Meineke Discount Muffler v. Jaynes

• Decision Date: 30 August 1993
• Docket Number: No. 91-6330,91-6330
• Citation: 999 F.2d 120
• Parties: 1993-2 Trade Cases P 70,338 MEINEKE DISCOUNT MUFFLER, Plaintiff-Appellee/Cross-Appellant, v. Wesley JAYNES and Marion Jaynes, Defendants-Appellants/Cross-Appellees. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 120

999 F.2d 120

1993-2 Trade Cases P 70,338

MEINEKE DISCOUNT MUFFLER, Plaintiff-Appellee/Cross-Appellant, v. Wesley JAYNES and Marion Jaynes Defendants-Appellants/Cross-Appellees.

No. 91-6330

Summary Calendar.

United States Court of Appeals Fifth Circuit.

Aug. 30, 1993.

Alton W. Payne, Sroufe, Zamecki, Payne & Lundeen, L.L.P., Houston, TX, for defendants-appellants.

Michael Kuhn, Raymond L. Gregory, Bracewell & Patterson, Houston, TX, for plaintiff-appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before JOLLY, DUHE, and BARKSDALE, Circuit Judges.

DUHE, Circuit Judge:

A franchisor, Meineke Discount Muffler Shops, Inc. (Meineke), sued two of its former franchise owners. The district court ruled in favor of Meineke finding that the franchisees, Wesley and Marion Jaynes ("the Jaynes"), violated the licensing agreement, and that the Jaynes engaged in a civil conspiracy to interfere with business and contractual relations. We affirm.

I. Prologue

The Jaynes purchased a Meineke franchise from Robert Strange in 1980. Strange had a fifteen year licensing agreement with Meineke, valid by its terms until September 28, 1989, which he sold to the Jaynes with Meineke's approval. The district court found, and the Jaynes do not contest, that Meineke has performed all of its obligations under the licensing agreement. R. 3035, 3043. ¹

It is undisputed that before their licensing agreement with Meineke expired, the Jaynes entered into an operating agreement with Autocare Distribution d/b/a Mike's Muffler and Brake ("Autocare"). The Autocare agreement called for the Jaynes to operate a "Mike's Muffler & Brake" automotive service center in the same location as their former Meineke franchise. On September 1, 1989, pursuant to the Autocare agreement, the Jaynes began operating "Mike's Muffler & Brake Shop" at the same location. This business offered the same products and services as the Meineke operation--installation and repair of automotive exhaust systems, brakes and shocks.

Meineke demanded that the Jaynes cease their activities, pointing out that the Jaynes were violating provisions of the Meineke-Jaynes licensing agreement. When these entreaties went unheeded, Meineke sued the Jaynes, alleging that they: (1) violated the licensing agreement's "Covenant Not to Compete;" (2) conspired to interfere with contractual and business relations; (3) engaged in unauthorized use of Meineke's protected trademarks; and (4) engaged in unfair competition. R. 6-17. Meineke also sought attorney's fees under the terms of the licensing agreement. Id.

The Jaynes answered Meineke's complaint, and also filed counterclaims and third party claims. ² Following trial the district court concluded, inter alia: (1) The Jaynes breached the Meineke-Jaynes' licensing agreement by entering into the agreement with Autocare, R. 3038; (2) the Jaynes and Autocare conspired to interfere with contractual and business relations existing between the Jaynes and Meineke, id.; (3) the Jaynes had no standing to seek cancellation of Meineke's trademarks, id. at 3026; and (4) the Jaynes were unable to press their DTPA claims against Meineke, id. at 3023. For conspiring to breach the licensing agreement during its term, the court assessed actual damages of $4,420, and punitive damages of $6,000. The court awarded nominal damages of $10 for the Jaynes' post-termination violation of the licensing agreement's covenant not to compete, and for continuing to use the same telephone number for "Mike's Muffler & Brake" that was used by the Meineke operation. Over $560,000 in attorneys' fees and costs were also assessed against the Jaynes.

On appeal, the Jaynes raise a host of errors. We address each in turn.

II. Covenant Not to Compete

The district court held that the Jaynes violated the licensing agreement's covenant not to compete. ³ Paragraph 18 of the agreement prohibits the franchisee from operating another competitive business during the duration of the agreement. The franchisee also agrees to not operate a competing business "within the one (1) year period following the termination that is located within a radius of twenty (20) miles" from the Meineke location. R. 43. The Jaynes-Autocare agreement, and the operation of "Mike's Muffler & Brake" at the exact location of the Jaynes' former Meineke franchise is a blatant violation of the licensing agreement. On appeal, the Jaynes do not contest the court's findings as to their actions; ⁴ rather, they attack the legal validity of the covenant not to compete.

We review this contract provision de novo. See Technical Consultant Servs., Inc. v. Lakewood Pipe of Texas, Inc., 861 F.2d 1357, 1362 (applying Texas law). The starting point in our analysis is Tex.Bus. & Com.Code § 15.50 (Supp.1993):

[A] covenant not to compete is enforceable to the extent that it:

(1) is ancillary to an otherwise enforceable agreement...., and

(2) contains reasonable limitations as to time, geographic area, and scope of activity to be restrained that do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee.

Id.; see also Ruscitto v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 777 F.Supp. 1349, 1354 (N.D.Tex.), aff'd, 948 F.2d 1286 (5th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1994, 118 L.Ed.2d 590 (1992).

First, we agree with the district court that the covenant not to compete was ancillary to an otherwise enforceable agreement, i.e. the franchise license. ⁵ We next evaluate whether or not the restrictive aspects of the agreement (time, geography, and scope) are reasonable. See Henshaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex.1983) (reasonableness of agreement not to compete is question of law). The burden was on the Jaynes to prove that the restraints were unreasonable. Tex.Bus. & Com.Code § 15.51(b) (Supp.1993); see also Butts Retail, Inc. v. Diversifoods, Inc., 840 S.W.2d 770, 772 (Tex.Civ.App.--Beaumont 1992, writ denied) (placing burden of proof on franchisee). ⁶

The Jaynes argue at length that the covenant's prescriptions on time and geography are unreasonable. ⁷ As a diversity court we are Erie bound to apply Texas law, and using this benchmark, we conclude that the one year/twenty mile restriction is not unreasonable as a matter of law. See Ruscitto, 777 F.Supp. at 1354 (applying Texas law, one year prohibition on soliciting customers reasonable); Isuani v. Manske-Sheffield Radiology Group, P.A., 805 S.W.2d 602, 606 (Tex.Civ.App.--Beaumont 1991, writ denied) (one-year, fifteen mile limitation reasonable); Property Tax Assocs., Inc. v. Staffeldt, 800 S.W.2d 349, 352 (Tex.Civ.App.--El Paso 1990, writ denied) (two year, county-wide restraint reasonable); Posey v. Monier Resources, Inc., 768 S.W.2d 915, 918-19 (Tex.Civ.App.--San Antonio 1989, writ denied) (salesman restrained from working in former sales area for two years).

The restraints were reasonable considering Meineke's legitimate business interests. The district court found that Meineke expended considerable resources to promote name-recognition for products and services being offered by its franchises. R. 3037. The Appellants do not seriously contest this finding, and we conclude that the restrictions placed on the Jaynes under the licensing agreement "do not impose a greater restraint than necessary to protect the goodwill or other business interest of [Meineke]." Tex.Bus. & Com.Code § 15.50 (Supp.1993).

The Appellants' second point of error is likewise unavailing. They contend that the court erred by reforming the covenant, and then awarding damages. We have searched the record to ascertain where (and how) the court reformed the covenant. We find no reference to this action, and the Appellants' record cite does not support this argument. ⁸ This point of error is without merit. ⁹

III. Conspiracy to Interfere with Contractual and Business Relations

The district court held that the Jaynes conspired with Autocare to interfere with the contractual and business relations between Meineke and the Jaynes. Initially, they contend that the district court erred in refusing to direct a verdict in their favor at the close of Meineke's case-in-chief. See Fed.R.Civ.P. 52(c) ("If during a trial without a jury a party has been fully heard with respect to an issue ... the court may enter judgment as a matter of law against that party[.]").

The inquiry regarding a directed verdict request is the same on appeal as it is at the trial stage: All inferences from the evidence are drawn in favor of the nonmoving party, and a verdict should not be directed unless the facts point overwhelmingly in favor of the movant's position. See Entente Mineral Co. v. Parker, 956 F.2d 524, 526 (5th Cir.1992) (citing Boeing Co. v. Shipman, 411 F.2d 365 (5th Cir.1969) (en banc)).

The Appellants argue that the only evidence of a conspiracy was the Autocare-Jaynes agreement, and that this failed to provide an adequate basis for the conspiracy claim. This argument is without merit. There was sufficient evidence supporting the nonmovant's (Meineke) position; a directed verdict would have been improper because the facts did not overwhelmingly stack-up in the Jaynes' favor.

A claim for civil conspiracy has five elements: (1) two or more persons; (2) have an objective to be accomplished; (3) a meeting of the participants' minds on the objective or course of action; (4) one or more unlawful, overt acts; and, (5) resulting damages. Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex.1983).

All elements are present in the instant case. There were at least two participants (the Jaynes and Autocare). An objective was present (establish competing business in contravention of Meineke-Jaynes licensing agreement). There was a meeting of the minds on this objective, as evidenced by the Autocare-Jaynes agreement. An unlawful interference with the existing licensing agreement resulted in damages to Meineke...