October 3, 2023
By: Thomas O’Connell
Citation:
Full Tilt Boogie, LLC v. KEP Fortune, LLC, 2023 WL 6446188 (C.D. Cal. Oct. 3, 2023).
Executive Summary:
In this unreported decision, Judge Otis D. Wright II of the United States District Court for the Central District of California addressed post-judgment motions filed by Full Tilt Boogie, LLC (“Plaintiff”) and KEP Fortune, LLC along with its principals, Jeroen and Miray Bik (“Defendants”). Full Tilt sought to amend the judgment to include attorneys’ fees and costs under Federal Rule of Civil Procedure 59(e), while Jeroen and Miray Bik contested their joint and several liability, alleging due process violations. The court denied both motions, affirming its earlier rulings on rescission damages and liability under the California Franchise Investment Law (CFIL), Cal. Corp. Code §§ 31300–31302.
Relevant Background:
This case arises from a franchise agreement between Full Tilt Boogie, LLC and KEP Fortune, LLC, which operates under the Klein Epstein & Parker brand. Full Tilt purchased the franchise in August 2017 and opened a store in December 2017. The relationship deteriorated, and Full Tilt rescinded the agreement in October 2019, subsequently filing a lawsuit alleging fraudulent misrepresentation, wrongful conduct, and violations of the CFIL.
In earlier rulings, the court granted summary judgment in favor of Full Tilt on its CFIL claim, finding that KEP Fortune, LLC and Jeroen and Miray Bik were jointly and severally under Cal. Corp. Code § 31302. The court later entered default judgment against KEP Fortune, LLC in March 2023 after it failed to secure legal representation, as required for business entities under federal law. The judgment awarded Full Tilt $1,020,514 in rescission damages and $49,000 in punitive damages. Full Tilt elected rescission as its remedy, resolving all other claims.
Following the judgment, Full Tilt moved to amend the judgment to include attorneys’ fees and costs. Jeroen and Miray Bik, on the other hand, sought to amend the judgment, claiming that their joint and several liability violated their due process rights. These motions were central to the court’s October 2023 decision.
Decision:
The court denied both motions:
- The court rejected Full Tilt’s motion for failing to comply with procedural requirements, including the meet-and-confer obligation under Local Rule 7-3. This rule applies to pro se defendants as well. The court emphasized that Full Tilt’s failure to comply with procedural mandates prejudiced the defendants’ ability to oppose the motion effectively.
- The court dismissed the Biks’ arguments of procedural due process violations, finding that they had been properly excused from the prove-up hearing after Full Tilt elected rescission. The court reaffirmed the joint and several liability of the Biks under Cal. Corp. Code § 31302 for damages arising from CFIL violations. The court noted that rescission damages are equitable remedies tied to CFIL violations and cited relevant precedent to support the imposition of liability on franchisor principals. See Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165 (9th Cir. 1989), and Neptune Soc’y Corp. v. Longanecker, 194 Cal. App. 3d 1233 (1987),
Notably, the court also rejected the Biks’ claims of clerical error or excusable neglect, finding no basis for relief under Federal Rule of Civil Procedure 60.
Looking Forward:
While this case is certain to draw attention within the franchise community, particularly in the context of joint and several liability under the California Franchise Investment Law (CFIL), there are two important lessons that franchisors should take away from the Court’s decision:
- The Court’s denial of Full Tilt’s motion for attorneys’ fees and costs underscores the importance of strict adherence to procedural rules, such as Local Rule 7-3’s meet-and-confer requirement. Even where opposing parties are unrepresented, compliance with procedural mandates is critical, and failing to do so may preclude recovery of attorneys’ fees.
- The Court’s reaffirmation of joint and several liability under Cal. Corp. Code § 31302 highlights the risks that principals of franchisor entities face when CFIL violations occur. Franchisors seeking to mitigate these risks must ensure that their Franchise Disclosure Documents (FDDs) are not only compliant but also clear and transparent to avoid similar claims.
As emphasized by the Court, compliance with the CFIL is paramount, and franchisors and their principals must proactively address potential vulnerabilities. At the same time, franchisors should be aware that effective litigation strategy, including early legal representation and procedural compliance can play a decisive role in defending against franchise-related claims.
This decision provides valuable insight into the consequences of CFIL violations and the procedural missteps that can compound liability. Franchisors are encouraged to review their FDDs, franchise agreements, and litigation practices to strengthen compliance and reduce exposure in future disputes.