446 F.Supp.3d 258
M.D. Tenn.2020Background:
- Plaintiff Best Choice Roofing & Home Improvement, Inc. (BCR) sued two former operators (Best Choice Roofing Savannah, LLC and Best Choice Roofing Augusta, LLC) alleging breach of trademark License Agreements and related claims after defendants stopped paying royalties.
- Juanita “Tinker” Covington signed the Savannah (11/12/2015) and Augusta (6/9/2017) License Agreements for those locations; she testified she did not consult counsel before signing and that she trusted BCR’s owner, Henry Holloway.
- BCR sent a July 6, 2018 termination letter invoking Section 15.2 (no right to cure) based on defendants’ unpaid royalties and alleged risk of immediate damage to the marks; suit followed.
- Defendants counterclaimed for numerous theories: breach of contract (notice-and-cure), veil piercing, fraud (several varieties), TCPA violations (alleged Franchise Rule violations), tortious interference, defamation, and unjust enrichment.
- The court denied plaintiffs’ motion as moot, granted summary judgment to plaintiffs on most counterclaims, denied plaintiffs’ summary judgment only as to defendants’ breach-of-contract claim that BCR failed to afford the Section 15.1 notice-and-cure period, and allowed that breach claim to proceed to trial.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BCR breached the License Agreements by terminating without providing the notice-and-cure required by §15.1 | BCR contends it validly terminated under §15.2 (no cure) because unpaid royalties posed a risk of "significant and immediate damage" to the marks | Defendants contend BCR failed to give the required notice and cure and thus breached §15.1; damages include litigation costs | Court: factual issue whether nonpayment qualifies under §15.2; denied summary judgment to BCR on this narrow claim—claim proceeds to trial |
| Whether failure to pay royalties (or other control) converted the relationship into a franchise and breached the contracts by exerting "too much control" | BCR: relationship is licensor/licensee as written; disagreement over labels is not a contract breach | Defendants: BCR exerted franchise-like control and mischaracterized the relationship to avoid disclosure rules | Court: "too much control" is not shown as a contractual breach; summary judgment for BCR on that theory |
| Veil-piercing/holding Holloway personally liable | BCR: no admissible evidence of misuse of corporate form; defendants rely on an unauthenticated interview (hearsay) | Defendants: testimony and an interview suggest Holloway diverted corporate assets | Court: excluded unauthenticated transcript and found no admissible evidence to support veil piercing; summary judgment for BCR |
| TCPA claim premised on violating the FTC Franchise Rule (failure to disclose) | BCR: FTC Rule has no private right; even if relevant, TCPA claim is time-barred (1-year discovery rule); no causation shown | Defendants: Franchise Rule violations are unfair/deceptive under TCPA; BCR misrepresented relationship to avoid disclosures | Court: TCPA counterclaim barred by the one-year statute of limitations (claims accrued at execution of the agreements); summary judgment for BCR |
| Fraud claims (fraudulent misrepresentation, negligent misrepresentation, constructive fraud, fraudulent concealment, fraud in inducement) | BCR: the assertion that the agreement is not a franchise is a legal opinion, not a fact; reliance was unreasonable; no admissible evidence of actionable misrepresentation | Defendants: contractual language and certain witnesses show BCR misrepresented the nature of the relationship to avoid FTC rules | Court: statements about whether the relationship was a "franchise" are legal conclusions, not verifiable facts; fraud claims fail as a matter of law—summary judgment for BCR |
| Tortious interference, defamation, unjust enrichment | BCR: no admissible evidence (witnesses/customers not identified; hearsay and double-hearsay problems); no proof of benefit or causation | Defendants: customer contacts and supplier rebate allegations support claims | Court: testimony was inadmissible/hearsay and defendants produced no other admissible evidence; summary judgment for BCR on these claims |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard and burden on nonmoving party)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (credibility and reasonable inference rules on summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S. 1986) (drawing inferences for nonmovant)
- Rogers v. Louisville Land Co., 367 S.W.3d 196 (Tenn. 2012) (standards for piercing corporate veil)
- CAO Holdings, Inc. v. Trost, 333 S.W.3d 73 (Tenn. 2010) (factors to consider in veil-piercing analysis)
- Hodge v. Craig, 382 S.W.3d 325 (Tenn. 2012) (elements and distinctions for fraud/intentional misrepresentation)
- Freeman Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512 (Tenn. 2005) (elements of unjust enrichment)
- Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691 (Tenn. 2002) (elements of tortious interference)
- C&W Asset Acquisition, LLC v. Oggs, 230 S.W.3d 671 (Tenn. Ct. App. 2007) (elements of breach of contract under Tennessee law)
- Thompson v. Bank of Am., N.A., 773 F.3d 741 (6th Cir. 2014) (fraud elements under applicable law)