Aaron's Inc. v. MKW Investments, Inc.

• Court: Court of Appeals for the Eleventh Circuit
• Decided: September 5, 2019
• Docket: 18-13666
• Status: Unpublished

Opinion

Case: 18-13666 Date Filed: 09/05/2019 Page: 1 of 11

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

No. 18-13666 Non-Argument Calendar ________________________

D.C. Docket No. 1:16-cv-01363-ELR

AARON'S INC.,

Plaintiff – Appellant,

versus

MKW INVESTMENTS, INC., MKW II INVESTMENTS, LLC, KEVIN WELKER, SUSAN WELKER,

Defendants – Appellees.

________________________

Appeal from the United States District Court for the Northern District of Georgia ________________________

(September 5, 2019)

Before JILL PRYOR, BRANCH and JULIE CARNES, Circuit Judges.

PER CURIAM: Case: 18-13666 Date Filed: 09/05/2019 Page: 2 of 11

Aaron’s, Incorporated appeals the district court’s denial of its motion for

partial summary judgment and its grant of summary judgment to MKW

Investments, Incorporated, MKW II Investments, LLC, Kevin Welker, and Susan

Welker (collectively, “MKW”). Aaron’s brought this diversity action against

MKW seeking to recover, pursuant to an indemnification agreement, fees and costs

it incurred in defending itself against and settling a separate lawsuit brought

against MKW and Aaron’s (“Underlying Litigation”). The district court granted

MKW summary judgment on the ground that Aaron’s extinguished MKW’s

liability for indemnification when in the Underlying Litigation Aaron’s decided to

terminate the representation of MKW’s chosen counsel and hire an attorney of its

own choosing instead. On appeal, Aaron’s argues that the district court erred in

granting MKW summary judgment because its decision to change counsel had no

bearing on MKW’s liability for indemnification. After careful review, we agree.

Accordingly, we vacate the district court’s denial of Aaron’s motion for partial

summary judgment, vacate the court’s grant of MKW’s motion for summary

judgment, and remand this case to the district court for further proceedings.

I. BACKGROUND

A. Facts

Aaron’s is a lessor and retailer of “furniture, consumer electronics, home

appliances, and accessories, with both company-owned and franchised stores.”

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Doc. 40-2 at 1 ¶ 2.1 MKW owned a franchised Aaron’s store in Warrensburg,

Missouri (“Warrensburg Store”).

Aaron’s and MKW entered into a Franchise Agreement to govern their

relationship regarding the Warrensburg Store. As set forth below, the Franchise

Agreement contained an indemnification provision, Section 7.20, wherein MKW

agreed to indemnify Aaron’s for certain expenses it might incur as a result of

MKW’s conduct:

Franchisee shall indemnify, defend and hold harmless Franchisor . . . for and from any and all claims, demands, suits, proceedings, fines, losses, damages, costs and expenses (including reasonable attorney’s fees) suffered or incurred, directly or indirectly, by Franchisor or any of them (collectively, “Damages”) as a result of (i) any breach or other failure by Franchisee to perform its obligations hereunder, or (ii) any other action or inaction by Franchisee or any other person resulting from or in connection with the operation of the Franchised Business . . . . Franchisor shall have the option, in its sole discretion, to defend any action or to allow Franchisee to defend such action with counsel satisfactory to Franchisor.

Doc. 40-2 at 36-37 § 7.20. The term “Franchisee” referred to MKW Investments

Inc., 2 “Franchisor” referred to Aaron’s, and “Franchised Business” referred to the

Warrensburg Store. See id. at 7, 8. Aaron’s and MKW executed the Franchise

Agreement contemporaneously with Aaron’s execution of a Payment and

1 Citations in the form “Doc #” refer to the numbered entry on the district court’s docket. 2 MKW Investments, Inc., later assigned its interest in the Warrensburg Store to MKW II Investments, LLC. 3 Case: 18-13666 Date Filed: 09/05/2019 Page: 4 of 11

Performance Guarantee with Kevin and Susan Welker. Under the Payment and

Performance Guarantee, the Welkers agreed to guarantee the payment and

performance of MKW’s obligations, indebtedness, and liabilities under the

Franchise Agreement or otherwise.

The parties’ dispute in the instant action arises from a separate lawsuit that a

former MKW employee brought against Aaron’s and MKW in Missouri state

court. In that Underlying Litigation, the plaintiff, Tanya Mundy, alleged that the

general manager of the Warrensburg Store, Scott Hibbs, created a hostile work

environment by sexually harassing her on numerous occasions. Mundy further

alleged that when she complained about Hibbs to MKW and Aaron’s, they

retaliated by terminating her employment. Mundy’s complaint requested

compensatory and punitive damages jointly and severally from the defendants.

MKW’s insurer retained counsel to defend MKW and Aaron’s in the

Underlying Litigation. During the pendency of that litigation, however, Aaron’s

chose to hire its own attorney instead. Aaron’s and Mundy eventually reached a

settlement. Aaron’s then tendered to MKW its demand for indemnification for the

expenses it incurred in defending itself against and settling Mundy’s lawsuit.

MKW responded by refuting Aaron’s assertion that the Franchise Agreement

required it to indemnify Aaron’s for its defense and settlement expenses. MKW

contended among other things that Section 7.20 required no indemnification

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because the provision was ambiguous regarding its duty to indemnify when

Aaron’s initially allowed MKW to provide counsel but later replaced that counsel.

B. Procedural History

Aaron’s filed a four-count complaint against MKW. Count I alleged that

MKW breached the Franchise Agreement by refusing to indemnify Aaron’s.

Count II requested a declaratory judgment that, by virtue of their failure to comply

with their indemnification obligations under Section 7.20, some of the defendants

were in default of a separate franchise agreement. Count III alleged that Kevin and

Susan Welker breached their personal guarantees by failing to satisfy MKW’s

outstanding indemnification obligation. Count IV sought from MKW, pursuant to

the Franchise Agreement, litigation expenses for costs incurred prosecuting the

instant action. MKW answered the complaint.

Following discovery, the parties filed cross-motions for summary judgment.

Aaron’s moved for partial summary judgment on Counts I and III of the complaint,

only as to liability. MKW, in contrast, moved for summary judgment on all

claims, arguing among other things that it fulfilled its obligations under Section

7.20 by initially providing counsel because the provision included no unambiguous

language allowing Aaron’s to both retain counsel provided by MKW and later

replace that counsel while still benefitting from indemnification.

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The district court agreed with MKW that Section 7.20 was ambiguous

regarding whether Aaron’s had the option to retain its own counsel after allowing

MKW to provide representation. Construing that language against Aaron’s, as it

read Georgia law to instruct, the district court determined that Section 7.20

imposed no requirement on MKW to indemnify Aaron’s for its expenses in

defending against and settling the Underlying Litigation. It therefore determined

that MKW committed no breach of the Franchise Agreement. Because the

conclusion that MKW committed no breach was dispositive of each claim alleged

in the complaint, the district court denied Aaron’s motion for partial summary

judgment and granted MKW’s motion.

This is Aaron’s appeal.

II. STANDARD OF REVIEW

“We review an order granting summary judgment de novo and apply the

same legal standards that governed the district court’s decision.” Hegel v. First

Liberty Ins. Corp., 778 F.3d 1214, 1219 (11th Cir. 2015). A district court may

grant summary judgment only when the movant shows “that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a).

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III. DISCUSSION

Aaron’s argues that the district court erred in determining that the Franchise

Agreement was ambiguous as to MKW’s liability for indemnification. According

to Aaron’s, Section 7.20 unambiguously required indemnification because it

contained no provision establishing that by deciding to change counsel Aaron’s

forfeited its entitlement to indemnification. MKW responds that Section 7.20 is

ambiguous, that the ambiguity must be construed against Aaron’s, and when

properly construed, Section 7.20 required no indemnification. We agree with

Aaron’s.

Under Georgia law, 3 “[t]he scope of a written indemnification [provision] is

a question of law for the court, which must strictly construe the [provision] against

the indemnitee.” JNJ Found. Specialists, Inc. v. D.R. Horton, Inc., 717 S.E.2d

219, 228 (Ga. Ct. App. 2011) (internal quotation marks omitted). “‘The cardinal

rule of contract construction is to ascertain the intention of the parties.’” Unified

Gov’t of Athens-Clarke Cty. v. Stiles Apartments, Inc., 764 S.E.2d 403, 407 (Ga.

2014) (quoting O.C.G.A. § 13-2-3). When engaging in the task of contract

construction, Georgia courts apply a three-step framework. City of Baldwin v.

Woodard & Curran, Inc., 743 S.E.2d 381, 389 (Ga. 2013). “First, the . . . court

3 We apply Georgia law because, by taking the position that Georgia law applies, Aaron’s has abandoned any argument that another state’s law should apply. See Timson v. Sampson, 518 F.3d 870, 874 (11th Cir. 2008) (“[I]ssues not briefed on appeal . . . are deemed abandoned.”). 7 Case: 18-13666 Date Filed: 09/05/2019 Page: 8 of 11

must decide whether the language is clear and unambiguous. If it is, the court

simply enforces the contract according to its clear terms; the contract alone is

looked to for its meaning.” Id. (internal quotation marks omitted). Second, “if the

contract is ambiguous in some respect, the court must apply the rules of contract

construction to resolve the ambiguity.” Id. (internal quotation marks omitted).

Third, “if the ambiguity remains after applying the rules of construction, the issue

of what the ambiguous language means and what the parties intended must be

resolved by a jury.” Id. (internal quotation marks omitted). “Ambiguity is defined

as duplicity; indistinctness; an uncertainty of meaning or expression used in a

written instrument, and . . . also signifies of doubtful or uncertain nature; wanting

clearness or definiteness; difficult to comprehend or distinguish; of doubtful

purport; open to various interpretations.” Cahill v. United States, 810 S.E.2d 480,

482-83 (Ga. 2018) (internal quotation marks omitted). “Under Georgia law, a

contract is unambiguous when it is capable of only one reasonable

interpretation . . . .” In re Estate of Boyd, 798 S.E.2d 330, 333 (Ga. Ct. App.

2017).

We conclude that Section 7.20 of the Franchise Agreement is unambiguous.

By its terms, Section 7.20 required MKW to indemnify Aaron’s “for and from any

and all claims, . . . damages, costs and expenses (including reasonable attorney’s

fees) . . . incurred, directly or indirectly, by [Aaron’s] . . . as a result of . . . any . . .

8 Case: 18-13666 Date Filed: 09/05/2019 Page: 9 of 11

action or inaction by [MKW] or any other person resulting from or in connection

with the operation of [the Warrensburg Store].” Doc. 40-2 at 36-37 § 7.20. In the

Underlying Litigation, Aaron’s incurred costs defending itself against and settling

claims brought by Mundy in connection with the operation of the Warrensburg

Store. Therefore, Section 7.20 required MKW to indemnify Aaron’s for and from

expenses incurred in the Underlying Litigation. See First Data POS, Inc. v. Willis,

546 S.E.2d 781, 784 (Ga. 2001) (“Whenever the language of a contract is plain,

unambiguous, and capable of only one reasonable interpretation, no construction is

required or even permissible, and the contractual language used by the parties must

be afforded its literal meaning.”).

We reject MKW’s argument that we may construe Section 7.20 as

conditioning its indemnification obligation on Aaron’s decision to either accept

MKW’s chosen counsel, or choose its own, but not both. MKW, in raising this

argument, relies on Section 7.20’s statement that Aaron’s “shall have the option, in

its sole discretion, to defend any action or to allow Franchisee to defend such

action with counsel satisfactory to Franchisor.” Doc. 40-2 at 37 § 7.20 (emphasis

added). But MKW’s reliance is misplaced. Neither that language nor any other

term in Section 7.20 suggests that Aaron’s decision to replace counsel chosen by

MKW with counsel of its own choosing operates as a condition subsequent to

MKW’s duty to indemnify. See Payne v. Middlesex Ins. Co., 578 S.E.2d 470, 472

9 Case: 18-13666 Date Filed: 09/05/2019 Page: 10 of 11

(Ga. Ct. App. 2003) (“[A]mbiguity is not to be created by lifting a clause or

portion of the contract out of context, nor are we to call forth doubt or make

hypercritical constructions. The natural, obvious meaning is to be preferred over

any curious, hidden meaning which nothing but the exigency of a hard case and the

ingenuity of a trained and acute mind would discover.” (citations omitted) (internal

quotation marks omitted)). Nor may we add such a term because “[i]t is the duty

of the courts to construe and enforce contracts as made, and not to make them for

the parties.” Lee v. Mercury Ins. Co. of Ga., 808 S.E.2d 116, 124 (Ga. Ct. App.

2017) (internal quotation marks omitted). Aaron’s decision to change counsel

may, perhaps, affect the calculation of damages. But, as we have explained, it has

no bearing on the question of whether the Franchise Agreement required MKW to

indemnify Aaron’s.

In sum, we conclude that Section 7.20 unambiguously required MKW to

indemnify Aaron’s for and from expenses incurred in the Underlying Litigation

and that this obligation was not extinguished by any choice of Aaron’s to replace

MKW’s chosen counsel with one of its own choosing.

Although the parties briefed the question, we do not decide whether MKW

breached its duty to indemnify. The district court never reached that question

because it determined that any such duty was extinguished by Aaron’s choice to

replace MKW’s chosen counsel. The question whether MKW breached its duty to

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indemnify by refusing Aaron’s demand for payment is closely related to a separate

issue that Aaron’s asks us to forgo deciding: the amount of damages to which it is

entitled. Because those issues are interrelated and went unaddressed by the district

court, we think it best to allow that court to manage their disposition. See

Wilkerson v. Grinnell Corp., 270 F.3d 1314, 1322 & n. 4 (11th Cir. 2001)

(expressing the preference that a district court address matters in the first instance

before appellate review, even on summary judgment). Similarly, although Aaron’s

asks us to determine that Kevin and Susan Welker are liable for breach of their

guarantee of MKW’s debts, the district court also has yet to address the merits of

that issue. We thus decline to decide that issue in the first instance on appeal and

invite the district court to resolve it instead.

IV. CONCLUSION

For the foregoing reasons, we vacate the district court’s grant of summary

judgment to MKW, vacate its denial of Aaron’s partial motion for summary

judgment, and remand the case to the district court so it may consider in the first

instance whether summary judgment is otherwise appropriate.

VACATED AND REMANDED.