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UNPUBLISHED AUTHORED OPINION filed.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. [999542796].. [13-2189]
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2189
DAVID SCHWARTZ, d/b/a Rent A Wreck; RENT A WRECK INC., d/b/a
Bundy Auto Sales,
Plaintiffs – Appellees,
v.
RENT A WRECK OF AMERICA, INC.; BUNDY AMERICAN, LLC,
Defendants – Appellants,
and
J.J.F MANAGEMENT SERVICES, INC.,
Defendant.
Appeal 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 27, 2015
Decided:
March 10, 2015
Before WILKINSON, KING, and DUNCAN, Circuit Judges.
Affirmed by unpublished opinion.
Judge Duncan wrote
opinion, in which Judge Wilkinson and Judge King joined.
the
ARGUED: Daniel Janssen, QUARLES & BRADY LLP, Milwaukee,
Wisconsin, for Appellants.
Roger Charles Simmons, GORDON &
SIMMONS, LLC, Frederick, Maryland, for Appellees. ON BRIEF: E.
King Poor, QUARLES & BRADY LLP, Milwaukee, Wisconsin, for
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Appellants. Jacob I. Weddle, GORDON & SIMMONS, LLC, Frederick,
Maryland, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
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DUNCAN, Circuit Judge:
This case comes before us a second time.
On remand from
our first opinion, a jury found that the parties’ implied-infact franchise agreement does not violate California competition
law.
Defendants-Appellants Rent-A-Wreck of America, Inc., and
Bundy American, LLC (collectively, “RAWA”) argue on appeal that
this
verdict
should
not
stand
because
the
district
court
misallocated the burden of proof and improperly prevented them
from presenting to the jury their theory of the case.
Finding
no error, we affirm.
I.
This appeal presents a dispute between the creators of the
“Rent-A-Wreck” car rental brand, Plaintiffs-Appellees David S.
Schwartz and Rent-A-Wreck, Inc. (collectively, “Schwartz”), and
RAWA, the current owner of that brand.
In the 1970s and 80s,
Schwartz began using the Rent-A-Wreck name and assigned most of
his interest in that name to RAWA. 1
Importantly for this appeal,
Schwartz reserved the exclusive right to sell or operate Rent-AWreck franchises
operate
a
car
in
West
rental
Los
Angeles,
business
under
1
where
the
name
he
continued
“Bundy
to
Rent–A–
For a detailed description of the origin and evolution of
the parties’ relationships, see our previous opinion, Schwartz
v. Rent A Wreck Am. Inc., 468 F. App’x 238 (4th Cir. 2012).
3
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Wreck.”
Filed: 03/10/2015
RAWA’s
efforts
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to
have
this
exclusive-territory
agreement declared invalid are the subject of this appeal.
A.
In
United
June
2007,
States
Schwartz
District
filed
Court
for
suit
the
against
District
RAWA
of
in
the
Maryland.
Schwartz sought, in relevant part, a declaratory judgment that
he
enjoys
franchise
the
in
the
counterclaim
§ 16600,
exclusive
Los
under
right
Angeles
California
seeking
a
to
operate
territory.
Business
declaration
Rent-A-Wreck
RAWA
and
that
a
filed
Professions
Schwartz’s
a
Code
purported
franchise rights are unenforceable under California law because
those rights preclude RAWA from competing in that territory.
See
generally
provided
in
restrained
Cal.
this
from
Bus.
chapter,
engaging
&
Prof.
every
in
a
Code
§
contract
lawful
16600
by
(“Except
as
which
anyone
is
profession,
trade,
or
business of any kind is to that extent void.”).
A jury heard the parties’ claims in April 2010.
It found
that Schwartz has a “contract . . . with [RAWA] with respect to
[Schwartz’s] operation of a used car rental business in West Los
Angeles,” Schwartz v. Rent A Wreck Am. Inc., 468 F. App’x 238,
243–44 (4th Cir. 2012), and that the contract affords Schwartz
an
“[e]xclusive
[Rent-A-Wreck]
franchise
Angeles,” id. at 244.
4
.
.
.
in
West
Los
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After
Federal
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the
Rule
thereof.
jury
of
RAWA
announced
Civil
argued
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its
verdict,
Procedure
that
the
50
to
court
RAWA
moved
under
set
aside
portions
“must
grant
judgment
notwithstanding the verdict on the jury’s finding that [Schwartz
has]
an
exclusive
franchise
contract
because
California
law
provides that noncompetition agreements of this nature are void
ab initio.”
Defs.’ Mem. Supp. Mot. J. Notwithstanding Verdict
3, Schwartz v. J.J.F. Mgmt. Servs., Inc., No. 1:07-cv-01679-PJM
(D. Md. May 18, 2010), ECF No. 308-1.
The district court denied RAWA’s motion.
It held that the
agreement is valid because RAWA and Schwartz have a “franchise
agreement,” and “franchise agreements . . . are not void under
California law as . . . non-competitive.”
Tr. Mot. Proceedings
59, Schwartz, No. 1:07-cv-01679-PJM (D. Md. July 21, 2010), ECF
No. 353.
Schwartz appealed.
B.
On appeal, we held that the exclusive-territory provision
does not violate California law if “(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
does not foreclose competition in a substantial share of the
affected line of commerce.”
Schwartz, 468 F. App’x at 251.
We
also “conclude[d] that the question of whether the exclusive
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territory at issue would foreclose competition in a substantial
share of the market for rental cars is a question of fact for
the jury.”
jury
.
.
Id.
.
Because “[t]his issue was not presented to the
,
we
vacate[d]
the
district
court’s
denial
of
[RAWA’s] Rule 50(b) motion” and “instruct[ed] the district court
to
submit
to
territory
a
jury
provision
the
question
forecloses
of
whether
competition
share of the market for rental cars.”
in
the
a
exclusive
substantial
Id.
C.
On
remand,
the
district
court
submitted
to
a
jury
both
questions we identified: (1) whether RAWA maintains sufficient
control over Schwartz to protect its trademark, trade name, and
goodwill;
and
(2)
whether
the
exclusive-territory
forecloses competition for rental cars.
provision
Prior to trial, the
court held that RAWA would bear the burden of proof on both
issues.
affected
The court also rejected RAWA’s attempts to redefine the
line
of
commerce
as
the
market
for
Rent-A-Wreck
franchises because, among other reasons, our previous opinion
had referred to the market for rental cars.
The court explained
that RAWA could define “an appropriate market for rental cars in
whatever way [it] so choose[s]”--for example, by defining it as
the
market
for
the
type
of
rental
cars
that
Rent-A-Wreck
franchises rent--but RAWA could not define the market in terms
of
Rent-A-Wreck
franchises
themselves.
6
J.A.
823.
In
other
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words, the district court limited RAWA to a market in which the
consumers are those who rent cars from establishments like RentA-Wreck,
rather
than
those
who
seek
to
operate
Rent-A-Wreck
franchises.
A three-day jury trial began on June 18, 2013.
On the
first day, RAWA reiterated its view that the affected line of
commerce is “the sell [sic] of Rent-A-Wreck franchises,” not, as
the court had ruled, “the rental of cars.”
explained
that,
in
light
of
the
court’s
J.A. 932.
rejection
RAWA
of
its
preferred market definition, it would not present any evidence
that the exclusive-territory agreement forecloses competition.
See J.A. 933; see also J.A. 1393–94.
RAWA argued instead that
the parties’ contract is not a franchise agreement because RAWA
lacks control over Schwartz, and that the exclusive-territory
provision
is
therefore
invalid.
The
jury
rejected
this
argument; it found that RAWA “has the right to exercise some
control
over
[Schwartz]
as
is
necessary
trademark, trade name, and good will.”
found
that
Schwartz’s
to
J.A. 902.
exclusive-territory
protect
RAWA’s
The jury also
agreement
does
not
foreclose competition in a substantial share of the market for
rental cars.
court
entered
J.A. 902.
judgment
In accordance with this verdict, the
in
favor
counterclaim and closed the case.
7
of
Schwartz
RAWA appealed.
on
RAWA’s
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II.
This
appeal
presents
two
issues:
first,
whether
the
district court erred by assigning RAWA the burden of proving
that the exclusive-territory agreement forecloses competition;
and second, whether the district court erred by preventing RAWA
from
presenting
relevant market. 2
to
the
jury
its
preferred
definition
of
the
borne
the
We address each issue in turn.
A.
RAWA
first
argues
that
Schwartz
should
have
burden of proving that the exclusive-territory agreement does
not foreclose competition.
Schwartz responds that RAWA properly
bore the burden of proof because it was the party claiming that
the agreement violated California competition law.
We agree
with Schwartz.
2
RAWA also argues on appeal that the district court erred
by determining precisely how much control RAWA can exercise over
Schwartz.
See Appellants’ Br. at 15–30.
This argument is not
properly before us because the district court entered no
judgment concerning RAWA’s specific franchise rights.
The jury
found that RAWA could exercise some control over Schwartz, but
neither the jury nor the district defined the contours of that
control.
Because the district court entered no judgment
concerning RAWA’s specific franchise rights, we may not decide
whether any such ruling would have been in error.
See Everett
v. Pitt Cnty. Bd. of Educ., 678 F.3d 281, 291 (4th Cir. 2012)
(“[W]e review judgments, not opinions . . . .”
(alteration in
original) (quoting Crosby v. City of Gastonia, 635 F.3d 634, 643
(4th Cir. 2011) (internal quotation marks omitted)).
If the
parties continue to disagree over how much control RAWA can
exercise
over
Schwartz,
they
are
free
to
resolve
that
disagreement through, for example, private negotiations or a
state-law breach-of-contract action.
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1.
We review de novo the district court’s allocation of the
burden of proof.
See Everett v. Pitt Cnty. Bd. of Educ., 678
F.3d 281, 288 (4th Cir. 2012).
A federal court sitting in
diversity, we apply state substantive law and federal procedural
law.
See, e.g., Anand v. Ocwen Loan Servicing, LLC, 754 F.3d
195, 198 (4th Cir. 2014).
Because “the assignment of the burden
of proof is a rule of substantive law,” Dir., Office of Workers’
Comp. Programs, Dep’t of Labor v. Greenwich Collieries, 512 U.S.
267, 271 (1994), “our role is to apply the governing state law,
or, if necessary, predict how the state’s highest court would
rule on an unsettled issue.”
Horace Mann Ins. Co. v. Gen. Star
Nat’l Ins. Co., 514 F.3d 327, 329 (4th Cir. 2008).
2.
RAWA brought its counterclaim under California Business and
Professions Code § 16600, which reads: “Except as provided in
this chapter,[ 3] every contract by which anyone is restrained
from engaging in a lawful profession, trade, or business of any
kind is to that extent void.”
that
§
16600
permits
an
We held in our previous opinion
exclusive-territory
3
provision
in
a
“The chapter excepts noncompetition agreements in the sale
or dissolution of corporations (§ 16601), partnerships (ibid.;
§ 16602), and limited liability corporations (§ 16602.5).”
Edwards v. Arthur Andersen LLP, 189 P.3d 285, 290-91 (Cal.
2008).
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franchise agreement if, in relevant part, the provision “does
not foreclose competition in a substantial share of the market.”
Schwartz, 468 F. App’x at 250–51; see also Comedy Club, Inc. v.
Improv W. Assocs., 553 F.3d 1277, 1292 (9th Cir. 2009).
Now, we
must decide which party bears the burden of establishing whether
an
exclusive-territory
provision
forecloses
competition. 4
Neither the California State Legislature nor the Supreme Court
of California has addressed this precise question.
Our task is
therefore
Court
answer it.
to
predict
how
the
California
Supreme
would
We predict that it would hold as the district court
did: The party claiming that an exclusive-territory provision is
void
under
§ 16600
bears
the
burden
of
showing
that
§ 16600
prohibits that provision.
4
RAWA maintains that we have already decided this issue
because our previous opinion “appears to place the burden on
Schwartz.” Appellants’ Br. at 33. RAWA misreads the following
passage from our opinion:
[W]e conclude that [Schwartz is] 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 does not foreclose competition in a
substantial share of the affected line of commerce.
Id. at 33–34 (first alteration in original) (quoting Schwartz,
468 F. App’x at 251).
This quotation does not establish which
party bears the burden of proof.
Instead, our use of passive
voice--“can be met”--allowed the district court to decide in the
first instance which party should bear that burden.
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California law generally places the burden of proof on the
party
who
codified
seeks
at
relief
California
from
the
Evidence
court.
Code
§
This
500,
principle
which
is
provides:
“Except as otherwise provided by law, a party has the burden of
proof as to each fact the existence or nonexistence of which is
essential
to
asserting.”
rule
for
the
claim
for
relief
or
defense
that
he
is
No statute or court decision alters this general
§ 16600
claims.
In
fact,
the
Supreme
Court
of
California has recognized that a party bringing a claim under
§ 16600 generally must “allege facts sufficient to constitute a
cause
of
16600.”
action
for
unfair
competition
under
. . .
section
Blank v. Kirwan, 703 P.2d 58, 69 (Cal. 1985); cf.
Dayton Time Lock Serv., Inc. v. Silent Watchman Corp., 124 Cal.
Rptr. 678, 682 (Ct. App. 1975) (noting plaintiff’s failure to
“develop material evidence” to support its claim under § 16600
that “performance
of
the
[exclusive-dealing]
contract
[would]
foreclose competition in a substantial share of the affected
line of commerce”).
There is no reason to believe that the Supreme Court of
California would carve out an exception to this general rule for
a
claim
that
an
exclusive-franchise
11
agreement
is
void
under
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§ 16600. 5
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California courts consider the following factors when
“determining
proof
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whether
should
concerning
be
the
availability
of
the
normal
altered”:
(1)
particular
the
evidence
allocation
“the
fact”
to
of
knowledge
to
the
be
the
of
the
proved;
parties”;
burden
(3)
of
parties
(2)
“the
“the
most
desirable result in terms of public policy in the absence of
proof of the particular fact”; and (4) “the probability of the
existence or nonexistence of the fact.”
Amaral v. Cintas Corp.
No. 2, 78 Cal. Rptr. 3d 572, 596 (Ct. App. 2008) (quoting Lakin
v. Watkins Associated Indus., 863 P.2d 179, 189 (Cal. 1993))
(internal
courts
quotation
have
shifted
mark
omitted).
“the
normal
5
Applying
allocation
of
these
the
factors,
burden
of
RAWA argues that the Northern District of California’s
opinion in Scott v. Snelling & Snelling, Inc., 732 F. Supp. 1034
(N.D. Cal. 1990), “required” the district court here to place
the burden of proof on Schwartz.
Appellants’ Br. at 31.
But
Scott--which is of course not binding on the district or this
court--does not support RAWA’s position.
In that case, a
franchisor brought breach-of-contract and unfair-competition
claims against some of its former franchisees.
Id. at 1036.
The franchisor alleged that the former franchisees had violated
a restrictive covenant they had signed by using the franchisor’s
trade secrets to compete unfairly with current franchisees. Id.
at 1036, 1043. The court began its analysis by recognizing that
post-employment covenants not to compete are unenforceable under
California law unless a “former employee uses a former
employer’s
trade
secrets
or
otherwise
commits
unfair
competition,” in which case “a judicially created exception to
section 16600” applies. Id. at 1043. The court then placed the
burden of proving the existence of a trade secret on the
franchisor.
Id. at 1038.
This holding is consistent with our
holding today: like the Scott court, we place the burden of
proof on the party bringing the claim.
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proof . . . in spoliation of evidence cases, negligence per se
actions, and product liability cases based on design defect.”
Nat’l Council Against Health Fraud, Inc. v. King Bio Pharm.,
Inc., 133 Cal. Rptr. 2d 207, 214–15 (Ct. App. 2003) (footnote
and citations omitted).
proof
shifts
probability
to
the
the
For these types of cases, the burden of
defendant
defendant
has
where
“there
engaged
in
is
a
substantial
wrongdoing
and
the
defendant’s wrongdoing makes it practically impossible for the
plaintiff to prove the wrongdoing.”
Cassady v. Morgan, Lewis &
Bockius LLP, 51 Cal. Rptr. 3d 527, 537 (Ct. App. 2006) (quoting
Nat’l Council Against Health Fraud, 133 Cal. Rptr. 2d at 214)
(internal quotation mark omitted).
Here,
none
conclusion
of
that
the
four
RAWA’s
factors
§ 16600
weighs
in
counterclaim
favor
is
of
a
the
“rare
instance[]” in which “the burden of proof set forth in Evidence
Code section 500 [should be] altered.”
first
and
second
knowledge
of
factors,
whether
Schwartz
the
Id.
With respect to the
would
not
have
exclusive-territory
superior
provision
forecloses competition or greater access to evidence of such
foreclosure.
Nor,
under
considerations
suggest
the
that
third
factor,
do
exclusive-territory
public
policy
provisions
in
franchise agreements should be unenforceable in the absence of
proof that they foreclose competition.
dealing
arrangements
can
be
Indeed, such exclusive
pro-competitive,
13
as
when
they
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“provide an incentive for the marketing of new products and a
guarantee of quality-control distribution.”
Serv., 124 Cal. Rptr. at 682.
fourth
factor,
franchise
we
have
agreements
no
so
Dayton Time Lock
Finally, with respect to the
reason
to
frequently
believe
foreclose
that
exclusive-
competition
that
courts should presume that they have anticompetitive effects.
We therefore conclude that the baseline rule applies: RAWA bears
the burden of proving its § 16600 claim.
Accordingly, we affirm
the district court’s allocation of that burden.
B.
RAWA
next
argues
that
the
district
court
erred
by
preventing RAWA from presenting its preferred market definition
to the jury.
Though RAWA repeatedly attempted before and at
trial to define the affected line of commerce as the market for
Rent-A-Wreck franchises, it now claims that it tried to define
that line as the market for “older [rental] vehicles, generally
from two to eight years old.”
Reply Br. at 10.
“encouraged”
territory
Appellants’ Br. at 36; accord
Schwartz responds that the district court
RAWA
to
agreement
proffer
evidence
forecloses
market, but RAWA refused.
that
competition
the
in
a
exclusiverental
Appellees’ Br. at 56–57.
car
For two
reasons, we find no error.
First,
defining
the
the
district
relevant
court
market
as
14
did
not
prevent
one
for
older
RAWA
rental
from
cars.
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Contrary
market
to
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what
it
definition
dispute
is
the
now
for
sale
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argues,
trial:
of
RAWA
“The
proposed
line
Rent-A-Wreck
of
the
following
commerce
brand
in
this
franchises,
for
renting and leasing used motor vehicles that are less than eight
years old.”
J.A. 790 (emphasis added); accord J.A. 819, 932.
The district court rejected that definition, but made clear that
RAWA could delineate “an appropriate market for rental cars in
whatever way [it] so choose[s], defining that market as rental
cars, rental cars older than 8 years old, etc.”
J.A. 823.
then chose not to define any rental car market.
See, e.g., J.A.
819.
RAWA
Having made this choice, RAWA cannot now claim that the
district court prevented it from advocating a market for older
rental vehicles.
Second, the district court rightly rejected RAWA’s attempts
to define the market as one for Rent-A-Wreck franchises.
In our
previous opinion, we “instruct[ed] the district court to submit
to
a
jury
the
question
of
whether
the
exclusive
territory
provision forecloses competition in a substantial share of the
market
for
(emphasis
RAWA’s
rental
added).
preferred
cars.”
Because
market
Schwartz,
468
F.
franchises
are
not
definition
mandate and therefore impermissible.
err by enforcing our mandate.
was
App’x
at
rental
inconsistent
251
cars,
with
our
The district court did not
See Scott v. Mason Coal Co., 289
F.3d 263, 267 (4th Cir. 2002) (“[W]hen we remand a case, the
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lower court must ‘implement both the letter and spirit of the .
. . mandate.’” (second alteration in original) (quoting United
States v. Bell, 5 F.3d 64, 66 (4th Cir. 1993)).
III.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
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