Opinion
Civil Action No. 4:19-cv-01040-O
2020-09-03
GOOSEHEAD INSURANCE AGENCY, LLC, Plaintiff, v. WILLIAMS INSURANCE AND CONSULTING, INC. et al., Defendants.
Marc F. Kirkland, Kristin Lee Marker, Quilling, Selander, Lownds, Winslett & Moser, P.C., Plano, TX, Daniel M. Janssen, Pro Hac Vice, Lauren N. Zenk, Pro Hac Vice, Zachary T. Eastburn, Quarles & Brady, Milwaukee, WI, for Plaintiff. Daniel D. McGuire, Polsinelli PC, Dallas, TX, David L. Steinberg, Pro Hac Vice, Mark L. Kowalsky, Pro Hac Vice, Katherine A. Stefanou, Pro Hac Vice, Jaffe Raitt Heuer & Weiss PC, Southfield, MI, for Defendants.
Marc F. Kirkland, Kristin Lee Marker, Quilling, Selander, Lownds, Winslett & Moser, P.C., Plano, TX, Daniel M. Janssen, Pro Hac Vice, Lauren N. Zenk, Pro Hac Vice, Zachary T. Eastburn, Quarles & Brady, Milwaukee, WI, for Plaintiff.
Daniel D. McGuire, Polsinelli PC, Dallas, TX, David L. Steinberg, Pro Hac Vice, Mark L. Kowalsky, Pro Hac Vice, Katherine A. Stefanou, Pro Hac Vice, Jaffe Raitt Heuer & Weiss PC, Southfield, MI, for Defendants.
ORDER
Reed C. O'Connor, District Judge
Before the Court is Plaintiff's Motion to Dismiss Count I, III, IV, and V of Defendants' Counterclaims and to Apply Texas Law to Counts II and VI. Motion, ECF No. 41. After considering this motion, the Court finds that the Motion to Dismiss is GRANTED. Accordingly, Texas law governs this dispute, and Counts I, III, IV, and V of Defendant's counterclaims are dismissed.
I. BACKGROUND
On May 25, 2018, Joseph and Trisha Williams ("Defendants") executed a franchise agreement with Plaintiff Goosehead ("Plaintiff") to offer and sell property and casualty insurance products from an office located in Michigan. Defs.' Countercl., ECF No. 40 at ¶ 13. At the time the Franchise Agreement was executed, the sole shareholders of Williams Insurance were Joseph Williams ("J. Williams") and Trisha Williams ("T. Williams"). Id. at ¶ 14. In August 2018, approximately three months after Williams Insurance entered into the Franchise Agreement with Goosehead, J. Williams informed Goosehead that he would be transferring sole ownership in Williams Insurance to T. Williams. Id. at ¶ 24. In January 2019, with the approval and cooperation of Goosehead, J. Williams ceased working as a producer for Williams Insurance. Id. at ¶¶ 24–25. T. Williams steadily grew and increased the Williams Insurance sales revenue, and by summer 2019, Goosehead ranked Williams Insurance fourth of approximately twenty franchises operating in Michigan. Id. at ¶¶ 27, 29. J. Williams began working for a competitor, allegedly in violation of the Franchise Agreement non-compete covenant, so Goosehead terminated Williams Insurance's access to the Goosehead computer system. Id. at ¶ 36. Williams Insurance alleges that this termination violated Michigan law, which requires providing an opportunity to cure a purported breach of the Franchise Agreement. Goosehead argues its termination was proper.
Goosehead sued Williams Insurance on December 17, 2019, for (1) Trademark Infringement under the Lanham Act, (2) Common-law Trademark Infringement, (3) Declaratory Judgment, (4) Breach of Contract, (5) Breach of the Duty of Good Faith and Fair Dealing, (6) Civil Conspiracy, and (7) Fraudulent Inducement. Compl., ECF No. 1. Williams Insurance answered and counterclaimed for (1) Unlawful Termination under Michigan Law, (2) Breach of Contract, (3) Unjust Enrichment, (4) Declaratory Relief, and (5) Tortious Interference with Business Expectations. Answer, ECF No. 36. As a threshold matter, the parties disagree over whether Texas law or Michigan law applies to this dispute. Goosehead argues that Texas law should apply under the Franchise Agreement's choice-of-law provision. Williams Insurance argues that Michigan law should apply. The Court will resolve the choice-of-law issue before addressing the merits of the motion to dismiss.
II. LEGAL STANDARD
12Federal Rule of Civil Procedure 8(a) requires a claim for relief to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 8 does not require detailed factual allegations, but "it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). If a plaintiff fails to satisfy Rule 8(a), the defendant may file a motion to dismiss the plaintiff's claims under Federal Rule of Civil Procedure 12(b)(6) for "failure to state a claim upon which relief may be granted."
3 To defeat a motion to dismiss pursuant to Rule 12(b)(6), a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 663, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). "Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’ " Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ).
4 In reviewing a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mut. Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007). The Court is not bound to accept legal conclusions as true, and only a complaint that states a plausible claim for relief survives a motion to dismiss. Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937. When there are well-pleaded factual allegations, the Court assumes their veracity and then determines whether they plausibly give rise to an entitlement to relief. Id.
56"Generally, a court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011) (citations omitted); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). A court may also consider documents that a defendant attaches to a motion to dismiss if they are referred to in the plaintiff's complaint and are central to the plaintiff's claims. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000).
III. ANALYSIS
A. The Texas Choice-of-law Provision Governs This Case
1. The Franchise Agreement is a Qualified Transaction
Texas prefers contractual choice-of-law provisions are enforced so long as the parties agreed to the choice-of-law provision in writing and the transaction bears a reasonable relationship to the chosen jurisdiction. Tex. Bus. & Com. Code § 271.005. For the preference to apply, the transaction must be a "qualified transaction" as defined in the Code. Tex. Bus. & Com. Code § 271.001. "[A] ‘qualified transaction’ means a transaction under which a party (1) pays or receives, or is obligated to pay or receive, consideration with an aggregate value of at least $1 million; or (2) lends, advances, borrows, or receives, or is obligated to lend or advance or is entitled to borrow or receive, money or credit with an aggregate value of at least $1 million." Id. If the transaction at the center of the dispute is "qualified," the statutory preference to enforce a contractual choice-of-law provision between two presumably sophisticated parties supersedes the traditional Restatement (Second) of Conflicts of Law analysis. See Tex. Bus. & Com. Code § 271.005.
(a) Except as provided by Section 271.007, 271.008(b), 271.009, 271.010, or 271.011 or by Chapter 272, the law of a particular jurisdiction governs an issue relating to a qualified transaction if: (1) the parties to the transaction agree in writing that the law of that jurisdiction governs the issue, including the validity or enforceability of an agreement relating to the transaction or a provision of the agreement; and (2) the transaction bears a reasonable relation to that jurisdiction. (b) The law of a particular jurisdiction governs an issue described by this section regardless of whether the application of that law is contrary to a fundamental or public policy of this state or of any other jurisdiction.
The parties dispute whether the transaction is a "qualified transaction" and specifically whether the transaction consists of an aggregate value of at least one million dollars. Defs.' Supp., ECF No. 54; Pl.'s Supp., ECF No. 52. Defendants argue that "Goosehead terminated the Franchise Agreement well before its ten-year term and notably, Goosehead has not, and cannot, present any evidence that the amount actually paid before it was terminated was anywhere close to $1 million [sic]." Def.'s Supp. at 3, ECF No. 52. Defendants further argue that, because the "contract does not specifically state that the consideration" over the ten-year term would be an aggregate value of at least one million dollars this transaction is not a qualified transaction. Defs.' Supp., ECF No. 54.
The Fifth Circuit addressed this issue in a case where the terms of the agreement specifically obligated one party to pay the other party a sum of at least one million dollars. See, e.g., Cantu v. Jackson Nat. Life Ins. Co., 579 F.3d 434, 437–38 (5th Cir. 2009) (finding that two insurance policies for $500,000 each, which were entered into contemporaneously between the same parties, should be aggregated and constituted a qualified transaction where they totaled one million dollars). However, the statute does not require the aggregate value to be so explicitly stated in the four corners of the document, while a transaction that explicitly states the consideration to be over one million dollars is clearly a qualified transaction, the absence of such a provision does not prohibit the transaction from being a "qualified transaction".
789 Plaintiff argues that if Defendants "generated such average gross revenues, Goosehead would be entitled to received $1,808,742 in royalties over the life of the Agreement." Pl.' Supp. at 3, ECF No. 54. Defendants allege that it was in the top 20% of Goosehead franchises, which under the Agreement would entitle Goosehead to royalties over the ten-year term, but simultaneously argue that the relevant time frame for "aggregate consideration" is at the time of suit. Am. Countercl., ECF No. 40. The parties present an unresolved issue under Texas law–whether the statute refers to the aggregate value of the transaction at the time of contracting or at the time of dispute. The statute uses terms such as "consideration" and "transaction" rather than "dispute" or "liability". Tex. Bus. & Com. Code § 271.001. This intentional choice of language indicates that the relevant time to value the transaction is at the time it was entered, rather than the time of dispute. That being the case, the question is whether the aggregate value of the franchise agreement was at least one million dollars. The answer to this question is clear in that Defendant admits that its successful franchise, prior to termination, accompanied by royalty payments owed to Plaintiff even if Defendant was merely an average franchisee, was worth at least one million dollars.
Defendants hinge its statutory construction argument on the term "obligation". However, reading the statutory provision as a whole, it is clear the Legislature intended to use the word "obligation" to refer to the contractual consideration between all parties in the transaction, as opposed to Defendant's argument that the term "obligation" necessitates focus on the amount in controversy at the time of litigation.
The Defendant heavily disputes this point. For Defendant to be correct in its assertion that over a ten-year term the value of the franchise would be less than one million dollars, Defendant would have had to generate slim-to-no business. Defendant, of course, contradicts itself in other documents which demonstrate that had the franchise continued, it would've been in the top 20% of all franchisees. Am. Counterclaim, ECF No. 40.
2. The Parties Agreed in Writing That Texas Law Governs this Dispute
Neither party has disputed the validity of the contract in question. ECF No. 52; ECF No. 54. While the parties dispute the choice-of-law provision under these circumstances, the parties clearly agreed in writing to apply Texas law to this dispute. Tex. Bus. & Com. Code § 271.005(a)(1). The provision will therefore be enforceable so long as it bears a reasonable relation to this qualified transaction under Tex. Bus. & Com. Code § 271.005(b).
3. Texas Bears a Reasonable Relation to This Transaction
10 Defendants dispute that Texas bears a reasonable relation to this transaction. "A transaction bears a reasonable relation to a particular jurisdiction if the transaction, the subject matter of the transaction, or a party to the transaction is reasonably related to that jurisdiction." Tex. Bus. & Com. Code § 271.004(a) ;(b) ("A transaction bearing a reasonable relation to a particular jurisdiction includes: (1) a transaction in which: (A) a party to the transaction is a resident of that jurisdiction; (B) a party to the transaction has the party's place of business or, if that party has more than one place of business, the party's chief executive office or an office from which the party conducts a substantial part of the negotiations relating to the transaction, in that jurisdiction; (C) all or part of the subject matter of the transaction is located in that jurisdiction; (D) a party to the transaction is required to perform in that jurisdiction a substantial part of the party's obligations relating to the transaction, such as delivering payments; (E) a substantial part of the negotiations relating to the transaction occurred in or from that jurisdiction and an agreement relating to the transaction was signed in that jurisdiction by a party to the transaction ..."). Goosehead's principal place of business and corporate headquarters are in Texas. ECF No. 52. All of the relevant negotiations and contracting took place in Texas. Id. The subject matter of the transaction is located in Texas. Id. Goosehead performed its obligations in Texas. Id. This transaction is not only reasonably related to Texas, but overwhelmingly related to Texas. Because the transaction is a qualified transaction, the parties agreed in writing for Texas law to apply, and Texas has a reasonable relation to the transaction, the choice-of-law provision is enforceable pursuant to Section 271.005 of the Texas Business and Commerce Code, and the choice-of-law provision invokes Texas law. Finding that Texas law applies to this case, the Court must dismiss Defendants' Michigan state law counterclaims (Counts I and IV).
B. Defendants's Counterclaim for Unjust Enrichment Should be Dismissed
1112 Defendants asserted a counterclaim for unjust enrichment against the Plaintiff. Answer, ECF No. 48. Plaintiffs moved to dismiss on the grounds that the substance of the unjust enrichment claim is covered by the contact itself. Motion, ECF No. 41. "As a remedy based on quasi-contract principles, unjust enrichment is unavailable when a valid, express contract governing the subject matter of the dispute exists." Eun Bok Lee v. Ho Chang Lee, 411 S.W.3d 95, 112 (Tex. App.—Houston [1st Dist.] 2013, pet. denied). The governing franchise agreement addresses the subject matter of the counterclaim for unjust enrichment. See Eun Bok Lee, 411 S.W.3d at 113 (Unjust enrichment claim fails "if an express contracts [sic] terms address recovery for the materials or services sought"). Defendants argue that they should receive future commissions on the sale of insurance policies, which would have been executed in the event they continued their franchise relationship with Plaintiff. ECF No. 48. The claim hinges entirely on the contractual relationship of the parties; therefore, the agreement itself governs the dispute, and Count IV of the counterclaims must be dismissed. Since the contract governs the substance of the unjust enrichment counterclaim, permitting Defendant to amend its claim would be futile.
C. Defendants's Counterclaim for Tortious Interference Should be Dismissed
1314 Defendants counterclaim for tortious interference with prospective business relations due to Plaintiff's alleged interference with Defendant J. Williams' potential clients. ECF No. 48. To state a claim for tortious interference with prospective business relations, the plaintiff or counter-plaintiff must allege an independently unlawful act. Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 713 (Tex. 2001). The relevant inquiry is not whether the plaintiff was harmed by another's conduct, but whether that harm was the result of unlawful conduct. Id. at 727. Defendants plainly allege in their counterclaim that "Goosehead's interference was independently unlawful and intentional[.]" Answer at 37, ECF No. 36. However, without more, this allegation is a bare legal conclusion without underlying facts. Count V of Defendants's Counterclaims is dismissed.
15 Federal courts generally give a plaintiff an opportunity to cure pleading defects before dismissing with prejudice unless the defect is incurable. Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002). Defendant has not had an opportunity to amend its counterclaim. The deficiency in Defendant's counterclaim described above is not clearly incurable and therefore should not be dismissed with prejudice. Fearrington v. Bos. Sci. Corp., 410 F. Supp. 3d 794, 809 (S.D. Tex. 2019). Defendant may file an amended complaint amending only its tortious interference counterclaim.
IV. CONCLUSION
After considering the briefing and the relevant legal standards, the Court finds that Plaintiff's Motion to Dismiss should be and is hereby GRANTED. Accordingly, Texas law governs this dispute, and Count I, III, IV, and V of Defendants's counterclaims are DISMISSED.
SO ORDERED on this 3rd day of September, 2020.
ORDER ON RECONSIDERATION
Before the Court are Defendants' Motion for Reconsideration and Brief and Appendix in Support ("Defendants' Motion," ECF Nos. 59–61), filed October 1, 2020; Plaintiff's Response and Appendix in Support ("Plaintiff's Response," ECF Nos. 63–64), filed October 7, 2020; Defendants' Reply in Further Support of Motion and Appendix in Support ("Defendants' Reply," ECF Nos. 67–68), filed October 9, 2020; and Plaintiff's Objection and Appendix in Support ("Plaintiff's Objection," ECF Nos. 69–70), filed October 12, 2020. Having considered the briefing, relevant facts, and applicable law, the Court finds that Defendant's Motion should be DENIED .
I. FACTUAL BACKGROUND
On May 25, 2018, Joseph and Trisha Williams ("Defendants") executed a franchise agreement ("Franchise Agreement") with Plaintiff Goosehead ("Plaintiff") to offer and sell Goosehead's property and casualty insurance products from an office located in Michigan. Defs.' Countercl. ¶ 13, ECF No. 40. As relevant to this case, the Franchise Agreement contained a choice-of-law provision and forum-selection clause that dictated that any disputes would be governed by Texas law and litigated in Texas. At the time of the Franchise Agreement's execution, the sole shareholders of Williams Insurance were Joseph Williams ("J. Williams") and Trisha Williams ("T. Williams"). Id. ¶ 14. In August 2018, approximately three months after Williams Insurance entered into the Franchise Agreement with Goosehead, J. Williams informed Goosehead of his intent to transfer sole ownership in Williams Insurance to T. Williams. Id. ¶ 24. In January 2019, with Goosehead's approval and cooperation, J. Williams ceased working as a producer for Williams Insurance. Id. ¶¶ 24–25. T. Williams steadily grew Williams Insurance's sales revenue, and Goosehead ranked Williams Insurance fourth of approximately twenty franchisees operating in Michigan by summer 2019. Id. ¶¶ 27, 29. J. Williams began working for a competitor, allegedly in violation of the Franchise Agreement's non-compete covenant, so Goosehead terminated Williams Insurance's access to the Goosehead computer system. Id. ¶ 36. Williams Insurance alleges that this termination violated Michigan law, which requires providing an opportunity to cure a purported breach of the Franchise Agreement. Id. ¶¶ 38, 52–55, 62. Goosehead argues its termination was proper. See Pl.'s Answer to Countercl., ECF No. 58.
Goosehead sued Williams Insurance in this Court on December 17, 2019, for (1) Trademark Infringement under the Lanham Act; (2) Common-law Trademark Infringement; (3) Declaratory Judgment; (4) Breach of Contract; (5) Breach of the Duty of Good Faith and Fair Dealing; (6) Civil Conspiracy; and (7) Fraudulent Inducement. Compl., ECF No. 1. Defendants sued Goosehead in Michigan state court on November 25, 2019, and the case was removed to the Eastern District of Michigan. Order, ECF No. 34. Notably, the Eastern District dismissed Defendants' Complaint on the grounds that (1) the Texas forum-selection clause should be enforced; (2) it was not against fundamental Michigan public policy to do so; and (3) the action should go forward in the Northern District of Texas. See id. at 2. Defendants then asserted all the same causes of action from their dismissed complaint in their Answer before this Court, and again urge that Michigan law should apply. Defs.' Answer, ECF No. 36. Specifically, Williams Insurance answered and counterclaimed for (1) Unlawful Termination under Michigan Law; (2) Breach of Contract; (3) Unjust Enrichment; (4) Declaratory Relief; and (5) Tortious Interference with Business Expectations. Id. Goosehead moved to dismiss some of Williams Insurance's claims and apply Texas law to this dispute. Mot. Dismiss, ECF No. 41.
The Court directed the parties to brief the application of Chapter 271 of the Texas Business and Commerce Code, a Texas statute that directs courts to enforce contractual choice-of-law provisions so long as the transaction is a "qualified transaction" and the selected substantive law bears a reasonable relation to the transaction. Tex. Bus. & Com. Code § 271.001 et seq. The parties submitted supplemental briefing accordingly. ECF Nos. 52–55. The Court then granted the Plaintiff's Motion to Dismiss (ECF No. 57) ("Order"). The Court reasoned that the contractual choice-of-law provision agreed to by the parties should be enforced because the transaction is a "qualified transaction," and the selected substantive law—Texas—bears reasonable relation to the transaction. Id. The Court did not address the traditional conflicts-of-law analysis ("Restatement analysis"), which would also have resulted application of Texas law to this case. Defendant moved for reconsideration, or in the alternative, moved to certify for immediate appeal to the Fifth Circuit. Mot. Reconsider, ECF No. 59.
II. LEGAL STANDARD
When the Court is asked to reconsider an order other than a final judgment, that reconsideration is usually governed by Federal Rule of Civil Procedure 54(b), as opposed to Rule 59 or Rule 60. See Austin v. Kroger Tex., L.P. , 864 F.3d 326, 336 (5th Cir. 2017). " Rule 54(b) allows parties to seek reconsideration of interlocutory orders and authorizes the district court to ‘revise[ ] at any time’ ‘any order or other decision ... [that] does not end the action.’ " Id. (quoting Fed. R. Civ. P. 54(b) ). The Rule allows a district court "to reconsider and reverse its decision for any reason it deems sufficient, even in the absence of new evidence or an intervening change in or clarification of the substantive law." Id. (quoting Lavespere v. Niagara Mach. & Tool Works, Inc. , 910 F.2d 167, 185 (5th Cir. 1990), abrogated on other grounds by Little v. Liquid Air Corp. , 37 F.3d 1069 (5th Cir. 1994) (en banc)). This flexibility is premised on "the interlocutory presentation of new arguments as the case evolves." Id. (quoting Cobell v. Jewell , 802 F.3d 12, 25–26 (D.C. Cir. 2015) ). While "the precise standard for evaluating a motion to reconsider under Rule 54(b) is unclear, whether to grant such a motion rests within the discretion of the court." Dallas County v. MERSCORP, Inc. , 2 F. Supp. 3d 938, 950 (N.D. Tex. 2014) (citation omitted), aff'd sub nom. Harris County v. MERSCORP, Inc. , 791 F.3d 545 (5th Cir. 2015). And "[e]ven though the standard for evaluating a motion to reconsider under Rule 54(b) would appear to be less exacting than that imposed by Rules 59 and 60, considerations similar to those under Rules 59 and 60 inform the Court's analysis." Id. (cleaned up). Thus, while the Court is not limited under Rule 54(b) to reversing a ruling only in the case of a manifest error of law or newly discovered evidence, those guideposts are informative to the Court's reconsideration of a pre-final-judgment order. [cite?]
III. ANALYSIS
Defendants' motion for reconsideration consists of three points: (1) the statutory language of Chapter 271 of the Texas Business and Commerce Code does not support a finding of a qualified transaction; (2) the Agreement does not contain an explicit obligation requiring Defendants to pay $1 million in royalties; and (3) nothing in the record indicates that there is at least $1 million in aggregate consideration. Additionally, Defendants urge the Court to apply the Second Restatement analysis because, in their view, Michigan law would apply under that test. Each point was either raised at the Motion to Dismiss phase or could have been raised previously.
A. The Plain Meaning of Chapter 271 of the Texas Business and Commerce Code Supports Enforcement of the Choice-of-Law Provision
Defendants disagree with the Court's analysis of Chapter 271 of the Texas Business and Commerce Code. They allege that "the Court interpreted the statute in a way that was contradictory to its plain language" and seek to persuade the Court to read the text with an isolated focus on the term "obligation." Mot. Reconsider 2, ECF No. 59. The Court disagrees. The Court gave effect to the plain meaning of "consideration" in the statute in its analysis by placing focus on the time of transaction. Defendants assert that the Court errantly construed consideration by determining that courts should look to the time of contracting in determining whether the transaction has an aggregate value of $1 million. Mot. Reconsider 2, ECF No. 59.
The Court admittedly did not define "consideration" in its previous order. Consideration means "[s]omething (such as an act, a forbearance, or a return promise) bargained for and received by a promisor from a promisee; that which motivates a person to do something, esp. to engage in a legal act." Consideration, Black's Law Dictionary (11th ed. 2019). Consideration focuses on the bargain—not the outcome or actual performance. Goosehead, in deciding whether to enter a franchise agreement with a prospective franchisee, undergoes value analysis like any party to negotiation discussions and contemplations. Goosehead submitted such projections to the Court, and the Court accepted the premise that, even if Williams Insurance was a mediocre franchisee, the aggregate consideration of a ten-year franchise agreement consisted of at least one million dollars. Parties place value on a transaction before agreeing to be legally bound by an agreement. Thus, the value agreed to by the parties in advance constitutes the consideration.
Defendants argue, and the Court rejects for a second time, that the applicable consideration at the time of contracting was $134,200. "While this minimum payment represents a scenario in which the franchise did not generate any business, it still represents what Defendants were obligated to pay, and what Goosehead was entitled to receive, at the time of contracting." Defs.' Br. 11, ECF No. 60. The record reflects a budding and successful franchise relationship between the parties before the events giving rise to this litigation took place. E.g. , Compl. ¶ 5, ECF No. 1. The Court is not "speculating" by taking at face value their self-characterization as a highly performing franchisee for Plaintiff, and accordingly, that they would have been obligated to pay Plaintiff an aggregate value of at least $1 million in consideration, based on calculations developed by Goosehead during its existence as a franchisor. Plainly, breach(es) did occur prior to the full ten-year term of the agreement, so both parties' performance was suspended in accordance with basic principles of contract law. See, e.g., Mustang Pipeline Co. v. Driver Pipeline Co. , 134 S.W.3d 195, 196 (Tex. 2004) ("When one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance.").
If Defendants' interpretation of the statute held true, a party could terminate a contract just before reaching an aggregate value of $1 million in order to circumvent a valid and enforceable contractual choice-of-law provision. Such statutory interpretation is untenable. The parties and the Court cannot foresee how much Defendants would have paid in fact throughout the course of this transaction because performance by both parties ended before conclusion of the full term. Additionally, Defendants do not urge any new arguments in support of their position that the aggregate consideration must be ascertainable on the face of the contract. And any argument that may sway the Court toward reconsideration of the statute's plain language to reflect Defendants' preferences is frustrated by Defendants' failure to provide legal or evidentiary support.
The Court need not engage in the Restatement analysis when there is a statutory directive: "A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law." Restatement (Second) of Conflict of Laws § 6 (1971) ; accord Restatement § 6(1) cmt. b (discussing that statutory directives supersede the Section 6(2) analysis, such as a state-adopted statutory directive under the Uniform Commercial Code that enforces contractual choice-of-law provisions agreed to by the parties).1 Notwithstanding the Section 6(1) provision, Defendants criticize the Court for not employing the traditional Restatement choice-of-law analysis under Section 6(2) because, they contend, Michigan law would apply under that test. Id. However, Texas law applies under either approach. Although it is unnecessary to undertake this analysis, the Court will do so to ensure the parties that the application of Texas law is proper under either the choice-of-law provision's enforceability under the Texas Business and Commerce Code or the Restatement analysis.
B. Texas Law Applies Under the Restatement Analysis
A federal court is required to follow the choice-of-law rules of the state in which it sits. Klaxon v. Stentor Electric Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In this case, therefore, the Court must look to Texas choice-of-law rules. Under the Texas rules, in those contract cases in which the parties have agreed to an enforceable choice-of-law clause, the law of the chosen state must be applied. DeSantis v. Wackenhut Corp. , 793 S.W.2d 670, 678 (Tex. 1990). But in those cases in which the parties have not agreed to an enforceable choice-of-law clause, "the law of the state with the most significant relationship to the particular substantive issue will be applied." Duncan v. Cessna Aircraft Co. , 665 S.W.2d 414, 421 (Tex. 1984) (citing Restatement (Second) of Conflicts of Law § 187 ); see also Hyde & Hyde, Inc. v. Mount Franklin Foods, LLC , 523 F. App'x 301, 305 (5th Cir. 2013) ("In Texas ... the Court ‘respect[s] the parties' choice of law unless the chosen law has no relation to the parties or the agreement, or their choice would offend the public policy of the state whose laws otherwise ought to apply.").
As the Texas Supreme Court discussed, "parties will be held to their choice when ‘the state of the chosen law [has] a sufficiently close relationship to the parties and the contract to make the parties' choice reasonable.’ " Exxon Mobil Corp. v. Drennen , 452 S.W.3d 319, 325 (Tex. 2014) (citing Restatement (Second) of Conflicts of Law § 187 cmt. f.). Additionally, the party-autonomy rule has been recognized in this state. DeSantis , 793 S.W.2d at 677. "When a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties." Tex. Bus. & Com. Code Ann. § 1.105(a). "The parties can be assumed to have intended that the provisions of the contract would be binding upon them." Restatement (Second) of Conflict of Laws § 187 cmt. e. Under the Second Restatement, courts are directed to determine the enforceability of a choice-of-law provision without respect to the provision itself but based on the properly applicable state's law under Section 188(b) of the Restatement. Id. § 188. Texas courts regularly enforce choice-of-law clauses "unless the chosen law has no substantial relationship with the parties or unless there is a state with a materially greater interest in the dispute and applying the chosen law is against fundamental policy of the state with materially greater interest." Grosser v. Red Mango FC, LLC , No. 3:12-CV-2691-N, 2013 WL 12134086, at *7 (N.D. Tex. April 25, 2013) (Godbey, J.).
1. Texas Has a More Significant Relationship with the Parties and the Transaction
First, the Court must address whether Michigan has a more significant relationship with the parties and the transaction than Texas. To answer that question, courts consider the location of: (a) contracting; (b) negotiating the contract; (c) performing the contract; (d) the subject matter of the contract; and (e) the domicile, residence, nationality, incorporation, and business of the parties. Cardoni v. Prosperity Bank , 805 F.3d 573, 582 (5th Cir. 2015). Defendant argues that, because it is a Michigan franchisee and some of its performance took place in Michigan, Michigan has a more significant relationship. Defs.' Br., ECF No. 60. However, Michigan does not have a more significant relationship with the parties and the transaction than Texas, the chosen state. To be fair, both Michigan and Texas have a relationship to the parties, but Michigan's relationship is not more significant than Texas'. Negotiation and performance of the contract took place in both Texas and Michigan. The subject matter of the contract could be reasonably understood to have taken place in both states, because the franchise relationship required both parties to the agreement to keep their promises. All of the Defendants have connections with Michigan and their end of the bargain was performed in Michigan. Goosehead, as the franchisor, is headquartered in Texas, and most of its employees are in Texas. Texas residency is a factor that weighs in favor of applying Texas law, even without the existence of a choice-of-law provision. See Cook v. Frazier , 765 S.W.2d 546, 549 (Tex. App.—Fort Worth 1989, no writ) (applying Texas law because Texas residents negotiated and executed the contracts in question and made all contract payments in Texas).
Additionally, in signing a choice-of-law agreement, the intent of the parties at the time of the transaction favors holding that Texas has the most significant relationship because the parties themselves intended to bind themselves to such a finding. Texas Taco Cabana, L.P. v. Taco Cabana of N.M. , 304 F. Supp. 2d 903, 908 (W.D. Tex. 2003) (holding that Texas had the most significant relationship because the relationship between parties was centered in Texas, was the chosen state in the choice-of-law provision, and all other factors were neutral). To be clear, the analysis could end here, but again, the Court will fully discuss the entirety of the Restatement analysis, which reinforces its decision.
2. Even If Michigan Has a More Significant Relationship, Michigan Does Not Have a Materially Greater Interest Than Texas
This case is based on a contract containing a bargained-for Texas forum-selection clause and choice-of-law clause and to which a Texas resident is a party. Texas has a strong interest in enforcing its residents' transactions and contracts. Blue Racer Midstream, LLC v. Kelchner, Inc. , No. 3:16-CV-3296-K, 2018 WL 993781, at *4 (N.D. Tex. Feb. 21, 2018) (citing TransPerfect Translations, Inc. v. Leslie , 594 F. Supp. 2d 742, 751 (S.D. Tex. 2009) ). In Blue Racer , the court enforced a Texas choice-of-law clause and held that Ohio did not have a materially greater interest in the dispute even though the events at issue occurred in Ohio. Id. at *4. It reasoned that because Blue Racer was a Texas resident and the parties agreed that Texas law would govern, Ohio did not have a materially greater interest. Id. at *4. The same is true here.
The Texas Supreme Court previously declined to enforce a New York choice-of-law provision in part because both parties to the transaction were from Texas. Drennen , 452 S.W.3d at 325. ExxonMobil argued that New York was chosen for uniformity and predictability of the company's agreements. However, the Texas Supreme Court held that the residency of both parties in Texas outweighed any interest the parties had in uniformity. Again, in DeSantis , the Texas Supreme Court held that Texas law should apply when deciding the enforceability of a non-competition agreement if the employee lived in Texas and sought to compete in Texas, even if the parties agreed to have Florida law apply. See 793 S.W.2d at 679. The Court concludes here, like the Texas Supreme Court in Drennen and DeSantis , that the Texas residency of the party who seeks to invoke Texas law is determinative. Because Goosehead is a Texas entity and seeks to have Texas law apply pursuant to its duly executed choice-of-law provision in the Franchise Agreement, Michigan does not have a materially greater interest than Texas. Nevertheless, the Court will continue the analysis. 3. Even If Michigan Has a Materially Greater Interest, Michigan Has No Fundamental Policy That Applying Texas Law Would Contravene.
Texas courts routinely enforce choice-of-law provisions. In Grosser v. Red Mango Fc, LLC , the court enforced a Texas choice-of-law clause to a franchise dispute, finding "no reason not to" because the franchisee failed to show that applying Texas law violated a fundamental policy of Massachusetts or Florida. No. 3:12-CV-2691-N, 2013 WL 12134086, at *7 (N.D. Tex. Apr. 25, 2013). Without the presence of another state's fundamental policy embodying a materially greater interest, the choice-of-law provision should be enforced. See Barnett v. DynCorp Int'l, L.L.C. , 831 F.3d 296, 308 (5th Cir. 2016) (enforcing choice-of-law provision in employment agreement). Texas law dictates, like Michigan law, that choice-of-law provisions "do not constitute an impermissible waiver of rights in violation of public policy ...." CK DFW Partners Ltd. v. City Kitchens, Inc. , No. 3:06-CV-1598-D, 2007 WL 2381259, at *7 (N.D. Tex. Aug. 17, 2007) (enforcing franchise agreement's choice of law clause).
Defendants have not argued that enforcing the choice-of-law provision would violate a specific, fundamental Michigan policy. Presumably, Michigan law does not state that choice-of-law clauses in franchise agreements are void and unenforceable.2 See Mich. Comp. Laws Ann. § 445.1501 et seq. The Sixth Circuit, when addressing this issue, stated that "[t]he [MFIL] does not expressly void choice of law provisions, and we decline to imply such a prohibition." Banek Inc. v. Yogurt Ventures U.S.A., Inc. , 6 F.3d 357, 360 (6th Cir. 1993). In Banek , the Sixth Circuit enforced the parties' Georgia choice-of-law clause in a dispute between a Michigan franchisee and a Georgia franchisor. Id. at 359, 363. Specifically, the Sixth Circuit stated that a "court may not assume that, merely because Michigan has adopted a franchise statute, the application of [the chosen state]'s laws would be contrary to Michigan's public policy." Id. at 362. The existence of a state's franchise regulation, standing alone, does not constitute a fundamental policy against enforcing choice-of-law provisions when a Michigan franchisee deliberatively selects the law of another state to apply in preparation for potential disputes.
C. The Court's Analysis in Its Order on Defendants' Motion to Dismiss Does Not Compel the Application of Michigan Law.
Under the Restatement approach, the laws of a single state do not necessarily govern all substantive issues; accordingly, courts consider each issue separately and apply the state law with the most significant relationship to the issue. Bain v. Honeywell Int'l, Inc. , 257 F. Supp. 2d 872, 875 (E.D. Tex. 2002).3 Therefore, Defendants' reliance on the Restatement analysis in the Court's prior order is misplaced because a court may analyze the same factors in a different way for each discreet legal issue within a case; each substantive legal issue raises different policy considerations under the Restatement. Restatement (Second) of Conflicts of Law §§ 6, 187. In the forum-selection clause context, this Court gave due weight to the Michigan contacts and the strong Michigan policy against holding Michigan franchisees to their forum-selection clauses. It didn't make a difference, however, because the Court declined to transfer the case to the Eastern District of Michigan. Order, ECF No. 34. If the Court had done so, Defendants would have been left without a remedy because the Eastern District of Michigan had already dismissed their Complaint.
Notably, however, even if the Court's prior analysis on the forum-selection clause's enforceability should be given weight in the current analysis, Defendants' argument that Michigan law should apply still fails. Defendants' argument that applying Texas law contravenes fundamental Michigan public policy is unsubstantiated by Michigan law. See Banek , 6 F.3d at 362 (holding that Michigan has no fundamental policy against enforcing choice-of-law provisions by merely having a statute that governs Michigan franchises). This Court is not required to give more credence to Michigan policy than do Michigan courts. Additionally, in the context of the forum-selection clause, the Court only analyzed the Michigan contacts and interests. As noted above, Texas has substantial contacts and interest in this dispute, especially regarding upholding the parties' justified expectation that the law the parties chose would, in fact, be the law applied to the dispute. Because Defendant has neither satisfied Rule 59's standard nor presented additional persuasive arguments or evidence, the Court concludes that Defendant did not demonstrate entitlement to the reconsideration of Plaintiff's Motion to Dismiss. Accordingly, the Motion for Reconsideration is DENIED.
D. Defendants' Request for Immediate Certification to the Fifth Circuit is Not Warranted.
Additionally, a district court may certify an interlocutory appeal from an order if the judge is "of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." Casanova v. Gold's Texas Holdings Grp., Inc. , No. 5:13-CV-1161, 2016 WL 1446233, at *1 (W.D. Tex. Apr. 11, 2016) (quoting 28 U.S.C. § 1292(b) ) (emphasis added). "Interlocutory appeals are generally disfavored, and statutes permitting them must be strictly construed." Mae v. Hurst , 613 Fed. App'x 314, 318 (5th Cir. 2015) (quoting Allen v. Okam Holdings, Inc. , 116 F.3d 153, 154 (5th Cir. 1997) ). The decision to permit such an appeal is within the district court's sound discretion. See Swint v. Chambers Cnty. Comm'n , 514 U.S. 35, 47, 115 S.Ct. 1203, 131 L.Ed.2d 60 (1995). Further, " Section 1292(b) only provides for interlocutory appeals in exceptional cases. District courts have unfettered discretion to deny certification, even when all three [statutory criteria] are satisfied." United States v. Labs. , No. 3:06-CV-1769, 2016 WL 3571329, at *3 (N.D. Tex. Mar. 8, 2016) (citations omitted).
Defendants contend that the Court's statement that it resolved an issue of first impression of whether Chapter 271's aggregate consideration requirement references the time of contracting or the time of the dispute is, "by itself, [ ] recognition that the issue is a controlling question of law ...." Id. However, as Plaintiff argues, reversal on interlocutory appeal would not result in the action's dismissal because Plaintiff maintains seven viable claims, resolution of which would only be delayed by certifying Defendants' interlocutory appeal. Pl.'s Resp. 19, ECF No. 63 ("[G]ranting an interlocutory appeal here will not end this dispute."). If Defendants are correct, any method of resolving a choice-of-law dispute—even Defendants' preferred Restatement analysis—would warrant an interlocutory appeal by the "losing" party. Additionally, because Restatement analysis would also lead to application of Texas law, the statutory interpretation question is all-the-less controlling. Certification should be reserved for exceptional cases, Labs. , 2016 WL 3571329, at *3, not granted following interpretation of a standard choice-of-law provision at the 12(b)(6) stage. Mandell v. TA Operating LLC , No. EP-09-CV-260-DB, 2012 WL 13075595, at *3 (W.D. Tex., Aug. 21, 2012) (citing Cypress/Spanish Ft. I, L.P. v. Prof'l Serv. Indus., Inc. , 814 F. Supp. 2d 698, 707–08 (N.D. Tex. 2011) ) ("[C]hoice-of-law analysis is plainly appropriate at the Rule 12(b)(6) phase.").
Even if Defendants proved a controlling question of law, the remaining certification requirements are lacking. Defendants argue that the issue's novelty and extensive briefing demonstrate "substantial grounds for disagreement." Defs.' Br. 15–16, ECF No. 60. However, neither an issue of first impression nor disagreement between counsel proves substantial grounds for disagreement. See Ryan v. Flowserve Corp. , 444 F. Supp. 2d 718, 724 (N.D. Tex. 2006). Other than Defendants' disagreement with the Court's reading of the statutory text, Defendants have not advanced authority that would indicate the Court erred or that this issue demonstrates substantial ground for disagreement.
Naturally, dismissal of Defendants' claims impacts Defendants—such are the realities of civil litigation. But certification simply because Defendants, like many disgruntled litigants, intend to inevitably appeal creates no exceptional circumstance. The merits of Defendants' dismissed claims, moreover, will be litigated for the first time on appeal. Appellate court reversal, though necessarily imposing a potential for re-litigation, is characteristic of a choice-of-law dispute, not indicative of exceptional circumstances justifying certification of an interlocutory appeal. Finding the Defendants have failed to meet the exceptionally high bar to warrant immediate certification, Defendants' motion for certification to the Fifth Circuit is DENIED.
IV. CONCLUSION
Texas law applies to this dispute, whether under a statutory analysis or the Restatement analysis. Additionally, Defendants have not shown entitlement to immediate certification of appeal to the Fifth Circuit. For the foregoing reasons, Defendants' Motion is DENIED.
SO ORDERED on this 29th day of October, 2020 .