Meineke Car Care Centers, Inco v. RLB Holdings, LLC

Filing

UNPUBLISHED AUTHORED OPINION filed. Originating case number: 3:08-cv-00240-RJC-DSC Copies to all parties and the district court/agency. [998568149].. [09-2030]

Case: 09-2030

Document: 33

Date Filed: 04/14/2011

Page: 1

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 09-2030

MEINEKE CAR CARE CENTERS, INCORPORATED,
Plaintiff - Appellant,
v.
RLB HOLDINGS, LLC; JOE
a/k/a Michelle Bajjani,

H.

BAJJANI;

MICHELLE

G.

BAJJANI,

Defendants - Appellees.

Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte.
Robert J. Conrad,
Jr., Chief District Judge. (3:08-cv-00240-RJC-DSC)

Argued:

January 27, 2011

Decided:

April 14, 2011

Before GREGORY and AGEE, Circuit Judges, and Irene C. BERGER,
United States District Judge for the Southern District of West
Virginia, sitting by designation.

Reversed and remanded by unpublished opinion. Judge Agee wrote
the opinion, in which Judge Gregory and Judge Berger concurred.

ARGUED: Michael J. Lockerby, FOLEY & LARDNER, LLP, Washington,
D.C., for Appellant. Rodney Lenelle Eason, THE EASON LAW FIRM,
Atlanta, Georgia, for Appellees. ON BRIEF: Amy K. Reynolds, Ted
P. Pearce, MEINEKE CAR CARE CENTERS, INC., Charlotte, North
Carolina, for Appellant.
Leslie K. Eason, THE EASON LAW FIRM,
Atlanta, Georgia, for Appellees.

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Unpublished opinions are not binding precedent in this circuit.

2

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AGEE, Circuit Judge:
Franchisor

Meineke

Car

Care

Centers,

Inc.

(“Meineke”)

appeals the district court’s judgment awarding franchisee RLB
Holdings, LLC (“RLB”), Joe H. Bajjani, and Michelle G. Bajjani
partial

summary

royalties

and

judgment

on

advertising

Meineke’s
fund

claim

for

contributions

premature closure of four franchises.

lost

future

following

the

The district court held

that the franchise agreements did not entitle Meineke to recover
future damages, and that Meineke failed to set forth a viable
common law claim for lost profits.

For the reasons set forth

below, we reverse the district court’s judgment and remand for
further proceedings consistent with this opinion.

I.
Meineke

is

a

nationwide

automotive

services

franchisor.

Joe Bajjani and his wife, Michelle, (“the Bajjanis”) are the
sole

owners

of

RLB,

an

entity

formed

for

the

purpose

of

operating Meineke franchises, including the four stores at issue
in this case.
RLB

entered

Agreements

Between December 2001 and June 2005, Meineke and
into

(“FTAs”)

four

separate

related

to

four

Franchise
franchises

and

Trademark

(collectively

“the Shops”) that RLB would operate using Meineke’s registered
trademark,

logo,

and

other

proprietary

3

marks.

The

Bajjanis

Case: 09-2030

executed

Document: 33

personal

guaranties

Date Filed: 04/14/2011

as

part

of

each

Page: 4

shop’s

FTA,

guaranteeing RLB’s performance and obligations under each FTA. 1

2

Although the terms of the FTAs are not identical, they are
substantially

the

same,

primarily

franchise agreement language.

using

Meineke’s

boilerplate

The FTAs each had a fifteen-year

term and granted RLB the exclusive right to operate a Meineke
shop within a protected territorial area.

RLB agreed under the

FTAs to pay Meineke weekly royalty fees (“royalties”) based on a
percentage of each shop’s gross revenues, with the rate varying
from three to seven percent depending on the product or service.
(Article 3.2 – J.A. 35.)

Subject to certain conditions, RLB was

also required to “contribute 8% of [its] Gross Revenues to the
Meineke

Advertising

Fund”

(“advertising

1

fund

contributions”),

The Bajjanis subsequently sold one of the Shops, Number
1886, to another corporation, following the FTA’s protocol for
doing so.
Joe Bajjani executed a limited guaranty agreement,
guaranteeing the corporation’s performance and obligations under
the FTA.
The district court held Bajjani liable for past
damages related to Shop No. 1886 because they were incurred
during the time the personal guaranty was in effect.
Bajjani
does not dispute that holding, and it is not before us on
appeal.
Despite this transfer of ownership, and unless
otherwise noted, we will not differentiate between the Shops for
purposes of assessing the parties’ arguments regarding the issue
that is before us on appeal. On remand, the district court can
ascertain what, if any, effect Bajjani’s personal guaranty has
on Meineke’s claim for future damages arising from the closure
of Shop 1886.
2
Throughout the rest of the opinion, we will refer to the
defendants collectively as “RLB,” distinguishing between them
only where necessary to the discussion.
4

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Date Filed: 04/14/2011

such sum also being payable weekly. 3

Page: 5

(Article 3.4 – J.A. 36.)

In exchange for its obligations to Meineke, RLB was entitled,
inter alia, to operate under the “Meineke” name and use the
associated logo and other marks, and also to receive training
and access to Meineke’s methods, procedures, and techniques.
Meineke had the right to terminate each FTA under certain
circumstances,
terminate.

but
One

RLB
such

did

not

have

circumstance

a

reciprocal

permitting

right

to

Meineke

to

terminate the FTAs was if RLB “fail[ed] to have [its] Shop open
for

business

for

any

6

consecutive

days

after

[it]

open[ed]

[its] Shop (other than in connection with a relocation . . . or
due to force majeure).”

(Article 13 – J.A. 66.)

3

The FTAs defined “gross revenues” as
all the revenues derived from or in connection with
the operation of [the] Shop, whether from sales for
cash or credit, and irrespective of their collection,
including charges for Authorized Products and Services
and applicable proceeds from any business interruption
insurance for your Shop, but excluding: (a) sales
taxes, use taxes, gross receipts taxes, and other
similar taxes added to the sale price, collected from
the customer and remitted to the appropriate tax
authorities; (b) credit card fees on credit card
sales; and (c) check guaranty fees.
“Gross Revenues”
also include revenues derived from any products or
services sold and/or performed from or in connection
with your Shop that are not Authorized Products and
Services . . . .
(Article 3.3 – J.A. 36.)
5

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RLB closed each of the shops well before the end of the
respective FTA’s 15-year period. 4

Upon learning of the closures,

Meineke sent RLB letters notifying it that the decision to close
the Shops

prematurely

breach of contract.”

“would

be

(J.A. 352.)

deemed

an

abandonment

and

a

With respect to at least one

of the shops, Meineke specifically informed RLB that “[t]o avoid
being

in

breach

of

contract,”

RLB

had

“three

options:

1)

continue operating [the shop]; 2) sell the shop to a buyer preapproved by Meineke who will continue to operate the shop as [a
Meineke franchise]; or 3) relocate the shop to another location
approved

by

Meineke.”

(J.A.

352.)

Meineke

asked

RLB

to

communicate its intent with respect to each of the closed shops. 5
RLB did not reopen any of the shops.

Meineke subsequently sent

RLB letters by which Meineke exercised its right to terminate
each FTA, with the date of termination effective as of the date
each shop closed.
4

Shop Number 1660 closed “[o]n or about January 16, 2006”;
Shop Number 1661 closed “[o]n or about December 10, 2006”; Shop
Number 1886 closed “[o]n or about September 24, 2006; and Shop
Number 1889 closed “on August 1, 2007.”
(J.A. 353, 393, 402,
406.) The Shops had between eleven and fourteen years remaining
on their terms.
5
For some period of time, RLB appeared to desire relocating
Shop 1661 and informed Meineke of its intent to do so, but
eleven months after closing the Shop at its original location,
it still had not opened the Shop at a new location.
At that
point, Meineke informed RLB it was terminating the FTA for that
Shop.
There is no evidence in the record that RLB ever responded
to Meineke’s interim letters regarding the other three Shops.
6

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Meineke filed a complaint in North Carolina state court
alleging RLB breached the FTAs causing Meineke to, inter alia,
“lose

the

[fund]

contractually

contributions

agreed

that

it

to

royalties

would

remaining term[s]” of each FTA.

have

and

received

(J.A. 21.)

advertising
during

the

RLB removed the

case to the Western District of North Carolina on the basis of
diversity jurisdiction.

It also filed counterclaims of breach

of

of

contract

and

breach

the

duty

of

good

faith

and

fair

dealing.
The parties then filed cross motions for summary judgment.
RLB sought partial summary judgment on Meineke’s future damages
claims,

while

Meineke

sought

summary

judgment

on

all

of

its

claims and the counterclaims.
The district court granted RLB partial summary judgment as
to

Meineke’s

claim

for

future

damages

for

any

prospective

royalties and advertising fund contributions for periods after
termination of the FTAs.

Meineke was granted summary judgment

on claims for past amounts due for periods prior to termination
of the FTAs and the counterclaims by RLB.
Meineke

noted

a

timely

judgment

appeal

related

of
to

the
its

portion
claim

for

of

the

district

court’s

future

damages.

Because RLB did not cross-appeal the judgment against

it, that portion of the district court’s order is not before us.
Our sole inquiry concerns the district court’s award of summary
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judgment based on its determination that Meineke failed as a
matter of law to show it was entitled to future damages in the
form

of

lost

contributions.

future

royalties

and

advertising

fund

We have jurisdiction under 28 U.S.C. § 1291.

II.
We review the district court’s grant of summary judgment de
novo.

Hawkspere Shipping Co. v. Intamex, S.A., 330 F.3d 225,

232 (4th Cir. 2003).

Summary judgment is appropriate if “there

is no genuine dispute as to any material fact” and a party “is
entitled to judgment as a matter of law.”
56(a).

Fed. R. Civ. P.

In making this determination, we are to “view all facts

and reasonable inferences therefrom in the light most favorable
to

the

nonmoving

party,”

that

being

Meineke

in

this

case.

Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 603 (4th Cir.
2002).

III.
The
grounds.

district
First,

court’s
the

court

decision

relied

determined

that

on

two

Meineke

entitled to recover prospective damages under the FTAs.

primary
was

not

Second,

the court determined that Meineke was not entitled to recover
lost profits under North Carolina law.
the holding in turn.
8

We review each part of

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At the outset we note that before reaching the prospective
damages claim, the district court determined that the decision
by RLB to prematurely close the Shops “constituted a material
breach” of the FTAs “because the very heart of the agreement
revolved around the continued operation of the automotive repair
[S]hops.”

(J.A. 829.)

RLB does not contest this ruling.

It is

therefore the law of the case and we are bound by it on appeal.
See

Mironescu

2007);

see

v.

also

Costner,
Fed.

R.

480

F.3d

664,

App.

Pro.

28(b).

677

n.15

(4th

Cir.

Accordingly,

for

purposes of our analysis, RLB materially breached the FTAs by
permanently

closing

the

Shops

prior

to

the

end

of

their

respective fifteen-year terms.

A.
The first part of the district court’s analysis examined
whether Meineke was entitled to future damages “under the FTAs.”
The district court held that “[b]y the express terms of the
FTAs, Meineke’s contract with [RLB] does not permit the recovery
of prospective damages.”

(J.A. 830.)

this conclusion on several factors:

The district court based
the absence of any express

“provision for Meineke to recover amounts from [RLB] subsequent
to the termination of the FTAs,” J.A. 829, the absence of any
provision

stating

that

the

duty

of

paying

royalties

and

advertising fund contributions survives termination of the FTAs,
9

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the

fact

Document: 33

Article

15.1

Date Filed: 04/14/2011

only

requires

RLB

to

Page: 10

pay

past

due

royalties and advertising fund contributions upon termination,
and

the

fact

that

contributions

do

payment
not

of

royalties

expressly

or

by

and

advertising

their

nature

fund

survive

termination of the FTA and therefore do not fall within the
survivorship provision in Article 15.5.

Read as a whole, but

without explicitly stating so, the district court’s order seems
to

imply

unless

that

a

damages.

Meineke

specific

could

FTA

not

recover

contractual

prospective

provision

damages

permitted

such

because

North

(See J.A. 830.)

Meineke

contends

the

district

court

erred

Carolina law does not require that the written contract (the
FTAs)

provide

damages

in

for

the

future

event

of

damages
a

in

breach.

order
It

to

also

recover

these

maintains

the

district court misconstrued provisions of the FTA (Article 15.1
and 15.5) to preclude recovery of prospective damages when those
provisions addressed other issues and do “not purport to address
all remedies available to Meineke for a franchisee’s breach.”
(Appellant’s Opening Br. 20.)
“Under North Carolina law, a court’s primary purpose in
construing a contract is to ascertain the intent of the parties
at the time of the contract’s execution.”

S.C. Nat’l Bank v.

Atl. States Bankcard Ass’n, 896 F.2d 1421, 1426 (4th Cir. 1990)
(citation omitted).

“Where the terms of the contract are not
10

Case: 09-2030

ambiguous,

the

Document: 33

express

Date Filed: 04/14/2011

language

determining its meaning . . . .”

of

the

Page: 11

contract

controls

in

Id. (quotation and citation

omitted).
The

district

court

is

correct

that

the

FTAs

do

not

specifically provide for recovery of future damages in the event
of a breach of contract.
such damages either. 6
law

suggests

that

However, nothing in the FTAs precludes

No principle of North Carolina contract
in

all

circumstances

a

contract

must

specifically provide for recovery of future damages in order to
preserve a party’s right to recover them.

To the contrary,

cases discussing recovery of lost profits do not refer to the
6

Meineke points to Article 17.10 as further proof that the
district
court
erred,
observing
that
contract
provision
preserves “any other right or remedy which [a] party is entitled
to enforce by law.”
(Appellant’s Opening Br. 21, quoting
Article 17.10 at J.A. 75.) RLB argues that Meineke’s failure to
raise the applicability of Article 17.10 in the district court
precludes it from being able to rely on it on appeal.
(Appellees’ Br. 36.)
Meineke does not dispute its failure to
raise the application of Article 17.10 below, and defends its
reliance on the provision by stating that appellate review of a
district court’s interpretation of a contract is de novo.
While Meineke articulates the proper standard of review,
Williams v. Prof’l Transp. Inc., 294 F.3d 607, 613 (4th Cir.
2002), the standard of review is wholly separate from whether a
party has adequately preserved an issue for review on appeal.
Consistent with our general rule on this point, we have held
that “the failure of a party at trial to raise a certain
interpretation of a[] contract results in a waiver of that
argument on appeal absent exceptional circumstances.”
In re:
Wallace & Gale Co., 385 F.3d 820, 835 (4th Cir. 2004); Canada
Life Assurance Co. v. Estate of Lebowitz, 185 F.3d 231, 239 (4th
Cir. 1999). Finding no exceptional circumstances in this case,
we will not consider Meineke’s argument and consider it waived
as to Article 17.10.
11

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parties’ contracts as the basis for the non-breaching party’s
right to such a recovery.

See, e.g., Weyerhaeuser Co. v. Godwin

Bldg. Supply Co., 234 S.E.2d 605, 607 (N.C. 1977); Perfecting
Serv. Co. v. Prod. Dev. & Sales Co., 131 S.E.2d 9, 21-22 (N.C.
1963); Builders’ Supply & Equip. Corp. v. Gadd, 111 S.E. 771,
772 (N.C. 1922); Storey v. Stokes, 100 S.E. 689, 690-92 (N.C.
1919); Pender Lumber Co. v. Wilmington Iron Works, 41 S.E. 797,
798

(N.C.

1902).

While

the

parties

were

certainly

free

to

contract for liquidated damages or to bar a right to recover
lost profits under North Carolina law, they did not do so in
this case.

To the extent the district court’s decision required

the FTAs to specifically provide for prospective damages as a
mandatory

condition

precedent

to

preserve

a

non-breaching

party’s right to recover such damages, this was error.
Contrary to the district court’s conclusion, Articles 15.1
and 15.5 of the FTAs do not operate as bars to recovering future
damages.
expiration
royalties,

Article
of

the

15.1
FTAs,

[advertising

states
RLB

that

“agree[s]

fund]

upon
to

payments,

termination

or

[Meineke]

all

pay

amounts

owed

for

purchases . . . , interest due on any of the foregoing and all
other amounts owed to [Meineke] which are then unpaid.”
68.)

Article 15.1 only addresses what is owed up to termination

of the FTAs.
after

(J.A.

It is silent about RLB’s liability for periods

termination.

By

expressly
12

providing

for

certain

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obligations upon termination or expiration of the FTAs, Meineke
and RLB did not implicitly exclude other legal rights that may
accrue

in

addition

to

those

stated.

The

district

court’s

construction in this instance runs contrary to the instruction
that courts “will not resort to construction [of a contract]
where

the

intent

of

the

unambiguous language.”
(N.C. 1930).

parties

is

expressed

in

clear

and

Wallace v. Bellamy, 155 S.E. 856, 859

There is no need to construe the Article 15.1

language to mean something other than the circumstances to which
it clearly applies—pre-breach damages.

The provision is silent

as to prospective damages arising after termination pursuant to
breach of the FTA.

The district court erred in reading Article

15.1 as precluding future damages.
The

district

similarly

court’s

mistaken.

construction

Article

15.5

of

Article

states:

“All

15.5

is

obligations

under this Agreement which expressly or by their nature survive
the expiration or termination of this Agreement will continue in
full force and effect until they are satisfied in full or by
their

nature

expire.”

(J.A.

70.)

Although

the

right

to

royalties and advertising fund contributions do not expressly
survive

the

expiration

or

termination

of

the

Agreement

as

a

provision of the contract, they need not do so in order to form
the basis of a prospective damages claim in the event Meineke is
otherwise entitled to those damages under other applicable law.
13

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As discussed below, Meineke’s right to recover such sums as the
measure of damages resulting from a breach of the FTAs arises
under North Carolina law and is independent and separate from
any obligation to pay such sums as a new obligation arising
under the FTAs. 7
In

sum,

the

FTAs

neither

specifically

provided

for

nor

expressly prohibited Meineke from recovering prospective damages
in the event of RLB’s material breach.

In the absence of an

express contractual provision barring future damages, the FTAs
did

not

prohibit

the

recovery

of

permitted under North Carolina law.

those

damages

if

otherwise

The district court erred in

holding otherwise.

B.
Meineke’s ability to recover future damages thus depends on
whether
Carolina

it

adduced

common

law

sufficient

evidence

claim

lost

for

to

set

profits.

forth

a

North

Under

North

Carolina law,
the general rule is that a party who is injured by
breach of contract is entitled to compensation for the
7

While the parties could have agreed to bar a future
damages claim in the written FTA, they did not do so.
But
whether a future damages claim was otherwise within their
contemplation under state law at the formation of their contract
is an unresolved and disputed factual issue, as more fully
discussed below.

14

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injury sustained and is entitled to be placed, as near
as this can be done in money, in the same position he
would
have
occupied
if
the
contract
had
been
performed.
Stated generally, the measure of damages
for the breach of a contract is the amount which would
have been received if the contract had been performed
as made, which means the value of the contract,
including the profits and advantages which are its
direct results and fruits.
Perkins v. Langdon, 74 S.E.2d 634, 643 (N.C. 1953) (citations
omitted).
include

Accordingly, “[d]amages for breach of contract may

loss

of

prospective

profits

where

the

natural and proximate result of the breach.”

loss

is

the

Mosley & Mosley

Builders, Inc. v. Landin Ltd., 361 S.E.2d 608, 613 (N.C. Ct.
App. 1987) (citing Perkins, 74 S.E.2d at 634.).

North Carolina

courts have set out a three-part test for determining when a
party may recover lost profits
“when it is made to appear (1) that it is reasonably
certain that such profits would have been realized
except for the breach of contract, (2) that such
profits
can
be
ascertained
and
measured
with
reasonable certainty, and (3) that such profits may
reasonably be supposed to have been within the
contemplation of the parties, when the contract was
made, as the probable result of the breach.”
Keith v. Day, 343 S.E.2d 562, 568 (N.C. Ct. App. 1986) (quoting
Perkins,
party

74

has

reasonable

S.E.2d
a

at

644).

duty

to

mitigate

care

and

In

diligence

consequences of [the] wrong.”

addition,

its
to

damages
avoid

the

non-breaching

by

“exercis[ing]

or

lessen

the

See Miller v. Miller, 160 S.E.2d

65, 74 (N.C. 1968).

15

Case: 09-2030

Based

on

Document: 33

these

Date Filed: 04/14/2011

principles,

in

order

to

Page: 16

survive

summary

judgment, Meineke had the burden of showing sufficient evidence
to

establish

or

create

a

issues:

(1)

RLB’s

potential

for

future

royalties

and

advertising

question

material

of

breach

damages

in

fund

fact

regarding

proximately

the

form

of

contributions;

these

caused
lost

(2)

the

future

there

is

reasonable certainty that Meineke’s lost profits would have been
realized but for RLB’s closure of the Shops; (3) the amount of
Meineke’s

lost

profits

can

be

ascertained

and

measured

with

reasonable certainty; (4) at the time of entering into the FTAs,
lost

profits

may

reasonably

be

supposed

to

have

been

within

Meineke and RLB’s contemplation as the probable result of RLB’s
premature closure of the Shops.

The district court held Meineke

failed to establish any material facts in dispute as to each
part of this analysis and that RLB was entitled to judgment as a
matter of law.

For the reasons set forth below, we disagree.

1.
The district court held that Meineke failed to show that
RLB’s breach proximately caused its prospective damages.

In the

district court’s view, “Meineke’s termination of the FTAs in the
instant case terminated [RLB’s] ability to generate royalties
and

[advertising]

fees,

irrespective

breached before” the termination.
16

of

whether

[RLB]

had

“Once [Meineke terminated the

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Page: 17

FTAs, the FTAs] provided no right to future damages.
[these

sums]

were

based

on

[the

Shops’]

Since

revenues,

the

termination of the [FTAs] cut off [RLB’s] ability to generate
revenues.”
The
supporting

(J.A. 830-31.)
district
its

court

cited

conclusion.

On

no

legal

appeal,

authority

the

directly

parties

cite

to

numerous cases from courts across the country, none of which are
binding on this court.
on point.

We, too, found no controlling authority

Most of the relevant discourse appears in various

federal district and state court opinions.
These courts have taken a variety of approaches to analyze
whether a franchisor is entitled to recover lost profits.

They

have reached opposite conclusions based on the nature of the
franchisee’s breach and concerns such as whether recovering lost
profits would result in the franchisor unfairly benefiting with
a double recovery.

See Moran Indus., Inc. v. Mr. Transmission

of Chattanooga, Inc., 725 F. Supp. 2d 712, 720-23 (E.D. Tenn.
2010)

(collecting

and

discussing

cases

examining

whether

a

franchisor can ever be entitled to recover lost profits after
terminating a franchise agreement in response to franchisee’s
breach of contract).
approaches

because

We need not examine the full panoply of
we

believe

17

the

proper

analysis

is

a

Case: 09-2030

Document: 33

Date Filed: 04/14/2011

Page: 18

straightforward application of the relevant North Carolina law
concerning damages recoverable following a breach of contract. 8
Long-standing

principles

of

North

Carolina

contract

law

permit a non-breaching party to recover damages that are “the

8

Our approach is consistent with cases on both sides of the
analysis, as the focal point has not been whether the franchisor
or the franchisee is seeking lost profits, but whether the party
breaching the contract proximately caused the lost profits being
sought. Even where a court has held that the franchisor is not
entitled to recover lost profits, the rationale for that
decision
has
usually
been
that
the
franchisor’s
lawful
termination of the parties’ agreement was the proximate cause of
lost profits rather the franchisee’s breach, the most common
example being a franchisee’s breach for failing to pay past due
royalties.
As the California Court of Appeals observed in Postal
Instant Press, Inc. v. Sealy, 51 Cal. Rptr. 2d 365 (Cal. Ct.
App. 1996), “it was the franchisor’s own decision to terminate
the franchise agreement that deprived it of its entitlement to .
. . future royalty payments” because “[n]othing in the
franchisee’s [breach, i.e.,] failure to pay past royalties[,] in
any sense prevented the franchisor from earning and receiving
But in so holding,
its future royalty payments.”
Id. at 370.
the court emphasized that it was “not holding franchisors can
never collect lost future royalties for franchisees’ breaches of
the franchise agreement. That entitlement depends on the nature
of the breach and whether the breach itself prevents the
franchisor from earning those future royalties.” Id. at 371.
By contrast, in Lady of America Franchise Corp. v. Arcese,
2006 U.S. Dist. LEXIS 68415 (S.D. Fla. 2006), the United States
District Court for the Southern District of Florida permitted a
franchisor to recover lost future royalties where the franchisee
voluntarily ceased operating the franchise, an action that,
under the terms of their agreement, automatically terminated the
agreement.
Id. at *18.
The court found “as a matter of law
that [the franchisee’s] actions were the proximate cause of the
termination of the agreement and [the franchisor’s] loss of
future royalties.” Id.
We do not rely on any of these cases as specific authority,
and only raise them as examples of how other courts have
approached this issue.
18

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Date Filed: 04/14/2011

Page: 19

proximate consequence of a breach of contract” and “all damages
must flow directly and naturally from the wrong.”
Atl.

Coast

Line

R.R.

(citations omitted).

Co.,

113

S.E.

606,

608

Johnson v.
(N.C.

1922)

Here, it is the law of the case that RLB

materially breached the contract by closing the Shops before the
FTAs’

terms

ended.

The

nature

of

this

breach

is

so

comprehensive as to constitute a de facto abandonment of the
FTAs

by

the

sole

decision

of

the

franchisee,

RLB. 9

RLB’s

decision to close the Shops stopped the potential for generating
any revenues through their future operation.

That decision in

turn meant that Meineke, by virtue of this independent action of
RLB,

would

no

longer

receive

royalties

and

advertising

fund

contributions that it was entitled to receive under the FTAs.
RLB’s breach was therefore the proximate cause of Meineke’s lost
profits.
Meineke’s
certain

legal

subsequent
consequences

decision

to

impacting

terminate
the

the

FTAs

relationship

had

between

the parties, but it did not cause RLB to stop operating the
Shops and thereby stop generating revenues:
9

an event which had

The record indicates that Meineke sent RLB letters upon
learning of the Shops’ closure and provided RLB with an
opportunity to respond as to its intent and cure the breaches in
order to avoid termination of the FTAs.
With the exception of
the one shop RLB indicated it desired to relocate, there is no
indication in the record that RLB responded to Meineke’s interim
letters. It was only after many months to over a year following
each Shops’ closure that Meineke finally terminated the FTAs.
19

Case: 09-2030

already

Document: 33

occurred.

royalties

and

As

a

Date Filed: 04/14/2011

result,

advertising

fund

Meineke

was

contributions

received had the stores remained opened. 10

Page: 20

losing
it

future

would

have

The district court

thus erred in concluding that the termination of the FTAs by
Meineke, rather than the established breach by RLB, proximately
caused Meineke’s lost profits.

2.
Closely linked to the causation analysis is the requirement
that

Meineke

had

to

show

that

it

was

reasonably

realize lost profits absent RLB’s breach.
concluded

that

Meineke

had

not

made

certain

The district court

the

requisite

because the “Shops struggled to keep business going.”
832.)

to

showing
(J.A.

The court concluded Meineke did not provide sufficient

evidence that the Shops “would have been profitable” had they
remained open.

(J.A. 832.)

Although the district court did not

define “profits,” its analysis focused on each shop’s net income
and whether the shop “generate[d] income.”
10

(J.A. 832.)

In light of RLB’s breach, termination seems to have been
a prudent decision in order to prevent further losses and
otherwise protect Meineke’s interests. As just one example, the
decision to terminate the FTAs may appropriately be viewed as
part of Meineke’s responsibility to mitigate its damages
following RLB’s breach.
Under the terms of the FTAs, Meineke
was prohibited from refranchising within a certain geographic
proximity to the Shops as long as the FTAs were in force, and
therefore could not have approved another party’s application to
franchise the area unless the FTAs were terminated.
20

Case: 09-2030

As

the

Document: 33

non-breaching

Date Filed: 04/14/2011

party,

Meineke

Page: 21

was

“entitled

to

compensation for the injury sustained and [was] entitled to be
placed,

as

position

near

[it]

performed.”
FTAs

as

this

would

can

have

be

done

occupied

in

if

Meineke

to

a

percentage

in

the

same

contract

the

Perkins, 74 S.E.2d at 643.

entitled

money,

had

been

As detailed above, the
of

the

Shops’

gross

revenues each week, both as royalties and as advertising fund
contributions.

For

purposes

of

avoiding

RLB’s

motion

for

summary judgment, Meineke did not have to show that the Shops
would

generate

income,

only

revenues.

a
that

particular
the

profit

Shops

would

or

have

have

a

particular

continued

to

net
have

As long as the Shops continued to make some sales for

any period of time after the breach, Meineke would be entitled
to its lost royalties and advertising fund contributions as a
percentage of those gross sales.
RLB contends “there is no evidence that [the Shops] could
have continued to be operational . . . given their financial
failings.”

(Appellees’

Br.

43.)

However,

Meineke

was

not

required to prove as part of its prima facie case for purposes
of avoiding summary judgment that it was commercially feasible
to operate the Shops at the time of the closures.

Meineke was

only required to show it was due future damages based on future
operation of the Shops.

RLB could put on evidence as to when

the Shops could not operate in a commercially feasible manner,
21

Case: 09-2030

forcing

Meineke

Document: 33

to

summary judgment.

adduce

Date Filed: 04/14/2011

evidence

to

the

Page: 22

contrary

to

avoid

However, this record only reflects the Shops

were not operating at a “profit” but without a definition of
“profit.”

The record at this stage does not show the Shops

could

operate

not

in

a

commercially

feasible

manner

for

a

particular period of time after RLB closed each shop, and the
district court made no finding to that effect.

The Shops, or

some of them, may or may not have been able to operate at the
time

of

their

closures

commercially feasible.
relevant

without

a

because

operation

was

no

longer

Whether a Shop made a profit is not

definition

of

“profit”

and

how

that

term

relates to the commercial reasonableness of continued operation.
At this point in the proceedings, that determination has not
been made. 11
There is a factual question then, both as to how long the
Shops could have been kept operational and as to the amount of
revenues the Shops would have generated during that period.

It

would be for the finder of fact to determine what lost profits
11

For example, a franchisee may operate a location and fail
to make a “profit” because it pays above-market compensation,
uses revenues for other ventures, or a myriad of other purposes
unrelated to that location.
It would not be unusual for a
franchise location to operate as “unprofitable’ for a period of
time until it establishes a market or stable management.
None
of
these
circumstances,
standing
alone,
would
excuse
a
franchisee from payment of royalties. What occurred in the case
at bar is yet to be determined.

22

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Date Filed: 04/14/2011

Page: 23

Meineke can prove it was reasonably certain to have realized
from the time of the breach forward until such time as the
finder of fact determines it was no longer reasonably certain
that

any

revenues

would

exist.

We

make

no

prediction

what

additional evidence, if adduced, may show or whether that be at
another summary judgment proceeding or trial on the merits.

The

salient point, for our purposes, is simply that material facts
remain in dispute, which does not permit the award of summary
judgment based on the current record.
Meineke

satisfied

its

burden

of

showing

with

reasonable

certainty that except for RLB’s breach of the FTAs by closing
the Shops, some revenue – and therefore some lost royalties and
advertising fund contributions – would have been realized.

This

showing was sufficient to survive summary judgment based on the
current

record,

and

the

district

court

erred

in

holding

otherwise.

3.
The district court also held Meineke’s “generic calculation
for

lost

profits”

did

not

“assess

[each

shop’s]

specific

location, viability, or profitability” and therefore failed to
measure or ascertain the asserted lost profits with reasonable
certainty.

(J.A.

833.)

The

court

specifically

noted

that

Meineke’s use of three years’ lost profits based on the time it
23

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Date Filed: 04/14/2011

Page: 24

usually takes to re-franchise a location was speculative because
“Meineke cannot say with certainty that every franchise takes
three years.”

(J.A. 833.)

Under North Carolina law, “[a]s part of its burden, the
party seeking damages must show that the amount of damages is
based upon a standard that will allow the finder of fact to
calculate

the

amount

of

damages

with

reasonable

certainty.”

Olivetti Corp. v. Ames Bus. Sys., Inc., 356 S.E.2d 578, 586
(N.C. 1987) (citation omitted).

Consequently,

damages for lost profits will not be awarded based
upon hypothetical or speculative forecasts of losses.
. . . Instead, [the court] evaluate[s] the quality of
evidence of lost profits on an individual case-by-case
basis in light of certain criteria to determine
whether damages have been proven with “reasonable
certainty.”
Iron Steamer, Ltd. v. Trinity Restaurant, Inc., 431 S.E.2d 767,
770 (N.C. Ct. App. 1993).

Absolute certainty is not required.

Mosley, 361 S.E.2d at 613; see also McNamara v. Wilmington Mall
Realty Corp., 466 S.E.2d 324, 329-31 (N.C. Ct. App. 1996).
Meineke

asserts

reasonable certainty.

its

lost

profits

were

calculated

with

This is so, Meineke contends, because it

used each shop’s “actual historical sales data” to calculate
what royalties and advertising fund contributions RLB would have
paid Meineke in the future.

(Appellant’s Br. 44.)

RLB responds

that Meineke’s calculations are speculative because Meineke uses
“the identical generic formula [to calculate lost profits] in
24

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Page: 25

every case” and “Meineke cannot say with certainty that every
franchise takes three years.”

(Appellees’ Br. 46.)

We begin with a brief summary of how Meineke calculated its
future damages arising from the Shops’ closures.

For the three

franchises still operated by the Bajjanis, Meineke calculated
lost future royalties by using the average weekly sales of the
shop in prior years, multiplying that average sum by the number
of weeks in the three-year period for which it sought relief,
and

then

multiplying

that

amount

by

an

average

historical

royalty rate to determine the prospective franchise fees Meineke
lost as a result of the breach.

From that sum, Meineke deducted

its incremental savings resulting from the premature closing of
the franchise and then discounted that amount to present value.
A

similar

calculation

was

used

advertising fund contributions.

to

determine

lost

future

For the fourth franchise (the

one RLB sold to a third party), Meineke performed a similar
calculation for both amounts, but took into account both royalty
concessions and the period of time remaining on Joe Bajjani’s
personal guaranty.
Having reviewed the evidence Meineke set forth as to the
amount of its lost profits, we conclude that the district court
erred

in

holding

Meineke’s

calculations

speculative to survive summary judgment.

were

too

remote

and

Just because Meineke

uses the same formula in “every” breach of contract case does
25

Case: 09-2030

not

make

its

Document: 33

calculations

Date Filed: 04/14/2011

speculative.

Page: 26

Meineke

used

data

specific to each shop to calculate the damages it sought from
the closure of that shop.

Meineke’s calculations were based on

a historical analysis of the Shops’ actual revenues projected
into the future, a methodology North Carolina courts have upheld
as a reasonable basis for calculating damages like the future
royalties and advertising fund contributions sought here:

“If

an established business is wrongfully interrupted, the damages
can be proved by showing the profitability of the business for a
reasonable time before the wrongful act.
prospective

profits

are

conjectural,

they are not recoverable.”

It is only when the

remote,

or

speculative,

Mosley, 446 S.E.2d at 613 (internal

quotation mark and citations omitted). 12

12

Indeed, using past profits as a basis for calculating
future lost profits is a widely accepted methodology. Lockheed
Info. Mgmt. Sys. Co. v. Maximus, Inc., 524 S.E.2d 420, 429 (Va.
2000) (“[E]vidence of the prior and subsequent earning record of
a business can be used to estimate damages, in the case of an
established business with an established earning capacity.”);
Guard v. P&R Enters., Inc., 631 P.2d 1068, 1072 (Alaska 1981)
(“In cases involving an established business, courts have
considered past profits a reasonably certain measure by which to
calculate a damage award.”); Schoenberg v. Forrest, 228 S.W.2d
556, 560-61 (Tex. Ct. App. 1950) (“Where . . . it is shown that
the business . . . was making a profit[] when the contract was
breached, such pre-existing profit, together with other facts
and circumstances, may be considered in arriving at a just
estimate of the amount of profit which would have been made if
plaintiff had not breached its contract.” (quotation and
citation omitted)).

26

Case: 09-2030

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Page: 27

By using the Shops’ actual past performance to calculate
projected future royalties and advertising fund contributions,
Meineke did not fall into the sort of analysis North Carolina
courts have rejected as being too remote, hypothetical, or based
on conjecture.

E.g., McNamara, 466 S.E.2d at 330 (concluding

calculations were not reasonably certain where they were based
on nationwide data from stores who “bore [no clear] similarity
to plaintiff’s business” rather than “sales figures and other
financial

data”

from

smaller

stores

of

plaintiff’s

kind

or

similar stores in the region); Olivetti, 356 S.E.2d at 586-87
(concluding lost profits calculation not made with reasonable
certainty where it was based on being offered an opportunity
that was turned down and then the subsequent profitability of
that opportunity where there was no evidence in the record to
support either contingency).

To

the

contrary,

Meineke’s

calculations were “based upon standards that allowed the jury to
determine the amount of plaintiff’s lost profits with reasonable
certainty.” 13

McNamara, 466 S.E.2d at 330.

13

The Shops closed at different periods into their terms,
and thus had different lengths of past performance on which to
base Meineke’s calculations.
However, in Olivetti, the Supreme
Court of North Carolina rejected the “new business” rule, which
would have “preclude[d] an award of damages for lost profits
where the allegedly damaged party has no recent record of
profitability,” 356 S.E.2d at 585, either due to being a
“recently . . . instituted” business or an established business
“without a recent history of profitability.” Id. at 585 & n.3.
(Continued)
27

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RLB’s arguments challenging the amount of future damages
Meineke

seeks,

including

the

three-year

period

for

which

it

seeks such damages, create a question of disputed fact as to
whether Meineke’s calculations reflect the time period for which
there is a reasonable certainty as to what lost profits would
have been received by Meineke.
not

unreasonably

speculative,

But Meineke’s methodology was
hypothetical,

conjecture as a matter of law.

or

the

result

of

Thus, summary judgment on this

issue was erroneous as material facts remain in dispute as to
the amount of future damages and the time period for which they
are collectible.

4.
The district court next held that “[f]uture damages were
not reasonably within the contemplation of the parties at the
time of” entering into the FTAs because “[i]f they had been,
Meineke
834.)
FTAs

would

have

contractually

provided

for

them.”

(J.A.

The court stated “[i]t would be unjust to construe the
as

permitting

provide for them.”

future

damages

when

the

words

[do

not]

(J.A. 834.)

Instead, the court held that lost profits could be awarded to
any business – regardless of age or history of recent
profitability – as long as damages were proven “with reasonable
certainty.” Id. at 585.

28

Case: 09-2030

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Date Filed: 04/14/2011

Page: 29

Meineke contends this was error because “[t]he fact that
the [FTAs do] not expressly list each available remedy for such
a breach does not preclude Meineke from seeking the customary
breach of contract remedies, including lost future royalties and
advertising [fund] contributions, allowed by the black letter
law of contracts.”
posits

“it

was

(Appellant’s Br. 35.)

reasonably

foreseeable

Moreover, Meineke

that

if

[RLB]

stopped

operating [its] franchises before the expiration of the 15-year
term, Meineke would seek to recover the remaining royalties and
advertising
[FTAs].”
As

[fund]

contributions

due

to

Meineke

under

the

(Appellant’s Br. 34.)
previously

noted,

to

recover

future

damages,

such

damages must “be reasonably supposed to have been within the
contemplation of the parties, when the contract was made, as the
probable result of a breach.”

Perkins, 74 S.E.2d at 644; see

also Lamm v. Shingleton, 55 S.E.2d 810, 812-13 (N.C. 1949) (“A
party

to

a

contract

who

is

injured

by

another’s

breach

of

contract is entitled to recover from the latter damages for all
injuries and only such injuries as are the direct, natural, and
proximate result of the breach . . . and can reasonably be said
to have been foreseen, contemplated, or expected by the parties
at the time when they made the contract as a probable or natural
result of a breach.” (quotation and citations omitted)).

“In

ascertaining what damages come within the rule, it is proper to
29

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Date Filed: 04/14/2011

Page: 30

examine, not only the terms of the contract, the subject-matter,
etc.,

but

also

to

inquire

whether

such

circumstances

or

conditions as produced special damages were communicated to the
defendant.”

Storey, 100 S.E. at 691.

It was an error of law for the district court to base its
analysis solely on whether prospective damages were explicitly
provided for in the terms of the FTAs.

Demanding such express

evidence of contemplation requires more than proof that lost
profits

were

“reasonably

supposed

to

have

been”

within

the

parties’ contemplation, and instead requires absolute certainty
that

the

parties

considered

their written agreement.

such

terms

by

including

them

in

We could find no cases – and neither

the district court nor RLB cite to any – where North Carolina
courts

have

Indeed,

the

held

parties

principles

to

such

espoused

a

high

above

standard

clearly

of

negate

proof.
such

a

proposition, focusing instead on what damages are within the
contemplation and expectation of the parties, and those that are
naturally and likely resulting from a breach.

North Carolina

courts have typically articulated the principles regarding what
damages are generally recoverable following a breach of contract
in

contrast

to

special

circumstances

that

may

lead

to

a

different recovery, which must have been specifically discussed
in order to be considered part of the parties’ contemplation at
the time of entering into the agreement.
30

Perkins, 74 S.E.2d at

Case: 09-2030

643-44.

The

Document: 33

requirement

Date Filed: 04/14/2011

that

lost

Page: 31

profits

be

“reasonably

supposed to have been within the contemplation of the parties”
incorporates this notion of naturally arising from a breach, but
does not require express written agreement.
Thus,

while

the

absence

of

such

an

Cf. id. at 644.

express

lost

profits

provision in the contract is one fact the court may consider in
determining whether the parties reasonably contemplated future
damages,

cf.

evidence

relevant

Storey,

100
the

to

S.E.

at

691,

it

determination.

is

The

not

the

district

only
court

erred in relying on that evidence alone to conclude that the
parties did not contemplate lost profits as damages.
The

record

reflects

several

relevant

factors

that

could

support a contrary conclusion, including the FTAs’ fifteen-year
terms

and

Moreover,
binding

the
the

grant

entire

agreement

of

an

purpose

whereby

exclusive

of

RLB

the

FTA

paid

territorial
was

to

Meineke

right.

establish

royalties

a

and

advertising fund contributions in exchange for being permitted
to operate under its name and marks, using its procedures and
products.

At the very least, this evidence juxtaposed against

the absence of an explicit FTA provision specifying the recovery
of future damages creates a disputed issue of fact about whether
Meineke’s lost royalties and advertising fund contributions in
the event of a breach were reasonably within RLB and Meineke’s
contemplation

at

the

time

they
31

entered

into

the

FTAs.

Case: 09-2030

Document: 33

Date Filed: 04/14/2011

Page: 32

Accordingly, the district court erred in holding that RLB was
entitled to judgment as a matter of law as to this aspect of
Meineke’s claim.

5.
Lastly, with respect to mitigation of damages, the district
court

concluded

attempted

to

franchising.”

the

record

mitigate

its

(J.A. 834.)

held

“no

damages

evidence

under

the

that

Meineke

FTAs

by

re-

Citing the Supreme Court of North

Carolina’s decision in Miller v. Miller, 160 S.E.2d 65, 73-74
(N.C. 1968), the district court held that Meineke’s failure to
mitigate “operates as a bar to recovery.”

(J.A. 834.)

The

court’s quotation from Miller is incomplete and thus does not
correctly state the North Carolina law regarding mitigation:
The rule in North Carolina is that an injured
plaintiff, whether his case be tort or contract, must
exercise reasonable care and diligence to avoid or
lessen the consequences of the defendant’s wrong.
If
he fails to do so, for any part of the loss incident
to such failure, no recovery can be had. This rule is
known as the doctrine of avoidable consequences or the
duty to minimize damages. Failure to minimize damages
does not bar the remedy; it goes only to the amount of
damages recoverable.
Id. at 73-74 (internal citation omitted) (emphasis added).

The

district court thus erred as a matter of North Carolina law
because Meineke’s failure to mitigate, if such be ultimately

32

Case: 09-2030

Document: 33

Date Filed: 04/14/2011

Page: 33

found, does not bar recovery of prospective damages, but only
circumscribes the amount of damages that may be recovered.
In asserting a failure to mitigate defense, the burden was
on RLB to allege and prove that Meineke failed to “do what
reasonable business prudence required to minimize [its] damage.”
Mt. Gilead Cotton Oil Col. v. W. Union Tel. Co., 89 S.E. 21, 22
(N.C.

1916);

see

also

United

S.E.2d

104,

108

(N.C.

Ct.

Labs.,
App.

Inc.

1991)

v.

Kuykendall,

(holding

an

403

injured

plaintiff “must exercise reasonable care and diligence to avoid
or lessen the consequences of the defendant’s wrong” (quotation
and

citation

omitted)).

To

avoid

denial

of

its

motion

for

summary judgment based on a failure to mitigate, RLB would have
had to put on some evidence that Meineke’s duty to mitigate
arose

contemporaneously

breach.
broadly

with

any

damages

arising

from

the

RLB did not offer any such proof, and instead more
claimed

that

Meineke

was

simply

not

entitled

to

the

amount of damages it sought because of a failure to mitigate.
In effect, RLB’s position is that Meineke was required to prove,
even as to the first day after RLB’s breach, that Meineke acted
in mitigation.

This argument reverses the burden of proof under

North Carolina law.
Meineke
contending

responded

that

it

to

adequately

this

assertion

mitigated

its

with
damages

evidence
by

only

seeking damages for a three-year period rather than for the each
33

Case: 09-2030

FTA’s

remaining

Document: 33

term,

and

Date Filed: 04/14/2011

that

it

would

have

Page: 34

cost

more

to

specifically seek to refranchise the exact area of each of the
shops

rather

nationwide

than

continuing

franchises. 14

to

This

market

evidence

the

availability

creates

an

issue

of
of

disputed fact as to whether, under the circumstances of this
case, the three-year period satisfies the duty to mitigate and,
if not, what period of prospective damages between one day and
three years Meineke was entitled to recover before its failure
to mitigate barred further recovery.

Accordingly, the district

court erred in its ruling on mitigation.

IV.
For the aforementioned reasons, we conclude that the FTAs
do not bar Meineke from recovering future damages, that RLB’s
breach proximately caused Meineke to incur prospective damages,
and that Meineke put forth sufficient evidence to create issues
of disputed fact on its claim for lost profits.

Accordingly,

the district court erred in granting summary judgment to RLB on
14

For example, in deposition testimony, Meineke’s Chief
Financial Officer, Michael Carlet, explained that Meineke
“typically do[es] not try to refranchise a specific territory”
“[b]ecause the incremental cost to find a franchisee for that
specific territory would not be cost beneficial.”
(J.A. 503.)
He explained “[t]he cost to target a market on a specific basis,
to find the advertising source in that market, and to find a
franchisee is much more expensive than the other methods of
advertising that [Meineke] use[s] to attract franchisees.”
(J.A. 503; see also 503-06.)
34

Case: 09-2030

the

issue

district
Meineke’s

of

Document: 33

prospective

court’s
future

grant

Date Filed: 04/14/2011

damages.
of

damages

summary
claim

We

therefore

judgment
and

Page: 35

remand

to

reverse
RLB
for

as

the
to

further

proceedings consistent with this opinion.

REVERSED AND REMANDED

35