FRANLOGIC SCOUT DEVELOPMENT, LLC et al v. SCOTT HOLDINGS, INC.

Filing 16

OPINION SIGNED BY HONORABLE JOEL H. SLOMSKY ON 7/12/17. 7/13/17 ENTERED AND COPIES E-MAILED. (va, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
FRANLOGIC SCOUT DEVELOPMENT,
LLC, et al.,
CIVIL ACTION
NO. 16-5042

Petitioners,
v.
SCOTT HOLDINGS, INC.,
Respondent.
OPINION
Slomsky, J.
I.

July 12, 2017

INTRODUCTION
Before the Court is a Petition to Compel Arbitration filed by Franlogic Scout

Development, LLC, Ed Samane, Lisa Kornstein, Howard Soloway, and Steve Pruitt
(“Petitioners”) (Doc. No. 1). Respondent Scott Holdings, Inc. has filed a Motion to Dismiss this
Petition (Doc. No. 2). For the following reasons, the Court will grant the Motion to Dismiss
(Doc. No. 2) and will deny the Petition to Compel Arbitration (Doc. No. 1).
II.

BACKGROUND
In 2015, Brian and Jacqueline Scott formed a corporation named Scott Holdings, Inc.

(“Scott Holdings”) to open retail stores in San Francisco, California. (Doc. No. 1 at ¶ 15.) On
July 30, 2015, Scott Holdings entered into two agreements with Franlogic Scout Development,
LLC (“Franlogic”) to purchase and operate a franchise named “Scout and Molly’s,” which would
sell women’s clothing and accessories. (Id. at ¶¶ 10, 16, 18.) The two agreements are: (1) an
Area Development Agreement (“ADA”), and (2) a Franchise Agreement (“FA”). (Id. at ¶¶ 1618.)

1

The ADA established the franchisor-franchisee relationship between Franlogic and Scott
Holdings. (Doc. No. 14 at 4.) In particular, the ADA gave Scott Holdings the “right to develop
and establish” two stores within a designated marketing area in San Francisco, California. (Doc.
No. 2-2 at ¶ 1.) The ADA required Scott Holdings to pay Franlogic a development fee and to
“open[] and commence[] operations of such Stores in strict accordance with the mandatory
development schedule.” (Id. at ¶¶ 1-2.) The ADA also mandated that Scott Holdings enter into a
contemporaneous Franchise Agreement (“FA”) for the first store. (Id. at ¶ 3.) To this end, the
ADA provides: “Contemporaneous with the execution of this [Area Development] Agreement,
[Scott Holdings] must enter into Franchisor’s current form of Franchise Agreement for the first
Store that [Scott Holdings] is required to open within the Designated Marketing Area.” (Id.)
The ADA further provides:
4. Additional Franchise Agreements. Developer agrees and acknowledges
that it must: (i) enter into Franchisor’s then-current form of Franchise Agreement
for each additional Store that Developer is required to open under this Agreement;
and (ii) enter into such Franchise Agreements at such times that are required for
Developer to timely meet, and strictly adhere to, its obligations under the
Development Schedule.
(Id. at ¶ 4.) Under this provision, the ADA required that the parties enter into a separate
Franchise Agreement for each additional store that Scott Holdings opened. (Id.) In accordance
with the terms of the ADA, the parties entered into a Franchise Agreement (“FA”) for the
opening of the first store. (Doc. No. 1-1.)
Under the FA, Scott Holdings obtained the right to license the Scout and Molly’s
proprietary system in order to open one retail store. (Id. at ¶ 1.) The FA provides in relevant
part:
1.
Grant. Franchisor hereby grants to Franchisee, on the terms and
conditions contained in this Agreement, and Franchisee accepts from Franchisor,
a license to establish, own, and operate under the System, one brick and mortar
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retail store (“Store”) at the location specified either on Exhibit A (“Location”) or
in the Site Selection Addendum attached hereto as Exhibit B (“Site Selection
Addendum”), and the right to use Franchisor's Marks and other intellectual
property and proprietary information and products owned by Franchisor.
Franchisee agrees to identify the Store and all of the items Franchisee sells or
offers for sale only by the Marks. Franchisee has no right to use the System or the
Marks for any purpose other than expressly provided herein.
(Id.) Scott Holdings paid a $50,000 franchise fee to Franlogic, and also agreed to pay royalties
to Franlogic from revenue generated by the store. (Id. at ¶ 3.) In addition, the FA required Scott
Holdings to find a location to open the first Scout and Molly’s store within 120 days of the
execution of the FA. (Id.)
Under the ADA and FA, disputes between the parties are handled differently. Although
the ADA contains dispute resolution provisions, it does not have an arbitration clause. (See Doc.
No. 2-1 at ¶¶ 12-13.) The FA contains an arbitration clause. (Doc. No. 1-1 at ¶ 21(a).) The ADA
states as follows:
12.
Internal Dispute Resolution. Developer must first bring any claim
or dispute between Developer and Franchisor to Franchisor’s President and Chief
Executive Officer, after providing Franchisor with notice of and a reasonable
opportunity to cure and alleged breach hereunder. Developer must exhaust this
internal dispute resolution procedure before bringing a dispute before a third
party. This agreement to first attempt resolution of disputes internally will survive
termination or expiration of this Agreement.
13.
Mediation. At Franchisor’s option, all claims or disputes between
Franchisor and Developer or its affiliates arising out of, or in any way relating to,
this Agreement or any other agreement by and between Franchisor and Developer
or its affiliates, or any of the parties' respective rights and obligations arising from
such agreement, which are not first resolved through the internal dispute
resolution procedure sent forth in Section 12 above, must be submitted first to
mediation, in Philadelphia, Pennsylvania under the auspices of the American
Arbitration Association (“AAA”), in accordance with AAA’s Commercial
Mediation Rules then in effect. Before commencing any legal action against
Franchisor or its affiliates with respect to any such claim or dispute, Developer
must submit a notice to Franchisor, which specifies, in detail, the precise nature
and grounds of such claim or dispute. Franchisor will have a period of thirty (30)
days following receipt of such notice within which to notify Developer as to
whether Franchisor or its affiliates elects to exercise its option to submit such
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claim or dispute to mediation. Developer may not commence any action against
Franchisor or its affiliates with respect to any such claim or dispute in any court
unless Franchisor fails to exercise its option to submit such claim or dispute to
mediation, or such mediation proceedings have been terminated either: (i) as the
result of a written declaration of the mediator(s) that further mediation efforts are
not worthwhile; or (ii) as a result of a written declaration by Franchisor.
Franchisor’s rights to mediation, as set forth herein, may be specifically enforced
by Franchisor. This agreement to mediate will survive any termination or
expiration of this Agreement. The parties agree that there will be no class action
mediation.
(Doc. No. 2-2 at ¶¶ 12-13.) Conversely, the FA provides:
21. Governing law; Jurisdiction and Venue.
(a)

Dispute Resolution.

(i)
Franchisee and Franchisor acknowledge and agree, subject
to Section 2l(b), that in the event a dispute between the parties is not
resolved informally, an officer of Franchisor and the principal(s) of
Franchisee must first meet in King of Prussia, Pennsylvania at the offices
of Franchisor or such other place designated by Franchisor to discuss a
resolution.
(ii)
In the event the dispute resolution procedures described in
Section 21(a)(i)[]result in a settlement between the parties, Franchisor and
Franchisee agree that any action arising out of or relating to this
Agreement or the making, performance, or interpretation thereof shall
upon thirty (30) days written notice by either party be resolved, except as
elsewhere expressly provided in this Agreement, upon application by any
such party by binding arbitration in Philadelphia, Pennsylvania, in
accordance with the Federal Arbitration Act under the Commercial
Arbitration Rules then prevailing of the American Arbitration Association,
including without limitation the Optional Rules for Emergency Measures
of Protection (“AAA”), and not under any state arbitration laws, and
judgment on the arbitration award may be entered in any court of
competent jurisdiction. Franchisee acknowledges that it has and will
continue to develop a substantial and continuing relationship with
Franchisor at its principal offices in the Commonwealth of Pennsylvania,
where Franchisor's decision-making authority is vested, franchise
operations are conducted and supervised, and where Agreement was
rendered binding. Franchisee and Franchisor agree that arbitration shall
be conducted on an individual - not a classwide basis. The Federal
Arbitration Act shall apply to all arbitration and arbitration venue
questions. Any award by the arbitrator(s) shall be final, binding and nonappealable, except for errors of law. Unless the parties agree in writing at
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the time an arbitration proceeding is commenced to have a single
arbitrator, the matter shall be heard by three (3) arbitrators, with each party
selecting one (1) arbitrator and the third (3) arbitrator to be selected by the
AAA. The arbitrator selected by the AAA shall have at least ten (10)
years’ experience in practicing franchise law, during which franchise law
is or has been their primary area of practice and shall have substantial
experience in the preparation of franchise agreements and franchise
disclosure documents. Franchisee understands that by agreeing to arbitrate
it gives up jury and appeal and other rights it might have in court.
(iii) Matters involving the Marks or any other proprietary
property, any lease or sublease of real property, Franchisee’s obligations
upon termination or expiration of your Franchise Agreement, any
Transfers, and matters involving danger or public safety may be
immediately handled through litigation in Montgomery County Court of
Common Pleas, in the Commonwealth of Pennsylvania, or the U.S.
District Court for the Eastern District of Pennsylvania, at the sole
discretion of Franchisor
(Doc. No. 1-1 at ¶ 21(a).) Although the two contracts include different dispute resolution
provisions, the ADA controls when a conflict arises. In fact, the ADA expressly states that its
terms will control in the event of a conflict between the two agreements. (Doc. No. 2-1 at ¶ 27.)
The ADA states in pertinent part:
In the event of a conflict between this [Area Development] Agreement and any
Franchise Agreement(s), the terms, conditions and intent of this [Area
Development] Agreement will control.
(Id.) As such, in the event of any conflict between the ADA and the FA, the terms of the ADA
will govern.
Shortly after purchasing the franchise, Scott Holdings began having problems with
opening the Scout and Molly’s stores. (See Doc. No. 1-3.) The Scotts felt that Franlogic and its
officers made false and misleading representations during their negotiations, underestimating the
total cost to set up the stores and miscalculating the amount of time the Scotts would need to
spend managing the operation. (Id.)

5

On July 26, 2016, Scott Holdings initiated an action against Franlogic in California
Superior Court seeking a rescission of the ADA. (See id.) In particular, Scott Holdings alleges
that Petitioners violated provisions of the California Franchise Investment Law, engaged in false
advertising, and committed unfair trade practices when negotiating with the Scotts to enter into
the ADA. (Doc. No. 2-6 at ¶¶ 32-37, 49-64.) Scott Holdings alleges that Petitioners made
material misrepresentations and induced the Scotts to enter into the ADA, without a full
disclosure of the obligations the Scotts would encumber. (Id. at ¶¶ 14-15.) Significantly, Scott
Holdings does not seek relief under the FA in California. (Id.)

On September 16, 2016,

Franlogic filed a Notice of Removal, removing the California case from California Superior
Court to the United States District Court for the Northern District of California. (Doc. No. 2-6.)
On October 7, 2016, Franlogic filed its Answer to the Complaint in federal court in California.
(Doc. No. 2-1 at 5.) That case is currently being litigated there. (Id.)
Months later, on September 21, 2016, Petitioners Franlogic Scout Development, LLC, Ed
Samane, Lisa Kornstein, Howard Soloway, and Steve Pruitt initiated the action before this Court
by filing a Petition to Compel Arbitration. (Doc. No. 1.) Petitioners did not file a motion to
compel arbitration in California. 1 Rather, Petitioners decided to institute a wholly separate
action in this Court.

1

Petitioners contend that they were unable to file their Petition to Compel Arbitration in the
Northern District of California because “under the Federal Arbitration Act § 4, a federal court
only has authority to compel arbitration in the state where the federal court is located.” (Doc.
No. 13 at 3 n.3.) Section 4 of the Federal Arbitration Act (“FAA”) provides:
A party aggrieved by the alleged failure, neglect, or refusal of another to
arbitrate under a written agreement for arbitration may petition any United
States district court which, save for such agreement, would have jurisdiction
under Title 28, in a civil action or in admiralty of the subject matter of a suit
arising out of the controversy between the parties, for an order directing that
such arbitration proceed in the manner provided for in such agreement. Five
6

In the Petition to Compel Arbitration, Petitioners argue that the FA should govern any
controversy between Franlogic and Scott Holdings and that under the FA’s dispute resolution
provision, the parties should proceed to arbitration. (Id. at ¶¶ 21-30.) On December 14, 2016,
Respondent Scott Holdings filed a Motion to Dismiss the Petition. (Doc. No. 2.) Petitioners
filed a Response in Opposition, and Respondent filed a Reply. (Doc. Nos. 7, 8.) On February 7,
2017, this Court held a hearing on the Petition to Compel Arbitration and the Motion to Dismiss.
(Doc. No. 11.) The Court afforded the parties the opportunity to file supplemental briefs. (Doc.

days’ notice in writing of such application shall be served upon the party in
default. Service thereof shall be made in the manner provided by the Federal
Rules of Civil Procedure. The court shall hear the parties, and upon being
satisfied that the making of the agreement for arbitration or the failure to
comply therewith is not in issue, the court shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the
agreement. The hearing and proceedings, under such agreement, shall be
within the district in which the petition for an order directing such arbitration
is filed. If the making of the arbitration agreement or the failure, neglect, or
refusal to perform the same be in issue, the court shall proceed summarily to
the trial thereof. If no jury trial be demanded by the party alleged to be in
default, or if the matter in dispute is within admiralty jurisdiction, the court
shall hear and determine such issue. Where such an issue is raised, the party
alleged to be in default may, except in cases of admiralty, on or before the
return day of the notice of application, demand a jury trial of such issue, and
upon such demand the court shall make an order referring the issue or issues
to a jury in the manner provided by the Federal Rules of Civil Procedure, or
may specially call a jury for that purpose. If the jury find that no agreement in
writing for arbitration was made or that there is no default in proceeding
thereunder, the proceeding shall be dismissed. If the jury find that an
agreement for arbitration was made in writing and that there is a default in
proceeding thereunder, the court shall make an order summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof.
9 U.S.C. § 4. Nothing in this Section would have prevented Petitioners from filing their
Petition to Compel Arbitration in the Northern District of California.
7

No. 12.) Thereafter, the parties filed their supplemental briefs on the Motion to Dismiss and the
Petition to Compel Arbitration. 2 (Doc. Nos. 13, 14.)
III.

STANDARD OF REVIEW
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1, et seq., “establishes a strong federal

policy in favor of compelling arbitration over litigation.” Sandvik AB v. Advent Int’l Corp., 220
F.3d 99, 104 (3d Cir. 2000). Section 2 is the primary substantive provision of the FAA, declaring
that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.” Moses H. Cone
Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983) (citing 9 U.S.C. § 2).
Before compelling arbitration, a court must determine: (1) whether a valid agreement to
arbitrate exists, and (2) whether the particular dispute falls within the scope of that agreement.
Trippe Manufacturing Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005).
IV.

ANALYSIS
Petitioners move to compel arbitration of the action pending in federal court in

California. (Doc. No. 1.) In response, Scott Holdings argues that the claims raised in the case
filed in California are not subject to arbitration and that the Petition to Compel should be
dismissed. (Doc. No. 2-1.) The parties do not contest that there is a valid arbitration clause in
the FA. Rather, they only disagree as to whether the dispute at issue falls within the scope of a
valid agreement to arbitrate.

2

In reaching a decision, the Court has considered the Petition to Compel Arbitration (Doc. No.
1), Respondent’s Motion to Dismiss the Petition to Compel Arbitration (Doc. No. 2),
Petitioners’ Response in Opposition (Doc. No. 7), Respondent’s Reply (Doc. No. 8), oral
argument on the Motion to Dismiss (See Doc. No. 11), and the parties’ supplemental briefs
(Doc. Nos. 13, 14).
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1. The Dispute in the California Action Does Not Fall Within the Scope of a
Valid Agreement to Arbitrate
Petitioners contend that the dispute pending in federal court in California falls within the
scope of the FA’s arbitration agreement. (Doc. No. 7 at 5.) In contrast, Respondent argues that
the dispute does not fall within the scope of the arbitration agreement. (Doc. No. 2-1 at 14-15.)
Respondent asserts that the ADA, not the FA, controls the dispute. (Id.) Respondent also
maintains that, given the plain reading of the FA, this dispute does not fall within the scope of the
FA’s arbitration provision. (Id.)
a.

The Area Development Agreement (“ADA”) Controls
the Dispute

As noted previously, a court must consider whether the dispute at issue falls within the
scope of a valid arbitration agreement. Trippe Manufacturing Co., 401 F.3d at 532. “An order to
arbitrate the particular grievance should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted
dispute.” AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650
(1986). It is the movant’s burden to demonstrate that the particular dispute falls within the scope
of a valid agreement to arbitrate. Hinnant v. American Ingenuity, LLC, 554 F. Supp. 2d 576, 581
(E.D. Pa. 2008).
Here, Petitioners have not met their burden of showing that the dispute as set forth in the
California action falls within the scope of the FA arbitration clause. The ADA controls this
dispute, not the FA, because: (1) Scott Holdings sued in California seeking as relief, among other
things, rescission of only the ADA, albeit raising other claims not related to the FA, (2) the ADA
is the operative agreement, and (3) in the event of any conflict between the ADA and the FA, the
ADA controls.

9

As noted, on July 26, 2016, Scott Holdings initiated an action against Petitioners in
California Superior Court. In its Complaint, Scott Holdings alleged that Petitioners violated
provisions of the California Franchise Investment Law, engaged in false advertising, and
committed unfair trade practices when negotiating with the Scotts to enter into the ADA. (Doc.
No. 2-6 at ¶¶ 32-37, 49-64.) Specifically, Scott Holdings alleged that Petitioners made material
misrepresentations and induced the Scotts to enter into the ADA, without a full disclosure of the
obligations the Scotts would encumber. (Id. at ¶¶ 14-15.) These material misrepresentations
include, for example, understating the total fees that Scott Holdings was required to pay to
Franlogic in operating the two Scout and Molly’s stores under the ADA, understating the total
investment Scott Holdings was required to make to open the stores under the ADA, and
misstating the historical financial performance of other Scout and Molly’s locations. (Id. at ¶¶
16-19.)

Scott Holdings sought relief in the form of rescission of the ADA, restitution,

consequential damages, and attorneys’ fees. (Id. at ¶ 67.) It also sought a declaration that
Petitioners violated provisions of the California Franchise Investment Law and the issuance of an
injunction prohibiting Petitioners from “providing false or misleading statements in the sale of
franchises in California, or omitting material information required to be disclosed under the law.”
(Id.) Significantly, Scott Holdings did not seek relief under the FA in the California action, and
Scott Holdings did not allege any claim against Petitioners for a violation of the FA. (Id.) From
a reading of the Complaint, it is apparent that Scott Holdings is seeking rescission of only the
ADA. (Doc. No. 2-5.)
In addition, the ADA is the operative agreement in this case. After reading the ADA and
the FA, it is clear that the ADA is the operative agreement establishing the franchisor-franchisee
relationship between Franlogic and Scott Holdings. (Doc. No. 14 at 4.) For example, the ADA

10

gave Scott Holdings the right to establish two Scout and Molly’s stores in San Francisco,
California. (Doc. No. 2-2 at ¶ 1.) After Scott Holdings and Franlogic entered into the ADA, the
parties were required to sign a secondary and separate Franchise Agreement (“FA”) for each
store that Scott Holdings opened. (Id. at ¶¶ 3-4.) In this sense, the ADA is the operative
agreement that established and controlled the franchisor-franchisee relationship, and was the
umbrella agreement under which Scott Holdings brought its original action in California.
Finally, the ADA controls in the event that there is any conflict between the ADA and the
FA, and therefore this dispute does not fall within the scope of any agreement to arbitrate. As
noted earlier, the ADA provides as follows:
In the event of any conflict between this [Area Development] Agreement and any
Franchise Agreement(s), the terms, conditions and intent of this [Area
Development] Agreement will control.
(Id. at ¶ 27.) Because the ADA will control in the event that there is any conflict between the
ADA and the FA, and given the claims made in the case pending in the Northern District of
California, the dispute between the parties does not fall within the scope of any agreement to
arbitrate. Thus, Petitioners have not met their burden of demonstrating that this dispute falls
within the scope of the arbitration clause in the FA. 3
For all these reasons, the ADA controls this dispute and the dispute does not fall within
the scope of the arbitration provision contained in the FA. Accordingly, the Petition to Compel
Arbitration (Doc. No. 1) will be denied, and the Motion to Dismiss (Doc. No. 2) will be granted.

3

Petitioners argue that because one of Respondent’s claims for relief in the California case is
the return of the $50,000 franchise fee paid under the FA, this dispute falls within the scope
of the FA and its arbitration clause. The federal court in California will decide what
categories of damages are appropriate if Respondent’s claims have been proven. The fact
that Respondent seeks return of the $50,000 fee is a matter for the federal court in California
to resolve.
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b.

The Dispute Does Not Fall Within the Scope of the Arbitration
Agreement Contained in the Franchise Agreement (“FA”)

Respondent also argues that the plain language of the FA’s arbitration clause proves that it
does not apply to this dispute. (Doc. No. 8 at 5-7.) As previously explained, a court must
consider whether the dispute at issue falls within the scope of a valid arbitration agreement.
Trippe Manufacturing Co., 401 F.3d at 532.
Here, as previously noted, the relevant arbitration clause of the FA provides:
21. Governing law; Jurisdiction and Venue.
(a)

Dispute Resolution.

(i)
Franchisee and Franchisor acknowledge and agree, subject
to Section 2l(b), 4 that in the event a dispute between the parties is not
resolved informally, an officer of Franchisor and the principal(s) of
Franchisee must first meet in King of Prussia, Pennsylvania at the offices
of Franchisor or such other place designated by Franchisor to discuss a
resolution.
(ii)
In the event the dispute resolution procedures described in
Section 21(a)(i)[]result in a settlement between the parties, Franchisor and
Franchisee agree that any action arising out of or relating to this
Agreement or the making, performance, or interpretation thereof shall
upon thirty (30) days written notice by either party be resolved, except as
elsewhere expressly provided in this Agreement, upon application by any
such party by binding arbitration in Philadelphia, Pennsylvania, in
accordance with the Federal Arbitration Act under the Commercial
Arbitration Rules then prevailing of the American Arbitration Association,
including without limitation the Optional Rules for Emergency Measures
4

Section 21(b) of the FA states as follows:
(b)
Injunctive Relief. Notwithstanding the provisions of Section 21(a),
Franchisee agrees that Franchisor, at its option, will have the right to seek
preliminary injunctive relief from a court of competent jurisdiction, or in the f:rrst
instance from an Arbitrator, to restrain any conduct by Franchisee in the
development or operation of the Store that could materially damage the good will
associated with the Marks and the Chain. Franchisee agrees Franchisor will not be
required to post a bond to obtain any injunctive relief with respect to use of the
Marks.
(Doc. No. 2-4 at 9.)
12

of Protection (“AAA”), and not under any state arbitration laws, and
judgment on the arbitration award may be entered in any court of
competent jurisdiction.
(Doc. No. 1-1 at ¶ 21(a).) Respondent argues that the language of the FA’s arbitration clause
shows that it does not apply to this dispute. Petitioners drafted the arbitration clause which reads
that “in the event the dispute resolution procedures described in Section 21(a)(1)(i)[ ] result in a
settlement between the parties Franchisor and Franchisee agree” to binding arbitration. (Id.) As
the plain language currently reads, the FA’s arbitration clause does not apply to this case because
the parties have not yet reached a settlement. (Doc. No. 2-1 at 14-15.) Petitioners assert that this
is a mistake that should be reformed. (Doc. No. 13 at 8.) However, as the movants requesting
that the Court compel arbitration, Petitioners have not yet met their burden of demonstrating that
this dispute falls within the scope of the FA’s arbitration clause, either as it now reads or even if it
is somehow reformed. 5 Consequently, for this additional reason, the Petition to Compel (Doc.
No. 1) will be denied, and the Motion to Dismiss (Doc. No. 2) will be granted.

5

Petitioners seek to reform the arbitration clause in the FA because they allege that the word
“no” is missing from this provision. (Doc. No. 13 at 8-9.) Petitioners contend that the Court
should reform the language of the arbitration clause to correct this mistake. (Id.) However,
under Pennsylvania law, a mistake “must be mutual in order to open the door to reformation
or avoidance of the contract.” Harrison v. Fred S. James, P.A., Inc., 558 F. Supp. 438, 443
n.3 (E.D. Pa. 1983) (citing Central Transportation, Inc. v. Board of Assessment Appeals, 417
A.2d 144, 148 (Pa. 1980)). The party seeking reformation is required to show by clear and
convincing evidence that the mistake was mutually made by both contracting parties.
Butcher v. General Motors Co., No. 14-0353, 2015 WL 867797, at *3 (W.D. Pa. Feb. 27,
2015) (citing Holmes v. Lankenau Hosp., 627 A.2d 763, 767-68 (Pa. 1993)). Respondent
disputes that the FA language concerning the alleged missing “no” is inaccurate. Therefore,
there was no meeting of the minds to create a mutual mistake. Since the lawsuit was brought
in California alleging violations of the California Franchise Investment Law, false
advertising, and unfair competition, which induced Respondent to enter into the ADA, this
Court will not engage in any fact finding regarding whether the FA’s arbitration clause should
be reformed but will defer to the district court in California, if deemed necessary by that
court.
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V.

CONCLUSION
For the foregoing reasons, the Petition to Compel Arbitration (Doc. No. 1.) will be denied

and Respondent’s Motions to Dismiss (Doc. No. 2) will be granted. An appropriate Order
follows.

14