UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 09-1774

WW, LLC, A Maryland Limited Liability Corporation trading 

as The Coffee Beanery Cafe; DEBORAH WILLIAMS; RICHARD 

WELSHANS,

Plaintiffs - Appellants,

v.

THE COFFEE BEANERY LTD; JOANNE SHAW; JULIUS L. SHAW; KEVIN 

SHAW; KURT SHAW; KEN COXEN; WALTER PILON; OWEN STERN,

Defendants - Appellees.

Appeal from the United States District Court for the District of 

Maryland, at Baltimore. Andre M. Davis, District Judge. (1:05-

cv-03360-AMD)

Argued: December 9, 2010 Decided: March 23, 2011

Before NIEMEYER, DUNCAN, and KEENAN, Circuit Judges.

Reversed and remanded by unpublished opinion. Judge Niemeyer 

wrote the opinion, in which Judge Duncan and Judge Keenan 

joined.

ARGUED: Harry Martin Rifkin, Lutherville, Maryland, for 

Appellants. Karl V. Fink, PEAR SPERLING EGGAN & DANIELS, PC, 

Ann Arbor, Michigan, for Appellees. ON BRIEF: Joshua R. Fink, 

PEAR SPERLING EGGAN & DANIELS, PC, Ann Arbor, Michigan, for 

Appellees.
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Unpublished opinions are not binding precedent in this circuit.
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NIEMEYER, Circuit Judge:

WW, LLC, a Maryland limited liability company, Richard 

Welshans, and Deborah Williams commenced this action against The 

Coffee Beanery, Ltd., a Michigan corporation, and individual 

officers of The Coffee Beanery, alleging that the defendants 

made material misrepresentations that induced the plaintiffs to 

enter into a franchise agreement with The Coffee Beanery. The 

district court stayed this action to allow the parties to 

proceed to arbitration in the Eastern District of Michigan, as 

required by the franchise agreement. After arbitration, the 

district court in the Eastern District of Michigan entered 

judgment on the arbitration award in favor of The Coffee Beanery 

and its officers. The district court in this case then 

dismissed this action “in accordance with the [Eastern District 

of Michigan] judgment.”

Subsequently, the Sixth Circuit reversed the judgment of 

the Eastern District of Michigan and vacated the franchise 

agreement, including its arbitration clause, prompting the 

plaintiffs here to file a motion to reopen this action under 

Federal Rule of Civil Procedure 60(b)(5) (authorizing a court to 

reopen a judgment that is based on an earlier judgment that has 

been reversed or vacated). The district court declined to 

reopen this action, and the plaintiffs filed this appeal.
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For the reasons that follow, we reverse and remand for 

further proceedings in the district court.

I

The Coffee Beanery franchises specialty retail coffee 

stores, cafes, kiosks, coffee carts, and coffee bars, and it is 

registered in Maryland, allowing it to offer and sell franchises 

in Maryland. In May 2003, Richard Welshans and Deborah 

Williams, a married couple, investigated the possibility of 

purchasing a franchise to operate a Coffee Beanery store in 

Annapolis, Maryland, and, pursuant to their inquiry, The Coffee 

Beanery mailed them a copy of the Uniform Franchise Offering 

Circular for the State of Maryland, together with a form 

franchise agreement, which Welshans and Williams received in 

early June 2003. About a week later, Kevin Shaw, the vicepresident of The Coffee Beanery, visited Welshans and Williams 

in Annapolis to discuss more particularly the possibility of 

entering into a franchise agreement. Several days later, 

Welshans and Williams attended a Coffee Beanery “discovery day” 

in Flushing, Michigan, during which they were given a tour of a 

Coffee Beanery Cafe store and engaged in further discussions 

about entering into a franchise. At the conclusion of 

“discovery day,” Welshans signed a franchise agreement with The 

Coffee Beanery for the operation of a franchised Coffee Beanery 
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Cafe store in Annapolis. Subsequently, with The Coffee 

Beanery’s consent, Welshans assigned the franchise agreement to 

WW, LLC, a Maryland limited liability company owned by Welshans 

and Williams. WW, LLC, opened its Coffee Beanery Cafe store in 

2004.

The store was unsuccessful and generated a cash loss each

year of its operation. WW, LLC, attributed the losses to store 

layout, the cash register system, the advertising program, and 

the nature of required equipment. More importantly, they claim 

that material facts about Coffee Beanery Cafe store franchises

were misrepresented or omitted during the negotiation process.

WW, LLC, Welshans, and Williams commenced this action in 

December 2005, alleging violations of the Maryland Franchise 

Law, detrimental reliance, intentional misrepresentation, and 

negligent misrepresentation. They complained, among other 

things, that the Uniform Franchise Offering Circular provided by 

The Coffee Beanery was incomplete and inaccurate, in violation 

of Maryland law. They alleged that the franchise agreement 

contained untrue statements of fact, and that Kevin Shaw (a 

Coffee Beanery officer) and The Coffee Beanery made false 

statements regarding the operation and earnings of franchised 

stores and other matters. WW, LLC, also filed a complaint with 

the Maryland Securities Commissioner.
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The Coffee Beanery and the other individual defendants 

filed a motion to dismiss this action or to stay it pending 

arbitration. Around the same time, they filed a petition to 

compel arbitration in the Eastern District of Michigan, relying 

on the franchise agreement’s arbitration clause and its forum 

selection clause, which provided that any legal action be 

brought in the Eastern District of Michigan.

In response to The Coffee Beanery’s motion to stay pending 

arbitration and WW, LLC’s motion to stay pending investigation

by the Maryland Securities Commissioner, the district court 

entered an order, dated March 23, 2006, staying this action 

“pending further order of this court.”

In the agency action, the Maryland Securities Commissioner

entered an order directing The Coffee Beanery and its officers 

to show cause “why a final order should not be entered ordering 

that Respondents cease and desist from violating the disclosure 

and antifraud provisions of the Maryland Franchise Law.” 

Following an agency investigation, the Commissioner and The 

Coffee Beanery entered into a consent order, in which The Coffee 

Beanery neither admitted nor denied the Commissioner’s statement 

of facts and conclusions of law but agreed to the agency’s 

jurisdiction and its order. The Commissioner found that The 

Coffee Beanery violated the Maryland Franchise Law by making 

material misrepresentations of fact or omissions of material 
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fact about The Coffee Beanery franchise and by offering and 

selling franchises in Maryland without giving prospective 

franchisees a copy of the required offering prospectus, in 

accordance with Maryland law. The consent order directed that 

The Coffee Beanery and its officers “permanently cease and 

desist from offering and selling franchises in Maryland or to 

any prospective Maryland franchisees in violation of the 

Maryland Franchise Law.” The consent order also required The 

Coffee Beanery “to make a rescission offer to the Welshans, by 

and through WW, LLC” allowing them to rescind the franchise 

agreement on the condition that they release all claims against 

The Coffee Beanery and its agents. Finally, the consent order 

provided that it was “a disclosable order as described 

under . . . the Maryland Franchise Law.” WW, LLC, Welshans, and 

Williams did not accept the rescission offer provided for in the 

consent order, electing to pursue their claims against The 

Coffee Beanery, as asserted in this action.

After the Coffee Beanery filed the petition to compel 

arbitration in the Eastern District of Michigan, that court 

granted the petition, and the arbitrator subsequently found in 

favor of The Coffee Beanery. The arbitrator found “no intent on 

the part of Respondents to mislead Claimants or misrepresent the 

franchise system.” She determined that The Coffee Beanery had 

provided WW, LLC, with “adequate, proper and timely disclosure
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. . . under Michigan and Maryland franchise laws, excellent 

training, competent assistance with store location, competent 

lay-out of the store and business start-up resources, 

comprehensive operations, training and equipment manuals, 

excellent coffee and related products, available troubleshooting resources, and available financial assistance.” The 

arbitrator determined that WW, LLC’s lack of success was not 

caused by The Coffee Beanery. She determined that The Coffee 

Beanery properly provided Welshans with a copy of the Uniform 

Franchise Offering Circular, and that WW, LLC, had not proved 

the elements necessary to recover for claims based on 

nondisclosure of gift cards, the DMX music system, and Pepsi 

contract requirements. She found that Welshans did not “rely on 

any sales or expense information provided by Respondents.” And 

with respect to WW, LLC’s claim that Kevin Shaw failed to 

disclose a felony grand larceny conviction, the arbitrator 

concluded that it was not the kind of conviction subject to 

disclosure because Michigan and Maryland disclosure laws are 

limited to “felonies that involve fraud, embezzlement, 

fraudulent conversion, or misappropriation of property.” In 

addition, the arbitrator found “the testimony of witnesses 

Welshans, Williams, and their expert witness Lombardo with 

regard to the claim for damages, not credible.” Ultimately, the 

arbitrator concluded that The Coffee Beanery was not liable on 
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any claim and that WW, LLC, Welshans, and Williams should pay 

costs and back royalties to The Coffee Beanery.

The district court for the Eastern District of Michigan 

confirmed the arbitration award and entered a judgment ordering 

WW, LLC, Welshans, and Williams to pay The Coffee Beanery 

$152,766.73.

Based on the judgment entered in the Eastern District of 

Michigan, the district court in this case entered an order on 

March 3, 2008, dismissing this action “[i]n accordance with the 

judgment . . . of the United States District Court for the 

Eastern District of Michigan.”

The judgment entered in the Eastern District of Michigan 

was appealed to the Sixth Circuit, and on November 14, 2008, the 

Sixth Circuit reversed the judgment, vacated the arbitration 

award, and held that the arbitration agreement was unenforceable 

because of fraud in the inducement. Without reaching WW, LLC’s 

other arguments, the Sixth Circuit held that the arbitrator’s 

decision that Kevin Shaw’s grand larceny conviction need not 

have been disclosed showed a “manifest disregard for the law” 

because a grand larceny conviction involves misappropriation of 

property. The Sixth Circuit held that WW, LLC, was not bound by 

the arbitration clause because The Coffee Beanery’s failure to 

disclose Kevin Shaw’s conviction deprived WW, LLC, “of a 

mandatory, statutorily required notice” prior to signing the 
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agreement and therefore, WW, LLC, was “fraudulently induced into 

signing” the franchise agreement. Finally, the court stated 

that WW, LLC, “need not resort to arbitration to vindicate its 

statutory rights but may instead seek appropriate relief in a 

court of law.”

In light of the Sixth Circuit’s decision reversing the 

Eastern District of Michigan judgment, on which the district 

court in this case relied to close this case, WW, LLC, requested 

that the district court reopen the judgment based on Federal 

Rule of Civil Procedure 60(b)(5). By order dated June 1, 2009, 

the district court denied the motion, stating:

[T]he mere fact that the Sixth Circuit vacated the 

district court judgment enforcing the arbitration 

award resulting from the arbitral proceedings over 

which that court had jurisdiction is no reason for 

this court to vacate its judgment here. In dismissing 

the case, this court presumed that plaintiffs would 

pursue whatever alternative remedies they wished to 

pursue in the court having jurisdiction over the 

parties and their dispute, namely, the Eastern 

District of Michigan.

While the district court relied on the general language of Rule 

60(b), which provides that a court may set aside a judgment on 

the basis of “mistake, inadvertence, surprise, or excusable 

neglect . . . or . . . any other reason justifying relief from 

the operation of the judgment,” it did not address Rule 

60(b)(5), which allows relief from a final judgment if “it is 

based on an earlier judgment that has been reversed or vacated.”
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From the district court’s order denying their motion to 

reopen, WW, LLC, Welshans, and Williams filed this appeal.

II

We review the district court’s denial of a Rule 60(b) 

motion for abuse of discretion. See MLC Automotive, LLC v. Town 

of Southern Pines, 532 F.3d 269, 277 (4th Cir. 2008). “A 

district court abuses its discretion when it . . . fails to 

consider judicially recognized factors constraining its exercise 

of discretion . . . or commits an error of law.” Bay Country 

Consumer Finance, Inc. v. Fidelity Sec. Life Ins. Co.

In this case, the district court dismissed the plaintiffs’

action, based on the Eastern District of Michigan judgment, 

which upheld and enforced the arbitration award in favor of The 

Coffee Beanery. When, however, the Sixth Circuit reversed the 

judgment of the Eastern District of Michigan, the conditions for

application of Rule 60(b)(5) were met. That Rule provides, “On 

motion and just terms, the court may relieve a party or its 

legal representative from a final judgment . . . [if] the 

judgment . . . is based on an earlier judgment that has been 

reversed or vacated.” Because the district court failed to 

apply Rule 60(b)(5), we conclude that it abused its discretion 

in failing to consider judicially recognized factors 

, 311 Fed. 

App’x 580, 581 (4th Cir. 2008) (per curiam).
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constraining its exercise of discretion and in committing an 

error of law.

Moreover, the existence of a forum selection clause as 

contained in the franchise agreement -- even if we were to 

assume that it survived the vacated franchise agreement -- would

not dictate a different result. That clause would not strip the 

district court of jurisdiction, and it would not even mean that 

venue was automatically improper. See 28 U.S.C. § 1404(a); P.M. 

Enterprises v. Color Works, Inc., 946 F. Supp. 435, 440 (S.D.W. 

Va. 1996); see also Stewart Organization, Inc. v. Ricoh Corp.

The Coffee Beanery argues that WW, LLC’s appeal should be 

barred because WW, LLC, did not appeal the district court’s 

original dismissal order of March 3, 2008, which was based on 

the Eastern District of Michigan judgment. At the time of the 

original dismissal order, however, the Eastern District of 

Michigan judgment enforcing the arbitration award was still 

operative, and therefore, there existed no viable basis for 

appealing the district court’s dismissal of this case.

, 

487 U.S. 22, 28 (1988).

The Coffee Beanery also argues that WW, LLC’s motion to set 

aside the judgment and reopen this case was untimely. We reject 

this argument, too, as WW, LLC, filed its motion soon after the 

Sixth Circuit’s mandate became final, which was the basis for 

its motion to reopen this case.
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Accordingly, we reverse the district court’s order denying 

the plaintiffs’ Rule 60(b)(5) motion and remand for further 

proceedings.

REVERSED AND REMANDED