Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

7E Fit Spa Licensing Group LLC v. 7EFS of Highlands Ranch, LLC

United States District Court, S.D. Indiana, Indianapolis Division

September 13, 2016

7E FIT SPA LICENSING GROUP LLC, 7E HOLDINGS 1 LLC, and 7E LLC, Plaintiffs and Counter-Defendants,
v.
7EFS OF HIGHLANDS RANCH, LLC, SPECTRUM MEDSPA, GORDON SMITH, and JANE SMITH, Defendants, Counter-Claimants, and Third-Party Plaintiffs,
v.
STEVE NIELSEN, Third-Party Defendant.

          ENTRY ON COUNTER-DEFENDANTS' MOTION TO DISMISS AND OTHER RELATED MOTIONS

          TANYA WALTON PRATT, JUDGE

         This matter is before the Court on a Motion to Dismiss filed pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) by Counter-Defendants 7E Fit Spa Licensing Group LLC (“7E Fit Spa Licensing”), 7E Holdings 1 LLC (“7E Holdings”), and 7E LLC (collectively, “7E Counter-Defendants”), and Steve Nielsen (“Nielsen”) (Filing No. 28). Also pending before the Court are two motions related to the Motion to Dismiss: (1) Motion for Leave to File Sur-Reply filed by Counter-Claimants 7EFS of Highlands Ranch, LLC (“Highlands Ranch”), Spectrum MedSpa (“Spectrum”), Gordon Smith (“Mr. Smith”), and Jane Smith (“Ms. Smith”) (collectively, “Highlands Counter-Claimants”) (Filing No. 52), and (2) Motion to Strike Portions of Reply in Support of Motion for Leave to File Sur-Reply filed by 7E Counter-Defendants and Nielsen (Filing No. 66). For the following reasons, the Motion to Dismiss is granted in part and denied in part. Further, the Motion for Leave to File Sur-Reply is denied, and the Motion to Strike is denied.

         I. BACKGROUND

         The facts in this case are highly disputed. The following facts are not necessarily objectively true, but as required when reviewing a motion to dismiss, the Court accepts as true all factual allegations of the non-moving parties, in this case the Counter-claim and Third-party Complaint, and draws all inferences in favor of Highlands Counter-Claimants. See Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008).

         7E LLC is the exclusive owner of multiple trademarks associated with “7E Fit Spa.” 7E LLC granted an exclusive license to 7E Fit Spa Licensing to engage in the business of licensing the trademarks for use in connection with its health spa businesses throughout the United States. 7E Holdings is the majority owner and member of Highlands Ranch (Filing No. 23-2 at 2). 7E Fit Spa Licensing and the Highlands Counter-Claimants entered into a licensing agreement on November 1, 2013.[1] The licensing agreement gave a license to Highlands Ranch to use intellectual property of 7E Fit Spa in its business. The agreement provided a licensed territory of a four mile radius from a licensed location in Littleton, Colorado. The agreement contained a non-competition clause and confidentiality and solicitation clauses. Specifically, the licensing agreement required Highlands Ranch to pay a 6% royalty fee on its gross sales to 7E Fit Spa Licensing. The licensing agreement also provided a potential franchise opportunity for Highlands Ranch.

         On October 1, 2013, 7E Holdings and Highlands Ranch entered into an operating agreement under which Highlands Ranch promised to pay $50, 000.00 to 7E Holdings.[2] 7E Counter-Defendants assert that this payment has not been paid in full to 7E Holdings; however, Highlands Counter-Claimants deny this allegation. The operating agreement also contained a noncompetition clause and confidentiality and solicitation clauses. In addition, the operating agreement referred to the potential franchise opportunity. Both the licensing agreement and operating agreement contained a $50, 000.00 liquidated damages clause.

         Based on the licensing agreement and operating agreement, Highlands Counter-Claimants began operating a 7E Fit Spa health spa in Littleton, Colorado, in March 2014. They used certain proprietary equipment and systems in conjunction with the health spa operation. These proprietary equipment and systems are owned by 7E LLC and were leased to Highlands Ranch and Mr. and Ms. Smith so that they could operate the 7E Fit Spa in Colorado. 7E Counter-Defendants assert that Highlands Counter-Claimants have failed to make timely payments under the equipment lease agreement; however, Highlands Counter-Claimants deny this allegation.

         The licensing agreement between 7E Fit Spa Licensing and Highlands Counter-Claimants was terminated, but instead of ceasing operations as required by the licensing and operating agreements, Highlands Counter-Claimants continued operating the health spa using the new name of “Spectrum MedSpa.” They continued using the 7E LLC marks, products, services, and proprietary software in their business operations. In their Counter-claim and Third-party Complaint, Highlands Counter-Claimants deny that the licensing agreement was terminated, and instead, they allege that the licensing agreement required them to follow certain protocol and operations directed by 7E Fit Spa corporate office, which was operating out of Carmel, Indiana. One such required protocol was using 7E Fit Spa's proprietary software to record and manage all business operations. In addition, the 7E Fit Spa corporate office dictated all advertising and procurement activities, product and service offerings, location designs, and employee dress codes.

         The Highlands Counter-Claimants allege that between March 2014 and April 2015, the Highlands Ranch health spa in Colorado was visited six times by 7E Fit Spa corporate employees, including Nielsen. Beginning in late 2014, Ms. Smith received reports from two female employees that Nielsen had harassed them. After the fall of 2014, the business relationship between the Smiths and Nielsen deteriorated. Communications from Highlands Ranch would go unanswered, and Nielsen did not inform the Smiths about 7E Fit Spa advertising.

         On April 24, 2015, the Smiths discovered that Highlands Ranch had been cut off from any access to the 7E Fit Spa proprietary software, which was necessary to business operations. They had not been given prior written notice-as required by the licensing agreement-of any violations of the licensing or operating agreements. They never received any notification that they violated the licensing or operating agreements. Because they were cut off from the 7E Fit Spa proprietary software, Highlands Counter-Claimants immediately lost revenue and experienced business interruption. Since April 24, 2015, Highlands Counter-Claimants have not used the 7E Fit Spa marks and name and do not associate themselves with 7E Fit Spa. The Smiths returned all the equipment leased from 7E LLC to 7E LLC in California.

         7E Counter-Defendants assert that Highlands Counter-Claimants interfered with the contractual relationship between 7E Counter-Defendants and 7EFS of Wheathridge LLC, another licensee of the 7E Counter-Defendants in Colorado. 7EFS of Wheathridge LLC's licensing agreement also has been terminated, and it is operating another health spa under the name “Spectrum MedSpa.” However, Highlands Counter-Claimants deny these allegations.

         On June 2, 2015, 7E Counter-Defendants filed their Complaint in state court, alleging trademark violations under the Lanham Act (15 U.S.C. §§ 1114(a), 1125(a), 1125(c)), common law trademark infringement, breach of contract, tortious interference, breach of fiduciary duties, and conversion. In their Complaint, they requested declaratory and injunctive relief as well as damages. On July 15, 2015, Highlands Counter-Claimants removed the state court action to this Court. On August 14, 2015, 7E Counter-Defendants filed their Amended Complaint (Filing No. 23). Then on August 28, 2015, Highlands Counter-Claimants filed their Answer, Counter-claim and Third-party Complaint against 7E Counter-Defendants and Nielsen (Filing No. 25). 7E Counter-Defendants and Nielsen filed their Motion to Dismiss on September 8, 2015.

         7E Counter-Defendants claim that they have been damaged by Highlands Counter-Claimants' continued unauthorized use of the 7E LLC marks, products, services, and proprietary software in their business operations and by their interference with the relationship between 7E Counter-Defendants and 7EFS of Wheathridge LLC. 7E Counter-Defendants assert eight claims in their Amended Complaint: (1) trademark infringement, (2) unfair competition, (3) civil action under the Indiana Crime Victims Act for conversion, (4) breach of licensing agreement, (5) breach of operating agreement, (6) breach of equipment lease agreement, (7) tortious interference, and (8) breach of fiduciary duties (Filing No. 23).

         Highlands Counter-Claimants assert sixteen claims in their Counter-claim and Third-party Complaint: (1) declaratory judgment that Highlands Counter-Claimants have not violated the Lanham Act or other trademark law, (2) declaratory judgment that Highlands Counter-Claimants' health spa operation was a franchise under Indiana law, (3) declaratory judgment that 7E Counter- Defendants and Nielsen failed to comply with Indiana's franchise laws, (4) equitable relief under the Indiana Franchise Act for fraudulent and deceitful conduct, (5) equitable relief under the Indiana Deceptive Franchise Practices Act, (6) breach of contract, (7) breach of covenant of good faith and fair dealing, (8) breach of implied covenant of good faith and fair dealing, (9) unjust enrichment, (10) promissory estoppel, (11) tortious interference with contract, (12) tortious interference with business relations, (13) breach of fiduciary duty, (14) fraud, (15) fraud in the inducement, and (16) constructive fraud (Filing No. 25). 7E Counter-Defendants and Nielsen moved to dismiss all sixteens claims.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) allows a defendant to move to dismiss a complaint that has failed to “state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When deciding a motion to dismiss under Rule 12(b)(6), the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of the non-moving party. Bielanski, 550 F.3d at 633. However, courts “are not obliged to accept as true legal conclusions or unsupported conclusions of fact.” Hickey v. O'Bannon, 287 F.3d 656, 658 (7th Cir. 2002).

         The complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In Bell Atlantic Corp. v. Twombly, the Supreme Court explained that the complaint must allege facts that are “enough to raise a right to relief above the speculative level.” 550 U.S. 544, 555 (2007). Although “detailed factual allegations” are not required, mere “labels, ” “conclusions, ” or “formulaic recitation[s] of the elements of a cause of action” are insufficient. Id.; see also Bissessur v. Ind. Univ. Bd. of Trs., 581 F.3d 599, 603 (7th Cir. 2009) (“it is not enough to give a threadbare recitation of the elements of a claim without factual support”). The allegations must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555. Stated differently, the complaint must include “enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (citation and quotation marks omitted). To be facially plausible, the complaint must allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

[T]he record under 12(b)(6) is limited to the language of the complaint and to those matters of which the court may take judicial notice. The complaint cannot be amended by the briefs filed by the plaintiff in opposition to a motion to dismiss. By the same token, the defendant cannot, in presenting its 12(b)(6) challenge, attempt to refute the complaint or to present a different set of allegations. The attack is on the sufficiency of the complaint, and the defendant cannot set or alter the terms of the dispute, but must demonstrate that the plaintiff's claim, as set forth by the complaint, is without legal consequence.

Gomez v. Illinois State Bd. of Education, 811 F.2d 1030, 1039 (7th Cir. 1987) (citation omitted). However, “[courts] consider documents attached to the complaint as part of the complaint itself. Such documents may permit the court to determine that the plaintiff is not entitled to judgment.” Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 764 (7th Cir. 2010) (citations omitted). Additionally, the court may consider documents that are referred to in the complaint and that are concededly authentic and central to the plaintiff's claim. Santana v. Cook County Bd. of Review, 679 F.3d 614, 619 (7th Cir. 2012). When a party attaches exhibits to its complaint and incorporates the exhibits into the pleadings, if there are contradictions between the exhibits and the complaint, the exhibits generally will control. Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013).

         When a claim of fraud is involved, the heightened pleading standard of Federal Rule of Civil Procedure 9(b) applies. Rule 9(b) requires “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” “On certain subjects understood to raise a high risk of abusive litigation [such as fraud], a plaintiff must state factual allegations with greater particularity than Rule 8 requires.” Twombly, 550 U.S. at 569 n.14. The “circumstances constituting fraud . . . must be pleaded in detail. This means the who, what, when, where, and how” of the alleged fraud must appear in the complaint. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).

To meet the particularity requirements of Rule 9(b), a complaint must specify the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff. A complaint that attributes misrepresentations to all defendants, lumped together for pleading purposes, generally is insufficient.

Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990).

         III. DISCUSSION

         7E Counter-Defendants and Nielsen have moved to dismiss all sixteen claims in Highlands Counter-Claimants' Counter-claim and Third-party Complaint. After 7E Counter-Defendants and Nielsen filed their reply brief in support of their Motion to Dismiss, Highlands Counter-Claimants filed a Motion for Leave to File a Sur-Reply. Thereafter, Highlands Counter-Claimants filed their reply brief in support of their Motion for Leave to File a Sur-Reply, and 7E Counter-Defendants and Nielsen filed a Motion to Strike Portions of Reply in Support of Motion for Leave to File Sur-Reply. The Court will address the three motions in turn.

         A. Motion to Dismiss

         1. Count 1

         7E Counter-Defendants and Nielsen initially argued that dismissal is appropriate because the Counter-claim and Third-party Complaint was not verified. They also included Count 1 in their dismissal argument concerning the Indiana Franchise Act. Highlands Counter-Claimants responded that Count 1 is not brought under the Indiana Franchise Act, and their filing was in fact verified. In their Reply Brief, 7E Counter-Defendants and Nielsen acknowledge their mistake and concede that the pleading was verified. They also concede that Count 1 was not alleged under the Indiana Franchise Act. 7E Counter-Defendants and Nielsen then argue,

Nevertheless, Count 1 simply does not state a claim for declaratory relief. Rather, Count 1 asks the Court to find that Respondents are not liable for trademark infringement; which is not a claim, but rather relief that Respondents could be entitled to should Respondents successfully defend against the trademark infringement complaint asserted in the Complaint. Count 1, therefore, should be dismissed.

(Filing No. 49 at 7). This argument does not support an adequate basis to dismiss Count 1 of the Counter-claim and Third-party Complaint. 7E Counter-Defendants have raised a controversy regarding various trademark violations against each of the Highlands Counter-Claimants.

         Highlands Counter-Claimants have sufficiently pled a plausible claim for declaratory relief concerning various trademark laws. Therefore, the Court DENIES the Motion to Dismiss as to Count 1.

         2. Agreed Dismissal of Certain Claims

         After 7E Counter-Defendants and Nielsen filed their Motion to Dismiss, Highlands Counter-Claimants made numerous concessions regarding their counter-claims and third-party claims. They acknowledged that their claims under Counts 2-13 brought by Spectrum against 7E Counter-Defendants and Nielsen should be dismissed. This presumably is based on the fact that the allegations in the pleadings do not show any interaction, contractual or otherwise, between Spectrum and 7E Counter-Defendants and Nielsen. While Highlands Counter-Claimants did not make this same concession for dismissal regarding Counts 14-16, the same lack of allegations of interactions between Spectrum and 7E Counter-Defendants and Nielsen applies to Counts 14-16. Therefore, the Court GRANTS the Motion to Dismiss as to Counts 2-16 asserted by Spectrum against 7E Counter-Defendants and Nielsen. The dismissal of Spectrum's Counts 2-16 is without prejudice because it may be possible that the claims may be viable under some set of facts except to the extent that the claims are dismissed with prejudice as discussed below, in which case, Spectrum's claims also are dismissed with prejudice.

         Highlands Counter-Claimants also concede that their claims under Counts 2-16 brought against 7E LLC should be dismissed. Again, this is based on the allegations in the pleadings regarding the interactions among Highlands Ranch, the Smiths, and 7E LLC. Therefore, the Court DISMISSES without prejudice Counts 2-16 asserted by Highlands Counter-Claimants against 7E LLC. Again, to the extent that these claims are dismissed with prejudice as discussed below, Highlands Counter-Claimants' claims against 7E LLC also are dismissed with prejudice.

         Regarding Counts 2-10 and 12, Highlands Counter-Claimants concede that their claims against Nielsen should be dismissed presumably because of the business relationship among the parties and the fact that the licensing and operating agreements were signed by Nielsen in official capacities, not in a personal capacity. Thus, the Court DISMISSES without prejudice Counts 2-10 and 12 asserted by Highlands Counter-Claimants against Nielsen. To the extent that these claims are dismissed with prejudice as discussed below, Highlands Counter-Claimants' claims against Nielsen also are dismissed with prejudice.

         Highlands Counter-Claimants concede that their claim under Count 11 brought against 7E Holdings should be dismissed. This presumably is based on the allegations in the pleadings regarding the business and contractual relationships between Highlands Counter-Claimants and 7E Holdings. Therefore, the Court DISMISSES without prejudice Count 11 asserted by Highlands Counter-Claimants against 7E Holdings. To the extent that this claim is dismissed with prejudice as discussed below, this claim against 7E Holdings also is dismissed with prejudice.

         Highlands Counter-Claimants further concede that their claims under Counts 11, 13, and 16 brought against 7E Fit Spa Licensing should be dismissed. Again, this presumably is based on the allegations in the pleadings regarding the business and contractual relationships between Highlands Counter-Claimants and 7E Fit Spa Licensing. The Court DISMISSES without prejudice Counts 11, 13, and 16 asserted by Highlands Counter-Claimants against 7E Fit Spa Licensing. To the extent that these claims are dismissed with prejudice as discussed below, these claims against 7E Fit Spa Licensing also are dismissed with prejudice.

         3. Additional Claims to Consider the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.