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Hetrick v. Ideal Image Dev. Corp.

United States Court of Appeals for the Eleventh Circuit

April 15, 2010, Decided; April 15, 2010, Filed

No. 09-10762

Opinion

 [*986]  PER CURIAM:

Cindy and Randy Hetrick ("the Hetricks") appeal the district court's dismissal of their claims against Ideal Image Development Corp. ("Ideal Image"), a franchisor of cosmetics retail outlets, for violations of the Florida Franchise Act ("FFA") and the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"). The Hetricks claimed that Ideal Image misrepresented the cost of opening an Ideal Image franchise and the extent of its likely profitability. The  [**2] district court dismissed the Hetricks' statutory claims on the ground that, under the shareholder standing doctrine, the claims belonged primarily to the Hetricks' closely held corporation, CIRA Corp. ("CIRA"), which they created for the purpose of owning and operating the franchise. The district court did, however, allow the Hetricks individually to proceed to trial on a theory that the same alleged representations amounted to common law fraud and negligent misrepresentation. After a two-day trial, a jury found that no misrepresentations of material fact occurred. The Hetricks do not challenge that verdict, only the earlier dismissal of their statutory claims.

After thorough review, we agree with the district court that under Florida law the Hetricks lack standing to bring an FFA claim in their individual capacities, but we can find no basis in the defendant's arguments or the district court's reasoning  [*987]  for dismissal of the Hetricks' FDUTPA claim. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.

The facts, taken from the complaint, are these: Ideal Image is a franchisor of retail centers that perform cosmetic treatments. In 2004, Randy and Cindy  [**3] Hetrick became interested in opening an Ideal Image franchise in the Atlanta, Georgia, metropolitan area. Between February 13 and March 30, 2004, the Hetricks spoke by telephone or met in person with Ideal Image representatives on at least four occasions. The Hetricks claim that Ideal Image made a number of representations about the profits and earnings potential of other Ideal Image franchises, and of the franchise that the Hetricks were urged to open, all in violation of the FFA's detailed scheme regulating franchises and the FDUTPA's prohibition on "deceptive or unfair" trade practices.

On March 30, 2004, following the last of their meetings, the Hetricks signed a Franchise Agreement with Ideal Image. Apparently at the urging of Ideal Image, they created a corporation named CIRA Corp. to hold and operate the franchise. Randy Hetrick signed the Franchise Agreement in his capacity as President of CIRA, and Cindy Hetrick signed the agreement in her capacity as Secretary of the company. The Franchise Agreement itself provided that the act of signing it constituted a representation that the investor, if a corporation, was duly incorporated under the laws of the state of incorporation.  [**4] Further, in Addendum H to the Franchise Agreement, the "Principal Owners Statement," the Hetricks attested that the purchaser of the franchise was an S Corporation named CIRA Corp. that had been "incorporated or formed on March 30, 2004" in Alabama, and of which Randy Hetrick was the President and Cindy B. Hetrick the Secretary. The Hetricks also signed a personal guarantee that referred to the agreement between CIRA and Ideal Image. In reality, however, CIRA was not formally incorporated until April 2, 2004, a fact about which there is no dispute.

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372 Fed. Appx. 985 *; 2010 U.S. App. LEXIS 7831 **

RANDY HETRICK, individually, CINDY HETRICK, individually, Plaintiffs-Appellants, versus IDEAL IMAGE DEVELOPMENT CORPORATION, a Florida corporation, Defendant-Appellee.

Notice: PLEASE REFER TO FEDERAL RULES OF APPELLATE PROCEDURE RULE 32.1 GOVERNING THE CITATION TO UNPUBLISHED OPINIONS.

Subsequent History: Summary judgment denied by, Partial summary judgment granted by Hetrick v. Ideal Image Dev. Corp., 758 F. Supp. 2d 1220, 2010 U.S. Dist. LEXIS 135065 (M.D. Fla., 2010)

Prior History:  [**1] Appeal from the United States District Court for the Middle District of Florida. D. C. Docket No. 07-00871-CV-T-33-TBM.

Hetrick v. Ideal Image Dev. Corp., 2009 U.S. Dist. LEXIS 131587 (M.D. Fla., June 22, 2009)

Disposition: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

CORE TERMS

franchise, deception, district court, shareholder, franchise agreement, unfair, misrepresentations, invested, alleged misrepresentation, standing doctrine, representations, collateral estoppel, damages, funded, promoters

Civil Procedure, Appeals, Standards of Review, De Novo Review, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Business & Corporate Law, Distributorships & Franchises, Franchise Relationships, General Overview, Justiciability, Standing, Shareholder Actions, Actions Against Corporations, Third Party Standing, Corporate Formation, Preincorporation, Incorporators & Promoters, Antitrust & Trade Law, Trade Practices & Unfair Competition, State Regulation, Scope, Consumer Protection, Deceptive & Unfair Trade Practices, State Regulation, Remedies, Damages, Preclusion of Judgments, Estoppel, Collateral Estoppel