UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

RICK BUCCIARELLI and

RICK BUCCIARELLI AND ASSOCIATES,

INC,

Plaintiffs,

v.

NATIONWIDE MUTUAL INSURANCE

COMPANY,

Defendant.

 /

Case No. 08-cv-14349.

HONORABLE STEPHEN J. MURPHY, III

OPINION AND ORDER GRANTING PLAINTIFFS' MOTION TO AMEND 

THE COMPLAINT (docket 21), GRANTING DEFENDANT'S MOTION FOR 

LEAVE TO FILE SUPPLEMENTAL BRIEF (docket 28), GRANTING 

PLAINTIFFS' MOTION FOR LEAVE TO FILE SUPPLEMENTAL

BRIEF (docket 29), AND GRANTING IN PART AND DENYING IN PART

DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS (docket 15)

This is a diversity action by the plaintiffs, a former insurance agent of the defendant

insurance company and his agency, for damages for fraud, violation of the Michigan

Franchise Investment Law, breach of contract and retaliation and unjust enrichment. This

matter comes before the Court on two motions. First, defendant Nationwide Mutual

Insurance Company ("Nationwide") moves for partial judgment on the pleadings as to

Count I, II and IV of the complaint. Second, the plaintiffs Rick Bucciarelli and Rick

Bucciarelli and Associates (collectively "Bucciarelli") have opposed Nationwide's motion

and have filed a cross-motion to amend the complaint. Each party has also filed motions

to permit supplemental briefing. For the reasons stated below, the Court will grant the

pending motions for leave to file supplemental briefs, will grant plaintiffs' motion to amend

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the complaint, and will grant in part and deny in part defendant's motion for partial judgment

on the pleadings.

FACTS

Plaintiff Rick Bucciarelli is a resident of Michigan and sole owner of plaintiff Rick

Bucciarelli and Associates, an insurance agency. Bucciarelli entered into an Independent

Contractor Agent's Agreement, effective June 1, 2002, to sell insurance and financial

products offered by Nationwide and its companies. The agreement was with Nationwide,

the defendant here, plus about nine other related insurance companies. Bucciarelli alleges

on information and belief that the defendant is the parent of these related insurance

companies, and the defendant is held by Nationwide Financial Services, Inc., a company

in which the defendant is the majority shareholder. The amended complaint further alleges

that before becoming an independent contractor, the plaintiffs had to agree to what they

term a "franchise fee" of $12,900 for four-year-old furniture and approximately $3,000 for

four year old computers.

Bucciarelli alleges that Nationwide decided to aggressively increase its number of

storefront offices in order to become the number three insurer by share in 2009 and, in

order to achieve this goal, Nationwide provided its managers with bonus incentives based

upon the development of additional local offices and other expansion criteria. Amended

Complaint ¶ 8. Bucciarelli alleges that Nationwide required people wanting to be

independent agents to enter into "intentionally vague" appointment agreements that "relied

on subsequent addendum documents and verbal policies that, as it turned out, varied

substantially from one another and often contradicted the original agreement. Id.

Bucciarelli alleges that Nationwide told him that it would pursue mutually devised and

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acceptable growth plans and pressured agents to take out loans and expand, telling them

they were not "team players" if they did not pursue growth initiatives. Id. ¶ 11. 

Bucciarelli alleges that when he or any agent acquired a Nationwide book of

business, merged with an existing Nationwide agency, opened a new Nationwide location

or purchased an independent agency to be converted into a Nationwide agency, the agent

entered into a CAP (Capital Access Program) loan with a Nationwide Bank, a bank owned

by Nationwide, which provided that the agent could have the loan waived if he met

performance requirements found in the pro forma and business plans accompanying the

loan. Id. ¶ 12. Bucciarelli alleges that these performance requirements were determined

totally by Nationwide to the detriment of the agents. Id. The loans contained a crossdefault provision, so that the default of one loan created a default in all other loans with

Nationwide Bank. Bucciarelli alleged that he was induced to take out two loans, one for the

"Burton merger" and for opening an office in Westland, Michigan. Id. ¶ 15. 

The performance requirements for Bucciarelli to have his loans from Nationwide

Bank waived were contained in a pro forma, dated September 15, 2003, which was

prepared by Joe Sheffieck (presumably a Nationwide employee). Amended Complaint, ¶

17 and Exhibit A to Amended Complaint. Bucciarelli alleges that Nationwide knowingly

misrepresented the assumptions and estimates contained in this pro forma as being

reasonable and achievable. Amended Complaint, ¶ 17. He also alleges that the

performance goals set by Nationwide, ranging from 4.5% to 11.5%, were not achievable

and the company had never performed anywhere near these growth levels due to

Nationwide's uncompetitive rates. Id. ¶ 16.

Bucciarelli then sets out various unreasonable and unwise marketing and

underwriting programs that Nationwide required him follow. Bucciarelli alleges that

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Nationwide started programs, understaffed them and then reversed itself; it encouraged

the hiring of associates for programs that became difficult or impossible to sell due to

uncompetitive pricing; it laid off dozens of employees in a national reorganization that

resulted in significant delays and customers going elsewhere; it changed its guidelines to

become the only insurance company requiring lead paint certificates for all dwelling fire

policies, resulting in the loss of numerous customers; and it switched its emphasis to

commercial policies but then put limitations on those policies that made them impossible

to write while at the same time unfairly competed with its agents in the area of commercial

coverage. Amended Complaint ¶ 19. Bucciarelli alleges that these actions resulted in a

customer base that was eroding faster than the industry standard. Id. ¶ 20. Nonetheless,

Bucciarelli alleges, Nationwide continued to profit due to falling loss ratios and expanding

storefront locations subsidized by agents, while none of the agents met their production

requirements. Id. ¶ 21. As a result, none of the CAP loans were waived and the agents

were charged back interest to the benefit of Nationwide's bank. Id. Bucciarelli alleges that

Nationwide constantly changed its goals and requirements to preclude its agents from ever

reaching their required goals. Id. ¶ 26.

Bucciarelli alleges in his amended complaint that Nationwide admitted through a

"secret program" to "make things right" for six of its Michigan agents that there were

misrepresentations in the CAP program and the pro formas that was counter to what was

represented to agents to induce them to expand their staff and number of offices.

Amended Complaint, ¶ 25.

Nationwide decided to employ a direct writer system beginning in 2008 to the

detriment of exclusive agents such as Bucciarelli, and began forcing agents to resign

beginning in 2007. Amended Complaint ¶ 28. Bucciarelli alleges that Nationwide never

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revealed to him or to other agents its plan of a direct writer system, preventing him and

other agents from making intelligent choices on CAP loans, hiring employees and opening

storefronts. Amended Complaint ¶ 30.

PROCEDURAL POSTURE

The plaintiffs filed the complaint in this matter on October 14, 2008. The defendant

answered the complaint on December 18, 2008 and filed a counterclaim for a balance that

they assert is still due on a $100,000 loan Bucciarelli received from Nationwide in 2003,

and a claim for equitable indemnification for an amount Nationwide paid to Nationwide

Bank as guarantor for the loan from Nationwide Bank to Bucciarelli.

On January 27, 2009, Nationwide filed the present motion for partial judgment on

the pleadings (docket entry 15), seeking judgment as a matter of law on Counts I, II and

IV of the complaint, as well as dismissal of plaintiffs' claim for punitive damages. Bucciarelli

responded to Nationwide's motion for judgment on the pleadings and, before the hearing

was set, filed the present motion to amend the complaint, attaching to the motion a

proposed first amended complaint (docket entry 21 and Exhibit A). Bucciarelli's motion to

amend the complaint argued that plaintiffs desired to add greater specificity to their

allegations of fraud in the inducement and breach of contract, and wished to add

allegations of violations against Nationwide as well as its wholly owned subsidiary

Nationwide Bank for violations of federal and state banking laws. Nationwide filed a

response opposing Bucciarelli's motion to amend the complaint (docket entry 24),

addressing the proposed changes to the complaint and arguing that the motion to amend

should be denied on the grounds of futility because the proposed amended complaint still

fails to state a claim for relief. 

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The Court held a hearing on the pending motions on April 7, 2009. Following the

hearing, the Court entered a stipulated order attaching the pro forma referenced in the

plaintiffs' reply brief as Exhibit A to the proposed first amended complaint (docket entry 27).

Nationwide also filed a motion for leave to file a supplement to its motion for

judgment on the pleadings and a supplement to its response to plaintiffs' motion to amend

the complaint (docket entry 28). In Nationwide's proposed supplement to its motion for

judgment on the pleadings and response to plaintiff's motion to amend, Nationwide

addresses the pro forma that was filed as an exhibit to the complaint by stipulation of the

parties on May 8, 2009 and puts forth arguments as to why the pro forma supports

Nationwide's motion to dismiss and response to plaintiff's motion to amend the complaint.

On June 16, plaintiffs filed their own motion for leave to file a supplement to their

motion to amend the complaint and response to Nationwide's motion for judgment on the

pleadings. (docket entry 29). The Court will grant both motions for leave to file

supplemental briefs in order to facilitate the just, speedy and inexpensive determination of

the pending motions. Fed. R. Civ. P. 1. 

ANALYSIS

I. Motion to Amend the Complaint

Rule 15(a) of the Federal Rules of Civil Procedure govern amendments of the

pleadings before trial. Proposed amendments to the pleadings more than twenty days after

the last responsive pleading is filed require the opposing party's written consent or leave

of the court, and the court should freely give leave when justice requires. Fed. R. Civ. P.

15(a)(2). Defendant Nationwide has not consented to amendment, and opposes plaintiffs'

motion to amend on the grounds that any amendment would be futile.

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Although leave to amend is to be freely given when justice requires, leave to amend

may be appropriate if the amendment is brought in bad faith or for dilatory purposes, where

there has been repeated failure to cure deficiencies by amendments previously allowed,

or amendment would result in undue delay or prejudice to the opposing party or would be

futile. Morse v. R. Clayton McWhorter, 290 F.3d 795, 800 (6th Cir. 2002). There is no

suggestion here that the amendment has been proposed in bad faith or for dilatory

purposes or would result in undue delay or prejudice to the defendant. Defendant,

however, cites Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 421 (6th Cir. 2000)

for the proposition that a proposed amendment is futile if the complaint as amended could

not withstand a Rule 12(b)(6) motion to dismiss. 

This Court does not read the Rose case as requiring the Court to determine futility

before it grants a motion to amend the complaint, but rather as stating that futility is a

permissible basis for denying a motion to amend the complaint. The Court in this instance

is guided by Rule 1 of the Federal Rules of Civil Procedure, which direct that the federal

rules be construed and administered "to secure the just, speedy, and inexpensive

determination of every action and proceeding." Given the procedural posture of the present

case, and the fact that the parties have briefed the sufficiency of the amended complaint

as well as the sufficiency of the original complaint, the Court determines that justice would

be served and the action expedited by granting the plaintiffs' motion to amend the

complaint and proceeding to determine the sufficiency of the complaint as amended for

purposes of considering the pending motion for judgment on the pleadings. The plaintiffs'

motion to amend the complaint will therefore be granted and the Court will consider the

defendants' motion for judgment on the pleadings as a motion for judgment on the

pleadings of the proposed first amended complaint.

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II. Motion for Judgment on the Pleadings

A motion for judgment on the pleadings is evaluated under the same standard as

a motion to dismiss. JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir.

2007). In ruling on a motion for judgment on the pleadings, the Court may consider

documents attached to, incorporated by or referred to in the pleadings. Weiner v. Klais and

Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997). The well-pleaded material allegations of the

party opposing the motion for judgment on the pleadings must be taken as true, but the

Court need not accept as true legal conclusions or unwarranted factual inferences. JP

Morgan Chase Bank, 510 F.3d at 581. A motion for judgment on the pleadings is to be

granted when no material issue of fact exists and the moving is entitled to judgment as a

matter of law. Id.

The complaint and amended complaint each have four counts. Count I is for

common-law fraud in the inducement of the loan contract. Count II is for fraud in violation

of Michigan's Franchise Investment Law. Count III is for breach of contract. And Count IV

is for unjust enrichment. Nationwide has moved for judgment on the pleadings with respect

to Counts I, II, and IV and with respect to plaintiffs' punitive damages claims. Nationwide

argues that the fraud claims in Count I should be dismissed because they are not pleaded

with sufficient specificity, that the Michigan Franchise Law claim in Count II should be

dismissed because the arrangement between Bucciarelli and Nationwide did not constitute

a franchise, that Count IV should be dismissed because a plaintiff cannot state a claim for

unjust enrichment in the face of an express contract; and that neither Ohio nor Michigan

law permit punitive damages with these claims.

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A. Does the Complaint Fail to Plead with Particularity Plaintiffs' 

Claims of Fraud in the Inducement/Intentional Misrepresentation?

Defendants argue that Count I of the amended complaint should be dismissed

because plaintiffs have failed to plead their claims of fraud in the inducement and

intentional misrepresentation with particularity as required by Rule 9(b) of the Federal Rules

of Civil Procedure. Fed. R. Civ. P. 9(b) provides that " In alleging fraud or mistake, a party

must state with particularity the circumstances constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person's mind may be alleged generally".

In Coffey v. Foamex LP, 2 F. 3d 157, 161-62 (6th Cir. 1993) the Sixth Circuit

elaborated on what is required to state with particularity the circumstances constituting

fraud or mistake: 

The Sixth Circuit reads this rule liberally, however, requiring a plaintiff, at a minimum,

to "allege the time, place, and content of the alleged misrepresentation on which he

or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the

injury resulting from the fraud." However, "allegations of fraudulent misrepresentation

must be made with sufficient particularity and with a sufficient factual basis to support

an inference that they were knowingly made." The threshold test is whether the

complaint places the defendant on "sufficient notice of the misrepresentation,"

allowing the defendants to "answer, addressing in an informed way plaintiffs [sic]

claim of fraud.""

Coffey, 2 F.3d at 161-62 (citations omitted).

Nationwide argues that Bucciarelli's complaint doesn't satisfy these standards for a

number of reasons. First, Nationwide asserts that although Bucciarelli asserts that

Nationwide dictated the terms of the pro formas and other projections required for loan

waiver, the loan documents themselves say that Bucciarelli, not Nationwide, was the one

who drew up the business plans. Second, Nationwide points out that allegations in the

complaint that state that Bucciarelli was induced to take out loans for the Barton merger

and opening a Westland office fail to identify who at Nationwide pressured him to take out

the loans and how he was pressured. Nationwide also asserts that changes in product

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offerings cannot form the basis for a fraud claim because Bucciarelli understood and

agreed to such changes. Finally, as to the statements in the pro forma, Nationwide alleges

that these statements cannot form the basis for a misrepresentation claim because, under

Michigan law, misrepresentations must relate to past or existing facts. Hi-Way Motor Co.

v. International Harvester Co., 398 Mich. 330, 336 (1976). Promises regarding the future

are considered to be contractual and cannot form the basis of a misrepresentation claim.

Id. Nationwide argues that the pro forma merely sets out various "assumptions" and

"projections" that were merely educated guesses or opinions about the succeeding five

years. 

Bucciarelli argues in response that the alleged misrepresentations in the pro forma

are actionable because they are not a future promise but a statement of present facts. In

support of this argument, he cites Little Caesar Enterprises, Inc. v. OPPCO, LLC, 219 F.3d

547 (6th Cir. 2000). In Little Caesar, plaintiff, a Little Caesar franchisee, asserted a fraud

claim based upon the representation of the franchisor's real estate manager that certain KMart pizza franchises would not compete with the plaintiff's Little Caesar franchise because

those franchises targeted in-store customers only, that the K-Mart franchises would

enhance the overall performance of the plaintiff's franchise and that poor management was

the reason for the poor performance of the current franchisee. The Sixth Circuit reversed

the trial court's grant of summary judgment to the defendant on the grounds that the

representations regarding whether the K-Mart franchises competed referred to past, current

and future events and on the grounds that defendant's real estate manager had specialized

knowledge and made specific statements capable of verification. The Court finds that

the complaint does make the fraudulent scheme clear: Bucciarelli claims that Nationwide

wanted to get business for its wholly-owned bank by duping its agents into taking out loans

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by convincing them they wouldn't have to pay them off. Nationwide is correct that the

contract states that the agent and the insurer drew up the business plans together.

Bucciarelli, however, has clearly alleged that this statement in the contract is false, and

Nationwide has offered no authority making the contractual language binding on him in this

Court.

Based upon Little Caesar, the Court finds that judgment as a matter of law is not

appropriate on the issue of whether the representations contained in the pro forma are

actionable misrepresentations. First, the parties are not even in agreement about who

drafted the pro forma. Further, under Little Caesar, the relationship of the parties and the

allegedly unequal access to information may be relevant to the question of whether

statements in the pro forma can be deemed to be misrepresentations. There is simply not

enough information before the Court for it to rule as a matter of law that the representations

in the pro forma were solely related to future promises, as opposed to representations

about existing facts that were verifiable. The Court will therefore deny judgment on the

pleadings as to Bucciarelli's fraud claim to the extent it is based upon the pro forma. The

Court will, however, grant judgment on the pleadings as to the fraud claim to the extent it

is based upon allegations in the complaint that Bucciarelli was fraudulently induced to take

out loans for the Barton merger and open a Westland office by statements by unknown

persons, because such allegations fail to identify who at Nationwide pressured him to take

out the loans and how he was pressured, and therefore fail to satisfy the exacting

standards of Rule 9(b) of the Federal Rules of Civil Procedure. 

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B. Does the Complaint Fail to State a Claim

Under the Michigan Franchise Investment Law?

The second count of the complaint states a claim under the Michigan Franchise

Investment Law ("MFIL"), MCL 445.1501 et seq. The MFIL generally prohibits deceptive

practices in the sale or purchase of franchises. See MCL 445.1505. Nationwide moves for

judgment on the pleadings on Count II on the grounds that the MFIL does not apply to

Nationwide's contract with Bucciarelli and therefore Bucciarelli cannot state a claim under

the MFIL. First, Nationwide claims that as a matter of law the MFIL never covers insurance

agency agreements. Second, Nationwide claims that even if the MFIL does govern some

insurance agency agreements, it does not cover Bucciarelli's agreement.

1. Does the MFIL apply to the highly regulated insurance field?

Nationwide argues that the Michigan insurance code comprehensively regulates the

insurance industry and that applying the franchise law to the insurance industry is

incompatible with such comprehensive regulation. Nationwide also points to decisions in

other states that, according to Nationwide, have held that franchise laws in those states are

inapplicable with the insurance industry. See Motion for Summary Judgment at 10-11

(citing cases from New York, New Jersey, Virginia, Florida, Missouri and Illinois).

There are no Michigan cases that directly address this question. Neither Michigan's

franchise law nor the decisions from other states cited by Nationwide explicitly provides a

categorical exception for insurance contracts. Instead, the relevant statutes – including

Michigan's -- simply provide generic characteristics of the contracts that they cover. In

determining whether insurance agency agreements are governed by these statutes, the

courts in other states have simply considered whether the contracts before them exhibited

these generic characteristics. In some situations the courts appear to have gone slightly

beyond this, and considered whether insurance agency agreements in general exhibit

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these characteristics, but absent clearer direction from the Michigan courts or the statute,

this Court will not hold as a matter of law that the MFIL does not apply to insurance

contracts.

2. Does the Independent Contractor Agent's 

Agreement Create a Franchise under the MFIL?

The MFIL applies to only to franchises. Nationwide argues that the agreements

between Bucciarelli and Nationwide do not create or deal with a franchise and therefore the

MFIL does not apply.

The MFIL defines a franchise as a contract or agreement that meets each of the

following elements: 1) the franchisee "is granted the right to engage in the business of

offering, selling, or distributing goods or services under a marketing plan or system

prescribed in substantial part by a franchisor;" 2) the franchisee "is granted the right to

engage in the business of offering, selling, or distributing goods or services substantially

associated with the franchisor's trademark, service mark, trade name, logotype, advertising,

or other commercial symbol designating the franchisor or its affiliate;' and, 3) the franchisee

"is required to pay, directly or indirectly, a franchise fee." MCL 445.1502. Defendant argues

that the complaint and amended complaint fail to state a claim because it fails to meet two

of these three elements required to constitute a franchise. Specifically, defendant argues

that the complaint and the amended complaint fails to establish either that the plaintiffs

were required to pay a franchise fee or that the plaintiffs were "granted the right to engage

in the business of offering, selling, or distributing goods or services under a marketing plan

or system prescribed in substantial part by a franchisor." The Court will address each of

these contentions in turn.

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a. Were the plaintiffs granted the right to engage in the business

of offering, selling or distributing goods or services under a

marketing plan or system prescribed in substantial part by the

franchisor?

Nationwide argues that the MFIL does not apply to Bucciarelli's contract with

Nationwide because Bucciarelli was not "granted the right to engage in the business of

offering, selling or distributing goods or services under a marketing plain or system

prescribed in substantial part" by Nationwide. Nationwide asserts that the Michigan courts

have said that insurance agents are merely "order takers," Harts v. Farmers Ins. Exch.,

461 Mich. 1, 8-9 (1999), while the insurer owns the policies and sells them. The Illinois

court, which has a franchise law that is identical in relevant part to Michigan's, has said that

Illinois insurance agents do not fall within the protections of the Illinois franchise law

because they do not sell insurance because "the right to sell consists of an unqualified

authorization to transfer a product at the point and moment of the agreement to sell or

authority to commit a grantor to sell" and insurance agents do not have that authority. 

Vitkauskas v. State Farm Mut. Auto Ins. Co., 509 N.E.2d 1385, 1391 (Ill. App. 1987)

Nationwide is correct that Illinois has held that agents cannot "sell[]"insurance. But

Vitkauskas, the Illinois decision, ignores part of the language of Illinois's own statute, which

is identical to Michigan's. Specifically, MCL 445.1502(3)(a) makes someone a franchisee

if he is engaged in either selling, offering or distributing goods or services. Of course the

legal meaning of "offering" requires that an acceptance would create a contract, and either

transfer ownership or create a legal obligation to transfer ownership. If, as Nationwide

maintains, Bucciarelli does not own insurance policies and is not authorized to contractually

bind Nationwide, then he obviously cannot "offer" them in this sense. But if the word

"offering" in the statute were interpreted to have only this meaning, it would be entirely

redundant of the word "selling" – if one is in the business of making legally binding offers

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of goods or services, then one is also in the business of selling them (whenever the offers

are accepted). Therefore, it appears that the term "offer," as it appears in the statute, must

be interpreted more broadly and less technically, to refer to making goods or services

available in a practical rather than a legal sense. By soliciting orders for insurance

coverage, with the intention and expectation that the orders (or at least most of them) will

be accepted, insurance agents would fall within this definition. Thus, the Court holds that

the contract between Bucciarelli and Nationwide falls within this part of the definition of

"franchise" in the MFIL. 

b. Did the Agreement require the plaintiffs to pay a franchise fee?

The third element required for a franchise to exist is that the franchisee is "required

to pay . . . a franchise fee." MCL 445.1502(3)(c). A franchise fee is defined in MCL

445.1503(1) as follows: 

"Franchise fee" means a fee or charge that a franchisee or subfranchisor is required to

pay or agrees to pay for the right to enter into a business under a franchise agreement,

including but not limited to payments for goods and services. The following are not the

payment of a franchise fee:

(a) The purchase or agreement to purchase goods, equipment, or fixtures

directly or on consignment at a bona fide wholesale price. . . . .

The definition of "franchise fee is further refined in Mich. Admin. Code 445.101(2), which

provides in relevant part:

(2) The words "fee or charge" as used in section 3(1) of the act include, but are not

limited to:

(a) Present payments, deferred payments, and royalty payments required

of the franchisee by the franchisor arising from sales of goods or services offered by the

franchisee or its agents or affiliates, or payments as a condition to maintaining the

franchise relationship other than payment for goods at a bona fide wholesale price.

. . . .

(c) Payments for services. These payments are presumed to be in part

for the right granted to the franchisee to engage in the franchise business. Ideas,

instruction, training, and other programs are services and not goods, irrespective of

whether offered, distributed, or communicated by word of mouth, through instructions

or lectures, in written or printed form, by record or tape recording, or any combination

thereof.

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The Independent Contractor's Agreement itself says nothing about the payment of

money or interest by Bucciarelli for the right to enter the business. Likewise, the

Performance Agreement apparently required Bucciarelli to reimburse Nationwide for

interest payments if he failed to meet the growth targets, but there is no indication that he

was required to do so for the right to engage in the insurance business. In fact, it appears

both from the complaint and from the loan documents themselves that Bucciarelli would

have been perfectly free to open the Westland office using his own money (or a loan

procured elsewhere), without ever obligating himself to make any interest payments to

Nationwide at all.

Furthermore, authority in Michigan interpreting the MFIL suggests that the taking of

the loan would not as a matter of law constitute a franchise fee even if Bucciarelli were

required to take the loan out in order to do business with Nationwide. In Hamade v.

Sunoco Inc. (R&M), 271 Mich. App. 145, 163-64 (2006), the Michigan Court of Appeals

held that even assuming the plaintiff took out a loan from the defendant, the repayment of

interest under such a loan would not constitute a franchise fee unless there was evidence

that the plaintiff was required to accept a loan in order to enter into the agreement with the

defendant or that the interest payable on the loan was in excess of a fair market rate.

Here, there are no allegations either that the plaintiff was required to take out a loan or that

the interest payable on the loan exceeded a fair market rate, and therefore the loan itself

cannot constitute a franchise fee. See also Boeve v. Nationwide Mutual Ins. Co., 08-cv12213, 2008 WL 3915011, *5-6 (E.D. Mich. Aug. 20, 2008) (Steeh, J.) (payment of fees

and interest on a similar Nationwide loan did not amount to a franchise fee)

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Bucciarelli's amended complaint, however, also alleges that he was required to pay

a "franchise fee" in the form of office supplies that Nationwide required him to purchase.

The amended complaint contains the following allegations regarding a franchise fee:

2. . . .. Before becoming an independent contractor, plaintiffs had to agree to a

franchise fee of $12,900 for four year old furniture and approximately $3,000 for four

year old computers.

. . ..

44. For the right to engage in and represent Nationwide's business, Plaintiffs paid

money and interest to Defendant including approximately $16,000, among various other

direct and indirect fees, as a condition of the parties' Independent Contractor Agent's

and Performance Agreements, in exchange for assignment of policies to Plaintiff's

agency.

. . . .

This portion of the complaint should be evaluated under the pleading standards

applicable to Rule 8 of the Federal Rules of Civil Procedure. As the Supreme Court has

recently noted, "the tenet that a court must accept as true all of the allegations

contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal, ___

U.S. ___, 129 S.Ct. 1937, 1949 (2009). Where there are well-pleaded factual

allegations, the Court must assume their truth "and then determine whether they

plausibly give rise to an entitlement to relief." Id. at 1950.

Under the Iqbal standard, Bucciarelli's allegation that the payment for the

furniture and computers is a "franchise fee" is a legal conclusion that is not entitled to

a presumption of truth. The factual allegations made by Bucciarelli that are entitled to

a presumption of truth are that, before becoming an independent contractor he had to

agree to pay $12,900 for four year old furniture and approximately $3,000 for four year

old computers. The purchase of goods is not, however, considered to be a franchise

fee where the goods are purchased at a bona fide wholesale price. While it seems

unlikely as a factual matter that Bucciarelli will be able to offer evidence in support of

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the allegation that he was required to purchase excessively priced office supplies as a

condition of becoming a Nationwide agent, the Court is not permitted to make such

factual determinations on a motion for judgment on the pleadings. The leading case in

this area, Hamade, 271 Mich. App. 145, suggests that the question of whether goods

required to be purchased are purchased at a "bona fide wholesale price" and whether

there is a well established market for those goods may present a factual question. The

Court determines that this issue is one better dealt with on summary judgment or at trial

and therefore will not grant defendant's motion for judgment on the pleadings on the

basis that there is no allegations supporting the payment of a franchise fee. Therefore,

the Court will deny defendant's motion to dismiss Count II of the amended complaint.

C. Should Count IV, Plaintiff's Claim For Unjust Enrichment, Be 

Dismissed On the Grounds that Unjust Enrichment Is Not Available 

When There Is An Express Contract Governing The Same Subject?

Defendants argue that plaintiffs' claim for unjust enrichment contained in Count

IV of the complaint and amended complaint must be dismissed because under Ohio

law, the remedy of unjust enrichment is not available where there is a contract

governing the same subject. Aultman Hosp. Ass'n v. Community Mut. Ins. Co., 544

N.E.2d 920 (Ohio 1989). ("In the absence of fraud, illegality or bad faith, [a plaintiff is]

entitled to compensation only in accordance with the terms of the written agreement.")

Michigan law is the same. See Belle Isle Grill Corp. v. Detroit, 256 Mich. App. 463, 479

(2003) ("a contract will be implied only if there is no express contract covering the same

subject matter").

Nationwide argues that Bucciarelli cannot state a claim for unjust enrichment

because there is an express contract governing the same subject matter. Bucciarelli's

briefs do not contest this point and the Court therefore presumes that plaintiffs do not

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opposed dismissal of their unjust enrichment claim. That claim will therefore be

dismissed.

D. Should Plaintiffs' Claims for Punitive Damages be Dismissed?

Defendants argue that, under Michigan law, punitive damages are only permitted

if a statute allows for punitive damages. Gilbert v. DaimlerChrysler Corp., 470 Mich.

749, 765 (2004). Defendants also argue that under Ohio law, "Because the sole

purpose of contract damages is to compensate the nonbreaching party for losses

suffered as a result of a breach, "[p]unitive damages are not recoverable for a breach

of contract unless the conduct constituting the breach is also a tort for which punitive

damages are recoverable." Lake Ridge Academy v. Carney, 613 N.E.2d 183, 187

(1993) (citing Restatement of Contracts, 2d, § 355). Nationwide argues that because

Bucciarelli has not pleaded that the breach of contract was also a tort, or asserted that

any Michigan statute makes punitive damages available for common-law fraud in the

inducement or fraud under the Franchise Investment Law, Bucciarelli's claim for punitive

damages must be dismissed.

Only Bucciarelli's contract claim is governed by Ohio law, and there does not

seem to be any underlying tort. Bucciarelli's fraud claims, MFIL claim and unjust

enrichment claim would be governed by Michigan law, and the Court is aware of no

Michigan authority authorizing punitive damages awards for fraud claims, MFIL claims,

or unjust enrichment claims. As with the unjust enrichment claim, Bucciarelli does not

address or oppose defendant's arguments that punitive damages are not allowable for

the claims pled. The Court will therefore grant defendant's motion for judgment on the

pleadings as to Bucciarelli's punitive damages claims.

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ORDER

WHEREFORE, it is hereby ORDERED as follows:

Plaintiffs' Motion to Amend the Complaint (docket no. 21) is GRANTED;

Defendant's Motion For Leave to File Supplement to its Motion for Judgment on

the Pleadings and Supplement to its Response to Plaintiffs' Motion to Amend (docket

no. 28) is GRANTED;

Plaintiffs' Motion for Leave to File Supplement to their Motion to Amend the

Complaint as Well as Response to Nationwide's Motion to Dismiss on the Pleadings

(docket no. 29) is GRANTED; and

Nationwide's Motion for Judgment on the Pleadings (docket no. 15) is GRANTED

IN PART AND DENIED IN PART as outlined in the opinion above and therefore Count

I of the amended complaint is dismissed without prejudice only to the extent that

plaintiffs' fraud allegations are based upon statements from unknown persons inducing

plaintiffs to take out loans for the Burton merger and Westfield office; Count III of the

amended complaint is dismissed and plaintiffs' claims for punitive damages are

dismissed.

SO ORDERED. 

s/Stephen J. Murphy, III 

STEPHEN J. MURPHY, III

 United States District Judge

Dated: August 26, 2009

I hereby certify that a copy of the foregoing document was served upon the parties

and/or counsel of record on August 26, 2009, by electronic and/or ordinary mail.

s/Alissa Greer 

 Case Manager

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