United States District Court, W.D. Pennsylvania
December 1, 2005.
HAROLD E. BISHOP, PATRICIA BISHOP and ALTERNATIVE HEALTH INC., Plaintiffs,
GNC FRANCHISING LLC, GENERAL NUTRITION CORP., GENERAL NUTRITION DISTRIBUTION CORP., and APOLLO MANAGEMENT LP, Defendants.
The opinion of the court was delivered by: ARTHUR SCHWAB, District Judge
Defendants have filed a motion to dismiss (document no. 9) all
counts of plaintiffs' first amended complaint. After careful
consideration of defendants' motion and plaintiffs' response, and
their respective memoranda of law, this Court will grant in part
and deny in part defendants' motion to dismiss.
II. Statement of Facts
According to their amended complaint, plaintiffs Harold E.
Bishop, Patricia Bishop and Alternative Health, Inc., own and
operate two franchises under franchise agreements with GNC
Franchising LLC, General Nutrition Corporation, and General
Nutrition Distribution Corporation, (collectively, "GNC").
Plaintiffs allege that GNC uses and manipulates its franchise system unfairly and unlawfully to benefit its
company-owned stores which compete directly with plaintiffs' and
other franchisees' non-company stores.
The Bishops signed two franchise agreements with GNC. On
November 20, 1997 and November 21, 1997, GNC granted the Bishops
the right to operate GNC stores in West Lafayette, Indiana and
Kokomo, Indiana, respectively. The Bishops assigned their
franchise rights in the West Lafayette store to Alternative
Health, Inc. on December 9, 1999. Plaintiffs' first amended
complaint sets forth various federal statutory causes of action,
and Indiana statutory and common law causes of action, based on
predatory marketing, pricing, and other unfair trade practices.
In deciding a motion to dismiss pursuant to Fed.R.Civ.P.
12(b)(6), the Court accepts the well-pleaded factual allegations
of the complaint as true, and draws all reasonable inferences
therefrom in favor of the plaintiff. Armstrong Surgical Center,
Inc. v. Armstrong County Memorial Hospital, 185 F.3d 154, 155
(3d. Cir. 1999). A claim should not be dismissed for failure to
state a claim unless it appears beyond a doubt that the
non-moving party can prove no set of facts in support of its
allegations which would entitle it to relief. Conley v. Gibson,
355 U.S. 41, 45-46 (1957); Marshall-Silver Construction Co. v.
Mendel, 894 F.2d 593, 595 (3d. Cir. 1990).
In making this determination, the court must construe the
pleading in the light most favorable to the non-moving party.
Budinsky v. Pennsylvania Dept. of Environmental Resources,
819 F.2d 418, 421 (3d. Cir. 1987). Further, the Federal Rules of
Civil Procedure require notice pleading, not fact pleading, so to
withstand a Rule 12(b)(6) motion, the plaintiff "need only make out a claim upon which relief can be granted. If more facts
are necessary to resolve or clarify the disputed issues, the
parties may avail themselves of the civil discovery mechanisms
under the Federal Rules." Alston v. Parker, 363 F.3d 229, 233
n. 6 (3d Cir. 2004), quoting Swierkiewicz v. Sorema, N.A.,
534 U.S. 506, 512 (2002) ("This simplified notice pleading standard
relies on liberal discovery rules . . . to define facts and
issues and to dispose of unmeritorious claims.").
Choice of Law: Counts II, III, VIII, and IX
At the threshold, the Court must determine whether Indiana or
Pennsylvania law governs the franchise agreements and operations
in this case. The agreements provide that, unless any provision
would not be enforceable outside of Pennsylvania, the agreement
"shall be interpreted and construed under the laws of the
Commonwealth of Pennsylvania, which laws shall prevail in the
event of any conflict of law. . . ." Franchise Agreement, ¶ XXXVI
(A), Defendants' App. at 51-52, 108-09.
Where, as here, jurisdiction is based upon diversity, a federal
court should apply the choice of law rules of the forum state.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941);
Kruzits v. Okuma Machine Tool, Inc., 40 F.3d 52, 55 (3d Cir.
1994). Under Pennsylvania law, "courts generally honor the intent
of the contracting parties and enforce choice of law provisions
in contracts executed by them." Id.
Pennsylvania courts have adopted section 187 of the
Restatement, Second, Conflict of Laws, which honors choice of law
clauses unless either (a) the chosen state has no substantial
relationship to the parties or the transaction and there is no
reasonable basis for the parties' choice, or (b) application of the law of the chosen state would
be contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the
determination of the particular issue. Restatement (Second) of
Conflict of Laws § 187 (1971). Pennsylvania courts have
traditionally held that a choice of law provision in a contract
will be upheld as long as the transaction bears a "reasonable
relationship to the state whose law is governing." Novus
Franchising Inc. v. Taylor, 795 F. Supp. 122, 126 (M.D. Pa.
1992) (citing Churchill Corp. v. Third Century, Inc.,
396 Pa. Super. 314, 578 A.2d 532, 537 (1990), app. Denied, 527 Pa. 628,
592 A.2d 1296 (1991)); Instrumentation Assoc. Inc. v. Madsen
Elecs. Ltd., 859 F.2d 4, 5-6 (3d Cir. 1988). Thus, Pennsylvania
courts will uphold contractual choice-of-law provisions where the
parties have sufficient contacts with the chosen state. Jaskey
Fin. and Leasing v. Display Data Corp., 564 F. Supp. 160 (E.D.
Pa 1983). In Kruzits, the United States Court of Appeals for
the Third Circuit stated: "Pennsylvania courts will only ignore a
contractual choice of law provision if that provision conflicts
with strong public policy interests." 40 F.3d at 56.
Here, Pennsylvania has a substantial relationship to the
parties, and plaintiffs do not argue to the contrary: the GNC
defendants are Pennsylvania corporations with their principal
place of business in Pennsylvania, and these Pennsylvania
defendants have an interest in uniformity in dealings with their
franchisees who are scattered in numerous states throughout the
Plaintiffs argue that application of Pennsylvania law would be
contrary to some unidentified fundamental policy of Indiana that
would otherwise protect them. In support, plaintiffs rely
primarily on Stone St. Servs. v. Daniels, 2000 U.S. Dist. LEXIS
18904 (E.D. Pa. 2000), which held that application of
Pennsylvania law to the contract in that case would be contrary
to the fundamental consumer protection laws of Kansas. It should
be obvious that the choice of laws analysis between the respective consumer laws of
Kansas versus those of Pennsylvania is not germane to the choice
of laws analysis as between the respective laws of Indiana versus
Pennsylvania. Plaintiffs do not even attempt: (i) to articulate
the difference between the consumer protection statutes of the
two states; (ii) to identify any public policies of Indiana that
would be defeated by application of Pennsylvania laws; or (iii)
to suggest how plaintiffs might fare better under the laws of
Indiana than those of Pennsylvania. Accordingly, the Court sees
no reason to disturb the parties' contractual choice of law, and
holds that, because all of the claims herein arise from operation
of the franchise agreements, the state claims will be governed by
the laws of the Commonwealth of Pennsylvania and, therefore,
counts II, III, VIII and IX will be dismissed with prejudice.
Count I: Breach of Contract
Three elements are necessary to properly plead a cause of
action for breach of contract: (1) the existence of a contract,
including its essential terms, (2) a breach of a duty imposed by
the contract, and (3) resultant damages. J.F. Walker Co., Inc.
v. Excalibur Oil Group, 792 A.2d 1269, 1272 (Pa.Super. 2002).
The contracts at issue are the franchise agreements. Plaintiffs
identify several franchise agreement provisions that GNC
allegedly breached: Section III.E., which requires GNC to "seek
to maintain high standards of quality, appearance, and service of
the System . . ."; Section III.G., which obligated GNC to comply,
inter alia, with the procedures in the Operations Manual,
including the procedures regarding the approval of third-party
products; and Section 1.D, in which GNC purports to retain
certain rights to compete with Bishop, a set of rights that does
not include the right to use Bishop's customer lists. Viewed in light of the liberal pleading standards of Rule
12(b)(6), this Court simply cannot say, at this early stage in
the proceedings, that plaintiffs will be able to state no set of
facts in support of the breach of contract claim. Accordingly,
defendants' motion to dismiss this claim will be denied.
Counts IV (Fraud) and V (Negligent Misrepresentation)
Plaintiffs allege that GNC, by failing to disclose the alleged
predatory pricing and marketing schemes in its Uniform Franchise
Offering Circular ("UFOC"), committed fraud and negligent
misrepresentation that induced plaintiffs to enter into the
franchise agreements. This Court holds, however, that the "gist
of the action" doctrine bars these tort claims.
The "gist of the action" rule has not been addressed by the
Supreme Court of Pennsylvania, but the United States Court of
Appeals for the Third Circuit recently stated: "[W]e predict that
the state supreme court would adopt the doctrine as set out in
the Superior Court's cases." Williams v. Hilton Group PLC,
93 Fed. Appx. 384, 385 (3d Cir. 2004). The primary case cited by the
Third Circuit is Etoll, Inc. v. Elias/Savion Advertising, Inc.,
811 A.2d 10 (Pa.Super.Ct. 2002), in which the Pennsylvania
Superior Court stated that the "gist of the action" doctrine "is
designed to maintain the conceptual distinction between breach of
contract claims and tort claims by precluding plaintiffs from
recasting ordinary breach of contract claims into tort claims."
Id. at 14. The Superior Court explicated the difference between
contract and tort claims as follows: "Tort actions lie for
breaches of duties imposed by law as a matter of social policy,
while contract actions lie only for breaches of duties imposed by
mutual consensus agreements between particular individuals."
Id. The Etoll Court found further that the "fraud at issue
was not so tangential to the parties' relationship so as to make
fraud the gist of the action." Id. at 21. Rather, the Court stated, the fraud claims were so "inextricably
intertwined with the contract claims" that they were barred as a
matter of law from being raised independently. Id.
Torts arising from the inducement to enter into contract are
within the scope of the "gist of the action" doctrine. See
Williams v. Hilton Group PLC, 93 Fed. Appx. 384. In Hilton
Group, the Court of Appeals for the Third Circuit applied the
"gist of the action" doctrine to bar tort claims of fraudulent
and negligent misrepresentation that arose from the negotiations
leading to a written agreement, the inducement to sign a Letter
of Intent. Id. at 386-87. In the case at bar, plaintiffs set
forth in Counts IV (Fraud) and V (Negligent Misrepresentation)
that false statements and omissions in the UFOC induced them
into entering the franchise agreements with GNC. In support of
their tort claims, plaintiffs aver that the UFOC and statements
by GNC misrepresented: (1) the actual amount of franchisee
training offered by GNC; (2) the freedom of franchisees to
purchase from third party suppliers; (3) the amount of revenue
and profit derived from franchisees by GNC; and (4) the unequal
treatment of franchisees and company-owned GNC stores. Amended
Complaint ¶ 23-27. Of these, (2)-(4) are mentioned in plaintiffs'
breach of contract claim. Amended Complaint ¶ 36-40. These
issues, therefore, "sound in contract," and the allegations of
fraud and negligence are inextricably intertwined with
plaintiffs' breach of contract claim (at Count I).
Adding the words "falsely" and "negligently" to the
representations made in the course of reaching an agreement
does not convert what is essentially a breach of contract action
into a fraud or negligence claim. See e.g., Galdieri v. Monsanto
Co., 2002 U.S. Dist. LEXIS, 11391 at *34 (E.D. Pa. 2002)
("breach of contract claim cannot be `bootstrapped' into a fraud
claim merely by adding the words `fraudulently induced'")
(emphasis added). The parties' obligations have been defined by
the terms of the franchise agreements, not by "larger social
politics embodied in the law of torts." Bohler-Uddeholm America, Inc. v.
Ellwood Group, Inc., 247 F.3d 79, 104 (3d Cir. 2001), quoting
Bash v. Bell Telephone Co., 411 Pa.Super. 347, 601 A.2d 825, 830
Applying the case law cited above to the facts at bar, this
Court concludes that plaintiffs' tort claims at Count IV and V
will be dismissed with prejudice.
Count VI: Breach of Implied Covenant of Good Faith and Fair
Plaintiffs claim damages under an implied duty of good faith
and fair dealing in relation to their written contracts with GNC.
The implied duty of good faith raised by plaintiffs is a
contract, not a tort claim, and therefore cannot fall under the
"gist of the action" doctrine discussed hereinabove; Pennsylvania
does not recognize a breach of good faith tort claim, at all.
See Plaum v. Jefferson Pilot Fin. Ins. Co., 2004 WL 2980415, at
*6 (E.D. Pa. 2004) ("Pennsylvania does not, however, recognize a
common law cause of action in tort for breach of the duty of good
faith and fair dealing. . . ."); Greater New York Mut. Ins. Co.
v. N. River. Ins. Co., 872 F. Supp. 1403, 1409 (E.D. Pa. 1995)
Section 205 of the Restatement (Second) of Contracts states
that "every contract imposes upon each party a duty of good faith
and fair dealing in its performance and its enforcement."
Restatement (Second) of Contracts § 205 (1981). While this
covenant of good faith and fair dealing has been imposed in some
contexts in Pennsylvania, "under Pennsylvania law, every contract
does not imply a duty of good faith." Parkway Garage, Inc. v.
City of Philadelphia, 5 F.3d 685, 701 (3d Cir. 1993).
Plaintiffs allege that GNC violated the implied covenant of
good faith by "utilizing unconscionable provisions in the
agreement." Amended Complaint ¶ 83. The implied covenant of good faith, however, cannot modify or override express
contractual terms. See Amoco Oil Co. v. Burns, 437 A.2d 381,
384 (Pa. 1981) ("the duty of good faith and commercial
reasonabless is used to define the franchisor's power to
terminate the franchise only when it is not explicitly described
in the parties' written agreements."); Witmer v. Exxon Corp.,
434 A.2d 1222, 1226, 1227 (Pa. 1981) (implied duty of good faith
"serves the valuable purpose of defining contractual
relationships which have been left unexpressed by the parties").
Plaintiffs are therefore barred from raising this claim in
relation to the terms of their franchise agreements.
Plaintiffs claim that GNC's conduct in performing the
contract breached the implied covenant of good faith, but it is
unclear whether such a claim is recognized under Pennsylvania
law. The duty of good faith and fair dealing is limited to
special types of contracts, involving special relationships
between the parties. In the context of franchise agreements, a
franchisor has a duty to act in good faith and with commercial
reasonableness when terminating a franchise for reasons not
explicit in the agreement. Atlantic Richfield Co. v. Razumic,
390 A.2d 736, 742 (Pa. 1978).
Defendants argue that termination of a franchise is the only
situation in the franchise context where Pennsylvania law
recognizes an implied covenant of good faith. Plaintiffs argue
that a number of courts have since interpreted the holding in
Atlantic Richfield to apply to franchise agreements more
broadly. In Creeger Brick & Bldg. Supply, Inc. v. Mid-State Bank
& Trust Co., 385 Pa. Super. 30, 560 A.2d 151 (1989), the
Pennsylvania Superior Court held that a lending institution had
not breached any implied duty of good faith by negotiating terms
favorable to it on a loan. In deciding the issue, the Court noted
that an implied contractual duty of good faith had been
recognized in limited situations and stated, "most notably a duty
of good faith has been imposed upon franchisors in their
dealings with franchisees." Id. at 35, 560 A.2d at 153-54 (emphasis added). The District Court for the Eastern
District of Pennsylvania interpreted the language in Creeger to
mean that Pennsylvania law should recognize the implied duty of
good faith within a larger scope in the franchise relationship,
not only franchise termination: "In this light and given the
breadth of the Restatement language, on which the Pennsylvania
doctrine is based it seems unlikely that the Pennsylvania
appellate courts will limit the franchisor's implied duty to deal
in good faith to situations of franchise terminations when the
issue is squarely presented." AAMCO Transmissions Inc. v.
Harris, 759 F. Supp. 1141, 1148 (E.D. Pa. 1991). The Court in
AAMCO also noted that Atlantic Richfield recognized an
implied covenant in cases of franchise termination, but did not
expressly limit the duty to that context. Id.
In sum, a handful of Pennsylvania courts have considered the
possibility of expanding the good faith duty beyond the
termination exception of Atlantic Richfield, but none has yet
done so. In the absence of clear guidance from the Supreme Court
of Pennsylvania or the Court of Appeals for the Third Circuit,
this Court declines to extend the scope of duty. Accordingly,
this claim will be dismissed under Rule 12(b)(6).
Count VII: Predatory Pricing Under the Sherman Act
The elements of a monopolization claim under Section 2 of the
Sherman Act, 15 U.S.C. § 2, are: (1) the possession of monopoly
power in the relevant market; and (2) willful acquisition or
maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business
acumen, or historic accident. United States v. Grinnell Corp.,
384 U.S. 563, 570-71 (1966). Predatory pricing may be defined as
pricing below an appropriate measure of cost for the purpose of
eliminating competitors in the short run and reducing competition in the long run. Cargill, Inc. v. Monfort of Colo.,
Inc., 479 U.S. 104, 118 (1986). The United States Supreme Court
has noted that "predatory pricing schemes are rarely tried, and
even more rarely successful." Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 589 (1986). Because predatory
pricing is so expensive (the predator loses money on every sale),
it is not a realistic strategy for a firm that does not have an
extremely large market share. See Cargill v. Montfort of Colo.,
479 U.S. at 119 n. 15 (declaring 21% market share so low as to
make predation unlikely).
Courts may dismiss Section 2 claims for failure to plead a
valid relevant market. See Queen City Pizza, Inc. v. Domino's
Pizza, Inc., 124 F.3d 430, 437 (3d Cir. 1997) (affirming
dismissal of Section 2 monopoly claims for failure to plead a
relevant market), cert denied, 523 U.S. 1059 (1998). Here,
plaintiffs have failed to plead that GNC possesses monopoly power
in any relevant market, and this Court accordingly will dismiss
The outer boundaries of a relevant market are determined by
reasonable interchangeability of use. Eastman Kodak Co. v. Image
Technical Services, Inc., 504 U.S. 451, 482 (1992); Brown Shoe
Co. v. U.S., 370 U.S. 294, 325 (1962); Tunis Brothers Co., Inc.
v. Ford Motor Co., 952 F.2d 715, 722 (3d Cir. 1991).
"Interchangeability implies that one product is roughly
equivalent to another for the use to which it is put; while there
may be some degree of preference for the one over the other,
either would work effectively. A person needing transportation to
work could accordingly buy a Ford or a Chevrolet automobile, or
could elect to ride a horse or bicycle, assuming those options
were feasible." Allen-Myland, Inc. v. International Business
Machines Corp., 33 F.3d 194, 206 (3d Cir. 1994) (internal
quotations omitted). When assessing reasonable
interchangeability, "factors to be considered include price, use,
and qualities." Tunis Brothers, 952 F.2d at 722. Reasonable
interchangeability is also indicated by "crosselasticity of demand between the product
itself and substitutes for it." Brown Shoe Co. v. U.S.,
370 U.S. at 325. Products in a relevant market are characterized by a
cross-elasticity of demand, in other words, the rise in the price
of a good within a relevant product market would tend to create a
greater demand for other like goods in that market." Tunis
Brothers, 952 F.2d at 722.
In Queen City Pizza, the Court of Appeals for the Third
Circuit held that in a franchise context, the relevant market for
purposes of Section 2 is defined by the reasonable
interchangeability of goods, regardless of the purchasing
restrictions in the franchise agreement. 124 F.3d at 438 ("A
court making a relevant market determination looks not to the
contractual restraints assumed by a particular plaintiff when
determining whether a product is interchangeable, but to the uses
to which the product is put by consumers in general. Thus, the
relevant inquiry here is not whether a Domino's franchisee may
reasonably use both approved or non-approved products
interchangeably without triggering liability for breach of
contract, but whether pizza makers in general might use such
products interchangeably."). The relevant market in plaintiffs'
case is therefore the market for all reasonably interchangeable
health supplements, power bars, and energy drinks. Plaintiffs
could only state a Section 2 claim by alleging that GNC possesses
monopoly power in the market for all such goods.
Plaintiffs, in their Opposition to Defendants' Motion to
Dismiss, have failed to argue their Section 2 claim at all, and
because they identify neither a relevant market nor GNC's
monopoly power in that market, fail to plead the prerequisites of
a predatory pricing claim. Accordingly, this Court will dismiss
the claim without prejudice.
Count X: Robinson Patman Act The Robinson-Patman Act "prohibits price discrimination where
the effect of such discrimination may be substantially to lessen
competition or tend to create monopoly." Crossroads Cogeneration
v. Orange & Rockland, 159 F.3d 129, 142 (3d Cir. 1998),
quoting 15 U.S.C. § 13(a). To state a viable claim under the
Robinson-Patman Act, a plaintiff must allege facts which
demonstrate that: (1) the defendant made at least two
contemporary sales of the same commodity at different prices to
different purchasers; and (2) the effect of such discrimination
was to injure competition." Id.
Plaintiffs allege that GNC engaged in discriminatory sales
between franchises and GNC-owned stores (Amended Complaint ¶
105). Certain jurisdictions have held that transfers between
parent and wholly-owned subsidiaries, such as these, do not fall
within the scope of the Robinson-Patman Act as a matter of law.
See Security Tire & Rubber Co. v. Gates Rubber Co.,
598 F.2d 962, 967 (5th Cir. 1979) ("transfers between parent and
wholly-owned subsidiary are not the type of transactions the
Robinson-Patman Act meant to regulate"), cert denied,
444 U.S. 942 (1979). The United States Supreme Court later held in
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752
(1984), that a parent and a wholly owned subsidiary are a single
economic unit under the Sherman Act, and a number of Courts of
Appeals have since construed the holding to apply to the
Robinson-Patman Act, as well. See Russ' Kwik Car Wash v.
Marathon Petroleum Co., 772 F.2d 214, 221 (6th Cir. 1985)
("the parent and subsidiary are a single economic unit. The
Robinson-Patman Act is not concerned with transfers between
them"); City of Mount Pleasant, Iowa v. Assoc. Elec. Co-Op.
Inc., 838 F.2d 268, 278-79 (8th Cir. 1988) (following the
Sixth Circuit in adopting the Copperweld-inspired rule, holding
that the Robinson-Patman Act did not apply to sales between an
electricity utility company and retail distribution electric
cooperatives); Caribe BMW, Inc. v. Bayerische Motoren Werke Aktiengesellschaft, 19 F.3d 745 (1st Cir. 1994) (acknowledging
the application of the Copperweld doctrine by the Sixth and
Eighth Circuits to transfers between a parent and its
wholly-owned subsidiary, and, applying the doctrine, held that a
parent and its wholly-owned subsidiary are one seller for
Robinson-Patman Act purposes). The Ninth Circuit, on the
contrary, has held that transactions with subsidiaries are not
necessarily immune. Zoslaw v. MCA Distributing Corp.,
693 F.2d 870 (9th Cir. 1982), cert. denied, 460 U.S. 1085 (1983). The
United States Court of Appeals for the Third Circuit has not
spoken on this issue.
The United States Supreme Court has held unambiguously in
Copperweld that a parent and wholly-owned subsidiary are
considered a single economic unit for purposes of Section 1 the
Sherman Act. 467 U.S. 752. It is, therefore, reasonable to
consider them a single economic unit for purposes of the
Robinson-Patman Act, and transfer of commodities between them
insufficient to constitute a "sale" under the Act. GNC
Corporation calculates the revenue of its wholly-owned GNC retail
stores using the final purchase price paid by consumers. The
revenue it reports from franchise operations, however, is a
combination of franchise royalty revenue and wholesale product
sales to franchisees. See GNC Corporation, Quarterly Report 24
(September 20, 2005).
In their Opposition to Defendant's Motion to Dismiss,
plaintiffs make no argument as to the applicability of the
Robinson-Patman applies other than citing a case from the Court
of Appeals for the Ninth Circuit and two cases from the Federal
District Courts of New York, none of which this Court finds to be
persuasive. There being no other case law in this jurisdiction
directly on point, we follow the decisions in the First, Fifth,
Sixth, Eighth Circuits in holding that transfers between a parent
and subsidiary, such as those between GNC and its wholly-owned subsidiaries, do not fall within the scope of the Robinson-Patman
Act. Accordingly, this Court will dismiss this claim with
Count XI: Sherman Act
Section 1 of the Sherman Act provides that "every contract,
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce . . . is declared to be illegal."
15 U.S.C. § 1. Although the language in Section 1 of the Sherman
Act suggests a broad restriction on commercial restraints, the
United States Supreme Court has repeatedly recognized that this
provision covers only unreasonable restraints of trade. National
Collegiate Athletic Ass'n v. Board of Regents, 468 U.S. 85
(1984). In determining whether a defendant's conduct unreasonably
restrains trade, courts apply one of two modes of analysis.
Rossi v. Standard Roofing, 156 F.3d 452, 461 (3d Cir. 1998).
Courts apply per se analysis when "the practice facially appears
to be one that would always or almost always tend to restrict
competition and decrease output." Bd. of Regents,
468 U.S. at 100, (quoting Broad. Music, Inc. v. Columbia Broad. Sys., Inc.,
441 U.S. 1, 19-20 (1979)). In a per se analysis, conduct that is
"manifestly anticompetitive" is "conclusively presumed to
unreasonably restrain competition without elaborate inquiry as to
the precise harm it has caused or the business excuse for its
use." Rossi, 156 F.3d at 461. If a court finds that a restraint
is not per se unreasonable, the "rule of reason" analysis is
Plaintiffs claim that GNC engaged in horizontal price-fixing
with its suppliers, and that this alleged conduct constitutes per
se unlawful conduct. Although plaintiffs originally alleged facts
in support of both horizontal and vertical conspiracy (Amended
Complaint ¶¶ 105, 117), plaintiffs emphasize in their Opposition
to Defendants' Motion to Dismiss that their Sherman Act claim alleges horizontal conspiracy only (doc. no. 12). In
arguing that their claim is of the per se variety, however,
plaintiffs cite only two modestly relevant cases, without
analysis. See Isaksen v. Vermont Castings, Inc., 825 F.2d 1158
(7th Cir. 1987); Rochez Bros. v. North Am. Salt Co., 1994-2
Trade Cas. (CCH) Par.70,804 (W.D. Pa. 1994). This Court finds
neither persuasive. Plaintiffs allege that GNC pressured third
party vendors through the threat of boycott. While "group
boycott" (a term never invoked by plaintiffs) is a standard
Sherman Act concept that courts often recognize as a per se
violation, plaintiffs make no argument that GNC engaged in group
boycott nor cite a single case in the entire corpus of antitrust
law that addresses this type of claim. In sum, it is impossible
to conclude from plaintiffs allegations that GNC's alleged
conduct was "manifestly anticompetitive," and, thus, per se
Plaintiffs argue that because its alleged Section 1 violations
are per se unlawful, no proof of relevant markets is necessary.
Plaintiffs are wrong. See Queen City Pizza, Inc. v. Domino's
Pizza, Inc., 922 F.Supp. 1055, 1060 (E.D. Pa. 1996) ("in order
to state a Sherman Act claim under either § 1 or § 2, a plaintiff
must identify the relevant product and geographic market and
allege that the defendant exercises market power within those
markets"), aff'd 124 F.3d at 436 (3d Cir. 1997) ("It is true
that in most cases, proper market definition can be determined
only after a factual inquiry into the commercial realities faced
by consumers. Plaintiffs err, however, when they try to turn this
general rule into a per se prohibition against dismissal of
antitrust claims for failure to plead a relevant market under
Fed.R.Civ.P. 12(b)(6)") (citation omitted); Bogan v.
Hodgkins, 166 F.3d 509, 515 (2d Cir. 1999) ("The categories of
per se illegal practices are an approximation, a shortcut to
reach conduct that courts can safely assume would surely have an
anticompetitive effect. Thus, it is an element of a per se case
to describe the relevant market in which we may presume the
anticompetitive effect would occur"). Plaintiffs have pled no relevant market, and this Court will dismiss the claim for
this reason and additional reasons below.
In addition to failing to state a claim under the per se
theory, plaintiffs' claim fails equally under the rule of reason
analysis. Under this test, the court "weighs all of the
circumstances of a case in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable
restraint on competition." Business Elecs. Corp. v. Sharp Elecs.
Corp., 485 U.S. 717, 723 (1988). The first step in applying the
rule of reason requires that the plaintiffs demonstrate that a
competitive restraint has had substantial adverse,
anti-competitive effect. To meet this initial burden, plaintiffs
must prove: (1) that the defendants contracted, combined or
conspired among each other; (2) that the combination or
conspiracy produced adverse, anti-competitive effects within the
relevant product and geographic markets; (3) that the objects of
and the conduct pursuant to that contract or conspiracy were
illegal; and (4) that the plaintiffs were injured as a proximate
result of that conspiracy. Rossi, 156 F.3d at 464-465.
Plaintiffs may satisfy this burden by proving the existence of
actual anticompetitive effects, such as reduction of output,
increase in price, or deterioration in quality of goods or
services. United States v. Brown University, 5 F.3d 658, 668
(3d Cir. 1993).
Plaintiffs allege horizontal conspiracy between GNC and
third-party vendors to supply goods to GNC franchisees and
subsidiaries at different prices. Conclusory allegations of
conspiracy, however, are insufficient to state a Sherman Act
claim. See Pennsylvania ex Rel. Zimmerman v. PepsiCo, Inc.,
836 F.2d 173, 182 (3d. Cir. 1988) ("A general allegation of
conspiracy without a statement of facts is an allegation of a
legal conclusion and insufficient to constitute a cause of
action."); Garshman v. Universal Resources Holding, Inc.,
824 F.2d 223, 230 (3d Cir. 1987) (The allegation of unspecified
contracts with unnamed other entities to achieve unidentified anticompetitive effects does not meet the
minimum standards for pleading a conspiracy in violation of the
Sherman Act"). Here, plaintiffs name only one alleged conspirator
in its pleadings, Optimum Manufacturing (in their Opposition to
Defendants' Motion to Dismiss, plaintiffs also mention "Silver
Sage," but this appears to be a brand name, not a third-party
supplier). Plaintiffs additionally fail to allege how GNC
conspired, when, and regarding what products and prices. See
Brunson Communs., Inc. v. Arbitron, Inc., 239 F. Supp. 2d 550,
563 (E.D. Pa. 2002) (dismissing boycott allegation for which
"Plaintiff has not provided a single detail as to when, why, or
how the conspirators decided upon this alleged boycott. . . .
[W]hile Plaintiff's Amended Complaint is extremely broad in
charging Section One antitrust liability, it falls far short on
the facts."). Plaintiffs herein fall short of the standards for
pleading a claim under Section 1.
The second step in plaintiffs' case, proving that the
combination or conspiracy produced adverse, anti-competitive
effects within the relevant product and geographic markets,
requires that they adequately define the relevant product and
geographic markets. Again, plaintiffs have pleaded no relevant
market. The pleading requirements for the antitrust plaintiff are
strictly applied. "Where the plaintiff fails to define its
proposed relevant market with reference to the rule of reasonable
interchangeability and cross-elasticity of demand, or alleges a
proposed relevant market that clearly does not encompass all
interchangeable substitute products even when all factual
inferences are granted in plaintiff's favor, the relevant market
is legally insufficient and a motion to dismiss may be granted."
Queen City Pizza, 124 F.3d at 436.
Accordingly, plaintiffs' Sherman Act claim will be dismissed,
without prejudice, for failure to plead a market, claim a per se
violation, or satisfy either prong of the rule of reason test. Count XII: Breach of Fiduciary Duty
Plaintiffs assert that GNC has a fiduciary relationship with
its franchisees and that GNC breached its fiduciary relationship
with the Bishops through the predatory marketing and pricing
actions alleged in the complaint. The United States District
Court for the Eastern District of Pennsylvania has determined
that no fiduciary relationship exists between franchisor and
franchisee under Pennsylvania law. See, e.g., MAACO Enters, Inc.
v. Cross, 1992 WL 350667, at *2 (E.D. Pa. 1992) (dismissing
breach of fiduciary duty because there is no such duty between
franchisor and franchisee); Tilli v. AAMCO Transmissions, Inc.,
1992 WL 38405, at *3 (E.D. Pa. 1992) (same); AAMCO
Transmissions, Inc. v. Harris, 759 F. Supp. 1141, 1147 (E.D. Pa.
1991) (holding that a claim for "breach of fiduciary duty . . .
must be dismissed because no such duty exists as a matter of law.
The courts of this district have concluded in similar cases that
a franchise relationship is not fiduciary in nature.").
Additionally, as Judge O'Neill stated in Coxfam, Inc. v. AAMCO
Transmissions, Inc., 1990 WL 131064 at 3 (E.D. Pa. 1990), with
footnotes omitted: The significant weight of authority holds that
franchise agreements do not give rise to fiduciary or
confidential relationships between the parties. See O'Neal v.
Burger Chef Systems, 860 F.2d 1341, 1349-50 (6th Cir. 1988)
(applying Tennessee law); Premier Wine & Spirits v. E. & J.
Gallo Winery, 846 F.2d 537, 540-541 (9th Cir. 1988) (applying
South Dakota law); Domed Stadium Hotel, Inc. v. Holiday Inns,
Inc., 732 F.2d 480, 484-85 (5th Cir. 1984) (applying Louisiana
law); Murphy v. White Hen Pantry Co., 691 F.2d 350, 354-56 (7th
Cir. 1982) (applying Wisconsin law); Picture Lake Campground,
Inc. v. Holiday Inns, Inc., 497 F.Supp. 858, 869 (E.D. Va. 1980)
(applying Virginia law); Layton v. AAMCO Transmissions, Inc.,
717 F.Supp. 368, 371 (D. Md. 1989) (applying Maryland law); Bonfield v. AAMCO Transmissions, Inc.,
708 F.Supp. 867, 883-84 (N.D. Ill. 1989) (applying Illinois law).
As plaintiffs cite no authority supporting their theory that a
fiduciary duty exists between franchisor and franchisee, this
Court will follow the holdings of the District Court for the
Eastern District of Pennsylvania and the Court of Appeals for the
Fifth, Sixth, Seventh, and Ninth Circuits in holding that no such
duty exists in the franchisor/franchisee relationship, and,
therefore, will dismiss this claim with prejudice.
Count XIII: Conspiracy Under the Robinson-Patman Act
Plaintiffs claim that GNC conspired to violate the
Robinson-Patman Act by selling products to corporate-owned stores
for less than it was selling these products to the plaintiffs. In
FTC v. Henry Broch & Co., 363 U.S. 166, 174 (1960), the United
States Supreme Court held that the Robinson-Patman Act "is aimed
at price discrimination, not conspiracy." Relying on the Broch
decision, a number of courts have declined to recognize an
independent cause of action for conspiracy under the
Robinson-Patman Act. See, e.g., General Supply Deck & Floor
Underlayment Co. v. Maxxon Southwest, 2001 WL 1480768, at *4
(N.D. Tex. 2001) (dismissing conspiracy claim because "there is
no provision in the Robinson-Patman Act providing for such a
claim"); Drug Mart Pharmacy Corp. v. Am. Home Products Corp.,
378 F. Supp. 2d 134, 140 (E.D.N.Y. 2005) ("[R]esearch has not
revealed a single case in which a conspiracy claim was asserted
and allowed in a Robinson-Patman case. . . . The inference, I
suggest, is permissible, that the unavailability of such a claim
is accepted by the legal and academic community.").
In sum, there exists no authority for allowing a conspiracy
claim under the Robinson-Patman Act and plaintiffs do not even
argue one. Therefore, the Court will dismiss this claim with prejudice.
Count XIV: Punitive Damages
Finally, plaintiffs set forth punitive damages as a separate
claim for relief. Amended Complaint ¶ 127-29. Punitive damages,
however, do not constitute an independent cause of action. See
Dittrich v. Seeds, U.S. Dist. LEXIS 22229, at *15 (E.D. Pa.
2005) ("We note that punitive damages are not an independent
cause of action. Rather, punitive damages are a remedy"); Shorb
v. State Farm Mut. Auto. Ins. Co., 2005 WL 1137881, at *5 (M.D.
Pa. 2005) ("Plaintiffs cannot maintain an independent cause of
action for punitive damages."); Waltman v. Fahnestock & Co.,
Inc., 792 F. Supp. 31, 33 (E.D. Pa. 1992) ("punitive damages are
a remedy, not a cause of action"). Therefore, the Court will
dismiss plaintiffs' claim for punitive damages claim, with
For the reasons discussed above, the Court will not dismiss
Count I and will dismiss Counts II, III, IV, V, VI, VIII, IX, X,
XII, XIII, and XIV with prejudice and Counts VII and XI without
prejudice. The motion to dismiss will be granted in part and
denied in part.
An appropriate order follows. ORDER OF COURT
AND NOW, this 1st day of December, 2005, as set forth more
fully in the accompanying memorandum opinion, IT IS HEREBY
ORDERED that defendants' motion to dismiss (document no. 9) is
GRANTED in part and DENIED in part.
IT IS FURTHER ORDERED that Counts II, III, IV, V, VI, VIII,
IX, X, XII, XIII, and XIV are DISMISSED with prejudice and Counts
VII and XI are DISMISSED without prejudice.
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