Court orders remodeling contractor to pay $375K in franchise dispute

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A franchise deal that went rotten in the town of Denmark has resulted in a federal court order that will have a Green Bay contractor paying hundreds of thousands in attorney’s fees stemming from an alleged violation of a non-compete clause.

The federal court for the Eastern District of Wisconsin on Monday ordered a Green Bay contractor to pay more than $375,000 in attorney’s fees for failing to follow the terms of an arbitration deal that was reached after the company had ceased being a franchise of a Florida remodeling firm and had gone into business on its own.

The ruling stems from a 2010 lawsuit that Renee and Matthew Everett, a couple living in Green Bay, filed in Brown County Circuit Court against Paul Davis Restoration Inc. of Jacksonville, Fla., a business that cleans, repairs and remodels residential and commercial properties.

Paul Davis Restoration entered into a franchise agreement with Matthew Everett in 2004. The deal led to the formation of EA Green Bay LLC, a company that had its headquarters in Denmark, Wis., and did business under the name Paul Davis Restoration of Wisconsin.

The franchise agreement included a clause that prohibited EA Green Bay and the Everetts from competing with Paul Davis Restoration for two years should the partnership between the companies dissolve. That clause took effect in 2010, when Paul Davis Restoration terminated the franchise relationship.

Matthew Everett had signed on as the sole owner of EA Green Bay. In fact, though, he and Renee had split the ownership. Renee ran the company and presented herself at various events as executive vice president of the franchise, according to court documents.

Following the termination of the franchise agreement with Paul Davis Restoration, Matthew transferred most of his ownership interest to Renee, according to court documents. She proceeded to operate EA Green Bay under a new name: Building Werks of WI LLC.

Even so, the business had essentially the same customers and employees and depended on the reputation it had built when affiliated with Paul Davis Restoration, according to court documents.

Alleging that the Everetts had violated the non-compete clause, Paul Davis Restoration moved to seek arbitration, which is often used by businesses to settle disputes out of court. Renee responded with a lawsuit, which was moved into the federal court system. She argued that she had not signed the franchise agreement and therefore was not bound by the non-compete clause.

The federal district court disagreed, and an arbitration panel assembled to settle the dispute found against Renee in February 2012.

Then began a long and convoluted excursion through the legal system.

The next step for Paul Davis Restoration was to ask the federal district court to confirm the arbitration panel’s decision. Renee quickly countered by asking that the ruling be voided.

The court sided with her, holding that Renee had not benefited directly from the franchise agreement and was therefore not bound by the arbitration.

Paul Davis Restoration appealed to the 7th Circuit Court of Appeals. That court, in a ruling handed down in December 2014, reversed the district court’s decision, finding it too narrow.

At issue in the appeal was the district court’s previous finding that Renee had received only indirect benefits from her association with the business. As the wife of the owner, she could reasonably be expected to have shared in the franchise’s profits in some way, the court decided.

The appellate court countered by finding that Renee had in fact benefited directly from the franchise. As a part owner, she had received the same benefits from the agreement as her husband, the court found.

Following the appeals ruling, the case was remanded to the federal district court.

On April 15, that court, in keeping with the 7th Circuit’s ruling, confirmed the 2012 arbitration decision against Renee.

Renee is now appealing the ruling, according to court filings.

Attempts to reach the Everetts’ legal representatives were unsuccessful.

Monday’s order granting $374,522.70 to Paul Davis Restoration stems from the district court’s finding that Renee was responsible for paying the legal fees that Paul Davis Restoration incurred while combating her attempts to avoid arbitration.

“By fighting arbitration all the way,” according to the court’s decision, “she was ‘failing or refusing to arbitrate … or abide by the decision of the arbitration panel,’ the clause that triggers fees.”

Meanwhile, the Everetts are appealing a decision in a separate case involving Paul Davis Restoration. That decision, also handed down by the federal Eastern District of Wisconsin court, concerns a trademark-infringement lawsuit Paul Davis Restoration filed against the Everetts and their companies in 2014.

Building Werks, for its part, was dissolved in July. Follow @erikastrebel