May 29, 2026|Franchise Frontlines
May 29, 2026 | United States District Court for the District of Arizona | Slip Copy
Executive Summary
In a slip-copy decision, Judge John J. Tuchi of the United States District Court for the District of Arizona granted in part and denied in part a motion to dismiss filed by Lance Freeman, the former President of Franchise Development for Xponential, in a dispute brought by former YogaSix franchisees. Plaintiffs alleged that Freeman made pre-sale representations about YogaSix studio profitability, membership retention, and turn-key operations, and that he distributed and discussed franchise disclosure documents that allegedly omitted required information concerning management responsibility, litigation, settlements, initial investment costs, and financial performance. Freeman argued that the claims were time-barred, displaced by the California Franchise Investment Law, superseded by Arizona law only if California law did not apply, and barred by liability-shifting provisions in the franchise agreements. The court dismissed the Arizona Consumer Fraud Act claim, the common-law fraudulent misrepresentation claim, all CFIL claims by Snug Holding Company, and the Section 31201 portions of the Texas plaintiffs’ CFIL claims. But the court allowed the Texas plaintiffs’ Section 31200 CFIL claims to proceed, holding that those claims were not barred at the pleading stage and that the franchise agreements’ liability-shifting provisions could not be enforced to shield an individual from alleged fraud or willful misconduct under California Civil Code Section 1668.
Relevant Background
The plaintiffs were former YogaSix franchisees. Enlightened Armadillo, Inc. and its owners, Mark and Ella Hrubant, were Texas residents. Snug Holding Company LLC was a Georgia company. Freeman was an Arizona resident and served as President of Franchise Development for Xponential, which owned Yoga Six Franchise, LLC.
According to the First Amended Complaint, Freeman and his team made pre-sale statements to plaintiffs before they entered their respective franchise agreements. Plaintiffs alleged that Freeman and others told them that YogaSix franchises retained sufficient membership, were profitable, and were turn-key. They further alleged that Freeman distributed and discussed franchise disclosure documents that failed to disclose certain individuals with management responsibility for YogaSix, litigation and settlements involving those individuals, actual initial investment costs, and franchise financial performance information. The Georgia plaintiff entered a franchise agreement with YogaSix on June 7, 2021. The Texas plaintiffs entered a franchise agreement on November 24, 2021.
Plaintiffs alleged they later experienced delays in opening their studios, membership attrition, and significant monthly losses. They eventually closed their franchises. In November 2023, plaintiffs sued Freeman and other YogaSix-related individuals and entities in California state court, asserting claims arising under the CFIL. On April 22, 2025, Freeman was dismissed from that California action for lack of personal jurisdiction. Plaintiffs then filed this Arizona action against Freeman in his home state on July 28, 2025, asserting seven CFIL claims and one common-law fraudulent misrepresentation claim. They later amended to add an Arizona Consumer Fraud Act claim.
Freeman moved to dismiss all claims. The court ordered supplemental briefing on choice of law because it was not initially persuaded that California law applied to all claims. After supplemental briefing, both sides agreed that California substantive law applied, and the court accepted that position for purposes of the motion.
Decision
The court began with the common-law fraudulent misrepresentation claim. Plaintiffs based that claim on the same alleged pre-sale representations and omissions underlying their CFIL claims. Freeman argued that the claim was preempted by the version of CFIL Section 31306 in effect when plaintiffs entered their franchise agreements in 2021.
The court agreed. At the time of the franchise sales, Section 31306 provided that no civil liability in favor of a private party would arise by implication from violation of the CFIL or its rules, while also preserving liability that would exist under another statute or common law if the CFIL were not in effect. California courts had interpreted that version to displace common-law fraud claims resting on misrepresentations or omissions covered by the CFIL, while leaving independent common-law claims intact. Although Section 31306 was later amended, the court followed authority holding that the amendment did not apply retroactively. Because plaintiffs’ fraudulent misrepresentation claim was based on the same conduct as the CFIL claims, the court dismissed it.
The court next dismissed the Arizona Consumer Fraud Act claim. Plaintiffs pleaded that claim in the alternative and acknowledged that, if the CFIL applied to all of Freeman’s alleged conduct, the CFIL claim would supersede the Arizona claim. Because the court applied California substantive law and the CFIL to the alleged conduct, it dismissed the Arizona statutory claim.
The most substantial analysis concerned the CFIL claims. Plaintiffs asserted several claims under CFIL Sections 31200 and 31201. Section 31200 generally prohibits untrue statements or omissions of material fact in connection with franchise offers or sales. Section 31201 addresses certain written or oral communications that include untrue statements of material fact or omit material facts necessary to make the statements not misleading.
Freeman argued that the CFIL claims were untimely under Sections 31303 and 31304. Section 31303 bars Section 31200 claims after the earliest of four years after the violation, one year after discovery of the facts constituting the violation, or ninety days after delivery of a written notice disclosing the violation. Section 31304 applies a similar structure to Section 31201 claims but uses a two-year outer period rather than four years.
The court treated these provisions as hybrid statutes containing both statutes of repose and statutes of limitations. It found that the four-year period for Section 31200 claims and the two-year period for Section 31201 claims are substantive statutes of repose because they impose absolute outer limits that cannot be tolled. The Georgia plaintiff entered its franchise agreement on June 7, 2021. That meant its Section 31200 claims expired on June 7, 2025, and its Section 31201 claims expired on June 7, 2023. Because the Arizona action was not filed until July 28, 2025, all of the Georgia plaintiff’s CFIL claims were time-barred. The Texas plaintiffs entered their franchise agreement on November 24, 2021, so their Section 31201 claims expired on November 24, 2023. Those claims were also time-barred. But their Section 31200 claims remained within the four-year outer period because the action was filed before November 24, 2025.
Freeman also argued that the Texas plaintiffs’ remaining Section 31200 claims were barred by the one-year discovery limitation because plaintiffs knew of their claims by November 22, 2023, when they filed the California action. The court rejected dismissal on that ground at the pleading stage. It concluded that the one-year discovery limitation functions like a traditional statute of limitations, which can be tolled. Under either Arizona’s limitation saving statute or California equitable tolling principles, the limitation period was tolled while plaintiffs pursued their claims against Freeman in the California action. The tolling period began when plaintiffs filed the California action and ended when Freeman was dismissed for lack of personal jurisdiction on April 22, 2025. Plaintiffs filed the Arizona action five months later, which the court found was within the one-year discovery period. The court also found that, although plaintiffs may have discovered their claims before filing the California action, the pleadings did not clearly establish when that discovery occurred.
The court then addressed the franchise agreements’ liability-shifting provisions. Freeman argued that Sections 17.6 and 18.4 of the agreements required plaintiffs to pursue any claims only against YogaSix, not against franchisor agents or representatives. Section 17.6 generally limited claims arising from or relating to the franchise agreements, their negotiation, execution, or performance to the contracting parties, but contained a carveout for liabilities, claims, causes of action, and obligations arising from deliberately fraudulent acts. Section 18.4 provided that fulfillment of any franchisor obligations based on the agreement or oral communications would be the franchisor’s sole responsibility and that franchisor agents, representatives, or individuals associated with the franchisor would not be personally liable to the franchisee for any reason.
The court held that Section 17.6 did not bar the surviving claims because its carveout preserved claims against a YogaSix agent arising from deliberately fraudulent acts. The court then addressed Section 18.4 and California Civil Code Section 1668. Section 1668 provides that contracts exempting a person from responsibility for that person’s own fraud, willful injury, or violation of law are against public policy. Freeman argued that Section 18.4 merely shifted liability to YogaSix and did not eliminate plaintiffs’ ability to seek relief. The court disagreed, relying heavily on the California Supreme Court’s recent New England Country Foods, LLC v. VanLaw Food Products, Inc. decision. The court read VanLaw as confirming that Section 1668 applies inflexibly to willful injury and fraud and does not permit a contract to reduce accountability for willful misconduct merely because another party may remain available as a defendant.
Applying that principle, the court held that the liability-shifting provisions could not be enforced to bar the Texas plaintiffs’ surviving Section 31200 claims as pleaded. The court emphasized that those claims sounded in tort and were based on Freeman’s alleged intentional fraud, misrepresentation, and violation of law in connection with distributing and discussing documents that allegedly contained material misrepresentations about the franchise. The court did not decide whether plaintiffs’ Section 31200 allegations were sufficient on the merits because Freeman had not tested that issue in the motion. The court held only that, as pleaded, the claims fell within the protection of Section 1668 and could not be dismissed based on the liability-shifting provisions.
The court dismissed the claims that failed without leave to amend. It concluded that the Arizona claim could not be cured because California law applied, the common-law claim could not be cured because it was displaced by the CFIL, and the time-barred CFIL claims could not be cured because no additional facts could toll the absolute two-year and four-year outer periods. The Texas plaintiffs’ Section 31200 CFIL claims were allowed to proceed.
Looking Forward
This decision deserves attention from franchisors because it sits at the intersection of franchise-sales compliance, individual exposure, and contract drafting. It is not a merits ruling that Freeman made any misrepresentation. It is not a finding that plaintiffs can prove fraud, reliance, causation, damages, or any CFIL violation. The court dismissed substantial portions of the case. But the ruling shows that some claims against individual franchise-development personnel may survive a pleading-stage challenge when they allege intentional pre-sale misrepresentations within an applicable limitations period.
The most useful franchisor-side point is procedural discipline. The CFIL’s limitation periods significantly narrowed the case. The court dismissed all claims by the Georgia plaintiff and all Section 31201 claims by the Texas plaintiffs because the applicable outer periods had expired. Those portions of the ruling are favorable to defendants and demonstrate the importance of analyzing CFIL claims under both the discovery-based limitations period and the absolute outer periods. The decision also confirms that the pre-2023 version of Section 31306 may still displace common-law fraud claims based on the same conduct as CFIL violations.
The more cautionary part of the opinion concerns liability-shifting provisions. Franchise agreements often attempt to direct claims to the franchisor entity and away from individual officers, employees, affiliates, and representatives. Those provisions can serve legitimate business purposes, including channeling disputes to the contracting party and reducing duplicative claims against individuals. Enlightened Armadillo does not hold that those provisions are categorically unenforceable. But it illustrates a limit: under California law, a provision may not protect a person from responsibility for that person’s own alleged fraud, willful injury, or violation of law where Section 1668 applies.
That point matters after VanLaw. The court read VanLaw as limiting the ability to rely on contractual releases, exculpatory provisions, or liability-shifting language when the claim alleges willful misconduct or fraud. For franchisors, the drafting lesson is not to abandon liability-limitation language. The better lesson is to draft with precision and to recognize that contract language may not be a complete substitute for franchise-sales compliance.
The operational lesson is more important. Franchise-development personnel should use disciplined, approved communications in the sales process. Statements about profitability, membership retention, investment costs, ramp-up timing, opening support, and whether a franchise is “turn-key” can become litigation issues if they are not carefully tied to the FDD and the franchisor’s approved disclosure practices. Franchisors should ensure that development personnel understand what they may say, what they may not say, and when a question must be answered by directing the prospect back to the FDD.
Item 19 discipline remains central. If a franchisor makes a financial performance representation, it must do so through the FDD and in compliance with applicable law. Informal statements about profitability, expected membership, revenue, ramp-up, or losses can create avoidable risk, particularly when made by senior franchise-development personnel. The safest practice is to maintain clear scripts, require written follow-up where necessary, and avoid undocumented oral assurances that could later be characterized as independent representations.
The decision also underscores the importance of documenting what was disclosed and when. The court’s limitations analysis turned on franchise agreement dates, prior filing dates, dismissal dates, and when claims were discovered or could have been discovered. In franchise-sales disputes, timelines often decide claims before merits issues are reached. Franchisors should preserve records of FDD delivery, receipt acknowledgments, closing dates, signed agreements, financial performance representation acknowledgments, and written communications with prospects.
Franchisors should also consider whether their agreements distinguish ordinary contractual claims from alleged intentional misconduct. Broad language saying that no individual associated with the franchisor will be liable “for any reason” may face pressure under California law when the claim alleges the individual’s own fraud or willful misconduct. More nuanced drafting may still preserve important protections while avoiding overbreadth that invites a Section 1668 challenge.
At the same time, franchisors should not overread this decision against themselves. The court did not hold that franchise-development executives are generally liable for franchisee losses. It did not hold that general sales puffery, standing alone, violates the CFIL. It did not decide whether plaintiffs reasonably relied on any statement. It did not test the sufficiency of the surviving Section 31200 allegations. And it dismissed many claims without leave to amend. The surviving claims remain allegations only.
The practical takeaway is straightforward: compliance must come before contract defenses. Liability-limitation provisions, integration clauses, disclaimers, and franchisee acknowledgments are important, but they work best when paired with a clean sales process. Franchisors should train development teams, monitor communications, maintain accurate FDD disclosures, avoid off-FDD financial performance representations, and document prospect interactions. Enlightened Armadillo shows why that discipline matters, especially in California-linked franchise sales where individual-liability theories and public-policy limits on releases may affect the pleading-stage analysis.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
