Servpro Indus., Inc. v. Woloski

• Decision Date: 21 September 2020
• Docket Number: NO. 3:17-cv-01433,3:17-cv-01433
• Parties: SERVPRO INDUSTRIES, INC., Plaintiff/Counterclaim Defendant, v. TAMMY WOLOSKI, PAUL WOLOSKI, and DELTA DAWGS CONSTRUCTION CORP. d/b/a SERVPRO OF ROSEMEAD/SOUTH EL MONTE, Defendants/Counterclaim Plaintiffs, v. RICHARD CONNOR, Counterclaim Defendant.
• Court: U.S. District Court — Middle District of Tennessee

SERVPRO INDUSTRIES, INC., Plaintiff/CounterclaimDefendant, v. TAMMY WOLOSKI, PAUL WOLOSKI, and DELTA DAWGS CONSTRUCTION CORP. d/b/a

SERVPRO OF ROSEMEAD/SOUTH EL MONTE, Defendants/CounterclaimPlaintiffs, v. RICHARD CONNOR, CounterclaimDefendant.

NO. 3:17-cv-01433

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION

September 21, 2020

JUDGE CAMPBELL

MAGISTRATE JUDGE HOLMES

MEMORANDUM

I.INTRODUCTION

Pending before the Court are Plaintiff/Counterclaim Defendants' Motion for Summary Judgment(Doc. No. 123), and Defendants' Motion for Summary Judgment(Doc. No. 127).For the reasons set forth below, Plaintiff/Counterclaim Defendants' Motion for Summary Judgment(Doc. No. 123) is GRANTED in part, and DENIED in part; and Defendants' Motion for Summary Judgment(Doc. No. 127) is GRANTED in part, and DENIED in part.

Servpro is granted summary judgment on the following claims: (1)Defendants' breach of contract counterclaim based on Servpro's termination of the Franchise Agreement; (2) Servpro's breach of contract claim based on Defendants' alleged breaches of the Franchise Agreement by (a) failure to de-identify vehicles and equipment; (b) failure to transfer telephone number (626)350-3166; and (c) failure to return materials; (3) Servpro's breach of contract claim based on the Guaranty Agreement; (4) Servpro's breach of contract claim based on the Promissory Note; and (5) Servpro's trademark infringement claim under the Lanham Act.The nature of any requested monetary and/or injunctive relief will be considered in a later proceeding.Servpro and Counterclaim Defendant Connor are granted summary judgment on Defendants' counterclaim based on 42 U.S.C. § 1981.

The following claims by Servpro remain: (1) breach of Section 6.6 of the Franchise Agreement for failure to comply with the non-competition provisions; (2) breach of Section 11.1 of the Franchise Agreement for failure to transfer telephone or facsimile number (626)350-3066, and for failure to discontinue social media usage and electronic advertising; (3) breach of the Franchise Agreement for failure to pay royalties and other fees; and (4) common law trademark infringement.

II.FACTUAL AND PROCEDURAL BACKGROUND

Servpro Industries, Inc.("Servpro"), a franchisor of cleaning and damage restoration services, brought this action against Tammy Woloski, Paul Woloski, and Delta Dawgs Construction Company d/b/a Servpro of Rosemead/South El Monte, a former franchisee (hereinafter referred to as "Defendants," unless specifically noted).(Doc. No. 1).Servpro asserted claims for federal statutory trademark infringement; common law trademark infringement; and breach of contract regarding the Franchise License Agreement ("Franchise Agreement"), the Guaranty Agreement, and the Secured Promissory Note.(Id.)In turn, Defendants brought several counterclaims against Servpro and one counterclaim against Servpro and Counterclaim DefendantRichard Connor.Through a prior Memorandum and Order (Doc. Nos. 119, 120), the Courtdismissed all Defendants' counterclaims except two: a counterclaim against Servpro for breach of the Franchise Agreement in terminating Defendants' franchise; and a counterclaim brought by Ms. Woloski against Servpro and Connor for violation of 42 U.S.C. § 1981.

More specifically, the remaining claims and counterclaims are as follows: (1)Defendants' counterclaim for breach of contract based on Servpro's termination of the Franchise Agreement; (2) Servpro's breach of contract claim based on Defendants' alleged breaches of the Franchise Agreement by (a) failure to de-identify vehicles and equipment; (b) failure to transfer telephone numbers; (c) failure to return materials; (d) failure to comply with non-competition provisions; and (e) failure to pay royalties and other fees; (3) Servpro's breach of contract claim based on the Guaranty Agreement; (4) Servpro's breach of contract claim based on the Secured Promissory Note; (5) Servpro's trademark infringement claim under the Lanham Act;(6) Servpro's common law trademark infringement claim; and (7) Ms. Woloski's counterclaim against Servpro and Connor for violation of 42 U.S.C. § 1981.(Doc. Nos. 1, 83).

Through its Motion, Servpro seeks summary judgment as to Defendants' liability on all claims, and requests a subsequent hearing on remedies.Servpro also requests summary judgment on Defendants' two remaining counterclaims.(Doc. No. 123).Servpro did not discuss, in their initial brief, however, their claims for breach of the Franchise Agreement for failure to comply with the non-competition provisions, and for failure to pay royalties and other fees.Servpro also did not discuss the common law trademark infringement claim.Therefore, summary judgment is denied as to these claims.Through their Motion, Defendants seek summary judgment on Servpro's claims, as well as their own counterclaims.(Doc. No. 128).

The parties have agreed to certain undisputed material facts for purposes of the cross motions for summary judgment, some of which are discussed here and some in connection withparticular claims.Servpro is a national franchisor headquartered in Gallatin, Tennessee.(Defendants' Response to Servpro Parties' Statement of Undisputed Material Facts (hereinafter "Defendants' Response to Facts")¶ 1 (Doc. No. 135)).Servpro, through its franchisees, provides, among other services, water and fire restoration services to homeowners and business owners.(Id.¶ 8).A significant portion of the work provided by the Servpro franchisees is work that comes from clients that have a regional or national footprint, such as insurers, retailers, and property management companies.(Id.)These are clients that have properties or insureds in multiple states or even nationwide and that have recurring needs for the restoration and mitigation services provided by Servpro franchisees.(Id.)

Tammy Woloski and Paul Woloski, on behalf of Delta Dawgs Construction Corporation, executed a Servpro Franchise Agreement with Servpro on August 28, 2015.(Id.¶ 1).Tammy Woloski and Paul Woloski were co-owners of Delta Dawgs, with 85% and 15% ownership interests, respectively.(Id.)Randall Isaacson, Servpro's then-president, dated his signature accepting the Franchise Agreement October 12, 2015, and the Agreement became effective on that date.(Id.¶ 2).The Agreement was amended by a separate letter agreement pertaining to the conversion of Delta Dawgs from an independent company providing restoration and construction services into a Servpro franchise.(Id.)

The Woloskis executed the Guaranty Agreement and dated their signatures August 28, 2015.(Id.¶ 3).The Guaranty Agreement states that it is executed individually and on behalf of any business entity in which the Woloskis hold an ownership interest.(Id.)The Guaranty was countersigned by Mr. Isaacson, on behalf of Servpro, and became effective on October 12, 2015.(Id.)The Woloskis, individually and on behalf of Delta Dawgs, signed a Personal Responsibility Statement with Servpro, and dated their signatures August 28, 2015.(Id.¶ 4).The PersonalResponsibility Statement was countersigned by Mr. Isaacson, on behalf of Servpro, and became effective on October 15, 2015.(Id.)The Woloskis, individually and on behalf of Delta Dawgs, signed the Security Agreement and dated their signatures August 28, 2015.(Id.¶ 5).

Delta Dawgs is a California corporation with its principal place of business at 9906 Lower Azusa Road, El Monte, California 91731.(Id.¶ 6).Before and after entering into the Franchise Agreement, Delta Dawgs conducted business under the d/b/a "Express Restoration."(Id.)Delta Dawgs also conducted business under the d/b/a "SERVPRO of Rosemead/South El Monte."(Id.)

Servpro contends that, while Delta Dawgs was operating as a Servpro franchisee, multiple Delta Dawgs' customers and insurance companies that insured Delta Dawgs' customers made complaints to Servpro about Delta Dawgs' business practices.(Id.¶¶ 9-12).Servpro claims that it compiled some of these complaints into what the parties have referred to as the "Complaint File."(Id.)As more fully discussed below, Defendants argue the Complaint File is inadmissible hearsay evidence, and deny the complaints are meritorious, but do not appear to dispute Servpro received complaints.(Id.)

Kim Cunha, Key Account Sales Manager at Servpro, is responsible for the oversight of major insurance clients that use the services of Servpro's franchisees.(Id.¶ 13).Mr. Cunha's duties include working to ensure that Servpro's franchisees are performing according to the expectations of those paying for their services.(Id.)A "key account" in Servpro parlance includes those companies that have recurring needs for remediation services that have a footprint at a regional or national level.(Id.)In his role, Mr. Cunha only gets involved in disputes or complaints made by national or key accounts when the complaint is major and has been escalated up to him.(Id.¶ 14).Complaints directly from the field rarely make it to Mr. Cunha.(Id.¶ 15).When large insurance clients contact Servpro with complaints, they are treated as a national account issue.(Id.)Thoseclients provide a consistent source of business for Servpro franchises across the country, and the loss of any of those accounts or clients as a customer of Servpro franchises, or losing their confidence, which reduces the workflow to the Servpro franchise system, would have a system-wide impact and is something Servpro seeks to avoid.(Id.)

Complaints by "national" or "key" accounts regarding the defendants were escalated up to Mr. Cunha.(Id.¶ 16).Mr. Cunha first became involved in those complaints in late 2016 when he received a call from State Farm about its dissatisfaction with the defendants.(Id.¶ 17).¹Upon learning of the complaint, Mr. Cunha contacted the southern California trainer-franchisee to investigate and determine the validity of the...