Read the Lawsuit Against Premier Martial Arts

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE KNOXVILLE DIVISION
WILLIAM ANTHONY, PBA MARTIAL ) ARTS, INC., KATIE BAKER, WILLIAM ) BAKER, S&RW LEGACY, LLC, MORGAN ) BARTH, ECM HOLDINGS, LLC, CALE ) BEARDEN, AIMEE BEARDEN, BEARDEN ) PMA ONE, LLC, BEARDEN PMA TWO, ) LLC, BEARDEN INVESTMENT GROUP, ) INC., DA VID BLACKWELL, EMMA ) BLACKWELL, BLACKWELL FITNESS, ) INC., MEREDITH BROWN, MATTHEW ) BROWN, MMBROWN ENTERPRISES, ) LLC, PRAVIN CHOUGULE, MARTIAL ) ARTS OF STEELE CREEK LLC, ASHLEY ) COSTOLNICK, JON COSTOLNICK, JAC ) CONSULTING GROUP, LLC, KARLY ) DOBLE, ANTHONY DOBLE, F5 ) PARTNERS, LLC, JOSEPH FEICHT, ) ROBIN FEICHT, JRFEICHT, INC., ) BONNIE FRASER, TYCHE FORTUNA, ) LLC, BRIAN GRIFFITH, TOURAJ ) TABATABAI, ANCIENT OCEAN, LLC, ) KELLI HERMAN, WILLIAM JOHNSON, ) HERMAN JOHNSON, LLC, SCOTT ) HOLLAND, JENNIFER HOLLAND, OFF ) THE RAIL INVESTMENTS, LLC, SAN ) MARCO MARTIAL ARTS, LLC, DANIEL ) HOLLINGSWORTH, CHRYSTAL ) HOLLINGSWORTH, ) DCHOLLINGSWORTH ENTERPRISES, ) INC., KICKEN CHICKEN, LLC, DALE ) HOUSE, FORTIS ANIMUS BROKEN ) ARROW, LLC, LISA MARIE IVEY, ) MARTIAL ARTS MOGULS ) CORPORATION, RENNIE KAUSHAL, ) MATTHEW KAUSHAL, MELROSE ) FRANCHISE PARTNERS, LLC, PMA ) OLATHE STATION, LLC, PMA LEE’S ) SUMMIT, LLC JASON KEY, ALLISON ) KEY, KEY INGREDIENTS, INC., ) VERONICA KORMOS, NICHOLAS ) KORMOS, NKORMOS INC., JACOB ) KULHANEK, CANDACE KULHANEK, )
No. __________________ JURY DEMAND
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LAKESHORE PMA, LLC, OKEMOS PMA, LLC, ERIS LASKU, PMA OF UPTOWN INC., PMA OF SAN ANTONIO, LLC, MORRIS LIFSCHUTZ, MOSAH VENTURES, LLC, PATRICK LOBB, ART VANDALAY KARATE, INC., MICAH LOGAN, RYAN LOGAN, PREMIER ARTS LLC, KOWSILLIYA LOOMIS, GLENN LOOMIS, RAINY DAY VENTURES, LLC, MAGGIE MOORHOUSE, JAMIE MOORHOUSE, SAN DIEGO MARTIAL ARTS LLC, VRAJESH PATEL, SHEFALI PATEL, S&A MARTIAL ARTS, ERIC PETROSEVICH, STACEY PETROSEVICH, SEQIL, INC., PETER SILBERMAN, MICHELLE SILBERMAN, MCSILBERMAN CORP, LLC, SCOTT STEELE, REBECCA STEELE, COBRA STEELE, INC., SHANE TAYLOR, BCV INC., MERIN THOLATH, JOSEPH THOLATH, MERJO VENTURES INC., SRIDHAR V ADLAMUDI, SW APNA SURAPANENI, 4SV MARTIAL ARTS- FAIRVIEW, LLC, CHERYL WALTERS, BENJAMIN WALTERS, LEELYNE, LLC, KERRI WATTS, JAMES WATTS, and CMW LEGACY, LLC,
Plaintiffs,
vs.
BARRY VAN OVER, MYLES BAKER, BRENT SEEBOHM, PREMIER FRANCHISING GROUP, LLC D/B/A PREMIER MARTIAL ARTS, FRANCHISE FASTLANE, LLC, AND UNLEASHED BRANDS, LLC,
Defendants.
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
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COMPLAINT
Plaintiffs, who represent thirty-six (36) franchisees of Defendant Premier Franchising Group, LLC d/b/a Premier Martial Arts (“PMA”), file this Complaint against Defendants Barry Van Over (“Van Over”), Myles Baker (“Baker”), Brent Seebohm (“Seebohm”), PMA, Franchise Fastlane, LLC (“FFL”), and Unleashed Brands, LLC (“Unleashed”) for, among other things, fraudulent inducement and violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. §§ 1962(c) and (d). For their causes of action, Plaintiffs state as follows:
Introduction
1. Defendants have engaged in an ongoing, multi-year, nationwide scheme to defraud hundreds of people into investing substantial amounts of money to buy and attempt to operate martial arts studios as PMA franchises. The depth of the fraudulent scheme is still being uncovered but the devastation is already well-known: retirement savings obliterated, franchisees suffering from staggering debt, and a host of hard-working individuals and families on the brink of financial ruin.
2. The scheme that has been uncovered thus far is wide-ranging and, sadly, involves a number of different individuals and companies working together to defraud franchisees across the country. But, in short, the story discovered thus far is this: PMA and its founder, Van Over, had previously licensed their martial-arts-studio business model for a number of years. In or around 2018, Van Over first attempted to “franchise” the model. It did not work or, else, Van Over did not sell as many franchises as he apparently wanted.
3. Sometime thereafter, Van Over hired Seebohm and FFL to change the pitch. The new pitch: fundamentally misstate material facts about the model in order to trick as many people
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as possible into signing up and paying hundreds of thousands of dollars in franchise fees, royalties, and other costs and expenses.
4. Accordingly, over the next several years, PMA, Van Over, Seebohm, Baker (Vice President at PMA), and others, told a new story based on false statements in their efforts to sell- sell-sell as many franchises as possible. As noted, the many, many false statements are still being determined but the primary ones, which were uniformly communicated to prospective franchisees, including all of the Plaintiffs, are detailed below.
5. The first is that the PMA franchise could be run “semi-absentee”—that is, the story that was told—over and over again—was that, as a franchise owner, the owner would only need to devote, as Seebohm put it, “10 hours a week or so” at the studio. This particular false statement was important for boosting sales of the franchise and opening up the scheme to a whole new class of potential franchisees: those who were looking for an investment to supplement their full-time day jobs or, else, their retirement.
6. Indeed, Defendants knew full well (as it was communicated to them countless times) that the new prospective franchisees were planning to keep full-time jobs and/or operate this investment on the side and truly be “semi-absentee” owners. That flexibility was, indeed, what led many to even consider PMA in the first place.
7. The problem was that the notion that an owner could operate this studio “semi- absentee” was simply not true. It could not be done. It had never been done. As one legacy PMA licensee owner recently noted: “It’s never been done in our industry in 75 years.” As this same licensee owner also recently admitted:
“It was unethical to sell it…as such.”
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8. In short, Defendants knew it had not been done and could not be done, so they instructed legacy licensee owners who they used to pitch the franchise to new prospective franchisees to simply lie. Seebohm, in particular, would repeatedly tell legacy owners to falsely represent the number of hours that they spent working in their studios for the sole purpose of tricking new potential franchisees into believing that the semi-absentee model was workable, when it was not.
9. Instead, the truth is that a PMA studio cannot be run “semi-absentee.” Instead, 40- 60 hours of work per week is required by an owner just to keep the studio functional—not profitable, because the overwhelming majority of the franchisees are not profitable at all—but just functional.
10. That fact leads to one of the other primary false statements: the profitability of the model. That is, PMA fundamentally misrepresented the profitability of the studios in a host of different material ways. For one, prospective franchisees were told that all legacy owners, i.e. the licensees, had “become” franchisees, which was not true. Instead, upon information and belief, there were 150‐200 legacy owners, and PMA cut out a substantial number of them and then asked only the most profitable ones to “become” franchisees (even though the operations of these licensees-turned-franchisees was still fundamentally different than that of the new franchisees1). Despite this fact, PMA represented that all legacy owners had become franchisees, which was false.
1 The differences in the models are numerous: besides being owned and operated, full-time, by martial artists, the legacy studios are also typically in much larger square footage with multiple teaching areas and larger staffs and in much lower-rent commercial centers (ones that PMA would never approve for the new franchisees).
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11. In addition, the financial data Defendants presented to prospective franchisees was fabricated. As but one example (and many others are detailed below), Seebohm told prospective franchisees that they would achieve profit margins in excess of 40%, and this profit margin was purportedly achieved on the 4-day-per-week semi-absentee schedule, based on an average generation of approximately $35,000-$40,000 in revenue each month. These numbers were simply not real.
12. Likewise, Van Over and Baker claimed, again and again, that the financial figures were based on studios with square footage space as low as 1,200 feet (the overwhelming number of new franchisees operate in spaces of 1,400 square feet or higher) that operated 4 days per week as semi-absentees. Additionally, both discussed the “unheard of” margins of 40%+ (even though those margins were fabricated). Van Over would even frequently remark that this was an extensively tested system with a built-in safety net because of the high margins, but, in fact, upon information and belief, PMA attempted to create corporate-owned studios based on the new franchisee model and they were not profitable.
13. In the end, none of these statements were true. Simply put, this level of profitability simply did not exist and was not achievable for the PMA franchisee model period—let alone a semi-absentee model.
14. Even the Franchise Disclosure Document (the “FDD”) that PMA produced was riddled with falsehoods. As but one example (of many), the costs represented in the FDD are intentionally and fraudulently understated for the new franchisee model.
15. Yet another false statement was the number of necessary employees, which was presented as 1.5 employees. This, likewise, was not true, and Defendants knew it was not true, but Defendants presented the idea that a studio only needed one full-time and one part-time employee
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to operate profitably, because it was a way to artificially keep projected expenses down and maintain the ruse that the studios could be operated semi-absentee at the type of high profit margins claimed by Defendants.2
16. Another false statement presented to Plaintiffs (and also included in the Franchise Agreements) is that PMA had systems in place to run a profitable business. It did not. The examples here are, likewise, numerous and run the gamut of all aspects of the operation: PMA promised to help franchisees hire instructors and said they had a network of potential instructors, but they did not help and they did not have any such functioning network; relatedly, PMA repeatedly said that, in emergency situations, due to injury, sickness, or otherwise, it had a traveling CIT (certified instructor team) that would ensure that franchisees could stay operational. This was, likewise, simply not true. In addition, PMA required that franchisees use its vendors, such as real- estate agents for site selection and general contractors for the build-out, but those vendors were uniformly incompetent and caused substantial delays, additional expense, and cost overruns. PMA required franchisees to use proprietary software, including Studio Pro, which Van Over owned, and it was shoddy, time-consuming, and inefficient. PMA promised “success coaches,” but these individuals were typically in their twenties with no business experience (or, else, simply individuals from other unsuccessful schools), and they did not help the studios operate profitably. PMA’s wildly overpriced marketing system, likewise, did not work, and, oftentimes, PMA would not let franchisees use other marketing systems that PMA had not approved (and for which PMA did not receive kickbacks) even if those other systems were far more effective. That is, in short,
2 As yet one more example of the blatant nature of these false statements, every previous school that Defendant Baker has tried to run was, upon information and belief, not successful financially and the current school owned by his wife, Kristina Baker, is not turning a profit while using five employees.
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even if PMA had not systematically made false statements for the sole purpose of fraudulently inducing individuals into buying franchises—which they undoubtedly did—the entire business model did not work because PMA had none of the systems in place that they promised.
17. One would think all of this could not get any worse, but it did.
18. At some point, PMA started pressuring prospective franchisees to buy multiple
“territories.” In fact, for a number of Plaintiffs, these additional territories were presented as “required”—that is, Defendants told a number of franchisees that they had to buy at least two territories and that they could simply use cash flow from the first to fund the second. But, because Defendants knew that the studios were money-losing endeavors that would never reach the profit margins fraudulently promised, there would be no cash flow from the first studio at all, so that it would not be viable to open a second (let alone, a third or fourth) location. In short, requiring franchisees to buy multiple territories, when PMA knew these territories would never be opened because the business model did not work, was just a way for PMA to force more money out of the franchisees (and, in the process, fundamentally violate the Federal Trade Commission (“FTC”)’s Franchise Rule) so that, in essence, the “franchisee fee” was far more than $50,000 and, in fact, could reach as high as $298,500 depending on the number of territories purchased.
19. And, finally, what appears to be one of the last—and, frankly, most shocking to the conscience—parts of the scheme is what you might expect from fraudsters: they needed to cover their tracks.
20. So, using every ruse they could think of, Defendants, including, importantly, Unleashed, told existing franchisees that they must sign new documents—what they typically called addenda or amendments to existing contracts—and they must do so for various made-up reasons.
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21. For example, one tactic—perpetrated by Seebohm, among others—was that, during the “on-boarding” training, there was a specific step in the process in which Seebohm instructed the individual franchisees, who had already signed up for a franchise, to reach out to PMA to “transfer” the Franchise Agreement from their personal names to a business entity that they had created to operate the business. Indeed, certain Plaintiffs were told by Seebohm that they did not need to create an entity before signing the Franchise Agreement and that, after they signed the Franchise Agreement, PMA would work with each franchisee to transfer the agreement over to a new entity once created.
22. Embedded in these “transfer” documents, however, was Defendants’ effort to attempt to get away scot-free with their fraud: “releases” in which the provision purports to say that the franchisee was releasing PMA from wrongdoing.
23. That is, PMA fraudulently induced franchisees to enter into Franchise Agreements and then, once they had the money, they attempted to fraudulently induce the same franchisees into releasing claims against PMA for fraudulently inducing them into entering into the Franchise Agreements in the first place. It is shocking.
24. When Unleashed purchased PMA in 2022, it attempted to do the same thing— again. Thus, franchisees were presented with yet new documents that they were allegedly required to sign—for example, a document purportedly relating to the resizing of a territory—that, again, purported to have the franchisee release claims against PMA and/or Unleashed.
25. Obviously, these “releases” release nothing for a host of different reasons, including that they are procured by fraud, violate the duty of good faith and fair dealing implicit in contracts under Tennessee law, and lack consideration, but, nevertheless, they reflect the cynical and sad efforts by Defendants to defraud their franchisees at every turn.
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26. In the end, as detailed in this Complaint, Plaintiffs have suffered dramatic, devastating losses as a result of Defendants’ widespread fraud, bad faith, and incompetence. As Van Over says in one of his advertising videos, owning a PMA franchise will be “life-changing” for the owners. Indeed, that is one thing Van Over has said that has turned out to be true.
Parties, Jurisdiction & Venue
27. Plaintiff William Anthony is a resident of the State of Florida, and Plaintiff PBA Martial Arts, Inc. is incorporated under the laws of the State of Florida with its principal place of business at 15710 Catalpa Cove Dr., Fort Myers, Florida 33908 (collectively “Anthony”).
28. Plaintiffs Katie and William Baker are residents of the State of Colorado, and Plaintiff S&RW Legacy LLC is a limited liability company organized under the laws of the State of Colorado with its principal place of business at 1704 Vista Point Drive, Severance, Colorado 80550 (collectively the “Bakers”).
29. Plaintiff Morgan Barth is a resident of the State of Tennessee, and Plaintiff ECM Holdings LLC is a limited liability company organized under the laws of the State of Tennessee with its principal place of business in Tennessee (collectively “Barth”).
30. Plaintiffs Cale and Aimee Bearden are residents of the State of Texas. Plaintiff Bearden Investment Group Inc. is incorporated under the laws of the State of Texas with its principal place of business at 4620 Parkview Lane, Fort Worth, Texas 76137. Plaintiffs Bearden PMA One LLC and Bearden PMA Two LLC are both limited liability companies organized under the laws of the State of Texas with their principal place of business in Texas. These Plaintiffs are collectively referred to herein as the “Beardens.”
31. Plaintiffs David and Emma Blackwell are residents of the State of Colorado, and Blackwell Fitness Inc. is incorporated under the laws of the State of Colorado with its principal
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place of business at 16675 Downing Street, Thornton, Colorado 80602 (collectively the “Blackwells”).
32. Plaintiffs Meredith and Matt Brown are residents of the State of Texas, and Plaintiff MMBrown Enterprises, LLC is a limited liability company organized under the laws of the State of Texas with its principal place of business in Texas (collectively the “Browns”).
33. Plaintiff Pravin Chougule is a resident of the State of South Carolina, and Plaintiff Martial Arts of Steele Creek LLC is a limited liability corporation organized under the laws of the State of North Carolina, with a principal address of 261 Helton Ln., Fort Mill, South Carolina 29708 (collectively “Chougule”).
34. Plaintiffs Ashley and Jon Costolnick are residents of the State of Georgia, and Plaintiff JAC Consulting Group LLC is a limited liability company organized under the laws of the State of Georgia with its principal place of business at 16500 Quayside Drive, Alpharetta, Georgia 30004 (collectively the “Costolnicks”).
35. Plaintiffs Karly and Anthony Doble are residents of the State of Washington, and Plaintiff F5 Partners, LLC is incorporated under the laws of the State of Washington with its principal place of business in Puyallup, Washington (collectively the “Dobles”).
36. Plaintiffs Joseph and Robin Feicht are residents of the State of Ohio, and Plaintiff JRFeicht Inc. is incorporated under the laws of the State of Ohio with its principal place of business at 7562 County Road 121, Fredericktown, Ohio 43019 (collectively the “Feichts”).
37. Plaintiff Bonnie Fraser is a resident of the State of Nevada, and Plaintiff Tyche Fortuna LLC is a limited liability company organized under the laws of the State of Nevada with its principal place of business at 103 Emerald Dunes Circle, Henderson, Nevada 89052 (collectively “Fraser”).
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38. Plaintiff Brian Griffith and Plaintiff Touraj Tabatabai are business partners and both are residents of the State of California. Plaintiff Ancient Ocean LLC is a limited liability company organized under the laws of the State of California with its principal place of business in California (collectively, “Griffith and Tabatabai”).
39. Plaintiff Kelli Herman and Plaintiff William C. Johnson are married and are residents of the State of Michigan. Plaintiff Herman Johnson LLC is a limited liability company organized under the laws of the State of Michigan with its principal place of business at 15410 North Haggerty Rd Northville, Michigan 48170.
40. Plaintiffs Scott and Jennifer Holland are residents of St. Johns, Florida, and Plaintiffs Off the Rail Investments, LLC and San Marco Martial Arts, LLC are limited liability companies organized under the laws of the State of Florida (collectively the “Hollands”).
41. Plaintiffs Dan and Chrystal Hollingsworth are residents of the State of Texas. Plaintiff DCHollingsworth Enterprises, Inc. is incorporated under the laws of the State of Texas with its principal place of business in Texas. Plaintiff Kicken Chicken, LLC is a limited liability company organized under the laws of the State of Texas with its principal place of business at 11550 Louetta Road, Houston, Texas 77070. These Plaintiffs are collectively referred to herein as the “Hollingsworths.”
42. Plaintiff Dale House is a resident of the State of Oklahoma, and Plaintiff Fortis Animus Broken Arrow LLC is a limited liability company organized under the laws of the State of Oklahoma with its principal place of business at 18193 N 113 East Avenue, Collinsville, Oklahoma 74021 (collectively “House”).
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43. Plaintiff Lisa Marie Ivey is a resident of the State of California, and Plaintiff Martial Arts Moguls Corporation is a corporation organized under the laws of California with a principal address of 13343 Friar St., Van Nuys, California 91401 (collectively “Ivey”).
44. Plaintiffs Matthew and Rennie Kaushal are residents of the State of Kansas. Plaintiffs Melrose Franchise Partners, LLC, PMA Olathe Station, LLC, and PMA Lee’s Summit, LLC are limited liability companies organized under the laws of the State of Kansas with a principal address of 8020 W 113th Street, Overland Park, Kansas 66210 (collectively, the “Kaushals”).
45. Plaintiffs Jason and Allison Key are residents of the State of North Carolina, and Plaintiff Key Ingredients Inc. is incorporated under the laws of the State of North Carolina with its principal place of business in Charlotte, North Carolina (collectively the “Keys”).
46. Plaintiffs Veronica and Nicholas Kormos are residents of the State of Ohio, and Plaintiff NKormos Inc. is incorporated under the laws of the State of Ohio with its principal place of business in Ohio (collectively “Kormos”).
47. Plaintiffs Jacob and Candace Kulhanek are residents of the State of Michigan; Okemos PMA, LLC is a limited liability company organized under the laws of the State of Michigan with its principal place of business at 4750 Central Park Drive, Suite E, Okemos, Michigan 48864; and Plaintiff Lakeshore PMA, LLC is a limited liability company organized under the laws of the State of Michigan with its principal place of business at 3350 House Street NE, Rockford, Michigan 49341 (collectively the “Kulhaneks”).
48. Plaintiff Eris Lasku is a resident of the State of Texas. Plaintiff PMA of Uptown, Inc. is incorporated under the laws of the State of Texas with its principal place of business at 17026 Bulverde Road, San Antonio, Texas 78247. Plaintiff PMA of San Antonio LLC is a limited
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liability company organized under the laws of the State of Texas with its principal place of business at 17026 Bulverde Road, Suite 110, San Antonio, Texas 78247. These Plaintiffs are collectively referred to herein as “Lasku.”
49. Plaintiff Morris Lifschutz is a resident of the State of California, and Plaintiff Mosah Ventures C-Corp d/b/a PMA of Rancho Bernardo LLC is a limited liability company organized under the laws of the State of California with its principal place of business at 13726 Canyon Loop Trail, San Diego, CA 92130. Plaintiff Mosah Ventures C-Corp d/b/a PMA of Encinitas LLC is a limited liability company organized under the laws of the State of California with its principal place of business at 13726 Canyon Loop Trail, San Diego, California 92130 (collectively “Lifschutz”).
50. Plaintiff Patrick Lobb is a resident of the State of Missouri, and Plaintiff Art Vandalay Karate, Inc. is incorporated under the laws of the State of Missouri with its principal place of business at 16517 Nation Road, Kearney, Missouri 64060 (collectively “Lobb”).
51. Plaintiffs Ryan and Micah Logan are residents of the State of California, and Plaintiff Premier Arts LLC is a limited liability company organized under the laws of the State of California, with a principal address of 636 San Julio Rd, Solana Beach, California 92075. (collectively, the “Logans”).
52. Plaintiffs Glenn and Kowsilliya Loomis are residents of the State of California, and Plaintiff Rainy Day Ventures, LLC is a limited liability company organized under the State of California with a principal address of 26333 Horsetail Street, Murrieta, California 92562 (collectively, the “Loomises”).
53. Plaintiffs Jamie and Maggie Moorhouse are residents of the State of California, and Plaintiff San Diego Martial Arts LLC is a limited liability company organized under the laws of
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the State of California, with a principal address of 3050 Rue Dorleans, Unit 329 San Diego, California 92110 (collectively, the “Moorhouses”).
54. Plaintiffs Vrajesh and Shefali Patel are residents of the State of New Jersey, and Plaintiff S&A Martial Arts LLC is a limited liability company organized under the laws of the State of New Jersey with its principal place of business at 759 Littleton Rd., Parsippany, New Jersey 07054 (collectively the “Patels”).
55. Plaintiffs Stacey and Eric Petrosevich are residents of the State of Florida, and Plaintiff SEQIL Inc. is incorporated under the laws of the State of Florida with its principal place of business in Florida (collectively the “Petrosevichs”).
56. Plaintiffs Peter and Michelle Silberman are residents of the State of Pennsylvania, and Plaintiff McSilberman Corp, LLC is a limited liability company organized under the laws of the State of Pennsylvania with its principal place of business at 400 Cloverdale Drive, Wexford, Pennsylvania (collectively the “Silbermans”).
57. Plaintiffs Scott and Rebecca Steele are residents of the State of Kansas, and Plaintiff Cobra Steele Inc. is incorporated under the laws of the State of Missouri with its principal place of business in Kansas City, Missouri (collectively the “Steeles”).
58. Plaintiff Shane Taylor is a resident of the State of Nebraska, and Plaintiff BCV Inc. is incorporated under the laws of the State of Nebraska with its principal place of business in Omaha, Nebraska (collectively “Taylor”).
59. Plaintiffs Joseph and Merin Tholath are residents of the State of California, and Plaintiff Merjo Ventures Inc. is a corporation organized under the laws of California with a principal address of 11745 Battenburg Way, Rancho Cordova, California 95742 (collectively the “Tholaths”).
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60. Plaintiff Sridhar Vadlamudi and Swapna Surapaneni are residents of the State of Texas, and Plaintiff 4SV Martial Arts-Fairview, LLC is a limited liability company organized under the laws of the State of Texas with its principal place of business in Texas (collectively “V adlamudi”).
61. Plaintiffs Cheryl and Benjamin Walters are residents of Ohio, and Plaintiff Leelyne, LLC is a limited liability company organized under the laws of the State of Ohio with its principal place of business at 5518 Irwin Simpson Rd., Mason, Ohio 45040 (collectively the “Walters”).
62. Plaintiffs Kerri Watts and James Watts are residents of the State of Texas, and Plaintiff CMW Legacy, LLC is a limited liability company organized under the laws of the State of Texas with its principal place of business in Texas (collectively “Watts”).
63. Defendant Barry Van Over is a resident of Knoxville, Tennessee.
64. Defendant Myles Baker is a resident of Knoxville, Tennessee.
65. Defendant Brent Seebohm is a resident of Nashville, Tennessee.
66. Defendant Premier Franchising Group LLC d/b/a Premier Martial Arts is a limited
liability company organized under the laws of the State of Tennessee with its principal place of business at 9202 South Northshore Drive, Suite 102, Knoxville, Tennessee 37922.
67. Defendant Unleashed Brands, LLC is a limited liability company organized under the laws of the State of Delaware with its principal place of business in Bedford, Texas.
68. Defendant Franchise Fastlane LLC is a limited liability company organized under the laws of the State of Delaware with its principal place of business in Omaha, Nebraska.
69. The Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1331 because Plaintiffs bring claims under 18 U.S.C. §§ 1962(c) and (d).
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70. Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(2) because a substantial part of the events or omissions giving rise to Plaintiffs’ claims occurred in this judicial district. Venue is also proper in this Court pursuant to 18 U.S.C. § 1965(a) because Defendants are found and/or transact their affairs in this judicial district.
Facts
71. As noted in the Introduction above, Defendants’ scheme is wide-ranging, involving a host of different people and a bevy of fraudulent statements and fraudulent contracts. Plaintiffs have provided certain specific individual allegations below related to each individual Plaintiff and, otherwise, have endeavored to detail the outline of Defendants’ fraudulent scheme as they understand it at this time.
General Background
72. Defendants publicly represent that they have “a proven business model that is simple to run and easy to scale” resulting in “a low-cost investment opportunity with enormous profit potential.” Defendants have induced franchisees to open over 200 PMA franchises in 40 States across the country and in multiple other countries, and they state that they are “growing quickly” and “excited to expand [their] reach.” Defendants represent PMA franchises as providing a place for children to learn martial arts and a means for franchisees to improve the lives of these children while providing for themselves and their families.
73. Defendants target individuals who want to make a positive impact on their communities and contribute to the well-being and development of children by making claims such as “[o]ur sole goal is for our students to develop self-discipline, high self-esteem, a positive outlook, a spirit of constant improvement, and an attitude that refuses to give up.”
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74. Defendants’ actual goal, however, is to enrich themselves at the expense of their franchisees, whom they subject to a calculated campaign of misrepresentations, omissions, half- truths, bad faith acts, general incompetence, and lies.
75. Plaintiffs have become victims of this fraudulent scheme, investing, collectively, millions and millions of dollars and thousands of hours due to Defendants’ misrepresentations, often spending their life savings and retirement funds to keep their franchises afloat.
76. Defendants’ actions have left many franchisees unable to continue operating, causing franchisees, including a number of Plaintiffs, to close their studios, while leaving others at the precipice of financial ruin.
77. Van Over describes himself as “the President/CEO of Premier Martial Arts International[,] one of the largest and most successful martial arts chains in the United States.”
78. According to Defendants’ website, “[Van Over’s] insight into how to improve operations, win new customers, and develop curriculums proved enormously successful for hundreds of entrepreneurs.” He claims that “[w]e learned very quickly that the success of Premier Martial Arts was replicable in new markets across the country . . . We standardized the curriculums for our customers, implemented best practices for hiring and retaining the best instructors, and created the branding and support infrastructure necessary to win new customers and find success over the long term.”
79. As noted above, Van Over founded a PMA studio in 2004, and he licensed the concept to other martial arts instructors thereafter.
80. Van Over ultimately licensed the PMA concept to licensees who were experienced in martial arts, worked in the business full time, and had multiple full-time employees.
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81. In 2018, Van Over changed PMA from a license model to a franchise model. (Van Over refers to the former licensees who purportedly became franchisees as “Legacy Owners.”)
82. At this time, Van Over began marketing the PMA franchise nationwide, organizing and coordinating multiple companies to effectuate his plan to defraud franchisees by misrepresenting key characteristics of the franchises.
83. Initially, Van Over’s franchising scheme had limited success, but then he partnered with Seebohm and FFL to effectuate the scheme.
84. According to his public profile, Seebohm began working at FFL in March 2019, right around the time that PMA began aggressively and fraudulently selling franchises.
85. As noted above and below, Seebohm was a pivotal player in making a host of fraudulent misstatements to Plaintiffs.
86. And Seebohm was apparently very good at his job, as PMA franchises sold extremely well (and the devastation Defendants have caused has now spread nationwide). Seebohm himself acknowledges as much on his LinkedIn page:
87. Image 1 below shows the increasing growth rate of the number of PMA franchises from 2019 to 2022.
3 Seebohm does not explain in his LinkedIn page profile how many of these franchisees have been profitable and/or how many of these additional 500+ territories have actually been developed.
19
[Seebohm] [r]ecently earned elite honors (#1 to top 5 nationwide) among
all three top franchise networks’ 400+ actively growing franchise concepts with the booming PREMIER MARTIAL ARTS brand, developing all 210 new franchisees & 700+ total territories awarded in the first 32 months…for the #1 Franchise Sales
Organization in North America.3
 
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Image 1
88. In early 2022, Defendants’ scheme to sell as many franchises as possible no matter what was successful, as Unleashed acquired PMA and its associated business entities. As Van Over explained in a public interview, he personally made “a considerable sum” as part of the transaction.
89. According to the PMA website, “[a]s a part of the Unleashed Brands family, our franchise will experience even more growth, have access to new opportunities, and will provide our franchise owners with better corporate support.”
90. According to the Unleashed website, “Premier Martial Arts is in rapid growth mode and has over 100 schools throughout the United States. With a business model that generates significant interest among both entrepreneurs and martial art studio owners, their martial arts franchise is poised for long-term success. Unleashed Brands is proud to count them as part of our portfolio.”
91. Defendants’ scheme to defraud Plaintiffs includes a marketing campaign designed to induce Plaintiffs to become franchisees. This marketing campaign involved websites, videos,
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presentations, spreadsheets, calls, emails, and other communications in which Defendants make material misrepresentations about PMA.
92. Image 2 below shows a representative example of the communications that Defendants direct to potential franchisees, including Plaintiffs, on their website.
Image 2
  
93. When Defendants learn that an individual may be interested in becoming a franchisee, Defendants begin an aggressive sales campaign.
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94. Defendants produced videos to show prospective franchisees, and Defendants require that prospective franchisees watch two of these videos prior to speaking with Seebohm about becoming a franchisee.
95. In the video titled “Premier Martial Arts Franchise Intro,” among other misrepresentations, Defendants claim that “this brand is built for a non-martial-artist and a semi- absentee owner” and that the time commitment of being a semi-absentee owner “is really just 10 hours a week or so,” which involves only “reviewing key financial metrics, checking in with the manager, participating on the Facebook owners page and ensuring there are no customer service issues” (“Semi-Absentee Model”).
96. The video states that the Semi-Absentee Model is possible and effective because PMA has a “[f]ully-automated customer recruitment program,” “[p]roven marketing and sales system,” “[f]ully-integrated CRM software with billing, POS, management and marketing capabilities,” “[r]egional owner and staff training events to support your growth in all areas,” “PMA operations website with complete business systems, marketing, curriculum and member management training modules,” “[t]wo weekly Q&A teleconferences, one for marketing and one for management,” “[b]i-weekly management meetings,” “[p]rivate Facebook networking group for owners and instructors,” and “[o]ngoing[,] continuous[,] FREE consulting on demand.”
97. Defendants also claim that, as part of the Semi-Absentee Model, “1 full time and 1 part time employee is all you need” and that “[a]ll support and marketing systems are in place.” A screenshot of these statements being made in this video is shown in Image 3 below.

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Image 3
98. Additionally, Defendants claim that PMA is “A Franchise Serious About Branding And Marketing,” stating that “[o]ur expertise in branding allows us to help our franchisees market effectively in their communities.”
99. Defendants further state that “[i]n 2018, 100% of Premier Martial Arts owners agreed to convert from a license model to a franchise model[, s]howing the franchisees have full confidence in home office.”
100. In a second video, titled “Premier Martial Arts Franchise: Why Now is the Time to Invest,” Van Over states that “we designed the systems, we designed the processes that owners and managers can implement easily to be profitable.” Baker states that “all of our staff goes through intense training. You are guaranteed to have a nice facility, a clean facility, [and] professional people teaching your children and adults.” He also states that “I am personally most proud of our owners and them being able to provide for their family. We see owners taking vacations, leaving their business for an extended amount of time because they have a manager and systems in place that allows them to live their life in a way that they never thought they could.”
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101. After prospective franchisees watch these videos, Seebohm arranges an initial call with them, in which he determines how to represent PMA in order to ensure that the prospective franchisees will agree to become franchisees.
102. Following this initial call, Seebohm arranges a second call with prospective franchisees, which Defendants refer to as the “Economics Workbook” call.
103. During this call, Seebohm represents the “financial performance and expectations of owning a PMA Studio” and presents financial information that purportedly shows the financial performance of PMA franchises operating the Semi-Absentee Model and estimates of the return on investment that prospective franchisees should expect from operating this model (“Unit Economics Presentation”).
104. He states that the Semi-Absentee Model franchises will “open the doors on day one in the black” and that they will cashflow from the first day of being open due to the systems Defendants designed.
105. During the Unit Economics Presentation, Seebohm states that Semi-Absentee Model studios that are open four days per week have profit margins in excess of 40% and that studios that are open six days per week have profit margins of 50%. And, again, these profit margins were presented as occurring in spaces as low as 1,200 square feet, while new franchisees would be operating in spaces 1,400 square feet or higher.
106. During this call, Seebohm relies upon the Unit Economics Presentation materials produced by Defendants that state that PMA studios “are designed to run off a staff of two people . . . Main instructor (full time) and assistant 15-20 hours a week.” Defendants claim that “[w]e will help recruit and train all staff and instructors.”
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107. Following the Unit Economics Presentation, Seebohm arranges another call with prospective franchisees, in which he presents the FDD and “Owner Validation Calls,” in which existing franchise “owners” state that the Semi-Absentee Model is effective, requiring no more than 10 hours of work per week, and one full-time and one part-time employee.
108. The calls with Seebohm lead to prospective franchisees being told to attend “Discovery Day,” which takes place in Knoxville, Tennessee. For several months during the pandemic, Discovery Days took place via video calls.
109. At Discovery Day, Defendants arrange group presentations and meetings, as well as one-on-one meetings with prospective franchisees, in which Van Over, Baker, and Seebohm state that franchisees can successfully operate PMA franchises as semi-absentee owners, working just 10 hours per week with one full-time and one part-time employee. (As Van Over put it: “Everybody’s looking at this as a semi-absentee investment.”) These Defendants provide financials and claim that the financials are based on Semi-Absentee Model studios that are open four days per week and operated by semi-absentee franchisees. These Defendants repeat the representations about PMA described above, including that Defendants will provide staff, training, marketing, and other services to enable franchisees to operate the business without working more than 10 hours per week.
110. Following Discovery Day, Defendants “invite” prospective franchisees to become franchisees by signing a franchise agreement. Upon information and belief, few, if any, prospectives have ever not been “invited” to become franchisees.
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Scheme to Defraud
111. Each of the representations made by Defendants as described above were false, made with knowledge of this falsity, made with the intent to deceive, and designed to perpetuate Defendants’ scheme to defraud franchisees, including Plaintiffs.
112. As detailed, in part, above, Defendants’ scheme to defraud included: (1) systematically subjecting prospective franchisees to false and misleading information about PMA and the Semi-Absentee Model; (2) using the martial arts experience of Van Over and the financial performance of the legacy owners to give prospective franchisees false impressions about the Semi-Absentee Model;4 (3) developing a system to lure prospective franchisees using Seebohm and FFL to amplify these misrepresentations; (4) tying franchisees into a series of commitments to purchase services, inventory, and equipment from companies that provided kickbacks to Defendants and were ultimately incompetent and ineffective; (5) subjecting prospective franchisees to “Discovery Days,” where Defendants reiterated their false narrative and promises in a multi-day, high pressure sales pitch; (6) falsely stating that certain prospective franchisees are “required” to purchase multiple territories and that the cash flow from the first territory will fund the second even though Defendants were well aware that the business model did not work and, in essence, the “required” territory purchase is just a way to increase the “franchise fee” from approximately $50,000 to up to multiple hundreds of thousands of dollars; and (7) structuring the “on-boarding” process such that prospective franchisees are told that they must assign and/or
4 In reality, non-martial-artist owners have significant additional problems that martial-artist owners may not. For example, if a martial-artist owner has a problematic or absent instructor, that owner can theoretically fire the instructor and act as the instructor until a replacement can be found. A non-martial-artist owner cannot do the same. Thus, here, when Defendants had no functioning system in place to assist with hiring instructors, either in an emergency or on a full-time basis, non-martial-artist owners must either put up with a problematic instructor or plan to go without an instructor until one can be found (without Defendants’ assistance).
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transfer their Franchise Agreement to a new business entity and, then, as part of that “assignment” attempt to hide general releases in these “transfer” documents.
113. Defendants represented and marketed the Semi-Absentee Model as an investment opportunity that would not require franchisees to devote substantial hours per week on the business, as Defendants represented that the systems that Defendants put in place would generate customers, recruit and train staff, and handle the other aspects of operating the business, such as marketing, pricing, and inventory.
114. Defendants led prospective franchisees to believe that they would only need to “review[] key financial metrics, check[] in with the manager, participat[e] on the Facebook owners page and ensur[e] there are no customer service issues,” and this scheme was calculated to target non-martial-artist individuals with jobs, careers, and other commitments by presenting the Semi- Absentee Model as a “turn-key” business that these individuals could own and successfully operate while maintaining these other obligations.
115. The Semi-Absentee Model is a lie. The Semi-Absentee Model cannot operate as a semi-absentee business with an owner who spends 10 hours per week working on the business. These franchises require multiple full-time employees, and the franchisees must spend up to 60- 80 hours per week working on the business, and, even then, the studios typically still lose money or, else, the lucky few may break even.
116. Defendants knew that operating the Semi-Absentee Model that they marketed was not possible.
117. Prior to marketing the first Semi-Absentee Model franchises, Van Over, Baker, and Seebohm had no basis for their claims that the Semi-Absentee Model would be effective because the existing PMA studios had operated as licensees, and the licensees had martial arts experience,
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worked in the studios full time, and had multiple full-time staff members—along with a host of other material differences in the operating model.
118. Initially, the Semi-Absentee Model that Defendants sold to prospective franchisees was entirely unproven, and licensees informed Defendants that the model would not work.
119. For example, Defendant Baker opened a PMA franchise and admitted on video that he had to hire three full-time employees. He did not share this information with prospective franchisees, including Plaintiffs. Further, Defendants regularly obtained financial information from the newly-opened Semi-Absentee Model franchises, which showed that the model was failing and could not meet the financial results that Defendants promised. Nevertheless, they continued (and continue) to sell this fantasy.
120. Defendants designed the “Owner Validation Calls” to defraud prospective franchisees, including Plaintiffs, by showing prospective franchisees statements from existing owners who state that the Semi-Absentee Model is effective and that the franchises can successfully operate with one full-time and one part-time employee.
121. Defendants used these calls to give Plaintiffs the false impression that the Semi- Absentee Model was effective and that Plaintiffs were hearing success stories from franchisees like themselves.
122. Prior to recording the Owner Validation Calls, Van Over, Baker, and Seebohm instructed the existing owners to lie about the amount of work and time required to operate the franchises. At least one existing owner informed Defendants that he would no longer participate in the Owner Validation Calls because Defendants pressured him to make false statements about the Semi-Absentee Model.
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123. Another existing owner who Defendants used in these Owner Validation Calls admitted that he was working more than 40 hours per week in the franchise when he recorded the Owner Validation Call in which he stated that semi-absentee owners could operate the business with no more than 10 hours of work per week with one full-time and one part-time employee.
124. Defendants used these misrepresentations about the amount of time that is required to operate the franchises to induce prospective franchisees to become franchisees by representing that prospective franchisees could continue to work full-time while operating the Semi-Absentee Model.
125. Defendants encouraged—and, in some cases, required—prospective franchisees to purchase multiple territories at the same time, offering “discounted” franchise fees. Defendants misled prospective franchisees by stating that the financial success of the first franchise that the franchisee developed would enable the franchisee to have enough resources to open the following franchises.
126. Defendants misrepresented the financial information provided to prospective franchisees. Defendants stated that the financial models provided to prospective franchisees as part of the Unit Economics Presentation, at Discovery Day, and in the FDDs were based on the performance of franchisees operating according to the Semi-Absentee Model.
127. This financial information was not based on the performance of franchisees operating according to the Semi-Absentee Model. This information was cherry-picked and/or otherwise fabricated. Defendants misrepresented that 100% of licensees agreed to become franchisees; Defendants only permitted the most successful licensees to “become” franchisees. Defendants then represented that the financial data from these most successful licensees was
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representative of the Semi-Absentee Model, despite the fact that the licensees had not operated (and did not operate) the Semi-Absentee Model.
128. According to one licensee whose data was included in this financial information as being representative of the Semi-Absentee Model, he informed Van Over that the franchise concept is unsustainable for owners who are not martial artists and that the Semi-Absentee Model is particularly unsustainable because operating the studio requires substantially more time than Defendants represent. This licensee stated that the financials provided to prospective franchisees were the “exact opposite” of what Van Over, Myles, and Seebohm represented because the financials did not provide an accurate representation of the Semi-Absentee Model.
129. In addition, as noted above, Defendants failed to provide the support and systems that Defendants promised to provide, including by failing to provide (or even assist in providing) staff, training, customer generation services, competent vendors, and competent marketing. For example, the “fully-automated customer recruitment program” that Defendants promised did not work, Defendants failed to hold the promised “two weekly Q&A teleconferences,” and Defendants failed to provide the promised “ongoing, continuous, FREE consulting on demand” or, else, whatever “consulting” was provided was ineffective and/or grossly incompetent. Instead, Defendants ignored franchisees’ repeated pleas for help and assistance.
130. As one example, PMA claimed that Studio Pro would help “run the business.” PMA charged $200 per month per location for the software, but it was an abject failure with little-to-no support for how to use the product from PMA and no basic software architecture for streamlining studio tasks.
131. Indeed, as Defendant Baker recently admitted in reference to the services Defendants provide to franchisees: “We definitely have some tech deficiencies, to say the least.”
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132. Defendants falsely represented that prospective franchisees would have access to a network of qualified instructors who would be able to teach the classes offered at the franchises and comprehensive training for instructors hired by franchisees, and, as such, Defendants emphasized that prospective franchisees did not need martial arts experience. Defendants then provided franchisees with a link to the website “instructorfinder.com,” which provided no access to qualified instructors, and Defendants provided no additional help with hiring instructors.
133. Defendants arranged for franchisees to use contractors selected by Defendants, typically presenting prospective franchisees with only one option for which contractor to use when building out the locations of the franchises. Defendants held franchisees to an unobtainable 6- month deadline for building out and opening the franchises, and Defendants knew that the contractor that Defendants arranged for franchisees to use could not or would not complete the build-out according to the deadline Defendants imposed upon franchisees.
134. When franchisees predictably did not complete the build-out according to this deadline, upon information and belief, Defendants threatened to revoke the franchisees’ ability to operate the franchise.
135. Upon information and belief, Defendants held this “failure” over the heads of the franchisees, despite orchestrating this situation by requiring them to use contractors that Defendants knew could not or would complete the build-out by Defendants’ arbitrary deadline.
136. Upon information and belief, in certain situations, Defendants stripped franchisees of the right to operate the franchise that the franchisees had worked to open, then sold the franchise territory to the next unsuspecting prospective franchisee—in effect recycling franchise territories to new prospective franchisees in a scheme to resell the same worthless territory over and over again.
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137. Defendants used this same tactic when franchisees who purchased multiple territories did not have the financial resources to develop their remaining territories within the time mandated by Defendants, as Defendants encouraged franchisees to commit to these deadlines for multiple territories and represented that the financial success of the first-developed franchise would enable franchisees to develop the following territories.
138. Upon information and belief, Defendants used their knowledge of the inevitable failure of the Semi-Absentee Model to carry out their plan to recycle the territories, obtaining new franchise fees from prospective franchisees each time.
139. Upon information and belief, Defendants represented that franchisees would be able to sell their franchises and undeveloped territories, despite knowing that franchisees had no success in doing so and that Defendants would force franchisees to abandon their franchises and territories so that Defendants could resell them to new prospective franchisees.
Specific allegations related to Plaintiffs
140. Defendants directed the foregoing misrepresentations, omissions, and lies at each Plaintiff in order to effectuate their scheme and conspiracy to defraud and induce Plaintiffs to become franchisees, and Plaintiffs would not have become franchisees but for this fraud. Defendants reused the same misrepresentations repeatedly, and each of the foregoing misrepresentations was made to each of the following Plaintiffs. The following allegations more specifically demonstrate the scope and breadth of Defendants’ ongoing scheme:
i. The Anthonys
141. The Anthonys purchased four territories in Florida in January 2021, and they opened their first franchise in April 2022. They have spent over $490,000 in opening and operating the franchise, in addition to entering into a multi-year commercial lease. The franchise has not
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been profitable because the Semi-Absentee Model promised by Defendants does not exist. The Anthonys must work in the franchise 40 or more hours per week, and the franchise cannot be operated with one full-time and one part-time employee.
142. The Anthonys were introduced to Seebohm by a franchise consulting company in October 2020. The Anthonys informed this consulting company that they were seeking a semi- absentee franchise because Mr. Anthony intended to keep working in his full-time job, and Mrs. Anthony was retired and did not intend to work in the franchise. Based on the Anthonys’ semi- absentee requirement, the consulting company recommended PMA.
143. The Anthonys spoke with Seebohm by phone on October 15, 2020. During this call, the Anthonys told Seebohm that they wanted a semi-absentee franchise that would enable Mr. Anthony to keep working his full-time job and not require Mrs. Anthony to work in the franchise.
144. Beginning in this call, and continuing throughout the entire sales process, Seebohm consistently told the Anthonys that the Semi-Absentee Model would not require the Anthonys to work in the franchise more than 10 hours per week and that it was a “semi-absentee opportunity.” Seebohm told the Anthonys that he understood their requirement that the franchise be semi- absentee because, according to Seebohm, he owned franchises and operated them on a semi- absentee basis while working a full-time job.
145. Following this initial call, Seebohm sent the Anthonys the videos discussed above and gave them the Unit Economics Presentation, using financials that did not represent the Semi- Absentee Model. Seebohm represented that the Anthonys would have profit margins in excess of 40% by operating the franchise four days per week, not working in the franchise more than 10 hours per week, and with one full-time and one part-time employee.
146. Seebohm told the Anthonys to attend Discovery Day.
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147. On December 8 and 9, 2020, the Anthonys attended Discovery Day in Knoxville, Tennessee.
148. At Discovery Day, Seebohm, Van Over, and Baker repeated the misrepresentations about the Semi-Absentee Model discussed in the preceding paragraphs. Van Over told the Anthonys that the Semi-Absentee Model is a “business in a box” that the Anthonys could successfully operate without martial arts experience by working no more than 10 hours per week in the franchise because of the systems and support provided by Defendants.
149. None of these statements were true.
ii. The Bakers
150. The Bakers became franchisees in January 2020, and they have spent over $638,000 opening and operating their franchise, in addition to entering into a multi-year commercial lease costing over $500,000.
151. The Bakers met Seebohm on November 29, 2019 in person at a coffee shop in Timnath, Colorado. At this meeting, Seebohm told the Bakers that the Semi-Absentee Model required no more than 10 hours of work per week, that the Bakers could successfully operate it with one full-time and one part-time employee, and that the systems that Defendants had in place would ensure that the franchise would generate 40-50% profit margins as soon as the Bakers opened the franchise.
152. At this meeting, Seebohm stated that the Semi-Absentee Model was “so great” that he planned to “buy several myself and transition away from Franchise FastLane.”
153. After this meeting, Seebohm emailed the Bakers on December 2, 2019, telling them to watch a recorded video of the Unit Economics Presentation. The Bakers watched the recorded video, in which Defendants represented that the financials shown in the presentation were
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representative of the Semi-Absentee Model, that the Bakers’ franchise would generate 40-50% profit margins, and that the systems that Defendants had in place would guarantee these results and provide support to the Bakers.
154. On December 3, 2019, the Bakers had a video call with Seebohm, in which the Bakers and Seebohm discussed the territory map, which showed available locations for the Bakers’ franchise.
155. After this call, Seebohm emailed the Bakers links to recorded calls of Van Over and other franchisees discussing the Semi-Absentee Model. In these calls, Van Over stated that the franchise could be successfully operated according to the Semi-Absentee Model, that an owner did not need martial arts experience to successfully operate the Semi-Absentee Model, and that the Semi-Absentee Model had profit margins in excess of 40%. The other franchisees on these calls validated these statements at the direction of Van Over, Baker, and Seebohm.
156. On December 5, 2019, Seebohm emailed the Bakers to confirm that the Bakers had listened to the calls described in the preceding paragraph. He arranged a video call with the Bakers, in which Seebohm inquired about the Bakers’ finances. Seebohm informed the Bakers that they qualified to become franchisees, and he told the Bakers to attend Discovery Day.
157. The Bakers attended Discovery Day on January 13 and 14, 2020 in Knoxville, Tennessee.
158. At Discovery Day, Seebohm, Van Over, and Baker told the Bakers that the Semi- Absentee Model was proven and effective, that the Bakers’ franchise would have profit margins in excess of 40%, and that the systems that Defendants put in place would provide all the support needed in order for the Bakers to be successful franchisees.
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159. These Defendants repeatedly stated that the Semi-Absentee Model did not require more than 10 hours per week of work, that it could be successfully operated with one full-time and one part-time employee, and that Defendants would help recruit and train employees for the Bakers. Van Over further stated that Defendants would provide a group health care plan for franchisees, which franchisees could use and offer to their employees.
160. Likewise, on January 14, 2020, the Bakers were “invited” to become a franchisee at the end of Discovery Day. The Bakers then had a meeting with Van Over and Baker. Mr. Baker was concerned about not being a martial artist and asked again about instructors. Van Over said that staffing should be “the least of your concerns” and stated that PMA had contacts all over the country, including a traveling CIT (certified instructor team) “that has bags packed ready to go out to schools so you’re never closed more than 72 hours.”
161. After the Bakers became franchisees, they learned that the Semi-Absentee Model does not work and that the financial information that Defendants provided to prospective franchisees was not representative of the Semi-Absentee Model. They must work substantially more than 10 hours per week in the franchise. They cannot operate the franchise with one full- time and one part-time employee.
162. Likewise, when the Bakers needed help with instructors, PMA could never assist. This occurred once when the Bakers’ instructor’s wife was about to have a baby in November 2021, and Van Over said he could not help. Later, on October 4, 2022, the Bakers’ instructor quit. Van Over ultimately suggested to Ms. Baker that she walk into local gymnastics places and see if there was a young adult gymnast who would be willing to come teach classes for a couple of weeks.
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163. The Bakers’ franchise has never reached the profit margins promised by Defendants.
164. Defendants failed to provide the support, systems, and training that they promised, including, for example, by failing to provide bi-weekly management meetings, marketing and customer lead generation systems, consulting on demand, and two weekly Q&A teleconferences. When the Bakers inquired about the promised group health care plan, Van Over told the Bakers that such a plan did not exist and that the Bakers should contact an independent insurance broker.
iii. Barth
165. Barth purchased three territories in the Middle Tennessee area, and he has opened two franchises, while the third territory remains undeveloped. Despite following the systems and instructions that Defendants provided, he has never made a profit. Instead, his operating losses for 2022 have exceeded $80,000 to date with total losses, to date, including franchise fees, construction costs, and operating losses totaling approximately $800,000. The Semi-Absentee Model has failed, requiring him to hire multiple full-time employees and spend significantly more than 10 hours per week working on the franchise.
166. When Barth sought help from Van Over and PMA, these Defendants covered up the fact that their franchises across the country were failing and instead attempted to give Barth the impression that he was alone in being unsuccessful, i.e. that it was his fault.
167. Barth began receiving Defendants’ misrepresentations when Seebohm emailed him on September 27, 2019 and provided him with the two videos discussed above.
168. In October 2019, Seebohm held calls with Barth wherein Seebohm made the representations discussed above and provided him with the false and misleading Owner Validation calls and Unit Economics Presentation.
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169. On November 5, 2019, Barth attended Discovery Day in Knoxville, Tennessee, at which Van Over, Baker, and Seebohm repeated the misrepresentations about, among other things, the Semi-Absentee Model, profit margin, and average monthly revenue.
170. In addition, Van Over instructed Barth that he was required to use RPM Construction, LLC. Indeed, the president of RPM Construction, LLC led a presentation at Discovery Day touting the money-saving services they would provide. The problems with RPM Construction, LLC were legion:
  They told Barth he would be ready to open by August 2020. Construction was not complete until late December 2020.
  Due to this fact and PMA’s instructions/“system,” Barth started pre-sales in July 2020 and then lost dozens of members due to delays. Likewise, he had substantial increased cost due to staff being on payroll for months before they were needed.
  RPM Construction, LLC hired a contractor who was not licensed to work in Tennessee and later a stop-work order was issued from Davidson County.
  The contractor did not pay subs, and Barth had to directly pay subs in order to remove liens.
  Barth lost $85,207 in operating losses in 2020 before his school was even open.
171. Despite the consistent losses from Day One for Barth, he was awarded a “Rising Star” award at the PMA Symposium in October 2021—presumably because Barth has been
following the PMA “system.”
172. Likewise, Barth served as a franchisee validator on several phone calls arranged by
Seebohminlate2021andearly2022. Inthesecalls,SeebohmexpresslyaskedBarthnottodiscuss the fact that he was not making a profit yet and to under-play how much he was working in the business.
173. Barth has paid as much as $3,500 per month per school for PMA’s “marketing” and the results have been uniformly terrible. Even trying to get basic PMA gear and required uniforms from the PMA-run merchandise platform has been problematic, as the materials are frequently out- of-stock.
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174.
175. franchise in this year, in and signing 176. Beardens to
In the end, the entire PMA operation has simply been a bungled failure.
iv. The Beardens
The Beardens purchased six territories in May 2021, and they opened the first May 2022. They have lost over $145,000 opening and operating this franchise to date addition to incurring nearly $300,000 in loans to purchase and develop the franchise
leases that total over $950,000 over the terms.
In April 2021, a franchise consultant, Giuseppe Grammatico, introduced the
the PMA franchise and arranged an introduction to Seebohm. Grammatico enticed the Beardens into pursuing PMA as a franchise due to their rapid growth and popularity.
177. On May 10, 2021, the Beardens spoke with Seebohm, and he represented that the Semi-Absentee Model would be effective and provided the videos discussed above.
178. On May 13, 2021, Seebohm gave the Beardens the Unit Economic Presentation via zoom. In addition to the misrepresentations inherent in the Unit Economic Presentation, Seebohm represented that franchises that operated six days per week had profit margins in excess of 50%. Seebohm said the Semi-Absentee Model required only one full-time and one part-time employee. Seebohm encouraged the Beardens to purchase multiple territories by claiming that the initial franchise would generate enough immediate cash flow to pay for opening subsequent franchises.
179. On May 17, 2021, the Beardens met with Seebohm via zoom, and Seebohm presented the Owner Validation Calls.
180. On May 24, 25, and 26, 2021, the Beardens attended Discovery Day in Knoxville, Tennessee. At Discovery Day, Baker and Seebohm told the Beardens that the financials provided in the Unit Economics Presentation were based solely on franchises that were open four days per
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week in a 1200 sq. ft. space. At Discovery Day, Seebohm, Van Over, and Baker told the Beardens that the Semi-Absentee Model would not require Mr. Bearden to work more than 10 hours per week in the franchise or hire more than one full-time and one part-time employee.
181. On May 25, 2021, at a bowling alley in downtown Knoxville, Van Over told the Beardens multiple times that the Semi-Absentee Model was “extensively tested” and had a “built- in safety net” due to the high margins.
182. At Discovery Day, Van Over told the Beardens to purchase multiple territories, stating that the profits from the first franchise would provide funding to open the following franchises. In reliance upon Defendants’ misrepresentations, the Beardens became franchisees on May 31, 2021.
v. The Blackwells
183. The Blackwells purchased three territories in Colorado in May 2020, and they opened their first franchise in July 2021. The Blackwells have spent over $400,000 opening and operating this franchise, and the franchise has operated at a loss every month since opening (with the exception of two months). The Blackwells also entered into a multi-year commercial lease to open the franchise.
184. The Blackwells were contacted by FFL on March 30, 2020 to set up a zoom meeting to discuss the Semi-Absentee Model with Seebohm.
185. The Blackwells informed Seebohm that Mr. Blackwell had recently been laid off, needed to support his family, and therefore could not wait months or years in order to break even on the franchise. Seebohm assured the Blackwells that the Semi-Absentee Model would be profitable immediately.
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186. The Blackwells asked Seebohm whether other franchisees had been unsuccessful, how profitable the franchise would be, and how long the franchise would take to open. Seebohm told the Blackwells that no franchisee had ever failed, closed a franchise, or been unprofitable, that the franchise would achieve at least the level of profitability shown in the Unit Economics Presentation, and that the franchise would be opened within five months.
187. Seebohm arranged for the Blackwells to attend Discovery Day in Knoxville, Tennessee from May 11 to 13, 2020.
188. At Discovery Day, Van Over, Baker, and Seebohm falsely told the Blackwells that the franchise operating costs would be no more than $12,000 to $15,000 per month and that no franchise operating the Semi-Absentee Model had revenue less than $30,000 per month in any month. The Blackwells’ franchise costs more than $20,000 per month to operate, and the Blackwells have had revenue near $30,000 only two months since opening.
189. At Discovery Day, these Defendants falsely told the Blackwells that Defendants had a database for finding and hiring permanent instructors. Likewise, they said they would provide instructors to teach the classes at the Blackwells’ franchise if the Blackwells got in a bind and needed a fill-in. They also said a “seasoned coach,” Gabby Good, would help open the Blackwells’ franchise. Van Over and Baker told the Blackwells that virtually no franchisees failed, but those that did fail failed because they did not follow the Defendants’ Semi-Absentee Model.
190. Defendants failed to provide instructors to the Blackwells, the database that Defendants promised did not have instructors who could teach lessons at the Blackwells’ franchise, and Ms. Good quit working with Defendants prior to helping the Blackwells open their franchise.
191. At Discovery Day, Van Over, Baker, and Seebohm stated that the Semi-Absentee Model would not require the Blackwells to work in the franchise for more than 10 hours per week
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and that only one part-time and one full-time employee would be necessary. Shortly after the Blackwells agreed to become franchisees, Van Over and Baker stated that the Blackwells needed to work in the franchise full time and that no one had ever stated that the Semi-Absentee Model was semi-absentee.
192. At Discovery Day, these Defendants told the Blackwells that Defendants would provide marketing, assuring the Blackwells that they had a “marketing expert” to manage advertising on all social media platforms for franchisees, including the Blackwells. Defendants failed to provide such a “marketing expert,” and the Blackwells were forced to spend thousands of dollars hiring a marketing firm.
193. At Discovery Day, these Defendants represented that the Blackwells and Defendants would be “in this together,” with these Defendants providing the Blackwells any help that the Blackwells needed in order to make the franchise successful. After the Blackwells became franchisees, these Defendants did not provide this assistance, and instead, Van Over publicly blamed the Blackwells for encountering difficulties in a video shared with all franchisees.
194. At Discovery Day, Defendants also specifically stated that they were looking for owners with business experience but not martial arts experience, and they emphasized that not having martial arts background was not an issue because they would come alongside and coach the franchisees every step of the way.
195. At Discovery Day, Van Over and Baker assured the Blackwells that Defendants would help select a territory for the Blackwells’ franchise in a place that would guarantee the franchise’s success and that they would not locate another franchise near the Blackwells’ franchise. Defendants did not provide this assistance, and Defendants later located a number of franchise territories near the Blackwells’. During a later telephone call, the Blackwells asked Baker whether
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the location of the Blackwells’ franchise was appropriate, and Baker assured the Blackwells that the location was a “recipe for success.” It was not, as the area has demographics that are inadequate to support the franchise.
196. Indeed, the Blackwells inquired about placing a studio in a nearby city (Brighton) but were told that it was not a viable territory and, therefore, was not possible. Then, of course, only months afterwards, Defendants created a territory there and sold it to another franchisee.
197. Defendants arranged for the Blackwells’ instructor to meet with a “coach” provided by Defendants. During calls with this “coach,” the “coach” was not knowledgeable about basic questions, which caused much frustration, and berated the Blackwells’ instructor, causing the instructor to ultimately quit. The Blackwells were forced to spend weeks and thousands of dollars to locate and train a new instructor.
198. Defendants required the Blackwells to contract with RPM Construction LLC for the build-out. RPM Construction LLC assured the Blackwells that it would produce three “555” bids for the Blackwells, guaranteeing that the bidders would have 5-star reviews, be in business at least 5 years, and have $5,000,000 in revenue. RPM Construction LLC did not produce such bids, and instead, it submitted three fake bids on behalf of companies who did not know about the project.
199. RPM Construction LLC failed to complete the build-out in a timely or professional manner, using subcontractors who performed work while intoxicated and damaged the Blackwells’ premises. RPM Construction LLC’s actions delayed the opening of the Blackwells’ franchise by multiple months, costing the Blackwells’ time and lost revenue.
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vi. The Browns
200. The Browns purchased two territories in Texas and two territories in Louisiana in late 2021. The Browns have begun opening their first franchise in Texas, and they have not yet had a grand opening for their franchise. The Browns have already spent more than $450,000 in purchasing and opening this franchise, far exceeding the costs that Defendants stated that the Browns would incur, in addition to entering into a ten-year commercial lease with hundreds of thousands of dollars in payments remaining due. The Browns have been forced to make the franchise their full-time jobs for over a year, with the Browns regularly working over 80 hours per week in the franchise, in addition to hiring multiple full-time employees.
201. A franchise consultant introduced the Browns to Seebohm on September 29, 2021.
202. During a video call with Seebohm on October 2, 2021, Seebohm told the Browns
that the Semi-Absentee Model required a low initial investment, provided a good quality of life, and could be successfully operated with one full-time and one part-time employee. Seebohm told the Browns that the Semi-Absentee Model required a “minimal time investment” and that, as a result, the Browns could “run other businesses at the same time.”
203. That day, after the video call, Seebohm emailed the Browns, stating that “Premier Martial Arts is a proven, scalable, and profitable brand.” Seebohm attached a document to this email that stated that “1 fulltime and 1 part time employee is all you need” and that “All support and marketing systems are in place.”
204. On October 7, 2021, Seebohm gave the Browns the Unit Economics Presentation during a video call. During this call, Seebohm told the Browns that following the Semi-Absentee Model would result in the Browns achieving profit margins in the “40-45% range.” He stated that the Browns should expect a profit of at least $89,000 per franchise location. During this call,
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Seebohm showed the Browns documents prepared by Defendants that misrepresented the costs and profits associated with the Semi-Absentee Model.
205. Following this call, Seebohm sent the Browns an email on October 12, 2021, in which Seebohm included Owner Validation Calls, during which existing owners misrepresented the time commitment required to operate the Semi-Absentee Model.
206. That same day, during a call, Seebohm told the Browns that they “must purchase 2 territories, but 3 is the sweet spot.”
207. The Browns attended Discovery Day in Knoxville, Tennessee on November 11, 2021.
208. At Discovery Day, Seebohm, Van Over, and Baker repeated the misrepresentations detailed above. Van Over told the Browns that the Semi-Absentee Model was proven to enable the Browns to operate the franchise, achieve profit margins in excess of 40%, and not work in the franchise more than 10 hours per week.
209. At Discovery Day, the Browns asked Van Over whether they would be required to use Defendants’ “preferred vendors.” Van Over stated that the Browns did not have to do so, telling the Browns “using these vendors is recommended but not required.”
210. The Browns became franchisees shortly after Discovery Day.
211. After the Browns became franchisees, Defendants informed the Browns that the
Browns were required to use the “preferred vendors” in an email on April 22, 2022.
212. Using the preferred vendors would have delayed the Browns in opening the franchise and cost the Browns more money than Defendants represented because the vendors selected by Defendants provide substandard services at inflated prices.
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213. To avoid using the preferred vendors, the Browns called a representative of Unleashed, Kristin Taylor, on April 26, 2022. Ms. Taylor told the Browns that they could use the architect and contractor that the Browns had selected, but Unleashed failed to confirm this in writing.
214. After becoming franchisees, the Browns learned that the financials provided in the Unit Economics Presentation and FDD do not accurately represent the Semi-Absentee Model. The Browns have incurred substantially higher costs than the costs that Defendants represented that the Browns would incur.
vii. Chougule
215. Chougule purchased two territories because it was communicated that two was the minimum. After a substantial investment, Chougule was able to open one studio which loses approximately $6,000 per month, and he signed a ten-year lease, which represents a substantial liability.
216. Like the other Plaintiffs, during his conversations with Seebohm, Van Over, and Baker during Defendants’ efforts to convince Chougule to purchase the franchises, Defendants misrepresented that the Semi Absentee Model involved only ten hours per week from the owner; that the operation required only 1.5 employees; that PMA had proven systems and step-by-step instructions for 40% profitability; and that the start-up costs were much lower than they were in reality.
viii. The Costolnicks
217. The Costolnicks purchased two territories in Georgia and opened their first franchise in April 2022. The Costolnicks have spent over $414,000 opening and operating the franchise, in addition to signing a lease that totals over $242,000 over its five-year term. The
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franchise has lost over $90,000 to date this year, and the Costolnicks must work more than 40 hours per week on the franchise and employ multiple full-time employees.
218. Seebohm began making misrepresentations about the Semi-Absentee Model to the Costolnicks in April 2021. Prior to the Costolnicks’ first call with Seebohm on April 5, 2021, he instructed them to watch the videos described above. During this call, he confirmed that the Semi- Absentee Model would require no more than 10 hours of work per week and only one full-time and one part-time employee.
219. Seebohm gave the Costolnicks the Unit Economics Presentation on April 15, 2021. During this call, Seebohm again emphasized that the Semi-Absentee Model required only one full- time and one part-time employee. Seebohm encouraged the Costolnicks to purchase multiple territories by claiming that the initial franchise would generate enough immediate cashflow to pay for opening subsequent franchises.
220. At the end of this call, Seebohm told the Costolnicks to join weekly calls to hear from existing franchisees about their experiences. The existing franchisees later admitted to the Costolnicks that Van Over, Myles, and Seebohm instructed them to lie about the time required to operate the franchises on these calls in order to induce the Costolnicks to become franchisees.
221. On April 26, 2021, Defendants told the Costolnicks to attend Discovery Day in Knoxville, Tennessee. Seebohm checked in with the Costolnicks on April 28, 2021 to ensure that the Costolnicks would attend Discovery Day.
222. On May 24, 25, and 26, 2021, the Costolnicks attended Discovery Day in Knoxville, Tennessee. The Costolnicks were subjected to the same misrepresentations directed at the Beardens, as described above. Seebohm stated that the Semi-Absentee Model “was such an
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easy business model to run semi-absentee” and that “the margins are too good to pass up.” Seebohm told the Costolnicks that Seebohm intended to become a franchisee.
223. On June 7, 2021, the Costolnicks became franchisees.
ix. The Dobles
224. The Dobles purchased four territories in Washington in September 2021, and the Dobles have not yet opened a franchise. The Dobles have spent over $202,000 in purchasing the territories and preparing to open their first franchise, in addition to spending hundreds of hours working to open the franchise.
225. Seebohm began misrepresenting the Semi-Absentee Model to the Dobles in a call on July 5, 2021, during which Seebohm told the Dobles that the Semi-Absentee Model is proven and effective and would generate profit margins in excess of 40% without requiring the Dobles to work in the franchise more than 10 hours per week.
226. The next day, Seebohm gave the Dobles the Unit Economics Presentation, during which he misrepresented financial data, stating that the financial data was representative of the Semi-Absentee Model. The financial data Seebohm showed to the Dobles and relied upon during this call was not representative of the Semi-Absentee Model.
227. The Dobles attended Discovery Day in Knoxville, Tennessee from August 31 to September 1, 2021. At Discovery Day, Seebohm, Baker, and Van Over subjected the Dobles to the same misrepresentations that they directed to other Plaintiffs at Discovery Days, including that the Semi-Absentee Model was proven, effective, and had the benefit of support systems put in place by Defendants that would guarantee the success of the Dobles’ franchise.
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228. After becoming franchisees, the Dobles discovered that the costs represented by Defendants were inaccurate and that opening and operating the franchises would cost substantially more than Defendants represented.
229. The Dobles asked Seebohm whether they could use the money that they set aside for their future franchises to open their first franchise due to these higher costs. He suggested foregoing their fourth franchise, instead opening only three franchises.
230. On November 5, 2021, Seebohm stated “we haven’t ever had a ‘back-pedal’ on [a] territory request such as this before.” He stated Defendants “anticipate that they could cap your total territories at 2 or 3 for good.” These false statements were designed to pressure the Dobles into remaining franchisees. Seebohm told the Dobles that “we’ll ask Barry [Van Over] & his counsel to take it from here . . . Hope we can resolve/handle by next Friday.”
231. The Dobles contacted Van Over on June 3, 2022, informing Van Over that the costs to open their first franchise were more than double the highest costs that Defendants stated the Dobles would incur. They informed Van Over that, due to the misrepresentations made by Defendants, the Dobles did not have sufficient funds to open all four franchises.
232. On June 7, 2022, Van Over told the Dobles that “PMA corporate does not buy back territories.” He stated that it is “extremely difficult” to sell territories and that the Dobles “have until 9/9/22 to sell any of your territories, as this is the date your development agreement expires and your territories revert back to corporate for resale.”
x. The Feichts
233. The Feichts purchased two territories in Ohio, and they opened their first franchise on October 4, 2021. The Feichts have been unable to open the second franchise because they had
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to use the funds that they set aside for the second franchise in order to keep operating the first franchise, which has lost over $108,000 this year to date.
234. A franchise broker introduced the Feichts to Seebohm. The Feichts spoke to Seebohm on May 29, 2021. During this call, Seebohm began telling the Feichts the same lies about the Semi-Absentee Model, including that the Semi-Absentee Model did not require more than 10 hours of work per week.
235. On June 8, 2021, Seebohm sent a follow-up email to the Feichts, which included links to watch recorded Owner Validation Calls. Seebohm also stated that “[a]fter meeting with CEO Barry and VP Myles recently in Knoxville . . . we wanted to get you a timely and more thorough look ‘behind the curtain’ of PMA’s robust and seamless systems for semi-absentee new owners. The resources, training and modules are so comprehensive that sometimes our owners/validators can’t best describe the breadth on our concise phone calls.”
236. In June 2021, Seebohm, Van Over, and Baker arranged for the Feichts to participate in multiple live validation calls with existing franchisees, after instructing these existing franchisees to misrepresent the Semi-Absentee Model.
237. On July 2, 2021, Seebohm gave the Unit Economics Presentation to the Feichts.
238. On July 7 and 8, 2021, the Feichts attended Discovery Day, where Van Over,
Seebohm, and Baker made the misrepresentations about the Semi-Absentee Model as described herein.
239. In February of 2022, during a call with the Feicht’s designated “success coach,” Shannon Jones, Ms. Jones mentioned that the Feichts should only have monthly expenses of about $15,000—even though, in reality, monthly expenses were running, at that time, at about $25,000.
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Ms. Jones, however, was still using the bogus information originally used by Defendants in their fraudulent sales pitch. Accordingly, she was of no help in saving the foundering enterprise.
240. In the end, the Feichts have incurred over $340,000 in liabilities, while the studio has lost over $121,000, year-to-date, with an additional $360,000 in lease liabilities—personally guaranteed. In short, Joe Feicht’s entire retirement has been spent, at age 62.
xi. Fraser
241. Fraser purchased three territories in Nevada, and she opened her first franchise in September 2021. She opened a second franchise in 2022. Despite being a practicing surgeon, Fraser has incurred hundreds of thousands of dollars in liabilities, and she has had to spend upwards of 60 hours per week working on the franchises, causing her to be unable to perform surgeries.
242. Seebohm began making misrepresentations to Fraser on an introductory call on September 18, 2019, during which Seebohm assured Fraser that she would be able to maintain her practice as a surgeon while operating the Semi-Absentee Model due to the effectiveness of the Semi-Absentee Model.
243. On October 2, 2019, Seebohm, Baker, and Van Over arranged for existing franchisees to mislead Fraser during owner validation calls.
244. On October 20, 2019, Seebohm and Van Over arranged for Fraser to participate in a “Discovery Day prep call” with Bobby Brennan. During this call, on October 25, 2019, Mr. Brennan repeated the misrepresentations about the Semi-Absentee Model, including by misrepresenting the amount of time that Fraser would need to work in the franchise and the financials of the franchises.
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245. Fraser attended Discovery Day in Knoxville, Tennessee on November 5 and 6, 2019, and Seebohm, Baker, and Van Over told Fraser that she could operate the Semi-Absentee Model without working on the franchise more than 10 hours per week. These Defendants gave Fraser the inaccurate financials that are part of the Unit Economics Presentation, representing that the financials related to the results obtained by franchisees operating the Semi-Absentee Model.
246. Van Over informed Fraser that she was required to use RPM Construction LLC to build-out her franchises. RPM Construction LLC caused significant delays during the build-out phase, causing Fraser to miss the 6-month deadline imposed by Defendants and using up the 6 months of free rent that Fraser had negotiated with her landlord. When Fraser raised these issues with Van Over, he stated that she had never been required to use RPM Construction LLC, which was not true.
247. RPM Construction LLC’s failures caused Fraser to engage another architect and complete the designs for the franchises herself, as she was concerned that falling behind on the 6- month deadline would enable Defendants to strip her of her franchises.
xii. Griffith and Tabatabai
248. Griffith and Tabatabai purchased two territories in February 2022, and they have not yet opened their first studio. They have spent over $100,000 in attempting to open the franchise.
249. Seebohm began making misrepresentations about the Semi-Absentee Model to Griffith and Tabatabai during a call on June 29, 2021, during which he stated that the Semi- Absentee Model was proven and effective, would generate profit margins in excess of 40%, and that they would not need to work more than 10 hours per week in the franchise or hire more than one full-time and one part-time employee.
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250. Seebohm arranged for Griffith and Tabatabai to listen to Owner Validation Calls, in which existing owners told Griffith and Tabatabai that the franchise could be successfully operated by working in it four hours per week, that the franchise would be profitable within three months, and that the franchise generated $30,000 per month in the first six months after opening.
251. On July 1, 2021, Seebohm gave Griffith and Tabatabai the Unit Economics Presentation, during which Seebohm presented misleading financials, as discussed herein.
252. Griffith and Tabatabai attended Discovery Day in Knoxville, Tennessee from December 7 to 10, 2021. At Discovery Day, Seebohm, Baker, and Van Over repeated the misrepresentations detailed herein, including that the Semi-Absentee Model was a proven concept that would not require more than 10 hours of work per week and that Defendants had in place systems and support to ensure that the franchise would generate the profit advertised by Defendants. Van Over told Griffith and Tabatabai that they were required to buy two territories, and that the first franchise would generate sufficient profit to fund the second franchise.
253. At Discovery Day, Van Over and Seebohm further stated that no franchisee had ever failed. At this time, multiple Plaintiffs were failing, as detailed herein.
xiii. Herman and Johnson
254. Plaintiffs Kelli Herman and William Johnson are married and, through their company Herman Johnson LLC, purchased three territories in Michigan in July 2021. They have opened one franchise, and the other two territories remain undeveloped. Herman and Johnson have spent over $350,000 in preparing to open this franchise, which is not profitable and requires 5-6 times more working capital to operate than Defendants represented. Herman and Johnson each have to work on the franchise for 20-25 hours per week, preventing them from spending time with their children and maintaining their prior level of full-time employment. Recently, Defendants’
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representatives informed Herman and Johnson that, contrary to their original representations, three full-time employees will be necessary to operate the franchise.
255. Herman and Johnson were introduced to Seebohm by a franchise broker, who told them that Premier Martial Arts “had the best support system he had ever seen” and that “the franchise units were flying off the shelf.” Herman and Johnson were seeking a franchise that would not require more than 10-15 hours of work per week because they have two young children and are expecting a third and they intended to keep working full-time.
256. Seebohm repeated the representations made by the business broker and stated that the Semi-Absentee Model would work for Herman and Johnson.
257. When Seebohm gave the Unit Economics Presentation to Herman and Johnson on June 24, 2021, they specifically asked whether the “low estimate” was the lowest amount of profit made by a franchise during the period represented, and Seebohm assured them that the financials were accurate and could be relied upon, and he further misrepresented that no franchisee had ever failed or had profit of less than 35-40%. At this point, however, other Plaintiffs had been operating at a loss since opening their franchises.
258. On July 8 and 9, 2021, Herman and Johnson attended Discovery Day via zoom because they were expecting another child, and they introduced themselves by stating that not working more than 10-15 hours per week on the franchise is critical for them because they have children and full-time jobs. Van Over, Baker, and Seebohm assured them that they would not have to work more than 10 hours per week in the franchise because of the effectiveness of the Semi- Absentee Model.
259. Seebohm, Van Over, and Baker repeatedly emphasized that the support system would be “fantastic,” that Herman and Johnson could trust in the systems, processes, and partners
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that Defendants had put in place, and that Defendants would be an immense help with hiring, site selection, and procurement.
260. When Herman and Johnson asked questions about the financials provided, Seebohm and Baker misrepresented that the financials were accurate and that franchisees had profit margins of 40-45%.
261. After Discovery Day, Seebohm called Herman and Johnson on July 12, 2021, using high-pressure sales techniques to induce Herman and Johnson to become franchisees, including by representing that other prospective franchisees were interested in the territories selected by Herman and Johnson.
262. In addition, after Seebohm provided the draft Franchise Agreement, he told Mr. Johnson that all Franchise Agreements are the same and no changes would be allowed at all. Mr. Johnson then asked if any allowances had been made for other franchisees, and Seebohm said no allowances had been and that all agreements were uniform.
263. When Herman and Johnson began developing their franchise, Unleashed held a meeting with franchisees at which Unleashed told the franchisees that the franchisees were required to solely use service providers selected by Defendants.
264. One such service provider is Foxfield Construction Ltd., which replaced RPM Construction LLC as Defendants’ designated contractor.
265. In June 2022, Herman and Johnson emailed Van Over to raise concerns about the service providers that Defendants required the franchisees to use, as the service providers charged prices that substantially exceeded the costs stated by Defendants. After the meeting with Unleashed, Defendants required franchisees to use a service provider that charged $8,400 for AV
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& Security. Herman and Johnson pointed out that the Unit Economics Presentation stated that the “high” for AV & Security costs would be $4,700.
266. Van Over refused to address these concerns and instead directed Herman and Johnson to contact Tom Piazza, the Vice President of Construction for Foxfield Construction Ltd. 267. Johnson spoke to Mr. Piazza by telephone, and Mr. Piazza admitted that the Unit Economics Presentation used financial information that “hadn’t been updated properly in the past year” because Unleashed had been in the process of acquiring PMA and Defendants did not want
to “rock the boat.”
268. Likewise, the “success coach” assigned to Herman and Johnson had no experience
in martial arts or sales. Herman and Johnson’s program director referred to her as a “cheerleader who could read a script.”
269. In July 2022, legal counsel from Unleashed sent Herman and Johnson a document that purported to release Defendants from all claims that Herman and Johnson may have against them. Herman and Johnson refused to sign the document.
270. In August 2022, Unleashed sent Herman and Johnson a new franchise agreement and informed Herman and Johnson that they were required to sign this new agreement to void their existing agreement. Herman and Johnson refused to sign the document.
xiv. The Hollands
271. The Hollands purchased four territories in Florida in December 2020, and they opened one franchise in February, 2021. The franchise loses roughly $10,000 per month, leaving the Hollands unable to develop their remaining territories because the Hollands have spent multiple hundreds of thousands of dollars opening and operating the franchise, as well as entering into leases with potential liabilities of approximately $700,000.
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272. A franchise broker, Andy Banker, introduced the Hollands to Seebohm in October 2020. On October 5, 2020, the Hollands began having telephone conversations with Seebohm, Baker, and Van Over. Following their initial contact with these Defendants, these Defendants arranged for the Hollands to listen to the Owner Validation Calls and provided the Unit Economics Presentation to the Hollands, which included the 40%+ profit margin representations.
273. On December 8 and 9, 2020, the Hollands attended Discovery Day in Knoxville, Tennessee. At Discovery Day, Seebohm, Baker, and Van Over misrepresented the Semi-Absentee Model, falsely stating that the Semi-Absentee Model did not require the Hollands to work more than 10 hours per week, that the Semi-Absentee Model was “tried and true,” and that the Semi- Absentee Model would enable the Hollands to spend more time with their children and each other.
274. On December 9, 2020, Defendants provided a franchise agreement to the Hollands and told them that they must sign it by December 18, 2020. The Hollands became franchisees on December 20, 2020.
275. Contrary to these Defendants’ representations, the Hollands have been forced to spend countless hours, nights, and weekends working at the franchise to keep it afloat, and the franchise continues to lose money each month.
276. Defendants required that the Hollands contract with RPM Construction LLC for the build-out of the franchise, and the Hollands did so on June 17, 2021. RPM Construction LLC was terrible to work with and, among many, many other problems, failed to begin the build-out until late October 2021. The Hollands opened their franchise on February 7, 2022.
xv. The Hollingsworths
277. The Hollingsworths purchased three territories in July 2020, and they opened their first franchise in July 2022. Their franchise has never been profitable and loses over $8,000 per
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month. The Hollingsworths have spent over $615,000 in opening and operating the franchise, in addition to entering into a multi-year commercial lease that has over $500,000 in payments remaining due. Since opening the franchise, the Hollingsworths have learned that the Semi- Absentee Model does not work and that the financials presented by Defendants were based on the former licensees and are not representative of the Semi-Absentee Model.
278. On June 3, 2020, the Hollingsworths were introduced to FFL and Seebohm by Chelsey Boyce, a Sales Support Administrator with FFL.
279. On June 15, 2020, the Hollingsworths had an introductory phone call with Seebohm, in which Seebohm began misrepresenting that the Semi-Absentee Model was effective, required no more than 10 hours of work per week, and would generate profit margins in excess of 40% due to the systems that Defendants put in place. Seebohm made these representations to the Hollingsworths on each subsequent call they had with Seebohm.
280. On June 17, 2020, Seebohm gave the Hollingsworths the Unit Economics Presentation via a video call. He misrepresented that the financials shown in the Unit Economics Presentations were representative of the Semi-Absentee Model and further stated that the Hollingsworths would achieve 40% profit margins due to the systems put in place by Defendants.
281. On July 7 and 8, 2020, the Hollingsworths attended Discovery Day in Knoxville, Tennessee.
282. At Discovery Day, Van Over, Baker, and Seebohm told the Hollingsworths that the Semi-Absentee Model was effective due to the systems put in place by Defendants and the support that they would provide, including marketing, staffing, and training. These Defendants misrepresented the Hollingsworths that the Hollingsworths could operate three franchises on the
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Semi-Absentee Model while maintaining their full-time careers because the Semi-Absentee Model required no more than 10 hours of work per week.
283. After Discovery Day, Seebohm emailed the Hollingsworths on July 8, 2020, stating that they must purchase their three territories in ten days, or else the territories would be “lost” because Defendants had so much interest from other prospective franchisees.
284. On July 13, 2020, another representative of FFL, Bobby Brennan, called the Hollingsworths to reiterate that the Hollingsworths should purchase the three territories because the Semi-Absentee Model was proven and effective.
285. On July 17, 2020, the Hollingsworths agreed to become franchisees.
286. During the calls and conversations with Defendants, the Hollingsworths told
Defendants that the Hollingsworths intended to purchase another franchise from an unrelated company at the same time that they purchased a franchise from Defendants. Defendants, in every conversation with the Hollingsworths, assured the Hollingsworths that purchasing the two franchises would not present any issues, that the Hollingsworths could operate both franchises at the same time because the Semi-Absentee Model required such a small amount of time, and that Defendants could arrange for the Hollingsworths to finance both franchises at the same time by using Defendants’ preferred lender, Benetrends Inc.
287. Seebohm, Baker, and Van Over told the Hollingsworths that Benetrends Inc. could finance both franchises with one business loan, secured against funds from the Hollingsworths’ retirement accounts. Representatives from Benetrends Inc. confirmed that the Hollingsworths could do so.
288. In August 2020, after the Hollingsworths became franchisees, representatives from Benetrends Inc. informed the Hollingsworths that the financing promised by Benetrends Inc. and
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Van Over, Seebohm, and Baker could not be completed. Instead, these representatives told the Hollingsworths that Benetrends Inc. could finance only the franchise the Hollingsworths purchased from Defendants.
289. On October 12, 2020, Baker emailed the Hollingsworths and stated that he had been unaware of the Hollingsworths’ intention to purchase both franchises at once and finance them with the same loan.
290. It took the Hollingsworths nearly one year to secure financing to fund the franchise purchased from Defendants, due to Defendants’ misrepresentations about the available financing. 291. In August 2021, the Hollingsworths began looking for locations for their franchises, using the real estate company that Defendants selected, Morrow Hill, and Defendants’ preferred
contractor, FoxField Construction.
292. The Hollingsworths paid for a representative of FoxField Construction to fly to
Houston, Texas to advise the Hollingsworths on which location to select. The Hollingsworths selected the location suggested by this representative, as this representative stated that the location would be the most cost effective, that it was a “vanilla box,” and that only an office would need to be built out.
293. A representative of FoxField Construction, Chuck Piazza, emailed the Hollingsworths on September 28, 2021, providing a timeline and cost summary for the build-out of the location that FoxField Construction’s other representative had suggested. The Hollingsworths signed a lease for this location.
294. On December 3, 2021, the Hollingsworths began working with FoxField construction to obtain bids for the build-out.
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295. The Hollingsworths began receiving bids for the build-out from FoxField Construction in February 2022.
296. The bids received by the Hollingsworths through FoxField Construction came in at over $100,000. These bids were unnecessarily high because FoxField Construction bidded out the project to include features and construction that were not necessary, and FoxField Construction knew that these items were unnecessary because it had a copy of the Hollingsworths’ lease, which stated that the landlord would provide these items.
297. The Hollingsworths repeatedly contacted FoxField Construction, highlighting relevant portions of the lease to show why the bids were unnecessarily high.
298. FoxField Construction failed to obtain acceptable bids for the project, and the Hollingsworths located an independent general contractor who agreed to complete the build-out for approximately $60,000.
299. Despite using an independent general contractor, Defendants required the Hollingsworths to obtain approval of the build-out from FoxField Construction and Defendants, resulting in additional delays. As but one example, the Hollingsworths determined that a water- bottle filling station could be installed for $2,000, whereas a drinking fountain would cost $10,000. Van Over told the Hollingsworths to obtain approval for the filling station from FoxField Construction, and FoxField Construction told the Hollingsworths to obtain approval from Defendants. Going back and forth on this issue with Defendants prevented the Hollingsworths from opening the franchise for months.
300. The Hollingsworths were able to open the franchise on June 1, 2022.
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xvi. House
301. House purchased four territories in Oklahoma in June 2021, and he opened his first franchise in May 2022. House has spent over $500,000 opening and operating this franchise, and the franchise loses between $13,000 and $15,000 per month. The franchise has never been profitable. House entered into a multi-year commercial lease in order to open the franchise, and House has been unable to continue working his prior job since opening the franchise because he must work in the franchise 40 to 60 hours per week. House has also hired two full-time employees to help operate the franchise.
302. A franchise broker introduced House to Seebohm in January 2021.
303. Over the following months, Seebohm followed his usual practice of telling House
to watch the videos produced by Defendants, giving House the Unit Economics Presentation, and arranging for House to attend Discovery Day.
304. House attended Discovery Day in Knoxville, Tennessee in June 2021.
305. As Discovery Day, Seebohm, Van Over, and Baker misrepresented that the Semi-
Absentee Model would not require House to work more than 10 hours per week in the franchise or hire more than one full-time and one part-time employee.
306. Van Over falsely told House that House’s franchise would be profitable within three months of opening due to the success of the Semi-Absentee Model.
307. Van Over told House that House should purchase multiple territories because the profits from the first franchise would be sufficient to open and operate the following franchises.
308. Van Over told House that House could rely upon the financials provided in the Unit Economics Presentation. He further stated that the financials were based on operating the franchise
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4 days per week and that House would be even more profitable if House operated the franchise 6 days per week.
309. Van Over, Baker, and Seebohm falsely stated that the systems comprising the Semi- Absentee Model were “proven” and that they would work if followed.
310. At Discovery Day, House asked Van Over whether Van Over intended or planned to sell the Premier Martial Arts franchise or concept. Van Over told House that he did not intend to sell. Van Over sold the concept to Unleashed less than 6 months later.
xvii. Ivey
311. Ivey was informed that she was required to purchase two territories and did so, but she has only been able to open one. Her one location opened in September 2022 and has lost $12- 14,000 each month.
312. The misrepresentations to Ivey started with a one-on-one phone conversation with Seebohm on August 10, 2021, in which Seebohm stated that PMA’s Semi Absentee Model required only 1.5 employees and ten hours of the owner’s time per week.
313. During the Unit Economics call that followed on September 7, 2021, Seebohm presented the Economics Workbook and presented start-up costs that were significantly less than any bids that Ivey was later given. The Economic Workbook also did not include the required vendor services from Foxfield Construction.
314. Ivey later attended three owner validation calls in September 2021 where the same misrepresentations regarding the Semi Absentee Model were presented by Seebohm.
315. Ivey then attended Discovery Day on September 21, 2021, attending virtually because she had recently had a baby. During Decision Day the Semi Absentee Model was again presented, and Ivey was specifically told that the majority of PMA franchisees operate based on
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the Model. The misleading financial start-up costs and expectations stated in the Economic Workbook were reinforced.
316. In fact, on the same day as Discovery Day, Ivey had a one-on-one meeting with Van Over and Baker, during which they assured Ivey that all of the start-up numbers in the Economic Workbook were consistent with what to expect, and that PMA was there to support her every step of the way.
317. Based on the misrepresentations, Ivey signed the agreement for opening PMA territories but has found that all of the start-up expectations and costs were false and that the Semi Absentee Model is unworkable.
318. Ivey has spent over $182,500 based on false representations by PMA.
xviii. The Kaushals
319. The Kaushals purchased four PMA territories in January 2020. They have been able to open only two locations.
320. The Kaushals began receiving false information about PMA during a Unit Economics call on December 16, 2019. During the call and a follow up email, Seebohm presented financials and marketing collateral claiming that PMA locations operated under the Semi Absentee Model had 48% average EBITDA, had only a sixty-day buildout prior to opening, and operated with only 1.5 employees. None of these claims were true.
321. In order to support these claims, PMA and FFL ended the Unit Economics call with a Q&A to review the business model and economics with an existing owner, Mark Taylor. PMA and FFL failed to clarify that Mr. Taylor’s status was fundamentally different than what was being promoted to the Kaushals. Mark Taylor, as the Kaushals later found out, was a legacy licensee,
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not a new franchisee, was not a multi-unit owner and operator, and was not a semi-absentee owner. The experiences of a semi-absentee franchise owner were never presented or offered.
322. The Kaushals attended Discovery Day on January 13 and 14, 2020 in Knoxville, Tennessee. The Kaushals also attended an in-person corporate training on January 30, 2021, to February 4, 2021. During these meetings, the same false and misleading economics and absentee ownership model were presented. In addition, the financial models given were based on misleading membership counts, class, and facility sizes.
323. Defendants provided the FDD to the Kaushals, which misrepresented the financials of the Semi-Absentee Model. After becoming franchisees, the Kaushals discovered that the financials provided by Defendants were unachievable. In fact, Defendants led the Kaushals to believe that student count and revenues would be almost double what is achievable.
324. Based on these misrepresentations, the Kaushals have invested nearly $890,000 and continue to lose money at the rate of approximately $8,000 per month, while being bound by a ten-year lease subject to personal guarantees.
xix. The Keys
325. The Keys purchased one territory and opened the franchise in mid-2022. They have spent over $350,000 opening and operating the franchise. The Keys entered into a multi-year commercial lease with over $400,000 in payments remaining due. The Keys agreed to become franchisees based on the representations about the Semi-Absentee Model because Jason Key intended to maintain his full-time employment. Due to the failure of the Semi-Absentee Model, Jason Key must work in the franchise significantly more than 10 hours per week, often working the studio until closing and then late into the evening, and the franchise is still not profitable.
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326. In November 2019, the Keys were introduced to Seebohm by a franchise consultant, who told the Keys that the franchise could operate on the Semi-Absentee Model and that the franchisees did not need martial arts experience.
327. Seebohm began the misrepresentation campaign, and his primary focus was on making the Keys believe that the Semi-Absentee Model would be effective.
328. On February 13, 2020, Seebohm organized a zoom call with the Keys to present the Unit Economics Presentation, where he emphasized the validity of these financials as proof that the Semi-Absentee Model was a low-overhead, high-margin business that would not require the Keys to work in the franchise more than ten hours per week.
329. On February 17, 2020, Seebohm sent the Keys an email stating “[a]fter meeting with CEO Barry and VP Myles recently in Knoxville . . . we wanted to get you a timely and more thorough look ‘behind the curtain’ of PMA’s robust and seamless systems for semi-absentee new owners. The resources, training and modules are so comprehensive that sometimes our owners/validators can’t best describe the breadth on our concise phone calls.”
330. The Keys attended Discovery Day on April 14 and 15, 2020 via zoom, where Van Over, Baker, and Seebohm repeated the misrepresentations about the Semi-Absentee Model. Specifically, Van Over emphasized the effectiveness of the Semi-Absentee Model and that martial arts experience was not necessary.
331. At Discovery Day, Allie Key asked Van Over if the Keys would be required to use the bookkeeping service that Defendants usually forced franchisees to use because Ms. Key had a background in finance. Van Over said: “No, it was not required.” Defendants, later, forced the Keys to use the bookkeeping service.
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332. Following Discovery Day, the Keys were pressured to sign a franchise agreement quickly in order to not lose their territory. Likewise, they were told that a new FDD that had come out was only “procedural” and there were “no material differences,” but that single territory options were going away. Thus, they moved forward.
333. After the Keys agreed to become franchisees, the Keys attended training in Knoxville, Tennessee during the week of December 6, 2021. At this time, Baker informed the Keys that hiring more than one full-time employee was “critical” for owners, despite repeatedly representing that the Semi-Absentee Model would be effective with one full-time and one part- time employee.
334. The Keys did not register for “instructorfinder.com” because they had been told by other franchisees that it simply did not work, which left the Keys to rely upon staffing the franchise through job sites such as Indeed.com because Defendants, otherwise, were incapable of providing any assistance.
xx. Kormos
335. Kormos purchased three territories in Ohio in July 2020, and he opened his first franchise in July 2021. The franchise has not been profitable, instead losing over $10,000 per month. In the franchise’s best month ever, it lost $8,000. Kormos has spent over $370,000 opening and operating the franchise, in addition to taking out a business loan for over $220,000 and entering into a multi-year commercial lease that has over $260,000 in payments remaining due. Kormos and his wife, Veronica, must work in the franchise over 40 hours per week, and they have been forced to hire multiple full-time employees as well.
336. Seebohm began misrepresenting the Semi-Absentee Model to Kormos in mid- 2020. During calls with Kormos, Seebohm stated that the Semi-Absentee Model would generate
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profit margins in excess of 40% and not require Kormos to work in the franchise more than 10 hours per week.
337. On June 19, 2020, Seebohm gave Kormos the Unit Economics Presentation, relying on the misleading financials that Seebohm stated were representative of the Semi-Absentee Model. Seebohm stated that Kormos would achieve the profit margins advertised by Defendants, in excess of 40%, by operating the Semi-Absentee Model.
338. Following this call, Seebohm arranged for Kormos to listen to Owner Validation Calls, during which existing owners misrepresented the time and cost involved in operating the Semi-Absentee Model, and Seebohm told Kormos that the calls were representative of what Kormos would experience when operating his franchise.
339. Kormos attended Discovery Day in Knoxville, Tennessee on July 8 and 9, 2020. At Discovery Day, Seebohm, Baker, and Van Over misrepresented the Semi-Absentee Model to Kormos, assuring Kormos that he would not have to work more than 10 hours per week in the franchise to generate the profit margins advertised by Defendants. Van Over stated that the Semi- Absentee Model had been proven to be successful as a result of the systems put in place by Defendants, guaranteeing that Kormos would generate the profit margins advertised by Defendants without working in the franchise more than 10 hours per week. Van Over stated that Kormos should buy multiple territories because the Semi-Absentee Model was proven to generate sufficient profit to fund the cost of opening subsequent franchises.
340. Kormos agreed to become a franchisee in July 2020.
xxi. The Kulhaneks
341. The Kulhaneks purchased six territories in Michigan in June 2021, and they opened their first franchise in May 2022. The Kulhaneks have spent over $431,000 opening and operating
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this franchise, and the franchise has never been profitable. Instead, it has had an operating loss that exceeds $120,000 to date this year. Additionally, the Kulhaneks entered into a multi-year commercial lease that has over $198,000 in payments remaining due. The franchise cannot operate with fewer than two full-time employees and two part-time employees, in addition to the nearly 40 hours per week that the Kulhaneks must work in the franchise. To date, the Kulhaneks have been forced to work over 1,500 hours in the franchise.
342. On May 14, 2021, the Kulhaneks were introduced to PMA and the Semi-Absentee Model during a phone call with Seebohm. During this call, Seebohm began telling the Kulhaneks that the Semi-Absentee Model would not require them to work in the franchise more than 10 hours per week and that the franchise would immediately generate profit margins in excess of 40%.
343. On May 18, 2021, Seebohm arranged a video call with the Kulhaneks, during which Seebohm gave the Kulhaneks the Unit Economics Presentation, and he further made false statements, such as that the franchise would operate successfully with one full-time and one part- time employee, that the Kulhaneks needed no martial arts experience, and that the systems Defendants put in place would ensure that the Kulhaneks franchise was profitable and successful without requiring the Kulhaneks to work in the franchise more than 10 hours per week.
344. Between May 21, 2021 and June 15, 2021, Seebohm sent 20 individual emails and arranged multiple calls with the Kulhaneks to convince the Kulhaneks to become franchisees, including by arranging for the Kulhaneks to watch Owner Validation Calls, in which existing owners had been pressured by Defendants to falsely represent the Semi-Absentee Model.
345. On June 15 and 16, 2021, the Kulhaneks attended Discovery Day in Knoxville, Tennessee.
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346. At Discovery Day, Seebohm, Van Over, and Baker repeated the false statements that they had previously made to the Kulhaneks. These Defendants told the Kulhaneks that the profit margins in excess of 40% would be achieved by operating the studio four days per week and that the Kulhaneks would achieve higher profit margins by operating the studio six days per week. Seebohm told the Kulhaneks that he intended to “personally invest” in 6 to 8 territories because it was “such a great semi-absentee model” and that he intended to open pairs of studios in multiple different states because the Semi-Absentee Model was so effective that Seebohm would not need to be located in the same state as his franchises, since he would not need to work in them.
347. At Discovery Day, the Kulhaneks repeatedly asked Van Over and Baker whether the Kulhaneks needed martial arts experience, as the Kulhaneks were concerned that they could not operate the franchise successfully without such experience. These Defendants repeatedly assured the Kulhaneks, stating that the Semi-Absentee Model had been proven to work with semi- absentee owners who owned multiple franchises and only worked in their franchises 8-12 hours per week total.
348. At Discovery Day, Van Over told the Kulhaneks to purchase multiple territories, stating that the profits from the first franchise would provide funding to open the following franchises. Van Over also stated that the model and corporate support ensures profitability within the first 3 month of operation, ensuring that profits from the operational studios will be available to fund future studios. Van Over and Seebohm stated that they will not sell individual territories and that the minimum number a franchisee can purchase is two. Seebohm, likewise, assured the Kulhaneks that opening two franchises is ideal because the Kulhaneks could then hire one program director who would oversee both franchises if located relatively close together.
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349. Kulhaneks were concerned about the travel distance between available territories and the impact that this would have on their time investment and overall success. Again, at the Discovery Day closing discussion, they were reassured by Van Over and Baker that the semi- absentee model allows owners to operate remote territories successfully without additional burden and encouraged them to purchase six territories in Michigan that were all 60 to 90 minutes from the Kulhaneks’ home. Seebohm also reiterated that the semi-absentee model was so successful that he was in the process of purchasing 6 to 8 territories in pairs, likely in the State of Colorado in spite of his residence in the Midwest, so that he could have one program director manage two territories.
350. On June 16, 2021, immediately upon conclusion of Discovery Day, Seebohm sent a “refined territory map” showing 10 potential territories and scheduled a “Decision Call” for the Kulhaneks on June 18, 2021.
351. On June 18, 2021, Seebohm called the Kulhaneks for this “Decision Call,” during which Seebohm pressured the Kulhaneks to become franchisees and repeated false statements about the Semi-Absentee Model.
352. Defendants continued to email and call the Kulhaneks over the following days to convince them to become Franchisees, at least 8 emails are on record between June 18th and June 28th continuing the pitch, as well as phone calls from Seebohm.
353. On June 28, 2021, the Kulhaneks became franchisees.
354. After becoming franchisees, the Kulhaneks learned that the operating costs of the
franchise are significantly higher than what Defendants represented these costs would be. In many cases, the Kulhaneks’ operating costs are 150% to 200% higher than what Defendants stated the costs would be, both in financial models provided to the Kulhaneks and during conversations with
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the Kulhaneks. These costs are often higher because Defendants require the Kulhaneks to use vendors and service providers selected by Defendants who charge higher prices than Defendants stated they would charge.
355. The Kulhaneks have achieved student membership numbers in line with the targets set by Defendants, at which point Defendants stated that the Kulhaneks would be profitable. The Kulhaneks’ revenue is still significantly below Defendants’ lowest projections with the best month to date resulting in a net loss of ($6,500).
356. Defendants have told the Kulhaneks to book weekend birthday parties and other activities that will require hiring even more employees, further contradicting the Semi-Absentee Model. For example, at a conference in Orlando in October 2022, Van Over stated that franchisees should book five birthday parties each week in order to generate income.
357. The Kulhaneks’ first franchise has not generated profit that can be used to open the second franchise, despite Defendants’ representations, and the Kulhaneks do not see a path to profitability because the system provided by Defendants is fundamentally flawed.
358. Defendants, including Unleashed, have begun telling the Kulhaneks to open more locations, despite the fact that the Kulhaneks’ franchise is operating at a loss. Defendants state that opening multiple locations will help “spread” expenses. In reality, however, opening more locations will simply cost the Kulhaneks more time and money and further enrich Defendants.
xxii. Lasku
359. Lasku purchased two territories in Texas in December 2020, and he was forced to close the one franchise that he opened because the franchise was not profitable and cost Lasku thousands of dollars per month to keep afloat. Lasku spent over $550,000 opening and operating the franchise, in addition to entering into a multi-year commercial lease with thousands of dollars
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in payments remaining due. He worked in the franchise over 40 hours per week before closing the franchise, causing him to leave his well-paying full-time job. For several months, Lasku was forced to pay more than $8,000 per month to keep the franchise open. He was forced to close the franchise because the Semi-Absentee Model promised by Defendants was a lie.
360. Seebohm began misrepresenting the Semi-Absentee Model to Lasku in Fall 2020. During calls with Lasku, Seebohm stated that the Semi-Absentee Model would generate profit margins in excess of 40% and not require Lasku to work in the franchise more than 10 hours per week. Seebohm relied on the misleading financials shown to other Plaintiffs during calls in which Seebohm gave Lasku the Unit Economics Presentation.
361. Seebohm arranged for Lasku to listen to Owner Validation Calls, during which an existing owner told Lasku that “I only spend around 10 hours per week on my school.”
362. Lasku attended Discovery Day in Knoxville, Tennessee on December 8 and 9, 2020. At Discovery Day, Seebohm, Baker, and Van Over misrepresented the Semi-Absentee Model to Lasku, assuring Lasku that he would not have to work more than 10 hours per week in the franchise to generate the profit margins advertised by Defendants. Lasku asked Baker for clarification on this point, and Baker told Lasku that Lasku would only need to work in the franchise for an hour or so on Fridays to meet parents and make it known that Lasku was the owner. Van Over told Lasku that the systems put in place by Defendants were so reliable and proven that he could “run this business through a computer.” Van Over and Baker told Lasku that the Semi-Absentee Model would be successful with only one full-time and one part-time employee and that Defendants would help staff Lasku’s franchise. Van Over stated that Lasku’s overhead in operating the studio would not exceed $15,000 per month, enabling Lasku to achieve the levels of profitability advertised by Defendants.
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363. Lasku agreed to become a franchisee on December 21, 2020. After becoming a franchisee, Lasku learned that Defendants provided no assistance with staffing the franchise, leaving Lasku to find instructors on his own. Defendants also understated the operating costs of the franchise and overstated the income generated by the Semi-Absentee Model, causing Lasku’s franchise to lose money each month. The costs to open the franchise were more than twice the costs that Defendants stated Lasku would incur, and Lasku was forced to stop working at his full- time job to work in the franchise over 40 hours per week.
xxiii. Lifschutz
364. Lifschutz purchased four territories in California in October 2020. Lifschutz invested his 401(k) into this endeavor and, to date, has spent well over $300,000 above and beyond the expected investment (not including the cost of the additional “territories” or the $700,000 in lease liabilities hanging over his head) and losses continue to mount, month after month.
365. Indeed, Lifschutz was forced to leave his corporate job in March 2021 once it became apparent that the Semi-Absentee Model did not work and he would have to operate the studio as a full-time job. Obviously, losing that salary has only compounded the financial devastation.
366. In particular, PMA instructed Lifschutz to use Foxfield Construction Ltd. for construction purposes and the bids were double the projections and actual spends in the workbook provided by PMA—not to mention the “fee” Foxfield Construction Ltd. charges just for arranging bids.
367. Upon opening his first studio, it became readily apparent that revenue projections were completely unrealistic due to, among other things, the fact that the membership base (and resulting revenue) take far longer than three months on average to build.
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368. Further, Defendants and, in particular, Van Over highlighted the purported success of “legacy” schools, but, among other things detailed above, those schools have typically been in operation for 5+ years and often do not follow the PMA franchise standard of operations (despite Defendants’ false statements and/or omissions otherwise).
369. Lifschutz had an introductory call with Seebohm on August 10, 2020 and, prior to that call, Seebohm forwarded the same videos detailed above.
370. On August 12, 2020, Lifschutz participated in the “Unit Economics Webinar” with Seebohm in which the “estimated initial investment” calculation was wildly false and grossly understated.
371. On August 17, 2020, Lifschutz participated in another video call with Seebohm and still others on August 26 and September 16, 2020 as Seebohm continued the same false statements, including, but not limited to, the fact that the studio could be operated “semi-absentee.”
372. Lifschutz participated in Discovery Day in Knoxville on September 21-22, 2020 in which the same statements detailed above were repeated, again and again.
373. After some additional back-and-forth, Lifschutz sent his wire payment to PMA to purchase the franchises on October 4, 2020.
xxiv. Lobb
374. Lobb purchased three territories in Kansas, and he opened his first franchise in September 2020. Lobb has incurred over $600,000 in costs in opening and operating the franchise, as the franchise has continued to lose money since opening at a rate of approximately $12,000 per month.
375. After initial conversations with Seebohm and Van Over in September and October 2019, Lobb attended Discovery Day in Knoxville, Tennessee on November 3, 2019. At this time,
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Seebohm, Baker, and Van Over misrepresented the Semi-Absentee Model, including the amount of time that Lobb would need to work in the franchise and the financials.
376. After becoming a franchisee, Lobb raised concerns with Van Over and Baker about the poor performance of the customer generation system that Defendants required Lobb and other franchisees to use. Baker blamed Lobb for the poor performance. Van Over later reiterated that Lobb was to blame for the poor performance.
377. After these conversations, Lobb learned that Van Over openly bragged about the fact that Van Over would be entitled to take the franchises from Lobb due to Lobb’s purported inability to conform to the standards that Defendants imposed.
xxv. The Logans
378. The Logans purchased six territories for $206,500. One was later sold to the Moorhouses for $25,000, but Unleashed forced the Logans to relinquish the remaining five territories as part of the sale to the Moorhouses. The requirement to relinquish all six locations was contrary to what was represented by Van Over, Seebohm and Baker that an owner was permitted to sell the other territories on the open market.
379. The Logans were prompted to invest in PMA through a series of calls. On September 3, 2021, the Logans participated in an introductory call with Kim Daly. Then on September 16, 2021, Seebohm held another call explaining the PMA model and showed youtube videos selling the scheme. A number of validation calls followed in which Van Over, Seebohm, and other franchisee owners represented the business model was semi-absentee, profitable, and offered a great lifestyle.
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380. The Logans were then given the FDD, which appeared to show a healthy financial situation for all PMA owners. The Logans were also told that franchisees were profitable within three months of being open, which was incorrect.
381. The Logans were also told that all licensees had switched to the franchise model, which was untrue.
382. Based on these misrepresentations, the Logans have invested approximately $336,500, which they never would have invested if presented with accurate statements about the Semi-Absentee Model and the profitability of the franchises.
xxvi. The Loomises
383. The Loomises have purchased six territories in total but have so far been able to open only one location.
384. The misrepresentations to the Loomises began in April 2021 in conversations with Pete Gilfilan. The Loomises attended a PMA Unit Economics Webinar on April 15, 2021, a territory Review with Seebohm on April 19, 2022, a Confirmation Day Prep Video Call with Seebohm on June 2, 2022, and Discovery Day on June 15 and 16, 2021.
385. At each of these meetings, the Loomises were led to believe a number of things, including that profitable management of each studio required only one-and-a-half to two employees; that the studio management software covered everything needed to run operation; and that PMA had a marketing operation platform that would provide new leads daily. Ultimately, it was represented to the Loomises that they would be profitable in three-to-six months.
386. The Loomises soon found out that each of these representations was false and/or misleading. Opening their one location and attempting to open their second location has exhausted
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all of their savings and liquidated assets and caused them to accrue approximately $500,000 in debt.
387. Opening just the one studio requires much more time than the ten to fifteen hours of owner time per week that was represented to them. Indeed, Ms. Loomis has had to leave her full-time occupation to try to manage their one PMA location.
xxvii. The Moorhouses
388. The Moorhouses purchased two territories in November 2021 but have so far not been able to open either of those territories. Instead, in July 2022, the Moorhouses purchased a studio Ryan Logan had already built out but had yet to open for $25,000. The Moorehouses opened the former Logan location on August 26, 2022 and signed a five-year lease. Despite much work being put into making pre-sales, they have not seen any profit and have found the business model sold to them by Defendants to be false and/or misleading.
389. Seebohm began making misrepresentations to the Moorhouses about the Semi- Absentee Model during a call on September 23, 2021, in which he stated that the business would require only 10-15 hours per week from the owners.
390. Additional calls and webinars occurred on September 27th, October 7th, 8th, 11th, 15th, 25th, and November 4th, 2021. The Moorhouses attended Discovery Day on November 11, 2021. All of these interactions included the same deceit—that the Semi-Absentee Model required only 10-15 hours per week based on one and a half full-time employees as shown in the Economics Workbook.
391. The Moorhouses soon came to find out that these claims were false, and the economics do not work as communicated. The Moorhouses have found that these studios would need at least 3 full-time employees to run the Semi-Absentee Model.
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392. The Moorhouses were further misled into believing that Legacy Owners who were represented as profitable incurred the same costs that Moorhouses and other new franchisees had incurred (but they had not).
393. Based on the misrepresentations, the Moorhouses invested approximately $200,000 and are continuing to lose $15,000 per month, even while having to abandon their ordinary occupation to work full-time on PMA.
xxviii. ThePatels
394. The Patels purchased two territories in New Jersey at the end of 2019, and they have opened one franchise. The Patels have spent over $500,000 in opening and operating the franchise, in addition to entering into a multi-year commercial lease with thousands of dollars in payments remaining due and working substantially more than 10 hours per week in the franchise each week. Nonetheless, the franchise has not been profitable and continues to lose over $10,000 each month.
395. Seebohm began misrepresenting the Semi-Absentee Model to the Patels in a call on July 30, 2019, during which Seebohm stated that the Semi-Absentee Model was proven and effective, that the Patels would not have to work more than 10 hours per week in the franchise in order to generate profit margins in excess of 40%, and that Defendants had in place systems and support that would ensure the success of the Patels’ franchise. For example, Seebohm stated that “staffing will be the least of your concerns” because Defendants would help hire and train instructors, such that the Patels would not need martial arts experience. He further stated that the Patels would achieve these results by hiring only one full-time and one part-time employee.
396. Seebohm repeated these and similar misrepresentations on calls with the Patels throughout August 2019.
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397. On August 5, 2019, Seebohm gave the Patels the Unit Economics Presentations, relying on misleading financials to assure the Patels that the Patels’ franchise would achieve the profit margins Seebohm promised and that the Semi-Absentee Model was effective even when owners worked in the franchise no more than 10 hours per week. Seebohm further presented an FDD that purported to contain financials representative of the Semi-Absentee Model, but these financials were not representative of the Semi-Absentee Model.
398. Seebohm arranged for the Patels to listen to Owner Validation Calls on August 6 and 8, 2019, during which existing owners stated that the franchise “can certainly be run as a semi- absentee business” and that the Patels did “not need any martial arts experience” because the systems provided by Defendants were so reliable. These owners had been pressured to make these false statements by Seebohm, Baker, and Van Over.
399. The Patels attended Discovery Day in Knoxville, Tennessee on September 10 and 11, 2019. At Discovery Day, Seebohm, Baker, and Van Over repeated the misrepresentations discussed above. These Defendants told the Patels that the Patels’ franchise would have profit margins in excess of 40% if the Patels followed the Semi-Absentee Model because the Patels would be able to rely on the systems put in place by Defendants. Van Over stated that “there are a ton of martial artists everywhere looking for jobs,” so the Patels would have no difficulty in staffing the franchise, and that Defendants would train the Patels’ employees, so the Patels would not need any martial arts experience. Van Over and Baker told the Patels that Defendants would “have [their] back” and provide staffing to the Patels if the Patels had any difficulty finding staff for the franchise. Van Over stated that the Patels’ cost to build-out the studio would be “extremely low” and that the Patels would be profitable within a couple months of opening because the systems put in place by Defendants guaranteed the success of the franchisees.
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400. The Patels agreed to become franchisees shortly after Discovery Day, as Defendants told the Patels to decide quickly or else the Patels’ territories would be given to another prospective franchisee.
401. After becoming franchisees, the Patels learned that the Semi-Absentee Model was not proven or effective, that Defendants dramatically overstated the financial success of the Semi- Absentee Model, and that the costs to operate the Semi-Absentee Model are substantially higher than Defendants represented. The Patels have not received the promised support from Defendants, causing the Patels to higher multiple full-time employees to work in the franchise because the Patels do not have martial arts experience and need to have back-up instructors available, since Defendants do not help with hiring or staffing the franchise. The Patels have learned that no franchisees operating the Semi-Absentee Model have the level of success that Defendants advertised.
xxix. The Petrosevichs
402. The Petrosevichs purchased three territories in Florida in June 2022, and they opened their first franchise in August 2022. The Petrosevichs told Defendants they wanted to become franchisees to build a better quality of life for their family while having a positive impact on their community, including by replacing Mr. Petrosevich’s full-time job, spending more time with their kids, and building their retirement. Defendants assured the Petrosevichs that the Semi- Absentee Model would enable them to achieve these goals.
403. The Petrosevichs have spent over $425,000 opening and operating the franchise, far exceeding the costs that Defendants stated the Petrosevichs would incur, in addition to entering into a multi-year commercial lease with over $530,000 in payments remaining due. The franchise has lost money every month since opening. The Petrosevichs must spend over 60 hours per week
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driving to the franchise and working in the franchise. When selecting a territory for the franchise, Seebohm assured the Petrosevichs that selecting a franchise far from the Petrosevichs’ home would be a good idea because they would only need to be in the studio “one or two days per week.”
404. Seebohm began making misrepresentations to the Petrosevichs in a call on May 14, 2021. Beginning in this call, and continuing throughout the sales process, Seebohm told the Petrosevichs that the Semi-Absentee Model was built for semi-absenteeism and that the Petrosevichs would only need to be at the franchise as much as they would like to but no more than a couple times a week.
405. On May 18, 2021, Seebohm gave the Petrosevichs the Unit Economics Presentation, during which Seebohm relied on the fraudulent financials produced by Defendants and stated that the Petrosevichs would make $150,000 in net revenue, with a minimum of 30% profit margins, by operating the Semi-Absentee Model four days per week.
406. Following this call, Seebohm told the Petrosevichs to attend a “Weekly Leadership Call” hosted by Van Over on May 19, 2021. The Petrosevichs did so and, during this call, Van Over told the Petrosevichs that the Semi-Absentee Model was effective and would result in them achieving the profit margins represented by Seebohm.
407. On May 21, 2021, Seebohm emailed the Petrosevichs and told them to listen to Owner Validation Calls. During these calls, existing owners who had been pressured by Seebohm, Van Over, and Baker to make misleading statements, misrepresented the Semi-Absentee Model. In one indication of the coaching to which Seebohm subjected these existing owners, one such owner asked Seebohm for permission to answer a question posed by a prospective franchisee before answering.
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408. Defendants continued to contact the Petrosevichs by phone and email in order to convince them to become franchisees, eventually telling the Petrosevichs to attend Discovery Day. During these communications, Defendants told the Petrosevichs to attend more “Weekly Leadership Calls,” weekly check-in calls with Seebohm, and constant validation calls designed to lead the Petrosevichs to believe that the Semi-Absentee Model was a highly profitable business that would allow them to be semi-absentee.
409. Prior to Discovery Day, Seebohm told the Petrosevichs that they should “prepare to be interviewed by PMA executives” because “not everyone is chosen.”
410. The Petrosevichs attended Discovery Day in Knoxville, Tennessee on June 10, 2021.
411. At Discovery Day, Van Over, Baker, and Seebohm repeated the same lies about the Semi-Absentee Model discussed above, including that the Semi-Absentee Model would not require the Petrosevichs to work in the franchise more than 10 hours per week. Van Over told the Petrosevichs that they would achieve the profit margins advertised because Defendants provide a “proven system,” comprised of various forms of support that were never forthcoming. Van Over was asked whether he intended to sell PMA, and he denied having any intention of doing so. He sold PMA to Unleashed fewer than six months later.
412. At Discovery Day, Van Over told the Petrosevichs to purchase multiple territories, assuring the Petrosevichs that the first franchise would be sufficiently profitable within three months of opening to fund the following locations.
413. The Petrosevichs became franchisees on June 22, 2021.
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414. After becoming franchisees, the Petrosevichs asked Seebohm whether all prospective franchisees who had attended Discovery Day were “chosen” by Defendants to become franchisees. Seebohm admitted that all prospective franchisees had been so “chosen.”
415. The systems promised by Defendants have not been provided. The franchise has not been profitable. The vendors that Defendants require the Petrosevichs to use charge inflated prices that exceed the costs that Defendants stated the Petrosevichs would incur.
416. Defendants took unauthorized drafts from the Petrosevichs’ bank account, claiming that they had “changed” the date that royalty payments were due. The franchise agreement requires that Defendants provide written notice of any changes to royalty payment due dates. Defendants did not provide any such notice prior to making the withdrawals from the Petrosevichs’ account.
417. The Petrosevichs have learned that “successful” franchisees will “coach” franchisees on how to be successful. For a fee, these successful franchisees will tell other franchisees how to become profitable, which requires disregarding the “proven systems” that Defendants assured the Petrosevichs would work for them.
418. The Petrosevichs see no path to profitability, operating the franchise on a semi- absentee basis, or generating sufficient income from the franchise to open franchises on the other territories they purchased.
xxx. The Silbermans
419. The Silbermans purchased three territories in Pennsylvania in March 2020 and opened their first franchise in May 2022. The Silbermans have spent over $370,000 opening and operating this franchise and were forced to close their franchise as it had operated at a loss since opening.
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420. The Silbermans attended Discovery Day in Knoxville, Tennessee in February 2020. At Discovery Day, Van Over, Seebohm, and Baker misrepresented the Semi-Absentee Model, including by stating that many instructors would be available to work in the franchise and that, by following the systems designed by Defendants, the Silbermans would convert 50% of prospective students to paying memberships. These Defendants also told the Silbermans that the Silbermans would have access to support from Van Over and Baker.
421. When the Silbermans asked for help from Van Over and Baker after opening, these Defendants told the Silbermans that they were developing a program for low performing studios that would be released soon. Baker held a zoom meeting with the Silbermans, during which he stated that “we made a promise to you folks, and we are going to help you turn things around.” The only “help” that Defendants provided consisted of two boilerplate emails from Baker and Van Over that provided no assistance to the Silbermans.
422. When the Silbermans informed Van Over that the Silbermans could not continue operating the franchise, Van Over stated that the Silbermans should “revisit your initial WHY, [sic] that you wanted to operate PMA studios, and really contemplate this decision.” He stated that “[i]n the current environment[,] selling territories is extremely difficult,” and that “[i]f you are wanting a release from your current franchise agreement, you can’t just close the studio . . . the home office has the first right to buy or assume and we are creating a team to do just that.”
423. He further stated that “you[r] [Area Development Agreement] has expired by not having your second location opened by 8/26/22. In situation where the owner is still focused on operation[,] Unleashed Brand [sic] will consider a small extension with the intent of getting the second location lease signed [sic] and construction started . . . My suggestions are again, [sic] to refocus on the success of your newly opened location.”
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xxxi. The Steeles
424. The Steeles became franchisees in late 2020. After becoming franchisees, the Steeles learned that the Semi-Absentee Model does not work. Mr. Steele must work 60 hours or more in the franchise each week, opening and operating the franchise has cost the Steeles substantially more than Defendants represented, and the franchise is not profitable. For example, the Steeles’ franchise has lost more than $190,000 to date this year.
425. Seebohm began misrepresenting the Semi-Absentee Model to Mr. Steele in August 2020. On August 28, 2020, Seebohm called Mr. Steele and stated that the Semi-Abesentee Model was proven and effective, that the franchise needed only one full-time and one part-time employee, and that Mr. Steele would not need to work more than 8 to 10 hours per week in the franchise.
426. On September 2, 2020, Seebohm held a video call with Mr. Steele, in which Seebohm gave the Unit Economics Presentation and misrepresented that the associated financials were representative of the Semi-Absentee Model and that the Steeles would achieve profit margins in excess of 40%. Seebohm stated that these profits would be achieved by operating part time for four days per week and that the Steeles would have higher profits by operating six days per week.
427. Seebohm repeated these misrepresentations in calls with Mr. Steele on September 4 and 9, 2020, and he further told Mr. Steele to watch the aforementioned videos, in which Defendants misrepresent the Semi-Absentee Model, including by stating that 100% of licensees converted to being franchisees, that Defendants would provide a “fully-automated customer recruitment program,” and that Defendants would provide “proven marketing sales systems” to franchisees.
428. On October 15 and 16, 2020, Mr. Steele attended Discovery Day in Knoxville, Tennessee.
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429. At Discovery Day, Van Over, Baker, and Seebohm repeated the misrepresentations described in the preceding paragraphs, including by stating that the financials presented were based on a franchise being open 4 days per week and operating with one full-time and one part-time employee. These Defendants told Mr. Steele that the Steeles would have profit margins in excess of 40% because of the systems put in place by Defendants comprising the Semi-Absentee Model.
430. Van Over told Mr. Steele that these profits would be increased by operating the franchise 6 days per week. He further misrepresented that the Steeles would not need to work more than 10 hours per week in the franchise.
431. After Unleashed purchased PMA, Unleashed held a “system-wide” meeting where representatives of Unleashed stated that Unleashed needed to make wholesale changes to Defendants’ websites, marketing, products, and other systems because the systems put in place by PMA, Van Over, and Baker were ineffective. For example, Unleashed stated that Defendants’ website was “sub-optimal from a usability and SEO perspective.”
432. Unleashed further stated that focus groups did not like the sales strategies put in place by Defendants, because these strategies amounted to a “high pressures sales experience in the franchises” that dissuaded potential clients from purchasing services from franchisees.
xxxii. Taylor
433. Taylor purchased a territory in Nebraska in April 2020, and he opened a franchise at this location in June 2021. He has spent over $650,000 opening and operating this franchise, in addition to entering into a multi-year commercial lease which poses an additional $163,500 liability. Taylor was forced to leave his well-paying job in order to work in the franchise full-time because the Semi-Absentee Model sold by Defendants is a lie. He must work 40 to 60 hours per week in the franchise.
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434. Defendants misrepresented the Semi-Absentee Model to Taylor. On multiple occasions, Seebohm and Van Over told Taylor that operating the Semi-Absentee Model successfully would not require Taylor to work in the franchise more than 10 hours per week. They represented that the franchise was a semi-absentee business that would allow Taylor to maintain his full-time job.
435. Taylor attended Discovery Day in Knoxville, Tennessee on March 11, 2020.
436. At Discovery Day, Van Over, Baker, and Seebohm repeated the same misrepresentations directed to the other Plaintiffs, including that the Semi-Absentee Model would generate profit margins in excess of 40% without requiring Taylor to work in the franchise more than 10 hours per week. Van Over told Taylor that Taylor should use the project management and construction companies selected by Defendants because the companies would “handle the build- out from beginning to end,” with Taylor only needing to “pick up the keys” when they finished. Instead, construction was continually delayed due to inflated bids, unnecessary costs, unlicensed contractors, and general incompetence, and Taylor incurred an additional $96,000 in damages just in connection with the build-out.
437. Prior to and at Discovery Day, Taylor asked Seebohm and Van Over how Taylor would hire and train instructors and whether Defendants would offer support if Taylor’s instructor was not able to teach classes. Seebohm and Van Over told Taylor that Taylor needed no martial arts experience because Defendants would find and train instructors for Taylor. They further stated that Defendants had a “travelling team” of instructors who would fly out to teach classes at Taylor’s franchise if Taylor needed an instructor.
438. Taylor became a franchisee on April 2, 2020.
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439. After becoming a franchisee, Taylor learned that the representations about the financial performance of the Semi-Absentee Model were false, that he needed to spend substantially more than 10 hours per week working in the franchise, and that the franchise could not be operated with one full-time and one part-time employee.
440. Defendants failed to provide the promised support with regard to finding and training instructors, and Defendants did not provide the “travelling team” when Taylor needed it. Taylor’s instructor quit shortly before the grand opening of Taylor’s franchise, and Taylor informed Defendants that he would require the promised assistance from the “travelling team.”
441. Rather than send someone from the “travelling team,” Van Over made a post on Facebook, requesting that people join a “newly formed travelling team,” indicating that no such team existed when Defendants promised Taylor otherwise. As a result of this lack of assistance, Taylor saw reduction in membership of around 30% between the time he lost the instructor and hired a new one. When hiring instructors, Taylor was told that www.instructorfinder.com, which, upon information and belief, is also owned by Van Over, would be a huge help, when, in fact, this site was full of instructors who had already been hired by other locations.
xxxiii. The Tholaths
442. The Tholaths purchased three territories but have only been able to open one of them. The Tholaths personally guaranteed a five-year lease to open the location.
443. The Tholaths attended Discovery Day on November 11, 2021, where the same misrepresentations regarding the Semi-Absentee Model and profitability of the studios was presented. The Tholaths signed a contract with PMA on November 16, 2021.
444. Based on the misrepresentations, Tholaths have spent approximately $500,000 on their locations with other substantial liabilities outstanding.
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xxxiv. Vadlamudi
445. Vadlamudi purchased two territories in Texas in June 2021 and opened his first franchise in June 2022. Vadlamudi has spent over $307,000 opening and operating this franchise (along with 5-year lease obligations), and he has had to work in the franchise 40 to 60 hours per week since January 2022. The franchise that Vadlamudi opened has never achieved the level of profitability that Defendants stated it would, and most months the franchise operates at a loss.
446. Seebohm began making misrepresentations to Vadlamudi about the Semi-Absentee Model in May 2021. After the first call with Seebohm, Vadlamudi emailed Seebohm on May 16, 2021 to ask for clarification about some of the statements that Seebohm made during the call. Among other things, Vadlamudi asked Seebohm “[f]or a semi-absentee owner, how many times do you expect the owner to visit the unit in the first year per week? [A]nd in the second year? Do you have numbers based on you experience/stats?” He further asked “what is the fallback when a manager quits suddenly” and “[d]o most PMA owners create a separate LLC [W]hat is the recommendation?”
447. Seebohm emailed Vadlamudi the same day, stating “ALL very good questions that are largely covered within our 2nd (unit economics/financials) screenshare call . . . You’ll have all of these questions and more answered this week for certain!” Defendants told Vadlamudi that he should agree to the Franchise Agreement in his personal capacity, then create an entity to which he could transfer the rights, as Defendants stated that Vadlamudi “should not worry” about creating an entity prior to becoming a franchisee.
448. On May 18, 2021, Vadlamudi had a video call with Seebohm, during which Seebohm gave Vadlamudi the Unit Economics Presentation. During this call, Seebohm misrepresented that the Semi-Absentee Model could be successfully operated by a semi-absentee
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owner who maintained a full-time job, that a non-martial artists can manage the franchise, and that the franchises are profitable and have net revenue between 30% and 42%.
449. On May 21, 2021, Seebohm emailed Vadlamudi links to Owner Validation Calls, and the existing owners on these calls repeated the misrepresentations that Seebohm previously made to Vadlamudi.
450. On June 15 and 16, 2021, Vadlamudi attended Discovery Day in Knoxville, Tennessee.
451. At Discovery Day, Seebohm, Van Over, and Baker told Vadlamudi that the financials provided in the FDD were representative of the Semi-Absentee Model and that Vadlamudi would achieve profit margins in excess of 40% by following the Semi-Absentee Model due to the systems put in place by Defendants. These Defendants repeated the misrepresentations that Vadlamudi did not need martial arts experience, that the systems put in place by Defendants were effective and proven, and that Vadlamudi would be able to successfully operate the franchise and achieve the profit margins advertised by Defendants without working more than 10 hours per week.
452. These Defendants relied on the financials shown to Vadlamudi during the Unit Economics Presentation, but they did not disclose that the financials provided to Vadlamudi represented the performance of legacy owners, who were primarily martial artists not operating the Semi-Absentee Model. Further, these legacy owners have higher profit margins than franchisees operating the Semi-Absentee Model because, among other things, Defendants force new franchisees to pay ongoing royalties and system improvement fees totaling 8% of revenue, which legacy owners are not required to pay. Defendants concealed this fact from Vadlamudi.
453. On June 22, 2021, Vadlamudi became a franchisee.
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454. On June 19, 2022, legal counsel from Unleashed emailed Vadlamudi and provided him with a document purporting to assign Vadlamudi’s franchise to an entity created by Vadlamudi, as Vadlamudi had followed Defendants’ advice to wait and create such an entity after becoming a franchisee.
455. On the same day, Vadlamudi responded to this email and asked for clarification, including by specifically asking for someone to “walk me through the major differences.”
456. On June 28, 2022, legal counsel from Unleashed emailed Vadlamudi. In this email, this person stated: “I’m one of the corporate counsels representing PMA.” This person stated that the document “center[s] your leased location” and “assigns your franchise agreement.” She further stated that Vadlamudi “must sign” the document when “you are ready to start developing your second location in Frisco.”
457. The document that Unleashed provided to Vadlamudi included a provision that stated as follows: “[Vadlamudi] understands the facts in respect of which this general release is given may hereafter turn out to be other than or different from the facts known or believed to be true.” It is unclear what this provision means from a legal—or common sense—perspective. Indeed, it seems to be an unconscionable effort to get Vadlamudi to agree to something
458. In the beginning, Vadlamudi asked about exit options and Defendants explained that he could sell his franchise back to corporate or other franchise owners; Defendants presented the option is easy because there would be a pool of franchise owners ready to buy.
xxxv. The Walters
459. The Walters purchased three territories in Ohio in September 2019. The Walters opened their first franchise in September 2020, and the franchise has not been profitable since opening. The Walters have spent over $500,000 in opening and operating the franchise, in addition
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to entering into a 10-year commercial lease that has over $380,000 in payments remaining due. The franchise incurs substantial losses each year. Walters works in the franchise full-time, over 50 hours per week, and Ms. Walters works in the franchise part-time. In addition, the Walters have hired two full-time employees and one part-time employee.
460. The Walters spoke with Seebohm by phone on August 6, 2019, and during this call, Seebohm began misrepresenting the Semi-Absentee Model, including by stating that the Walters could operate the franchise with one full-time and one part-time employee without working in the franchise more than 10 to 15 hours per week. Seebohm instructed the Walters to watch the two videos described above, and they did so.
461. On August 7, 2019, another representative of FFL, Amy Roberts, emailed the Walters, stating that PMA “combines a 15-year history of robust business systems, marketing expertise, and ongoing training of just 2 employees with turnkey simple buildout, fast profitability, and 95% student retention rate. It is simply a remarkable semi-absentee and scalable brand.”
462. On August 9, 2019, Seebohm gave the Walters the Unit Economics Presentation, during which Seebohm stated that the Walters would achieve profit margins in excess of 40% by working no more than ten hours per week and hiring only one full-time and one part-time employee.
463. Seebohm arranged for the Walters to listen to an Owner Validation Call on August 15, 2019, during which existing owners told the Walters that they would break even within 3 to 6 months, then achieve profit margins of 48%, and that PMA “does all digital marketing which accounts for half of your leads.”
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464. Seebohm and Ms. Roberts continued to email the Walters in August and September 2019, repeatedly arranging for more misleading Owner Validation Calls and repeating the same misrepresentations discussed above.
465. The Walters attended Discovery Day in Knoxville, Tennessee on September 10 and 11, 2019. In addition to the misrepresentations discussed above, at Discovery Day, Van Over told the Walters that they would easily achieve profit margins of 35%-48% by operating the Semi- Absentee Model. Van Over told the Walters that they should purchase three territories because the first franchise was proven to generate sufficient profit to fund the costs of opening subsequent locations.
466. At Discovery Day, Van Over, Seebohm, and Baker told the Walters that they did not need martial arts experience because Defendants would help them recruit, hire, and train instructors and that the Walters only needed to focus on learning the business systems provided by Defendants.
467. After becoming franchisees, the Walters learned that the financials presented by Defendants are not representative of the Semi-Absentee Model. For example, the Walters discovered that the operating costs that Defendants told the Walters that the Semi-Absentee Model would incur are substantially lower than in reality. Further, Defendants failed to provide the assistance that they promised with regard to recruiting, hiring, and training instructors. The Walters have had to spend time and money learning martial arts because they need martial arts experience to operate the franchise.
468. Because the franchise has operated at a loss since opening, the Walters have not been able to use the profits from the first franchise to open subsequent locations.
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xxxvi. The Watts
469. The Watts purchased five territories in November 2019, and they opened their first franchise in January 2021. The Watts have been unable to open franchises in their remaining territories because, contrary to Defendants’ representations, the first franchise is not able to generate sufficient profit to open the other locations. The Watts have incurred hundreds of thousands of dollars in costs from opening and operating the franchise, and they have never come close to achieving the profit margins that Defendants represented.
470. In August 2019, the Watts’ franchise broker introduced them to PMA.
471. On September 10, 2019, a representative of FFL, Debra Kurland, emailed the Watts to schedule a video call with Seebohm about the Semi-Absentee Model, and she included the two videos discussed above.
472. On September 11, 2019, the Watts had a video call with Seebohm, during which Seebohm began repeating the same misrepresentations about the Semi-Absentee Model that he directed to the other Plaintiffs. Seebohm told the Watts that the Semi-Absentee Model guarantees “such great profit margins with such low hours” that he would buy several locations and stop working with FFL.
473. On September 16, 2019, Seebohm gave the Watts the Unit Economics Presentation, during which he showed the Watts videos and spreadsheets promoting PMA and stating the inflated revenue projections, that the Watts would not need to work more than 10 to 15 hours per week, and that only one full-time and one parti-time employee would be needed.
474. On September 20, 2019, Defendants provided the FDD to the Watts, which misrepresented the financials of the Semi-Absentee Model as discussed herein.
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475. On September 21, 2019, Seebohm told the Watts to listen to Owner Validation Calls. These calls were with legacy owners. Seebohm led the Watts to believe that the calls were with franchisees operating the Semi-Absentee Model to cause the Watts to believe that they could achieve the results promised by Defendants by operating the Semi-Absentee Model.
476. On November 5 and 6, 2019, the Watts attended Discovery Day in Knoxville, Tennessee. At Discovery Day, Van Over, Baker, and Seebohm repeated the misrepresentations stated above, including that the Watts could successfully operate the Semi-Absentee Model with one full-time and one part-time employee, have profit margins in excess of 40%, and not work in the franchise more than 10 hours per week.
477. Defendants stated that the Watts review the franchise agreement, sign it, and wire the $149,500 fee for territories within 10 days. A representative of FFL, Bobby Brennan, pressured the Watts to sign the agreement, stating that the Watts could not lock in the territories without paying the full fee even though the Watts offered to pay a deposit. Defendants told the Watts that they could have an attorney review the agreement, but that PMA would not agree to any changes, so if the Watts wanted in, they had to accept it as is.
478. After becoming franchisees, the Watts had calls with representatives of PMA, so- called “Success Coaches,” who had no business experience and continually reiterated that the Watts must follow Defendants’ processes that were ineffective. A representative of Unleashed admitted during a call on November 16, 2022 that the “Success Coaches” are not adequate and that Unleashed is looking to bring on coaches with more business experience.
479. On June 10, 2021, the Watts had a call with Van Over to tell him that the Watts were spending substantially more hours in the business than they were led to believe and that operating the franchise was taking a toll on their health and hurting their full-time jobs.
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480. On July 22, 2022, the Watts had another conversation with Van Over, letting him know they could not keep operating the franchise because the franchise placed too much strain on them. Van Over told the Watts to provide their financials to him so that he could “hand pick” an existing owner to purchase the Watts’ franchise. The Watts provided the financials and never heard back from Van Over.
COUNT I
Violation of RICO, 18 U.S.C. § 1962(c)
481. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
482. Defendants’ conduct as described herein has damaged Plaintiffs in their businesses and property through the conduct of an enterprise through a pattern of racketeering activity.
483. Defendants devised the scheme described herein to defraud Plaintiffs by systematically misrepresenting the Semi-Absentee Model, inducing Plaintiffs to become franchisees, and causing Plaintiffs to collectively spend millions of dollars on a franchise concept that Defendants knew was unsuccessful.
484. Each Defendant is a person within the meaning of 18 U.S.C. § 1961(3).
485. Defendant Premier Franchising Group LLC is an enterprise within the meaning of
18 U.S.C. § 1961(4), and, in violation of 18 U.S.C. § 1962(c), the agents and representatives of Defendant Premier Franchising Group LLC conducted the affairs of this enterprise so as to affect interstate commerce through a pattern of racketeering activity. This enterprise is an ongoing, continuous unit of persons associated together for the common purpose of routinely, repeatedly, and fraudulently inducing prospective franchisees to become franchisees. The persons comprising this enterprise participate in and are part of the enterprise, and they have an existence separate and distinct from the enterprise. Systematic linkages exist between these persons because they have
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contractual relationships, a hierarchy, and coordinate their activities. Van Over, Baker, and Seebohm control and direct the affairs of this enterprise and use other persons comprising the enterprise to carry out the scheme to fraudulently induce prospective franchisees. The scheme devised by these persons was facilitated by the use of the United States mail and/or wire and constitutes racketeering activity because these persons caused innumerable instances of wire fraud to be committed. As the forgoing paragraphs demonstrate, these persons used the mail and wire to effectuate their scheme to defraud Plaintiffs, including by distributing false financial information to Plaintiffs by email, arranging for Plaintiffs to attend Discovery Day by email, and otherwise inducing and assuring Plaintiffs by email. These predicate acts of wire fraud as described herein are part of the nexus of affair of this enterprise, and these persons committed these related acts with a similar method and purpose, involving similar persons, and causing similar effects upon Plaintiffs. This pattern of racketeering activity is ongoing, open-ended, and threatens to continue indefinitely unless this Court enjoins this racketeering activity. As a direct and proximate cause of these violations of 18 U.S.C. § 1962(c), Plaintiffs have been damaged in their businesses and property. The persons comprising this enterprise are jointly and severally liable to Plaintiffs for treble damages, all costs of this action, and reasonable attorney’s fees, as provided in 18 U.S.C. § 1964(c).
486. In the alternative, Defendants Premier Franchising Group LLC and Franchise FastLane LLC constitute an enterprise within the meaning of 18 U.S.C. § 1961(4), and, in violation of 18 U.S.C. § 1962(c), Defendant Premier Franchising Group LLC conducted the affairs of this enterprise so as to affect interstate commerce through a pattern of racketeering activity. This enterprise is an ongoing, continuous unit of persons associated together for the common purpose of routinely, repeatedly, and fraudulently inducing prospective franchisees to become franchisees.
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The persons comprising this enterprise participate in and are part of the enterprise, and they have an existence separate and distinct from the enterprise. Systematic linkages exist between these persons because they have contractual relationships, a hierarchy, and coordinate their activities. Van Over, Baker, and Seebohm control and direct the affairs of this enterprise and use other persons comprising the enterprise to carry out the scheme to fraudulently induce prospective franchisees. The scheme devised by these persons was facilitated by the use of the United States mail and/or wire and constitutes racketeering activity because these persons caused innumerable instances of wire fraud to be committed. As the forgoing paragraphs demonstrate, these persons used the mail and wire to effectuate their scheme to defraud Plaintiffs, including by distributing false financial information to Plaintiffs by email, arranging for Plaintiffs to attend Discovery Day by email, and otherwise inducing and assuring Plaintiffs by email. These predicate acts of wire fraud as described herein are part of the nexus of affair of this enterprise, and these persons committed these related acts with a similar method and purpose, involving similar persons, and causing similar effects upon Plaintiffs. This pattern of racketeering activity is ongoing, open- ended, and threatens to continue indefinitely unless this Court enjoins this racketeering activity. As a direct and proximate cause of these violations of 18 U.S.C. § 1962(c), Plaintiffs have been damaged in their businesses and property. The persons comprising this enterprise are jointly and severally liable to Plaintiffs for treble damages, all costs of this action, and reasonable attorney’s fees, as provided in 18 U.S.C. § 1964(c).
487. In the alternative, Defendants Premier Franchising Group LLC, Franchise FastLane LLC, Van Over, Seebohm, and Baker constitute an enterprise within the meaning of 18 U.S.C. § 1961(4), and, in violation of 18 U.S.C. § 1962(c), Defendants Premier Franchising Group LLC and Van Over conducted the affairs of this enterprise so as to affect interstate commerce through
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a pattern of racketeering activity. This enterprise is an ongoing, continuous unit of persons associated together for the common purpose of routinely, repeatedly, and fraudulently inducing prospective franchisees to become franchisees. The persons comprising this enterprise participate in and are part of the enterprise, and they have an existence separate and distinct from the enterprise. Systematic linkages exist between these persons because they have contractual relationships, a hierarchy, and coordinate their activities. Van Over, Baker, and Seebohm control and direct the affairs of this enterprise and use other persons comprising the enterprise to carry out the scheme to fraudulently induce prospective franchisees. The scheme devised by these persons was facilitated by the use of the United States mail and/or wire and constitutes racketeering activity because these persons caused innumerable instances of wire fraud to be committed. As the forgoing paragraphs demonstrate, these persons used the mail and wire to effectuate their scheme to defraud Plaintiffs, including by distributing false financial information to Plaintiffs by email, arranging for Plaintiffs to attend Discovery Day by email, and otherwise inducing and assuring Plaintiffs by email. These predicate acts of wire fraud as described herein are part of the nexus of affair of this enterprise, and these persons committed these related acts with a similar method and purpose, involving similar persons, and causing similar effects upon Plaintiffs. This pattern of racketeering activity is ongoing, open-ended, and threatens to continue indefinitely unless this Court enjoins this racketeering activity. As a direct and proximate cause of these violations of 18 U.S.C. § 1962(c), Plaintiffs have been damaged in their businesses and property. The persons comprising this enterprise are jointly and severally liable to Plaintiffs for treble damages, all costs of this action, and reasonable attorney’s fees, as provided in 18 U.S.C. § 1964(c).
488. As part of the scheme to defraud, Defendants intended to defraud Plaintiffs by making calculated misrepresentations designed to target prospective franchises like Plaintiffs who
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were seeking a franchise concept that would enable them to maintain their existing work and family commitments.
489. Defendants created a series of lies about the Semi-Absentee Model, which they systematically directed at Plaintiffs, including that the Semi-Absentee Model required no more than 10 hours of work per week, that it could be operated with one full-time and one part-time employee, that the systems Defendants developed had been tested and were successful, and that Defendants would provide ongoing support, training, and other services such as customer lead generation. Defendants created videos, recordings, presentations, and other materials to disseminate these misrepresentations to Plaintiffs.
490. Defendants repackaged and/or fabricated financial information from the prior licensee model and falsely represented that it represented the Semi-Absentee Model. When Defendants learned that the Semi-Absentee Model was failing, and that franchisees, including multiple Plaintiffs, never made any profit on the franchises, Defendants continued to provide false financial information to prospective franchisees, including multiple Plaintiffs.
491. Defendants knew that these foregoing misrepresentations were false or made these misrepresentations with reckless disregard of their falsity, and they further knew or should have known that the wires would be used to effectuate this scheme.
492. To effectuate this fraudulent scheme, Defendants engaged in innumerable acts of wire fraud, including by emailing and calling Plaintiffs as described herein, which directly led to Plaintiffs’ injuries.
493. Defendants have engaged in this conduct for multiple years and continue to do so at this time. According to Defendants, this scheme is in “rapid growth mode.”
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COUNT II
Violation of RICO, 18 U.S.C. § 1962(d)
494. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
495. As described herein, Defendants conspired to violate 18 U.S.C. § 1962(c), causing Plaintiffs injuries to their businesses and property.
496. The agents and representative of Defendant Premier Franchising Group LLC agreed to carry out the scheme to defraud described herein and use the wires to effectuate this scheme.
497. In the alternative, Van Over, Baker, and Seebohm agreed to make the misrepresentations described herein and use the wires to effectuate this scheme.
498. In the alternative, Defendants Premier Franchising Group LLC and Franchise FastLane agreed for their respective representatives and agents to engage in the scheme to defraud described herein and use the wires to effectuate this scheme.
499. Each Defendant’s participation in the scheme led to Plaintiffs’ injuries, as Plaintiffs would not have become franchisees but for the misrepresentations described herein.
500. As a direct and proximate cause of these violations of 18 U.S.C. § 1962(d), Plaintiffs have been damaged in their businesses and property. The persons comprising this enterprise are jointly and severally liable to Plaintiffs for treble damages, all costs of this action, and reasonable attorney’s fees, as provided in 18 U.S.C. § 1964(c).
COUNT III Fraudulent Inducement
501. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
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502. Defendants fraudulently induced Plaintiffs to become franchisees and enter into a number of different contracts by engaging in the conduct described herein, including the many intentional misrepresentations of material facts detailed above.
503. Plaintiffs reasonably relied on these false statements to their detriment.
504. Defendants committed these breaches of contract intentionally, fraudulently, maliciously, and/or recklessly, entitling Plaintiffs to punitive damages.
505. As a direct and proximate cause of Defendants’ actions, Plaintiffs have been damaged.
COUNT IV
Breach of Contract, as to the Franchise Agreements5 (in the alternative)
506. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
507. As detailed above, Defendants fraudulently induced Plaintiffs into entering into the Franchise Agreements at issue and, accordingly, the contracts are void and of no effect. Assuming arguendo, however, that the contracts are deemed to be enforceable, PMA has breached those contracts in a host of different ways.
508. PMA’s breaches of the Franchise Agreement include, but are not limited to, violations of Sections 1.3, 2.3, 5.4, 5.5(a), and 9.1. In short, PMA did not have a “system” in place that would allow the Plaintiffs to operate their studios in a profitable manner; PMA’s “defining” of the personnel needed was wrong and did not allow for a profitable studio to operate; in certain instances, PMA violated the Protected Market Area by either selling franchises to others that violated this area, selling territories that could not be developed within the area according to the
5 Defendants are in possession of all of the Franchise Agreements at issue. 103
  
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PMA “system,” or otherwise infringing on a franchisee’s rights to the area; PMA did not identify necessary services for Plaintiffs to sustain operations in a profitable manner; the “System Standards” and “Business Management System” incorporated by reference into the Franchise Agreement failed and PMA failed to provide the services and system contemplated in these documents for a semi-absentee owner, as promised; and, again, the system was not functional.
509. Defendants committed these breaches of contract intentionally, fraudulently, maliciously, and/or recklessly, entitling Plaintiffs to punitive damages.
510. As a direct and proximate result of PMA’s breaches of contract and breaches of the duty of good faith and fair dealing, Plaintiffs have been damaged.
COUNT V
Breach of Contract and Breach of the Duty of Good Faith and Fair Dealing, as to the Franchise Agreements (in the alternative)
511. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
512. As detailed above, Defendants fraudulently induced Plaintiffs into entering into the Franchise Agreements at issue and, accordingly, the contracts are void and of no effect. Assuming arguendo, however, that the contracts are deemed to be enforceable, PMA has breached the contracts and its duty of good faith and fair dealing therein in a number of ways.
513. As noted above, part of Defendants’ fraudulent scheme was to attempt to trick Plaintiffs into “releasing” certain claims against Defendants by stating that, as part of the “on- boarding” process (or otherwise), a franchisee had to enter into an “entity transfer addendum,” an “assignment and assumption of franchise agreement,” and/or a similar document6 in order to transfer the Franchise Agreement from the individual franchisees to a business entity created by
6 Defendants are in possession of all such documents at issue. 104
   
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the franchisees (or effectuate some other purported legal act). The real—and only—reason Defendants did this was because they had embedded “releases” into the follow-on document that purport to say that the franchisee was releasing PMA from claims.
514. Defendants concocted this scheme in an effort to, among other things, circumvent the FTC’s Franchise Rule, which requires, among other things, that a franchisor cannot require a franchisee to waive reliance on representations in the Franchise Disclosure Document (“FDD”),7 its exhibits, or amendments. Thus, in the Franchise Agreements, the following language is included in purported compliance with this rule:
This Agreement, including the introduction, addenda and exhibits to it, constitutes the entire agreement between you and us. There are no other oral or written understandings or agreements between you and us concerning the subject matter of this Agreement. Except as expressly provided otherwise in this Agreement, this Agreement may be modified only by written agreement signed by both you and us. Notwithstanding the foregoing, nothing in any agreement is intended to disclaim the express representations made in the Franchise Disclosure Document, its exhibits and amendments.
(Emphasis added).
515. Then, in the follow-on document, which was presented by Seebohm as part of the “on-boarding” process—or, later, by Unleashed, as some sort of necessary legal act—the document purports to release PMA and its affiliates and officers from claims arising before the date of the follow-on document. Defendants wanted such a release to include statements in the FDD. That is, Defendants were intentionally attempting to circumvent federal law in the process of trying to fraudulent induce franchisees into releasing claims for being fraudulently induced.
516. Unfortunately for Defendants and their fraudulent scheme, PMA and all of the contracting parties have a contractual duty to act in good faith and deal fairly with the other
7 Defendants are in possession of this document (and all versions thereof) as well. 105

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contracting parties, which, in this case, were the Plaintiffs. The standard by which PMA was required under the law to amend or otherwise modify the Franchise Agreements or otherwise act was the standard of good faith and fair dealing.
517. Defendants’ manipulative, fraudulent scheme and effort to circumvent federal rules and regulations was, of course, the exact opposite of good faith.
518. Defendants have, thus, breached the Franchise Agreements and their duty of good faith and fair dealing contained therein by purporting to amend and/or otherwise modify the Franchise Agreement to circumvent federal rules and regulations and trick Plaintiffs into agreeing to a document that purportedly released claims that Plaintiffs had against PMA.
519. As a direct and proximate result of PMA’s breaches of contract and breaches of the duty of good faith and fair dealing, Plaintiffs have been damaged.
520. PMA committed these breaches of contract intentionally, fraudulently, maliciously, and/or recklessly, entitling Plaintiffs to punitive damages.
COUNT VI
The Declaratory Judgment Act, 28 U.S.C.A. § 2201
521. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
522. PMA fraudulently induced Plaintiffs to sign documents provided by PMA in order to become franchisees. These include the Franchise Agreements, as well as the “entity transfer addendum” or “assignment and assumption of franchise agreement” documents, along with Area Development Agreements, which are also in the possession of Defendants.
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523. These documents do not constitute enforceable contracts because they are unconscionable contracts of adhesion, violate public policy, are illegal under the laws of Tennessee and other states, and were procured by fraud.8
524. Plaintiffs respectfully request that the Court enter judgments declaring that these documents do not constitute enforceable contracts under one or more of the aforementioned doctrines and rescind the contracts.
COUNT VII
The Declaratory Judgment Act, 28 U.S.C.A. § 2201
525. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
526. Assuming arguendo that any of the contracts entered into in this case are enforceable—which they should not be as they were induced by fraud and are otherwise void for the reasons noted herein—certain Plaintiffs signed Area Development Agreements related to certain Plaintiffs’ purchase of PMA “territories.”
527. The language of these Area Development Agreements is riddled with internal conflicts and is, in certain sections, incomprehensible. For example, Section 10(a) details the “[s]ite [s]election [s]ervices” that PMA promises to provide to a franchisee who signs the Area Development Agreement. Section 8, however, notes that PMA purportedly has no “obligation” in
8 Unconscionable provisions include, but are not limited to, the purported arbitration provisions found in the Franchise Agreements. These provisions are unenforceable for a host of different reasons, including, but not limited to, the fact that the provisions themselves were induced by fraud—that is, as detailed above, Defendants’ fraudulent contracting scheme of forcing arbitration provisions into the Franchise Agreements, while, at the same time, attempting to trick franchisees as part of the “on-boarding” process (or otherwise) to sign documents purporting to release the claims purportedly governed by the arbitration provisions means that the franchisees were fraudulently induced to enter into the arbitration provision in the first place.
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connection with any site selection services. Obviously, a party cannot contract to do something and then attempt to contract out of any obligation to do the thing that they have promised to do within the contract. Such would not be a contract.
528. In addition, PMA cannot, for example, agree to an Area Development Agreement that says its “affiliates” have no obligation to the franchisee in connection with any services provided to the franchisee in connection with site selection and, then, simultaneously require the franchisee to use PMA’s vendors as part of the Franchise Agreement. As written, such would make other contracts with affiliates null and void, which does not make sense.
529. In addition, the relationship between these Area Development Agreements and the Franchise Agreements is unclear. For example, the Area Development Agreement provides that it is the “entire agreement of the parties with regard to the subject matter of the Agreement” and then provides that the exclusive venue and forum for an action arising out of or in any way related to this Agreement” are courts in Knox County, Tennessee—not arbitration as the Franchise Agreements purport to require. Likewise, the Area Development Agreements appear to conflict with the Section 2.3 of the Franchise Agreements related to a franchisee’s “Protected Market Area,” as the Area Development Agreement states that PMA does not have to abide by the “Protected Market Area,” which, again, does not make sense.
530. As detailed above, a genuine dispute exists between certain of the parties with respect to their legal rights and obligations as to the Area Development Agreements.
COUNT VIII
Violation of Tennessee Tenn. Code Ann. § 47-18-101, et seq. and other state law equivalents
531. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
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532. Defendants’ conduct described herein constitutes deceptive and unfair trade practices.
533. By engaging in the conduct described herein, Defendants have violated the California Unfair Competition Law and False Advertising Act, Cal. Bus. & Prof. Code § 17200 et seq. and Cal. Bus. & Prof. Code § 17500 et seq., the Colorado Consumer Protection Act, Colo. Rev. Stat. Ann. § 6-1-101 et seq., the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. Ann. § 501.201 et seq., the Georgia Uniform Deceptive Trade Practices Act and Fair Business Practices Act of 1975, Ga. Code Ann. § 10-1-370 et seq. and Ga. Code Ann. § 10-1-390 et seq., the Kansas Consumer Protection Act, Kan. Stat. Ann. § 50-623 et seq., the Michigan Consumer Protection Act, Mich. Comp. Laws Ann. § 445.901 et seq., the Nevada Deceptive Trade Practices Act, Nev. Rev. Stat. Ann. § 41.600 et seq., the North Carolina Consumer Protection Act, N.C. Gen. Stat. Ann. § 75-1.1 et seq., the Ohio Consumer Protection Act, Ohio Rev. Code Ann. § 1345.01 et seq., the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201–1 et seq., the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-101 et seq., and the Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com. Code Ann. § 17.41 et seq.
534. In particular, by engaging in the willful and knowing conduct described above, Defendants have violated the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-101, et seq., by intentionally and knowingly engaging in unfair and deceptive acts including, among others:
(5) Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship approval, status, affiliation or connection that such person does not have;
…
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(7) Representing that goods or services are of a particular standard, quality or grade, or that goods are of a particular style or model, if they are of another;
…
(9) Advertising goods or services with intent not to sell them as advertised;
…
(12) Representing that a consumer transaction confers or involves rights, remedies or obligations that it does not have or involve or which are prohibited by law.
535. Defendants’ conduct described herein was willful, knowing, intentional, and done with malice.
536. As a direct and proximate cause of Defendants’ actions, Plaintiffs have been damaged and are entitled to all remedies and damages permitted under these Consumer Protection Acts, including actual damages, treble damages, attorneys’ fees, and injunctive relief.
COUNT IX Negligence Per Se
537. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
538. The FTC promulgates regulations pertaining to the marketing and sale of franchises. See 16 C.F.R. § 436.1 et seq. These regulations establish a standard of care that franchisors must meet. Among other things, these regulations provide that “[i]t is an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act for any franchise seller covered by part 436 to: (a) [m]ake any claim or representation, orally, visually, or in writing, that contradicts the information required to be disclosed by this part[;] (b) [m]isrepresent that any person… operated a franchise of the type offered by the franchisor [or] . . . [c]an provide an independent and reliable report about the franchise or the experiences of any current or former franchise[;] (c) [d]isseminate any financial performance representations to prospective franchisees unless the franchisor has a reasonable basis and written substantiation for the representation at the time the representation is made;” [or] (h) [d]isclaim or require a
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prospective franchisee to waive reliance on any representation made in the disclosure document or in its exhibits or amendments.” 16 C.F.R. § 436.9.
539. These regulations are intended to protect the public and prospective franchisees, including Plaintiffs.
540. Plaintiffs are within the class of persons intended to be protected by these regulations.
541. Defendants’ conduct as described herein violates each of the aforementioned regulations. For example, Defendants repeatedly made representations that were contradicted by the disclosure documents that Defendants provided to Plaintiffs as required by these regulations, such as that Plaintiffs could operate the Semi-Absentee Model by working no more than 10 hours per week, that Plaintiffs could operate the Semi-Absentee Model with one full-time and one part- time employee, and that the Semi-Absentee Model would result in net profit in excess of 40% to 50%.
542. Defendants also represented that the Owner Validation Calls provided an independent and reliable report regarding the Semi-Absentee Model, when Defendants had instructed these existing owners to lie about the Semi-Absentee Model.
543. Defendants systematically disseminated financial information that Defendants knew was not representative of the Semi-Absentee Model and nonetheless represented that it was representative of the Semi-Absentee Model.
544. Further, Defendants repeatedly attempted to fraudulently induce Plaintiffs to disclaim and waive reliance on the FDDs.
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545. As a direct and proximate cause of Defendants’ actions, Plaintiffs have been damaged and are entitled to actual and punitive damages because Defendants’ conduct was knowing, willful, intentional, and done with malice.
COUNT X Negligent Misrepresentation
546. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
547. In the course of their business and in transactions in which Defendants had a pecuniary interest, Defendants negligently supplied false information to the Plaintiffs as detailed above.
548. Plaintiffs reasonably relied on these statements made by Defendants.
549. Plaintiffs have been damaged as a result of Defendants’ conduct. 
COUNT XI Promissory Fraud
550. Plaintiffs restate and incorporate the allegations set forth in the foregoing
paragraphs.
551. Defendants made promises to perform as described herein with no present intention of performing the promises in order to induce Plaintiffs to become and remain franchisees, including, but not limited to, the provisions in the Franchise Agreements detailed above.
552. Defendants’ conduct described herein was willful, knowing, intentional, and done with malice.
553. As a direct and proximate cause of Defendants’ actions, Plaintiffs have been damaged and are entitled to actual and punitive damages.
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COUNT XII Constructive Fraud
554. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
555. Defendants had a duty to disclose the truth about the Semi-Absentee Model because Defendants represented to Plaintiffs that Defendants were providing accurate information about the Semi-Absentee Model, and Defendants’ actions in providing false financials and arranging misleading Owner Validation Calls further constitute tricks and contrivances intended to defraud Plaintiffs.
556. Defendants’ conduct described herein was willful, knowing, intentional, and done with malice.
557. As a direct and proximate cause of Defendants’ actions, Plaintiffs have been damaged and are entitled to actual and punitive damages.
COUNT XIII Civil Conspiracy
558. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
559. Defendants conspired and agreed to commit the torts described herein with the intent of inducing Plaintiffs to become and remain franchisees in order to enrich themselves.
560. Defendants’ conduct described herein was willful, knowing, intentional, and done with malice.
561. As a direct and proximate cause of Defendants’ actions, Plaintiffs have been damaged and are entitled to actual and punitive damages.
562. Defendants are jointly and severally liable to Plaintiffs for these damages.
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COUNT XIV
Quantum Meruit/Unjust Enrichment
563. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
564. As a result of the conduct described herein, Defendants have become enriched by inducing Plaintiffs to become and remain franchisees, and the circumstances described herein make Defendants’ retention of these amounts unjust.
565. Plaintiffs are entitled to recover the amounts by which Defendants have been enriched as a result of Defendants’ conduct as described herein.
COUNT XV
Violation of Tenn. Code Ann. § 47-25-1501 et seq. and other state law equivalents and/or negligence per se
566. Plaintiffs restate and incorporate the allegations set forth in the foregoing paragraphs.
567. Defendants’ conduct described herein constitutes violations of State statutes regulating the advertising, sale, renewal, modification, and termination of franchises, including Cal. Corp. Code § 31000 et seq., Mich. Comp. Laws Ann. § 445.1501 et seq., N.J. Stat. Ann. § 56:10-1 et seq., N.C. Gen. Stat. Ann. § 66-94 et seq., Ohio Rev. Code Ann. § 1334.01 et seq., Okla. Stat. Ann. tit. 71, § 801 et seq., Tenn. Code Ann. § 47-25-1501 et seq., Tex. Bus. & Com. Code Ann. § 51.001 et seq.
568. By making the misrepresentations described herein, violating the provisions of the FTC Rule, failing to provide the services and products promised, forcing Plaintiffs to sign documents purporting to waive their rights, and otherwise executing their fraudulent scheme, Defendants have violated each of the aforementioned statutes.
569. Defendants’ conduct has directly and proximately caused Plaintiffs harm.
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570. Pursuant to these statutes, Defendants are jointly and severally liable to Plaintiffs for treble damages, costs, and attorney’s fees.
Jury Demand
PLAINTIFFS DEMAND THAT THIS CASE BE TRIED BY A JURY.
WHEREFORE, PREMISES CONSIDERED, Plaintiffs pray that:
1. Plaintiffs be awarded compensatory damages, including, but not limited to, out-of-
pocket losses, lost opportunity costs, interest, and any and all other compensatory damages under the law in an amount to be determined by a jury, but in any event not less than $50,000,000.00;
2. Attorneys’ fees as permitted by law;
3. Treble, statutory and/or punitive damages as permitted by law;
4. The Court enter Declaratory Judgments as requested above;
5. Pursuant to Tenn. Code Ann. § 29-14-101 and § 47-18-109, that the Court enter a 
permanent injunction enjoining Defendants from further engaging in the wrongful conduct detailed above;
6. Plaintiffs be awarded pre-judgment and post-judgment interest as well as all discretionary costs and other relief to which they may be entitled; and
7. Plaintiffs be awarded such other relief, both general and special, to which they may be entitled.

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Respectfully submitted,
/s/ John R. Jacobson
John R. Jacobson (BPR #14365) Stuart A. Burkhalter (BPR #29078) Riley & Jacobson, PLC
1906 West End Avenue
Nashville, TN 37203
Telephone: (615) 320-3700 Facsimile: (615) 320-3737 jjacobson@rjfirm.com sburkhalter@rjfirm.com
Attorneys for Plaintiffs
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