Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_10-cv-02276/USCOURTS-caed-2_10-cv-02276-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Petition for Removal

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

SULTAN HAMEED, individually No. 2:10-cv-02276-MCE-CMK

and on behalf of those 

similarly situated,

Plaintiffs,

v. MEMORANDUM AND ORDER

IHOP FRANCHISING, LLC; IHOP

PROPERTIES, LLC;INTERNATIONAL

HOUSE OF PANCAKES, INC.; IHOP

RESTAURANTS, INC.; IHOP

PROPERTIES, INC.; DINEEQUITY,

INC.; and DOES 1-1500,

Defendants.

----oo0oo----

Plaintiff Sultan Hameed brings suit on behalf of himself and

other similarly situated franchisees (hereinafter, “Plaintiff”)

pursuant to California Code of Civil Procedure § 382. (ECF No.

18.) Plaintiff alleges several violations against Defendants

IHOP Franchising, LLC, Dineequity, Inc., IHOP Properties, LLC,

and International House of Pancakes, Inc. (collectively, “IHOP”

and hereinafter, “Defendants”), including unfair competition,

accounting, and breach of contract. 

1

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 1 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiff is seeking monetary damages and equitable relief. 

Defendants removed the case from Sacramento County Superior Court

to this Court alleging that all requirements for federal

jurisdiction under the Class Action Fairness Act of 20051

(“CAFA”) have been met. (ECF No. 18.) Defendants have filed a

Motion to Dismiss Plaintiff’s First Amended Complaint for failure

to state a claim upon which relief can be granted pursuant to

Rule 12(b)(6) and a Motion to Strike Improper Requests For 2

Relief pursuant to Rule 12(f). (ECF No. 21.) Plaintiff has

filed a timely opposition. (ECF No. 25.)

 For the reasons set forth below, Defendants’ Motion to

Dismiss is granted. Defendants’ Motion to Strike is denied as

moot. (ECF No. 28.) Plaintiff’s Ex Parte Application to Extend

Page Limitation is denied as moot. (ECF No. 31.)3

///

///

///

///

///

///

 CAFA requires that (1) the proposed class consists of 100 1

or more members; (2) the parties are minimally diverse; (3) the

amount in controversy exceeds the $5,000,000 jurisdictional

threshhold; and (4) the exceptions to CAFA preventing removal do

not apply. See 28 U.S.C. §§ 1332(d) and 1453(b).

 Unless otherwise noted, all further references to Rule or 2

Rules are to the Federal Rules of Civil Procedure.

 Because oral argument will not be of material assistance, 3

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 230(g). 

2

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 2 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

BACKGROUND4

Plaintiff alleges violations under state-law causes of

action relating to Plaintiff’s operation of an IHOP franchise

restaurant. On or about July 8, 1998, Plaintiff entered into a

twenty-five-year Franchise Agreement, Equipment Lease, and

Property Sublease with Defendants, whereby Plaintiff agreed to

operate an IHOP restaurant in Sacramento. Plaintiff has

fulfilled, and continues to fulfill, all obligations under the

terms of all three agreements.

Under the terms of the Franchise Agreement, Plaintiff is

required to refurbish or remodel the restaurant at his sole cost

every five years. Additionally, the terms of the Sublease

between Plaintiff and Defendants require Plaintiff to replace, at

his sole cost, any equipment as prescribed by a government

agency. (First Am. Compl., Ex. B at ¶ 3.1.) Ten years into the

agreement, on or about 2008, Plaintiff had replaced virtually all

of the equipment initially provided by Defendants. Plaintiff now

either owns the restaurant’s current equipment outright, or

leases it from third parties who are not a

 party to this suit. Regardless, Defendants have required

Plaintiff to continue to pay $740.00 per week as agreed under the

terms of the Equipment Lease signed in 1998, and Defendants have

refused to renegotiate the lease’s terms.

///

 The factual assertions in this section are based on the 4

allegations in Plaintiffs’ First Amended Complaint (ECF No. 18)

unless otherwise specified.

3

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 3 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

As an IHOP franchisee, Plaintiff is permitted to apply for

the Development Impact Assistance Program (“DIAP”). The DIAP

provides monetary aid to an affected existing franchisee when a

new IHOP restaurant opens within a specified proximity to the

existing restaurant. Plaintiff allegedly qualified for, but was

denied eligibility in, the DIAP due to discriminatory practices

by Defendants, while another nearby IHOP restaurant was granted

eligibility.

In July 1998, as part of the franchise transaction,

Plaintiff entered into a Property Sublease Agreement for rental

of the restaurant premises. Under the Sublease, Plaintiff is

obligated to pay the real estate property taxes on the property. 

In March 2008, the real property upon which the restaurant rests

was sold to a third party not a party to this suit, while

Defendants remained the sublessor under Plaintiff’s sublease

(“sale/leaseback”). Due to the sale, real estate taxes on the

property more than doubled. Defendants passed-through the

increased taxes to Plaintiff, in violation of the implied

covenant of good faith and fair dealing. 

 

STANDARD

A. Motion to Dismiss Under Rule 12(b)(6)

A party may seek dismissal of a claim if the pleadings are

insufficient because they fail to state a claim upon which relief

may be granted. 

///

///

4

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 4 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

On a motion to dismiss for failure to state a claim under Rule

12(b)(6), “all allegations of material fact must be accepted as

true and construed in the light most favorable to the nonmoving

party.” Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38

(9th Cir. 1996). Rule 8(a)(2) requires only “a short and plain

statement of the claim showing that the pleader is entitled to

relief,” in order to “give the defendant fair notice of what

the...claim is and the grounds upon which it rests.” Conley v.

Gibson, 355 U.S. 41, 47 (1957). 

Although “a complaint attacked by a Rule 12(b)(6) motion to

dismiss does not need detailed factual allegations, a plaintiff’s

obligation to provide the grounds of his entitlement to relief

requires more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action will not do.” 

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal

citations and quotations omitted). “Factual allegations must be

enough to raise a right to relief above the speculative level.” 

Id. (citing 5 C. Wright & A. Miller, Federal Practice and

Procedure § 1216 (3d ed. 2004) (“[T]he pleading must contain

something more...than...a statement of facts that merely creates

a suspicion [of] a legally cognizable right of action.”) If the

“plaintiffs...have not nudged their claims across the line from

conceivable to plausible, their complaint must be dismissed.” 

Twombly, 550 U.S. at 570. 

///

///

///

/// 

5

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 5 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

If the court grants a motion to dismiss, it must then decide

whether to grant leave to amend. Rule 15(a) authorizes the court

to “freely give[]” leave to amend when there is no “undue delay,

bad faith[,] dilatory motive on the part of the movant,...undue

prejudice to the opposing party by virtue of...the amendment,

[or] futility of the amendment....” Foman v. Davis, 371 U.S.

178, 182 (1962). Generally, leave to amend is only denied when

it is clear that the deficiencies of the complaint cannot be

cured by amendment. DeSoto v. Yellow Freight Sys., Inc.,

957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co.

v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986).

B. Motion to Strike Under Rule 12(f)

The Court may strike “from any pleading any insufficient

defense or any redundant, immaterial, impertinent, or scandalous

matter.” Fed. R. Civ. P. 12(f). The “function of a 12(f) motion

to strike is to avoid the expenditure of time and money that must

arise from litigating spurious issues by dispensing with those

issues prior to trial....” Sidney-Vinstein v. A.H. Robins Co.,

697 F.2d 880, 885 (9th Cir. 1983). “Immaterial matter is that

which has no essential or important relationship to the claim for

relief or the defenses being pleaded.” Fantasy, Inc. v. Fogerty,

984 F.2d 1524, 1527 (9th Cir. 1993) (rev’d on other grounds

Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994)) (internal

citations and quotations omitted). 

///

///

6

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 6 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Matter that is impertinent “consists of statements that do not

pertain, and are not necessary, to the issues in question.” Id.

(internal citations and quotations omitted).

ANALYSIS

Plaintiff brings suit on behalf of himself and others

similarly situated, alleging unfair competition, accounting, and

breach of contract. The issues before the Court are (1) whether

to dismiss the claims under Rule 12(b)(6) for failure to state a

claim upon which relief can be granted; and (2) whether to strike

improper requests for relief under Rule 12(f).

B. Motion to Dismiss Under Rule 12(b)(6)

1. Violation of Unfair Competition: Equipment Lease 

California Business & Professions Code § 17200 et seq., more

commonly known as California’s Unfair Competition Law (“UCL”),

defines unfair competition as “any unlawful, unfair or fraudulent

business act or practice. The statute of limitations for a UCL

claim is four years from the date the cause of action accrued. 

Cal. Bus. & Prof. Code § 17208. In California, the standard for

determining the date a cause of action accrues on a UCL claim is

currently unsettled law.

Some federal and California state courts have ruled that the

statute of limitations for unfair competition claims begins to

run on the date of accrual. 

///

7

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 7 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Karl Storz Endoscopy Am., Inc. v. Surgical Tech., Inc., 285 F.3d

848, 857 (9th Cir. 2002); Salenga v. Mitsubishi Motors Credit of

America, Inc., 183 Cal. App. 4th 986, 996 (2010). The “date of

accrual” standard examines the date when all elements of the

cause of action are present to determine when the statute of

limitations begins to run. Fox v. Ethicon Endo-Surgery, 35 Cal.

4th 797, 806 (2005). 

Other federal and California state courts have declined to

follow this standard, holding that the statute of limitations for

unfair business claims tolls until “a reasonable person would

have discovered the factual basis for a claim.” Broberg v.

Guardian Life Ins. Co. Of Am., 171 Cal. App. 4th 912, 920-21

(2009). See also Betz v. Trainer Wortham & Co., 236 Fed. Appx.

253, 256 (9th Cir. Cal. 2007), Burdick v. Union Sec. Ins. Co.,

No. 07-4028, 2009 U.S. Dist. WL 4798873 at *10 (C.D. Cal. Dec. 9,

2009). To successfully invoke the discovery rule, a plaintiff

must plead facts that demonstrate (1) the time and manner of the

delayed discovery; and (2) that Plaintiff, despite reasonable

diligence, was incapable of making an earlier discovery. Kelley

v. Countrywide Home Loans, No. 09-1148, 2009 WL 3489422, at *5

(E.D. Cal. Oct. 26, 2009) (citing Fox, at 808). 

The California Supreme Court itself has explicitly stated

that California law is unsettled on this point. Grisham v.

Philip Morris U.S.A., Inc., 40 Cal. 4th 623, 635 n.7 (2007). 

5

///

 Recently, the California Supreme Court granted petition 5

for review to the previously cited Aryeh v. Canon Business

Solutions, Inc., 185 Cal. App. 4th 1159 (2010), and may resolve

this discrepancy. 

8

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 8 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

This Court finds it unnecessary to address the issue, as it

holds that the claim fails to meet the statute of limitations,

regardless of which standard is applied. The date each of the

three agreements was signed by both parties was July 8, 1998.

Plaintiff argues that Defendants are in violation of the UCL

because Plaintiff continues to owe $740.00 per week under the

terms of the Equipment Lease, even after replacing Defendants’

equipment with equipment that Plaintiff either owns outright or

leases from a third party not a party to this suit. Plaintiff

argues that Defendants have no right to collect monies on

equipment they no longer own. As a threshold matter, the Court

must determine whether this claim was brought within the

requisite four-year statute of limitations.

Under the “date of accrual” standard, Plaintiff’s claim

fails because it is based exclusively on actions that were taken

pursuant to the terms of the contracts at issue, and all elements

of this cause of action were present at the time each contract

was signed by both parties. Though Plaintiff alleges he did not

sustain the claimed loss until 2008, continued payment of the

weekly equipment lease for a term of twenty-five years was

explicitly stated, or incorporated by reference, in each of the

three agreements. Thus, each element was present at the time of

signing. In applying the “date of accrual” standard, the statute

of limitations expired in 2002, which was a full six years before

this claim was brought. To hold otherwise under this standard,

would permit a party to profit from an advantageous contract, and

then be released from performance once an unfavorable, if

explicitly stated, provision finally manifests itself.

9

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 9 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Similarly, Plaintiff’s claim fails under a “discovery rule”

standard. As noted above, the Sublease and Equipment Lease

agreements required a $740 weekly payment to be made through the

end of the twenty-five year term, and that Plaintiff, at his sole

cost, must refurbish, remodel and improve the restaurant every

five years. A reasonable person in Plaintiff’s position, having

done due diligence, would have discovered these facts on the date

he signed the agreements. Indeed, on the facts pled, Plaintiff

would be manifestly unreasonable to presume none of the equipment

listed in the Equipment Lease, including glasses, waffle makers,

and even larger equipment such as ovens, would need to be

replaced in the span of twenty-five years. Likewise, Plaintiff’s

argument that each payment made after Defendants’ initial

equipment was replaced re-sets the statute of limitation fails

because each of those payments was expressly provided for in the

agreements signed in 1998. Plaintiff has not explained why he

was incapable of making this discovery before 2008. On the facts

pled, a reasonable person would have discovered the factual basis

for this claim on the date the agreements were signed by both

parties in 1998. Thus, the “date of discovery” standard also

causes the statute of limitations to expire in 2002.

Though the law remains unsettled as to when the statute of

limitations should begin to run in an unfair competition claim,

this Court finds that, regardless of the standard applied, and on

the facts pled in the First Amended Complaint, Plaintiff’s claim

falls outside the appropriate time frame to bring a suit.

Defendants’ Motion to Dismiss Plaintiff’s first cause of action

for unfair competition regarding lease of equipment is granted.

10

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 10 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2. Violation of Unfair Competition: DIAP

Plaintiff claims he was discriminated against when

Defendants denied him benefits under the DIAP, in violation of

the UCL. Defendants argue that Plaintiff has not shown an

entitlement to DIAP program, or discrimination against himself or

other qualified franchisees, or any unlawful, fraudulent or

unfair business act or practice. (Defs.’ Mot. Dismiss First Am.

Compl. 12-14.) Additionally, they argue Plaintiff did not state

with reasonable particularity the facts or circumstances

supporting a claim for fraud under the heightened pleading

standard of Rule 9(b). (Id. at 14.) 

Plaintiff has pled enough facts to suggest that an unlawful

or unfair business practice may have occurred. However,

Plaintiff’s First Amended Complaint has not remedied the

remaining defects in his initial complaint. The record contains

little or no information as to the DIAP program, when Plaintiff

applied for assistance, details about the application and denial

process, why he is entitled to funding, and how he is similarly

situated with the “favored” franchisees who did receive DIAP

assistance. Nothing material was added to the First Amended

Complaint in these areas, and the Court cannot determine from

where to toll the statute of limitations, or whether Plaintiff’s

allegation of discrimination is “plausible” under Twombly. Thus,

Defendants’ Motion to Dismiss Plaintiff’s third claim for unfair

competition regarding DIAP is granted.

///

///

11

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 11 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3. Breach of Contract: Sublease

In July 1998, Plaintiff entered into the Sublease Agreement

with Defendants for rental of the restaurant premises. In March

2008, the real property upon which the restaurant rests was sold,

and as a consequence of that sale, real estate taxes on the

property more than doubled. According to Plaintiff, a “new”

Master Lease reflected the March 2008 sale. Defendants then

passed-through the increased taxes to Plaintiff in accordance

with ¶ 2.2 of the Sublease, which requires Plaintiff to pay for

all real property taxes levied or assessed against the premises.

Plaintiff argues that the subordination clause provision at ¶ 9.1

of the Sublease prohibits Defendants from passing-through these

real estate tax increases to Plaintiff under the “new” lease

because it materially increased his obligation under the lease by

more than doubling his payments. 

In the original complaint, the Court denied Defendants’

Motion to Dismiss the claim for breach of contract. However,

Plaintiff has not pled facts demonstrating that a new lease was

in fact issued that supplanted the Master Lease. Nor has

Plaintiff pled sufficient facts that indicate Defendants took any

action that caused Plaintiff’s tax obligations to increase as

they did. ¶ 9.1 of the Sublease applies only if a “New Lease”

made by Sublandlord (Defendant, IHOP Properties) substitutes the

original Master Lease in connection with any sale or

sale/leaseback transaction of the premises. 

///

///

12

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 12 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiff need not show that Defendants were involved directly in

the sale as the agreement only requires that the “New Lease” be

in connection with any sale or sale/leaseback. However,

Plaintiff must show that this transaction actually created a new,

duly executed Master Lease that substituted the original Master

Lease. (See terms of the Sublease, First Am. Compl. Ex. B ¶

9.1.) Because Plaintiff has not pled enough facts to demonstrate

that a breach occurred, Defendants’ Motion to Dismiss Plaintiff’s

fourth claim for breach of contract is granted.

4. Violation of Unfair Competition: Pass-Through of

Increased Tax Obligations

Plaintiff alleges that Defendants violated their duty to

refrain from illegal, fraudulent, misleading, deceptive,

unconscionable, or unfair business practices prohibited by the

UCL. According to Plaintiff, the increased property tax

obligations are “contrary to the terms of the agreements in

question,” and that he was deceived by Defendants’

representations in the Sublease that this practice was

prohibited. Defendants reiterate that Plaintiff has not properly

alleged a breach of contract, and even if he did, breach alone

cannot be the basis for a UCL claim. (Defs.’ Mot. to Dismiss

First Am. Compl. 18.) Defendants additionally argue that this

claim is barred by the statute of limitations. (Id. 17-18.) 

///

///

///

/// 

13

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 13 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiff has pled sufficient facts to suggest an unlawful

or unfair business practice may have occurred. However, since

Defendants deny Plaintiff’s assertion that a “new” lease was

entered into as of 2008, Plaintiff must plead more facts to show

that a new lease did, in fact, substitute the original Master

Lease. (See supra I.3.) Without more, the Court cannot determine

when the statute of limitations has run, or whether Plaintiff has

a valid claim. Defendants’ Motion to Dismiss Plaintiff’s fifth

claim for unfair competition regarding pass-through of increased

tax obligations is granted.

B. Motion to Strike Under Rule 12(f)

Defendants’ Motion to Strike asks the court to disallow

Plaintiff’s request for restitution and disgorgement as relief

for Defendants’ failure to allow Plaintiff participation in DIAP. 

Since Defendants’ Motion to Dismiss this cause of action was

granted, Defendants’ Motion to Strike is now moot. 

 

CONCLUSION

Based on the foregoing, Defendants’ Motion to Dismiss

Plaintiff’s First Amended Complaint (ECF No. 21) is GRANTED with

leave to amend. Defendants’ Motion to Strike (ECF No. 28) is 6

DENIED as moot. Plaintiff’s Motion to Extend Page Limits (ECF

No. 25) is also DENIED as moot. 

 Plaintiff’s claim for an accounting still stands, pursuant 6

to the Court’s previous order (ECF No. 17.)

14

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 14 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiff may file an amended complaint not later than twenty

(20) days after this Memorandum and Order is filed

electronically. If no amended complaint is filed within said

twenty (20)-day period, the Court will dismiss Plaintiff’s claims

without further notice and without leave to amend. 

IT IS SO ORDERED.

Dated: February 10, 2011

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

15

Case 2:10-cv-02276-MCE-CMK Document 32 Filed 02/10/11 Page 15 of 15