David Schwartz v. Rent A Wreck of America Inc

Filing

UNPUBLISHED AUTHORED OPINION filed. Originating case number: 1:07-cv-01679-PJM Copies to all parties and the district court/agency. [998806499].. [10-2114, 10-2260, 11-1561]

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Date Filed: 03/09/2012

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 10-2114

DAVID
SCHWARTZ,
d/b/a Rent
A
Wreck;
INCORPORATED, d/b/a Bundy Auto Sales,

RENT

A

WRECK

Plaintiffs - Appellees,
v.
RENT A WRECK OF AMERICA INCORPORATED; BUNDY AMERICAN LLC,
Defendants – Appellants,
and
J.J.F. MANAGEMENT SERVICES INCORPORATED,
Defendant.

No. 10-2260

DAVID
SCHWARTZ,
d/b/a Rent
A
Wreck;
INCORPORATED, d/b/a Bundy Auto Sales,

RENT

A

WRECK

Plaintiffs - Appellants,
v.
RENT A WRECK OF AMERICA INCORPORATED; BUNDY AMERICAN LLC,
Defendants – Appellees,
and
J.J.F. MANAGEMENT SERVICES INCORPORATED,
Defendant.

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No. 11-1561

DAVID
SCHWARTZ,
d/b/a Rent
A
Wreck;
INCORPORATED, d/b/a Bundy Auto Sales,

RENT

A

WRECK

Plaintiffs - Appellees,
v.
RENT A WRECK OF AMERICA INCORPORATED; BUNDY AMERICAN LLC,
Defendants – Appellants,
and
J.J.F. MANAGEMENT SERVICES INCORPORATED,
Defendant.

Appeals from the United States District Court for the District
of Maryland, at Baltimore.
Peter J. Messitte, Senior District
Judge. (1:07-cv-01679-PJM)

Argued:

January 26, 2012

Decided:

March 9, 2012

Before KING and DUNCAN, Circuit Judges, and J. Michelle CHILDS,
United States District Judge for the District of South Carolina,
sitting by designation.

Affirmed in part, vacated in part, reversed in
remanded by unpublished opinion.
Judge Duncan
opinion, in which Judge King and Judge Childs joined.

part,
wrote

and
the

ARGUED: Daniel Janssen, QUARLES & BRADY, Milwaukee, Wisconsin,
for Rent A Wreck of America Incorporated and Bundy American LLC.
Jacob Ira Weddle, GORDON & SIMMONS, LLC, Frederick, Maryland,
for David Schwartz and Rent A Wreck Incorporated.
ON BRIEF:
Leah J. Stoecker, QUARLES & BRADY, Milwaukee, Wisconsin, for
2

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Rent A Wreck of America Incorporated and Bundy American LLC.
Roger C. Simmons, GORDON & SIMMONS, LLC, Frederick, Maryland,
for David Schwartz and Rent A Wreck Incorporated.

Unpublished opinions are not binding precedent in this circuit.

3

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DUNCAN, Circuit Judge:
These consolidated appeals arise out of a jury verdict that
a

contract

arose

based

upon

appellants/cross-appellees

a

course

Rent-A-Wreck

of

dealing

of

between

America,

Inc.

(“RAWA”) and Bundy American, LLC (“Bundy”) on the one hand, and
appellees/cross-appellants David Schwartz and Rent-A-Wreck, Inc.
(“RAWI”), on the other, with respect to RAWI’s and Schwartz’s
operation of a used car rental business in West Los Angeles,
California.

Both sets of parties moved to set aside certain

portions of the jury verdict under Rule 50(b).

The district

court granted in part and denied in part these motions.

The

district court then entered a partial judgment in favor of RAWI
and

Schwartz,

from

which

both

sets

of

parties

appeal.

Subsequently, upon motion by RAWI and Schwartz, the district
court ordered RAWA and Bundy to comply with certain directives.
RAWA and Bundy appealed from that order. 1

For the reasons that

follow, we affirm in part, vacate in part, reverse in part, and
remand for further proceedings.

1

The appeal from the district court’s first order, dated
September 23, 2010, was docketed as No. 10-2114.
The appeal
from the district court’s second order, dated May 11, 2011, was
docketed as No. 11-1561.
By order of this court, the two
appeals were consolidated.

4

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I.
A.
We
appeal.

begin

by

setting

forth

the

facts

relevant

to

this

In 1962, Schwartz began operating a used car lot under

the name of Bundy Auto Sales.
name Rent-A-Wreck.

In 1973, Schwartz began using the

Schwartz painted a sign with the name “Bundy

Rent-A-Wreck” and placed it outside his business.

Two years

later, in 1975, Schwartz incorporated under the name Rent-AWreck,

Inc.

On

May

13,

1977,

Schwartz

formed

company with an investor named Geoffrey Nathanson.

another

new

The name of

the new company, owned equally between Schwartz and Nathanson,
was Bundy American Corporation (“Bundy”).

Bundy was formed for

the

brand

purpose

of

offering

Rent-A-Wreck

auto

rental

franchises.
In March and April of 1977, shortly before Schwartz and
Nathanson formed Bundy, they had entered into an agreement that
provided that

all

of

Schwartz’s

and

RAWI’s

interests

in

the

Rent-A-Wreck name and marks would be assigned to Bundy; that
Schwartz would assign to Bundy his and RAWI’s rights to the
Rent-A-Wreck name; that the territory of Los Angeles County was
excepted from this assignment; and that the agreement would be
binding upon both parties and their respective heirs, executors,
administrators,

and

permitted

assigns
5

(the

“1977

Agreement”).

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On May 13, 1977, Schwartz, for himself and RAWI, executed a
written assignment of the Rent-A-Wreck service mark to Bundy
(the “1977 Assignment”).
In

1985,

Schwartz

and

Nathanson,

with

the

agreement

of

Bundy’s franchisees, decided to take Bundy public under the name
Rent-A-Wreck of America, Inc.

For this purpose, they entered

into an agreement (the “1985 Agreement”).
Agreement,

Schwartz

activities

that

agreed

compete

that

with

the

“I

Pursuant to the 1985

shall

business

not

engage

of

in

[RAWA],

any

except

activities in the protected territory described below, including
the

running

of

Angeles.”
identified
within

J.A.
a

which

my

Bundy

2939

defined

(¶

Rent-A-Wreck
3).

operation

The

1985

territory--located

Schwartz

could

continue

it

would

grant

no

franchises,

nor

operating

open

West

Agreement

within

rental location (called Bundy Rent-A-Wreck).

in

Los
a

Los

further

Angeles-single

car

RAWA agreed that
any

RAWA-owned

affiliated operations in Schwartz’s protected territory.

or
The

1985 Agreement further provided that it would terminate on June
30, 1985, except that the exclusivity provision would continue
in full force and effect after that date.
On August 12, 1985, RAWA’s offering prospectus was issued
(the “Prospectus”).

It stated, in relevant part, that “[i]n

connection with the formation of Bundy, Schwartz assigned all of
his right, title and interest in and to the trade name and
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trademark ‘Rent-A-Wreck’ to Bundy, retaining the right to the
concurrent use of the trade name and trademark at the original
Rent-A-Wreck facility owned by him in West Los Angeles.”
2883 (“Background”).

J.A.

It further stated, in relevant part, that

Schwartz was “the originator of the Rent-A-Wreck concept and has
operated Bundy Rent-A-Wreck, his West Los Angeles based Rent-AWreck facility, the nation’s first, since 1973.
Wreck

operates

agreement

from

independently
[RAWA].”

of,

J.A.

and

2889.

not
The

Bundy Rent-A-

under

a

license

Prospectus

further

noted the existence and terms of the 1985 Agreement.
On August 11, 1987, the RAWA board unanimously approved a
proposal that RAWA would lease and operate Schwartz’s business
and territory in West Los Angeles beginning for an initial term
of one year, with the option for four additional one year lease
terms.

In an agreement executed on September 1, 1987, RAWA

agreed to lease and operate Schwartz’s car rental business (the
“1987 Lease Agreement”).
Schwartz’s

original

During the lease period, RAWA replaced

Bundy

Rent-A-Wreck

sign

with

a

stylized

Rent-A-Wreck sign and logo identical to the ones used by RAWA
franchisees.
mark

in

the

Assignment”).

On May 20, 1988, RAWI assigned the Rent-A-Wreck
State

of

Schwartz

California
signed

the

capacity as the President of RAWI.
controlling interest in RAWA.
7

to
1988

Bundy

(the

Assignment,

“1988
in

his

In 1990, Schwartz sold his

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In September 1990, RAWA terminated the lease on Schwartz’s
car

rental

location,

and

Schwartz

resumed

operating

independent rental car business at the same location.

an

Schwartz

continued using the signage and business forms that RAWA had
left

behind

at

the

end

of

the

lease

term.

RAWA

tolerated

Schwartz’s use of its marks for the next sixteen years. 2

Over

time, new employees of RAWA even began including his location on
Uniform Franchise Offering Circulars (“UFOC”) 3 and, when RAWA
established
location.

an

internet

page,

it

included

reference

to

his

The 2001 and 2002 UFOCs state that Schwartz “has

operated a vehicle rental business under the Rent-A-Wreck name
since 1973.
and

This business is located in Los Angeles, California

operates

under

a

royalty-free

agreement.”

J.A.

1544

(Information for Prospective Franchisees, July 1, 2001); J.A.
1744 (Information for Prospective Franchisees, July 1, 2002).
Each

UFOC

attached

as

an

exhibit

Franchisees,” which included Schwartz.
24.

Nonetheless,

there

has

never

a

“List

of

Current

J.A. 1676-77; J.A. 1823been

a

agreement executed between RAWA and Schwartz.

formal

franchise

The relationship

2

In 1993, RAWA relocated its headquarters from California
to Maryland.
3

A UFOC is a document that contains information franchisors
must provide to franchisees by law.
The Federal Trade
Commission regulates the contents of a UFOC.

8

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between the two is therefore somewhat unorthodox.
certain

requirements

upon

its

franchisees,

RAWA imposes

including

ongoing

training; compliance with standards and policies; restrictions
on products and services offered; warrant and customer service
requirements;

sales

quotas;

maintenance,

appearing,

remodeling requirements; insurance; and advertising.

and

Schwartz’s

rental location does not abide by such requirements.
In 2001, Bundy, now operating as a wholly owned subsidiary
of RAWA, began to operate auto rental businesses within the Los
Angeles area under the name “Priceless.”

There are currently

Priceless brand franchises operating in Los Angeles and West
Hollywood.
In

2005,

RAWA

entered

into

negotiations

with

Management Services, Inc. (“JJFM”) to sell itself.
was completed in 2006.
filed

two

October

lawsuits

28,

2006,

That sale

While the sale was pending, Schwartz

against
RAWA

J.J.F.

RAWA,

wrote

to

challenging
him,

asking

the
that

sale.
he

On

either

provide evidence of any agreement to use the Rent-A-Wreck name,
or

to

stop

franchisee

holding

(the

himself

“October

2006

out

to

the

letter”).

removed Schwartz from its website.

9

public
In

June

as

a

RAWA

2007,

RAWA

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B.
On June 25, 2007, Schwartz and RAWI filed an action against
RAWA, Bundy, and JJFM 4 in the United States District Court for
the

District

of

Maryland. 5

RAWI

and

Schwartz 6

sought

a

declaratory judgment in their favor pursuant to the terms of the
1985

Agreement,

franchise;

which

specific

they

alleged

performance

of

gave

them

a

royalty-free

the

1985

Agreement;

and

breach of an implied-in-fact contract, which appellees alleged
arose
2007.

from

the

parties’

course

of

dealings

between

1977

and

RAWA and Bundy 7 filed an answer and counterclaims.

As

relevant here, appellants’ counterclaims included a request for
a declaration that the exclusive franchise sought by appellees

4

JJFM was dismissed from the action on March 25, 2009, and
is not a party to this appeal.
5

On September 7, 2007, RAWI and Schwartz filed a First
Amended Complaint, alleging, inter alia, violations of the
Lanham Act and seeking cancellation of RAWA’s marks.
The
district court dismissed both of those claims.
The operative
complaint in this action is the Second Amended Complaint, filed
on October 9, 2008.
6

As already noted, RAWI and Schwartz are appellees in both
appeals before us, but they are also cross-appellees in the
first appeal. For ease of readability, we will refer to them as
“appellees” throughout our opinion, unless specifically noted
otherwise.
7

As already noted, RAWA and Bundy are appellants in both
appeals before us, but they are also cross-appellants in the
first appeal.
For ease of readability, we will refer to them,
unless otherwise specifically noted, as “appellants” throughout
our opinion.

10

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was

Document: 54

unenforceable

Date Filed: 03/09/2012

as

an

unlawful

Page: 11 of 42

restraint

on

trade.

They

further sought a declaration that the 1985 Agreement could be
terminated by appellants, or in the alternative, that appellants
had already terminated all of appellees’ rights in the October
2006 letter.
The parties’ claims were tried to a jury from April 1, 2010
through April 13, 2010.

At the close of evidence, the district

court instructed the jury regarding applicable legal principles,
including

breach

of

contract

and

duration

of

contracts.

Appellants requested that the district court instruct the jury
with respect to the law of assignment.

Appellants’ proposed

instruction stated that an assignor may not maintain an action
upon a claim after making an absolute assignment of the claim to
another, and that if the jury found that appellees assigned to
appellants the right to use the Rent-A-Wreck name or associated
marks in 1988, it should reject appellees’ claim that the 1985
Agreement grants them the right to use the Rent-A-Wreck name and
also reject appellees’ claim that an implied contract grants
them that right.
regarding
appellants

the

Appellants further requested an instruction

law

requested

of

warranties
an

of

instruction

assignment.
regarding

the

Finally,
law

of

contract termination, which would have required the jury, in the
event it found that a contract existed, to examine whether the
contract had an express, or implied, term of duration.
11

If the

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jury were to find that no term was agreed upon, appellants’
proposed instruction was that the term of such a contract is a
reasonable time given the circumstances and purpose under which
the

contract

arose.

The

district

court

declined

to

give

appellants’ proposed instructions.
After the jury was unable to reach a unanimous verdict, the
parties agreed to accept a majority verdict.

The jury’s verdict

was in the form of answers to questions on a verdict form.

In

relevant part, the jury responded to those questions as follows:
[Question No. 1]: Do you find that [appellees], based
on a course of dealing, have an express or implied
contract, written or oral, with [appellants], with
respect to [appellees’] operation of a used car rental
business in West Los Angeles
[Answer to Question No. 1]:

Yes

[Question No. 3]:
If your answer to Question 1 is
‘yes,’ check which, if any, of the following are
features of such contract:
[First subpart of Question No. 3]:
favor of [appellees]

RAWA Franchise in

[Answer to first subpart of Question No. 3]:

Yes

[Second subpart of Question No. 3]:
Exclusive RAWA
franchise in favor of [appellees] in West Los Angeles
as delineated in or after 1985.
[Answer to second subpart of Question No. 3]:

Yes

[Third subpart of Question No. 3]: Whether or not as
a franchisee, the right of [appellees] to use trade
name and trademark Rent-A-Wreck, and receive same
benefits as franchisees without the obligations
[Answer to third subpart of Question No. 3]:
12

No

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[Fourth subpart of Question No. 3]:
Rights of
[appellees] to any of the foregoing without paying
fees or royalty to RAWA
[Answer to fourth subpart of Question No. 3]:

No

[Fifth subpart of Question No. 3]:
Existence of any
of the foregoing rights in favor of [appellees] in
perpetuity
[Answer to fifth subpart of Question No. 3]:

No

[Question No. 4]:
If these rights were not in
perpetuity, what would be a reasonable time for the
rights to last? (indicate duration)
[Answer to Question No. 4]:

Rest of his life

J.A. 3108a-b.
The remaining questions on the verdict form concerned the
appellants’ counterclaims:
[Question
No.
5]:
Did
[appellants]
or
their
predecesors in interest ever expressly authorize
[appellees] to use the Rent-A-Wreck trade name and
trademark?
[Answer to Question No. 5]:

Yes

[Question No. 6]:
With reference to the foregoing
question, did the [appellants] or their predecessors
in interest ever implicitly authorize [appellees] to
use the Rent-A-Wreck trade name and trademark?
[Answer to Question No. 6]:

Yes

[Question No. 7]:
If you find that [appellants] or
their predecessors in interest either expressly or
implicitly authorized [appellees] to use the Rent-AWreck trade name and trademarks, did [appellants]
expressly or implicitly reserve the right to terminate
that use by [appellees]?

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[Answer to Question No. 7]:

Page: 14 of 42

No

[Question No. 10]:
Do you find that the [appellees]
and [appellants], or [appellants’] predecessors in
interest, entered into a written contract or contracts
in 1977 and 1988, which [appellees] have breached?
[Answer to Question No. 10]:

No

J.A. 3108b-c.
Following the verdict, appellees filed a Rule 50(b) motion.
Specifically,

appellees

requested

that

a

judgment

notwithstanding the verdict be entered as follows: (1) appellees
were entitled to the same benefits as other RAWA franchisees,
but were not required to fulfill the franchise obligations of
other RAWA franchisees; (2) appellees had no obligation to pay
royalties

or

fees

to

RAWA;

rights under the contract.
motion.

and

(3)

appellees

had

perpetual

Appellants also filed a Rule 50(b)

Appellants requested that a judgment notwithstanding

the verdict be entered rejecting all of appellees’ claims.
further

requested

a

judgment

notwithstanding

the

They

verdict

on

their counterclaims.
On September 23, 2010, the district court granted a partial
judgment notwithstanding the verdict under Rule 50(b) in favor
of

appellees

and

denied

appellants’

Rule

50(b)

motion.

In

making its ruling on the parties’ motions, the district court
first noted that “[o]ne prominent issue in this case has been
whether

the

jury’s

responses

to

14

the

Special

Interrogatories

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submitted at the close of trial are binding upon the Court or
merely advisory.”

J.A. 3247.

The district court then attempted

to dispose of this issue as follows:
[jury’s]

findings

contrary

conclusions

evidence.

are

merely

based

“First, insofar as the

advisory,

on

its

own

Court

reaches

consideration

of

the

Alternatively, insofar as those jury[] findings are

binding,

the

Judgment

and

Court
their

grants

Plaintiff’s

Motion

for

district

court

went

on

Renewed

Judgment

Verdict as to those particular findings.”
The

the

to

Motion

for

Notwithstanding

the

J.A. 3249.

hold

that

appellees

were

entitled to a royalty-free franchise with an exclusive territory
in West Los Angeles, California, for the duration of Schwartz’s
life.
subject

The district court further held that appellees were not
to

any

of

the

same

franchise

obligations

as

other

franchisees operating in the RAWA network of franchises were.
Appellants

filed

a

notice

of

appeal

on

September

29,

2010.

Appellees filed a notice of cross-appeal on October 23, 2010.
On November 30, 2010, the district court clarified that
appellees’ territory was exclusive not only as to other Rent-AWreck

franchises,

but

also

franchises

operating

under

the

Priceless name and marks, for which, as discussed above, Bundy,
a wholly owned subsidiary of RAWA, is franchisor.
While the cross-appeals were pending before us, appellees
moved, in relevant part, to enforce the district court’s final
15

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order

of

Date Filed: 03/09/2012

declaratory

judgment.

Page: 16 of 42

Specifically,

they

sought

certain directives from the court regarding the presentation of
appellees on appellants’ website.
the

motion

final

as

order

one

of

for

The district court treated

clarification

declaratory

judgment.

of

the
On

district

May

11,

court’s

2011,

the

district court issued a memorandum opinion, ordering appellants
to make certain alterations to their website pursuant to the
district court’s September 23, 2010 order.

RAWA and Bundy filed

an additional notice of appeal, including their objections to
this order, on May 25, 2011.

II.
On appeal, the parties raise a plethora of arguments.

At

the outset, appellants contend that we must vacate and remand
because

the

district

court

treated

the

jury’s

verdict

as

advisory and was required to make specific findings under Rule
52(a), which it failed to do.
As an alternative to their Rule 52 argument, appellants
argue that the district court erred in denying their Rule 50(b)
motion pertaining to the jury’s finding of the existence of a
contract,

as

well

as

its

specific

features.

Specifically,

appellants contend that the district court should have set aside
the jury’s verdict that appellees have a contract based on a
course

of

dealing

with

appellants,
16

that

appellants

had

not

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reserved

the

Date Filed: 03/09/2012

right

to

Page: 17 of 42

terminate

their

relationship

appellees, and that appellees had an exclusive territory.

with
As to

the exclusivity provision, appellants contend that it is void ab
initio under California law.

Appellants further contend that

the district court erred in setting aside the jury’s verdict
that appellees’ contract entitled them neither to receive the
same

benefits

as

franchisees

without

the

obligations

of

franchisees, nor to receive such benefits without paying fees or
royalties

to

appellants.

On

cross-appeal,

appellees

contend

that the district court should have granted their Rule 50(b)
motion to set aside the jury’s verdict that appellees’ rights
under the contract exist for the duration of Schwartz’s life,
and that the court should instead have ruled that those rights
are perpetual.
Turning to the remaining issues on appeal, appellants make
three

additional

arguments.

They

contend

that

the

district

court improperly held that the implied contract found by the
jury gave appellees the right to operate exclusively within West
Los Angeles, not only of other Rent-A-Wreck franchises, but also
of

auto

rental

franchises

operated

by

appellants

under

a

different trade name, including the Priceless franchises that
have

coexisted

decade.

with

Schwartz’s

rental

location

for

over

a

They further challenge certain jury instructions given

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Date Filed: 03/09/2012

by the district court. 8
that

the

district

attorneys’ fees.

Page: 18 of 42

Also, on cross-appeal, appellees assert

court

erred

in

denying

their

request

for

We address each issue in turn.
A.

We first address appellants’ challenge under Federal Rule
of Civil Procedure 52.
treated

the

jury’s

Appellants argue that the district court

findings

as

advisory,

and

was

therefore

required to “find the facts specially and state its conclusions
of law separately.”

Fed. R. Civ. P. 52(a)(1).

They further

contend that the district court failed to do so here.
In relevant part, Rule 52(a) provides that:
In an action tried on the facts without a jury or with
an advisory jury, the court must find the facts
specially and state its conclusions of law separately.
The findings and conclusions may be stated on the
record after the close of the evidence or may appear
in an opinion or a memorandum of decision filed by the
court.
It

is

well

established

that

“[t]he

Federal

Rule

52(a)

requirement that the trial court find the facts specially and
state separately its conclusions of law is mandatory and must be
fairly observed by district judges.”

8

9 C. Wright & A. Miller,

Finally, appellants challenge the district court’s May 11,
2011 order directing them to modify their website.
We vacate
the May 11, 2011 order in light of our ruling on the appeal from
the September 23, 2010 order.
We remand to the district court
for reexamination of the May 11, 2011 order in light of this
decision.

18

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Federal

Date Filed: 03/09/2012

Practice

and

Procedure

§

Page: 19 of 42

2574

(3d

ed.

2008).

By

contrast, Rule 50(b) does not require the district court to make
specific findings of fact or law.

If a district court tries an

action with an advisory jury, and the parties nonetheless file
motions under Rule 50(b), the proper course of action for the
district

court

is

to

decline

to

adjudicate

the

Rule

50(b)

motions, and instead consider the arguments in the context of
the

court’s

determination

jury’s findings.

of

whether

to

adopt

the

advisory

As an example, in Wooten v. Lightburn, 579 F.

Supp. 2d 769 (W.D. Va. 2008), although the defendant had filed a
Rule 50(b) motion, the court declined to rule on that motion
because the case was tried before an advisory jury, with the
ultimate

decision

Instead,

the

left

Wooten

under Rule 52(a).

to

court

the

district

considered

court.

the

Id.

parties’

at

772.

arguments

Id.

Here, in contrast, the district court did not determine
that the action was tried with an advisory jury, and did not
make the specific findings of fact or law required by Rule 52.
Instead, the district court adjudicated the parties’ Rule 50(b)
motions.

To

the

extent

it

denied

the

parties’

Rule

50(b)

motions, it held that there was a legally sufficient evidentiary
basis for the jury’s verdict.
parties’

Rule

50(b)

motions,

To the extent it granted the
it

held

that

there

was

not

legally sufficient evidentiary basis for the jury’s verdict.
19

a
In

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either

Document: 54

event,

Date Filed: 03/09/2012

the

district

findings as binding.

court

Page: 20 of 42

was

treating

the

jury’s

Therefore, we reject appellants’ argument,

and proceed to address the remaining issues on appeal.
B.
Both parties challenge the district court’s denial of their
Rule 50(b) motions.
de novo.

We review the denial of a Rule 50(b) motion

First Union Commercial Corp. v. GATX Capital Corp.,

411 F.3d 551, 556 (4th Cir. 2005).

We affirm, “[i]f, viewing

the facts in the light most favorable to the non-moving party,
there is sufficient evidence for a reasonable jury to have found
in

the

[non-moving

party’s]

original) (citation omitted).

favor.”

Id.

(alteration

in

We address the district court’s

Rule 50(b) rulings in the following order: (1) the sufficiency
of the jury finding of an implied contract between the parties;
(2) the sufficiency of the jury finding that appellants did not
reserve their right to terminate; (3) whether the exclusivity
provision

is

sufficiency

void
of

ab

the

initio

jury

under

finding

California

with

respect

law;
to

(4)

the

franchise

obligations; and (5) the sufficiency of the jury finding with
respect to royalties and fees.
1.
Appellants

argue

that

as

a

matter

of

law,

there

contract, express or implied, between the parties.

is

no

Schwartz

could not possibly have been a party to an exclusive franchise
20

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agreement with RAWA, they contend, because he had signed away
any and all of his interest in the Rent-A-Wreck name by virtue
of the 1977 Assignment and the 1988 Assignment.
Under

California

law, 9

the

interpretation

of

a

contract

presents an issue of law when the language of the contract is
unambiguous, i.e., “clear and explicit.”

F.B.T. Prods., LLC v.

Aftermath Records, 621 F.3d 958, 963-64 (9th Cir. 2010); accord
Porkert v. Chevron Corp., No. 10-1384, 2012 WL 90142, at *4 (4th
Cir. Jan. 12, 2012) (“Under California law, the interpretation
of a contract presents an issue of law when the language of a
contract is unambiguous.”).
to

construe

F.B.T.

a

Prods.,

contract
621

Parol evidence is properly admitted

only

F.3d

at

when
963.

its

language
“When

the

is

ambiguous.

contract

is

unambiguous, ‘[n]o obligation can be implied, which would result
9

We are a federal court sitting in diversity, and must
apply the substantive law of the state in which the district
court sits, which in this case is Maryland.
“Under Maryland
choice-of-law rules, a contractual claim (including a claim for
an implied contract) is governed by the law of the place where
the contract is made, which is the place where the last act
required to make a contract binding occurs.” Harte-Hanks Direct
Mktg./Baltimore, Inc. v. Varilease Techn. Fin. Gr., Inc., 299 F.
Supp. 2d 505, 518 n.13 (D. Md. 2004). As we discuss herein, the
jury found a contract based on a course of dealing between the
parties that began no later than 1985.
Neither party has
pointed to any conduct post-dating 1993 (the year in which RAWA
relocated its corporate headquarters to Maryland) that was
required to make the contract binding. In view of these facts,
we hold that the last act required to make the contract, based
on the course of dealing, binding occurred prior to 1993.
As
such, California law governs the contract.

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in the obliteration of a right expressly given under a written
contract.’ ”

Thrifty Payless, Inc. v. Mariners Mile Gateway,

LLC, 111 Cal. Rptr. 3d 173, 182 (Cal. Ct. App. 2010) (quoting
Gerlund v. Elec. Dispensers Int’l, 235 Cal. Rptr. 279, 286 (Cal.
Ct. App. 1987)).
In

addition

to

express

contracts,

recognizes implied contracts.

California

law

also

Retired Emps. Ass’n of Orange

Cnty., Inc. v. County of Orange, No. S184059, 2011 WL 5829598,
at *2 (Cal. Nov. 21, 2011).
The terms of an express contract are stated in words.
The existence and terms of an implied contract are
manifested by conduct.
The distinction reflects no
difference in legal effect but merely in the mode of
manifesting assent.
Accordingly, a contract implied
in fact consists of obligations from a mutual
agreement and intent to promise where the agreement
and promise have not been expressed in words.
Even when a written contract exists, evidence derived
from experience and practice can now trigger the
incorporation of additional, implied terms.
Implied
contractual terms ordinarily stand on equal footing
with express terms provided that, as a general matter,
implied terms should never be read to vary express
terms.
Id.

(citations

and

quotation

marks

omitted).

“Whether

the

parties’ conduct creates such implied agreements is generally a
question of fact.”

Scott v. Pac. Gas & Elec. Co., 904 P.2d 834,

839 (Cal. 1995) (quotation marks omitted).

However, “the law

does not recognize implied contract terms that are at variance
with

the

terms

of

the

contract

22

as

expressly

agreed

or

as

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prescribed by statute.”

Page: 23 of 42

County of Orange, 2011 WL 5829598, at

*4 (quotation marks omitted).
Turning to the facts before us, we must first determine
whether

a

reasonable

jury

could

have

found

that

an

implied

contract existed based on a course of dealing between appellants
and appellees.

If we answer that question in the affirmative,

we must proceed to analyze whether the terms of the implied
contract found by the jury are at variance with the terms of any
preexisting contract between the parties.
First, viewing the facts in the light most favorable to
appellees, we conclude that there was sufficient evidence for a
reasonable jury to have found in appellees’ favor as to the
existence

of

an

implied

contract.

Notably,

the

record

is

replete with evidence that appellants treated appellee Schwartz
as a de facto franchisee between 1990 (when RAWA terminated its
lease of Schwartz’s rental location) and 2005 (when Schwartz
began acting in an adverse manner toward RAWA).
noted,

appellants

stated

in

official

company

As already

documents

that

Schwartz was operating under the Rent-A-Wreck name pursuant to a
royalty-free

agreement

current franchisees.

and

listed

Schwartz

as

one

of

their

Under our deferential standard of review,

this evidence creates sufficient factual basis for the jury’s
finding of an implied contract.

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Second,

we

Date Filed: 03/09/2012

hold

that

the

Page: 24 of 42

terms

of

the

implied

contract

found by the jury are not at variance with the terms of any
preexisting contract between the parties.
not

make

any

specific

finding

Notably, the jury did

regarding

whether

the

implied

contract constituted additional terms in a preexisting express
contract between the parties, or whether it was an independent
implied

contract.

Under

either

construction,

believe the jury’s verdict passes muster.

however,

we

Appellants point to

the 1977 Assignment and 1988 Assignment as extinguishing all of
appellees’

rights

neither

of

whether

appellees

trademark

those

at

the

to

use

the

agreements
could

Rent-A-Wreck

contains

continue

original

to

any
use

Rent-A-Wreck

mark.

However,

language

regarding

the

trade

facility.

name
The

and
1985

Agreement, on the other hand, postdates the 1977 Assignment, and
specifically provides that Schwartz retains, for an indefinite
period, the right to the concurrent use of the trade name and
trademark at the original Rent-A-Wreck facility owned by him in
West Los Angeles.
or

1988

Thus, nothing in either the 1977 Assignment

Assignment

specifically

precludes

Schwartz

from

continuing to use the Rent-A-Wreck mark at his West Los Angeles
location, and the 1985 Agreement gives him precisely that right
for an indefinite period.
In sum, we hold that a reasonable jury could have concluded
that

appellees

had

an

implied
24

contract

with

appellants

with

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respect to appellees’ operation of a used car rental business in
West Los Angeles.
2.
Appellants contend that, as a matter of law, any franchise
agreement between the parties ended in 2006 and could not have
continued to exist thereafter.

California courts engage in a

three-stage inquiry to determine the duration of a contract.
McCaskey v. California State Auto. Ass’n., 118 Cal. Rptr. 3d 34
(Cal. Ct. App. 2010), provides that:
[T]he court first consults the terms of the contract;
then the circumstances and other indicia of intent;
and only when those steps fail to establish a
durational term does the court impose a judicially
determined “reasonable time” limitation on the duty at
issue.
This last step is a manifestation of the
broader principle that when any essential term has
been omitted from the contract, and the parties’
intent concerning that term cannot otherwise be
ascertained, the law will supply a reasonable term.
Id. at 49-50 (emphasis omitted).
applicable
second

because

step

circumstantial

seeks

the
to

evidence.

jury

Here, the first step is not

found

ascertain
Here,

an
the

the

implied

contract.

parties’

jury

did

intent

just

that,

The
from
and

determined that the duration of the contract is the remainder of
Schwartz’s life.

As already noted, the jury had a great deal of

evidence to rely upon in determining the terms of the implied
contract, including its duration.

Notably, the 1985 Agreement

contains a provision permitting Schwartz to continue to operate

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his car rental business at the West Los Angeles location.

It

was not unreasonable for the jury to have concluded that the
parties’ conduct subsequent to the 1985 Agreement was consistent
with

this

provision,

and

that

the

parties’

intent

was

to

preserve Schwartz’s right to use the Rent-A-Wreck name for the
duration of his life. 10
Appellants’
“reasonable

argument

time”

that

fails.

the

Because

duration

the

first

shall
two

be

steps

a

have

prescribed a durational term under California law, there is no
need

to

impose

a

judicially

determined

“reasonable

time”

limitation on the parties’ rights under the contract.
3.
Appellants

next

contend

that,

as

a

matter

of

law,

any

implied provision giving Schwartz and RAWI the right to operate
exclusively
Agreement

within
is

void

the
ab

territory
initio

delineated

under

in

California

the

Business

1985
and

Professions Code § 16600.
Section 16600 prescribes that “[e]xcept as provided in this
chapter,

every

contract

by

which

10

anyone

is

restrained

from

It therefore follows that the district court did not err
in denying appellees’ Rule 50(b) motion in this regard.
There
was sufficient evidence for the jury to conclude that the course
of the dealings between the parties created an implied contract
that gave Schwartz rights for the duration of his lifetime,
rather than an indefinite duration.

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engaging in a lawful profession, trade or business of any kind
is to that extent void.”

This is a codification of the “general

rule in California [that] covenants not to compete are void.”
Hill Med. Corp. v. Wycoff, 103 Cal. Rptr. 2d 779, 784 (Cal. Ct.
App.

2001). 11

The

California

Supreme

Court

has

held

that

“[s]ection 16600 is unambiguous, and if the Legislature intended
the statute to apply only to restraints that were unreasonable
or overbroad, it would have included language to that effect.”
Edwards v. Arthur Andersen LLP, 189 P.3d 285, 293 (Cal. 2008).
At

the

same

time,

as

the

Ninth

Circuit

recently

noted,

California courts construing § 16600 have differentiated between
“post-contract” covenants and “in-term” covenants.

See Comedy

Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1291 (9th Cir.
2009) (discussing California case law).

In Dayton Time Lock

Serv., Inc. v. Silent Watchman Corp., 124 Cal. Rptr. 678 (Cal.
Ct.

App.

1975),

for

example,

a

California

appellate

court

addressed an in-term “exclusive dealing clause” in a franchise
11

There are two statutory exceptions to § 16600. Sections
16601 and 16602 permit broad covenants not to compete in two
situations: where a person sells the goodwill of a business and
where a partner agrees not to compete in anticipation of
dissolution of a partnership.
Appellees argue that § 16601 is
applicable here because the 1985 Agreement “was by definition a
sale”--a contention in support of which they offer no supporting
authority.
Appellees’ Br. 53.
We note that the jury found an
implied franchise agreement, which would not constitute a sale
under any definition. We therefore conclude that neither of the
statutory exceptions is applicable here.

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agreement, and held that “[e]xclusive dealing contracts are not
necessarily
probable

invalid,”

that

competition
commerce.
analysis

but

“[t]hey

performance

in

a

of

substantial

the
share

proscribed

contract
of

the

when

will

it

is

foreclose

affected

line

of

A determination of illegality requires knowledge and
of

the

line

of

commerce,

affected share of the market.”
(citation omitted).
fact.

are

the

market

area,

and

the

Id. at 682 (emphasis added)

Under California law, this is a question of

See Fisherman’s Wharf Bay Cruise Corp. v. Superior Court,

7 Cal. Rptr. 3d 628, 649-52 (Cal. Ct. App. 2003) (reversing
grant

of

summary

judgment

because

a

triable

issue

of

fact

existed as to whether exclusive dealing foreclosed competition
in a substantial share of the affected market).
appellate

court

recently

noted

that

Dayton’s

A California

conclusion

that

exclusive dealing contracts were sometimes permissible in the
context

of

a

franchise
to

relationship
some

based

control

on

the

over

the

franchisor’s

need

franchisee.”

Kelton v. Stravinski, 41 Cal. Rptr. 3d 877, 882

(Cal. Ct. App. 2006).

“maintain

was

The Ninth Circuit has construed Dayton

and Kelton as follows:
Dayton Time Lock and Kelton make evident that under []
§ 16600 an in-term covenant not to compete in a
franchise-like
agreement
will
be
void
if
it
“foreclose[s] competition in a substantial share” of a
business, trade, or market.
Also, California courts
are less willing to approve in-term covenants not to
compete outside a franchise context because there is
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not a need to protect and maintain [the franchisor's]
trademark, trade name and goodwill.
Comedy Club, Inc., 553 F.3d at 1292 (alteration in original)
(emphasis added) (citations and quotations omitted).
Interpreting § 16600 in light of the case law yields the
conclusion that an in-term exclusive dealing agreement in the
context

of

a

franchising

16600, provided

that

it

agreement
does

not

does

not

foreclose

run

afoul

of

§

competition

in

a

In applying Dayton 12 and Kelton

substantial share of the market.

to this case, we conclude that appellees are entitled to the
exclusive territory provision if two circumstances can be met:
(1) the implied contract found by the jury is a franchising
agreement,

whereby

RAWA

can

maintain

some

control

as

is

necessary to protect its trademark, trade name, and goodwill;
and

(2)

the

exclusivity

arrangement

12

does

not

foreclose

Appellants urge us to read Arthur Andersen as overruling
Dayton, arguing that Arthur Andersen’s reasoning precludes the
creation or application of judicially created exceptions to §
16600.
Although that argument is not without merit, Arthur
Andersen did not specifically overrule Dayton or Kelton, nor has
it been so construed by any California court. Additionally, the
Ninth Circuit’s decision in Comedy Club postdates Arthur
Andersen.
In sum, we do not believe that the Ninth Circuit
“disregarded clear signals emanating” from the California
Supreme Court “pointing to a different rule,” and therefore
defer to its interpretation of California law.
Mellon Bank,
N.A. v. Ternisky, 999 F.2d 791, 796 (4th Cir. 1993) (quoting
Factors Etc., Inc. v. Pro Arts, Inc., 652 F.3d 278, 283 (2d Cir.
1981)); see id. (deferring to Third Circuit’s interpretation of
Pennsylvania law).

29

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competition

in

a

Date Filed: 03/09/2012

substantial

share

Page: 30 of 42

of

the

affected

line

of

commerce.
Appellants contend that the first requirement is not met
here to the extent the district court ruled that appellees do
not have to comply with any franchisee obligations.

We agree.

However, because, as discussed below, we reverse the district
court’s grant of appellees’ Rule 50(b) motion with regard to
that issue, we proceed to the second requirement.
Following Fisherman’s Wharf, we conclude that the question
of

whether

the

exclusive

territory

at

issue

would

foreclose

competition in a substantial share of the market for rental cars
is

a

question

presented

to

of

the

fact
jury.

for

the

jury.

Accordingly,

This
we

issue

vacate

the

was

not

district

court’s denial of appellants’ Rule 50(b) motion in this regard,
and instruct the district court to submit to a jury the question
of

whether

competition

the
in

a

exclusive
substantial

territory
share

of

provision
the

market

forecloses
for

rental

cars. 13

13

Appellees argue that even if they are not entitled to the
exclusivity provision under California law, they have an
implied-in-fact contract under Maryland law.
Because RAWA
relocated its headquarters to Maryland in 1993, they contend,
any course of dealing between the parties thereafter giving rise
to a contract implied in fact occurred in Maryland. We are not
persuaded by this argument.
As already noted, we believe
California law applies to the implied contract found by the
jury.
It bears further note that the exclusivity provision is
(Continued)
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4.
We next turn to the district court’s grant of appellees’
Rule 50(b) motion requesting a judgment that although they are
entitled to the benefits afforded to other RAWA franchisees,
they do not have the obligations of other RAWA franchisees.
appeal,
light

we
most

must

determine

favorable

to

whether,

viewing

appellants,

the

there

facts

was

in

On
the

sufficient

evidence for the jury to conclude that appellees were required
to fulfill the same obligations as other RAWA franchisees.

We

conclude that there was such a basis for the jury’s finding
because appellants listed Schwartz as a current franchisee on
the UFOCs.

It was reasonable for the jury to conclude that the

implied agreement was a franchise agreement, with the attendant
benefits and obligations, whether or not appellees were actually
in compliance with their franchisee obligations.

The jury was

also free to draw a contrary inference, of course; however, we
do not believe the district court was correct to hold that this
was only permissible inference. 14

derived from the 1985 Agreement, which was made in California.
We therefore reject appellees’ argument in this regard.
14

It bears note that if we were to uphold the district
court’s judgment that appellees were not required to fulfill the
same obligations as other RAWA franchisees, the grant of an
exclusive territory to appellees would be void ab initio under §
16600.
As already discussed, appellees are entitled to the
(Continued)
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5.
We now turn to appellants’ final Rule 50(b) challenge: that
the district court erred in setting aside the jury’s verdict
that the contract between the parties did not provide a royaltyfree franchise.

On appeal, we must determine whether, viewing

the facts in the light most favorable to the nonmoving party,
there

was

sufficient

evidence

for

the

jury

to

conclude

that

appellees were required to pay royalties pursuant to the implied
contract.

We conclude that there was no such basis for the

jury’s finding because appellants specifically stated in their
UFOCs

that

agreement.

Schwartz
Notably,

was

operating

appellants

point

under
to

no

a

royalty-free

evidence

in

the

record that could support a reasonable inference that appellants
ever asked appellees for any fees or royalties.
evidence,

we

conclude

that

a

reasonable

jury

Absent such

could

not

have

interpreted the course of dealing between the parties to require

exclusive territory provision under California law only if the
implied contract found by the jury is a franchising agreement,
whereby appellants can maintain some control as is necessary to
protect their trademark, trade name, and goodwill.
Under the
district court’s order, appellants have no control over
appellees’ use of their trademark, trade name, or goodwill, and
appellees would therefore not be entitled to the exclusive
territory provision.

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payment of fees or royalties.

Page: 33 of 42

Therefore, we affirm the district

court’s grant of appellees’ Rule 50(b) motion on this ground.
C.
Having resolved the parties’ respective challenges to the
district court’s Rule 50(b) rulings, we turn to the remaining
issues on appeal, beginning with appellants’ contention that the
district court erred in precluding Priceless--a subsidiary of
RAWA that operates its own locations within Schwartz’s exclusive
territory--from

operating

Specifically,

they

argue

presented

trial

to

at

within
that

justify

(1)
this

Schwartz’s
there

was

outcome,

territory.
no

and

evidence
(2)

that

Priceless and its franchisee were necessary and indispensable
parties

under

Rule

19.

Because

we

are

persuaded

that

the

contract implied by the jury could not have contained any terms
relating to Priceless or other auto rental businesses operating
under anything other than the Rent-A-Wreck name and marks, we
vacate the district court’s judgment in this regard, and order
the district court to enter a judgment that excludes Priceless.
As already discussed, the jury found a contract based on
the

course

of

dealings

between

the

parties

with

respect

to

appellees’ operation of a used car rental business in West Los
Angeles.

The jury further found an exclusive RAWA franchise in

favor of appellees in West Los Angeles as delineated in or after
1985.

The jury did not find, nor was it asked to, whether the
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contract between the parties precluded RAWA from opening any
RAWA-owned or affiliated operations in West Los Angeles that
were not operating under the “Rent-A-Wreck” name.

Therefore,

any finding by the district court that RAWA or its affiliates
are bound by the specific provisions of the 1985 Agreement in
that regard cannot be supported by the jury verdict.
Moreover, the jury’s verdict was based on the course of
dealings between the parties.

It is undisputed that this course

of dealing included the coexistence in West Los Angeles--for
over a decade--of both Schwartz’s business and the Priceless
franchises.

As such, even if this question were before the

jury, it could not have concluded that the exclusivity provision
of the implied contract foreclosed the continued operation of
the Priceless franchises.
D.
We next address appellants’ contention that the district
court

erred

in

failing

proffered by them.
district

court

regarding

the

assignment,

and

of

the

indefinite duration.

give

certain

jury

instructions

Specifically, appellants contend that the

should
law

to

have

given

its

proffered

assignment,

the

law

of

warranties

of

termination

of

contracts

of

law

of

instructions

We review jury instructions under an abuse

of discretion standard, which we have explained as follows:

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We review jury instructions holistically and through
the prism of the abuse of discretion standard. . . .
[A] single instruction to a jury may not be judged in
artificial isolation, but must be viewed in the
context of the overall charge. . . . Accordingly, we
simply determine whether the instructions construed as
a whole, and in light of the whole record, adequately
informed the jury of the controlling legal principles
without misleading or confusing the jury to the
prejudice of the objecting party.
The party challenging the jury instructions faces a
heavy burden, for we accord the district court much
discretion to fashion the charge. . . A district court
will be reversed for declining to give an instruction
proposed
by
a
party
only
when
the
requested
instruction (1) was correct; (2) was not substantially
covered by the court's charge to the jury; and (3)
dealt with some point in the trial so important, that
failure to give the requested instruction seriously
impaired that party's ability to make its case.
Noel v. Artson, 641 F.3d 580, 587 (4th Cir. 2011) (emphasis
added).
With respect to their proposed instruction on the law of
assignment, appellants argue that without instructing the jury
on the legal ramifications of the 1977 Assignment and the 1988
Assignment, the jury could not properly consider RAWA’s defense-that

any

contract,

including

the

could

not

create

franchise

relationship.

a

argument for two reasons.

purported

1985
We

Agreement,
reject

this

First, the district court instructed

the jury regarding appellants’ breach of contract claim, and
also permitted appellants to argue that the 1988 Assignment was
dispositive

of

Schwartz’s

claims

as

a

matter

of

law.

More

significantly, however, the proposed instruction is incorrect:
35

Appeal: 10-2114

as

Document: 54

already

franchise

Date Filed: 03/09/2012

discussed,

the

agreement

jury

Page: 36 of 42

could

have

notwithstanding

found
the

an

implied

assignments.

Accordingly, the district court did not err in failing to give
the appellants’ proposed assignment instruction.
Appellants

have

also

failed

to

demonstrate

that

their

proposed instruction with respect to the law of warranties of
assignment--based

on

the

Restatement

(Second)

of

Contracts

§

333(1)--dealt with some point in the trial so important that
failure
their

to

give

ability

the

to

requested

make

their

instruction

case. 15

seriously

Appellants

impaired

sought

that

instruction to advance their allegation that Schwartz, in spite
of the assignments, repeatedly averred that RAWA did not own the
Rent-A—Wreck marks, and that these actions caused it to incur
attorneys’ fees that were properly an element of damages that
could have resulted from a breach of warranties.

However, as

appellees point out, the Restatement (Second) of Contracts § 333
(1981), provides that “when a warranty of an assignor is broken,
the assignee is entitled to the usual remedies for breach of a
contract.”
American

Id., cmt. d.

Rule,

under

Notably, California subscribes to the

which

parties

15

cannot

generally

recover

It is also doubtful whether the instruction is legally
correct.
Appellants argue that it was legally correct because
it was based on the Restatement (Second) of Contracts § 333(1),
but they acknowledge that California has not yet accepted that
section of the Restatement.

36

Appeal: 10-2114

Document: 54

attorneys’ fees.

Date Filed: 03/09/2012

Page: 37 of 42

See Kim v. Euromotors West/The Auto Gallery,

56 Cal. Rptr. 3d 780, 785 (Cal. Ct. App. 2007).
the

district

court

had

provided

the

jury

Thus, even if

with

appellants’

proposed instruction, it would not have aided appellants’ cause.
Finally, as to their proposed instruction on the law of
contract
court’s

termination,
actions

considered

meant

appellants

RAWA’s

that

the

affirmative

contend
jury

that

the

district

not

have

properly

could

defense--that

any

franchise

agreement between RAWA and Schwartz was terminable on reasonable
notice.

Here,

too,

appellants’

argument

fails.

As

already

discussed, the duration of an implied agreement is a question of
fact under California law, to be determined by a jury.

The

district court properly instructed the jury, in relevant part,
that “[i]f you happen to find that there was an understanding,
but there was no understanding as to the duration, then you
would have to indicate what an appropriate duration was.”
1274.

This

instruction

differed

from

appellants’

J.A.

proposed

instruction only in that it did not use the “reasonable time”
language.

scant

difference

between “appropriate duration” and “reasonable time.”

Thus, the

appellant’s

Functionally,

proposed

however,

instruction

there

was

substantially

the district court’s charge to the jury.

37

is

covered

by

Appeal: 10-2114

Document: 54

Date Filed: 03/09/2012

Page: 38 of 42

In sum, the district court did not abuse its discretion in
refusing to provide any of the three instructions advanced by
appellants.
E.
Finally, we address appellees’ challenge to the district
court’s order denying their motion for attorneys’ fees under
section 35(a) of the Lanham Act.

They argue that in so doing,

the district court incorrectly applied a bad faith standard.
Appellees

further

contend

that

the

district

court’s

factual

findings were clearly erroneous because they were “spitefully
held

hostage”

counterclaim.
district

by

appellants’

Appellees’ Br. 68.

court

applied

the

trademark

infringement

Appellants contend that the

correct

standard,

and

in

the

alternative, that any error was harmless because appellees have
failed to meet the applicable standard.
“[I]n exceptional cases,” the Lanham Act permits the award
of “reasonable attorney fees to the prevailing party.” 15 U.S.C.
§ 1117(a).

The statute does not define what qualifies as an

“exceptional case.”

“We have defined the ‘exceptional case’ as

one in which ‘the defendant’s conduct was malicious, fraudulent,
willful
Freebies

or

deliberate

Publ’g,

364

in
F.3d

nature.”
535,

550

Retail
(4th

Servs.,

Cir.

2004)

Inc.

v.

(quoting

People for the Ethical Treatment of Animals v. Doughney, 263
F.3d 359, 370 (4th Cir. 2001)).

In this circuit, we employ a
38

Appeal: 10-2114

Document: 54

Date Filed: 03/09/2012

Page: 39 of 42

dual standard of proof upon prevailing plaintiffs and
defendants.
A prevailing plaintiff seeking attorney
fees must demonstrate that the defendant acted in bad
faith.
However, when an alleged infringer is the
prevailing party, he can qualify for an award of
attorney fees upon a showing of something less than
bad faith by the plaintiff.
Id. (citations and quotation marks omitted).
considerations
plaintiff’s)
economic

for

judging

conduct

coercion,

controlling law.

when

a

plaintiff’s

the

groundless

“Some pertinent

defendant

arguments,

(or

counterclaim

prevails

and

include

failure

to

Thus, the focus tends to be on the plaintiff’s

litigation conduct or pre-litigation assertion of rights.”
at 550-51.

Id.

“The question, however, is not whether snippets of

the record or isolated arguments clearly lack merit.
determine,

cite

in

light

of

the

entire

case,

whether

We must

defendants’

claims and assertions were so lacking in merit that the action
as a whole was ‘exceptional.’ ”

Id. at 551.

Here, the district court stated, in relevant part: “I’m not
sure how I conclude that [appellants] acted in bad faith in any
way or otherwise . . . put forward a totally groundless claim.”
Supp. J.A. 59.

It further stated that appellants were “entitled

to test the legitimacy of the [trademark infringement] claim,”
that

appellants

“they’re

played

entitled

commercial world.”

to

do

“hard

ball”

that.

That’s

Supp. J.A. 67-68.

39

with

Schwartz,
what

and

happens

in

that
the

Appeal: 10-2114

Document: 54

We

conclude

specifically

Date Filed: 03/09/2012

that

address

although
the

the

“something

Page: 40 of 42

district
less

court

than

did

bad

not

faith”

standard, its conclusions that appellants did not put forward a
totally groundless claim and that their actions were not beyond
the

norm

standard.

of

commercial

dealing

satisfy

the

applicable

legal

Moreover, even under the lesser standard, we do not

believe that appellees have demonstrated clear error.

Notably,

they have merely cited snippets of conversation in support of
their argument, see Appellees’ Br. 69 (describing a conversation
between Schwartz and the holder of a controlling interest in
RAWA), which we have specifically held insufficient under the
“something less” standard.

III.
For the foregoing reasons, we affirm the district court’s
judgment in part, vacate it in part, reverse it in part, and
remand for further proceedings.
appellants’ Rule 52 challenge.

To summarize, we reject the
With respect to the Rule 50(b)

challenges, we affirm the district court’s judgment that there
existed an implied contract based on a course of dealing between
the parties with respect to Schwartz and RAWI’s operation of a
used car rental business in West Los Angeles; that Schwartz and
RAWI are not required to pay royalties or fees to RAWA or Bundy;
and that the parties’ rights under the contract shall last for
40

Appeal: 10-2114

Document: 54

Date Filed: 03/09/2012

the duration of Schwartz’s life.

Page: 41 of 42

We vacate the district court’s

denial of RAWA and Bundy’s Rule 50(b) motion seeking judgment as
a matter of law that the grant of an exclusive franchise within
Los

Angeles

California

to

Schwartz

law.

exclusive

We

hold

territorial

substantial

share

and

of

RAWI

that

provision
the

is

the

void

question

forecloses

market

ab

of

the

initio

of

under

whether

competition
affected

an

in

line

a
of

commerce--which, if answered in the affirmative, would void the
exclusivity

provision

under

California

law--is

a

factual

question; therefore, remand is required to permit a factfinder
to make that factual finding.
territory
district

provision
court’s

is

In the event that the exclusive

valid,

judgment

that

we
the

nonetheless
provision

reverse

the

operates

to

prohibit the Priceless entities from operating within Schwartz’s
and RAWI’s territory.

We further reverse the district court’s

judgment that RAWI and Schwartz are entitled to the benefits of
other RAWA franchisees but do not have the same obligations as
those franchisees.

Instead, we reinstate the jury’s verdict

that Schwartz and RAWI cannot obtain such benefits unless they
agree to fulfill the same obligations as other RAWA franchisees.
With regard to the remaining issues on appeal, we reverse the
district court’s judgment that the implied contract found by the
jury requires the Priceless entities to cease operations within
appellees’ exclusive territory.

We affirm the district court’s
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Date Filed: 03/09/2012

Page: 42 of 42

decision not to give appellant’s proposed jury instructions.

We

also affirm the district court’s denial of appellees’ motion for
attorneys’ fees.

Finally, we vacate the district court’s May

11, 2011 order in light of our decision today.
AFFIRMED
VACATED
REVERSED
AND

42

IN PART,
IN PART,
IN PART,
REMANDED