Summary
ordering that arbitration take place as provided for in parties' contract, in location closest to franchisor, rather than in Texas as franchisee sought
Summary of this case from Mitsui Co., Ltd. v. Delta Brands, Inc.Opinion
CIVIL ACTION NO. 3:01-CV-1027-P
January 16, 2002
MEMORANDUM OPINION AND ORDER
Now before the Court are:
1. Defendants Gloria Jean's Gourmet Coffees Corp. and Gloria Jean's Gourmet Coffees Franchising Corp.'s Motion to Stay Proceedings Pending Arbitration, with brief in support and appendix, filed July 12, 2001;
2. Plaintiff's Brief in Opposition to Defendants' Motion to Stay for Arbitration, filed on August 1, 2001; and
3. Reply Memorandum of Law in Further Support of Defendants' Motion to Stay Proceedings Pending Arbitration, filed August 15, 2001.
Having considered the evidence, the pleadings, the parties' briefs, and the applicable law, for the reasons set forth below, the Court is of the opinion that Defendants' Motion to Stay Proceedings Pending Arbitration should be GRANTED and the case is STAYED pending arbitration.
BACKGROUND
This case arises out of a lawsuit brought by Plaintiff Gary Barber for alleged violations of the Texas Deceptive Trade Practices Act and breach of contract by Defendants Gloria Jean's Gourmet Coffees Franchising Corp. ("Franchise Corp.") and Gloria Jean's Gourmet Coffees Corp. ("Coffees Corp.") (collectively "Gloria Jean's"). See Pl.'s Orig. Pet. at 3-4. More specifically, Plaintiff asserts that on October 6, 1999, he entered into a Franchise Licensee Agreement with Franchise Corp., and into a Store Development Agreement with Coffees Corp., for the purchase and operation of a Gloria Jean's Gourmet Coffees Kiosk at the Valley View Mall in Dallas, Texas. See Id. at 2. Barber alleges that in connection with the negotiation of these agreements, authorized agents for Gloria Jean's failed to disclose or misrepresented certain matters which were intended to and did induce Plaintiff to enter into these transactions. See Id. at 2-3. As a result, Plaintiff filed this action on May 16, 2001, in the 116th Judicial District Court of Dallas County, Texas, seeking damages in excess of $97,000. See Notice of Removal, Exh. 2.Defendants subsequently removed this action on May 30, 2001, see Id. at 1, and filed their Answer and Affirmative Defenses on June 11, 2001, asserting, among other defenses, that Plaintiff's claims were barred by the mandatory arbitration provisions set for in the Franchise Agreement. See Answer at 2. Following this, Defendants brought their Motion to Stay Proceedings Pending Arbitration on July 12, 2001, now presently before this Court.
The Franchise Agreement entered into by the parties explicitly set out that the parties would submit all disputes arising out of or relating to the Franchise Agreement or any other agreement, or the validity of those agreements, to arbitration before Franchise Arbitration and Mediation, Inc. ("FAM"). More specifically, under Paragraph 18(A) of the Franchise Agreement, the parties stipulated, in pertinent part,
(1) Any litigation, claim, dispute, suit, action, controversy, proceeding or otherwise ("claim") between or involving FRANCHISEE (and/or any owner and/or affiliate of FRANCHISEE) and FRANCHISOR (and/or any claim against or involving any or all of the Franchisor-Related Entities or otherwise) . . . whether arising out of or relating in any way to this and/or any other agreement and/or any other document, any alleged breach of any duty or otherwise (including but not limited to the underlying legality of the offer and/or sale of any franchise, any action for rescission or other setting aside of such sale or any transaction, agreement or document and any claim that this Agreement or any portion thereof is invalid, illegal, void, unenforceable, or otherwise an any claim of fraud, including fraud in the inducement) and on whatever theory and/or facts based will be:
(c) submitted to and finally resolved by binding arbitration before and in accordance with the arbitration rules of FAM (or any successor organization); provided that if such arbitration is unable to be heard by FAM for any reason, the arbitration will be conducted by Judicial Arbitration and Mediation Service (JAMS). . . .See App. Defs.' Mot. at 36-37 (emphasis in original). The Franchise Agreement also provided under Paragraph 18(A)(2) that "any mediation/arbitration . . . will be exclusively conducted at the office of the mediating/arbitrating organization (or its representative) which is located closest to the FRANCHISOR'S then current headquarters" See Id. at 37. In addition, the Store Development Agreement executed between the parties further included language making this agreement also "subject to the enforcement and interpretation of the contract provision of Section 18 of the Franchise Agreement." See Id. at 58, ¶ 11.
DISCUSSION
Section 2 of the Federal Arbitration Act ("FAA") provides that: "A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, 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(2001).
At the outset, the Court notes the well established federal policy favoring arbitration agreements. See Moses H. Cone Memorial Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24 (1983); see also Fedmet Corp. v. M/V BUYALYK, 194 F.3d 674, 677 (5th Cir. 1999). More specifically, the United States Supreme Court declares that, "as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." See Moses H. Cone, 460 U.S. at 24-25.
In addition, Texas law also favors arbitration agreements. See Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 250 (5th Cir. 1998) ("Texas courts favor arbitration") (citing Monday v. Cox, 881 S.W.2d 381, 384 (Tex.Civ.App.-San Antonio 1994, writ denied)); see also Cantella Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) ("Federal and state law favor arbitration.").
This partiality is also reflected in Section 3 of the FAA, which provides: "If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. 9 U.S.C. § 3 (2001). Thus, a court must defer claims to arbitration once it determines that: (1) there is a valid agreement to arbitrate between the parties; (2) the claims in question fall within the scope of that arbitration agreement; and (3) there are no legal constraints external to the parties' agreement that foreclose the arbitration of such claims. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626-628, (1985).
In this case, Barber does not dispute the validity of the parties' arbitration agreement or the fact that all of the disputes at issue fall within the scope of that agreement. Instead, Plaintiff's challenges rest on his declaration that Defendants have waived the enforcement of the arbitration clause by removing the case to federal court, answering on the merits, and only then seeking to stay the proceedings some 3 months after the commencement of this suit. See Pl.'s Br. Opp. at 1, 3. That is, as Barber submits, the Defendants have actively participated in the litigation of this case to his detriment. See Id. at 3,
The Fifth Circuit has summarized its jurisprudence regarding whether a party has waived its right to pursue contractual arbitration as follows: "Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party." Subway Equip. Leasing Corp. v. Forte 169 F.3d 324, 326 (5th Cir. 1999) (citing Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)). Accordingly, there is a strong presumption against waiver of arbitration. See Lawrence v. Comprehensive Business Serv. Co., 833 F.2d 1159, 1164 (5th Cir. 1987) ("Waiver of arbitration is not a favored finding and there is a presumption against it"). Thus, a party alleging waiver of arbitration must carry a heavy burden of proof in its quest to show that an opponent has waived a contractual right to arbitrate. See Walker v. J.C. Bradford Co., 938 F.2d 575, 577 (5th Cir. 1991).
In the instant case, Plaintiff relies on the fact that in May 2001, when he first filed this suit in state court, Defendants could have and should have moved to stay the proceedings pending arbitration had they wished to insist on their perceived right to arbitrate. See Pl.'s Br. Opp. at 3, Instead, they chose to remove the case to federal court, not on a federal question (such as the applicability of the FAA), but on diversity of citizenship grounds. See Id. Thereafter, following removal, they chose to answer the suit on the merits, and essentially failed to raise the issue of arbitration until some three months after the commencement of the suit. See Id. The Court, nevertheless, finds that Gloria Jean's conduct here did not constitute an invocation of the judicial process sufficient to effect a waiver of their right to arbitrate.
In Walker v. J.C. Bradford Company, 938 F.2d 575 (5th Cir. 1991), the Fifth Circuit reversed the district court's refusal to stay proceedings and compel arbitration when dealing with facts much more favorable to the plaintiff than those here. Id. at 576. In that case, the defendant removed the case to federal court, served the plaintiffs with interrogatories and requested production of documents, attended a pretrial conference, and waited thirteen months before seeking to compel arbitration. Id. The Fifth Circuit nevertheless held that the district court's finding that the defendant had waived its right to arbitrate was clearly erroneous, explaining that "although [defendant] may act late, it acts in time, for its actions in federal court were not so substantial as to mandate that we overcome the legal presumption that parties who contracted for arbitration should be allowed to arbitrate." Id. at 578; see also Subway, 169 F.3d at 326 (" Walker provides an example of this court's hesitation to find that a party has waived its contractual right to arbitration.").
Similarly, in Williams v. CIGNA Financial Advisors, Inc., 56 F.3d 656, 658 (5th Cir. 1995), the Fifth Circuit vacated the district court's refusal to compel arbitration upon a finding that the defendant did not waive its contractual right to arbitrate by removing the case to federal court and filing a motion to dismiss before seeking, five months after plaintiff filed suit, to require arbitration of the plaintiff's claims. Id. at 658; see also Tenneco Resins, Inc. v. Davy International, AG, 770 F.2d 416, 420-421 (5th Cir. 1985) ("While it is true that [defendant] waited almost eight months before moving that the district court proceedings be stayed pending arbitration, and, in the meantime, participated in discovery, this and other courts have allowed such action as well as considerably more activity without finding that a party has waived a contractual right to arbitrate."). As such, it is clear that the Gloria Jean' activities in this litigation fall well within the bounds of conduct established by these cases, and so the Court finds that Defendants have not waived their right to seek arbitration with regard to all of Plaintiff's causes of action.
In the alternative, in the event the Court finds the arbitration clause enforceable between the parties, Barber urges that the choice of forum clause within the arbitration agreement, calling for arbitration at the arbitrating organization's offices closest to FRANCHISOR'S then current headquarters (i.e., California), should not be enforced. See PL.'s Br. Opp. at 3. In support of his request that arbitration instead take place in Texas, Plaintiff asserts numerous considerations, including that: (1) the Franchise Agreement sought to discourage legitimate claims; (2) there was no adequate notice of the forum selection clause; (3) the Franchise Agreement is generally "unfair" and "one-sided" since the arbitration agreement was not negotiated and because of the disparity in sophistication of the parties; and (4) since Texas law is to apply to this case, it would be a waste of resources to enforce arbitration in California, where witnesses will be substantially inconvenienced and Plaintiff will be faced with crushing expenses. See Id. at 3-7.
Gloria Jean's headquarters were in California before the execution of the Franchise Agreement. See Def.'s Reply at 4 n. 3.
The Fifth Circuit has consistently held that agreements selecting a specific forum for arbitration are to be generally upheld. See National Iranian Oil Company v. Ashland Oil, Inc., 817 F.2d 326, 330-332 (5th Cir.), cert. denied, 484 U.S. 943 (1987). This is so because forum selection clauses are considered "prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances." Afram Carriers, Inc. v. Moeykens, 145 F.3d 298, 301 (5th Cir. 1998) (citing M/S BREMEN v. Zapata Off-Shore Co., 407 U.S. 1, 15, (1972)). However, when forum selection clauses are specifically contained in the provisions of an arbitration agreement, the Fifth Circuit has stated its enforceability is governed exclusively by the explicit provisions of 9 U.S.C. § 2, which states that a party seeking to avoid arbitration must allege and prove that the arbitration clause itself was a product of fraud, coercion, or "such grounds as exist at law or in equity for the revocation of any contract." Sam Reisfeld Son Import Co. v. S.A. Eteco, 530 F.2d 679, 680-681 (5th Cir. 1976) (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395 (1967)).
Therefore, inasmuch as Barber has asserted that Gloria Jean's selection of the challenged forum was made to discourage legitimate claims by Franchisees, or that the Franchise Agreement itself was unfair and one-sided due to the unequal bargaining positions of the parties, Plaintiff has failed to proffer any evidence or proof that the arbitration agreement itself was induced by fraud or coercion or any other ground sufficient to warrant the rejection of the parties' agreement to arbitrate their dispute in California. See Id.; see also Haynsworth v. The Corporation, 121 F.3d 956, 963-964 (5th Cir. 1997), cert. denied, 523 U.S. 1072 (1998) (holding that an arbitration or forum-selection clause in a contract is not enforceable only if the inclusion of that clause in the contract was the product of fraud or coercion). Similarly, there is nothing in the record to suggest that the Barber did not understand the import of the arbitration and forum selection clauses when he signed the agreements, or that the language of the agreements was not sufficiently clear and adequate to give notice to Plaintiff of these provisions. See Webb v. Investacorp, Inc., 89 F.3d 252, 259 (5th Cir. 1996). As such, general assertions of inconvenience or impossibility must fail as a "legal ground" for vitiating the freely chosen forum selection clause chosen by the parties. National Iranian, 817 F.2d at 332; accord Sam Reisfeld, 530 F.2d at 681.
CONCLUSION
Accordingly, for the foregoing reasons, the Court shall and hereby GRANTS Defendants' Motion to Stay Proceedings Pending Arbitration and STAYS the case pending arbitration.
IT IS SO ORDERED.