Riedlinger v. Steam Bros., Inc.

• Decision Date: 28 January 2013
• Docket Number: No. 20120111.,20120111.
• Citation: 2013 ND 14,826 N.W.2d 340
• Court: North Dakota Supreme Court
• Parties: John RIEDLINGER, Steam Brothers of Austin/Albert Lea, LLC, Dale Stroh, Kevin Vetter, K & M, Inc., Leo Horner, and Duane Leier, Plaintiffs and Appellees v. STEAM BROTHERS, INC., d/b/a Steam Brothers Carpet Cleaning, Defendant and Appellant.

826 N.W.2d 340

2013 ND 14

John RIEDLINGER, Steam Brothers of Austin/Albert Lea, LLC, Dale Stroh, Kevin Vetter, K & M, Inc., Leo Horner, and Duane Leier, Plaintiffs and Appellees

v.STEAM BROTHERS, INC., d/b/a Steam Brothers Carpet Cleaning, Defendant and Appellant.

No. 20120111.

Supreme Court of North Dakota.

Jan. 28, 2013.

Rob A. Stefonowicz(argued) and John A. Cotter(on brief), Minneapolis, MN, for plaintiffs and appellees.

Benjamin J. Hasbrouck(argued), Fargo, N.D., for defendant and appellant.

Emily Duke(on brief), Minneapolis, MN, for defendant and appellant.

VANDE WALLE, Chief Justice.

[¶ 1]Steam Brothers, Inc., doing business as Steam Brothers Carpet Cleaning, appealed from a summary judgment in a declaratory judgment action by John Riedlinger, Dale Stroh, Kevin Vetter, Leo Horner, and Duane Leier, five individuals with separate license agreements creating business relationships with Steam Brothers(collectively referred to as “licensees”), in which the district court decided the clear and unambiguous language of the license agreements did not obligate the licensees to provide Steam Brothers and its current owner, Jerry Thomas, with certain business information and precluded Steam Brothers from terminating the license agreements absent mutual consent of the parties.We reverse and remand, concluding the license agreements are ambiguous about the parties' rights and obligations.

I

[¶ 2] In 1983, Adam Leier formed Steam Brothers, a Bismarck-based business for residential and commercial carpet cleaning and related services, including furniture and drapery cleaning and water and smoke damage remediation.Steam Brothers registered “Steam Brothers” as a service mark ¹ with the United States Patent and Trademark Office for use in connection with its carpet cleaning and related services, and Steam Brothers franchised independently owned businesses to use its cleaning system and service mark in designated geographic territories.The five licensees are all relatives of Adam Leier and have each operated separate businesses using the Steam Brothers' cleaning system and service mark in designated geographic territories in North Dakota, South Dakota, and Minnesota since the 1980s.The licensees initially executed separate agreements with Steam Brothers and Adam Leier, which required each licensee to pay an on-going franchise fee to Steam Brothers.According to Adam Leier, he provided each licensee extensive training under the Steam Brothers' system, including on-the-job training and seminars in fiber identity, chemical use, cleaning methods, odor control, promotion, and advertising.The licensees initially purchased cleaning chemicals and supplies directly from Steam Brothers, which Adam Leier said allowed him to monitor the licensees' business operations and cleaning methods under the Steam Brothers' system and service mark.

[¶ 3] According to Adam Leier, the licensees became dissatisfied with their business relationship with Steam Brothers in 1991, informing him they no longer wanted to pay Steam Brothers the on-going franchise fee, and he agreed to eliminate the fee and enter new license agreements with each licensee.In May 1991, the licensees and Steam Brothers, through Adam Leier, executed separate license agreements, which stated the new agreements terminated and replaced the prior agreements and fully governed the parties' relationship.In 1996, Steam Brothers amended its license agreement with Kevin Vetter after legal proceedings about the scope of his designated territory.As relevant to the issues in this case, Steam Brothers' 1996 license agreement with Vetter is substantially the same as the 1991 agreements with the other four licensees.

[¶ 4] The operative license agreements said the respective licensees had been franchisees within the Steam Brothers' cleaning system under a prior license agreement, and Steam Brothers and the licensees were “desirous of converting the said franchise relationship between the parties to a very different type of business relationship.”Under the new agreements, the licensees were no longer required to pay Steam Brothers an on-going franchise fee; instead, each licensee paid Steam Brothers a lump sum of $12,000 “as a fee to terminate the prior License Agreement.”The new agreements did not grant the licensees an ownership or proprietary right in Steam Brothers' name, service mark, or other material.Rather, the new agreements said the licensee had the “right to use any designs, devices, marks, service marks, trademarks, trade names, systems slogans or symbols connected with and including the name of Steam Brothers or A–1 Steam Brothers” in the licensee's designated geographic territory.The agreements said that in order to protect the goodwill and reputation of “Steam Brothers' names, marks, other related material, and carpet cleaning and related system,” the licensee “shall conduct the subject business operation in a manner that reflects favorably on such names, marks, other material, and carpet cleaning and related system” and the licensee shall not “in any way be involved in any activity of any kind which negatively [a]ffects [Steam Brothers, its] franchises or affiliates, or the reputations or business activities related thereto.”

[¶ 5] The new agreements said Adam Leier may be available to consult the licensees for a consulting fee, but the licensees “shall no longer be entitled to any advertising materials, toll free number, visits, training, or other obligations of any kind from” Steam Brothers.Under the new agreements, for five years from the date of any transfer of the licensees' business to an unrelated entity or from termination of the agreement for any reason, the licensees agreed not to engage in the same or a substantially similar business.During the term of the agreements, Steam Brothers and Adam Leier, or their successors, also agreed not to engage in the same or a substantially similar business in the licensees' designated geographic territories.The agreements also precluded Steam Brothers from divulging or communicating any information or knowledge about the licensees' “customer names and addresses, business methods, operating procedures or programs or methods of promotion and sales,” which were communicated to Steam Brothers under the new agreements or under the prior agreements.

[¶ 6] Under the new agreements, the licensees acknowledged Steam Brothers would suffer irreparable injury if the licensees failed to maintain the standards or requirements regarding Steam Brothers' name and service mark, and the licensees agreed if they anticipatorily or actually breached the agreement, Steam Brothers was entitled “in addition to any other remedies and damages available: (a) to an injunction to restrain any such violation and/or to compel specific performance ... and (b) to attorneys' fees and legal costs for the bringing and maintaining of such action.”The new agreements said nothing in those agreements “shall be construed to prohibit [Steam Brothers] from pursuing any other remedy available to [Steam Brothers] for such breach, including the recovery of damages.”The new agreements explained Steam Brothers and the licensees were not joint venturers, partners or agents of each other and “neither shall have the power to obligate the other, except as set forth” in the agreements.The new agreements specified they“contain[ed] the entire understanding of the parties” and no agreements not embodied in them would be given any force or effect.The agreements also identified their duration as “that period of time during which the Licensee, the Licensee's corporate entity, or a member of the Licensee's immediate family shall be involved in the subject business governed by this Agreement.”

[¶ 7] In October 2008, Adam Leier sold Steam Brothers to Jerry Thomas, who also owns a separate business that provides cleaning services similar to the services provided by the licensees.According to some licensees, Steam Brothers wrote to them in August 2009, asserting they could only use Steam Brothers' name and service mark for carpet cleaning.The licensees claimed Steam Brothers thereafter asked them to provide a list of services they performed so Steam Brothers could determine whether the services constituted carpet cleaning and related services.According to Thomas, the licensees had stopped buying chemicals and other supplies from Steam Brothers, and he had no information about the type and method of work the licensees were doing under Steam Brothers' name and service mark.Thomas claimed he also had received some complaints and negative comments about the quality of work done by some of the licensees under Steam Brothers' name.Steam Brothers thereafter sought certain business information from the licensees, including chemicals used, customer lists, brochures, marketing materials, business methods, and operating procedures.Steam Brothers claimed the information was necessary to monitor the licensees' use of Steam Brothers' service mark.The licensees refused to provide the information to Steam Brothers, and Steam Brothers thereafter sent Leo Horner a letter, stating his license agreement was terminated effective October 5, 2010, because he refused to meet with Thomas or to provide Steam Brothers with certain business information.

[¶ 8] In a complaint dated October 11, 2010, the five licensees sued Steam Brothers for a declaration of their rights and obligations under the license agreements.The licensees claimed they were not obligated to provide their business information to Steam Brothers under the terms of the license agreements, the agreements did not include any implied terms, and Steam Brothers was not entitled to terminate the agreements for failure to provide the business information.The licensees sought to enjoin Steam Brothers from terminating the agreements for failing to provide the requested information.On October 29, 2010, Steam Br...