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Express Services, Inc. v. King

United States District Court, W.D. Oklahoma

August 30, 2017

DON G. KING, an individual, EMILY D. S. KING, an individual, and SOUTHERN STAFFING, INC., a Georgia corporation, Defendants.



         Plaintiff Express Services (“Express”) is a national company that consists of over 700 franchised locations across the United States, Canada, and South Africa. This case concerns one of its Georgia franchises, which Express alleges created a competing business in violation of a franchise agreement. Defendants have moved for summary judgment based on the statute of limitations [Doc. 108]. Express responded [Docs. 115 and 117], and Defendants replied [Doc. 118]. For the reasons that follow, some of Express's claims are untimely. The Court will therefore GRANT IN PART and DENY IN PART Defendants' Motion.

         I. Background

         In November 1998, Defendants Southern Staffing, Inc., and its owners, husband and wife Don and Emily King, entered into a Franchise Agreement with Express to operate a temporary personnel business in Georgia. The Franchise Agreement appeared mutually beneficial. Out of the monthly gross profit generated by the Southern Staffing franchise, Southern Staffing would receive 60% and Express the remaining 40%. And further sweetening the deal, Express was a proven company. It is, in its own words, “one of the top staffing companies in the United States and Canada.” Doc. 75, at 7. In return, Mr. King and Southern Staffing agreed to develop Express services, preserve Express's confidential information on workplace management, and refrain from using software and training programs not approved by Express. And-crucial for purposes of this Motion-the Kings agreed not to operate any business competitive to Express or its other franchises.

         The services that these Express and their franchises provide to their client businesses include recruiting, human resource management, and staffing. Express supplies its clients with what it terms a “contingent workforce, ” which consists of “temporary associates”- persons whom Express technically employs but who perform labor and services for the client. These type of employers, known as PEOs (professional employer organizations), essentially negate some of a client business's payroll duties and personnel-management responsibilities. Even though an employee labors for a PEO's client, the PEO typically pays the employee's wages and withholds his or her payroll taxes. In return, the PEO receives a fee from the client business.

         Express disputes Defendants' characterizing it as a PEO, likely because it offers more than employee-leasing services. Yet there is no doubt that Express derives at least some of its business from leasing employees. For example, King and his Southern Staffing franchise entered into one such staffing agreement with Caterpillar, Inc., in 2001. The contract called for Southern Staffing to provide temporary associates to Caterpillar to work at two of its Georgia facilities. Like most if not all of Express's staffing agreements, the contract featured an “evaluation hire” provision, which allowed Caterpillar to hire full-time one of the temporary employees it was leasing from Southern Staffing/Express once the employee had spent 540 hours on Southern Staffing's/Express's payroll. As far as the Court can tell, Southern Staffing's/Express's relationship with the temporary associate ends once a client such as Caterpillar hires the employee full-time.

         Yet three years into his Franchise Agreement with Express, Mr. King saw room for growth in the employee-leasing industry. Express employed clients on a temporary basis, but perhaps there was a business opportunity for when an Express client desired to hire one of those employees full-time. So in 2001, Mr. King formed his own company, Impact Outsourcing Solutions, Inc. The company, which began operating as a PEO under Georgia law in early 2002, allegedly provides clients with employer and payroll services, human resources administration, and employee leasing.

         Though it is unclear which businesses Mr. King contacted about hiring Impact, no dispute exists that in 2004 Mr. King presented to one of his Southern Staffing clients, Caterpillar, the benefits of combining Southern Staffing's temporary staffing service with Impact's new business model, which he coined “Hybrid Labor Management” or Core2. Mr. King insists that his Core2 model is distinct from Express's employee-leasing services. As he explained in his deposition, while a PEO like Express employs a client's entire workforce, Impact employs only a portion of a client's workforce. Doc. 108, Ex. 4, at 156. Impact's model is different from that of a traditional PEO because the client and the PEO do not “co-employ” a client's employees. Instead, a client using Impact's Core2 program designates temporary associates it wants to hire long-term. Impact then serves as the sole employer of these employees. In short, Mr. King believes that Impact offers a solution for national companies like Caterpillar: “Caterpillar is not going to outsource 35, 000 worldwide employees to a PEO, but they want a portion of their full-time workforce to be in a PEO environment.” Id. Impact, he believes, offers companies that option.

         Mr. King created and operated Impact despite the fact that the Franchise Agreement he signed in 1998 included a non-compete clause. Another contract he entered into, the Developer Agreement (in which he agreed to develop Express franchises and consult them for a fee) also included a non-compete clause. Yet whether Mr. King's conduct violates these contracts is not at issue in this Motion. The Court will assume it does for the sake of deciding Defendants' statute-of-limitations defense. That question depends on when Defendants' allegedly improper acts occurred. Defendants offer evidence that Impact was at least offering services to clients by February 21, 2005, when Impact contracted by way of a “Lease Agreement” to lease employees to Caterpillar. These employees would comprise a portion of its workforce and would perform work at one or more Caterpillar facilities. Pursuant to that agreement, on March 7, 2005, Caterpillar selected eleven of the temporary associates it was then leasing from Express/Southern Staffing and designated them for full-time hire with Impact.

         The problem is that the parties' contractual relationship continued. Express claims it was unaware of Mr. King's efforts to transfer Southern Staffing's temporary associates to Impact's payroll in 2004 or 2005. Further, if it had been aware, it would not have renewed and amended the Franchise Agreement in 2008 and 2013 and would have doubtlessly sued before October 19, 2015.

         The Court has already dismissed Express's claim for tortious interference with contractual relations. Express's two remaining claims are for breach of the Franchise Agreement and Developer Agreement, which it says Defendants violated by offering services competitive to Express, by using Express's name, trademarks, and confidential information to solicit Express clients and employees, and by developing Impact to the detriment of Defendants' Express franchise. Defendants have moved for summary judgment based on the statute of limitations.

         II. Summary Judgment Standard

         Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the basis for its motion and of identifying those portions of “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ” that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotations omitted). These specific facts may be shown “by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves.” Id.

         “An issue is ‘genuine' if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way . . . An issue of fact is ‘material' if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citations omitted). In short, the Court must inquire “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail a s a m a t t e r o f l a w . ” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). While the Court construes all facts and reasonable inferences in the light most favorable to the non-moving party, Macon v. United Parcel Serv., Inc., 743 F.3d 708, 712-713 (10th Cir. 2014), “[t]he mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the [trier of fact] could reasonably find for the [non-movant].” Anderson, 477 U.S. at 252. At the summary judgment stage, the Court's role is not “to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Id. at 249.

         Because the statute of limitations is an affirmative defense, see Fed.R.Civ.P. 8(c), a defendant moving for summary judgment has the initial burden of making a showing that the statute of limitations defense is applicable. Blue Cross and Blue Shield of Alabama v. Weitz, 913 F.2d 1544, 15512 (11th Cir. 1990). If it appears that statute of limitations bars the action and there is no question of material fact in connection with the statute, then the Court should grant the motion for summary judgment. Borum v. Coffeyville State Bank, 6 Fed.Appx. 709, *1 (Mar. 12, 2011, 10th Cir.).

         III. ...

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