Rob & Bud's Pizza, LLC v. Papa Murphy's International, Inc. et al

Filing 62

MEMORANDUM OPINION AND ORDER denying 32 Motion to Stay. Signed by Honorable Timothy L. Brooks on January 12, 2016. (src)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION

ROB & BUD'S PIZZA, LLC
V.

PLAINTIFF
CASE NO. 5:15-CV-5090

PAPA MURPHY'S INTERNATIONAL, INC. and
PAPA MURPHY'S INTERNATIONAL, LLC

DEFENDANTS

OPINION AND ORDER
Currently before the Court are Defendants Papa Murphy's International , lnc.'s and
Papa Murphy's International, LLC 's (collectively , "PMI") Motion for a Stay of the
Proceedings (Doc. 32) and Memorandum of Law in Support (Doc. 37), Plaintiff Rob &
Bud 's Pizza , LLC 's ("R&B") Response in Opposition (Doc. 34) , PMl's Reply (Doc. 38),
and R&B 's Sur-reply (Doc. 39) . For the reasons given below, PMl 's Motion is DENIED.
As this Court previously recounted in its Order of June 24, 2015 , R&B is a
franchisee with PMI , "and it owns and operates multiple Papa Murphy's Take 'n' Bake
Pizza restaurants in Bentonville, Rogers , Springdale, Fayetteville, Van Buren , and Fort
Smith , Arkansas , as well as in Missouri and Kansas ." (Doc. 28 , pp. 1 - 2). R&B , along
with many other Papa Murphy's franchisees , is a plaintiff in a lawsuit that was filed on
April 24, 2014 in the Superior Court of the State of Washington against PMI and various
other related defendants, essentially alleging that the defendants in that case "induced
them to purchase Papa Murphy's franchises through various fraudulent and deceptive
misrepresentations and omissions .'' Id. at 2.
On April 17, 2015 , R&B filed the instant separate lawsuit against PMI in Benton
County; a week later, PMI removed it to this Court. R&B 's Benton-County Complaint
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"alleged that Papa Murphy's was unlawfully attempting to terminate R&B 's franchise
agreement in retaliation for R&B 's refusal to accede to Papa Murphy's settlement
demands in the Washington litigation ." Id. On May 14, 2015 , PMI was granted leave in
the Washington lawsuit to file counterclaims against R&B involving some of the same
issues and facts presented in R&B 's Benton-County Complaint. On that same day, R&B
filed its First Amended Complaint (Doc. 9) in the instant lawsuit, which added a claim of
tortious interference against PMI , alleging that a PMI Market Coordinator came to R&B
locations in this district and intentionally interfered with R&B 's business expectancies with
its employees and customers by disparaging R&B in front of them and disrupting R&B 's
operations. Then , on July 31 , 2015 , R&B filed a Second Amended Complaint (Doc. 33),
in which it added a claim against PMI for negligence , alleging that PMI caused R&B 's
database of local customers who elected to become members in R&B 's direct texting
program to be almost entirely destroyed .
PMI filed its Motion for a Stay of the Proceedings (Doc. 32) on that same day. In
its Motion , PMI "requests that this Court abstain from exercising its jurisdiction during the
pendency of the Washington state court litigation ." (Doc. 32 , p. 1). R&B , of course ,
opposes PM l's Motion , which is now fully briefed and ripe for decision .
PMI offers two alternative theories under which it contends this Court should
abstain from exercising its jurisdiction . The first is what is known as "Brillhart abstention ,''
or sometimes as "Brillhart/Wilton abstention ," named after the United States Supreme
Court cases of Brillhart v. Excess Insurance Company of America , 316 U.S. 491 (1942),
and Wilton v. Seven Falls Company, 515 U.S. 277 (1995). The second is known as

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"Colorado River abstention, " which takes its name after the Supreme Court case of
Colorado River Water Conservation District v. United States , 424 U.S. 800 (1976).
The Brillhart line of cases provides federal district courts "broad discretion" to
abstain from exercising jurisdiction over actions for declaratory relief under certain
conditions. Royal lndem. Co. v. Apex Oil Co. , 511 F.3d 788 , 792 - 93 (8th Cir. 2008).
However, in the Eighth Circuit, while "Brillhart applies to declaratory judgment actions
generally, " it does not apply "to actions that .. . involve good faith claims for injunctive
relief." Cedar Rapids Cellular Tel. , L.P. v. Miller, 280 F.3d 874, 879 (8th Cir. 2002) (citing

Black Sea Inv. , Ltd. v. United Heritage Corp., 204 F.3d 647, 652 (5th Cir. 2000)). The
Eighth Circuit has further explained that "a 'good faith ' injunction is one that is not frivolous
or made solely to avoid application of Wilton and Brillhart." Royal lndem . Co., 511 F.3d
at 795 n.3. There is no basis in the record at this time for any inference that R&B 's claim
for injunctive relief is frivolous or made solely to avoid application of Wilton and Brillhart.
Indeed , PMI appears to be requesting injunctive relief of its own through its counterclaims
in the Washington litigation. See, e.g., Doc. 32-1 , p. 214. Therefore , this Court lacks
discretion to abstain under Brillhart. 1
The Court turns , then , to the matter of Colorado River abstention. A federal court
may abstain under the Colorado River doctrine "only when parallel state and federal

1

It should be noted that in this Court's view, the rule announced in Cedar Rapids is flatly
inconsistent with the Eighth Circuit's earlier case of Horne v. Firemen 's Retirement
System of St. Louis, which instructs courts to determine whether "the essence of [a] suit
is one for declaratory judgment"-regardless of whether injunctive relief is being soughtby looking to whether an "actual" wrong or loss is alleged to have occurred . 69 F.3d 233 ,
236 (8th Cir. 1995). However, the Royal Indemnity panel was aware of both Horne and
Cedar Rapids , and harmonized the two by reasoning that Cedar Rapids controls when
injunctive relief is being sought, and that Horne controls otherwise. See 511 F.3d at 794
-95.
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actions exist and exceptional circumstances warrant abstention. " Fru-Con Const. Corp.
v. Controlled Air, Inc. , 574 F.3d 527, 534 (8th Cir. 2009) (emphasis added). With regard
to the requirement of parallelism:
The pendency of a state claim based on the same general facts or subject
matter as a federal claim and involving the same parties is not alone
sufficient. Rather, a substantial similarity must exist between the state and
federal proceedings, which similarity occurs when there is a substantial
likelihood that the state proceeding will fully dispose of the claims presented
in the federal court. This analysis focuses on matters as they currently exist,
not as they could be modified. Moreover, in keeping with the Supreme
Court's charge to abstain in limited instances only , jurisdiction must be
exercised if there is any doubt as to the parallel nature of the state and
federal proceedings.
Id. at 535 (citations omitted , emphasis added). As the cases are currently postured , the
Court has significant doubts as to whether there is a substantial likelihood that the statecourt proceeding will fully dispose of any of the instant federal-court claims.
So far as the Court is aware, R&B has not asserted any of its federal-court claims
against PMI in the state-court litigation.

And even if each of PMl 's state-court

counterclaims against R&B are resolved on their merits, it currently strikes the Court as
very unlikely that such resolution-regardless of whether in favor of PMI or R&B-would
dispose of the following issues on which R&B 's federal-court claims may well turn: (1) the
scope or enforceability of the non-compete agreement between PMI and R&B (implicated
by R&B's claim for declaratory judgment); (2) whether R&B has a legitimate business
expectancy with its employees or customers extending beyond its franchise relationship
with PMI (implicated by R&B 's claims of tortious business interference and for injunctive
relief) ; and (3) whether PMI had a duty of reasonable care with regard to R&B arising
from outside any contracts between the parties (implicated by R&B 's claim of negligence).

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The Court does not intend for this list of non-parallel issues to be taken as
exhaustive , nor does the Court mean to create any law of the case or otherwise signal an
inclination to rule in any particular way on the issues identified in this list. Perhaps it might
even be appropriate to revisit the issue of abstention at some later point, depending on
how the parties' claims and legal theories in both cases evolve (or are clarified) over time .2
The Court means simply to say that at least for now, it has substantial doubt as to whether
the state and federal proceed ings are parallel , and therefore will DENY PMl 's Motion for
a Stay of the Proceedings (Doc. 32).
IT IS SO ORDERED on this

~

Ii ' day of J
ROOKS
ATES DISTRICT JUDGE

2

The Court is aware of the apparent conflict in Eighth Circuit authority as to whether, for
purposes of abstention , cases must be parallel at the time the federal case was filed , see
Scottsdale Ins. Co. v. Detco Indus., Inc. , 426 F.3d 994, 996 (8th Cir. 2005), or at the time
abstention is being considered , see Royal lndem. Co. , 511 F.3d at 796 . This Court
employed the latter rule in ruling on the instant Motion , and will continue to do so in this
case for four principal reasons. First, Royal Indemnity is a more recent decision than
Scottsdale . Second , two of the three judges on the Fru-Con panel favored the Royal
Indemnity approach-albeit in concurring and dissenting opinions . See 574 F.3d at 54043 (Bye , J., concurring and Shepherd , J., dissenting). Third , this Court finds the reasoning
on this issue in Judge Shepherd 's Fru-Con dissent very persuasive. Id. And fourth, Chief
Judge Holmes has taken the Royal Indemnity approach in a prior unpublished opinion
from this same district. See United Fin. Gas. Co. v. Shelton , 2013 WL 771827, at *5 (W .D.
Ark. Feb. 28 , 2013).
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