Court of Appeals Tenth Appellate District of Texas
10-23-00329-CV
Jim Drew Bailey, Jr., ELD 2.0 Inc., and Taide Martina Bailey, Appellants
v.
Mosquito Joe SPV, LLC, Appellee
On appeal from the 170th District Court of McLennan County, Texas Judge Jim Meyer, presiding Trial Court Cause No. 2022-4253-4
JUSTICE SMITH delivered the opinion of the Court.
MEMORANDUM OPINION
Jim Drew Bailey, Jr., ELD 2.0 Inc., and Taide Martina Bailey appeal
from an adverse judgment rendered after a trial before the court in this breach
of contract action brought by Mosquito Joe SPV, LLC. In three issues,
Appellants contend the trial court erred in failing to dismiss the case, failing
to apply Wisconsin law, and in finding Appellants breached the parties’
agreements. We affirm. BACKGROUND
In September 2020, Jim and Taide Bailey entered into a franchise
agreement with Mosquito Joe Franchising, LLC to open a Mosquito Joe pest
control franchise in Wisconsin. The agreement provides that Texas law applies
and contains a forum selection clause requiring disputes to be brought in
McLennan County, Texas. Additionally, an addendum of the same date,
Schedule J, states the Wisconsin Fair Dealership Law (WFDL) “will supersede
any conflicting terms of the Franchise Agreement.” That agreement was
amended in December 2020 to replace the original “Mailer Program” with the
updated “Direct Marketing Program.” In December 2021, that agreement was
assigned to ELD 2.0 Inc., a Texas corporation, with its principal place of
business in Wisconsin. The Baileys, the principal shareholders of ELD 2.0 Inc.,
signed as guarantors.
The Baileys decided to purchase a second Mosquito Joe franchise
territory in Wisconsin. Another franchise agreement was signed by Jim Bailey
for ELD 2.0 Inc., franchisee, in December 2021. It includes an identical
Schedule J addendum, but is signed by Jim Bailey for ELD 2.0 Inc., and a
personal guarantee signed by Jim and Taide Bailey. Under both agreements,
the franchisee was required to pay fees for Mosquito Joe’s mandatory direct
mail advertising program. Unsatisfied by the results of the direct mail
Bailey et al. v. Mosquito Joe SPV, LLC Page 2 program and with Mosquito Joe’s response to their complaints, the Baileys
stopped paying the direct marketing program fees.
The parties’ attempt at mediation was unsuccessful. In December 2022,
Mosquito Joe filed suit in McLennan County, Texas alleging breach of contract
and suit on the guaranty. In January 2023, the Baileys filed suit against
Mosquito Joe in Wisconsin asserting violations of Wisconsin law. In August
2023, the Baileys filed a motion to dismiss or, in the alternative, a plea in
abatement, in the Texas suit arguing that Wisconsin law applies to the case,
and the case should be tried in Wisconsin. The trial court denied the motion.
After a trial before the court, the court rendered judgment in favor of Mosquito
Joe and ordered the Baileys to pay damages in the amount of $41,264.
MOTION TO DISMISS
In their first issue, the Baileys assert the trial court erred in failing to
dismiss this case or, in the alternative, stay the case in favor of the Wisconsin
lawsuit. They argue that the addendum to the franchise agreements provides
that the WFDL applies. Therefore, the trial court’s failure to dismiss or stay
the case offended the parties’ agreement that the WFDL applies which, they
argue, gives the Baileys the right to choose where to litigate this case.
Alternatively, they argue the trial court disregarded Wisconsin public
policy and rendered the principles of comity meaningless by failing to dismiss
Bailey et al. v. Mosquito Joe SPV, LLC Page 3 or stay this case. They urge this Court to apply the principles of comity,
asserting those principles demand a Wisconsin court to determine and apply
Wisconsin public policy. They argue the forum selection clause mandating suit
in McLennan County is an unenforceable violation of Wisconsin public policy
as expressed in the WFDL. Finally, they assert that the exceptions applicable
when deciding dominant jurisdiction should apply when considering a motion
to stay under comity principles.
Standard of Review
A trial court’s ruling on a motion to dismiss is subject to an abuse of
discretion standard of review. See Am. Transitional Care Ctrs. of Tex., Inc. v.
Palacios, 46 S.W.3d 873, 877 (Tex. 2001); Bowers v. Matula, 943 S.W.2d 536,
538 (Tex. App.—Houston [1st Dist.] 1997, no writ). The scope of review is
limited to those arguments raised by the motion to dismiss. See Brown v. Aetna
Cas. & Sur. Co., 145 S.W.2d 171, 174 (Tex. [Comm’n Op.] 1840). A trial court
abuses its discretion when it acts in an arbitrary or unreasonable manner or if
it acts without reference to any guiding rules or principles. Downer v.
Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). The
reviewing court may not substitute its own judgment for the trial court’s
judgment. Bowie Mem’l Hosp. v. Wright, 79 S.W.3d 48, 52 (Tex. 2002) (per
curiam).
Bailey et al. v. Mosquito Joe SPV, LLC Page 4 Applicable Law--Choice of Law
Which jurisdiction’s laws apply to a dispute is a question of law.
Torrington Co. v. Stutzman, 46 S.W.3d 829, 848 (Tex. 2000). We generally
honor contracting parties’ bargained-for and expressed choice of which state’s
laws govern their performance under the contract. DeSantis v. Wackenhut
Corp., 793 S.W.2d 670, 677 (Tex. 1990) (op. on reh’g). However, parties “cannot
require that their contract be governed by the law of a jurisdiction which has
no relation whatever to them or their agreement. And they cannot by
agreement thwart or offend the public policy of the state the law of which ought
otherwise to apply.” Id.
To determine the enforceability of a choice-of-law provision, we look to
principles in the Restatement (Second) of Conflict of Laws. Exxon Mobil Corp.
v. Drennen, 452 S.W.3d 319, 324 (Tex. 2014). Specifically, we apply Section
187(2) of the Restatement which provides:
The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue
Bailey et al. v. Mosquito Joe SPV, LLC Page 5 and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2) (AM. LAW INST. 1988).
Whether the Section 187(2)(b) exception applies depends on three
determinations: whether a state has a more significant relationship with the
parties and their transaction than the state they chose; whether that state has
a materially greater interest than the chosen state in the determination of the
particular issue, and whether that state’s fundamental policy would be
contravened by the application of the law of the chosen state. DeSantis, 793
S.W.2d at 678. We must enforce the parties’ choice-of-law unless all three
elements of this test are satisfied. Gator Apple, LLC v. Apple Tex. Rests., Inc.,
442 S.W.3d 521, 533 (Tex. App.—Dallas 2014, pet. denied).
Analysis
In their first argument under this issue, the Baileys complain that the
trial court erred by failing to dismiss this case. In their Motion to Dismiss, the
Baileys argued that Texas choice of law rules require the application of
Wisconsin law. Both franchise agreements provided that the parties’ rights
under the agreements will be interpreted in accordance with the laws of the
state of Texas. The Baileys assert that provision was superseded by the
addendum, which provides the WFDL “will supersede any conflicting terms of
Bailey et al. v. Mosquito Joe SPV, LLC Page 6 the Franchise Agreement.” By denying the motion, the trial court disagreed.
We apply the Restatement’s analysis from the starting point that the parties
chose to apply the law of Texas.
First, we determine if there is a substantial relationship between Texas
and the parties or the transaction. See RESTATEMENT (SECOND) OF CONFLICT
OF LAWS § 187(2)(a). Mosquito Joe’s parent company, Dwyer Franchising,
LLC’s principal place of business is in McLennan County, Texas; ELD 2.0, Inc.
is a Texas corporation; and Schedule A of each franchise agreement, the
personal guaranty signed by the Baileys, the electronic funds transfer form
identifying the Baileys’ bank account, and the assignment to ELD 2.0, Inc. each
provide a Texas address for the Baileys. Further, the obligations under the
two promissory notes were performable in Texas. We conclude that Texas had
a substantial relationship to the parties and the transaction, and section
187(2)(a) of the Restatement does not preclude the application of Texas law.
See Res. Savs. Ass’n v. Neary, 782 S.W.2d 897, 903 (Tex. App.—Dallas 1986,
writ denied) (Texas had reasonable relationship to parties and their
transaction, even though real property was located in Georgia, because
promisor on note was Texas partnership, promisee on note was located in
Texas, indebtedness was payable at promisor’s office in Texas, guarantors lived
Bailey et al. v. Mosquito Joe SPV, LLC Page 7 in Texas, guarantors agreed their obligations under guaranty were
performable in Texas, and parties agreed Texas law would apply to contract).
We next consider whether section 187(2)(b) of the Restatement precludes
application of Texas law. Section 187(2)(b) provides that the parties’ choice of
Texas law is effective unless (1) Wisconsin has a more significant relationship
with the parties and their transaction than Texas, (2) applying the law of Texas
would contravene a fundamental policy of Wisconsin, and (3) Wisconsin has a
materially greater interest in the determination of the particular issue in the
case. See Exxon Mobil Corp., 452 S.W.3d at 325-27; DeSantis, 793 S.W.2d at
678. We must enforce the parties’ choice of Texas law unless all three elements
of this test favor the application of Wisconsin law. Gator Apple, LLC, 442
S.W.3d at 533. If we conclude that one of the three inquiries favors the parties’
choice of Texas law to govern their dispute, we need not examine the other two.
Id.
Under the first factor, we consider whether the relationship of the
transaction and parties to Wisconsin is clearly more significant than their
relationship to the chosen state of Texas. See DeSantis, 793 S.W.2d at 678. In
doing so, we take into account various contacts including the place of
performance, contracting, and negotiations of the agreement; the location of
the subject matter of the contract; and the domicile, residence, place of
Bailey et al. v. Mosquito Joe SPV, LLC Page 8 incorporation, and place of business of the parties. See RESTATEMENT
(SECOND) OF CONFLICT OF LAWS § 188(2); Exxon Mobil Corp., 452 S.W.3d at
326. In conducting our analysis, we focus on which state’s law has the most
significant relationship to the particular substantive issue to be resolved. See
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2); Chesapeake
Operating, Inc. v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 170-71 (Tex.
App.—Houston [14th Dist.] 2002, no pet.) (op. on reh’g) (en banc).
The substantive issue to be resolved in the underlying case is whether
the Baileys breached the franchise agreements by failing to pay fees owed,
including direct marketing program fees. The place of contracting favors
Texas. Although the Baileys seem to contend they were not residents of Texas
at the time the 2020 franchise agreement was signed, the agreement
contradicts that claim. Additionally, even if they were residents of Wisconsin
at the time, the place of contracting is technically Texas, as the last signature
was added in Texas. Sonat Expl. Co. v. Cudd Pressure Control, Inc., 271
S.W.3d 228, 233 (Tex. 2008). Further, the 2021 franchise agreement
specifically states that the execution and acceptance of terms occurred in
Texas. The record does not indicate where negotiations took place, but this
factor is of less importance when the parties conduct their negotiation from
Bailey et al. v. Mosquito Joe SPV, LLC Page 9 separate states, which may have been the case regarding the 2020 agreement.
See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188 cmt. e.
The place of performance favors Texas. The 2021 franchise agreement
provides that the performance of material obligations arising under the
agreement, including the franchisee’s payment of monies due and satisfaction
of certain training requirements, shall occur in Texas. Both promissory notes,
one for each franchise agreement, provide that “[a]ll indebtedness is payable
and all obligations are performable in Waco, McLennan County, Texas.”
Mosquito Joe’s place of business is in Texas while the Baileys’ place of business
is in Wisconsin, although they apparently operate it from Texas. The location
of the subject matter of the franchise agreements is arguably Wisconsin, where
the Baileys opened a franchise. However, the conduct at issue is the Baileys’
failure to pay for the direct marketing program which, according to the
franchise agreements, is to be completed electronically and, as a material
obligation under the agreement, shall occur in Texas.
While the transaction and parties bear relations to both states,
considering the factors named in Section 188, we conclude that the relationship
of the transaction and parties to Texas is more significant than their
relationship to Wisconsin. See Drennen, 452 S.W.3d at 326. Accordingly, we
Bailey et al. v. Mosquito Joe SPV, LLC Page 10 need not address the other two factors. See Gator Apple, LLC, 442 S.W.3d at
533.
We conclude that the choice of law principles as stated in the
Restatement require the parties’ choice of law provisions in the agreements, to
apply Texas law, must be upheld. See DeSantis, 793 S.W.2d at 677. The trial
court did not err in denying the Baileys’ motion to dismiss on the basis of choice
of law principles.
The Baileys argue in the alternative that the trial court erred in denying
their motion based on the principles of comity. Comity is a principle of mutual
convenience whereby one state or jurisdiction will give effect to the laws and
judicial decisions of another. In re AutoNation, Inc., 228 S.W.3d 663, 670 (Tex.
2007) (orig. proceeding). When a matter is first filed in another state, the
general rule in applying comity is that, under certain circumstances, Texas
courts stay the later-filed proceeding pending adjudication of the first suit. Id.
However, besides the fact that this Texas suit was filed before the Wisconsin
suit, the Baileys did not raise comity in their motion to dismiss. In the “Plea
in Abatement” portion of their motion to dismiss, they asserted, “[i]n the
alternative, should the Court deny Defendants’ Motion to Dismiss, Defendants
bring this, its Plea in Abatement, requesting that this Court abate this current
matter and allow the case in Wisconsin to continue because the Wisconsin Case
Bailey et al. v. Mosquito Joe SPV, LLC Page 11 is the court of dominant jurisdiction.” Dominant jurisdiction applies to suits
filed in different courts within Texas; the doctrine does not apply to suits filed
in other states. Ashton Grove L.C. v. Jackson Walker L.L.P., 366 S.W.3d 790,
794 (Tex. App.—Dallas 2012, no pet.).
To preserve error, a complaint on appeal must comport with the objection
made at trial. TEX. R. APP. P. 33.1(a); Martin v. Cottonwood Creek Constr.,
LLC, 560 S.W.3d 759, 763 (Tex. App.—Waco 2018, no pet.). The Baileys’
complaint that the trial court erred in denying their motion based on comity is
waived because they raised a different complaint in their motion to dismiss.
Id. We overrule the Baileys’ first issue.
APPLICATION OF WISCONSIN LAW
In their second issue, the Baileys contend the trial court erred by failing
to apply Wisconsin law to the dispute. They present extensive arguments
regarding choice of law analysis. They end their discussion by stating “this
case must be judged by Wisconsin law, not Texas law, and the trial court erred
in applying Texas law to the parties’ substantive claims, resulting in an
improper judgment against the Bailey parties.”
Mosquito Joe asserts that the Baileys failed to preserve this issue by
failing to file a Rule 202 motion requesting the court to take judicial notice of
Wisconsin law. In their reply brief, the Baileys explained that they impliedly
Bailey et al. v. Mosquito Joe SPV, LLC Page 12 requested the trial court to take judicial notice of Wisconsin law in their motion
to dismiss, and the trial court impliedly took notice of Wisconsin law and
refused to apply such law by denying the Baileys’ motion.
Under Rule of Evidence 202, a party may compel a trial court to take
judicial notice of another state’s law by filing a motion, giving notice to other
parties, and furnishing the court with sufficient information to enable it to
properly comply with the request. TEX. R. EVID. 202. If a party does not ask
the trial court to take judicial notice of the law of another jurisdiction or fails
to provide adequate proof of the content of that law, the law of that jurisdiction
will be presumed to be the same as Texas law. See Burlington N. & Santa Fe
Ry. Co. v. Gunderson, Inc., 235 S.W.3d 287, 290 (Tex. App.—Fort Worth 2007,
pet. withdrawn). A preliminary motion is necessary to assure the application
of the law of another jurisdiction, and absent a motion by a party, Texas law
may be applied to a dispute. Id.
In their motion to dismiss, the Baileys asked the court to dismiss or abate
the Texas lawsuit to allow their Wisconsin lawsuit to proceed. The relief
requested in the pretrial motion to dismiss is not a request to apply Wisconsin
law in the Texas lawsuit. The Baileys did not comply with Rule 202. Therefore,
the trial court did not err in applying Texas law. See id. We overrule the
Baileys’ second issue.
Bailey et al. v. Mosquito Joe SPV, LLC Page 13 FRANCHISE AGREEMENTS
In their third issue, the Baileys contend that the franchise agreements
are unenforceable, therefore the trial court erred by holding that they breached
the parties’ agreements. They further argue that they were relieved of their
obligation due to Mosquito Joe’s prior material breach.
Unconscionability
The Baileys assert that the agreements were procedurally and
substantively unconscionable. Unconscionable contracts are unenforceable
under Texas law. See In re Poly-America, L.P., 262 S.W.3d 337, 348 (Tex. 2008)
(orig. proceeding). The ultimate question of unconscionability of a contract is
one of law, to be decided by the court. Id. at 349. We apply a de novo standard
of review in determining whether a contract is unconscionable. Delfingen US-
Tex., L.P. v. Valenzuela, 407 S.W.3d 791, 798 (Tex. App.—El Paso 2013, no
pet.). The burden of proving unconscionability falls on the party opposing the
contract. In re Poly-America, L.P., 262 S.W.3d at 348.
Procedural Unconscionability
In their first argument under this issue, the Baileys assert that the
direct mailer provisions of the agreements were procedurally unconscionable
because the negotiation process was unfair. They assert that Mosquito Joe
took advantage of them by falsely representing that the marketing program
Bailey et al. v. Mosquito Joe SPV, LLC Page 14 was designed to generate leads for the Baileys’ franchise when the true purpose
was to spread brand awareness. Further, they contend Mosquito Joe, the party
with superior knowledge, acted unethically and deceived them by eliminating
any potential liability or obligation on Mosquito Joe’s part regarding the direct
marketing program. The Baileys also complain that, while they had “disparate
bargaining power and financial ability,” they were required to participate in
the direct marketing program. Although the circumstances under which the
2020 and 2021 agreements were formed were not identical, the Baileys do not
try to make separate arguments regarding unconscionability of the two
different agreements.
Procedural unconscionability refers to the circumstances surrounding
the formation of the contract. In re Halliburton Co., 80 S.W.3d 566, 571 (Tex.
2002) (orig. proceeding). The principles of unconscionability do not negate a
bargain because one party to the agreement may have been in a less
advantageous bargaining position. In re FirstMerit Bank, N.A., 52 S.W.3d 749,
757 (Tex. 2001) (orig. proceeding). In determining whether a contract is
unconscionable, we must examine (1) the “entire atmosphere” in which the
agreement was made; (2) the alternatives, if any, available to the parties at the
time the contract was made; (3) the “non-bargaining ability” of one party; (4)
Bailey et al. v. Mosquito Joe SPV, LLC Page 15 whether the contract was illegal or against public policy; and (5) whether the
contract is oppressive or unreasonable. Delfingen, 407 S.W.3d at 798.
Jim Bailey testified that he holds a Masters in Business Administration
from the University of Houston and worked for Shell Oil Company for twenty
years as a director of supplier quality. He also holds a “Six Sigma Black Belt
Certification,” specialized training through which he learned to help
organizations improve their processes and implement controls. He explained
that he researched business opportunities for his retirement years.
Considering mosquito control as a possible opportunity, he looked at Mosquito
Joe and two competitors. Mosquito Joe was the only one that would take care
of marketing for the franchisee. Knowing Mosquito Joe would handle that part
of his business so he could focus on other areas of the business made it easier
to choose Mosquito Joe.
Amy Yemm, Mosquito Joe’s vice-president of operations and past direct
marketing director, testified that, after signing the first franchise agreement,
the Baileys were provided training materials, including a document which
explained that their program was not just a direct mail program, but also a
brand awareness program. Yemm indicated that the document clearly states
there is no guarantee of benefits. Yemm explained the contents of Exhibit 6,
the “training deck” presented to franchisees during “business training week.”
Bailey et al. v. Mosquito Joe SPV, LLC Page 16 Training is required, after franchise agreements are signed and before they
begin operations, to educate franchisees on the direct marketing program.
Under the heading “5 Reasons Direct Mail Works” is the statement that it
builds brand awareness. Although the Baileys did not have the training
information at the time they signed the first franchise agreement, they had it
before they signed the second franchise agreement.
The franchise agreements required each franchisee to agree to abide by
all of Mosquito Joe’s marketing and advertising requirements. The 2020
franchise agreement stated that the franchisee is required to send postcards to
each targeted household in the territory as prescribed by Mosquito Joe. The
2021 agreement specified that the franchisee “must participate in our direct
marketing program providing direct mail, digital display, social media and
digital and other marketing, promotional and advertising programs and
related services (the ‘Direct Marketing Program’) and pay us or our affiliate
the Direct Marketing Program Fees” as required by the agreement. Further,
the franchisee must spend the minimum amounts set forth in the Data Sheet,
Appendix A to the agreement, on approved local marketing and promotion in
the territory each year. The 2020 and 2021 Data Sheets provide that the
annual minimum local marketing requirement is the greater of $35,000 and 8
percent of the prior year’s gross sales. The 2020 Data Sheet specifically states
Bailey et al. v. Mosquito Joe SPV, LLC Page 17 that this requirement includes the Mailer Program Fees. The 2021 Data
Sheet, Appendix A to the 2021 franchise agreement, states that the annual
minimum local marketing requirement includes the Direct Marketing
Program Fees. In the 2021 agreement, direct mail is a component of the Direct
Marketing Program. The 2020 Data Sheet states that there are 34,524
targeted households in the Baileys’ original territory. The 2021 Data Sheet
states the number of targeted households was 34,987. The franchise
agreements are silent as to Mosquito Joe’s requirements, if any, to ensure
deliverance of a certain percentage of the mailers.
The agreements identify what Mosquito Joe calls a Marketing,
Advertising and Promotion Fund (the MAP Fund). Franchisees pay into the
MAP Fund and Mosquito Joe uses disbursements from the MAP Fund for
expenses incurred in connection with the cost of formulating, developing,
implementing, and administering marketing, advertising, public relations, and
promotional campaigns. Paragraph 7A of the 2020 and 2021 franchise
agreements provides:
We assume no direct or indirect liability or obligation to you with respect to collecting amounts due to the MAP fund or related to our maintenance, direction or administration of the MAP fund, including with respect to the efficiency or effectiveness, if any, of the MAP fund in enhancing the Marks, brand or System or advancing the business interests of a franchisee or franchisees in general.
Bailey et al. v. Mosquito Joe SPV, LLC Page 18 Although the MAP Fund, designed to pay marketing expenses,
apparently excludes Mailer Program Fees, we find it indicative of Mosquito
Joe’s position regarding Mosquito Joe’s potential liability as to the direct
marketing program. Payment of the MAP fee and the direct mail program fee
were mandatory. Mosquito Joe’s express denial of liability with respect to the
effectiveness of the MAP fund, which was maintained by Mosquito Joe, is
consistent with its implicit denial of liability for the effectiveness of the direct
mailer provisions, which Mosquito Joe did not handle or control.
The franchise agreements were premised on the fact that Mosquito Joe
Franchising, LLC had “developed a system for establishing and operating
businesses identified by the MOSQUITO JOE service mark and engaged in
controlling undesirable outdoor insects . . . pursuant to certain standards and
specifications.” Further, the franchise agreements contained provisions
indicating Mosquito Joe intended to protect its brand while allowing
franchisees to use it. The agreements stated that Mosquito Joe owns the
marks and the goodwill of the business. The agreements provided: “Your use
of the Marks will inure to our benefit.” Franchisees may use the marks only
as authorized by Mosquito Joe. The franchisees “must implement and abide
by [Mosquito Joe’s] requirements and recommendations directed to enhancing
substantial System uniformity.” In the interest of protecting the Mosquito Joe
Bailey et al. v. Mosquito Joe SPV, LLC Page 19 brand, marks and the System, Mosquito Joe reserved the right to determine
the response to a crisis, which it defined as an event that negatively impacts
the Mosquito Joe brand. In Schedule D of the franchise agreements, the
Baileys acknowledged that any training or tools provided by Mosquito Joe are
for the purpose of protecting the MOSQUITO JOE brand and marks and to
assist them in the operation of their business.
These provisions are indicative of the atmosphere in which the
agreements were made. In order to expand its business, Mosquito Joe was
willing to grant a franchise to operate a Mosquito Joe business subject to the
limiting conditions in the agreement. Mosquito Joe made its position clear.
Mosquito Joe provided the brand, expertise, business model, and goodwill. The
franchisee, if it wanted to obtain a franchise, had to agree to the marketing
program. The absence of a provision requiring Mosquito Joe to maintain
liability for the direct mail program cannot be considered unethical or
deceptive.
Neither are we persuaded that the Baileys’ bargaining power and
financial ability led to a procedurally unconscionable agreement. Jim Bailey,
the holder of an advanced business degree with two decades of experience
working for a large corporation, researched business opportunities, including
Mosquito Joe and, specifically, direct mail programs. The Baileys are
Bailey et al. v. Mosquito Joe SPV, LLC Page 20 presumed to have knowledge of and understand the contents of the written
agreements they signed. See In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex.
2007) (orig. proceeding) (per curiam). The Baileys could have chosen a
different mosquito control company as their retirement business opportunity,
one that left marketing to the franchisee. Considering the circumstances
surrounding the formation of the agreements, the Baileys have not proven the
direct mailer provisions of the franchise agreements were procedurally
unconscionable. See In re Halliburton Co., 80 S.W.3d at 571.
Substantive Unconscionability
In their second argument under the third issue, the Baileys assert that
the direct marketing program provisions were substantively unconscionable.
Specifically, they contend that the program is utterly lopsided because it forced
franchisees to participate in the program, and pay an exorbitant amount for it,
while creating no obligation or liability in exchange on the part of Mosquito
Joe. Alternatively, the Baileys argue that the requirement that the Baileys
must pay for mailers to be sent to 100 percent of the households in their
territories while Mosquito Joe must only mail 90 percent is substantively
unconscionable and utterly lopsided.
Substantive unconscionability refers to the fairness of the contract itself.
Id. A contract is substantively unconscionable if, given the parties’ general
Bailey et al. v. Mosquito Joe SPV, LLC Page 21 commercial background and the commercial needs of the particular trade or
case, the clause involved is so one-sided that it is unconscionable under the
circumstances existing when the parties made the contract. In re Olshan
Found. Repair Co., LLC, 328 S.W.3d 883, 892 (Tex. 2010) (orig. proceeding); In
re Poly-America, L.P., 262 S.W.3d at 348. Unconscionability is to be
determined in light of a variety of factors, which aim to prevent oppression and
unfair surprise; in general, a contract will be found unconscionable if it is
grossly one-sided. In re Poly-America, L.P., 262 S.W.3d at 348. An
unconscionable contract is so one-sided, with so gross a disparity in the values
exchanged, that no rational contracting party would have entered the contract.
In re Olshan Found. Repair Co., LLC., 328 S.W.3d at 892.
Contrary to the Baileys’ argument, the franchise agreements created
obligations for Mosquito Joe. Pursuant to their agreements, Mosquito Joe was
responsible for creating, implementing, and administering a marketing
program that included the direct mail program, as well as other marketing
tactics. Further, Mosquito Joe was required to obtain a mailing list of targeted
households and contract with a third-party vendor to print and mail the
postcards. Mosquito Joe provided marketing, including direct mail, to all of its
franchisees, fronting costs. While not set out with specificity in the franchise
agreements, Mosquito Joe retained responsibility for mailing the postcards.
Bailey et al. v. Mosquito Joe SPV, LLC Page 22 However, that is necessarily done in conjunction with the United States Postal
Service. See Rosenthal v. Walker, 111 U.S. 185, 193 (1884) (Held that, where
mail is delivered to the postman, the presumption that it reached its
destination and was received by the person to whom it was addressed is an
inference of fact founded on the probability that the officers of the government
will do their duty and the usual course of business.).
The franchise agreements set out in detail the Baileys’ responsibilities
regarding the mailer program. The agreements explained that the Baileys
must pay to Mosquito Joe what was called Mailer Program fees in 2020 and
what was called Direct Marketing Program fees in 2021, and the agreements
set out when those were due and that the fees were nonrefundable. The
amounts and types of fees associated with the direct mailer program were
specified in Schedule A, entitled “Data Sheet.” Jim Bailey holds an advanced
business degree and has two decades of experience in business. The Baileys
are presumed to have an understanding of the documents they signed. See In
re Bank One, N.A., 216 S.W.3d at 826. Under these circumstances, the direct
marketing program provisions, or mailer program provisions, are not so one-
sided as to make the agreements substantively unconscionable. See In re
Olshan Found. Repair Co., L.L.C., 328 S.W.3d at 892; In re Poly-America, L.P.,
262 S.W.3d at 348.
Bailey et al. v. Mosquito Joe SPV, LLC Page 23 Additionally, we are not persuaded by the Baileys’ alternative argument
that the agreements were unconscionable because the Baileys were required
to pay for the total amount of postcards to be mailed on their behalf while
Mosquito Joe’s practices did not require a showing that 100 percent of the
postcards were actually mailed.
Mosquito Joe contracted with a third-party vendor to create and address
the postcards. That vendor shipped the postcards to the United States Postal
Service. In processing the postcards, the post office scanned them. The
scanning information was sent to the third-party vendor. That vendor created
a percentage-scanned report showing the scan rate and emailed it to Mosquito
Joe. The scan rate refers to the percentage of the total number of mailers
delivered to the post office that were scanned at the post office. Mosquito Joe
considered a 90 percent scan rate to mean that 100 percent of the postcards
were delivered to prospective customers. Pursuant to its policy, if the number
scanned dropped below 90 percent of the number delivered to the post office,
Mosquito Joe instituted a review. Yemm explained that sometimes the cards
were not scanned because of smeared ink or because they were stuck together.
The number of mailers the Baileys are required to pay for, and the
number of mail pieces scanned, are not congruent or comparable categories.
The Baileys were contractually obligated to pay for 100 percent of the mailers
Bailey et al. v. Mosquito Joe SPV, LLC Page 24 as part of a marketing program to obtain customers for their business. How
Mosquito Joe measured success regarding its attempt to track the postcards
after delivery to the post office, by looking at the number of cards scanned, is
not a contractual obligation. It is just an internal business practice. Requiring
the Baileys to pay for 100 percent of the postcards mailed on their behalf while
not requiring Mosquito Joe to prove all 100 percent were mailed does not make
the franchise agreements substantively unconscionable. See In re Halliburton
Co., 80 S.W.3d at 571. The Baileys have not proven the direct marketing
program provisions were substantively unconscionable. See In re Poly-
America, L.P., 262 S.W.3d at 348.
Mosquito Joe’s Performance
In their third argument under the third issue, the Baileys contend that
Mosquito Joe failed to perform as required by the agreements. They assert
that Mosquito Joe “failed to mail the mailers required under the Marketing
Program the parties agreed upon.” Specifically, they complain that Mosquito
Joe failed to show whether the mailers were actually sent. They allege there
are no source documents showing the mailers were printed, paid for, or
transmitted to the post office, as required by the marketing program.
Asserting that approximately 4,000 mailers were missing from the scans, they
Bailey et al. v. Mosquito Joe SPV, LLC Page 25 argue there is no indication that Mosquito Joe sent the 127,000 postcards the
Baileys ordered.
Further, the Baileys assert that Mosquito Joe’s behavior fails to comport
with the standard of good faith and fair dealing. They contend Mosquito Joe
did not comply with its policy of investigating why less than 90 percent of
postcards were scanned by the post office in five different zip codes, and did
not provide the Baileys with the option of sending the postcards, getting a
refund, or using the funds for another type of marketing. Because Mosquito
Joe failed to send at least thousands of postcards, the argument continues, the
Baileys were relieved of their obligation to pay the remaining amount for the
direct marketing program.
In an appeal of a judgment rendered after a bench trial, the trial court’s
findings of fact have the same weight as a jury’s verdict, and we review the
legal and factual sufficiency of the evidence used to support them just as we
would review a jury’s findings. In re Doe, 19 S.W.3d 249, 253 (Tex. 2000);
Anderson v. Seven Points, 806 S.W.2d 791, 794 (Tex. 1991). We review the trial
court’s conclusions of law de novo; that is, we review the trial court’s legal
conclusions drawn from the facts to determine their correctness. See BMC
Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002).
Bailey et al. v. Mosquito Joe SPV, LLC Page 26 A party attacking the legal sufficiency of the evidence supporting an
adverse finding on an issue on which the party bore the burden of proof must
demonstrate all vital facts in support of the issue were established as a matter
of law. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001) (per curiam).
The analysis requires that we first examine the record in the light most
favorable to the verdict for some evidence supporting the finding, crediting
evidence favoring the finding if a reasonable fact finder could and disregarding
contrary evidence unless a reasonable fact finder could not. City of Keller v.
Wilson, 168 S.W.3d 802, 807, 822 (Tex. 2005). We must indulge every
reasonable inference that would support the verdict. Id. at 822. Some
evidence, meaning more than a scintilla, exists when the evidence supporting
the finding "rises to a level that would enable reasonable and fair-minded
people to differ in their conclusions." Merrell Dow Pharms., Inc. v. Havner, 953
S.W.2d 706, 711 (Tex. 1997). If there is no evidence supporting the finding, the
reviewing court will then examine the entire record to determine if the
contrary proposition is established as a matter of law. Francis, 46 S.W.3d at
241. The issue should be sustained only if the contrary proposition is
conclusively established. Id.
When considering a factual sufficiency challenge, we consider and weigh
all of the evidence. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986).
Bailey et al. v. Mosquito Joe SPV, LLC Page 27 An appellant attacking factual sufficiency with respect to an adverse finding
on which he had the burden of proof must demonstrate that the finding is
against the great weight and preponderance of the evidence. Francis, 46
S.W.3d at 242. We may set aside the finding only if it is so contrary to the
overwhelming weight of the evidence as to be clearly wrong and unjust. Pool,
715 S.W.2d at 635.
Whether reviewing legal or factual sufficiency, we may not substitute
our judgment for that of the trier of fact or pass on the credibility of the
witnesses. See Mar. Overseas Corp. v. Ellis, 971 S.W.2d 402, 407 (Tex. 1998).
In a bench trial, the trial court may resolve any inconsistencies in the
testimony as well as determine the weight of the evidence. McGalliard v.
Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986).
Applicable Law
When one party to a contract commits a material breach of that contract,
the other party is discharged or excused from further performance. Mustang
Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) (per
curiam). The contention that a party is excused from its contract performance
by the other party’s prior material breach is an affirmative defense. Henry v.
Masson, 333 S.W.3d 825, 834 (Tex. App.—Houston [1st Dist.] 2010, no pet.).
The Baileys bore the burden to prove their affirmative defense of a prior
Bailey et al. v. Mosquito Joe SPV, LLC Page 28 material breach. See Compass Bank v. MFP Fin. Servs., Inc., 152 S.W.3d 844,
851-52 (Tex. App.—Dallas 2005, pet. denied).
Discussion
The Baileys pleaded the affirmative defense of prior breach by Mosquito
Joe. The trial court found that Mosquito Joe fully performed or tendered
performance under all agreements between the parties, implicitly finding
against the Baileys on their affirmative defense. The evidence supports this
finding.
While the Baileys were required to participate and send cards to a
predetermined number of prospective customers, the agreements did not
specify any requirements for mailing the cards or ensuring delivery, nor did
they identify acts or measures related to the direct mail program that
constitute compliance on the part of Mosquito Joe. Pursuant to its contractual
obligation to implement and administer a marketing program, Mosquito Joe
arranged for the appropriate number of postcards to be printed and mailed to
households in the Baileys’ territories. The print vendor who was responsible
for delivering the postcards by pallet to the post office, shipped a total of 69,948
postcards to the post office in 2021 and 127,083 in 2022.
The post office scanned the bar codes on each individual piece of mail.
This information was entered into a tracking software system. Based on that
Bailey et al. v. Mosquito Joe SPV, LLC Page 29 data, and the number of cards delivered to the post office, the third-party
vendor calculated the percentage of mail pieces scanned. Mosquito Joe
reviewed the post office scans and third-party reports to monitor the mailer
card system. Mosquito Joe accepted a showing that 90 percent had been
scanned at the post office as proof that all or most mail pieces had been
delivered to households. In 2022, there were five zip codes in which the scans
did not meet the 90 percent threshold. However, the total average scan rate of
all the zip codes was 97 percent.
While Mosquito Joe has access to reports showing how many postcards
were delivered to and scanned by the post office, there is no way to determine
how many postcards were actually delivered to potential customers.
Transporting the postcards from the post office to individual households was
beyond Mosquito Joe’s contractual responsibility or control. See Ward v.
Charter Oak Fire Ins. Co., 579 S.W.2d 909, 910-11 (Tex. 1979) (party should
not be denied her day in court because of a post office mistake beyond her
control); Fort Bend Cent. Appraisal Dist. v. Am. Furniture Warehouse Co., 630
S.W.3d 530, 537 (Tex. App.—Houston [1st Dist.] 2021, no pet.) (delivery of mail
is the USPS’s essential activity); Travelers Ins. Co. v. Johnson, 131 S.W.2d 242,
244-45 (Tex. Civ. App.—Beaumont 1939, writ dism’d, judgmt. cor.) (persons
mailing notice have a right to expect notice will be transmitted by the postal
Bailey et al. v. Mosquito Joe SPV, LLC Page 30 authorities and delivered to and received by addressee in due course of the
mail); see also TEX. R. CIV. P. 21a (service by mail is complete upon deposit of
the document, postpaid and properly addressed, in the mail).
Again, the agreements did not specify Mosquito Joe’s precise obligations
regarding the mailers and did not require it to show mailers, or a certain
number or percentage, were actually sent. Mosquito Joe arranged for the
postcards to be delivered to the post office. At that point, distributing the
postcards became the post office’s responsibility. The Baileys did not meet
their burden to prove Mosquito Joe committed a prior breach. See Francis, 46
S.W.3d at 241; Compass Bank, 152 S.W.3d at 851-52. Considering the evidence
in the light most favorable to the verdict, crediting evidence favoring the
finding if a reasonable fact finder could, we conclude that there is legally
sufficient evidence to support the court’s finding that Mosquito Joe did not
breach the franchise agreements. See Wilson, 168 S.W.3d at 822; Francis, 46
S.W.3d at 241.
We turn now to the question of the factual sufficiency of that finding.
Jim Bailey testified that he did not believe that he received what was
contracted to be provided. He saw nothing that showed him Mosquito Joe
actually mailed 127,000 mailers in his territory. He testified that: “My position
is they did not send 127,000. My position is I have no idea how many they
Bailey et al. v. Mosquito Joe SPV, LLC Page 31 sent. And based on my repeated requests to have some type of documentation
to show that they had, and their failure to do so, I’m of the opinion that they
only made a few of them based on the response rate.” Additionally, he did not
accept as true the information in Mosquito Joe’s spreadsheets. He wanted to
see what he referred to as “source documents” in order to verify the data in the
spreadsheets. He stated that he has “no clue if those numbers are accurate or
not.” While Mosquito Joe verified that pallets had reached the designated
intake center, he asserted that does not indicate what was on the pallets.
In essence, the Baileys presented testimony asserting that Mosquito Joe
did not prove it sent out 100 percent of the mailers. However, the Baileys
presented mere conjecture. The evidence shows that postcards were delivered
to the post office. In light of the fact Mosquito Joe is not responsible for the
post office’s duties, the Baileys did not present evidence that Mosquito Joe did
not comply with its contractual responsibility to implement and administer the
direct mail program.
Considering all the evidence, the Baileys have not shown that the trial
court’s finding that Mosquito Joe did not breach the franchise agreements is
against the great weight and preponderance of the evidence. See Francis, 46
S.W.3d at 242. The Baileys did not meet their burden to prove their affirmative
defense of prior breach. See Compass Bank, 152 S.W.3d at 851-52.
Bailey et al. v. Mosquito Joe SPV, LLC Page 32 Further, even if the evidence supported a finding that Mosquito Joe
breached the agreements, the Baileys could not recover on their affirmative
defense. The Baileys stopped paying toward marketing in the summer of 2022,
but intended to resume payment after Mosquito Joe provided the requested
proof that the postcards were mailed. The parties corresponded about these
issues into September. Thus, after the Baileys came to believe Mosquito Joe
had breached their agreements, the Baileys treated the agreements as
continuing, expecting to pay what they owed after Mosquito Joe provided
evidence that they mailed the postcards, and then to continue operating their
franchise. When a party treats a contract as continuing despite the other
party’s prior breach, the party may not rely on prior material breach to excuse
his own performance. See Long Trusts v. Griffin, 222 S.W.3d 412, 415-16 (Tex.
2006) (per curiam).
The Baileys also assert that Mosquito Joe’s “behavior fails to comport
with the standard of good faith and fair dealing.” They complain about
Mosquito Joe’s actions but do not identify any applicable standard of good faith
and fair dealing. Texas does not recognize a common law contract claim
premised on breach of an implied covenant of good faith and fair dealing. See
Arnold v. Nat’l Cty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). The
supreme court has recognized that a duty of good faith and fair dealing may
Bailey et al. v. Mosquito Joe SPV, LLC Page 33 arise as a result of a special relationship between the parties governed or
created by a contract. Id. The franchisor-franchisee relationship does not
amount to a “special relationship” giving rise to heightened duties. See Crim
Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 596 (Tex.
1992) (op. on reh’g). The supreme court has declined to extend this common-
law duty to all franchise agreements. Subaru of Am., Inc. v. David McDavid
Nissan, Inc., 84 S.W.3d 212, 225 (Tex. 2002). Therefore, there is no merit in
the Baileys’ assertion that Mosquito Joe’s behavior fails to comport with the
standard of good faith and fair dealing. Id.
The franchise agreements are neither procedurally unconscionable nor
substantively unconscionable. Further, the evidence is legally and factually
sufficient to support the trial court’s implied finding that the Baileys did not
prove their affirmative defense of prior material breach. Therefore, the
franchise agreements were not unenforceable, and the trial court did not err in
holding the Baileys’ breached the parties’ agreements. Accordingly, we
overrule the Baileys’ third issue.
CONCLUSION
The trial court did not err in denying the Baileys’ motion to dismiss or in
applying Texas law. The franchise agreements are not procedurally or
substantively unconscionable. The trial court did not err in finding that
Bailey et al. v. Mosquito Joe SPV, LLC Page 34 Mosquito Joe did not breach the agreements or by implicitly finding the Baileys
did not meet their burden to prove the affirmative defense of prior material
breach.
We affirm the trial court’s judgment.
STEVE SMITH Justice
OPINION DELIVERED and FILED: April 10, 2025 Before Chief Justice Johnson, Justice Smith, and Justice Harris Affirmed CV06
Bailey et al. v. Mosquito Joe SPV, LLC Page 35