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General Nutrition Corp. v. Nutrition Zone Franchising, Inc.

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

October 29, 2019

GENERAL NUTRITION CORPORATION, Plaintiff,
v.
NUTRITION ZONE FRANCHISING, INC. d/b/a Nutrition Zone USA, and NUTRITION ZONE USA, Defendants.

          ORDER

          LOUISE W. FLANAGAN United States District Judge.

         This matter comes before the court on defendants' motion for judgment on the pleadings pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(c) (DE 18), plaintiff's motion to amend its complaint (DE 22), and plaintiff's motion for leave to file supplemental brief in support of plaintiff's motion to amend (DE 24). The issues raised are ripe for ruling. For the reasons noted, defendants' motion for judgment on the pleadings is denied, plaintiff's motion to amend is granted, and plaintiff's motion for leave to file supplemental brief is granted.

         STATEMENT OF THE CASE

         This action concerns whether plaintiff's competitors may be held liable under North Carolina law for inducing plaintiff's franchisees to operate stores and sell products on behalf of the competitor. Plaintiff, a store selling various health and wellness products, commenced this action against defendants on December 7, 2018, claiming tortious interference with contract, tortious interference with business relations, and unfair and deceptive trade practices.

         On April 18, 2019, defendants filed the instant motion for judgment on the pleadings, asserting that its actions were justified based on its legitimate interest in competing for business. A few weeks later, plaintiff filed the instant motion to amend its complaint, supplementing the complaint with additional allegations. Plaintiff argues the proposed amended complaint provides additional factual details that establish defendants' legal malice and tortious interference with contract and business relationships. Following briefing of plaintiff's motion to amend, plaintiff requested leave to file a supplemental brief, submitting a proposed reply brief, together with affidavit from John Vasquez (“Vasquez”), one of the franchisees of the stores at issue, and related correspondence.

         STATEMENT OF FACTS

         As part of its business, plaintiff franchises stores which sell its health and wellness products, such as vitamin and mineral supplements, sports nutrition products, herbs, and health foods. (Compl. ¶¶ 5-8). As part of its franchise agreements, plaintiff and its franchisees enter covenants not to compete, which restrict each franchisee from “operating, ” “helping, ” being “employed by, ”, acting as “an agent of, ” or having “any interest in” a “Competitive Business” for one year after the termination of their franchise agreement within five miles of the franchise location or any other location belonging to plaintiff. (Id. ¶¶ 9-12).

         Richard R. Colon and Amador J. Colon (collectively, “the Colons”) have operated one or more of plaintiff's franchises for over a decade. (Id. ¶ 13). On July 29, 2016, and February 24, 2017, the Colons signed franchise agreements for renewal terms of five years each for stores in Raleigh[1] and Kernersville (the “Stores”). (Id. ¶¶ 14-15; Kernersville Franchise Agreement (DE 1-2); Raleigh Franchise Agreement (DE 1-3)). Among other things, the franchise agreements included restrictions on selling competing products, prohibited transferring any direct or indirect interest in the business to a third party without plaintiff's consent, and required consent before attempt to assign or sublet the Stores to a third party. (See Compl. ¶¶ 18, 20, 27).

         On April 5, 2018, plaintiff sent the Colons notices of termination of the franchise agreements due to past amounts owed under the agreements. (Id. ¶¶ 28, 29; Raleigh Notice of Termination (DE 1-4); Kernersville Notice of Termination (DE 1-5)).

         In the meantime, plaintiff learned that the Colons were selling products from defendants, who are direct competitors of plaintiff. (Compl. ¶ 37). In addition, one of the store managers informed plaintiff that the store would soon be a Nutrition Zone USA location. (Id.). Upon learning this information, plaintiff contacted defendants, informing them that “the Colons are selling Nutrition Zone USA (“NZ”) branded products in one or both of the Stores” and that “such sales violate the franchise agreements [] for those Stores.” (Id. ¶¶ 41, 42; Apr. 6, 2018 Letter (DE 1-9) at 2). Plaintiff also informed defendants of their covenant not to compete with the Colons, and that the leases for the Stores contain provisions requiring the Stores to operate as plaintiff's stores. (Compl. ¶ 42; Apr. 6, 2018 Letter (DE 1-9) at 2). On April 9, 2018, plaintiff spoke with Richard Colon, who acknowledged that he was offering defendants' products in the Stores and was “exploring [his] options” regarding operating the Stores as defendants' franchisee. (Id. ¶ 38; see Apr. 18, 2018 Letter (DE 1-8)).

         Since the Colons did not cure their defaults, plaintiff terminated the franchise agreements and demanded the Colons turn over possession of the stores immediately. (Compl. ¶¶ 31, 46; Kernersville Demand Letter (DE 1-6); Raleigh Demand Letter (DE 1-7)). The Colons refused to turn over the Stores to plaintiff, and defendants operate or plan to operate out of the Stores. (See Compl. ¶¶ 36, 47, 48, 51; Raleigh Storefront Photograph (DE 1-10) at 2). Plaintiff alleges that defendants knowingly encouraged the Colons to violate their covenant not to compete, damaging plaintiff's financial interests, including lost product sales, royalties and advertising fees. (Compl. ¶¶ 43, 44, 50, 52, 54).

         DISCUSSION

         A. Defendants' Motion for Judgment on the Pleadings (DE 18)

         1. Standard of Review “After the pleadings are closed--but early enough not to delay trial--a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings is evaluated on the same standard as a motion to dismiss under Federal Rule of Civil Procedure ...


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