Arctic Circle Restaurants, Inc. v. Bell
Filing
28
MEMORANDUM DECISION AND ORDER Defendant's Motion to Dismiss, or Alternatively, to Stay the Action Pending Arbitration (Docket No. 18 ), is GRANTED. This action is dismissed because the dispute framed by Plaintiffs Complaint is subject to the Franchise Agreement's arbitration clause. The dismissal is without prejudice. Signed by Judge Ronald E. Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)
UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO
ARCTIC CIRCLE RESTAURANTS, INC., a
Delaware corporation,
Case No.: 4:14-CV-00337-REB
MEMORANDUM DECISION AND
ORDER RE: DEFENDANT’S
MOTION TO DISMISS, OR
ALTERNATIVELY, TO STAY THE
ACTION PENDING ARBITRATION
Plaintiff,
vs.
DAVID LYNN BELL.
(Docket No. 18)
Defendants.
Now before the Court is Defendant’s Motion to Dismiss, or Alternatively, to Stay the
Action Pending Arbitration (Docket No. 18). Having carefully considered the record,
participated in oral argument, and otherwise being fully advised, the Court enters the following
Memorandum Decision and Order:
I. BACKGROUND
This is an action for enforcement of certain provisions of a franchise agreement,
trademark infringement, unfair competition, and trademark dilution under the Trademark Act of
1946, as amended, 15 U.S.C. § 1051, et seq. (the “Lanham Act”), and for common law
trademark infringement, unfair competition, and unjust enrichment under the laws of the State of
Idaho. See Compl., ¶ 3 (Docket No. 1) (asserting claims specifically for (1) Breach of Franchise
Agreement (First Claim for Relief , (2) Breach of Promissory Note (Second Claim for Relief),
(3) Federal Trademark Infringement (Third Claim for Relief), (4) Federal Unfair
Competition/Infringement (Fourth Claim for Relief), (5) Federal Trademark Dilution (Fifth
MEMORANDUM DECISION AND ORDER - 1
Claim for Relief), (6) State Law Unfair Competition (Sixth Claim for Relief), and Unjust
Enrichment (Seventh Claim for Relief)). For the purposes of the pending Motion, the details
informing Plaintiff’s claims against Defendant are not important; rather, the issue is whether this
action should be dismissed/stayed in favor of arbitration pursuant to the applicable “Arctic Circle
Restaurants Unit Franchise Agreement” (the “Franchise Agreement”).
Relevant here, the Franchise Agreement reads:
31.
Dispute Resolution.
A.
Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah, which laws shall prevail
in the event of any conflict of law.
B.
Arbitration. Except as provided in Section 31.C, the parties agree
that any dispute or disagreement arising hereunder or with respect to any breach of
the terms hereof shall be resolved through arbitration under the rules of the
American Arbitration Association (“AAA”) as the sole and exclusive method of
resolving the dispute. The arbitration proceedings shall be conducted in Salt Lake
City, Utah by one arbitrator selected from a panel of neutral arbitrators maintained
by AAA chosen by the striking method, and in accordance with the then-current
commercial arbitration rules of AAA for commercial arbitrations. All procedural
matters relating to the arbitration shall be governed by the Federal Arbitration Act
(9 U.S.C. §§ 1 et seq.).
The arbitrator shall have the right to award or include in his award any relief
which he deems proper in the circumstances, including without limitation, money
damages (with interest on unpaid amounts from the date due), specific performance,
injunctive relief and legal fees and costs in accordance with Section 21.F. The
arbitrator, however, shall have no authority to amend or modify the terms of this
Agreement. The award and decision of the arbitrator shall be conclusive and binding
upon all parties thereto and judgment upon the award may be entered in any court of
competent jurisdiction. The parties consent to the exercise of personal jurisdiction
over them by such courts and to the propriety of venue of such courts for the purpose
of carrying out this provision and they waive any right to contest the validity or
enforceability of such award. This provision shall continue in full force and effect
subsequent to, and notwithstanding, expiration or termination of this Agreement.
C.
Litigation. Nothing in Section 31.B. shall be construed to prevent
either party from seeking and obtaining preliminary equitable relief from a court.
Any such action shall be brought in the state or federal courts for Salt Lake County,
MEMORANDUM DECISION AND ORDER - 2
Utah. The parties consent to the exercise of personal jurisdiction over them by such
courts and to the propriety of venue of such courts.
Franchise Agreement, p. 29, attached as Ex. A to Compl. (Docket No. 1, Att. 1) (emphasis
added).
From this, Defendant argues that Plaintiff’s claims should be dismissed here and resolved
through arbitration “because they all arise under or relate to the obligations set forth in the
Franchise Agreement.” Def.’s Mem. in Supp. of Mot. to Dismiss, p. 5 (Docket No. 18, Att. 1)
(“In fact, each and every claim in Plaintiff’s Complaint is grounded in the Defendant’s rights and
limitations under the Franchise Agreement.”). Plaintiff disagrees, arguing in response that (1)
the Franchise Agreement explicitly contemplates suits requesting preliminary equitable relief,
and (2) the majority of claims asserted in the Complaint do not arise from the Franchise
Agreement. See Pl.’s Reply Mem. in Supp. of Mot. for Prelim. Inj., pp. 2-4 (Docket No. 19).1
II. DISCUSSION
The Federal Arbitration Act (“FAA”) provides that a party may seek an order from a
federal district court to compel arbitration where another party fails, neglects, or refuses to
arbitrate. See 9 U.S.C. § 4. The FAA “leaves no place for the exercise of discretion by a district
court, but instead mandates that district courts shall direct the parties to proceed to arbitration on
issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v.
Byrd, 470 U.S. 213, 218 (1985) (emphasis in original). “The court’s role under the Act is
1
Before Defendant moved to dismiss Plaintiff’s claims, Plaintiff filed a Motion for
Preliminary Injunction and/or Temporary Restraining Order (Docket No. 7). In opposition to
Defendant’s Motion to Dismiss, Plaintiff referred to particular portions of its Reply
Memorandum in Support of Motion for Preliminary Injunction. See generally Mem. in Opp. to
Def.’s Mot. to Dismiss (Docket No. 20).
MEMORANDUM DECISION AND ORDER - 3
therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does,
(2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic
Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). Here, there is no dispute that the Franchise
Agreement incorporates therein a valid agreement to arbitrate under certain circumstances.
Therefore, the dispute at issue is whether the circumstances reflected in Plaintiff’s Complaint are
the subject of the Franchise Agreement’s arbitration clause. Defendant argues they are; Plaintiff
argues they are not.
Preliminarily, Plaintiff’s argument that the Franchise Agreement expressly permits suits
like this (notwithstanding its arbitration clause) is without merit. While the Franchise
Agreement’s arbitration clause does not operate to prevent a party from “seeking and obtaining
preliminary equitable relief” from a court like this one, Plaintiff notified the Court on December
11, 2014 that its then-pending Motion for Preliminary Injunction and/or Temporary Restraining
Order had been mooted by Defendant’s remedial actions. See generally Notice Re: Prelim. Inj.
(Docket No. 26). Therefore, other than the claims asserted within Plaintiff’s Complaint
themselves, there is no obvious basis to invoke section 31.C of the Franchise Agreement. While
that argument may have had some degree of legal traction when Plaintiff initially responded to
Defendant’s Motion to Dismiss, it no longer applies.
Turning to Plaintiff’s next argument, the Complaint’s First Claim for Relief – Breach of
Franchise Agreement – in inescapably a dispute under the Franchise Agreement and, therefore,
must be resolved by arbitration pursuant to the Franchise Agreement’s arbitration clause.
Indeed, Plaintiff unequivocally refers to paragraphs 15 (“Trademarks”), 17(C) (“Noncompetition
Following Expiration or Earlier Termination of this Agreement”), and 22(E & J) (“Effect of
MEMORANDUM DECISION AND ORDER - 4
Expiration or Earlier Termination of this [Franchise] Agreement”) of the Franchise Agreement
as the footing for such a claim. See Compl., ¶¶ 25-27 (Docket No. 1); see also id. at ¶ 28
(“[Defendant] has breached the Franchise Agreement by continuing to utilize Marks owned by
Arctic Circle, by utilizing logos and names substantially similar to the Arctic Circle Marks, by
failing and refusing to de-identify his business activities from Arctic Circle, by refusing to return
Arctic Circle property, and by operating a substantially similar business within five miles of the
franchised location and less than 24 months following the termination of the Franchise
Agreement.”) (emphasis added).
Plaintiff’s other claims for relief, even though not as obviously connected to the
Franchise Agreement as the Breach of Franchise Agreement claim clearly is, nonetheless arise
out of the Franchise Agreement and are accordingly subject to its arbitration clause as well. For
example, Plaintiff’s Second Claim for Relief – Breach of Promissory Note – relates to a
December 31, 2013 promissory note that Defendant executed in Plaintiff’s favor in the amount
of $184,138.52. See id. at ¶ 33. According to Plaintiff’s counsel during oral argument:
Most importantly, however, the claim that remains that is most important at this point
going forward given [Defendant’s] discontinuing his business as the First Street
Restaurant[2] is the completely unrelated claim relative to the collection on the
promissory note. And that is a loan from Arctic Circle to [Defendant] that is not
governed by the terms of that [Franchise] [A]greement. It does not contain an
arbitration clause. So, our position, Your Honor, is that [Defendant’s counsel] is
certainly right at this point relative to the breach of the Franchise Agreement, but
those claims are principally mooted given [Defendant’s] conduct more recently. The
remaining claims, however, should not be determined to be subject to the arbitration
clause contained within the Franchise Agreement.
2
Here, Plaintiff’s counsel is referring to those aspects of Defendant’s conduct that
prompted it to withdraw its Motion for Preliminary Injunction and/or Temporary Restraining
Order (Docket No. 7). See supra.
MEMORANDUM DECISION AND ORDER - 5
But such an argument ignores the promissory note itself, which cross-references the Franchise
Agreement generally and its provisions/remedies specifically. Language found in paragraph five
both describes and braids those threads together:
Payer [(Defendant)] is also a party to two Arctic Circle Restaurant Unit Franchise
Agreements dated June 1, 2005[3] and May 1, 2007, respectively, relating to two
business locations in Idaho Falls, Idaho. Payer hereby agrees that a failure to pay
any payment due under this note as described above, shall constitute an event of
default under each of the Franchise Agreements and the provisions and remedies
described therein shall apply. (Particularly, and without limitation, the provisions
of Paragraph 21.) And in that sense, this note is an amendment to the Franchise
Agreement.
Promissory Note, attached as Ex. B to Compl. (Docket No. 1, Att. 2) (emphasis added).
Such language (coupled with the absence of language indicating, or even suggesting, that
the promissory note’s terms should be read independently from the Franchise Agreement)
inescapably incorporates the promissory note’s obligations into the fold of the Franchise
Agreement. Therefore, any alleged breach of the promissory note implicates the Franchise
Agreement and, thus, its arbitration clause.
Similarly, the undersigned is not persuaded that Plaintiff’s remaining causes of action
arise in some fashion outside of the Franchise Agreement that would allow them to be pursued
separately, outside of arbitration. As noted above, the Franchise Agreement speaks to the rights
surrounding Defendant’s use of Plaintiff’s trademarks, the details of Defendant’s agreement not
to compete with Plaintiff following the Franchise Agreement’s termination, and certain of
Defendant’s obligations to Plaintiff upon the Franchise Agreement’s termination (including
3
The referenced June 1, 2005 Franchise Agreement is the same Franchise Agreement
involved in this action. See Franchise Agreement, attached as Ex. A to Compl. (Docket No. 1,
Att. 1).
MEMORANDUM DECISION AND ORDER - 6
discontinuing the use of trademarks and not doing business under any name or in any manner
that might confuse the public. See supra (citing paragraphs 15, 17(C), and 22(E & J) of the
Franchise Agreement). Such terms and conditions logically coincide with Plaintiff’s federal
trademark infringement (Third Claim for Relief), federal unfair competition/infringement
(Fourth Claim for Relief), federal trademark dilution (Fifth Claim for Relief), and state law
unfair competition (Sixth Claim for Relief) claims against Defendant. Because these claims are
premised upon Defendant’s alleged conduct – conduct that is further informed by and even
described in the context of the underlying Franchise Agreement – it cannot be said that they do
not arise under the Franchise Agreement. Said another way: The Franchise Agreement’s
arbitration clause broadly encompasses “any dispute or disagreement arising hereunder with
respect to any breach of the terms hereof”; because Plaintiff’s remaining claims arguably arise
under the Franchise Agreement, they are also subject to its arbitration clause.4
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4
Plaintiff’s Seventh Claim for Relief – that of unjust enrichment – is a claim pled in the
alternative and seeks a remedy sounding in quasi-contract. The claim, therefore, also would not
exist (or to be more precise, the facts upon which it is alleged would not exist) but for the
relationship between the parties drawn by the Franchise Agreement. See Great Plains Equip.,
Inc. v. Northwest Pipeline Corp., 979 P.2d 627, 640 (Idaho 1999) (“Unjust enrichment, as a
fictional promise or obligation implied by law, allows recovery where the defendant has received
a benefit from the plaintiff that would be inequitable for the defendant to retain without
compensating the plaintiff for the value of the benefit.”) (citing Continental Forest Products,
Inc. v. Chandler Supply Co., 518 P.2d 1201, 1205 (Idaho 1974)). Hence, this claim also is
subject to arbitration, for the same reasoning as set out above regarding the other claims.
MEMORANDUM DECISION AND ORDER - 7
III. ORDER
Based on the foregoing, IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss,
or Alternatively, to Stay the Action Pending Arbitration (Docket No. 18), is GRANTED. This
action is dismissed because the dispute framed by Plaintiff’s Complaint is subject to the
Franchise Agreement’s arbitration clause. The dismissal is without prejudice.
DATED: February 26, 2015
Honorable Ronald E. Bush
U. S. Magistrate Judge
MEMORANDUM DECISION AND ORDER - 8
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