Theo's Pizza LLC v. Integrity Brands LLC
ORDER AND OPINION denying 9 Motion to Dismiss. Signed by Honorable Margaret B Seymour on 5/3/2017.(mdea )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
Theo’s Pizza, LLC,
Integrity Brands, LLC,
Civil Action Number: 3:17-cv-0039-MBS
ORDER AND OPINION
Theo’s Pizza, LLC (“Plaintiff”) sued Integrity Brands, Inc. (“Defendant”) in South
Carolina state court for violation of Business Opportunity Sales Act (S.C. Code Ann. §§ 39-5710 et seq.), declaratory judgment, and in the alternative, breach of contract. ECF No. 1-1.
Defendant removed to federal court on the basis of diversity jurisdiction. ECF No. 1; see 28
U.S.C. § 1332. Defendant then moved to dismiss for lack of personal jurisdiction pursuant to
Federal Rule of Civil Procedure 12(b). ECF No. 9. Defendant argues that Plaintiff’s claims are
directly related to a contract requiring binding arbitration in the State of Georgia. Id. at 1.
Plaintiff opposes the motion. ECF No. 11. Plaintiff disputes there is a signed contract requiring
arbitration. Id. at 1.
Defendant is involved in the sale and development of pizza restaurant franchises under
the trademark of “Uncle Maddio’s Pizza Joint.” Defendant is based in Georgia. Plaintiff is a
South Carolina limited liability company owned by Ted and Marcia Contos. Plaintiff’s owners
own another limited liability company named “Thea and Theo’s LLC.” ECF No. 11-2.
In April 2012, Defendant entered into a Market Development Agreement (the
“Agreement”) with Thea and Theo’s LLC. ECF No. 9 at 1. The Agreement requires arbitration
for various types of disputes. ECF No. 9-1 at 12. The Agreement is not equivalent to a franchise
agreement. The Agreement notes that a separate franchise agreement should be executed prior to
opening and operating a restaurant. ECF No. 9-1 at 5. In Spring 2013, Plaintiff began operating
as an “Uncle Maddio’s Pizza Joint” franchisee but without a signed franchise agreement. ECF
No. 1 at ¶ 10. In March 2014, Mr. Contos sent an email to Tony Brewer, who works for
Defendant, noting that Defendant brought up signing the franchise agreement on “at least three
different occasions” but Mr. Contos stated he “cannot execute any agreement that places us in
more financial hardship and very frankly removes any responsibility of [Defendant] by a
document that is very one-sided to the benefit of [Defendant].” ECF No. 11-3 at 3. Mr. Contos
attached an amended, executed franchise agreement to his email. Id. As pertinent here, the
proposed, signed franchise agreement eliminated “Section 31: Government Law and
Enforcement,” which provided the requirement to enter into arbitration. See ECF No. 11-3 at 3;
ECF No. 9-2 at 39-41. Defendant acknowledges there is no signed franchise agreement. ECF No.
9 at 6.
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq., governs whether a party
must submit a dispute to arbitration. The FAA provides that “[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 in law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The
Fourth Circuit Court of Appeals has stated that to compel arbitration, Defendant must
demonstrate (1) the existence of a dispute between the parties; (2) a written agreement that
includes an arbitration provision that purports to cover the dispute; (3) the relationship of the
transaction, as evidenced by the agreement, to interstate or foreign commerce; and (4) the failure,
neglect, or refusal of Plaintiff to arbitrate the dispute. See Adkins v. Labor Ready, Inc., 303 F.3d
496, 500-01 (4th Cir. 2002); Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991).
Even though courts view arbitration agreements favorably, an “underlying agreement
between the parties to arbitrate” must exist. Arrants v. Buck, 130 F.3d 636, 640 (4th Cir. 1997).
“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any
dispute which he has not agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 83 (2002). Arbitration agreements are required because parties are agreeing to waive their
fundamental right to have a court decide the merits of their disputes. See First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 942 (1995).
A court determines the existence of an agreement by the parties to arbitrate “according to
common law principles of contract law.” Arrants, 130 F.3d at 640. Federal courts sitting in
diversity apply state contract law principles when determining whether a valid arbitration
agreement exists. First Options, 514 U.S. at 944. In South Carolina, the necessary elements for a
contract are offer, acceptance, and valuable consideration. Roberts v. Gaskins, 486 S.E.2d 771,
773 (S.C. 1997). Contracts may also be implied by conduct. See Conner v. City of Forest Acres,
363 S.E.2d 905, 912 (S.C. 2005).
Defendant and Plaintiff provide no evidence that Defendant accepted Plaintiff’s offered
contract or that Plaintiff accepted Defendant’s offered contract. Defendant argues that it is
“impossible for Plaintiff to operate a restaurant without the permission of Defendant and
Developer.” While it may be impossible for Plaintiff to operate without permission of Defendant,
that does not signify Plaintiff signed a contract or otherwise agreed to submit disputes to
arbitration. The court will not impute an agreement to arbitrate where Plaintiff has not explicitly
agreed to do so. In fact, Plaintiff refused in March 2014 to sign the franchise agreement with an
arbitration agreement. ECF No. 11-3. Plaintiff’s restaurant has continued operating since the date
of the March 2014 email and was operating for over a year prior without a written contract. See
Defendant next argues that the Agreement signed by Thea and Theo’s LLC is applicable
to the current dispute between Plaintiff and Defendant. ECF No. 9 at 6. Defendant conclusively
argues that Plaintiff is basing its claim on “rights and privileges granted by the [Agreement] and
the Franchise Agreement”; therefore, Plaintiff is bound by the arbitration clause. Id. at 6-7.
Defendant has provided no factual or legal support on how an agreement with a separate legal
entity applies to Plaintiff. The court finds that there was no underlying agreement to arbitrate.
For the reasons stated above, Defendant’s motion to dismiss for lack of personal
jurisdiction is DENIED.
s/ Margaret B. Seymour
The Honorable Margaret B. Seymour
Senior United States District Court Judge
May 3, 2017
Columbia, South Carolina
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?