902 F. Supp. 2d 1098
E.D. Tenn.2012Background
- In 2006, National Fitness (NFC) contracted with Custom Built for exclusive sale of personal training at NFC clubs under a five-year Facility License Agreement.
- Custom Built paid a monthly license fee and claimed exclusivity; NFC allegedly continued selling Lifestyle and Premium memberships with free training sessions.
- Paragraph 10 of the Agreement grants Custom Built exclusive rights to sell/perform Personal Training within NFC clubs; Paragraph 13 provides a transition/legacy-payment carve-out for existing members.
- Dow signed the Agreement both individually and as President of Custom Built; the court finds he personally guaranteed performance.
- In 2008–2009 Custom Built stopped paying license fees citing NFC’s ongoing in-house competition; dispute centers on contract interpretation and whether the exclusivity was breached.
- The court held that the Agreement language is ambiguous and that genuine issues of material fact remain, including breach, and thus certain claims go to trial; the liquidated damages clause is unenforceable as a penalty; punitive damages were not submitted to the jury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Ambiguity in exclusivity and transition provisions | National Fitness argues Paragraphs 10 and 13 align with exclusive rights and pre-transfer practice. | Custom Built argues language allows NFC to continue some memberships under a transitional arrangement. | Ambiguity exists; parol evidence permitted; material facts for breach to be decided by a jury. |
| Stephen Dow’s status as personal guarantor | Dow signed in his individual capacity, guaranteeing Custom Built’s performance. | Dow’s signature could be as an agent for Custom Built; no personal guarantee. | Dow signed personally; he is a personal guarantor. |
| Enforceability of liquidated damages provision | Liquidated damages quantify damages if Custom Built defaults. | Provision acts as a penalty and is unenforceable. | Liquidated damages deemed a penalty; not enforceable. |
| Promissory fraud and tortious interference claims | National Fitness allegedly acted with intent to perform and market training. | Custom Built asserts promissory fraud and improper interference. | Issues of material fact remain; summary judgment denied for those claims. |
| Punitive damages | Nationals Fitness’s conduct warrants punitive damages for egregious actions. | No basis shown for punitive damages in contract/related claims. | Court declines to submit punitive damages to jury. |
Key Cases Cited
- Planters Gin Co. v. Federal Compress & Warehouse Co., Inc., 78 S.W.3d 885 (Tenn. 2002) (contract interpretation and parol evidence principles)
- Maggart v. Almany Realtors, Inc., 259 S.W.3d 700 (Tenn.2008) (ambiguous contract and interpretation rules)
- Allstate Ins. Co. v. Watson, 195 S.W.3d 609 (Tenn. 2006) (parol evidence and contract interpretation)
- Hafeman v. Protein Discovery, Inc., 344 S.W.3d 889 (Tenn.Ct.App. 2011) (ambiguity consequences and construction)
- Bratton v. Bratton, 136 S.W.3d 595 (Tenn. 2004) (doubtful contract terms resolved by fact-finder)
- Stacks v. Saunders, 812 S.W.2d 587 (Tenn.Ct.App.1990) (fraud elements for promissory fraud)
- Trau-Med of Amer., Inc. v. Allstate Ins. Co., 71 S.W.3d 691 (Tenn.2002) (improper motive/means in interference claims)
- Guiliano v. Cleo, Inc., 995 S.W.2d 88 (Tenn.1999) (liquidated damages skepticism and penalties)
- Shah v. Racetrac Petroleum Co., 338 F.3d 557 (6th Cir.2003) (parol evidence and fraud as exception to writing)