Novus Franchising, Inc. v. Superior Entrance Systems, Inc. et al
Filing
91
ORDER denying defendants' request for trial by jury. Signed by District Judge William M. Conley on 8/15/12. (krj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
NOVUS FRANCHISING, INC.,
Plaintiff,
OPINION AND ORDER
v.
12-cv-204-wmc
SUPERIOR ENTRANCE SYSTEMS, INC.,
SUPERIOR GLASS, INC., and KNUTE
PEDERSEN,
Defendants.
In light of defendants’ timely demand for a jury trial and plaintiff’s argument that
defendants have contractually waived that right, the court requested briefing from both
sides. The court now finds that all defendants are bound by a valid contractual waiver
and, accordingly, that the matter will proceed by trial to the court.
BACKGROUND1
In 2006, defendants Superior Entrance Systems, Inc. (“SES”) and Knute Pedersen
executed a franchise renewal agreement with plaintiff Novus Franchising, Inc. (“Novus”),
binding SES and Pedersen as franchisee and contract guarantor, respectively. Defendant
Superior Glass, Inc. (“SGI”) was not a signatory to the franchise agreement, even though
it, rather than SES, acted as the de facto franchisee from the outset of the relationship.
For several years, SGI advertised the Novus logo, operated a Novus franchise, and
sent Novus royalty checks as required by the contract. SGI and SES are separate legal
1
The following facts are undisputed by the parties for the purposes of this order.
entities, though they are closely affiliated, share some common ownership and are both
managed by Knute Pedersen.
SGI, SES and Pedersen all do business in Superior,
Wisconsin, while Novus is based in Minnesota.
Section 25.9 of the franchise agreement contains a provision waiving all parties’
right to a jury trial. Specifically, the jury waiver provision states:
Jury Waiver.
To the extent either of us initiates litigation involving this
agreement or any aspect of the relationship between us (even
if other parties or other claims are included in the litigation),
you and we each waive our right to a trial by jury. This
waiver will apply to all causes of action that are or might be
included in the litigation, including claims related to the
enforcement or interpretation of this agreement, allegations
of
state
or
federal
statutory
violations,
fraud,
misrepresentations, or similar causes of action, and in
connection with any legal action brought for the recovery of
damages between or among us or between or among any of
our owners, affiliates, officers, employees or agents.
(Dkt. 17-1, ¶ 25.9 (original in all capital letters).)
Section 27.1 of the franchise agreement contains a choice-of-law provision that
states in pertinent part:
“[T]his Agreement and the relationship between us will be
governed by the laws of Minnesota, but if you are not a resident of Minnesota or [your
franchise territory] does not include a portion of Minnesota, then the Minnesota
Franchises Act will not apply to this Agreement.” (Dkt. 17-1, ¶ 27.1.)
OPINION
Defendants’ claimed right to proceed with a jury trial turns on two discrete
questions: (1) whether the jury waiver provision in the franchise agreement is enforceable
2
under Minnesota law against Superior Entrance Systems and Knute Pedersen; and if so
(2) whether the jury waiver provision also applies to Superior Glass, a non-signatory to
the franchise agreement.
I. Validity of the Jury Waiver Clause Under Minnesota Law
In the Seventh Circuit, the validity of a contract jury waiver clause is analyzed
under “the law of the jurisdiction whose rules will govern the rest of the dispute.” IFC
Credit Corp. v. United Bus. & Indus. Fed. Credit Union, 512 F.3d 989, 991 (7th Cir. 2008).
Therefore, the court must determine the state law applicable to the contract as a whole,
starting with the axiom that when a federal court addresses state law claims it must apply
the conflict-of-laws rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487, 496–97, 61 S.Ct. 1020 (1941); Baltimore Orioles, Inc. v. Major League
Baseball Players Ass'n, 805 F.2d 663, 681 (7th Cir. 1986) (applying this rule in the
exercise of supplemental jurisdiction).
In Wisconsin, parties to a contract may choose the law of a particular jurisdiction
to control their agreement unless applying that law would compromise an important
public policy of the state whose law would otherwise apply. Bush v. Nat’l Sch. Studios,
Inc., 139 Wis.2d 635, 642, 407 N.W.2d 883, 886 (Wis. 1987). In this case, there is an
unambiguous choice of law provision in the parties’ franchise agreement favoring
Minnesota law, with the caveat that the Minnesota Franchise Act does not apply to
franchisees outside of Minnesota.2
2
Absent this provision, Wisconsin’s choice-of-law rules would presumably select
3
As a general matter, Minnesota law supports the enforcement of a contractual
waiver of the right to jury trial. Ottman v. Fadden, 575 N.W.2d 593, 597 (Minn. Ct.
App. 1998) (“[T]he constitutional right to a jury trial may be waived by the parties'
agreement.”). The Minnesota Franchise Act and its implementing regulations provide a
notable exception to this rule, prohibiting jury waiver clauses in franchise agreements.
See Minn. Stat. § 80C.14; Minn. R. 2860.4400. As mentioned, however, the choice of
law provision in the parties’ contract expressly rejects the application of the Minnesota
Franchise Act to franchises located outside that state. Even without the choice of law
provision, that Act is inapplicable to defendants, who are not Minnesota residents and
who operate a franchise territory located entirely outside of Minnesota. Martin Investors,
Inc. v. Vander Bie, 269 N.W.2d 868, 872 (Minn. 1978) (“Chapter 80C was adopted . . .
to protect potential franchisees within Minnesota.”). See also In re Northeast Exp. Regional
Airlines, Inc., 228 B.R. 53, 59 (Bkrtcy. D. Me. 1998) (analyzing extraterritorial
application of the Minnesota Franchise Act in light of caselaw and legislative history).
Instead, it is Wisconsin’s franchise and fair dealership law that governs SES and
Pedersen, both Wisconsin residents.3 See Cutter v. Scott & Fetzer Co., 510 F. Supp. 905,
909 (E.D. Wis. 1981) (applying the Wisconsin Fair Dealership Law notwithstanding a
contrary choice of law provision). In contrast to the Minnesota Fair Dealership Act,
Wisconsin’s Franchise Investment and Fair Dealership Laws contain no rule against
Minnesota or Wisconsin law. Defendants have not identified, and the court has not
found, any Wisconsin public policy interest outside the area of franchise and fair
dealership law that would override the selection of Minnesota law here.
3
This is dictated by Wisconsin’s overriding public policy, and it would be the case
regardless of what the parties’ contractual choice-of-law provision might otherwise
dictate.
4
waiving a jury trial. Therefore, the jury waiver provision in the contract is valid under
the provisions of Minnesota and Wisconsin law that apply to defendants SES and Knute
Pedersen.
II. Applicability of the Jury Waiver Clause to Superior Glass, Inc.
The court next must determine whether the jury waiver clause also applies to
defendant SGI, which never formally signed the franchise agreement but was the
principal beneficiary. Plaintiff argues that SGI is bound because of equitable estoppel
and because it acted as an agent of a signatory to the agreement. Defendants concede
that both theories are recognized under Minnesota law as sufficient to hold a
nonsignatory to a contract.
Onvoy, Inc. v. Shal, LLC, 669 N.W.2d 344, 356 (Minn.
2003). Nevertheless, defendants contend that the particular facts of this case trigger
neither theory. The court disagrees, at least with respect to equitable estoppel.
Estoppel is defined as “[a] bar that prevents one from asserting a claim or right
that contradicts what one has said or done before.” Black's Law Dictionary 629 (9th ed.
2009). Equitable estoppel “precludes one who accepts the benefits [under a contract]
from repudiating the accompanying or resulting obligation.
Parties cannot accept
benefits under a contract fairly made and at the same time question its validity.” Am.
Jur. Estoppel § 60.
When it recognized equitable estoppel as a basis to bind a nonsignatory to a
contract under Minnesota law, the Minnesota Supreme Court in Onvoy, Inc. v. Shal did
little more than simply cite to MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th
5
Cir. 1999) (abrogated on other grounds), the foremost decision among a series of
Eleventh Circuit cases applying the federal law of equitable estoppel to contractual
arbitration provisions. Thus, the text of the Onvoy opinion provides very little direct
guidance on how to analyze an equitable estoppel argument under modern Minnesota
law. On the other hand, the MS Dealer court has articulated a widely-cited test setting
forth the circumstances in which equitable estopped will hold a non-signatory to the
terms of a contract.4 MS Dealer, 177 F.3d at 947. Although Onvoy did not explicitly
adopt this test, this court thinks it reasonable to assume that the Minnesota Supreme
Court would not have cited MS Dealer unless it approved the general test included in that
decision, at least absent any contrary evidence.
The MS Dealer test articulates two situations in which a non-signatory may be
bound to an agreement by equitable estoppel: first, when a signatory to the written
agreement relies on the terms of the written agreement in asserting its claims against the
nonsignatory; and second, when a signatory to the agreement raises allegations of
substantially interdependent and concerted misconduct by both the nonsignatory and
one or more signatories.
Id.
The second option in the MS Dealer test has received
criticism on grounds that it goes far beyond “traditional principles” of equitable estoppel.
Kingsley Capital Mgmt, LLC v. Sly, 820 F. Supp. 2d 1011, 1024 (D. Ariz. 2011). While
that criticism appears sensible, it is of little moment, for here the facts satisfy either test:
(1) plaintiff’s complaint hinges upon the terms of the written agreement, and (2) the
4
The test is cited, for example, in Brantley v. Republic Mortgage Ins. Co., 424 F.3d 392,
395-96 (4th Cir. 2005); Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 527 (5th
Cir. 2000); and CD Partners, LLC v. Grizzle, 424 F.3d 795, 798 (8th Cir. 2005).
6
other defendants, whose conduct is intertwined with that of SGI, are recognized
signatories.5
Having determined that the instant situation is one to which equitable estoppel
applies in principle, the only thing left to do is apply the theory to the facts. Since the
facts read like they belong on the first page of an equitable estoppel textbook, this turns
out to be an exceedingly straightforward exercise.
SGI advertised itself as a Novus
franchisee, benefitted from the skills that Novus taught to Deanne Tapani as a Novus
franchisee, and paid royalties to Novus in accordance with the terms of the franchise
agreement. Moreover, SGI’s manager, Knute Pedersen, knew exactly what was going on
because he controlled both the nominal signatory (SES) and the de facto party to the
contract (SGI). Under Pedersen’s direction, SGI performed in every respect as if it were
party to the franchise agreement, stepping into the shoes left vacant by SES and
benefiting from its terms. It cannot now reject those same terms.
ORDER
IT IS ORDERED that defendants’ request for a trial by jury is DENIED.
Entered this 15th day of August, 2012.
BY THE COURT:
_/s/_______________________________________
WILLIAM M. CONLEY
District Judge
5
Onvoy and MS Dealer also involved the enforcement of an arbitration clause, in contrast
to this case, which concerns a jury waiver clause. Defendants advance no principled
reason to distinguish between arbitration and jury waiver, nor could they, for an
agreement to arbitrate generally entails waiver of the right to a jury.
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