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Younger Brothers Investments, LLC v. Active Enterprises, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

April 5, 2018

YOUNGER BROTHERS INVESTMENTS, LLC, Plaintiff,
v.
ACTIVE ENTERPRISES, INC., et al., Defendants.

          MEMORANDUM OPINION & ORDER

          JOSEPH M. HOOD, SENIOR U.S. DISTRICT JUDGE

         This matter is before the Court upon Defendants' Motion to Dismiss [DE 4], in which they ask the Court to dismiss Counts I and II of the Complaint for lack of personal jurisdiction as to Defendant James Adamitis pursuant to Fed.R.Civ.P. 12(b)(2) and, generally, for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). Plaintiff has filed a Response [DE 5], stating its objections, and Defendants have filed a Reply [DE 7] in further support of their Motion to Dismiss. For the reasons stated in this Memorandum Opinion and Order, the Motion to Dismiss will be granted in part and denied in part.

         I.

         In its Complaint, Plaintiff avers that Anytime Fitness is a national company providing franchising opportunities for gyms. Anytime Fitness gyms operate on a keycard access basis so that clients may access the gyms 24 hours a day, seven days a week. Defendant Active Enterprises, Inc. (“Active Enterprises”), a Delaware corporation with its principal place of business in Marina Del Rey, California, purchased a franchise opportunity in 2012 and operated an Anytime Fitness location in Nicholasville, Kentucky, until the franchise was sold to Plaintiff on December 19, 2016.

         Active Enterprises had decided to sell its assets comprising the Nicholasville Anytime Fitness gym sometime in 2015, and James Adamitis, as an officer of Active Enterprises, entered into an agreement with Business Exchange, LLC, to market the assets. In late September 2016, R. Younger, who later became the sole member and manager of Younger Brothers Investments, LLC, an Indiana limited liability company, saw the listing and became interested in purchasing the franchise.

         At about the same time, Eric Morosa, an employee of Active Enterprises, became aware that a new, competing gym, Workout Anytime, was set to open in Nicholasville in close geographic proximity to Anytime Fitness Nicholasville. He informed Adamitis at that time. On October 12, 2016, Adamitis sent an email to Active Enterprises employees at the Anytime Fitness Nicholasville facility suggesting a counter-marketing campaign to deal with the competition by Workout Anytime. Adamitis also spoke to Nick Vankleeck, an Active Enterprises employees at the Anytime Fitness Nicholasville facility, about his concerns about competition from Workout Anytime.

         During the pre-purchase due diligence investigation, R. Younger requested information about Anytime Fitness Nicholasville at various times. He received financial information and, working together with the bank financing the purchase, asked that Adamitis “describe[]/explain[]” “the local competition” for Anytime Fitness Nicholasville. Adamitis responded in a November 2, 2016, email by describing nearby Snap Fitness and Elite Fitness and a potential new “kids gym” to be opened in January or February 2017. He never mentioned the planned Workout Anytime facility.

         Relying on the representations made by Active Enterprises and Adamitis, Younger agreed to purchase Anytime Fitness Nicholasville for $420, 000.00, entering into an Asset Purchase Agreement on November 16, 2016. The Asset Purchase Agreement anticipated a closing on or before December 30, 2016, and included Active Enterprise's express representation that,

Seller's representations, whether found in this Contract or made extra contractually, regarding the prior or current operation of the Business are materially true in each and every particular; that Seller's representations regarding the value of the Assets being purchased are materially true in each and every particular; that Seller knows its representations have been relied upon by Buyer in Buyer's decision to enter into this Contract; that the financial information supplied to Buyer is true and correct in every material respect and is an accurate presentation of the financial condition and operating results of the Business.

         Prior to closing and pursuant to the terms of the Asset Purchase Agreement, R. Younger assigned his rights and obligations under the Asset Purchase Agreement to the newly created Younger Brothers Investments, LLC (“Younger Brothers”).

         In the meantime, on December 13, 2016, Vankleeck alerted Adamitis by text message to a “big blow[]” -- Cal Laboratory had cancelled their corporate account with Anytime Fitness Nicholasville, effective January 1, 2017. Adamitis wrote back, “Damn! Ok, that sucks! . . . Sucks on Cal Labs, I'll try to save that with Adam once we close, too hectic right now to handle anything other than this close[.]”

         That same day in another text, Vankleeck asked Adamitis if R. Younger “[knows what he's getting himself into with January right around the corner and an uphill battle with [Workout Anytime].” Adamitis responded that Vankleeck should “ease him into workout anytime” and explained that he had withheld information from Plaintiffs regarding the opening of Workout Anytime by discussing only “open comp[etition].”

         The closing occurred on December 19, 2016, when Younger Brothers tendered the full purchase price with a combination of cash and financing obtained from a bank. When R. Younger visited the Anytime Fitness Nicholasville facility on December 22, 2016, multiple staff members told him that their biggest concern was the opening of Workout Anytime. Younger called Adamitis on December 26, 2016, asking why he had withheld that information. Adamitis said that he had not wished to “derail the deal” in the “eleventh hour.” On December 30, 2016, on behalf of Younger Brothers, R. Younger sent an email to Adamitis demanding rescission of the Asset Purchase Agreement based on the provision of material misinformation during the pre-purchase due diligence investigation in order to induce Younger Brothers to proceed with the transaction despite the competitive landscape. Younger proposed that the parties rescind the transaction and that all assets be returned to Active Enterprises in exchange for a return of all purchase consideration. Active Enterprises rejected the offer in correspondence dated January 2, 2017.

         Subsequently, Younger Brothers learned of the loss of the Cal Laboratory account. It also learned of financial representations made pre-closing which gave the appearance that revenues and credit card benefits produced by Adamitis individually or by other entities which Adamitis manages or in which he holds an equity interest were produced by Anytime Fitness Nicholasville, inflating the revenues produced by the purchased assets. Finally, it learned of fraudulent billing practices undertaken by Anytime Fitness Nicholasville's employees acting at the direction of Adamitis which were intended to artificially inflate revenues produced by the purchased assets while potentially defrauding insurance providers and the federal government.

         Count One avers negligent and/or intentional misrepresentation against Active Enterprises and Adamitis, individually. Plaintiff avers that both Active Enterprises and Adamitis communicated or failed to correct material inaccuracies concerning financial information provided to Plaintiff and upon which Plaintiff justifiably relied when Active Enterprises and Adamitis did not disclose the loss of a significant account by Active Enterprises prior to the closing on the sale of Anytime Fitness Nicholasville; failed to disclose information and actively concealed knowledge about the impending opening of a significant fitness competitor nearby; and reported revenues and benefits from Adamitis's other businesses as revenues and benefits arising out of the operation of Anytime Fitness Nicholasville, thus distorting the revenues and benefits associated ...


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