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Nutrimost Doctors, LLC v. Zane Sterling, D.C.

United States District Court, E.D. Michigan, Southern Division

March 30, 2018

NUTRIMOST DOCTORS, LLC, Plaintiff,
v.
ZANE STERLING, D.C., et al., Defendants.

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART NUTRIMOST'S AND WISNIEWSKI'S MOTIONS TO DISMISS

          BERNARD A. FRIEDMAN SENIOR UNITED STATES DISTRICT JUDGE.

         This matter is presently before the Court on (1) the motion of counter-defendant Nutrimost Doctors, LLC (“Nutrimost”) for partial dismissal of the counter-complaint filed by Olafsson, et al., and for a more definite statement [docket entry 48]; (2) Nutrimost's motion for partial dismissal of the counterclaim filed by Idaho Fat Loss Twin Falls, LLC, et al. [docket entry 49]; (3) the motion of third-party defendants Nutrimost and Wisniewski to dismiss the third-party complaint filed by Olafsson, et al. [docket entry 57]; and (4) the motion of third-party defendant Wisniewski to dismiss the third-party complaint filed by Idaho Fat Loss Twin Falls, LLC, et al. [docket entry 58]. Pursuant to E.D. Mich. LR 7.1(f)(2), the Court shall decide these motions without a hearing.

         Background

         This is a case of franchise agreements gone sour. The franchisor is Nutrimost. According to its website, the “The Nutrimost Wellness and Weight Loss Program is a nutritional program designed to help you identify the foods and supplements that will overcome the nutritional deficiencies that are present in your body.” http://www.nutrimost.com. The company sells franchises to various heathcare providers, including chiropractors, who pursuant to a franchise agreement are provided with, and agree to sell, certain “proprietary Nutrimost supplements” as part of the Nutrimost Weight Loss System.

         The defendants are three chiropractors and their eleven companies: Dr. Zane Sterling, D.C., who resides in Boise, Idaho, and his four companies, all of which operate in Boise (Idaho Fat Loss Twin Falls, LLC; Idaho Fat Loss Idaho Falls, LLC; Idaho Fat Loss, Inc.; and Sterling Clinics, LLC); Dr. Joel Feeman, D.C., who resides in Fort Wayne, Indiana, and his five companies, which operate in three different locations in Ohio and Fort Wayne (Complete Health & Wellness, LLC; Customized Health & Wellness, LLC; Doctors Health & Wellness, LLC; New Life Chiropractic Center, Inc.; and New Life Health & Wellness Southwest, LLC); and Dr. Jason Olafsson, D.C., who resides in Oxford, Michigan, and his two companies, which operate in Lake Orion and Clarkson, Michigan (Custom Fat Loss, Inc.; and Custom Chiropractic and Wellness, Inc.). Plaintiff has franchise agreements (all of which are identical except for the service areas and monthly royalties each defendant must pay) with each of these companies. Each franchise agreement allows the franchisee to operate in one or more specified ZIP codes and requires the franchisee to pay monthly royalties.

         Plaintiff alleges that in early 2016 defendants Sterling, Feeman, and Olafsson sent “contaminated” samples of the Nutrimost supplements to a laboratory in Ann Arbor, Michigan (Avomeen Analytical Services) for testing.[1] This laboratory reported that the samples contained three banned weight-loss chemicals - Fenproporex, Aminorex, and Fluoxetine. Defendants then had their lawyers send letters to plaintiff, along with copies of the lab reports, declaring the franchise agreements to be void on the grounds that the Nutrimost supplements contained banned substances. Plaintiff then had a different laboratory test the same supplement lots, as well as lots preceding and following the lots defendants tested, and these tests allegedly detected no contamination. Plaintiff alleges that defendants deliberately contaminated the samples they provided to Avomeen to fabricate a way of escaping from their obligations under the franchise agreement.

         Based on what plaintiff calls defendants' “Contaminated Supplement Scheme, ” the amended complaint asserts claims against all defendants for fraud, breach of contract, civil RICO, civil conspiracy, and violations of the Pennsylvania Uniform Trade Secrets Act. The Court has subject matter jurisdiction based on the RICO claim and diversity of citizenship. Plaintiff, which claims that more than $75, 000 is in controversy, resides in Pennsylvania, and the defendants reside in Idaho, Michigan, Ohio, and Indiana.

         After the Court denied defendants' motions to dismiss, defendants Olafsson and Feeman and their companies filed a counter-complaint [docket entry 40] against Nutrimost and a third-party complaint [docket entry 42] against Nutrimost and its principal, Ray Wisniewski. These counter-plaintiffs assert claims for breach of contract (Count I) and fraud and/or misrepresentation (Count II) based on allegations that Nutrimost provided them with contaminated and discolored supplements and exaggerated and otherwise misrepresented the supplements' qualities. In Count III, these counter-plaintiffs claim that Nutrimost defamed them by questioning their honesty at a meeting of franchisees and licensees, and in Count IV Olafsson and Feeman claim that Nutrimost invaded the privacy of their children by using their images without permission. In their third-party complaint, Olafsson, Feeman, and their companies allege that Nutrimost and Wisniewski committed fraud and/or misrepresentation (Count I) by overstating the supplements' qualities, and that Nutrimost and Wisniewski defamed them (Count II) by questioning their honesty and falsely suggesting that they contaminated the product samples they sent for testing.

         Additionally, Sterling's four companies filed a “counterclaim and third-party complaint” [docket entry 44, Pg ID 1573-1613] against Nutrimost for declaratory judgment, breach of contract, breach of covenant of good faith and fair dealing, rescission, disgorgement of profits, breach of implied warranty, and breach of fiduciary duties (Counts I, II, III, VIII, IX, XI, and XII), against Wisniewski for indemnification and contribution (Counts VI and VII), and against Nutrimost and Wisniewski for fraud, negligent misrepresentation, and tortious interference with business relationships (Counts IV, V, and X).

         In the motions now before the Court, Nutrimost seeks dismissal of Counts II-IV of the Olafsson/Feeman counter-complaint and a more definite statement as to Count I [docket entry 48]. Nutrimost also seeks dismissal of all claims asserted against it in the Sterling companies' counterclaim except Counts I and II [docket entry 49]. Nutrimost and Wisniewski seek dismissal of the Olafsson/Feeman third-party complaint [docket entry 57]. And Wisniewski seeks dismissal of the Sterling companies' third-party complaint [docket entry 58].

         Legal Standard

         The legal standard governing these motions is well known:

In order to defeat a motion to dismiss, a plaintiff must “allege[ ] facts that ‘state a claim to relief that is plausible on its face' and that, if accepted as true, are sufficient to ‘raise a right to relief above the speculative level.'” Handy-Clay v. City of Memphis, 695 F.3d 531, 538 (6th Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In reviewing a complaint, we construe it “in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.” Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007).

Mills v. Barnard, 869 F.3d 473, 479 (6th Cir. 2017). Other legal standards, as they relate to specific claims and arguments, are noted in the discussion below.

         Discussion

         A. Nutrimost's Motion to Dismiss the Olafsson/Feeman Counter-Complaint [Docket Entry 48]

         In this motion, Nutrimost seeks dismissal of Counts II (fraud and/or negligent and innocent misrepresentation), III (defamation), and IV (invasion of privacy) of the Olafsson/Feeman counter-complaint and a more definite statement as to Count I (breach of contract).

         Nutrimost first argues that Count II should be dismissed because it is barred by the “gist of the action” doctrine, a term of art under Pennsylvania law[2] that can prevent a party from suing in tort when the parties' relationship is governed by contract. As summarized by the Pennsylvania Supreme Court, the essence of the doctrine is that

[i]f the facts of a particular claim establish that the duty breached is one created by the parties by the terms of their contract-i.e., a specific promise to do something that a party would not ordinarily have been obligated to do but for the existence of the contract-then the claim is to be viewed as one for breach of contract. If, however, the facts establish that the claim involves the defendant's violation of a broader social duty owed to all individuals, which is imposed by the law of torts and, hence, exists regardless of the contract, then it must be regarded as a tort.

Bruno v. Erie Ins. Co., 630 Pa. 79, 112, 106 A.3d 48, 68 (2014) (citations omitted). Nutrimost argues that its relationship with the counter-plaintiffs is governed by contract and that Count II does not allege a “broader social duty” that could support a claim for fraud or misrepresentation.

         The Court rejects this argument because the fraud/misrepresentation alleged in Count II occurred before the parties entered into the franchise agreements. Counter-plaintiffs allege that Nurtrimost fraudulently induced them to enter into those agreements by misrepresenting the qualities of the Nutrimost supplements. The “gist of the action” doctrine does not bar a claim of fraudulent inducement because the gist of such a claim relates to the circumstances that led the complaining party to enter into the contract, not the defending party's alleged failure to perform as required by the contract. See Sullivan v. Chartwell Inv. Partners, LP, 2005 PA Super 124, ¶ 25, 873 A.2d 710, 719 (2005).

         Nutrimost next argues that Count II fails because the allegedly fraudulent statements about the supplements' qualities were not material representations of fact, but merely opinions and “puffery.” Nutrimost cites authority for the proposition that one “may ‘puff' or give subjective opinions . . . without making a material misrepresentation if the representations necessarily involve individual judgement such that, even though made absolutely, the hearer must know that they can be based only on the speaker's opinion.” Fishkin v. TABFG, LLC, 2006 WL 1517397, at *8 (E.D. Pa. May 31, 2006) (quoting Step-Saver Data Sys., Inc. v. Wyse Tech., 752 F.Supp. 181, 190 (E.D. Pa. 1990)).

         While this is certainly a correct statement of the law, the Court is not persuaded that it justifies dismissing the fraud/misrepresentation claim in the present case. Counter-plaintiffs allege more than opinions and puffery. Among other things, Nutrimost claimed that it “guaranteed” its program would result in a weight loss of at least 25 pounds in 40 days; that the program was based on “revolutionary breakthrough technology”; and that specifically pictured individuals had lost specific numbers of pounds “in only 40 days.” Olafsson/Feeman Counter-Complaint ¶ 24 and Exs. 6-8. Such statements are more in the nature of “specific and measurable” claims, which take them outside the realm of opinions and puffery. Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 946 (3d Cir. 1993). Count II cannot be dismissed on this basis.

         Regarding the defamation claim (Count III), Nurtimost seeks dismissal on the grounds that the allegedly defamatory statement was privileged under Pennsylvania law.[3] The “judicial privilege” at issue has been summarized by the Pennsylvania Supreme Court as follows:

Pursuant to the judicial privilege, statements made in pleadings, as well as in the actual trial or argument of a case, are absolutely privileged, and the maker of the statements is immune from legal action as long as the statements are issued in the regular course of judicial proceedings and are pertinent and material to the redress or relief sought. Post v. Mendel, 510 Pa. 213, 507 A.2d 351, 353, 355 (1986). The judicial privilege also extends to statements made prior to judicial proceedings, provided that they are pertinent and material to, and issued in the regular course of preparing for, contemplated judicial proceedings. Id. at 356.

Pollina v. Disong, 2014 PA Super 153, 98 A.3d 613, 618-19 (2014). And in Post, the court explained:

Thus, the privilege exists because there is a realm of communication essential to the exploration of legal claims that would be hindered were there not the protection afforded by the privilege. The essential realm of protected communication is not, however, without bounds. Rather, the protected realm has traditionally been regarded as composed only of those communications which are issued in the regular course of judicial proceedings and which are pertinent and material to the redress or relief sought. Kemper, 219 Pa. at 93, 67 A. at 994-95; Greenberg, 427 Pa. at 515, 235 A.2d at 578; Barto v. Felix, 250 Pa. Super. 262, 378 A.2d 927 (1977), appeal dismissed, 487 Pa. 455, 409 A.2d 857 (1980) (although statements in ...

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