The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
WERNER SCHAEFER, et al. : CIVIL ACTION
:
v. :
:
HPB FOAM LLC, et al. : NO. 24-6298
MEMORANDUM
Bartle, J. July 8, 2025
Plaintiffs Werner Schaefer, Leah Schaefer, and
Shepherd International Innovations, Inc. (“S3I”) filed this
lawsuit on November 25, 2024, against defendants HPB Foam LLC
(“HPB Foam”), JEZ Investments LLC, Horsepower Nation LLC, SVHB
Marketing LLC d/b/a Horsepower Brands, HPB Foam Holdings LLC,
Joshua Skolnick, Zachery Beutler, and Anthony Hulbert. Subject
matter jurisdiction is based on diversity of citizenship under
28 U.S.C. § 1332.1
The court has before it the motion of defendants to
dismiss the first amended complaint and to award defendant HPB
Foam contractual attorneys’ fees (Doc. # 22).
The dispute arises out of a franchisor-franchisee
relationship between plaintiffs and HPB Foam LLC involving spray
“iFoam” insulation products and services for residential and
commercial customers. The plaintiffs, as the franchisees,
1. Plaintiffs are citizens of Texas. All members of the
limited liability company defendants as well as the individual
defendants are citizens of Pennsylvania, New Jersey, or
allege defendants violated the Texas Deceptive Trade Practices
Act, Tex. Bus. & Com. Code § 17.41, et seq. (“DTPA”) (Count I)2
and the Pennsylvania Unfair Trade Practices & Consumer
Protection Law, 73 Pa. Stat. § 201-1, et seq. (“UTPCPL”) (Count
II). Plaintiffs further bring common law claims of fraud (Count
III) and negligent misrepresentation (Count IV). Finally,
plaintiff S3I asserts that defendant HPB Foam LLC breached the
Franchise Agreements in issue and the implied covenants of good
faith and fair dealing (Count V).
I
For present purposes, the court must accept as true
all well-pleaded facts in plaintiffs’ amended complaint. Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The court
may also consider “exhibits attached to the complaint and
matters of public record.” Pension Benefit Guar. Corp. v. White
Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (citing
5A Charles Allen Wright & Arthur R. Miller, Federal Practice and
Procedure § 1357 (2d ed. 1990)). When there is a document
“integral to or explicitly relied upon in the complaint,” it may
2. Within this count, plaintiffs also aver that defendants
violated the Texas Business Opportunity Act, Tex. Bus. & Com.
Code § 51.001, et seq. (“TBOA”), which is meant to protect
people against false and misleading statements in the
advertising, sale, or lease of business opportunities. Tex.
Bus. & Com. Code § 51.004(a)(1). The statute exempts franchises
from the definition of a business opportunity. Id. at
§ 51.003(b)(6). The court will dismiss without further
discussion any claim that defendants violated the TBOA.
also be considered as there is no concern of lack of notice to
the plaintiff. See Schmidt v. Skolas, 770 F.3d 241, 249 (3d
Cir. 2014) (quoting In re Burlington Coat Factory Secs. Litig.,
114 F.3d 1410, 1426 (3d Cir. 1993) (quotation marks omitted)).
A complaint must plead more than “labels and
conclusions.” Twombly, 550 U.S. 545. It must state more than
“a formulaic recitation of the elements of a cause of action” or
“naked assertions devoid of further factual enhancement.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,
550 U.S. at 555) (internal quotations and alterations omitted).
Instead, it must recite sufficient factual content to state a
claim that is plausible on its face. Id. at 678.
Fraud claims are subject to a heightened pleading
standard under Rule 9(b) of the Federal Rules of Civil
Procedure. When alleging fraud, “a party must state with
particularity the circumstances constituting fraud.” Fed. R.
Civ. P. 9(b). Such claim must be sufficiently detailed to place
defendant on notice of the “precise misconduct with which [it
is] charged.” Frederico v. Home Depot, 507 F.3d 188, 200 (3d
Cir. 2007). Plaintiffs must “allege the date, time and place of
the alleged fraud or otherwise inject precision or some measure
of substantiation into a fraud allegation.” Id.
II
The well-pleaded facts as presented in plaintiffs’
amended complaint are as follows.
At the end of 2022, plaintiffs Leah and Werner
Schaefer spoke with Peter Gilfillan, a franchise consultant,
about the purchase of a franchise. After reviewing a number of
possibilities with Gilfillan, the couple decided upon an iFoam
franchise because it was billed, in part, as a “semi-absentee”
business, a “business in a box” approach with “strong in-house
horizontal support,” and did not require prior experience in the
construction or insulation industries. iFoam is owned by HPB
Foam LLC. JEZ Investments LLC is its parent company.
HorsePower Nation LLC, an affiliate of HPB Foam LLC, provides
franchise consulting services to franchisees; SVHB Marketing
LLC, another affiliate, provides franchise administration
services; and HPB Foam Holdings LLC owns the trademark for HPB
Foam LLC and its confidential information, copyrights, and
intellectual property. Joshua Skolnick and Zachery Beutler are
founding members of HPB Foam LLC while Anthony Hulbert is its
Chief Executive Officer.
On January 18, 2023, Werner Schaefer spoke by
telephone with Steve Reppert, the Director of Franchise
Development for HPB Foam LLC. During this call, they reviewed
an introductory PowerPoint which outlined the expected
investment and earnings. Reppert followed up on January 25,
2023 with a “Unit Economics Workbook” which provided greater
detail regarding the anticipated expenses and revenue of an
iFoam franchise. He also provided the Schaefers with a link to
download HPB Foam LLC’s Franchise Disclosure Document (“FDD”).
The document accessed by plaintiffs was dated January 14, 2022
as amended on April 11, 2022. An FDD is a “prospectus type”
document which outlines important information for prospective
franchisees such as the nature of the franchise, the
franchisor’s owners, any litigation involving the franchisor,
the existence and location of franchises, and estimated costs
and financial performance of a franchise. The Federal Trade
Commission identifies what information must be included.
Plaintiffs aver that Items 7, 8, and 19 of the FDD
contained material misrepresentations and that HPB Foam LLC did
not timely update the FDD with complete and accurate
information.
In Item 7, a franchisor must disclose the estimated
total initial investment a franchisee must make in the
opportunity, which includes the initial fee, expenses, real
property, and any additional funds required for the first three
months of operation. Plaintiffs aver that the figures listed
“dramatically understated” the total initial investment required
as it did not include the costs for purchases of a second spray
rig, which plaintiffs assert is necessary, as well as
understating vehicle costs. Further, the total presented was
the total estimated initial investment for one territory, which
plaintiffs identify as a “bait and switch” tactic as “no iFoam
franchisee ever purchased and operated just a single territory”
and on average, an iFoam franchisee managed three territories.
Item 8 requires a franchisor to disclose whether the
franchisor or its affiliates “will or may derive revenue or
other material consideration from required purchases or leases
by franchisees.” If such compensation is received, the
franchisor must identify the amount earned from such required
payments. 16 C.F.R. § 436.5(h)(6). The FDD provided to
plaintiffs represented that while HPB Foam LLC and its
affiliates may derive such revenues, they “have not derived any
revenues on account of required franchisee purchases or leases
. . . .” Plaintiffs assert, however, that at the time the FDD
was provided to them, this statement was false and that HPB Foam
LLC and its affiliates derived revenues from required purchases
or leases by franchisees.
Any representations regarding a franchisee’s
anticipated financial performance must be contained within Item
19, and these representations must have a reasonable basis. 16
C.F.R. § 436.5(s)(3). The franchisor must also identify whether
the representations utilize historical performance data or are
projections. Item 19 of HPB Foam LLC’s FDD presented revenues
and expenses for two “outlets.” These outlets, according to
plaintiffs, provided different services and used different
equipment than the iFoam franchises purchased by plaintiffs.
Further, each “outlet” contained multiple territories, and the
financial figures presented lacked material expenses such as
royalty fees and failed to disclose other expenses incurred by
these outlets.
The Schaefers spent the next couple of months learning
more about HPB Foam LLC and its franchising opportunities.
Plaintiffs viewed promotional videos produced by HPB Foam LLC in
which Zachery Beutler, founding member of HPB Foam LLC, and
Anthony Hulbert, CEO of HPB Foam LLC, promised strong training
infrastructure and discussed in detail the FDD. The Schaefers
also attended a “Discovery Day” in Nebraska on February 16 and
17, 2023. During that event, defendants Beutler, Hulbert, and
Skolnick “verbally promised” growth, support, and success of the
iFoam system directly to the Schaefers.
On March 2, 2023, the Schaefers entered into separate
Franchise Agreements with HPB Foam LLC to operate each of five
iFoam franchises in the North Houston, Texas area. Skolnick and
Beutler signed on behalf of HPB Foam LLC. Werner Schaefer and
Leah Schaefer signed as the franchisees. Pursuant to §§ 1.1 and
1.2 of the Franchise Agreements, the Schaefers were granted non-
exclusive license to establish and operate their franchises
under certain rules and limitations in the referenced protected
territories and to use the Franchisor’s “System and Proprietary
Marks.”
Under the Franchise Agreements, the franchisor shall
provide the franchisees with a call center, through which
requests for iFoam services are routed and assigned to various
franchises (Franchise Agreement at §§ 1.7.1, 6.6), digital
marketing and website management (id. at §§ 3.9-10), book-
keeping and payroll (id. at § 3.20), an operations manual (id.
at § 6.1), and a list of supplies required, ongoing assistance,
and remedial support as necessary (id. at §§ 6.2-5).
In exchange, the franchisees are required to pay an
initial franchise fee of $194,500 as well as minimum weekly
royalty fees for the ten year life of the Franchise Agreements.
Id. at § 3.2. After the first year, the franchisees must pay,
at minimum, an aggregate weekly royalty fee based on the five
territories they purchased and the number of months these
businesses have been in operation:
•
Months 13-24: $2,452
•
Months 25-36: $3,351
•
Months 37-48: $4,168; and
•
Months 49-60+: $4,986.
The Franchise Agreements provide that they shall be
governed and controlled by Pennsylvania law without regard to
its conflict of laws principles. Id. at § 18.1. Section 22.4
of the Franchise Agreements, however, carves out an exception:
If any provision of this Agreement,
including but not limited to its provisions
for transfer, renewal, termination, notice
of termination, or cure rights, is
inconsistent with any valid law or
regulation of the state in which the
Franchised Business is located, then the
valid law or regulation of that state
applicable to the Franchised Business shall
supersede any provision of this Agreement
that is less favorable to Franchisee.
The state in which the Franchised Business is located is Texas.
The Franchise Agreements also contain a limitations
period:
[N]o cause of action arising out of or under
this Agreement may be maintained by
Franchisee against Franchisor unless brought
before the expiration of one (1) year after
the act, transaction or occurrence upon
which such action is based or the expiration
of one (1) year after the Franchisee becomes
aware of facts or circumstances reasonably
indicating that Franchisee may have a claim
against Franchisor hereunder, whichever
occurs sooner, and that any action not
brought within this period shall be barred
as a claim, counterclaim, defense, or set-
off.
Id. at § 18.9.
Each Franchise Agreement provides that plaintiffs
disclaim reliance on any prior oral and written representations
that were not contained in the Agreements or in the FDD:
This Agreement contains the entire agreement
of the parties. There are no
representations either oral or written,
except those contained in this Agreement.
This Written Agreement includes all
representations between the parties. . . .
Nothing in this Agreement or any related
agreement is intended to disclaim the
representations Franchisor made in the
franchise disclosure document furnished to
Franchisee.
Id. at § 22.1. The Agreements broadly protect individuals
associated with HPB Foam, Inc. from liability. They state that
“none of Franchisor’s agents, representatives, nor any
individuals associated with Franchisor’s franchise company shall
be personally liable to Franchisee for any reason.” Id. at
§ 23.4.
Each Franchise Agreement contains an assignment
provision. It stipulates that “[a]ny sale, transfer, assignment
or encumbrance made without Franchisor’s prior written consent
shall be voidable at Franchisor’s option and shall subject this
Agreement to termination as specified herein.” Id. at §§ 14.1,
14.3.2.7. If an individual wishes to assign its rights to a
corporation or limited liability company that is newly organized
and that the then-current franchisees own at least 51% of the
Franchise Agreements state that the franchisee will be exempt
from paying a transfer fee and the transaction will not be
subject to HBP Foam’s right of first refusal. See id. at
§ 14.4; see also id. at § 14.3.2.7. The Franchise Agreements
nonetheless require all stockholders of the corporation or
members of the limited liability company to assume all of the
franchisees’ obligations under the Agreements, to execute
“Franchisor’s prescribed form of personal guaranty,” and upon
franchisor’s request, furnish documents and contracts governing
the rights of franchisee’s owners or agents, such as articles of
incorporation. Id. at §§ 14.4.3-5.
Finally, the Franchise Agreements allow for recovery
of attorneys’ fees by the franchisor under certain
circumstances:
If Franchisee institutes any legal action to
interpret or enforce the terms of this
Agreement, and Franchisee’s claim in such
action is denied or the action is dismissed,
Franchisor is entitled to recover
Franchisor’s reasonable attorneys’ fees, and
all other reasonable costs and expenses
incurred in defending against same, and to
have such an amount awarded as part of the
judgment in the proceeding.
Id. at § 22.8.
On March 23, 2023, several weeks after the Franchise
Agreement were signed, the parties executed an “Assignment and
Consent to Transfer” (“Assignment”) to effectuate the transfer
of the Schaefers’ ownership in the franchises to S3I, a
corporation they owned. The Assignment was signed by the
Schaefers, S3I, and HPB Foam LLC. Anthony Hulbert signed on
behalf of HPB Foam LLC, Werner Schaefer signed as Director of
S3I and Leah Schaefer as its President. In return for the
franchisor’s consent, the Schaefers agreed to sign a personal
guarantee. See Exhibit A to the Assignment.
The Assignment includes a general release, which
reads:
Upon execution of this Agreement, Assignor
[the Schaefers] and Assignee [S3I], for
themselves and all persons and entities
claiming by, through or under any of them,
hereby release, acquit, and forever
discharge Franchisor [HPB] and its present
and former officers, employees, members,
directors, agents, servants,
representatives, affiliates, franchisees,
licensees, successors and assigns (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 Assignor, 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: (i) the offer, sale, and
transfer of the franchise rights granted
under the Franchise Agreement; and (ii) any
and all rights, obligations or claims under
any state franchise regulations or franchise
relationship laws.
Assignment, at ¶ 6 (emphasis added). The Assignment states that
Pennsylvania law shall control, even in the event of any
conflict of law, and that it “shall constitute the entire
integrated agreement between the parties with respect to the
subject matter contained herein . . .” Id. at ¶¶ 8, 10.
The Assignment adds:
In the event that it becomes necessary for
Franchisor to retain the services of legal
counsel to enforce the terms of this
Agreement against any other party hereto and
Franchisor prevails, then Franchisor shall
be entitled to recover all costs and
expenses, including reasonable attorneys’
fees and expert/investigative fees, incurred
in enforcing the terms of this Agreement
from the breaching party hereunder.
Id. at ¶ 9.
S3I’s iFoam franchised businesses opened on July 10,
2023. According to plaintiffs, defendants represented that the
iFoam franchise had income and financial projections that it did
not, and that defendants used “deceptive practices in its
marketing materials” which omitted important information
regarding the opportunity’s risks. Plaintiffs also allege that
defendants failed to disclose information which, if known, would
have caused plaintiffs not to enter into the transaction.
Defendants purportedly provided incorrect and unsubstantiated
financial performance metrics for the iFoam franchises,
understated the total initial investment, and failed to provide
an updated FDD to plaintiffs. With respect to the FDD,
plaintiffs aver that the individual defendants were aware of and
involved in its misrepresentations and omissions.
Plaintiffs further allege that after starting up their
iFoam franchises, they did not receive “adequate initial and
ongoing training and assistance,” “adequate advertising and
marketing support and assistance,” and did not receive an
“adequate call center and website.” As of August 2023, HPB Foam
LLC had also approved a warehouse of another iFoam franchise,
iFoam of Cypress, Texas, in the same zip code in which
plaintiffs had a license to operate their franchise.
S3I ultimately closed its iFoam businesses on
September 30, 2024 allegedly due to HPB Foam LLC’s contractual
breaches and unfair dealings.
III
The defendants first argue that Count I should be
dismissed because the Texas DTPA is inapplicable to the
situation at hand. The DTPA permits consumers to maintain an
action when a defendant uses or employs “a false, misleading, or
deceptive act or practice that is” specifically enumerated in
§ 17.46(b) and that the consumer relies on to his or her
detriment. To prevail, plaintiffs must show that: (1) they were
consumers of defendants’ goods or services; (2) defendants
committed a false, misleading, or deceptive act; and (3) the
act was the “producing cause” of plaintiffs’ damages. Ramirez
v. GEICO, 548 S.W.3d 761, 770 (Tex. App. 2018).
The DTPA contains a number of exemptions to its
applicability. The one on which defendants principally rely to
avoid the grasp of the statute is found in § 17.49(g) which
states:
Nothing in this subchapter shall apply to a
cause of action arising from a transaction,
a project, or a set of transactions relating
to the same project, involving total
consideration by the consumer of more than
$500,000, other than a cause of action
involving a consumer’s residence.
Tex. Bus. & Com. Code § 17.49(g).
Defendants contend that the Franchise Agreements
involve total consideration by the franchisees of more than
$500,000. The purpose of the DTPA, they explain, is to provide
relief for consumers in small transactions and to exclude large
business transactions. CrewFacilities.Com, LLC v. Humano, LLC,
Civ. A. No. 23-909, 2024 WL993898, at *3 (W.D. Tex. Mar. 7,
2024).
According to the amended complaint and the Franchise
Agreements, the Schaefers purchased five iFoam franchises
contemporaneously on March 2, 2023. They paid the franchisor
$194,500 in franchise fees. Additionally, the Franchise
Agreements, which each had a term of ten years, required the
Schaefers as the franchisees to make weekly minimum royalty
fees.
Their weekly minimum royalty fees were to begin at
$2,452 starting in month thirteen and steadily increase to
$4,986 beginning in month forty-nine and continuing at this rate
to the end of the contracts.3 After multiplying the various
minimum weekly royalty fees by the number of weeks applicable,
the sum of these royalty fees that the franchisees were
obligated to pay HPB Foam LLC over the ten year life of the
Franchise Agreements comes to $2,009,310. Adding the initial
$194,000 in franchise fees, the total consideration owed by the
franchisees in return for the franchises under the Franchise
Agreements was $2,203,310.
It is proper as done here to consolidate the numbers
for the five franchises. The Schaefers had entered into “a set
of transactions relating to the same project.” See § 17.49(g);
Rhino Linings Corp. v. 2x2 P’ship, Ltd., Civ. A. No. 22-522,
2024 WL885117, at *11-12 (Tex. Ct. App. Mar. 1, 2024).
Moreover, the fact that the entire consideration was not due in
one lump sum at the outset or was never fully paid does not
change the analysis. Id. In short, the total consideration
exceeds $500,000. Consequently, the exemption under § 17.49(g)
applies, and plaintiffs have no claims under the DTPA against
defendants.
The motion of defendants to dismiss plaintiffs’ claim
under the Texas DTPA will be granted.
3. The court assumes that for the franchises’ first year of
operation, plaintiffs would not have paid royalty fees because
their gross revenue would have been zero.
IV
Defendants next contend that plaintiffs’ claim
pursuant to the Pennsylvania UTPCPL (Count II) should be
dismissed because plaintiffs do not meet the definition of a
person protected under § 201-9.2 of the statute. The UTPCPL
has a private right of action which provides that:
Any person who purchases or leases goods or
services primarily for personal, family or
household purposes and thereby suffers any
ascertainable loss of money or property,
real or personal, as a result of the use or
employment by any person of a method, act or
practice declared unlawful by section 3 of
this act, may bring a private action to
recover actual damages or one hundred
dollars ($100), whichever is greater.
73 Pa. Stat. § 201-9.2 (emphasis added).
Plaintiffs allege that the Schaefers purchased the
franchises to “provide long-term financial stability and
security for their family and provide structured and manageable
work-life balance,” rather than for a “business purpose.” They
maintain that the purpose of the purchase was personal.
Although the complaint does not limit this allegation to the
individual plaintiffs, it surely cannot mean to encompass
plaintiff S31, a corporation.
In support of their allegation, plaintiffs cite Levine
v. First American Title Insurance Co., in which the court
explained that the purchase of title insurance on a home
qualifies as a “household purpose.” 682 F. Supp. 2d 442, 466
(E.D. Pa. 2010). They also point to S. Kane & Son Profit
Sharing Trust v. Marine Midland Bank, in which the court held
that the purchase of securities for trust beneficiaries in their
retirement, qualified as personal use under § 201-9.2(a). Civ.
A. No. 95-7058, 1996 WL 200603, at *3-4 (E.D. Pa. Apr. 25,
1996).
These cases are inapposite to the facts outlined in
the amended complaint and in the undisputed documents. It
defies plausibility to say that the purchase of five iFoam
franchises mandating royalty and other payments of over
$ 2,000,000 is the purchase of goods or services primarily for
personal, family, or household purposes. The motion of
defendants to dismiss plaintiffs’ claim under the Pennsylvania
UTPCPL (Count II) will be granted.
V
Defendants except for HPB Foam LLC further argue that
Counts III and IV should be dismissed because plaintiffs fail to
meet the heightened pleading standard under Rule 9(b). That
Rule, as noted above, requires that “[i]n alleging fraud or
mistake, a party must state with particularity the circumstances
constituting fraud. . . .”
Plaintiffs identify specific misrepresentations and
omissions in Items 7, 8, and 19 of the FDD and allege that each
of the individuals took part in drafting it. For example, they
allege that the initial total investment was understated and
that the anticipated revenues and expenses outlined in Item 19
were misleading. Further, they assert that each individual
defendant “verbally promised, among other things, growth,
support, and touted the success of the HPB Foam LLC and iFoam
system.” The Schaefers assert that they entered into these
Franchise Agreements in reliance on defendants’ representations.
Significantly, plaintiffs quote statements of Hulbert
and Beutler on iFoam’s financial successes from introductory
videos. Although plaintiffs quote a more recent video, rather
than the ones seen by plaintiffs, they aver that the videos seen
by plaintiffs contained even “more glaring and material
misrepresentations.” Defendants cannot escape liability by
removing their informational videos from the Internet after
using them to mislead potential franchisees. The court
understands plaintiffs to aver that these videos are similar to
ones currently posted and finds that plaintiffs have made
sufficiently particularized allegations regarding Beutler’s and
Hulbert’s participation in the fraud. Plaintiffs also state
that they relied on the representations Skolnick made at the
“Discovery Day,” where they attended presentations by Skolnick,
Beutler, and Hulbert.
Plaintiffs have met the requirement of Rule 9(b) as to
the individual defendants. They are on notice as to the
misconduct alleged with the precision required. See Frederico
v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007).
Plaintiffs, on the other hand, fail to set forth any
factual allegations regarding the conduct of defendants JEZ
Investments LLC, Horsepower Nation LLC, SVHB Marketing LLC, and
HPB Foam Holdings, LLC. There is nothing pleaded as to these
defendants’ participation in any misrepresentations beyond
merely stating that these entities are HPB Foam LLC’s parent or
affiliate companies. This is clearly insufficient under Rule
9(b). The amended complaint does not even meet the plausibility
standard as to these defendants under Rule 8 and Iqbal and
Twombly. See Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 555.
Plaintiffs’ claims in Counts III and IV against
defendants JEZ Investments LLC, Horsepower Nation LLC, SVHB
Marketing LLC, and HPB Foam Holdings, LLC will be dismissed.
VI
Defendants HPB Foam LLC and the individual defendants
seek dismissal of Count III and Count IV on the ground that the
allegations do not satisfy the reasonable reliance element for
fraud and negligent misrepresentation. See Gibbs v. Ernst, 647
A.2d 882, 889 (Pa. 1994); see also Bortz v. Noon, 729 A.2d 555,
561 (Pa. 1999).
Said defendants first argue that plaintiffs cannot
reasonably rely on any of their representations not contained in
the Franchise Agreements or the FDD. Section 22.1 of each
Franchise Agreement disclaims liability for any representations
“either oral or written, except those contained in this
Agreement. This Written Agreement includes all representations
between the parties.” Each then narrows the disclaimer and
broadens the exception by stating that nothing is “intended to
disclaim the representations Franchisor made in the franchise
disclosure document furnished to Franchisee.” Id.
Plaintiffs cite the Texas DTPA to argue that
defendants cannot waive their liability for misrepresentations
made outside of the FDD and the Franchise Agreements. Section
17.42 of the DTPA provides that a consumer may not waive the
provisions of the DTPA absent certain exceptions that are not
present here. The statute only bars the waiver of DTPA claims.
Sw. Bell Telephone Co. v. FDP Corp., 811 S.W.2d 572, 576-77
(Tex. 1991). The waiver contained in the DTPA does not serve to
immunize defendants against plaintiffs’ common law claims of
fraud and negligent misrepresentation.
Plaintiffs allege in detail their reliance on
fraudulent oral statements as well as written misrepresentations
in the FDD. Nonetheless, the language of § 22.1 of the
Franchise Agreements is clear. It bars plaintiffs’ claims
against HPB Foam LLC based on representations made outside of
the FDD and the Franchise Agreements. For this reason, the
motion to dismiss Counts III and IV will be granted as to HPB
Foam LLC to the extent that plaintiffs’ claims rely on
misrepresentations made outside of the FDD and the Franchise
Agreements.
As noted above, plaintiffs also agreed in § 23.4 of
the Franchise Agreements that the representatives and agents of
HPB Foam LLC would not be personally liable to them for any
reason. Thus the motion of defendants Joshua Skolnick, Zachery
Beutler, and Anthony Hulbert to dismiss Counts III and IV will
be granted.
VII
Defendants assert two affirmative defenses to support
their motion to dismiss pursuant to Rule 12(b)(6). A defense
must be apparent on the face of the complaint or must be based
on relevant undisputed documents or matters of public record.
See Pension Benefit Guar. Corp., 998 F.2d at 1196.
First, defendants argue that plaintiffs fail to state
a claim in Count III asserting fraud and a claim in Count IV
asserting negligent misrepresentation because the release
contained in the Assignment contains a release of these claims.
The release in the Assignment is very broad. The
plaintiffs release the franchisor, HPB Foam LLC, its present and
past officers, employees, and affiliates, among others, from all
claims whether known or unknown through the date of the
Assignment that plaintiffs:
[H]ave, had, or might claim to have against
the Franchisor Releasees through the date of
this Agreement, including those arising out
of or related to: (i) the offer, sale, and
transfer of the franchise rights granted
under the Franchise Agreement; and (ii) any
and all rights, obligations or claims under
any state franchise regulations or franchise
relationship laws.
Assignment, at ¶ 6 (emphasis added). The Assignment provides
that the agreement “shall be governed by the laws of the
Commonwealth of Pennsylvania, which laws shall control in the
event of any conflict of law” and that it “shall constitute the
entire integrated agreement between the parties with respect to
the subject matter contained herein . . .” Id. at ¶¶ 8, 10.
In Pennsylvania, a signed release is a contract and
construed as contracts are construed. The court looks to the
words of the release to determine the intent of the parties.
Only those matters which can be said fairly to be within the
contemplation of the parties are covered. Farrell v. Lechmanik,
Inc., 611 A.2d 1322, 1323-33 (Pa. Super. Ct. 1992). However
improvident it may be, the release stands, in the absence of
fraud, accident or mutual mistake with respect to the release.
Buttermore v. Aliquippa Hosp., 561 A.2d 733, 735 (Pa. 1989).
None of these three exceptions is alleged here.
Plaintiffs first counter that there was no
consideration for the release. Consideration is “a benefit to
the party promising, or a loss or detriment to the party to whom
the promise is made.” Stelmack v. Glen Alden Coal Co., 14 A.2d
127, 128 (Pa. 1940). Such consideration must be bargained for.
The “detriment incurred must be the ‘quid pro quo,’ or the
‘price’ of the promise, and the inducement for which it was
made.” Glover v. Junior, 333 A.3d 323, 340 (Pa. 2025).
The Assignment clearly provides bargained-for mutual
obligations on the part of both HPB Foam LLC and the individual
plaintiffs. The Franchise Agreements required the consent of
HPB Foam LLC if the franchises were transferred to another party
but only if the individual plaintiffs met certain conditions.
In return for the consent, individual plaintiffs had to sign a
personal guaranty as well as the release. Plaintiffs’ argument
that the Assignment lacks consideration is without merit.
The release bars claims known and unknown that
plaintiffs “have, had, or might claim to have against the
Franchisor Releasees through the date of this Agreement,” that
is through March 23, 2023. Plaintiffs argue that their fraud
and negligent misrepresentation claims were not known and could
not reasonably have been known at the time the release was
signed and therefore those claims are not encompassed within the
terms of the release. In Pennsylvania, any fraud claim does not
accrue until the facts of the fraud and its causes are known or
should reasonably have been known by the victim through due
diligence. Fine v. Checcio, 870 A.2d 850, 858-59 (Pa. 2005).
Fraud, for present purposes, includes not only intentional acts
but also unintentional deception and thus includes plaintiffs’
claims for negligent misrepresentation. Id. at 860. A claim
does not exist before it has accrued. See Accrue, Black’s Law
Dictionary (12th ed. 2024). It is for the jury and not the
court to determine when accrual of a claim occurs. Fine, 870
A.2d at 858 (citing Smith v. Bell Tel. Co. of Pa., 153 A.2d 477,
481 (Pa. 1959)).
The use of the term unknown claims presupposes the
existence of those claims. North America, for example, was
unknown to Western Europe for centuries, yet North America
existed. The unknown claims do not encompass unaccrued claims
as the latter do not exist as claims.4
Plaintiffs released any claims which were known to
them and those which were unknown to them but of which they
reasonably should have been aware. The language to which the
parties agreed cannot be construed to constitute a release of
“claims” about which plaintiffs did not know and could not have
4. The parties, of course, could have released unaccrued
claims or future claims but did not. See Buttermore, 561 A.2d
at 734; see also Front St. Dev. Assocs., L.P. v. Conestoga Bank,
161 A.3d 302, 311-12 (Pa. Super. 2017).
reasonably known at the time the release was signed. At that
point such claims had not accrued and thus had not come into
being.
The court cannot determine the time of accrual at this
early stage of the litigation. When that event occurred must
await discovery and the finding of the jury. The court will
deny defendants’ motion to dismiss based on the release to the
extent that plaintiffs assert a claim of fraud or negligent
misrepresentation where they did not know of the underlying
facts and it was not reasonable for them to have known about
these facts through March 23, 2023. All other remaining claims,
both known and unknown, in Counts III and IV that had accrued,
that is had existed, as of that date are released.
VIII
Defendant HPB Foam LLC maintains that Counts III and
IV fail to state a claim because they are barred by a one-year
limitations period in the Franchise Agreements. The Franchise
Agreements executed by plaintiffs include in § 18.9:
[N]o cause of action . . . arising out of or
under this Agreement may be maintained by
Franchisee against Franchisor unless brought
before the expiration of one (1) year after
the act, transaction or occurrence upon
which such action is based or the expiration
of one (1) year after the Franchisee becomes
aware of facts or circumstances reasonably
indicating that Franchisee may have a claim
against Franchisor hereunder, whichever
occurs sooner, and that any action not
brought within this period shall be barred
as a claim, counterclaim, defense, or set-
off.
The Franchise Agreements also provide that they “shall
be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, without reference to its conflict
of laws principals [sic].” Id. at § 18.1. Under Pennsylvania
law, parties may agree in writing to a shorter limitations
period than prescribed by statute if the shorter period is “not
manifestly unreasonable.” 42 Pa. Cons. Stat. § 5501(a).
Plaintiffs, in response, cite Section 22.4 of the Franchise
Agreements for the application of Texas law. That section
reads:
If any provision of this Agreement,
including but not limited to its provisions
for transfer, renewal, termination, notice
of termination, or cure rights, is
inconsistent with any valid law or
regulation of the state in which the
Franchised Business is located, then the
valid law or regulation of that state
applicable to the Franchised Business shall
supersede any provision of this Agreement
that is less favorable to Franchisee.
(emphasis added).
Texas law provides that people may not “enter a
stipulation, contract, or agreement that purports to limit the
time in which to bring suit on the stipulation, contract, or
agreement to a period shorter than two years.” Tex. Civ. Prac.
& Rem. Code § 16.070(a). The shorter limitations periods set
forth in the Franchise Agreements, even if permissible under
Pennsylvania law, are “inconsistent” with the valid law of
Texas, the state in which the franchised business is located.
As the Texas law is applicable without exception to all
agreements, it follows that it is applicable to those involving
franchises. Furthermore, the shorter limitations periods in the
Franchise Agreements are less favorable to franchisees than
Texas law. Thus, the Texas two-year limitations period
supersedes the one-year periods written into § 22.4 of the
Franchise Agreements.
The court will deny the motion of HPB Foam LLC to
dismiss on the ground that the limitations periods in the
Franchise Agreements do not bar plaintiffs’ remaining claims of
fraud and negligent misrepresentation in Counts III and IV.
IX
Defendant HPB Foam LLC seeks to dismiss Count V in
which plaintiff S3I alleges breach of contract and the implied
covenant of good faith and fair dealing with respect to the
Franchise Agreements. The court has considered the arguments of
defendant and finds them to be without merit.
Defendant’s motion to dismiss Count V will be denied.
X
Finally, defendant HPB Foam LLC seeks attorneys’ fees
and costs pursuant to Section 22.8 of the Franchise Agreements.
This section calls for the award of such fees and costs to the
Franchisor “if Franchisee institutes any legal action to
interpret or enforce the terms of this Agreement, and
Franchisee’s claim in such action is denied or the action is
dismissed . . . .” The defendant’s pending motion for
attorneys’ fees and costs is premature and will be denied
without prejudice.