                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-23-2007

Bishop v. GNC Franchising LLC
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-2302




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                                                      NOT PRECEDENTIAL

              UNITED STATES COURT OF APPEALS
                   FOR THE THIRD CIRCUIT


                             No. 06-2302


             HAROLD E. BISHOP; PATRICIA BISHOP;
                ALTERNATIVE HEALTH, INC.,

                                               Appellants

                                   v.

   GNC FRANCHISING LLC; GENERAL NUTRITION CORPORATION;
GENERAL NUTRITION DISTRIBUTION CORP; APOLLO MANAGEMENT LP



             On Appeal for the United States District Court
               for the Western District of Pennsylvania
                     (D.C. Civ. No. 05-cv-00827)
                District Judge: Hon. Arthur J. Schwab


              Submitted under Third Circuit LAR 34.1(a)
                          on May 16, 2007


        Before: FISHER, NYGAARD and ROTH, Circuit Judges

                   (Opinion filed: August 23, 2007)



                            OPINION
ROTH, Circuit Judge:

       This action arises out of a franchise relationship between the appellants, Harold and

Patricia Bishop and their company Alternative Health, and the appellees, GNC Franchising

LLC, GNC Nutrition Corporation, and General Nutrition Distribution, LP (collectively

“GNC”). In November 1997, the Bishops entered into two franchise agreements with GNC

to operate two GNC stores in Indiana.

       Both of the agreements contained a choice of law provision, providing that the

agreements “shall be interpreted and construed under the laws of the Commonwealth of

Pennsylvania.” The Bishops developed problems in paying their requisite franchise fees.

In September 2005, GNC mailed them a Notice of Termination of the franchise agreements

for the two stores. Prior to this mailing, on June 17, 2005, the Bishops filed a complaint

against GNC. An amended complaint was filed on September 23, 2005. In it, the Bishops

alleged sixteen counts against GNC, including breach of contract, violations of several

Indiana statutes, fraud, negligent misrepresentation, breach of implied covenant of good faith

and fair dealing, predatory pricing, violations of the Robinson-Patman Act and Sherman Act,

and breach of fiduciary duty. In response, GNC filed a motion to dismiss the complaint.

       On December 1, 2005, the District Court dismissed all but the Bishops’ breach of

contract claim. After a bench trial, the District Court entered judgment in favor of GNC on

the breach of contract claim. The Bishops then appealed the District Court’s order granting

GNC’s motion to dismiss. The Bishops contend on appeal that (1) the District Court

incorrectly applied the choice of Pennsylvania law contract provision to dismiss the Bishops’

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Indiana state law claims, (2) Pennsylvania’s gist of the action doctrine was not applied

appropriately, and (3) the District Court erroneously dismissed the Bishops’ claim for breach

of duty of good faith and fair dealing

       The District Court had jurisdiction over this diversity case pursuant to 28 U.S.C. §

1332. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291.

       On an appeal of the District Court’s ruling on a motion to dismiss under Rule 12(b)(6)

for failure to state a claim, we exercise plenary review. Unger v. Nat’l Residents Matching

Program, 928 F.2d 1392, 1394 (3d Cir. 1991). In reviewing a motion under Rule 12(b)(6),

the court must view all the allegations in the complaint as true and construe all inferences in

the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

Furthermore, a court may grant a motion to dismiss under Rule 12(b)(6) if there is a

dispositive issue of law. Neitzke v. Williams, 490 U.S. 319 326-27 (1989).

I. DISCUSSION

       The Bishops claim that the choice of Pennsylvania law provision in the franchise

agreements should not apply because it violates Indiana public policy. The Bishops did not,

however, identify in the District Court the Indiana public policy that was violated. They

made only vague and generalized assertions. Having failed to assert their public policy

arguments in the District Court, the Bishops may not do so before this Court. See Medical

Protective Co. v. Watkins, 198 F. 3d 100, 105-06 n.3 (3d Cir. 1999).

       The Bishops next claim that they were duped into a contractual agreement through

fraud and misrepresentation. The District Court held that this claim was barred by the gist

                                              3
of the action doctrine. This doctrine is recognized by the Pennsylvania courts and serves to

preserve the conceptual distinction between breach of contract claims and tort claims. eToll,

Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa. Super. Ct. 2002). The gist of the

action doctrine precludes one from pursuing a tort action for the breach of contractual duties.

See Am. Guarantee and Liability Ins. Co. v. Fojanini, 90 F. Supp. 2d 615 (E.D. Pa. 2000).

       The contractual duties that the Bishops claim GNC breached are the same ones that

form their fraud and negligent misrepresentation claims, as was pointed out by the District

Court. For example, in their allegations of fraud and negligent misrepresentation, the

Bishops claim that GNC “misleadingly suggest[ed] that the franchisees [would] be free to

purchase from third-parties, never disclosing the arbitrary restrictions and capricious

rejections of third party product[s].” In their breach of contract claim, they allege that GNC

“impos[ed] unreasonable and arbitrary direct purchasing requirements on franchisees.”

However, once GNC has been found not to have breached the contractual purchasing

requirements, it cannot otherwise be found to have committed fraud or negligent

misrepresentation regarding those same requirements. Correctly applied to this case, the gist

of the action doctrine prevents such a paradox from occurring.

       Finally, the District Court dismissed the Bishop’s good faith claim because the court

concluded that under Pennsylvania law “the implied covenant of good faith . . . cannot

modify or override express contractual terms.” We agree with this conclusion. See Witmer

v. Exxon Corp., 343 A.2d 1222, 1226-27 (Pa. 1981). To the extent that the Bishops are

arguing that an implied covenant of good faith overrides contractual terms, such an override

                                              4
has not been recognized by the Pennsylvania courts except in the context of franchise

terminations. See Atlantic Richfiled Co. v. Razumic, 390 A.2d 736, 742 (Pa. 1978) (holding

that franchisors have a duty to act in good faith and with commercial reasonableness when

terminating franchise agreements).

       Moreover, the unconscionable actions that constitute the Bishops’ allegations of bad

faith appear to be (1) using unconscionable provisions in the franchise agreement, (2)

imposing unreasonable and arbitrary direct purchasing requirements; (3) implementing

policies that postured their corporate stores for profit at the expense of the franchisees, and

(4) imposing unreasonable reset expenses. However, these issues were resolved in the bench

trial on the Bishops’ breach of contract claim. Once the question whether GNC breached the

agreements is resolved, the question of good faith is also resolved.

II. CONCLUSION

       For the reasons set forth above, we will affirm the District Court’s December 1, 2005,

order dismissing claims under Rule 12 (b)(6).




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