Court Opinion

ID: 4098436
Source: CourtListenerOpinion
Date Created: 2016-11-15 21:01:17.767265+00
Date Added: 2024-06-11T07:45:37.075862
License: Public Domain

Case: 15-14872       Date Filed: 11/15/2016     Page: 1 of 6

                                                                   [DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                           FOR THE ELEVENTH CIRCUIT
                              ____________________

                                Nos. 15-14872, 15-15759
                                ____________________

                         D.C. Docket No. 1:07-cv-00741-RWS

EDWARD TRONNES, et al.,

                                                              Plaintiffs-Appellants,

                                          versus

MOE’S SOUTHWEST
GRILL, LLC, et al.,

                                                                Defendants-Appellees.

                             ________________________

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

                                  (November 15, 2016)

Before ROSENBAUM and JULIE CARNES, Circuit Judges, and UNGARO, *
District Judge.

PER CURIAM

*
  Honorable Ursula Ungaro, United States District Judge for the Southern District of Florida,
sitting by designation.
               Case: 15-14872    Date Filed: 11/15/2016    Page: 2 of 6

I.    Background

      This is an appeal from judgment entered in favor of Defendants and against

Plaintiffs after a seven day bench trial. (ECF Nos. 588-598.)

      Plaintiffs, who are Moe’s Southwest Grill franchisees, alleged that they

“overpaid and continue to overpay for food, supplies, equipment, and other goods

and services used in their franchise operations, as a result of a ‘kickback’

arrangement benefiting the Defendants.” (ECF Nos. 506, 94 ¶¶ 59-72.) Plaintiffs

further alleged that they were entitled to disgorgement of the overpayments

because Defendants failed to disclose the kickback arrangement in violation of

common law, FTC regulations and each of the plaintiffs’ relevant state’s consumer

protection act. (Id.)

      After conducting a bench trial, the district court issued Findings of Fact and

Conclusions of Law finding in favor of Defendants and entered judgment

accordingly. (ECF No. 599.) Thereafter, the district court granted Defendants’

motion for attorneys’ fees and awarded Defendants attorneys’ fees in the amount

of $938,234.90 based upon a provision in the Market Development Agreements

(“MDAs”) into which Plaintiffs had entered providing for an award of attorneys’

fees to the franchisor, its agents or employees as the prevailing parties in any

                                          2
              Case: 15-14872     Date Filed: 11/15/2016   Page: 3 of 6

action “arising out of or related to” the MDAs. (ECF No. 618.) Plaintiffs timely

filed this appeal challenging both the judgment in favor of Defendants and the fee

award. (ECF Nos. 625, 647.)

II.    Standard of Review

       We review findings of fact made by district courts under the clearly

erroneous standard and conclusions of law de novo. Thomas v. Bryant, 614 F.3d
1288, 1303 (11th Cir. 2010).

III.   Analysis

       After reviewing the record and the parties’ briefs, we affirm the judgment

entered in favor of Defendants based on the district court’s well-reasoned Findings

of Fact and Conclusions of Law. (ECF No. 599). However, we reverse the district

court’s award of attorneys’ fees because the court erred in finding that Plaintiffs’

claims arose from or related to the MDAs signed by the parties.

       The district court awarded Defendants attorneys’ fees, in the amount of

$938,234.90, based solely on the attorneys’ fees provision in the MDAs signed by

each franchisee and Appellee Moe’s Southwest Grill, LLC (ECF No. 618.) The

district court found that “the relationship between the parties resulting from the

Franchise Agreements arose from and related to the initial MDAs entered into by

the parties . . . [such that] Defendants are entitled to recover reasonable attorneys’

                                          3
              Case: 15-14872     Date Filed: 11/15/2016   Page: 4 of 6

fees and costs associated with defending this action pursuant to the terms of the

MDAs.” (Id. at 4-5).

      “Because contract interpretation is a question of law, we review the district

court’s interpretation of the contract and subsequent [award] of attorneys’ fees de

novo.” Johnson Enters. of Jacksonville, Inc. v. FPL Grp., Inc., 162 F.3d 1290,

1329 (11th Cir. 1998) (internal citations omitted). In this Circuit, “[d]isputes that

are not related—with at least some directness—to performance of duties specified

by the contract do not count as disputes ‘arising out of’ the contract.” Telecom

Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1116 (11th Cir. 2001);

Gregory v. Electro-Mech. Corp., 83 F.3d 382, 386 (11th Cir. 1996); McBro

Planning & Dev. Co. v. Triangle Elec. Const. Co., 741 F.2d 342, 344 (11th Cir.

1984), abrogated on other grounds by Lawson v. Life of the S. Ins. Co., 648 F.3d
1166, 1171 (11th Cir. 2011); Seaboard Coast Line R.R. Co. v. Trailer Train Co.,

690 F.2d 1343, 1349-50 (11th Cir. 1982).

      The relevant provision of the MDAs providing the basis for the district

court’s award of attorneys’ fees is as follows:

         Should Developer institute an action against Franchisor or any of
         Franchisor’s agents or employees for any claim arising out of or
         related to this Agreement, Franchisor (or its agents or
         employees), if it prevails, shall recover from Developer its costs
         and reasonable attorneys’ fees incurred in defending said action.

                                          4
                Case: 15-14872       Date Filed: 11/15/2016       Page: 5 of 6

Record at 1869 § 21. 1

        The district court erred in finding that Plaintiffs’ claims arise out of or relate

to the MDAs.2 Plaintiffs’ Third Amended Complaint alleged claims based entirely

on Plaintiffs overpaying for food, supplies, equipment and other goods and

services due to an illegal kickback scheme, which Defendants failed to disclose to

Plaintiffs in violation of state law and federal regulations. (ECF Nos. 506, 94 ¶¶

59-72.)    These allegations relate directly to the Franchise Agreements which

governed the operation of each franchise, including “prepar[ing] and sell[ing] all

products sold” by franchisees, but lack any direct relationship to the MDAs which

first granted franchisees the right to develop Moe’s Southwest Grill restaurants

subject to the franchisor’s requirements. Record at 1860-1877, 1835-57, 1839 §

7(a).

        Having reviewed and interpreted the MDAs and FAs de novo, we therefore

conclude that because: (1) there is no dispute that Plaintiffs’ claims arise out of and

relate to an alleged kickback scheme that took place and impacted franchises

1
  Because each of the MDAs and Franchise Agreements (“FAs”) executed by the parties are
identical, we cite only to the MDA and FA executed by Robert Dreesch, Steve Egan-Fowler and
Brad Dunning.
2
  The district court did not address whether Defendants Raving Brands Holding, Inc., Raving
Brands, Inc., H. Martin Sprock, III (“Sprock”), or Moe’s Southwest Grill Holdings, LLC, were
“agents or employees” of Moe’s Southwest Grill, LLC, such that these Defendants could recover
attorneys’ fees under fee provision of the MDAs. (See ECF No. 618.) While Sprock was almost
certainly an employee or agent of Moe’s Southwest Grill, LLC and could, therefore, recover
attorneys’ fees for disputes arising out of or relating to the MDAs, the relationship between the
remaining Defendants and Moe’s Southwest Grill, LLC is unclear.
                                               5
              Case: 15-14872     Date Filed: 11/15/2016   Page: 6 of 6

during the operation of each respective franchise; and (2) the language employed

in the MDAs and FAs plainly shows that the operation of each franchise is

governed by the FAs and not the MDAs, Plaintiffs claims do not “arise out of or

relate[] to” the MDAs and the award of attorneys’ fees was error. Telecom Italia,
248 F.3d at 1116; see also Seaboard Coast Line R.R. Co., 690 F.2d at 1349-50

(claim did not arise under contract where the contract did “not profess to cover all

present and future aspects of the relationship between [the parties]” but was instead

“a contract of limited application”).

      AFFIRMED IN PART AND REVERSED IN PART.

                                         6