Trident Atlanta, LLC et al v. Charlie Graingers Franchising, LLC et al
Filing
122
ORDER granting 103 Motion to Compel and granting 112 Motion to Compel. Thisaction is hereby STAYED as to Ms. Bindes, Mr. and Mrs. Atkinson, and Mr. Moore in favor of arbitration proceedings pursuant to 9 U.S.C. § 3. The parties are ORDERE D to notify the Court within 14 days of the conclusion of arbitration as to the result of arbitration and whether any claims or issues remain for this Court to resolve. Signed by Chief Judge Terrence W. Boyle on 4/4/2019. Copy sent via US Mail to Louis Craig North 323 Lafayette Street, Wilmington, NC 28411. (Stouch, L.)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
No. 7:18-CV-10-BO
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TRIDENT ATLANTA, LLC, DUAL ENERGY,
LLC, CYNERGETIC AR, LLC, MS. MARCIE
BINDES d/b/a KS ENTERPRISES, LLC, MR.
DALE ATKINSON & MRS. ROSE ATKINSON
d/b/a ROSEDALE THREE, LLC, and MR.
TRENT MOORE d/b/a LINDSTAN, INC.,
Plaintiffs,
v.
CHARLIE GRAINGERS FRANCHISING, LLC,
CHARLIE GRAINGERS FRANCHISING, INC.,
LOUIS CRAIG NORTH, GREGORY BRUCE
GEORGE, and JASON MATTHEW NISTA,
Defendants.
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ORDER
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This matter is before the Court on motions to compel arbitration filed by defendants
Gregory Bruce George and Jason Matthew Nista. [DE 103, 112]. The motions are ripe for
disposition. For the reasons that follow, defendants' motions to compel [DE 103, 112] are
GRANTED. The individual plaintiffs-Ms. Marcie Bindes,. Mr. Dale Atkinson and Mrs. Rose
Atkinson, and Mr. Trent Moore-are directed to arbitrate their claims against all three individual
defendants, George, Nista, and Louis Craig North. The action will be stayed pending arbitration
as to Ms. Bindes, Mr. and Mrs. Atkinson, and Mr. Moore.
BACKGROUND
The Court adopts, as if fully set forth herein, the factual and procedural background
provided in its February 4, 2019 order. [DE 101]. At that time, the Court granted in part and denied
in part the individual defendants' motions to dismiss. In particular, the Court found that plaintiffs
had failed to state civil claims under the Racketeer Influenced and Corrupt Organizations Act upon
which relief could be granted, and therefore dismissed Counts 7, 8, and 9 of the plaintiffs' amended
complaint. The Court also found that plaintiffs had alleged sufficient facts to state claims against
the individual defendants for fraud, negligent misrepresentation, breach of fiduciary duty, and
violation of North Carolina's Unfair and Deceptive Trade Practices Act, and therefore did not
dismiss Counts 2, 3, 5, and 6. Counts I, 4, and 10 were brought only against the corporate
defendants, as to whom the case is currently stayed. [DE 84]. As such, the Court expressed no
opinion on those three causes of action.
After the Court's February 4, 2019 order, the individual defendants filed their answers to
plaintiffs' amended complaint. [DE 105, 110, 111]. A scheduling order was entered. [DE 116].
But defendants George and Nista filed motions to compel arbitration, arguing that the franchise.
agreements signed by the individual plaintiffs contained binding arbitration provisions. [DE 103,
112]. Defendant North, now proceedingpro se, did not move to compel arbitration. Plaintiffs have
responded in opposition to the motions to compel. [DE 117].
DISCUSSION
The Federal Arbitration Act (FAA), 9 U.S.C. § I et seq., governs the resolution of private
disputes through arbitration. Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d
200, 204 (4th Cir. 2004). Section 2 of the FAA provides that a "written provision in any ...
contract evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable." 9 U.S.C.
§ 2; see also Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 629-30 (2009) (construing 9 U.S.C.
§ 2 as making written arbitration agreements binding unless the underlying contract is otherwise
void).
The "question of arbitrability" is to be decided by the court unless the parties clearly and (
unmistakably provide otherwise. AT&T Technologies, Inc. v. Communications Workers of
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America, 475 U.S. 643, 649 (1986). Courts have "no choice but to grant a motion to compel
arbitration where a valid arbitration clause exists and the issues in a case fall within its purview."
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500 (4th Cir. 2002) (citation omitted). "[Q]uestions of
arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration."
Moses H. Cone Mem 'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983). Accordingly,
disagreements related to the scope of arbitration are resolved in favor of arbitration. AT&T, 475
U.S. at 650; Moses H. Cone, 460 U.S. at 24-25 ("The Arbitration Act establishes that, as a matter
of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract language itself or an
allegation of waiver, delay, or a like defense to arbitrability."). Broad, general, and vague
agreements will not meet the clear-and-unmistakable standard imposed on arbitration agreements.
See AT&T, 475 U.S. at 645 (holding that the clause committing all "differences arising with respect
to the interpretation of this contract or the performance of any obligation hereunder" did not permit
the arbitrator to determine arbitrability issues).
The franchise agreements that the individual plaintiffs signed between September 2015 and
September 2016 contained the following provisions:
16.03 Arbitration. Except as specifically provided under this Agreement, any
dispute or claim relating· to or arising out of this Agreement must be resolved
exclusively by mandatory arbitration by and in accordance with the Commercial
Arbitration Rules of the Am'erican Arbitration Association ("AAA") or another
arbitration service agreed to by the parties. Arbitration will be conducted solely on
an individual, not a class-wide, basis,1 unless. all parties so agree. No award in
arbitration involving Franchisor will have any effect of preclusion or collateral
estoppels in any other adjudication or arbitration. A single arbitrator shall be
selected in accordance with standard AAA procedure, and the proceedings will be
conducted at its Wilmington, North Carolina, office. Each party shall bear all of its
own costs and attorneys' fees and one-half of the arbitrator's expenses. The
decision of the arbitrator shall be final and binding.
16.04 Applicability. This dispute resolution section applies to claims by and against
all parties and their successors, owners, managers, officers, directors, employees,
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agents, and representatives, as to claims arising out of or relating to this Agreement,
except as stated above. This dispute resolution clause shall survive the termination
or expiration of this Agreement.
16.05 Governing Arbitration Law. Notwithstanding any choice of law provision of
this Agreement, all issues relating to arbitration or the enforcement of the
agreement to arbitrate contained in this Agreement are governed by the U.S.
Federal Arbitration Act (9 U.S.C. § 1 et seq.) and the U.S. federal common law of
arbitration. This federal act preempts any state rules on arbitration, including those
relating to the site of arbitration. Judgment on an arbitration award, or on any award
for interim relief, may be entered in any court having jurisdiction, and will be
binding.
16.06 Governing Law/Consent to Venue and Jurisdiction. Except to the extent
governed by the Federal Arbitration Act, the United States Trademark Act of 1946
(Lanham Act, 15 U.S.C. Sections 1051 et seq.) or other federal law, this Agreement
shall be interpreted under the laws of the state of North Carolina and any dispute
between the parties shall be governed by and determined in accordance with the
substantive laws of the state of North Carolina, which laws shall prevail in the event
of any conflict of law. Franchisee and Franchisor have negotiated regarding a forum
in which to resolve any disputes, which may arise between them and have agreed
to select a forum in order to promote stability in their relationship. Therefore, if a
claim is asserted in any legal proceeding involving Franchisee, its officers,
directors, managers or partners (collectively, "Franchisee Affiliates") and
Franchisor, its parent, subsidiaries or affiliates and their respective officers,
directors and sales employees (collectively, "Franchisor Affiliates") the parties
agree that the exclusive venue for disputes between them shall be in the state and
federal courts of North Carolina or the Wilmington, North Carolina office of the
AAA and each party waives any objection they may have to the personal
jurisdiction of or venue in the state and federal courts of North Carolina or the
Wilmington, North Carolina office of the AAA. Franchisor, Franchisor Affiliates,
Franchisee and Franchisee Affiliates each waive their rights to a trial by jury.
16.07 Limitations on Actions. Except for payments owed by one party to the other,
and unless prohibited by applicable law, any legal action or arbitration proceeding
brought or initiated with respect to any dispute arising from or related to this
Agreement or with respect to any breach of the terms of this Agreement must be
brought or instituted within a period of two (2) years from the date of discovery of
the conduct or event that forms the basis of the legal action or proceeding.
[DE 85-1, p. 66-67]. The language of the arbitration provisions is clear and unmistakable and
demonstrates the parties' intent to submit their covered disputes to arbitration. The arbitration
provisions are clearly broad enough to extend to all three individual defendants-George, Nista,
and North-each of whom was an officer or director of the franchisor. Plaintiffs do not argue that
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their claims are not covered by the arbitration provisions. Plaintiffs also do not argue that the
provisions govern claims against defendants George, Nista, and North. As such, it is clear that the
provisions are enforceable here and the individual plaintiffs' claims can be submitted to arbitration.
Plaintiffs ask, however, that the Court nonetheless refuse to submit their claims to
arbitration, arguing that "defendant(s) have waived the right to seek arbitration ... by pursuing,
for over a year, a merits based strategy seeking to achieve a favorable legal judgment from this
Court by the dismissal of the plaintiffs' claims." [DE 117, p. 1]. Plaintiffs argue that defendants
have prejudiced them by first moving to dismiss their amended complaint prior to moving to
compel arbitration. For support, plaintiffs rely on two Fourth Circuit decisions: Degidio v. Crazy
Horse Saloon and Restaurant Inc, 880 F.3d 135 (4th Cir. 2018), and Wheeling Hosp., Inc. v. Health
Plan of the Upper Ohio Valley, Inc., 683 F.3d 577 (4th Cir. 2012). In Degidio, the Fourth Circuit
affirmed the district court's refusal to enforce an arbitration provision, at least partially because
the defendants in that action had spent years litigating the case on its merits before invoking the
arbitration provision. In Wheeling Hospital, the Fourth Circuit reversed the district court's refusal
to enforce an arbitration providing, finding that although the defendant "engaged in some activity
inconsistent with the intent to arbitrate," the plaintiff had "nonetheless shown no actual prejudice
that resulted" from those inconsistent activities. 683 F.3d at 591. Here, consistent with Degidio·
and Wheeling Hospital, defendants did not waive their right to arbitrate this case.
"A litigant may waive its right to invoke the [FAA] by so substantially utilizing the
litigation machinery that to subsequently permit arbitration would prejudice the party opposing the
stay." Fraser v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 817 F.2d 250, 252 (4th Cir. 1987).
"Arbitration laws are passed to expedite and facilitate the settlement of disputes and avoid the
delay caused by litigation," not to provide "a means of furthering and extending delays." Radiator
Specialty Co. v. Cannon Mills, 97 F.2d 318, 319 (4th Cir. 1938). In determining whether actual
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prejudice exists, courts look to "(1) the amount of the delay; and (2) the extent of the moving
party's trial-oriented activity." Stedor Enters,, Ltd. v. Armtex, Inc., 947 F.2d 727, 730 (4th Cir.
1991). In Degidio, the Fourth Circuit found that the defendant had "employed judicial proceedings
to pursue a litigation strategy for over three years," and had "filed multiple motions for summary
judgment, served
discovery~
and twice asked the district court to certify questions of state law to
the South Carolina Supreme Court." 880 F .3 d at 141. Here, by contrast, defendants simply moved
to dismiss. While the consolidation of two cases prolonged the litigation, defendants' motions to
dismiss were granted in part and denied in part within 13 months of the start of litigation, and
defendants' initial motions to dismiss were filed within 3 months of being served with the
complaint. There has been no other litigation on the merits and the discovery process has only just
begun. Here, unlike in Degidio, there has only been a limited delay and limited trial-oriented
activity.
Plaintiffs argue that they have been prejudiced because they have been forced to reveal
"significant elements" of their legal strategy in responding to the motions to dismiss and have
incurred "significant expense" as a result of the litigation to this point. [DE 117, p. 9-1 OJ. These
claims of prejudice are unpersuasive. In Wheeling Hospital, the Fourth Circuit noted that it has
never adopted "a bright line rule that a party is always prejudiced by the filing of a dispositive
motion," and instead takes "into account all of the above factors in determining the existence of
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prejudice." 683 F.3d at 590. The Fourth Circuit further noted that in Fraser, there was prejudice
"in part because [one party] 'had to respond to a number of potentially damaging motions,
including a motion for partial summary judgment and three motions to dismiss."' Wheeling Hosp.,
683 F.3d at 590 (citing Fraser, 817 F.2d at 252). Again, in this case, plaintiffs have simply endured
defendants' Rule 12(b)(6) motions to dismiss. In consideration of the Fourth Circuit's recognized
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factors, the Court finds that plaintiffs have not been actually prejudiced by defendants' conduct,
and that defendants have therefore not waived their right to arbitrate this case.
Plaintiffs do not argue that they should not be bound by the arbitration provisions of the
franchise agreements because they were fraudulently induced to enter those agreements. Whether
or not the agreements were fraudulently induced can be properly resolved in arbitration. Because
plaintiffs do not argue that the particular arbitration provisions were fraudulently induced, there is
no need to refuse to submit plaintiffs' claims to arbitration on that basis. See Faulkenberg v. CB
Tax Franchise Sys., LP, 637 F.3d 801, 811 (7th Cir. 2011) ("The only relevant inquiry at this stage
is whether the arbitration clause itself was fraudulently induced-that is, whether there was fraud
that 'goes to the "making" of the agreement to arbitrate.'") (citing Prima Paint Corp. v. Flood &
Conklin Mfg. Co., 388 U.S. 395, 404 (1967)).
Defendants urge this Court to dismiss the individual plaintiffs' claims, rather than stay
them pending arbitration. While this is certainly the typical practice when all of the claims are
subject to arbitration, see Choice Hotels Int'!, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707,
709-10 (4th Cir. 2001), the Court finds that in this particular consolidated case, it is better to stay
the individual plaintiffs' claims while arbitration is pending. In particular, the issue of fraudulent
inducement adds a layer of some complexity to the ultimate arbitrability of plaintiffs' claims.
Further, the corporate plaintiffs-Trident Atlanta, Dual Energy, and Cynergetic-do not have
arbitration provisions in their franchise agreements, and defendants have not moved to compel
arbitration with respect to those plaintiffs. As such, their claims will not, be submitted to arbitration,
and their claims will not be stayed. The Court, in its discretion, therefore finds it more appropriate
to stay, rather than dismiss, the individual plaintiffs' claims at this stage.
In sum, the individual plaintiffs- Ms. Marcie Bindes, Mr. Dale Atkinson and Mrs. Rose
Atkinson, and Mr. Trent Moore-entered franchise agreements containing enforceable arbitration
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provisions. The arbitration provisions cover all of the individual plaintiffs' remaining claims, and
are effective as to defendants George, Nista, and North. Defendants have not waived their right to
compel arbitration. As such, defendants' motions must be granted, and the individual plaintiffs'
claims must be submitted to arbitration.
CONCLUSION
For these reasons, defendants' motions to compel [DE 103, 112] are GRANTED. This
action is hereby STAYED as to Ms. Bindes, Mr. and Mrs. Atkinson, and Mr. Moore in favor of
arbitration proceedings pursuant to 9 U.S.C. § 3. The parties are ORDERED to notify the Court
within 14 days of the conclusion of arbitration as to the result of arbitration and whether any claims
or issues remain for this Court to resolve.
SO ORDERED, this___!:/_ day of April, 2019.
~l)./j~
w.
RRENcE
BOYLE
CHIEF UNITED STATES DISTRICT JUDGE
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