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FREEDMAN v. MELDY'S INC.

February 28, 1984

GARY FREEDMAN
v.
MELDY'S, INC. and RICHARD MELDOFSKY



The opinion of the court was delivered by: VANARTSDALEN

 VanARTSDALEN, J.

 The complaint in this action has its genesis in an exclusive franchise agreement entered into between plaintiff and defendant, Meldy's, Inc. Plaintiff seeks to recover losses sustained in the operation of a franchised restaurant, which enterprise he allegedly entered into as a result of certain misrepresentations made by defendants. Defendants have moved to dismiss the complaint for failure to state a cause of action and lack of subject matter jurisdiction. Defendants' motion to dismiss for failure to state a cause of action will be granted.

 Background

 Plaintiff's complaint avers that plaintiff is a citizen of the state of New Jersey, that defendant Richard Meldofsky (Meldofsky) is also a citizen of that state, and that defendant Meldy's, Inc. (Meldy's) is a corporation organized, existing and with its principal place of business in the Commonwealth of Pennsylvania. Plaintiff avers that prior to November 6, 1981 Meldofsky, acting individually and as president of Meldy's, actively recruited plaintiff to become a franchisee of Meldy's. Plaintiff entered into an exclusive franchise agreement with Meldy's on November 6, 1981 whereby plaintiff was granted the exclusive right to operate a restaurant known as Meldy's in the Gallery, a center-city shopping mall in Philadelphia, Pennsylvania.

 Plaintiff claims that during the frequent consultations which led to the signing of the franchise agreement Meldofsky made representations "that the franchise restaurant operation would produce between $5,000 and $6,000 of gross sales per week if the volume of trade were low," and "that plaintiff would be guaranteed a salary of $300 per week from the business" (plaintiff's complaint, paragraph 8).

 Plaintiff contends that he relied upon these representations (plaintiff's complaint, paragraph 9), but that at no time prior to entering into the franchise agreement was he provided with "written documentation of substantiation of the representations" (plaintiff's complaint, paragraph 10).

 Plaintiff brought suit in this court under 28 U.S.C. § 1331 alleging that defendants violated the "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," 16 C.F.R. §§ 436.1-438.10 (1983), promulgated by the Federal Trade Commission pursuant to the Federal Trade Commission Act (FTCA or Act), 15 U.S.C. §§ 41-58.

 Discussion

 On September 26, 1914, Congress passed the Federal Trade Commission Act and established the Federal Trade Commission (FTC). The FTC was created as one of the prongs in a two-pronged effort to improve enforcement of the anti-trust laws. *fn1" As enacted in 1914 the Act declared unlawful all unfair methods of competition in commerce and it empowered the FTC to prevent the use of unfair methods of competition in commerce. The 1938 Wheeler-Lea Amendments to the Act contained provisions relating to advertising in general and food, drug and cosmetic advertising in particular. Recently, the Act was again amended by the passage of the Federal Trade Commission Improvements Act of 1980, Pub. L. No. 96-252, 94 Stat. 374 (1980).

 The courts have almost uniformally rejected the argument that there is an implied right of action under the FTCA. Dreisbach v. Murphy, 658 F.2d 720 (9th Cir. 1981); Naylor v. Case and McGrath, Inc., 585 F.2d 557 (2d Cir. 1978); Alfred Dunhill Limited v. Interstate Cigar Co., Inc., 499 F.2d 232 (2d Cir. 1974); Holloway v. Bristol-Myers Corp., 158 U.S. App. D.C. 207, 485 F.2d 986 (D.C. Cir. 1973); Carlson v. Coca-Cola Co., 483 F.2d 279 (9th Cir. 1973); Beckenstein v. Hartford Electric Light Co., 479 F. Supp. 417 (D. Conn. 1979); L'Aiglon Apparel v. Lana Lobell, Inc., 118 F. Supp. 251 (E.D. Pa. 1953). But see Guernsey v. Rich Plan of Midwest, 408 F. Supp. 582 (N.D. Ind. 1976) (recognizing private right of action for consumers under FTCA). One of the most frequently cited cases supporting the denial of a private right of action and the one containing perhaps the most detailed analysis in support of such a position is Holloway v. Bristol-Myers Corp., 158 U.S. App. D.C. 207, 485 F.2d 986 (D.C. Cir. 1973).

 In Holloway the District of Columbia Circuit held that there was no implied right of action under the FTCA as enacted in 1914 or under the Wheeler-Lea Amendments. *fn2" The plaintiffs had brought a class action challenging certain advertising practices of one of the defendant's products as false and misleading. Because the case was decided before Cort v. Ash, 422 U.S. 66, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975), and its progeny, the court used a somewhat different, and arguably more liberal, five criteria standard to decide if there was an implied right of action. The court, however, did state that:

 
the core of our decision rejecting implication of a private action lies in our analysis of the ramifications of the asserted private remedy and a comparison of these with the policies and objectives sought to be advanced by Congress. This analysis is conjoined with a further discussion of . . . legislative intent and ...

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