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Everett v. Paul Davis Restoration, Inc.

United States Court of Appeals, Seventh Circuit

November 3, 2014

RENEE EVERETT and BUILDING WERKS OF WI, LLC, Plaintiffs-Appellees,
v.
PAUL DAVIS RESTORATION, INC., Defendant-Appellant

Argued April 10, 2014.

Appeals from the United States District Court for the Eastern District of Wisconsin. No. 1:10-CV-00634-WCG -- William C. Griesbach, Chief Judge.

For RENEE EVERETT, BUILDING WERKS OF WI LLC, Plaintiff - Appellees (12-3407, 13-1036): T. Wickham Schmidt, Attorney, David H. Weber, Attorney, CONWAY, OLEJNICZAK & JERRY, S.C., Green Bay, WI.

For PAUL DAVIS RESTORATION, INCORPORATED, Defendant - Appellant (12-3407): Robert Eric Bilik, Attorney, MCGUIREWOODS LLP, Jacksonville, FL; Daniel Janssen, Attorney, QUARLES & BRADY LLP, Milwaukee, WI.

For PAUL DAVIS RESTORATION, INCORPORATED, Defendant - Appellant (13-1036): Robert Eric Bilik, Attorney, MCGUIREWOODS LLP, Jacksonville, FL.

Before CUDAHY and EASTERBROOK, Circuit Judges, and LAWRENCE, District Judge.[*]

OPINION

Page 381

Cudahy, Circuit Judge.

In the case before us we must determine whether an owner-operator of a franchise

Page 382

is obligated to arbitrate under a franchise agreement because she received direct benefits from the agreement despite not having signed the document. Paul Davis Restoration, Inc. (PDRI) seeks to bind Renee Everett to an arbitration award pursuant to the franchise agreement PDRI had with her husband and the Everetts' corporation. Although Ms. Everett was a non-signatory to the franchise agreement, PDRI asserted she was subject to arbitration under the doctrine of direct benefits estoppel, among other theories. The district court ultimately determined that the benefits Ms. Everett received were filtered through her ownership interest in their corporation or through her husband and were therefore indirect. Because the facts before us indicate that Ms. Everett did receive a direct benefit from the franchise agreement and can therefore be held to the agreement, we now reverse.

PDRI entered into a franchise agreement with Matthew Everett and EA Green Bay, LLC (EAGB). Prior to PDRI's termination of the franchise agreement, EAGB operated and conducted franchise business under the d/b/a name " Paul Davis Restoration of Northeast Wisconsin" (the franchise). EAGB was owned, controlled, and operated by Mr. Everett, but the evidence clearly shows it was also owned, controlled, and operated by Ms. Everett.

Effective September 1, 2004, Mr. Everett and EAGB entered into the Franchise agreement with PDRI. PDRI's franchise agreements require the Principal Owners of the franchise to form a corporate entity to operate the franchise business. To comply with this requirement Mr. Everett formed EAGB in 2004. There is no dispute that Mr. Everett formed EAGB solely to comply with the PDRI franchise requirement. The franchise agreement also required that EAGB not be used to conduct any business other than operating the PDRI franchise business. Thus, it is clear that EAGB was formed to gain the benefit of the franchise agreement and was used only to conduct the business of the franchise.

Mr. Everett originally executed the agreement on behalf of EAGB as the franchisee company and individually in his own capacity as the 100% principal owner of EAGB. Despite Mr. Everett signing as the 100% principal owner of EAGB the record shows that Ms. Everett had a 50% ownership of EAGB potentially as early as June 11, 2004 and at the latest by 2008. Regardless of when Ms. Everett became a partial owner, the franchise agreement very clearly stated that the Everetts were required to obtain PDRI's consent before transferring ownership. The terms of the franchise agreement also clearly required that Ms. Everett sign the franchise agreement in her personal capacity as an additional principal owner. The Everetts never requested consent and never had Ms. Everett sign the contract despite their knowledge of these requirements in the ...


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