Case: 21-20316 Document: 00516488262 Page: 1 Date Filed: 09/28/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
September 28, 2022
No. 21-20316 Lyle W. Cayce
Clerk
Franlink Incorporated, a Texas Corporation,
Plaintiff—Appellee,
versus
BACE Services, Incorporated, a Florida Corporation, formerly
known as Craig Wells Enterprises, Incorporated; Steven
Bradley Morton, a Florida Resident; Payday Solutions,
L.L.C., a Florida Limited Liability Company; JTL Staffing;
Payroll, L.L.C., an Alabama Limited Liability Company,
Defendants—Appellants.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:19-CV-4593
Before Jolly, Smith, and Engelhardt, Circuit Judges.
E. Grady Jolly, Circuit Judge:
This case presents one primary question: whether non-signatories to
a franchise agreement may be bound to the contract’s choice of forum
provision under the equitable doctrine that binds non-signatories who are
“closely related” to the contract. We conclude such non-signatories may be
bound to a forum selection clause, as we will more fully set out below.
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Applying the doctrine here, we affirm as to non-signatory PayDay, but
reverse as to non-signatories JTL and Morton.
The other issues on appeal pertain to damages, attorneys’ fees, and
costs. After this appeal, these awards only apply to the remaining
defendants—the signatory, BACE, and the non-signatory, PayDay. With
respect to these remaining defendant-appellants, we reverse and remand the
money judgment to allow the district court to reconsider damages, attorneys’
fees, and costs in the light of this opinion. The imposed injunction, however,
is affirmed and remains unaffected as to BACE and PayDay.
We thus AFFIRM in part; REVERSE in part; VACATE in part;
and REMAND.
I.
Amy and Craig Wells entered into a franchise agreement with
Franlink Incorporated (“Link”) in 2007, which they renewed in 2017,
allowing the Wellses to operate a franchise staffing company, BACE Services
(“BACE”), in Jacksonville, Florida. The franchise agreement created a feesharing arrangement and authorized BACE to use Link’s trademarks and
name. It specified several acceptable reasons for terminating the franchise
and outlined post-termination obligations. The agreement also included a
covenant not to compete and a non-solicitation provision that applied to
BACE, Craig Wells, and Amy Wells (collectively, “BACE defendants” or
“signatories”).
By November 2018, BACE had become unhappy with the franchise
arrangement and, according to the district court, “beg[a]n to explore options
for exiting the Link Staffing system.” A ransomware attack in October 2019
on Link’s system seemed to provide a reason, and BACE purported to
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terminate its agreement with Link on October 25, 2019. 1 Earlier, on October
21, 2019, Bradley Morton—Amy Wells’ son and Craig Wells’ stepson, who
had been a manager at BACE but not a signatory to the franchise
agreement—had left BACE to become a branch manager at JTL, a competing
staffing business that operates in the same territory as the BACE franchise.
JTL is owned and operated by a non-party in this case. Still, Craig Wells
began soliciting Link’s former BACE clients to JTL on October 30, 2019.
Link soon learned of the activities involving JTL. Further, Link
learned that Craig and Amy Wells were also operating another competing
staffing company, PayDay, and were diverting and soliciting former Link
clients to it. Such conduct led Link to formally terminate the franchise
agreement on November 6, 2019. Additionally, on November 14, 2019, Link
sent a cease and desist letter to JTL, which informed JTL of the BACE
franchise agreement. JTL refused to comply with the cease and desist
demand, saying it was not a signatory to the agreement.
On November 22, 2019, Link filed a complaint in the Southern
District of Texas based on the forum selection provision of the franchise
agreement. 2 It named BACE, Craig and Amy Wells, Morton, JTL, and
1
The district court later held that the ransomware attack was not a valid reason
under the agreement to terminate the franchise.
2
The forum selection clause stated, in bolded, all capital letters, that:
Franchisee and its owners agree that Link may institute any action against
Franchisee or its owners in any state or federal court of general jurisdiction in (a)
the State of Texas, or (b) in the state where Franchisee has its principal place of
business, or (c) within such state and in the judicial district in which Link has its
principal place of business at the time the action is commenced, and Franchisee
(and each owner) irrevocably submits to the jurisdiction of such courts and waives
any objection Franchisee (or such owner) may have to either jurisdiction or venue
3
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PayDay—all non-Texas residents—as defendants. Link sought injunctive
relief and damages for the breach of contract, trademark infringement, unfair
competition, tortious interference, and civil conspiracy. The non-signatories
to the franchise agreement (Morton, JTL, and PayDay) filed a motion to
dismiss for lack of personal jurisdiction, arguing the agreement’s forum
selection clause did not apply to them; and that without the forum selection
clause, the district court lacked jurisdiction over these out-of-state residents.
The district court denied their motion. In doing so, the district court held
that the agreement’s forum selection clause applied to the non-signatories
because they were “so closely related” to the signatories that it was
“foreseeable” they would be bound to the forum-selection clause.
The district court conducted a four-day bench trial in August 2020
and thereafter issued its findings of fact and conclusions of law. The district
court granted each of Link’s claims against the defendants and denied all the
defendants’ counterclaims.
Specifically, the district court concluded that “Craig Wells, Amy
Pope-Wells, and Morton operated their former Link Staffing Franchised
Business and PayDay interchangeably, using the same employees, email
addresses, and field staff while servicing the same customers. Additionally,
they continue to operate PayDay interchangeably with JTL.” The district
court cited evidence that Morton started working for JTL after having left his
position at BACE, and that Morton had numerous correspondences with
former BACE clients telling them that JTL was a “continuation” of BACE’s
in such courts. Nonetheless, Franchisee and its owners agree that Link may enforce
this agreement in the courts of the State of Texas.
Following these lines, the clause returned to standard typeface and stated that
“FRANCHISEE acknowledges and agrees that this Section shall survive the termination
or expiration of this Agreement.”
4
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Link franchise and that BACE would be doing business as JTL henceforth.
The district court further concluded that JTL was a “mere continuation” of
BACE’s former Link franchise, and that it had conspired with BACE to
operate a competing staffing company. Finally, the district court found that
Craig and Amy Wells owned PayDay, a competing staffing company, which
they had used to divert Link’s former BACE clients and to compete with Link
in the Jacksonville area.
At the conclusion of the four-day bench trial, the district court
awarded Link $378,562.22 in damages for the losses suffered from the
defendants’ breach of the contract. It also granted injunctive relief enforcing
the non-compete and non-solicitation provisions. Link then moved for
attorneys’ fees under the contract and the Lanham Act. The non-signatories
again objected that the contractual attorneys’ fees provision did not apply to
them because they were not parties to the agreement. The district court
nevertheless awarded attorneys’ fees under the contract of $731,295.30 and
costs of $113,484.04 and made all the defendants liable for the attorneys’
fees. The defendants unsuccessfully moved under Fed. R. Civ. P. 52(b)
and 59(e) to alter or amend the judgment relating to the fees, costs, and
expenses granted to Link, and then filed a notice of appeal. 3
On appeal, the non-signatories challenge the district court’s findings
relating to personal jurisdiction, bifurcating the trial, and attorneys’ fees.
They argue that, as non-signatories, they are not bound to the contract’s
forum selection clause, jury trial waiver, and attorneys’ fees provision. All
defendants also assert that the district court erred in calculating the damages
3
After the notice of appeal was filed, Craig and Amy Wells filed for individual
bankruptcy and settled their appealable issues in that proceeding. They thus have been
dismissed from this appeal and the only remaining defendants before the court are BACE
and the non-signatories, Morton, JTL, and PayDay.
5
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owed, imposing both injunctive relief and future damages, and in calculating
attorneys’ fees. We proceed by first addressing the standard of review and
then the closely-related doctrine.
II.
“The standard of review for a bench trial is well established: findings
of fact are reviewed for clear error and legal issues are reviewed de novo.”
Guzman v. Hacienda Recs. & Recording Studio, Inc., 808 F.3d 1031, 1036 (5th
Cir. 2015). A trial judge’s finding is only clearly erroneous if, after reviewing
the entire record, the reviewing court “is left with the definite and firm
conviction that a mistake has been committed.”
Id. (quoting Anderson v. City
of Bessemer City,
470 U.S. 564, 573 (1985)).
Matters of contract interpretation are reviewed de novo. Ergon-W.
Virginia, Inc. v. Dynegy Mktg. & Trade, 706 F.3d 419, 424 (5th Cir. 2013). As
are questions about personal jurisdiction and a party’s entitlement to a jury
trial. E. Concrete Materials, Inc. v. ACE Am. Ins. Co.,
948 F.3d 289, 295 (5th
Cir. 2020) (personal jurisdiction); U.S. Bank Nat. Ass’n v. Verizon
Commc’ns, Inc.,
761 F.3d 409, 416 (5th Cir. 2014) (jury trial). However, “[a]s
for whether the district court properly refused to equitably enforce a
contract, we review that for abuse of discretion.” Newman v. Plains All Am.
Pipeline, L.P.,
23 F.4th 393, 398 (5th Cir. 2022)
This court reviews a district court’s ruling on a Fed. R. Civ. P.
52(b) or 59(e) motion for abuse of discretion as well. United States v. Texas,
601 F.3d 354, 362 (5th Cir. 2010). “Under this standard, the district court’s
decision and decision-making process need only be reasonable.” Midland W.
Corp. v. FDIC,
911 F.2d 1141, 1145 (5th Cir. 1990) “A district court abuses its
discretion if it: (1) relies on clearly erroneous factual findings; (2) relies on
erroneous conclusions of law; or (3) misapplies the law to the facts.” Fornesa
v. Fifth Third Mortg. Co.,
897 F.3d 624, 627 (5th Cir. 2018).
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III.
As noted, the principal question on appeal is whether the non-signatory defendants—Morton, JTL, and PayDay—can be bound, under the
closely-related doctrine, to the forum selection clause in the franchise
agreement between the BACE defendants and Link. 4 We focus on the forum
selection clause because it determines whether personal jurisdiction exists. 5
The district court held that, under the closely-related doctrine, the
non-signatories were “inextricably intertwined and closely related such that
it is foreseeable they would be bound to the terms of the forum-selection
clause.” This “closely-related” doctrine has “permitted non–signatories to
an agreement to be bound by, and to enforce, forum selection clauses where,
under the circumstances, the non–signatories enjoyed a sufficiently close
nexus to the dispute or to another signatory such that it was foreseeable that
they would be bound.” Fasano v. Li, No. 20-3131, 2022 WL 3692850, at *11
4
Link argues that the defendants’ notice of appeal (NOA) is defective in raising
the personal jurisdiction and jury trial issues. Link correctly notes that the defendants’
NOA only designates (1) the district court’s findings of fact and conclusions of law, (2) the
September 24, 2020, order and the final judgment, and (3) the order denying the Rule 52(b)
and Rule 59(e) motions, and that none of these rulings raise the personal jurisdiction or jury
trial issues. This court “liberally construe[s]” notices of appeal, however. Williams v.
Henagan, 595 F.3d 610, 616 (5th Cir. 2010). The defendants here clearly and early raised
personal jurisdiction as a critical issue in a motion to dismiss. The district court denied the
motion, asserting the closely-related doctrine—the primary issue in this appeal. Because
defendants appeal the final judgment in this case, the order exercising personal jurisdiction
over defendants is contrarily “intertwined” with the final judgment. Tr. Co. of La. v. N.N.P.
Inc.,
104 F.3d 1478, 1485 (5th Cir. 1997). Defendants, moreover, again raised the issue of
whether the non-signatories can be bound to the franchise agreement in their Rule 52(b)
and 59(e) motions (the basis for the final judgment) in reference to the attorneys’ fees
provision and in their opening brief in this court in reference to all provisions at issue. Thus,
the defendants showed an intent to appeal these issues and the jurisdictional issues are
plainly before us. See Cantu v. Jackson Nat. Life Ins. Co.,
579 F.3d 434, 436 (5th Cir. 2009).
5
Link asserts two other arguments for personal jurisdiction over the non-signatory
defendants that we reject as meritless. See infra note 8.
7
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(2d Cir. Aug. 26, 2022); see also Stellar Restoration Servs. v. Courtney, 533 F.
Supp. 3d 394, 424 (E.D. Tex. 2021) (stating that the closely-related doctrine
may also be established if the non-signatory’s conduct is “‘closely related’ to
the contractual relationship”).
Our court has never recognized the closely-related doctrine. All other
circuit courts to have considered the doctrine, however, have recognized it
in one way or another. See In re McGraw-Hill Glob. Educ. Holdings LLC, 909
F.3d 48, 63 (3d Cir. 2018); Magi XXI, Inc. v. Stato della Citta del Vaticano,
714 F.3d 714, 723 (2d Cir. 2013); Marano, 254 F.3d at 757–58 (8th Cir.);
Lipcon v. Underwriters at Lloyd’s, London,
148 F.3d 1285, 1299 (11th Cir.
1998); Baker v. LeBoeuf, Lamb, Leiby & Macrae,
105 F.3d 1102, 1106 (6th Cir.
1997); Hugel v. Corp. of Lloyd’s,
999 F.2d 206, 209–10 (7th Cir. 1993);
Manetti-Farrow, Inc. v. Gucci Am., Inc.,
858 F.2d 509, 514 n.5 (9th Cir. 1988).
Link asks us to join these circuits.
A.
Although most circuits have adopted the closely-related doctrine,
they have usually done so without in-depth explanation of the theory. See,
e.g., Marano, 254 F.3d at 757–58 (finding a plaintiff closely related when he
was “a shareholder, officer, and director” of a signatory); Hugel, 999 F.2d at
209–10 (concluding that two plaintiffs were closely related because a
signatory was “President and Chairman of the Board” of the plaintiffs and
owned almost all of the plaintiffs’ stock); Manetti-Farrow, 858 F.2d at 514 n.
5 (writing, in three-sentence footnote, that multiple defendants were closely
related). The Seventh and the Third Circuits, however, have made an effort
to more fully explain the doctrine and to indicate its proper employment.
The Seventh Circuit addressed the closely-related theory in Adams v.
Raintree Vacation Exch., LLC, 702 F.3d 436 (7th Cir. 2012) (Posner, J.). The
court gave three reasons why allowing closely-related non-signatories to
8
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invoke a forum selection clause is an appropriate equitable theory. First,
without such a principle, forum selection clauses could “easily be evaded.”
Id. at 441; see also Fitness Together Franchise, LLC v. EM Fitness, LLC, No.
1:20-cv-02757-DDD-STV,
2020 WL 6119470, at *4 (D. Colo. Oct. 16, 2020)
(describing a benefit of the theory as preventing “parties to contracts from
using evasive, formalistic means lacking economic substance to escape
contractual obligations” (citations and quotations omitted)). Second,
forbidding non-signatories to invoke, or to be bound, to these clauses would
“undermine the contribution that [forum selection] clauses have been
praised for”—providing “certainty in commercial transactions.” Adams,
702 F.3d at 441. Finally, judicial efficiency counsels to recognize the theory
as litigating the same case in one court is preferable to litigating the same case
in two different courts.
Id. at 443. The Seventh Circuit, after noting these
equitable justifications for the closely-related doctrine, moved on to give
some shape to the doctrine.
The Seventh Circuit, in its words, “decomposed” the closely-related
doctrine’s admittedly “vague standard” “into two reasonably precise
principles”—affiliation and mutuality. Id. at 439. The court defined
affiliation as “common ownership.”
Id. It noted, however, that common
ownership alone is insufficient for “a nonparty to a contract to be able to
invoke, or be bound by, a clause in [the contract].”
Id. at 440. In defining the
principal of mutuality, the court relied on the agency concept of “secret
principals.”
Id. at 442.
The Third Circuit, on the other hand, basically adopts the Delaware
Chancery Court’s factors for determining whether a non-signatory is so
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“closely related” as to be bound to a contract’s forum selection clause. 6
McGraw-Hill, 909 F.3d at 62–63. These factors include: “[T]he non-signatory’s ownership of the signatory, its involvement in the negotiations,
the relationship between the two parties and whether the non-signatory
received a direct benefit from the agreement.” Id. at 63 (determining that
without control or involvement in the contract’s origin or benefits there is
“precious little basis for applying the closely related parties doctrine”).
Additionally, the Third Circuit concluded that “a foreseeability finding in the
context of forum selection clauses must have some evidentiary basis, other than
pure speculation, that the party sought to be bound had an awareness of the
clause, its contents, and that it might be defensively invoked.” Id. at 65 (emphasis
added).
In sum, the Seventh and Third Circuits, in giving some structure to
the closely-related doctrine’s “vague standard,” have considered: common
ownership, involvement in the agreement’s negotiations, signatory status of
the party opposing the forum selection clause, the type of claims and
allegations at issue, control by secret principals, the posture of the case, direct
benefits received, and awareness of the agreement and its relevant terms.
Other circuits in their brief assessments have considered similar factors. See,
e.g., Magi, 714 F.3d at 723 (holding that a party was closely related on account
of approval rights over the contractual content, awareness of the designated
forum, and involvement in breach of contract); Marano, 254 F.3d at 757–58
(finding a plaintiff to be closely related because (1) he was “a shareholder,
officer, and director” of a signatory, and (2) he brought suit under the
6
The Third Circuit did not specifically acknowledge that these factors come from
the Delaware Chancery Court, but instead cited another Third Circuit decision, Carlyle
Inv. Mgmt. LLC v. Moonmouth Co. SA, 779 F.3d 214, 219 (3d Cir. 2015), which clearly
applied Delaware law and the Delaware Chancery Court’s factors.
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agreements in question alongside other signatories); Hugel, 999 F.2d at 210
(emphasizing a signatory’s control over two plaintiffs both financially,
through stock ownership, and by being “President and Chairman of the
Board” when assessing if the two plaintiffs were closely related). It does
appear that the various factors relevant in these respective cases have been
considered holistically with no particular test emerging as definitive.
B.
Notwithstanding its recognition by federal courts, however, the
closely-related theory is not without its critics. Unlike the Seventh and Third
Circuits, most courts have, as we have said, applied the theory with little
discussion or analysis. Such treatment has led some lower courts to criticize
the theory as “so vague as to be unworkable.” Fitness Together Franchise,
2020 WL 6119470, at *5 (quoting Dos Santos v. Bell Helicopter Textron, Inc.,
651 F. Supp. 2d 550, 556 (N.D. Tex. 2009)); see also Dos Santos,
651 F. Supp.
2d at 557 (commenting that the doctrine resides in “an area of the law
dominated by generalized statements that provide little guidance”). Such
vagueness, moreover, has been particularly troubling given its “tension with
the Supreme Court’s approach in the related minimum-contacts context.”
Fitness Together Franchise,
2020 WL 6119470, at *5.
Legal academics have also raised concerns with the “closely-related”
doctrine. The absence of the non-signatory’s consent presents a due process
problem by forcing a party to litigate in a forum that would otherwise lack
personal jurisdiction. John F. Coyle & Robin J. Effron, Forum Selection
Clauses, Non-Signatories, and Personal Jurisdiction, 97 NOTRE DAME L. REV.
187, 213 (2021) (“[T]he closely-related-and-foreseeable test to assert
personal jurisdiction over non-signatory defendants is impossible to reconcile
with recent Supreme Court precedents relating to personal jurisdiction with
respect to out-of-state-defendants.”). As an alternative to the closely-related
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doctrine, these professors suggest that “[w]here the ‘close relationship’ is
one in which the non-signatory is working functions more or less as a unit
with the signatory, the relationship should be expressed and analyzed using
the more familiar tools of agency, third-party beneficiary law, and equitable
estoppel.” Id. at 224.
C.
Although there is good reason to be dubious of the doctrine, the fact
that it has been recognized by all other circuits to have considered it, invokes
a strong reason for us to apply it in this circuit. We, as a court, “are always
chary to create a circuit split[.]” Gahagan v. United States Citizenship &
Immigr. Servs., 911 F.3d 298, 304 (5th Cir. 2018) (quoting United States v.
Graves,
908 F.3d 137, 142 (5th Cir. 2018)); see also United States v. Thomas,
939 F.3d 1121, 1130 (10th Cir. 2019) (“We should not create a circuit split
merely because we think the contrary arguments are marginally better.”).
Further, we must acknowledge that the doctrine can serve a purpose in
producing equitable results, as earlier noted. Thus, prudence and judicial
modesty caution against singularly swimming against this tide of authority.
Accordingly, we turn first to give articulation of the doctrine as applicable
here; and then to apply it to each of the non-signatories, Morton, JTL, and
PayDay. 7
IV.
We repeat once again that for the doctrine to bind a non-signatory to
a forum selection clause, first, “the party must be ‘closely related’ to the
7
Determining whether a forum selection clause can be effectively negotiated by the
parties to limit its application, and thus not be subject to equitable interpretation, is
unnecessary to this opinion. See Adams v. Raintree Vacation Exch., LLC, 702 F.3d 436, 442
(7th Cir. 2012) (suggesting that parties could structure forum selection clauses in such a
way). That question is for another court, another day, and another case.
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dispute such that it becomes ‘foreseeable’ that it will be bound.” Hugel, 999
F.2d at 209 (citing Manetti–Farrow, 858 F.2d at 514 n.5). What remains,
however, is filling in the blanks. Borrowing from the precedents, including
the Third and Seventh Circuits, we extract a few fundamental factors
applicable here that we will consider in determining whether these non-signatories are closely related: (1) common ownership between the signatory
and the non-signatory, (2) direct benefits obtained from the contract at issue,
(3) knowledge of the agreement generally and (4) awareness of the forum
selection clause particularly. See Adams, 702 F.3d at 439–42; McGraw-Hill,
909 F.3d at 63. Of course, the closely-related doctrine is context specific and
is determined only after weighing the significance of the facts relevant to the
particular case at hand. Thus, in line with our general understanding of
equitable doctrines, we do not set out a rigid test for applying the closely-related doctrine. Instead, we merely attempt to give it definition in the
context of this case. Upon considering these characteristics, we ultimately
conclude that the closely-related theory does not bind Morton or JTL, but
that it does bind PayDay. 8
A.
We will begin with Morton, who is certainly related to the Wellses in
a personal sense, as their son/stepson. That relationship, in and of itself,
however, is not a factor in establishing liability here. Indeed, Morton does not
satisfy any of the factors that we have identified under the closely-related
doctrine. First, Morton was not an owner of the franchisee, BACE, but was
8
This court has indicated that non-signatories should only have contractual
provisions enforced against them in “rare circumstances.” Bridas S.A.P.I.C. v. Gov’t of
Turkm., 345 F.3d 347, 358 (5th Cir. 2003). Moreover, given the persuasive concerns about
the closely-related doctrine and that there are other avenues or forums to address Link’s
grievances against the non-signatories, a narrow application of the doctrine is both
appropriate and necessary.
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only an employee. Second, although Morton’s employment with BACE
allowed him to create and develop client relationships—which he apparently
used in his subsequent employment by JTL—this benefit arose from his
employment relationship with BACE, and does not constitute a direct benefit
from the contract itself. Finally, there is no evidence that Morton was aware
of the franchise agreement’s forum selection clause. See McGraw-Hill, 909
F.3d at 65. The cease and desist letter sent to JTL after Morton had begun to
work for JTL did not contain all the terms of the agreement and did not
mention the forum selection clause specifically. Thus, there is no
“evidentiary basis” that Morton had “an awareness of the [forum selection]
clause, its contents, [or] that it might be defensively invoked.”
Id.
Accordingly, we hold that the closely-related doctrine does not bind Morton
to the forum selection clause of the franchise agreement. It follows that the
district court lacked personal jurisdiction over Morton, and the entire
judgment is reversed and vacated as to him.
B.
Neither can JTL be bound to the forum selection clause under the
closely-related doctrine. First, JTL had no ownership interest in BACE, nor
vice versa—JTL is fully owned by a non-party in this case. Second, JTL
received no direct benefit from the Link franchise contract. To the extent that
JTL may have benefited from Morton’s work with the Link clients, the
benefit is attenuated and not—as required—a direct benefit arising from the
BACE/Link contract itself. Finally, the record does not reflect that JTL was
aware of the forum selection clause, given that its only notice of the franchise
agreement was the cease and desist letter—which, again, did not contain the
terms of the forum selection clause. In short, the record is bereft of any basis
for binding JTL to the franchise agreement and its forum selection clause
under the closely-related doctrine. Accordingly, the entire judgment against
JTL is reversed and vacated.
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C.
We now turn to PayDay. We conclude that PayDay is bound to the
franchise agreement’s forum selection clause under the closely-related
doctrine. First, PayDay, like BACE, is fully owned and operated by the
Wellses, who are signatories to the BACE/Link franchise agreement. We
reiterate that common ownership between signatory BACE and non-signatory PayDay is a key factor supporting the application of the closely-related doctrine here. See, e.g., Adams, 702 F.3d at 439–40; McGraw-Hill, 909
F.3d at 63; Marano, 254 F.3d at 757; Hugel, 999 F.2d at 209–10. Second,
PayDay received a direct benefit from the BACE contract. As owners, the
Wellses, obviously, enjoyed a direct economic benefit under the contract
with Link and transferred, at least in part, this contractual benefit to PayDay,
their wholly owned company. See, e.g., Weatherford Int’l, LLC v. Binstock,
452 F. Supp. 3d 561, 571–72 (S.D. Tex. 2020) (non-signatories who were
owned by the same entity as a signatory and who were used to circumvent the
agreement were “closely related”). Third, PayDay, through its full owners
and operators, the Wellses, was aware of the BACE and Link franchise’s
terms, including the forum selection clause. PayDay meets the requirements
of being closely related and, accordingly, is liable under the franchise
agreement.
D.
In sum, the closely-related doctrine does not bind Morton or JTL to
the BACE/Link contract’s forum selection clause and, consequently, the
judgment as to each of them is reversed and vacated for lack of personal
jurisdiction. 9 The district court had jurisdiction over PayDay. The judgment
9
Link has preserved, both in the district court and on appeal, two other arguments
that the district court had personal jurisdiction over the non-signatories. Neither, however,
15
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that PayDay is liable for damages, attorneys’ fees, and costs is affirmed. The
amount of damages, however, must be reconsidered, as discussed below.
V.
We now turn to the remaining issues: damages, fees, and costs
awarded to Link. The district court awarded Link $378,562.22 in damages
for the breach of contract. It also granted Link an injunction enforcing the
non-compete and non-solicitation provisions. Following Link’s motion, the
district court additionally granted Link $731,295.30 in attorneys’ fees and
$113,484.04 in costs.
is meritorious. First, Link argues that the non-signatories can be bound to the agreement’s
forum selection clause under the direct benefits equitable estoppel theory. Direct-benefits
estoppel applies when “non-signatories who, during the life of the contract, have embraced
the contract despite their non-signatory status but then, during litigation, attempt to
repudiate the arbitration clause in the contract.” Hellenic Inv. Fund, Inc. v. Det Norske
Veritas, 464 F.3d 514, 517–18 (5th Cir. 2006). This court, however, has limited direct-benefits estoppel to when “the nonsignatory ha[s] brought suit against a signatory premised
in part upon the agreement.” Bridas,
345 F.3d at 362. Here Link, a signatory, initiated suit
against the non-signatories, so direct-benefit estoppel is inapplicable to establish personal
jurisdiction. Furthermore, we have noted that, in the context of the closely-related
doctrine, Morton and JTL received no direct benefit from the Link/BACE contract.
Link also contends that the Texas district court had personal jurisdiction over the
non-signatories because they purposefully availed themselves of the Texas courts. Link
cites the Supreme Court’s recognition that personal jurisdiction may arise in a forum which
is “the focal point of the [injurious action] and the harm suffered.” Calder v. Jones, 465
U.S. 783, 789 (1984). Calder does not apply here, however, because the non-signatories’
injurious action—the competition and solicitation activities—and the harm felt by Link
were all directed in Florida, not Texas. The mere fact that Link is a Texas corporation
injured by the non-signatories’ actions is insufficient, without other evidence, that the non-signatories had sufficient contact with Texas. Consequently, the non-signatories did not
have sufficient minimum contacts to establish personal jurisdiction on this basis.
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The defendants now remaining after this appeal, BACE 10 and PayDay,
appeal these awards, contending that the district court erred in
(A) calculating the contractual damages owed, (B) awarding both future
damages and injunctive relief, and (C) determining the proper amount of
attorneys’ fees and costs. 11 We agree, and accordingly reverse and remand.
A.
With respect to damages, BACE and PayDay only specifically appeal
the $34,633.22 awarded to Link for lost revenue damages relating to a client
invoice. Under the contract, BACE owed Link a percentage of all income
received from its clients, which would include a percentage of a $34,633.22
invoice sent to a BACE client. BACE apparently never paid Link its
percentage of this amount under the contract and, therefore, the district
court correctly concluded that defendants owed Link at least some part of the
$34,633.22 invoice. BACE and PayDay correctly note, however, that the
franchise agreement only entitled Link to a percentage of the receivable,
which the district court even acknowledged at trial. Awarding the full amount
was, therefore, an erroneous calculation of the damages owed under the
contract that warrants reversal and remand for reconsideration.
B.
PayDay and BACE also challenge the district court’s award of both
future damages and injunctive relief as being duplicative. The district court
awarded future damages of $147,900.00 and an injunction that enforced the
“non-compete and non-solicitation provisions [against all the defendants] . .
10
The only issues raised by BACE in this appeal relate to damages attorneys’ fees,
and costs—not liability itself.
11
BACE and PayDay do not appeal the actual damages award of $196,029.00, and
so that award remains unaffected by this opinion and is thereby affirmed.
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. for a two-year period, starting from the effective date of the termination of
the Franchise Agreement, November 6, 2019.”
In Texas, it “is a rule of general application” that “future damages
cannot be recovered if a permanent injunction issues . . . .” Schneider Nat.
Carriers, Inc. v. Bates, 147 S.W.3d 264, 285 (Tex. 2004), modified on other
grounds, Gilbert Wheeler, Inc. v. Enbridge Pipelines (E. Texas), LP,
449 S.W.3d
474 (Tex. 2014); Eberts v. Businesspeople Pers. Servs., Inc.,
620 S.W.2d 861,
864 (Tex. Civ. App. 1981) (applying the general rule in a case involving a non-compete covenant). Link has cited no evidence that it would sustain separate
future damages with an enforced injunction in place. Thereby, Schneider’s
general rule controls—the $147,900.00 award of future damages is reversed
and vacated. The injunction remains unaffected and is otherwise affirmed.
C.
Finally, BACE and PayDay appeal the calculation of the attorneys’
fees awarded to Link because the district court did not sufficiently assess one
factor—the amount involved and the results obtained—in determining if an
adjustment of the fee awarded was appropriate. They also challenge the costs
awarded. In this opinion, we have reversed the district court’s judgment with
respect to two of the non-signatory defendants, JTL and Morton. We have
also reversed and vacated a substantial portion of the damages awarded.
Thus, the facts underlying district court’s assessment of the factor at issue—
i.e., the results obtained by those attorneys—have significantly changed.
These rulings raise questions of the appropriate amount of attorneys’ fees
and costs. We therefore vacate the award of attorneys’ fees and costs, and
remand for reconsideration in the light of this opinion.
VI.
Summing up, in this opinion, we have:
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(1) held that the closely-related doctrine may under limited
circumstances bind non-signatories to a contract’s forum selection
clause;
(2) held that the closely-related doctrine does indeed bind non-signatory
PayDay to the franchise agreement, but does not bind non-signatories
Morton or JTL;
(3) reversed the district court’s denial of the motion to dismiss for lack of
personal jurisdiction as to Morton and JTL, and vacated the judgment
in its entirety against Morton and JTL;
(4) affirmed the district court judgment that PayDay is liable under the
contract, and therefore properly subject to the imposed injunction and
liable for actual damages, attorneys’ fees, and costs as to be
recalculated on remand not inconsistent with this opinion;
(5) remanded for recalculation of the proper amount of damages owed as
it pertains to the $34,633.22 client invoice;
(6) reversed and vacated the district court’s award of future damages in
the amount of $147,900.00;
(7) reversed and vacated the amount of attorneys’ fees and costs awarded
to Link, and remanded for reconsideration in the light of this opinion;
(8) affirmed the actual damages awarded in the amount of $196,029.00,
as well as the injunctive relief imposed on BACE and PayDay.
AFFIRMED in part; REVERSED in part; VACATED in part; and
REMANDED.
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