Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Coverall North America, Inc v. Verica

May 2, 2013

COVERALL NORTH AMERICA, INC., PLAINTIFF,
v.
VERICA, L.L.C. AND VICKI RHEA,
DEFENDANTS.



The opinion of the court was delivered by: Thomas D. Thalken United States Magistrate Judge

ORDER

This matter is before the court on Verica, L.L.C.'s (Verica) Motion to Compel (Filing No. 67). Verica filed a brief (Filing No. 70) and an index of evidence (Filing Nos. 68 and 69) in support of the motion. Coverall North America, Inc. (Coverall) filed a brief (Filing No. 109) and an index of evidence (Filing No. 110) in opposition to the motion. Verica filed a brief (Filing No. 117) and an index of evidence (Filing No. 116) in reply. With leave of court, Coverall filed a brief (Filing No. 120) and an index of evidence (Filing No. 121) in surreply.

BACKGROUND

This case arises from a contractual relationship between the parties for a cleaning service franchise. See Filing No. 35 - Amended Complaint. Coverall developed a janitorial franchise system in the field of building cleaning and maintenance services. See generally Filing No. 1 - Complaint ¶ 8; Filing No. 109 - Brief p. 2. On September 28, 2001, Vicki Rhea (Rhea) executed a Territory Franchise Agreement granting Rhea the right to operate a janitorial franchise within a specified area of Nebraska. See Filing No. 35 - Amended Complaint 8. On October 3, 2001, Rhea created Verica. Id. ¶ 9. On December 15, 2001, Verica, through its sole member, Rhea, executed an agreement expanding those rights to conduct business under the Coverall name into additional Nebraska counties. Id. ¶ 10. As part of this expansion, the defendants executed a promissory note for $12,171.32, payable to Coverall. Id.

¶ 11. Verica, through Rhea, purchased a Coverall master or "Service" franchise from Coverall, effective November 26, 2003, for specified counties in Nebraska and Iowa, including the Omaha and Lincoln metropolitan areas. Id. ¶¶ 3, 12, Ex. 1 - Service Franchise Agreement p. 2. The Service Franchise Agreement shows the price was $125,000, over $70,000 of which was seller financed through the execution of a separate loan document. Id. Ex. 1 - Service Franchise Agreement p. 8. In an agreement effective February 10, 2007, Verica purchased a master franchise from Coverall for additional counties in Iowa, including the Des Moines metropolitan area. See Filing No. 35 - Complaint ¶ 16, Ex. 3 - First Amendment to Service Franchise Agreement p. 1. The First Amendment to Service Franchise Agreement shows the price was $68,000, most of which was seller financed through the execution of a separate loan document entitled "Promissory Note." See Filing No. 35 - Complaint ¶ 26, Ex. 3 - First Amendment to Service Franchise Agreement p. 1, Ex. 4 - Promissory Note. The terms of Verica's franchise agreements contemplate Verica would, and in fact did, sell unit franchises to "Janitorial Franchisees" within the master franchise territories. See Filing No. 35 - Amended Complaint ¶ 19.

Coverall alleges Verica failed to make minimum royalty and Promissory Note payments after March 2009. Id. ¶¶ 32, 35, 37. On May 18, 2011, Coverall notified Verica all past accrued royalties as well as the complete balance on the Promissory Note must be paid within thirty days or Coverall would terminate Verica's franchise. Id.

¶ 40, Ex. 6 - Letter. The defendants did not pay the amounts listed in the May 18, 2011, Letter. Id. Amended Complaint ¶ 41. Coverall terminated the franchise as of June 20, 2011, locked Verica out of Coverall's accounting system, and began collecting Verica's accounts receivable and operating the franchise territory. See id. ¶ 44; Filing No. 38 - Answer and Counterclaim ¶ 62.

Based on these facts Coverall alleges two claims against Verica and Rhea. See Filing No. 35 - Amended Complaint p. 12-16. Coverall filed the initial complaint on July 25, 2011. See Filing No. 1. On January 3, 2012, Coverall filed an amended complaint. See Filing No. 35. Coverall seeks declaratory judgment (Count I) determining it properly terminated the franchise agreement and the defendants must comply with post-termination covenants. Id. at 9. Coverall also seeks recovery for breach of contract (Count II), requesting Promissory Note payments and outstanding and future royalty payments, among other things. Id. at 10. The initial complaint alleged claims for deceptive trade practices (Count III), misappropriation of trade secrets (Count IV), and trademark infringement (Counts V and VI), however Coverall did not allege those claims in the amended complaint. See Filing No. 1 - Complaint p. 13-16.

On January 19, 2012, the defendants filed an answer and counterclaim. See Filing No. 38. The defendants deny Rhea is personally liable in this matter. Id. Additionally, the defendants allege Verica has not made a royalty payment since June 2010 pursuant to an oral agreement with Coverall to negotiate repurchase of the franchise. Id. ¶ 32. Further, the defendants contend Coverall, by its conduct, waived timely payments under the Promissory Note. Id. ¶ 36. Specifically, the parties disputed a cleaning contract and Verica's attempt to sell the franchise. Id. at 8-12. The defendants allege that in 2007 Coverall negotiated a cleaning contract with the restaurant chain The Cheesecake Factory for the Omaha and Des Moines locations, which would be serviced by Verica. Id. at 8-9. Verica declined to use the subcontractor preferred by Coverall because the subcontractor failed to comply with Verica's employment and work-related requests. Id. ¶ 51. Coverall removed The Cheesecake Factory account from Verica, asking Verica to voluntarily relinquish the account. Id.

¶ 52. Verica declined. Id. Based on concerns about Coverall, in the Summer 2009, Verica sought potential buyers for its franchise. Id. ¶ 53. Between October 2009 and June 2010, Verica and Coverall agreed to enter negotiations for Coverall's repurchase of Verica's franchise. Id. ¶ 55. The defendants allege that in June 2010 Coverall agreed Verica could withhold further royalty and Promissory Note payments pending closure of the repurchase. Id. ¶ 56. Coverall denies it agreed to allow Verica to cease payments. See Filing No. 103-2 Ex. B Derella Aff. ¶ 6. The defendants allege Coverall did not make any demand for the payments until the May 18, 2011, Letter and Coverall failed to allow a reasonable time for Verica to resolve the dispute or negotiate in good faith for a resolution. See Filing No. 38 - Answer and Counterclaim ¶¶ 60-68. Based on these allegations, Verica asserts five claims for relief against Coverall: wrongful termination (Claim I), breach of contract (Claims II, IV, V), and conversion (Claim III). Id. at 13-16. Coverall denies liability on Verica's claims. See Filing No. 39.

On November 16, 2012, Coverall filed a motion for partial summary judgment. See Filing No. 64. On the same date, Verica filed the instant motion to compel. See Filing No. 67. On December 21, 2012, Verica filed a motion for partial summary judgment. See Filing No. 79. Initially, Verica argued certain discovery was necessary to complete briefing for the motions for summary judgment and the parties attempted to resolve their disputes on their own. Ultimately, the court denied Verica's motion to defer ruling on the motions for summary judgment until after the discovery issues were concluded. See Filing No. 108. In any event, the parties were able to compromise on some of the discovery issues listed in the motion to compel. See Filing No. 117 - Reply p. 2. For this reason and the discovery negotiations outlined in the parties' motion and briefs, the court finds the parties made sincere attempts to resolve their disputes prior to seeking court involvement as required by NECivR 7.1(i) and Fed. R. Civ. P. 37(a)(1).*fn1

Verica served Coverall with requests for production of documents and interrogatories on April 27, 2012. See Filing No. 51 - Notice of Service. Coverall responded informally on May 4, 2012, stating Coverall would object because the interrogatories, when counted properly, exceeded the maximum number allowed, but preferred to resolve the matter informally. See Filing No. 68 - Skalka Aff. Ex. E May 4, 2012, Letter. In response, on May 31, 2012, Verica served amended interrogatories, in substitution for the previous set. See Filing No. 52 - Notice of Service. On the same date, Verica served a second set of requests for production of documents. Id. On July 6, 2012, Coverall served responses to the amended interrogatories and both sets of requests for production. See Filing No. 55 - Notice of Service; Filing No. 68 - Skalka Aff. Ex. A Answers to Interrogatories, Ex. C Response to First Set of Requests for Production, and Ex. D Response to Second Set of Requests for Production. Coverall did not produce documents at that time, but intended to produce documents "on a rolling basis" as responsive documents were identified due to complications with accessing older electronically stored information (ESI) and the volume, then approximately 16,000 documents. Id. Ex. F July 6, 2012, Letter. In August, Verica wrote two letters describing concerns with Coverall's objections to discovery and production of documents, since Verica had not received any production by August 22, 2012. Id. Ex. G Aug. 7, 2012, E-mail, Ex. H Aug. 22, 2012, Letter. Coverall continued to consider the issues through September. Id. Ex. I Sept. 18, 2012, Email.

Coverall produced 2,139 pages of documents on October 3, 2012, with approximately 1,000 of those comprising transactional documents already in Verica's possession or duplicates of emails. See Filing No. 67 - Motion p. 3. Coverall produced a single 57-page document on November 6, 2012. Id. Also on November 6, 2012, Coverall supplemented its answers to several interrogatories. See Filing No. 68 - Skalka Aff. Ex. B Supp. Answers to Interrogatories. On January 25, 2013, Coverall served supplemental answers to interrogatories. See Filing No. 110 - Barney Aff. Ex. J Second Supp. Answers to Amended Interrogatories.*fn2 Coverall states that on February 7, 2013, it produced about 225,500 pages of post-December 15, 2008, ESI. See Filing No. 121 - Ex. 4 Koller Aff. ¶ 3.*fn3 Coverall did not produce a privilege log, despite objections based on privilege, until March 5, 2013, and then only related to its initial document production. See Filing No. 70 - Brief p. 7; Filing No. 109 - Response p. 40 n.7, 54-55; Filing No. 121 - Ex. 4 Koller Aff. ΒΆ 11. Further, in an email sent to Verica, Coverall stated it would have the privilege log ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.