Preview
FILED
DALLAS COUNTY
1/6/2014 4:46:13 PM
GARY FITZSIMMONS
DISTRICT CLERK
CAUSE NO. DC-12-07867
RED MANGO FC, LLC § IN THE DISTRICT COURT
Plaintiff/Counter-Defendant, §
§
vs. §
§
HOWARD GROSSER § 160th JUDICIAL DISTRICT
Defendant/Counter-Plaintiff, §
and §
§
PHROZEN ASSETS LLC DALLAS COUNTY, TEXAS
§
Third-Party Plaintiff.
§
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE
CONCERNING DAMAGES AT TRIAL
Plaintiff Red Mango FC, LLC (“Red Mango”) files this Motion to Strike Counter-Plaintiffs
Howard Grosser and Phrozen Assets, LLC’s (collectively “Grosser”) untimely-filed disclosure
responses and Motion to Exclude evidence regarding Grosser’s damages as set forth in the untimely-
filed disclosure responses, and would respectfully show in support thereof as follows:
SUMMARY
1. This lawsuit has been pending for over 17 months, and trial is set for January 21, 2014.
2. Despite amending his pleading four times over the course of the past 17 months, Grosser waited
until December 26, 2013 – less than 30 days before trial – to file his Second Amended Disclosure
Responses, where – for the first time – Grosser seeks rescission and over $2.5 million in economic and
special damages.
3. Red Mango moves to exclude all evidence related to Grosser’s claim for rescission and the
calculation of damages asserted in his untimely-served initial disclosures because Grosser cannot show
good cause for such untimely disclosure, and introduction of such evidence at trial will cause unfair
surprise and prejudice to Red Mango.
II.
FACTUAL & PROCEDURAL BACKGROUND
4. On July 17, 2012, Red Mango initiated this lawsuit against Grosser.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 1 OF 9
5. On September 11, 2012, Red Mango served upon Grosser its Requests for Disclosure, in part
seeking “the amount and any method of calculating economic damages.”
6. On October 9, 2012, Grosser responded to Red Mango’s disclosure requests, stating that “Grosser
has not made any affirmative claims against Red Mango in this lawsuit.”1
7. On February 7, 2013, Grosser filed his Amended Answer and Original Counterclaims, where
Grosser alleged counterclaims for breach of contract, unjust enrichment, fraudulent inducement, fraud,
promissory fraud, and negligent misrepresentation; and made the generic prayer “for all amounts proven
at trial”, exemplary and punitive damages, and attorneys’ fees.2
8. On April 15, 2013, Grosser updated his disclosure responses to state the following:
“Grosser and Phrozen Assets seek damages for fraud, fraudulent inducement, breach of
contract, and violations of the applicable franchising acts. On his fraudulent inducement
claim, Grosser seeks to recover allfunds that he expended in pursuing, opening, and
operating a Mango franchise. Grosser and Phrozen Assets will supplement this
response to provide the specific amount and method of calculating economic
damages.”3
9. On October 10, 2013, Grosser filed his Second Amended Answer and Original Counterclaims,
where he added new counterclaims: breach of the covenant of good faith and fair dealing, violation of the
Texas DTPA; violation of the Florida DTPA, violation of the Massachusetts Consumer Protection Act;
and violation of the Florida Franchises and Distributorships Law.4 Grosser’s prayer for damages
remained the same and unspecific.
10. On December 26, 2013-less than 30 days before trial-Grosser served his Second Amended
Disclosure Responses, where, for the first time ever, Grosser attempted to provide a damages model under
the theory of rescission:5
1
A true and correct copy of Grosser’s initial disclosure responses are attached as Exhibit A.
2
See Defendant/Counter-Plaintiff’s Amen. Ans. And Orig. Counterclaims (Feb. 7, 2013).
3
A true and correct copy of Grosser’s First Amen. Disclosure Responses are attached as Exhibit B.
4
See Defendant/Counter-Plaintiff’s Second Amen. Ans. and Orig. Counterclaims (Oct. 10, 2013).
5
A true and correct copy of Grosser’s Second Amen. Disclosure Responses are attached as Exhibit C.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 2 OF 9
11. To support the above figures, Grosser attempts to incorporate by reference Grosser’s Motion for
Partial Summary Judgment filed on November 25, 2013 and Grosser’s Response to Red Mango’s
summary-judgment motion filed on December 13, 2013.6 Neither of these pleadings support the damages
model disclosed in Grosser’s untimely-filed disclosure responses.
12. Given Grosser’s unexpected prayer for rescission and $2.5 million dollars in damages sought
within a couple of weeks before trial, Red Mango brings this Motion.
III. ARGUMENT & AUTHORITIES
13. Rule 194.2(d) requires a party, upon request, to disclose “the amount and any method of
calculating economic damages . . . .”
14. Rule 193.6 mandates that a court exclude evidence that is untimely served, and such exclusion is
automatic, unless the court determines either that (1) there was "good cause" for the failure to timely
6
Id., pp. 10-11.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 3 OF 9
make or supplement the damages disclosures, or (2) "the failure . . . will not unfairly surprise or unfairly
prejudice the other parties."7
15. The burden of establishing good cause or the lack of unfair surprise or unfair prejudice is on the
party seeking to introduce the evidence or call the witness.8 In this case, the burden is on Grosser.
16. The Texas Supreme Court has made it clear that an attorney should not be excused from the
requirements of the rule without a strict showing of good cause.9 The following factors, standing alone,
do not constitute as good cause: inadvertence of counsel, lack of surprise, or uniqueness of the excluded
evidence.10 The purpose of this rule and its accompanying sanction is to prevent trial by ambush.11
17. Under Rule 193.5, a duty to amend or supplement discovery responses arises "if a party learns
that the party's response to written discovery was incomplete or incorrect when made."12 If the written
discovery sought information other than the identification of witnesses, the duty to supplement arises
“unless the additional or corrective information has been made known to the other parties in writing, on
the record at a deposition, or through other discovery responses.”13
18. For example, In Talley Constru. Co. v. Rodriguez, the trial court properly allowed the admission
of evidence concerning economic damages, where the record showed that the representations of the debt
made in a letter to the company attached to the original petition included details of the alleged oral
agreement, the payments received, and the remaining unpaid balance.14
19. In contrast, in Robinson v. Lubbering, the trial court properly excluded evidence concerning
economic damages where the party’s disclosures lacked any explanation as to how damages were
calculated and such calculation was not provided through any other means.15 The court held that such
failure to disclose a basic damages model until trial would constitute unfair surprise and unfair prejudice
7
Tex. R. Civ. P. § 193.6(a).
8
Tex. R. Civ. P. § 193.6(b).
9
Alvarado v. Farah Mfg. Co., 830 S.W.2d 911, 915 (Tex. 1992).
10
Id.; See also Sharp v. Broadway Nat'l Bank, 784 S.W.2d 669, 671 (Tex. 1990) (per curiam).
11
See Aetna Cas & Sur. Co. v. Specia, 849 S.W.2d 805, 807 (Tex. 1993).
12
Tex. R. Civ. P. § 193.5.
13
Id.
14
Talley Constr. Co. v. Rodriguez, 2006 Tex. App. LEXIS 104 (Tex. App. Houston 1st Dist. Jan. 5 2006).
15
Robinson v. Lubbering, 2011 Tex. App. LEXIS 1592, *13 - 14 (Tex. App. Austin Mar. 2, 2011).
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 4 OF 9
to the opposing party and that the trial court would have abused its discretion by allowing such evidence
to be admitted.16
20. Similarly, in Reservoir Sys, v. TGS-NOPEC Geophysical CO, the court properly excluded
Reservoir’s damages evidence where, although Reservoir had provided some evidence of damages
through responses to production requests and response to summary judgment, Reservoir could not
provide to the court the amount and method of calculating the damages that it intended to present at
trial.17 On appeal, Reservoir argued that it had timely made the calculation of damages available in his
responses to TGS’s summary-judgment motion and related affidavit attached as evidence in the summary-
judgment response in which Reservoir averred that the total value of the contract was going to be $193
million. The appellate court disagreed, stating that “we cannot say that Reservoir’s opinion of the gross
value of their contract and some invoices equate to a damages model.”18
21. After over 17 months of litigation, Grosser cannot show good cause for serving untimely Second
Amended Disclosure Responses. The introduction of evidence based on Grosser’s newly-alleged
calculation of damages causes unfair surprise and prejudice to Red Mango because: 1. although Grosser
has had over 17 months to disclose a proper damages model, he waited until 26 days before trial to
disclose his alleged damages; 2. Red Mango has not had an opportunity to conduct discovery on many of
Grosser’s newly-alleged damages, including his claim for rescission, mental anguish, and a 4-month
closure of an inn; and 3. Grosser’s untimely-served Second Amended Disclosure Responses still do not
present a cognizable damages model that puts Red Mango on notice of Grosser’s claims.
16
Id. (The court also held that the responsibility for discerning the damages calculation is on the party who intends
to present the evidence at trial. “The discovery rules, as previously indicated, instead place the responsibility on
Robinson to timely provide and supplement his basic damages contentions. The district court would not have abused
its discretion in finding that Robinson failed to meet that burden and further failed to demonstrate good cause or lack
of unfair surprise or unfair prejudice to AnyWare. Consequently, the district court had no discretion but to exclude
Robinson's damages evidence.”).
17
Reservoir Sys. v. TGS-NOPEC Geophysical Co., L.P., 335 S.W.3d 297, 310 (Tex. App. Houston 14th Dist.
2010).
18
Id. at 311.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 5 OF 9
A. Grosser’s Second Amended Disclosure Responses are untimely because they were filed just
26 days before trial.
22. Like Robinson and Reservoir, Grosser has failed, without good cause, to timely and properly
disclose a cognizable calculation of damages, thus causing unfair surprise and prejudice to Red Mango.
Although Grosser had over 17 months to update his disclosures, until recently, Grosser’s disclosure
responses have merely stated that “Grosser and Phrozen Assets will supplement this response to provide
the specific amount and method of calculating economic damages.”19
23. Now, less than 30 days before trial, Grosser attempts to serve Red Mango with Second Amended
Disclosure Responses where, for the firsttime, Grosser asserts a claim for rescission and asserts an
arbitrary calculation of damages to the tune of $2.5 million dollars.20
24. Like Reservoir, Grosser attempts to incorporate by reference his response to Red Mango’s
summary-judgment motion and the correlating affidavit Grosser used in support of such response.
Grosser’s summary-judgment response and affidavit, however, do not provide a proper damages model
and are inconsistent with the information provided in Grosser’s Second Amended Disclosure Responses.
25. Specifically, in Grosser’s affidavit (which is subject to Red Mango’s Motion to Strike) Grosser
makes the conclusory statement that part of his damages include: 21
• “my costs for training, construction, furniture fixtures, equipment, inventory and
operating losses – more than $500,000”,
• “interest on my construction note – more than $50,000”,
• “interest on my attorney’s (not my litigation attorneys, my real estate attorney in
Florida related to my closed store) fees note – more than $15,000”,
• “my emotional distress casue (sic) by Mango - $5,000,000.”
26. Such general and conclusory assertions about what Grosser thinks, in his self-severing affidavit,
his damages might include cannot be said to equate to a cognizable damages model that would put Red
19
See Exhibit B.
20
See Exhibit C.
21
A true and correct copy of Grosser’s Affidavit dated December 11, 2013 is attached as Exhibit D.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 6 OF 9
Mango on notice of Grosser’s damages claim.
B. Red Mango has had no opportunity to conduct discovery on Grosser’s newly-alleged claim
for rescission or damages.
27. In addition to having no notice of Grosser’s claim for rescission, many of Grosser’s alleged
“damages” have not been previously disclosed to Red Mango during the 17 months this case has been on
file,and Red Mango has had no opportunity to conduct discovery on such claims. Specifically, Red
Mango has not had an opportunity to conduct discovery on the following claim for damages:
• “Complete rescission of the Franchise Agreement”
• “Closing the Inn for 4 Months” - Presumably, this is the bed and breakfast that Grosser (or
one of Grosser’s many corporate entities) has owned and operated for several years. In
addition to such claim for damages being completely unforeseeable, Grosser has provided no
documentation to show how he arrived at this $175,000 figure. Moreover, it is unclear who
was allegedly harmed – Grosser, Phrozen, or perhaps the entity that owns the bed and
breakfast? It is impossible to tell.
• “My time as project manager and construction superintendent” Presumably this is the time
Grosser spent during the construction phase of his Store, but Red Mango has not been able to
conduct any discovery on this assertion, nor has Grosser provided any document to show how
he arrived at this $250,000 figure.
• “Interest on Construction Note” – Despite Red Mango’s discovery requests that Grosser
provide such information, Grosser has never provided any documentation in connection with
this alleged construction note. Further, it is unclear whether this is a claim asserted by
Grosser or Phrozen.
• “Interest on attys’ fees note” – Despite Red Mango’s discovery requests that Grosser provide
such information, Grosser has never provided any documentation in connection with this
alleged attorney’s fees note, and again, it is unclear whether this is a damage Grosser or
Prhozen is asserting.
• “Emotional Distress” – Grosser arbitrarily claims five million dollars in emotional distress in
his self-serving affidavit and one million dollars in his Second Amended Disclosure
Responses. Red Mango has had no opportunity to conduct discovery on Grosser’s alleged
“emotional distress”.22
28. Because Red Mango has not had an opportunity to conduct discovery on these claims, allowing
Grosser to present evidence of such damages at trial would cause unfair surprise and prejudice to Red
Mango.
22
See Exhibit C.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 7 OF 9
C. Grosser still has not presented a cognizable damages model that would put Red Mango on
notice of his claims.
29. Not only are Grosser’s Second Amended Disclosure Responses untimely served, but they still do
not provide a proper damages model that would put Red Mango on notice of Grosser’s damages claims.
30. First, both Grosser and Phrozen Assets, LLC have asserted counterclaims against Red Mango, but
Grosser’s Second Amended Disclosures make no attempt to distinguish Grosser’s damages from those of
Phrozen.
31. Second, Grosser combines his expenditures for training, construction, furniture, fixtures,
equipment, inventory, and operating losses into a lump sum $484,039.17 figure, but gives no explanation
of how those expenditures are broken down. Adding to the confusion is the fact that, previous
documentation provided by Grosser during discovery does not match this $484,039.17 figure.
32. For example, Grosser states in his affidavit attached hereto as Exhibit E that the total investment
of his store cost “more than $500,000.”23 Presumably this total investment necessary to begin operation
of his store would not include “operating losses”. In response to Red Mango’s request that Grosser
produce “all documents evidencing in any way your statement that your “total investment necessary to
begin operation of my Red Mango store exceeded $456,600.00”, Grosser provided an “FDD Total
Investment” breakdown showing a total of $483,760.24 This figure also did not account for “operating
losses”, and included unrelated expenditures such as reservation software for Grosser’s bed and breakfast;
eye glasses from LensCrafters, Jiffy Lube charges for oil changes on Grosser’s personal truck, and movie
rental charges from Blockbuster.25 Because Grosser’s newly-disclosed list of “damages” still provides no
discernible breakdown of Grosser’s expenditures, such evidence should be excluded from trial.
33. Last, Grosser’s list of alleged damages does not clearly distinguish which damages he is alleging
for each particular cause of action. Grosser seeks rescission of the Franchise Agreement, so, although it is
unclear from his disclosures, presumably the $2.5 million dollar claim for damages is what Grosser
23
A true and correct copy of Grosser’s Affidavit dated February 8, 2013 is attached as Exhibit E.
24
A true and correct copy of the production response is attached as Exhibit F.
25
See a true and correct copy of Phrozen’s deposition excerpt attached hereto as Exhibit G.
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 8 OF 9
alleges he is entitled to restore him to the status quo prior to the execution of the Franchise Agreement.
This $2.5 million dollar figure, however, does not account for the expenditures Red Mango incurred in
connection with the Franchise Agreement that would enable it to return to the status quo as well. Thus,
Grosser’s calculation of damages is still wholly defective and does not put Red Mango on notice of any
clear calculation of damages.
34. Grosser cannot show good cause for such untimely submission of disclosures. This case has been
on file for over 17 months. Grosser amended his answer and counterclaims three times before December
26, 2013. In between the timely amendments, Grosser had ample opportunity to specifically list his
damages and the calculations behind his figures but has failed to do so. The admission of this new
evidence of Grosser’s damages would cause unfair surprise and great prejudice to Red Mango, and as
such, it must be excluded pursuant to Rule 193.6.
CONCLUSION & PRAYER
WHEREFORE, PREMISES CONSIDERED, Red Mango respectfully requests that the Court
grant this Motion and submit an order to exclude evidence related to Grosser’s claim for rescission and
evidence of damages asserted in his untimely-served initial disclosures pursuant to Rule 193.6 and that
Red Mango be granted such further relief to which it may be entitled.
Respectfully submitted,
MULLIN LAW, PC
______________________________
Christianne Edlund
Texas State Bar No. 24072083
Cheryl Mullin
Texas State Bar No. 24037807
2425 N. Central Expy., Suite 200
Richardson, Texas 75080
(972) 931-0022 – Telephone
(972) 931-0124 – Facsimile
COUNSEL FOR PLAINTIFF
PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 9 OF 9
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of this Motion to Exclude has been served on all
parties, through their respective counsel of record, in this case on January 6, 2014.
______________________________
Christianne Edlund
CERTIFICATE OF CONFERENCE
I hereby certify that I conferred with Christopher J. Akin about the merits of this
Motion to Exclude on January 2, 2014 and the motion is opposed.
______________________________
Christianne Edlund
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
EXHIBIT A
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the above and foregoing was served via e-
mail on this 9th day of October, 2012 to the following:
Christianne Edlund
Mullin Law, PC
2425 N. Central Expy., Ste. 200
Richardson, TX 75080
Mitchell J. Kassoff
DEFENDANT HOWARD GROSSER’S RESPONSES TO PLAINTIFF’S
REQUEST FOR DISCLOSURE - Page 1
EXHIBIT B
CAUSE NO. DC-12-07867
RED MANGO FC, LLC, § IN THE DISTRICT COURT
§
Plaintiff-Counterdefendant, §
§
v. § 160TH JUDICIAL DISTRICT
§
HOWARD GROSSER and PHROZEN §
ASSETS LLC §
§
Defendant-Counterplaintiff § DALLAS COUNTY, TEXAS
and Third-Party Plaintiff §
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
TO: Red Mango FC, LLC by and through its attorney of record, Cheryl Mullin and
Christianne Edlund, MULLIN LAW, P.C., 2425 N. Central Expressway, Suite 200,
Richardson, Texas 75080.
Defendant Howard Grosser (“Defendant” and or “Grosser”) and Phrozen Assets LLC
serve the following first amended responses to Plaintiff Red Mango FC, LLC’s (“Plaintiff” and or
“Red Mango”) Request for Disclosure.
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 1 OF 21
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
02505-201/4833-0025-3971
EXHIBIT B
RESPONSES TO REQUEST FOR DISCLOSURE
REQUEST FOR DISCLOSURE 194.2(a): The correct names of the parties to this lawsuit.
ANSWER: The correct names of the parties to this lawsuit are Red Mango FC, LLC, Howard
Grosser, and Phrozen Assets LLC.
REQUEST FOR DISCLOSURE 194.2(b): The name, address, and telephone number of any
potential parties.
ANSWER: Grosser is not presently aware of any potential parties to this lawsuit at this time.
REQUEST FOR DISCLOSURE 194.2(c): The legal theories and, in general, the factual
bases of the responding party’s claims or defenses.
ANSWER: The factual basis of Grosser's defenses in this suit is that Plaintiff is barred
from recovery against Grosser due to Plaintiffs wrongful actions and omissions committed
against Grosser in connection with Grosser's agreement to become a franchisee of
Plaintiff.
The case involves a franchise purchased from Plaintiff by Grosser in February 2011.
Plaintiff made several misrepresentations to Grosser to induce him to become a franchisee of
Plaintiff. Those misrepresentations include, but are not limited to, the number of franchises
Plaintiff had sold, the cost necessary to build out and open the store, that Plaintiff has never
abandoned a location and/or closed a store, providing a false projection of profits, and that the
average profit generated was 10% of revenue. Plaintiff also violated several duties owed to
Grosser by approving the location of Grosser's store as determined by its real estate broker,
requiring Grosser to utilize the services of its contractors (which were incompetent, caused
unnecessary delays and expenses, and delayed the opening of the store), paying monies to a
contractor which Plaintiff agreed it would hold in escrow, and failing to provide services,
consultation, and advertising and marketing support to Grosser in the opening of the store and
thereafter.
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 2 OF 21
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
02505-201/4833-0025-3971
EXHIBIT B
The facts set forth above are the basis for the affirmative defenses of failure of
consideration, fraud, estoppel, unclean hands, illegality, violations of state and federal law, and
Plaintiff's violation of the contract between the parties.
In addition, Grosser and Phrozen Assets, LLC have now asserted claims against Red
Mango. Specifically, before signing the Franchise Agreement, Grosser relied on a number of
material misrepresentations by Red Mango, resulting in Grosser suffering great harm by entering
into the Franchise Agreement and expending hundreds of thousands of dollars that he would not
otherwise have spent. The written and oral misrepresentations before Grosser signed the
Franchise Agreement are summarized below.
Written Misrepresentations Before Grosser Signed Franchise Agreement
On or about December 23, 2010, Red Mango provided Grosser with a
FranchiseDisclosure Document (“FDD”) purporting to “summarize[] certain provisions of the
franchise agreement, store development agreement, and other information in plain language.”
Grosser’s franchise was located inside the Galleria Mall in Fort Lauderdale, Florida. The
FDD describes three types of franchise opportunities: the Traditional Store, the Non-Traditional
Outlet, and the Self-Serve Store. The FDD defines a Self-Serve Store as one which “occupies
approximately 1,400 to 2,000 square feet … and is typically located on a major thoroughfare, in
or adjacent to a retail strip mall, or in an urban storefront.” This type of store is inapplicable to
Grosser’s franchise.
The FDD defines a Traditional Store as “a full service Store offering a variety of flavors”
and occupying “approximately 1,000 to 1,200 square feet of commercial space.” Further, a
Traditional Store is typically located on a major thoroughfare, in or adjacent to a retail strip mall
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 3 OF 21
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
02505-201/4833-0025-3971
EXHIBIT B
or shopping center, or in an urban storefront. This type of store is inapplicable to Grosser’s
franchise.
Under the FDD, a “Non-Traditional Store offers limited or no seating (for example as in a
shopping mall environment) and may offer limited product selections. It typically occupies
approximately 250 to 800 square feet of commercial space and typically is located within an
enclosed shopping mall, college campus or other closed market environment.” Grosser’s store
offers no seating, occupies 703 square feet and is within an enclosed shopping mall. This
definition clearly and unambiguously applies to Grosser’s franchise located in the Galleria Mall.
The Franchise Agreement discloses two alternative franchise fees: a $35,000 fee for a
Traditional or Self-Serve Store, and a $17,500 fee for a Non-Traditional Store. Despite the fact
that the FDD clearly defines Grosser’s store as a Non-Traditional Store, Mango charged him the
higher $35,000 fee applicable to a Traditional or Self-Serve Store.
The FDD also contains the following additional misrepresentations by Mango:
Mango represented that Grosser’s total investment would be in the range of
$180,000 to $354,500 when the total investment in fact was closer to
$600,000.
Mango represented that permits would cost between $1,500 to $5,000, when
Grosser in fact had to pay well over $5,000 for permits.
Mango represented that interior improvements and lighting would cost
$50,000 to $110,000, when these items actually cost over $194,900.
Mango represented that equipment furniture and smallwares would cost
$50,000 to $100,000 when these items actually cost over $128,000.
Mango represented that typical rent costs usually range from $2.00 to $8.00
per square foot, yet Grosser’s lease negotiated by Mango cost more than
$11.00 per square foot.
Mango represented that 30-35% of Grosser’s total annual operating expenses
would be for goods or services subject to sourcing restrictions, but Grosser
actually had to spend more than 40% on such goods or services.
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 4 OF 21
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
02505-201/4833-0025-3971
EXHIBIT B
Oral Misrepresentations Before Grosser Signed Franchise Agreement.
Before Grosser signed the Franchise Agreement, Mango also made a number of verbal
misrepresentations that Grosser relied upon. First, Mango’s authorized representatives provided
Grosser with materially false information that was intended to induce Grosser to sign the
Franchise Agreement. For example, Mango provided Grosser with the following information
that Grosser believes is false:
Mango represented that no Mango store had ever been closed or abandoned.
Mango represented that many stores are company owned.
Mango represented, at the time Grosser’s initial contact with Mango’s
broker, that the average Mango store does $520,000 in annual sales.
Mango represented, at the time that Grosser was induced to sign the
Franchise Agreement that the average Mango store’s annual sales had
increased to $550,000.
Mango represented that its consistent goal is to reduce the cost of entry for
new stores.
Mango represented that the average cost of operating a Mango store is 90%
of sales.
Mango represented that it was on track to have 200 stores open by the end of
2011.
Mango represented that there are dozens of above average locations in North
Broward County, and further represented that “We’ll find you one.”
Mango represented that a store’s costs of goods is 25-32% of sales.
Having made these critical factual representations, Mango made additional
misrepresentations to induce Grosser to sign the franchise agreement. Knowing that Grosser was
relying upon Mango’s franchising expertise, Mango represented that the Franchise Agreement
was being offered on a take it or leave it basis, and that he should not bother retaining an attorney
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 5 OF 21
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
02505-201/4833-0025-3971
EXHIBIT B
to propose changes because all proposed changes would be rejected. Mango also told Grosser
that he had to check the boxes on the form stating that no representations had been made as a
technical requirement, and Mango had not been making “representations” but merely had shared
information that it knew. Mango never told Grosser that he would be waiving any legal rights by
signing the Franchise Agreement or the related checklist.
In addition, once Grosser signed the Franchise Agreement, Grosser and Phrozen Assets,
LLC relied upon additional misrepresentations by Mango. Mango also breached its contractual
obligations under the Franchise Agreement. Mango’s misconduct is summarized below.
Mango Selects a Store Location Doomed to Failure.
After inducing and pressuring Grosser into signing the Franchise Agreement, Mango
promised to find an above average store location. This is exactly the sort of decision where
Grosser expected to benefit from the knowledge and experience of a supposedly growing and
successful franchisor.
Through the broker Mango required Grosser to employ, Mango recommended a location
in the Galleria Mall. Significantly, Starbuck’s had recently abandoned the very same location,
but Mango failed to disclose this critical fact.
The location is wholly unsuitable for Grosser’s store. Notwithstanding Grosser’s best
efforts, the location simply does not attract sufficient traffic to sustain a successful franchise
location. If Mango had disclosed that Starbuck’s, arguably the world’s most successful
franchise, had abandoned the very same location, Grosser never would have agreed to the
Galleria Mall location recommended by Mango.
DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 6 OF 21
TO PLAINTIFF’S REQUEST FOR DISCLOSURE
02505-201/4833-0025-3971
EXHIBIT B
Mango Recommends a Grossly Incompetent Contractor for Grosser’s Store.
Following execution of the Franchise Agreement, Grosser also relied upon Mango to
choose a qualified furniture/fixture/equipment/millwork/casework contractor for
Preview
FILED DALLAS COUNTY 1/6/2014 4:46:13 PM GARY FITZSIMMONS DISTRICT CLERK CAUSE NO. DC-12-07867 RED MANGO FC, LLC § IN THE DISTRICT COURT Plaintiff/Counter-Defendant, § § vs. § § HOWARD GROSSER § 160th JUDICIAL DISTRICT Defendant/Counter-Plaintiff, § and § § PHROZEN ASSETS LLC DALLAS COUNTY, TEXAS § Third-Party Plaintiff. § PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL Plaintiff Red Mango FC, LLC (“Red Mango”) files this Motion to Strike Counter-Plaintiffs Howard Grosser and Phrozen Assets, LLC’s (collectively “Grosser”) untimely-filed disclosure responses and Motion to Exclude evidence regarding Grosser’s damages as set forth in the untimely- filed disclosure responses, and would respectfully show in support thereof as follows: SUMMARY 1. This lawsuit has been pending for over 17 months, and trial is set for January 21, 2014. 2. Despite amending his pleading four times over the course of the past 17 months, Grosser waited until December 26, 2013 – less than 30 days before trial – to file his Second Amended Disclosure Responses, where – for the first time – Grosser seeks rescission and over $2.5 million in economic and special damages. 3. Red Mango moves to exclude all evidence related to Grosser’s claim for rescission and the calculation of damages asserted in his untimely-served initial disclosures because Grosser cannot show good cause for such untimely disclosure, and introduction of such evidence at trial will cause unfair surprise and prejudice to Red Mango. II. FACTUAL & PROCEDURAL BACKGROUND 4. On July 17, 2012, Red Mango initiated this lawsuit against Grosser. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 1 OF 9 5. On September 11, 2012, Red Mango served upon Grosser its Requests for Disclosure, in part seeking “the amount and any method of calculating economic damages.” 6. On October 9, 2012, Grosser responded to Red Mango’s disclosure requests, stating that “Grosser has not made any affirmative claims against Red Mango in this lawsuit.”1 7. On February 7, 2013, Grosser filed his Amended Answer and Original Counterclaims, where Grosser alleged counterclaims for breach of contract, unjust enrichment, fraudulent inducement, fraud, promissory fraud, and negligent misrepresentation; and made the generic prayer “for all amounts proven at trial”, exemplary and punitive damages, and attorneys’ fees.2 8. On April 15, 2013, Grosser updated his disclosure responses to state the following: “Grosser and Phrozen Assets seek damages for fraud, fraudulent inducement, breach of contract, and violations of the applicable franchising acts. On his fraudulent inducement claim, Grosser seeks to recover allfunds that he expended in pursuing, opening, and operating a Mango franchise. Grosser and Phrozen Assets will supplement this response to provide the specific amount and method of calculating economic damages.”3 9. On October 10, 2013, Grosser filed his Second Amended Answer and Original Counterclaims, where he added new counterclaims: breach of the covenant of good faith and fair dealing, violation of the Texas DTPA; violation of the Florida DTPA, violation of the Massachusetts Consumer Protection Act; and violation of the Florida Franchises and Distributorships Law.4 Grosser’s prayer for damages remained the same and unspecific. 10. On December 26, 2013-less than 30 days before trial-Grosser served his Second Amended Disclosure Responses, where, for the first time ever, Grosser attempted to provide a damages model under the theory of rescission:5 1 A true and correct copy of Grosser’s initial disclosure responses are attached as Exhibit A. 2 See Defendant/Counter-Plaintiff’s Amen. Ans. And Orig. Counterclaims (Feb. 7, 2013). 3 A true and correct copy of Grosser’s First Amen. Disclosure Responses are attached as Exhibit B. 4 See Defendant/Counter-Plaintiff’s Second Amen. Ans. and Orig. Counterclaims (Oct. 10, 2013). 5 A true and correct copy of Grosser’s Second Amen. Disclosure Responses are attached as Exhibit C. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 2 OF 9 11. To support the above figures, Grosser attempts to incorporate by reference Grosser’s Motion for Partial Summary Judgment filed on November 25, 2013 and Grosser’s Response to Red Mango’s summary-judgment motion filed on December 13, 2013.6 Neither of these pleadings support the damages model disclosed in Grosser’s untimely-filed disclosure responses. 12. Given Grosser’s unexpected prayer for rescission and $2.5 million dollars in damages sought within a couple of weeks before trial, Red Mango brings this Motion. III. ARGUMENT & AUTHORITIES 13. Rule 194.2(d) requires a party, upon request, to disclose “the amount and any method of calculating economic damages . . . .” 14. Rule 193.6 mandates that a court exclude evidence that is untimely served, and such exclusion is automatic, unless the court determines either that (1) there was "good cause" for the failure to timely 6 Id., pp. 10-11. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 3 OF 9 make or supplement the damages disclosures, or (2) "the failure . . . will not unfairly surprise or unfairly prejudice the other parties."7 15. The burden of establishing good cause or the lack of unfair surprise or unfair prejudice is on the party seeking to introduce the evidence or call the witness.8 In this case, the burden is on Grosser. 16. The Texas Supreme Court has made it clear that an attorney should not be excused from the requirements of the rule without a strict showing of good cause.9 The following factors, standing alone, do not constitute as good cause: inadvertence of counsel, lack of surprise, or uniqueness of the excluded evidence.10 The purpose of this rule and its accompanying sanction is to prevent trial by ambush.11 17. Under Rule 193.5, a duty to amend or supplement discovery responses arises "if a party learns that the party's response to written discovery was incomplete or incorrect when made."12 If the written discovery sought information other than the identification of witnesses, the duty to supplement arises “unless the additional or corrective information has been made known to the other parties in writing, on the record at a deposition, or through other discovery responses.”13 18. For example, In Talley Constru. Co. v. Rodriguez, the trial court properly allowed the admission of evidence concerning economic damages, where the record showed that the representations of the debt made in a letter to the company attached to the original petition included details of the alleged oral agreement, the payments received, and the remaining unpaid balance.14 19. In contrast, in Robinson v. Lubbering, the trial court properly excluded evidence concerning economic damages where the party’s disclosures lacked any explanation as to how damages were calculated and such calculation was not provided through any other means.15 The court held that such failure to disclose a basic damages model until trial would constitute unfair surprise and unfair prejudice 7 Tex. R. Civ. P. § 193.6(a). 8 Tex. R. Civ. P. § 193.6(b). 9 Alvarado v. Farah Mfg. Co., 830 S.W.2d 911, 915 (Tex. 1992). 10 Id.; See also Sharp v. Broadway Nat'l Bank, 784 S.W.2d 669, 671 (Tex. 1990) (per curiam). 11 See Aetna Cas & Sur. Co. v. Specia, 849 S.W.2d 805, 807 (Tex. 1993). 12 Tex. R. Civ. P. § 193.5. 13 Id. 14 Talley Constr. Co. v. Rodriguez, 2006 Tex. App. LEXIS 104 (Tex. App. Houston 1st Dist. Jan. 5 2006). 15 Robinson v. Lubbering, 2011 Tex. App. LEXIS 1592, *13 - 14 (Tex. App. Austin Mar. 2, 2011). PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 4 OF 9 to the opposing party and that the trial court would have abused its discretion by allowing such evidence to be admitted.16 20. Similarly, in Reservoir Sys, v. TGS-NOPEC Geophysical CO, the court properly excluded Reservoir’s damages evidence where, although Reservoir had provided some evidence of damages through responses to production requests and response to summary judgment, Reservoir could not provide to the court the amount and method of calculating the damages that it intended to present at trial.17 On appeal, Reservoir argued that it had timely made the calculation of damages available in his responses to TGS’s summary-judgment motion and related affidavit attached as evidence in the summary- judgment response in which Reservoir averred that the total value of the contract was going to be $193 million. The appellate court disagreed, stating that “we cannot say that Reservoir’s opinion of the gross value of their contract and some invoices equate to a damages model.”18 21. After over 17 months of litigation, Grosser cannot show good cause for serving untimely Second Amended Disclosure Responses. The introduction of evidence based on Grosser’s newly-alleged calculation of damages causes unfair surprise and prejudice to Red Mango because: 1. although Grosser has had over 17 months to disclose a proper damages model, he waited until 26 days before trial to disclose his alleged damages; 2. Red Mango has not had an opportunity to conduct discovery on many of Grosser’s newly-alleged damages, including his claim for rescission, mental anguish, and a 4-month closure of an inn; and 3. Grosser’s untimely-served Second Amended Disclosure Responses still do not present a cognizable damages model that puts Red Mango on notice of Grosser’s claims. 16 Id. (The court also held that the responsibility for discerning the damages calculation is on the party who intends to present the evidence at trial. “The discovery rules, as previously indicated, instead place the responsibility on Robinson to timely provide and supplement his basic damages contentions. The district court would not have abused its discretion in finding that Robinson failed to meet that burden and further failed to demonstrate good cause or lack of unfair surprise or unfair prejudice to AnyWare. Consequently, the district court had no discretion but to exclude Robinson's damages evidence.”). 17 Reservoir Sys. v. TGS-NOPEC Geophysical Co., L.P., 335 S.W.3d 297, 310 (Tex. App. Houston 14th Dist. 2010). 18 Id. at 311. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 5 OF 9 A. Grosser’s Second Amended Disclosure Responses are untimely because they were filed just 26 days before trial. 22. Like Robinson and Reservoir, Grosser has failed, without good cause, to timely and properly disclose a cognizable calculation of damages, thus causing unfair surprise and prejudice to Red Mango. Although Grosser had over 17 months to update his disclosures, until recently, Grosser’s disclosure responses have merely stated that “Grosser and Phrozen Assets will supplement this response to provide the specific amount and method of calculating economic damages.”19 23. Now, less than 30 days before trial, Grosser attempts to serve Red Mango with Second Amended Disclosure Responses where, for the firsttime, Grosser asserts a claim for rescission and asserts an arbitrary calculation of damages to the tune of $2.5 million dollars.20 24. Like Reservoir, Grosser attempts to incorporate by reference his response to Red Mango’s summary-judgment motion and the correlating affidavit Grosser used in support of such response. Grosser’s summary-judgment response and affidavit, however, do not provide a proper damages model and are inconsistent with the information provided in Grosser’s Second Amended Disclosure Responses. 25. Specifically, in Grosser’s affidavit (which is subject to Red Mango’s Motion to Strike) Grosser makes the conclusory statement that part of his damages include: 21 • “my costs for training, construction, furniture fixtures, equipment, inventory and operating losses – more than $500,000”, • “interest on my construction note – more than $50,000”, • “interest on my attorney’s (not my litigation attorneys, my real estate attorney in Florida related to my closed store) fees note – more than $15,000”, • “my emotional distress casue (sic) by Mango - $5,000,000.” 26. Such general and conclusory assertions about what Grosser thinks, in his self-severing affidavit, his damages might include cannot be said to equate to a cognizable damages model that would put Red 19 See Exhibit B. 20 See Exhibit C. 21 A true and correct copy of Grosser’s Affidavit dated December 11, 2013 is attached as Exhibit D. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 6 OF 9 Mango on notice of Grosser’s damages claim. B. Red Mango has had no opportunity to conduct discovery on Grosser’s newly-alleged claim for rescission or damages. 27. In addition to having no notice of Grosser’s claim for rescission, many of Grosser’s alleged “damages” have not been previously disclosed to Red Mango during the 17 months this case has been on file,and Red Mango has had no opportunity to conduct discovery on such claims. Specifically, Red Mango has not had an opportunity to conduct discovery on the following claim for damages: • “Complete rescission of the Franchise Agreement” • “Closing the Inn for 4 Months” - Presumably, this is the bed and breakfast that Grosser (or one of Grosser’s many corporate entities) has owned and operated for several years. In addition to such claim for damages being completely unforeseeable, Grosser has provided no documentation to show how he arrived at this $175,000 figure. Moreover, it is unclear who was allegedly harmed – Grosser, Phrozen, or perhaps the entity that owns the bed and breakfast? It is impossible to tell. • “My time as project manager and construction superintendent” Presumably this is the time Grosser spent during the construction phase of his Store, but Red Mango has not been able to conduct any discovery on this assertion, nor has Grosser provided any document to show how he arrived at this $250,000 figure. • “Interest on Construction Note” – Despite Red Mango’s discovery requests that Grosser provide such information, Grosser has never provided any documentation in connection with this alleged construction note. Further, it is unclear whether this is a claim asserted by Grosser or Phrozen. • “Interest on attys’ fees note” – Despite Red Mango’s discovery requests that Grosser provide such information, Grosser has never provided any documentation in connection with this alleged attorney’s fees note, and again, it is unclear whether this is a damage Grosser or Prhozen is asserting. • “Emotional Distress” – Grosser arbitrarily claims five million dollars in emotional distress in his self-serving affidavit and one million dollars in his Second Amended Disclosure Responses. Red Mango has had no opportunity to conduct discovery on Grosser’s alleged “emotional distress”.22 28. Because Red Mango has not had an opportunity to conduct discovery on these claims, allowing Grosser to present evidence of such damages at trial would cause unfair surprise and prejudice to Red Mango. 22 See Exhibit C. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 7 OF 9 C. Grosser still has not presented a cognizable damages model that would put Red Mango on notice of his claims. 29. Not only are Grosser’s Second Amended Disclosure Responses untimely served, but they still do not provide a proper damages model that would put Red Mango on notice of Grosser’s damages claims. 30. First, both Grosser and Phrozen Assets, LLC have asserted counterclaims against Red Mango, but Grosser’s Second Amended Disclosures make no attempt to distinguish Grosser’s damages from those of Phrozen. 31. Second, Grosser combines his expenditures for training, construction, furniture, fixtures, equipment, inventory, and operating losses into a lump sum $484,039.17 figure, but gives no explanation of how those expenditures are broken down. Adding to the confusion is the fact that, previous documentation provided by Grosser during discovery does not match this $484,039.17 figure. 32. For example, Grosser states in his affidavit attached hereto as Exhibit E that the total investment of his store cost “more than $500,000.”23 Presumably this total investment necessary to begin operation of his store would not include “operating losses”. In response to Red Mango’s request that Grosser produce “all documents evidencing in any way your statement that your “total investment necessary to begin operation of my Red Mango store exceeded $456,600.00”, Grosser provided an “FDD Total Investment” breakdown showing a total of $483,760.24 This figure also did not account for “operating losses”, and included unrelated expenditures such as reservation software for Grosser’s bed and breakfast; eye glasses from LensCrafters, Jiffy Lube charges for oil changes on Grosser’s personal truck, and movie rental charges from Blockbuster.25 Because Grosser’s newly-disclosed list of “damages” still provides no discernible breakdown of Grosser’s expenditures, such evidence should be excluded from trial. 33. Last, Grosser’s list of alleged damages does not clearly distinguish which damages he is alleging for each particular cause of action. Grosser seeks rescission of the Franchise Agreement, so, although it is unclear from his disclosures, presumably the $2.5 million dollar claim for damages is what Grosser 23 A true and correct copy of Grosser’s Affidavit dated February 8, 2013 is attached as Exhibit E. 24 A true and correct copy of the production response is attached as Exhibit F. 25 See a true and correct copy of Phrozen’s deposition excerpt attached hereto as Exhibit G. PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 8 OF 9 alleges he is entitled to restore him to the status quo prior to the execution of the Franchise Agreement. This $2.5 million dollar figure, however, does not account for the expenditures Red Mango incurred in connection with the Franchise Agreement that would enable it to return to the status quo as well. Thus, Grosser’s calculation of damages is still wholly defective and does not put Red Mango on notice of any clear calculation of damages. 34. Grosser cannot show good cause for such untimely submission of disclosures. This case has been on file for over 17 months. Grosser amended his answer and counterclaims three times before December 26, 2013. In between the timely amendments, Grosser had ample opportunity to specifically list his damages and the calculations behind his figures but has failed to do so. The admission of this new evidence of Grosser’s damages would cause unfair surprise and great prejudice to Red Mango, and as such, it must be excluded pursuant to Rule 193.6. CONCLUSION & PRAYER WHEREFORE, PREMISES CONSIDERED, Red Mango respectfully requests that the Court grant this Motion and submit an order to exclude evidence related to Grosser’s claim for rescission and evidence of damages asserted in his untimely-served initial disclosures pursuant to Rule 193.6 and that Red Mango be granted such further relief to which it may be entitled. Respectfully submitted, MULLIN LAW, PC ______________________________ Christianne Edlund Texas State Bar No. 24072083 Cheryl Mullin Texas State Bar No. 24037807 2425 N. Central Expy., Suite 200 Richardson, Texas 75080 (972) 931-0022 – Telephone (972) 931-0124 – Facsimile COUNSEL FOR PLAINTIFF PLAINTIFF’S MOTION TO EXCLUDE EVIDENCE CONCERNING DAMAGES AT TRIAL PAGE 9 OF 9 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of this Motion to Exclude has been served on all parties, through their respective counsel of record, in this case on January 6, 2014. ______________________________ Christianne Edlund CERTIFICATE OF CONFERENCE I hereby certify that I conferred with Christopher J. Akin about the merits of this Motion to Exclude on January 2, 2014 and the motion is opposed. ______________________________ Christianne Edlund EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A EXHIBIT A CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the above and foregoing was served via e- mail on this 9th day of October, 2012 to the following: Christianne Edlund Mullin Law, PC 2425 N. Central Expy., Ste. 200 Richardson, TX 75080 Mitchell J. Kassoff DEFENDANT HOWARD GROSSER’S RESPONSES TO PLAINTIFF’S REQUEST FOR DISCLOSURE - Page 1 EXHIBIT B CAUSE NO. DC-12-07867 RED MANGO FC, LLC, § IN THE DISTRICT COURT § Plaintiff-Counterdefendant, § § v. § 160TH JUDICIAL DISTRICT § HOWARD GROSSER and PHROZEN § ASSETS LLC § § Defendant-Counterplaintiff § DALLAS COUNTY, TEXAS and Third-Party Plaintiff § DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES TO PLAINTIFF’S REQUEST FOR DISCLOSURE TO: Red Mango FC, LLC by and through its attorney of record, Cheryl Mullin and Christianne Edlund, MULLIN LAW, P.C., 2425 N. Central Expressway, Suite 200, Richardson, Texas 75080. Defendant Howard Grosser (“Defendant” and or “Grosser”) and Phrozen Assets LLC serve the following first amended responses to Plaintiff Red Mango FC, LLC’s (“Plaintiff” and or “Red Mango”) Request for Disclosure. DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 1 OF 21 TO PLAINTIFF’S REQUEST FOR DISCLOSURE 02505-201/4833-0025-3971 EXHIBIT B RESPONSES TO REQUEST FOR DISCLOSURE REQUEST FOR DISCLOSURE 194.2(a): The correct names of the parties to this lawsuit. ANSWER: The correct names of the parties to this lawsuit are Red Mango FC, LLC, Howard Grosser, and Phrozen Assets LLC. REQUEST FOR DISCLOSURE 194.2(b): The name, address, and telephone number of any potential parties. ANSWER: Grosser is not presently aware of any potential parties to this lawsuit at this time. REQUEST FOR DISCLOSURE 194.2(c): The legal theories and, in general, the factual bases of the responding party’s claims or defenses. ANSWER: The factual basis of Grosser's defenses in this suit is that Plaintiff is barred from recovery against Grosser due to Plaintiffs wrongful actions and omissions committed against Grosser in connection with Grosser's agreement to become a franchisee of Plaintiff. The case involves a franchise purchased from Plaintiff by Grosser in February 2011. Plaintiff made several misrepresentations to Grosser to induce him to become a franchisee of Plaintiff. Those misrepresentations include, but are not limited to, the number of franchises Plaintiff had sold, the cost necessary to build out and open the store, that Plaintiff has never abandoned a location and/or closed a store, providing a false projection of profits, and that the average profit generated was 10% of revenue. Plaintiff also violated several duties owed to Grosser by approving the location of Grosser's store as determined by its real estate broker, requiring Grosser to utilize the services of its contractors (which were incompetent, caused unnecessary delays and expenses, and delayed the opening of the store), paying monies to a contractor which Plaintiff agreed it would hold in escrow, and failing to provide services, consultation, and advertising and marketing support to Grosser in the opening of the store and thereafter. DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 2 OF 21 TO PLAINTIFF’S REQUEST FOR DISCLOSURE 02505-201/4833-0025-3971 EXHIBIT B The facts set forth above are the basis for the affirmative defenses of failure of consideration, fraud, estoppel, unclean hands, illegality, violations of state and federal law, and Plaintiff's violation of the contract between the parties. In addition, Grosser and Phrozen Assets, LLC have now asserted claims against Red Mango. Specifically, before signing the Franchise Agreement, Grosser relied on a number of material misrepresentations by Red Mango, resulting in Grosser suffering great harm by entering into the Franchise Agreement and expending hundreds of thousands of dollars that he would not otherwise have spent. The written and oral misrepresentations before Grosser signed the Franchise Agreement are summarized below. Written Misrepresentations Before Grosser Signed Franchise Agreement On or about December 23, 2010, Red Mango provided Grosser with a FranchiseDisclosure Document (“FDD”) purporting to “summarize[] certain provisions of the franchise agreement, store development agreement, and other information in plain language.” Grosser’s franchise was located inside the Galleria Mall in Fort Lauderdale, Florida. The FDD describes three types of franchise opportunities: the Traditional Store, the Non-Traditional Outlet, and the Self-Serve Store. The FDD defines a Self-Serve Store as one which “occupies approximately 1,400 to 2,000 square feet … and is typically located on a major thoroughfare, in or adjacent to a retail strip mall, or in an urban storefront.” This type of store is inapplicable to Grosser’s franchise. The FDD defines a Traditional Store as “a full service Store offering a variety of flavors” and occupying “approximately 1,000 to 1,200 square feet of commercial space.” Further, a Traditional Store is typically located on a major thoroughfare, in or adjacent to a retail strip mall DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 3 OF 21 TO PLAINTIFF’S REQUEST FOR DISCLOSURE 02505-201/4833-0025-3971 EXHIBIT B or shopping center, or in an urban storefront. This type of store is inapplicable to Grosser’s franchise. Under the FDD, a “Non-Traditional Store offers limited or no seating (for example as in a shopping mall environment) and may offer limited product selections. It typically occupies approximately 250 to 800 square feet of commercial space and typically is located within an enclosed shopping mall, college campus or other closed market environment.” Grosser’s store offers no seating, occupies 703 square feet and is within an enclosed shopping mall. This definition clearly and unambiguously applies to Grosser’s franchise located in the Galleria Mall. The Franchise Agreement discloses two alternative franchise fees: a $35,000 fee for a Traditional or Self-Serve Store, and a $17,500 fee for a Non-Traditional Store. Despite the fact that the FDD clearly defines Grosser’s store as a Non-Traditional Store, Mango charged him the higher $35,000 fee applicable to a Traditional or Self-Serve Store. The FDD also contains the following additional misrepresentations by Mango: Mango represented that Grosser’s total investment would be in the range of $180,000 to $354,500 when the total investment in fact was closer to $600,000. Mango represented that permits would cost between $1,500 to $5,000, when Grosser in fact had to pay well over $5,000 for permits. Mango represented that interior improvements and lighting would cost $50,000 to $110,000, when these items actually cost over $194,900. Mango represented that equipment furniture and smallwares would cost $50,000 to $100,000 when these items actually cost over $128,000. Mango represented that typical rent costs usually range from $2.00 to $8.00 per square foot, yet Grosser’s lease negotiated by Mango cost more than $11.00 per square foot. Mango represented that 30-35% of Grosser’s total annual operating expenses would be for goods or services subject to sourcing restrictions, but Grosser actually had to spend more than 40% on such goods or services. DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 4 OF 21 TO PLAINTIFF’S REQUEST FOR DISCLOSURE 02505-201/4833-0025-3971 EXHIBIT B Oral Misrepresentations Before Grosser Signed Franchise Agreement. Before Grosser signed the Franchise Agreement, Mango also made a number of verbal misrepresentations that Grosser relied upon. First, Mango’s authorized representatives provided Grosser with materially false information that was intended to induce Grosser to sign the Franchise Agreement. For example, Mango provided Grosser with the following information that Grosser believes is false: Mango represented that no Mango store had ever been closed or abandoned. Mango represented that many stores are company owned. Mango represented, at the time Grosser’s initial contact with Mango’s broker, that the average Mango store does $520,000 in annual sales. Mango represented, at the time that Grosser was induced to sign the Franchise Agreement that the average Mango store’s annual sales had increased to $550,000. Mango represented that its consistent goal is to reduce the cost of entry for new stores. Mango represented that the average cost of operating a Mango store is 90% of sales. Mango represented that it was on track to have 200 stores open by the end of 2011. Mango represented that there are dozens of above average locations in North Broward County, and further represented that “We’ll find you one.” Mango represented that a store’s costs of goods is 25-32% of sales. Having made these critical factual representations, Mango made additional misrepresentations to induce Grosser to sign the franchise agreement. Knowing that Grosser was relying upon Mango’s franchising expertise, Mango represented that the Franchise Agreement was being offered on a take it or leave it basis, and that he should not bother retaining an attorney DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 5 OF 21 TO PLAINTIFF’S REQUEST FOR DISCLOSURE 02505-201/4833-0025-3971 EXHIBIT B to propose changes because all proposed changes would be rejected. Mango also told Grosser that he had to check the boxes on the form stating that no representations had been made as a technical requirement, and Mango had not been making “representations” but merely had shared information that it knew. Mango never told Grosser that he would be waiving any legal rights by signing the Franchise Agreement or the related checklist. In addition, once Grosser signed the Franchise Agreement, Grosser and Phrozen Assets, LLC relied upon additional misrepresentations by Mango. Mango also breached its contractual obligations under the Franchise Agreement. Mango’s misconduct is summarized below. Mango Selects a Store Location Doomed to Failure. After inducing and pressuring Grosser into signing the Franchise Agreement, Mango promised to find an above average store location. This is exactly the sort of decision where Grosser expected to benefit from the knowledge and experience of a supposedly growing and successful franchisor. Through the broker Mango required Grosser to employ, Mango recommended a location in the Galleria Mall. Significantly, Starbuck’s had recently abandoned the very same location, but Mango failed to disclose this critical fact. The location is wholly unsuitable for Grosser’s store. Notwithstanding Grosser’s best efforts, the location simply does not attract sufficient traffic to sustain a successful franchise location. If Mango had disclosed that Starbuck’s, arguably the world’s most successful franchise, had abandoned the very same location, Grosser never would have agreed to the Galleria Mall location recommended by Mango. DEFENDANT’S AND THIRD-PARTY PLAINTIFF’S FIRST AMENDED RESPONSES PAGE 6 OF 21 TO PLAINTIFF’S REQUEST FOR DISCLOSURE 02505-201/4833-0025-3971 EXHIBIT B Mango Recommends a Grossly Incompetent Contractor for Grosser’s Store. Following execution of the Franchise Agreement, Grosser also relied upon Mango to choose a qualified furniture/fixture/equipment/millwork/casework contractor for