Court Opinion

ID: 2815208
Source: CourtListenerOpinion
Date Created: 2015-07-08 13:01:40.329441+00
Date Added: 2024-06-11T11:28:10.913525
License: Public Domain

Case: 13-14996       Date Filed: 07/08/2015       Page: 1 of 25

                                                                      [DO NOT PUBLISH]

                  IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT
                              _______________________

                                      No. 13-14996
                                _______________________

                           D. C. Docket No. 1:09-cv-01152-AT

COYOTE PORTABLE STORAGE, LLC,
DESERT PORTABLE STORAGE, LLC,
CACTUS PORTABLE STORAGE, LLC,

                                                                    Plaintiffs – Appellees,

                                             versus

PODS ENTERPRISES, INC.,
as successor in interest to PODS, Inc.,

                                                                    Defendant – Appellant.

                                _______________________

                      Appeal from the United States District Court
                         for the Northern District of Georgia
                            ________________________

                                        (July 8, 2015)

Before MARTIN, Circuit Judge, and RESTANI, ∗ Judge, and HINKLE, ∗∗ District
Judge.

       ∗
          Honorable Jane A. Restani, Judge for the United States Court of International Trade,
sitting by designation.
        ∗∗
           Honorable Robert L. Hinkle, United States District Judge for the Northern District of
Florida, sitting by designation.
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HINKLE, District Judge:

      This is a dispute over the meaning of two royalty provisions in a series of

franchise agreements. We conclude that the first disputed provision is ambiguous.

The contemporaneous documentary evidence makes clear beyond dispute that the

representatives who negotiated the provision on both sides had the same

understanding of the provision’s meaning; we construe the provision as they

understood it. The second disputed provision is clear, as both sides agree even

now. We apply the provision as written, rejecting the franchisor’s contention that

the provision was included in the agreements only through a scrivener’s error.

Finally, we reject the franchisor’s assertion that the franchisees’ claims are barred

by a release or lack of notice.

                                           I

      Some might say PODS, Inc. built a better mousetrap: a system for moving

from one residence to another without the time constraints that ordinarily attend

the process. A traditional moving van must be promptly loaded, driven to the

destination, and promptly unloaded. Otherwise the customer incurs substantial

extra charges; the van and its crew are the traditional moving company’s stock in

trade and cannot be kept idle. If the new residence is not ready when the old one

must be vacated, the customer’s furniture and household goods must be loaded,

transported, unloaded, stored, and then loaded and unloaded again. A pod, in
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contrast, can be left unattended at the customer’s location or stored. So a customer

can have a pod loaded or can load it at the customer’s convenience over time, can

have the pod stored (without unloading it) if the new residence is not ready when

the old one must be vacated, and can have the pod unloaded or can unload it at the

customer’s convenience. There is no need for a second loading and unloading.

      “PODS” is an acronym for portable on demand storage. PODS, Inc., has

now been succeeded by PODS Enterprises, Inc., the defendant in the district court

and appellant here. This opinion uses “PODS” as a reference to either.

      When PODS began its business, the focus was on local moving and storage;

moving from one city to another became a focus only later. PODS established

franchises in local markets. The plaintiffs in the district court—the appellees

here—are three franchisees under common ownership: Coyote Portable Storage,

LLC (“Coyote”) with operations in Phoenix; Desert Portable Storage, LLC

(“Desert”) with operations in Las Vegas; and Cactus Portable Storage, LLC

(“Cactus”) with operations in Tucson.

      PODS entered franchise agreements with Coyote and Desert on September

29, 2003. The agreements were identical to one another and identical in most

respects to PODS’s standard franchise agreement. But PODS did not insist that

franchisees accept its standard agreement. Here there were negotiations that

resulted in changes set out in an addendum to each agreement. PODS entered a

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franchise agreement with Cactus on June 15, 2004, again with an addendum

altering the standard agreement as a result of arm’s length negotiations.

      Under the agreements, PODS was entitled to royalties calculated as a

minimum amount each month or, if greater, a specified percentage of the

franchisee’s “net sales.” Customers ordinarily remitted payments to PODS, who

withheld royalties (and other appropriate amounts) and remitted the balance to the

franchisee. The first issue on this appeal is whether “net sales” included only

revenues from local operations—the primary source of revenues at the time—or

also included revenues from moves between separate franchised territories. The

parties have sometimes referred to revenues from nonlocal moves as “cross-

country,” “inter-franchise,” or “I-F” revenues. This opinion ordinarily refers to

them as “cross-country revenues.”

      PODS periodically evaluated its franchisees. The standard franchise

agreement provided an incentive for satisfactory performance that became

applicable only after the franchisee had been in operation for three years: the base

royalty was 10% but a separate term provided a 2% rebate for a satisfactory rating.

The Coyote, Desert, and Cactus addendums all changed the base royalty to 8% but

allowed PODS to increase this to 10% for unsatisfactory performance. The Cactus

addendum deleted the separate term providing a 2% rebate for satisfactory

performance, so with satisfactory performance, Cactus’s royalty was 8%, as both

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sides agree. The Coyote and Desert addendums did not delete the separate term

providing a 2% rebate. The second issue on this appeal is whether that term

remained applicable, that is, whether, with a satisfactory rating, the effective

royalty for Coyote and Desert was 6% or 8%. The issue arose when the Cactus

agreement was being negotiated—Cactus asked for the same 6% effective royalty

Coyote and Desert had received, but PODS said that was a mistake.

      In June 2007, the parties entered a second addendum to the Coyote and

Desert franchise agreements changing PODS’s option to purchase the franchisee’s

assets. Neither the option nor the change is at issue here. But each franchisee’s

second addendum included a general release.

      In January 2008, Coyote, Desert, and Cactus formally notified PODS of the

claims they now assert: the claim to the return of royalties withheld based on cross-

country revenues and, for Coyote and Desert, the claim to a 2% rebate for

satisfactory performance. Coyote and Desert asserted claims only from July 2007

forward, recognizing that their general releases barred claims for earlier periods.

PODS rejected the claims.

      The claims implicate two provisions of the franchise agreements not

addressed to this point. First, the agreements include a choice-of-law provision:

Florida law controls. All parties agree the provision is binding. Second, the

agreements include a provision requiring a franchisee to give PODS notice within

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12 months after it learns or should learn of a breach and, “except as otherwise

prohibited or limited by applicable law,” barring any claim for which timely notice

was not given.

                                         II

      On April 30, 2009, Coyote, Desert, and Cactus filed this action in the

Northern District of Georgia based on diversity jurisdiction. The only claims still

at issue are common-law contract claims—claims for the return of the royalties

PODS exacted based on cross-country revenues (count 1), for the disputed 2%

rebates (count 2), for a declaratory judgment on these issues (count 9), and for

attorney’s fees under the franchise agreements’ prevailing-party fee provisions

(count 12). The district court granted summary judgment for the franchisees and

awarded damages and attorney’s fees. PODS brings this appeal.

      We review de novo the district court’s summary-judgment ruling, see, e.g.,

Ellis v. England, 432 F.3d 1321, 1325 (11th Cir. 2005), and its interpretation of the

franchise agreements, see, e.g., Bragg v. Bill Heard Chevrolet, Inc., 374 F.3d 1060,

1065 (11th Cir. 2004).

                                         III

      Each franchise agreement includes two back-to-back definitions of “net

sales.” They could be exhibit A in a law-school class on bad drafting. The first

definition is a 139-word sentence fragment. The second is a 58-word “which”

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clause in the agreement’s next sentence. The fragment and the “which” clause

each apparently attempts to set out a complete definition of “net sales” that could

stand alone. The back-to-back definitions are set out here in their entirety:

         “Net sales” – The aggregate amount of sales, revenues, fees,
         charges and other consideration actually received for services and
         products sold in connection with operations conducted by the
         Franchised Business including income derived from sales at or
         away from the Franchised Business but excluding: (a) all federal,
         state and municipal sales or service taxes collected from customers
         and paid to the appropriate authority; (b) all insurance billed to and
         collected from customers and paid to the appropriate insurance
         company; (c) the amount of all customer refunds and adjustments
         and pre-approved, in writing, promotional discounts; (d) any
         amounts written off as bad debt expense; (e) revenue from the sale
         of Containers as part of a long distance move program organized
         and managed by us; and (f) any other sale of Containers, Lifts or
         other assets that we have approved in advance between you and
         other franchisees or us. The royalties and MAF [“Marketing and
         Advertising Fund” fees] shall be calculated on the “Net Sales,”
         which is the total revenue as shown on the “Sales by Item
         Summary-Complete Summary,” excluding sales tax and insurance
         as explained above, less discounts, credit memos or adjustments
         and bad debt expense, and monies received as part of the cross
         country move program, which are distributed separately on a
         monthly basis and not included in this summary.

(Emphasis added.) The provision is identical in the Coyote and Desert agreements.

The Cactus provision omits one word—the second to last “and”—but that

apparently was inadvertent, and neither side contends the omission makes a

difference.

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      The parties focus on the “which” clause. We begin our analysis there. The

definition in that clause is repeated here with inserted letters A through G for use in

the discussion that follows. The “which” clause says “net sales” means:

          [A] the total revenue as shown on the “Sales by Item Summary –
          Complete Summary,” excluding [B] sales tax and [C] insurance as
          explained above, less [D] discounts, [E] credit memos or
          adjustments and [F] bad debt expense, and [G] monies received as
          part of the cross country move program, which are distributed
          separately on a monthly basis and not included in this summary.

So the clause takes this form: A, excluding B and C, less D, E and F, and G. This

might more clearly be written in one of two ways. The first is this:

          Net Sales = A – (B + C) – (D + E + F + G).

The second is this:

          Net Sales = A – (B + C) – (D + E + F) + G.

The franchisees say the correct formula is the first, with G (cross-country

revenues) one of the deductions from A (total revenue as shown on the referenced

summary). PODS says the correct formula is the second, with G (cross-country

revenues) added to A (total revenue as shown on the referenced summary).

      One cannot know, just from reading the clause, which of these readings is

correct. The clause is ambiguous. Under Florida law, when a contract is

unambiguous, it must be enforced as written. But when, as here, the contract is

ambiguous—when its words could reasonably be accorded two different

meanings—extrinsic evidence of the parties’ intent is properly considered. Both
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sides agree with these principles, which are too well settled for argument. See,

e.g., Hurt v. Leatherby Ins. Co., 380 So. 2d 432, 434 (Fla. 1980); Emergency

Assocs. of Tampa, P.A. v. Sassano, 664 So. 2d 1000, 1002 (Fla. 2d DCA 1995).

      Here there is extrinsic evidence that cuts each way. But overall, it cuts far

more strongly in favor of the franchisees.

      The object of considering extrinsic evidence is to discern the parties’

intent—to give effect to the actual agreement the parties believed they were

entering, if that can be done consistently with the language the parties used in the

agreement. On the question of the parties’ intent, the extrinsic evidence is

overwhelming. This record establishes beyond any dispute that the representatives

on both sides who negotiated these franchise agreements and attempted to commit

their agreement to writing intended to exclude cross-country revenues from the

definition of “net sales.”

      The primary participants in the discussions that led to these agreements were

the franchisees’ principal David Alan Quarterman, the franchisees’ attorney Scott

Augustine, and PODS’s representative Jacquelyn Cosentino-Georges. All testified

to the same facts; there was no dispute. Mr. Quarterman had a copy of a franchise

agreement PODS had entered earlier with a different franchisee that excluded

cross-country revenues from “net sales.” He asked for the same treatment. Ms.

Cosentino-Georges knew PODS had agreed to do this more than once and made

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the same agreement with Mr. Quarterman. Mr. Augustine sent an email to Ms.

Cosentino-Georges confirming the status of negotiations and listing this as one of

the items that would be included in the addendum PODS was preparing. Ms.

Cosentino-Georges printed the email and added her own handwritten note, “We

have done this b/4,” as a communication up the line, intending to head off

resistance. Ms. Cosentino-Georges testified that she ordinarily reviewed all

proposed changes to franchise agreements with her supervisor and that, to the best

of her knowledge, she followed that practice here. In any event, the record gives

not a hint that Mr. Quarterman or Mr. Augustine had any reason to doubt Ms.

Cosentino-Georges’s authority to act on behalf of PODS. Nobody at PODS

pushed back; the deal was done.

      The participants decided that the best way to achieve their intended result

was by editing the “which” clause quoted above. In the standard agreement, after

the terms labeled A through F above, the clause continued, “plus monies received

as part of the cross country move program, which are distributed separately on a

monthly basis and not included in this summary.” (Emphasis added.) The

participants decided to change “plus” to “and,” apparently on the view that this

made it clear that “monies received as part of the cross country move program”

were part of the deduction, not an addition to “total revenue.” On that view, using

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“and” instead of “plus” moved the last parenthesis in the formula set out above—

that is, changed the meaning from the second formula set out above to the first.

      It is a curious theory. At least ordinarily, “plus” and “and” are synonyms.

As PODS puts it, two plus two are four, just as two and two are four. Cross-

country revenues were not large at that time, but the issue was important enough to

be discussed. Instead of just “and,” the parties easily could have said, “and also

excluding.” They also could have rewritten the entire definition—and many other

provisions—to make the entire agreement clearer. The issue before us, though, is

not whether they could and should have said this better, but what they meant. The

evidence is clear that what they meant—what they intended to signify by changing

“plus” to “and”—was that cross-country revenues were excluded from “net sales.”

      The other extrinsic evidence does not change the result. As it turns out, the

summary referred to in the “which” clause term labeled A above, the “Sales by

Item Summary-Complete Summary,” does not include cross-country revenues, so

treating them as excluded by the term labeled G is an odd formulation. In the

absence of clear evidence of intent, this would cut against reading term G as we do.

But because the evidence of intent is so clear, the better conclusion is that this is

just another instance of bad drafting.

      The agreement’s first definition of “net sales”—the sentence fragment that

precedes the “which” clause—is worded differently, but if it is read to conflict with

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the “which” clause, this merely highlights the ambiguity; a contract with two

conflicting provisions is, almost by definition, ambiguous. Moreover, it is not

clear that the sentence-fragment definition includes the disputed cross-country

revenues at all. The fragment says “net sales” include only revenues “actually

received for services and products sold in connection with operations conducted by

the Franchised Business . . . .” (Emphasis added.) Cross-country revenues are

received for operations conducted not just by the franchised business—the

franchisee—but also by at least one other franchisee. The fragment does not say

revenues received for services and products sold in connection with operations of

“only” the franchised business, but the language can be read that way if necessary

to avoid a conflict with the “which” clause and the parties’ clear intent. In short,

standing alone, the sentence-fragment definition might be read to include cross-

country revenues, but the sentence-fragment definition did not stand alone, and it

can bear a meaning consistent with the parties’ clear intent.

      Extrinsic evidence also includes the parties’ own practical construction of

their agreement. This is so because how parties contemporaneously apply an

agreement sometimes shows what they meant. See Danforth Orthopedic Brace &

Limb, Inc. v. Fla. Health Care Plan, Inc., 750 So. 2d 774, 776 (Fla. 5th DCA

2000). Here, PODS did not begin charging royalties on cross-country revenues

until September 2004, more than a year after entering the agreements with Coyote

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and Desert, and even then, PODS set the royalty rate at just 4%. PODS explained

its decision to begin charging the royalties in a memorandum to all franchisees.

The memorandum casts substantial doubt on any claim that the agreements had

required a 6% or 8% royalty all along:

             As all of you will recall, it has also been our position that ½ of
      the royalty fees, or 4% of your gross collected revenues, would be
      used to support the call center and was not intended to be a profit
      center for Corporate. However, in that same spirit, it was never
      intended for the call center to be such a drastic drag on earnings for
      Corporate either.

              Given that same spirit, the only way we will be able to grow
      both the general call center and corporate development center is by
      initiating a royalty against cross country revenues. In an effort to
      remain consistent and be fair, I have instructed Tom to charge a 4%
      royalty fee against the distributed portions of the cross country
      revenues. This will begin with the distribution checks written in
      September of 2004. After plugging this formula into our ’05 budget,
      it appears as though the call center will have an opportunity to nearly
      break even for fiscal year 2005.

To be sure, the memorandum does not change the terms of the franchise

agreements and is not a waiver of the position PODS now asserts. The

memorandum is, however, additional extrinsic evidence supporting the

construction of the agreements that we adopt.

      Finally, while parties are free to enter contracts that are fair or unfair, that

make good sense or seem nonsensical, an ambiguous contract can more readily be

construed in a way that makes sense than in a way that does not. Here, if

excluding cross-country revenues from “net sales” cut PODS out of any return on
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that line of business, we would hesitate before reading the franchise agreements

that way. In fact, though, an analysis of what made sense cuts just the other way.

For local business, the franchisee handled the whole transaction and got all the

revenue, reduced only by PODS’s royalty and other amounts payable to PODS for

things like advertising. For cross-country moves, in contrast, revenues were split

one-third each to the initiating franchisee, the receiving franchisee, and PODS. So

PODS received one-third of the revenue even when it charged no royalty. It thus is

hardly surprising that in PODS’s early days, when local operations were

paramount and the cross-country business had not taken off, PODS sometimes was

content with one-third of cross-country revenues and did not charge an additional

royalty on the franchisee’s one-third.

      In any event, that is plainly what PODS agreed to do here. The district court

properly granted summary judgment for the franchisees on this claim.

                                         IV

      In count 2, Coyote and Desert sought 2% rebates under § 6.4 of their

franchise agreements. The section provided:

             After the 3rd Anniversary of the Commencement of opening the
         Franchised Business we will rebate 2% of your Net Sales during
         each calendar quarter, within 60 days of each calendar quarter-end,
         if we determine that you have received a Satisfactory or Excellent
         Performance Rating for your most recent audit. If you have less
         than a Satisfactory Performance Rating, we will audit you again
         within the following 6-month period. If you receive less than a
         Satisfactory Performance Rating from the second audit, you will
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         not be reviewed again until 6 months after the date of the second
         audit.

      PODS admits that this section, by its terms, entitled Coyote and Desert to

the 2% rebates. PODS says, though, that the section should have been deleted

when, as part of the addendum, the base royalty rate was changed from 10% to 8%.

PODS says the failure to delete the section was a scrivener’s error.

      The assertion fails because the representatives who negotiated the addendum

on both sides have testified that they intended to retain the 2% rebate provision.

There is no contrary evidence. If, unbeknownst to the franchisees, some other

PODS official did not notice the agreement’s actual terms, that does not change the

agreement. This was not a scrivener’s error; it was a deliberate decision accurately

recorded in the written agreement.

                                          V

      These rulings bring us to PODS’s procedural defenses. First, PODS says the

claims of Coyote and Desert are barred by releases they executed in June 2007.

Each release provided:

             For value received, Franchisee . . . for itself and on behalf of its
         affiliates (collectively the “Releasing Parties”) agree to release
         Franchisor and all of its predecessors . . . (collectively the
         “Released Parties”) from any and all claims and causes of action of
         whatever nature or kind, in law or in equity, which the Releasing
         Parties now have or have ever had against the Released Parties,
         including without limitation, anything arising out of (i) the
         Franchise Agreement, as amended from time to time through the
         date of this Addendum; (ii) all contracts Franchisor has entered
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          into with Franchisee ancillary to the Franchise Agreement listed in
          subpart (i) of this Section 3, and (iii) any other relationship
          between the Releasing Parties and the Released Parties. . . . This
          release excludes any obligations Franchisor has to Franchisee
          accruing after the date of this release. . . .

(Emphasis added.)

      Properly read, and by their plain terms, the releases looked back, not

forward. The franchisee released claims for alleged royalty overcharges (and

anything else) through the date of the release but did not release claims based on

PODS’s obligation to pay amounts coming due in the future. So if PODS

improperly withheld royalties on cross-country revenues in the past, or failed to

credit the franchisee with a 2% rebate for satisfactory performance in the past, the

franchisee could do nothing about it; any claim had been released. Even so, PODS

was obligated to properly perform under the franchise agreements going forward.

      Coyote and Desert have made no effort to circumvent the releases. They

demanded, and the district court awarded, only amounts due for periods after the

date of the releases.

      PODS says, though, that the releases looked forward as well as back. To get

there, PODS says, in effect, that the reference to “obligations . . . accruing after the

date of this release” should be construed to mean “claims . . . accruing after the

date of this release,” and that when a claim accrues should be interpreted to mean

when a claim accrues for statute-of-limitation purposes. The short answer is

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twofold: when an “obligation” accrues is not necessarily the same as when a

“claim” accrues, and the language of the releases should be given its ordinary

meaning, not a technical meaning based on arcane legal principles the parties were

unlikely to know or care about. See Crawford v. Barker, 64 So. 3d 1246, 1255-56

(Fla. 2011); Beans v. Chohonis, 740 So. 2d 65, 67 (Fla. 3d DCA 1999).

      Moreover, even if the parties could be deemed to have intended a technical

meaning, PODS’s argument would still fail. When an obligation accrues is an

issue ordinarily confronted in financial accounting. For that purpose an obligation

accrues when the events occur that give rise to the obligation. The relevant statute-

of-limitations concept is not when an obligation accrues but when a “claim”

accrues—a distinction that sometimes produces a different outcome.

      The Florida statute-of-limitations principles that PODS cites are wholly

consistent with this analysis. Under Florida law, the limitations period for a claim

on a written contract is five years. Fla. Stat. § 95.11(2)(b) (2013). The period

runs from the date of the breach. When the issue is the interpretation or validity of

a contractual provision, we can assume, without the necessity of deciding, that the

limitations period runs from the first breach, that is, from the first application of

the disputed provision. There is support for that view.

      Thus, for example, in Dinerstein v. Paul Revere Life Insurance Co., 173

F.3d 826 (11th Cir. 1999), the issue was whether an insured’s payments from his

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disability insurer were properly reduced when he began receiving social-security

benefits. The insured filed the lawsuit more than five years after the insurer

reduced the benefits. He asserted that each reduced payment started a new five-

year limitations period. We disagreed, reversing a judgment for the insured. We

held that the limitations period ran from the date of the first reduced payment.

      Similarly, in Garden Isles Apartments No. 3, Inc. v. Connolly, 546 So. 2d 38

(Fla. 4th DCA 1989), the issue was the validity of a rent-escalation clause in a

long-term lease. The lessee filed a lawsuit challenging a recent rent escalation.

But the lawsuit was filed more than five years after the first escalation under the

clause. The Florida Fourth District Court of Appeal held that the action was

barred, concluding that the limitations period ran from the first application of the

escalation clause.

      The scope of these decisions may be unclear; other decisions may point the

other way. See, e.g., Holiday Furniture Factory Outlet Corp. v. Fla., Dep’t of

Corr., 852 So. 2d 926, 928 (Fla. 1st DCA 2003); Bishop v. Fla., Div. of Ret., 413

So. 2d 776 (Fla. 1st DCA 1982). Even assuming, though, that Dinerstein and

Garden Isles apply to a franchise dispute like ours, the decisions do not help

PODS, because the franchisees filed this action within five years after PODS first

applied the disputed provisions. PODS gave notice in August 2004 of its intent to

begin collecting royalties on cross-country revenues in September 2004. The

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disputed 2% rebate provision, by its terms, became available to a franchisee three

years after the franchisee began operating. Coyote and Desert became eligible in

2006 at the earliest. The franchisees filed this action on April 30, 2009, less than

five years after PODS first assessed cross-country royalties or failed to make a 2%

rebate.

      PODS does not contend otherwise. It says, though, that Dinerstein and

Garden Isles should inform the interpretation of the releases Coyote and Desert

executed in June 2007. Not so. Those cases addressed when claims accrued, not

when obligations accrued. The whole point of the decisions was that the statute of

limitations began running when the claim at issue accrued—the claim that the

defendant was improperly applying the disputed contractual provision—not when

the defendant was obligated to make a disputed payment.

      In any event, the meaning of these releases turns on their plain meaning, not

on the intricacies of the law governing statutes of limitations. Whatever might be

said of when a claim accrues for limitations purposes, there is no reason to

construe these releases as foreclosing the ability of Coyote and Desert to enforce

the franchise agreements going forward. Coyote and Desert gave up their claims

for back payments, but they did not give up their claims to future payments.

                                         VI

      Finally, PODS invokes the franchise agreements’ notice provision:

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          [E]xcept as otherwise prohibited or limited by applicable law, any
          failure, neglect, or delay by you to assert any breach or violation of
          any legal or equitable right arising from or in connection with this
          Agreement shall constitute a waiver of such right and shall
          preclude the exercise or enforcement of any legal or equitable
          remedy arising therefrom, unless written notice specifying such
          breach or violation is provided to us within 12 months after the
          later of: (a) the date of such breach or violation; or (b) the date of
          discovery of the facts (or the date the facts could have been
          discovered, using reasonable diligence) giving rise to such breach
          or violation.

      The franchisees sent a letter giving notice of their claims in January 2008.

PODS says claims for payments due more than 12 months before the date of the

letter are barred. PODS apparently does not attempt to apply here its argument

based on when a claim accrues under Dinerstein and Garden Isles, and PODS

could not reasonably do so. By its terms, the notice requirement runs from the

later of the date of the breach or violation or the date when the facts were or

reasonably could have been discovered; that language cannot be read to turn on the

date when a claim accrues for statute-of-limitations purposes.

      The notice defense, even if valid, would not affect Coyote or Desert. Their

claims go back only to July 2007 (the first month after the releases), so the January

2008 notice was timely. The notice defense thus affects, at most, Cactus’s claim

for a return of cross-country royalties for the period prior to January 2007.

      The first issue raised by the notice defense is whether this kind of notice

provision is valid at all. Cactus says the answer is no based on Florida Statutes

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§ 95.03: “Any provision in a contract fixing the period of time within which an

action arising out of the contract may be begun at a time less than that provided by

the applicable statute of limitations is void.” We disagree.

       The statute does not invalidate the notice provision because the notice

provision is not a substitute for, and does not conflict with, the statute of

limitations. Quite the contrary. The notice provision required only the giving of

notice—an act that could be done without the effort and expense that attends filing

a lawsuit. The notice provision did not shorten the time in which Cactus could file

this action; Cactus still had the full five years.

       Moreover, Florida courts have enforced notice provisions in at least some

circumstances. See, e.g., Bankers Ins. Co. v. Macias, 475 So. 2d 1216, 1218 (Fla.

1985) (holding that a failure to give notice as required by an insurance contract

bars an insured’s claim against the insurer only if the insurer suffers prejudice, that

prejudice is presumed, and that an insured who fails to give notice thus cannot

recover unless the insured proves lack of prejudice); Nat’l Gypsum Co. v.

Travelers Indem. Co., 417 So. 2d 254 (Fla. 1982) (holding that a materialman’s

claim against a surety was barred by the failure to give notice within 90 days as

required and that no showing of prejudice was necessary); Tuttle/White

Constructors, Inc. v. State Dep’t of General Servs., 371 So. 2d 1096 (Fla. 1st DCA

1979) (holding that a construction contractor’s damages-for-delay claim against the

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owner was barred by the failure to give notice within 20 days as required by the

contract); see also Marriott Corp. v. Dasta Constr. Co., 26 F.3d 1057 (11th Cir.

1994) (holding that a construction contractor’s damages-for-delay claim against the

owner was barred by the failure to give notice within 7 days as required by the

contract). Cactus’s assertion that § 95.03 invalidates notice provisions is flatly

inconsistent with these cases.

      The inapplicability of § 95.03 leaves to the common law the issue of the

validity and effect of notice provisions like those at issue here. Florida courts have

said more than once that notice provisions must be reasonable. See, e.g., W. F.

Thompson Constr. Co. v. Se. Palm Beach Cnty. Hosp. Dist., 174 So. 2d 410, 414

(Fla. 3d DCA 1965) (“A provision to give notice of default is, of course, valid

provided it is reasonable.”).

      There is nothing inherently unreasonable about a 12-month notice provision

in a franchise agreement. It is true, as Cactus asserts, that PODS has cited cases

only from the construction and insurance industries. Florida courts have enforced

notice provisions primarily, if not exclusively, in those fields. Still, a franchisor

and franchisee have an ongoing relationship. They deal with one another not just

on a finite project but on a continuing basis. Any disagreement—any potential

claim—may look not only back but forward. It makes sense to require notice so

that a disagreement can be resolved promptly—so that any default can be cured

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before damages mount up unnecessarily. We thus assume that a notice provision

in a franchise agreement may be valid.

      That does not, however, resolve the matter. The next issue is this: what

consequence flows from a franchisee’s failure to give timely notice? That a

requirement to give notice is reasonable does not mean it is reasonable to insist that

a claim is foreclosed even when there is no prejudice.

      Here the franchise agreement says that, “except as otherwise prohibited or

limited by applicable law,” the failure to give notice waives the claim. The better

view is that the applicable Florida law imposes this limit: a claim is waived only if

the failure to give notice prejudices the opposing party. Florida law imposes this

limit in the insurance context; that was the Florida Supreme Court’s square holding

in Macias. The court did not impose a prejudice requirement in National Gypsum,

but the court said its holding was limited to surety contracts in the construction

industry, where notice requirements are widespread and well known. Extending

the holding to franchising would run counter to National Gypsum and would not

square with its rationale.

      A more detailed review of National Gypsum confirms this conclusion. We

start in the lower court. In Travelers Indemnity Co. v. National Gypsum Co., 394

So. 2d 481 (Fla. 3d DCA 1981), the court held 2–1 that a materialman’s claim

against a surety was barred by the failure to give notice, even in the absence of

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prejudice. The three judges all wrote separately; no opinion garnered more than

one vote.

      Judge Nesbitt, writing for himself alone, would have enforced the notice

provision because parties may contract as they please and thus may provide that a

claim is foreclosed unless notice is given—a rationale that would reach the

franchise agreement here.

      Judge Schwartz concurred in the result on much narrower grounds. He

acknowledged that for insurance policies in general, a failure to give notice

precludes recovery only if the insurer suffers prejudice. But he said that notice

provisions are common in the construction industry and that a lack of prejudice

should not allow recovery on a construction-industry surety bond. Id. at 485

(Schwartz, J., concurring specially).

      Judge Hendry dissented, citing insurance cases and concluding that a notice

provision should be enforced only when there is prejudice.

      On review, the Florida Supreme Court explicitly embraced Judge Schwartz’s

view: “We find that Judge Schwartz’s special concurrence sets out the proper rule

which best preserves the rights and expectations of the parties.” Nat’l Gypsum,

417 So. 2d at 256. This was a clear repudiation of Judge Nesbitt’s view that notice

provisions can be enforced outside the construction field without regard to

prejudice.

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      Judge Nesbitt’s opinion was the only one that, if applied to the case at bar,

would allow PODS to enforce the notice provision without regard to prejudice.

But the Supreme Court rejected that view. The only fair reading of National

Gypsum is that any valid notice provision in a contract other than a construction-

industry surety bond can be enforced only when the failure to give notice causes

prejudice to the opposing party.

      Here there was no prejudice. In many circumstances, a timely notice may

lead the defaulting party to change course. That is the primary purpose of a notice

provision in a franchise agreement. (If the primary purpose was instead to

foreclose claims, we would revisit our analysis of § 95.03, the statute precluding

contractual provisions shortening a statute of limitations.) But here the only thing

PODS could have done upon receiving an earlier notice was not to charge cross-

country royalty fees—in substance, to pay Cactus then what the judgment requires

PODS to pay now. Enforcing the notice provision would give PODS an

undeserved windfall.

      The notice provision does not foreclose these claims.

                                         VII

      For these reasons, the judgment is affirmed.

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