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A Love of Food I, LLC v. Maoz Vegetarian USA, Inc.

United States District Court, D. Columbia.

September 30, 2014

A LOVE OF FOOD I, LLC, Plaintiff,

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For A LOVE OF FOOD I, LLC, Plaintiff: Steven K. Fedder, LEAD ATTORNEY, FEDDER & JANOFSKY LLC, Baltimore, MD.

For MAOZ VEGETARIAN USA, INC., Defendant: Raymond Thomas McKenzie, Jr., LEAD ATTORNEY, LAW OFFICE OF RAYMOND T. MCKENZIE, Gaithersburg, MD.

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KETANJI BROWN JACKSON, United States District Judge.

In 2007, Plaintiff A Love of Food I, LLC (" ALOF" or " Plaintiff" )--a corporate entity that David and Quinn Wallis established--entered into a franchise agreement with Defendant franchisor Maoz Vegetarian USA, Inc. (" Maoz" or " Defendant" ). Under the agreement, ALOF was authorized to open a franchise of Maoz's vegetarian quick-service restaurant in the District of Columbia. ALOF did so, and has now brought the instant lawsuit against Maoz, contending that it lost over $900,000 when the franchise failed less than three years after opening. ALOF seeks rescission of the franchise agreement and also compensatory and punitive damages, specifically maintaining that it is entitled to this relief under the New York and Maryland state franchise laws because Maoz (1) failed to register its franchise offering statement with the relevant state authorities; (2) failed to provide that document to ALOF in a timely manner; (3) made statements projecting ALOF's future earnings, despite disclaiming the use of such statements; and (4) made untrue statements of material fact regarding initial start-up expenses. (Am. Compl. ¶ 38 (New York law

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violations); id. ¶ 30 (Maryland law violations).) ALOF also maintains that Maoz's alleged underestimates of the initial start-up expenses qualifies as fraud in the inducement under common law. ( Id. ¶ ¶ 39-49.)

Before this Court at present are the parties' cross-motions for summary judgment. (Def.'s Mot. for Summ. J. (" Def.'s Mot." ), ECF No. 41; Mot. for Summ. J. (" Pl.'s Mot." ), ECF No. 43.)[1] This Court has carefully considered the parties' evidence and allegations regarding the complex series of state and common law claims made in this case, and will GRANT IN PART and DENY IN PART both parties' cross-motions for summary judgment, as explained in detail below. The birds-eye view of the Court's conclusions is that ALOF is entitled to judgment in its favor with respect to its failure-to-register claims, but the Court concludes as a matter of law that nothing other than nominal damages follows from this technical violation and that rescission of the franchise agreement would not be appropriate on this basis. The Court also finds that ALOF is entitled to judgment under New York state franchise law for Maoz's violation of the technical requirement that a franchisor disclose the offering prospectus in a timely fashion, but again, no damages arose from this technical violation under the circumstances presented here; moreover, because there is no cause of action for such a disclosure violation under Maryland franchise law, ALOF's Maryland disclosure claim must be dismissed. Defendant Maoz is not without its own small victories: this Court concludes that Maoz is entitled to have judgment entered in its favor with respect to ALOF's claim that Maoz unlawfully represented that no statements regarding future earnings had been made to ALOF when, in fact, Maoz had made such statements in the course of the franchise negotiations. But the Court cannot grant summary judgment for either party on the statutory and common law misrepresentation claims that are premised on Maoz's allegedly false representations about start-up cost expenses, because there are genuine issues of fact regarding such material matters as whether Maoz knew its cost estimates were false, whether ALOF was entitled to rely on those estimates, and--with respect to the common law fraud claim only--whether Maoz intended to defraud ALOF. What is left of ALOF's " kitchen-sink" complaint is ALOF's statutory and common law claims that are premised on alleged misrepresentations regarding the projected initial start-up expenses for the franchise (Am. Compl. Count I, ¶ 27, 30(d); Count II, ¶ 35, 38(d); Count III, ¶ 39-49)--claims that the parties must now either settle or prepare for trial. Cf. Batterman v. Leahy, 544 F.3d 370, 373 (1st Cir. 2008) (" A kitchen-sink complaint, unless dismissed for some central jurisdictional or pleading flaw, is likely to be hard slogging, requiring that counts be worked through one by one." ).

A separate order consistent with this opinion will follow.


ALOF is a Delaware-based limited liability company that was formed on May 25, 2007. (ALOF Certificate of Formation, Ex. 2 to Def.'s Mot., at 2.) David and Quinn Wallis--father and son--are the principals of ALOF. (Am. Compl. ¶ 8.) Maoz, a Delaware corporation formed in 2004, runs a network of quick-service vegetarian food restaurants within the United States. (Maoz 2007 Uniform Franchise

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Offering Circular (" 2007 Offering Prospectus" ), Ex. 1 to Def.'s Mot., ECF No. 41-1, at 5; Yair Marinov Aff. in Supp. of Reargument or Reconsideration (" Marinov Aff." ), Ex. 4 to Def.'s Mot., ECF No. 41-4, ¶ 4.) This case arises out of ALOF's decision to enter into an agreement to open a Maoz franchise in Washington, D.C. (" the Agreement" ), and in particular, the conversations and negotiations that occurred between the Wallises and Maoz's Vice President of Marketing and Sales, Yair Marinov, regarding that Agreement. ( See generally Dep. of Yair Marinov (" Marinov Dep." ), Ex. 3 to Def.'s Mot., ECF No. 41-3.) The Plaintiff and Defendant negotiated and entered into the Agreement against the backdrop of certain federal and state regulations that govern the sale and purchase of franchises; therefore, a basic understanding of the regulatory scheme in this area is crucial to full consideration of the claims being made in this case.

A. The Federal Franchise Rule And The New York And Maryland Franchise Registration And Disclosure Laws

The Federal Trade Commission (" FTC" ) has promulgated regulations titled " Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," 16 C.F.R. § 436 (2013) (commonly known as the " Franchise Rule" see John Bourdeau, et al., 62B Am.Jur.2d Private Franchise Contracts § 26 (2d ed. 2014)), which apply nationwide. Before selling a franchise, the Franchise Rule requires a franchisor to provide a prospective franchisee with a detailed disclosure statement--known as a " uniform franchise offering circular" or a " franchise disclosure document" --that includes information like the franchisor's corporate history and current financial condition, the track record of any other franchises, and the background of the franchisor's principal officers. See 16 C.F.R. § § 436.5; see also FTC v. Jordan Ashley, Inc., No. 93-2257-CIV, 1994 WL 200775, at *3 (S.D. Fla. Apr. 5, 1994); Bourdeau, supra, § 26. The disclosure requirements set forth in the Franchise Rule are " designed to protect prospective purchasers from the financial hardships that arise when they purchase franchises and other business opportunity ventures without essential, reliable information about them." Bourdeau, supra, § 26. The FTC can bring suit to enjoin a franchisor's failure to furnish the required information in violation of the Franchise Rule, see 15 U.S.C. § 53(a); see, e.g., FTC v. Sage Seminars, Inc., No. 95-2854, 1995 WL 798938, at *1 (N.D. Cal. Nov. 2, 1995), but no private right of action is available to franchisees under these regulations. See, e.g., Layton v. AAMCO Transmissions, Inc., 717 F.Supp. 368, 371 (D. Md. 1989); Days Inn of America Franchising, Inc. v. Windham, 699 F.Supp. 1581 (N.D. Ga.1988); Freedman v. Meldy's, Inc., 587 F.Supp. 658 (E.D. Pa.1984); Mon-Shore Mgmt, Inc. v. Family Media, Inc., 584 F.Supp. 186 (S.D.N.Y. 1984).

Along with this national regulatory scheme, a number of states have enacted similar laws, rules, or regulations governing franchise sales. See David J. Kaufmann, Managing Legal Issues In Franchising: An Overview of the Business & Law of Franchising, 2013 WL 3773409 (June 2013) (surveying the states). New York and Maryland are among the states with such rules. See N.Y. Gen. Bus. Law § § 680-695 (" New York Franchise Sales Act" ); Md. Code, Bus. Reg. § § 14-201-14-233 (" Maryland Franchise Registration and Disclosure Law" ). The purpose of these state laws is identical to the purpose of the Franchise Rule: both aim to protect franchisees. See N.Y. Gen. Bus. Law. § 680(2) (noting that the intent of the New York Franchise Sales Act is to " provid[e]

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prospective franchisees and potential franchise investors with material details of the franchise offering so that they may participate in the franchise system in a manner that may avoid detriment to the public interest" and to " prohibit the sale of franchises where such sale would lead to fraud or a likelihood that the franchisor's promises would not be fulfilled" ); Md. Code., Bus. Reg., § 14-202(b) (noting that the intent of the Maryland Franchise Registration and Disclosure Law is to " (1) give each prospective franchisee necessary information about any franchise offer; (2) prohibit the sale of franchises if the sale would lead to fraud or a likelihood that the franchisor's representations would not be fulfilled; and (3) protect the franchisor-franchisee relationship" ).

To that end, both New York's and Maryland's franchise laws require a franchisor to (a) register its offering prospectus with the relevant state authority before offering to sell a franchise to any prospective franchisee, and also (b) disclose the offering prospectus to any prospective franchisee in a timely fashion, see N.Y. Gen. Bus. Law § 683; Md. Code, Bus. Reg. § 14-223. However, unlike the Franchise Rule, both state franchise laws create a private right of action allowing individual franchisees to bring suit against franchisors for violating certain procedural provisions and for making false statements to a franchisee. See N.Y. Gen. Bus. Law § 691(2); Md. Code, Bus. Reg., § 14-227.

B. Factual Background

As Plaintiff points out, " [o]ther than certain basic background facts, virtually all of the facts" in this case are disputed. (Pl.'s Mem. in Opp'n to Def.'s Mot. for Summ. J. & in Supp. of Pl.'s Mot. for Summ. J. (" Pl.'s Mem." ), ECF No. 43-1, at 8.) The events that either or both parties find material to the claims at issue in this case can be summarized as follows.

1. Maoz's 2007 Offering Prospectus

Initially based in Europe, Maoz Vegetarian USA was formed in 2004 " for the purpose of selling franchises and supporting franchisees" of its vegetarian restaurant in the United States (2007 Offering Prospectus at 5), but the company did not immediately begin the franchise process. Instead, Maoz began its operations in the U.S. by opening its own restaurant locations: its first company-run restaurant (referred to herein occasionally as a " store" ) opened in 2004 in Philadelphia, Pennsylvania, and it opened a second restaurant in New York City's Union Square in 2007. (Marinov Dep. at 9-10; Marinov Aff. ¶ 5.) Maoz did not begin the franchise registration process until December 28, 2006, when it applied to the California Department of Corporations for permission to offer and sell restaurant franchises in that state, a process known as " registration." (Order Declaring Effectiveness of Cal. Registration, Pl.'s Ex. 4, ECF No. 43-6, at 2.) Maoz's California registration was approved and became effective on March 7, 2007, when Maoz first registered its uniform franchise offering circular (" offering prospectus" or " UFOC" ) in California. ( See id.; see also Letter of California Dep't of Corps. (" Maoz Cal. Registration" ), Ex. 33 to Def.'s Mot., ECF No. 41-33, at 2.)

Maoz's 2007 Offering Prospectus contained the various disclosures that the Franchise Rule requires. ( See, e.g., 2007 Offering Prospectus at 5 (providing background information about " the franchisor, its predecessors and affiliates" ); id. at 7 (the business experience of its directors); id. at 8-9 (required fees); id. at 10-14 (project start-up expenses).) See also 16 C.F.R. § 436.5 (listing the disclosure requirements). Among the required

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disclosures was a document titled " Initial Investment" that contained a list of " estimated initial expenditures" that a franchisee could expect to spend in order to establish a Maoz franchise. (2007 Offering Prospectus at 10-53.) For a start-up franchise, the total estimated start-up expenses listed in the prospectus ranged from $149,000 to $269,000. ( Id. at 10; see also id. at 3.)[2] The estimates were based on a variety of assessments, including rent, utility deposits, leasehold improvements, and fees for such expenses as architects, equipment, and staff training. ( Id. at 10.)

The 2007 Offering Prospectus also contained numerous disclaimers about each estimated dollar figure, as well as the total estimate. For example, with respect to rental costs, Maoz wrote that " [i]t is extremely difficult to estimate lease acquisition costs because of the wide variation between various locations." ( Id. at 12 n.2.) Regarding improvements to the property, Maoz noted that " [t]he cost of leasehold improvements will vary based upon size, condition and location of the premises, local wage rates and material costs." ( Id. at n.4.) As for certain other expenses, Maoz warned that it " cannot guarantee that [the stated] amount will be sufficient[,]" and that more money may be required in some situations. ( Id. at 13-14 n.17.) Addressing the total estimate, Maoz reiterated that the " amounts shown are estimates only and may vary for many reasons, including the size of your Franchised Unit, the capabilities of your management team, where you locate your Franchised Unit and your business experience and acumen." ( Id. at 14 n.18.)

Notably, the cost estimates that Maoz's 2007 Offering Prospectus provided were not based on the actual costs of other Maoz restaurant franchises in the United States, because Maoz had yet to open any U.S. franchises at the time the 2007 Offering Prospectus was written. Instead, according to the prospectus, Maoz calculated the listed estimates by relying on the industry experience of its shareholders, who had " 15 years of combined industry experience and experience in establishing and assisting [Maoz] franchisees in establishing and operating 23 MAOZ VEGETARIAN Units which are similar in nature to the Franchised Unit [a prospective franchisee] will operate." ( Id.) As Marinov later explained, the twenty-three locations included the European franchises and the Philadelphia company-run restaurant location. (Marinov Dep. at 20 (noting that the information regarding estimated cost of opening a new franchised Maoz Vegetarian outlet " came from the Philadelphia store and from the European stores" ); id. at 15 (" We had numbers in the [offering prospectus] based on what we have known about the European and Philadelphia store." ); id. at 16 (" We have used in March the numbers that we had until then." ); id. at 26 (noting that the initial start-up estimates were " based on everything that happened in Europe and in Philly" ).

Finally, the 2007 Offering Prospectus also disclaimed that the company was making any representations about what profits a franchisee could expect to make, noting that Maoz was neither " furnish[ing] nor authoriz[ing] [its] salespersons to furnish any oral or written information concerning the actual or potential sales, expenses or

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income of a MAOZ VEGETARIAN Unit. Actual results vary from unit to unit and we cannot estimate the results of any particular franchise." (2007 Offering Prospectus at 34.) In short, the information in Maoz's 2007 Offering Prospectus indicated that, when it came to U.S. franchises, the company was, in a sense, exploring new territory.

2. Maoz Offers A Restaurant Franchise To Quinn Wallis

Quinn Wallis met with representatives from Maoz's European counterpart, Maoz B.V., in Europe in 2006,[3] and after returning to the U.S., Quinn Wallis reached out to Marinov to discuss the possibility of opening a D.C. franchise. (Marinov Dep. at 26-28.) At that time, Maoz had neither opened any U.S.-based franchises ( see 2007 Offering Prospectus at 36), nor registered its Offering Prospectus in any state (cf. Maoz Cal. Registration at 3 (filed December 28, 2006)). Nevertheless, according to Marinov, the Wallises " aggressively pursued Maoz for the purpose of seeking to obtain rights to open a Maoz restaurant in Washington, D.C." (Marinov Aff. ¶ 10.) Marinov insists that " [d]espite their eagerness," he repeatedly told the Wallises " that until the [Offering Prospectus] was registered, we could not discuss the possibility of offering any rights to open a Maoz location in Washington, D.C." (Marinov Aff. ¶ 11.) Marinov testified that Maoz knew that the company could violate franchise disclosure laws if it discussed franchise opportunities before the registration process was complete, and Marinov maintains that he did not discuss franchise sales until the company had, in fact, registered its Offering Prospectus. ( See id. ¶ 20 (noting that " [a]t the time of discussing negotiating the UFOC and Franchise Agreement with ALOF, Maoz was at its very early stages of development in the United States, and planned only [to] register[ ] its UFOC in California and New York. I was advised by counsel to avoid any discussions with any prospective franchisees regarding the offer or sale of franchises in any territory that required registration, where Maoz wasn't otherwise registered. I strictly followed my attorney's instructions." ).)

The parties dispute when they first met to discuss the franchise. ALOF claims that the Wallises traveled to New York on September 18, 2006--six months prior to the registration of the 2007 Offering Prospectus in California--to meet with Marinov to discuss opening a D.C. franchise; both David and Quinn Wallis aver as much. ( See Aff. of David Wallis (" D. Wallis Aff." ), Ex. 1 to Pl.'s Mot., ECF No. 43-3, ¶ 2; Aff. of Quinn Wallis (" Q. Wallis Aff." ), Ex. 3 to Pl.'s Mot., ECF No. 43-5, ¶ 2.) In support of this assertion, David Wallis has produced round-trip Amtrak ticket stubs from D.C. to New York dated September 18, 2006, and a receipt for lunch annotated with Marinov's name. (Amtrak Ticket Stub, Ex. 1 to D. Wallis Aff., ECF No. 43-3 at 4; Receipt, Ex. 2 to D. Wallis Aff., ECF No. 43-3 at 5.) There is no evidence in the record indicating that the Wallises requested a copy of Maoz's Offering Prospectus either before or during the alleged September meeting, and the parties agree that Maoz did not provide the Wallises with a copy on or before September 18, 2006. (Q. Wallis Aff. ¶ ¶ 2-4.)

In Defendant's briefing on the pending motions, Maoz denies that any meeting at all took place in September of 2006. ( See Def.'s Opp'n to ALOF's Mot. for Summ. J.

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& Reply to ALOF's Opp'n to Maoz's Mot. for Summ. J. (" Def.'s Reply" ), ECF No. 45, at 21 n. 18.) But at his deposition, Marinov stated that he did not remember whether he met with the Wallises that month or not:

Q Do you recall meeting with Quinn and David Wallis on September 18, 2006 in New York City?
A No.
Q Do you contend that that didn't happen?
A I don't remember.
Q You're denying that it happened?
A I do not remember that I met them in September.
Q So at this time, you can neither admit nor deny that you had that meeting in September?
A That's what I don't remember.

(Marinov Dep. at 76-77.) Moreover, the record contains emails between Quinn Wallis and Marinov planning for a meeting in September. ( See Summer 2006 Marinov Emails, Ex. 9 to Def.'s Mot., ECF No. 41-9, at 2-4 (Marinov writes in the email chain that the afternoon of September 18th would work best for him, and later confirms that " we are on for this coming Monday, September 18th at 4:30 PM in NYC" ).)

Although the September 2006 meeting is disputed, the parties do agree that Marinov met with the Wallises in New York on April 17, 2007. ( See Marinov Aff. ¶ 15; Marinov Dep. at 77; Q. Wallis Aff. ¶ 3.) The Wallises testified that the purpose of the April 2007 meeting with Marinov was " to discuss the [D.C.] franchise opportunity" that they had been contemplating. (Q. Wallis Aff. ¶ 3.) Maoz concedes that the meeting occurred, but insists that the purpose of the meeting was not to discuss a D.C. franchise; rather, it was simply to show the Wallises the New York restaurant. (Marinov Aff. ¶ 15; see also Def.'s Mot. at 45 (" The sole purpose of the April 17, 2007" meeting was for the Wallises to " view the operations of the Maoz corporate store in Union Square in New York City" ).)

According to Maoz, on the same day of that April 2007 meeting, Marinov sent the 2007 Offering Prospectus--which by then had been registered in California--and a copy of the proposed Franchise Agreement by email to Quinn Wallis. (Def.'s Mot. at 12; see also Marinov Dep. at 76 (Marinov testifies that he " e-mailed the [offering prospectus] back in April 2007" ).) In addition, Marinov kept an " Activity Log" -- that is, a contemporaneous record of communications with prospective franchisees-- that contains an entry indicating both that Quinn Wallis " got the [offering prospectus] -- 4/17/2007" and that Marinov " was waiting to get the remarks from his lawyer about the franchise agreement." (Activity Log, Ex. 35 to Def.'s Mot., ECF No. 41-35, at 2.) However, neither party has produced an email from Marinov to Quinn Wallis reflecting actual delivery of the Offering Prospectus or draft franchise agreement in April of 2007, and indeed, Quinn Wallis denies that he received the documents on April 17, 2007--via email or otherwise--and avers that he received the Offering Prospectus for the first time by postal mail on June 6, 2007. (Q. Wallis Aff. ¶ 8-9.)[4]

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According to an email dated June 6, 2007, Marinov sent " one copy" of an unspecified document to Quinn Wallis by mail. ( See June 2007 Emails, Ex. 8 to Def.'s Mot., ECF No. 41-8, at 2.) The email does not provide further detail about the document that Marinov mailed, but ALOF contends that the " material" referenced in the email included the offering prospectus. ( See ALOF's Statement of Undisputed Facts ¶ 7, Pl.'s Mot. at 11.) In contrast, Marinov testified that the word " material" actually referred to a " marketing folder" (Marinov Dep. at 78)--a representation that is corroborated in an email dated June 25, 2007, in which Marinov wrote that he was " mailing . . . today another marketing brochure" along with a New York Post review of Maoz's New York restaurant. (June 2007 Emails at 3.) Maoz explains that the marketing brochure referred to in the June emails is a photo-filled advertising packet, not the Offering Prospectus. (Def.'s Mot. at 13; see Maoz Advertisement, Ex. 7 to Def.'s Mot., ECF No. 41-7, at 2-7.)

There is no dispute that the Wallises were in receipt of the 2007 Offering Prospectus and a copy of the potential Franchise Agreement as of June 2007 (whether Marinov had provided those materials in April or later), and at that time, the parties--assisted by counsel--entered franchise negotiations. ( See June 28, 2007 Mem. from Bryan Brewer (" Brewer Mem." ), Ex. 10 to Def.'s Mot., ECF No. 41-10, at 2.) During the course of these negotiations, Maoz specifically rejected ALOF's request to include an option to open a franchise in Maryland, noting that Maoz had " no current plans to file the [offering prospectus] in Virginia and Maryland" and no interest in opening franchises in either of those states for the time being. (Shelowitz Decl. in Supp. of Reargument or Reconsideration (" Shelowitz Decl." ), Ex. 12 to Def.'s Mot., ECF No. 41-12, ¶ ¶ 15-16.) Furthermore, Marinov testified that he had understood throughout the franchise negotiations that the potential franchise was going to be in the District of Columbia, and he reported believing that the Wallises' business was also based there. (Marinov Aff. ¶ ¶ 11-14.) According to Marinov, Quinn Wallis " always spoke solely of launching the Maoz concept in Washington, D.C." and mentioned that he " was born and raised" and lived in Washington, D.C. ( Id. ¶ ¶ 13, 16.) In a similar vein, Marinov reported that David Wallis also said that his business and family reputation were based in Washington, D.C. ( Id. ¶ 14.)

Be that as it may, the Wallises officially formed ALOF as a Delaware limited liability company on May 25, 2007 ( see ALOF Certificate of Formation, Ex. 2 to Def.'s Mot., ECF No. 41-2, at 3), and in an email in early June of 2007, Quinn Wallis informed Marinov that his " mailing address for any material" regarding the franchise negotiations was an address in Chevy Chase, Maryland ( see June 2007 Emails, at 2). Indeed, despite Marinov's professed understanding that the locus of the Wallises' business concern was in Washington, D.C., he mailed the aforementioned " materials" to Quinn Wallis at his Chevy Chase, Maryland address. ( See id.).

3. Execution Of The Franchise Agreement

The parties officially executed the Franchise Agreement on August 27, 2007. ( See Franchise Agreement, Ex. 13 to Def.'s Mot., ECF No. 41-13, at 49-52.) The first paragraph of the agreement listed ALOF's principal address in Chevy Chase, Maryland. ( Id. at 7.)[5] In addition to signing

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the agreement, Quinn Wallis signed a " Franchisee Disclosure Questionnaire," in which he acknowledged reviewing and understanding both the Franchise Agreement and the Offering Prospectus in full. ( See Franchisee Disclosure Questionnaire, Ex. 27 to Def.'s Mot., ECF No. 41-27, at 2-5.) Quinn Wallis also certified that no " employee or other person speaking on [Maoz's] behalf made any statement or promise concerning the revenues, profits or operating costs of a MAOZ VEGETARIAN Unit that [Maoz] or [its] franchisees operate[,]" or any statements or promises contrary to the information in the Offering Prospectus or " concerning the likelihood of success that [ALOF] should or might expect to achieve" from operating a franchise. ( Id. at 3.) Later that day, Quinn Wallis mailed the signed agreement from Chevy Chase, Maryland, to Marinov's New York office ( see FedEx Airbill, Ex. 7 to Pl.'s Mem., ECF No. 43-9, at 2), and paid Maoz the $15,000 franchise fee ( see Franchise Fee Check, Ex. 12 to Def.'s Mot., ECF No. 43-14, at 2.).

This D.C. franchise was Maoz's first restaurant franchise in the United States. (Aff. of Yair Marinov (" Marinov Aff. II" ), Ex. 28 to Def.'s Mot., ECF No. 41-28, ¶ 5.) It is undisputed that on August 27, 2007, when the parties executed the Franchise Agreement, Maoz had not registered with the relevant authorities in the state of New York or in Maryland. And although Maoz had applied to register its Offering Prospectus in New York on June 6, 2007, its registration was not approved until September 4, 2007. ( See Letter of N.Y. State Inv. Prot. Bureau, Franchise Section, Ex. 8 to Pl.'s Mot., ECF No. 43-10, at 2.)

4. ALOF Takes Steps To Open Its Franchise

ALOF did not open its Maoz Vegetarian Restaurant franchise until November 2009--more than two years after executing the Franchise Agreement. (Marinov Dep. at 109.) The record suggests several reasons for this delay.

First, ALOF spent some of that time laying a foundation for the business. For example, in the fall of 2007, ALOF hired an accounting firm to project ALOF's earnings for the first five years of operation. ( See ALOF Five Year Projected Financial Stmts., Ex. 26 to Def.'s Mot., ECF No. 41-26, at 4-16.) ALOF also actively sought additional investors. ( See ALOF's Maoz Powerpoint, Ex. 25 to Def.'s Mot., ECF No. 41-25, at 14 (seeking investments); Private Placement Mem. (" PPM" ), Ex. 37 to Def.'s Mot., ECF No. 41-37; Marinov Dep. at 109-110 (explaining that the Wallises were " raising money from other investors who would ultimately become members" of ALOF).) In a presentation to potential investors, ALOF anticipated build-out costs of $375,000 for each franchise location--over $100,000 more than the estimate Maoz had provided in the 2007 Offering Prospectus. (Powerpoint at 13.) ALOF also identified the risks associated with the venture, noting that its " operations are subject to all of the risks inherent in the growth of a new business enterprise . . . including the uncertainties of market acceptance, competition, cost increases, inability to manage growth effectively and delays in achieving business objectives." (PPM at 19.)

It also took nearly a year for ALOF to find a retail space. ALOF ultimately decided on a basement-level unit in a townhouse ( see Email from Architect, Ex. 14 to Def.'s Mot., ECF No. 41-14, at 3), a location about which Maoz expressed serious concerns ( see Emails, Exs. 14-16 to Def.'s Mot., ECF Nos. 14-16.). But Maoz left " the final decision" of signing the lease to the Wallises, given their familiarity with the local market and their confidence

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about the franchise's success. (Email, Ex. 15 to Def.'s Mot., at 2.) ALOF signed the lease on October 31, 2008. ( See Confirmation of Commencement of Lease, Ex. 22 to Def.'s Mot., ECF No. 41-22, at 2.)

During the period in which ALOF was searching for a location for its franchise, Maoz updated the cost estimates in its Offering Prospectus based on information gathered from the New York corporate store and ALOF's D.C. franchise. (Marinov Dep. at 46.) The 2008 Offering Prospectus reflected substantially higher costs than the 2007 Offering Prospectus, estimating a range between $282,000 to $494,500. (2008 Offering Prospectus, Ex. 24 to Def.'s Mot., ECF No. 41-24, at 3, 11.) According to Marinov, these increased costs were based, in part, on a change in design for the U.S. franchises, which involved more expensive materials and improved kitchen equipment. (Marinov Dep. at 42-49.) Marinov also testified that these new numbers were based on information gathered after Maoz had opened other stores in the U.S.:

[W]e took the numbers that we had from Philly and from the European stores. We did the New York store and later on, after we had, got the experience and we got more, we talked to people and we had more information about the costs in the U.S., we have updated the [Offering Prospectus] with the new costs.

( Id. at 45.) It is undisputed that Maoz never shared the 2008 Offering Prospectus with ALOF. (Q. Wallis Aff. ¶ 14; Marinov Dep. at 140.)[6] According to Quinn Wallis, if Maoz had shared the 2008 Offering Prospectus, ALOF would not have signed the lease and would ...

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