Miller v. Hehlen
104 P.3d 193, 209 Ariz. 462, 443 Ariz. Adv. Rep. 13 (2005)
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Rule of Law:
When an employment agreement identifies the employer by an individual's name followed by a 'doing business as' (d/b/a) designation tied to a specific franchise, the employer's right to enforce the agreement's covenants is contingent upon their continued operation under that specific business identity.
Facts:
- For fifteen years, Margaret Miller operated a tax preparation business as an H & R Block ('Block') franchise.
- Miller employed William Hehlen as an income tax preparer for five tax seasons, from 1997 through 2001.
- At the beginning of each tax season, Miller and Hehlen executed a form employment agreement, supplied and required by Block, which identified the employer as 'Margaret Miller, doing business as H & R Block ('the Company')' and contained non-competition and confidentiality clauses.
- During his employment, Hehlen compiled a customer list from Miller's business records, at times surreptitiously.
- In April 2001, Block terminated Miller's franchise, and she subsequently began operating her business under the name 'MJM & Associates.'
- In June 2001, after Hehlen's employment had ended, Miller provided him with a customer list in connection with a pay dispute.
- In 2002, Hehlen went to work for a different Block-operated office and began contacting customers from the list Miller had provided.
- Before Hehlen began his calls, Miller had sent a postcard to her clients referring to 'Bill' (Hehlen) as one of her associates, even though he no longer worked for her.
Procedural Posture:
- Margaret Miller sued William Hehlen and his wife in an Arizona trial court.
- Miller's complaint alleged claims for breach of contract, misappropriation of trade secrets, tortious interference, conversion, and defamation.
- The trial court granted summary judgment in favor of Hehlen on all of Miller's claims.
- The trial court awarded attorney's fees to Hehlen.
- Miller, as the appellant, appealed the trial court's judgment to the Arizona Court of Appeals.
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Issue:
Does an employer, identified in an employment agreement as 'Margaret Miller, doing business as H & R Block,' retain the right to enforce non-competition and non-solicitation covenants in that agreement after her H & R Block franchise is terminated?
Opinions:
Majority - Pelander, Chief J.
No. An employer identified as 'Margaret Miller, doing business as H & R Block' cannot enforce the employment agreement's covenants after her H & R Block franchise is terminated. The court's reasoning is that contract terms must be interpreted to give meaning to every phrase, and the designation 'doing business as H & R Block' cannot be treated as superfluous. By considering the surrounding circumstances, including the interrelated franchise agreement which Block drafted and required, it becomes clear that the purpose of the employment agreement was to protect the H & R Block business entity. The rights and obligations under the agreement were intrinsically tied to Miller's status as a franchisee. When Block terminated her franchise, she ceased to be 'Margaret Miller, doing business as H & R Block,' and therefore lost her legal standing as 'the Company' to enforce the contract against Hehlen. Furthermore, her new business, 'MJM & Associates,' is not a successor to the original company because it does not possess the defining asset of the former business: the H & R Block franchise itself.
Analysis:
This decision clarifies that a 'doing business as' (d/b/a) designation in a contract is not merely descriptive but can act as a substantive limitation on a party's rights. The ruling establishes that the enforceability of contractual covenants can be contingent on the continuation of a specific business identity, particularly within a franchise context. For future cases, this precedent emphasizes that courts will look beyond the individual owner to the specific business entity named in the contract, considering interrelated agreements and surrounding circumstances to determine the parties' intent. It serves as a caution to sole proprietors that contracts tied to a specific trade name or affiliation may not be portable to a new business venture if that affiliation ceases.
