BJM & Associates, Inc. v. Norrell Services, Inc.
| Decision Date | 03 May 1994 |
| Docket Number | Civ. A. No. 92-079. |
| Citation | 855 F. Supp. 1481 |
| Court | U.S. District Court — Eastern District of Kentucky |
| Parties | BJM & ASSOCIATES, INC., and Barbara Jane Moores, Plaintiffs, v. NORRELL SERVICES, INC., Defendant. |
Michael W. Troutman, E. Patrick Moores, Fowler, Measle & Bell, C. Gibson Downing, Downing & Willmott, Lexington, KY, for plaintiffs.
James R. Odell, Lexington, KY, John G. Parker, Melinda L. Moseley, Paul, Hastings, Janofsky & Walker, William J. Holley, II, Parker, Hudson, Rainer & Dobbs, Atlanta, GA, for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Plaintiffs, BJM & Associates, Inc. ("BJM"), and Barbara Jane Moores filed this declaratory judgment action against Defendant, Norrell Services, Inc. ("Norrell"), for a determination of the parties' respective rights under a License Agreement ("the Agreement") that the parties entered into on July 15, 1977. The Agreement was renewed most recently in 1987 and will expire on its own terms in 1997.
Initially, BJM alleged that Norrell had discriminated against it by not allowing it to participate in a Bonus Commission Program that Norrell devised for some of its franchisees in April 1991, resulting in an alleged loss of profits and a lower profit margin to BJM. BJM also alleged that Norrell had breached the Agreement in the following respects: (1) by failing to provide assistance to it in the development of sales and promotional programs and by failing to provide direct mail advertising, including at least four direct mailings per year, all in violation of Paragraph 19 of the Agreement; (2) by providing more support and services to its other franchisees than to BJM, in violation of Paragraph 6 of the Agreement; (3) by operating or planning to operate a similar type business (i.e., Norrell's Management Services business), within BJM's protected area, in violation of Paragraph 8 of the Agreement; (4) by forcing BJM to purchase an expensive computer system which had the effect of shifting the responsibility for performing bookkeeping services from Norrell to BJM, in violation of Paragraph 21 of the Agreement; (5) by arbitrarily increasing the reserve for bad debts from 3% to 5%, in violation of Paragraph 24 of the Agreement; and (6) by refusing to provide to BJM an accounting for the workers' compensation insurance Norrell provided to BJM's temporary employees under Paragraphs 11(b) and 23 of the Agreement. Subsequently, BJM was granted leave to file an Amended Complaint to assert claims for breach of fiduciary duty and for anticipatory breach of contract.
BJM seeks rescission of the Agreement by reason of Norrell's alleged violations of the Agreement and Norrell's alleged lack of good faith in dealing with BJM.
Norrell filed a counterclaim against BJM, alleging that from July 1988 to July 1992, BJM failed to pay the required liquidation fees to it in violation of the Agreement, which Norrell contended was a material breach of the Agreement. As a result of this alleged violation, Norrell seeks a determination that (1) the Agreement is terminated pursuant to Paragraph 44 of the Agreement, (2) the buy-out provision contained in Paragraph 46 cannot be exercised, and (3) the non-competition provisions of the Agreement are enforceable. Norrell also claimed that over a five-year period from 1987 to 1992, BJM had conducted "off-the-books" business by not reporting to Norrell all of the income BJM had earned under the Agreement.
The parties' claims against each other were tried intermittently to the Court in a bench trial over the course of fifteen days. Trial was held on March 31, April 1, 6, 19-22, May 3-6, June 22-24 and 30, 1993.
This matter is before the Court for entry of Findings of Fact and Conclusions of Law. Having considered the evidence introduced at trial, the parties' proposed Findings of Fact and Conclusions of Law, the parties' extensive post-trial briefs, and applicable case law, the Court hereby makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
Plaintiff BJM, an employment agency, is wholly owned and operated by Plaintiff Barbara Jane Moores, who has been in the employment agency business in central Kentucky for the past twenty-two (22) years. Ms. Moores was employed by Job Guidance of Kentucky, a permanent placement agency, in December 1972. In 1974, Ms. Moores purchased Job Guidance of Kentucky, and was successfully operating Job Guidance of Kentucky in 1976 when Norrell, a franchisor in the temporary employment business in Atlanta, Georgia, contacted Ms. Moores to see if she would have any interest in becoming a licensee of Norrell. After Ms. Moores went to Atlanta to meet with Norrell's officers and to see the Norrell operation, she decided to become a Norrell licensee. (Moores, Tr. 3-31-93, pp. 3-12).
For more than thirty (30) years, Norrell, a Georgia corporation, has successfully operated a temporary employment business. Norrell refers to the method of operating its business as the "Norrell System." With the establishment of branch offices, franchisees, and licensees, Norrell has expanded its business throughout the United States.
As a Norrell licensee, BJM is in the business of providing employees to clients that are in need of employees from time to time on a temporary basis. However, after becoming a Norrell licensee, Ms. Moores also continued to successfully operate her permanent employment agency, Job Guidance of Kentucky, which she owned and operated prior to becoming a Norrell licensee.
On July 15, 1977, BJM and Norrell entered into the Agreement (PX 1) wherein BJM became a licensee1 of Norrell, agreeing to operate the employment agency under the Norrell System, in exchange for a 50/50 split of profits and losses. Norrell drafted the Agreement, which is governed by the law of Georgia.
The majority of Norrell's franchisees share profits and losses with Norrell on a 40/60 split.2 Under this division of profits and losses, the franchisee receives forty percent (40%) of the Gross Margin dollars earned, and Norrell receives the remaining sixty percent (60%) of such dollars. In April 1991, due to the national economic recession, Norrell implemented a short-term Bonus Commission Program that was to be in effect for the remainder of 1991 for the franchisees operating under the 40/60 split of Gross Margin dollars. (Obermeyer, 5-4-93, pp. 10-11; Williams, 5-5-93, pp. 3-4). Norrell did not permit any of its franchisees that had a split of profits higher than 40/60, such as 50/50, 60/40, or 70/30, to participate in this Bonus Commission Program. (Williams, 5-5-93, pp. 4-5).
Under the Bonus Commission Program, from April to December 1991, the 40/60 franchisees received a 60/40 split of the total average weekly Gross Margin dollars that exceeded the franchisee's "base" of business. The "base" was the total average weekly Gross Margin dollars the franchisee earned during January, February, and March 1991. The 60/40 split did not apply to the franchisee's business base; it applied only to those Gross Margin dollars earned above the business base. Thus, for the last three quarters of 1991, the 40/60 franchisee divided its business base with Norrell on a 40/60 split, just as it would have done before the implementation of the Bonus Commission Program, and divided its total average weekly Gross Margin dollars earned above the business base on a 60/40 split.
Norrell did not permit BJM, which was under a 50/50 split of Gross Margin dollars with Norrell, or any other franchisee that was operating under a split greater than 40/60, to participate in the Bonus Commission Program. (Obermeyer, 5-4-93, pp. 14-15; License Agreement, Para. 23; DX 10, 11, 13; Moores, 4-6-93, pp. 203-204). Since BJM was on a 50/50 profit split with Norrell, BJM's share of Gross Margin dollars was 10% greater than the franchisees dividing their profits on a 40/60 split with Norrell; therefore, BJM was not similarly situated with the 40/60 franchisees. These undisputed facts do not support BJM's claim that Norrell discriminated against it by not permitting it to participate in the Bonus Commission Program.
BJM also claimed that Norrell financially supported the Bonus Commission Program by withdrawing support services, such as advertising, to it and all other franchisees, in violation of the Agreement. In support of this claim, BJM relies on a memorandum dated April 19, 1991 from Eugene Obermeyer, the president of Norrell's Franchise Division, to all franchisees which explains the mechanics of the Bonus Commission Program. In this memorandum, Mr. Obermeyer states:
We concluded that certain support services could be delayed or interrupted with the savings made available to partially support this bonus. Specifically, it was the conclusion of the Franchise Advisory Board that resources to support franchisees in areas such as National Accounts and Marketing Programs could be reduced.
PX 66.
BJM's claim that Norrell ceased providing support services, in violation of the Agreement, in order to support the Bonus Commission Program is refuted by Eugene Obermeyer, who testified that Norrell's decision to delay its planned advertising campaign for 1991 due to the national economic recession was made prior to Norrell's decision to implement the Bonus Commission Program. (Obermeyer, 5-4-93, pp. 33-34). The Court finds Eugene Obermeyer's testimony to be credible on this point. The record does not support BJM's claim that Norrell ceased providing support services to its franchisees in order to support the Bonus Commission Program.
BJM claimed that Norrell had violated Paragraph 19 of the Agreement by failing to provide assistance to it in the development of sales and promotional programs and by failing to provide direct mail advertising, including at least four direct mailings per year. Paragraph 19 states:
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