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holding that courts should not read particular words or phrases in isolation when construing contracts
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1:05-cv-0131-JDT-WTL.
March 9, 2005
On December 1, 2004, Frank L. Butterworth, III, and Hunter, Inc. ("Hunter") filed a complaint in the Superior Court of Hamilton County, Indiana against Blimpie International, Inc. ("Blimpie"); Second Indiana Blimpie Leasing Corp. ("Blimpie Leasing"), a leasing subsidiary of Blimpie; Paul Rogozinski, and Speck Enterprises, Inc., under Cause No. 29D03-0412-PL-1052 (the "state court action"). The complaint alleges violations of the Indiana Franchise Disclosure Act and fraud. The state court plaintiffs seek to void a franchise agreement between Hunter and Blimpie and a sublease between Hunter and Blimpie Leasing as well as damages, punitive damages, prejudgment interest, costs, attorneys fees, and all other appropriate relief.
The Complaint and Blimpie's other papers state that the action was filed in Circuit Court, but this judge knows Judge William J. Hughes to be a judge of the Hamilton Superior Court, not the Hamilton Circuit Court. Thus, the reference to Circuit Court appears to be a scrivener's error. Whether the state court action is in circuit court or superior court makes no difference to the rulings on the issues before this court.
On January 26, 2005, Blimpie commenced this action by filing its Complaint to Compel Arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, against Defendants Butterworth and Hunter. Plaintiff seeks to compel the Defendants to arbitrate the claims against Blimpie and Blimpie Leasing in the state court action and to enjoin Butterworth and Hunter from proceeding with those claims. The Defendants herein responded by filing a Motion to Dismiss, an Amended Motion to Dismiss and Motion to Remand on February 16, and Defendants' Fed.R.Civ.P. 12(b)(7) Motion to Dismiss for Failure to Join an Indispensable Party. Oral argument was held. The court rules as follows.
I. Background
On December 3, 2002, Hunter entered into a Traditional Location Franchise Agreement ("Franchise Agreement" or "Agreement") with Blimpie for the purpose of owning and operating a Blimpie restaurant in Muncie, Indiana. Blimpie is identified as the "Franchisor" and Hunter is identified as the "`Operator,' as also defined in Article 10" under the Agreement. (Compl., Ex. A at 1.) The Agreement states that Hunter is located "at c/o Blimpie Restaurant 1623 West University Avenue, Muncie, Indiana 47303." ( Id.) The Agreement contains provisions regarding dispute resolution that provide in relevant part:
ARTICLE 21. DISPUTE RESOLUTION: ARBITRATION AND LEGAL PROCEEDINGS.
21.1 Franchisor and Operator acknowledge that disputes or disagreements may arise during the term of this Agreement and any renewals thereto. Franchisor and Operator have elected to resolve such disputes or disagreements in a non-judicial alternative dispute resolution format ("ADR"). . . .
21.2 Accordingly, except as otherwise provided in this Agreement, in the event of any dispute or disagreement between Franchisor and Operator with respect to any issue arising out of or relating to this Agreement, its breach, its interpretation or any other disagreement between Operator and Franchisor, such dispute or disagreement shall be resolved by arbitration. . . . This paragraph shall not apply to any monetary defaults of Operator including its obligations to pay franchise and advertising fees to Franchisor, and Franchisor shall be free to utilize any right or remedy it may have at law or equity.
21.3 Franchisor and Operator agree that this Agreement evidences a transaction involving interstate commerce and that the enforcement of this arbitration provision and the confirmation of any award issued to either party by reason of an arbitration conducted pursuant to this arbitration provision is governed by the [FAA]. . . .
21.7 . . . Punitive or exemplary damages or attorneys' fees may not be awarded by the arbitrator(s), and any such award shall not be enforceable or enforced in any court.
21.8 Except for a proceeding for injunctive relief . . ., any legal proceeding authorized by this Agreement shall be commenced only in the Federal District Court for the Southern District of New York. . . . In all cases, Operator and Franchisor each waives any right to a trial by jury.
(Compl., Ex. A at 30-31.) The Franchise Agreement provides that Hunter is to pay Blimpie franchise fees on a weekly basis and Blimpie is to provide on-site operational or financial assistance to Hunter. ( Id. at 15-16, 27-28.)
The Indiana Addendum to the Franchise Agreement, Article 24, provides in part that Article 21 is amended such that "[a]ll litigation must be in Indiana or in a mutually agreed location" and that Article 21.2 is amended to add that "[e]xcept for certain claims, all disputes must be arbitrated either in Indiana or in a mutually agreed location." (Compl., Ex. A, at 36.) Article 24 also provides:
11. Article 21.4 is amended to add the following:
The waiver of a right to seek punitive damages will not apply to claims under the Indiana Deceptive Franchise Practices Act or the Indiana Franchise Disclosure Law.
12. Article 21.5 is amended to add the following:
The waiver of a right to a jury trial will not apply to claims under the Indiana Deceptive Franchise Practices Act or the Indiana Franchise Disclosure Law.
In January 2002 Blimpie made several changes to its standard form of franchise agreement. (Melissa Rothring Aff. ¶¶ 2, 5.) Three new provisions were added to Article 21: 21.4, 21.5 and 21.6. As a result, Article 21.5 of the former version of the franchise agreement became Article 21.8 in the revised version. ( Id. ¶ 5.) However, no corresponding change was made to Article 24 of the revised version of the franchise agreement. ( Id.) Thus, Article 24.12 of the revised version of franchise agreement provides that it amends Article 21.5 instead of Article 21.8, as it should have provided. ( Id.) The court similarly infers that Article 21.4 was intended to amend Article 21.7 instead of Article 21.4.
Also on December 3, 2002, Hunter entered into a sublease with Blimpie Leasing, a wholly-owned subsidiary of Blimpie, for the premises of the Blimpie restaurant in Muncie at 1623 West University Avenue, Muncie, Indiana 47303. (Compl., ¶ 9 Ex. B.) The sublease contains two separate rental provisions expressly referring to terms of the Franchise Agreement. ( Id., Ex. B at ¶¶ 8-9.) At oral argument, counsel for Butterworth and Hunter characterized the execution of the sublease as a required transaction in the relationship with Blimpie.
Blimpie and Blimpie Leasing share the same corporate location at "1775 The Exchange, Suite 600, Atlanta, Georgia 30339." ( Id., Ex. B at 1.)
On December 1, 2004, Butterworth and Hunter filed in the Superior Court of Hamilton County, Indiana a complaint against Blimpie; Blimpie Leasing; Speck Enterprises, Inc., a subfranchisor of Blimpie for portions of Indiana; and Paul Rogozinski, the president of Speck Enterprises under Cause No. 29D03-0412-PL-1052. The complaint alleges violations of the Indiana Franchise Disclosure Act and fraud. The state court plaintiffs seek to void the Franchise Agreement and the sublease and also seek damages, punitive damages, prejudgment interest, costs, attorneys fees, and all other appropriate relief. The state complaint makes no reference to any arbitration agreement between any of the parties.
On January 26, 2005, Blimpie filed its Complaint to Compel Arbitration in this action pursuant to the FAA, 9 U.S.C. § 4, against Defendants Butterworth and Hunter. The Complaint contains one count, a petition to compel arbitration which alleges that "[b]y initiating the State Court Litigation, Butterworth and Hunter have failed, neglected and/or refused to arbitrate in accordance with the parties' arbitration agreement, entitling Blimpie International and Blimpie Leasing to relief under Section 4 of the FAA" and that "[t]he arbitration clause contained in the Franchise Agreement is valid and enforceable." (Compl. ¶¶ 12, 13.) Blimpie requests an order compelling Butterworth and Hunter to arbitrate the claims against Blimpie and Blimpie Leasing in the state court action and enjoining them from proceeding with the state court action as against Blimpie and Blimpie Leasing. Blimpie contends that this court has diversity jurisdiction.
Blimpie states that on January 26, 2005, it filed a motion to stay the proceedings against it and Blimpie Leasing in the state court action pending this court's ruling on the motion to compel arbitration. No substantive proceedings have occurred in the state court action since that filing, according to the parties. The state court judge set the matter for review of the motion to stay for March 14, 2005.
On February 14, 2005, the Defendants filed their Motion to Dismiss. They filed an Amended Motion to Dismiss and Motion to Remand on February 16, 2005. The court's Order of February 16, 2005, states that the Amended Motion to Dismiss supersedes the original motion and that the original motion is withdrawn. Then, on February 23, 2005, Hunter and Butterworth filed Defendants' Fed.R.Civ.P. 12(b)(7) Motion to Dismiss for Failure to Join an Indispensable Party. Oral argument was held to address all of the pending motions as well as the request to compel arbitration.
II. Discussion
The Defendants initially argued that Blimpie "partially removed" this action from state court and that its removal was procedurally defective. The characterization of this action as a "partial removal" is incorrect, which Defendants acknowledged during oral argument. Thus, the arguments regarding the propriety of removal are inapplicable.
Butterworth and Hunter attack Blimpie's motivation for filing this action. Blimpie was unable to obtain a change of judge in the state court action, and the presiding judge, The Honorable William J. Hughes, previously ruled against Blimpie in Choi v. Blimpie International, Inc., No. 29A05-0305-CV-260, on a motion to compel arbitration involving claims under the Indiana Franchise Disclosure Act and fraud and an identical arbitration agreement. Thus, it is apparent why Blimpie did not move in state court to compel arbitration under 9 U.S.C. § 3, and instead filed this action. However, last week the Indiana Court of Appeals reversed Judge Hughes' ruling in Choi and held that the claims under the Franchise Act were within the parties' arbitration agreement. Blimpie Int'l v. Choi, No. 29A05-0305-CV-260, 2005 WL 455623, at *2-4 (Ind.Ct.App. Feb. 28, 2005). Blimpie's motivation for filing this action is irrelevant anyway since there is nothing in the record to suggest that this action is vexatious or contrived.
Judge Hughes found the fraud claim arbitrable, but not the Franchise Act claims.
The FAA governs the parties' arbitration agreement but does not itself create independent federal question jurisdiction. See 9 U.S.C. § 4; Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32 (1983); Am. Bankers Life Assur. Co. v. Evans, 319 F.3d 907, 908 (7th Cir. 2003). Thus, this court may compel arbitration only if it would have jurisdiction over an action on the underlying dispute. Moses H. Cone, 460 U.S. at 25; We Care Hair Dev., Inc. v. Engen, 180 F.3d 838, 840 n. 1 841 (7th Cir. 1999). Blimpie contends the court has jurisdiction under 28 U.S.C. § 1332. It is undisputed that the parties are of diverse citizenship (Blimpie is a citizen of New Jersey and Georgia, Butterworth and Hunter are citizens of Indiana) and the jurisdictional amount-in-controversy requirement is satisfied. Thus, the court has diversity jurisdiction over this action.
The Defendants, however, argue that Blimpie Leasing, an Indiana corporation, is a necessary and indispensable party, whose joinder destroys diversity jurisdiction. They therefore seek dismissal pursuant to Rule 12(b)(7). In arguing that Blimpie Leasing is necessary, Defendants argue that Rule 19(a)(1) applies. Fed.R.Civ.P. 19(a)(1). However, if joinder of an absent party would deprive the court of jurisdiction, Rule 19(a) is inapplicable. See Bio-Analytical Servs., Inc. v. Edgewater Hosp., Inc., 565 F.2d 450, 452 (7th Cir. 1978). Joinder of Blimpie Leasing would deprive this court of jurisdiction; thus, Rule 19(a) is inapplicable.
Therefore, the court must decide whether Blimpie Leasing is indispensable such that the inability to join it as a party requires dismissal of this action. See Bio-Analytical Servs., 565 F.2d at 452. Rule 19(b) lists four factors the court must consider: (1) to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; (2) the extent to which the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person's absence will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder. Fed.R.Civ.P. 19(b); see also Bio-Analytical Servs., 565 F.2d at 452.
According to the Defendants, the relief sought by Blimpie in Blimpie Leasing's absence would be prejudicial to the Defendants because an order compelling arbitration would "not address all parties in the state action." (Defs.' Mem. Supp. 12(b)(7) Mot. at 2.) The nature of the claimed prejudice is unclear. However, if the prejudice arises from the Defendants having to litigate their claims against Blimpie Leasing in state court while simultaneously arbitrating their claims against Blimpie, it is noted that Blimpie seeks relief which includes Blimpie Leasing and the latter seems amenable to arbitration. Further, Blimpie Leasing is a defendant in the state court and any risk of parallel proceedings is attributable to Butterworth's and Hunter's state court complaint. See Bio-Analytical Servs., 565 F.2d at 453 n. 3 (noting that the only risk of repetitious suits came from the federal defendant's own state court suit); see also PaineWebber, Inc. v. Cohen, 276 F.3d 197, 202-03 (6th Cir. 2001) (following Bio-Analytical Servs.). As for whether prejudice may be lessened or avoided, because the prejudice to the Defendants is minimal at most, this factor is insignificant in this case. See PaineWebber, 276 F.3d at 205.
The Defendants contend that a judgment without Blimpie Leasing would be inadequate because (1) Blimpie's prayer for relief includes Blimpie Leasing and (2) the Defendants will be required to relitigate the same issues in the state court action that are raised in this action. However, complete relief on the question of whether Butterworth and Hunter should be compelled to arbitrate their claims in the state court action against Blimpie and Blimpie Leasing can be accorded in Blimpie Leasing's absence. Thus, a judgment entered in this case would be adequate despite Blimpie Leasing's absence. See Bio-Analytical Servs., 565 F.2d at 452-53 n. 2 (noting that a judgment would be entirely adequate in the absence of a nonparty to a contract where the court could order arbitration in the action between two parties to the contract). That the Defendants may have to arbitrate their claims against the Blimpies while litigating the same claims against the other state court defendants does not render inadequate a judgment in this case. See PaineWebber, 276 F.3d at 205.
As for the fourth factor under Rule 19(b), the Defendants argue that Blimpie has an adequate remedy if this action is dismissed because Blimpie can file a motion to compel and stay the state court action. Yet, the Seventh Circuit has said, "we do not view the availability of an alternate remedy, standing alone, as a sufficient reason for deciding that the action should not proceed among the parties before the court." Bio-Analytical Servs., 565 F.2d at 453 (quotation omitted); see also PaineWebber, 276 F.3d at 205 (stating that the potential existence of another forum by itself does not outweigh a plaintiff's right to choice of forum). Thus, the state court's concurrent jurisdiction to enforce arbitration agreements is not alone sufficient reason to dismiss this action.
Policy considerations also weigh against finding Blimpie Leasing an indispensable party. "Any ruling to the contrary would virtually eliminate the availability of federal courts to enforce arbitration clauses in diversity cases by the simple expedient of one of the parties filing a pre-emptive suit in state court with at least one non-diverse defendant." PaineWebber, 276 F.3d at 205; accord Doctor's Assocs., Inc. v. Distajo, 66 F.3d 438, 445 (2d Cir. 1995). That seems to be what Butterworth and Hunter attempted to do here. Their state court complaint does not make any factual allegation against Blimpie Leasing and fails to mention the existence of the arbitration agreement. Therefore, on consideration both of the factors set forth in Rule 19(b) and of the strong policy favoring arbitration, the court finds that Blimpie Leasing is not an indispensable party.
To the extent that the Defendants contend that the court lacks authority to compel arbitration because the underlying claims are pending in a state action which includes nondiverse parties, their argument is unavailing. In We Care Hair, a franchisor filed petitions to compel franchisees to arbitrate their state law claims and to enjoin them from proceeding in state court pending arbitration. The state action included several plaintiff franchisees whose presence in the federal action would destroy diversity jurisdiction. We Care Hair, 180 F.3d at 839-40. The franchisees argued that the district court lacked authority to compel arbitration because the claims for which arbitration was sought were pending in a non-removable state action. Id. at 842. The argument was rejected. Following Doctor's Associates, Inc. v. Hamilton, 150 F.3d 157, 161 (2d Cir. 1998), the court concluded that § 4 authorizes a district court to compel arbitration if the court "would have jurisdiction . . . of the subject matter of a suit arising out of the controversy between the parties." We Care Hair, 180 F.3d at 842. The court held that "the parties" as used in § 4 meant the parties to the petition to compel arbitration, not the parties to the underlying state court action. Id. The court acknowledge this conclusion "might result in multiple actions in multiple courts," but noted that the Supreme Court has held that "piecemeal resolution may be required `when necessary to give effect to an arbitration agreement.'" Id. (quoting Moses H. Cone, 460 U.S. at 20). This court would have diversity jurisdiction over Butterworth's and Hunter's state court action against Blimpie. Thus, following We Care Hair, the court concludes that the presence of the nondiverse defendants in the state court action (Speck, Rogozinski, and Blimpie Leasing), does not divest this court of its authority to compel arbitration in this case. That piecemeal litigation may result is irrelevant to the question of the court's authority to order arbitration.
The Defendants imply that the court should abstain from exercising jurisdiction. In Colorado River, the Supreme Court considered whether the district court's dismissal of an action in deference to a concurrent state court proceeding was appropriate under the doctrine of abstention. The Supreme Court began:
Abstention from the exercise of federal jurisdiction is the exception, not the rule. The doctrine of abstention, under which a District Court may decline to exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it. Abdication of the obligation to decide cases can be justified under this doctrine only in the exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest.Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976) (quotation omitted); see also Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 14 (1983). The Court has observed that "`the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction'" and has emphasized that the federal courts have a "`virtually unflagging obligation . . . to exercise the jurisdiction given them.'" Moses H. Cone, 460 U.S. at 15 (quoting Colorado River, 424 U.S. at 817). Thus, abstention is appropriate only in exceptional circumstances. Id. (concluding it was inappropriate to stay federal suit to compel arbitration due to parallel action on underlying dispute in state court); Colorado River, 424 U.S. at 817-18.
Thus, the court's task "is not to find some substantial reason for the exercise of federal jurisdiction . . .; rather, the task is to ascertain whether there exist `exceptional' circumstances, the `clearest of justifications,' that can suffice under Colorado River to justify the surrender of that jurisdiction." Moses H. Cone, 460 U.S. at 25-26; see also Snap-on Tools Corp. v. Mason, 18 F.3d 1261, 1268 (5th Cir. 1994) ("in most cases, a `liberal federal policy favoring arbitration' prevails, and abstention is unwarranted.") (quoting Moses H. Cone, 460 U.S. at 24). In deciding whether abstention in favor of a parallel state action is appropriate, district courts consider the following factors:
1) whether the state has assumed jurisdiction over property; 2) the inconvenience of the federal forum; 3) the desirability of avoiding piecemeal litigation; 4) the order in which jurisdiction was obtained by the concurrent forums; 5) the source of governing law, state or federal; 6) the adequacy of state-court action to protect the federal plaintiff's rights; 7) the relative progress of state and federal proceedings; 8) the presence or absence of concurrent jurisdiction; 9) the availability of removal; and 10) the vexatious or contrived nature of the federal claim.Blue Cross Blue Shield of Ill., a Div. of Health Care Serv. Corp. v. Cruz, 396 F.3d 793, 800 (7th Cir. 2005).
This assumes that this action and the state court action are parallel — that "substantially the same parties are contemporaneously litigating substantially the same issues in another forum." Caminiti Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992) (quotation omitted).
Consideration of these factors leads to the conclusion that abstention would be inappropriate. The state court has not assumed jurisdiction over any property and the federal court in Indianapolis cannot be any more inconvenient to the parties than the Hamilton County court. Thus, the first two factors favor federal jurisdiction. See PaineWebber, Inc. v. Cohen, 276 F.3d 197, 207 (6th Cir. 2001) (indicating that where no property is at issue, the first factor favors jurisdiction and that geographic proximity of the courts counsels against abstention). The third factor also weighs in favor of exercising jurisdiction. Both the Supreme Court and Seventh Circuit have recognized that piecemeal litigation may be the inevitable result of a federal policy favoring arbitration, and is not the result of a choice between a federal and state forum. See Moses H. Cone, 460 U.S. at 20 ("an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement"); We Care Hair, 180 F.3d at 842 (rejecting argument that court lacked authority to compel arbitration when claims for which arbitration was sought were pending in a state action with non-diverse parties). Even though the state court first obtained jurisdiction this factor does not weigh in favor of abstention. See Moses H. Cone, 460 U.S. at 21 (stating that the priority argument "disregards the obvious reason for the Hospital's priority in filing. An indispensable element of Mercury's cause of action under § 4 for an arbitration order is the Hospital's refusal to arbitrate. That refusal did not occur until less than a day before the Hospital filed its state suit."). The Defendants have not shown that there would have been any reason for Blimpie to know they would refuse to arbitrate until they filed the state court action. Anyway, the state case is still in its infancy and no proceedings have occurred since the filing of Blimpie's motion for stay; thus, the seventh factor favors federal jurisdiction. See PaineWebber, 276 F.3d at 208.
Both the state court and this court have concurrent jurisdiction, but the source of the governing law is federal, the FAA, which favors exercising jurisdiction. See Moses H. Cone, 460 U.S. at 26 ("the presence of federal-law issues must always be a major consideration weighing against surrender [of jurisdiction]"); PaineWebber, 276 F.3d at 208; Snap-On Tools, 18 F.3d at 1266. The ninth factor also favors exercising jurisdiction — the state court action is not removable given the presence of the nondiverse plaintiffs. As mentioned earlier, the Defendants offer nothing to suggest that this action is vexatious or contrived, so the tenth factor favors federal jurisdiction. Finally, in considering the adequacy of the state court action to protect the federal plaintiff's rights, the court is cognizant that the state court judge ruled against Blimpie on the same arbitration issue in another case. Even though his ruling has been reversed, and this court does not doubt that Judge Hughes will follow the clear dictates of the Indiana Court of Appeals, this still may weigh in favor of exercising federal jurisdiction. See CIGNA HealthCare of St. Louis, Inc. v. Kaiser, 294 F.3d 849, 855-56 (7th Cir. 2002) (indicating that if the state court judge were unwilling or unable to enforce the federal plaintiffs' rights to arbitration, they could seek a lift of the stay of the federal action and to compel arbitration); Bio-Analytical Servs., 565 F.2d at 454 (state court declined to enforce arbitration agreement which weighed in favor of exercising federal jurisdiction).
The Defendants have not shown exceptional circumstances which would justify abstention. Thus, the court finds abstention would be inappropriate in this case and the court proceeds to consider Blimpie's application for an order compelling arbitration.
The FAA states that a written agreement in "a contract evidencing a transaction involving commerce" to arbitrate a controversy arising out of the contract "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. The FAA "manifest[s] a liberal federal policy favoring arbitration agreements." E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (quotation omitted). "The FAA provides for . . . orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement." Id. The FAA, however, does not authorize a court to compel arbitration of any issues or by any party not covered in the arbitration agreement. Id. Under the FAA, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration[.]" Moses H. Cone, 460 U.S. at 24-25. Thus, "a court should compel arbitration `unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" Welborn Clinic v. MedQuist, Inc., 301 F.3d 634, 639 (7th Cir. 2002) (quoting United Steelworkers of Am. v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).
Whether an issue is arbitrable is a matter of contract interpretation. See Keifer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909 (7th Cir. 1999). The court must read a contract as a whole and interpret it in a way which harmonizes its provisions. OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1315 (Ind. 1996). Thus, the court "should not read particular words and phrases in isolation" and "should avoid rendering any words, phrases or terms ineffective or meaningless." Heritage Dev. of Ind., Inc. v. Opportunity Options, Inc., 773 N.E.2d 881, 891 (Ind.Ct.App. 2002), trans. dismissed.
The Franchise Agreement between Hunter and Blimpie provides that "Franchisor and Operator agree that this Agreement evidences a transaction involving interstate commerce" and that the arbitration provision is governed by the FAA. (Compl., Ex. A, ¶ 21.3.) The court will enforce their agreement in this regard and the FAA will be applied to the arbitration agreement. See Staples v. Money Tree, Inc., 936 F. Supp. 856, 858 (M.D. Ala. 1996).
The conclusion that the arbitration agreement involves interstate commerce is supported by the facts that it is between corporations of different states and contemplates payment by Hunter in Indiana to Blimpie in Georgia as well as the on-site assistance by Blimpie to Hunter.
Under the arbitration agreement, the parties agreed to arbitrate "any issue arising out of or relating to this Agreement, its breach, its interpretation or any other disagreement between Operator and Franchisor," with an exception not at issue here. This arbitration agreement is indeed very broad. See, e.g., Welborn Clinic, 301 F.3d at 639 (describing as "very broad" an agreement that required arbitration of "all controversies and claims" either "arising out of" or "relating to" the contract); Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, 1 F.3d 639, 642 (7th Cir. 1993) (concluding that "arising out of" in arbitration provision "reaches all disputes having their origin or genesis in the contract, whether or not they implicate interpretation or performance of the contract per se"). The court finds that the arbitration agreement reaches all claims tangentially related to the Franchise Agreement, which necessarily includes the fraud claim asserted in the state court action. See Welborn Clinic, 301 F.3d at 639.
Indeed, the Defendants have not disputed the validity of the arbitration agreement or that their fraud claim comes within the scope of that agreement.
The Defendants argue that the arbitration agreement does not apply to the Indiana Franchise Act claims, however. This argument rests solely on an exception from the jury waiver provision for claims under the Indiana Franchise Act and the trial court's ruling in Choi. Article 24.12 of the Franchise Agreement states that "Article 21.5 is amended to add the following: The waiver of a right to a jury trial will not apply to claims under the Indiana Deceptive Franchise Practices Act or the Indiana Franchise Disclosure Law." (Compl., Ex. A at 35, Article 24.12.) The Indiana Court of Appeals correctly analyzed the identical issue in the Choi case. There, as here, a franchisee sued Blimpie, alleging violations of the Indiana Franchise Act and fraud. Blimpie sought to compel arbitration. The trial court granted the motion as to the fraud claim, but denied the motion as to the Franchise Act claims, finding ambiguity in the arbitration agreement based on Article 24.12. See Blimpie Int'l v. Choi, ___ N.E.2d ___, 2005 WL 455623, at *1 (Ind.Ct.App. Feb. 28, 2005). The trial court reasoned that Franchise Act claims were not arbitrable because arbitration proceedings do not include jury trials. See id. The appellate court reversed. Id. at *2-4. Choi's reasoning why the language of Article 24.12 does not remove claims under the Indiana Franchise Act from the scope of the arbitration agreement is persuasive and adopted here. First, had Blimpie and Hunter intended to take all claims under the Indiana Franchise Disclosure Act outside the scope of the arbitration agreement, presumably, they could have done so directly in Article 21.2 instead of indirectly through the exception to the jury trial waiver in Article 21.8. Furthermore, "the mere existence of a provision addressing procedures outside arbitration does not necessarily demonstrate an "`affirmative intention . . . to undo the arbitration covenant[.]'" Choi, 2005 WL 455623, at *3 (quoting Isp.com LLC. v. Theising, 805 N.E.2d 767, 776 (Ind. 2004) (rejecting argument that forum selection clause in agreement demonstrated intent not to arbitrate)). This is because there are reasons to have both an arbitration agreement and a waiver of jury trial provision. The parties may choose to waive their right to arbitration. If they do, they may prefer a court trial over a jury trial. The waiver of a jury trial right would apply to such claims. In addition, in this case, the arbitration agreement excepted from arbitration claims arising from any monetary defaults of Hunter. The waiver of jury trial provision in Article 21.8 would apply to such claims as well, leaving them to be decided by a judge.
Moreover, Article 21.7 as amended by Article 24.11 supports the conclusion that the reference to the waiver of jury trial language does not remove Franchise Act claims from the scope of the arbitration agreement. Article 21.7 pertains to "any matter arbitrated" between Blimpie and Hunter and specifically as to punitive damages states: "Punitive or exemplary damages . . . may not be awarded by the arbitrator(s), and any such award shall not be enforceable or enforced in any court." (Compl., Ex. A at 31 ¶ 21.7) (emphasis added). Article 24.11 amends Article 21.7 so that the waiver of the right to seek punitive damages does not apply to Franchise Act claims. If the parties intended to remove Franchise Act claims from arbitration by the language referring to a jury trial waiver in Article 24.12, then it would make no sense to except Franchise Act claims from the waiver of the right to seek punitive damages from the award made by the arbitrator in Article 21.7.
The court finds that both Count I and Count II in Hunter's and Butterworth's state court complaint fall within the scope of the arbitration agreement with Blimpie. The court also finds that by filing the state court action, Butterworth and Hunter have repudiated their agreement to arbitrate. Their repudiation constitutes a neglect, failure or refusal to arbitrate and, thus allows this court to enter pursuant to the FAA an order compelling them to arbitrate their state court claims against Blimpie.
The court may also order Hunter and Butterworth to arbitrate their state court claims against Blimpie Leasing even though Blimpie Leasing is not a signatory to the arbitration agreement. Blimpie Leasing is a wholly-owned subsidiary of Blimpie. The two Blimpies share the same corporate address. The sublease between Hunter and Blimpie Leasing expressly references provisions of the Franchise Agreement. And, importantly, at oral argument counsel for the Defendants characterized the execution of the sublease as a required transaction relative to the execution of the Franchise Agreement. Moreover, the claims asserted in the state court action against Blimpie Leasing are indistinguishable from the claims against Blimpie, and the claims are based on the same set of alleged facts. Thus, the claims of Hunter and Butterworth against Blimpie Leasing are inextricably intertwined with their claims against Blimpie. Therefore, to give effect to the arbitration agreement with Blimpie, the court has the authority to require Hunter and Butterworth to arbitrate their claims against Blimpie Leasing. See, e.g., MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947-48 (11th Cir. 1999) (concluding that nonsignatory to arbitration agreement could compel arbitration against buyer where buyer's claims against signatory and nonsignatory were based on the same facts and inherently inseparable); Pritzker v. Merrill Lynch, Pierce, Fenner Smith, 7 F.3d 1110, 1122 (3rd Cir. 1993) (concluding that claims against broker's sister corporation fell under scope of arbitration agreements even though sister was not a signatory to agreement where sister's interests were directly related to, if not predicated upon, broker's conduct); In re Oil Spill by the Amoco Cadiz Off Coast of France March 16, 1978, 659 F.2d 789, 795-96 (7th Cir. 1981) (holding nonsignatory bound by arbitration agreement under agency principles).
The Defendants contend that the injunction to stay the state court proceedings is prohibited by the Anti-Injunction Act. See 28 U.S.C. § 2283 ("A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."). The Act prohibits a district court from enjoining pending state litigation unless the injunction falls within one of the three exceptions in the Act. See Zurich Am. Ins. Co. v. Superior Court for Cal., 326 F.3d 816, 825-28 (7th Cir. 2003) (holding district court abused its discretion in enjoining further proceedings in state court action pending ruling on federal petition for arbitration because the injunction violated the Anti-Injunction Act). If the court decides that an injunction falls within an exception, it must decide whether an injunction is an appropriate exercise of its discretion. See id. at 824.
Blimpie contends that the injunction it seeks is necessary to protect or effectuate this court's judgment. Because the court has decided that the arbitration agreement is valid and the claims asserted in the state court action come within the scope of that agreement, it will issue an order compelling arbitration. This makes the requested injunction appropriate as well. In the absence of an injunction, the validity of this court's order compelling arbitration could be threatened; Butterworth and Hunter could proceed against Blimpie and Blimpie Leasing in state court, forcing them to litigate claims which this court has determined are subject to arbitration. Thus, the court in its discretion may enjoin the state court proceedings as necessary to protect and effectuate its judgment compelling arbitration in this action. See We Care Hair, 180 F.3d at 844.
III. Conclusion
For the foregoing reasons, the Defendants' Rule 12(b)(7) Motion to Dismiss for Failure to Join an Indispensable Party (Dkt. No. 24) is DENIED, the Defendants' Amended Motion to Dismiss and Motion to Remand (Dkt. No. 16) is DENIED, and Blimpie's application for an order to compel arbitration and enjoin the Defendants from pursuing claims in the state court action is GRANTED. An appropriate order compelling arbitration and enjoining Butterworth and Hunter from proceeding with their claims against the Blimpies in the state court action in Hamilton County, Indiana, Superior Court, under Cause No. 29D03-0412-PL-1052, will be issued contemporaneously with this entry. This cause will remain active on the docket of the court for the limited matters that could be brought before it following the completion of arbitration. See 9 U.S.C. §§ 9-11. Counsel for Blimpie is ORDERED to file a status report on the arbitration every ninety days until the arbitration decision has been issued. If enforcement or vacation of the arbitration decision is not sought in this court within the statutory period to do so, this cause will be dismissed with prejudice.
ALL OF WHICH IS ENTERED.