IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA. Plaintiff,

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1 Case :-cv-0-srb Document Filed 0/0/ Page of 0 GUST ROSENFELD P.L.C. One East Washington, Suite 00 Phoenix, Arizona 00- (0) - Charles W. Wirken AZ Bar No. 00 cwirken@gustlaw.com And DADY & GARDNER, P.A. J. Michael Dady (pro hac vice forthcoming) Keith A. Marnholtz (pro hac vice forthcoming) 00 IDS Center 0 S. th Street Minneapolis, MN 0 () -000 jmdady@dadygardner.com kmarnholtz@dadygardner.com Attorneys for Plaintiff IN THE UNITED STATES DISTRICT COURT Starcatcher Healthcare, LLC, an Arizona limited liability company, v. FOR THE DISTRICT OF ARIZONA Plaintiff, BrightStar Franchising, LLC, an Illinois limited liability company, and Shelly Sun, a resident of Illinois, Defendants. No. COMPLAINT (Jury Trial Demanded) Plaintiff Starcatcher Healthcare, LLC ( Starcatcher ), for their Complaint against Defendants BrightStar Franchising, LLC ( BrightStar ) and Shelly Sun ( Sun ) state and allege as follows: CWW:lmf. 0//

2 Case :-cv-0-srb Document Filed 0/0/ Page of 0 INTRODUCTION. Defendant BrightStar induced Starcatcher to enter into an area development agreement and two franchise agreements based upon misrepresentations that BrightStar was an expert in the skilled care business and would provide Starcatcher an industry-leading software system that would handle all of Starcatcher s logistical needs, allowing Starcatcher to focus on sales and servicing customers. Further, BrightStar failed to state facts regarding these misrepresentations that would have caused Starcatcher to not enter into the agreements, if Starcatcher had known all material facts related thereto. BrightStar took these actions in violation of the Illinois Franchise Disclosure Act ( IFDA ), Arizona Consumer Fraud Act ( ACFA ), and BrightStar s common law duties.. Further, Sun is jointly and severally liable for BrightStar s violation of the IFDA because of the misrepresentations by Sun, BrightStar s founder and CEO, at the pre-sale meeting between Starcatcher and BrightStar and Sun s position with BrightStar.. Additionally, BrightStar breached the franchise agreements and implied covenant of good faith and fair dealing by failing to provide and maintain a software system to support Starcatcher s skilled care business, failing to stop encroachment upon Starcatcher s contractually granted protected territory, and administering the General Marketing Fund in a manner whereby Starcatcher received little to no benefit.. Starcatcher brings this action seeking declaratory judgments that () BrightStar violated the IFDA and/or ACFA; () BrightStar committed common law fraud and/or negligent misrepresentation; () BrightStar materially breached the agreements between the parties and the implied covenant of good faith and fair dealing; () the Area Development Agreement, North Glendale Franchise Agreement, and South Glendale Franchise Agreement between the Starcatcher and BrightStar are rescinded; CWW:lmf. 0//

3 Case :-cv-0-srb Document Filed 0/0/ Page of 0 () Starcatcher has the right to damages from BrightStar s unlawful conduct; and () Shelly Sun, as a control person under the IFDA, is jointly and severally liable for BrightStar s violation of the IFDA. PARTIES. Starcatcher is a limited liability company organized under the laws of the State of Arizona, with a principal place of business at West Deer Valley Drive, Phoenix, Arizona. Steve Evans and Candice Brainard are the two members of Starcatcher and are both residents of the State of Arizona.. BrightStar, upon information and belief, is a limited liability company organized under the laws of the State of Illinois, with its principal place of business at 0 Nations Drive, Suite 0, Gurnee, Illinois. Upon information and belief, all the members of BrightStar are residents of the State of Illinois.. Shelly Sun, upon information and belief, is a resident of State of Illinois. JURISDICTION AND VENUE. This Court has subject matter jurisdiction pursuant to U.S.C. (a)() because there is complete diversity between the Plaintiff and Defendants, and the amount in controversy is reasonably believed to be in excess of $,000, exclusive of interest and costs.. Venue is proper in this district pursuant to U.S.C. ()(b) because a substantial portion of the events and omissions giving rise to the claims alleged occurred in this district. FACTS 0. Mr. Evans and Ms. Brainard began exploring the possibility of starting a skilled home health agency in early 0 because of Ms. Brainard s background as a registered nurse and Mr. Evans training as a Medical Social Worker. CWW:lmf. 0//

4 Case :-cv-0-srb Document Filed 0/0/ Page of 0. Based on these backgrounds, when doing their initial research, Mr. Evans and Ms. Brainard specifically researched franchised home healthcare agencies that provided skilled care such as registered nurses, occupational therapists, physical therapists, and speech therapists.. While doing this research, Mr. Evans and Ms. Brainard found BrightStar. Mr. Evans and Ms. Brainard decided to further investigate BrightStar because BrightStar s marketing materials () indicated that a substantial portion of BrightStar s business was in skilled care; () represented BrightStar was an expert in the skilled care business and would provide guidance on the operation of such a business; and () touted BrightStar s proprietary software system as a system that would handle all of the logistics of operating a skilled care business.. Through further investigation, Mr. Evans and Ms. Brainard learned that BrightStar franchisees in the Phoenix market were conducting business with major managed care providers, including Blue Cross Blue Shield, Cigna, and United Healthcare, as well as the Veterans Administration. Subsequently, Mr. Evans and Ms. Brainard were assured that they would be provided support in getting credentialed with these managed care providers.. In January 0, Mr. Evans and Ms. Brainard contacted BrightStar to inquire about owning and operating a BrightStar home healthcare franchise. Subsequently, in April 0, Mr. Evans and Ms. Brainard traveled to Illinois to meet with BrightStar s representatives, including Shelly Sun, BrightStar s CEO; J. D. Sun, BrightStar s Vice President of Sales; and Chuck Bailey, BrightStar s then-president, about the BrightStar opportunity.. During this meeting, Mr. Evans and Ms. Brainard specifically discussed their interests in providing and focusing their business on providing skilled care with CWW:lmf. 0//

5 Case :-cv-0-srb Document Filed 0/0/ Page of 0 managed care providers, to complement Ms. Brainard s background as a Registered Nurse.. With this knowledge, BrightStar s representatives informed Mr. Evans and Ms. Brainard that BrightStar was an expert in the skilled care business and emphasized BrightStar s state-of-the-art software, which was touted as being extremely efficient and effective for the homecare services Mr. Evans and Ms. Brainard would be providing, including skilled care with managed care providers.. BrightStar s representatives also informed Mr. Evans and Ms. Brainard that BrightStar would provide guidance in Starcatcher s operation of a skilled care business, and that BrightStar s proprietary software, Athena Business System ( ABS ), would run the entire business, including scheduling patients, managing medical records, billing patients, and tracking accounts receivables.. Indeed, BrightStar s marketing materials listed one of the key advantages of a BrightStar franchise as having the most efficient and effective management software system in the industry, whereby the franchisee would spend time focusing on sales and not paperwork. This was also repeatedly stated by BrightStar s representatives during personal meetings.. The consistent marketing message that Mr. Evans and Ms. Brainard received from BrightStar, before signing any agreement with BrightStar, was that a BrightStar franchisee s advantages included the ability to provide both medical and non-medical care in one of the fastest growing markets, guidance on operating a skilled care business, and the ability to utilize the most efficient and effective management software system in the industry.. This included the statement in Item of BrightStar s 0 Financial Disclosure Document ( FDD ) that was provided to Mr. Evans and Ms. Brainard before any agreements were signed, that, during the operation of Starcatcher s franchise, CWW:lmf. 0//

6 Case :-cv-0-srb Document Filed 0/0/ Page of 0 BrightStar would [m]aintain the Athena Business System, including the website ( that [would] support multiple functions (i.e., sales, recruiting, payroll, billing, HR, etc.) and initial assistance with pricing of services for the agency (..).. Relying on BrightStar s representations, including those from BrightStar s representatives and those contained in BrightStar s 0 FDD, Mr. Evans and Ms. Brainard formed Starcatcher and decided to move forward with the franchise opportunity with BrightStar.. On or about April 0, 0, Starcatcher entered into an Area Development Agreement ( ADA ) with BrightStar that granted Starcatcher the right to develop three BrightStar franchises in the Phoenix Area. Attached hereto as Exhibit A is the ADA.. On or about April 0, 0, Starcatcher and BrightStar also entered into a Franchise Agreement whereby BrightStar was granted the right to operate a franchise in the North Glendale, Arizona territory ( North Glendale FA ). Attached hereto as Exhibit B is the North Glendale FA.. Starcatcher signed its second Franchise Agreement on or about October, to operate a BrightStar franchise in the South Glendale, Arizona territory ( South Glendale FA ). Attached hereto as Exhibit C is the South Glendale FA.. Both the North Glendale FA and the South Glendale FA grant Starcatcher the right to operate the franchise business in the protected territory delineated in the Franchise Agreements. North Glendale FA., South Glendale FA... Additionally, both the North Glendale FA and the South Glendale FA provide strict guidelines relating to when a franchisee may solicit or service clients outside of its protected territory, including the requirement that the area where the franchisee wishes to provide client services is not included in another franchisee s CWW:lmf. 0//

7 Case :-cv-0-srb Document Filed 0/0/ Page of 0 protected territory or development area. See North Glendale FA., South Glendale FA... The North Glendale FA and South Glendale FA also required Starcatcher to maintain the ABS software, including a website that would support multiple functions, including sales, recruiting, payroll, billing, and HR. See North Glendale FA.., South Glendale FA... Starcatcher Discovers the Inadequacies of the ABS Software. As Starcatcher grew the business, it began to experience significant problems with the ABS software and began to realize that the ABS software was completely inadequate to support a skilled care business such as the one being operated by Starcatcher.. For example, insurance companies require billing on electronic 00 and UB0 forms where multiple patients with multiple dates of service and therapies are billed together in order to integrate with the claims clearing house. ABS could not accommodate this type of billing and could only produce an invoice with a single date, therapy, and patient. 0. Because of ABS s inability to produce the correct forms, Starcatcher was required to engage the services of a third party to bill insurance companies and devote staff time to manage the functions ABS could not handle, including the hiring of a full time billing and authorizations specialist and a medical records specialist.. Additionally, ABS could not produce a manageable accounts receivable report and could not produce the skilled nursing reports required by the State of Arizona.. ABS also did not have the ability to track authorizations, manage clinical data, nor manage medical records, all of which are necessary to operate a skilled care business. CWW:lmf. 0//

8 Case :-cv-0-srb Document Filed 0/0/ Page of 0. In fact, ABS did the opposite of everything BrightStar claimed it was unable to do the most basic functions required by Starcatcher s skilled care business and buried Starcatcher in unmanageable paperwork, leaving Starcatcher without any adequate process for managing its skilled care business.. BrightStar knew these problems with ABS before Starcatcher entered into the Franchise Agreements. Indeed, Starcatcher has subsequently become aware that other BrightStar franchisees in the Phoenix area have been encountering the same problems with ABS and complaining of these problems to BrightStar since 0, well before BrightStar represented to Starcatcher that one of the advantages of purchasing a BrightStar franchise was BrightStar s industry-leading ABS software system that would take care of all the paperwork and allow Starcatcher s employees to focus on sales.. On multiple occasions over the term of the relationship, Starcatcher has reached out to BrightStar for assistance in resolving the issues with ABS. Multiple representatives of BrightStar, including Bob Lang, Chuck Bailey, Pete Spillum, Carolyn Grady, Brian Schnell, and Kevin Pignone, visited Starcatcher s office on multiple occasions because of issues with ABS.. None of these BrightStar representatives were able to offer any workable solutions to Starcatcher. The solutions offered were always the same; Starcatcher should do less skilled care and more private duty work, even though BrightStar had always known that Starcatcher intended to focus its business on skilled care. Rather than providing a solution to the technical problems with ABS, BrightStar, instead, advised Starcatcher to tailor its business around the limitations of ABS.. BrightStar s actions have confirmed the limitations and inadequacies of ABS. ABS was so inadequate that BrightStar decided to completely revamp its software system and developed ABS. CWW:lmf. 0//

9 Case :-cv-0-srb Document Filed 0/0/ Page of 0. When BrightStar undertook this action, it selectively favored franchisees that did not work in the skilled care area and focused on fixing problems with the ABS software for these franchisees first, leaving Starcatcher without a functioning software system.. In fact, Brian Schnell, BrightStar s then-president, sent an to Phoenix area franchisees on June, stating that: [BrightStar s] technology system to date has not been geared primarily toward skilled or managed care. This was true with ABS, and is the case at this point with ABS. This is by design, as a very small percentage of franchisees to date have the vast majority of their business in skilled care.... We ve realized that some owners with a significant number of skilled care cases experience some difficulty with ABS as it now exists (no insurance tracking capabilities or integration with insurance billing clearing houses for example).... We just elected to focus on other priorities first due to the most immediate need of the greatest number of franchisees. 0. Starcatcher has faced issues with ABS that are similar to the inadequacies of the original ABS.. When Starcatcher sought the assistance of BrightStar in relation to the inadequacies of ABS, BrightStar reiterated its advice that Starcatcher should focus on non-skilled care. Additionally, BrightStar recommended that Starcatcher engage the services of True North, a consulting firm operated by BrightStar s former president, Chuck Bailey, who was involved with the development of ABS.. Hiring True North would have cost Starcatcher hundreds of dollars per month for the possibility that True North would have been able to provide Starcatcher assistance by discovering work-arounds to make ABS and ABS function as BrightStar had touted before the sale of the franchises to Starcatcher.. Upon information and belief, another Phoenix-area franchisee has engaged True North and to date has not been able to find a workable solution to the issues with ABS. CWW:lmf. 0//

10 Case :-cv-0-srb Document Filed 0/0/ Page 0 of 0. BrightStar also recommended that Starcatcher speak with an Alabama BrightStar franchisee because of his purported success with operating a skilled care business. Starcatcher did contact the Alabama franchisee and learned that, while the Alabama franchisee did skilled care, in contrast to Starcatcher s main business of managed skill care, the Alabama franchisee did not have a single managed care account. Further, as a result of the Alabama franchisee s problems and struggles with managing his accounts receivable, he had hired True North. Additionally, again in contrast to Starcatcher s business, the State of Alabama does not require an agency such as the Alabama franchisee s to be licensed to perform skilled nursing care. Nor does the State of Alabama require agencies to create a plan of care, nursing notes, and the like that must be reviewed and signed by a physician and updated every 0 days.. BrightStar s referral of Starcatcher to the Alabama franchisee illustrates that, far from being experts in the skilled care business, BrightStar does not even recognize the special requirements involved in operating such a business.. Additionally, far from having the industry-leading proprietary software system, as BrightStar represented before Starcatcher purchased its franchises, BrightStar failed to, in the first instance, provide a functioning software system to Starcatcher as BrightStar promised in its marketing materials, Item of the FDD, and its presale representations.. One of Starcatcher s primary reasons for purchasing the BrightStar franchise was BrightStar s representation that it had a fully functioning, integrated software system to handle all the paperwork involved in the skilled care business, allowing Starcatcher to primarily engage in sales and the servicing of customers.. BrightStar has failed to provide the promised system and has failed to maintain the ABS system to support medical billing, medical records management, CWW:lmf. 0// 0

11 Case :-cv-0-srb Document Filed 0/0/ Page of 0 clinical management, patient co-pay management, financial reporting, including accounts receivable, and insurances authorizations, as well as other functions. BrightStar Fails to Prevent Encroachment on Starcatcher s Territory.. During the relationship between the parties, one Phoenix-area franchisee, Brian Duncan Enterprises, LLC ( Duncan ), encroached upon Starcatcher s exclusive territory on multiple occasions. BrightStar was aware of this and has not disputed that Duncan was engaged in such activities. Indeed, BrightStar filed a declaratory judgment seeking to terminate Duncan s franchise for, inter alia, encroaching upon Starcatcher s territory. 0. When Starcatcher first learned of the encroachment, it notified Duncan on multiple occasions that Duncan was encroaching on Starcatcher s territory in order to attempt to resolve the situation, thinking it was merely the result of an innocent error on Duncan s part. However, Duncan continued to encroach upon Starcatcher s territory.. After this, notified BrightStar of the encroachment and continued to complain to BrightStar throughout the relationship. Indeed, on multiple occasions, Starcatcher and other Phoenix-area franchisees requested that BrightStar perform an audit of Duncan s activities.. BrightStar, however, took little to no action to resolve the situation and put an end to Duncan s encroachment. Further, to Starcatcher s knowledge, no audit was ever performed. Indeed, BrightStar stated to Starcatcher that it requested documents from Duncan, but that Duncan did not comply. Accordingly, while there is no doubt that Duncan encroached upon Starcatcher s exclusive territory, Starcatcher does not know the scope of that encroachment because of BrightStar s failure to perform an audit.. Starcatcher is aware of at least two instances of Duncan encroaching upon BrightStar s exclusive territory. CWW:lmf. 0//

12 Case :-cv-0-srb Document Filed 0/0/ Page of 0. In one instance, Duncan billed services in Starcatcher s territory worth approximately $,000 in gross revenue which would have resulted in approximately $,000 in gross profit.. In a second instance, Starcatcher became aware that Duncan had been servicing a patient in Starcatcher s exclusive territory and had billed Coventry Healthcare for these services. Indeed, Duncan admitted, in, to providing services to this patient since 0.. Rather than take actions to protect Starcatcher s territory, BrightStar, when confronted with these facts, unilaterally and arbitrarily reduced the infringement fee to be paid in such situations from 0% of the gross margin to % of the gross margin.. Upon information and belief, there are many other instances of Duncan encroaching upon Starcatcher s territory. However, in part because of BrightStar s failure to conduct an audit, Starcatcher is unaware of the full scope of Duncan s encroachment and how many instances of encroachment occurred.. Although Starcatcher, and other Phoenix-area franchisees, have complained to BrightStar on multiple occasions throughout the relationship between Starcatcher and BrightStar about the encroachment of Duncan, BrightStar failed to enforce the territorial restrictions in its franchise agreements and stop the encroachment of Duncan. General Marketing Fund. Under both the North Glendale FA and South Glendale FA, Starcatcher is required to pay to BrightStar a General Marketing Fee. See North Glendale FA., South Glendale FA.. 0. This General Marketing Fee is used to fund the General Marketing Fund. CWW:lmf. 0//

13 Case :-cv-0-srb Document Filed 0/0/ Page of 0. The monies in the General Marketing Fund are to be expended by BrightStar to advertise and promote BrightStar franchisee services. See North Glendale FA., South Glendale FA... Throughout the relationship between the parties, Starcatcher has paid to BrightStar the General Marketing Fee required by the franchise agreements.. BrightStar, however, has not expended the monies in the General Marketing Fund in a manner to benefit Starcatcher, either directly or indirectly.. Although Starcatcher has never been able to generate a profit because of BrightStar s above-described wrongful acts, Starcatcher continues to operate its BrightStar franchise. LEGAL CLAIMS COUNT ONE Declaratory Judgment Violation of the Illinois Franchise Disclosure Act Starcatcher against BrightStar and Sun Plaintiffs restate and reallege the above paragraphs as if fully set forth herein.. The relationship between Starcatcher and BrightStar is a franchise under the Illinois Franchise Disclosure Act ( IFDA ), Ill. Comp. Stat. 0/, et seq., because Starcatcher is a franchisee, BrightStar is a franchisor, and the parties relationship constitutes a franchise, as those terms are defined by the IFDA.. The relationship between the parties evidenced by the North Glendale FA and the South Glendale FA is a franchise under the IFDA because: () Starcatcher was granted the right to operate BrightStar Agencies under a marketing plan or system prescribed or suggested in substantial part by BrightStar (See North Glendale FA, South Glendale FA ); () Starcatcher s business is substantially associated with BrightStar s marks (See North Glendale FA, South Glendale FA ); and () CWW:lmf. 0//

14 Case :-cv-0-srb Document Filed 0/0/ Page of 0 Starcatcher was required to pay a franchise fee in excess of $00 (See North Glendale FA., South Glendale FA.). See Ill. Comp. Stat. 0/().. Section 0/ of the IFDA, prohibiting fraud in the sale of a franchise, applies because the sale of the franchise was made within the State of Illinois, as BrightStar s offer to sell the franchise was made from its headquarters in Illinois and accepted by Starcatcher.. It is a violation of the IFDA for a franchisor, in connection with the offer or sale of any franchise, to: (a) (b) (c) Ill. Comp. Stat. 0/. employ any device, scheme, or artifice to defraud; make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statement made, and the light of the circumstances under which they are made, not misleading; or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.. BrightStar has violated the IFDA through its above-described conduct because BrightStar represented to Starcatcher, before the sale of the franchise, that BrightStar was an expert in the skilled care business, that the ABS software system was the best in the industry to support Starcatcher s medical billing, medical records management, clinical management, patient co-pay management, financial reporting, including accounts receivable, and insurances authorizations, as well as other functions; and that BrightStar would maintain this most efficient and effective management software system in the industry. Further, BrightStar was aware of Starcatcher s intent to primarily operate skilled care business and BrightStar knew that the ABS system did not have the capacities to accommodate such a business. Also, BrightStar failed to state the material facts which were necessary in order to make its statements not misleading, CWW:lmf. 0//

15 Case :-cv-0-srb Document Filed 0/0/ Page of 0 for instance, that BrightStar s software could not support the type of skilled care business that Starcatcher intended to operate. 0. Had Starcatcher known the true facts at the time and had all the material information regarding the franchise opportunity been properly disclosed, prior to initiating the relationship, Starcatcher would not have entered into the franchise relationship with BrightStar.. A franchisee is granted the private right of action for any violation of the IFDA and is entitled to recover damages caused by the violation, costs and attorneys fees, and, in the case of a violation of section 0/, relating to fraud in the sale process, rescission. Ill. Comp. Stat. 0/.. Under the IFDA, every person who directly or indirectly controls a franchisor and every principal executive officer or director of a corporate franchisor who materially aids in the act or transaction constituting the violation is liable jointly and severally with and to the same extent as the franchisor, unless the person had no knowledge or reasonable basis to have knowledge of the facts, acts or transactions constituting the alleged violation. Ill. Comp. Stat. 0/.. Through her acts and position as a principal executive officer of BrightStar, Sun is a control person under the IFDA and jointly and severally liable to the same extent as BrightStar.. There is an actual controversy between the parties, within the scope and meaning of the Declaratory Judgment Act, U.S.C. -, as to whether BrightStar violated the IFDA and whether Sun is jointly and severally liable to the same extent as BrightStar as a control person.. Pursuant to the Declaratory Judgment Act, Starcatcher is entitled to a declaratory judgment by this Court that () BrightStar violated the IFDA; () the North Glendale FA and South Glendale FA are rescinded; and () Starcatcher has the right to CWW:lmf. 0//

16 Case :-cv-0-srb Document Filed 0/0/ Page of 0 reliance damages for the violation of the IFDA with BrightStar and Sun jointly and severally liable. COUNT TWO Declaratory Judgment Violation of the Arizona Consumer Fraud Act Starcatcher against BrightStar Plaintiffs restate and reallege the above paragraphs as if fully set forth herein.. Under the Arizona Consumer Fraud Act ( ACFA ): The act, use or employment by any person of any deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not a person had in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice. Ariz. Rev. Stat. -.. The ACFA provides that it is to be construed in a manner consistent with section of the FTC Act, which is codified at U.S.C.. Ariz. Rev. Stat. - (C). The Amended FTC Rule, C.F.R., which requires a franchisor to provide a prospective franchisee with the FDD and prohibits fraud in the sale of a franchise, was promulgated pursuant to U.S.C... Starcatcher is a person under the ACFA as person is broadly defined to include any natural person, company, or business entity. Ariz. Rev. Stat. -().. A franchise is merchandise under the ACFA because the ACFA s broad definition of merchandise encompasses objects, wares, goods, commodities, intangibles, real estate or services. Ariz. Rev. Stat. -(); see also Flower World of America v. Wenzel, P.d 0 (Ariz. Ct. App. ). CWW:lmf. 0//

17 Case :-cv-0-srb Document Filed 0/0/ Page of 0 0. An injured party has a private right of action under the ACFA for the misrepresentations made in connection with a sale. See Sellinger v. Freeway Mobile Home Sales, Inc., P.d, (Ariz. ).. BrightStar s actions, as described more fully above, including BrightStar s representations regarding BrightStar being an expert in skilled nursing care, BrightStar s representation that Starcatcher would be able to utilize ABS to operate Starcatcher s skilled care franchise, and BrightStar s failure to provide information to negate the misleading aspects of these representations, in connection with the sale of the ADA and BrightStar franchise to Starcatcher, misled, deceived, and damaged Starcatcher.. BrightStar intended for Starcatcher to rely on these misrepresentations and omissions of material fact when BrightStar sold the ADA and franchises to Starcatcher.. Through the above described misconduct, BrightStar violated the ACFA.. Based upon BrightStar s violation of the ACFA, Starcatcher has the right to rescind the ADA, North Glendale FA, and South Glendale FA.. There is an actual controversy between the parties, within the scope and meaning of the Declaratory Judgment Act, U.S.C. -, as to whether BrightStar violated the ACFA.. Pursuant to the Declaratory Judgment Act, Starcatcher is entitled to a declaratory judgment by this Court that () BrightStar has violated the ACFA; () the ADA, North Glendale FA and South Glendale FA are rescinded; and () Starcatcher has a right to the damages caused by BrightStar s violation of the ACFA. CWW:lmf. 0//

18 Case :-cv-0-srb Document Filed 0/0/ Page of 0 COUNT THREE Declaratory Judgment Common Law Fraud Starcatcher against BrightStar Plaintiffs restate and reallege the above paragraphs as if fully set forth herein.. Under Illinois law, the elements of common law fraud are: () a false statement of material fact; () the party making the statement knew or believed it to be true; () the party to whom the statement was made had a right to rely on the statement; () the party to whom the statement was made did rely on the statement; () the statement was made for the purpose of inducing the other party to act; and () the reliance by the person to whom the statement was made led to that person s injury. See Siegel v. Levy Org. Dev. Co., Inc., 0 N.E.d, (Ill. ).. BrightStar s presale misrepresentations and omissions of material fact, detailed above, constitute common law fraud.. BrightStar falsely stated to Starcatcher, through marketing materials, the FDD, and the in-person meeting, that BrightStar was an expert in skilled care and ABS was the leading software system in the industry and would adequately assist Starcatcher in its sales, billing, and accounts receivable management. Further, BrightStar failed to state that BrightStar franchisees were having difficulty using the ABS software for their skilled nursing business. 0. BrightStar knew these statements to be false at the time the statements were made as other Phoenix franchisees had brought the issues of the inadequacy of ABS to BrightStar s attention before Starcatcher entered into the ADA and Franchise Agreements. The agreements between the parties contain a provision purporting to select Illinois law to apply to the agreements. ADA, North Glendale FA, South Glendale FA. CWW:lmf. 0//

19 Case :-cv-0-srb Document Filed 0/0/ Page of 0. When BrightStar made these statements, it intended that Starcatcher would rely on them in making its decision to enter into the ADA and Franchise Agreements. Indeed, Starcatcher had the right to and did rely on BrightStar s misrepresentations when it decided to enter into the ADA and franchise relationship.. Additionally, BrightStar had the duty to disclose the information about ABS and its ability to adequately assist Starcatcher in its skilled care business as BrightStar solely had this information and under the governing law (i.e., the Amended FTC Rule and IFDA), BrightStar was required to disclose all material information to Starcatcher. Further, BrightStar owed Starcatcher a duty to use reasonable care in making the representations it knew Starcatcher would rely upon because BrightStar was supplying information to Starcatcher during a transaction in which the parties had a pecuniary interest and it was in the course of BrightStar s business.. Had Starcatcher known of the inadequacies of ABS and BrightStar s inability to provide assistance in the operation of a skilled care business, Starcatcher would not have entered into the ADA and Franchise Agreements. As a result of Starcatcher s reliance on the misrepresentations and omissions of BrightStar, Starcatcher was unable to operate a profitable business, and incurred substantial out-ofpocket expenses through the engagement of third parties to perform functions that BrightStar had promised ABS would be able to perform.. The conduct by BrightStar in inducing Starcatcher to make substantial investments of time and money in reliance upon BrightStar s unjustified misrepresentations constitutes common law fraud.. There is an actual controversy between the parties, within the scope and meaning of the Declaratory Judgment Act, U.S.C. -, as to whether BrightStar committed common law fraud. CWW:lmf. 0//

20 Case :-cv-0-srb Document Filed 0/0/ Page of 0. Pursuant to the Declaratory Judgment Act, Starcatcher is entitled to a declaratory judgment by this Court that () BrightStar committed common law fraud; () the ADA, North Glendale FA, and South Glendale FA are rescinded; and () Starcatcher has a right to the damages caused by BrightStar s fraudulent conduct. COUNT FOUR Declaratory Judgment Negligent Misrepresentation Starcatcher against BrightStar Plaintiffs restate and reallege the above paragraphs as if fully set forth herein.. Under Illinois law, the elements of negligent misrepresentation are: () the false statement of a material fact; () carelessness or negligence in ascertaining the truth of the statement by the party making it; () intention to induce the other party to act; () action by the other party in reliance on the truth of the statement; () damage to the other party resulting from such reliance; and () a duty on the party making the statement to communicate accurate information. See First Midwest Bank, N.A. v. Stewart Title Guar. Co., N.E.d, - (Ill. 0).. BrightStar s presale misrepresentations of material fact, detailed above, constitute negligent misrepresentation.. BrightStar made the false statements to Starcatcher, through marketing materials, the FDD, and the in-person meeting, that BrightStar was an expert in the skilled care business and ABS was the leading software system in the industry and would adequately assist Starcatcher in its skilled care business, including, sales, billing, accounts receivable management, and patient tracking. 00. BrightStar was careless and/or negligent in ascertaining whether BrightStar was an expert in the skilled care business and whether ABS would adequately assist Starcatcher in its skilled care business, including, sales, billing, account receivable management and patient tracking. CWW:lmf. 0//

21 Case :-cv-0-srb Document Filed 0/0/ Page of 0 0. BrightStar made these misrepresentations intending to induce Starcatcher to enter into the ADA and Franchise Agreements. 0. In reliance on the truth of BrightStar s representations regarding the BrightStar s expert ability to assist Starcatcher in the operation of its skilled care business and the abilities of ABS, Starcatcher entered into the ADA and Franchise Agreements. 0. BrightStar had the duty to disclose the information about ABS and its ability to adequately assist Starcatcher in its skilled care business as BrightStar solely had this information and under the governing law (i.e., the Amended FTC Rule and IFDA), BrightStar was required to disclose all material information to Starcatcher. Further, BrightStar owed Starcatcher a duty to use reasonable care in making the representations it knew Starcatcher would rely upon because BrightStar was supplying information to Starcatcher during a transaction in which the parties had a pecuniary interest and it was in the course of BrightStar s business. 0. Starcatcher was damaged by its reliance on BrighStar s misrepresentations because Starcatcher unable to operate a profitable business, and incurred substantial outof-pocket expenses through the engagement of third parties to perform functions that BrightStar had promised ABS would be able to perform. 0. The conduct by BrightStar in inducing Starcatcher to make substantial investments of time and money in reliance upon BrightStar s unjustified misrepresentations constitutes negligent misrepresentation. 0. There is an actual controversy between the parties, within the scope and meaning of the Declaratory Judgment Act, U.S.C. -, as to whether BrightStar committed negligent misrepresentation. 0. Pursuant to the Declaratory Judgment Act, Starcatcher is entitled to a declaratory judgment by this Court that () BrightStar committed negligent CWW:lmf. 0//

22 Case :-cv-0-srb Document Filed 0/0/ Page of 0 misrepresentation; () the ADA, North Glendale FA, and South Glendale FA are rescinded; and () Starcatcher has a right to the damages caused by BrightStar s conduct. COUNT FIVE Declaratory Judgment Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing Starcatcher against BrightStar Plaintiffs restate and reallege the above paragraphs as if fully set forth herein. 0. Under Illinois Law, [e]very contract implies good faith and fair dealing between the parties to it, and where an instrument is susceptible with two conflicting constructions, one which imputes bad faith to one of the parties and the other which does not, the latter construction should be adopted. Martindell v. Lake Shore Nat l Bank, N.E.d, 0 (Ill. ). Additionally, when a contract vests a party with broad discretion in its performance, that party must exercise such discretion reasonably and with proper motive. Id. Exercising discretion in a way that is arbitrary, capricious, or that is inconsistent with the reasonable expectations of the parties violates the covenant of good faith and fair dealing. Id. 0. The North Glendale FA and South Glendale FA are enforceable contracts between Starcatcher and BrightStar. 0. Starcatcher has substantially complied with the North Glendale FA and South Glendale FA.. BrightStar has materially breached the contracts between the parties and the covenant of good faith and fair dealing by its above described conduct, including () allowing encroachment on Starcatcher s protected territory and failing to act to stop the encroachment, see North Glendale FA.,., South Glendale FA.,.; () reducing the infringement fee due on encroachment in an arbitrary and capricious CWW:lmf. 0//

23 Case :-cv-0-srb Document Filed 0/0/ Page of 0 manner, see North Glendale FA., South Glendale FA.; () failing to provide and maintain a software system that supported Starcatcher s skilled care business, see North Glendale FA.., South Glendale FA..; and () administering the General Marketing Fund in a manner whereby Starcatcher received no benefit, see North Glendale FA., South Glendale FA... Upon the material breach of a term of a contract of such importance the contract would not have been made without the term, the non-breaching party has a right to rescission of the contract and restitution damages. See Newton v. Aitken, N.E.d, - (Ill. Ct. App. ).. Starcatcher would not have entered into the North Glendale FA and South Glendale FA had the terms BrightStar materially breached not been included in the contracts.. Starcatcher has been damaged by BrightStar s material breaches.. Because of BrightStar s material breaches, Starcatcher has the right to rescind the North Glendale FA and South Glendale FA, and Starcatcher has the right to restitution damages.. Alternatively, based upon BrightStar s breaches, Starcatcher has the right to damages.. There is an actual controversy between the parties, within the scope and meaning of the Declaratory Judgment Act, U.S.C. -, as to whether BrightStar materially breached the North Glendale FA, South Glendale FA, and the implied covenant of good faith and fair dealing.. Pursuant to the Declaratory Judgment Act, Starcatcher is entitled to a declaratory judgment by this Court that () BrightStar breached the North Glendale FA, South Glendale FA, and the implied covenants of good faith and fair dealing; () the CWW:lmf. 0//

24 Case :-cv-0-srb Document Filed 0/0/ Page of 0 North Glendale FA and South Glendale FA are rescinded; and () Starcatcher has a right to the damages caused by BrightStar s conduct.. Alternatively, Starcatcher is entitled, under the Declaratory Judgment Act, to a declaratory judgment by this Court that () BrightStar breached the North Glendale FA, South Glendale FA, and the implied covenants of good faith and fair dealing; and () Starcatcher has a right to the damages cause thereby. JURY DEMAND. Starcatcher demands a jury trial on all claims so triable. PRAYER FOR RELIEF WHEREFORE, Plaintiffs respectfully request the following relief in their favor and against Defendant:. A judgment declaring BrightStar violated the Illinois Franchise Disclosure Act; Act;. A judgment declaring BrightStar violated the Arizona Consumer Fraud. A judgment declaring BrightStar committed common law fraud;. A judgment declaring BrightStar committed common law negligent misrepresentation;. A judgment declaring BrightStar materially breached the North Glendale Franchise Agreement and the implied covenant of good faith and fair dealing attached thereto;. A judgment declaring BrightStar materially breached the South Glendale Franchise Agreement and the implied covenant of good faith and fair dealing attached thereto;. A judgment declaring the Area Development Agreement is rescinded; CWW:lmf. 0//

25 Case :-cv-0-srb Document Filed 0/0/ Page of 0 rescinded; rescinded;. A judgment declaring the North Glendale Franchise Agreement is. A judgment declaring the South Glendale Franchise Agreement is 0. A judgment declaring Starcatcher has the right to damages from BrightStar s unlawful conduct;. A judgment declaring Shelly Sun is a control person under the Illinois Franchise Disclosure Act and is jointly and severally liable for BrightStar s violation of the Illinois Franchise Disclosure Act;. An award granting Starcatcher its cost, disbursements, and reasonable attorney fees to the fullest extent authorized by applicable law; and. An Order granting Starcatcher such other and further relief as the Court may deem just and appropriate. Dated: October,. GUST ROSENFELD P.L.C. By: /s/ Charles W. Wirken 00 Charles W. Wirken And DADY & GARDNER, P.A. J. Michael Dady (pro hac vice forthcoming) Keith A. Marnholtz (pro hac vice forthcoming) Attorneys for Plaintiff CWW:lmf. 0//