Coyote Portable Storage, LLC v. PODS Enterprises, Inc. , 618 F. App'x 525 ( 2015 )

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[DO NOT PUBLISH]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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