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Dhade v. Huntington Learning Centers, Inc.

United States District Court, D. Delaware

October 9, 2019

HERMAN DHADE, as an individual and on behalf of others similarly situated, Plaintiff,
v.
HUNTINGTON LEARNING CENTERS, INC. Defendant.

          Robert J. Cahall, MCCORMICK & PRIORE, P.C., Wilmington, Delaware; Cary Ichter, ICHTER DAVIS LLC, Atlanta, Georgia; William Daniel Davis, ICHTER DAVIS LLC, Atlanta, Georgia Counsel for Plaintiff

          Robert J. Katzenstein, SMITH, KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Scott Mcintosh, QUARLES & BRADY LLP, Washington, D.C. Counsel for Defendants

          MEMORANDUM OPINION

         Plaintiff Herman Dhade filed this putative class action on behalf of himself and all others similarly situated against Defendant Huntington Learning Centers, Inc. (Huntington). The single count of Dhade's complaint alleges that Huntington violates the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 169 et seq. That act creates a private right of action for applicants for credit.

         Huntington has moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). D.I. 7. In support of its motion, it argues, among other things, that because Dhade alleges he is a prospective applicant and not an applicant for credit, the complaint fails to state a claim upon which relief can be granted and Dhade lacks standing. I agree that the ECOA's private right of action only covers applicants and not prospective applicants. Accordingly, I will grant Defendant's motion to dismiss with prejudice.

         I. BACKGROUND[1]

         Huntington is a Delaware corporation that sells Huntington Learning Center® franchises. D.I. 1 at ¶ 3. These franchises offer tutoring and test preparation services to customers. D.I. 1 at ¶ 3. Dhade applied to Huntington on April 5, 2017 for two franchises in Michigan. D.I. 1, ¶ 25; D.I. 5-2 at 2. In his application, Dhade answered "yes" to the question: "Would you like to discuss our in-house financing option with us?" D.I. 1, ¶ 27.

         The next day, Huntington provided Dhade a package that contained a Franchise Agreement, numerous related contracts, and a franchise disclosure document (FDD). D.I. 1 at ¶ 28; D.I. 5-1. The FDD identified six "risk factors" for Dhade to "please consider ... before buying this franchise." D.I. 5-1 at 3. Risk factor number six read:

THE FRANCHISEE'S SPOUSE MUST SIGN A PERSONAL GUARANTEE MAKING SUCH SPOUSE JOINTLY AND SEVERALLY LIABLE FOR THE OBLIGATIONS UNDER THE FRANCHISE AGREEMENT, WHICH ALSO PLACES THE SPOUSE'S PERSONAL ASSETS AT RISK. YOU MAY WANT TO CONSIDER THIS WHEN MAKING A DECISION TO PURCHASE THIS FRANCHSIE OPPORTUNITY.

Id. A copy of the personal guarantee, titled "Guarantee Agreement," was attached as Exhibit A to the Franchise Agreement. The Guarantee Agreement obligated each of its signatories to be "bound by, and perform according to, each and all of the provisions, covenants, and conditions of the Franchise Agreement and this Guarantee[.]" Id. at 127.

         In "Item 10" of the FDD, titled "Financing," Huntington disclosed that new franchisees in Michigan and all states other than California could borrow from Huntington's affiliate, Huntington Learning Corporation, up to $100, 000 for working capital and opening expenses. Id. at 22. Item 10 also provided in relevant part:

If you obtain financing from [Huntington Learning Corporation], you must sign [Huntington Learning Corporation's] negotiable promissory note (the "Promissory Note") in the form attached as Exhibit S and the security agreement (the "Security Agreement") in the form attached as Exhibit T. Each of borrower's partners, shareholders, and members must personally guarantee the Promissory Note by signing the promissory note guarantee ("Promissory Note Guarantee") in the form attached as Exhibit U. The Security Agreement provides that financing will be secured by the Franchise Agreement, related agreements, and all Franchised Business assets.

Id. at 23.

         On April 26, 2017, Huntington sent Dhade a document titled "Huntington Learning Center In-House Financing" and a Huntington Learning Corporation form for Dhade to complete titled "Request for Huntington Financing." D.I. 1, ¶ 29; D.I. 5-3 at 1, 5. In an email sent to Huntington two days later, Dhade stated that his spouse "will not be involved in the business" and therefore asked if "she still need[ed] to sign" the personal guarantee. D.I. 1, ¶ 31. Huntington responded that same day: "Yes, she will need to sign absolutely." Id. ¶ 32.

         In June 2017, Dhade emailed Huntington a "Request to be Awarded a Huntington Learning Center Franchise." D.I. 5-5 at 1. In his franchise request, Dhade stated that the purchasers of the franchises would be two companies he wholly owned, Fluffy Bunny, Inc. and Purple Butterfly, Inc. D.I. 5-5 at 1; D.I. 1, ¶ 34. Dhade also emailed Huntington "a request to remove my spouse from the personal guarantee." D.I. 5-5 at 1. In response to these requests, Huntington sent Dhade a proposed limited guarantee that capped the amount of his spouse's potential monetary obligations. D.I. 1 at ¶38. Dhade's spouse refused to sign this limited guarantee, and, "as a result," Dhade "withdrew ...


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