Jackson Hewitt, Inc. v. Kaman

• Decision Date: 29 November 2011
• Docket Number: No. 2D10–1801.,2D10–1801.
• Citation: 100 So.3d 19
• Parties: JACKSON HEWITT, INC., a foreign corporation, Appellant/Cross–Appellee, v. Frank A. KAMAN and Ellen M. Kaman, Appellees/Cross–Appellants.
• Court: Florida District Court of Appeals

100 So.3d 19

JACKSON HEWITT, INC., a foreign corporation, Appellant/Cross–Appellee,

v.Frank A. KAMAN and Ellen M. Kaman, Appellees/Cross–Appellants.

No. 2D10–1801.

District Court of Appeal of Florida,

Second District.

Sept. 9, 2011.

Rehearing Denied Nov. 29, 2011.

Ronald S. Holliday and Laura E. Ward of DLA Piper LLP (US), Tampa, for Appellant/Cross–Appellee.

Robert E. Turffs, Sarasota; James H. Burgess, Jr., of Burgess, Harrell, Mancuso, Olson & Colton, P.A., Sarasota; and Robert L. Parks of Robert L. Parks, P.L., Coral Gables, for Appellees/Cross–Appellants.

WALLACE, Judge.

In this appeal, Jackson Hewitt, Inc., a franchisor, asks us to decide whether it can be held liable to Frank A. Kaman and Ellen M. Kaman, investors defrauded by an affiliate of one of its franchisees. On the facts presented, we hold that Jackson Hewitt is not liable to the Kamans. Accordingly, we reverse the final judgment entered on the jury's verdict in the Kamans' favor. On the Kamans' cross-appeal, we affirm the partial summary judgment that dismissed one of their claims against Jackson Hewitt.

I. THE FACTS

A. Introduction

Frank A. Kaman, a dentist, and Ellen M. Kaman, his wife, lost a substantial sum of money in a fraudulent real estate investment scheme promoted by Daniel L. Prewett and J.H. Investment Services, Inc. (JHIS). JHIS shared office space with Simple Financial Solutions, Inc. (SFS), which held the Jackson Hewitt Tax Service franchise in Sarasota. Prewett was an officer of both JHIS and SFS.

By the time the Kamans learned that their investment was lost, JHIS and Prewett were judgment-proof. The Kamans understandably looked for a deep pocket. In an attempt to recoup their losses, they sued SFS's franchisor, Jackson Hewitt. The issues in this case concern whether Jackson Hewitt can properly be held liable for the consequences of the fraud perpetrated by Prewett and JHIS.

B. The Jackson Hewitt Tax Service Franchise

Jackson Hewitt is a national franchisor with several thousand franchisees. In accordance with detailed franchise agreements, Jackson Hewitt franchises independently owned and operated entities to use its registered mark, “Jackson Hewitt Tax Service,” and its proprietary software for the preparation of individual income tax returns. Jackson Hewitt is not in the investment business, and it does not sell or promote investment products or services. Although the franchisees can arrange refund anticipation loans for customers, Jackson Hewitt does not authorize its franchisees to provide investment products or services.

Because the business of preparing individual income tax returns is seasonal, Jackson Hewitt franchisees often provide complementary services at their locations through other entities. Under its franchise agreement, Jackson Hewitt retains the right to approve or disapprove the offering of such additional services. The nature of the complementary services provided at Jackson Hewitt Tax Service offices tends to vary from location to location. But the services frequently offered include the preparation of corporate tax returns, bookkeeping, accounting, and check cashing.

C. Simple Financial Solutions, Inc. (SFS)

In October 1993, Jackson Hewitt granted an initial franchise in Sarasota to SFS. Allan Scott was the applicant for the Sarasota franchise. Jackson Hewitt did a standard background check on Scott, and the results were unremarkable.

SFS operated its franchise successfully, and it eventually grew to have multiple locations in the Sarasota area. SFS's main office was in a strip mall known as “Jackson Hewitt Plaza” located on Beneva Road in Sarasota. In addition to the preparation of individual income tax returns, the services available at SFS's locations included the preparation of corporate tax returns, bookkeeping, and accounting. J.H. Accounting Services, Inc., a Florida corporation formed in 1997, was the entity that provided these additional services.

The record does not disclose the extent of Allan Scott's involvement at SFS and its related businesses during the early years of their operations. However, beginning at least in 2002 or 2003, Prewett, who had his office in the Beneva Road location, was in control of daily operations. Employees, customers, and other visitors to the Beneva Road office never saw Scott. A newsletter published for SFS during this period referred to Allan Scott as the “President” of the business and gave his location as the “NY office.” The same newsletter described Prewett as the “CEO/CFO.”

D. J.H. Investment Services, Inc. (JHIS)

Prewett used JHIS as the vehicle to conduct his fraudulent real estate investment scheme. JHIS was incorporated in Florida in 1996 under the name “Jackson Hewitt Investment Services, Inc.,” without Jackson Hewitt's knowledge or approval. By 2003, when real estate prices were rising rapidly in Florida and elsewhere, Prewett was using JHIS for his real estate swindle. Our record discloses very little about the early operations of JHIS. However, before 2003, JHIS was purporting to hold funds for at least one participant in a “money market account.” This participant was Mary Valmont.

E. The Valmont–Cort E-mail Exchange

On July 19, 2002, Mary Valmont sent two e-mails to Sheila Cort at Jackson Hewitt's corporate headquarters in New Jersey. Cort was Jackson Hewitt's vice president for corporate communications. Valmont's first e-mail said: “I am a J–H client. I would like some written info on J–H's Money Market Acct/Mortgage Investment Accts. I could not find any info on your website.” Cort immediately responded for Jackson Hewitt as follows:

As you know, Jackson Hewitt Tax Service is a tax preparation service. We provide preparation of federal and state income tax, as well as accelerated check requests, refund anticipation loans and electronic filing. We do not offer Money Market Accounts or Mortgages. If you've been informed otherwise, please let me know where that information came from so that I may investigate.

After this e-mail exchange, Cort and Valmont spoke by telephone. In response to Cort's request for additional information, Valmont faxed Cort a copy of an account statement bearing the name “Jackson Hewitt Investment Services, Inc.,” and the address of the SFS office on Beneva Road.¹

F. Jackson Hewitt's Response to the Information Provided by Valmont

After informing Valmont that Jackson Hewitt was not associated with JHIS or any investment programs, Cort referred to Curt M. Hapward (Jackson Hewitt's then vice president for franchise sales administration and compliance) the information that Valmont had provided. Hapward did not know what entity was improperly using Jackson Hewitt's name. On August 26, 2002, he sent a default letter to Allan Scott at one of the SFS offices. Hapward's letter said, in pertinent part:

I have recently been advised that you are inappropriately using the Jackson Hewitt and/or Jackson Hewitt Tax Service trademarks. Specifically, you have incorporated and run “Jackson Hewitt Investment Services, Inc.” As you know, this has led to customer confusion as Jackson Hewitt Inc. does not provide these services to consumers through our franchisees.

Hapward continued by demanding that Scott rename JHIS and disassociate its activities from the Jackson Hewitt name.

On September 16, 2002, Scott responded to Hapward by letter. Scott told Hapward that Scott had no ownership interest in JHIS. Also, SFS did not operate JHIS; it was an independent corporation. Scott explained further:

Jackson Hewitt Investment Services, Inc. was incorporated in 1996 to purchase land and buildings to lease to me for the establishment of tax offices. To do so, they established an investment/mortgage program to raise capital to finance the acquisitions of real estate. They do not advertise to the public, do not have a logo, do not use Jackson Hewitt typeface, fonts, colors or anything similar to Jackson Hewitt, Inc. or Jackson Hewitt Tax Service....

In their six years of operation we have never had a complaint or problem. The inquiry that prompted your letter was as a result of an inherited account, and the party receiving same was not a party to the original investment group and was not familiar with the program. As of the date she contacted Jackson Hewitt, she had not read the disclaimers and disclosures provided on the ba[c]k of her statements....

The company is owned by of [sic] six family members and six outside investors. As I do not own any part of the company, I am not in a position to tell the Board of Directors and Shareholders what they can or cannot do.

Finally, Scott offered to speak with JHIS about a change of its corporate name. In a follow-up letter, Scott informed Hapward that the principals of JHIS had agreed to change the corporate name to “J.H. Investment Services, Inc.,” effective January 1, 2003. The name change was made as promised.

G. Jackson Hewitt Lacked Knowledge of the Fraud

Scott's representations to Hapward were reassuring, but mainly false. However, Hapward and Jackson Hewitt had no reason to doubt the truth of Scott's claims. In 2002, Jackson Hewitt had already enjoyed an uneventful relationship with Scott and SFS for nine years. After Valmont sent her e-mails and spoke with Cort on July 19, Jackson Hewitt never heard from Valmont again. Indeed, the e-mails from Valmont were the only inquiry that Jackson Hewitt ever received about the activities of Prewett and JHIS until one year after the Kamans had made their last investment with JHIS. Although field representatives from Jackson Hewitt visited the SFS offices in Sarasota from time to time, none of them ever learned that Prewett was marketing real estate investments from his office on Beneva Road.

H. Prewett's Arrest and Its Aftermath

In October 2006, Prewett was arrested on federal money laundering and drug trafficking charges. United States v. Oscher (In re J.H. Inv. Servs., Inc.), No. 8:10–cv–1394–T–JSM, 2010 WL 3943952, at *1 (M.D.Fla. Oct. 7, 2010). After his...