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Zounds Hearing Franchising LLC v. Moser

United States District Court, D. Arizona

November 2, 2016

Zounds Hearing Franchising LLC, et al., Plaintiffs,
Tina Moser, et al., Defendants.


          David G. Campbell United States District Judge

         Plaintiffs Zounds Hearing Franchising, LLC (“Zounds Franchising”), Zounds Hearing, Inc. (“ZHI”), and third-party defendant Sam Thomasson (founder and CEO of ZHI) have filed a motion to dismiss the counterclaims and third-party complaint (collectively, “Counterclaims”) filed by Defendants Coastal Hearing, Inc. (“Coastal”) and Tina Moser. Doc. 31. The issues are fully briefed (Docs. 31, 32, 37) and no party requests oral argument. For the reasons set forth below, the Court will grant the motion to dismiss Counts VI and X and deny the motion on all other counts.

         I. Background.

         Because Defendants are the non-moving party, the allegations set forth in their Counterclaims are taken as true for purposes of this motion. Zounds Franchising is an Arizona limited liability company with its principal place of business in Tempe, Arizona. Doc. 1 at 3. It contracts with third parties to own and operate franchises that sell Zounds brand hearing aids and accessories. Id. ZHI is a Delaware corporation with its principal place of business in Tempe, Arizona and is in the business of selling approved Zounds products to franchisees and third parties. Id.

         On December 9, 2013, Zounds Franchising and Coastal entered into a Franchise Agreement granting Coastal the rights to operate three Zounds Hearing Centers in Florida. Doc. 31 at 4; Doc. 1-1 at 50. On February 26, 2014, Zounds Franchising and Coastal entered into another Franchise Agreement for a Zounds Hearing Center in Seminole, Florida. Doc. 10 at 11. Tina Moser, president and controlling interest holder of Coastal, personally guaranteed the obligations of Coastal. Id. On March 13, 2014, Coastal purchased an already-existing Zounds franchise in Clearwater, Florida through an asset purchase agreement with Zounds Pennsylvania LLC and Zounds Franchising. Doc. 10 at 12. Contemporaneously, Zounds Pennsylvania LLC and Zounds Franchising entered into an assignment and consent to transfer agreement with Coastal (“Assignment Agreement”). Id.; Doc. 1-1 at 89. The Assignment Agreement included a clause which released Zounds Franchising from all claims through the date of the agreement (“the Release”). Doc. 1-1 at 91. The Release states, in pertinent part:

Upon execution of this Agreement, and except for Franchisor's obligations under this Agreement, Assignee and Guarantors, for themselves and all persons and entities claiming by, through or under any of them, hereby release, acquit, and forever discharge the Franchisor Releasees from all obligations, claims, debts, demands, covenants, contracts, promises, agreements, liabilities, costs, attorneys' fees, actions or causes of action whatsoever, whether known or unknown, which Assignee and/or Guarantors, by themselves or on behalf of, or in conjunction with any other person, persons, partnership or corporation, have, had, or might claim to have against the Franchisor Releasees through the date of this Agreement, including those arising out of or related to: the offer, sale, operation and transfer of the Existing Franchise Agreement (and Existing Franchised Business); the offer and sale of the Zounds Hearing franchises under the Prior Franchise Agreements; the parties' respective rights and obligations under the Prior Franchise Agreements; and any and all rights, obligations or claims under any state franchise regulations or franchise relationship laws. . . . Assignee and Guarantors covenant and warrant that neither of them will . . . sue, [or] assist or cooperate with any third party in any third-party action against, any Franchisor Releasee arising out of or related to the claims released under this Section.

Id. The Franchise Agreement also states: “Franchisee agrees that nothing that Franchisee believes Franchisee has been told by Franchisor or Franchisor's representatives shall be binding unless it is written in this Agreement. This is an important part of this Agreement.” Doc. 1-1 at 49.

         Defendants allege that Plaintiffs made six material misrepresentations relating to the sale and operation of the franchise - four prior to the Franchise Agreement and two within the franchise disclosure documents. Doc. 10 at 14-17. Counterclaims include ten causes of action: Counts I-IV (fraud in the inducement), Count V (violation of Wisconsin Franchise Investment Law), Count VI (violation of Florida Stat. § 817.416), Count VII (violation of Arizona Consumer Fraud Act), Counts VIII-IX (declaratory judgement), and Count X (piercing the corporate veil). Id. at 17-27. Plaintiffs argue that the Counterclaims should be dismissed in their entirety as barred by the Release. Doc. 31 at 10. In the alternative, Plaintiffs allege individual counts I-IV, VI, VII, and X should be dismissed.

         II. Legal Standard.

         A successful Rule 12(b)(6) motion must show either that the complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a cognizable legal theory will survive a motion to dismiss if it contains “sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         III. Analysis.

         A. Dismissal in the Entirety.

         Plaintiffs move to dismiss all Counterclaims on the ground that the Release bars all causes of actions occurring before and through the date of signing, including the fraud claims. Doc. 31 at 9-10. With the exception of the piercing the corporate veil argument, Plaintiffs do not allege that Defendants failed to provide sufficient factual allegations, failed to plead with requisite particularity, or made only conclusory statements.

         1. Timing.

         Defendants assert that all of the claims in their Counterclaim “sound in and are based on fraud.” Doc. 32 at 5. Defendants argue that these claims are not within the scope of the Release because they did not accrue until Defendants discovered Plaintiffs' misrepresentations - after the Release date. Defendants rely on Transamerica Ins. Co. v. Trout, 701 P.2d 851 (Ct. App. Ariz. 1958), which in turn cites A.R.S. § 12-543, the Arizona three-year statute of limitations for fraud. Id. at 854. Section 12-543 provides that fraud claims “shall ...

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