Monday, March 5, 2018

Jos. A. Bank Clothiers, Inc. v. J.A.B.-Columbia, Inc. (Maryland U.S.D.C.)

Filed: December 15, 2017

Opinion by: Judge Ellen Lipton Hollander

Holding: Where there is ambiguity within a franchise agreement that cannot be resolved by reference to extrinsic evidence, summary judgment may be denied.

Facts: Jos. A. Bank (JAB), a men's retail clothier, first began franchising in the early 1990s and expanded in the late 1990s by opening fourteen franchise stores. In 2005, JAB entered franchise agreements with the franchisees, who agreed to open a franchise store in Columbia, South Carolina.  In October 2008 and April 2010, two more stores were opened in that location. All three stores' initial franchise agreements expired on August 31, 2015. In 2014, JAB was acquired by The Men's Wearhouse, Inc. and maintains it is no longer in the franchising business. 

By the early 200s, the periods of the initial agreements, which provided for ten-year terms, began to expire. JAB renewed those franchises for ten-year periods without requiring the franchisees to negotiate or execute a new franchise agreement, instead merely requiring a notice of renewal and receipt of a franchising fee (this practice being known as "rolling renewals"). There were at least two instances where JAB and the Franchisees discussed whether the renewed agreement would itself allow for further renewals and negotiated different terms.

In February 2015, the Franchisees notified JAB in writing of their desire to renew the franchises for the three stores. In March 2015, JAB informed the Franchisees that they could each purchase a ten-year successor franchise, in an agreement that did not provide for any renewals. The Franchisees claimed they were entitled to franchise agreements that gave them the right to another ten-year renewal after 2015. JAB then rejected the Franchisees' position but extended the deadline to execute the proposed agreements, which the Franchisees declined.

JAB then filed a complaint seeking a declaratory judgment stipulating the franchise agreements at issue provide only a single franchise renewal and not unlimited or perpetual renewals; that the Franchisees' failure to execute the form of successor franchise agreement offered to them by JAB constitutes an election not to buy a successor franchise; and such allows JAB to terminate the franchises at any time. The Franchisees filed counterclaims seeking a declaratory judgment that the Franchisees are entitled to a renewed franchise agreement on the same terms as the original franchise agreement, including the renewal clause; the second counterclaim is for a breach of contract when JAB tendered the successor franchise agreement to the Franchisees.  The Franchisees sought a minimum of $75,000 in damages. JAB filed a motion for summary judgment as to all claims and counterclaims. The Franchisees filed a cross-motion for summary judgment. JAB filed a combined opposition to the Franchisees' motion and reply in support of its own summary judgment motion. The Franchisees replied and requested a hearing.

Analysis: The discussion turned on four issues: (1) whether the Franchisees were entitled to perpetual rolling renewals; (2) whether the agreement unambiguously indicated the proper form; (3) whether the agreement unambiguously allowed JAB to alter the form; and (4) whether extrinsic evidence suggested a genuine dispute as to the parties' intentions.

1) The court determined that an interpretation that requires a business to start multiple new ventures in order to end an old one seemed inherently suspect, holding that it was unambiguously clear that the Franchisees were not entitled to unlimited rolling renewals. Nothing in the plain language of the agreement suggested that the Franchisees were entitled to rolling renewals, nor does the agreement allow the Franchisees to point to any prior practice of granting rolling renewals as an indication that JAB was obligated to offer rolling renewals in this present case.

2) In Calomiris v. Woods, the court held that "a written contract is ambiguous if, when read by a reasonably prudent person, is susceptible [to] more than one meaning." Because the phrases indicating which form of the franchise agreement should be used are susceptible to more than one meaning, the language is unambiguous.

3) The court could not conclude as a matter of law that JAB had the right to materially alter the terms of the new franchise agreement, and the court could not find that the agreement unambiguously supported JAB's actions in offering the Franchisees a successor franchise agreement without a renewal option.

4) A court may look to the extrinsic evidence as to the parties' intent at the time of the agreement's execution, and it is a narrow inquiry. The court only considered evidence of what the parties meant by "then current form," and by "the form of the franchise agreement . . . which Franchisor then customarily uses, or most recently used, in granting franchise rights." Looking at the documentation submitted by the parties, ambiguity could not be definitively resolved by reference to extrinsic evidence.

The court could not conclude that a reasonable jury would have to agree with one or the other, and therefore denied both motions for summary judgment.

The full opinion is available in PDF.

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