United States District Court, E.D. Virginia, Norfolk Division
JTH TAX, INC. d/b/a LIBERTY TAX SERVICE, et al., Plaintiffs,
GREGORY AIME, et al., Defendants.
OPINION & ORDER
Coke Morgan, Jr. Senior United Slates District Judge.
matter is before the Court following a bench trial held
January 11, 2017 through January 13, 2017 between Plaintiffs
JTH Tax, Inc. d/b/a Liberty Tax Service and SiempreTax, LLC
("Plaintiff") and Defendants Gregory Aime, Wolf
Ventures, Inc. d/b/a Wolf Enterprises, Aime Consulting, LLC
and Aime Consulting, Inc. ("Defendants"). After the
trial, the Court SET ASIDE the Temporary Restraining Order,
DENIED Plaintiffs Claims,  and GRANTED IN PART Defendants'
Counterclaims. The Court entered Judgment in favor of
Defendants and against Plaintiffs JTH Tax, Inc. d/b/a Liberty
Tax Service and SiempreTax, LLC, jointly and severally, in
the amount of $2, 736, 896.17. These findings of fact and
conclusions of law explain the Court's reasoning.
FINDINGS OF FACT
Franchise Agreements, the PSA, and the EFIN Extension
is a tax preparation company. Defendants have been
franchisees of Liberty Tax and SiempreTax locations since
about 2011. As of 2016, Defendants operated nine (9)
franchise locations (hereinafter "Business") and a
centralized processing center. Defendant Gregory Aime owns
Defendant Wolf Ventures, Inc. d/b/a Wolf Enterprises and
manages the company as an entity through which he operated
the Franchises. In about January 2016, Plaintiff learned that
the Internal Revenue Service ("IRS") revoked the
Electronic Filing Identification Number ("EFIN")
for Defendants' Franchises as a consequence of
Defendants' activities. Defendants were required to
maintain a valid EFIN under their franchise agreements with
Plaintiff. Plaintiff could have terminated the franchise
agreements under the terms of the contract, but instead
executed a Purchase and Sale Agreement ("PSA") with
Defendants on January 21, 2016. Under the PSA,
Plaintiff purchased Defendants' Franchises and gave
Defendants until May 8, 2016 to obtain a valid EFIN and buy
back the Business. As a result of the PSA, Plaintiff operated
these franchises as company stores as of the closing date,
January 21, 2016.
terminated all of the franchise agreements between the
Parties, except for the agreements' post-termination
obligations. Notably, the post-termination obligations
included a covenant not to compete with Plaintiff and
instructed Defendants to: remove all of Plaintiffs marks from
the Business; pay all debts owed to Plaintiff; deliver all
customer and company information, files, and tax returns to
Plaintiff; and transfer all telephone numbers to
Plaintiff. The post-termination obligations also
instructed Defendants to assign the leases associated with
the franchises to Plaintiff, upon Plaintiffs request and the
PSA, Plaintiff is listed as the "Purchaser" and
Defendants are listed as the "Seller." The PSA
defines the term "Business" as Defendants' nine
(9) Franchises. The PSA provides that Purchaser agrees to buy
all of the "tangible and intangible assets of the
Business" for $1, 107, 580.36. Doc. 6, Ex. L ¶ 1.
At the time the PSA was executed, Defendants owed Plaintiff
$1, 075, 893. The PSA states that "[a]t Purchaser's
request, Seller shall seek the Lessor's consent to the
assignment of all office real estate leases connected with
the operation of the Business to Purchaser or its
assignees." Id., Ex. L ¶ 6(g). In the PSA,
the Parties agree that "[a]ll expenses and liabilities
arising out of or related to the Business, which arise from
the moment of Closing and thereafter shall be the
responsibility of the Purchaser." Id., Ex. L
¶ 2. Further, the PSA provides that "if Seller buys
back the Business..., Purchaser agrees to pay to Seller the
Adjusted Net Profits ... from the operation of the Business
from the date of Closing through resale of the Business back
to Seller." Id., Ex. L ¶ 4.
effectuate a buyback of the Business, the PSA instructs that
Seller must provide Purchaser with written proof of a valid
EFIN from the IRS by May 8, 2016, execute a separate purchase
and sale agreement between the parties, and comply with
Purchaser's standard sales and approval process.
Id., Ex. L ¶ 4. Seller would necessarily have
to execute a new franchise agreement with Plaintiff for each
of the nine (9) franchise locations. Notably, a new franchise
agreement with Plaintiff carries a usable term of five (5)
to January 21, Mr. Aime employed Sergio Jean-Louis and Marie
Fletcher in running his franchise business. Specifically, Mr.
Jean-Louis helped Mr. Aime manage the Business as the Chief
Operating Officer of Wolf Ventures, Inc. Mr. Aime hired Ms.
Fletcher as an independent contractor to assist in setting up
a processing center. The processing center served to review
and verity that all tax filings created by the Business
complied with governing laws and regulations before filing
with the IRS.
January 21, 2016, a representative of Plaintiff emailed Mr.
Aime that Plaintiff "will not be putting your utilities
and leases in our name at this time. We will however be
paying those bills." PI. Ex. 41. As such, Defendants did
not begin to assign the leases associated with the franchises
to Plaintiff at that time. At some point, Plaintiff began to
entertain the prospect of selling the Business to Mr.
Jean-Louis, rather than proceeding with Mr. Aime's
buyback opportunity, as provided for in the PSA. Notably, Mr.
Jean-Louis filed a franchise application with Plaintiff on
January 21, 2016, which is the same day as the PSA was
signed. On January 22, 2016, representatives of Plaintiff
called Mr. Jean-Louis and informed him that he was no longer
employed by Wolf Ventures, Inc., but would be employed by
Plaintiff as a District Manager. As District Manager, Mr.
Jean-Louis was instructed to supervise the Business as
Plaintiffs company stores with Mr. Aime's former staff.
Plaintiffs representatives also informed Mr. Jean-Louis
during that call that Mr. Aime was banned from entering the
January 26, 2016, Mr. Aime and Ms. Fletcher met with John
Hewitt, President and CEO of Plaintiff, in Virginia Beach. At
that meeting, Mr. Aime told Mr. Hewitt that he likely could
not obtain a valid EFIN by the PSA's May 8, 2016
deadline. Mr. Hewitt informed Ms. Fletcher that, as of
January 26, 2016, she would work for Plaintiff as a District
Manager. As District Manager, Ms. Fletcher was tasked with
overseeing certain stores, including the franchises that make
up the Business.
February 5, 2016, the IRS notified Mr. Jean-Louis that his
EFIN application was approved. Mr. Jean-Louis subsequently
informed Plaintiffs corporate office that he had received a
valid EFIN. On March 3, 2016, a representative of Plaintiff
emailed Mr. Jean-Louis about the potential purchase of the
Business. To purchase the Business, Plaintiff required that
Mr. Jean-Louis agree to numerous terms, including that he
"understand[s] that Liberty is not committing to any
future approval of any participation by Mr. Aime in the
operation or ownership of the offices, regardless of his
future EFIN status." Def. Ex. 16. Additionally, Mr.
Jean-Louis had to complete a franchise application and a
background check, the Business had to pass an audit, and Mr.
Hewitt had to approve the transfer of the Business from
Plaintiff to Mr. Jean-Louis. Mr. Jean-Louis subsequently
agreed to Plaintiffs terms, passed a background check, and
submitted an additional franchise application. All of the
franchises that comprise the Business passed Plaintiffs
April 8, 2016, Ms. Fletcher met with Mr. Hewitt in Florida to
interview for a position at Plaintiffs corporate
headquarters. During this meeting, Ms. Fletcher asked Mr.
Hewitt whether he would go forward with selling the Business
to Mr. Jean-Louis. After informing Ms. Fletcher that
Plaintiff would not move forward with Mr. Jean-Louis, Mr.
Hewitt asked Ms. Fletcher about Mr. Aime's progress
toward obtaining a valid EFIN. Ms. Fletcher told Mr. Hewitt
that Mr. Aime would likely receive a valid EFIN by the end of
2016. In response, Mr. Hewitt agreed to extend the EFIN
deadline in the PSA from May 8, 2016 to December 31, 2016.
Mr. Hewitt instructed Ms. Fletcher to communicate this EFIN
extension to Mr. Aime. On the following day, April 9, 2016,
Ms. Fletcher called Mr. Aime to notify him of the EFIN
deadline extension. At trial, Defendants introduced Mr.
Hewitt's calendar and emails from his executive assistant
that confirmed the meeting between Mr. Hewitt and Ms.
Fletcher on April 8, 2016. On April 20, 2016, Mr. Aime
thanked Mr. Hewitt in an email for "graciously allowing
me to extend my PSA agreement until December. What steps
should I take to move forward with extending the PSA[?]"
Doc. 109, Ex. A. On April 28, 2016, Mr. Aime sent an
additional email to Mr. Hewitt in which Mr. Aime asked
"[W]ould you like to switch leases over and handle a
buyout or will you extend my PSA agreement and work things
out with the buyback?" PI. Ex. 9. Mr. Hewitt did not
respond to either of Mr. Aime's emails. On May 2, 2016,
Plaintiff promoted Ms. Fletcher to Director of Company
point after the PSA was executed, Plaintiff requested that
Defendants assign the leases for the franchises that comprise
the Business to Plaintiff. Defendants offered Plaintiff a
form assignment for franchise leases, but the Parties were
unable to agree on the specific language and provisions to be
included in the assignment. On June 17, 2016, Mr. Aime
changed the entry passcode to his centralized processing
center. On July 1, 2016, Ms. Fletcher met with Mr. Hewitt to
discuss the operation of the Business. Shortly thereafter, on
July 5, 2016, Plaintiff terminated Ms. Fletcher. On September
15, 2016, the IRS issued Mr. Aime and Wolf Enterprises a new
valid EFIN. On September 20, 2016, Mr. Aime notified
Plaintiff and this Court of the new valid EFIN.
managing the Business as company stores for Plaintiff, Mr.
Jean-Louis paid for utilities and other operating expenses
with Wolf Ventures, Inc.'s credit card, which Mr. Aime
paid off. Mr. Jean-Louis submitted associated expense reports
for such costs, some incurred pre-PSA and others incurred
post-PSA, and these expense reports were approved by John
Ducom, Director of Company Stores for Plaintiff. Despite
approving such expenses, Plaintiff did not reimburse
Defendants. Additionally, while Plaintiff operated the
Business as company stores after executing the PSA and
retained revenues generated from such operations, Plaintiff
stopped making rent and certain utility payments for many of
the franchises on March 29, 2016. Mr. Aime, on behalf of
Defendants, paid these rent and utility bills. Notably, Mr.
Aime paid considerable rent, utilities, and other operating
expenses for the Business without reimbursement after the PSA
closing, through the May 8, 2016 EFIN deadline, and beyond.
At trial, during rebuttal, Plaintiff called Bradford Tibbs,
Director of Internal Audits for Plaintiff, to rebut
Defendants' contention that Defendants paid certain rent
and expenses. The Court, however, found such rebuttal