United States District Court, D. Oregon
JAMES W. ROBINSON, Plaintiff,
CHARTER PRACTICES INTERNATIONAL LLC, MEDICAL MANAGEMENT INTERNATIONAL, INC., and MMI HOLDINGS, INC. Defendants.
OPINION AND ORDER
PAUL PAPAK, Magistrate Judge.
Plaintiff James W. Robinson filed this action against defendants Charter Practices International LLC ("CPI"), Medical Management International, Inc. ("MMI"), and MMI Holdings, Inc. ("MMIH"), in the Chancery Court of Knox County, Tennessee, on September 24, 2014. Defendants removed Robinson's action to the United States District Court for the Eastern District of Tennessee on October 13, 2014. On the stipulation of the patties, Robinson's action was transferred to this court effective October 31, 2014. On December 18, 2014, Robinson amended his complaint in this court.
By and through his amended complaint, Robinson alleges that he purchased a veterinary hospital franchise from the defendants in 2004, and that defendants subsequently improperly refused to renew the parties' franchise agreement when its original term expired in 2014. Robinson alleges defendants' liability for breach of contract in three separately pied counts (one of which is pled as a "count" of breach of contract, one of which is pied as a "count" of promissory estoppel, and one of which is pied as a "count" of declaratory judgment that a provision of the parties' 2004 franchise-purchase agreement is unenforceable), for breach of the implied covenant of good faith and fair dealing (pied as an additional "count" of the breach of contract claim), and for intentional interference with economic relations, and seeks disregard of defendants' corporate formalities, this court's declaration that a covenant not to compete with defendants during the term of the parties' franchise-purchase agreement is unenforceable as a matter of law, not less than $2 million in economic damages, $10 million in punitive damages, and/or specific performance of defendants' purported contractual obligation to renew the parties' franchise agreement for an additional term of five years. This court has subject-matter jurisdiction over Robinson's action pursuant to 28 U.S.C. § 1332, based on the complete diversity of the patties and the amount in controversy.
Now before the court is defendants' motion (#31) to dismiss Robinson's claims or, in the alternative, to strike his prayer for monetary damages. I have considered the motion, oral argument on behalf of the parties, and all of the pleadings and papers on file. For the reasons set forth below, defendants' motion to dismiss is granted in its entirety, each of Robinson's claims is dismissed with prejudice, and defendants' alternative motion to strike is denied as moot.
To survive dismissal for failure to state a claim pursuant to Rule 12(b)(6), a complaint must contain more than a "formulaic recitation of the elements of a cause of action;" specifically, it must contain factual allegations sufficient to "raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). To raise a right to relief above the speculative level, "[t]he pleading must contain something more... than... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action." Id, quoting 5 C. Wright & A. Miller, Federal Practice and Procedure§ 1216, pp. 235-236 (3d ed. 2004); see also Fed.R.Civ.P. 8(a). Instead, the plaintiff must plead affirmative factual content, as opposed to any merely conclusory recitation that the elements of a claim have been satisfied, that "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009). "In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, ' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. United States Secret Serv., 572 F.3d 962, 970 (9th Cir. 2009), citing Iqbal, 129 S.Ct. at 1949.
"In ruling on a 12(b)(6) motion, a court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). In considering a motion to dismiss, this court accepts all of the allegations in the complaint as true and construes them in the light most favorable to the plaintiff. See Kahle v. Gonzales, 474 F.3d 665, 667 (9th Cir. 2007). Moreover, the court "presume[s] that general allegations embrace those specific facts that are necessary to support the claim." Nat'l Org. for Women v. Scheidler, 510 U.S. 249, 256 (1994), quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). The court need not, however, accept legal conclusions "cast in the form of factual allegations." Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).
INCORPORATION BY REFERENCE
As a preliminary matter, I note that Robinson attached six documents as exhibits to his complaint as filed in the Chancery Court of Knox County, Tennessee, none of which appear as exhibits to his currently operative complaint as amended in this court. The parties appear to agree (and, following analysis of Robinson's claims, I so find) that two of those six documents underlie Robinson's claims in significant part, namely a Charter Practice Agreement dated August 16, 2004, executed by CPI, Robinson, and a third party (see Docket No. 1, Exh. 1, 151-198) and a letter from CPI to Robinson dated November 25, 2013 (see Docket No. 1, Exh. 1, 283-284). Moreover, Robinson's amended complaint refers extensively to both documents, and in addition quotes extensively from the letter of November 25, 2013. In consequence, I find that under the Ninth Circuit's doctrine of incorporation by reference the court may properly consider both the Charter Practices Agreement of August 16, 2004, and the letter of November 25, 2013, without converting defendants' motion into a motion for summary judgment. See, e.g., Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010); Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006); United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). In connection with the analysis that follows, I have disregarded the other documents filed as exhibits to Robinson's complaint as originally filed, all other evidence outside Robinson's currently operative pleading, and all proffered argument premised on any such evidence.
I. The Parties
Plaintiff Robinson is a resident of Carter County, Tennessee. Robinson is a doctor of veterinary medicine, and practices as a veterinarian.
Defendants CPI, MMI, and MMIH are corporate entities organized under the laws of the State of Delaware, each with its principal place of business in portland, Oregon. MMIH is the corporate parent of both CPI and MMI. Defendants developed and own a business method referred to by the parties as the "Banfield System" for the operation of full-service veterinary hospitals. Defendants own over 850 veterinary hospitals worldwide and, in addition, franchise veterinary hospitals (each, a "Banfield Pet Hospital") to independent veterinarians.
II. Robinson's Allegations Regarding the Parties' Dispute
Since approximately 1992, Robinson has owned and operated the Robinson Animal Hospital, a veterinary practice comprised of two clinics located in and around Johnson City, Tennessee. On October 25, 2002, Robinson applied to become a franchisee of a Banfield Pet Hospital, to be located in Johnson City, Tennessee. By and through his application and cover letter, Robinson advised defendants that he owned and operated the Robinson Animal Hospital and intended to continue doing so in the event he became a Banfield Pet Hospital franchisee.
On or around March 31, 2003, CPI and Robinson (together with Robinson's wife, Kim Robinson) entered into a Chaiier Practice Agreement (the "2003 Franchise Agreement") pursuant to which Robinson purchased the Johnson City Banfield Pet Hospital franchise (the "Johnson City franchise") from the defendants for a term often years. Although the 2003 Franchise Agreement contained a provision expressly prohibiting Robinson from owning, operating, or being employed by any competing veterinary hospital either during the term of the agreement or (under some circumstances) for a period of two years following its expiration, by letter dated March 7, 2003, and signed by both CPI and Robinson, the parties modified their agreement to state that Robinson's ownership and operation of the Robinson Animal Hospital would not be deemed to violate that provision. The 2003 Franchise Agreement further provided a mechanism by and through which the parties could elect to renew their agreement for an additional term following expiration of the original ten-year term.
Approximately two years later, Robinson and a partner, veterinarian Holly McLain, applied for a second Banfield Pet Hospital franchise to be located in Knoxville, Tennessee. Once again, Robinson advised defendants in connection with his application that he was the owner and operator of the Robinson Animal Hospital. CPI granted Robinson and McLain's application, and on or around August 16, 2004, CPI, Robinson, and McLain entered into a Charter Practice Agreement (the "2004 Franchise Agreement" filed at Docket No. 1, Exh. 1, 151-198) pursuant to which Robinson purchased the Johnson City Banfield Pet Hospital franchise (the "Knoxville franchise") from the defendants for a term often years from the date the franchise opened for business. See 2004 Franchise Agreement, § 2.2. The agreement required Robinson to pay defendants an initial payment of $50, 000 and monthly payments of 9.0% of monthly revenue for each of the last nine months of the first year of operations, of 11.5% for each month of the second year of operation, of 13.0% for each month of the third year of operation, of 14.5% for each month of the fourth year of operation, and of 15.0% for each subsequent month of operation. See id., §§ 3.1, 3.2. Robinson's rights as a franchisee were expressly conditioned on his achievement of specified quarterly and annual revenue benchmarks. See id., § 3.5. The 2004 Franchise Agreement required that Robinson comply with the terms and conditions of defendants' Banfield System in the operation of the franchise, see id., § 6.1, and that either Robinson or a manager approved by the defendants devote full-time efforts to the operation thereof, see id., § 6.2.
The 2004 Franchise Agreement contained provisions expressly prohibiting Robinson from owning, operating, or being employed by any competing veterinary hospital at any time during the term of the agreement (the "original-term non-competition provision"), see id., § 6.20.1(a), or for a period of two years following its expiration where such hospital was within five miles of the franchise location (the "post-termination non-competition provision"), see id., § 6.20.2. It does not appear that the parties expressly modified that provision as they did with the analogous provision of the 2003 Franchise Agreement, but as noted above CPI was on notice at the time it executed the 2004 Franchise Agreement that Robinson owned and operated the Robinson Animal Hospital and intended to continue doing so while owning and operating the Knoxville franchise. At no time during the original ten-year term of the 2004 Franchise Agreement did defendants make any attempt to enforce Sections 6.20.1 (a) or 6.20.2 in connection with Robinson's ownership and operation of the Robinson Animal Hospital.
The 2004 Franchise Agreement contained a provision that the franchisees could renew the agreement for "one (1) additional term of five (5) years, " provided certain specified terms and conditions were met. Id., § 8.1. In the event the franchisees elected to seek renewal of the parties' agreement, they were required to provide notice of their intent to renew fewer than 360 and more than 180 days prior to the expiration of the agreement's ten-year term, see id, § 8.1.2, and to pay a renewal fee of $15, 000, see id, § 8.1.5. The agreement provided that the franchisees would not have the right to renew the agreement if at that time "there exist[ed] any uncured breach" thereof, or if, in the exclusive good-faith discretion of CPI, the franchisees had failed to "satisfactorily comply" with the agreement during its initial term. Id., § 8.1.1. In addition, CPI could refuse to renew the agreement based on its decision either to terminate its franchise program generally or in the franchisees' market area in particular, or for other, unspecified reasons. See id, § 8.1.2. Renewal of the agreement would be subject to the franchisees' execution of an agreement "substantially on the terms and conditions of CPI's then-current form of Charter Practice Agreement." Id., § 8.1.4. The 2004 Franchise Agreement expressly provided that "[t]he terms of [such] renewal agreement may differ from the terms of th[e 2004 Franchise] Agreement...." Id., see also id, § 8.1.2 (referencing the possibility that requirements "relating to the image, appearance, operation, furnishing, equipping and stocking" of a franchise could likewise change in connection with such a renewal). The agreement expressly provided CPI the right to treat the franchisees' failure to execute such a renewal agreement within thirty days after delivery thereof as an election by the franchisees not to renew. Id. § 8.1.4.
In the event of the expiration of the 2004 Franchise Agreement, CPI had the option either to permit a franchisee to continue operating the formerly franchised veterinary hospital after modifying it to distinguish it from a Banfield Pet Hospital or to purchase the hospital's equipment and continue operating the facility as a defendants-owned Banfield Pet Hospital. See id., §§ 8.5, 8.5.1-8.5.7. In the event CPI elected to purchase the hospital's equipment, CPI and the franchisee would attempt to agree upon purchase price or terms within ten days following expiration of the agreement or, upon failure to do so, hire independent appraisers to determine the fair market value of the equipment at issue. See id., § 8.5.7.
The 2004 Franchise Agreement expressly provided that, before a franchisee could sell any ownership interest in the franchise, the franchisee was required to provide CPI with a right of first refusal to purchase that ownership interest. See id, § 9.5. Moreover, any transfer of a franchisee's interest in a franchise was expressly conditioned on CPI's prior informed and written consent to the transfer. See id., § 9.2. The agreement provided that CPI had the right to withhold its consent to any such transfer "on any grounds CPI deem[ed] sufficient in its absolute discretion, " id., § 9.2.1, and that CPI had the right to condition any such transfer on, inter alia, its waiver of its right of first refusal under Section 9.5, see id., § 9.2. 1(c).
The 2004 Franchise Agreement additionally contained a provision that its terms could not be modified except by and through a written agreement signed by the parties. See id., § 11.7. The agreement provided that it was to be govemed by Oregon law, and that any legal proceedings relating to its provisions must take place in Portland, Oregon. See id., § 11.10. The agreement further provided, in majuscule font, that:
UNDER NO CIRCUMSTANCES WILL CPI BE LIABLE TO [THE FRANCHISEES] OR ANY OTHER PERSON OR ENTITY FOR SERIAL, INCIDENTAL, CONSEQUENTIAL, OR INDIRECT DAMAGES, LOSS OF GOOD WILL OR BUSINESS PROFITS, OR EXEMPLARY OR PUNITIVE DAMAGES.
Id., § 11.13.
The Knoxville franchise opened for business on or around November 13, 2004. In 2008, Robinson purchased McLain's interest in the Knoxville Franchise for $75, 000, and thereafter acted as the sole franchisee under the 2004 Franchise Agreement.
In 2012, CPI notified Robinson of its decision to terminate its franchise program in the Johnson City market area. On that basis, the parties did not renew the 2003 Franchise Agreement when its term expired as of March 30, 2013.
In 2013, Robinson provided CPI with notice of his intent to renew the 2004 Franchise Agreement. On or around November 25, 2013, CPI advised Robinson by letter (the "November 25, 2013, Letter" filed at Docket No. 1, Exh. 1, 283-284) of its decision to deny the requested renewal. The November 25, 2013, Letter stated inter alia as follows:
Beginning in mid-2012, CPI notified [Robinson] through a series of in-person, telephone and written communications that CPI would not renew the [2004 Franchise Agreement] unless [Robinson] divested [him]self of any and all interests in [his] non-Banfield veterinary hospitals, including but not limited to any and all interests [he might] have in the Robinson Animal Hospital.... Specifically, CPI notified [Robinson] of the risk ofnomenewal of the [2004 Franchise Agreement] in the following nonexclusive list of communications: (1) conversations with Vincent Bradley near the time of the Johnson City [franchise] closing and briefly at the 2013 National Field Leadership conference; (2) telephone conversation with Chris Stinnett in June 2103; (3) telephone conversation with Chris Stinnett and Troy Bischoff in August 2013; (4) Charter State of the Practice webinar on August 28, 2013; (5) letter from CPI sent by email on September 6, 2013; and (6) email from Chris Stinnett on October 25, 2013, reaffirming CPI's position. On September 12, 2013, [Robinson] stated in an email to Kelly Orfield that [he did] not plan to sell [his] non-Banfield hospital(s). As a result of this and as further discussed in this letter, CPI will not renew the [2004 Franchise Agreement].
Section 7.21.1(a) of the current version of CPI's Charter Practice Agreement prohibits a [franchisee] from "owning, operating, maintaining, managing, participating or engaging in, being... employed at or working at, advising, assisting, investing in, or having any interest in any other veterinary hospital or related veterinary business or facility" during the term of the Charter Practice Agreement. The 2014 version of the [Charter Practice Agreement], which you would be required to sign as a condition of renewal, will include a substantially similar version of this provision.
There are a number of reasons CPI does not allow [franchisees] to be involved with non-Banfield veterinary businesses. The primary reason is that CPI believes the quality of preventive care and client experience directly correlates to an owner's full time efforts in the [franchised] Hospital. In addition, [defendants'] operating systems, policies, procedures and protocols are confidential and proprietary. To maintain its competitive advantage, CPI cannot allow a [franchisee] who is privy to the continual innovation in operational improvements and efficiencies to have the opportunity to apply those innovations to a business which ...