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Kiddie Academy Domestic Franchising, LLC v. Wonder World Learning, LLC

United States District Court, D. Maryland

March 31, 2019

WONDER WORLD LEARNING, LLC, et al. Defendants.


          Ellen Lipton Hollander United States District Judge.

         Plaintiff 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").[1] 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, ¶3.[2]

         Kiddie "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, [3]

         Defendants 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.

         The 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.

         Counts 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.

         Kiddie 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").

         According 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.[4] 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.

         In view 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.

         No hearing is necessary to resolve the Motion. See Local Rule 105(6). For the reasons that follow, I shall grant the Motion.

         I. Factual Background[5]

         The 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 franchisors." Id.

         Gould, 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.

         Between 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.

         The 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. ¶22.

         On or 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. ¶ 23.

         Commarota, 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.

         In its 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.

         Further, 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.

         Counterclaimants 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 assistance. Id.

         On June 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.

         In 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. ¶ 35.

         With 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.

         On 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.

         Defendants paid a second installment of franchisee fees on March 14, 2014, in the amount of $50, 000. Id. ¶4O.

         On or 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.[6] Counterclaimants allege that this assertion was false, and Frick and Kiddie "misrepresented the reason for Evolve Bank's rejection of the site." Id.

         By this 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. ¶ 46.

         Counterclaimants 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.

         For 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.

         Additionally, 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. ¶ 53.

         According 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 site." Id.

         The 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. Id.

         On 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 projections." Id.

         The 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.

         According 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 telephonically." Id.

         Defendants 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.

         By July 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.

         Counterclaimants 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.

         In 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.

         That 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.

         In 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.

         II. Standard of Review

         A. Rule 12(b)(6)

         A 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."

         Whether 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, 555-56 (2007).

         To 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).

         Nevertheless, 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).

         In 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).

         Courts 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).

         In 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.

         In 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)).

         Of 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 true." Id.

         A court 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.").

         Counterclaimants 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.

         B. Rule 9(b)

         To the 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."

         As a 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 Procedure 9(b)").

         Under 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 omitted).

         Rule 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).

         However, 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)).

         C. Choice of Law

         In 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.

         Notably, 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).

         Both 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.

         III. Limitations

         The 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.

         The bar 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."

         A. Contractual Limitations Period

         Kiddie 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.

         The Franchise Agreement, executed by defendants on March 6, 2014, ECF 27-2 states, in relevant part, at 57:



         In the 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).

         With 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.

         In the 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 at 3-5.

         "As 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 ...

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