U-Bake Rochester, LLC, Charles A. Baker, and Dianna L. Baker, Plaintiffs,
Todd Utecht and Utecht Bakeries, LLC, Defendants.
Jerrie M. Hayes, Esq., and James A. Godwin, Esq., Wendland Utz, Ltd., Rochester, MN, on behalf of Plaintiffs.
James J. Long, Esq., and Erin O. Dungan, Esq., Briggs and Morgan, P.A., Minneapolis, MN, on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
ANN D. MONTGOMERY, District Judge.
On November 21, 2013, the undersigned United States District Judge heard oral argument on Defendants Todd Utecht ("Utecht") and Utecht Bakeries, LLC ("Utecht Bakeries") Motion for Summary Judgment [Docket No. 11] and Plaintiffs U-Bake Rochester, LLC ("U-Bake Rochester"), Charles A. Baker, and Dianna L. Baker's Motion for Summary Judgment [Docket No. 16]. For the reasons set forth below, Defendants' Motion is granted and Plaintiffs' Motion is denied.
This action arises out of a Trademark License Agreement ("TLA") between U-Bake Rochester and Utecht Bakeries. Plaintiffs contend that although the TLA is labeled as a license agreement, it meets the statutory definition of a franchise under the Minnesota Franchise Act ("MFA") and the Wisconsin Franchise Investment Law ("WFIL"). Plaintiffs allege Defendants violated these statutes by failing to register as a franchise, failing to comply with the statutory disclosure requirements, and misrepresenting the start-up costs, potential sales, and profits involved in the opening and operation of a U-Bake store. Compl. [Docket No. 1] ¶¶ 45-73. Plaintiffs also assert claims for common law fraud and negligent misrepresentation. Id . ¶¶ 81-95.
Plaintiffs Charles and Dianna Baker are married and own Plaintiff U-Bake Rochester, a Minnesota entity. Affidavit of James J. Long, Oct. 10, 2013 [Docket No. 14] ("Long Aff.") Ex. A ("Charles Baker Dep.") at 22:4-6; Ex. C ("Dianna Baker Dep.") at 12:13-15. Defendant Todd Utecht is vice president and general manager of Utecht Bakeries, a Wisconsin entity that operates a frozen dough and bulk foods store in Wausau, Wisconsin. Id . Ex. E ("Utecht Dep.") at 12:20-22; 13:1-4. Utecht Bakeries owns the U-BAKE trademark. Id. at 13:5-9; 18:22-19-2. Utecht Bakeries has entered into several trademark license agreements granting the right to use the U-BAKE trademark with stores located mostly in Wisconsin. Id. at 46:24-47:6; 133:16-19.
In early 2009, the Bakers, then residents of Rochester, Minnesota, began searching for a business opportunity to supplement their income and retirement. Charles Baker Dep. at 53:18-54:10. At that time, Charles Baker worked approximately 80 hours per week as a pharmaceutical salesperson, and Dianna Baker worked as a pre-kindergarten screener for the Rochester Public Schools. Id. at 18:4-15; 19:10-23; Dianna Baker Dep. at 11:16-12:12. Using the internet, the Bakers investigated food-related franchises such as fast food chains and coffee shops but decided the initial franchise investment was too expensive. Charles Baker Dep. at 55:11-58:16. Through their research, the Bakers learned that franchisors are generally required to provide prospective franchisees with a financial disclosure document ("FDD"). Id. at 59:16-60:8.
The Bakers became aware of U-BAKE products through their daughter, who lived near a U-BAKE licensed store in Savage, Minnesota. Id. at 60:19-61:5; Dianna Baker Dep. at 21:3-13. The Bakers visited the Savage store and spoke with its owners several times before contacting Utecht to discuss the possibility of selling U-BAKE products. Charles Baker Dep. at 73:21-74:2. The Bakers made the initial contact with Utecht; Utecht did not approach or solicit the Bakers. See Dianna Baker Dep. at 21:11-22.
On December 29, 2009, the Bakers met with Utecht at the Utecht Bakeries' Wausau, Wisconsin store. Id. at 21:19-24. Utecht informed the Bakers they would be buying permission to use the U-BAKE trademark and that the opportunity "was not a franchise." Charles Baker Dep. at 138:18-139:1. Charles Baker's handwritten notes from the meeting recorded, "buying trademark not a franchise." Id. at 141:2-13 (emphasis in original); Long Aff. Ex. G. Utecht also encouraged the Bakers to visit and meet the owners of the U-BAKE store in La Crosse, Wisconsin, and to have further discussions with the Savage, Minnesota, store owner before making the decision to go forward with the business opportunity. Charles Baker Dep. at 65:20-66:16. The Bakers made several trips to the La Crosse store and spoke with the owners by phone approximately a dozen times. Id. at 70:1-13.
Approximately one week after the Bakers' first meeting with Utecht, Charles Baker sent a January 5, 2010 email to Utecht stating that John Hicks, their banker at Wells Fargo who was working on their Small Business Association ("SBA") loan, had requested a copy of the franchise agreement and FDD. Id. at 146:14-147:2. Utecht responded that there was no FDD. Id. at 147:3-6.
In January or February of 2010, Charles Baker prepared an extensive business plan for U-Bake Rochester (the "Business Plan") that the Bakers presented to the SBA for their SBA loan. Id. at 78:1-14; Long Aff. Ex. H. The Business Plan touted the benefits of not being a franchise, explaining:
Not being a franchise, you have the option of partnering with other specialty products or taking a different focus to increase sales at your discretion. You are not limited by a franchise agreement with what has to be on the shelf.
Long Aff. Ex. H, at 10. The Business Plan also projected start up costs of $205, 000, increased sales of 30% from year one to year two, and increased sales of 17% from year two to year three. Charles Baker Dep. at 132:25-134:6; 137:10-138:12. Charles Baker stated the accuracy of the information in the Business Plan "was important because it was what we used to try to make a decision whether or not to go forward." Id. at 81:10-15.
Prior to the parties' execution of the TLA, Utecht provided the Bakers with a draft of the agreement. Id. at 144:3-7. The Bakers gave the draft to their attorney, who is a partner in the firm that serves as Plaintiffs' counsel of record in this case. Id. at 105:20-106:8. The attorney reviewed the draft, suggested changes, and made revisions. Id. at 30:6-19; 106:16-107:11. All of the suggested changes and revisions were incorporated into the final version of the TLA, which the attorney then recommended the Plaintiffs sign. Id. at 107:20-25.
The parties executed the TLA in early May 2010. See Long Aff. Ex. F ("TLA"). The TLA provides that Utecht Bakeries will grant U-Bake Rochester a license to use the U-BAKE trademark, and requires U-Bake Rochester to pay Utecht Bakeries an initial license fee of $30, 000 and 2.5% of its monthly gross receipts. Id . ¶¶ 1, 2. The TLA further provides in relevant part:
2. UTECHT BAKERIES[, ] L.L.C. will assist and advise LICENSEE [U-Bake Rochester] with the setup and arrangement of licenses, on the inventory ordering process, bookkeeping procedures of the STORE level, and introduce LICENSEE to the appropriate suppliers of inventory.
3. An employee of UTECHT BAKERIES, L.L.C. will be on the premises and licensed during normal business hours for a period of time not to exceed two (2) weeks. The first week being one week immediately prior to the STORE opening and the second week being the first week the STORE is open for business. Employees of UTECHT BAKERIES, L.L.C. will be on the premises to assist with the day-to-day operations of the STORE including the training of employees licensed in the operation of the STORE, and to include instructions in the process of baking merchandise offered for sale.
9. It is understood and agreed by the parties hereto that UTECHT will not exercise any control over Licensee's Method of Operation, Business Organization, Promotional Activities, Management, Marketing Plan or Business Affairs, and that UTECHT has not and will not furnish assistance to LICENSEE in areas relating to Licensee's Method of Operation, ...