## Facts

- Harry D. Meehan, Sr. and Harry D. Meehan, Jr. entered into a franchise agreement with United Consumers Club Franchising Corporation and related entities (collectively, Consumers Club) to sell memberships in a merchandise-and-services buying club.
- Jack R. Allen negotiated the franchise agreement on Consumers Club’s behalf.
- After the franchise failed, the Meehans sued Consumers Club and Allen in federal district court.
- The complaint alleged fraud based on alleged pre-contract statements about expected earnings, success rates, pricing, and the nature of Consumers Club’s warranties, support, and service.
- The franchise agreement and related written materials (including an incorporated offering circular) contained express disclaimers addressing earnings and similar topics, including provisions stating that:
  - Consumers Club representatives were not authorized to make sales, profit, or earnings representations;
  - no such representations had been made; and
  - the franchisee should not rely on any such representations.
- The Meehans also asserted statutory claims under two Indiana franchise statutes, but later conceded to the district court that those Indiana statutes did not apply.
- Consumers Club moved to dismiss. The district court dismissed the complaint with prejudice.
- In opposing dismissal, the Meehans requested leave in their brief to amend to assert a claim under the Missouri Merchandising Practices Act, but they did not file a motion to amend or provide a proposed amended complaint.
- The district court denied leave to amend for failure to follow Rule 15(a). The Meehans appealed.

## Issues

1. Can a plaintiff plead the justifiable-reliance element of fraud when the franchise agreement and incorporated disclosures expressly state no earnings/success representations were made or authorized and disclaim reliance on any such representations?
2. Did the district court abuse its discretion by denying leave to amend when the plaintiffs requested amendment only in a response brief and did not file a Rule 15(a) motion or submit a proposed amended complaint?

## Decision

- The Eighth Circuit affirmed dismissal with prejudice of the fraud claim because, in light of the agreement’s and offering circular’s nonreliance and no-representation provisions, the Meehans could not show justifiable reliance on the alleged pre-contract representations.
- The court affirmed dismissal with prejudice of the Indiana statutory franchise claims because the Meehans conceded the Indiana franchise statutes did not apply.
- The court affirmed the denial of leave to amend because the Meehans did not properly seek amendment under Rule 15(a) and did not tender a proposed amended pleading.

## Legal Principles

- Fraud requires justifiable reliance on the alleged misrepresentation.
- Where a franchise agreement and incorporated written disclosures clearly state that no earnings (or similar) representations were made or authorized and that the franchisee will not rely on any such statements, those provisions can defeat justifiable reliance as a matter of law for a fraud claim based on the disclaimed subject matter.
- A party seeking to amend must comply with Federal Rule of Civil Procedure 15(a) by properly moving to amend and, in typical practice, presenting the proposed amended complaint; raising a request only in a brief is not enough.
- Denial of leave to amend is reviewed for abuse of discretion, and a district court acts within its discretion when it denies an amendment request that does not follow Rule 15(a) procedures.

## Conclusion

The Eighth Circuit affirmed dismissal of the Meehans’ fraud and Indiana statutory claims because the franchise documents’ express nonreliance/no-representation provisions foreclosed justifiable reliance and the Indiana statutes were conceded inapplicable, and it also upheld the denial of leave to amend where the Meehans sought amendment only through briefing without a proper Rule 15(a) motion or proposed amended complaint.


Meehan v. United Consumers Club Franchising Corp., 312 F.3d 909 (2002)