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Bans Pasta, LLC v. Mirko Franchising, LLC

United States District Court, W.D. Virginia, Roanoke Division

May 23, 2014

BANS PASTA, LLC, Plaintiff,
v.
MIRKO FRANCHISING, LLC, et al., Defendants/Counterclaimant,
v.
BANS PASTA, LLC, RANDY A. SOWDEN, and MICHAEL X. BOGGINS, Counterclaim Defendants.

MEMORANDUM OPINION

JAMES C. TURK, District Judge.

Pending before the Court is the Counterclaim Defendants' Motion to Dismiss the Counterclaim. ECF No. 42. Counterclaimant Mirko Franchising, LLC ("Mirko") has filed a response in opposition, ECF No. 44, and the Counterclaim Defendants have filed a reply, ECF No. 46. On May 14, 2014, the Court heard oral argument on the motion and it is now ripe for disposition. The Court has carefully considered the parties' arguments and concludes that the Counterclaim sufficiently alleges facts that state plausible claims for relief. Thus, as explained in more detail below, the motion to dismiss is DENIED.

I. BACKGROUND

As discussed in the previous memorandum opinion issued by the Court, see ECF No. 28, the Amended Complaint in this matter asserts various claims arising out of, or related to, a failed franchisor-franchisee relationship. The Court previously dismissed Plaintiff's claims under the Virginia Retail Franchising Act, Va. Code Ann. § 13.1-557 et seq., but denied Mirko's motion to dismiss Plaintiff's remaining claims. Most of these claims seek rescission of the Franchise Agreement on the grounds that the franchisee (Bans Pasta, LLC ("Bans")) and its members, Randy A. Sowden and Michael X. Boggins, were negligently or fraudulently induced into entering into the agreement based on various statements by Mirko's principals concerning the financial viability of Mirko franchises.

In its Counterclaim, Mirko brings mostly contract and contract-related claims against Bans, Sowden, and Boggins. Count I asserts a breach of contract claim against Bans seeking damages of not less than $235, 760.84. Count II asserts a breach of guaranty claim against Sowden and Boggins. Counts III and IV allege breach of contract claims against Bans and Sowden/Boggins, respectively, based on alleged violations of certain confidentiality provisions, and seek injunctive relief and restitution. Count V asserts a claim against all Counterclaim Defendants for misappropriation of trade secrets under the Georgia Trade Secrets Act ("GTSA"), Ga. Code Ann. § 10-1-760 et seq.

Accepting the well-pled facts in the Counterclaim as true, as this Court must when ruling on a motion to dismiss, see Giarratano v. Johnson , 521 F.3d 298, 302 (4th Cir. 2008), the facts relevant to the Counterclaim are as follows:

Mirko has developed and implemented a "valuable, unique, and reputable" franchise model, wherein "it grants to qualified persons franchises to own and operate Mirko's restaurants" and "licenses to franchisees the rights to use Mirko's brand and confidential information and trade secrets." ECF No. 36, Counterclaim, ¶¶ 10-11. Mirko "works directly with its franchisees on all aspects of the operation of Mirko's restaurants" and provides to franchisees "a variety of confidential and proprietary information concerning Mirko's brand, including standard specifications, procedures, and methods for setting up and operating" a Mirko restaurant. Mirko also trains franchisees "in all material aspects of the operation of their restaurant." Id., ¶ 12. Mirko claims that, "[b]y permitting franchisees to tap into Mirko's established system, reputation, and good will, and to use and benefit from its proven operating procedures, Mirko enables franchisees to go into the restaurant business immediately with an accomplished restaurant concept and to operate under established procedures, which significantly lowers barriers to entry into the restaurant business." Id., ¶ 13.

On or about September 10, 2011, Bans entered into a standard franchise agreement with Mirko ("the Franchise Agreement"), and Sowden and Boggins each signed a Guaranty of Franchise Owner's Undertakings (the "Guarantees") where they agreed to "jointly and severally unconditionally guarantee the full, prompt, and complete performance of [Bans] under the terms, covenants and conditions of the [Franchise Agreement]." Id., ¶ 16, 18 and Exs. A, C, and D. Among other terms, the Agreement provided that Bans would operate a Mirko restaurant in Roanoke, Virginia ("the Restaurant") for a term of ten years, and would pay to Mirko a weekly service fee totaling six percent of the Restaurant's weekly gross revenues. Id., ¶¶ 24-26.

Additionally, Sowden and Boggins signed Confidentiality Agreements in which they agreed, among other things, not to disclose trade secrets or confidential information as defined in the Agreement, and not to "utilize any Confidential Information or Trade Secrets other than for the benefit of [Bans]." See generally, ECF No. 36, at Exs. E and F. The Agreements also provided that the confidentiality obligations "survive the expiration or termination of the Franchise Agreement (regardless of the cause of termination)...." Id . at Ex. E, p. 4; id. at Ex. F, p. 4.

The Counterclaim further alleges that the Restaurant opened in October 2012 and that in March 2013, Bans's counsel wrote a letter to Mirko accusing it of certain bad acts that Bans asserted had resulted in the constructive termination of the Franchise Agreement. Despite this, between March 20, 2013 and August 2, 2013, Bans continued to operate the Restaurant as a Mirko franchise, including displaying Mirko's proprietary signage and selling foods and beverages from Mirko's proprietary recipes and specifications. ECF No. 36, ¶ 33. During this time, Bans also continued to pay the franchise service fee to Mirko. Id . On August 5, 2013, according to the Counterclaim, Bans's counsel sent a letter to Mirko and its counsel titled a "Notice of Rescission, " in which Bans notified Mirko it was "ceas[ing] all franchise operations." Bans also closed its Mirko restaurant on or about the same date and, very shortly thereafter, began operating a different Italian restaurant at the same location, called Fresco's." ECF No. 36, ¶ 41 and Ex. J at 2. In response, Mirko's counsel wrote a letter on August 13, 2013 informing Bans that its conduct consisted a breach of the Franchise Agreement and that Mirko was thereby terminating the Franchise Agreement. Id . at Ex. J. Although it is not set forth in the Counterclaim, counsel explained at the hearing that Bans and its members are not currently operating a restaurant at the Restaurant's prior location or elsewhere.

II. ANALYSIS

A. Legal Standards Governing Rule 12(b)(6) Motions to Dismiss

To survive a motion to dismiss, the Counterclaim's allegations must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (citation omitted). This standard "requires the [counterclaimant] to articulate facts, when accepted as true, that show' that the [counterclaimant] has stated a claim entitling him to relief, i.e., the plausibility of entitlement to ...


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