Planet Fitness Int'l Franchise v. JEG-United, LLC

633 F.Supp.3d 484

2022 DNH 117

PLANET FITNESS INTERNATIONAL FRANCHISE v. JEG-UNITED, LLC

Civil No. 20-cv-693-LM

United States District Court, D. New Hampshire

Signed September 27, 2022

Michael D. Joblove, Brett Michael Halsey, Genovese Joblove & Battista PA, Miami, FL, James P. Harris, Sheehan Phinney Bass & Green PA, Manchester, NH, for Planet Fitness International Franchise.

James Howard Steigerwald, Nicholas M. Centrella, Jr., Duane Morris LLP, Philadelphia, PA, Bryan Harrison, Sunstein LLP, Boston, MA, for JEG-United, LLC.

ORDER

Landya McCafferty, United States District Judge

Planet Fitness International Franchise ("Planet Fitness"), a franchisor of gyms, and JEG-United, LLC, a business that operates several Planet Fitness franchises in Mexico, bring claims against each other in this commercial dispute. JEG-United also brings counterclaims against Planet Fitness's Chief Development Officer, Raymond Miolla. Planet Fitness and Miolla move for summary judgment (doc. no. 81) on JEG-United's counterclaims. JEG-United objects. JEG-United also filed two assented-to motions to seal exhibits attached to its objection and surreply (doc. nos. 88 and 97).

For the following reasons, Planet Fitness's motion for summary judgment is denied in part and granted in part. JEG-United's motions to seal are granted.

STANDARD OF REVIEW

Summary judgment is proper only if the moving party can demonstrate that there is no evidence in the record to support a judgment for the nonmoving party. Borges v. Serrano-Isern, 605 F.3d 1, 5, 8 (1st Cir. 2010); see also Fed. R. Civ. P. 56(a). If the moving party succeeds in making that showing, "the burden shifts to the nonmoving party, who must, with respect to each issue on which she would bear the burden of proof at trial, demonstrate that a trier of fact could reasonably resolve that issue in her favor." Borges, 605 F.3d at 5. The nonmoving party's failure to meet that burden by reference to "significantly probative" materials "of evidentiary quality" entitles the moving party to summary judgment. Flovac, Inc. v. Airvac, Inc., 817 F.3d 849, 853 (1st Cir. 2016). In evaluating a motion for summary judgment, the courts must view the evidence in the light most favorable to the nonmoving party, must draw all reasonable inferences in that party's favor, and may neither make credibility determinations nor weigh the evidence. Harris v. Scarcelli, 835 F.3d 24, 29 (1st Cir. 2016); Hicks v. Johnson, 755 F.3d 738, 743 (1st Cir. 2014).

BACKGROUND

The disputes in this case relate to negotiations between Planet Fitness and JEG-United from 2015 through 2020. During that time and under the auspices of contracts known as "side letter agreements," Planet Fitness and JEG-United negotiated toward a more expansive contract—known to the parties as an "area development agreement" or "ADA"—that would have provided JEG-United with the exclusive right to open and operate new Planet Fitness franchises in all or parts of Mexico. Ultimately, JEG-United and Planet Fitness agreed to contracts granting JEG-United rights to open and operate five Planet Fitness franchises in parts of the Monterrey, Mexico, metropolitan area. For the rest of Mexico, Planet Fitness agreed to an ADA with a third party, Ibarra Group. In this suit, JEG-United alleges that Planet Fitness acted improperly in various respects during their negotiations.

Specifically, in Counts I and II of its counterclaims, JEG-United alleges that Planet Fitness's conduct during negotiations breached the operative side letter agreement (Count I) and breached the implied covenant of good faith and fair dealing (Count II). In Count III, JEG-United claims that, during the same time period, Planet Fitness and Miolla tortiously interfered with JEG-United's attempts to consummate transactions with several third parties—a Mexico-based grocery chain (Soriana), a competing chain of gyms (California Fitness), and Ibarra Group. In Count IV, JEG-United alleges that Planet Fitness and Miolla violated the New Hampshire Consumer Protection Act, RSA 358-A:2.¹ While not at issue in the present motion for partial summary judgment, Planet Fitness's claims against JEG-United seek to enforce a provision in the operative side letter agreement that required Planet Fitness to buy JEG-United's Mexico franchises.

I. JEG-United explores opening Planet Fitness franchises in Mexico and signs the first side-letter agreement.

Between 2015 and 2016 and consistent with Planet Fitness's efforts to expand its brand beyond the United States, JEG-United's founders² explored opening Planet Fitness franchises in Mexico. In April 2017, Planet Fitness and JEG-United executed a "franchise agreement." This franchise agreement allowed JEG-United to open one Planet Fitness franchise in Monterrey, a city in northern Mexico. At the same time, Planet Fitness and JEG-United executed the first of several "side letter agreements."

Specifically, among other terms, the April 2017 side letter agreement granted JEG-United "exclusive rights to the municipalities of Santa Catarina, Mexico and San Pedro Garza García." These two areas are part of the Mexico state of Nuevo León and within the Monterrey metropolitan area. The April 2017 side letter agreement also provided JEG-United with a "right of first refusal" to develop Planet Fitness franchises in Monterrey, Mexico, under certain terms. Beyond Monterrey, the side letter agreement set terms for an ADA for Mexico if the parties finalized the ADA before December 31, 2018.³

At the time it negotiated the April 2017 side letter agreement, JEG-United's primary goal was to obtain an ADA for all of Mexico. An ADA provides a franchisee with exclusive rights to open franchises in a certain geographic area. These rights are valuable to franchisees such as JEG-United because they avoid competition in the covered area from other franchisees of the same brand. (That is, with an ADA, JEG-United would not have to worry about another Planet Fitness franchisee leasing real estate or poaching a customer base in any region covered by the ADA). For the franchisor, Planet Fitness, an ADA is valuable because it commits the selected franchisee to a "development schedule"—that is, to opening a specific number of franchises over a specified period—ensuring that the franchisor's brand expands to the locations covered by the ADA. Planet Fitness's ADAs and accompanying franchise agreements also typically require the franchisee to pay Planet Fitness fees for each franchise opened and royalty payments based on franchise revenues.

II. JEG-United opens its first Planet Fitness franchise in Mexico.

On April 26, 2018, JEG-United opened its first Planet Fitness franchise in Mexico. The franchise was in the Monterrey metropolitan area⁴ per the April 2017 franchise and side letter agreement. But opening the franchise—and preparing to open additional franchises—was not easy. The task was made more difficult because neither Planet Fitness nor JEG-United had experience opening franchises in Mexico.

For example, JEG-United had to identify and acquire rights to real estate in locations suitable to profitably sustain Planet Fitness franchises. To that end, JEG-United's executives built relationships in Mexico with people and businesses involved in construction, law, accounting, banking, and marketing. After obtaining real estate, the facility for the gym had to be constructed and management teams hired. These steps were complicated in Mexico because of language differences and the hesitancy of Mexico-based real estate owners to work with American developers like JEG-United. JEG-United's challenges also included developing payment systems that worked in Mexico and obtaining agreements with banks—for example, Planet Fitness's preferred vendor for payment systems was not interested in making its system functional in Mexico.

III. Planet Fitness hires Ray Miolla and changes its strategy about how to expand into Mexico.

In the late spring of 2018—soon after JEG-United opened its first franchise in Mexico—Planet Fitness hired Ray Miolla as its "Chief Development Officer." At that time and with Miolla's input, Planet Fitness decided to develop Mexico with two franchisees: JEG-United and another, Mexico-based franchisee. Planet Fitness planned to provide JEG-United with an ADA focused on northern Mexico, while the Mexico-based franchisee would have an ADA over southern Mexico.

Planet Fitness was concerned that a United States-based franchisee such as JEG-United would not be able to successfully develop franchises outside of northern Mexico; Planet Fitness believed northern Mexico to have more similarities to the United States than southern Mexico. Planet Fitness believed that a Mexico-based franchisee with more established business connections in Mexico would have more success opening franchises in southern Mexico.

In his affidavit, Miolla acknowledged that this strategy was a change from Planet Fitness's prior approach to expanding to international markets. That is, before summer 2018, Planet Fitness contracted with United States-based franchisees to open franchises in international markets. But, in Planet Fitness's view, this approach was successful only in Panama; it was unsuccessful in Canada and the Dominican Republic. Thus, between 2018 and 2019, Planet Fitness rejected proposals from United States-based franchisees to build gyms in Ireland, Spain, China, and the Philippines.

In a summer 2018 email with other Planet Fitness executives in which he outlined his reasoning for this change of strategy, Miolla noted that he had a great relationship with a Mexican billionaire named Carlos Ibarra. Miolla stated that Ibarra had worked to develop several retail brands in Mexico. Miolla believed that Ibarra's business (Ibarra Group) would be a good fit to develop Mexico for Planet Fitness. By contrast, Miolla did not have a strong relationship with JEG-United and, in particular, JEG-United Chief Executive Officer Kevin Kelly.

IV. ...