Court Opinion

ID: 214721
Source: CourtListenerOpinion
Date Created: 2011-04-14 19:54:37+00
Date Added: 2024-06-11T17:28:21.387922
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                              No. 09-2030

MEINEKE CAR CARE CENTERS, INCORPORATED,

                Plaintiff - Appellant,

           v.

RLB HOLDINGS, LLC; JOE       H.   BAJJANI;   MICHELLE   G.    BAJJANI,
a/k/a Michelle Bajjani,

                Defendants - Appellees.

Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte.     Robert J. Conrad,
Jr., Chief District Judge. (3:08-cv-00240-RJC-DSC)

Argued:   January 27, 2011                    Decided:       April 14, 2011

Before GREGORY and AGEE, Circuit Judges, and Irene C. BERGER,
United States District Judge for the Southern District of West
Virginia, sitting by designation.

Reversed and remanded by unpublished opinion. Judge Agee wrote
the opinion, in which Judge Gregory and Judge Berger concurred.

ARGUED: Michael J. Lockerby, FOLEY & LARDNER, LLP, Washington,
D.C., for Appellant. Rodney Lenelle Eason, THE EASON LAW FIRM,
Atlanta, Georgia, for Appellees. ON BRIEF: Amy K. Reynolds, Ted
P. Pearce, MEINEKE CAR CARE CENTERS, INC., Charlotte, North
Carolina, for Appellant.   Leslie K. Eason, THE EASON LAW FIRM,
Atlanta, Georgia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.

                                2
AGEE, Circuit Judge:

       Franchisor     Meineke        Car     Care     Centers,      Inc.     (“Meineke”)

appeals the district court’s judgment awarding franchisee RLB

Holdings, LLC (“RLB”), Joe H. Bajjani, and Michelle G. Bajjani

partial   summary      judgment      on     Meineke’s       claim    for     lost   future

royalties    and      advertising          fund     contributions      following       the

premature closure of four franchises.                      The district court held

that the franchise agreements did not entitle Meineke to recover

future damages, and that Meineke failed to set forth a viable

common law claim for lost profits.                       For the reasons set forth

below, we reverse the district court’s judgment and remand for

further proceedings consistent with this opinion.

                                             I.

       Meineke   is    a   nationwide        automotive       services       franchisor.

Joe Bajjani and his wife, Michelle, (“the Bajjanis”) are the

sole    owners   of    RLB,     an    entity        formed    for     the    purpose    of

operating Meineke franchises, including the four stores at issue

in this case.       Between December 2001 and June 2005, Meineke and

RLB    entered      into      four     separate          Franchise     and        Trademark

Agreements   (“FTAs”)         related      to     four    franchises       (collectively

“the Shops”) that RLB would operate using Meineke’s registered

trademark,   logo,      and    other       proprietary       marks.         The   Bajjanis

                                             3
executed    personal     guaranties   as   part    of   each   shop’s   FTA,

guaranteeing RLB’s performance and obligations under each FTA. 1          2

     Although the terms of the FTAs are not identical, they are

substantially   the    same,   primarily   using   Meineke’s    boilerplate

franchise agreement language.         The FTAs each had a fifteen-year

term and granted RLB the exclusive right to operate a Meineke

shop within a protected territorial area.           RLB agreed under the

FTAs to pay Meineke weekly royalty fees (“royalties”) based on a

percentage of each shop’s gross revenues, with the rate varying

from three to seven percent depending on the product or service.

(Article 3.2 – J.A. 35.)       Subject to certain conditions, RLB was

also required to “contribute 8% of [its] Gross Revenues to the

Meineke    Advertising    Fund”   (“advertising    fund   contributions”),

     1
        The Bajjanis subsequently sold one of the Shops, Number
1886, to another corporation, following the FTA’s protocol for
doing so.    Joe Bajjani executed a limited guaranty agreement,
guaranteeing the corporation’s performance and obligations under
the FTA.     The district court held Bajjani liable for past
damages related to Shop No. 1886 because they were incurred
during the time the personal guaranty was in effect.     Bajjani
does not dispute that holding, and it is not before us on
appeal.     Despite this transfer of ownership, and unless
otherwise noted, we will not differentiate between the Shops for
purposes of assessing the parties’ arguments regarding the issue
that is before us on appeal. On remand, the district court can
ascertain what, if any, effect Bajjani’s personal guaranty has
on Meineke’s claim for future damages arising from the closure
of Shop 1886.
     2
       Throughout the rest of the opinion, we will refer to the
defendants collectively as “RLB,” distinguishing between them
only where necessary to the discussion.

                                      4
such sum also being payable weekly. 3                (Article 3.4 – J.A. 36.)

In exchange for its obligations to Meineke, RLB was entitled,

inter alia, to operate under the “Meineke” name and use the

associated logo and other marks, and also to receive training

and access to Meineke’s methods, procedures, and techniques.

      Meineke had the right to terminate each FTA under certain

circumstances,    but    RLB      did   not   have    a   reciprocal      right   to

terminate.       One     such      circumstance       permitting     Meineke      to

terminate the FTAs was if RLB “fail[ed] to have [its] Shop open

for   business   for    any   6    consecutive    days    after    [it]   open[ed]

[its] Shop (other than in connection with a relocation . . . or

due to force majeure).”           (Article 13 – J.A. 66.)

      3
       The FTAs defined “gross revenues” as
     all the revenues derived from or in connection with
     the operation of [the] Shop, whether from sales for
     cash or credit, and irrespective of their collection,
     including charges for Authorized Products and Services
     and applicable proceeds from any business interruption
     insurance for your Shop, but excluding: (a) sales
     taxes, use taxes, gross receipts taxes, and other
     similar taxes added to the sale price, collected from
     the customer and remitted to the appropriate tax
     authorities; (b) credit card fees on credit card
     sales; and (c) check guaranty fees.    “Gross Revenues”
     also include revenues derived from any products or
     services sold and/or performed from or in connection
     with your Shop that are not Authorized Products and
     Services . . . .
(Article 3.3 – J.A. 36.)

                                         5
     RLB closed each of the shops well before the end of the

respective FTA’s 15-year period. 4             Upon learning of the closures,

Meineke sent RLB letters notifying it that the decision to close

the Shops      prematurely     “would     be   deemed    an    abandonment      and   a

breach of contract.”         (J.A. 352.)        With respect to at least one

of the shops, Meineke specifically informed RLB that “[t]o avoid

being    in    breach   of     contract,”      RLB    had     “three    options:      1)

continue operating [the shop]; 2) sell the shop to a buyer pre-

approved by Meineke who will continue to operate the shop as [a

Meineke franchise]; or 3) relocate the shop to another location

approved      by   Meineke.”      (J.A.       352.)     Meineke        asked   RLB    to

communicate its intent with respect to each of the closed shops. 5

RLB did not reopen any of the shops.                  Meineke subsequently sent

RLB letters by which Meineke exercised its right to terminate

each FTA, with the date of termination effective as of the date

each shop closed.

     4
       Shop Number 1660 closed “[o]n or about January 16, 2006”;
Shop Number 1661 closed “[o]n or about December 10, 2006”; Shop
Number 1886 closed “[o]n or about September 24, 2006; and Shop
Number 1889 closed “on August 1, 2007.”     (J.A. 353, 393, 402,
406.) The Shops had between eleven and fourteen years remaining
on their terms.
     5
       For some period of time, RLB appeared to desire relocating
Shop 1661 and informed Meineke of its intent to do so, but
eleven months after closing the Shop at its original location,
it still had not opened the Shop at a new location.       At that
point, Meineke informed RLB it was terminating the FTA for that
Shop.
     There is no evidence in the record that RLB ever responded
to Meineke’s interim letters regarding the other three Shops.

                                          6
      Meineke filed a complaint in North Carolina state court

alleging RLB breached the FTAs causing Meineke to, inter alia,

“lose    the    contractually          agreed    to   royalties         and   advertising

[fund]    contributions         that    it   would      have    received      during     the

remaining term[s]” of each FTA.                   (J.A. 21.)            RLB removed the

case to the Western District of North Carolina on the basis of

diversity jurisdiction.            It also filed counterclaims of breach

of   contract     and    breach    of     the    duty      of   good    faith    and     fair

dealing.

      The parties then filed cross motions for summary judgment.

RLB sought partial summary judgment on Meineke’s future damages

claims,    while    Meineke      sought      summary       judgment     on    all   of   its

claims and the counterclaims.

      The district court granted RLB partial summary judgment as

to   Meineke’s      claim    for       future    damages        for    any    prospective

royalties and advertising fund contributions for periods after

termination of the FTAs.                Meineke was granted summary judgment

on claims for past amounts due for periods prior to termination

of the FTAs and the counterclaims by RLB.

        Meineke    noted    a    timely      appeal      of     the    portion      of   the

district       court’s     judgment      related      to      its     claim   for    future

damages.       Because RLB did not cross-appeal the judgment against

it, that portion of the district court’s order is not before us.

Our sole inquiry concerns the district court’s award of summary

                                             7
judgment based on its determination that Meineke failed as a

matter of law to show it was entitled to future damages in the

form       of     lost     future     royalties          and      advertising         fund

contributions.       We have jurisdiction under 28 U.S.C. § 1291.

                                           II.

       We review the district court’s grant of summary judgment de

novo.      Hawkspere Shipping Co. v. Intamex, S.A., 330 F.3d 225,

232 (4th Cir. 2003).             Summary judgment is appropriate if “there

is no genuine dispute as to any material fact” and a party “is

entitled to judgment as a matter of law.”                          Fed. R. Civ. P.

56(a).       In making this determination, we are to “view all facts

and reasonable inferences therefrom in the light most favorable

to   the     nonmoving     party,”    that       being    Meineke    in    this   case.

Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 603 (4th Cir.

2002).

                                          III.

       The      district    court’s       decision       relied     on    two   primary

grounds.         First,    the    court    determined      that     Meineke     was   not

entitled to recover prospective damages under the FTAs.                         Second,

the court determined that Meineke was not entitled to recover

lost profits under North Carolina law.                    We review each part of

the holding in turn.

                                            8
      At the outset we note that before reaching the prospective

damages claim, the district court determined that the decision

by RLB to prematurely close the Shops “constituted a material

breach” of the FTAs “because the very heart of the agreement

revolved around the continued operation of the automotive repair

[S]hops.”      (J.A. 829.)       RLB does not contest this ruling.                      It is

therefore the law of the case and we are bound by it on appeal.

See   Mironescu    v.    Costner,      480 F.3d 664,       677    n.15   (4th    Cir.

2007);   see    also    Fed.    R.   App.        Pro.   28(b).           Accordingly,     for

purposes of our analysis, RLB materially breached the FTAs by

permanently     closing        the   Shops        prior       to   the     end   of     their

respective fifteen-year terms.

                                            A.

      The first part of the district court’s analysis examined

whether Meineke was entitled to future damages “under the FTAs.”

The district court held that “[b]y the express terms of the

FTAs, Meineke’s contract with [RLB] does not permit the recovery

of prospective damages.”             (J.A. 830.)             The district court based

this conclusion on several factors:                     the absence of any express

“provision for Meineke to recover amounts from [RLB] subsequent

to the termination of the FTAs,” J.A. 829, the absence of any

provision      stating    that       the     duty       of     paying      royalties      and

advertising fund contributions survives termination of the FTAs,

                                             9
the    fact        Article      15.1     only        requires         RLB        to    pay   past    due

royalties and advertising fund contributions upon termination,

and   the       fact    that    payment         of    royalties            and    advertising       fund

contributions           do     not     expressly           or    by     their         nature   survive

termination of the FTA and therefore do not fall within the

survivorship provision in Article 15.5.                                 Read as a whole, but

without explicitly stating so, the district court’s order seems

to    imply      that     Meineke      could         not    recover         prospective        damages

unless      a      specific      FTA     contractual             provision            permitted     such

damages.        (See J.A. 830.)

       Meineke         contends       the   district            court      erred       because      North

Carolina law does not require that the written contract (the

FTAs)    provide        for     future      damages         in    order          to    recover    these

damages       in    the      event     of   a    breach.              It    also       maintains     the

district court misconstrued provisions of the FTA (Article 15.1

and 15.5) to preclude recovery of prospective damages when those

provisions addressed other issues and do “not purport to address

all remedies available to Meineke for a franchisee’s breach.”

(Appellant’s Opening Br. 20.)

       “Under North Carolina law, a court’s primary purpose in

construing a contract is to ascertain the intent of the parties

at the time of the contract’s execution.”                                    S.C. Nat’l Bank v.

Atl. States Bankcard Ass’n, 896 F.2d 1421, 1426 (4th Cir. 1990)

(citation omitted).                  “Where the terms of the contract are not

                                                     10
ambiguous,    the   express        language    of   the   contract    controls     in

determining its meaning . . . .”                Id. (quotation and citation

omitted).

      The    district      court     is   correct    that    the     FTAs   do    not

specifically provide for recovery of future damages in the event

of a breach of contract.            However, nothing in the FTAs precludes

such damages either. 6           No principle of North Carolina contract

law   suggests      that    in      all   circumstances      a     contract      must

specifically provide for recovery of future damages in order to

preserve a party’s right to recover them.                     To the contrary,

cases discussing recovery of lost profits do not refer to the

      6
       Meineke points to Article 17.10 as further proof that the
district   court  erred,    observing  that  contract   provision
preserves “any other right or remedy which [a] party is entitled
to enforce by law.”       (Appellant’s Opening Br. 21, quoting
Article 17.10 at J.A. 75.) RLB argues that Meineke’s failure to
raise the applicability of Article 17.10 in the district court
precludes it from being able to rely on it on appeal.
(Appellees’ Br. 36.)    Meineke does not dispute its failure to
raise the application of Article 17.10 below, and defends its
reliance on the provision by stating that appellate review of a
district court’s interpretation of a contract is de novo.
     While Meineke articulates the proper standard of review,
Williams v. Prof’l Transp. Inc., 294 F.3d 607, 613 (4th Cir.
2002), the standard of review is wholly separate from whether a
party has adequately preserved an issue for review on appeal.
Consistent with our general rule on this point, we have held
that “the failure of a party at trial to raise a certain
interpretation of a[] contract results in a waiver of that
argument on appeal absent exceptional circumstances.”      In re:
Wallace & Gale Co., 385 F.3d 820, 835 (4th Cir. 2004); Canada
Life Assurance Co. v. Estate of Lebowitz, 185 F.3d 231, 239 (4th
Cir. 1999). Finding no exceptional circumstances in this case,
we will not consider Meineke’s argument and consider it waived
as to Article 17.10.

                                          11
parties’ contracts as the basis for the non-breaching party’s

right to such a recovery.           See, e.g., Weyerhaeuser Co. v. Godwin

Bldg. Supply Co., 234 S.E.2d 605, 607 (N.C. 1977); Perfecting

Serv. Co. v. Prod. Dev. & Sales Co., 131 S.E.2d 9, 21-22 (N.C.

1963); Builders’ Supply & Equip. Corp. v. Gadd, 111 S.E. 771,

772 (N.C. 1922); Storey v. Stokes, 100 S.E. 689, 690-92 (N.C.

1919); Pender Lumber Co. v. Wilmington Iron Works, 41 S.E. 797,

798    (N.C.   1902).      While    the     parties        were   certainly      free    to

contract for liquidated damages or to bar a right to recover

lost profits under North Carolina law, they did not do so in

this case.     To the extent the district court’s decision required

the FTAs to specifically provide for prospective damages as a

mandatory      condition     precedent         to    preserve       a     non-breaching

party’s right to recover such damages, this was error.

       Contrary to the district court’s conclusion, Articles 15.1

and 15.5 of the FTAs do not operate as bars to recovering future

damages.        Article     15.1     states         that     upon       termination      or

expiration     of   the    FTAs,    RLB   “agree[s]         to    pay    [Meineke]       all

royalties,      [advertising        fund]      payments,          amounts       owed    for

purchases . . . , interest due on any of the foregoing and all

other amounts owed to [Meineke] which are then unpaid.”                                (J.A.

68.)    Article 15.1 only addresses what is owed up to termination

of the FTAs.        It is silent about RLB’s liability for periods

after    termination.          By     expressly        providing          for     certain

                                          12
obligations upon termination or expiration of the FTAs, Meineke

and RLB did not implicitly exclude other legal rights that may

accrue    in        addition    to   those      stated.       The       district    court’s

construction in this instance runs contrary to the instruction

that courts “will not resort to construction [of a contract]

where    the    intent     of     the     parties      is   expressed      in    clear    and

unambiguous language.”               Wallace v. Bellamy, 155 S.E. 856, 859

(N.C. 1930).           There is no need to construe the Article 15.1

language to mean something other than the circumstances to which

it clearly applies—pre-breach damages.                      The provision is silent

as to prospective damages arising after termination pursuant to

breach of the FTA.             The district court erred in reading Article

15.1 as precluding future damages.

        The    district        court’s     construction          of   Article      15.5       is

similarly       mistaken.         Article       15.5    states:         “All    obligations

under this Agreement which expressly or by their nature survive

the expiration or termination of this Agreement will continue in

full force and effect until they are satisfied in full or by

their    nature        expire.”         (J.A.    70.)       Although       the    right       to

royalties and advertising fund contributions do not expressly

survive       the    expiration      or   termination       of    the    Agreement       as    a

provision of the contract, they need not do so in order to form

the basis of a prospective damages claim in the event Meineke is

otherwise entitled to those damages under other applicable law.

                                             13
As discussed below, Meineke’s right to recover such sums as the

measure of damages resulting from a breach of the FTAs arises

under North Carolina law and is independent and separate from

any obligation to pay such sums as a new obligation arising

under the FTAs. 7

      In    sum,   the    FTAs    neither        specifically     provided      for   nor

expressly prohibited Meineke from recovering prospective damages

in the event of RLB’s material breach.                       In the absence of an

express contractual provision barring future damages, the FTAs

did   not   prohibit      the    recovery     of    those    damages    if     otherwise

permitted under North Carolina law.                 The district court erred in

holding otherwise.

                                            B.

      Meineke’s ability to recover future damages thus depends on

whether     it   adduced       sufficient    evidence       to   set   forth    a   North

Carolina     common      law    claim   for       lost   profits.        Under      North

Carolina law,

      the general rule is that a party who is injured by
      breach of contract is entitled to compensation for the

      7
       While the parties could have agreed to bar a future
damages claim in the written FTA, they did not do so.        But
whether a future damages claim was otherwise within their
contemplation under state law at the formation of their contract
is an unresolved and disputed factual issue, as more fully
discussed below.

                                            14
        injury sustained and is entitled to be placed, as near
        as this can be done in money, in the same position he
        would   have  occupied   if  the  contract   had  been
        performed.   Stated generally, the measure of damages
        for the breach of a contract is the amount which would
        have been received if the contract had been performed
        as made, which means the value of the contract,
        including the profits and advantages which are its
        direct results and fruits.

Perkins v. Langdon, 74 S.E.2d 634, 643 (N.C. 1953) (citations

omitted).        Accordingly, “[d]amages for breach of contract may

include    loss       of     prospective    profits       where    the    loss   is   the

natural and proximate result of the breach.”                        Mosley & Mosley

Builders, Inc. v. Landin Ltd., 361 S.E.2d 608, 613 (N.C. Ct.

App. 1987) (citing Perkins, 74 S.E.2d at 634.).                          North Carolina

courts have set out a three-part test for determining when a

party may recover lost profits

     “when it is made to appear (1) that it is reasonably
     certain that such profits would have been realized
     except for the breach of contract, (2) that such
     profits   can  be   ascertained   and   measured with
     reasonable certainty, and (3) that such profits may
     reasonably be supposed to have been within the
     contemplation of the parties, when the contract was
     made, as the probable result of the breach.”

Keith v. Day, 343 S.E.2d 562, 568 (N.C. Ct. App. 1986) (quoting

Perkins, 74 S.E.2d    at   644).      In   addition,      the    non-breaching

party    has     a    duty    to    mitigate     its     damages   by     “exercis[ing]

reasonable       care        and    diligence       to    avoid     or     lessen     the

consequences of [the] wrong.”               See Miller v. Miller, 160 S.E.2d
65, 74 (N.C. 1968).

                                            15
       Based   on     these     principles,       in     order       to    survive        summary

judgment, Meineke had the burden of showing sufficient evidence

to    establish       or   create    a    question        of    fact       regarding          these

issues:        (1)     RLB’s    material         breach      proximately              caused    the

potential      for     future     damages        in    the      form       of    lost      future

royalties      and     advertising        fund    contributions;                (2)    there    is

reasonable certainty that Meineke’s lost profits would have been

realized but for RLB’s closure of the Shops; (3) the amount of

Meineke’s      lost    profits      can    be    ascertained             and    measured       with

reasonable certainty; (4) at the time of entering into the FTAs,

lost   profits       may   reasonably      be     supposed          to    have    been    within

Meineke and RLB’s contemplation as the probable result of RLB’s

premature closure of the Shops.                  The district court held Meineke

failed to establish any material facts in dispute as to each

part of this analysis and that RLB was entitled to judgment as a

matter of law.         For the reasons set forth below, we disagree.

                                            1.

       The district court held that Meineke failed to show that

RLB’s breach proximately caused its prospective damages.                                  In the

district court’s view, “Meineke’s termination of the FTAs in the

instant case terminated [RLB’s] ability to generate royalties

and    [advertising]        fees,     irrespective             of    whether          [RLB]     had

breached before” the termination.                     “Once [Meineke terminated the

                                            16
FTAs, the FTAs] provided no right to future damages.                             Since

[these        sums]    were     based    on     [the     Shops’]     revenues,        the

termination of the [FTAs] cut off [RLB’s] ability to generate

revenues.”       (J.A. 830-31.)

        The    district       court    cited    no     legal    authority     directly

supporting       its   conclusion.         On   appeal,      the   parties    cite    to

numerous cases from courts across the country, none of which are

binding on this court.              We, too, found no controlling authority

on point.         Most of the relevant discourse appears in various

federal district and state court opinions.

     These courts have taken a variety of approaches to analyze

whether a franchisor is entitled to recover lost profits.                         They

have reached opposite conclusions based on the nature of the

franchisee’s breach and concerns such as whether recovering lost

profits would result in the franchisor unfairly benefiting with

a double recovery.            See Moran Indus., Inc. v. Mr. Transmission

of Chattanooga, Inc., 725 F. Supp. 2d 712, 720-23 (E.D. Tenn.

2010)    (collecting       and      discussing       cases     examining    whether    a

franchisor can ever be entitled to recover lost profits after

terminating a franchise agreement in response to franchisee’s

breach of contract).             We need not examine the full panoply of

approaches       because       we     believe    the     proper     analysis     is    a

                                           17
straightforward application of the relevant North Carolina law

concerning damages recoverable following a breach of contract. 8

     Long-standing   principles   of   North   Carolina   contract   law

permit a non-breaching party to recover damages that are “the

     8
       Our approach is consistent with cases on both sides of the
analysis, as the focal point has not been whether the franchisor
or the franchisee is seeking lost profits, but whether the party
breaching the contract proximately caused the lost profits being
sought. Even where a court has held that the franchisor is not
entitled to recover lost profits, the rationale for that
decision   has  usually   been   that  the   franchisor’s  lawful
termination of the parties’ agreement was the proximate cause of
lost profits rather the franchisee’s breach, the most common
example being a franchisee’s breach for failing to pay past due
royalties.
     As the California Court of Appeals observed in Postal
Instant Press, Inc. v. Sealy, 51 Cal. Rptr. 2d 365 (Cal. Ct.
App. 1996), “it was the franchisor’s own decision to terminate
the franchise agreement that deprived it of its entitlement to .
. . future royalty payments” because “[n]othing in the
franchisee’s [breach, i.e.,] failure to pay past royalties[,] in
any sense prevented the franchisor from earning and receiving
its future royalty payments.”    Id. at 370.   But in so holding,
the court emphasized that it was “not holding franchisors can
never collect lost future royalties for franchisees’ breaches of
the franchise agreement. That entitlement depends on the nature
of the breach and whether the breach itself prevents the
franchisor from earning those future royalties.” Id. at 371.
     By contrast, in Lady of America Franchise Corp. v. Arcese,
2006 U.S. Dist. LEXIS 68415 (S.D. Fla. 2006), the United States
District Court for the Southern District of Florida permitted a
franchisor to recover lost future royalties where the franchisee
voluntarily ceased operating the franchise, an action that,
under the terms of their agreement, automatically terminated the
agreement.   Id. at *18.    The court found “as a matter of law
that [the franchisee’s] actions were the proximate cause of the
termination of the agreement and [the franchisor’s] loss of
future royalties.” Id.
     We do not rely on any of these cases as specific authority,
and only raise them as examples of how other courts have
approached this issue.

                                  18
proximate consequence of a breach of contract” and “all damages

must flow directly and naturally from the wrong.”                                        Johnson v.

Atl.       Coast      Line     R.R.    Co.,     113 S.E. 606,    608    (N.C.     1922)

(citations omitted).               Here, it is the law of the case that RLB

materially breached the contract by closing the Shops before the

FTAs’       terms        ended.        The      nature          of    this     breach       is    so

comprehensive as to constitute a de facto abandonment of the

FTAs       by   the     sole    decision      of     the    franchisee,            RLB. 9     RLB’s

decision to close the Shops stopped the potential for generating

any revenues through their future operation.                                 That decision in

turn meant that Meineke, by virtue of this independent action of

RLB,       would    no    longer      receive      royalties          and    advertising         fund

contributions that it was entitled to receive under the FTAs.

RLB’s breach was therefore the proximate cause of Meineke’s lost

profits.

       Meineke’s         subsequent      decision          to    terminate         the    FTAs    had

certain         legal    consequences        impacting          the    relationship         between

the parties, but it did not cause RLB to stop operating the

Shops and thereby stop generating revenues:                                 an event which had

       9
       The record indicates that Meineke sent RLB letters upon
learning of the Shops’ closure and provided RLB with an
opportunity to respond as to its intent and cure the breaches in
order to avoid termination of the FTAs.    With the exception of
the one shop RLB indicated it desired to relocate, there is no
indication in the record that RLB responded to Meineke’s interim
letters. It was only after many months to over a year following
each Shops’ closure that Meineke finally terminated the FTAs.

                                                19
already     occurred.          As   a   result,       Meineke     was    losing      future

royalties     and    advertising        fund     contributions          it   would    have

received had the stores remained opened. 10                       The district court

thus erred in concluding that the termination of the FTAs by

Meineke, rather than the established breach by RLB, proximately

caused Meineke’s lost profits.

                                           2.

       Closely linked to the causation analysis is the requirement

that    Meineke     had   to    show    that     it   was   reasonably       certain    to

realize lost profits absent RLB’s breach.                         The district court

concluded     that    Meineke       had    not    made      the   requisite       showing

because the “Shops struggled to keep business going.”                                 (J.A.

832.)       The court concluded Meineke did not provide sufficient

evidence that the Shops “would have been profitable” had they

remained open.       (J.A. 832.)          Although the district court did not

define “profits,” its analysis focused on each shop’s net income

and whether the shop “generate[d] income.”                   (J.A. 832.)

       10
       In light of RLB’s breach, termination seems to have been
a prudent decision in order to prevent further losses and
otherwise protect Meineke’s interests. As just one example, the
decision to terminate the FTAs may appropriately be viewed as
part of Meineke’s responsibility to mitigate its damages
following RLB’s breach.    Under the terms of the FTAs, Meineke
was prohibited from refranchising within a certain geographic
proximity to the Shops as long as the FTAs were in force, and
therefore could not have approved another party’s application to
franchise the area unless the FTAs were terminated.

                                           20
       As   the     non-breaching            party,      Meineke       was    “entitled     to

compensation for the injury sustained and [was] entitled to be

placed,     as    near    as    this      can    be    done    in    money,    in   the   same

position     [it]    would      have      occupied       if    the     contract     had   been

performed.”        Perkins, 74 S.E.2d at 643.                   As detailed above, the

FTAs    entitled     Meineke         to    a    percentage       of    the     Shops’     gross

revenues each week, both as royalties and as advertising fund

contributions.            For    purposes         of     avoiding      RLB’s    motion     for

summary judgment, Meineke did not have to show that the Shops

would   generate      a    particular           profit    or    have    a    particular     net

income,     only    that       the     Shops      would       have    continued     to    have

revenues.        As long as the Shops continued to make some sales for

any period of time after the breach, Meineke would be entitled

to its lost royalties and advertising fund contributions as a

percentage of those gross sales.

       RLB contends “there is no evidence that [the Shops] could

have continued to be operational . . . given their financial

failings.”         (Appellees’         Br.      43.)      However,       Meineke    was    not

required to prove as part of its prima facie case for purposes

of avoiding summary judgment that it was commercially feasible

to operate the Shops at the time of the closures.                               Meineke was

only required to show it was due future damages based on future

operation of the Shops.                RLB could put on evidence as to when

the Shops could not operate in a commercially feasible manner,

                                                21
forcing          Meineke    to    adduce    evidence   to   the   contrary      to    avoid

summary judgment.                However, this record only reflects the Shops

were not operating at a “profit” but without a definition of

“profit.”           The record at this stage does not show the Shops

could       not     operate      in   a    commercially     feasible     manner      for    a

particular period of time after RLB closed each shop, and the

district court made no finding to that effect.                            The Shops, or

some of them, may or may not have been able to operate at the

time        of     their    closures        because    operation        was    no    longer

commercially feasible.                    Whether a Shop made a profit is not

relevant          without    a    definition    of    “profit”    and    how   that    term

relates to the commercial reasonableness of continued operation.

At this point in the proceedings, that determination has not

been made. 11

       There is a factual question then, both as to how long the

Shops could have been kept operational and as to the amount of

revenues the Shops would have generated during that period.                                It

would be for the finder of fact to determine what lost profits

       11
        For example, a franchisee may operate a location and fail
to make a “profit” because it pays above-market compensation,
uses revenues for other ventures, or a myriad of other purposes
unrelated to that location.      It would not be unusual for a
franchise location to operate as “unprofitable’ for a period of
time until it establishes a market or stable management.      None
of   these   circumstances,  standing   alone,  would   excuse   a
franchisee from payment of royalties. What occurred in the case
at bar is yet to be determined.

                                               22
Meineke can prove it was reasonably certain to have realized

from the time of the breach forward until such time as the

finder of fact determines it was no longer reasonably certain

that   any     revenues    would      exist.     We    make    no    prediction      what

additional evidence, if adduced, may show or whether that be at

another summary judgment proceeding or trial on the merits.                           The

salient point, for our purposes, is simply that material facts

remain in dispute, which does not permit the award of summary

judgment based on the current record.

       Meineke    satisfied       its   burden    of    showing      with     reasonable

certainty that except for RLB’s breach of the FTAs by closing

the Shops, some revenue – and therefore some lost royalties and

advertising fund contributions – would have been realized.                           This

showing was sufficient to survive summary judgment based on the

current       record,     and   the     district       court    erred       in    holding

otherwise.

                                          3.

       The district court also held Meineke’s “generic calculation

for    lost    profits”     did     not   “assess       [each       shop’s]      specific

location, viability, or profitability” and therefore failed to

measure or ascertain the asserted lost profits with reasonable

certainty.        (J.A.    833.)        The    court    specifically        noted    that

Meineke’s use of three years’ lost profits based on the time it

                                          23
usually takes to re-franchise a location was speculative because

“Meineke cannot say with certainty that every franchise takes

three years.”      (J.A. 833.)

     Under North Carolina law, “[a]s part of its burden, the

party seeking damages must show that the amount of damages is

based upon a standard that will allow the finder of fact to

calculate   the    amount   of    damages    with    reasonable    certainty.”

Olivetti Corp. v. Ames Bus. Sys., Inc., 356 S.E.2d 578, 586

(N.C. 1987) (citation omitted).          Consequently,

     damages for lost profits will not be awarded based
     upon hypothetical or speculative forecasts of losses.
     . . . Instead, [the court] evaluate[s] the quality of
     evidence of lost profits on an individual case-by-case
     basis in light of certain criteria to determine
     whether damages have been proven with “reasonable
     certainty.”

Iron Steamer, Ltd. v. Trinity Restaurant, Inc., 431 S.E.2d 767,

770 (N.C. Ct. App. 1993).          Absolute certainty is not required.

Mosley, 361 S.E.2d at 613; see also McNamara v. Wilmington Mall

Realty Corp., 466 S.E.2d 324, 329-31 (N.C. Ct. App. 1996).

     Meineke      asserts   its   lost     profits   were   calculated    with

reasonable certainty.       This is so, Meineke contends, because it

used each shop’s “actual historical sales data” to calculate

what royalties and advertising fund contributions RLB would have

paid Meineke in the future.         (Appellant’s Br. 44.)         RLB responds

that Meineke’s calculations are speculative because Meineke uses

“the identical generic formula [to calculate lost profits] in

                                      24
every case” and “Meineke cannot say with certainty that every

franchise takes three years.”          (Appellees’ Br. 46.)

       We begin with a brief summary of how Meineke calculated its

future damages arising from the Shops’ closures.                  For the three

franchises still operated by the Bajjanis, Meineke calculated

lost future royalties by using the average weekly sales of the

shop in prior years, multiplying that average sum by the number

of weeks in the three-year period for which it sought relief,

and    then     multiplying     that   amount    by   an    average     historical

royalty rate to determine the prospective franchise fees Meineke

lost as a result of the breach.              From that sum, Meineke deducted

its incremental savings resulting from the premature closing of

the franchise and then discounted that amount to present value.

A     similar     calculation    was    used    to    determine       lost   future

advertising fund contributions.              For the fourth franchise (the

one RLB sold to a third party), Meineke performed a similar

calculation for both amounts, but took into account both royalty

concessions and the period of time remaining on Joe Bajjani’s

personal guaranty.

       Having reviewed the evidence Meineke set forth as to the

amount of its lost profits, we conclude that the district court

erred    in     holding   Meineke’s    calculations     were    too    remote   and

speculative to survive summary judgment.                   Just because Meineke

uses the same formula in “every” breach of contract case does

                                        25
not   make    its   calculations    speculative.    Meineke    used   data

specific to each shop to calculate the damages it sought from

the closure of that shop.          Meineke’s calculations were based on

a historical analysis of the Shops’ actual revenues projected

into the future, a methodology North Carolina courts have upheld

as a reasonable basis for calculating damages like the future

royalties and advertising fund contributions sought here:             “If

an established business is wrongfully interrupted, the damages

can be proved by showing the profitability of the business for a

reasonable time before the wrongful act.           It is only when the

prospective    profits   are   conjectural,   remote,   or   speculative,

they are not recoverable.”         Mosley, 446 S.E.2d at 613 (internal

quotation mark and citations omitted). 12

      12
        Indeed, using past profits as a basis for calculating
future lost profits is a widely accepted methodology. Lockheed
Info. Mgmt. Sys. Co. v. Maximus, Inc., 524 S.E.2d 420, 429 (Va.
2000) (“[E]vidence of the prior and subsequent earning record of
a business can be used to estimate damages, in the case of an
established business with an established earning capacity.”);
Guard v. P&R Enters., Inc., 631 P.2d 1068, 1072 (Alaska 1981)
(“In cases involving an established business, courts have
considered past profits a reasonably certain measure by which to
calculate a damage award.”); Schoenberg v. Forrest, 228 S.W.2d
556, 560-61 (Tex. Ct. App. 1950) (“Where . . . it is shown that
the business . . . was making a profit[] when the contract was
breached, such pre-existing profit, together with other facts
and circumstances, may be considered in arriving at a just
estimate of the amount of profit which would have been made if
plaintiff had not breached its contract.” (quotation and
citation omitted)).

                                      26
     By using the Shops’ actual past performance to calculate

projected future royalties and advertising fund contributions,

Meineke did not fall into the sort of analysis North Carolina

courts have rejected as being too remote, hypothetical, or based

on conjecture.      E.g., McNamara, 466 S.E.2d at 330 (concluding

calculations were not reasonably certain where they were based

on nationwide data from stores who “bore [no clear] similarity

to plaintiff’s business” rather than “sales figures and other

financial   data”   from   smaller    stores    of   plaintiff’s    kind   or

similar stores in the region); Olivetti, 356 S.E.2d at 586-87

(concluding lost profits calculation not made with reasonable

certainty where it was based on being offered an opportunity

that was turned down and then the subsequent profitability of

that opportunity where there was no evidence in the record to

support either contingency).         To   the        contrary,     Meineke’s

calculations were “based upon standards that allowed the jury to

determine the amount of plaintiff’s lost profits with reasonable

certainty.” 13   McNamara, 466 S.E.2d at 330.

     13
        The Shops closed at different periods into their terms,
and thus had different lengths of past performance on which to
base Meineke’s calculations.  However, in Olivetti, the Supreme
Court of North Carolina rejected the “new business” rule, which
would have “preclude[d] an award of damages for lost profits
where the allegedly damaged party has no recent record of
profitability,” 356 S.E.2d at 585, either due to being a
“recently . . . instituted” business or an established business
“without a recent history of profitability.” Id. at 585 & n.3.
(Continued)
                                     27
       RLB’s arguments challenging the amount of future damages

Meineke      seeks,   including     the    three-year      period     for   which    it

seeks such damages, create a question of disputed fact as to

whether Meineke’s calculations reflect the time period for which

there is a reasonable certainty as to what lost profits would

have been received by Meineke.                  But Meineke’s methodology was

not    unreasonably     speculative,       hypothetical,       or    the    result   of

conjecture as a matter of law.                  Thus, summary judgment on this

issue was erroneous as material facts remain in dispute as to

the amount of future damages and the time period for which they

are collectible.

                                           4.

       The district court next held that “[f]uture damages were

not reasonably within the contemplation of the parties at the

time of” entering into the FTAs because “[i]f they had been,

Meineke      would    have    contractually       provided    for    them.”       (J.A.

834.)     The court stated “[i]t would be unjust to construe the

FTAs    as    permitting      future   damages      when     the    words   [do   not]

provide for them.”           (J.A. 834.)

Instead, the court held that lost profits could be awarded to
any business – regardless of age or history of recent
profitability – as long as damages were proven “with reasonable
certainty.” Id. at 585.

                                           28
     Meineke contends this was error because “[t]he fact that

the [FTAs do] not expressly list each available remedy for such

a breach does not preclude Meineke from seeking the customary

breach of contract remedies, including lost future royalties and

advertising [fund] contributions, allowed by the black letter

law of contracts.”            (Appellant’s Br. 35.)                 Moreover, Meineke

posits   “it       was   reasonably    foreseeable          that    if   [RLB]   stopped

operating [its] franchises before the expiration of the 15-year

term, Meineke would seek to recover the remaining royalties and

advertising        [fund]    contributions         due      to     Meineke   under    the

[FTAs].”      (Appellant’s Br. 34.)

    As        previously     noted,    to        recover        future   damages,    such

damages must “be reasonably supposed to have been within the

contemplation of the parties, when the contract was made, as the

probable result of a breach.”                Perkins, 74 S.E.2d at 644; see

also Lamm v. Shingleton, 55 S.E.2d 810, 812-13 (N.C. 1949) (“A

party    to    a   contract   who     is    injured        by    another’s   breach   of

contract is entitled to recover from the latter damages for all

injuries and only such injuries as are the direct, natural, and

proximate result of the breach . . . and can reasonably be said

to have been foreseen, contemplated, or expected by the parties

at the time when they made the contract as a probable or natural

result of a breach.” (quotation and citations omitted)).                              “In

ascertaining what damages come within the rule, it is proper to

                                            29
examine, not only the terms of the contract, the subject-matter,

etc.,     but       also    to   inquire    whether        such     circumstances          or

conditions as produced special damages were communicated to the

defendant.”          Storey, 100 S.E. at 691.

       It was an error of law for the district court to base its

analysis solely on whether prospective damages were explicitly

provided for in the terms of the FTAs.                      Demanding such express

evidence of contemplation requires more than proof that lost

profits       were    “reasonably     supposed      to     have    been”     within       the

parties’ contemplation, and instead requires absolute certainty

that    the     parties     considered     such    terms    by     including       them    in

their written agreement.              We could find no cases – and neither

the district court nor RLB cite to any – where North Carolina

courts    have       held   parties   to   such     a    high     standard    of    proof.

Indeed,       the    principles    espoused       above    clearly    negate        such    a

proposition, focusing instead on what damages are within the

contemplation and expectation of the parties, and those that are

naturally and likely resulting from a breach.                         North Carolina

courts have typically articulated the principles regarding what

damages are generally recoverable following a breach of contract

in     contrast       to    special   circumstances         that     may     lead    to     a

different recovery, which must have been specifically discussed

in order to be considered part of the parties’ contemplation at

the time of entering into the agreement.                     Perkins, 74 S.E.2d at

                                           30
643-44.         The     requirement         that      lost        profits     be     “reasonably

supposed to have been within the contemplation of the parties”

incorporates this notion of naturally arising from a breach, but

does not require express written agreement.                                 Cf. id. at 644.

Thus,     while       the    absence        of     such      an    express         lost    profits

provision in the contract is one fact the court may consider in

determining whether the parties reasonably contemplated future

damages,      cf.     Storey, 100 S.E.      at   691,     it   is    not        the   only

evidence      relevant        to    the     determination.            The     district          court

erred in relying on that evidence alone to conclude that the

parties did not contemplate lost profits as damages.

        The   record        reflects      several      relevant        factors       that       could

support a contrary conclusion, including the FTAs’ fifteen-year

terms     and     the       grant      of     an      exclusive        territorial          right.

Moreover,       the    entire       purpose      of    the    FTA    was      to    establish      a

binding       agreement        whereby        RLB      paid       Meineke      royalties         and

advertising fund contributions in exchange for being permitted

to operate under its name and marks, using its procedures and

products.       At the very least, this evidence juxtaposed against

the absence of an explicit FTA provision specifying the recovery

of future damages creates a disputed issue of fact about whether

Meineke’s lost royalties and advertising fund contributions in

the event of a breach were reasonably within RLB and Meineke’s

contemplation          at     the      time        they      entered        into     the        FTAs.

                                                 31
Accordingly, the district court erred in holding that RLB was

entitled to judgment as a matter of law as to this aspect of

Meineke’s claim.

                                    5.

     Lastly, with respect to mitigation of damages, the district

court   concluded   the   record   held   “no   evidence   that   Meineke

attempted   to   mitigate   its    damages   under   the   FTAs   by   re-

franchising.”    (J.A. 834.)       Citing the Supreme Court of North

Carolina’s decision in Miller v. Miller, 160 S.E.2d 65, 73-74

(N.C. 1968), the district court held that Meineke’s failure to

mitigate “operates as a bar to recovery.”            (J.A. 834.)       The

court’s quotation from Miller is incomplete and thus does not

correctly state the North Carolina law regarding mitigation:

     The rule in North Carolina is that an injured
     plaintiff, whether his case be tort or contract, must
     exercise reasonable care and diligence to avoid or
     lessen the consequences of the defendant’s wrong.   If
     he fails to do so, for any part of the loss incident
     to such failure, no recovery can be had. This rule is
     known as the doctrine of avoidable consequences or the
     duty to minimize damages. Failure to minimize damages
     does not bar the remedy; it goes only to the amount of
     damages recoverable.

Id. at 73-74 (internal citation omitted) (emphasis added).             The

district court thus erred as a matter of North Carolina law

because Meineke’s failure to mitigate, if such be ultimately

                                    32
found, does not bar recovery of prospective damages, but only

circumscribes the amount of damages that may be recovered.

        In asserting a failure to mitigate defense, the burden was

on RLB to allege and prove that Meineke failed to “do what

reasonable business prudence required to minimize [its] damage.”

Mt. Gilead Cotton Oil Col. v. W. Union Tel. Co., 89 S.E. 21, 22

(N.C.    1916);   see    also    United    Labs.,   Inc.    v.   Kuykendall,        403
S.E.2d 104,    108    (N.C.    Ct.     App.    1991)    (holding     an    injured

plaintiff “must exercise reasonable care and diligence to avoid

or lessen the consequences of the defendant’s wrong” (quotation

and   citation    omitted)).        To    avoid    denial   of    its    motion     for

summary judgment based on a failure to mitigate, RLB would have

had to put on some evidence that Meineke’s duty to mitigate

arose     contemporaneously       with     any    damages    arising       from     the

breach.      RLB did not offer any such proof, and instead more

broadly    claimed      that   Meineke    was    simply   not    entitled     to   the

amount of damages it sought because of a failure to mitigate.

In effect, RLB’s position is that Meineke was required to prove,

even as to the first day after RLB’s breach, that Meineke acted

in mitigation.       This argument reverses the burden of proof under

North Carolina law.

        Meineke   responded       to      this     assertion      with       evidence

contending    that      it   adequately    mitigated      its    damages     by    only

seeking damages for a three-year period rather than for the each

                                          33
FTA’s     remaining   term,     and    that       it   would    have   cost    more   to

specifically seek to refranchise the exact area of each of the

shops     rather   than   continuing         to    market      the   availability     of

nationwide     franchises. 14         This    evidence      creates     an    issue   of

disputed fact as to whether, under the circumstances of this

case, the three-year period satisfies the duty to mitigate and,

if not, what period of prospective damages between one day and

three years Meineke was entitled to recover before its failure

to mitigate barred further recovery.                   Accordingly, the district

court erred in its ruling on mitigation.

                                         IV.

     For the aforementioned reasons, we conclude that the FTAs

do not bar Meineke from recovering future damages, that RLB’s

breach proximately caused Meineke to incur prospective damages,

and that Meineke put forth sufficient evidence to create issues

of disputed fact on its claim for lost profits.                         Accordingly,

the district court erred in granting summary judgment to RLB on

     14
        For example, in deposition testimony, Meineke’s Chief
Financial Officer, Michael Carlet, explained that Meineke
“typically do[es] not try to refranchise a specific territory”
“[b]ecause the incremental cost to find a franchisee for that
specific territory would not be cost beneficial.”    (J.A. 503.)
He explained “[t]he cost to target a market on a specific basis,
to find the advertising source in that market, and to find a
franchisee is much more expensive than the other methods of
advertising that [Meineke] use[s] to attract franchisees.”
(J.A. 503; see also 503-06.)

                                         34
the   issue    of   prospective    damages.       We   therefore      reverse    the

district      court’s   grant     of   summary    judgment      to    RLB   as    to

Meineke’s      future    damages       claim     and   remand        for    further

proceedings consistent with this opinion.

                                                        REVERSED AND REMANDED

                                        35