Franlink Inc. v. Bace Servs., Inc., 21-20316
| Docket Number | 21-20316 |
| Decision Date | 28 September 2022 |
| Citation | 50 F.4th 432 |
| Parties | FRANLINK INCORPORATED, a Texas Corporation, Plaintiff—Appellee, v. BACE SERVICES, INCORPORATED, a Florida Corporation, formerly known as Craig Wells Enterprises, Incorporated ; Steven Bradley Morton, a Florida Resident; Payday Solutions, L.L.C., a Florida Limited Liability Company; JTL Staffing; Payroll, L.L.C., an Alabama Limited Liability Company, Defendants—Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Craig Miller, Lathrop GPM, L.L.P., Minneapolis, MN, Alexander Thomas Brown, Lathrop GPM, L.L.P., Kansas City, MO, Frank Sciremammano, Lathrop GPM, L.L.P., Washington, DC, for Plaintiff-Appellee.
Maitreya Tomlinson, The Tomlinson Firm, P.L.L.C., Austin, TX, Joshua Armstrong Verde, Verde Law Firm, P.L.L.C., Houston, TX, for Defendants-Appellants.
Before Jolly, Smith, and Engelhardt, Circuit Judges.
This case presents one primary question: whether non-signatories to a franchise agreement may be bound to the contract's choice of forum provision under the equitable doctrine that binds non-signatories who are "closely related" to the contract. We conclude such non-signatories may be bound to a forum selection clause, as we will more fully set out below. Applying the doctrine here, we affirm as to non-signatory PayDay, but reverse as to non-signatories JTL and Morton.
The other issues on appeal pertain to damages, attorneys' fees, and costs. After this appeal, these awards only apply to the remaining defendants—the signatory, BACE, and the non-signatory, PayDay. With respect to these remaining defendant-appellants, we reverse and remand the money judgment to allow the district court to reconsider damages, attorneys' fees, and costs in the light of this opinion. The imposed injunction, however, is affirmed and remains unaffected as to BACE and PayDay.
We thus AFFIRM in part; REVERSE in part; VACATE in part; and REMAND.
Amy and Craig Wells entered into a franchise agreement with Franlink Incorporated ("Link") in 2007, which they renewed in 2017, allowing the Wellses to operate a franchise staffing company, BACE Services ("BACE"), in Jacksonville, Florida. The franchise agreement created a fee-sharing arrangement and authorized BACE to use Link's trademarks and name. It specified several acceptable reasons for terminating the franchise and outlined post-termination obligations. The agreement also included a covenant not to compete and a non-solicitation provision that applied to BACE, Craig Wells, and Amy Wells (collectively, "BACE defendants" or "signatories").
By November 2018, BACE had become unhappy with the franchise arrangement and, according to the district court, "beg[a]n to explore options for exiting the Link Staffing system." A ransomware attack in October 2019 on Link's system seemed to provide a reason, and BACE purported to terminate its agreement with Link on October 25, 2019.1 Earlier, on October 21, 2019, Bradley Morton—Amy Wells' son and Craig Wells' stepson, who had been a manager at BACE but not a signatory to the franchise agreement—had left BACE to become a branch manager at JTL, a competing staffing business that operates in the same territory as the BACE franchise. JTL is owned and operated by a non-party in this case. Still, Craig Wells began soliciting Link's former BACE clients to JTL on October 30, 2019.
Link soon learned of the activities involving JTL. Further, Link learned that Craig and Amy Wells were also operating another competing staffing company, PayDay, and were diverting and soliciting former Link clients to it. Such conduct led Link to formally terminate the franchise agreement on November 6, 2019. Additionally, on November 14, 2019, Link sent a cease and desist letter to JTL, which informed JTL of the BACE franchise agreement. JTL refused to comply with the cease and desist demand, saying it was not a signatory to the agreement.
On November 22, 2019, Link filed a complaint in the Southern District of Texas based on the forum selection provision of the franchise agreement.2 It named BACE, Craig and Amy Wells, Morton, JTL, and PayDay—all non-Texas residents—as defendants. Link sought injunctive relief and damages for the breach of contract, trademark infringement, unfair competition, tortious interference, and civil conspiracy. The non-signatories to the franchise agreement (Morton, JTL, and PayDay) filed a motion to dismiss for lack of personal jurisdiction, arguing the agreement's forum selection clause did not apply to them; and that without the forum selection clause, the district court lacked jurisdiction over these out-of-state residents. The district court denied their motion. In doing so, the district court held that the agreement's forum selection clause applied to the non-signatories because they were "so closely related" to the signatories that it was "foreseeable" they would be bound to the forum-selection clause.
The district court conducted a four-day bench trial in August 2020 and thereafter issued its findings of fact and conclusions of law. The district court granted each of Link's claims against the defendants and denied all the defendants' counterclaims.
Specifically, the district court concluded that The district court cited evidence that Morton started working for JTL after having left his position at BACE, and that Morton had numerous correspondences with former BACE clients telling them that JTL was a "continuation" of BACE's Link franchise and that BACE would be doing business as JTL henceforth. The district court further concluded that JTL was a "mere continuation" of BACE's former Link franchise, and that it had conspired with BACE to operate a competing staffing company. Finally, the district court found that Craig and Amy Wells owned PayDay, a competing staffing company, which they had used to divert Link's former BACE clients and to compete with Link in the Jacksonville area.
At the conclusion of the four-day bench trial, the district court awarded Link $378,562.22 in damages for the losses suffered from the defendants' breach of the contract. It also granted injunctive relief enforcing the non-compete and non-solicitation provisions. Link then moved for attorneys' fees under the contract and the Lanham Act. The non-signatories again objected that the contractual attorneys' fees provision did not apply to them because they were not parties to the agreement. The district court nevertheless awarded attorneys' fees under the contract of $731,295.30 and costs of $113,484.04 and made all the defendants liable for the attorneys' fees. The defendants unsuccessfully moved under FED. R. CIV. P . 52(b) and 59(e) to alter or amend the judgment relating to the fees, costs, and expenses granted to Link, and then filed a notice of appeal.3
On appeal, the non-signatories challenge the district court's findings relating to personal jurisdiction, bifurcating the trial, and attorneys' fees. They argue that, as non-signatories, they are not bound to the contract's forum selection clause, jury trial waiver, and attorneys' fees provision. All defendants also assert that the district court erred in calculating the damages owed, imposing both injunctive relief and future damages, and in calculating attorneys' fees. We proceed by first addressing the standard of review and then the closely-related doctrine.
"The standard of review for a bench trial is well established: findings of fact are reviewed for clear error and legal issues are reviewed de novo. " Guzman v. Hacienda Recs. & Recording Studio, Inc. , 808 F.3d 1031, 1036 (5th Cir. 2015). A trial judge's finding is only clearly erroneous if, after reviewing the entire record, the reviewing court "is left with the definite and firm conviction that a mistake has been committed." Id. (quoting Anderson v. City of Bessemer City , 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ).
Matters of contract interpretation are reviewed de novo. Ergon-W. Virginia, Inc. v. Dynegy Mktg. & Trade , 706 F.3d 419, 424 (5th Cir. 2013). As are questions about personal jurisdiction and a party's entitlement to a jury trial. E. Concrete Materials, Inc. v. ACE Am. Ins. Co. , 948 F.3d 289, 295 (5th Cir. 2020) (personal jurisdiction); U.S. Bank Nat. Ass'n v. Verizon Commc'ns, Inc. , 761 F.3d 409, 416 (5th Cir. 2014) (jury trial). However, "[a]s for whether the district court properly refused to equitably enforce a contract, we review that for abuse of discretion." Newman v. Plains All Am. Pipeline, L.P. , 23 F.4th 393, 398 (5th Cir. 2022)
This court reviews a district court's ruling on a FED. R. CIV. P . 52(b) or 59(e) motion for abuse of discretion as well. United States v. Texas , 601 F.3d 354, 362 (5th Cir. 2010). "Under this standard, the district court's decision and decision-making process need only be reasonable." Midland W. Corp. v. FDIC , 911 F.2d 1141, 1145 (5th Cir. 1990) "A district court abuses its discretion if it: (1) relies on clearly erroneous factual findings; (2) relies on erroneous conclusions of law; or (3) misapplies the law to the facts." Fornesa v. Fifth Third Mortg. Co. , 897 F.3d 624, 627 (5th Cir. 2018).
As noted, the principal question on appeal is whether the non-signatory defendants—Morton, JTL, and PayDay—can be bound, under the closely-related doctrine, to the forum selection clause in the franchise agreement between the BACE defendants and Link.4 We focus on the forum selection clause because it determines whether personal jurisdiction exists.5
The district court held that, under the closely-related doctrine, the non-signatories were "inextricably intertwined and closely related such that it is foreseeable they would be bound...
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