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Armstrong Business Services12/24/2002
This appeal involves major franchise agreements between Armstrong Business Services, Inc., et al. (Franchisees) and H&R;Block, et al. (Block). Franchisees appeal the trial court's grant of summary judgment in favor of Block declaring that the major franchise agreements are contracts of indefinite duration that may be renewed only if both parties consent and that if the contracts are not renewed, they expire at the end of the current term. The judgment of the trial court is reversed in part and affirmed in part, and the case is remanded for further proceedings.
I. Facts
Franchisees are individuals or companies operating income tax preparation businesses in various states, including Alabama, Florida, Illinois, Iowa, Michigan, New York, Oregon, Virginia, and Washington, under major franchise agreements with Block. Presently, 200 major franchise agreements are in effect between Franchisees and Block. The agreements were executed between 1973 and 1998, and all are in a standard form adopted in 1973.
Under the franchise agreements, Block grants to a franchisee the exclusive right to use its H&R;Block service mark and related marks in connection with the franchisee's business of preparing income tax returns and performing related services within a specified geographic area. In return, Block collects a franchise royalty of up to 15% of the franchisee's gross receipts. Additionally, the agreements provide that Block will not compete with a franchisee in the preparation of tax returns or performance of related services within the franchise territory. If Block does perform related services within the franchise territories, a franchisee shall be entitled to receive 55% of the gross receipts from Block's performance of such services.
The franchise agreements do not contain a final expiration date. Rather, Paragraph 18 provides:
TERM OF AGREEMENT.
The term of this Agreement shall run for a period of five years from the date hereof, with further provisions that it shall be automatically renewed for successive periods of five years each, unless mutually terminated or terminated pursuant to paragraph 12.
Paragraph 12 permits Block to terminate the agreement at any time for "any material and substantial breach of the terms" by a franchisee. Thus, the franchise agreements provide for an initial term of five years and for automatic five-year renewals, unless terminated with the consent of the parties or for cause. All 200 agreements have consistently been renewed at least once, except for three agreements that are still in their initial terms. Paragraph 24 of the agreements provides that in the event of the termination of the agreement for any reason other than sale to Block, a franchisee shall sell and Block shall pay a fair and equitable price for the franchisee's business.
In April 1999, Franchisees sued Block for breach of contract and various other claims arising out of Block's sale of tax preparation computer software, including sales over the Internet, within the franchise territories. Block filed a counterclaim seeking a declaration that the franchise agreements were contracts of indefinite duration; that their terms may be renewed only with the consent of both parties; and that if not so renewed, the term of each of the agreements will expire at the end of the current term.
As the litigation in this case proceeded, Block notified Franchisees by letters that it would not consent to further renewals of the franchise agreements and that each agreement would, therefore, expire at the end of its current term. Block further explained that it was prepared to purchase the assets of the businesses
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