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Jos. A. Bank Clothiers, Inc. v. J.A.B.-Columbia, Inc.

United States District Court, D. Maryland

December 15, 2017

JOS. A. BANK CLOTHIERS, INC., Plaintiff,
v.
J.A.B.-COLUMBIA, INC. et al., Defendants.

          MEMORANDUM OPINION

          ELLEN LIPTON HOLLANDER, UNITED STATES DISTRICT JUDGE.

         This case arises from a dispute concerning three franchise agreements. Plaintiff Jos. A. Bank Clothiers, Inc. (“Jos. A. Bank” or “JAB”) is a men's clothing store with more than 500 locations, of which fourteen are franchised. ECF 1, ¶¶ 7, 9. Defendants J.A.B.-Columbia, Inc.; J.A.B.-Harbison, Inc.; and J.A.B.-Forest Drive, Inc. (collectively, the “Franchisees”) own three of Jos. A. Bank's franchise stores. Id. at 1. The Franchisees' initial franchise term is at an end, and the parties disagree on whether the Franchisees are entitled to more than one renewal of their franchise term. ECF 1; ECF 10.

         JAB has filed a Complaint seeking a declaratory judgment. ECF 1.[1] It asks the Court to declare that the franchise agreements in issue provide for only a single franchise renewal and not unlimited or perpetual franchise renewals; that the Franchisees' failure to execute the form of successor franchise agreement offered to them by Jos. A. Bank, without further renewals, constitutes an election by them not to buy a successor franchise; and that the Franchisees' election not to buy a successor franchise allows JAB to terminate the franchises of the Franchisees at any time. Id. at 9-10. JAB appended the three franchise agreements to its Complaint. ECF 1-1; ECF 12; ECF 1-3.

         The Franchisees have pleaded three counterclaims, two of which remain. ECF 10, ¶¶ 33-41.[2] The first is for a declaratory judgment that the Franchisees are entitled to a renewed franchise agreement on the same terms as their original franchise agreement, including its renewal clause. Id. ¶¶ 28, 37. The second counterclaim is for breach of contract, which the Franchisees allege occurred when Jos. A. Bank tendered the improper successor franchise agreement to the Franchisees. Id. ¶ 40. The Franchisees seek “not less than $75, 000.00” in damages as a result of the breach. Id.

         After a lengthy and contentious discovery period, JAB filed a motion for summary judgment as to all claims and counterclaims. ECF 63. The motion is supported by a memorandum of law (ECF 63-1) (collectively, the “JAB Motion”) and ten exhibits. The Franchisees oppose the JAB Motion and filed a cross-motion for summary judgment. ECF 68. That motion is also supported by a memorandum (ECF 68-1) (collectively, the “Franchisees' Motion”) and many exhibits.[3] Jos. A. Bank filed a combined opposition to the Franchisees' Motion and a reply in support of its own summary judgment motion. ECF 73. The Franchisees replied (ECF 74) and requested a hearing. ECF 75.

         No hearing is necessary to resolve the motions. See Local Rule 105.6. For the reasons that follow, I shall deny both motions.

         I. Factual Background[4]

         A. The Franchise Partnership

         Jos. A. Bank, a men's retail clothier, first began franchising in the early 1990s. ECF 68-2 (Declaration of John W. Bell, III), ¶ 9. In 1991, JAB hired John W. Bell, III, to recruit franchisees. Id. ¶ 11; ECF 68-9 (Deposition of John W. Bell, III) at 4. Bell became Jos. A. Bank's first franchise owner when he converted his family's business to JAB's first franchise locations in Asheville, North Carolina, and Knoxville, Tennessee in 1992. ECF 68-2, ¶ 9.

         Later in the 1990s, Bell partnered with John A. Batt, Jr., and John F. French-who together owned a Jos. A. Bank franchise store in New Orleans (id. ¶ 12)-to open more stores. Id. ¶ 13. Bell, Batt, and/or French, sometimes with other co-owners, control thirteen of Jos. A. Bank's fourteen franchise stores, and Bell provides management services to all fourteen franchise stores. Id. ¶ 5. In addition to the locations mentioned, these include stores in Jackson, Mississippi; Montgomery, Alabama; Augusta, Georgia; Baton Rouge, Louisiana; and Metairie, Louisiana. Id. ¶¶ 12-13. From 1998 to 2005, Jos. A. Bank did not establish any new franchise stores. Id. ¶ 14.

         Jos. A. Bank entered franchise agreements with the Franchisees beginning in August 2005, when Bell, Batt, and French agreed with Jos. A. Bank to open a franchise store in Columbia, South Carolina. See ECF 1-1; ECF 63-2 at 13-14 (deposition of Charles Frazer, Esq.). Then, in October 2009 and April 2010, Jos. A. Bank and Bell, Batt, and French agreed to open two more stores in Columbia, South Carolina: one on Harbison Boulevard (“Harbison”) and one on Forest Drive in Trenholm Plaza (“Forest Drive”). See ECF 1-2; ECF 1-3; see also ECF 63-2 at 14-16. These three South Carolina franchise stores are the defendants- counterclaimants in this suit. The Franchisees' initial franchise agreements expired on August 31, 2015. See ECF 1-1 at 5; ECF 1-2 at 6; ECF 1-3 at 6.

         Bell, Batt, and French also opened a franchise in West Knoxville, Tennessee, which is the subject of parallel litigation. See ECF 68-38 (West Knoxville franchise agreement); see also J.A.B. - West Knoxville, Inc. v. Jos. A. Bank Clothiers, Inc., ELH-16-2667. In August 2011, JAB granted one more franchise, for a store located in Mandeville, Louisiana, part of the New Orleans market. ECF 63-2 at 20 (list of franchises by origination date); ECF 73-6 at 24 (deposition of Charles Frazer, Esq.). The Mandeville franchise agreement did not provide for any renewals. See ECF 68-25 at 30 (Mandeville franchise agreement).

         In 2014, Jos. A. Bank was acquired by The Men's Wearhouse, Inc. (“Men's Wearhouse”). See ECF 73 at 22. JAB maintains that it is no longer “in the franchising business.” ECF 63-1 at 8. The Franchisees agree that JAB “clearly wants to get out of franchising, ” but note that it has not yet done so. ECF 68-1 at 10.

         B. The Renewal Process

         The substance of Jos. A. Bank's franchise agreements has remained largely the same since the 1990s. Although the standard agreement was reorganized and revised in 1996 (see ECF 68-33, Montgomery franchise agreement), the provisions are similar to the earlier agreements.

         By the early 2000s, the periods of the initial agreements, which provided for ten-year terms, began to expire. ECF 68-2, ¶¶ 17-20. It appears that Jos. A. Bank renewed those franchises for ten year periods without requiring the franchisees to negotiate or execute a new franchise agreement, instead merely requiring a notice of renewal and receipt of a franchising fee. Id. ¶¶ 20-24. The Franchisees refer to this practice as “rolling renewals, ” and assert that it has been the universal practice of Jos. A. Bank to allow franchisees to repeatedly exercise the renewal option contained in their original franchise agreement. ECF 68-1 at 16.

         In at least two instances, however, Jos. A. Bank and a franchisee confronted the issue of whether the renewed agreement would itself allow for further renewals. When the Asheville and Knoxville franchises came up for renewal in 2002, Jos. A. Bank struck a deal with the franchise owners: One more renewal (from 2012 to 2022) would be allowed, and on the same general terms as the original franchise agreement, but only in consideration for the waiver of a right of first refusal provided for in the Asheville franchise agreement. ECF 73-6 at 63 (letter from Frazer to Bell, dated June 19, 2002, about JAB-Knoxville and JAB-Asheville). In another instance, the New Orleans store was granted a third term, but that term was limited to less than six years, and did not mention a further right to renew. Id. at 67 (email from Frazer to Bell).

         After the Mandeville franchise was granted, Jos. A. Bank renewed five franchises, including the one for the New Orleans store. ECF 68-2, ¶¶ 27-31. The most recent, in the fall of 2014, was for the Jackson, Mississippi store, originally opened in 1994. Id. ¶ 31. The Jackson store was renewed on its original terms, without execution of a new agreement. Id.[5]

         On February 5, 2015, the Franchisees notified JAB in writing of their desire to renew the franchises for the three stores. See ECF 1, ¶ 20. On March 30, 2015, JAB informed the Franchisees that they each could purchase a ten-year successor franchise. ECF 63-5 at 2 (letter from Frazer). JAB offered the Franchisees an updated version of the Mandeville agreement (the “Mandeville Form”) for each of the stores. Id. at 3. This agreement was largely similar to the Franchisees' original agreement, but it did not provide for any renewals. Id. The Franchisees claimed that they were entitled to franchise agreements that gave them the right to another ten-year renewal after 2025. See ECF 63-7 at 2-3 (letter of April 24, 2015). They objected to the proposed franchise agreements by letter of June 19, 2015. See ECF 63-6 at 2-6. JAB rejected the Franchisees' position in a letter of July 8, 2015, but extended the deadline for the Franchisees to execute the proposed agreements until July 22, 2015. ECF 63-8. The Franchisees declined to sign JAB's proposed agreements. See ECF 1, ¶ 28.

         This suit followed on October 9, 2015. ECF 1. As in the parties' earlier correspondence, JAB contends, inter alia, that the Franchisees are entitled only to a single renewal. Id. at 9-10. Moreover, Jos. A. Bank insists that the Mandeville Form is the appropriate renewal form. ECF 73 at 22-23. The Franchisees counter that they should be allowed to renew on the same terms as their original agreements from 2005, 2009, and 2010, including those agreements' renewal clauses providing for a subsequent franchise renewal. ECF 63-6; ECF 10. In the alternative, the Franchisees assert that, under the language of the original agreements, they should be offered the terms of the franchise agreement most recently used by a renewing franchise-in this case, the Jackson franchise (the “Jackson Form”). ECF 68-1 at 38.

         I. The Franchise Agreements

         The central question in this case is one of contract interpretation. There are several provisions of the franchise agreements relevant to the disposition of the motions. For purposes of this matter, the relevant language is the same in each of the three franchise agreements (hereinafter collectively referred to as the “Agreement”).[6]

         In Section 2.01 of the Agreement, Jos. A. Bank grants the Franchisees “the right . . . to sell the Products at the Store and use the System in connection therewith, for a term starting on the date of this Agreement and expiring on August 31, 2015 (the ‘Term').” ECF 1-1 at 5.

         Section 16, which is titled “Renewal Rights, ” is the focus of the parties' arguments. Section 16.01 states, in relevant part: “Franchisee has the right, subject to the conditions contained in Section 16, to buy a successor franchise for the Store on the terms and conditions of Franchisor's then current form of franchise agreement, if upon expiration of the Term” the franchisee is in compliance with the Agreement and agrees to keep the store updated to Jos. A. Bank's specifications. Id. at 27-28.

         Section 16.03 states, in relevant part, id. at 28:

If Franchisee has the right to buy a successor franchise in accordance with Section 16.01 and states its desire to exercise that right . . ., Franchisor and Franchisee . . . will execute the form of franchise agreement (which may contain provisions, including royalty fees, materially different from those contained herein) and all ancillary agreements . . . which Franchisor then customarily uses, or most recently used, in granting franchise rights for Jos. A. Bank Stores . . . . Failure by Franchisee . . . to sign such agreements . . . within 30 days after delivery shall be deemed an election by Franchisee not to buy a successor franchise for the Store.

         The phrase “then current form” in Section 16.01 and the phrases “then customarily uses” and “most recently used” in Section 16.03 are not defined. Their meaning is disputed.

         Section 19.07, titled “Waiver of Obligations, ” discusses the effect of Jos. A. Bank's actions in relation to other franchisees. It states, in relevant part, id. at 34:

Franchisor and Franchisee shall not be deemed to have waived any right reserved by this Agreement by virtue of any custom or practice of the parties at variance with it; any failure, refusal or neglect by Franchisee or Franchisor to exercise any right under this Agreement . . . or to insist upon exact compliance by the other with its obligations hereunder; any waiver, forbearance, delay, failure or omission by Franchisor to exercise any right, whether of the same, similar or different nature, with respect to other Jos. A. Bank Stores; or the acceptance by Franchisor of any payments due from Franchisee after any breach of this Agreement.

         Section 19.01 provides that the Agreement shall be governed by the laws of Maryland. Id. at 33. Section 19.02 provides for exclusive jurisdiction in the state where Jos. A. Bank has its principal place of business. Id. Section 19.09 provides that the language of the Agreement “shall be construed according to its fair meaning and not strictly against any party.” Id. at 35. Section 19.09 also includes an integration clause, specifying that “this Agreement . . . constitutes the entire agreement of the parties. Except as otherwise expressly provided herein, there are no other oral or written agreements, understandings, representations or statements . . . that either party may or does rely on or that will have any force or effect.” Id.

         II. ...


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