Shoney's North America, LLC v. Vidrine Restaurants, Inc. et al

Filing 52

MEMORANDUM signed by District Judge Todd J. Campbell on 1/22/2013. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(hb)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

SHONEY’S NORTH AMERICA LLC
v.
VIDRINE RESTURANTS, INC.,
et al.

)
)
) NO. 3-12-0574
) JUDGE CAMPBELL
)
)

MEMORANDUM
Pending before the Court is Defendants’ Motion to Stay (Docket No. 38). Defendants ask
the Court to stay these proceedings pending Plaintiff’s compliance with the dispute resolution
procedures set forth in the parties’ franchise agreements. For the reasons stated herein, Defendants’
Motion to Stay is GRANTED.
Plaintiff has characterized this action as one to enforce a liquidated damages provision in
certain franchise agreements between Plaintiff and the Defendants. Defendants argue that this action
is premature because the parties are required to engage in the dispute resolution process outlined in
the franchise agreements. Defendants argue that this action must be stayed until Plaintiff shows the
Court that it has complied with those dispute resolution provisions.
The franchise agreements1 provide that the “Resolution of Disputes” section (Section H)
applies to disputes between the parties and “arising out of or relating to” the franchise agreements
or the parties’ business relationships that exist or activities conducted as a result of the franchise
agreements (defined as “Disputes”). Docket No. 1-1, p. 35. The franchise agreements go on to say:

1

Section H is the same in the six agreements attached to the Complaint as Docket Nos.
1-1, 1-2, 1-3, 1-4, 1-5 and 1-6.

You and we have agreed to attempt to resolve amicably any Dispute without the
necessity of litigation. If any Dispute arises, the parties agree to utilize these
procedures before commencing any legal action, except as provided in Section 18.D.2
If a party fails to use these procedures prior to commencing any legal action, the
other party will be entitled to an abatement of the legal action pending compliance
with the requirements set forth below, upon filing the appropriate procedural motion
in the legal proceeding and bringing this provision to the attention of the court or
other legal authority having jurisdiction over the matter.
Docket No. 1-1, pp. 35-36.
The franchise agreements also provide that an initiating party must give written notice to the
other party in order to start the dispute resolution process. Docket No. 1-1, p. 36. If the Dispute has
not been resolved within 30 days after the date of the notice, any party may cease direct negotiations
and submit the Dispute to mediation in accordance with the mediation provisions of the agreement.
Id. Finally, the agreements state the following: “The parties agree not to commence any legal action
or seek other remedies prior to the expiration of seven days following the termination of the
mediation process.” Id.
Plaintiff asserts that the parties did engage in the dispute resolution process, negotiations
were abandoned, and none of the parties exercised its right to mediate under the franchise
agreements. Plaintiff also argues that the franchise agreements were terminated on or before
December 11, 2011, and the dispute resolution procedures did not survive termination. Finally,
Plaintiff maintains that Defendants have waited too late to exercise this option and are merely using
the provisions as tools for unnecessary delay.3

2

Section 18.D. provides that Plaintiff has the right to preliminary injunctive relief to
restrain conduct by Defendants under certain circumstances not at issue herein.
3

This action was filed on June 5, 2012. Defendants did not seek to stay this litigation
in favor of the dispute resolution procedures until December 14, 2012.
2

In Reply, Defendants assert that the parties’ direct negotiations were unsuccessful in creating
a global resolution and, in fact, the parties have not engaged in dispute resolution procedures (direct
negotiation) at all with regard to two of the locations/franchises. Furthermore, Defendants contend
that the parties never mediated any of these disputes and that they have a contractual right to have
this litigation stayed pending complete compliance with the dispute resolution procedures in their
franchise agreements.
With regard to Plaintiff’s argument that the dispute resolution provisions did not survive
termination of the agreements, the Court finds that, under the Continuing Obligations section of the
agreements, the dispute resolution provisions “by their nature” survive the expiration or termination
of the agreements and continue in full force and effect subsequent to and notwithstanding their
expiration or termination until they are satisfied in full or by their nature expire. See Docket No. 11, p. 33.
The Court finds that the parties’ agreements include dispute resolution provisions which
expressly say that the parties agree to exercise those provisions prior to legal action. There is no
evidence before the Court that the parties have completed those procedures, including mediation.
Accordingly, Defendants’ Motion to Stay (Docket No. 38) is GRANTED, and this action is
stayed, in accordance with the accompanying Order, pending further Order of the Court.
IT IS SO ORDERED.

___________________________________
TODD J. CAMPBELL
UNITED STATES DISTRICT JUDGE

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