Arctic Circle Restaurants, Inc. v. Bell

Filing 34

MEMORANDUM DECISION AND ORDER Re: Defendant's Motion for Attorney Fees. Defendant's Motion for Attorney Fees (Docket No. 31 ) is DENIED. 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 FOR ATTORNEY FEES

Plaintiff,
vs.

(Docket No. 31)
DAVID LYNN BELL.
Defendants.

Now before the Court is Defendant’s Motion for Attorney Fees (Docket No. 31). Having
carefully considered the record and otherwise being fully advised, the undersigned enters the
following Memorandum Decision and Order:
I. BACKGROUND
On November 21, 2005, Plaintiff, Arctic Circle Restaurants, Inc. (“Arctic Circle”) and
Defendant, David Lynn Bell, entered into a Franchise Agreement under which Mr. Bell operated
an Arctic Circle Restaurant at 2535 First Street, Idaho Falls, Idaho. See Franchise Agreement,
attached as Ex. A to Compl. (Docket No. 1, Att. 1). Arctic Circle terminated the Franchise
Agreement on June 13, 2014, it alleges, pursuant to Paragraph 21(B)(1) of the Franchise
Agreement. See Compl., ¶ 10 (Docket No. 1); see also Ex. C to Compl. (Docket No. 1, Att. 3).
Following the termination, Arctic Circle claims that it instructed Mr. Bell to discontinue
the use of Arctic Circle signage and promotional materials. See Compl., ¶ 12 (Docket No. 1).
Arctic Circle alleged, and supported such allegations in its filed materials, that up to that point in
time, Mr. Bell continued to operate a restaurant in the same location using the trade name,
MEMORANDUM DECISION AND ORDER - 1

trademarks, and other materials so closely related to Arctic Circle that he was in violation of the
Franchise Agreement and both federal and state laws. See id. at ¶¶ 13-14. As a result, on
August 14, 2014, Arctic Circle brought this action against Mr. Bell, raising claims for (1) breach
of the Franchise Agreement, (2) breach of the promissory note, (3) federal trademark
infringement, (4) unfair competition, (5) trademark dilution, (6) unfair competition, and (7)
unjust enrichment. See generally Compl. (Docket No. 1).1
On August 25, 2014, Arctic Circle filed a Motion for Preliminary Injunction and
Temporary Restraining Order See Mot. for PI & TRO (Docket No. 7). Therein, Arctic Circle
alleged in pertinent part:
[Arctic Circle] seeks immediate injunctive relief to prevent Defendant from using
Arctic Circle’s trademarks and identity (the “Marks”) for his own economic gain
without consent. Defendant brazenly markets a restaurant bearing a sign nearly
identical to Arctic Circle’s and using all of its materials, recipes, business models
and product names with very little variation. Defendant has done so in willful
violation of Arctic Circle’s rights under the federal Lanham Act and state law.
Arctic Circle is entitled to immediate injunctive relief to prevent irreparable harm
that Defendant has caused and continues to cause to Arctic Circle.
See id. at pp. 1-2.2 Part and parcel with Mr. Bell’s opposition to Arctic Circle’s Motion for
Preliminary Injunction and Temporary Restraining Order, on September 11, 2014, Mr. Bell

1

Arctic Circle additionally alleged throughout its Complaint that Mr. Bell “has caused
and, unless enjoined, will continue to cause irreparable harm and injury to Arctic Circle and its
goodwill and reputation.” Compl., ¶¶ 29, 42, 49, 57, 65, 70 (Docket No. 1). Consistent with
these allegations, Arctic Circle requested that Mr. Bell be “[p]reliminarily and permanently
enjoin[ed] . . .” from engaging in certain conduct in alleged violation of the Franchise
Agreement, and that Mr. Bell comply with any subsequently-entered temporary restraining
order, preliminary injunction, or permanent injunction. See id. at pp. 15-17.
2

On August 27, 2014, U.S. District Judge Lodge denied Arctic Circle’s request for a
temporary restraining issue (owing to certain service issues), but took Arctic Circle’s request for
a preliminary injunction under advisement and set an expedited briefing schedule accordingly.
See 8/27/14 Order (Docket No. 8).
MEMORANDUM DECISION AND ORDER - 2

moved to dismiss Arctic Bell’s Complaint, arguing that the claims raised therein are subject to
the Franchise Agreement’s “Dispute Resolution” clause, and that the matter in its entirety should
be either stayed or dismissed in favor of arbitration. Compare Opp. to Mot. for PI & TRO
(Docket No. 17),3 with Mot. to Dismiss (Docket No. 18).
As events unfolded, the underlying basis for Arctic Circle’s Motion for Preliminary
Injunction and Temporary Restraining Order no longer applied. According to Arctic Circle:
Upon information and belief, Bell defaulted on an operating loan that was personally
guaranteed by his accountant and business partner. Following the default, and
immediately following the Thanksgiving holiday, Bell turned possession of the First
Street Restaurant over to his business partner. This business partner contacted the
existing Arctic Circle franchisee in Rexburg, Idaho to pursue reopening the First
Street Restaurant as an Arctic Circle restaurant. As of yesterday [(December 10,
2014)], counsel for Arctic Circle was able to confirm that the arrangement has
concluded and the First Street Restaurant is reopening as an Arctic Circle.
Based on the foregoing, and as a result of the substantial period of time that lapsed
since the service of the Motion [for Preliminary Injunction and Temporary
Restraining Order], the Motion [as to the need for injunctive relief] has been mooted.
12/11/14 Not. (Docket No. 26); see also 12/11/14 Minute Entry (Docket No. 27) (Arctic Circle
withdrawing Motion for Preliminary Injunction and Temporary Restraining Order during hearing
on Mr. Bell’s Motion to Dismiss).
Although the circumstances giving rise to Arctic Circle’s Motion for Preliminary
Injunction and Temporary Restraining Order no longer existed, the remaining issues raised

3

Relevant here, within his opposition to Arctic Circle’s Motion for Preliminary
Injunction and Temporary Restraining Order, Mr. Bell states that “he is no longer using any
marks, terms, or branded material of Arctic Circle registered with the United States Patent and
Trademark Office or the State of Idaho” and that “no injunction is needed to prevent harm
relating to trademarks because there are no current violations or unauthorized uses.” Opp. to
Mot. for PI & TRO, pp. 2, 6 (Docket No. 17) (emphasis added) (citing Bell Dec., ¶¶ 7-9, 12-13
(Docket No. 17, Att. 1) (“We no longer use any of Plaintiff’s branded material at the First Street
Restaurant.”)).
MEMORANDUM DECISION AND ORDER - 3

within Mr. Bell’s Motion to Dismiss still needed to be addressed – namely, whether Arctic
Circle’s asserted claims against Mr. Bell should be arbitrated rather than pursued in federal
court. In that respect, 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,
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).
MEMORANDUM DECISION AND ORDER - 4

Following oral argument, on February 26, 2015, the undersigned determined that each of
Arctic Circle’s pending claims against Mr. Bell represented a “dispute or disagreement arising
[under]” the Franchise Agreement or “with respect to any breach of the terms” of the Franchise
Agreement and, thus, must be resolved through arbitration. See 2/26/15 MDO, pp. 4-7 (Docket
No. 28). In turn, the undersigned granted Mr. Bell’s Motion to Dismiss. See id. at p. 8 (“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.”).4
Now, Mr. Bell brings the at-issue Motion for Attorney Fees, claiming that, pursuant to
the Franchise Agreement, he is entitled to recover his attorney’s fees from Arctic Circle. See
Mem. in Supp. of Mot. for Att’y Fees, pp. 1-2 (Docket No. 31, Att. 1). On this point, the
Franchise Agreement provides:
21.

Termination By Franchisor . . . .
(F).

Costs and Expenses: If Franchisor is required to enforce this
Agreement in an arbitration or judicial proceeding, the prevailing
party in such proceeding shall be entitled to reimbursement of its
costs and expenses, including, but not limited to, reasonable
accountants’, attorneys’, attorneys’ assistants’ and expert witness
fees, cost of investigation and proof of facts, court costs, other
litigation expenses and travel and living expenses, whether incurred
prior to, in preparation for, or in contemplation of the filing of, any
such proceeding. The prevailing party shall be the party that prevails
on its claim regardless of whether judgment is entered in its favor.
If there are multiple claims, the costs and expenses shall be
reimbursed accordingly. If Franchisor is required to engage legal
counsel in connection with any failure by Franchisee to comply with
this Agreement, Franchisee shall reimburse Franchisor for any of the
above-listed costs and expenses incurred by it. During the pendency
of any arbitration or judicial proceeding between Franchisor and

4

It is unknown whether the parties ever participated in arbitration or, for that matter, the
outcome of any such arbitration.
MEMORANDUM DECISION AND ORDER - 5

Franchisee relating to this Agreement or the parties’ performance
hereunder, Franchisee shall be obligated to continue paying
Franchisor all monetary obligations required of Franchisee herein.
Franchise Agreement, p. 23, attached as Ex. A to Compl. (Docket No. 1, Att. 1) (emphasis
added).5 In short, Mr. Bell asserts that, as the prevailing party in this action, the Franchise
agreement specifically requires that Arctic Circle pay his attorney’s fees. See Mem. in Supp. of
Mot. for Att’y Fees, p. 2 (Docket No. 31, Att. 1) (“By successfully defending the case and
obtaining a complete dismissal of Plaintiff’s case, albeit without prejudice, Mr. Bell is clearly the
prevailing party and entitled to fees as a matter of contract.”).
Arctic Circle disagrees, arguing in response that the Franchise Agreement actually
requires that Mr. Bell pay Arctic Circle’s fees, given the need for Article Circle to hire legal
counsel to begin with in order to address Mr. Bell’s violations of the Franchise Agreement. See
Opp. to Mot. for Att’y Fees, pp. 4-5 (Docket No. 32) (finding support in following language of
Franchise Agreement: “If Franchisor is required to engage legal counsel in connection with any
failure by Franchisee to comply with this Agreement, Franchisee shall reimburse Franchisor for

5

The Assignment of Franchise Agreement contains a similar attorneys’ fees provision,

stating:
7.

General Provisions: The parties hereto agree to the following general
provisions:
b.

In the event any legal action is required by this Agreement to
enforce the provisions of the same, the prevailing party shall be
entitled to recover its costs of suit, including reasonable attorney’s
fees.

Assignment of Franchise Agreement, p. 4, attached as Ex. A to Compl. (Docket No. 1, Att. 1).
Unless otherwise indicated, references to “Franchise Agreement” within this Memorandum
Decision and Order includes both the Franchise Agreement itself and the Assignment of
Franchise Agreement.
MEMORANDUM DECISION AND ORDER - 6

any of the above-listed costs and expenses incurred by it.”).6 Alternatively, Arctic Circle argues
that Mr. Bell should not be considered the prevailing party in any event when recognizing that its
Motion for Preliminary Injunction and Temporary Restraining Order was withdrawn only
because Mr. Bell stopped engaging in infringing conduct. See id. at pp. 5-6 (“Under the threat of
an impending preliminary injunction, Bell unilaterally ceased operating his “First Street”
restaurant. While the Court dismissed due to the arbitration clause, the Court would have dealt
with the request for injunctive relief as allowed for by the agreement had Bell not changed his
course of conduct. It would be inequitable to declare Bell the victor under these
circumstances.”). At the very least, Arctic Circle argues that, if Mr. Bell is considered a
prevailing party by virtue of this action’s dismissal (and Arctic Circle is not entitled to any
reimbursement of its own (see supra)), his recoverable fees/expenses should be limited only to
his efforts to dismiss the action and compel arbitration – he should not recover any fees/expenses
associated with Arctic Circle’s efforts to secure injunctive relief. See id. at p. 6 (“To the extent
that Bell can be said to be the ‘prevailing party’ on the motion to dismiss, he is only entitled to
those fees related to the motion to dismiss. To require Arctic Circle to pay for Bell’s defense of
the preliminary injunction would be unjust and contrary to the terms of the Franchise
Agreement.”).

6

Arctic Circle separately suggests that, even if Mr. Bell is somehow found to be a
prevailing party, any such recoverable fees/expenses should be offset by those recoverable
fees/expenses available to Arctic Circle by virtue of this same language within the Franchise
Agreement. See Opp. to Mot. for Att’y Fees, p. 5 (Docket No. 32) (arguing that Mr. Bell is
required to pay Arctic Circle’s fees “due to his violation of the Franchise Agreement,” but that,
“[h]owever, given the first sentence [of paragraph 21(F) of the Franchise Agreement], Bell may
receive an offset of his fees, to the extent that he can be called a ‘prevailing party’ in the
litigation.”).
MEMORANDUM DECISION AND ORDER - 7

II. DISCUSSION
In support of their respective arguments, both Mr. Bell and Arctic Circle appropriately
focus upon paragraph 21(F) of the Franchise Agreement – the language contained therein
permits the recovery of fees/expenses under particular circumstances. The Ninth Circuit advises
that state law governs the interpretation and application of contractual attorneys’ fees provisions.
See Resolution Trust Corp. v. Midwest Fed. Sav. Bank of Minot, 36 F.3d 785, 800 (9th Cir. 1993)
(applying California law to interpret contract that included fee-shifting provision); see also
Berkla v. Corel Corp., 302 F.3d 909, 919 n.11 (9th Cir. 2002). Under either Idaho or Utah law,7
if a contract contains an attorneys’ fees provision, the terms of that provision establish the right
to such fees. Compare Lamprecht v. Jordan, LLC, 75 P.3d 743, 747 (Idaho 2003), with Trayner
v. Cushing, 688 P.2d 856, 858 (Utah 1984). Moreover, the determination of which party, if any,
is the prevailing party (and, thus, entitled to attorneys’ fees under a contract) takes on an overall
comparative analysis and is left to the trial court’s discretion. Compare Wandering Trails, LLC
v. Big Bite Excavation, inc., 329 P.3d 368, 380 (Idaho 2014), with Olsen v. Lund, 246 P.3d 521,
523 (Utah Ct. App. 2010). Here, the issue becomes how (or to what extent) paragraph 21(F) of
the Franchise Agreement applies, given the rather unique nature in which this action has
developed. Alas, the answer is not immediately clear.
On the one hand, an argument exists that Mr. Bell is the prevailing party – after all, he
did succeed in obtaining dismissal of this action. The fact that his success was only possible

7

Arctic Circle relies on Idaho law for these purposes. See Opp. to Mot. for Att’y Fees,
pp. 2-3 (Docket No. 32). However, paragraph 31(A) of the Franchise Agreement states: “This
[Franchise] 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.”).
MEMORANDUM DECISION AND ORDER - 8

after he allegedly took corrective action once faced with Arctic Circle’s Motion for Preliminary
Injunction and Temporary Restraining Order,8 somewhat misses the point. It is true that 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. See supra (quoting ¶ 31(C) of
Franchise Agreement). But Arctic Circle notified the Court on December 11, 2014 that its thenpending Motion for Preliminary Injunction and Temporary Restraining Order had been mooted
by Mr. Bell’s interim remedial actions. See supra. Therefore, other than the claims asserted
within Arctic Circle’s Complaint themselves, there was no obvious basis to invoke paragraph
31(C) of the Franchise Agreement at that time. While that argument may have had some degree
of legal traction when Arctic Circle initially responded to Mr. Bell’s Motion to Dismiss, it no
longer continued to apply throughout the action’s evolution. Indeed, without any pending claim
for equitable relief, this action was dismissed in favor of arbitration, pursuant to the terms of the
Franchise Agreement. See generally 2/26/15 MDO (Docket No. 28). This was the case,
regardless of the merits of Arctic Circle’s underlying claims against Mr. Bell.
On the other hand, a counter argument exists that Arctic Circle is in part or in greater
whole the prevailing party (or, said differently: that Mr. Bell should not be considered the
prevailing party when considering the action in its entirety). That is, it must be remembered that
Arctic Circle originally brought this action, in part, to curb Mr. Bell’s allegedly ongoing,
continuing, and infringing conduct. And, ultimately, Mr. Bell allegedly stopped such behavior

8

Mr. Bell takes issue with any association of these allegations as adjudicated fact,
pointing out that they “remain no more than unadjudicated allegations, that this Court “made no
finding to support these assertions,” and that “Arctic Circle accordingly cannot rely on
allegations to support an argument that Mr. Bell is not the prevailing party.” Reply in Supp. of
Mot. for Att’y Fees, p. 2 (Docket No. 33).
MEMORANDUM DECISION AND ORDER - 9

after Arctic Circle filed its Motion for Preliminary Injunction and Temporary Restraining Order.9
Viewed in such a light, it was Arctic Circle who prevailed at the most fundamental of levels (the
termination of the allegedly infringing conduct), despite the fact that as a result thereof, its larger
lawsuit faced dismissal (and was, in fact, dismissed) via the Franchise Agreement’s arbitration
clause. See supra.
In exercising its discretion on the matter, the undersigned determines that neither of these
viewpoints can be viewed in isolation. Theoretically, both parties could be entitled to recover
certain fees/expenses under the Franchise Agreement – and the underlying reason that each
might seek such a recovery also points to the fact that neither could be considered the prevailing
party.
Certainly Mr. Bell would argue entitlement to recover from Arctic Circle the
fees/expenses involved with prevailing on his Motion to Dismiss. See, e.g., ¶ 21(F) of Franchise
Agreement, p. 23, attached as Ex. A to Compl. (Docket No. 1, Att. 1) (“If Franchisor is required
to enforce this Agreement in an arbitration or judicial proceeding, the prevailing party in such
proceeding shall be entitled to reimbursement . . . .”) (emphasis added). At the same time, Mr.
Bell should not be entitled to recover from Arctic Circle those fees/expenses associated with his
defense of Arctic Circle’s request for injunctive relief; to be sure, Arctic Circle has an argument
to the same. See id. (“If Franchisor is required to engage legal counsel in connection with any

9

The exact contours surrounding the actual reasons for Mr. Bell’s alleged change in
behavior are unknown at this time, other than what Arctic Circle represents by way of its
December 11, 2014 Notice. See supra. Suffice it to say, as of December 11, 2014, Arctic Circle
no longer felt the need to pursue its request for injunctive relief given a change in circumstances.
MEMORANDUM DECISION AND ORDER - 10

failure by Franchisee to comply with this Agreement, Franchisee shall reimburse Franchisor for
any of the above-listed costs and expenses incurred by it.”) (emphasis added).10
Weighing these factors against one another, the Court concludes that, when viewing the
action as a whole (the relief sought, the arguments made, and its disposition in this forum),
neither party can lay claim to the status of a “prevailing party.” The fact that Arctic Circle did
not file its own motion for fees and costs does not mean that Mr. Bell is necessarily the
prevailing party. To the contrary, he has prevailed upon a particular portion of a larger whole,
but is not, in the Court’s view the prevailing party in the case in total. Accordingly, the Court
concludes in the exercise of its discretion that Mr. Bell is not entitled to an award of attorney
fees or costs.
III. ORDER
Based on the foregoing, IT IS HEREBY ORDERED that Defendant’s Motion for
Attorney Fees (Docket No. 31) is DENIED.
DATED: February 15, 2016

Honorable Ronald E. Bush
Chief U. S. Magistrate Judge

10

As discussed, Mr. Bell accurately notes that Arctic Circle never affirmatively moved
for attorneys’ fees pursuant to FRCP 54(d)(2). See Reply in Supp. of Mot. for Att’y Fees, p. 1,
n.1 (Docket No. 33).
MEMORANDUM DECISION AND ORDER - 11