H & R Block Tax Services LLC v. Deanna Franklin

691 F.3d 941, 2012 WL 3870574, 2012 U.S. App. LEXIS 18832
CourtCourt of Appeals for the Eighth Circuit
DecidedSeptember 7, 2012
Docket11-3690
StatusPublished
Cited by17 cases

This text of 691 F.3d 941 (H & R Block Tax Services LLC v. Deanna Franklin) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
H & R Block Tax Services LLC v. Deanna Franklin, 691 F.3d 941, 2012 WL 3870574, 2012 U.S. App. LEXIS 18832 (8th Cir. 2012).

Opinions

SHEPHERD, Circuit Judge.

Appellant H & R Block Tax Services LLC (“H & R Block”) appeals the district court’s grant of summary judgment in favor of Appellees Deanna Franklin, Jerry Franklin, and the Franklin 1989 Revocable Family Trust (collectively “Franklin”). At issue is whether H & R Block had the right to terminate two franchise agreements between the parties where the agreements expressly stated that Franklin could terminate at any time but only affirmatively allowed H & R Block to terminate for cause. The district court held the [943]*943language was to be interpreted so that the franchise agreements would continue in perpetuity and that H & R Block could not extinguish the contracts without cause. Because we find under de novo review the language of the contracts did not unequivocally express the parties’ intent for the contracts to last forever, we reverse.

I. Background

H & R Block, a Missouri corporation, operates retail tax return preparation offices and franchises others to operate H & R Block offices under its service mark. Deanna and Jerry Franklin, both citizens of California, are trustees and beneficiaries of the Franklin 1989 Revocable Family Trust. Franklin has operated two H & R Block franchises in Yucaipa and Banning, California, since 1990.

The franchise agreements at issue were entered into between predecessors in interest of H & R Block and Franklin in 1975. In 1990, the agreements were assigned to Franklin. The agreements contain the following identical duration provision:

The initial term of this Agreement shall begin on the date hereof and, unless sooner terminated by Block [for cause] as provided in paragraph 6, shall end five years after such date, and shall automatically renew itself for successive five-year terms thereafter (the “renewal terms”); provided, that Franchisee may terminate this Agreement effective at the end of the initial term or any renewal term upon at least 120 days written notice to Block prior to the end of the initial term or renewal term, as the case may be.

On June 3, 2010, H & R Block gave Franklin notice of its intention not to renew the franchise agreements when the five-year renewal terms were set to expire on December 1, 2010. H & R Block then filed an action in federal district court, seeking a declaratory judgment that it could terminate the agreements and seeking damages and injunctive relief.1 Franklin filed a counterclaim seeking, inter alia, a declaratory judgment that H & R Block was not entitled to decline to renew the agreements.

The parties filed cross-motions for summary judgment on the issue framed by the parties’ claims for declaratory judgment. The district court granted summary judgment in favor of Franklin, concluding the franchise agreements are enforceable under Missouri law and that H & R Block did not have a right not to renew them. The court found that the agreements contained an unequivocal expression of the parties’ intent to enter into a perpetually enforceable contract. The district court certified for interlocutory appeal the issue of whether the agreements were perpetually enforceable, and our court granted permission to appeal.

II. Analysis

“We review the district court’s summary judgment order and its interpretation of state law de novo, applying the same standards applied by the district court.” Bannister v. Bemis Co., 556 F.3d 882, 884 (8th Cir.2009). “Federal courts sitting in diversity apply the choice-of-law rules of the forum state.” Cicle v. Chase Bank USA, 583 F.3d 549, 553 (8th Cir. 2009). “Under Missouri law, a choice-of-law clause in a contract generally is enforceable unless application of the agreed-to law is ‘contrary to a fundamental policy of Missouri.’ ” Id. (citation omitted). The franchise agreements at issue include a [944]*944choice-of-law provision stating that Missouri law shall apply. Thus, we apply Missouri substantive law.

Missouri courts “are prone to hold against the theory that a contract confers a perpetuity of right or imposes a perpetuity of obligation.” Paisley v. Lucas, 346 Mo. 827, 143 S.W.2d 262, 270 (1940) (citation omitted), overruled on other grounds by Novak v. Baumann, 329 S.W.2d 732, 733 (Mo.1959). “The [Missouri] Supreme Court has made clear that, to be enforceable, a contract which purports to run in perpetuity must be adamantly clear that this is the parties’ intent.” Preferred Physicians Mut. Mgmt. Grp., Inc. v. Preferred Physicians Mut. Risk Retention Grp., Inc., 961 S.W.2d 100, 103 (Mo.Ct.App.1998). Missouri courts “will only construe a contract to impose an obligation in perpetuity when the language of the agreement compels that construction,” such that the parties’ intention that the “contract’s duration is for life ... is clearly expressed in unequivocal terms.” Paisley, 143 S.W.2d at 271 (citation omitted).

At the outset, we note that Franklin is arguably correct that the practical effect of each agreement here “would be to create a perpetual, never-ending contract.” Preferred Physicians, 961 S.W.2d at 103. The duration provision in each contract indicates that the contract will renew “automatically” for successive five-year terms so long as Franklin does not terminate the agreement before automatic renewal.

Yet the dispositive issue in this case is not “whether the parties created a contract which had the effect of perpetual duration,” id.; instead, it is whether the contracts’ language unequivocally expresses the parties’ intent that the agreements be perpetually enforceable. See id. To meet this standard, the duration provision must “unequivocally express an intent of the parties to create a perpetual, never-ending franchise agreement.” Armstrong Bus. Servs., Inc. v. H & R Block, 96 S.W.3d 867, 877 (Mo.Ct.App.2002).

The parties disagree as to whether an unequivocal expression of perpetual enforceability requires express words such as “everlasting,” “eternally,” or “for all time” — or whether such an intention may also be clearly implied from other aspects of the contract. See Paisley, 143 S.W.2d at 271 (finding employment contract was not perpetual where “duration of the contract was not fixed expressly or by implication”); Diffenderfer v. Bd. of President, 120 Mo. 447, 25 S.W. 542, 544 (1894) (stating intent of perpetual duration may appear “by express term, or clearly by implication”).

H & R Block argues the former position, contending the Franklin agreements are terminable because they do not include any language concerning duration, other than the five-year renewal provisions. See, e.g., Armstrong,

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Bluebook (online)
691 F.3d 941, 2012 WL 3870574, 2012 U.S. App. LEXIS 18832, Counsel Stack Legal Research, https://law.counselstack.com/opinion/h-r-block-tax-services-llc-v-deanna-franklin-ca8-2012.