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Hometown Publishing, LLC v. Kidsville News!, Inc.,

United States District Court, E.D. North Carolina, Western Division

January 5, 2015



LOUISE W. FLANAGAN, District Judge.

This matter is before the court on defendant's motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (DE 6). Pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b), United States Magistrate Judge Robert B. Jones, Jr. entered a memorandum and recommendation ("M&R"), (DE 23), wherein it is recommended that defendant's motion be denied, to which defendant timely filed objections, responded to by plaintiff. Also before this court is a motion for entry of default, (DE 29), wherein plaintiff seeks to show a failure to defend under Rule 55(a), predicated on issues concerning representation. While the response time to that motion has not yet run, the court deems that motion susceptible to decision. There also is pending a motion to withdraw as attorney for defendant, (DE 28), now ripened, to which no response was made. In this posture, the issues raised are ripe for ruling. For the reasons stated more specifically below, the court adopts the recommendation of the magistrate judge and denies defendant's motion to dismiss, denies the motion for entry of default, and allows the motion to withdraw.


Plaintiff, a New Jersey limited liability company, publishes newspapers and free community papers. As deduced from the complaint and integral documentation, plaintiff approached defendant, a North Carolina corporation which owns certain trademarks and content utilized in its publication KIDSVILLE NEWS! ® and sought to license and distribute that free publication. The parties memorialized their agreement in a Publisher License Agreement ("Agreement"). Plaintiff contends defendant violated the North Carolina Unfair and Deceptive Trade Practices Act (the "UDTPA" or the "Act"), N.C. Gen. Stat. §§ 75-1.1 et seq, [1] by failing to provide to it disclosure documents under the theory defendant is a franchisor.

The Agreement granted plaintiff "a non-exclusive, non-transferable license to use [defendant's] Trademarks in connection with publishing [KIDSVILLE NEWS! ®] in [New Jersey and New York]." (Compl ¶6; see also Agreement, at 2).[2] Plaintiff complains the lack of required disclosures prevented it from fully evaluating "whether there were any red flags which would have cautioned Plaintiff to slow down and evaluate more fully the opportunity being offered by Defendant." (Compl ¶21). Plaintiff seeks damages in excess of $350, 000.00 and a declaration rescinding the Agreement.

Defendant filed the instant motion to dismiss March 11, 2014. (DE 6). Defendant disputes any characterization that the Agreement created a franchise. Even if it did, defendant argues that plaintiff, an out-of-state business entity, cannot avail itself of the protections of the UDTPA, because it suffered no detrimental impact on any business operations in North Carolina. With the parties consent, the court stayed all discovery, except initial disclosures, pending resolution of the motion to dismiss. The court turns to the motions at issue below, addressing first the motion to dismiss.


A. Motion to Dismiss

1. Standard of Review

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint but "does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992); see also Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999). A complaint states a claim if it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Asking for plausible grounds... does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal [the] evidence" required to prove the claim. Twombly, 550 U.S. at 556.

Furthermore, the complaint need not set forth "detailed factual allegations, " but instead must simply "plead sufficient facts to allow a court, drawing on judicial experience and common sense, ' to infer more than the mere possibility of misconduct.'" Nemet Chevrolet, Ltd. v., Inc., 591 F.3d 250, 256 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 679). In evaluating the complaint, "[the] court accepts all well-pled facts as true and construes these facts in the light most favorable to the plaintiff, " but does not consider "legal conclusions, elements of a cause of action, ... bare assertions devoid of further factual enhancement[, ]... unwarranted inferences, unreasonable conclusions, or arguments." Id. at 255 (citations omitted).

The district court reviews de novo those portions of a magistrate judge's M&R to which specific objections are filed. 28 U.S.C. § 636(b). The court does not perform a de novo review where a party makes only "general and conclusory objections that do not direct the court to a specific error in the magistrate's proposed findings and recommendations." Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982). Absent a specific and timely filed objection, the court reviews only for "clear error, " and need not give any explanation for adopting the M&R. Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005); Camby v. Davis, 718 F.2d 198, 200 (4th Cir. 1983). Upon careful review of the record, "the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1).

2. Analysis

Defendant's alleged violation of the UDTPA stems from the nature of its relationship with plaintiff. Plaintiff contends defendant is a franchisor and plaintiff's relationship with defendant is properly characterized as one of franchisor-franchisee rather than licensor-licensee. Franchisors are subject to rules promulgated by the Federal Trade Commission requiring disclosure of certain information, including financial information, prior to the ...

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