Home Instead, Inc. v. David Florance , 721 F.3d 494 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-3521
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Home Instead, Inc.
lllllllllllllllllllll Plaintiff - Appellee
v.
David Florance; Michelle Florance; Friend of a Friend, Inc.
lllllllllllllllllllll Defendants - Appellants
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Appeal from United States District Court
for the District of Nebraska - Omaha
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Submitted: May 15, 2013
Filed: July 16, 2013
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Before RILEY, Chief Judge, MELLOY and SHEPHERD, Circuit Judges.
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SHEPHERD, Circuit Judge.
Home Instead, Inc. (“Home Instead”) filed a declaratory judgment action
against Friend of a Friend, Inc., David Florance, and Michelle Florance (collectively
“Friend”) after the parties unsuccessfully attempted to negotiate a franchise renewal
agreement. Friend moved for a preliminary injunction that would allow it to continue
operating as a franchisee of Home Instead during pendency of the litigation. The
district court denied Friend’s motion, and Friend filed this interlocutory appeal. We
have jurisdiction under 28 U.S.C. § 1292(a)(1). Because we conclude the district
court based its denial on a legally erroneous conclusion, we vacate and remand for the
district court to reconsider Friend’s motion.
I.
Home Instead provides senior care services through a franchise system. Home
Instead and Friend originally executed franchise agreements in 1997 and 1999 that
allowed Friend to open two Home Instead franchises. David and Michelle Florance
executed personal guarantees of the agreements The parties renewed these
agreements in 2002. In 2012, when the agreements were set to expire, Home Instead
and Friend began negotiating another renewal. Home Instead attempted to raise the
minimum monthly performance requirement in the renewal agreement, but Friend
asserted its 2002 agreements locked in the performance requirement.
Two key provisions of the 2002 renewal franchise agreements are at issue. The
first provision is section 2.F, which falls under the heading “GRANT OF
FRANCHISE.”1 Section 2.F provides:
The exclusive right to operate the Franchised Business within the
Exclusive Area is contingent upon Franchisee achieving and maintaining
minimum Gross Sales of Five Thousand Dollars ($5,000) in each twice-
monthly billing period (Ten Thousand Dollars ($10,000) per month) by
the end of the first year of operation of the Franchised Business,
achieving and maintaining minimum Gross Sales of Ten Thousand
Dollars ($10,000) in each twice-monthly billing period (Twenty
Thousand Dollars ($20,000) per month) by the end of the third year of
operation of the Franchised Business, and achieving and maintaining
1
The agreements specify that “[t]he headings of the several sections and
paragraphs are for convenience only and do not define, limit or construe the contents
of sections or paragraphs.” Appellants’ App. 107 & 203.
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minimum Gross Sales of Fifteen Thousand Dollars ($15,000) in each
twice-monthly billing period (Thirty Thousand Dollars ($30,000) per
month) from the end of the fifth year of operation of the Franchised
Business through the end of the term of this Agreement or any renewal
term of a renewal Franchise Agreement (the “Performance Standard”).
Appellants’ App. 75 & 171 (emphasis added).
The second key provision is section 15.A, which falls under the heading
“RENEWAL OF FRANCHISE” and provides:
If, upon expiration of the initial term of the Franchise, Franchisee has
during the term of this Agreement substantially complied with all its
material provisions and agrees to comply with the specifications and
standards then applicable for new franchised businesses, then Franchisee
has a right to renew the franchise for an additional term equal to the
then-customary initial term granted under Franchisor’s then-current form
of standard Franchise Agreement . . . . The franchisee may choose to
retain the provisions of this agreement with respect to the amount of
royalty fee should the then-current agreement call for a larger royalty
fee.
Appellants’ App. 98 & 194 (emphasis added).
During the district court proceedings, Home Instead argued that section 15.A
unambiguously allows Home Instead to raise the minimum monthly performance
requirement in renewal agreements, provided that the new requirement is generally
applicable to all new franchises. Friend argued that section 2.F unambiguously sets
the minimum monthly performance requirement at $30,000 for all franchise renewals.
The district court did not analyze whether the 2002 franchise agreements were
ambiguous, stating only that Friend “concede[s] that there is no ambiguity in the
provisions at issue.” Home Instead, Inc. v. Florance, No. 8:12CV264, 2012 WL
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4327041, at *4 (D. Neb. Sept. 20, 2012). It concluded, as a matter of law, that the
agreements do not fix the minimum performance requirement at $30,000 for renewal
agreements, but rather “give Home Instead the right to insist on new terms and
conditions each time a franchise is up for renewal.” Id. at *5. The court reasoned:
When read naturally and together with the rest of the Renewal
Agreement, § 2.F creates a floor, not a ceiling. For the duration of the
Renewal Agreements, and for any subsequent renewal, franchisees must
achieve a minimum of $30,000 in monthly gross sales. Nothing in § 2.F
prohibits the franchisor from raising the minimum amount.
Id. The district court then denied Friend’s motion for a preliminary injunction,
holding that because the 2002 franchise agreements unambiguously support Home
Instead’s position, Friend’s probability of success on the merits “is nil.” Id. at *4.
II.
We review a district court’s ultimate ruling on a preliminary injunction for
abuse of discretion, though we review its underlying legal conclusions de novo. See
Barrett v. Claycomb, 705 F.3d 315, 320 (8th Cir. 2013). Whether a contract is
ambiguous is a legal conclusion that we review de novo. See Neb. Pub. Power Dist.
v. Midamerican Energy Co., 234 F.3d 1032, 1040 (8th Cir. 2000). A district court
abuses its discretion in denying a preliminary injunction if it “rests its conclusion on
clearly erroneous factual findings or erroneous legal conclusions.” Barrett, 705 F.3d
at 320.
We have articulated a four-factor test for determining whether to grant a motion
for a preliminary injunction: “(1) the threat of irreparable harm to the movant; (2) the
state of the balance between this harm and the injury that granting the injunction will
inflict on other parties litigant; (3) the probability that movant will succeed on the
merits; and (4) the public interest.” Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d
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109, 113 (8th Cir. 1981) (en banc). While “no single factor is determinative,” id., the
probability of success factor is the most significant, Barrett, 705 F.3d at 320. Here,
the district court evaluated only the probability of success factor, denying injunctive
relief because it concluded Friend had no chance of succeeding on the merits.2 The
district court based this ruling on its underlying legal conclusion that the 2002
franchise agreements unambiguously supported Home Instead’s position.
Under Nebraska law, which both parties agree applies here, a court faced with
a question of contract interpretation must first determine whether the contract is
ambiguous. See Bedrosky v. Hiner, 430 N.W.2d 535, 539 (Neb. 1988). “A written
contract which is expressed in clear and unambiguous language is not subject to
interpretation or construction,” and a court simply must give effect to that language.
Id. at 540. In contrast, “[w]hen it is established that a contract is ambiguous, the
meaning of its terms is a matter of fact to be determined in the same manner as other
questions of fact.” Id.Where both parties claim a contract unambiguously supports their respective
positions, the court must determine whether the contract truly is unambiguous.3 Cf.
2
The district court stated that for purposes of its analysis, it would “assume[]
that the remaining Dataphase factors weigh in [Friend’s] favor.” Home Instead, 2012
WL 4327041, at *4. The court did not actually discuss or evaluate those factors.
3
The dissent suggests that we may not evaluate whether the contract is
ambiguous because “Friend concedes the contract is not ambiguous.” See infra at 10.
The dissent conspicuously fails to acknowledge that Home Instead and Friend both
argue the contract unambiguously supports their different, respective positions, and
that the district court did not adopt the interpretation that Friend advocates. The cases
the dissent cites to support its argument that we may not evaluate whether the contract
is ambiguous involve neither Nebraska law nor a situation where, as here, both parties
claim a contract unambiguously supports their divergent positions. See Maytag Corp.
v. UAW, 687 F.3d 1076, 1085 (8th Cir. 2012) (noting, in context of evaluating
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C.S.B. Co. v. Isham, 541 N.W.2d 392, 396 (Neb. 1996) (evaluating whether contract
construction was a question of law when “both parties argue that the contract is clear
and unambiguous”). “A determination as to whether ambiguity exists in a contract is
to be made on an objective basis, not by the subjective contentions of the parties . . . .”
Bedrosky, 430 N.W.2d at 539. In making this determination, a court must look at the
contract as a whole. Id. “A provision of a contract is ambiguous when, considered
with other pertinent provisions as a whole, it is capable of being understood in more
senses than one.” Id.
Here, both Home Instead and Friend asserted that the 2002 franchise
agreements unambiguously support their respective positions. The district court,
however, did not meaningfully analyze whether the 2002 franchise agreements are
ambiguous, commenting only that Friend conceded they were unambiguous. Upon
de novo review, we conclude that the franchise agreements are ambiguous with
respect to whether Home Instead may raise the minimum monthly performance
requirement in renewal agreements.
On the one hand, the language in section 2.F stating that the $30,000
requirement applies “through the end of . . . any renewal term of a renewal Franchise
Agreement,” Appellants’ App. 75 & 171, could be read as fixing this minimum
performance requirement as long as the franchisee continues to renew its franchise
agreement. On the other hand, section 15.A states that the franchisee must “agree[]
to comply with the specifications and standards then applicable for new franchised
whether retirees had vested rights under ERISA plan, that union conceded contract
“contained no unambiguous vesting language”); Rogers v. Am. Ins. Co., 338 F.2d
240, 242-44 (8th Cir. 1964) (applying Iowa law and engaging in lengthy analysis of
whether contract was unambiguous before rejecting plaintiff’s contention that contract
was ambiguous); Pet Milk Co. v. Boland, 175 F.2d 151, 156-58 (8th Cir. 1949)
(evaluating, under Missouri and Arkansas law, whether jury was properly instructed
about determining which document parties intended to be a contract).
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businesses” in order to renew a franchise agreement, with the exception that the
franchisee “may choose to retain the provisions of this agreement with respect to the
amount of royalty fee . . . .” Appellants’ App. 98 & 194. This language could be read
as requiring the franchisee to agree to all standardized terms in franchise renewals,
except for royalty fees.
When these provisions are read together, one reasonable interpretation of the
franchise agreement could be that both section 2.F and section 15.A address the same
subject—permissible terms for renewal contracts—and that section 2.F thus prevails
over section 15.A with respect to minimum performance requirements in renewal
contracts because it is more specific. See Krzycki v. Genoa Nat’l Bank, 496 N.W.2d
916, 922 (Neb. 1993) (“Where general and specific terms in a contract may relate to
the same thing, the more specific provision controls.”). However, section 15.A
explicitly allows franchisees to retain royalty fee provisions in renewal contracts but
makes no mention of performance requirements. Thus, another reasonable
interpretation could be that section 2.F merely specifies that minimum performance
requirements in renewal contracts will be at least $30,000 per month, while section
15.A gives Home Instead the authority to raise those minimum requirements as long
as the higher requirements are generally applicable to new franchised businesses.4 See
Davenport Ltd. P’ship v. 75th & Dodge I, L.P., 780 N.W.2d 416, 428 (Neb. 2010)
(“The expression of one thing implies the exclusion of another . . . .”).
Because sections 2.F and 15.A, when read together, are subject to at least two
reasonable interpretations, the franchise agreement is ambiguous as to whether Home
4
We consequently reject Friend’s argument that Home Instead’s proposed
interpretation would necessarily render superfluous the agreement language referring
to “any renewal term of a renewal Franchise Agreement.”
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Instead can raise the minimum performance requirement in renewal contracts.5 See
Luschen Bldg. Ass’n v. Fleming Co., 415 N.W.2d 453, 458 (Neb. 1987) (holding
contract was ambiguous when one section “seem[ed] to impose absolute liability . . .
to maintain and repair the parking lot” but “this repair liability could be seen as
limited by” other sections). Due to this ambiguity, construction of the franchise
agreement is a question of fact. See Bedrosky, 430 N.W.2d at 540. Consequently, the
district court erred in concluding that the contract was unambiguous and that, as a
matter of law, the contract allows Home Instead to raise the minimum performance
requirement in renewal contracts.
Because the district court’s denial of Friend’s motion for a preliminary
injunction was based on this erroneous legal conclusion, the denial was an abuse of
discretion. See Barrett, 705 F.3d at 320. However, the fact that the district court’s
decision was an abuse of discretion does not mean that Friend automatically is entitled
to a preliminary injunction. Rather, Friend is entitled to a preliminary injunction only
if the Dataphase factors, on balance, weigh in Friend’s favor. See Dataphase, 640
F.2d at 113. Friend asks this Court to conduct its own four-factor Dataphase analysis
and reach a conclusion regarding the preliminary injunction, while Home Instead
requests a remand for the district court to conduct the analysis in the first instance.
Friend has identified one case where this Court conducted its own Dataphase
analysis even though the district court had not addressed all of the Dataphase factors.
See Coteau Props. Co. v. Dep’t of Interior, 53 F.3d 1466, 1480-81 (8th Cir. 1995).
However, the more common approach is to remand for the district court to conduct the
full analysis in the first instance. See, e.g., Lankford v. Sherman, 451 F.3d 496, 513
(8th Cir. 2006) (remanding for further proceedings when district court had not
5
We do not suggest that these are the only two reasonable interpretations of the
franchise agreement.
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considered all four Dataphase factors); Blue Moon Entm’t, LLC v. City of Bates City,
Mo., 441 F.3d 561, 566 (8th Cir. 2006) (same); Dataphase, 640 F.2d at 114 (same).
Here, because the district court did not address three of the four Dataphase
factors, it did not make any findings of fact concerning the effect of a preliminary
injunction on Home Instead, Friend, or the public. Moreover, because the district
court’s analysis of the probability of success factor was based on an erroneous legal
conclusion, the district court did not have the opportunity to evaluate this factor under
the proper legal framework. “The district court is in the best position to evaluate all
of the evidence and weigh the factors to determine whether the injunction should
issue,” Lankford, 451 F.3d at 513, and we vacate and remand the case for the district
court to do so.
III.
Accordingly, we vacate and remand for the district court to conduct a full
Dataphase analysis consistent with this opinion and to reconsider Friend’s motion for
a preliminary injunction.
RILEY, Chief Judge, dissenting.
Because the district court correctly analyzed the facts and applied Nebraska law
in denying Friend’s motion for preliminary injunction, I respectfully dissent for the
reasons stated in the district court’s order.
The panel majority incorrectly claims the district court “only” evaluated one
Dataphase factor—factor three—the “probability of success . . . on the merits.” Ante
at 5. The district court adequately evaluated all four Dataphase factors and assumed,
for purposes of the motion, that all of the factors favored Friend, except for factor
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three. The district court then expressly determined Friend was not entitled to relief
because Friend could not (1) demonstrate a probability that Friend would succeed on
the merits, and (2) the remaining factors were insufficient to justify the “extraordinary
remedy” of a preliminary injunction. Roudachevski v. All-Am. Care Ctrs., Inc., 648
F.3d 701, 705 (8th Cir. 2011) (explaining a preliminary injunction is “an extraordinary
remedy”); Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed. Cir. 1993)
(“[A] preliminary injunction is a drastic and extraordinary remedy that is not to be
routinely granted.”).
Friend failed to demonstrate a probability of success on the merits because the
plain language of the contract unambiguously contradicts Friend’s argument. See
Ruble v. Reich, 611 N.W.2d 844, 850 (Neb. 2000) (“The terms of a contract are to be
accorded their plain and ordinary meaning as ordinary, average, or reasonable persons
would understand them.”). Friend concedes the contract is not ambiguous, and,
notwithstanding the panel majority’s critique, ante at 6, the district court may accept
that concession, as we ourselves frequently and consistently do. See, e.g., Maytag
Corp. v. UAW, 687 F.3d 1076, 1085 (8th Cir. 2012); Rogers v. Am. Ins. Co., 338 F.2d
240, 244 (8th Cir. 1964); Pet Milk Co. v. Boland, 175 F.2d 151, 158-59 (8th Cir.
1949). When the parties argue different contract interpretations, that debate does not
necessarily make the contract ambiguous. See Knox v. Cook, 446 N.W.2d 1, 4 (Neb.
1989) (“The fact that parties to a document have or suggest opposing interpretations
of the document does not necessarily, or by itself, compel the conclusion that the
document is ambiguous.”). Only the panel majority finds an ambiguity here.6
6
The majority opinion in footnote 3 misses my point: we always may accept a
concession by a party—here, non-ambiguity. Of course, we may evaluate whether the
contract language is ambiguous, which the district court did, and in which I concur.
The district court rejected both parties’ interpretations and itself interpreted the
language of § 2.F. Further evaluation of the parties’ respective interpretations is
unnecessary because the provisions of § 2.F. use “clear and unambiguous language.”
Bedrosky v. Hiner, 430 N.W. 2d 535, 539 (Neb. 1988).
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When the contract has no ambiguity, the contract’s interpretation, viewing the
contract as a whole, becomes a question of law. Ruble, 611 N.W.2d at 850. Although
Friend conceded lack of ambiguity and did not discuss ambiguity in any detail, the
district court, contrary to the majority opinion’s reference, ante at 6, did “meaningfully
analyze whether the 2002 franchise agreements are ambiguous.” The district court
thoroughly analyzed the contract language and determined the provisions of § 2.F.,
when “read naturally and together” with the provisions governing renewals,
contravened Friend’s “strained” interpretation. As the district court
explained, “§ 2.F[.] creates a floor, not a ceiling.” The district court
reasoned—Section 2.F. does not prohibit Home Instead
from raising the minimum amount. A minimum of $70,000 includes,
and is not inconsistent with, a minimum of $30,000.
....
Home Instead may . . . continue to update the standard
requirements for new franchises, and insist that renewing franchises
conform. This serves two important functions. First, it allows Home
Instead to maintain relatively uniform franchise agreements. . . . Second,
it prevents Home Instead from being stuck with terms that have ceased
being profitable or are failing to account for current market conditions.
....
[Friend] cannot demonstrate any probability that they will succeed on the
merits. This is the 800-pound gorilla in the room, and it is not going to
budge, even if the remaining Dataphase factors all joined in pushing.
I agree. I would affirm the well reasoned judgment of the district court.
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