Court Watch

In Everett v. Paul Davis Restoration, Inc., Nos. 12-3407, 13-1036, 2014 U.S. App. LEXIS 21059 (7th Cir. Nov. 3, 2014), the United States Court of Appeals for the Seventh Circuit held that an owner-operator of a property damage restoration services franchise was bound to a franchise agreement that she did not execute because she received a direct benefit from the franchise agreement. Everett is just one of many cases finding that a non-signatory to a contract may be bound by its terms under various theories ' in this case, direct benefits estoppel.

In Everett, the franchisor entered into a franchise agreement with Matthew Everett and EA Green Bay, LLC (EAGB). At the time the franchise agreement was executed, EAGB was owned, controlled, and operated by Matthew Everett and his wife, Renee Everett. Nonetheless, and in spite of the fact that Ms. Everett owned a 50% share of EAGB at the time of signing the franchise agreement, EAGB and Matthew Everett informed the franchisor that Mr. Everett was the 100% owner of EAGB and therefore Ms. Everett was not required to sign the franchise agreement. The franchise agreement required consent from the franchisor before ownership in EAGB could be transferred. Six years into the franchise relationship, the franchisor terminated the franchise agreement for cause. Matthew Everett then transferred his 50% ownership interest in EAGB to Renee Everett and an EAGB employee. Renee Everett then continued to operate EAGB under a new assumed name and continued to serve the same customers from the same location, in spite of a provision in the franchise agreement prohibiting the operation of a competitive business for a period of two years after the termination of the franchise. The franchisor responded by initiating arbitration to enforce its covenant not to compete, resulting in the issuance of a unanimous award against Renee Everett. The district court, however, vacated the arbitration award finding that Renee Everett could not be bound to the arbitration provision as a non-signatory under a theory of direct benefits estoppel. The Seventh Circuit Court of Appeals reversed.