United States District Court, D. Arizona
ORDER
Honorable Steven P. Logan, United States District Judge.
Before
the Court is Plaintiff Best Western International
Incorporated's (the “Plaintiff”) Motion to
Dismiss Defendant/Counter-Claimant's First Amended
Counterclaim (Doc. 22) (the “Motion”). The Motion
was fully briefed on February 11, 2019. (Docs. 28, 30) The
Court's ruling is as follows.
I.
Background
On
September 16, 2016, Defendant Twin City Lodging, LCC (the
“Defendant”) purchased a Best Western Hotel in
Mankato, Minnesota. (Doc. 16 at 11) On September 29, 2016,
the Defendant entered into a contract (the “Membership
Agreement, ” Doc. 1-2 at 13-22) with the Plaintiff,
giving the Defendant a license to operate the hotel under
Plaintiff's Best Western brand. (Doc. 16 at 10; Doc. 1-2
at 13-14, 20) The Membership Agreement required both parties
to act in accordance with Best Western's Bylaws &
Articles (Doc. 1-2 at 24-51), Rules & Regulations (Doc.
1-2 at 53-91), and any other regulatory documents
(collectively, the “Regulatory Documents”). (Doc.
16 at 2; Doc. 1-2 at 13)
The
Defendant alleges a long history of the Plaintiff performing
quality inspections of the Defendant's hotel in order to
assert violations of the Membership Agreement and the
Regulatory Documents. (Doc. 16 at 12, 14-19) On one occasion,
the Defendant alleges that Michelle Orion, the Best Western
District Manager who oversaw the Defendant, called and
emailed the Defendant in March 2017 to inform the Defendant
that the Plaintiff was terminating the Membership Agreement.
(Doc. 16 at 15) The Defendant alleges that Orion offered
false reasons for the termination, changed the reasons for
the termination, and did not offer a hearing to allow the
Defendant to contest the termination, pursuant to the terms
of the Membership Agreement. (Doc. 16 at 15-18) However, the
Plaintiff did not cancel the Membership Agreement after these
incidents. (Doc. 16 at 18)
In
October 2017, the Plaintiff sent the Defendant a letter
indicating that there was an issue related to customer
complaints and the Defendant's “Customer Complaint
Ratio” as defined by the “Customer Care
Policy”. (Doc. 16 at 19, 20; Doc. 1-2 at 99-100)
Pursuant to the Membership Agreement and the Regulatory
Documents, the minimum allowable Customer Complaint Ratio is
.17. (Doc. 16 at 4) On February 9, 2018, the Plaintiff sent
the Defendant a letter stating that its customer complaint
ratio for the previous 90 days was .44138, and, accordingly,
that the Defendant's hotel was being placed in
probationary status. (Doc. 1-3 at 2; Doc. 16 at 20) The
letter also advised that if Defendant did not come into
compliance with the provision within 90 days, the
Defendant's hotel would be placed in
member-with-conditions review status, and the Membership
Agreement could be subject to cancellation. (Doc. 1-3 at 3;
Doc. 16 at 20)
On June
14, 2018, the Plaintiff sent the Defendant another letter,
notifying the Defendant that the Plaintiff was considering
cancelling its membership due to its non-compliance with the
Customer Complaint Ratio provision of the Regulatory
Documents. (Doc. 16 at 19; Doc. 1-3 at 13) The letter stated
that the Defendant could request a hearing to contest its
probationary status, and the Defendant attended a hearing in
front of Best Western's Board of Directors on July 25,
2018, to argue that its Customer Complaint Ratio was being
misrepresented. (Doc. 1-3 at 13-14; Doc. 16 at 20-22) The
Plaintiff notified the Defendant that the Membership
Agreement was terminated on August 7, 2018. (Doc. 16 at 22)
On
October 19, 2018, the Plaintiff filed its complaint against
the Defendant, alleging causes of action for breach of
contract, trademark infringement, false designation of
origin, and unfair competition. (Doc. 1) On December 18,
2018, the Defendant filed its first amended answer and
counterclaims for violations of the Minnesota Franchise Act
(“MFA”), breach of the covenant of good faith and
fair dealing, and breach of contract. (Doc. 16) On January
16, 2019, the Plaintiff filed the Motion seeking to dismiss
the Defendant's counterclaims. (Doc. 22)
II.
Legal Standard
To
survive a motion to dismiss, a complaint must contain
“a short and plain statement of the claim showing that
the pleader is entitled to relief” such that the
defendant is given “fair notice of what the . . . claim
is and the grounds upon which it rests.” Bell Atl.
Corp. v. Twombly, 550 U.S. 554, 555 (2007) (quoting
Fed.R.Civ.P. 8(a)(2); Conley v. Gibson, 355 U.S. 41,
47 (1957)). The Court may dismiss a complaint for failure to
state a claim under Federal Rule 12(b)(6) for two reasons:
(1) lack of a cognizable legal theory, and (2) insufficient
facts alleged under a cognizable legal theory. Balistreri
v. Pacificia Police Dep't, 901 F.2d 696, 699 (9th
Cir. 1990).
In
deciding a motion to dismiss, the Court must “accept as
true all well-pleaded allegations of material fact, and
construe them in the light most favorable to the non-moving
party.” Daniels-Hall v. Nat'l Educ.
Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). In
comparison, “allegations that are merely conclusory,
unwarranted deductions of fact, or unreasonable
inferences” are not entitled to the assumption of
truth, and “are insufficient to defeat a motion to
dismiss for failure to state a claim.” Id.;
In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th
Cir. 2010). A plaintiff need not prove the case on the
pleadings to survive a motion to dismiss. OSU Student
All. v. Ray, 699 F.3d 1053, 1078 (9th Cir. 2012).
A court
ordinarily may not consider evidence outside the pleadings in
ruling on a Rule 12(b)(6) motion to dismiss. Zemelka v.
Trans Union LLC, 2019 WL 2327813, at 1 (D. Ariz. May 31,
2019) (citing United States v. Ritchie, 342 F.3d
903, 907 (9th Cir. 2003)). “A court may, however,
consider materials-documents attached to the complaint,
documents incorporated by reference in the complaint, or
matters of judicial notice- without converting the motion to
dismiss into a motion for summary judgment.”
Id. A court should also consider documents
referenced in the complaint. No. 84 Employer-Teamster
Joint Council Pension Tr. Fund v. Am. W. Holding Corp.,
320 F.3d 920, 925 fn. 2 (9th Cir. 2003). Allegations in the
complaint that contradict referenced documents need not be
accepted as true. Lazy Y Ranch Ltd. v. Behrens, 546
F.3d 580, 588 (9th Cir. 2008). Additionally, “[e]ven if
a document is not attached to a complaint, it may be
incorporated by reference into a complaint if the plaintiff
refers extensively to the document or the document forms the
basis of the plaintiff's claim.” Lovelace v.
Equifax Info. Servs. LLC, 2019 WL 2410800, at 1 (D.
Ariz. June 7, 2019) (citing Ritchie, 342 F.3d at
908). A plaintiff need “not explicitly allege the
contents of that document in the complaint” for the
court to consider it, as long as the “plaintiff's
claim depends on the contents of [the] document, the
defendant attaches the document to its motion to dismiss, and
the parties do not dispute the authenticity of the
document.” Knievel v. ESPN, 393 F.3d 1068,
1076 (9th Cir. 2005). “[T]he district court may treat
such a document as part of the complaint, and thus may assume
that its contents are true for purposes of a motion to
dismiss under Rule 12(b)(6).” Ritchie, 342
F.3d at 908.
III.
Analysis
A.
Count I - Violations of Minnesota ...