Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_10-cv-02276/USCOURTS-caed-2_10-cv-02276-0/pdf.json

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

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

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

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. 1,

Ex. 1.) 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 unjust enrichment,

statutory violations, accounting, and breach of contract. 

Case 2:10-cv-02276-MCE-CMK Document 17 Filed 10/28/10 Page 1 of 14
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 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

threshold; 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). 

 The factual assertions in this section are based on the 4

allegations in Plaintiff’s Complaint (ECF No. 1, Ex. 1) unless

otherwise specified.

2

Plaintiff is seeking monetary damages and equitable and

declaratory relief. Defendants removed the case from the

Superior Court of the State of California for the County of

Sacramento to this Court pursuant to the Class Action Fairness

Act of 2005 (“CAFA”). 1

Defendants have filed a Motion to Dismiss for Failure to

State a Claim Upon Which Relief Can Be Granted pursuant to

Federal Rule of Civil Procedure Rule 12(b)(6) , and a Motion to 2

Strike Improper Requests For Relief pursuant to Rule 12(f). 

(ECF. No. 7.) Plaintiff filed an opposition to those motions. 

(ECF No. 11.) For the reasons set forth below, Defendants’

Motion to Dismiss is granted in part and denied in part. 

Defendants’ Motion to Strike is denied as moot.3

BACKGROUND4

Plaintiff’s complaint alleged that Defendants violated state

law in relation to his management of an IHOP franchise

restaurant. 

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3

On or about July 8, 1998, Plaintiff entered into a 25-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. Thus, Plaintiff has replaced virtually all of

the equipment Defendants initially provided him, and either owns

the restaurant’s current equipment outright, or leases it from

third parties not parties to this suit. Regardless, Defendants

have required Plaintiff to pay $740.00 per week agreed to under

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

to renegotiate the lease’s terms.

Pursuant to ¶ 7.01(b) of the Franchise Agreement, Plaintiff

has made weekly contributions to Defendants for advertising

services. Defendants are obligated under ¶ 7.01(d)(iii) of the

Franchise Agreement to provide documentation accounting how the

advertising funds have been used or disbursed. Plaintiff has not

received the proper, required accounting of the use or

disbursement of these advertising funds.

As an IHOP franchisee, Plaintiff is eligible for

participation in IHOP’s Development Impact Assistance Program

(“DIAP”). The DIAP provides monetary aid to an affected existing

franchisee when a new IHOP restaurant opens in a specified

proximity to the existing restaurant. Plaintiff qualified for,

but was denied eligibility in the DIAP due to discriminatory

practices by Defendants.

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4

As part of the franchise deal, Plaintiff entered into the

Sublease Agreement for rental of the restaurant premises. The

terms of the agreement obligate Plaintiff to pay the real estate

property taxes and assessments on the franchise 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”). A “New” Master Lease reflected the March

2008 sale. 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. 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). 

///

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5

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. 

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).

///

///

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6

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). 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 unjust enrichment, statutory

violations, 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).

///

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 While Plaintiff additionally argues that “continued 5

collection by IHOP of payments for equipment” that Defendant

(IHOP) no longer owns, is unconscionable and wholly illusory, he

does not address this complaint as an independent cause of action

and as such is not addressed here. 

 “UCL” refers to the California Business & Professions Code 6

(“Cal. Bus. & Prof. Code”) § 17200 et seq. The UCL defines

unfair competition as “any unlawful, unfair or fraudulent

business act or practice.” Id. § 17200.

7

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

1. First Cause of Action - Unjust Enrichment

As a threshold matter, the law is settled that unjust

enrichment is not a cognizable claim under California law.5

Walker v. USAA Cas. Ins. Corp., 474 F. Supp. 2d 1168 (E.D. Cal.

2007) (quoting Melchior v. New Line Prods., Inc., 106 Cal. App.

4th 779, 794 (2003)). Therefore, Defendants’ Motion to Dismiss

Plaintiff’s unjust enrichment claim should be granted. 

 

2. Second Cause of Action - Violation of

UCL /Equipment Lease 6

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. Defendants

argue that a cause of action for unfair business practices must

be brought within “four years after the cause of action accrued.”

(Defs.’ Mot. Dismiss p. 9 (citing Aryeh v. Canon Bus. Solutions,

Inc., 185 Cal. App. 4th 1159, 1165 (2010) (internal citations

omitted).) 

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8

The tolling act for the statute of limitations under the UCL is

unsettled law in California. Courts have ruled that the statute

of limitations begins to run when the “defendant’s conduct

occurs, not when plaintiff learns about the conduct.” Aryeh, 185

Cal. App. 4th at 1165. Other courts have ruled that the accrual

action is when “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). The law is similarly

unsettled in California District Courts. Compare MediMatch, Inc.

V. Lucent Tech. Inc., 120 F. Supp. 2d 842, 861 (N.D. Cal. 2000)

(finding the statute of limitations begins at the time of

defendant’s conduct), with Intermedics, Inc. v. Ventritex, Inc.,

822 F. Supp. 634, 640 (N.D. Cal. 1993) (applying California’s

“discovery rule,” where the statute of limitations is calculated

from the point at which the plaintiff has actual and constructive

knowledge of the breach of contract). 

 Here, Plaintiff has pled enough facts to suggest an

unlawful or unfair business practice may have occurred. However,

the record contains no specific information about replacing the

franchise’s equipment. If the statute of limitations accrues

from the commencement of Defendants’ conduct (signing the

contract on or about July 8, 1998), then Plaintiff is time-barred

from raising the cause of action. If the statute of limitations

accrues from the time Plaintiff discovered the harm, then the

factual record is incomplete and the Court cannot properly assess

the viability of the claim. 

///

///

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9

The record provides no detailed information regarding the extent

and timing of Plaintiff’s actions in replacing the restaurant

equipment, nor when he discovered the harm alleged. Therefore,

Defendants’ motion is granted with respect to the Second Cause of

Action.

3. Third Cause of Action - Accounting

Plaintiff requests an accounting of Defendants’ books and

records regarding the National Advertising Fund pursuant to 

¶ 7.01(b) of the Franchise Agreement. Through an accounting,

Plaintiff seeks “to establish whether advertisement funds have

been administratively segregated and whether they have been

properly utilized for permitted advertising uses.” (Compl. ¶ 65.) 

Defendants argue that because “Plaintiff has not plead that he is

owed anything which can only be ascertained by an accounting,”

this cause of action fails as a matter of law. (Defs’ Mot.

Dismiss p. 6.) An action for an accounting is appropriate “to

discover what, if any, sums are owed to the plaintiff....All that

is required is that some relationship exists that requires an

accounting.” Teselle v. McLoughlin, 173 Cal. App. 4th 156, 179-

80 (2009). An accounting “is not amenable to...summary

adjudication upon a showing that the plaintiff does not possess

and cannot reasonably obtain the evidence needed to compel the

accounting,” as the Defendant attempts to do here. Id. at 180. 

///

///

///

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10

Since a franchisor/franchisee relationship exists, and Plaintiff

has pled facts that appear to require an accounting by

Defendants, Plaintiff has pled enough facts to sustain a claim

for relief. Defendants’ Motion to Dismiss as to an accounting is

denied.

4. Fourth Cause of Action - Violation of UCL/DIAP 

Plaintiff claims he was discriminated against when

Defendants denied him benefits under the DIAP, in violation of

the UCL. While the statute defines unfair competition as “any

unlawful, unfair or fraudulent business act or practice ...” 

(See supra, n.6), Defendants claim that Plaintiff has not

alleged any unlawful, fraudulent or unfair business act or

practice, nor did he state with reasonable particularity the

facts supporting the statutory elements of the violation. 

(Defs.’ Mot. Dismiss pp. 8, 12.) There appears to be a gap in

the factual record between the Franchise Agreement and

Plaintiff’s allegations. Plaintiff refers to the DIAP’s terms

and conditions, but provides no evidence of Defendants’

representations regarding their decision to reject his DIAP

application. As a smaller franchise, Plaintiff alleges that he

suffered from Defendants’ discrimination when deciding who was

eligible for the DIAP. However, Plaintiff offers no evidence of

the alleged discrimination against smaller franchises. Without

more, the Court cannot determine Defendants’ legal obligation

regarding the DIAP, when Plaintiff became eligible for the

program’s benefits, and if or when he was denied those benefits. 

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11

Defendants’ Motion to Dismiss with regard to Plaintiff’s fourth

claim of unfair competition law is granted.

5. Fifth Cause of Action - Breach of

Contract/Property Sublease

Due to the purported sale of the property upon which the

franchise rests, real estate taxes more than doubled. Defendants

passed-through the increased taxes to Plaintiff, in violation of

the implied covenant of good faith and fair dealing. 

Specifically, Plaintiff argues that the subordination clause

provision at ¶ 9.1 prohibits the increased real estate taxes

pass-through to Plaintiff because it materially increased his

obligation under the lease.

Here, Plaintiff pleads that a subordination clause in the

Franchise Agreement prohibits a material increase in his

obligation under the property sublease, yet his real estate tax

obligation more than doubled after the March 2008 sale/leaseback. 

Since Plaintiff has pled sufficient facts to sustain a claim for

breach of contract, Defendants’ Motion to Dismiss on this cause

of action is denied.

6. Sixth Cause of Action - Violation of UCL/Property

Sublease

 Plaintiff alleges Defendants violated their duty to refrain

from illegal, fraudulent misleading, deceptive, unconscionable,

or unfair business practices prohibited by the UCL. (See supra,

n.6.) 

///

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12

According to Plaintiff, the increased property tax obligations

are “contrary to the terms of the agreements in question,”

(including a “New” Master Lease entered into after the

sale/leaseback in 2008). Also, he was “deceived in that IHOP

Defendants represented in their agreements that there were terms

forbidding this practice.” Defendants claim that Plaintiff has

not alleged any unlawful, fraudulent or unfair business act or

practice, nor is there any basis under the UCL to rewrite the

Property Sublease. (Defs’ Mot. Dismiss pp. 11, 13.) Defendants

also argue that Plaintiff has not alleged that a new lease was

entered into as of 2008 (Id. at 7.), and even if they did enter

into a new lease, any violations of the UCL are time-barred. 

(Defs.’ Reply Supp. Mot. Dismiss pp. 3-5.) 

By alleging that a material increase in property tax

obligation violates the terms of his agreement with Defendants, 

Plaintiff has pled sufficient facts to suggest an unlawful or

unfair business practice may have occurred. However, the record

contains little or no information about when Plaintiff entered

into a new lease and the terms of that lease. (See Analysis,

supra, Part 1.B.) Without more, the Court cannot determine when

the statute of limitations will run for this claim. Defendants’

Motion to Dismiss is granted. 

7. Seventh Cause of Action - Declaratory Relief

Plaintiff, on behalf of the class, desires a judicial

determination that: 

///

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(1) the Equipment lease provisions are unenforceable as

to any equipment no longer subject to the standardized

Equipment Leases; (2) subleases for IHOP properties are

unenforceable as to payments for increased property tax

obligations that “passed through” to Plaintiff(s) as a

result of the sale/leaseback transactions; (3) IHOP is

required to provide franchisees with an accounting of

how National Advertising funds have been used or

disbursed; and (4) IHOP must administer its DIAP

uniformly as to all franchisees and per industry

standards.

(Compl. ¶105.) Defendants argue that this relief is duplicative

of the other six claims, citing Jensen v. Quality Loan Serv.

Corp., No. 09-CV-01789, 2010 WL 1136005, at *4 (E.D. Cal.

March 22, 2010) (“[W]here a plaintiff has alleged a substantive

cause of action, a declaratory relief claim should not be used as

an unnecessary and superfluous ‘second cause of action for the

determination of identical issues’ subsumed within the first.”)

(internal citation omitted). (Defs.’ Mot. Dismiss p. 14.)

Likewise, in Eugene N. Gordon, Inc. v. La-Z-Boy, Inc., 2007

WL 1101456 at *4-5 (E.D. Cal. 2007), this Court ruled that “a

separate claim for declaratory relief is duplicative of

Plaintiff’s breach of contract claim because the Court must

interpret the contract and resolve the underlying contractual

dispute to determine if declaratory relief is appropriate.” Since

Plaintiff’s requested relief is duplicative of his causes of

action, Defendants’ Motion to Dismiss on this claim 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. 

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Since Defendants’ Motion to Dismiss this cause of action is

granted, see Analysis, supra, Part 1.B., Defendants’ Motion to

Strike is moot. 

 

CONCLUSION

Based on the foregoing, Defendants’ Motion to Dismiss (ECF

No. 7) is GRANTED with leave to amend as to Rule 12(b)(6) for the

First, Second, Fourth, Sixth and Seventh Causes of Action; and

DENIED as to the Third and Fifth Causes of Action. Defendants’

Motion to Strike (ECF No. 7) is DENIED as moot. 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.

The parties shall exchange their Rule 26(f) initial

disclosures, and file their Joint Status Report, no later than 30

days of the electronic filing of this order.

IT IS SO ORDERED.

Dated: October 28, 2010

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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