Leesburg Business Survives Motions to Dismiss

Precision Franchising, LLC, a Virginia limited liability company based in Leesburg, licenses the Precision Tune Auto Care system. Catalin Gatej entered into a franchise agreement to operate a Precision Tune Auto Care system in Massachusetts. The agreement required Gatej to pay Precision Franchising an operating fee of 7.5 percent of weekly gross sales and an advertising fee equal to 1.5 percent of gross weekly sales. It also required him to spend 7.5 percent of gross weekly sales for advertising directly benefiting Precision Franchising. When Precision Franchising sued for breach of contract, Gatej moved to dismiss on two separate grounds. The court rejected both of them.

In 2011, Gatej ceased operations and transferred assets to another who is not operating as a Precision Tune Auto Center. Precision Franchising sued for breach of contract seeking $55,055.97 for required advertising Gatej hadn’t spent while he ran the center, $86,756.40 for lost profits due to the early termination of operation, and attorney fees and costs.

Gatej moved to dismiss the complaint. Because the parties were from different states, jurisdiction in this case was based on diversity. In such cases, at least $75,000 must be in controversy and Gatej claimed the company’s claims could not satisfy that requirement. He also claimed the wrong party sued him because Precision Franchising, LLC was not the company with which he’d signed the agreement.

The court rejected his argument based on minimum amount in controversy. Where a plaintiff claims losses of at least $75,000, the court cannot dismiss the case unless it is clear, to a legal certainty, that the plaintiff cannot possibly prove the minimum amount of damages.

Precision Franchising alleged losses of over $55,000 for Gatej’s failure to spend required advertising, a sum that could readily be calculated based on sales during the applicable period. It also alleged $86,000 in losses due to the premature termination. precisiontune.gifThe agreement required Gatej to operate the center for the entire applicable term and the weekly fee for Gatej’s last six months of operation, applied over the remainder of the term, yielded the sum claimed. The court found both sums claimed potentially recoverable. Combined, the claims exceeded $75,000, meeting the amount in controversy requirement.

The Court also rejected Gatej’s claim that the wrong company sued him. Gatej originally contracted with Precision Tune, Inc. and claims that company could not assign a personal services contract. Generally, under Virginia law, a contract is assignable unless the underlying agreement prohibits assignment, the contract is against public policy, or it involves personal services.

Precision Tune changed its name to Precision Tune Auto Care, Inc., which assigned to Precision Franchising all rights in the Precision Tune Auto Care system. The agreement in question only prohibited assignment by Gatej, not by the company. It also provided that the Franchisor’s obligations could be performed by a third party. These provisions and the fact that Precision Tune was a corporation convinced the court this was not a personal services contract. In addition, Virginia law makes it clear that a corporation or partnership can assign contracts to its successor where that successor is substantially the same as the original entity. Moreover, when Gatej renewed the franchise in 2005, the renewal letter stated that Precision Franchising is the “successor to Precision Tune Auto Care, Inc.”

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