Pla-Fit Franchise, LLC v. Patricko, Inc. et al

Filing 27

ORDER granting in part and denying in part 17 Motion to Dismiss Defendants' Counterclaims and to Compel Arbitrations. So Ordered by Judge Paul J. Barbadoro.(jna)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

Pla-Fit Franchise, LLC
v.

Case No. 13-cv-489-PB
Opinion No. 2013 DNH 109

Patricko, Inc., et. al
MEMORANDUM AND ORDER
Pla-Fit Franchise, LLC (“Pla-Fit”) sued two of its
franchisees (the “Franchisees”) and their operating companies
for preliminary injunctive relief, permanent injunctive relief,
and damages.

After obtaining agreements from the Franchisees

that made a preliminary injunction unnecessary, Pla-Fit moved to
compel the parties to arbitrate in accordance with arbitration
clauses in their franchise agreements.

The issue presented by

defendants’ opposition to the motion to compel is whether PlaFit waived its right to compel defendants to arbitrate by filing
its complaint.
I.

BACKGROUND

Pla-Fit is a New Hampshire corporation and the franchisor
of Planet Fitness brand gyms.

Defendant Patrick Catino owns a

gym in Tewksbury, Massachusetts, that on July 7, 2006 entered

into an agreement with Pla-Fit to become a Planet Fitness
franchise.

Catino’s gym in Tewksbury is operated by defendant

Patricko, Inc.

Defendant Kevin LaVelle and Catino each own a

fifty percent share of a gym in Somerville, Massachusetts, that
on July 7, 2006 also entered into an agreement with Pla-Fit to
become a Planet Fitness franchise.

The Somerville gym is

operated by defendant World Gym, Inc.
The franchise agreements contain identical terms, save an
addendum that is irrelevant to the claims at issue.
include rules for negotiation and arbitration.
1-2.

These terms

Doc. Nos. 1-1,

In paragraph 19.12, the agreements state:
All controversies, disputes, or claims between the
parties . . . arising from or relating to this
Agreement that are not resolved by negotiations within
thirty (30) days of the notice of dispute, shall on
demand of either party be submitted for arbitration to
the American Arbitration Association (“AAA”).
The
arbitration shall be governed exclusively by the
United States Arbitration Act . . .
The arbitration
proceedings shall be conducted on an individual basis
and not on a multi-plaintiff, consolidated, collective
or class-wide basis . . . The provisions of this
Article 19.12 shall continue in full force and effect
subsequent
to
and
notwithstanding
expiration
or
termination of this Agreement.
Within months of entering their respective agreements, the

Franchisees began to spar with Pla-Fit on a variety of issues,
including the quality and condition of fitness equipment, the
2

amount the Franchisees would be required to contribute to
advertising campaigns, and whether the gyms could continue to
offer personal training.

These and other concerns culminated in

the Franchisees filing suit on August 30, 2012 in the District
of Massachusetts for breach of contract, conversion, and
violation of the Massachusetts Consumer Protection Statute.
Pla-Fit responded by moving to compel arbitration based on the
arbitration clauses in the franchise agreements.

The court

granted Pla-Fit’s motion and ordered the parties to arbitrate
their disputes.

See World Gym, Inc. v. Pla-Fit Franchise, LLC,

No. 12-11620-DJC, 2013 WL 3830164, at *1 (D. Mass. July 19,
2013).
2013.

The Franchisees moved for reconsideration on August 19,
The court ultimately denied the motion for

reconsideration on December 11, 2013.

No further filings have

been made in the Massachusetts action.
On May 28, 2013, while the Massachusetts action was
pending, Pla-Fit sent the Franchisees notices of default for
“chronic violations” of Planet Fitness’ standards.
them thirty days to cure their violations.

Pla-Fit gave

Doc. No. 1-3.

Negotiations continued into the summer, and in late August PlaFit again issued notices of default for the same violations.
3

On September 26, 2013, the Franchisees requested an extension
until June 2014 to cure their alleged defaults.

On October 24,

2013, Pla-Fit informed the Franchisees that it would grant them
the requested extension if they (1) agreed to a time period for
compliance; (2) joined the local advertising cooperative; and
(3) provided a general release of their
claims.

previously asserted

Pla-Fit also made an alternative settlement offer,

requested a response within ten days, and noted that the
Franchisees would be terminated if they refused to resolve all
outstanding issues.

Doc. No. 1-7.

On November 4, the

Franchisees rejected both proposals.
On November 7, 2013, Pla-Fit sent the Franchisees
termination letters citing the uncured material defaults
originally specified in its prior notices.
effective immediately.

Termination was

The letters required each gym to remove

all signs and materials identifying themselves as a Planet
Fitness franchise and adhere to other post-termination contract
obligations.
On November 11, 2013, Pla-Fit contacted Franchisee’s
counsel and expressed concern that the two gyms continued to
operate as Planet Fitness franchises.
4

Pla-Fit asked what

Franchisees’ intentions were with regard to de-branding their
facilities.

On November 12, Franchisee’s counsel replied to the

email by asking “what happen[ed] to my clients’ right to
arbitrate.”

Pla-Fit responded, saying “I take your reply below

to my [November 11] question as indicating that your clients do
not intend to comply,” to which Franchisee’s counsel replied,
“comply with what.”

Doc. No. 22-2.

In response to these

emails, Pla-Fit’s counsel sent Franchisees an email with the
attached complaint and motion for preliminary injunction,
described below, stating “I trust this will answer your
question.”
On November 13, 2013, the Franchisees

sent Pla-Fit a

letter expressing an interest in arbitrating all disputes and
requesting a meeting “prior to formal arbitration.”

The letter

was incorrectly addressed and Pla-Fit’s attorney did not receive
it until November 18.
On November 14, 2013, Pla-Fit filed its complaint in this
court requesting injunctive relief for trademark infringement,
a declaratory judgment that the Franchisees continued to operate
competitive businesses in violation of their franchise
agreements, and damages for breach of contract.
5

The next day,

Pla-Fit filed a motion for a preliminary injunction.
On November 18, Pla-Fit acknowledged receipt of the
November 12 letter.

The parties scheduled a meeting for

November 25, with Pla-Fit noting that “[i]f that negotiation
does not fully resolve their dispute, [the Franchisees] may as
they see fit demand arbitration before the AAA as provided in
para. 19.12.”

On November 25, 2013, the parties met to discuss

a potential resolution.

The Franchisees agreed to de-brand by

removing all materials associating their gyms with Planet
Fitness, but the parties were unable to reach agreement on other
issues.

On December 13, 2013, Pla-Fit sent the Franchisees a

proposed order dismissing the entire action and submitting all
disputes to arbitration.

Doc. No. 23-4. The parties exchanged

emails regarding arbitration, but could not come to an
agreement.

Doc. No. 23-5.

On December 19, 2013, the Franchisees answered Pla-Fit’s
complaint and asserted counterclaims for breach of contract,
conversion, wrongful termination, and violation of the New
Hampshire Consumer Protection Act.
358-A.

N.H. Rev. Stat. Ann. Ch.

These claims are substantially similar to those that the

Franchisees had brought in the District of Massachusetts action.
6

On January 6, 2014, Pla-Fit filed a Motion to Dismiss
Defendants’ Counterclaims and to Compel Individual Arbitrations.
Doc. No. 17.

Pla-Fit also withdrew its request for a

preliminary injunction, which it considered unnecessary after
the Franchisees agreed to comply with Pla-Fit’s de-branding
requests.

The next day, the court issued an order denying as

moot the motion for preliminary injunction.

The Franchisees

then moved for their attorney to appear pro hac vice and I
granted their motion on January 23.

That same day, the parties

filed a nine page Proposed Discovery Plan.

The next day, the

Franchisees objected to the Motion to Dismiss and Compel
Arbitration, arguing that Pla-Fit had waived its contractual
right to arbitrate by selectively invoking the jurisdiction of
this court.

II.

STANDARD OF REVIEW

The First Circuit has yet to address the proper standard of
review for a motion to compel arbitration.

See Cogent Comp.

Sys., Inc. v. Turbochef Techs., Inc., No. 06-280S, 2008 WL
219343, at *1, 5 (D.R.I. Jan. 24, 2008); Boulet v. Bangor Secs.
Inc., 324 F. Supp. 2d 120, 123 (D. Me. 2004).
7

Pla-Fit has moved

to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
and some authority suggests that motions to compel arbitration
should be examined under the Rule 12(b)(6) standard.

See Palcko

v. Airborne Express, Inc., 372 F.3d 588, 597 (3d. Cir. 2004).
Other courts have applied the summary judgment standard.

See

Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003); ParKnit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51,
54 & n.9 (3d Cir. 1980).

In my view,

resolved in a categorical fashion.

the issue cannot be

Instead, the required

standard will vary depending upon whether the court must look
beyond the complaint to resolve the dispute.

If the answer is

apparent on the face of the complaint, the Rule 12(b)(6)
standard will suffice.

If the court must consult evidence to

resolve the issue, the summary judgment standard must be
employed.

See Guidotti v. Legal Helpers Debt Resolution,

L.L.C., 716 F.3d 764, 773-74 (3d. Cir. 2013) (summary judgment
standard applies to resolve an arbitrability issue if the motion
depends upon facts beyond those pleaded in the complaint).
In the present case, Pla-Fit’s motion turns primarily on
materials that a court ordinarily may consider in resolving a
Rule 12(b)(6) motion such as the Complaint, the franchise
8

agreements, and matters of public record.

See Wilson v. HSBC

Mortg. Servs., Inc., 744 F.3d 1, 7 (1st Cir. 2014).

The

parties, however, have also cited to affidavits and exhibits
that cannot be considered in ruling on a motion to dismiss.
Because I intend to rely on these materials, I will resolve the
motion using the familiar summary judgment standard.

See, e.g.,

Navarro v. Pfizer Corp., 261 F.3d 90, 93-94 (1st Cir. 2001)
(describing summary judgment standard).

III. ANALYSIS
The Franchisees argue that Pla-Fit waived its right to
demand arbitration by invoking this court’s jurisdiction without
expressly reserving its right to arbitrate.

I agree that a

party can waive its contractual right to arbitrate by
implication.

In re Citigroup v. Travelers Prop. Cas. Corp., 376

F.3d 23, 26 (1st Cir. 2004).

Waivers, however, are not to be

lightly inferred, and must be considered in light of the “strong
federal policy favoring arbitration,” dictating that any doubts
“should be resolved in favor of arbitration, whether the problem
at hand is . . . an allegation of waiver, delay, or a like
defense to arbitrability.”

Creative Solutions Grp., Inc. v.
9

Pentzer Corp., 252 F.3d 28, 32 (1st Cir. 2001) (quoting Moses H.
Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 25
(1983)).
Acknowledging this preference for enforcing arbitration
agreements, the Franchisees nevertheless cite authority for the
proposition that a party waives its right to arbitrate by
initiating a lawsuit.

Gutor Int’l AG v. Raymond Packer Co., 493

F.2d 938, 945 (1st Cir. 1974); see also Navieros InterAmericanos, S.A. v. M/V Vasilia Express, 120 F.3d 304, 316 (1st
Cir. 1997).
cases.

In my view, the Franchisees make too much of these

While a decision to sue may signal a disinclination to

arbitrate, it does not automatically bar a plaintiff from
invoking its arbitration rights.

Instead, any arbitration

waiver claim must be judged on its own facts and all relevant
circumstances must be considered.

In Re Tyco Int’l Ltd. Secs.

Litig., 422 F.3d 41, 46 (1st Cir. 2005)(arbitration waiver
claims must be decided on the particular facts of each case);
Creative Solutions, 252 F.3d at 32 (identifying multiple factors
in addition to prejudice that may bear on the resolution of an
arbitration waiver claim); Nicholas v. KBR, Inc., 565 F.3d 904,
908 (5th Cir. 2009) (holding that the same legal standard for
10

waiver applies to plaintiffs and defendants).
In the present case, Pla-Fit filed suit in part to protect
itself from what it saw as the irreparable harm it was facing as
a result of defendants’ infringements of its trademarks.

A

party may seek preliminary injunctive relief in an otherwise
arbitrable dispute without forfeiting its right to arbitration.
See Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 51 (1st Cir.
1986).

This is because a ruling precluding a party who wishes

to arbitrate from seeking a preliminary injunction would
undermine the entire arbitration process by making it less
likely that any party facing immediate harm would ever choose to
arbitrate its claims.

Id.

Although Pla-Fit could have made its intentions clearer by
disclosing its plan to arbitrate in its complaint, the
undisputed facts establish that it revealed its proposal to
arbitrate almost immediately after it had satisfied its need for
interim injunctive relief.

Doc. Nos. 17, 23-4.

Thus, this is

not a case where the moving party recognized that its request
for injunctive relief was moot but continued to press its
damages claim.

See Jones Motor Co., Inc. v. Chauffeurs,

Teamsters, & Helpers Local Union No. 633, 671 F.2d 38, 41 (1st
11

Cir. 1982).

In short, Pla-Fit did not automatically lose its

right to arbitrate its disputes with the Franchisees simply
because it filed suit against them.
The Franchisees also contend that I should hold that PlaFit waived its right to arbitrate because they were prejudiced
by Pla-Fit’s Complaint and the ensuing litigation.

The First

Circuit has identified a number of factors that a court may need
to consider in determining whether a party has waived its
arbitration rights, but the court has emphasized that a party
must show prejudice to succeed on a waiver claim.

Creative

Solutions, 252 F.3d at 32-33 (citing Menorah Ins. Co., Ltd. v.
INX Reinsurance Corp., 72 F.3d 218, 221 (1st Cir. 1995) (“It has
been the rule in this Circuit that in order for plaintiffs to
prevail on ‘their claim of waiver, they must show prejudice.’”).
Notwithstanding their claims to the contrary, the
Franchisees have not demonstrated that they were prejudiced by
Pla-Fit’s actions.

An inquiry into prejudice involves a

contextual examination of factors such as the length of delay,
the litigation activities engaged in, and whether a party has
been unfairly misled by the process.

Restoration Pres. Masonry,

Inc. v. Grove Eur., Ltd., 325 F.3d 54, 61 (1st Cir. 2003).
12

In the present case, Pla-Fit informed the Franchisees of
its willingness to arbitrate less than three weeks after it had
addressed its need for preliminary injunctive relief.

It then

followed up with a motion to compel arbitration less than two
months after it became apparent that the parties were not able
to reach an agreement to arbitrate.

Taking context into

account, the delay at issue here looks even briefer, as neither
party had initiated discovery when the motion to compel was
filed and the trial remained more than a year away.

See

Navieros, 120 F.3d at 316 (where motion was filed one day prior
to start of trial, after less than two months of expedited
litigation, court explained that although the delay was not long
in absolute terms, in context it was “both long and
prejudicial,” as the parties “scrambled to prepare their cases
for trial, incurring expenses that would not have been
occasioned by preparing for an arbitration.”).1

1

See also

With the exception of Navieros, all the cases relied upon by
Franchisees that determined that arbitration rights had been
waived involved a significantly longer delay than the period at
issue here. See, e.g., Kaneko Ford Design v. Citipark, Inc.,
249 Cal. Rptr. 544, 549 (Cal. Ct. App. 1988) (five and a half
month delay); Lounge-A-Round v. GCM Mills, Inc., 166 Cal. Rptr.
920, 926 (Cal. Ct. App. 1980) (over nine month delay); D.M. Ward
Constr. Co., Inc. v. Elec. Corp. of Kan. City, 803 P.2d 593, 598
(Kan. Ct. App. 1990) (ten month delay, with motion to compel
13

Citigroup, 376 F.3d at 28-29 (arbitration rights waived when the
moving party had, among other things, taken depositions and
filed motions for summary judgment).

See also Creative

Solutions, 252 F.3d at 33 (arbitration rights not waived when
the moving party had initiated no formal discovery save a
request for damage calculations).
The Franchisees nevertheless argue that they were
prejudiced because they were forced to incur unnecessary
litigation costs as a result of Pla-Fit’s delay in demanding
arbitration.

In particular, they argue that they were

unreasonably forced to (i) retain local counsel; (ii) respond to
the Complaint; (iii) de-brand at an accelerated pace; (iv) file
a pro hac vice motion; and (v) file a joint proposed discovery
plan because of Pla-Fit’s failure to invoke its arbitration
rights sooner.

I am not convinced.

The arbitration agreements did not require Pla-Fit to
demand arbitration before seeking a preliminary injunction and
the Franchisees failed to respond to Pla-Fit’s request that they
voluntarily de-brand.

Thus, Pla-Fit was entitled to proceed

arbitration filed “very close to [within one month of] the trial
date”).
14

with its preliminary injunction request and the Franchisees
would have needed to retain local counsel, respond to the
Complaint, and de-brand in order to address Pla-Fit’s
preliminary injunction request even if Pla-Fit had immediately
invoked its right to arbitrate all other matters in the
Complaint.

The Franchisees’ pro hac vice motion and the

proposed discovery plan also cannot be attributed to Pla-Fit’s
delay in seeking arbitration because they were filed after PlaFit had filed the motion to compel arbitration.2
I am likewise not satisfied that the Franchisees were
misled by Pla-Fit. Undisputed evidence in the record
demonstrates that the Franchisees either knew, or should have
known, that the primary reason Pla-Fit filed its suit was to
protect its trademark rights by injunction, and that otherwise
it wished to arbitrate all claims.
The Franchisees make two additional arguments, neither of
which is persuasive.

First, they contend that Pla-Fit’s suit is

an attempt to strong-arm Franchisees that should not be
2

Defendants have submitted a supplemental memorandum detailing
the expenses incurred in branding, de-branding, and otherwise
responding to Pla-Fit’s filing that they allege they “would not
have incurred absent the imminent threat of litigation and a
preliminary injunction.” Doc. No. 26. None of these documents
affect my analysis.
15

tolerated because it undermines any prospect of non-adversarial
resolution.

I reject this argument because the record will not

support a claim that Pla-Fit acted in bad faith either in
exercising its right to seek injunctive relief or in filing its
motion to compel arbitration.
The Franchisees also argue that their claims should not be
dismissed due to principles of “judicial and arbitral” economy,
arguing that their common ownership of the two franchises should
enable them to jointly resolve their claims.

Had the

Franchisees wanted to collectively arbitrate their claims, they
could have negotiated the right to do so when signing their
respective agreements.

In the absence of such negotiation, I

must “ensure that private arbitration agreements are enforced
according to their terms.”

AT&T Mobility LLC v. Concepcion, 131

S. Ct. 1740, 1750 n.6 (2011); see also Am. Exp. Co. v. Italian
Colors Rest., 133 S. Ct. 2304, 2309 (2013).

This argument thus

does not warrant the denial of Pla-Fit’s arbitration request.
IV.

CONCLUSION

For the reasons discussed above, I grant Pla-Fit’s Motion
to Compel to the extent that it seeks an order compelling the
parties to arbitrate their disputes.
16

Doc. No. 17.

In all other

respects the motion is denied.

The case shall be stayed and the

clerk shall administratively close the case, subject to
reopening at the request of either party, as appropriate,
following arbitration.
SO ORDERED.

/s/Paul Barbadoro
Paul Barbadoro
United States District Judge
May 20, 2014
cc:

Arthur L. Pressman, Esq.
Morgan C. Nighan, Esq.
John Ferris Dow, Esq.
Daniel K. Sherwood, Esq.

17