March 31, 2026|Franchise Frontlines
March 31, 2026 | U.S. District Court for the Northern District of Georgia | Judge Steven D. Grimberg | Unpublished Opinion
Executive Summary
In an unpublished decision, the Northern District of Georgia dismissed federal RICO claims asserted against multiple entities across a vape product supply chain, including a franchised retail system, holding that the plaintiff failed to plausibly allege the existence of a RICO enterprise. The plaintiff alleged a coordinated scheme among manufacturers, distributors, laboratories, and retailers to sell products exceeding legal THC limits. Defendants argued that the complaint improperly attempted to convert routine commercial relationships into a racketeering enterprise. The court agreed, concluding that allegations of parallel business activity and contractual relationships—without specific facts demonstrating a shared criminal purpose—were insufficient under federal pleading standards. The decision reinforces limits on enterprise liability in multi-entity systems and provides useful guidance for franchisors and system operators facing expansive liability theories.
Relevant Background
The plaintiff filed a putative class action arising from the purchase of vape products that allegedly exceeded federally permitted THC levels. The complaint named a broad set of defendants spanning the product lifecycle, including manufacturers, testing laboratories, distributors, and retailers, as well as entities associated with a franchised retail network.
The plaintiff asserted that these entities collectively formed multiple “enterprises” engaged in a coordinated scheme to manufacture, test, and sell noncompliant products. According to the complaint, manufacturers sourced distillate, laboratories issued testing certifications, and retailers sold the finished products, all while allegedly concealing the products’ noncompliance.
The complaint asserted federal RICO claims, along with various state law causes of action, and relied heavily on the structure of the supply chain to support the existence of an enterprise.
Defendants moved to dismiss, arguing that the allegations failed to establish a RICO enterprise and that the complaint improperly grouped independent actors into a single coordinated scheme without sufficient factual support.
Decision
The court dismissed the federal RICO claims, finding that the plaintiff failed to plausibly allege the existence of an enterprise. The court emphasized that a RICO enterprise requires more than a collection of entities participating in a supply chain; it requires a shared purpose to engage in a specific course of unlawful conduct.
The court found that the complaint’s allegations did not satisfy this requirement. While the plaintiff described relationships among manufacturers, laboratories, and retailers, those relationships were consistent with ordinary commercial activity. The court noted that allegations that entities “purchased,” “tested,” and “sold” products reflected standard business operations and did not, without more, support an inference of coordinated wrongdoing.
The court also rejected the plaintiff’s reliance on generalized assertions of agreements and coordination. The complaint failed to allege concrete facts showing that the defendants agreed to pursue a common unlawful objective. Instead, the allegations suggested that each defendant acted independently within its respective role in the supply chain.
In addressing the “common purpose” element, the court made clear that a general desire to generate revenue is insufficient to establish a RICO enterprise. A plaintiff must plausibly allege that the defendants shared a specific objective to engage in the alleged unlawful conduct. The absence of such allegations was fatal to the RICO claims.
The court further noted that the complaint relied heavily on conclusory statements and speculative assertions, including allegations involving unidentified “John Doe” participants. These allegations did not provide a factual basis from which the court could infer the existence of a coordinated enterprise.
Because the plaintiff failed to adequately plead a RICO enterprise, the court dismissed both the substantive RICO claims and the related conspiracy claims.
The court also addressed jurisdictional issues, emphasizing that personal jurisdiction must be assessed on a defendant-by-defendant basis. The court rejected attempts to rely on broad, collective allegations to establish jurisdiction over multiple defendants, particularly where the complaint did not allege specific forum-related conduct by each party.
Finally, having dismissed the federal claims, the court declined to exercise jurisdiction over the remaining state law claims and dismissed them without prejudice.
Looking Forward
This decision provides an important counterpoint to cases in which courts allow expansive liability theories to proceed at the pleading stage. In the context of multi-entity systems—including franchise systems—it reinforces that participation in a shared business model does not, standing alone, create enterprise-level liability.
For franchisors and system operators, the opinion underscores the importance of maintaining clear structural separation between entities within a system. Courts will look for specific allegations tying each participant to a shared unlawful objective, rather than inferring coordination from the existence of contractual relationships or supply chain integration.
The court’s analysis of the “common purpose” requirement is particularly instructive. Plaintiffs may attempt to characterize coordinated business activity as a unified enterprise, but courts continue to require concrete factual allegations demonstrating that participants agreed to pursue unlawful conduct. Absent such allegations, claims based on enterprise liability may fail at the pleading stage.
The decision also highlights the limits of collective pleading. Allegations that group multiple defendants together without identifying their specific conduct may be insufficient, particularly in complex systems involving multiple layers of participants. This principle has practical implications for franchisors, who are often named alongside franchisees and other system participants based on generalized assertions of control or coordination.
Finally, the opinion reinforces that courts remain attentive to the distinction between ordinary commercial relationships and actionable misconduct. While plaintiffs may seek to expand liability theories across an entire system, the existence of a structured business model—whether a supply chain or a franchise system—does not, without more, establish liability.
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.
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