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7E Fit Spa Licensing Group LLC v. Dier

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

September 16, 2016

7E FIT SPA LICENSING GROUP LLC, 7E HOLDINGS 1 LLC, and 7E LLC, Plaintiffs,
v.
SUSAN DIER, 7EFS OF WHEATRIDGE LLC, d/b/a THE FULL BODY SHOP d/b/a MED SPA, and SPECTRUM MEDSPA, Defendants. SUSAN DIER GRAF, 7EFS OF WHEATRIDGE LLC, and THE FULL BODY SHOP, d/b/a MEDSPA, Counter Claimants,
v.
7E FIT SPA LICENSING GROUP LLC, 7E HOLDINGS 1 LLC, and 7E LLC, Counter Defendants. SUSAN DIER GRAF, 7EFS OF WHEATRIDGE LLC, and THE FULL BODY SHOP, d/b/a MEDSPA, Third Party Plaintiffs,
v.
STEVE NIELSEN, Third Party Defendant.

          ENTRY ON COUNTERCLAIM DEFENDANTS' AND THIRD PARTY DEFENDANT'S MOTION TO DISMISS COUNTERCLAIM AND THIRD PARTY COMPLAINT

          RICHARD L. YOUND, CHIEF JUDGE UNITED STATES DISTRICT COURT

         Susan Dier Graf, [1] a Colorado resident, wanted to open a 7E Fit Spa in Wheat Ridge, Colorado. After speaking with Third Party Defendant, Steve Nielsen, she decided the business venture was worth the risk. She therefore entered into three agreements with the Plaintiffs/Counterclaim Defendants, 7E Fit Spa Licensing Group LLC (“7E Licensing”), 7E Holdings 1 LLC (“7E Holdings”), and 7E LLC (collectively “Counterclaim Defendants”). The agreements created 7EFS of Wheatridge LLC and granted Wheatridge, among other things, a license to use the 7E marks in connection with the products and services offered in Dier Graf's 7E Fit Spa. After a difficult year in business together, the business relationship ended, Dier Graf opened The Full Body Spa d/b/a Medspa, and this lawsuit followed.

         Counterclaim Defendants' Second Amended Complaint brings claims for declaratory judgment that Defendants/Counterclaim Plaintiffs/Third Party Plaintiffs (“Counterclaim Plaintiffs”) have engaged in trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114 and 1125. They also bring a state law claim under the Indiana Crime Victims Act, Ind. Code § 34-24-3-1, as well as claims for breach of contract, tortious interference with a business relationship, and breach of fiduciary duties. The Counterclaim Plaintiffs responded with fourteen counterclaims, including claims for declaratory judgment that Counterclaim Plaintiffs have not infringed any 7E FIT SPA™ marks or engaged in unfair competition under the Lanham Act and the Indiana Trademark Act, and to further declare that Counterclaim Defendants and Mr. Nielsen have engaged in the unlawful offer and sale of franchises to Counterclaim Plaintiffs under the Indiana Franchise Act (“IFA”), Ind. Code § 23-2-2.5-1 et seq. Counterclaim Plaintiffs further seek equitable relief and damages under the IFA and the Indiana Deceptive Franchise Practices Act (“IDFPA”), Ind. Code § 23-2-2.7-1 et seq. And lastly, Counterclaim Plaintiffs bring a multitude of state law claims including breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, promissory estoppel, and fraud.

         The Counterclaim Defendants and Mr. Nielsen move to dismiss all fourteen counterclaims. For the reasons explained below, the court GRANTS in part and DENIES in part the Counterclaim Defendants' and Third Party Defendant's Motion to Dismiss Counterclaim and Third Party Complaint.

         I. Background

         Mr. Nielsen is the managing member of both 7E Licensing and 7E Holdings. (Filing No. 19-1, License Agreement at 27; Filing No. 19-2, Operating Agreement at 25). The Counterclaim is silent with respect to Mr. Nielsen's involvement in 7E LLC. The Amended Complaint alleges, however, that 7E LLC is the owner of multiple registered and unregistered trademarks, including 7E FIT SPA™. (Filing No. 56, Second Am. Compl. ¶ 7). The 7E marks are used in connection with health spas located in Indiana, Colorado, California, Connecticut, and Oklahoma. (Filing No. 19, Counterclaim ¶ 36).

         In the fall of 2013, Dier Graf approached Mr. Nielsen to discuss her desire to open a 7E Fit Spa in Colorado. (Id. ¶ 87). According to the Counterclaim, Mr. Nielsen and the Counterclaim Defendants represented that in the first three months, a 7E Fit Spa would exceed $20, 000 in income per month and over $7, 000 a month in net profit. (Id. ¶ 88). In reliance on those representations and with the assistance of Mr. Nielsen, Dier Graf decided to open a 7E Fit Spa in Wheat Ridge, Colorado. (Id. ¶¶ 13, 90-93).

         On April 1, 2014, she entered into three agreements with the Counterclaim Defendants. First, the parties entered into an Operating Agreement which formed Wheatridge as a limited liability company and showed its principal place of business as 2000 E. 116th Street, Carmel, Indiana 46032. (Id. ¶ 29; Operating Agreement §§1.1, 1.6). The Operating Agreement made 7E Holdings a majority member (51%) and Dier Graf a minority member (49%) and also made Mr. Nielsen and Dier Graf managers of Wheatridge. (Counterclaim ¶¶ 25-27; Operating Agreement §§ 2.1, 5.2).

         Second, 7E Licensing and Wheatridge entered into a Licensing Agreement. The Licensing Agreement represented that 7E Licensing is the owner of the trademark 7E FIT SPA™. (Licensing Agreement, Recitals). Under the terms of the Agreement, 7E Licensing granted Wheatridge a license to use the trade name, service mark, and trademark 7E FIT SPA™ and other intellectual property of 7E Licensing in connection with Dier Graf's 7E Fit Spa to be operated in Wheat Ridge, Colorado. (Counterclaim ¶ 13; see generally Licensing Agreement). The Licensing Agreement required Wheatridge to pay a royalty fee of 6% of the Spa's gross sales to 7E Licensing. (Counterclaim ¶ 16; Licensing Agreement § 2.2 and Ex. C). The Licensing Agreement also granted Wheatridge a certain “licensed territory” limited exclusively to a four mile radius from the “Licensed Location.” (Counterclaim ¶ 17; Licensing Agreement, Ex. D). And it referred to a potential Franchise Agreement “under the same or substantially similar terms as provided herein in the event that Franchise opportunities become available.” (Counterclaim ¶ 18a.; Licensing Agreement, Recital and ¶¶ 1.2, 1.7, 16.10).

         Lastly, 7E LLC and Dier Graf/Wheatridge entered into a 7E Equipment Lease Agreement for the lease of two 7E Torc Plus Systems, one 7E UltraBeauty System, and one 7E SkinLite System. (Counterclaim ¶ 31; Filing No. 19-3, 7E Equipment Lease Agreement at 1). Lease payments were made to 7E LLC in San Diego, California. (Lease Agreement at 1).

         In addition, as an operator of a 7E Fit Spa, Dier Graf was required to use and pay a fee for a MINDBODY computer software program licensed to 7E Fit Spa Corporate in Carmel, Indiana. (Counterclaim ¶ 39). According to the Counterclaim, the computer program is a repository for financial data, accounts receivable, client scheduling, employee scheduling, and payroll for the 7E Fit Spa locations nationwide. (Id.). Essentially, it acted as a database where Corporate could monitor the various 7E Fit Spa locations regarding financial information, product purchasing, and marketing materials. (Id. ¶ 40).

         Furthermore, Corporate made advertising decisions and designs for the 7E Fit Spa locations, including Dier Graf's Wheat Ridge location, and charged a fee. (Id. ¶¶ 42-43). Corporate also (1) required all 7E locations to use a similar design layout, interior decorating, and arrangements in the stores, (id. ¶¶ 46-48); (2) required all locations to purchase specific products from manufacturers and/or distributors, (id. ¶ 45); (3) required all locations to pay a royalty fee (id. ¶ 19 c.); and (4) required all 7E Fit Spa employees to dress similarly, (id. ¶¶ 42-49).

         Despite the representations of Mr. Nielsen and the other Counterclaim Defendants, Dier Graf's 7E Fit Spa never generated the profits promised by Mr. Nielsen. (Id. ¶ 99).

         On April 24, 2015, Corporate terminated Dier Graf's access to the MINDBODY software. (Id. ¶ 61). That evening, Mr. Nielsen conveyed to Dier Graf a fifteen (15) day notice of termination. (Id. ¶ 64). Dier Graf alleges that as of April 24, 2015, she has not used the 7E FIT SPA™ marks nor has she conducted business associated with any of the 7E FIT SPA™ name or marks. (Counterclaim ¶¶ 66, 71(1)). Furthermore, Dier Graf has learned that the trademark 7E FIT SPA™ is owned by 7e LLC in San Diego, CA. (Id. ¶¶ 97, 99).

         Dier Graf now runs a business called The Full Body Shop d/b/a Medspa. (Second Am. Compl. ¶ 23). It is also located in Wheat Ridge, Colorado. (Counterclaim ¶ 4).

         II. Standard of Review

         Federal Rule of Civil Procedure 12(b)(6) authorizes the dismissal of claims asserted in a counterclaim for “failure to state a claim upon which relief may be granted.” Fed.R.Civ.P. 12(b)(6). The purpose of a motion to dismiss is to test the legal sufficiency of the counterclaim, not the merits of the lawsuit. Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675 (7th Cir. 2001). A court may grant a Rule 12(b)(6) motion to dismiss only if the counterclaim lacks “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A counterclaim sufficient on its face need not give “detailed factual allegations, ” but it must provide more than “labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Id. at 555. The court accepts all well-pleaded factual allegations in the counterclaim as true and draws all reasonable inferences in favor of the counterclaim plaintiff. See Yeksigian v. Nappi, 900 F.2d 101, 102 (7th Cir. 1990); Rene v. G.F. Fishers, Inc., No. 1:11-cv-514-WTL-TAB, 2012 WL 5207612, at *1 (S.D. Ind. Oct. 22, 2012) (applying Rule 12(b)(6) standard to counterclaim).

         III. Discussion

         The fourteen counterclaims are brought against all Counterclaim Defendants and Mr. Nielsen. This was error. Therefore, in their Response Brief, the Counterclaim Plaintiffs make the following concessions:

• Medspa's claims against the Counterclaim Defendants and Mr. Nielsen asserted in Counts II-XIV should be dismissed.
• Dier Graf and Wheatridge's claims against the Counterclaim Defendants and Mr. Nielsen asserted in Counts II-X[2] should be dismissed as to 7E LLC and Mr. Nielsen.
• Dier Graf and Wheatridge's claims against the Counterdefendants and Mr. Nielsen asserted in Count XI should be dismissed as to 7E Licensing and 7E LLC.
• Dier Graf and Wheatridge's claims against the Counterdefendants and Mr. Nielsen asserted in Counts XII-XIII should be dismissed as to 7E LLC.
• Dier Graf and Wheatridge's claims against the Counterdefendants and Mr. Nielsen asserted in Counts XIV should be ...

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