Wild et al v. H&R Block, Inc. et al

Filing 26

ORDER. The plaintiffs Application for Temporary Restraining Order/Motion for Preliminary Injunction 9 filed 5/3/2011, is DENIED to the extent the plaintiff seeks a temporary restraining order. The plaintiffs Application for Temporary Restraining Order/Motion for Preliminary Injunction 9 filed 5/3/2011, SHALL REMAIN PENDING to the extent the plaintiff seeks a preliminary injunction. The hearing set herein for 5/13/2011, at 8:30 a.m., isVACATED. By Judge Robert E. Blackburn on 5/12/2011. (sah, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Case No. 11-cv-01146-REB-KLM
LINDA L. WILD, a Colorado resident,
ADVANTAGE TAX SOLUTIONS, INC., a Colorado corporation,
CHRIS CASSON, a Colorado resident,
GILBERT VIGIL, a Colorado resident,
PHIL LORING, JR., a Colorado resident,
DEBORAH E. SCHMIDT, a Colorado resident,
TODD H. SHANNON, a Colorado resident,
JEANNINE HARDING, a Colorado resident, and
KEVIN POLANSKY, a Colorado resident,
Plaintiffs,
v.
H&R BLOCK, INC., a Missouri corporation,
H&R BLOCK TAX SERVICES, INC., a Missouri corporation,
H&R BLOCK ENTERPRISES, LLC, a Missouri limited liability company,
H&R BLOCK SERVICES, INC., a Missouri corporation, and
HRB TAX GROUP, INC., a Missouri corporation,
Defendants.

ORDER DENYING MOTION FOR TEMPORARY RESTRAINING ORDER
Blackburn, J.
The matter before me is the plaintiffs’ Application for Temporary Restraining
Order/Motion for Preliminary Injunction [#9]1 filed May 3, 2011. The defendants filed
a response [#22] and the plaintiffs filed a reply [#24]. On May 4, 2011, the court issued
a scheduling order [#18] concerning the plaintiff’s motion. Although not explicitly
specified in that order [#18], the court’s scheduling order was addressed only to the
1

“[#9]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

plaintiffs’ motion for a temporary restraining order. In this order, I address only the
plaintiff’s motion for a temporary restraining order, which I deny.
I. JURISDICTION
I have jurisdiction over this case under 28 U.S.C. § 1332 (diversity).
II. STANDARD OF REVIEW
A temporary restraining order is extraordinary relief. A party seeking a temporary
restraining order or preliminary injunction must show (1) a substantial likelihood that the
movant eventually will prevail on the merits; (2) that the movant will suffer irreparable
injury unless the injunction issues; (3) that the threatened injury to the movant
outweighs whatever damage the proposed injunction may cause the opposing party;
and (4) that the injunction, if issued, would not be adverse to the public interest.
Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir. 1980). In addition to the foregoing
factors, a party seeking a temporary restraining order also must demonstrate clearly,
with specific factual allegations, that immediate and irreparable injury will result absent a
temporary restraining order. FED. R. CIV. P. 65(b).
III. FACTS
Plaintiff Linda L. Wild is a long term franchisee of H & R Block (Block).2 In 1981,
Wild and H & R Block executed a franchise agreement, which has been renewed by
Wild at the end of each its five year terms ever since. Motion for TRO [#9], Exhibit 1
[#10 - filed under seal] (Franchise Agreement). The Franchise Agreement contains an

2

In the body of the Amended Complaint [#4], the franchisor is named as H & R Block Tax
Services LLC. Amended Complaint [#4], ¶¶ 14, 19. H & R Block Tax Services, Inc., and not H & R Block
Tax Services LLC, is named a defendant in the caption of the Amended Complaint. Apparently, H & R
Block Tax Services, Inc., was the predecessor in interest of H & R Block Tax Services LLC. Defendant’s
response [#22], p. 2 n. 1. Given this information, it appears that the parties agree that H & R Block Tax
Services LLC is the franchisor.

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arbitration provision which provides, in relevant part:
The arbitration award shall be in accordance with the rules and regulations
then obtaining of the American Arbitration Association or any other rules
unanimously adopted by the arbitrators . . .
* * * *
. . . a decision of the arbitrators shall in all events be rendered within 90
days after giving of the arbitration notice. Additional time for the decision
may be granted by mutual consent of Block and Franchisee . . . but in no
case longer than 90 days after the last day of the initial 90 days. If said
decision is not rendered within the time set forth herein, then arbitration
may be terminated by either party and either party may then proceed to
have the matter resolved in a court of law.
Franchise Agreement, ¶ 12.
In April, 2010, Wild initiated an arbitration against Block by sending an arbitration
notice to Block, in compliance with the terms of the Franchise Agreement. The dispute
was not resolved, and Wild filed a demand for arbitration with the American Arbitration
Association (AAA), the body designated in the Franchise Agreement. On June 18,
2010, Wild and Block agreed to stay the arbitration, including the running of the 90-day
decision deadline specified in the Franchise Agreement. Under the terms of the
agreement, either party could re-commence the arbitration by notifying the other party.
With that notice, the 90 day time period for a decision would re-commence. The parties
agreed also that if the arbitration was re-commenced, the additional 90 day time period
would remain available. Block re-commenced the arbitration on September 9, 2010.
Later, the parties agreed to invoke the additional 90 day period, which meant that an
arbitration decision was due by March 9, 2011. A hearing on the arbitration was set for
March 1 - 3, 2011.
An arbitration hearing in early March posed a significant logistical challenge for
Wild because early March is prime time in her business, which is preparation of tax

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returns. Wild asked Block if Block would agree to move the date of the arbitration
hearing to a date after tax season, or sometime in May, 2011. Block agreed and Block
and Wild jointly requested that the arbitration panel re-set the hearing. The hearing was
re-set to the week of May 23, 2011. On April 14, 2011, Wild sent notice to Block, the
AAA, and the arbitration panel purporting to terminate the arbitration. Block objected to
Wild’s attempt to terminate the arbitration. The arbitration panel directed the parties to
brief the issues surrounding Wild’s effort to terminate the arbitration. The arbitration
hearing remains scheduled to begin during the week of May 23, 2011.
In her motion for temporary restraining order, Wild argues that she no longer is
obligated to arbitrate her disputes with Block; thus, she seeks a temporary restraining
order from this court staying the arbitration proceeding. Wild argues in her motion that
the 180 day deadline for a decision on the arbitration expired on March 9, 2011. After
that expiration, Wild argues, she had the right under paragraph 12 of the Franchise
Agreement to terminate the arbitration and file suit against Block. Block argues that
Wild effectively agreed to extend the deadline for an arbitration decision, or to stay the
running of the applicable time period, when she requested and ultimately consented to
moving the arbitration hearing from March 1 - 3, 2011, to the week of May 23, 2011.
Block argues in the alternative that Wild’s request and consent to the change of the date
of the arbitration hearing constitutes a waiver of her right to terminate the arbitration
based on expiration of the deadline.
Block argues also that the Franchise Agreement includes Wild’s agreement to
permit the arbitration panel to determine its jurisdiction, including the existence, scope,
and validity of the arbitration agreement. In her reply, Wild argues that the Franchise
Agreement does not constitute an enforceable agreement to permit the arbitration panel
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to determine its jurisdiction, including the existence, scope, and validity of the arbitration
agreement.
IV. ANALYSIS
Reading Wild’s motion and reply together, I find that Wild asserts two
independent bases for her request for a temporary restraining order staying the pending
arbitration hearing. First, Wild argues that the Franchise Agreement does not include
an agreement that permits the arbitration panel to determine its jurisdiction, including
the scope and validity of the arbitration agreement, and whether the arbitration panel
has jurisdiction over such issues. Second, Wild argues that she validly terminated the
arbitration under the terms of the Franchise Agreement.
A. SUBSTANTIAL LIKELIHOOD OF SUCCESS
1. Scope of Issues Covered by Arbitration Agreement - The fact that the
arbitration panel directed the parties to brief the issues surrounding Wild’s effort to
terminate the arbitration demonstrates that the arbitration panel has concluded that it
has the authority to determine its jurisdiction, including the existence, scope, and validity
of the arbitration agreement. If the arbitration panel has this authority, then it may
determine the validity of Wild’s effort to terminate the arbitration. Wild argues that the
arbitration panel does not have this authority and seeks to stay the arbitration on this
basis.
When the parties to an arbitration agreement “clearly and unmistakably” agree to
submit questions of arbitrability to the arbitrator, a court must defer to the arbitrator on
such issues. See, e.g., Rent-A-Center, West, Inc. v. Jackson, ___ U.S. ___, ___, 130
S.Ct. 2772, 2782 (2010). Questions of arbitrability, sometimes called gateway issues,
generally include whether the parties have a valid arbitration agreement, whether the
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parties are bound by an arbitration clause, and whether an arbitration clause applies to
a particular controversy. Id.
The Franchise Agreement, which was executed in 1981, provides that the
“arbitration award shall be in accordance with the rules and regulations then obtaining of
the American Arbitration Association . . . .” In 1999, the AAA adopted Rule R-7(a),
which provides that the “arbitrator shall have the power to rule on his or her own
jurisdiction, including any objections with respect to the existence, scope or validity of
the arbitration agreement.” Response [#22], p. 5 (citation to AAA Commercial
Arbitration Rules). Block argues that the Franchise Agreement’s adoption of the AAA
rules constitutes an agreement to permit the arbitrator to resolve gateway issues. Wild
argues that because Rule R-7(a) was adopted 18 years after the Franchise Agreement
was executed, Wild cannot be seen as having agreed “clearly and unmistakably” to
permit the arbitrator to resolve gateway issues. On this basis, Wild asks the court to
stay the arbitration and determine the validity of Wild’s termination of the arbitration.
I conclude that Wild has not demonstrated a substantial likelihood that she
eventually will prevail on the merits of her claim that the arbitration panel does not have
the authority to determine gateway issues, including the validity of Wild’s termination of
the arbitration. Many courts have held that incorporation of AAA rules, including Rule
R-7(a), in an arbitration agreement constitutes a clear and unmistakable agreement to
permit an arbitrator to resolve gateway issues. See, e.g., Terminix Intern. Co., v
Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1332 - 1333 (11th Cir. 2005). The
Franchise Agreement adopts “the rules and regulations then obtaining of the American
Arbitration Association,” which adoption inherently includes changes and additions to
those rules. Given this language, I conclude that there is, at minimum, a strong
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argument that the arbitration provision of the Franchise Agreement constitutes a clear
and unmistakable agreement, after the AAA’s adoption of Rule R-7(a), to permit the
arbitrator to resolve gateway issues. Wild relies heavily on the opinion of the Colorado
Court of Appeals in Taubman Cherry Creek Shopping Center, LLC v. NeimanMarcus Group, Inc., ___ P.3d ___, 2010 WL 3584288 (Colo. App. 2010) in support of
her position. I have reviewed that case, some of the cases cited therein, and other
applicable law. I conclude that Taubman and the cases cited in that opinion do not
show that Wild has a substantial likelihood that she eventually will prevail on the merits
of this claim. Similarly, the other applicable law cited by the parties does not show that
Wild has a substantial likelihood that she eventually will prevail on the merits of this
claim.
2. Validity of Wild’s Termination of Arbitration - Even if the arbitration agreement
permits the arbitration panel to determine gateway issues, Wild argues that she validly
terminated the arbitration because the deadline for a decision established in the
Franchise Agreement expired on March 9, 2011. Wild contends that the expiration of
that deadline gave her the option to terminate the arbitration under the terms of the
Franchise Agreement. The fact that Wild sought and obtained a re-setting of the
arbitration hearing, moving the hearing from March 1 -3, 2011, to the week of May 23,
2011, provides significant support for Block’s argument that Wild effectively agreed to
stay the arbitration, as she had agreed to do in the past, or that Wild waived the
enforcement of the March 9, 2011, deadline for the arbitration panel’s decision.
Contract law provides substantial support for this position. Given these factual and
legal circumstances, I conclude that Wild has not shown that she has a substantial
likelihood that she eventually will prevail on the merits of her claim that she validly has
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terminated the pending arbitration.
I note that Wild has not argued for application of the modified standard applied by
the United States Court of Appeals for the Tenth Circuit in certain cases. Under the
modified standard, if the movant “has satisfied the first three requirements for a
preliminary injunction, the movant may establish likelihood of success by showing
questions going to the merits so serious, substantial, difficult and doubtful, as to make
the issues ripe for litigation and deserving of more deliberate investigation.” Walmer v.
U.S. Dept. of Defense, 52 F.3d 851, 854 (10th Cir. 1995).3 Wild has not demonstrated
in her motion that this case presents “questions going to the merits so serious,
substantial, difficult and doubtful, as to make the issues ripe for litigation and deserving
of more deliberate investigation.” Id. Even if I assume that Wild has satisfied the other
three requirements for a temporary restraining order, and assume that the modified
standard is applicable, Wild’s motion still fails to satisfy the key requirement of showing
a likelihood of success on the merits of the claims on which she bases her motion for a
temporary restraining order.
B. OTHER FACTORS
Wild has not demonstrated a substantial likelihood of success on the merits of
either of her two claims. As a result, the entry of a temporary restraining order is not
proper. Given this conclusion, I decline to address the other factors applicable to a
temporary restraining order analysis.

3

I note that at least one court in this district recently questioned the continued viability of this
standard in light of the Supreme Court's decision in Winter v. Natural Resource Defense Council, Inc.,
– U.S. –, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). See Predator International, Inc. v. Gamo Outdoor
USA, Inc., – F.Supp.2d –, 2009 WL 3526497 at *5 (D. Colo. Oct. 22, 2009).

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IV. ORDER
THEREFORE, IT IS ORDERED that the plaintiffs’ Application for Temporary
Restraining Order/Motion for Preliminary Injunction [#9] filed May 3, 2011, is
DENIED to the extent the plaintiff seeks a temporary restraining order;
2. That the plaintiffs’ Application for Temporary Restraining Order/Motion for
Preliminary Injunction [#9] filed May 3, 2011, SHALL REMAIN PENDING to the
extent the plaintiff seeks a preliminary injunction; and
3. That the hearing set herein for Friday, May 13, 2011, at 8:30 a.m., is
VACATED.
Dated May 12, 2011, at Denver, Colorado.
BY THE COURT:

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