Bishop v. GNC Franchising LLC , 248 F. App'x 298 ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
8-23-2007
Bishop v. GNC Franchising LLC
Precedential or Non-Precedential: Non-Precedential
Docket No. 06-2302
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-2302
HAROLD E. BISHOP; PATRICIA BISHOP;
ALTERNATIVE HEALTH, INC.,
Appellants
v.
GNC FRANCHISING LLC; GENERAL NUTRITION CORPORATION;
GENERAL NUTRITION DISTRIBUTION CORP; APOLLO MANAGEMENT LP
On Appeal for the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 05-cv-00827)
District Judge: Hon. Arthur J. Schwab
Submitted under Third Circuit LAR 34.1(a)
on May 16, 2007
Before: FISHER, NYGAARD and ROTH, Circuit Judges
(Opinion filed: August 23, 2007)
OPINION
ROTH, Circuit Judge:
This action arises out of a franchise relationship between the appellants, Harold and
Patricia Bishop and their company Alternative Health, and the appellees, GNC Franchising
LLC, GNC Nutrition Corporation, and General Nutrition Distribution, LP (collectively
“GNC”). In November 1997, the Bishops entered into two franchise agreements with GNC
to operate two GNC stores in Indiana.
Both of the agreements contained a choice of law provision, providing that the
agreements “shall be interpreted and construed under the laws of the Commonwealth of
Pennsylvania.” The Bishops developed problems in paying their requisite franchise fees.
In September 2005, GNC mailed them a Notice of Termination of the franchise agreements
for the two stores. Prior to this mailing, on June 17, 2005, the Bishops filed a complaint
against GNC. An amended complaint was filed on September 23, 2005. In it, the Bishops
alleged sixteen counts against GNC, including breach of contract, violations of several
Indiana statutes, fraud, negligent misrepresentation, breach of implied covenant of good faith
and fair dealing, predatory pricing, violations of the Robinson-Patman Act and Sherman Act,
and breach of fiduciary duty. In response, GNC filed a motion to dismiss the complaint.
On December 1, 2005, the District Court dismissed all but the Bishops’ breach of
contract claim. After a bench trial, the District Court entered judgment in favor of GNC on
the breach of contract claim. The Bishops then appealed the District Court’s order granting
GNC’s motion to dismiss. The Bishops contend on appeal that (1) the District Court
incorrectly applied the choice of Pennsylvania law contract provision to dismiss the Bishops’
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Indiana state law claims, (2) Pennsylvania’s gist of the action doctrine was not applied
appropriately, and (3) the District Court erroneously dismissed the Bishops’ claim for breach
of duty of good faith and fair dealing
The District Court had jurisdiction over this diversity case pursuant to 28 U.S.C. §
1332. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291.
On an appeal of the District Court’s ruling on a motion to dismiss under Rule 12(b)(6)
for failure to state a claim, we exercise plenary review. Unger v. Nat’l Residents Matching
Program, 928 F.2d 1392, 1394 (3d Cir. 1991). In reviewing a motion under Rule 12(b)(6),
the court must view all the allegations in the complaint as true and construe all inferences in
the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
Furthermore, a court may grant a motion to dismiss under Rule 12(b)(6) if there is a
dispositive issue of law. Neitzke v. Williams, 490 U.S. 319 326-27 (1989).
I. DISCUSSION
The Bishops claim that the choice of Pennsylvania law provision in the franchise
agreements should not apply because it violates Indiana public policy. The Bishops did not,
however, identify in the District Court the Indiana public policy that was violated. They
made only vague and generalized assertions. Having failed to assert their public policy
arguments in the District Court, the Bishops may not do so before this Court. See Medical
Protective Co. v. Watkins, 198 F. 3d 100, 105-06 n.3 (3d Cir. 1999).
The Bishops next claim that they were duped into a contractual agreement through
fraud and misrepresentation. The District Court held that this claim was barred by the gist
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of the action doctrine. This doctrine is recognized by the Pennsylvania courts and serves to
preserve the conceptual distinction between breach of contract claims and tort claims. eToll,
Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa. Super. Ct. 2002). The gist of the
action doctrine precludes one from pursuing a tort action for the breach of contractual duties.
See Am. Guarantee and Liability Ins. Co. v. Fojanini, 90 F. Supp. 2d 615 (E.D. Pa. 2000).
The contractual duties that the Bishops claim GNC breached are the same ones that
form their fraud and negligent misrepresentation claims, as was pointed out by the District
Court. For example, in their allegations of fraud and negligent misrepresentation, the
Bishops claim that GNC “misleadingly suggest[ed] that the franchisees [would] be free to
purchase from third-parties, never disclosing the arbitrary restrictions and capricious
rejections of third party product[s].” In their breach of contract claim, they allege that GNC
“impos[ed] unreasonable and arbitrary direct purchasing requirements on franchisees.”
However, once GNC has been found not to have breached the contractual purchasing
requirements, it cannot otherwise be found to have committed fraud or negligent
misrepresentation regarding those same requirements. Correctly applied to this case, the gist
of the action doctrine prevents such a paradox from occurring.
Finally, the District Court dismissed the Bishop’s good faith claim because the court
concluded that under Pennsylvania law “the implied covenant of good faith . . . cannot
modify or override express contractual terms.” We agree with this conclusion. See Witmer
v. Exxon Corp., 343 A.2d 1222, 1226-27 (Pa. 1981). To the extent that the Bishops are
arguing that an implied covenant of good faith overrides contractual terms, such an override
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has not been recognized by the Pennsylvania courts except in the context of franchise
terminations. See Atlantic Richfiled Co. v. Razumic, 390 A.2d 736, 742 (Pa. 1978) (holding
that franchisors have a duty to act in good faith and with commercial reasonableness when
terminating franchise agreements).
Moreover, the unconscionable actions that constitute the Bishops’ allegations of bad
faith appear to be (1) using unconscionable provisions in the franchise agreement, (2)
imposing unreasonable and arbitrary direct purchasing requirements; (3) implementing
policies that postured their corporate stores for profit at the expense of the franchisees, and
(4) imposing unreasonable reset expenses. However, these issues were resolved in the bench
trial on the Bishops’ breach of contract claim. Once the question whether GNC breached the
agreements is resolved, the question of good faith is also resolved.
II. CONCLUSION
For the reasons set forth above, we will affirm the District Court’s December 1, 2005,
order dismissing claims under Rule 12 (b)(6).
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