ORIOLE GROUP LLC v. POOL SCOUTS FRANCHISING LLC (2025)

OPINION & ORDER

Plaintiffs Steve and Michelle Stern allege they were persuaded to buy a franchise license based on fraudulent misrepresentations about the costs of running the business. The Court dismissed the plaintiffs’ first Amended Complaint because its civil RICO claim—the primary basis for federal subject matter jurisdiction—failed to allege an enterprise that met the longevity requirement. The plaintiffs now seek to amend their pleading again. For the reasons explained herein, the Motion for Leave to File a Second Amended Complaint (ECF No. 39) will be GRANTED.

I. BACKGROUND

At this stage, the Court assumes the facts alleged in the Proposed Second Amended Complaint are true. ECF No. 44 (SEALED). Defendant Pool Scouts Franchising, LLC (“PS Franchising”) franchises a pool cleaning and service business. Id. ¶ 1. Since 2019 it, along with its parent company and three executives, has engaged in a scheme to lure new franchisees by misrepresenting franchises’ potential financial performance. Id.; see id. ¶ 44. Once a franchise license is sold, the franchisee is on the hook to pay royalty and marketing fees that will render their own business unprofitable but make money for the participants in the scheme. Id. ¶ 1; see id. ¶¶ 45–48.

The fraudulent scheme works like this: PS Franchising and its parent company, Buzz Franchise Brands, LLC (“Buzz”) run two in-house outlets in Virginia Beach, Virginia, collectively called Pool Scouts Local Operations, LLC (“PS Local Ops”). ECF No. 44 ¶¶ 23, 48. These businesses appear to customers to operate like other Pool Scouts shops, but they are not franchises, so they do not pay fees to PS Franchising. Id. ¶ 23. PS Local Ops does not have a lease: It uses office, warehouse, and parking space provided by PS Franchising. Id. ¶ 51. And PS Local Ops uses the labor of PS Franchising employees without logging those employees’ wages or benefits as costs. Id. ¶ 52. Beginning in 2019, PS Franchising began manipulating PS Local Ops's financial data to make the business appear profitable even though, were it a real franchise outlet, it would operate at a loss. See id. ¶¶ 47–68. PS Franchising reports those manipulated data in financial disclosures required by the Federal Trade Commission and distributed to prospective franchisees. Id. ¶ 34, 67. In doing so, PS Franchising holds out the two PS Local Ops outlets as representative franchises, pursuant to FTC regulation. See id. ¶ 96. But they are not truly representative.

In 2020, Plaintiffs Steve and Michelle Stern ¹ received the financial disclosure document PS Franchising and its associates produced in 2019 and viewed a webinar that incorporated the misleading data about PS Local Ops. ECF No. 44 ¶¶ 88, 94–95. They asked two PS Franchising executives—participants in the scheme—why the disclosures only included data from two Virginia Beach territories. Id. ¶ 98. The executives told the plaintiffs—falsely—that the PS Local Ops locations reflected the complete costs necessary to operate a Pool Scouts franchise. Id. The Sterns relied on the financial data PS Franchising provided when they acquired a Pool Scouts franchise. Id. ¶ 100.

The plaintiffs first learned about PS Franchising's scheme in April or May 2024, in a conversation with a former PS Franchising employee. ECF No. 44 ¶ 137. That former employee also testified, in separate litigation, that PS Franchising's past president had directed employees—including himself—to manipulate data to make Pool Scouts franchises appear more profitable than they actually were and to hide financial information from prospective franchisees. Id. ¶¶ 133–134. The Sterns filed their original Complaint in June 2024. ECF No. 1. They filed an amended complaint two months later, which the Court dismissed. ECF Nos. 13 (First Amended Complaint), 36 (Order).

The Court's Scheduling Order set a deadline of November 24, 2024, for motions to amend the pleadings pursuant to Fed. R. Civ. P. 15(a)(2). See ECF No. 22 ¶ II. The plaintiffs filed this Motion on February 19, 2025. ECF No. 39; see also ECF No. 40 (Memorandum), 46 (Opposition), 48 (Reply). The proposed amended pleading includes a common law claim for fraud in the inducement of the parties’ contracts (Count I), a civil claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) (Count II), a claim under the Texas Deceptive Trade Practices Act (“DTPA”) (Count III), and a breach of contract claim (Count IV), pleaded in the alternative to Counts I–III.²

II. LEGAL STANDARD

“[A]fter the deadlines provided by a scheduling order have passed,” a plaintiff seeking to amend a complaint must demonstrate good cause. Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 297 (4th Cir. 2008). If the plaintiff demonstrates good cause to amend their complaint after the deadline set forth in the scheduling order, the district court must still complete the amendment analysis under Fed. R. Civ. P. 15. Accord, e.g., Allegis Grp., Inc. v. Bero, 689 F. Supp. 81, 103 (D. Md. 2023).

Fed. R. Civ. P. 15(a) provides that a party may amend a pleading by leave of the court ․ and that “[t]he court should freely give leave [to amend] when justice so requires.” Leave to amend “should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would [be] futile.” Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (citation and quotation marks omitted).

III. ANALYSIS

A. Good Cause

The plaintiffs establish good cause to amend their complaint after the deadline established in the Scheduling Order, because they acted within a reasonable time after learning that their First Amended Complaint was deficient. The Fourth Circuit has not addressed in a published opinion what factors guide the good cause analysis in the context of a motion for leave to file an amended complaint after the deadline prescribed in a court's scheduling order. However, it has recognized in unpublished opinions that Fed. R. Civ. P. 16(b)(4)’s good cause standard focuses on the diligence of the moving party. Montgomery v. Anne Arundel Cnty. Md., 182 F. App'x 156, 162 (4th Cir. 2006) (unpublished); Cook v. Howard, 484 F. App'x 805, 814–15 (4th Cir. 2012) (unpublished). Thus, the Court looks to whether the plaintiffs acted diligently to comply with the Scheduling Order. Cf. Cook, 484 F. App'x at 815 (“[T]he good-cause standard will not be satisfied if the district court concludes that the party seeking relief ․ has not acted diligently in compliance with the schedule.”) (alterations accepted).³

Under that standard, good cause generally exists when some of the evidence a plaintiff needs to plead their claims did not come to light until after the amendment deadline. See, e.g., G. W. Aru, LLC v. W. R. Grace & Co.-Conn., 344 F.R.D. 446, 449 (D. Md. 2023); Wonasue v. Univ. of Md. Alumni Ass'n, 295 F.R.D. 104, 107 (D. Md. 2013); Tawwaab v. Va. Linen Serv., Inc., 729 F. Supp. 2d 757, 768–69 (D. Md. 2010). The Court finds that the plaintiffs establish good cause for at least two reasons.

First, the plaintiffs seek to amend the complaint to solve the problem the Court identified when it dismissed the First Amended Complaint for failure to state a claim—namely, the absence of allegations about when PS Franchising's fraudulent scheme began, which are essential to pleading the longevity element of the RICO claim. See ECF No. 38 at 33:15–35:20. The Court raised that issue sua sponte after PS Franchising failed to address it in its Motion to Dismiss. See ECF No. 32 (directing the parties to prepare to address Supreme Court and Fourth Circuit precedent establishing the structural requirements for a RICO enterprise); ECF No. 15 at 11 n.8 (PS Franchising referencing the structural requirements in a footnote to its Motion to Dismiss but making no argument about longevity); ECF No. 38 at 23:19–20 (defense counsel acknowledging that longevity is “not in [PS Franchising's] briefing”).⁴ And after dismissing the First Amended Complaint on those grounds, the Court advised the plaintiffs that any motion for leave to file a second amended complaint must be filed on or before February 19, 2025. ECF No. 36 at 1. The plaintiffs met that deadline. ECF No. 39. Though the same may not be sufficient in every case, here the Court is satisfied that the plaintiffs “acted diligently” in complying with the schedule because the plaintiffs sought leave to amend within a reasonable time after learning that the First Amended Complaint was deficient. Cook, 484 F. App'x at 815.

Additionally, the proposed amendment adds facts the plaintiffs obtained through discovery, which they represent they “could not have learned ․ before the [S]cheduling [O]rder[’s] deadline [to amend the pleadings], because [the] [d]efendants were in sole possession of that information.” ECF No. 40 at 6. Specifically, to address the First Amended Complaint's failure to plead longevity of the alleged RICO enterprise, the plaintiffs propose to add allegations comparing public disclosures with PS Franchising's internal financial data—which, if true, would tend to prove that the enterprise continued to function at least through 2023. See ECF No. 44 ¶¶ 156–168.

PS Franchising argues that finding good cause here would frustrate the purpose of Fed. R. Civ. P. 9(b), which functions in part to “stop fraud actions where everything is learned after discovery.” ECF No. 46 at 26 (quoting ⁵ U.S. ex rel. Nicholson v. MedCom Carolinas, Inc., 42 F.4th 185, 195 (4th Cir. 2022)). That concern is misplaced because most of the fraud allegations in the proposed amendment were made in the First Amended Complaint—i.e., not “everything” is new. Nicholson, 42 F.4th at 195. Since the plaintiffs do not seek to add any new claims based on what they learned in discovery, there is little risk that finding good cause would reward a “fishing expedition,” as PS Franchising suggests. Id.

Finding that the plaintiffs acted diligently to comply with the Court's schedule upon learning that their First Amended Complaint was deficient, the Court concludes the plaintiffs establish good cause to amend their pleading.

B. Prejudice

PS Franchising does not show that it would be prejudiced by the proposed amendment, because it does not represent that it would require additional discovery to proceed on the Proposed Second Amended Complaint. District courts in the Fourth Circuit require the party opposing amendment to demonstrate prejudice if it exists. E.g., Atl. Bulk Carrier Corp. v. Milan Exp. Co., No. 3:10-cv-103, 2010 WL 2929612, *4 (E.D. Va. July 23, 2010). At the hearing on the Motion to Dismiss, defense counsel conceded that PS Franchising would not be prejudiced by the filing of a Second Amended Complaint as long as (1) the additional allegations in that pleadings were based on information the plaintiffs obtained through discovery and (2) the amendment did not expand the claims such that additional discovery was required. See ECF No. 38 at 25:14–26:4.

PS Franchising does not dispute that the allegations added in the proposed amended pleading reflect facts the plaintiffs learned through discovery. See ECF No. 40 at 2 (plaintiffs asserting the Proposed Second Amended Complaint includes facts they obtained through discovery); ECF No. 46 at 26–27 (not disputing that assertion). Moreover, having now read the plaintiffs’ proposed amended pleading, PS Franchising does not contend that additional discovery would be required before the parties could proceed on the Second Amended Complaint. See ECF No. 46 at 26–27 (arguing that permitting the plaintiffs to amend their pleading a second time would be unfairly prejudicial because PS Franchising might “incur additional cost and expense” if discovery were re-opened—but not asserting that additional discovery is necessary). And in comparing the First Amended Complaint with the Proposed Second Amended Complaint, the Court concludes the new pleading only clarifies certain elements of the plaintiff's RICO action—it does not add any new assertions that are likely to require new discovery. Accordingly, the Court finds PS Franchising has not shown that it would be prejudiced by the filing of the Proposed Second Amended Complaint.

C. Bad Faith

PS Franchising does not show that the amendment is proposed in bad faith: At most, it demonstrates factual disagreements with the plaintiffs. Bad faith is “dishonesty of belief or purpose.” United States ex rel. Nicholson v. MedCom Carolinas, Inc., 42 F.4th 185, 198 (4th Cir. 2022) (quoting Bad Faith, Black's Law Dictionary (8th ed. 2004)) (quotation marks omitted and alterations accepted). It captures “act[ing] for the wrong reasons ․ lying, deceiving, playing unjustifiable hardball, slacking off, intentionally causing confusion, [ ] stubbornly refusing to follow rules,” or even “noticing someone's mistake and saying nothing about it.” Id. PS Franchising contends the Second Amended Complaint is proposed in bad faith because it contains allegations that—from PS Franchising's perspective—are refuted by their own agents’ statements, disclosed in discovery. ECF No. 46 at 27–29. However, that is an argument about the weight a factfinder might assign such evidence. Mere disagreement about the facts is not evidence of bad faith.

PS Franchising also appears to contend that Mrs. Stern's deposition testimony reveals the whole lawsuit is lodged in bad faith. ECF No. 46 at 29–30. Mrs. Stern acknowledged that when she and Mr. Stern entered their first contract with PS Franchising in 2020, she expected the new franchise to operate at a net loss for the first two years. ECF No. 46-4 at 50:8-21. PS Franchising says this testimony reveals bad faith because it runs counter to “the idea that [the plaintiffs] expected to make a 13%–16% net profit”—which PS Franchising views as the foundational premise for the “entire case.” ECF No. 46 at 29. But neither the Proposed Second Amended Complaint nor any prior version of the pleading alleges the plaintiffs expected to make a specific profit. Instead, the plaintiffs’ central contention is that they would not have invested in a PS Franchising franchise if PS Franchising had not fraudulently misled them about the cost of running the business. See, e.g., ECF No. 44 ¶ 122. Mrs. Stern's testimony does not render that contention deceptive or misleading, so it does not demonstrate bad faith on the part of the plaintiffs. Cf. Nicholson, 42 F.4th at 198.

Mrs. Stern also testified the business turned a profit in 2022, 2023, and 2024. ECF No. 46-5 at 54:21-55:10. PS Franchising argues this proves the Proposed Second Amended Complaint's allegation that the franchise “has operated at a net loss since its inception” is either “inaccurate” or “disingenuous.” ECF No. 44 ¶ 123; ECF No. 46 at 30 n. 12. But at this stage, the Court is required to make every reasonable inference in the plaintiffs’ favor. Thus, the Court reads the Proposed Second Amended Complaint to plausibly allege the plaintiffs’ business has not, “since its inception,” made enough money to recoup the plaintiffs’ investment—the expenditure they claim was induced by fraud. ECF No. 44 ¶ 123; see ECF No. 48 at 20 (explaining the “[p]laintiffs—over the course of nearly five years—are still operating at a loss in their Pool Scouts ownership”). Mrs. Stern's testimony does not contradict that allegation. And at any rate, a finding of bad faith requires more than a mere disagreement about semantics.

Contrary to PS Franchising's arguments, the Court finds no evidence of “dishonesty” in the Proposed Second Amended Complaint or of the plaintiffs “act[ing] for the wrong reasons.” Nicholson, 42 F.4th at 198. Therefore, bad faith will not bar the proposed amendment.

D. Futility

The plaintiffs’ proposed amendment would not be futile, because all the claims in their proposed pleading pass muster under Fed. R. Civ. P. 12(b)(6). Courts deny leave to amend for futility when the proposed amendment is “clearly insufficient or frivolous on its face” or “fails to withstand Rule 12(b)(6) scrutiny.” In re Triangle Cap. Corp. Sec. Litig., 988 F.3d 743, 750 (4th Cir. 2021). “To survive a [Fed. R. Civ. P. 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court “must take all the factual allegations in the complaint as true.” Papasan v. Allain, 478 U.S. 265, 286 (1986).

PS Franchising does not dispute the sufficiency of the plaintiffs’ breach of contract claim (Count IV), and the Court independently finds that claim would not be futile.⁶ The Court will assess PS Franchising's challenges based on a contractual release and two theories of time bar then turn to the Rule 12(b)(6) assessment for Counts I, II, and III in order.

i. Release

PS Franchising asserts that “the claims in the First Amended Complaint [are] barred by release.” ECF No. 46 at 17. The Court construes this as an argument that the Proposed Second Amended Complaint would be futile because, even if the plaintiffs state plausible claims, they cannot be granted relief. All four of the parties’ contracts include release clauses. ECF No. 15-3 § 17 (June 2020 Franchise Agreement); ECF No. 15-4 § 14 (March 2022 Area Development Agreement); ECF No. 15-5 § 17 (March 2022 Franchise Agreement); ECF No. 15-7 § 4 (October 2023 Modification Agreement). However, the plaintiffs allege that all those contracts—in their entirety—were induced by fraud. ECF No. 44 ¶¶ 179–89. If the plaintiffs were to prevail on their fraud in the inducement claim, then the contracts—and the choice of law clauses therein—would be void. See Restatement (Second) of Contracts § 163 (1981). Because the Court finds that the fraud in the inducement claim survives scrutiny under Fed. R. Civ. P. 12(b)(6), see infra Part III.D.iii, it must assume, for the time being, that the release clauses are inoperative. See also infra n. 13 (addressing PS Franchising's contention that the later contracts are valid even if the original were induced by fraud). If at a later stage the plaintiffs were to fail on Count I, then the Court would reconsider what—if any—effect the releases have. But for now, the releases do not render the claims in the proposed pleading inadequate under Fed. R. Civ. P. 12(b)(6).

ii. Time Bar

PS Franchising next contends that relief cannot be granted on Counts I and III because the claims are time barred, by both a contractual limitation clause and the Virginia statute of limitations applicable to the proposed claims. The Court will address each argument in turn.

a. Contractual Limits

The parties’ franchise agreements purport to limit the time for filing suit to one year after the events giving rise to the claim. ECF No. 15-3 § 15(f); ECF No. 15-5 § 15(f). For the reasons explained in Part III.D.i and iii, the Court does not find at this stage that the parties have an enforceable agreement regarding a time bar.

b. Statutes of Limitations

The statute of limitations argument requires a more detailed analysis. Federal courts exercising supplemental jurisdiction over state law claims apply state law as they would under diversity jurisdiction. Johnson v. Hugo's Skateway, 974 F.2d 1408, 1416 (4th Cir. 1992); see United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966). Federal courts sitting in diversity apply the choice of law rules of the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). In Virginia, the law of the place of the wrong governs substantive matters in tort cases, but Virginia law governs procedural matters. Jones v. R.S. Jones & Assocs., 431 S.E.2d 33, 34 (Va. 1993). Virginia considers a statute of limitations procedural unless it is bound up with the substantive law of the claim. Id. at 35; see Sch. Bd. of City of Norfolk v. U.S. Gypsum Co., 360 S.E.2d 325, 327 (Va. 1987) (“An ordinary statute of limitations is a procedural statute ․”); but see Roller v. Basic Const. Co., 384 S.E.2d 323, 325–26 (Va. 1989) (limitation in a statute that “created a new right ․ unknown at common law” was “part of the new right”).

1. Count I: Fraud in the Inducement

Count I is a common law fraud claim, so there is no statute that creates the cause of action and might prescribe a limitation period. See Jones, 431 S.E.2d at 35. Therefore, the limitations period for Count I is procedural, and Virginia law applies. See id. Virginia has a two-year statute of limitations for civil fraud claims. Va. Code § 8.01-243(A). The limitation period begins to run when the fraud “is discovered or by the exercise of due diligence reasonably should have been discovered.” Va. Code § 8.01-249(1).

When a plaintiff discovered or reasonably should have discovered alleged fraud is a question of fact. See Oden v. Salch, 379 S.E.2d 346, 350 (Va. 1989); Gilmore v. Basic Indus., Inc., 357 S.E.2d 514, 517 (Va. 1987). Thus, at this stage, the Court must find Count I sufficient unless it is clear on the face of the complaint that the claim is time-barred. See 5B Fed. Prac. & Proc. Civ. § 1357 (4th ed.) (quoted in Brooks v. City of Winston-Salem, N.C., 85 F.3d 178, 181 (4th Cir. 1996)); see also Phillips v. Wells Fargo Bank, N.A., No. 3:17-cv-519, 2018 WL 1946925, at *2 (E.D. Va. Apr. 25, 2018) (“When the Court confronts a statute of limitations argument in a 12(b)(6) motion to dismiss, all facts necessary for the Court to conclude that the statute bars the claims must appear on the face of the complaint.”) (citation omitted).

PS Franchising's alleged fraud involved “provid[ing] [ ] misleading information” about PS Franchising's role in “subsidiz[ing] the profitability of PS Local Ops.” ECF No. 44 ¶ 131. The Court reasonably infers that the data PS Franchising allegedly manipulated and withheld remained within the sole possession of PS Franchising, PS Local Ops, and their common parent company. The plaintiffs plausibly allege that they only learned that the data they had relied on were fraudulent after “a PS Franchising employee from 2018–2021, [ ] testified [in earlier litigation] that PS Franchising's past president ․ directed him to make [ ] Pool Scouts franchise[s] appear more profitable than they actually were” and also “directed other Pool Scouts employees to suppress financial information” and not disclose it to franchisees. Id. ¶¶ 133, 134. The plaintiffs assert they “only learned about PS Franchising's [ ] fraud and deceit through a conversation with [the former employee] in late April or early May 2024.” Id. ¶ 137. Viewing these allegations in the light most favorable to the plaintiffs, it is not clear on the face of the proposed pleading that the plaintiffs discovered or reasonably should have discovered the alleged fraud before April 2024—less than three months before they filed their original Complaint. See ECF No. 1; 5B Fed. Prac. & Proc. Civ. § 1357 (4th ed.). Therefore, Count I survives the statute of limitation challenge at this stage.

2. Count III: Texas Deceptive Trade Practices Act

The DTPA contains its own statute of limitations. Tex. Bus. & Com. Code § 17.565. The Court finds the limitation period is bound up with the substantive law of the statutory scheme, because it contains language that mirrors the rest of the Act and considerations about the manner in which the fraud was conducted. Therefore, the statute of limitations for Count III is substantive, and the law of the place of the wrong governs. See Jones, 431 S.E.2d at 34. The place of the wrong is “the state where the last event necessary to make an actor liable for an alleged tort takes place.” Restatement of Conflicts of Laws § 377; see Quillen v. Int'l Playtex, Inc., 789 F.2d 1041, 1044 (4th Cir. 1986). A DTPA action includes damage to the plaintiff as an essential element, so harm is the last event necessary to make a DTPA defendant liable. Doe v. Boys Club of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex. 1995). The Court reasonably infers the harm the plaintiffs allege took place in Texas. See ECF No. 44 ¶¶ 15 (the Sterns live in Texas, and Oriole is located there), 89–91 (webinar containing fraudulent information transmitted to the plaintiffs and viewed in Texas), 94 (financial disclosure document sent to the plaintiffs in Texas). Accordingly, the statute of limitations prescribed by Texas law governs Count III. See Jones, 431 S.E.2d at 35.

A DTPA plaintiff must initiate their claim within “two years after [they] discovered or in the exercise of reasonable diligence should have discovered the occurrence of the [defendant's] false, misleading, or deceptive act or practice.” Tex. Bus. & Com. Code § 17.565. Like Virginia, Texas views “what constitutes reasonable diligence to discover fraud [as] a question of fact for the jury.” Ruebeck v. Hunt, 176 S.W.2d 738, 740 (1943). For the reasons explained in Part III.D.ii.a above, the Court finds that the plaintiffs plausibly allege they did not discover nor reasonably should have discovered PS Franchising's alleged misleading or deceptive acts until less than two months before they filed their original Complaint. Therefore, at this stage, Count III is not time barred.⁷

iii. Count I: Fraud in the Inducement

To state a claim for fraud in the inducement under Texas law,⁸ a plaintiff must plausibly allege:

(1) the defendant made a material representation that was false; (2) the defendant knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth; (3) the defendant intended to induce the plaintiff to act upon the representation; and (4) the plaintiff actually and justifiably relied upon the representation and [(5)] suffered injury as a result.

JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018) (quotation marks omitted).

PS Franchising asserts the plaintiffs do not plausibly allege their reliance was justifiable. See ECF No. 46 at 20–22.⁹ That argument fails because it attacks a straw man: PS Franchising pretends the plaintiffs’ claim turns on alleged promises about franchise revenue. See ECF No. 46 at 20 (“nowhere in the 2020 FDD or Webinar did [PS] Franchising represent what franchisees would make”); id. at 20–21 (arguing that “alleged projected profits cannot support a fraud claim,” because “fraud must relate to a present or a pre-existing fact,” not “unfulfilled promises or statements as to future events”) (quotation marks and citations omitted). In fact, the plaintiffs assert that PS Franchising misled them by misrepresenting PS Local Ops's finances and PS Franchising's own role in manipulating financial data. See, e.g., ECF No. 44 ¶¶ 59 (under-reported wage costs), 62 (false rent figure), 65–66 (unreported free administrative and pool cleaning labor).

The Proposed Second Amended Complaint plausibly alleges the plaintiffs justifiably relied on those misrepresentations. “A party to an arm's length transaction must exercise ordinary care and reasonable diligence for the protection of his own interests.” JPMorgan Chase, 546 S.W.3d at 654 (alterations accepted). Therefore, “[j]ustifiable reliance usually presents a question of fact.” Id. That presumption is only negated as a matter of law where—“consider[ing] the nature of the parties’ relationship and the contract”—reliance cannot be justified under the circumstances. Id. (alterations accepted).¹⁰ The Proposed Second Amended Complaint plausibly asserts that the financial disclosure document on which the plaintiffs relied was “the key due diligence document for any potential franchisee, because its contents are governed by the Federal Trade Commission's Franchise Rule.” ECF No. 44 ¶ 2. The Court reasonably infers that none of the figures PS Franchising manipulated in its communications to prospective franchisees were obviously false on their face and, therefore, that a reasonable prospective franchisee would not have perceived the alleged fraud. Cf. id. ¶ 162 (21 new franchisees signed up after receiving the fraudulent disclosures). And even if the plaintiffs had guessed that the numbers were wrong, it is hard to see how the plaintiffs could have obtained accurate information about PS Local Ops's internal finances from a source more reliable than a document regulated by the FTC. Therefore, the Court finds that the Proposed Second Amended Complaint plausibly alleges the plaintiffs used “ordinary care and reasonable diligence” when they relied on PS Franchising's public disclosures about the costs of running a franchise business. JPMorgan Chase, 546 S.W.3d at 654.

It is hard to make out, but PS Franchising may also argue that if its statements about the amount of profit franchisees could expect to make were false, that falsehood was not material. See ECF No. 46 at 20–21 (asserting that “projected profits cannot support a fraud claim”). Assuming without deciding that unreliable predictions about future profit are not “material [mis]representation[s],” JPMorgan Chase, 546 S.W.3d at 653, the statements that form the basis of Count I still are. The plaintiffs do allege that PS Franchising made them a “false promise of high profit margins and an easily scalable business.” ECF No. 44 ¶ 41. But they do not allege those promises induced them to buy a franchise license and incur PS Franchising's fees. The crux of the plaintiffs’ claim is that they did not rely on the promise of a profit margin—they did their homework. They scrutinized the data PS Franchising claimed reflected the representative costs of running a franchise business, and on the basis of those data—which were fraudulently manipulated—the plaintiffs decided to invest.

The plaintiffs adequately plead both materiality and justifiable reliance, and PS Franchising does not challenge the sufficiency of any other element of the fraudulent inducement claim.¹¹ Therefore, Count I adequately states a claim on which relief can be granted.¹²

iv. Count II: Civil RICO

The RICO Act provides a civil cause of action for “[a]ny person injured in his business or property by reason of a violation” of the substantive provisions in 18 U.S.C. § 1962. See 18 U.S.C. § 1964(c).¹³ To state a claim under 18 U.S.C. § 1962(c), a complaint must plausibly allege the defendant (1) is a RICO person associated with (2) an enterprise (3) that is distinct from the person, and (4) the defendant conducted the enterprise's affairs (5) through a pattern (6) of racketeering. See 18 U.S.C. § 1962(c). Several of those elements include sub-elements, which the Court will address below.

The plaintiffs allege that in 2019, PS Franchising, together with its parent company and three executives, began manipulating the financial data it reported in annual disclosure documents. Instead of reporting data about representative franchise outlets, as it was required to do by law, PS Franchising reported data on a business it ran in-house and fudged the numbers to make that business appear profitable when, in reality, it would have operated at a loss if it had been a real franchise. PS Franchise provided those fraudulent data to prospective franchisees, intending for them to rely on the information in making the decision to purchase a franchise license. The plaintiffs plead at least 14 instances of wire fraud PS Franchising committed in this manner, from 2019 through 2021, and they allege additional misleading conduct PS Franchising has continued to engage in leading up to the present day.

PS Franchising challenges the RICO claim in the Proposed Second Amended Complaint on four sub-elements: the “purpose,” “relationships,” “longevity,” and “distinctness” requirements under the “enterprise” element and the “continuity” requirement under the “conduct” element. The Court will address each component of the plaintiffs’ claim in turn, focusing on each of PS Franchising's challenges as they arise in order.

1. Person

The RICO ‘person’ in a civil action is the defendant named in the complaint. See Palmetto State Med. Ctr., Inc. v. Operation Lifeline, 117 F.3d 142, 148 (4th Cir. 1997). The statute defines a person to include “any ․ entity capable of holding a legal ․ interest in property,” which PS Franchising is. 18 U.S.C. § 1961(3). Thus, the Proposed Second Amended Complaint pleads that PS Franchising is a RICO person. See ECF No. 44 at 1.

2. Enterprise

The Proposed Second Amended Complaint plausibly alleges the existence of a RICO enterprise. A RICO enterprise includes “any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). Here, the parties agree the Proposed Second Amended Complaint purports to allege an association-in-fact enterprise. See ECF No. 40 at 9; ECF No. 46 at 11. An association-in-fact enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct.” United States v. Turkette, 452 U.S. 576, 583 (1981). It “must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose.” Boyle v. United States, 556 U.S. 938, 946 (2009); United States v. Pinson, 860 F.3d 152, 161 (4th Cir. 2017).

The enterprise alleged in this case is comprised of three individual executives (Michael Wagner, Brian Garrison, and Dave Warn) and two entities (Buzz and PS Franchising). ECF No. 44 ¶ 44. PS Franchising argues that the RICO claim fails because “[t]here are no facts in the Proposed Second Amended Complaint to suggest that any allegedly fraudulent activity was coordinated by a leader or by the whole of the [enterprise].” ECF No. 46 at 11 (emphasis in original). But no direct allegations about coordination are required. Instead, “the existence of an enterprise may [ ] be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity.” Boyle, 556 U.S. at 947.¹⁴ The Court addresses each of the Supreme Court's structural requirements for enterprises below.

a. Purpose

The people or entities associated as a RICO enterprise must have the “common purpose of engaging in a course of conduct.” Boyle, 556 U.S. at 944; Turkette, 452 U.S. at 580, 583. The enterprise's purpose need not be wholly unlawful. Turkette, 452 U.S. at 580–581. Here, the plaintiffs plausibly allege the purpose of the enterprise was to make money by “mislead[ing] potential franchisees into purchasing a Pool Scouts franchise.” ECF No. 44 ¶ 40–41.

PS Franchising asserts that Count II fails because it does not allege “the purpose of the [enterprise] was different from the purpose of PS Franchising.” ECF No. 46 at 11. But an enterprise's purpose must be the same as the purposes of its individual members. See Turkette, 452 U.S. at 583 (defining “enterprise” as “a group of persons associated together for a common purpose of engaging in a course of conduct”).¹⁵ Because the Proposed Second Amended Complaint plausibly alleges a moneymaking purpose that is common to the enterprise and all its members, it meets Boyle’s first structural requirement.¹⁶

b. Relationships Among the Associates

The proposed pleading sufficiently alleges the associates of the enterprise are related to one another through a corporate structure that enables them to play interrelated roles in the racketeering activity. A complaint can plead relationships among the associates of an alleged enterprise without alleging “a hierarchical structure or a ‘chain of command,’ ” “fixed roles” for the members, or any particular decision-making process. Boyle, 556 U.S. at 948. The Proposed Second Amended Complaint alleges discreet, interrelated roles each of the individuals played in the enterprise: Wagner “review[ed] and prepar[ed] marketing materials,” Garrison “worked closely with [ ] Wagner” to prepare PS Franchising's false financial disclosures, and Warn made representations directly to potential franchisees “regarding Pool Scouts’[s] financial data.” ECF No. 44 ¶ 45.c–e.

The Court can also reasonably infer that Warn guided prospective franchisees away from information that might raise questions about the false information the enterprise was disseminating. See ECF No. 44 ¶ 45.e (Warn, who was “actively engaged in shaping a prospective franchisee's due diligence process,” “would recommend that prospective franchisees steer clear of certain unhappy franchisees.”). PS Franchising took in royalty and marketing fees from franchisees whom the individuals recruited. See id. ¶¶ 40, 45.b. Buzz received that revenue and distributed money to the other members of the enterprise. See id. ¶¶ 45.a. (“Buzz ultimately receives the financial benefit of all revenue generated through the addition of new Pool Scouts franchisees”), 26 (Buzz paid Wagner), 27 (Garrison is a member of Buzz's Board of Directors), 28 (“Warn's compensation was based, in part, on commissions earned from the sale of [PS] Franchising franchises to new franchisees”).

PS Franchising complains that the roles described in the proposed pleading “merely repackage[ ] the alleged fraud of the Sterns.” ECF No. 46 at 12. But that is the point: The plaintiffs must allege that they are victims of the enterprise's fraud, conducted by enterprise members acting consistent with the relationships outlined in the Proposed Second Amended Complaint. See 18 U.S.C. § 1964 (statutory standing requirement).

PS Franchising also asserts that the alleged relationships are insufficient because they reflect a “normal corporate structure.” ECF No. 46 at 12. Again, PS Franchising misunderstands the law: RICO encompasses the infiltration of legitimate entities with ordinary corporate structures as well as wholly illegitimate criminal enterprises. See Turkette, 452 U.S. at 578–93.

c. Longevity

The proposed RICO claim meets the longevity requirement because it plausibly alleges the enterprise has operated for long enough to complete at least 14 acts of racketeering activity. A RICO enterprise “must function as a continuing unit and remain in existence long enough to pursue a course of conduct.” Boyle, 556 U.S. at 948. An enterprise that engages in “spurts of activity punctuated by periods of quiescence” may still satisfy this requirement. Id. The Proposed Second Amended Complaint asserts “the [e]nterprise was formed in the summer of 2019,” when the associates first “decided to manipulate PS Local Ops’[s] financial data to defraud ․ franchisees.” ECF No. 44 ¶ 193; see id. ¶ 46–47. The plaintiffs plausibly allege the enterprise fraudulently manipulated or omitted data in PS Franchising's 2019 and 2020 financial disclosure documents and disseminated those documents to prospective franchisees. See id. ¶¶ 47, 53–67 (2019), 71–88 (2020). Each time one of those documents was sent to a prospective franchisee constitutes a separate predicate act—for a total of at least 14 instances of racketeering activity. See Part III.D.iv.6, infra.

3. Distinctness

The plaintiffs adequately plead an enterprise that is distinct from PS Franchising itself, at least because they lay out enterprise functions that operate outside of PS Franchising. A RICO complaint must plausibly allege that the person against whom the claim is brought is distinct from the RICO enterprise. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 158 (2001) (accepting this premise); see United States v. Comput. Scis. Corp., 689 F.2d 1181, 1190 (4th Cir. 1982), overruled in part by Busby v. Crown Supply, Inc., 896 F.2d 833, 840 (4th Cir. 1990) (“ ‘enterprise’ was meant to refer to a being different from, not the same as or part of, the person whose behavior [the RICO Act captures]”). In other words, the ‘enterprise’ must not be “simply the same ‘person’ referred to by a different name.” Cedric Kushner, 533 U.S. at 158.

PS Franchising advances a different definition of distinctness (which they refer to as “distinctiveness”). ECF No. 46 at 13. According to PS Franchising, distinctness has two requirements: (1) The enterprise must not be the same as the RICO person, (the non-identity principle discussed above); and (2) “[t]he enterprise must be ‘an entity separate and apart from the pattern of activity in which it engages,’ id. (quoting Nunes v. Fusion GPS, 531 F. Supp. 3d 993, 1006 (E.D. Va. 2021)) (cleaned up).¹⁷ PS Franchising's view is widely held, but it is not consistent with the law in the Fourth Circuit.

To describe why it will not adopt PS Franchising's proposed standard, the Court must explain two divergent readings of Turkette—and how one has infiltrated the law on this issue, causing understandable confusion. As this Court and the Fourth Circuit understand it, the rule of Turkette is that an exclusively criminal enterprise can fall within the reach of the RICO statute. 452 U.S. at 587. But many courts have read the case to say distinctness requires an enterprise separate from the pattern of racketeering activity.

When Turkette arrived at the Supreme Court, the First Circuit thought that if a wholly criminal enterprise were covered under the RICO Act, then the “pattern of racketeering activity” and “enterprise” requirements would collapse into one element, which would be contrary to the principles of statutory interpretation. See Turkette, 452 U.S. at 582. The Supreme Court explained that concern was misplaced because the government (or a RICO plaintiff) has to prove each element individually, even if everything the enterprise does is part of its pattern of racketeering activity. See id. at 583. Accordingly, the Court stated: “The ‘enterprise’ is not the ‘pattern of racketeering activity’; it is an entity separate and apart from the pattern of activity in which it engages.” Id. In other words, Turkette rejected the addition of a requirement that the RICO enterprise be distinct from the pattern of racketeering activity, because those two things are inherently distinct.

Turkette never mentions distinctness. But somehow, many courts began reading the “separate and apart” language to create a rule that the party with the burden in a RICO case must prove the enterprise is distinct from the pattern of racketeering activity in which it engages.¹⁸ That is virtually the same rule considered and rejected in Turkette.

As far as this Court can tell, the Fourth Circuit has never adopted the view PS Franchising advances: It has stuck to the non-identity standard, which Turkette did not change. See Comput. Scis. Corp., 689 F.2d at 1190 (4th Cir. 1982) (en banc) (“We conclude that ‘enterprise’ was meant to refer to a being different from, not the same as or part of, the person whose behavior the act was designed to prohibit, and, failing that, to punish.”); Busby v. Crown Supply, Inc., 896 F.2d 833, 840 (4th Cir. 1990) (reaffirming the non-identity requirement in actions alleging a violation of § 1962(c) despite overruling Computer Sciences as to § 1962(a)); New Beckley Mining Corp. v. Int'l Union, United Mine Workers of Am., 18 F.3d 1161, 1163 (4th Cir. 1994) (affirming dismissal of a RICO complaint because “the ‘persons’ described” were “not distinct from the ‘enterprise’ ”); Palmetto, 117 F.3d at 148 (“The enterprise must be distinct from the persons alleged to have violated § 1962(c).”); see also United States v. Reese, 442 Fed. App'x 8, 12 (4th Cir. 2011) (unpublished) (finding no error where a district court refused to instruct a jury on the non-identity version of distinctness, where the government argued “a distinction between the enterprise and the defendant is established where the enterprise is a legal entity and the defendant is a [natural] person”).

The Fourth Circuit's view is consistent with later Supreme Court precedent, which has pushed back on the reading of Turkette applied by other federal courts of appeals and advanced by PS Franchising here. In Boyle, the Supreme Court considered whether a RICO enterprise must have “an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” 556 U.S. at 940–41 (quotation marks omitted). The Court decided the answer is no. Id. at 947–48. Justice Stevens disagreed, asserting that the RICO Act was only intended to capture “businesslike entities that have an existence apart from the predicate acts committed by their employees or associates.” Boyle, 556 U.S. at 952 (Stevens, J., dissenting) (emphasis added). Justice Stevens did not explicitly cite Turkette for a distinctness principle it never announced, like so many courts have done. But the dissent did implicitly connect Turkette to the proposed rule that “an enterprise must have a separate existence” from the pattern of racketeering activity. Id. at 954 (“If an entity's existence consisted solely of its members’ performance of a pattern of racketeering acts, the ‘enterprise's affairs’ would be synonymous with the ‘pattern of racketeering activity.’ ”).

The Boyle majority considered and rejected Justice Stevens's stance. They explained Turkette held only that “the existence of an enterprise is an element distinct from the pattern of racketeering activity and proof of one does not necessarily establish the other.” Boyle, 556 U.S. at 947 (emphasis added) (quotation marks omitted). Contrary to what Justice Stevens and the majority of circuits believed, distinctness does not require that an enterprise have a “structure beyond that inherent in the pattern of racketeering activity,” Id. at 940–41; see id. at 947 (“[T]he existence of an enterprise may [ ] be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity[.]”).

Still, courts have continued to misunderstand these cases, often articulating the Turkette misreading alongside the actual rule, to create a two-part requirement where the Fourth Circuit has recognized only one. For example, the case PS Franchising cites, from this District, states:

The enterprise is an “entity separate and apart from the pattern of activity in which it engages.” Boyle, 556 U.S. at 943-44. An “enterprise” is also distinct from a “person” under the RICO statute. Palmetto State Med. Ctr. v. Operation Lifeline, 117 F.3d 142, 148 (4th Cir. 1997).

Nunes, 531 F. Supp. 3d at 1006 (parallel citation omitted). In Nunes, the citation to Boyle references the Stevens dissent rather than the majority opinion. Palmetto—cited for the non-identity standard—expresses the Fourth Circuit's position, which remains good law after Boyle and does not embrace the Stevens dissent's reading of Turkette.

Regardless of how other district courts have proceeded, this Court must follow the Fourth Circuit's articulation of the distinctness requirement, which tracks the Supreme Court's reasoning. Therefore, the Court will assess whether the Proposed Second Amended Complaint plausibly alleges that the person against whom the claim is brought is distinct from the RICO enterprise. Cedric Kushner, 533 U.S. at 158; Palmetto, 117 F.3d at 148.

The proposed pleading meets the distinctness requirement because it plausibly alleges the RICO person—PS Franchising—is separate from the enterprise in which it allegedly participates. This is clear because some functions of the enterprise allegedly take place outside of PS Franchising. For example, Buzz enables PS Franchising's reporting of artificially low costs by giving PS Local Ops free operational space. See ECF No. 44 ¶ 62. And the money PS Franchising brings in flows to Buzz, which pays the individual members of the enterprise. See id. ¶¶ 45.a (“Buzz ultimately receives the financial benefit of all revenue generated through the addition of new Pool Scouts franchises.”), 26–28 (allegations about payment to individual enterprise members ¹⁹ ). Because the Proposed Second Amended Complaint plausibly alleges regular activities of the enterprise that are not activities of PS Franchising, it adequately pleads an enterprise distinct from the RICO person.

4. Conduct

“[T]o conduct or participate, directly or indirectly, in the conduct of [an] enterprise's affairs, one must participate in the operation or management of the enterprise itself.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) (quotation marks and citation omitted); see id. (“[Section] 1962(c) cannot be interpreted to reach complete outsiders because liability depends on showing that the defendants conducted or participated in the conduct of the enterprise's affairs, not just their own affairs.”) (emphasis in original, quotation marks omitted). PS Franchising does not dispute that the Proposed Second Amended Complaint adequately alleges PS Franchising participated in the operation of the enterprise. The Court finds that the plaintiffs establish this element at least by alleging that PS Franchising sent financial disclosure documents to prospective franchisees. See, e.g., ECF No. 44 ¶ 94.

5. Pattern

RICO's pattern requirement demands that a plaintiff plausibly allege “at least two acts of racketeering activity,” 18 U.S.C. § 1961(5), that “are related” and “amount to or pose a threat of continued criminal activity.” H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989); GE Inv. Priv. Placement Partners II v. Parker, 247 F.3d 543, 549 (4th Cir. 2001). The Proposed Second Amended Complaint alleges at least 14 instances of wire fraud, including dissemination of misleading data in PS Franchising's 2019 and 2020 financial disclosure documents to every person who bought a franchise license during the operative period of the two documents. See United States v. Jefferson, 674 F.3d 332, 367 (4th Cir. 2012), as amended (Mar. 29, 2012) (“each ․ wire transmission in furtherance of the fraud scheme constitutes a separate offense”); see also Part III.D.iv.6, infra (discussing adequacy of the proposed pleading as to the elements of wire fraud).

PS Franchising contends that Count II fails because the plaintiffs “make no allegations of any specific franchisee victimized by the alleged mail and wire fraud.” ECF No. 46 at 13.²⁰ But a RICO claim premised on wire fraud does not require proof that any victim relied on the alleged misrepresentations. See Neder v. United States, 527 U.S. 1, 24–25 (1999) (“The common-law requirements of ‘justifiable reliance’ and ‘damages’ ․ have no place in the federal fraud statutes.”). A plaintiff's own reasonable reliance on a defendant's fraudulent statements may help to make out the causation element of statutory standing. See supra n. 13. However, that does not make reliance an indispensable element of a RICO claim. Cf. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 661 (2008) (“[W]e hold that a plaintiff asserting a RICO claim predicated on mail fraud need not show, either as an element of its claim or as a prerequisite to establishing proximate causation, that it relied on the defendant's alleged misrepresentations.”) (emphasis added).²¹ Accordingly, the Proposed Second Amended Complaint's failure to identify reliance by victims besides the plaintiffs is not an impediment to sustaining the claim.

a. Relatedness

The alleged instances of wire fraud are related at least because they all used similar means to achieve an identical goal. “Predicate acts are related if they have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” Menasco, Inc. v. Wasserman, 886 F.2d 681, 683 (4th Cir. 1989) (quoting H.J., 492 U.S. at 240) (quotation marks omitted).

Here, the plaintiffs plausibly allege all of PS Franchising's fraud served the purpose of “mislead[ing] potential franchisees into purchasing [franchises].” See ECF No. 44 ¶¶ 41, 70. At least PS Franchising participated in every instance of alleged fraud. See id. ¶¶ 63, 82, 158, 163; see also id. ¶¶ 53–59, 72–76 (citing Garrison and Wagner's participation in the 2019 and 2020 predicates). The 2019 and 2020 predicates were committed by manipulating and fabricating data. See id. ¶¶ 59–64, 72–79. That method partly changed during the 2021 and 2023 predicates, when the enterprise allegedly produced fraudulent disclosures by omitting data instead. See id. ¶¶ 158, 166. But the enterprise employed the same method of distributing fraudulent information for each of the 14 predicates: transmission to prospective franchises and distribution to state agencies. See id. ¶¶ 67, 88. And every instance of fraud targeted the same kinds of victims: prospective franchisees. Though the plaintiffs do not allege any specific victims besides themselves, it is clear the alleged instances of wire fraud were “not isolated events.” Menasco, 886 F.2d at 683.

b. Continuity

Continuity refers “either to a closed period of repeated conduct[ ] or to past conduct that by its nature projects into the future with a threat of repetition.” H.J., 492 U.S. at 241. The plaintiffs assert that the Proposed Second Amended Complaint pleads open-ended continuity. ECF No. 40 at 16. Open-ended continuity is shown where “related predicates themselves involve a distinct threat of long-term racketeering activity” or where the predicate acts “are part of an ongoing entity's regular way of doing business ․ or of conducting or participating in an ongoing and legitimate RICO ‘enterprise.’ ” H.J., 492 U.S. at 242–43; GE, 247 F.3d at 549.

To determine whether a RICO plaintiff meets the continuity requirement, courts must consider the facts of the case as a whole, “with special attention to the context in which the predicate acts occur.” Brandenburg v. Seidel, 859 F.2d 1179, 1185 (4th Cir. 1988), abrogated on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996). Relevant factors may include “[1] the number and [2] variety of predicate acts and [3] the length of time over which they were committed, [4] the number of putative victims, [5] the presence of separate schemes, and [6] the potential for multiple distinct injuries.” Id.

The plaintiffs plead at least 14 predicate acts, completed between 2019 and 2021. See Part III.D.iv.6, infra. Though there was some variety in the manner of execution, all 14 acts were wire fraud, and all 14 dealt with disseminating fraudulent information in the same document, published annually. The plaintiffs plausibly allege the predicate acts were part of a single scheme “to disseminate knowingly false financial information to potential franchisees,” so that the enterprise could “obtain profits and payments from franchisees.” ECF No. 44 ¶ 196. And the scheme produced similar injuries among all its victims: Franchisees “were locked into onerous franchise agreements and forced to operate unprofitable businesses for the enterprise's benefit.” Id. Thus, at least five of the six factors the Fourth Circuit has outlined favor finding that the plaintiffs adequately plead continuity.

The Court will address the number of putative victims in greater detail, since it is the primary focus of PS Franchising's challenge on continuity and it requires more detailed explanations of the law and the facts. The Fourth Circuit is “cautious about basing a RICO claim on predicate acts of mail and wire fraud because it will be the unusual fraud that does not enlist the mails and wires in its service at least twice”—and that counsels weighing the number of putative victims carefully. GE, 247 F.3d at 549; Al–Abood v. El–Shamari, 217 F.3d 225, 238 (4th Cir. 2000) (quotation marks and citations omitted). But at the present stage of litigation, the Court is bound to make all reasonable inferences in the plaintiffs’ favor. Iqbal, 556 U.S. at 678. So if it is reasonable to infer that the enterprise's allegedly fraudulent statements reached enough victims to tip this factor in favor of finding continuity is adequately pleaded, the Court is required to make that inference.

Though the Proposed Second Amended Complaint does not clearly lay out a precise number of putative victims, the Court can reasonably infer the enterprise's fraudulent statements in the 2019 and 2020 financial disclosure documents reached at least every person who signed a contract for the purchase of a franchise while one of the financial disclosure documents containing false information was operative. See ECF No. 44 ¶ 31 (citing 16 C.F.R. § 436.2(a) (requiring a franchisor “to furnish a prospective franchisee with a copy of the franchisor's current disclosure document ․ before the prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor”)). Assuming all the facts alleged in the Proposed Second Amended Complaint are true, the Court finds that at least 14 people received the documents containing the fraudulent statements.

The Proposed Second Amended Complaint appears to allege inconsistent facts about the number of franchises PS Franchising added while the 2019 and 2020 financial disclosure documents were operative. Compare ECF No. 44 ¶ 36 (“Pool Scouts acquired eight new franchisees in the 2019 calendar year.”) with ¶ 69 (“In 2019, PS Franchising added [ ] five new franchise outlets.”); compare id. ¶ 157 (“[T]he Pool Scouts system [ ] added nine new franchisees in 2020[.]”) and ¶ 162 (“21 new franchisees joined the Pool Scouts system in 2020.”). These apparent discrepancies can be explained by the fact that the period during which each year's financial disclosure document is distributed to prospective franchisees does not align with the calendar year. See id. ¶ 88 (2020 financial disclosure document was operative “between April 2020 and April 2021”). Taking all the facts alleged as true requires accounting for this explanation.

The Court assumes that “Pool Scouts acquired eight new franchisees in the 2019 calendar year” but only “five” fell within the period the 2019 financial disclosure document was operative. ECF No. 44 ¶¶ 36, 69. The Court likewise assumes that “21 new franchisees joined the Pool Scouts system in 2020” but only “nine” would have received the 2020 disclosure document. Id. ¶¶ 157, 162.²² Thus, the Proposed Second Amended Complaint alleges at least 14 putative victims in total for the years of 2019 and 2020. At least at this stage, that is enough to tip the final factor in favor of finding that the plaintiffs adequately plead continuity.²³

In addition to the 14 discreet instances of wire fraud alleged in the Proposed Second Amended Complaint, the plaintiffs assert that PS Franchising continues using manipulated data in its annual financial disclosure documents to mislead prospective franchisees. See ECF No. 44 ¶¶ 158–62 (2021), 163–67 (2023). Thus, the plaintiffs allege the predicate acts “are part of [the enterprise's] regular way of doing business.” H.J., 492 U.S. at 242–43; GE, 247 F.3d at 549.

“[T]he context in which the predicate acts occur” further supports this conclusion, in at least three ways. Brandenburg, 859 F.2d at 1185. Though the plaintiffs’ allegations about later misleading statements do not meet all the qualifications for pleading wire fraud, they nonetheless suggest the scheme is ongoing. Specifically, the plaintiffs allege the enterprise has continued manipulating data in its financial disclosure documents until at least 2023. See ECF No. 44 ¶¶ 156–68 (misleading data in the 2021 and 2023 disclosures).

Second, the enterprise's other alleged behavior gives rise to an inference that it hopes to continue its fraud undetected. In addition to the 14 alleged predicate acts of wire fraud, the Proposed Second Amended Complaint plausibly alleges the enterprise doubled down on its misleading statements and took steps to avoid accountability for its alleged fraud. See ECF No. 44 ¶¶ 90–97 (webinar containing false information “provided to potential franchisees during their due diligence process”), 98 (when asked directly, enterprise members told the plaintiffs the Pool Scouts Local Ops outlets were chosen because they were representative franchises), 169–73 (enterprise members “exerted pressure on [ ] franchisees to execute a release when there might be a threat of litigation”).

Finally, the context in which PS Franchising's fraudulent statements are published makes clear that this case falls within the realm of “ongoing unlawful activities whose scope and persistence pose a special threat to social well-being.” Al-Abood, 217 F.3d at 238; Menasco, 886 F.2d at 684 (quotation marks and citation omitted).²⁴ The allegation that PS Franchising issued its fraudulent statements in financial disclosures required by federal law is striking. The annual reporting requirement allows the enterprise to tweak its fraudulent statements year after year, all while capitalizing on the credibility imputed by apparent compliance with the FTC's regulations.

Because all six factors come out the same way and the context of the alleged fraud reinforces that conclusion, the Court finds that the proposed pleading adequately pleads continuity.²⁵

6. Racketeering Activity

The RICO statute “defines racketeering activity to include ․ acts of mail and wire fraud.” GE, 247 F.3d at 548 (citing 18 U.S.C. § 1961(1)). To plead wire fraud as predicate act for a RICO claim, a plaintiff must plausibly allege (1) the existence of a scheme to defraud, (2) the use of a wire communication in furtherance of the scheme, and (3) materiality of the falsehood. See United States v. Jefferson, 674 F.3d 332, 366 (4th Cir. 2012), as amended (Mar. 29, 2012) (citing United States v. Curry, 461 F.3d 452, 457 (4th Cir. 2006)) (recognizing the first two elements); cf. Neder v. United States, 527 U.S. 1, 25 (1999) (“[M]ateriality of falsehood is an element of the federal mail fraud ․ statute[ ].”); see also United States v. McNeil, 45 F. App'x 225, 227 (4th Cir. 2002) (unpublished) (laying out all three elements).

a. Scheme to Defraud

The plaintiffs plausibly allege a scheme “to aggressively recruit Pool Scouts franchisees” by defrauding potential franchisees, using “manipulat[ed] PS Local Ops’[s] financial data” designed to mislead recipients “into believing Pool Scouts franchises were profitable.” ECF No. 44 ¶ 193. A RICO plaintiff who relies on predicate acts of wire fraud must plead that fraud “with particularity,” consistent with Fed. R. Civ. P. 9(b). See MSP Recovery Claims, Series LLC v. Lundbeck LLC, 130 F.4th 91, 106 (4th Cir. 2025). “Under Rule 9(b), a plaintiff who alleges fraud must identify the [1] time, [2] place, and [3] contents of the false representations, as well as [4] the identity of the person making the misrepresentation and [5] what [they] obtained thereby.” Id.

The time and place of each misrepresentation is specific to each prospective franchisee to whom PS Franchising distributed the documents, but the Court can reasonably infer the misrepresentations were made “at least 14 calendar days before the prospective franchisee sign[ed] a binding agreement with, or ma[de] any payment to,” PS Franchising, from the company's principal place of business in Virginia Beach, Virginia. 14 C.F.R. § 436.2(a); see ECF No. 44 ¶¶ 7 (location), 67 (new franchisees “would have received” the 2019 document), 88 (2020 document “by law” was “transmitted ․ to any franchisee who signed a franchise between April 2020 and April 2021,” including the plaintiffs).

The contents of the false representations in the 2019 document include omission of discounts, resulting in an inaccurate gross profit, ECF No. 44 ¶ 57; omission of the franchise royalty fee, resulting in an inaccurate net profit, id. ¶ 58; and inaccurate wage, benefits, and rent figures, id. ¶ 59–64. The 2020 document falsely represented that the PS Local Ops income statement “illustrates the revenue, cost of goods sold and operating expenses for the VA-001 territory and the VA-002 territory.” Id. ¶ 82. It also included inaccurate data about market penetration and omitted data regarding the performance of franchise territories. Id. ¶¶ 85–86.

The Proposed Second Amended Complaint asserts that Michael Wagner and Brian Garrison manipulated Pool Scouts Local Ops's data and prepared the false statements in PS Franchising's 2019 and 2020 financial disclosure documents. ECF No. 44 ¶¶ 54–59, 68, 72–76, 80, 87. They both benefitted through “growth ․ of the Pool Scouts franchising network.” Id. ¶¶ 45.c, 45.d.; see id. ¶ 140 (PS Franchising more than doubled its franchise outlets from the end of the 2019 calendar year to the end of the 2022 calendar year).

b. Use of a Wire Communication in Furtherance of the Scheme

The plaintiffs plead use of a wire communication in furtherance of the fraudulent scheme by asserting that PS Local Ops's data were “incorporated into ․ [financial disclosure documents] and other marketing and advertising materials” and “distributed via the mails and wires.” ECF No. 44 ¶ 193. The Court can reasonably infer from the proposed pleading that for every new Pool Scouts franchise outlet, PS Franchising transmitted the financial disclosure document that was operative at the time. See id. ¶¶ 67, 162, 197; 14 C.F.R. § 436.2(a). Thus, every new franchise purchased while a fraudulent financial disclosure document was operative constitutes a separate instance of wire fraud. See Jefferson, 674 F.3d at 367. The plaintiffs plausibly allege Pool Scouts sold five new franchises in 2019 and nine new franchises in 2020, for a total of 14 franchisees who were sent the fraudulent 2019 and 2020 financial disclosure documents. ECF No. 44 ¶¶ 69 (2019), 157 (2020).²⁶

c. Materiality

“[A] false statement is material if it has a natural tendency to influence, or is capable of influencing, the decision” of the person to whom it is addressed. Neder, 527 U.S. at 16 (cleaned up); see United States v. Barringer, 25 F.4th 239, 251 (4th Cir. 2022). The plaintiffs meet this requirement because they plausibly allege they would not have invested in a Pool Scouts franchise if PS Franchising had not fraudulently misled them about the cost of running the business, and the Court can reasonably infer the same is true for other recipients of PS Franchising's fraudulent statements. See, e.g., ECF No. 44 ¶ 122.

Following an exhaustive assessment, the Court finds that the plaintiffs plausibly allege every element of their RICO claim. Therefore, the proposed amendment to Count II would not be futile.

v. Count III: Texas Deceptive Trade Practices Act

Count III also passes muster under Fed. R. Civ. P. 12(b)(6). To state a DTPA claim, a complaint must plausibly allege that: “(1) the plaintiff is a consumer, (2) the defendant engaged in false, misleading, or deceptive acts, and (3) these acts constituted a producing cause of the consumer's damages.” Doe, 907 S.W.2d at 478.

The Sterns are plausibly consumers because they “acquire[d] ․ goods or services” “by purchase or lease.” Tex. Bus. & Com. Code § 17.45(4); see Texas Cookie Co. v. Hendricks & Peralta, Inc., 747 S.W.2d 873, 879 (Tex. App. 1988), cert. denied (June 15, 1988) (“[A]ppellee's purchase of the [ ] franchise involved the transfer of ‘goods or services’ for purposes of the DTPA.”).²⁷ The Proposed Second Amended Complaint plausibly alleges PS Franchising engaged in false, misleading, or deceptive acts because it failed to disclose accurate information about the costs of running a franchise business, even though the true costs were “known at the time” it sold franchise licenses to the plaintiffs, and “such failure to disclose ․ was intended to induce the [plaintiffs] into a transaction into which [they] would not have entered had the information been disclosed.” Tex. Bus. & Com. Code § 17.46(b)(24); see ECF No. 44 ¶ 98 (Warn and Wagner orally represented that the document relied on the PS Local Ops data because those franchise locations “were mature and reflect the audited, accurate, and complete costs necessary to operate a Pool Scouts franchise”), 59–64, 72–79 (describing how the data were manipulated), 97 (“PS Franchising knew that it did not include [in the 2020 financial disclosure document] all of the expenses necessary to operate a Pool Scouts franchise.”), 46 (describing PS Franchising's intent “to defraud actual and potential Pool Scouts franchisees with [ ] false promise[s] of high profit margins and an easily scalable business”). And the plaintiffs sufficiently allege PS Franchising's deception caused their harm, by asserting that they “decided to enter into a franchise agreement” because they “reli[ed] upon[ ] the false financial data” the company provided “orally and in writing,” and they suffered financially as a result. ECF No. 44 ¶ 107; see id. ¶¶ 109 (startup costs), 114 (initial payment), 123 (royalties).

In challenging the proposed amendment to Count III, PS Franchising argues (1) the plaintiffs cannot bring a Texas claim because the franchise agreements say Virginia law governs the parties’ dispute; and (2) the DTPA excludes actions for damages in the amount the plaintiffs claim. ECF No. 46 at 23–25. For the reasons explained in Part III.D.i. above, at this stage the Court takes as true allegations that would render the parties’ contracts in their entirety—including the choice of law clauses—void. See also supra Part III.D.i. Therefore, there is no choice-of-law impediment to the Court adjudicating the Texas DTPA claim.²⁸

The DTPA does not cover cases arising from “a transaction, a project, or a set of transactions relating to the same project, involving total consideration by the consumer of more than $500,000.” Tex. Bus. & Com. Code § 17.49(g). In its brief, PS Franchising adds up all the dollar amounts the plaintiffs allege throughout the proposed pleading and contends that the total—$552,773—takes the claim outside the limits of the DTPA. ECF No. 46 at 25–26. However, not all the items PS Franchising lists can plausibly be construed as consideration. See Consideration, Black's Law Dictionary (12th ed. 2024) (“[s]omething ․ bargained for and received by a promisor from a promise”). Specifically, the plaintiffs allege they took out a $165,000 home equity loan “[t]o fund the startup costs and provide working capital for their business.” ECF No. 44 ¶ 109. The Court cannot reasonably infer that transaction was “consideration” for the “project” the plaintiffs engaged in as “consumer[s].” Tex. Bus. & Com. Code § 17.49(g).

Once $165,000 is subtracted, the costs alleged in the Proposed Second Amended Complaint drop below $500,000, so the Court need not analyze whether any of the other line items PS Franchising lists is consideration within the meaning of the DTPA. The proposed pleading does not allege “total consideration by [the plaintiffs] of more than $500,0000.” Tex. Bus. & Com. Code § 17.49(g). Accordingly, the Court finds that Count III states a claim on which relief can be granted.

IV. CONCLUSION

The plaintiffs have met all the requirements under Fed. R. Civ. P. 16(b)(4) and 15(a) to file an amended pleading. Accordingly, the Motion for Leave to File Second Amended Complaint (ECF No. 39) is GRANTED.

The Clerk is DIRECTED to file ECF No. 44 on the docket as a Second Amended Complaint.

Defendants PS Franchising, LLC and PS Services, LLC are DIRECTED to file an answer to the Second Amended Complaint on or before July 31, 2025.

The parties are ORDERED to meet and confer and propose a new scheduling order for the Court to review, on or before July 31, 2025.

IT IS SO ORDERED.

FOOTNOTES

1.   The Sterns assigned their interest in their Pool Scouts franchise to Plaintiff Oriole Group, LLC (“Oriole”). This Opinion and Order refers to the Sterns individually as “Mr.” and “Mrs. Stern” respectively and as “the plaintiffs” collectively. It references Oriole separately when necessary.

2.   PS Franchising is the sole defendant named in Counts I–III. Count IV also names Defendant Pool Scouts Services, LLC (“PS Services”). The Court addresses Count IV in footnote 6 below. Because most of the issues implicate only PS Franchising, the Court frames the arguments in the defendants’ opposition brief as arguments by PS Franchising.

3.   To determine whether good cause exists under Fed. R. Civ. P. 16(b)(4), district courts within the Fourth Circuit sometimes consider “whether the moving party acted in good faith, the length of the delay and its effects, and whether the delay will prejudice the non-moving party.” G. W. Aru, 344 F.R.D. at 449; RLI Ins. Co. v. Nexus Servs., Inc., No. 5:18-cv-66, 2019 WL 1880148, at *2 (W.D. Va. Apr. 26, 2019); Ademiluyi v. PennyMac Mortg. Inv. Trudt Holdings, No. 1:12-cv-752, 2015 WL 575362, at *5 (D. Md. Feb. 10, 2015). The good faith and prejudice inquiries overlap with the Fed. R. Civ. P. 15(a) standard, so the Court will address those issues below. The Court views the length of the delay as part of its inquiry into diligence and the effects of the delay as part of the prejudice consideration.

4.   At the hearing on the Motion to Dismiss, PS Franchising represented that its briefing “focused on the distinctiveness [sic] component of the enterprise because [it thought] that [was] the simplest grounds for dismissal.” ECF No. 38 at 23:20–22. As the Court explains in Part D.iv.3, PS Franchising's impression of the distinctness requirement does not align with the law in the Fourth Circuit. The First Amended Complaint adequately pleaded distinctness for the reasons described in Part D.iv.3.

5.   PS Franchising quotes Khoa Hoang v. Prince George's Cnty., No. 8:23-cv-1272, 2024 WL 4108531, at *3 (D. Md. Sept. 5, 2024), which quotes Nicholson. Nicholson is the better citation.

6.   To state a breach of contract claim under Virginia law, a plaintiff must plausibly allege “(1) a legal obligation of a defendant to a plaintiff, (2) a violation or breach of that obligation, and (3) a consequential injury or damage to the plaintiff.” Hamlet v. Hayes, 641 S.E.2d 115, 117 (Va. 2007). The Proposed Second Amended Complaint alleges the existence of a legal obligation by pointing to the 2020 and 2022 Franchise Agreements, which the plaintiffs contend—in the alternative to their fraud claims—is valid and enforceable. ECF No. 44 ¶ 226. Specifically, the plaintiffs assert PS Franchising and PS Services had contractual duties to use mandatory marketing fees the plaintiffs paid to target potential customers within the plaintiffs’ territories. Id. ¶¶ 174, 176. The proposed pleading plausibly alleges both defendants breached that duty by using marketing fees to target households in 41 zip codes outside the plaintiffs’ franchise territories and by failing to send out mailers. Id. ¶¶ 175, 177. And the plaintiffs adequately allege damages in the amount of the marketing fees they paid. Id. ¶ 230.

7.   PS Franchising argues that the plaintiffs “should have discovered the ‘true’ costs of running a Pool Scouts franchise within a year of operations”—that is, September 2021 at the latest. ECF No. 46 at 19 (emphasis omitted). But the thing the plaintiffs had to discover was PS Franchising's fraud, not the true costs of running their own franchise. PS Franchising consistently attempts to frame this case as one about the plaintiffs’ failure to make the money they hoped they would make. However, the plaintiffs’ expectations are not at issue in the fraud claims. Counts I–III deal squarely with PS Franchising's misrepresentations about its own data, which it provided to prospective franchisees pursuant to federal law.

8.   The parties’ contracts all include choice of law clauses that select the law of the Commonwealth of Virginia. ECF No. 15-3 at 33; ECF No. 15-4 at 16–17; ECF No. 15-5 at 32. However, for the reasons explained in Part III.D.i above, the Court must assume, for the purpose of deciding which law applies to the plaintiffs’ state law claims, that the choice of law clauses are unenforceable. If at a later stage the plaintiffs were to fail on Count I, then the Court would reconsider whether Virginia substantive law should apply to any remaining state law claims.Under Virginia law, questions about the “validity, nature, interpretation[,] and effect” of a contract are “governed by the law of the place where it is made, unless it is to be performed in another place; and then it is governed by the law of the place where it is to be performed.” Freeman's Bank v. Ruckman, 57 Va. 126, 127 (1860) (quoted in part in Erie Ins. Exch. v. Shapiro, 450 S.E.2d 144, 145 (Va. 1994)). The Court reasonably infers the plaintiffs entered the contracts in Texas. See ECF No. 44 ¶¶ 4–6 (plaintiffs are Texas citizens), 89 (plaintiffs received and viewed a webinar in Texas), 94 (plaintiffs received financial disclosures in Texas). Regardless, the proposed pleading asserts the contracts were to be performed in Texas. See id. ¶ 133. Therefore, Texas law governs the plaintiffs’ fraud in the inducement claim.

9.   PS Franchising, relying erroneously on Virginia law, argues the plaintiffs’ reliance was not “objectively reasonable.” ECF No. 46 at 20 (quoting Cave v. Wells Fargo Bank, N.A., No. 3:19-cv-24, 2019 WL 6689918, at *6 (W.D. Va. Dec. 6, 2019)) (relying on Jared & Donna Murayama 1997 Tr. v. NISC Holdings, LLC, 727 S.E.2d 80, 88 (Va. 2012) (describing an “underlying principle of reasonable reliance in fraud claims”)). The Court construes this as an argument under the justifiable reliance prong of the Texas cause of action.

10.   For example, “blind[ ] rel[iance] on a representation by a defendant where the plaintiff's knowledge, experience, and background warrant investigation into any representations before the plaintiff acts in reliance upon those representations,” or “reliance upon an oral representation that is directly contradicted by the express, unambiguous terms of a written agreement between the parties” will not suffice. JPMorgan Chase, 546 S.W.3d at 654 (quotation marks and citations omitted).

11.   PS Franchising contends that the plaintiffs’ “allegations on POOLCORP [ ] fail to satisfy Rule 9(b)’s particularity requirement.” ECF No. 46 at 21. The POOLCORP allegations deal with representations PS Franchising made about providing franchises “negotiated rates” with a wholesaler of “tools, chemicals, and supplies” needed to operate the franchise business. ECF No. 44 ¶¶ 101–5 (quotation marks omitted). Because the Court finds that the fraudulent inducement claim survives based solely on the false statements in the financial disclosure document, it need not determine whether the POOLCORP allegations are sufficiently pleaded. See infra Part III.D.iv.6.a (allegations about the financial disclosure document pass muster under Fed. R. Civ. P. 9(b)). Therefore, the Court declines to decide at this juncture whether the Proposed Second Amended Complaint complies with Fed. R. Civ. P. 9(b) with respect to those allegations.

12.   The Court has considered the fact that the plaintiffs entered several contracts with PS Franchising—up to and including a modification agreement signed three years after the allegedly fraudulent statements were conveyed. See ECF No. 46 at 18–19 (implying, in the context of its argument that all the claims are barred by release, that the later contracts are valid even if the original contract was induced by fraud). That does not defeat the plaintiffs’ fraud in the inducement claim. As alleged in the Proposed Second Amended Complaint, PS Franchising “continued to hold out” its misleading statements as true, even after they were “made aware of the inaccuracies.” ECF No. 44 ¶ 135. The Court reasonably infers that the plaintiffs continued relying on PS Franchising's initial fraudulent representations when they signed the later contracts. See supra Part III.D.ii (concluding the proposed pleading plausibly alleges the plaintiffs could not have discovered the fraud before 2024).

13.   Injury and causation are statutory standing requirements for civil RICO claims. See Sedima, S.P.R.I. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985); Brandenburg v. Seidel, 859 F.2d 1179, 1187 (4th Cir. 1988), abrogated on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996). PS Franchising does not challenge the Proposed Second Amended Complaint on either ground. The plaintiffs meet this requirement by alleging they purchased a franchise license they would not otherwise have purchased and incurred fees they would not otherwise have paid, because they relied on the fraudulent data PS Franchising provided. See, e.g., ECF No. 44 ¶¶ 122, 207.

14.   PS Franchising cites Sourcing Unlimited, Inc. v. Elektroteks, LLC, No. 1:20-cv-11955, 2021 WL 2875713, at *9 (D. Mass. July 8, 2021), for the principle that “common purpose” requires “coordinated activity in pursuit of a common objective.” But that case relies on a 2003 District of Massachusetts case—which in turn relies on a 1995 First Circuit decision—that states: “[S]imilarity of goals and methods does not suffice to show that an enterprise exists; what is necessary is evidence of systemic linkage, such as overlapping leadership, structural or financial ties, or continuing coordination.” In re Lupron Mktg. and Sales Pracs. Litig., 295 F. Supp. 2d 148, 173 (D. Mass. 2003) (quoting Libertad v. Welch, 53 F.3d 428, 443 (1st Cir. 1995)). Setting aside that this Court is not bound by either case PS Franchising cites, this proposition remains good law in the First Circuit only to the extent it can be reframed to comport with the structural requirements announced in Boyle. 556 U.S. at 946. This Court applies the Boyle standard instead, as the Pinson court did.

15.   Perhaps PS Franchising collapsed two principles into one. It is true that a § 1962(c) plaintiff must show that “the defendants conducted or participated in the conduct of the ‘enterprise's affairs,’ not just their own affairs.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) (emphasis altered). But the Proposed Second Amended Complaint does that. According to the proposed pleading, PS Franchising did not merely participate in its ordinary, legitimate affairs of marketing and selling franchises; it also participated in the enterprise's affairs, at least by loaning employees to PS Local Ops for free, to maintain artificially low labor costs that the enterprise could report to prospective franchisees. See ECF No. 44 ¶¶ 65–66.

16.   PS Franchising also contends that the purpose the plaintiffs plead is mere speculation. ECF No. 46 at 12. The argument is unavailing because the Court is required to make reasonable inferences in the plaintiffs’ favor.

17.   Additionally, PS Franchising appears to extrapolate from its second proposed standard the principle that a RICO enterprise must be distinct from the “normal business operations” of its members. ECF No. 46 at 13. That interpretation is wrong because it is built on the misunderstanding of Turkette explained in-line above and because it runs counter to the fact that an enterprise can meet the distinctness requirement even if it infiltrates a “legitimate business[ ].” Turkette, 452 U.S. at 584.

18.   See, e.g., United HealthCare Corp. v. Am. Trade Ins. Co., 88 F.3d 563, 570 (8th Cir. 1996); Canadian-Am. Oil Co. v. Delgado, 108 F.3d 1384, 1384 (9th Cir. 1997); Whelan v. Winchester Prod. Co., 319 F.3d 225, 229 (5th Cir. 2003); First Cap. Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir. 2004); United States v. Nascimento, 491 F.3d 25, 32 (1st Cir. 2007); Humphrey v. GlaxoSmithKline PLC, 905 F.3d 694, 699 (3d Cir. 2018).

19.   The Proposed Second Amended Complaint explicitly alleges that Buzz issues Michael Wagner's paychecks. ECF No. 44 ¶ 46. The Court reasonably infers that the same goes for Brian Garrison and Dave Warn. See id. ¶¶ 27 (“Mr. Garrison is a member of Buzz's Board of Directors.”), 28 (“[Mr. Warn] is a Buzz employee.”).

20.   Is it not clear which element PS Franchising is challenging with this argument. The Court thinks it makes the most sense to address the concern here, since it bears on whether the plaintiffs adequately pleads repeated instances of wire fraud.

21.   Before Bridges, the Fourth Circuit said that “where fraud is alleged as a proximate cause of the injury, ․ the plaintiff must have justifiably relied, to his detriment, on the defendant's material misrepresentation.” Chisolm v. TranSouth Fin. Corp., 95 F.3d 331, 337 (4th Cir. 1996). As best this Court can tell, Bridges overrules that statement.

22.   Additionally, the Court does not need to discern an exact number of people who received the allegedly fraudulent information in order to determine the number of putative victims is great enough to favor finding that the plaintiffs adequately allege continuity.

23.   PS Franchising contends that the Proposed Second Amended Complaint fails to plead a continuous enterprise because the “predicate acts targeted a narrow set of victims.” ECF No. 46 at 16 (quoting Kiddie Acad. Domestic Franchising, LLC v. Wonder World Learning, LLC, No. 1:17-cv-3420, 2019 WL 1441812, at *32 (D. Md. Mar. 31, 2019)). That argument is unavailing because it treats the ‘number of putative victims’ factor as dispositive when it is not. The Fourth Circuit has “deliberately declined to adopt any mechanical rules to determine the existence of a RICO pattern,” emphasizing instead that courts must “tak[e] into account all the facts and circumstances of [a] particular case.” Brandenburg, 859 F.2d at 1185. But even if the number of putative victims weighed against a finding of continuity, the Court could still conclude that the plaintiffs adequately plead this element based upon the other factors.

24.   PS Franchising makes much of Al-Abood, arguing the present case is “not sufficiently outside the heartland of fraud cases to warrant RICO treatment.” ECF No. 46 at 10, 16–17 (quoting Al-Abood, 217 F.3d at 238). That reliance is misplaced. The 14 identifiable victims here—and the threat that the enterprise is sending fraudulent information to more prospective franchisees every year—makes this case unlike the one-victim incident in Al-Abood (or the two-victim scheme in Menasco). See Al-Abood, 217 F.3d at 238–39; see also Menasco, 886 F.2d at 684–85.

25.   PS Franchising contends that Count II fails on continuity because Wagner left Pool Scouts in 2024. ECF No. 46 at 12; see ECF No. 44 ¶ 26. According to PS Franchising, “there is no plausible explanation for how the enterprise continues without him.” ECF No. 46 at 12. As an initial matter, an enterprise that operated from its formation in 2019 until Wagner's departure in 2024 would still meet the continuity requirement. See H.J., 492 U.S. at 241 (closed-ended continuity). But the Court is also persuaded by the Second Circuit's consistent finding that an association-in-fact enterprise “may continue to exist even though it undergoes changes in membership.” United States v. Payne, 591 F.3d 46, 60 (2d Cir. 2010); United States v. Eppolito, 543 F.3d 25, 49 (2d Cir. 2008).

26.   The Proposed Second Amended Complaint contains allegations about falsehoods in later financial disclosure documents as well, but those allegations are not sufficient to make out separate RICO predicates, because they are not pleaded with sufficient particularity. See ECF No. 44 ¶¶ 158 (alleging the “Pool Scouts Enterprise”—not a particular person—made the false statements in the 2021 document), 166 (same with respect to the 2023 document).

27.   It is not clear to the Court whether Oriole, who acquired its interest in the franchise by assignment, is a consumer within the meaning of the DTPA. However, since Count III passes muster under Fed. R. Civ. P. 12(b)(6) as to the Sterns, the proposed amendment is not futile.

28.   The plaintiffs brief this as a choice of law question. ECF No. 48 at 15–17. But because Count III is a statutory claim, there is no choice of law issue here; at most, there is a question of federal jurisdiction. The Court may exercise supplemental jurisdiction over the state law claims in this case because they and the RICO claim “derive from a common nucleus of operative fact.” United Mine Workers, 383 U.S. at 725 (1966); see 28 U.S.C. § 1367.

Jamar K. Walker, United States District Judge