Athletic Business Media, Inc. v. National Wood Flooring Association

Filing 24

ORDER granting 4 Motion for Preliminary Injunction; granting 12 Motion to Dismiss; denying 20 Motion for Reconsideration. This case is DISMISSED without prejudice. If arbitration does not resolve all of the issues, any party may move to reopen the case. Signed by District Judge James D. Peterson on 10/17/2016. (arw) Modified on 10/17/2016. (arw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

ATHLETIC BUSINESS MEDIA, INC.,
Plaintiff,
v.
NATIONAL WOOD FLOORING ASSOCIATION,

OPINION & ORDER
16-cv-606-jdp

Defendant.
Plaintiff Athletic Business Media, Inc. has published a magazine for defendant
National Wood Flooring Association (NWFA) for thirty years. NWFA now wants to
terminate the publishing contract. Athletic Business has filed suit, claiming that NWFA’s
termination, and some disparaging remarks that NWFA allegedly made about Athletic
Business in the process, violate Wisconsin’s Fair Dealership Act and the publishing contract’s
implied covenant of good faith and fair dealing.
NWFA moves to dismiss this case in favor of arbitration pursuant to the contract’s
arbitration clause under Federal Rule of Civil Procedure 12(b)(3) and the Federal Arbitration
Act. Dkt. 12. But Athletic Business contends that its request for injunctive relief fits within a
contractual exception to the arbitration clause. The court will grant a preliminary injunction
to enjoin NWFA from making any further disparaging remarks about Athletic Business,
because NWFA does not object to that relief. But the main issue is a matter of contractual
interpretation, which requires the court to reconcile potentially conflicting contract
provisions. The court concludes that terminating the contract precisely according to its
express terms is not a “breach” that would fall within the contract’s injunctive relief exception

to arbitration. Accordingly, the court concludes that the parties’ dispute must be arbitrated,
and it will grant NWFA’s motion to dismiss the case.

BACKGROUND
When deciding a motion to dismiss under Rule 12(b)(3), the court should draw
reasonable inferences from the facts in the plaintiff’s favor, Faulkenberg v. CB Tax Franchise
Sys., LP, 637 F.3d 801, 806 (7th Cir. 2011), and it need not limit its consideration to the
pleadings. Continental Cas. Co. v. Am. Nat’l Ins. Co., 417 F.3d 727, 733 (7th Cir. 2005).
Athletic Business has published the magazine Hardwood Floors, using NWFA’s name
and trademarks, for almost 30 years under a series of publishing contracts. Under the terms
of the current publishing contract, NWFA may terminate the contract upon 30 days’ written
notice, a two-thirds affirmative vote of the NWFA Board of Directors, and payment of
$250,000 to Athletic Business. NWFA has done just that, providing a written, 30-day notice
of termination to Athletic Business on August 26, 2016, and following up with a $250,000
payment to Athletic Business a few weeks later.
Athletic Business filed this suit claiming that NWFA breached the contract’s implied
covenant of good faith and fair dealing and violated the Wisconsin Fair Dealership Law
(WFDL), Wis. Stats. Ch. 135, and Wis. Stat. § 134.01 when it: (1) terminated the contract
without good cause or proper notice; and (2) made improper, false, or denigrating statements
about Athletic Business and its agents and representatives to Athletic Business’s employees,
customers, and advertisers. Dkt. 1, at 4. Athletic Business moved for a temporary restraining
order and preliminary injunction. Dkt. 4. The court denied Athletic Business’s motion for a
temporary restraining order. Dkt. 9. NWFA moved to dismiss the case in favor of arbitration.

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Dkt. 12. The court stayed briefing on the motion for preliminary injunction pending the
resolution of NWFA’s motion to dismiss in favor of arbitration. Dkt. 15.
The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332,
because the parties are completely diverse and the value of the relief sought exceeds $75,000.

ANALYSIS
To compel arbitration, “a party need only show: (1) an agreement to arbitrate, (2) a
dispute within the scope of the arbitration agreement, and (3) a refusal by the opposing party
to proceed to arbitration.” Zurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 580 (7th
Cir. 2006). Federal policy favors arbitration, in that courts resolve ambiguities in favor of
finding enforceable agreements to arbitrate. Druco Restaurants, Inc. v. Steak N Shake Enters.,
Inc., 765 F.3d 776, 781 (7th Cir. 2014). In other words, the parties must arbitrate those
disputes they agreed to arbitrate. The question here is whether the parties agreed to arbitrate
the dispute over the termination of the publishing contract.
NWFA’s motion to dismiss in favor of arbitration is based on the contract’s
arbitration provision, Section 22, which is broad and plainly stated:
Any claim, dispute or controversy arising out of, or in
connection with, this Agreement, or any breach hereof, shall be
arbitrated by the parties pursuant to the terms and procedures
of the American Arbitration Association (or such other terms
and procedures as the parties shall agree upon). The arbitration
shall be held in Chicago, Illinois.
Dkt. 3, at 9. This simple, unambiguous paragraph would be decisive if it were the only
contract provision concerning disputes. But it is not.
Athletic Business relies on another provision, Section 17, one that gives the parties
the right to seek injunctive relief in court to remedy uncured breaches of the contract:

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Each party acknowledges that an uncured breach of this
Agreement will result in immediate and irreparable damage to
the other party hereto. Each party acknowledges and admits that
there is no adequate remedy at law for such breach, and agrees
that in the event of a breach of this Agreement, the other party
hereto shall be entitled to equitable relief by way of temporary
and permanent injunctions and such other further relief as any
court with jurisdiction may deem just and proper.
Id. at 8. Athletic Business contends that NWFA’s termination constitutes a breach of the
contract that gives Athletic Business the right to seek injunctive relief in court under Section
17. The court is not persuaded.
In interpreting the contract to reconcile Section 17 and Section 22, the court is
guided by the policy favoring arbitration. Under the Federal Arbitration Act, the presumption
of arbitrability dictates that “as a matter of federal law, any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The court must dismiss this action in favor
of arbitration “unless it maybe said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute.” AT&T Techs. v. Commc’ns
Workers of Am., 475 U.S. 643, 650 (1986) (quoting Steelworkers v. Warrior & Gulf Navigation
Co., 363 U.S. 574, 582-83 (1960)).
The starting point of the analysis is that NWFA complied with the express terms of
the contract in terminating it. Termination according to the terms of the contract would not,
under most circumstances, be a breach of the contract. But Athletic Business contends that
NWFA’s termination breaches an implied term, namely the covenant of good faith and fair
dealing implied in every contract. The implied covenant of good faith and fair dealing
sometimes allows a party to establish a breach of contract on the basis of conduct that is not
expressly prohibited, but is nonetheless so unfair as to undermine the very purpose of the

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contract. Acetylene Gas Co. v. Oliver, 939 S.W.2d 404, 410 (Mo. Ct. App. 1996). But the
implied covenant of good faith cannot be used against conduct that is expressly allowed in
the contract. “As a general principle, there can be no breach of the implied promise or
covenant of good faith and fair dealing where the contract expressly permits the actions being
challenged, and the defendant acts in accordance with the express terms of the contract.” 23
Richard A. Lord, Williston on Contracts § 63:22 (4th ed. 2016). The contract is governed by
Missouri law, which follows this general principle. Bishop v. Shelter Mut. Ins. Co., 129 S.W.3d
500, 505 (Mo. Ct. App. 2004). Athletic Business has not alleged an actionable breach of the
contract, and thus it cannot rely on Section 17, which applies to uncured breaches.
Athletic Business also alleges that the termination of the contract violates the WFDL,
which extends certain protections against termination of dealerships. But even if Athletic
Business could show that it is a dealer entitled to the protections of the WFDL, that would
be a statutory violation, not a breach of contract. Section 17 says nothing about statutory
violations. Athletic Business’s WFDL claim is one that can be arbitrated. S+L+H S.p.A. v.
Miller-St. Nazianz, Inc., 988 F.2d 1518, 1526 (7th Cir. 1993).
The parties agreed to a broad arbitration clause here. If Athletic Business could
prevent arbitration of a claim against NWFA’s termination, it would be hard to imagine what
would be subject to the agreement to arbitrate. The court concludes that plaintiffs’ claims
must be arbitrated.
However, the court cannot compel arbitration because the arbitration clause calls for
arbitration outside the Western District of Wisconsin. Faulkenberg, 637 F.3d at 808
(“[U]nder § 4 of the FAA, a district court cannot compel arbitration outside the confines of

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its district.”). Under this circumstance, the court must dismiss the case under Federal Rule of
Civil Procedure 12(b)(3) for improper venue. Id.
The court will grant the anti-disparagement injunction to which NWFA has agreed.
The court has the authority to grant such an injunction to minimize the hardship to the
parties pending resolution of the arbitration. See Gateway E. Ry. Co. v. Terminal R.R. Ass’n of
St. Louis, 35 F.3d 1134, 1141 (7th Cir. 1994) (“[D]istrict courts are not precluded as a
general matter from issuing preliminary injunctive relief pending arbitration.” (quoting Merrill
Lynch, Pierce, Fenner & Smith v. Salvano, 999 F.2d 211, 214 (7th Cir. 1993))); see also Kiel v.
City of Kenosha, 236 F.3d 814, 816 n.4 (7th Cir. 2000) (“The purpose of a preliminary
injunction is to minimize the hardship to the parties pending resolution of their lawsuit or
arbitration.”)

ORDER
IT IS ORDERED that:
1. Defendant National Wood Flooring Association’s motion to dismiss, Dkt. 12, is
GRANTED.
2. Plaintiff Athletic Business Media, Inc.’s motion for preliminary injunctive relief,
Dkt. 4, is GRANTED in part as explained in the above opinion.
3. Defendant is enjoined from making any disparaging remarks about plaintiff or
plaintiff’s owners.
4. Plaintiff’s motion for reconsideration, Dkt. 20, is DENIED.

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5. The case is DISMISSED without prejudice. If arbitration does not resolve all of
the issues, then any party may move the court to reopen the case.
Entered October 17, 2016.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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