Appeal by defendant from an order entered 7 August 2003 by
Judge Milton F. Fitch, Jr. in Wilson County Superior Court. Heard
in the Court of Appeals 19 October 2004.
Battle, Winslow, Scott & Wiley, P.A., by Marshall A. Gallop,
Jr.; Thomas and Farris, P.A., by Albert S. Thomas, Jr., for
plaintiff-appellees.
Helms Mulliss & Wicker, P.L.L.C., by Robert H. Tiller and
Corby C. Anderson, for defendant-appellant.
HUNTER, Judge.
Signs Now Corporation (“defendant”) appeals from a preliminary
injunction enjoining arbitration and a civil action from proceeding
in a Florida court. As we find such injunctions were improperly
entered, we reverse the trial court for the following reasons.
In November 1993, Gregory and Diane Szymczyk (“plaintiffs”)
entered into a twenty-year franchise agreement with defendant to
operate a Signs Now store in Wilson, North Carolina.
The contract specified several terms with regards to
subsequent legal action. First, the contract provided that claims
related to the franchise agreement would be subject to arbitration
by the American Arbitration Association under the Federal
Arbitration Act, prior to the commencement of legal action by
either party. The contract contained an exception to the general
requirement of arbitration for one of the terms of the agreement,
permitting claims for injunctive relief relating to the covenant
not to compete. The contract contained a choice of law provision,
specifying Florida as the governing law. Finally, the contract
agreed that the venue for any claims arising by virtue of the
franchise relationship would be Manatee County, Florida.
Plaintiffs operated their franchise store in Wilson, North
Carolina, until 2003 under the terms of the franchise agreement.
During that time, plaintiffs received operations manuals, training
materials, and support and assistance via telephone from defendant
in Florida. Plaintiff sent royalty checks to defendant in Florida
and attended two of defendant's annual conventions in Florida.
In 2003, plaintiffs contacted defendant to inform them
plaintiffs were transferring their store to satisfy a debt, andwould no longer be operating the business. Plaintiffs continued to
operate a sign shop at the same location, first under the name
“Signs Wow,” and then under the name “Sign Solutions.” Defendant
notified plaintiffs they were in violation of the franchise
agreement on 7 February 2003, but plaintiffs continued operation of
the store.
Defendant filed a demand for arbitration in Florida against
plaintiffs in June 2003, as well as a complaint in Manatee County,
Florida, seeking injunctive relief for violation of the covenant
not to compete. Plaintiffs responded by filing a complaint for
breach of the franchise agreement and a motion for a temporary
restraining order in Wilson County, North Carolina, on 16 July
2003, enjoining defendants from proceeding with arbitration. The
order was granted. Plaintiffs later amended their complaint to
seek an injunction to prohibit enforcement of the covenant not to
compete. On 7 August 2003, the Wilson County trial court granted
a preliminary injunction preventing defendant from proceeding with
arbitration and the pending civil action in Florida. The trial
court, in the same order, permitted plaintiffs' claims to move
forward and allowed arbitration on those claims in North Carolina.
(See footnote 1)
Defendant appeals.
I.
[1] Defendant first contends that the trial court erred in
issuing a preliminary injunction prohibiting defendant from
proceeding with an arbitration in Florida. We agree.
We first note the considerations for issuance of a preliminary
injunction:
“[A] preliminary injunction is an
extraordinary measure taken by a court to
preserve the status quo of the parties during
litigation. It will be issued only (1) if a
plaintiff is able to show
likelihood of
success on the merits of his case and (2) if a
plaintiff is likely to sustain irreparable
loss unless the injunction is issued, or if,
in the opinion of the Court, issuance is
necessary for the protection of a plaintiff's
rights during the course of litigation.”
Redlee/SCS, Inc. v. Pieper, 153 N.C. App. 421, 423, 571 S.E.2d 8,
11 (2002) (quoting
A.E.P. Industries v. McClure, 308 N.C. 393, 401,
302 S.E.2d 754, 759-60 (1983)). On appellate review of a
preliminary injunction, this Court is not bound by the trial
court's findings of fact. Rather, the appellate court reviews the
evidence
de novo and makes its own findings of fact and conclusions
of law.
See Jeffery R. Kennedy, D.D.S., P.A. v. Kennedy, 160 N.C.
App. 1, 8, 584 S.E.2d 328, 333,
appeal dismissed, 357 N.C. 658, 590
S.E.2d 267 (2003).
N.C. Gen. Stat. § 22B-3 provides that a forum selection clause
which requires prosecution or arbitration in another state, when
entered into in North Carolina, is against public policy and is
void and unenforceable.
Id. However, plaintiffs concede in their
brief that if the Federal Arbitration Act (“FAA”) applies, the law
of the state of North Carolina is preempted with respect to the
applicability of N.C. Gen. Stat. § 22B-3, on which basis the trialcourt granted the preliminary injunction enjoining arbitration.
See Boynton v. ESC Med. Sys.,
Inc., 152 N.C. App. 103, 109, 566
S.E.2d 730, 734 (2002). The application of the FAA in this case
turns on whether the transaction involved interstate commerce.
See
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277-81, 130 L.
Ed. 2d 753, 766-69 (1995) (holding that the FAA applies when a
contract evidences a transaction involving commerce in fact). This
Court has previously noted that:
“[A]ll interstate commerce is not sales of
goods. Importation into one state from
another is the indispensable element, the
test, of interstate commerce; and every
negotiation, contract, trade and dealing
between citizens of different states, which
contemplates and causes such importation,
whether it be of goods, persons or
information, is a transaction of interstate
commerce.”
Snelling & Snelling v. Watson, 41 N.C. App. 193, 197-98, 254 S.E.2d
785, 789 (1979) (citations omitted).
Snelling involved a franchise
agreement in which the licensor provided the licensee, among other
things, training manuals, advice, and use of a carefully regulated
service mark.
Id. at 201-02, 254 S.E.2d at 791. The Court found
all of these factors to provide evidence of interstate commerce.
Id. at 204, 254 S.E.2d at 793.
Here, the record shows that plaintiffs and defendant entered
into a franchise agreement in which defendant provided support to
plaintiffs in the form of manuals, training, and advice via
telephone, as well as the use of a specific name and trademark.
Further, plaintiffs routinely transmitted payments in the form of
bank drafts from North Carolina to Florida. Finally, there is
evidence that plaintiffs twice traveled to Florida to attenddefendant's annual convention, which provided additional training.
Such contacts were sufficient to establish the franchise agreement
as interstate commerce, and the FAA therefore properly governs the
franchise agreement, rather than our state's arbitration statutes.
See Boynton, 152 N.C. App. at 109, 566 S.E.2d at 734. Thus, under
the FAA, the franchise agreement's provision requiring arbitration
in Florida should have been enforced. However, even if there was
no interstate commerce and the FAA did not preempt N.C. Gen. Stat.
§ 22B-3, we note the arbitration forum selection clause would not
be void as the contract was formed in Florida, as discussed
infra
in Section II. Therefore, we find the trial court improperly
granted the preliminary injunction enjoining the arbitration.
II.
[2] Defendant next contends the trial court erred in enjoining
defendant from seeking to enforce a covenant not to compete against
plaintiffs through a civil action in Florida. We agree.
“In general, a court interprets a contract according to the
intent of the parties to the contract.”
Cable Tel Servs., Inc. v.
Overland Contr'g., Inc., 154 N.C. App. 639, 642, 574 S.E.2d 31, 33
(2002). Further, the Supreme Court of North Carolina has held that
“where parties to a contract have agreed that a given
jurisdiction's substantive law shall govern the interpretation of
the contract, such a contractual provision will be given effect.”
See Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655, 656
(1980). Here, the parties specifically agreed in the terms of the
contract that the laws of the State of Florida would govern the
agreement. Under certain circumstances, however, North Carolina courts
will not honor a choice of law provision, such as when
“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 and which . . . would be
the state of applicable law in the absence of
an effective choice of law by the parties.”
Cable Tel Servs., Inc., 154 N.C. App. at 643, 574 S.E.2d at 34
(citations omitted). Here, plaintiffs argue that N.C. Gen. Stat.
§ 22B-3 prohibits forum selection clauses as contravening the
strong public policy of North Carolina, and therefore the forum
selection clause in the franchise agreement is void and
unenforceable.
(See footnote 2)
However, N.C. Gen. Stat. § 22B-3 (2003) specifies that it
applies to “any provision in a contract entered into
in North
Carolina[.]”
Id. (emphasis added). Although this question has not
been directly addressed by our courts, we find the reasoning in
Key
Motorsports v. Speedvision Network, L.L.C., 40 F. Supp. 2d 344
(M.D.N.C. 1999), regarding the applicability of N.C. Gen. Stat. §
22B-3 to out of state contracts, to be persuasive. In
Key, a
contract with a forum selection clause was formed in Connecticut
and the court found that enforcement of the forum selection clause
would not violate North Carolina public policy, as the “provisionis limited to contracts 'entered into in North Carolina.'”
Key, 40
F. Supp. 2d at 349. The threshold question for determining if the
contact's forum selection clause violates North Carolina law,
therefore, is a determination of where the instant contract was
formed.
It is well-accepted that
“the test of the place of a contract is as to
the place at which the last act was done by
either of the parties essential to a meeting
of minds. Until this act was done there was
no contract, and upon its being done at a
given place, the contract became existent at
the place where the act was done. Until then
there was no contract.”
Bundy v. Commercial Credit Co., 200 N.C. 511, 515, 157 S.E. 860,
862 (1931) (citations omitted). In
Bundy, a contract negotiated by
the North Carolina office of a Maryland company was not deemed
existent until the final signature was made by the company's
officers in Maryland.
Id. at 514-15, 157 S.E. at 862.
Here, the terms of the franchise agreement were discussed with
representatives of defendant and a form agreement was signed by
plaintiffs in North Carolina. The contract was then returned to
Florida and defendant's president signed the agreement. Just as in
Bundy, the last act of signing the contract was an essential
element to formation. As the contract was formed in Florida, N.C.
Gen. Stat. § 22B-3 does not apply to the forum selection clause in
the instant agreement.
[3] Plaintiffs allege further that the forum selection clause
should not be honored as it is unreasonable. As the interpretation
of a contract is governed by the law of the place where thecontract was made, we apply Florida law to address the validity of
the forum selection clause.
See Land Co., 299 N.C. at 262, 261 S.E.2d at 656 (holding the provisions of the contract as to choice
of law govern interpretation of the validity of the contract).
Under Florida law, forum-selection clauses have been met with
approval.
See Manrique v. Fabbri, 493 So.2d 437, 440 (Fla. 1986)
(holding forum selection clauses enforceable in the absence of a
showing that enforcement would be unreasonable or unjust).
Further, plaintiffs bear the burden of showing that the enforcement
of the forum selection clause is unreasonable or unjust.
See
Swarovski N. Am., Ltd. v. House of China, Crystal & Silver, Inc.,
848 So.2d 452, 453 (Fla. 2003) (holding “unambiguous mandatory
forum selection clauses contained in contract documents are
presumptively valid and should be enforced in the absence of a
showing that enforcement would be unreasonable or unjust”);
Kanner
v. Pan American Assistance, Inc., 807 So.2d 80, 82 (Fla. 2001)
(noting the test of unreasonableness is not mere inconvenience or
additional expense).
Here, plaintiffs contend that the mere fact that they were a
small family business confronted by a lengthy form contract renders
the contract unenforceable. However the forum selection clause is
clearly identified in the text of the contract and the franchisee
is admonished to seek legal counsel to facilitate understanding of
the terms of the agreement, which offers benefits and liabilities
for both parties. Further, plaintiffs had nearly a month to
contemplate the terms of the franchise agreement, receiving the
offer in October of 1993 and signing the contract on 19 November
1993. As plaintiffs fail to show why recognizing the legitimate
expectations of the parties as agreed to in the terms of thecontract would be unreasonable or unjust, the forum selection
clause would be enforceable under Florida law.
See Manrique, 493
So.2d at 440. Therefore the trial court erred in granting a
preliminary injunction as to defendant's action to enforce the
covenant not to compete.
III.
[4] Defendant finally contends the trial court erred in
granting a preliminary injunction to plaintiffs when they failed to
show irreparable harm. As the trial court's grant of a preliminary
injunction as to pending arbitration in Florida and a civil action
to enforce a covenant not to compete were in error, it is
unnecessary to reach defendant's remaining assignment of error.
However, a brief review of defendant's contentions further
substantiates reversal of the trial court's grant of preliminary
injunctions. Defendant contends that the issuance of such
preliminary injunctions enjoining actions in another state were
improper.
[I]t is well established that “a court . . .
which has acquired jurisdiction of the
parties, has power, on proper cause shown, to
enjoin them from proceeding with an action in
another state . . . , particularly where such
parties are citizens or residents of the
state, or with respect to a controversy
between the same parties of which it obtained
jurisdiction prior to the foreign court.”
However, the rule is that this power of
the court should be exercised sparingly, and
only where “a clear equity is presented
requiring the interposition of the court to
prevent manifest wrong and injustice.”
Childress v. Motor Lines, 235 N.C. 522, 531, 70 S.E.2d 558, 564-65
(1952) (citations omitted). Here, defendants are neither citizensnor residents of the state and the North Carolina court did not
obtain jurisdiction prior to the foreign court. Nor have
plaintiffs demonstrated “manifest wrong and injustice” by
defendant's proceedings in Florida's courts.
Id. at 531, 70 S.E.2d
at 565. Therefore as this case fails to present the clear equity
which justifies the use of such extraordinary power by our trial
courts, reversal of the preliminary injunctions is proper in this
case.
Further, the extraordinary measure of a preliminary injunction
to preserve the status quo is only to be taken when the moving
party can show irreparable loss is likely unless the injunction is
issued.
Redlee/SCS, Inc., 153 N.C. App. at 423, 571 S.E.2d at 11.
Here, plaintiff fails to make a showing of likely irreparable harm
unless the injunction is issued, alleging no harm from such
proceedings in plaintiffs' deposition. Thus, the failure to show
irreparable harm further invalidates the grant of such an
injunction.
For the reasons stated herein, the trial court erred in
issuing preliminary injunctions enjoining defendants from
proceeding with enforcement of the contractual agreement in
Florida.
Reversed.
Judges WYNN and THORNBURG concur.
Judge Thornburg concurred in this opinion prior to 31 December
2004.
Footnote: 1