Court Opinion

ID: 6320443
Source: CourtListenerOpinion
Date Created: 2022-03-05 05:01:26.061353+00
Date Added: 2024-06-11T09:02:37.517474
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 22a0099n.06

                                          No. 21-5685

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

 SERVPRO INDUSTRIES, INC., nka Servpro )
                                                       )
 Industries, LLC,                                                           FILED
                                                       )
                                                       )              Mar 04, 2022
         Plaintiff-Appellee,
                                                       )          DEBORAH S. HUNT, Clerk
                                                       )
 RICHARD CONNER,
                                                       )
                                                       )
        Third Party Defendant-Appellee,                        ON APPEAL FROM THE
                                                       )
                                                               UNITED STATES DISTRICT
                                                       )
                 v.                                            COURT FOR THE MIDDLE
                                                       )
                                                               DISTRICT OF TENNESSEE
 TAMMY WOLOSKI; PAUL WOLOSKI; DELTA )
 DAWGS CONSTRUCTION CORPORATION, dba )
                                                       )
 Servpro of Rosemead / South El Monte,
                                                       )
         Defendants/Third Party Plaintiffs-Appellants. )
                                                       )
                                                       )

Before: BATCHELDER, GIBBONS, and GRIFFIN, Circuit Judges.

       GRIFFIN, Circuit Judge.

       Defendants operated a Servpro franchise until Servpro terminated the parties’ agreement

after receiving several complaints about defendants’ business practices. This litigation ensued,

resulting in the district court granting judgment in Servpro’s favor on a myriad of claims and

counterclaims. On appeal, defendants raise issues that are either foreclosed by the plain language

of the parties’ agreement or forfeited by failing to present them below. Accordingly, we affirm

the district court’s judgment.
No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

                                                 I.

       Plaintiff Servpro Industries, Inc., is a franchisor of cleaning and damage-restoration

services. Defendants Tammy and Paul Woloski own Delta Dawgs Construction, which operated

a Servpro franchise near Los Angeles, California. The parties’ Franchise Agreement expressly

stated that it was “formed and made in Tennessee” (where Servpro is headquartered) and provided

that Tennessee law governed the relationship. It also contained a “California Addendum” which

provided, in part, as follows:

       This Addendum to Franchise License Agreement is made in recognition of the
       requirements of the California Business and Professions Code Sections 20000 to
       20043. The parties to the attached Servpro Industries, Inc. Franchise License
       Agreement (the “Agreement”) agree as follows:

           1. Section 1.2, Renewal, and Section 10, Default and Termination, are
              amended by adding: California Business and Professions Code Sections
              20000 to 20043 provide rights to [Delta Dawgs] concerning termination or
              non-renewal of a Franchise and further provide if the Agreement is
              inconsistent with California law, California law will control.

                                               ***

           6. Section 13.10, Governing Law, is amended by adding: The Agreement
              requires application of the law of the State of Tennessee. This provision
              may not be enforceable under California law.

       While Delta Dawgs operated as a Servpro franchisee, Servpro received several serious

complaints about Delta Dawgs’ business practices, including allegations of price gouging,

excessive demolition, fraudulent billing, and unprofessional business practices.            Servpro

determined that these complaints placed its reputation at risk, so it terminated the agreement. Delta

Dawgs continued to use the Servpro trademark, which led Servpro to sue defendants for trademark

infringement and breach of contract. Defendants countersued, alleging in relevant part that

Servpro violated the California Franchise Relations Act (CFRA) and breached the Franchise

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No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

Agreement. The district court entered judgment in Servpro’s favor on all counts and defendants

have timely appealed.

                                                 II.

       Defendants first appeal the district court’s dismissal of their CFRA counterclaim. We

review the district court’s ruling on a Rule 12(b)(6) motion de novo. In re Fifth Third Early Access

Cash Advance Litig., 925 F.3d 265, 275–76 (6th Cir. 2019). Defendants bring three arguments:

(1) that the California Addendum to the Franchise Agreement affords them rights under the CFRA;

(2) even if the CFRA does not apply, the district court should have found the counterclaim viable

under Tennessee law; and (3) the district court erred when it denied their request for leave to

amend. We disagree.

                                                 A.

       First, defendants argue that the California Addendum to the Franchise Agreement operates

as a choice-of-law provision and affords them rights under the CFRA.1 Specifically, defendants

seek to enforce Cal. Bus. & Prof. Code §§ 20020 (Grounds for Termination), 20035 (Termination

or Failure to Renew), and 20040.5 (Venue) against Servpro. The district court found that the

California Addendum did not modify the choice-of-law provision in the Franchise Agreement, so

Tennessee law governed the parties’ relationship. It concluded that to the extent that the Franchise

Agreement incorporated the CFRA via the California Addendum, defendants could litigate those

rights as their breach of contract claim, which was not yet before the court. Defendants could not,

however, litigate a standalone CFRA claim. We agree.

       1
          Servpro argues that defendants failed to preserve this argument by not presenting it to the
district court. But defendants explicitly argued to the district court that the California Addendum
provided them rights under the CFRA, so it is properly before us.
                                                -3-
No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

       The question presented here is simple: did the California Addendum modify the terms of

the Franchise Agreement, or did it provide defendants the right to bring standalone claims under

California law? The plain language of the California Addendum answers that question. The

California Addendum “amend[s] by adding” certain language to the Franchise Agreement. This

is consistent with the meaning of “addendum”—“Something to be added, usually to a document;

especially a supplement to a . . . contract . . . to alter its contents or give more information.”

Addendum, Black’s Law Dictionary (11th ed. 2019). So § 1 of the California Addendum modifies

the text of §§ 1.2 and 10 of the Franchise Agreement. That is, the rights conferred by § 1 of the

California Addendum are contract rights, enshrined in the Franchise Agreement as amended by

the California Addendum. Section 1 does not provide any standalone rights to defendants.

Therefore, the district court correctly determined that, to the extent that Cal. Bus. & Prof. Code

§§ 20020, 20035, and/or 20040.5 are incorporated into the Franchise Agreement, any alleged

failure to comply with those provisions is necessarily part of defendants’ breach of contract claim.

       Defendants resist this conclusion by arguing that § 1 of the California Addendum operates

as a choice-of-law provision. The language of the California Addendum shows that this is

incorrect.   The Franchise Agreement contains a clear choice-of-law provision designating

Tennessee law. True, the California Addendum provides that if the Franchise Agreement is

inconsistent with California law, California law will control. But on appeal, defendants argue only

that the CFRA is inconsistent with a wholly inapplicable provision of Tennessee law, Tennessee

Code § 47-25-1504. That statute allows franchisors to terminate a franchise without an opportunity

to cure only in seven specific circumstances. But what defendants fail to acknowledge is that

Tennessee Code provision applies only to franchises that are “required to be licensed under”

Tennessee’s liquor control code. § 47-25-1502(1). Delta Dawgs does not hold a liquor license,

                                                -4-
No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

so this Tennessee law is inapplicable. Defendants do not argue that any other Tennessee law is

inconsistent with California law, so Tennessee law—not the CFRA—continues to govern the

dispute. Thus, the district court properly dismissed defendants’ standalone CFRA claim.

                                                   B.

        Defendants next argue that the district court should have found this counterclaim viable

under Tennessee law. But defendants did not present this argument to the district court, so it has

been forfeited. See Thomas M. Cooley Law Sch. v. Kurzon Strauss, LLP, 759 F.3d 522, 528 (6th

Cir. 2014) (“It is well-settled that this court’s function is to review the case presented to the district

court, rather than a better case fashioned after an unfavorable order.” (citation omitted)).

                                                   C.

        Finally, defendants argue that the district court should have granted their request for leave

to amend. Generally, we review a district court’s denial of a motion for leave to amend a complaint

for an abuse of discretion. Babcock v. Michigan, 812 F.3d 531, 541 (6th Cir. 2016). However, an

informal request to amend raised only in response to a motion to dismiss does not constitute a

motion for leave to amend. See, e.g., Beydoun v. Sessions, 871 F.3d 459, 469–70 (6th Cir. 2017).

Defendants requested leave to amend in the final sentence of their opposition to Servpro’s motion

to dismiss, rather than in a standalone motion to amend. Such a request is procedurally improper.

Id. The district court did not abuse its discretion when it denied defendants’ request to amend.

                                                   III.

        Next, defendants challenge the district court’s grant of summary judgment in favor of

Servpro on their breach-of-contract counterclaim.          We review the district court’s summary

judgment rulings de novo. Wilmington Tr. Co. v. AEP Generating Co., 859 F.3d 365, 370 (6th

Cir. 2017). “Summary judgment is proper when, viewing the evidence in the light most favorable

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No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

to the nonmoving party, there is no genuine dispute as to any material fact and the moving party

is entitled to judgment as a matter of law.” Id. (citation omitted).

        Defendants argue that the district court committed three errors: (1) it failed to recognize

that the termination provision of the Franchise Agreement is unenforceable under Tennessee law;

(2) questions of fact remain regarding whether Delta Dawgs actually engaged in the alleged

misconduct, creating triable issues that preclude summary judgment; and (3) a question of fact

exists as to whether Servpro was required to compensate them upon termination of the franchise.

Having failed to raise either the first or third asserted error below, defendants have forfeited our

review of those issues. See Thomas M. Cooley Law Sch., 759 F.3d at 528.

        That leaves us with the contention that there was a triable issue of fact as to whether Delta

Dawgs actually engaged in the conduct that led Servpro to terminate the Franchise Agreement,

given defendant Tammy Woloski’s statement that all complaints against Delta Dawgs were

unfounded. This statement, standing alone, is insufficient to withstand summary judgment for two

reasons.

        First, “[c]onclusory assertions, supported only by [a non-moving party]’s own opinions,”

do not create genuine disputes of material fact. Arendale v. City of Memphis, 519 F.3d 587, 605

(6th Cir. 2008).    Tammy’s generic we-did-nothing-wrong statement is unsupported by any

evidence and is therefore not enough. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252

(1986) (“The mere existence of a scintilla of evidence in support of [a party]’s position will be

insufficient.”).

        Second, even considering Tammy’s statement, no reasonable jury could have found that a

question of fact existed. Section 10.4(c) of the Franchise Agreement allows Servpro to terminate

the relationship with Delta Dawgs if Servpro was on notice that Delta Dawgs was engaged in any

                                                 -6-
No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

“conduct that reflects materially and unfavorably” upon Servpro and its reputation. This language

makes clear that Servpro was entitled to terminate the Agreement if it determined that defendants’

conduct had a material and unfavorable effect on Servpro’s interests. And Servpro presented

sufficient evidence to demonstrate that Delta Dawgs was engaged in conduct that was likely to

have an adverse effect on Servpro’s reputation, including a dozen complaints about Delta Dawgs

business practices, four of which came from established Servpro customers, and a declaration from

Servpro’s President stating that defendants’ conduct reflected materially and unfavorably on

Servpro and its reputation.    A “[g]ood faith belief of the franchisor that the franchisee is

untrustworthy or engages in fraudulent practices undermines the entire franchise relationship.”

Humboldt Oil Co., Inc. v. Exxon Co., U.S.A., 695 F.2d 386, 389 (9th Cir. 1982). Servpro has a

legitimate concern, represented in the Franchise Agreement, with the public’s opinion about

whether it is a reputable company, and a dozen complaints might reasonably affect that opinion.

Delta Dawgs has offered no evidence beyond conclusory self-serving statements to support its

position that Servpro’s concerns were not valid. Accordingly, the record establishes that Servpro

was on notice that Delta Dawgs engaged in conduct that could damage Servpro or its reputation.

This was a proper basis for Servpro to terminate the Franchise Agreement.

       Defendants argue that Servpro’s “good faith belief” is insufficient to terminate the

Franchise Agreement. This is contrary to the plain language of the contract, which allows for

termination on Servpro’s “belie[f]” that Delta Dawgs’ conduct would “have an adverse effect” on

it. And the implied covenant of good faith and fair dealing applies to contracts formed under

Tennessee law, see Dick Broad. Co., Inc. of Tennessee v. Oak Ridge FM, Inc., 395 S.W.3d 653,

660 (Tenn. 2013), so the Franchise Agreement allowed Servpro to terminate Delta Dawgs’s

franchise when it had a good faith belief that Delta Dawgs was acting in a way that might harm

                                                -7-
No. 21-5685, Servpro Industries, Inc. v. Woloski, et al.

Servpro’s reputation. As there was no genuine issue of fact, the district court properly granted

summary judgment in favor of Servpro on defendants’ breach of contract claim.2

                                                IV.

       For these reasons, we affirm the judgment of the district court.

       2
          Although defendants designated in their Civil Appeal Statement of Parties and Issues the
district court’s entry of judgment in Richard Conner’s favor, they did not brief any claims against
him. They have, therefore, forfeited this aspect of their claim of appeal. See White Oak Prop.
Dev., LLC, v. Washington Twp., Ohio, 606 F.3d 842, 850 (6th Cir. 2010).
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