Opinion ID: 172000
Heading Depth: 2
Heading Rank: 1

Heading: Mr. Haynes's Breach-of-Contract Claim

Text: Mr. Haynes contends that his franchise agreement with Trane, which permits either party to terminate at will on 30-days' notice, was modified by Trane's statements and conduct so that Trane was required to have good cause before it could terminate the agreement. At the second trial the district court granted JMOL on this claim at the close of the evidence. Mr. Haynes's sole contention on appeal with respect to his modification-of-contract claim is that the district court's grant of JMOL on this claim violated the law of the case by defying this court's holding on the first appeal that he had presented sufficient evidence to support a verdict in his favor on the claim. To assess that contention we first address the merits of the district court's decision. It will then be clear why Mr. Haynes's law-of-the-case argument fails. JMOL can be properly granted when a party has been fully heard on an issue during a jury trial and has failed to present a legally sufficient evidentiary basis [for the jury] to find in its favor. Fed. R.Civ.P. 50(a)(1). In considering whether JMOL is warranted, a district court must draw all reasonable inferences in support of the nonmoving party. See McInnis v. Fairfield Communities, Inc., 458 F.3d 1129, 1136 (10th Cir.2006). We review a district court's grant of JMOL de novo. See id. The parties assume that Wisconsin law governs Mr. Haynes's franchise agreement and, in particular, whether that agreement was modified to require good cause for termination. We thus proceed from the same assumption. See Grynberg v. Total, S.A., 538 F.3d 1336, 1346 (10th Cir.2008) (adopting parties' assumption of applicable law). Under Wisconsin law a contract can be modified by the conduct of the contracting parties but only when the acts are unequivocal in their character. Nelsen v. Farmers Mut. Auto. Ins. Co., 4 Wis.2d 36, 90 N.W.2d 123, 134 (Wis.1958) (internal quotation marks omitted); accord Carnes Co. v. Stone Creek Mech., Inc., 412 F.3d 845, 853 (7th Cir.2005) (applying Wisconsin law). Acts which are ambiguous in their character, and which are consistent either with the continued existence of the original contract, or with modification thereof, are not sufficient to establish a modification. Nelsen, 90 N.W.2d at 134 (internal quotation marks omitted). Thus, to prevail on his modification claim, Mr. Haynes had to show that Trane acted in a way that was unequivocally inconsistent with enforcing the franchise agreement as it was written, that is, as an agreement that could be terminated without cause. Mr. Haynes did not meet this burden. At best, the evidence presented by Mr. Haynes showed that Trane had consistently provided cause when terminating franchises in the past. In particular, Mr. Haynes testified that he had never heard of a franchise being terminated without cause and that, when discussing terminations, Trane had always emphasized a cause. Aplts. App. Vol. V at 2047. Likewise, Trane official Don O'Keefe testified that every franchise termination of which he was aware had been with cause. Id. Vol. VI at 2615. But a pattern of terminating with cause is not unequivocally inconsistent with retention of the power to terminate without cause. Trane could properly reserve the extraordinary power to terminate without cause even though it had never had occasion to exercise that power. The Wisconsin Supreme Court has recognized that prior failure to exercise a contractual right is not unequivocally inconsistent with enforcing that right. See Presser v. Siesel Constr. Co., 19 Wis.2d 54, 119 N.W.2d 405, 408-09 (1963) (failure to request construction of contractually required barricade not an unequivocal act that would support a contractual modification). Mr. Haynes attempts to overcome these legal principles with a law-of-the-case argument. He correctly points out that in Haynes I we held that the district court had erred in granting JMOL against the same contract-modification claim. Haynes I, 51 Fed.Appx. at 793-94. According to Mr. Haynes, our decision in Haynes I mandated that his modification claim go to the jury on remand. We disagree. The law-of-the-case doctrine generally dictates that prior judicial decisions on rules of law govern the same issues in subsequent phases of the same case. Been v. O.K. Indus., Inc., 495 F.3d 1217, 1224 (10th Cir.2007). The doctrine is not, however, an inexorable command; our precedents recognize several exceptions to its operation. Wessel v. City of Albuquerque, 463 F.3d 1138, 1143 (10th Cir.2006) (internal quotation marks omitted). We have said, for example, that a judicial determination is not the law of the case in later proceedings involving substantially different evidence. Id. (internal quotation marks omitted). That exception applies here. Mr. Haynes presented substantially weaker evidence of a contractual modification in the second trial. In Haynes I we noted three items of testimony that prevented the court from properly granting JMOL: (1) Mr. Haynes's testimony that Trane officials, at franchisee meetings, communicated Trane's policy of only terminating franchise agreements for cause, 51 Fed.Appx. at 793 (Mr. Haynes had testified that it was Trane's stated policy that they only terminated franchise holders for cause, Aplts. App. Vol. IV at 1545); (2) the testimony of Trane official Don O'Keefe that he interpreted franchise agreements to require cause for termination, and that he had never terminated a franchise agreement without cause, Haynes I, 51 Fed. Appx. at 793; and (3) the testimony of another Trane official, James Schultz, that he was not aware of any time when a franchise agreement was terminated except for cause, id. Thus, the evidence presented at the first trial showed both a pattern of terminating for cause and, more importantly, a stated policy of terminating only for causeindeed, one that a Trane official felt was contractually required. Aplts. App. Vol. IV at 1545; Haynes I, 51 Fed.Appx. at 793. The evidence of a communicated policy was necessary to our decision in Haynes I, because a policy of terminating franchises only for cause would be inconsistent with enforcing an at-will provision. The absence of that evidence at the second trial (for reasons unknown to us) was a crucial difference. In that circumstance, the district court was not bound by our previous determination that JMOL was improperly granted against Mr. Haynes's modification claim at the first trial.
Mr. Haynes argues next that even if the franchise agreement was not modified to contain a good-cause requirement, Trane should have been equitably estopped from denying the requirement. Under Wisconsin law the doctrine of equitable estoppel has four elements: (1) action or non-action, (2) on the part of one against whom estoppel is asserted, (3) which induces reasonable reliance thereon by the other, either in action or non-action, and (4) which is to his or her detriment. Milas v. Labor Ass'n of Wis., Inc., 214 Wis.2d 1, 571 N.W.2d 656, 660 (1997). The jury found that Mr. Haynes had established the elements of the claim. Nevertheless, the district court refused to apply the equitable-estoppel doctrine for Mr. Haynes's benefit. The court reasoned that Mr. Haynes did not fairly deal with Trane in relation to HaynesTSA's abuse of the claimback program. Aplts. App. Vol. III at 1407. It stressed that Mr. Haynes had been told by HaynesTSA employees that they were retyping invoices in preparation for Trane's audit yet he did not relay this information to Trane or its auditors. The court concluded that such misconduct by Mr. Haynes must not be rewarded with a grant of equitable relief. Id. at 1410. On appeal Mr. Haynes contends that the district court erroneously denied him the benefits of equitable estoppel. We review the district court's refusal to apply the doctrine of equitable estoppel for abuse of discretion. Spaulding v. United Transp. Union, 279 F.3d 901, 911 (10th Cir.2002). Legal determinations underlying the court's decision are, however, reviewed de novo. See Clark v. State Farm Mut. Auto. Ins. Co., 433 F.3d 703, 709 (10th Cir.2005). As Mr. Haynes concedes, Wisconsin law permits a court to deny equitable-estoppel relief despite proof of its four elements. [O]nce the elements of equitable estoppel have been established as a matter of law, the decision to actually apply the doctrine to provide relief is a matter of discretion. Nugent v. Slaght, 249 Wis.2d 220, 638 N.W.2d 594, 602 (Wis.App. 2001). In exercising its discretion, a court must ... take into consideration any other evidence and facts respecting the equities of the parties. Id. (internal quotation marks omitted); see Meyer v. Reif, 217 Wis. 11, 258 N.W. 391, 394 (1935) (equity `has always preserved the elements of flexibility and expansiveness' (quoting 1 Pomeroy, Equity Jurisprudence, § 111)); Mulder v. Mittelstadt, 120 Wis.2d 103, 352 N.W.2d 223, 229 (Wis.App. 1984) (same). One factor considered by courts is whether the party requesting the equitable-estoppel remedy has engaged in substantial relevant misconduct. See Wis. Patients Comp. Fund v. St. Mary's Hosp. of Milwaukee, 209 Wis.2d 17, 561 N.W.2d 797, 805 (Wis.App.1997). This concern flows from the general principle that only... parties with clean hands can invoke equitable relief. Id. (internal quotation marks omitted). Of course, a litigant's unrelated misconduct may not be used to deny him an equitable remedy. See Huntzicker v. Crocker, 135 Wis. 38, 115 N.W. 340, 342 (1908) (Equity does not demand that its suitors shall have led blameless and pure lives.). To preclude relief, rather, the misconduct must be connected with the matter in litigation and have in some measure affected the equitable relations subsisting between the two parties. Id. (internal quotation marks omitted). Against this backdrop, we conclude that the district court did not abuse its discretion in denying Mr. Haynes the benefit of equitable estoppel on the basis of his unclean hands. Mr. Haynes sought an equitable decree that he was entitled to keep his franchise. His fitness as a franchisee is directly related to the relief he sought. By failing to inform Trane that his employees had been retyping invoices in preparation for the claimback audit, Mr. Haynes demonstrated his untrustworthiness as a franchisee, much less a business associate. It was not an abuse of discretion to deny equitable relief when the evidence of his misconduct established that he was unworthy of being a franchisee. Cf. McKennon v. Nashville Banner Publ'g Co., 513 U.S. 352, 360-61, 115 S.Ct. 879, 130 L.Ed.2d 852 (1995) (unclean-hands doctrine not applicable to restrict relief under statute establishing important national policy against discrimination). On appeal Mr. Haynes argues that the district court's decision to apply the unclean-hands doctrine against him nevertheless rested on several legal errors. He argues first that his misconduct should not have been considered because the decision to apply or deny equitable estoppel must be based on the equities of only those facts triggering the estoppel doctrine, i.e., the defendant's conduct inducing the plaintiff's detrimental reliance, and the resultant harm to the plaintiff. Aplt. Br. at 29. Because Mr. Haynes's alleged failure to disclose HaynesTSA's claimback abuse was not conduct establishing one of equitable estoppel's elements, Mr. Haynes concludes that the court was not free to consider it in denying him equitable relief. To begin with, we doubt the coherence of the legal rule proffered by Mr. Haynes. It is hard to imagine how parties invoking equitable estoppel could engage in misconduct that also established an element of equitable estoppel, such as reasonable reliance. In any event, Mr. Haynes has not cited a case that expresses or supports his proposed rule. He relies almost exclusively on a string of cases in which unclean hands was not an issue. See N. Crossarm, Inc. v. Chem. Specialties, Inc., 332 F.Supp.2d 1181, 1192-93 (W.D.Wis.2004); Affordable Erecting, Inc. v. Neosho Trompler, Inc., 291 Wis.2d 259, 715 N.W.2d 620, 628-630 (2006); Milas, 571 N.W.2d at 660-62; Nugent v. Slaght, No. 02-3387, 2003 WL 22143306, at -2 (Wis.Ct.App. Sept.18, 2003); Gonzalez v. Teskey, 160 Wis.2d 1, 465 N.W.2d 525, 530 (Wis.App. 1990). The only other case he cites applies the general rule that only misconduct related to the `matter in litigation' warrants application of the unclean-hands doctrine. Fields Found., Ltd. v. Christensen, 103 Wis.2d 465, 309 N.W.2d 125, 136 (Wis.App. 1981) (quoting Huntzicker, 115 N.W. at 342). The question in Fields was whether the misconduct of a medical-center official prevented the center from enforcing against its medical director a covenant not to compete. Id. The official had improperly held himself out as a physician and had deceived the Internal Revenue Service by representing the clinic as a nonprofit organization entitled to tax-exempt status. Id. But the court concluded that these misdeeds were insufficiently related to the controversy because they evidently did not prompt the medical director to leave the center and seek competing work. See id. To the contrary, the director attempted to negotiate a new employment contract with the center for several months after becoming aware of the misconduct. Id. The case before us is readily distinguishable because Trane never exhibited lack of concern about Mr. Haynes's failure to disclose his knowledge of the claimback coverup; it had no occasion to do so because it did not know of the failure when it terminated his franchise. Unlike misconduct acquiesced in, Mr. Haynes's dishonesty bears directly on the equitable relations subsisting between the two parties. Huntzicker, 115 N.W. at 342. Mr. Haynes also argues that by holding him responsible for HaynesTSA's alleged abuse of the claimback program, the district court failed to honor HaynesTSA's distinct legal status. This argument mischaracterizes the basis of the district court's decision. In refusing to apply equitable estoppel, the court focused not on what HaynesTSA did, but rather on Mr. Haynes's personal failure to play straight with Trane during its investigation. His wearing a HaynesTSA hat did not immunize him from the consequences of his own dishonesty. Mr. Haynes's reply brief on appeal appears to raise another argument against the application of the unclean-hands doctrine against him. He suggests that this equitable doctrine applies only to freestanding equitable claimssuch as promissory estoppelnot to an equitable doctrine applied in the context of a legal claim (as equitable estoppel is applied to his breach-of-contract claim). But he cites no supporting authority, nor does he account for the lengthy discussion in Nugent regarding judicial discretion in applying the doctrine of equitable estoppel. See 638 N.W.2d at 602-03. In any event, we need not pursue the issue further because we do not ordinarily review arguments raised for the first time in a reply brief. Ferry v. Gonzales, 457 F.3d 1117, 1129 (10th Cir.2006). [2] Finally, Mr. Haynes argues that the district court's unclean-hands determination conflicted with the jury's finding that Trane lacked good cause to terminate his franchise. That finding, contends Mr. Haynes, implies that the jury found that he had not engaged in wrongful conduct. Thus, the district court's determination that Mr. Haynes acted reprehensibly (that is, that his hands were unclean) contradicted the jury verdict and thereby violated his right to a jury trial. We disagree. True, the Seventh Amendment prevents district courts from applying equitable doctrines on the basis of factual predicates rejected, explicitly or implicitly, by a jury verdict. See Bartee v. Michelin N. Am., Inc., 374 F.3d 906, 912-13 (10th Cir. 2004). If a jury resolves a factual issue, the court may not ignore that determination in fashioning equitable relief or applying an equitable doctrine. Ag Servs. of Am., Inc. v. Nielsen, 231 F.3d 726, 732 (10th Cir.2000). But that is not the situation here. Indeed, the district court's unclean-hands determination rested on facts that the jury would not have had occasion to consider in its good-cause deliberations. In pertinent part, the court instructed the jury on good cause as follows: [Y]ou must also determine whether good cause existed when the Trane Company terminated the franchise agreement.... Good cause is defined as a fair and honest cause or reason determined in good faith on the part of the person exercising the authority to terminate. Good cause requires an exercise of good faith based upon reasonable, just, and fair grounds. Reasons that are pretextual or based on improper motive do not constitute good cause. In determining whether the Trane Company had good cause for termination, you may consider whether the Trane Company's decision followed an investigation of facts that was appropriate under the circumstances. Aplts.App. Vol. X at 4631. This instruction makes good cause turn on what Trane's reason was when it terminated Mr. Haynes's franchise. The jury would not have considered what Trane did not know at the time of termination, such as Mr. Haynes's awareness that fraudulent invoices were being typed for Trane's audit. But it was this awareness that, according to the district court, dirtied his hands and required denial of equitable relief. Accordingly, the district court's unclean-hands determination rested on findings not precluded by the [jury's] verdict. Ag Servs., 231 F.3d at 734. Mr. Haynes's Seventh Amendment argument fails.