Party Princess Toledo, LLC et al v. Party Princess USA LLC et al

Filing 18

Memorandum Opinion and Order: I grant a stay of this action until such arbitration has been had in accordance with the terms of the agreement. re 11 Judge Jeffrey J. Helmick on 2/11/2019. (S,AL)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION

Party Princess Toledo, LLC, et al.,

Case No. 3:17-cv-2490

Plaintiffs
v.

MEMORANDUM OPINION

Party Princess USA LLC, et al.,
Defendants

Defendants move for a stay of this case pending arbitration pursuant to Section 3 of the
Federal Arbitration Act, 9 U.S.C. § 3. (Doc. No. 11). Plaintiffs contend a stay is not warranted,
arguing the arbitration clause contained within the Franchise Agreement at issue in this case is void
under Ohio law. (Doc. No. 16). Defendants replied in favor of the stay. (Doc. No. 17).
Section 2 of the FAA provides,
A written provision in … a contract evidencing a transaction involving commerce to
settle by arbitration a controversy thereafter arising out of such contract … shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.
9 U.S.C. § 2. Thus, “before referring a dispute to an arbitrator, the court determines whether a valid
arbitration agreement exists.”1 Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 530
(2019).

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At the outset, Defendants urge me to find the arbitrator, rather than this court, has jurisdiction to
determine this question. But this conclusion would violate the Franchise Agreement itself, which
states, “Disputes concerning the validity or scope of arbitration, including whether a dispute is
subject to arbitration, are beyond the authority of the arbitrator(s) and will be determined by a court
of competent jurisdiction pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., as amended
from time to time.” (Doc. No. 1-1 at 48).

In this case, Plaintiffs contend the Franchise Agreement’s choice of venue for arbitration in
Denver, Colorado runs afoul of O.R.C. § 1334.06(E), which states,
In connection with the sale or lease of a business opportunity plan, any provision in
an agreement restricting jurisdiction or venue to a forum outside of this state, or
requiring the application of laws of another state, is void.
O.R.C. § 1334.06(E). Within the same statutory scheme related to franchise agreements, the Ohio
Revised Code provides, “any venue or choice of law provision that deprives a [franchisee] who is an
Ohio resident of the benefit of those sections is contrary to public policy and is void and
unenforceable.” O.R.C. § 1334.15(B).
As a general rule, as a district judge in Ohio, I must apply Ohio conflict-of-laws rules. See
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). But I must first determine whether
federal law preempts Ohio law, or more specifically, whether the FAA preempts O.R.C. §
1334.06(E).
“The FAA contains no express pre-emptive provision, nor does it reflect a congressional
intent to occupy the entire field of arbitration.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489 U.S. 468, 477 (1989). But the FAA will preempt a state law which, (1) “prohibits
outright the arbitration of a particular type of claim,” or (2) has “a ‘disproportionate impact’ on
arbitration agreements…[that] ‘stand[s] as an obstacle to the accomplishment of the FAA's
objectives.’” Richmond Health Facilities v. Nichols, 811 F.3d 192, 197-98 (6th Cir. 2016) (quoting
AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 341-42, 352 (2011)). Since O.R.C. § 1334.06(E)
applies generally to “any provision in an agreement,” rather than prohibiting arbitration alone, it will
be preempted only if it has a “disproportionate impact” on arbitration agreements that “stands as an
obstacle to FAA’s objectives.” There is nothing to indicate that is the case here.
The choice-of-law and choice-of-venue provisions addressed in O.R.C. § 1334.06(E) apply
not only to arbitration clauses, but any forum selection clause in a franchise agreement. This
sweeping, indiscriminate restriction puts “arbitration agreements on equal footing with all other
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contracts[.]” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006) (emphasis added).
Further, O.R.C. § 1334.06(E) renders void only those provisions “restricting jurisdiction or venue to a
forum outside of this state, or requiring the application of laws of another state.” Therefore, only
the arbitration clause’s choice-of-venue provision is void, not the entire arbitration clause.2 Thus, the
“national policy favoring arbitration” is preserved, effecting the intent of the contracting parties to
arbitrate. Buckeye, 546 U.S. 443; see also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
404 n.12 (1967) (“As the ‘savings clause’ in [Section 2] indicates, the purpose of Congress in 1925
was to make arbitration agreements as enforceable as other contracts, but not more so.”).
Because O.R.C. § 1334.06(E) does not have a “disproportionate impact” on arbitration
agreements and does not interfere with the FAA’s policy interests, it must be enforced here to void
the Denver, Colorado choice-of-venue provision of the arbitration clause. In turn, finding the
remainder of the arbitration clause valid, I grant a stay of this action until such arbitration has been
had in accordance with the terms of the agreement and my ruling above. 9 U.S.C. § 3.

So Ordered.
s/ Jeffrey J. Helmick
United States District Judge

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I reject Plaintiffs’ proposition that the entire arbitration clause of the Franchise Agreement must be
considered void under the statute. Instead, in accordance with the Franchise Agreement and the
statute, the choice-of-venue provision is severed and considered void. (See Doc. No. 1-1 at 46-47).
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