August 21, 2025|Franchise Frontlines
August 21, 2025 | U.S. District Court, Eastern District of Michigan, Southern Division | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Laurie J. Michelson of the U.S. District Court for the Eastern District of Michigan granted defendants’ motion to stay claims against franchise officers and affiliates of Spray Foam Genie International (SFGI) while related arbitration against the franchisor proceeds. Plaintiffs Tim and Lisa Jamil alleged that SFGI lured them into a “Franchisee Investor” model that promised absentee ownership but required full-time management and massive outlays. They brought claims of fraud, conversion, breach of contract, and violations of the Michigan Franchise Investment Law (MFIL) against officers, sellers, and related entities not bound by arbitration. The court emphasized that these claims were inextricably tied to the arbitration against SFGI, stayed the case, and denied dismissal without prejudice—while repeating plaintiffs’ allegations in a way that sharply criticized the franchisor’s conduct.
Relevant Background
SFGI promoted a semi-absentee model under which franchisees could invest capital while the franchisor and its management company, Spray Foam Genie Managed Services (SFGM), handled day-to-day operations. Plaintiffs alleged they were told by SFGI officers Kevin Longe and Chris Ryan that the business would be affordable, supported by extensive franchisor services, and capable of making them “millionaires.” The Franchise Disclosure Document estimated initial investment costs between $243,200 and $299,200, reinforcing the pitch.
Relying on those promises, the Jamils purchased franchises in Florida and Washington D.C., paying $450,000 in franchise fees and monthly support charges. They claim the Florida franchise instead became a full-time burden, requiring 40–50 hours of their own work per week. According to plaintiffs, SFGM failed to provide basic management functions such as site acquisition, equipment purchasing, HR services, and marketing. They also alleged that actual costs dwarfed franchisor estimates: trailers were nearly $200,000 instead of $20,000–$35,000, insurance quadrupled expectations, and labor costs were understated. They further claimed they were advised not to pay travel time or overtime, amplifying their allegations of deceptive and unethical practices. Ultimately, the Jamils said they spent more than $1.3 million, while the D.C. franchise never opened.
Decision
Judge Michelson stayed the claims against the non-arbitrating defendants, finding them inseparable from the arbitration against SFGI. Liability under the MFIL, for example, required a threshold showing that SFGI itself violated the statute—a determination left to the arbitrator. Fraud and conversion allegations likewise arose from the same core facts, and allowing litigation to proceed risked duplication and inconsistency.
The court was particularly pointed about the plaintiffs’ fraud allegations, describing in detail their claims of inflated costs, broken promises, and instructions to skirt labor laws. Although the court recognized pleading deficiencies, it stressed that arbitration discovery could supply the specificity required under Rule 9(b). At present, the complaint relied too heavily on group pleading, asserting that “the Defendants” acted collectively. As cases such as Llewellyn-Jones v. Metro Property Group, LLC, 22 F. Supp. 3d 760, 780 (E.D. Mich. 2014) make clear, plaintiffs cannot meet Rule 9(b) by “indiscriminately grouping all of the individual defendants into one wrongdoing monolith.” Similarly, jurisdictional allegations against non-resident officers fell short, as Sixth Circuit law requires specific acts connecting each officer to Michigan rather than reliance on their corporate roles (Functional Hiit Fitness, LLC v. F45 Training Inc., 2023 WL 6367691 (E.D. Mich. Sept. 28, 2023)).
By staying the litigation, the court preserved judicial economy and allowed arbitration to resolve overlapping issues first. The decision also avoided prejudicing the plaintiffs, since the stay did not amount to dismissal and could ultimately assist them in amending their complaint with greater specificity after arbitration.
Looking Forward
This case underscores more than just the mechanics of staying non-arbitrable claims pending arbitration. It demonstrates how plaintiffs can frame a case from the outset by painting the franchisor as the “black hat.” Judge Michelson’s opinion, though procedurally limited to a stay, echoed plaintiffs’ detailed allegations of misrepresentation and exploitation. For franchisors, the lesson is clear: the first telling of the story matters. Courts may repeat allegations verbatim in their orders, shaping tone and perception even before liability is tested.
Franchisors should focus on accurate disclosures, realistic investment ranges, and consistency between marketing statements and Franchise Disclosure Documents. They should also prepare for the reality that plaintiffs may attempt to litigate reputationally in the pleadings, with courts willing to spotlight those allegations early. As this case shows, arbitration may pause litigation against officers, but the way allegations are framed in the initial complaint can resonate long before the merits are decided.
Thomas O’Connell is a Shareholder at Buchalter APC 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.
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