Home Instead, Inc. v. Florance et al
Filing
24
MEMORANDUM AND ORDER denying 9 Motion for Preliminary Injunction. Ordered by Judge John M. Gerrard. (ADB)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
HOME INSTEAD, INC., a Nebraska
Corporation,
8:12CV264
Plaintiff,
vs.
MEMORANDUM AND ORDER
DAVID FLORANCE, MICHELLE
FLORANCE, and FRIEND OF A
FRIEND, INC.,
Defendants.
This matter is before the Court on the motion for preliminary
injunction (filing 9) filed by defendants David and Michelle Florance and
Friend of a Friend, Inc. (collectively, "the Florances"). The Court has
considered the parties' briefs (filings 15, 19, and 23) and indexes of evidence
(filings 10, 12, and 20), as well as the argument and evidence presented at a
hearing on the Florances' motion. See filing 21 (text entry); filing 22. The
Court overrules the parties' evidentiary objections made at the September 18,
2012, hearing, and for the reasons discussed below, denies the Florances'
motion for preliminary injunction.
I. BACKGROUND
Home Instead provides non-medical companionship and domestic care
services for senior citizens, through its many independently owned and
operated franchises. Filing 20-1 at ¶¶ 6–7. David and Michelle Florance are a
husband and wife team that own and manage Friend of a Friend, Inc., a
Florida corporation that operates two Home Instead franchises in different
parts of Florida. Filing 10 at ¶¶ 3, 5–7.
In 1997, Home Instead and Friend of a Friend executed franchise
agreement no. 176 (the "Initial Agreement"), granting Friend of a Friend the
exclusive right to own and operate a Home Instead franchise in a specific
area of Florida. Filing 20-1 at ¶ 21; filing 20-9. The Initial Agreement for no.
176 was to last 5 years and was set to expire on August 4, 2002. Filing 20-1 at
¶¶ 21, 29. In 1999, Friend of a Friend entered into a second franchise (no.
285) for a different area of Florida. Filing 20-1 at ¶¶ 23, 27; filing 20-11. This
agreement was also set to expire on August 4, 2002. Filing 20-1 at ¶¶ 25, 29.
The terms of both agreements were identical in all relevant respects. Filing
20-1 at ¶ 25; filing 20-10; filing 20-9; filing 20-11.
Friend of a Friend and Home Instead renewed both franchises in 2002
for a period of 10 years, each to expire (unless renewed again) on August 3,
2012. Filing 20-1 at ¶¶ 29–43. Both franchises were renewed by execution of
a new "Renewal Agreement" for each, which set forth the terms of the
franchise for the next 10 years. See filings 20-14 and 20-15. Each Renewal
Agreement was based on the then-current standard franchise agreement
used by Home Instead. Filing 20-1 at ¶¶ 41–42; filing 20-16. Home Instead's
practice was (and is) to use the same form agreement for new and renewal
franchises, and to simply cross out portions that do not apply to renewals.
Filing 20-1 at ¶ 32.
Two provisions of the Renewal Agreements are key to this dispute. The
first, set forth in sections 15.A and 15.C of both Renewal Agreements,
governs the franchisee's right to renew the agreement:
15.
RENEWAL OF FRANCHISE
A.
FRANCHISEE'S RIGHT TO RENEW
If, upon expiration of the initial term of the Franchise,
Franchisee has during the term of this Agreement substantially
complied with all its material provisions and agrees to comply
with the specifications and standards then applicable for
new franchised businesses, then Franchisee has a right to
renew the franchise for an additional term equal to the
then-customary initial term granted under Franchisor’s
then-current form of standard Franchise Agreement. Franchisor
has the right to charge Franchisee a renewal fee of One
Thousand Dollars ($1,000) which is payable at the time of
renewal. The Franchisee may choose to retain the
provisions of this agreement with respect to the amount of
royalty fee should the then-current agreement call for a
larger royalty.
....
C.
RENEWAL AGREEMENTS/RELEASES
To renew the Franchise, Franchisor, Franchisee (and the
owners, partners, or members of Franchisee, if Franchisee is a
corporation, partnership or limited liability company) must
execute the form of and be bound by the Franchise
Agreement and ancillary agreements [Home Instead]
customarily uses in the grant of franchises for the
-2-
ownership and operation of Businesses (with appropriate
modifications to reflect the fact that the agreement relates
to the grant of a renewal franchise) and Franchisee and its
owners, partners or members must execute general releases, in
form and substance satisfactory to [Home Instead], of all claims
against [Home Instead] and its affiliates, officers, directors,
employees and agents. Failure by Franchisee and its owners,
partners or members to sign agreement(s) and releases within
thirty (30) days after delivery to Franchisee is deemed an election
by Franchisee not to renew the Franchise.
Filing 20-14 at 29–30; filing 20-15 at 29–30 (emphasis supplied).
In short, the franchisee has a right to renew, but not necessarily on the
same terms. Instead, the renewal will be on the terms used by Home Instead
at the time of the renewal, with one important exception: the franchisee is
granted the right to continue paying the same amount of royalty fees.
The other key provision requires franchisees to maintain specified
levels of minimum gross sales each month. The provision is set forth in § 2.F
of both Renewal Agreements:
The exclusive right to operate the Franchised Business
within the Exclusive Area is contingent upon Franchisee
achieving and maintaining minimum Gross Sales of Five
Thousand Dollars ($5,000) in each twice-monthly billing period
(Ten Thousand Dollars ($10,000) per month) by the end of the
first year of operation of the Franchised Business, achieving and
maintaining minimum Gross Sales of Ten Thousand Dollars
($10,000) in each twice-monthly billing period (Twenty Thousand
Dollars ($20,000) per month) by the end of the third year of
operation of the Franchised Business, and achieving and
maintaining minimum Gross Sales of Fifteen Thousand Dollars
($15,000) in each twice-monthly billing period (Thirty Thousand
Dollars ($30,000) per month) from the end of the fifth year of
operation of the Franchised Business through the end of the
term of this Agreement or any renewal term of a renewal
Franchise Agreement (the “Performance Standard”).
Failure to achieve and maintain the minimum Gross Sales may
result in the forfeiture of the right of exclusivity granted
Franchisee to the Exclusive Area. In addition, failure to achieve
the minimum Gross Sales will constitute a default of this
Agreement and Franchise has the right to terminate this
Agreement and/or to grant additional franchises within the
-3-
Exclusive Area to third parties. Upon termination of this
Agreement, all rights granted to Franchisee end.
Filing 20-14 at 6; filing 20-15 at 6 (emphasis supplied).
When it came time to renew the franchise agreements again in 2012, a
disagreement arose over the meaning of § 2.F and the applicable Performance
Standard. In September 2011, Home Instead mailed a letter to the Florances,
reminding them that their franchises would expire in August 2012 and
providing information on how to renew. Filing 20-1 at ¶ 43; filing 20-17 at 1.
The letter also notified them of an important change to the standards
governing new and renewal franchises as of 2011: the monthly performance
standard had increased from $30,000 to $70,000. Filing 20-17 at 1.
On June 15, 2012, Home Instead mailed the Florances the then-current
"Franchise Disclosure Document" (FDD)1 and two copies of renewal
agreements containing the standard 2012 terms. Filing 20-18. Under the
2002 Renewal Agreements, the Florances were required to execute the new
renewal agreements and return them to Home Instead by July 18, 2012.
Filing 20-14 at 30; filing 20-15 at 30. Otherwise, they would be deemed to
have elected not to renew. Filing 20-14 at 30; filing 20-15 at 30. At the
Florances' request, Home Instead granted an extension until July 31. Filing
20-20 at ¶ 5.
The 2012 standard agreements required franchisees to maintain
minimum gross sales of $70,000 a month by the end of their seventh year of
operation. Filing 20-18 at 1; filings 10-6 at 10; 10-8 at 10. As of July 2012, the
Florances' franchises were not performing at that level. Filing 20-18 at 1;
filing 20-1 at ¶ 44. The parties had discussed the matter for nearly a year,
and Home Instead ultimately offered to renew the agreements despite this
deficiency. Filing 20-24; filing 20-1 at ¶ 44. In exchange, however, Home
Instead insisted the franchises meet the new performance standard by 2013
and required the Florances to agree to certain additional conditions. Filing
20-24; filing 20-1 at ¶ 44. These terms were unacceptable to the Florances,
and further negotiations failed to result in an agreement. Filing 20-23; filing
20-25 through 20-29. In the end, the expiration deadline of August 3, 2012
came and went without any agreement to renew the franchises.
On July 30, 2012, the Florances notified Home Instead that they
disputed Home Instead's interpretation of § 2.F in the 2002 Renewal
Agreements and advised that they would continue to operate their franchises
as if the Renewal Agreements were still in effect. Filing 10 at ¶ 15; filing 10The Federal Trade Commission requires franchisors to provide prospective
franchisees with "franchise disclosure documents" setting forth, among other things,
the requirements applicable to franchisees. See 16 C.F.R. Part 436.
1
-4-
10. The Florances continued running their franchises and continued sending
royalty payments to Home Instead. Filing 10 at ¶ 15; filing 20-20 at ¶ 8.
Home Instead refused to accept these payments. Filing 20-20 at ¶ 8.
On August 31, 2012, Home Instead essentially pulled the plug on the
Florances. Filing 10 at ¶ 18. Home Instead disabled the Florances' access to
its e-mail servers and web portal, and shut down Friend of a Friend's
website. Filing 10 at ¶¶ 18a–18c, 18e. The Florances depend on these
resources to run their franchises. Filing 10 at ¶¶ 18a–18c. Home Instead also
began referring clients in the Florances' exclusive territory to other
franchises. Filing 10 at ¶¶ 18d, 18f. And Home Instead has forbidden them
from attending an upcoming franchisee conference or from holding their
business out as a current franchise. Filing 10 at ¶¶ 18g–18h.
The Florances argue that Home Instead has wrongfully refused to
renew their franchises, and that its acts are making it nearly impossible to
run their business, resulting in lost income, customers, and good will among
clients and potential clients. They ask this Court to enter a preliminary
injunction restoring the "operational status quo" of the 2002 Renewal
Agreements. Filing 15 at 13–14.
II. ANALYSIS
When deciding whether to issue a preliminary injunction, the Court
turns to the four Dataphase factors: (1) the threat of irreparable harm to the
movant; (2) the state of the balance between this harm and the injury that
granting the injunction will inflict on other parties; (3) the probability that
the movant will succeed on the merits; and (4) the public interest.
Roudachevski v. All-American Care Centers, Inc., 648 F.3d 701, 705 (8th Cir.
2011) (citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir.
1981) (en banc)).2 A preliminary injunction is an extraordinary remedy, and
the movant bears the burden of establishing its propriety. Roudachevski, 648
F.3d at 705. The Florances have not met this burden.3
The Renewal Agreements each state that Nebraska law shall apply, and neither
party has suggested otherwise. Cf. Vanice v. Oehm, 526 N.W.2d 648, 651 (Neb.
1995) (choice-of-law clauses generally upheld). However, federal, rather than state
law governs the Court's analysis of whether a preliminary injunction should issue.
Ferrero v. Associated Materials Inc., 923 F.2d 1441, 1448 (11th Cir. 1991). The
remaining substantive issues in this case (with the obvious exception of Home
Instead's claims under the Lanham Act) are governed by Nebraska law.
2
Some courts apply a "heightened standard" to injunctions that would disrupt the
status quo between the parties, such that the Dataphase factors must "'weigh
heavily and compellingly'" in the movant's favor. See, e.g., Salt Lake Tribune Pub.
3
-5-
Specifically, they have failed to show any likelihood of success on the
merits. In most cases the Court should assess the relative strengths of all
four of the Dataphase factors and then consider their collective balance.
Brady v. Nat'l Football League, 640 F.3d 785, 789 (8th Cir. 2011). But in this
case, the Florances' entitlement to an injunction rests solely on an issue of
contract interpretation. They concede that there is no ambiguity in the
provisions at issue. Filing 15 at 8, 10. Because there is no ambiguity, the
meaning of the contract presents a question of law. Ruble v. Reich, 611
N.W.2d 844, 850 (Neb. 2000). The Court finds, as set forth below, that the
Renewal Agreements do not support the Florances' argument.
Movant's Probability of Success on the Merits
Success on the merits has been referred to as the most important of the
Dataphase factors. Roudachevski, 648 F.3d at 706; Brady, 640 F.3d at 789.
The movant need not show that it will ultimately win, or even that the
movant is more likely than not to prevail. Glenwood Bridge, Inc. v. City of
Minneapolis, 940 F.2d 367, 371 (8th Cir. 1991). The Florances have not met
this standard in any respect: the probability they will succeed on the merits
is nil. So, even if the Court assumes that the remaining Dataphase factors
weigh in the Florances' favor, they are not entitled to a preliminary
injunction.
The Florances' claim for injunctive relief rests solely upon a strained
reading of one sentence of § 2.F of the 2002 Renewal Agreements. Under that
section, the franchisee must maintain minimum gross sales of $30,000 per
month after the end of the fifth year "of operation of the Franchised Business
through the end of the term of this Agreement or any renewal term of a
renewal Franchise Agreement (the "Performance Standard")." Filing 2014 at 6; filing 20-15 at 6 (emphasis supplied). The Florances argue that the
highlighted language means that the Performance Standard will remain
$30,000 per month for as long as their franchises are renewed. They
paraphrase § 2.F as follows: "the applicable Performance Standard 'through
the end of the term of this Agreement or any renewal term of a renewal
Franchise Agreement' shall be gross sales of $30,000 per month." Filing 15 at
10. This reading places a permanent ceiling on the Performance Standard.
The Florances' reading, however, has conveniently omitted the word
"minimum."
Co., LLC v. AT & T Corp., 320 F.3d 1081, 1099 (10th Cir. 2003). Home Instead
argues that the present injunction would upset the status quo by reinstating a
franchise agreement that has already, by its own terms, expired. The Court need
not address this matter further: even under the "ordinary" standard, the Florances
are not entitled to injunctive relief.
-6-
The Court may not omit words from the contract. Instead, the Court
must give the contract a reasonable construction, which requires construing
the contract as a whole and, if possible, giving effect to every part of the
contract. Hearst-Argyle Props., Inc. v. Entrex Commc'n Servs., Inc., 778
N.W.2d 465, 470 (Neb. 2010). And where the terms of a contract are clear,
they are to be accorded their plain and ordinary meaning. Poulton v. State
Farm Fire and Cas. Cos., 675 N.W.2d 665, 671 (Neb. 2004).
When read naturally and together with the rest of the Renewal
Agreements, § 2.F creates a floor, not a ceiling. For the duration of the
Renewal Agreements, and for any subsequent renewal, franchisees must
achieve a minimum of $30,000 in monthly gross sales. Nothing in § 2.F
prohibits the franchisor from raising the minimum amount. A minimum of
$70,000 includes, and is not inconsistent with, a minimum of $30,000. And
the provisions governing renewals, §§ 15.A and 15.C, state that, in order to
renew, franchisees must agree to the then-current standards. Filing 20-14 at
29–30; filing 20-15 at 29–30 (emphasis supplied). Under the 2002 Renewal
Agreements, the continued right to a franchise was conditioned on, among
other requirements, $30,000 per month in gross sales. The 2012 standard
agreements contain an extra condition: an additional $40,000 in gross
monthly sales. Sections 15.A and 15.C give Home Instead the right to insist
on new terms and conditions each time a franchise is up for renewal, and that
is precisely what Home Instead did.
There is nothing wrong or suspect about this arrangement—in fact, the
renewal provisions protect franchisees as well as Home Instead. True,
franchisees' right to renew is limited: they are not allowed to retain the same
standards (except as to the amount of royalty fees). But if franchisees have
met their business standards, they have an absolute right to renew, provided
they agree to live up to the standards applicable to all new franchisees for the
upcoming renewal period. The upshot is that Home Instead cannot refuse to
renew a performing franchise, nor can it single out a franchise up for renewal
and offer terms it knows the franchisee cannot meet.
Home Instead may, however, continue to update the standard
requirements for new franchises, and insist that renewing franchises
conform. This serves two important functions. First, it allows Home Instead
to maintain relatively uniform franchise agreements. Cf. Re/Max North
Cent., Inc. v. Cook, 272 F.3d 424, 431–32 (7th Cir. 2001) (franchisors have
legitimate interest in maintaining uniform contract terms and re-writing
their standard contracts to adapt to new conditions). Second, it prevents
Home Instead from being stuck with terms that have ceased being profitable
or are failing to account for current market conditions.
-7-
The Florances also argue that the language "or any renewal term of a
renewal Franchise Agreement" in § 2.F is rendered superfluous if Home
Instead can always raise the minimum Performance Standard. But the
clause does serve a purpose: it sets a minimum that renewal agreements
must meet. And it makes clear that once a franchise is renewed, it must
continue to meet the $30,000 monthly minimum, rather than reverting to the
first year's $10,000 a month minimum, or the then-current equivalent. The
agreement does not envision franchisees' sales fluctuating up and down every
10 years; it provides for a steady increase for the first 5 years, then
maintaining at least $30,000 in sales a month thereafter. This clause protects
Home Instead, not franchisees—but that does not make it superfluous.
The parties have also shown that they knew how to let franchisees
retain certain terms, even upon renewal. Section 15.A provides that
franchisees may continue paying the same amount of royalty fees, even after
a renewal. Filing 20-14 at 29; filing 20-15 at 29. There is no equivalent right
to retain the same monthly Performance Standard.
The Florances' argument is contradicted by the plain language of the
Renewal Agreements. They concede that the relevant provision, § 2.F, is not
ambiguous. The Court agrees; but the Court finds that the provisions of § 2.F
contravene the Florances' argument. And however § 2.F might be construed
standing alone, it must be read together with the provisions governing
renewals. Hearst-Argyle Props., Inc., 778 N.W.2d at 470.
III. CONCLUSION
The Court finds that the Florances are not entitled to a preliminary
injunction. The Court has interpreted the four corners of the franchise
agreements, as a matter of law. Because of the nature and posture of the
proceedings, the Florances cannot demonstrate any probability that they will
succeed on the merits. This is the 800-pound gorilla in the room, and it is not
going to budge, even if the remaining Dataphase factors all joined in pushing.
Accordingly,
IT IS ORDERED:
1.
The Florances' motion for preliminary injunction (filing 9)
is denied.
-8-
Dated this 20th day of September, 2012.
BY THE COURT:
John M. Gerrard
United States District Judge
-9-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?