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.
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 ...