                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 07a0443n.06
                             Filed: June 25, 2007

                                           No. 06-2087

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

ARON ALAN, LLC and ARON SCHROTENBOER,                    )
                                                         )        ON APPEAL FROM THE
       Plaintiffs-Appellants,                            )        UNITED STATES DISTRICT
                                                         )        COURT FOR THE WESTERN
v.                                                       )        DISTRICT OF MICHIGAN
                                                         )
TANFRAN, INC. and BRYAN PUNTURO,                         )                          OPINION
                                                         )
       Defendants-Appellants.                            )


BEFORE:        GIBBONS and COOK, Circuit Judges; and CLELAND, District Judge.*

       CLELAND, District Judge. In this commercial dispute between a tanning salon franchisor

and franchisee, Plaintiffs-Appellants appeal the opinion and order of the district court granting

summary judgment to the franchisor, Defendants-Appellees. The district court found that no

reasonable prospective franchisee could have relied upon the several allegedly false profit and loss

statements presented by Defendants-Appellees, but rather would have been prompted to further

inquiry, demanding an explanation of the “widely divergent” and internally inconsistent figures in

the statements. We affirm.



                                                 I.




       *
       The Honorable Robert H. Cleland, United States District Judge for the Eastern District of
Michigan, sitting by designation.
No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

        Defendant-Appellee Tanfran, Inc. (“Tanfran”) sells and manages tanning salon franchises

under the MIRAGE trademark. Defendant-Appellee Bryan Punturo is the president and sole officer

of Tanfran. Plaintiff-Appellant Aron Schrotenboer1 met with Punturo in 1999 in Plainfield,

Michigan to discuss purchasing the MIRAGE franchise in Plainfield. Schrotenboer would eventually

sign four franchise agreements for the following locations in Michigan: (1) Rockford, (2) Cadillac,

(3) Grand Rapids, (the “Beltline” location) and (4) Walker (the “Standale” location).

        Before signing, Schrotenboer received a number of financial documents about the past

performance of various franchises in western Michigan and northern Indiana. During the meeting

he received profit and loss statements for the Plainfield location for (1) January through December

1998 and (2) January through February 1999. Both documents include handwritten notations and

calculations made by Schrotenboer and his father, who accompanied him at the meeting. After the

meeting, Punturo mailed Schrotenboer additional material, including a “Presentation Outline” and

“Sheet 13,” which showed revenue for the Plainfield location for March through December 1997 and

January through February 1998. Sheet 13, based on the months listed, reported Plainfield income

in 19972 as $181,357 and $43,066 for 1998. According to the Presentation Outline, the 1998 income

was $435,000 for Fort Wayne, $325,000 for Plainfield and $425,000 for Grand Rapids (28th Street).3


        1
        Schrotenboer died during the course of litigation and his estate was substituted as a plaintiff
before the instant appeal.
        2
            Plaintiffs-Appellants would later learn that the Plainfield location had not yet opened in
1997.
        3
        The handwritten notations on this document calculate average income per month at each
location.

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No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

Schrotenboer formed Aron Alan, LLC in 2000, signed the first franchise agreement in February 2000

and signed the last franchise agreement in January 2002. Plaintiffs-Appellants contend that they

relied on the above information when they decided to enter the franchise agreements.

       In the spring of 2004, Schrotenboer met with two other franchisees to discuss problems they

were having with Defendants-Appellees. That summer, Plaintiffs-Appellants obtained documents

that provided different financial figures--specifically, lower annual profits--than the ones

Defendants-Appellees presented in 1999. In August 2004, Plaintiffs-Appellants initiated this action,

seeking rescission of the franchise agreement and monetary damages for claims of fraud, breach of

contract and unjust enrichment, as well as claims under MFIL, Mich. Comp. Laws §§ 445.1501 et

seq, and RICO, 18 U.S.C. §§ 1961 et seq.4

       Defendants-Appellees moved for summary judgment on several grounds, all of which the

district court did not reach when it granted the motion. The district court dismissed Plaintiffs-

Appellants’ fraud, RICO and MFIL claims on the grounds that the alleged reliance was unreasonable

as a matter of law. Relying on Michigan case law requiring reasonable reliance for a fraud claim,

the district court observed, “[g]iven the conflicting information that Schrotenboer possessed, the

Court concludes that no reasonable person would have relied upon any of it without making further

inquiry of Defendants to ascertain the true facts.” The district court elaborated:

       Upon comparing the Sheet 13 and the Outline to the profit and loss statements, a
       reasonable person would have been prompted to inquire of Defendants which gross
       income figure for 1998 was correct - the $152,659.56 figure from the 1998 profit and


       4
        Plaintiffs-Appellants filed their complaint in the Northern District of Indiana, but that court
granted Defendants-Appellees’ motion to transfer to the Western District of Michigan.

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No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

        loss statement; the $325,000 figure from the Outline; or the $43,066 figure from the
        Sheet 13.

The district court described these figures as “widely divergent” and, thus, not appropriate for

reasonable reliance, but instead for “further inquiry.” According to the district court:

        The same is true for the 1998 figures for the Fort Wayne and Grand Rapids 28th
        Street locations in the Outline, even though Schrotenboer did not have conflicting
        figures for those stores, because the information that he possessed would have
        prompted a reasonable person to question the accuracy of the income figures in the
        Outline.5

Because reasonable reliance is a necessary element of MFIL and RICO claims, the district court held

that Plaintiffs-Appellants’ claims under those statutes fail for the same reason. The district court also

found that the claims for breach of implied contract and unjust enrichment were defective because

the court could not imply a contract where the valid franchise agreements, which are express

contracts, already cover the subject matter.6 Finally, the district court concluded that rescission is

not available as a matter of law, acknowledging independent reasons on the merits for that outcome,

but holding that the court “need not address those grounds in light of its conclusion that Plaintiff’s

MFIL and fraud claims fail for lack of reasonable reliance, thus precluding any basis for rescission.”

Plaintiffs-Appellants do not appear to challenge on appeal the court’s holding regarding rescission.




        5
        The district court expressed its conclusion more succinctly in its order denying
reconsideration: “the information that Plaintiffs had available to them was so inconsistent and
confusing that reliance upon any of the figures or information, without asking for clarification, would
have been unreasonable.”
        6
       The district court also dismissed Plaintiffs’ breach of contract claim for lack of damages,
which Plaintiffs-Appellants do not challenge on appeal.

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No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

                                                  II.

        This court reviews de novo the district court’s grant of summary judgment. Daniels v.

Woodside, 396 F.3d 730, 734 (6th Cir. 2005). The court must view all evidence and draw all

reasonable inferences in the light most favorable to the non-moving party. Blackmore v. Kalamazoo

County, 390 F.3d 890, 895 (6th Cir. 2005).

        Plaintiffs-Appellants’ fraud claim must establish the following elements: (1) Defendants-

Appellees made a material representation, (2) that was false, (3) Defendants-Appellees knew it was

false or made the representation recklessly, (4) Defendants-Appellees made the representation with

the intention that Plaintiffs-Appellants would act upon it, (5) Plaintiffs-Appellants acted in reliance

upon the representation and (6) Plaintiffs-Appellants suffered damage as a result of the reliance.

Bergen v. Baker, 264 N.W.2d 376, 382 (Mich. 2004). The allegedly false statements must relate to

past or existing facts, not to future promises or expectations. Cook v. Little Caesar Enters., Inc., 210

F.3d 653, 658 (6th Cir. 2000). The statements at issue in this case qualify, for they were income

statements that purported to state previous income. To the extent that Plaintiffs-Appellants consider

these income statements projections of future income, they are not actionable under Cook. In this

case, the district court and Defendants-Appellees assumed arguendo that the elements of fraud were

present, focusing instead on whether Plaintiffs-Appellants’ reliance was reasonable.

        To recover, Plaintiffs-Appellants’ reliance on the alleged misrepresentation must be

reasonable. Novak v. Nationwide Mut. Ins. Co., 599 N.W.2d 546, 553-54 (Mich. Ct. App. 1999);

Nieves v. Bell Indus., Inc., 517 N.W.2d 235, 238 (Mich. Ct. App. 1994). Unreasonable reliance

includes relying on an alleged misrepresentation that is expressly contradicted in a written contract

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No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

that the plaintiff reviewed and signed. Novak, 599 N.W. 2d at 553-54; Nieves, 517 N.W.2d at 237-

38. In a case where a broker assured the plaintiffs that an investment was “risk-free” the court

stressed that the documentation involved in the transaction informed the plaintiffs of the risk. Webb

v. First Michigan Corp., 491 N.W.2d 851, 854 (Mich. Ct. App. 1992). “Even a cursory review of

any of these documents would have enlightened plaintiffs that the investment was not ‘risk free’ as

represented by the broker.” Id. “[T]here can be no fraud where the means of knowledge regarding

the truthfulness of the representation are available to the plaintiff and the degree of their utilization

has not been prohibited by the defendant.” Id. at 853 (citing Schuler v. Am. Motors Sales Corp., 197

N.W.2d 493 (Mich. Ct. App. 1972)). The court in Schuler held that misrepresentations about the

inventory of an automotive dealership were not actionable for the plaintiff who bought the dealership

because the true figures and value appeared in schedules that the plaintiff received before making

the deal. 197 N.W.2d at 495. “Plaintiff either knew or could have readily discovered every material

fact that was known by defendants at the time of sale.” Id.

        The parties dispute the effect of the so-called integration clause of the franchise agreement.

Defendants-Appellees contend that the integration clause precludes Plaintiffs-Appellants’ claims

whereas Plaintiffs-Appellants argue that it has no such effect. Article 23.2 of the agreement states

the following:

        This Agreement is the entire agreement of the parties. Any representations,
        inducements, promises, and agreements, oral or otherwise, not contained herein shall
        have no force or effect in the construction of the rights and obligations of the parties
        created by this agreement. You acknowledge certain supplementary forms,
        documents and agreements are incorporated by reference into this Agreement as if
        set forth herein in their entirety, including but not necessarily limited to, the
        Nondisclosure Agreement, the Guaranty Agreement, the Franchise Data Sheet

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No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

       (Schedule A), the Location and Territory Designation Form (Schedule B), Collateral
       Lease Assignment for the Premises and the Operations Manuals. This Agreement
       cannot be altered except by a subsequent written document signed by both parties
       specifically referring to this Agreement.

Further, Article 23.8 states that Plaintiffs-Appellants conducted an independent investigation,

recognized the normal business risks associated with beginning a new business and had ample

opportunity to consult with advisors.7 The above language does not expressly incorporate into the

agreement the various income statements that Plaintiffs-Appellants received. While the list of

documents incorporated admits that there may be others, the contractual nature of the listed

documents limits the kinds of documents that would reasonably fall into the same category. A

nondisclosure agreement and a guaranty, for instance, contain agreed-upon terms that are part of the

transaction. Informational financial records, which lack offer and consideration in the contractual

sense, do not fit the same description. Plaintiffs’ argument for incorporation of the various financial

documents is thus not persuasive.

       Similarly, Defendants-Appellees incorporation argument fails for the same reason. Nothing

in the written agreement expressly contradicts the income figures that Plaintiffs-Appellants received.

This case is therefore somewhat different from the case law Defendants-Appellees cite, where

alleged misrepresentations find their express contradiction in written material that is either part of,

or integral to, the actual written agreement. See Novak, 599 N.W. 2d 546; Nieves, 517 N.W.2d 235.

This observation, however, does not end the court’s analysis. This court must instead determine




       7
       The copies of the first and third franchise agreements, as they were reproduced in the joint
appendix before this court, appear to lack the pages that would contain Article 23.8.
                                                -7-
No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

whether the record raises a material question of fact concerning whether Plaintiffs-Appellants

reasonably relied upon the documentation they received.

       The record reflects that Plaintiffs-Appellants received at least three different figures for the

1998 income of the Plainfield location: (1) $43,066 from Sheet 13, (2) $152,659.56 from the profit

and loss statement and (3) $325,000 from the Presentation Outline. The question is thus whether,

construing the documents in the light most favorable to them, Plaintiffs-Appellants could have

reasonably relied upon financial documentation that is inconsistent on its face. They could not. The

actual performance of other franchise locations is highly relevant information for any potential

franchisee. As such, the divergent figures Defendants-Appellees gave Plaintiffs-Appellants should

have raised a red flag. A reasonable buyer would approach such a large transaction with caution and

treat with great importance the seller’s claims of actual income by other franchisees. Even if one

removes from consideration the lowest figure, which accounted only for two months, there remains

a great disparity between $325,000 and approximately $153,000. The disparity creates doubt about

which financial document is accurate. That doubt would apply in turn to income reported in the

same documents for other franchise locations.           Because the alleged misrepresentations are

inconsistent and confusing, the documents containing them are inherently untrustworthy. Any

reliance on the documents is therefore unreasonable. The truth of the matter was not apparent in the

supporting documents, Schuler, 197 N.W.2d at 495, but at the very least it was clear that there were

competing representations of the truth. There can be no fraud where it is apparent that all the

representations cannot simultaneously be true. See Webb, 491 N.W.2d at 853-54.



                                                  -8-
No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

       The terms of the written agreement bolster this conclusion. Though the misrepresentations

find no express contradiction in the written agreement, Plaintiffs-Appellants did agree to bear an

important investigative responsibility. The terms of the agreement impose an affirmative duty upon

Plaintiffs-Appellants to enter the relationship with their eyes open and with the assurance that they

are satisfied with the due diligence they undertook. While the terms of the agreement pursuant to

the above analysis do not of their own accord render Plaintiffs-Appellants’ reliance unreasonable,

they do inform the context in which Plaintiffs-Appellants operated. Whether or not they could have

independently discovered the true income levels of the franchises, they should have at least

recognized that Defendants-Appellees failed to provide an intelligible answer that could inspire

sufficient confidence for purposes of Plaintiffs-Appellants’ reliance.

       Reasonable or justifiable reliance is a necessary element of a claim under MFIL. Cook, 210

F.3d at 659. Similarly, where mail fraud or wire fraud is alleged as a predicate offense, reasonable

reliance is an element of a RICO claim. See, e.g., Bender v. Southland Corp., 749 F.2d 1205, 1216

(6th Cir. 1984). The district court therefore did not err when it granted summary judgment against

Plaintiff’s claims under MFIL and RICO. Finally, the above analysis provides no basis for

invalidating the franchise agreements between the parties. Under Michigan law this court may not

imply a contract where an express contract covers the same subject matter, see, e.g., Belle Isle Grill

Corp. v. Detroit, 666 N.W.2d 271 (2003). Accordingly, Plaintiffs-Appellants have no viable claims

for breach of implied contract or unjust enrichment.




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No. 06-2087
Aron Alan, LLC, et al. v. Tanfran, Inc., et al.

                                                   III.

       For the foregoing reasons, we affirm the judgment of the district court.




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