ECF 1 at 2. WWI opened a Kiddie franchise in Texas
on August 15, 2015. WWI and the Guarantors allegedly
defaulted on their financial obligations under their
Franchise Agreement, and have refused to return copyrighted
materials. ECF 1, 
filed a combined answer to the suit and a counterclaim and
third-party complaint. ECF 22. Plaintiffs moved to dismiss.
ECF 23. However, Judge Garbis, to whom the case was then
assigned, permitted defendants to amend, by Order of April
27, 2018. ECF 24. Thereafter, defendants filed an Amended
Counterclaim and Amended Third-Party Complaint ("Amended
Counterclaim"). ECF 25. In particular, they filed a
counterclaim against Kiddie Academy and a third-party
complaint against Greg Helwig, Kiddie's President and
Chief Executive Officer; Lene Steelman, Kiddie's
Controller/Vice President ("VP") of Accounting;
Joshua Frick, Kiddie's VP of Real Estate; David Gould,
Kiddie's former Development Manager; Susan Wise, the
Chief Financial Officer and Chief Operating Officer; Kevin
Murphy, the VP of Operations; Chris Commarota, the VP of
Construction; Anthony F. Malizia, former Construction
Manager; and William Huggins, Franchise Business Consultant.
Amended Counterclaim contains ten counts under federal and
Maryland law. ECF 25. Count One asserts a claim of
"(Intentional Misrepresentation) Fraud or Deceit"
against Kiddie, Helwig, Steelman, Frick, Gould, Wise, and
Murphy. Id. ¶¶ 62-67. Count Two alleges a
claim of "(Fraud in the Inducement)" against
Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy.
Id. ¶¶ 68-70. Count Three asserts a claim
of "(Intentional Misrepresentation) (Concealment or
Non-Disclosure)" against Kiddie, Helwig, Steelman,
Frick, Gould, Wise, and Murphy. Id. ¶¶
71-81. In Count Four, counterclaimants assert a
"Negligent Misrepresentation" claim against Kiddie,
Helwig, Steelman, Frick, Gould, Wise, and Murphy.
Id. ¶¶ 82-88. Count Five, lodged against
Kiddie, Commarota, Malizia, and Huggins, asserts
"(Defamation Per Se of a Private Individual) Supriya
Sumanth." Id. ¶¶ 89-92. Count Six
contains a claim of "Detrimental Reliance" against
Kiddie, Helwig, Steelman, Frick, Gould, Wise, and Murphy.
Id. ¶¶ 93-96.
Seven, Eight, and Nine allege violations of the federal
Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. §§ 1961 et
seq., against Kiddie, Helwig, Steelman, Frick, Gould,
Wise, and Murphy, based on mail fraud and wire fraud.
Id. ¶¶ 97-114. In Count Ten, also under
RICO, counterclaimants allege that Kiddie, Helwig, Steelman,
Frick, Gould, Wise, and Murphy conspired to violate 18 U.S.C.
§ 1962(c), in violation of 18 U.S.C. § 1962(d).
Id. ¶¶ 115-20.
has moved to dismiss the Amended Counterclaim, pursuant to
Fed.R.Civ.P. 12(b)(6). Fed.R.Civ.P. 12(b)(6). ECF 27. The
motion is supported by a memorandum of law (ECF 27-1)
(collectively, the "Motion") and an exhibit.
See ECF 27-2 (the "Franchise Agreement").
Kiddie contends that contractual and statutory limitations
bar all but one count. ECF 27-1 at 10-16. Alternatively,
Kiddie argues that counterclaimants fail to state a claim as
to all counts. Id. at 16-39. Counterclaimants oppose
the Motion (ECF 30, the "Opposition"), to which
Kiddie has replied. ECF 31 (the "Reply").
to the Docket, the third-party defendants were never served.
Pursuant to Fed.R.Civ.P. 4(m), the counterclaimants were
required to serve the third-party defendants within 90 days
of filing the counterclaim, i.e., by June 24,
2018. If any defendant is not served within that
time, "the court. . . must dismiss the action without
prejudice against that defendant or order that service be
made within a specified time." Id.
of the foregoing, I shall dismiss the claims against the
third-party defendants, without prejudice. Therefore, I shall
consider the Motion only with regard to the Amended
Counterclaim filed by the defendants.
hearing is necessary to resolve the Motion. See
Local Rule 105(6). For the reasons that follow, I shall grant
Guarantors, husband and wife, "began researching child
care franchise companies" in January 2011. ECF 25,
¶ 16. They sought a company "that would provide
knowledge and support for inexperienced owner operators"
because they are not "sophisticated investors."
Id. In February 2011, the Guarantors submitted a
franchise application to Kiddie Academy. Id. ¶
17. Kiddie was the "first and only franchisor" that
the couple "had ever purchased," Id.
¶ 18. At the time, the Guarantors "were not
familiar with the laws or with the practices of
who then served as Kiddie's Director of Franchise Sales,
spoke with the couple on the phone and provided them an
overview of the franchise. Id. But, he indicated
that he would disclose additional details after they
"complete sign [sic], and return to him a document
called a preliminary questionnaire and personal financial
statement." Id. ¶ 17. After the Guarantors
completed the requisite paperwork, "Gould consulted with
Wise." Id. ¶ 19. Gould then told the
couple that in order "to qualify for a bank loan"
they "would need to increase their net worth on their
personal financial statement." Id.
February 24, 2011 and May 9, 2011, Gould told the Guarantors
that the "site selection process takes anywhere from 3
to 9 months, and that when sites are selected that the Real
Estate Manager provides a Site Analysis Report...."
("SAR" or "Report"). Id. ¶
21. The SAR "would tell [the applicants] if the site
would support a daycare business from the demographics, and
competition compared to the number of pre-school age children
in the area." Id.
counterclaimants allege that Frick, the VP of Real Estate,
"intentionally withheld important information from
[them] as to the time it actually could take Franchisees to
find sites." Id. ¶ 21. Further, the
Sumanths allege that they "reasonably relied on
Prick's representations to their detriment and reasonably
believed that their experience was unusual for Kiddie."
Id. They assert that it was not until several years
later that they learned from other franchisees that it was
"quite common for site selection to take two or three
years or longer, a fact known to Kiddie." Id.
about May 9, 2011, the Guarantors visited Kiddie's
corporate office in Maryland. Id. ¶ 20.
Steelman, Kiddie's VP of Finance, advised the Guarantors
that "she would help them produce the financial
documents that lenders would require for approval of their
loan application and would also provide bookkeeping training
and support through her department." Id. ¶
the VP of Construction, also advised the Sumanths that Kiddie
Academy would assist them in finding and interviewing
architects and contractors and "in reviewing
construction plans for new construction to retrofit an
existing space." Id. ¶ 24. Further,
Commarota told them "not to worry because 'his
team' would guide them through the entire construction
process." Id. However, the Guarantors "did
not choose Kiddie's preferred vendors[.]"
Id. ¶ 25. Thereafter, according to the
counterclaimants, Kiddie provided only "minimal"
support and its representatives "acted in a hostile
manner" towards the couple. Id.
marketing, Kiddie allegedly advised the Guarantors "that
its school curriculum was as good or better than its best
competitor . . . ." Id. ¶ 26.
Additionally, Kiddie's "marketing department stated
that its education department would conduct owner and
director training and continue to provide training as
needed" for the franchise. Id. Moreover,
Murphy, the VP of Operations, promised to "appoint a
Franchise Business Consultant to provide ongoing operational
support." Id. ¶ 27. However,
counterclaimants allege that Kiddie's designated
consultant, Will Huggins, "had no franchise experience,
no experience in operating or managing a business, and no
experience, training or knowledge with daycare centers or
pre-school education and had never managed people in a
supervisory role[.]" Id. According to
counterclaimants, before Huggins joined Kiddie, he was a
"Sales Consultant with a publishing house in
Florida[.]" Id. And, he did not "know the
local Texas market" because he was based in Maryland and
had never lived in Texas. Id. Further, they assert
that they reasonably relied, to their detriment, on
Kiddie's representations. Id.
the counterclaimants allege that Helwig and Wise
"falsely assured" the Guarantors that "their
lack of industry experience would not be an issue due to
Kiddie's proven curriculum, marketing, and support from
all Kiddie's departments." Id. ¶ 28.
Kiddie and the third-party defendants also told the Sumanths
that Kiddie had "a platform which would guide them to
success." But, according to the counterclaimants, no
such platform existed. Id. Moreover, after
defendants opened the Franchise on August 15, 2015,
"they received no material support from Kiddie."
Id. ¶ 27. Defendants also claim that
Kiddie's "department heads" withheld
"specific information" on the performance of other
Kiddie franchisees. Id. ¶ 29. They insist that
if they had known of the withheld information, they would not
have opened a franchise. Id. In addition,
counterclaimants contend that Kiddie provided false
information regarding the time it would take defendants'
franchise "to become profitable," and
"materially understated payroll expenses and property
taxes and the enrollment numbers it would take to do
so." Id. ¶ 30.
allege that between May 9, 2011, and June 12, 2011,
"Kiddie set up weekly calls" to encourage the
Guarantors to sign a "Preliminary Franchise
Agreement." Id. ¶ 32. During these calls,
the Guarantors "expressed their main concerns regarding
their lack of experience in owning and operating a child care
business." Id. Nevertheless, Kiddie purportedly
assured them that their "lack of knowledge and
experience would not be an issue" because the company
would provide "step by step guidance" and other
12, 2011, Kiddie and WWL executed a "Preliminary
Franchise Agreement" (ECF 27-2), guaranteed by the
Sumanths. Defendants paid Kiddie "a first
installment" of $20, 000 toward Kiddie's total
franchisee fee of $120, 000. Id. ¶ 31.
Immediately upon signing the Agreement, defendants were
contacted by Bill Fitzgerald, Kiddie's Real Estate
Manager, to assist them in "finding a location for their
Kiddie Academy" and in deciding whether to own or lease
their space. Id. ¶ 33. Fitzgerald also informed
the Guarantors that he would set up a call with Kiddie's
commercial broker, who "would begin showing properties
that would support the franchised business."
Id. ¶ 34.
addition, Fitzgerald introduced the couple to Steelman, the
VP of Accounting, who arranged "a training call on how
to prepare their business pro forma for the lender."
Id. Steelman told them "that a final version of
the pro forma would be used when Steelman sent [the
Guarantors'] loan to lenders for approval, along with a
business plan and a list of supporting documents she was
requesting they gather together." Id. ¶
some assistance from Kiddie, the Guarantors searched for an
appropriate location in and around San Jose, California,
where they then lived. Id. ¶ 36. Despite a
search that lasted over two years, the couple found no
acceptable sites. Id. After Kiddie advised
defendants to consider the "booming" Texas market,
the Guarantors narrowed their search to Austin, Texas.
Id. ¶ 37. Kiddie's real estate group
assisted the couple in their site selection and provided the
SAR. Id. ¶38. According to the Amended
Counterclaim, Kiddie told the couple that the Report was
"accurate" and provided "all the information
necessary to making an informed decision as to where to set
up their Kiddie Academy franchise." Id.
August 8, 2013, Frick advised defendants that they would need
to amend their Preliminary Franchise Agreement to change
their designated area to Austin, Texas. Id. ¶
39. In November 2013, Kiddie approved a site in Cedar Park,
Texas, a suburb of Austin. Id. ¶ 27. The next
month, Steelman introduced the couple to Lisa Conley,
Kiddie's Finance Manager, "who they were told would
help [them] to close on the loan that Steelman secured for
them." Id. ¶ 41.
paid a second installment of franchisee fees on March 14,
2014, in the amount of $50, 000. Id. ¶4O.
about April 1, 2014, Evolve Bank, "a preferred lender of
Kiddie," rejected the Guarantors' loan application.
Id. ¶ 42. The Bank allegedly rejected the loan
because "study of the local market revealed too many
competitors" and insufficient "need/demand for an
additional childcare facility." Id. However, in
an email dated March 24, 2014, Frick purportedly told the
Sumanths that Evolve Bank "had done insufficient
research." Id. ¶ 44. Counterclaimants
allege that this assertion was false, and Frick and Kiddie
"misrepresented the reason for Evolve Bank's
rejection of the site." Id.
point, defendants had already spent over $200, 000 on
"nonrefundable franchisee fees, deposits, and fees for
the due diligence of their site[.]" Id. ¶
43. Then, Kiddie found another lender, Square 1 Bank in North
Carolina. Id. ¶ 45. The couple used "the
pro formas as prepared with" Conley's assistance,
and the loan was approved on April 17, 2014. Id.
allege that they had "no experience in commercial
construction" and therefore relied on Kiddie's
construction department. Id. ¶ 49. During the
construction process, the construction team allegedly made
numerous, "significant errors." Id. ¶
50. According to the defendants, these mistakes should not
have been made by anyone "familiar with the construction
of child care and early childhood education centers, as
Kiddie and its management claimed they were[.]"
Id. ¶ 47.
example, counterclaimants assert that Kiddie incorrectly
budgeted for the playground area's "splash
pad." Id. ¶ 50. Although Kiddie initially
estimated $8, 000 for a splash pad, it "had no splash
pad vendors," and the price was ultimately $40, 000.
Id. When the Sumanths sought the city's approval
for the playground installation without the splash pad, the
city inspector advised that they "would have to get
re-permitted to redesign the playground without a splash
pad." Id. ¶ 51. Kiddie had not advised the
couple of this permitting issue. Id. As a result,
the Sumanths operated their franchise without a playground
for two months after its opening. Id.
when Malizia inspected the site on June 6, 2015, and again on
July 23, 2015, he did not advise the defendants or anyone
else that "standard licensing requirements were missing
from the construction and design, including, but not limited
to, the handwashing sink in the infant room, the glass window
cut-outs in the infant nap area, children's toilets in
the toddlers and playground areas, and a diaper changing
station in the two year old classroom which remained an
operational and supervisory challenge." Id.
to the Counterclaim/Kiddie had a relationship only with one
architect, Sam Baker. Id. ¶ 52. Baker's
architectural proposal cost significantly more than the
projected budget. Id. As a result, the defendants
chose another architect. In response, Kiddie stopped
cooperating "on the build-out of their Kiddie Academy
Amended Counterclaim alleges that during construction
meetings, at which the couple was not present, Malizia
repeatedly referred to Ms. Sumanth as a "liar" and
as "dishonest in her business practices."
Id. ¶ 48. He also repeatedly laughed at the
Sumanths "whenever their franchise came up during these
meetings[.]" Id. Commarata said that Ms.
Sumanth would "regret her decisions to use another
architect" and "was not knowledgeable enough to
manage her project." Id. ¶ 48. He
purportedly made these same statements to former Kiddie
employees, including Conley, Magus, and Kori Wilson. Id.;
see also Id. ¶ 91. The defendants assert that they
did not learn of these statements until April 2017.
April 20, 2015, Kiddie required the couple to travel to
Kiddie's corporate office in Maryland for training.
Id. ¶ 54. There, Murphy, the VP of Operations,
allegedly warned the Sumanths that the "pro-forma and
budget that Kiddie instructed [them] to use in applying for
the loan and planning for in their operation of their Kiddie
Academy franchise were very aggressive, and overly
optimistic." Id. At the same meeting, Conley
advised the defendants that "the numbers provided to the
bank at Kiddie's direction barely met the minimum lending
guidelines for approval, and that it was imperative that
[they] receive the support from Kiddie to reach the given
Guarantors "asked Murphy to see Kiddie's historical
numbers to better understand why Murphy would take the
position that [the] numbers that Kiddie told them to use were
'very aggressive, and overly optimistic.'"
Id. ¶ 55. However, counterclaimants allege that
Murphy refused to share this information "due to
'proprietary reasons.'" Id.
to the counterclaimants, Kiddie told the couple that it
"would be present for the interviews of candidates for
the franchise's 'Director', as this was the most
important role in the franchise." Id. ¶
56. But, Kiddie did not help in hiring a director.
Id. Indeed, Kiddie allegedly "refused to send a
representative for the interviews, claiming it changed its
policy, but would only participate in the process
opened their Kiddie Academy franchise on August 15, 2015.
Id. ¶27. According to the Amended Counterclaim,
following the opening, defendants "received no material
support from Kiddie." Id.
2016, defendants "realized that their ramp up to break
even had not occurred as Kiddie had projected and their
working capital would be consumed over the next six
months." Id. ¶ 57. They claim that they
asked Helwig, Kiddie's CEO, for an action plan to help
them "reach their break-even point" before
exhausting the remainder of "their working
capital." Id. Defendants insist that Kiddie
declined to provide this assistance and made "personal
attacks" against them. Id.
further allege that during a telephone call on February 2,
2017, Helwig "threatened" defendants "with a
wage garnishment and lawsuit" if they sued Kiddie.
Id. ¶ 57. Helwig also "revealed" that
Kiddie "had many franchisees who had experienced slower
than projected" ramp-ups and that "Kiddie. had
prepared action plans" that those franchisees
"implemented" and they "became
successful." Id. ¶ 60.
April 2017, Conley purportedly told the Guarantors that
"Kiddie had never revealed true numbers to its
franchisees[.]" Id. ¶ 61. She also told
them that "she had won an employment lawsuit
against" Kiddie and that "one of the reasons for
her resigning was she was forced to change enrollment numbers
for all franchisees on their proforma." Id.
same month, the Guarantors learned from other franchisees,
including Patrick Paul in New Jersey, that "Kiddie had
not provided them promised support, had knowingly instructed
them to apply for a government insured loan through the Small
Business Administration, and given them false and misleading
franchise projections and information through the wires and
mail that could not be supported through Kiddie's known
historical data." Id. ¶ 58.
addition, counterclaimants allege, id. ¶ 80:
"Kiddie intimidated and threatened other franchisees who
discussed the fraudulent behavior by Kiddie in dealing with
them." According to the Amended Counterclaim,
Kiddie's "pattern of intimidation continues to this
day" and "[o]ther franchisees are afraid to discuss
the false and incomplete material information they also got
from Kiddie." Id.
Standard of Review
defendant may test the legal sufficiency of a complaint by
way of a motion to dismiss under Rule 12(b)(6). In re
Birmingham, 846 F.3d 88, 92 (4th Cir. 2017); Goines
v. Valley Cmty. Servs. Bd, 822 F.3d 159, 165-66 (4th
Cir. 2016); McBurney v. Cuccinelli, 616 F.3d 393,
408 (4th Cir. 2010), aff'd sub nom. McBurney v.
Young, 569 U.S. 221 (2013); Edwards v. City of
Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A Rule
12(b)(6) motion constitutes an assertion by a defendant that,
even if the facts alleged by a plaintiff are true, the
complaint fails as a matter of law "to state a claim
upon which relief can be granted."
a complaint states a claim for relief is assessed by
reference to the pleading requirements of Fed.R.Civ.P.
8(a)(2). That rule provides that a complaint must contain a
"short and plain statement of the claim showing that the
pleader is entitled to relief." The purpose of the rule
is to provide the defendants with "fair notice" of
the claims and the "grounds" for entitlement to
relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544,
survive a motion under Rule 12(b)(6), a complaint must
contain facts sufficient to "state a claim to relief
that is plausible on its face." Twombly, 550
U.S. at 570; see Ashcroft v. Iqbal, 556 U.S. 662,
684 (2009) ("Our decision in Twombly expounded
the pleading standard for 'all civil actions'"
(citation omitted)); see also Paradise Wire & Cable
Defined Benefit Pension Fund Plan v. Weil, ___
F.3d ___, 2019 WL 1105179, at *3 (4th Cir. Mar. 11, 2019);
Willner v. Dimon, 849 F.3d 93, 112 (4th Cir. 2017).
But, a plaintiff need not include "detailed factual
allegations" in order to satisfy Rule 8(a)(2).
Twombly, 550 U.S. at 555. Moreover, federal pleading
rules "do not countenance dismissal of a complaint for
imperfect statement of the legal theory supporting the claim
asserted." Johnson v. City of Shelby Miss., 574
U.S., 135 S.Ct. 346, 346 (2014) (per curiam).
mere '"naked assertions' of wrongdoing" are
generally insufficient to state a claim for relief.
Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir.
2009) (citation omitted). The rule demands more than bald
accusations or mere speculation. Twombly, 550 U.S.
at 555; see Painter's Mill Grille, LLC v. Brown,
716 F.3d 342, 350 (4th Cir. 2013). If a complaint provides no
more than "labels and conclusions" or "a
formulaic recitation of the elements of a cause of
action," it is insufficient. Twombly, 550 U.S.
at 555. Put another way, "an unadorned,
the-defendant-unlawfully-harmed-me accusation" does not
state a plausible claim for relief. Iqbal, 556 U.S.
at 678. Rather, to satisfy the minimal requirements of Rule
8(a)(2), the complaint must set forth "enough factual
matter (taken as true) to suggest" a cognizable cause of
action, "even if. .. [the] actual proof of those facts
is improbable and .. . recovery is very remote and
unlikely." Twombly, 550 U.S. at 556 (internal
quotation marks omitted).
reviewing a Rule 12(b)(6) motion, a court "must accept
as true all of the factual allegations contained in the
complaint" and must "draw all reasonable inferences
[from those facts] in favor of the plaintiff." E.I.
du Pont de Nemours & Co. v. Kolon Indus., Inc., 637
F.3d 435, 440 (4th Cir. 2011) (citations omitted); see
Reyes v. Waples Mobile Home Park Ltd. P 'ship, 903
F.3d 415, 423 (2018); Semenova v. Md. Transit
Admin., 845 F.3d 564, 567 (4th Cir. 2017); Houck v.
Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir.
2015); Kendall v. Balcerzak, 650 F.3d 515, 522 (4th
Cir. 2011), cert, denied, 565 U.S. 943 (2011). But,
a court is not required to accept legal conclusions drawn
from the facts. See Papasan v. Allain, 478 U.S. 265,
286 (1986). "A court decides whether [the pleading]
standard is met by separating the legal conclusions from the
factual allegations, assuming the truth of only the factual
allegations, and then determining whether those allegations
allow the court to reasonably infer" that the plaintiff
is entitled to the legal remedy sought. A Soc'y
Without a Name v. Comm'w of Va., 655 F.3d 342, 346
(4th. Cir. 2011), cert. denied, 566 U.S. 937 (2012).
generally do not "resolve contests surrounding the
facts, the merits of a claim, or the applicability of
defenses" through a Rule 12(b)(6) motion.
Edwards, 178 F.3d at 243 (quotation marks and
citation omitted). But, "in the relatively rare
circumstances where facts sufficient to rule on an
affirmative defense are alleged in the complaint, the defense
may be reached by a motion to dismiss filed under Rule
12(b)(6)." Goodman v. Praxair, Inc., 494 F.3d
458, 464 (4th Cir. 2007) (en banc); accord Pressley v.
Tupperware Long Term Disability Plan, 533 F.3d 334, 336
(4th Cir. 2009); see also U.S. ex rel. Oberg v. Penn.
Higher Educ. Assistance Agency, 745 F.3d 131, 148 (4th
Cir. 2014). However, because Rule 12(b)(6) "is intended
[only] to test the legal adequacy of the complaint,"
Richmond, Fredericksburg & Potomac R.R. Co. v.
Forst, 4 F.3d 244, 250 (4th Cir. 1993), "[t]his
principle only applies . . . if all facts necessary to the
affirmative defense 'clearly appear[ ] on the face of
the complaint"" Goodman, 494 F.3d at 464
(quoting Forst, 4 F.3d at 250) (emphasis added in
Goodman); see Dean v. Pilgrim's Pride Corp., 395
F.3d 471, 474 (4th Cir. 2005).
evaluating the sufficiency of a complaint in connection with
a Rule 12(b)(6) motion, a court ordinarily "may not
consider any documents that are outside of the complaint, or
not expressly incorporated therein" Clatterbuck v.
City of Charlottesville, 708 F.3d 549, 557 (4th Cir.
2013); see Bosiger v. U.S. Airways, 510 F.3d 442,
450 (4th Cir. 2007). "Generally, when a defendant moves
to dismiss a complaint under Rule 12(b)(6), courts are
limited to considering the sufficiency of allegations set
forth in the complaint and the 'documents attached or
incorporated into the complaint.'" Zak, 780
F.3d at 606 (quoting E.I. du Pont de Nemours &
Co., 637 F.3d at 448). Under limited circumstances,
however, when resolving a Rule 12(b)(6) motion, a court may
consider documents beyond the complaint without converting
the motion to dismiss to one for summary judgment.
Goldfarb, 791 F.3d at 508.
particular, a court may consider documents that are
"explicitly incorporated into the complaint by reference
and those attached to the complaint as exhibits."
Goines, 822 F.3d at 166; see also Fed. R.
Civ. P. 10(c); Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322 (2007); Paradise
Wire & Cable, supra, 2019 WL 1105179, at *4.
However, "before treating the contents of an attached or
incorporated document as true, the district court should
consider the nature of the document and why the plaintiff
attached it." Goines, 822 F.3d at 167 (citing
N. Ind. Gun & Outdoor Shows, Inc. v. City of S.
Bend, 163 F.3d 449, 455 (7th Cir. 1998)).
import here, "[w]hen the plaintiff attaches or
incorporates a document upon which his claim is based, or
when the complaint otherwise shows that the plaintiff has
adopted the contents of the document, crediting the document
over conflicting allegations in the complaint is
proper." Goines, 822 F.3d at 167. Conversely,
"where the plaintiff attaches or incorporates a document
for purposes other than the truthfulness of the document, it
is inappropriate to treat the contents of that document as
may also "consider a document submitted by the movant
that was not attached to or expressly incorporated in a
complaint, so long as the document was integral to the
complaint and there is no dispute about the document's
authenticity." Goines, 822 F.3d at 166
(citations omitted); see Six v. Generations Fed Credit
Union, 891 F.3d 508, 512 (4th Cir. 2018); Woods v.
City of Greensboro, 855 F.3d 639, 642 (4th Cir. 2017),
cert, denied, ___ U.S. ___, 138 S.Ct. 558 (2017);
Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195,
198 (4th Cir. 2014); U.S. ex rel. Oberg v. Pa. Higher
Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir.
2014) (citation omitted); Kensington Volunteer Fire
Dep't. v. Montgomery Cty., 684 F.3d 462, 467 (4th
Cir. 2012); Am. Chiropractic Ass 'n v. Trigon
Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004),
cert, denied, 543 U.S. 979 (2004); Phillips v.
LCI Int'l Inc., 190 F.3d 609, 618 (4th Cir. 1999).
To be "integral," a document must be one "that
by its 'very existence, and not the mere information
it contains, gives rise to the legal rights
asserted."' Chesapeake Bay Found, Inc. v.
Severstal Sparrows Point, LLC, 794 F.Supp.2d 602, 611
(D. Md. 2011) (citation omitted) (emphasis in original).
See also Fed. R. Civ. P. 10(c) ("A copy of a
written instrument that is an exhibit to a pleading is a part
of the pleading for all purposes.").
did not attach any exhibits to their Amended Counterclaim.
But, Kiddie attached the Franchise Agreement to its suit (ECF
1-1) and to its Motion (ECF 27-2). The Franchise Agreement is
integral to the Amended Counterclaim and is referenced
repeatedly. ECF 25, ¶¶ 31, 32, 39, 63, 65, 83.
Therefore, I may consider the Franchise Agreement.
extent that the Amended Counterclaim lodges claims of fraud,
Fed.R.Civ.P. 9(b) is pertinent. Rule 9(b) states: "In
alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or
mistake. Malice, intent, knowledge, and other conditions of a
person's mind may be alleged generally."
preliminary matter, claims that sound in fraud, whether
rooted in common law or arising under a statute, implicate
the heightened pleading standard of Fed.R.Civ.P. 9(b).
See, e.g., E-Shops Corp. v. U.S. Bank N.A., 678 F.3d
659, 665 (8th Cir. 2012) ("Rule 9(b)'s heightened
pleading requirement also applies to statutory fraud
claims."); see also Spaulding v. Wells Fargo
Bank, AU., 714 F.3d 769, 781 (4th Cir. 2013) (stating
that an MCPA claim that "sounds in fraud is subject to
the heightened pleading standards of Federal Rule of Civil
the rule, a claim that sounds in fraud '"must, at a
minimum, describe the time, place, and contents of the false
representations, as well as the identity of the person making
the misrepresentation and what he obtained
thereby.'" United States ex rel. Owens v. First
Kuwaiti Gen'l Trading & Contracting Co., 612
F.3d 724, 731 (4th Cir. 2010) (citation omitted). In other
words, '"Rule 9(b) requires plaintiffs to plead the
who, what, when, where, and how: the first paragraph of any
newspaper story.'" Crest Construction II, Inc.
v. Doe, 660 F.3d 346, 353 (8th Cir. 2011) (citation
9(b) serves several salutary purposes:
First, the rule ensures that the defendant has sufficient
information to formulate a defense by putting it on notice of
the conduct complained of-----Second, Rule 9(b) exists to
protect defendants from frivolous suits. A third reason for
the rule is to eliminate fraud actions in which all the facts
are learned after discovery. Finally, Rule 9(b) protects
defendants from harm to their goodwill and reputation.
Harrison v. Westinghouse Savannah River Co., 176
F.3d 776, 784 (4th Cir. 1999) (citation omitted).
by its plain text, Rule 9(b) permits general averment of
aspects of fraud that relate to a defendant's state of
mind. And, a "court should hesitate to dismiss a
complaint under Rule 9(b) if the court is satisfied (1) that
the defendant has been made aware of the particular
circumstances for which she will have to prepare a defense at
trial, and (2) that plaintiff has substantial prediscovery
evidence of those facts." Id. Moreover, Rule
9(b) is "less strictly applied with respect to claims of
fraud by concealment" or omission of material facts, as
opposed to affirmative misrepresentations, because "an
omission 'cannot be described in terms of the time,
place, and contents of the misrepresentation or the identity
of the person making the misrepresentation.'"
Shaw v. Brown & Williamson Tobacco Corp., 973
F.Supp. 539, 552 (D. Md. 1997) (quoting Flynn v.
Everything Yogurt, HAR-92-3421, 1993 WL 454355, at *9
(D. Md. Sept. 14, 1993)).
Choice of Law
Counts One through Six, the Amended Counterclaim asserts
several State law claims. ECF 25, ¶¶ 62-96. As
indicated, subject matter jurisdiction is predicated on
diversity, federal question, and supplemental jurisdiction.
Id. ¶¶ 1-2.
a federal court sitting in diversity must apply the law of
the forum state in which the court is located, including the
forum state's choice-of-law rules, unless a compelling
federal interest directs otherwise. Colgan Air, Inc. v.
Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir.
2007). In regard to state law claims under diversity
jurisdiction, federal courts apply the substantive law of the
state in which the proceeding is brought. See, e.g., Erie
R.R. v. Tompkins, 304 U.S. 64, 78 (1938); Leichling
v. Honeywell Intern., Inc., 842 F.3d 848, 851 (4th Cir.
2016); see also Kerr v. Marshall Univ. Bd of
Governors, 824 F.3d 62, 74 (4th Cir. 2016); Colgan
Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275
(4th Cir. 2007); 19 Wright & Miller, Fed. Practice &
Procedure § 4501 (3d ed.). And, federal courts apply the
choice of law rules of the state in which the court sits.
See, e.g., Klaxon Co. v. Stentor Electric Mfg. Co.,
313 U.S. 487, 496-97 (1941); Albemarle Corp. v.
AstraZeneca UK Ltd., 628 F.3d 643, 652-53 (4th Cir.
2010); see also Prof'l Massage Training Cent., Inc.
v. Accreditation All. of Career Schs. & Colls., 781
F.3d 161, 180 (4th Cir. 2015); Demetres v. E. W. Const
Inc., 776 F.3d 271, 273 (4th Cir. 2015).
parties presume that Maryland law governs the State law
claims. Because the choice-of-law principles are undisputed,
I will apply Maryland law as to those claims.
Amended Counterclaim contains a total of ten counts. Kiddie
has moved to dismiss nine of them, asserting they are barred
by the Franchise Agreement's one-year contractual
limitations period, ECF 27-1 at 13-17, and by the applicable
statutory period of limitations. Id. at 17-19. As to
the claim of detrimental reliance under Count Six, Kiddie
argues that it "is not a viable theory of relief under
Maryland law." Id. at 13.
of limitations is an affirmative defense. Ordinarily,
limitations is not considered in the context of a motion to
dismiss. Edwards, 178 F.3d at 243; Miller v.
Pac. Shore Funding, 224 F.Supp.2d 977, 985 (D. Md.
2002), aff'd, 92 Fed.Appx. 933 (4th Cir. 2004).
However, "[w]hen it appears on the face of the complaint
that the limitation period has run, a defendant may properly
assert a limitations defense through a Rule 12(b)(6) motion
to dismiss." Miller, 224 F.Supp.2d at 985;
see Pressley, 553 F.3d at 336; Goodman, 494
F.3d at 464. In Pilgrim's Pride Corp., 395 F.3d
at 474, the Fourth Circuit said: "The raising of the
statute of limitations as a bar to plaintiffs' cause of
action constitutes an affirmative defense and may be raised
by motion pursuant to Fed.R.Civ.P. 12(b)(6), if the time bar
is apparent on the face of the complaint."
Contractual Limitations Period
asserts that defendants' counterclaims, excluding Count
Six, are barred by the Franchise Agreement's one-year
limitation period. ECF 27-1 at 13. Counterclaimants argue
that the Franchise Agreement's limitation period is
unconscionable and therefore unenforceable. ECF 30 at 3.
Franchise Agreement, executed by defendants on March 6, 2014,
ECF 27-2 states, in relevant part, at 57:
LIMITATION OF CLAIMS
ANY AND ALL CLAIMS AND ACTIONS ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE RELATIONSHIP OF FRANCHISEE AND
FRANCHISOR, OR FRANCHISEE'S OPERATION OF THE FRANCHISED
BUSINESS, BROUGHT BY FRANCHISEE AGAINST FRANCHISOR, SHALL BE
COMMENCED WITHIN ONE (1) YEAR FROM THE OCCURRENCE OF THE
FACTS GIVING RISE TO SUCH CLAIM OR ACTION, OR SUCH CLAIM OR
ACTION SHALL BE BARRED.
ordinary course, under Maryland law, "[a] civil action
shall be filed within three years from the date it accrues
unless another provision of the Code provides"
otherwise. See Maryland Code (2013 Repl. Vol., 2018
Supp.) § 5-101 of the Courts and Judicial Proceedings
Article ("C.J.")- Actions for breach of contract
and tort actions are generally governed by Maryland's
three-year statute of limitations. See Dual Inc. v.
Lockheed Martin Corp., 383 Md. 151, 169, 857 A.2d 1095,
1105 (2004); Catholic Univ. of Am. v. Bragunier Masonry
Contractors, Inc., 139 Md.App. 277, 297, 775
A.2d 458, 469 (2001), aff'd, 368 Md. 608, 796
A.2d 744 (2002). In addition, "[i]f the remedy sought in
equity is analogous to a remedy cognizable at law, and the
statute of limitations prescribes a time within which the
legal action must be instituted, equity will follow the law
and bar the action." Dual Inc., 383 Md. at 160
n.2, 857 A.2d at 1099 n.2 (citation omitted).
respect to a civil RICO suit, it is governed by a four-year
statute of limitations. The limitations period runs from the
date when the plaintiff discovered, or should have
discovered, the injury. Potomac Elec. Power Co. v. Elec.
Motor & Supply, Inc., 262 F.3d 260, 266 (4th Cir.
2001). And, defamation claims are subject to a one-year
limitations period. C.J. § 5-105.
Franchise Agreement, the parties contractually agreed to a
one-year limitations period. ECF 27-2 at 71. If effective,
the Franchise Agreement would supersede the statutory
limitations period of three years for the contract and tort
claims and four years for the RICO claims. The
counterclaimants contend that the clause is unreasonable and
was fraudulently induced. ECF 25, ¶¶ 63-65; ECF 30
a general rule, the party raising a statute of limitations
defense has the burden of proving that the cause of action
accrued prior to the statutory time limit for filing the
suit." Newell v. Richards,323 Md. 717, 725,
594 A.2d 1152, 1156 (1991). As a threshold question, the
court must determine whether ...