CARL J. BARBIER, District Judge.
Before the Court is a 12(b)(6) Motion to Dismiss, or, in the Alternative, to Compel Arbitration on a Consolidated Basis
Plaintiff, Planet Beach, is a closely-held Louisiana corporation based in Jefferson Parish which has developed a business format for the operation of franchised spas. (Rec. Doc. 16, p. 2) Defendants, David Zaroff ("Zaroff") and Tom Tymanson ("Hymanson"), are the sole members of AJJN Group, LLC, a limited liability company organized under Minnesota law. (Rec. Doc. 7-2, p. 2) AJJN Group LLC is a Planet Beach franchisee that owns and
(Rec. Docs. 7-2, 7-3, 7-4, ¶ 26.4) (emphasis added).
However, the arbitration provision in the AJJN Group's franchise agreement for the Maple Grove, Minnesota location is slightly different, in terms of the procedure for selecting arbitrator(s), and provides in pertinent part:
(Rec. Doc. 7-5, ¶ 26.4) (emphasis added).
On October 31, 2012, the AJJN Group filed a Demand for Arbitration with the American Arbitration Association asserting a $2,746,679.00 claim against Planet Beach for: (1) alleged violations of the Minnesota Franchise Act, (2) fraud, (3) negligent misrepresentation, (4) breach of contract, and (5) breach of the implied covenant of good faith and fair dealing. (AJJN Group Demand for Arbitration, Rec. Doc. 7-6, p. 2; Rec. Doc. 7-1, p. 8) Generally, the AJJN Group asserts that Planet Beach made a host of material misrepresentations and omissions in its sales materials, and elsewhere, between approximately 2005 and 2008, in an effort to induce the AJJN Group to enter into the four franchise agreements. (Rec. Doc. 7-6, p. 19) The American Arbitration Association ("AAA") began administering the proceedings. (Rec. Doc. 7-1, p. 8) However, on November 9, 2012, Planet Beach submitted a letter to the AAA objecting to the proceedings based on its allegations that: (1) the AJJN Group failed to meet the threshold filing requirements under the AAA's Commercial Arbitration Rules, made applicable through the parties' franchise agreements, and (2) "there was no basis for the administrative consolidation of the AJJN Group's claims arising under multiple arbitration clauses contained in separate and independent contracts." (Rec. Doc. 1, p. 7, ¶ 32) On January 28, 2013, over Planet Beach's objections, the AAA sated that it would begin the process of appointing a threshold arbitrator to decide whether "the various arbitration demands could be consolidated in a single proceeding." (Rec. Doc. 1, p. 7, ¶ 33) At present, no threshold arbitrator has been appointed, and the parties agreed to temporarily suspend the arbitration proceedings, including the appointment of a threshold arbitrator, to allow Planet Beach to file its Petition to Compel Arbitration in this Court.
On March 7, 2013, Planet Beach filed a "Petition to Compel Arbitration in Accordance with Agreements," in which it asserts that the AJJN Group "have sought arbitration on a consolidated basis of disputes arising under four separate and individual Single Unit Franchise Agreements." (Rec. Doc. 1, p. 1, ¶ 2) Planet Beach further asserts that "`[n]othing in the four separate and individual Single Unit Franchise Agreements permits an arbitrator or panel of arbitrators appointed under one Single Unit Franchise Agreement to resolve disputes arising under any other Single Unit Franchise Agreement." (Rec. Doc. 1, p. 2, ¶ 4) Planet Beach also asserts that each of the four Single Unit Franchise Agreements expressly prohibits the consolidation of multiple arbitrations and that "nothing in the Federal Arbitration Act or the Commercial Arbitration Rules for the American Arbitration Association requires or even contemplates the appointment of a "threshold arbitrator" or panel of arbitrators to resolve any question of consolidation or order arbitration on a consolidated basis. (Rec. Doc. 1, p. 2, ¶¶ 5-6)
Planet Beach also contends that the AGGN Group's "pursuit of consolidated arbitration to resolve disputes arising under four separate and individual Single Unit
In its motion, the AJJN Group asserts that Planet Beach's "Petition to Compel Arbitration in Accordance with Agreements," should be dismissed, because the issue of whether AJJN Group shall proceed in one arbitration or four separate arbitrations is properly determined by an arbitrator. The AJJN Group asserts that this question is properly decided by the arbitrator, not this Court, because it is either (a) an issue of arbitration procedure, or (b) a question of arbitrability that the Court is without jurisdiction to decide, because the parties' four franchise agreements expressly provide for questions of arbitrability to be ruled upon by the arbitrator.
With regard to its argument that the consolidation issue is an issue of arbitration procedure, the AJJN Group argues that under the FAA, only when a dispute between parties subject to arbitration involves a question of arbitrability and the parties have not given the arbitrator the authority to decide issues of arbitrability, is a court able to rule on it in the first instance. All other disputes, including "procedural" issues, the AJJN Group contends, are to be decided by the arbitrator. In support of this argument, the AJJN Group argues that in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003), a plurality of the Supreme Court decided that whether an arbitration could proceed as a class action or would have to proceed bilaterally was an issue an arbitrator should decide as a matter of first impression. The AJJN Group contends that a subsequent Supreme Court decision, Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010), in no way instructs courts to answer the procedural question of whether class arbitration is available. The AJJN Group further argues that a significant majority of courts — including the Fifth Circuit — have concluded that arbitrators should decide whether cases should be consolidated in the first instance as the question presents a procedural issue. The AJJN Group also asserts that since the Supreme Court decided Stolt-Nielsen, numerous courts have relied upon decisions decided post-Bazzle instructing that the arbitrator decide on the issue of class arbitration, and that the Fifth Circuit avoided an opportunity to alter or overrule Pedcor Management, in Reed v. Florida Metropolitan University, 681 F.3d 630, n. 3 (5th Cir.2012), leaving Pedcor Management as controlling authority.
Alternatively, the AJJN Group argues that if the Court finds that the consolidation question is not a procedural issue, it is a question of arbitrability that the parties agreed to submit to the arbitrator, pursuant to the language in all four arbitration
In its opposition, Planet Beach responds that the Court has the power to order arbitration in accordance with federal law and the terms of the four separate arbitration agreements and that there is no basis to cede that authority to an arbitrator. Planet Beach points out that the AJJN Group is unable to point to any language in the contract that provides for the appointment of a threshold arbitrator. Planet Beach also relies on the plain language of Section 4 of the FAA
559 U.S. at 680, 130 S.Ct. at 1772.
Second, according to Planet Beach, Bazzle (1) holds that arbitrators must rule on the question of class arbitration in the first instance, when the contracts are otherwise silent on that issue, and (2) provides an exception when the contracting parties would likely have expected a court to decide
Third, Planet Beach argues that it has not lost its "statutory right to compel arbitration," by virtue of the parties' agreement in the arbitration provisions of the four franchise agreements that "arbitrability will be decided by the arbitrator." Planet Beach argues that when this clause is read in conjunction with the clause in the arbitration provisions calling for the application of the FAA, it is evident that the parties contemplated judicial intervention under some circumstances, because otherwise, the parties' contractual invocation of the FAA and its attendant enforcement provisions would be meaningless surplusage. Planet Beach points out that other provisions of the franchise agreements, other than the arbitration provisions, anticipate judicial involvement outside of arbitration proceedings.
In its reply, the AJJN Group argues that the central question in this case is not whether the Court has the authority to compel arbitration. Rather, the AJJN Group argues that the two central questions are: (1) who should make the determination as to whether the AJJN Group can pursue one arbitration proceeding against Planet Beach consisting of all of their claims that arise or relate to the four franchise agreements, and (2) should the AJJN Group be allowed to pursue their claims against Planet Beach in one arbitration proceeding? The AJJN Group further argues that because the answer to the first question is that the arbitrator should decide, the Court need not reach the second question.
As a preliminary matter, the AJJN Group asserts that Planet Beach has framed the issue incorrectly. They assert that "consolidation" is not at issue, because
Finally, the AJJN Group reiterates its argument that even if the Court views the issue as one of arbitrability, it is properly decided by the arbitrator pursuant to the clause in the parties' arbitration agreement providing "[a]rbitrability will be decided by the arbitrator." The AJJN Group challenges Planet Beach's argument that giving effect to this clause, which Planet Beach included in its own franchise agreements, would somehow entail Planet Beach losing its rights under the FAA. The AJJN Group argues that when Planet Beach opted to include a clause in the arbitration provisions in its own franchise agreement, it clearly and unmistakably intended for arbitrators to rule on gateway issues, as permitted under Supreme Court precedent. The AJJN Group asserts that Davey is distinguishable, because in that case, unlike in this case, the Court noted that there was no reason to think that the contracting parties would have expected the arbitrator rather than the court to decide whether the non-consolidation provision applied. Thus, the AJJN Group asserts that the Court should dismiss Planet Beach's petition to compel arbitration,
"Under Rule 12(b)(6), a claim may be dismissed when a plaintiff fails to allege any set of facts in support of his claim which would entitle him to relief." Taylor v. Books A Million, Inc., 296 F.3d 376, 378 (5th Cir.2002) (citing McConathy v. Dr. Pepper/Seven Up Corp., 131 F.3d 558, 561 (5th Cir.1998)). To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead enough facts to "state a claim for relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The court "must accept all well-pleaded facts as true and view them in the light most favorable to the non-moving party." In re Southern Scrap Material Co., LLC, 541 F.3d 584, 587 (5th Cir.2008). A court must draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232-33 (5th Cir.2009). However, the Court does not accept "conclusory allegations, unwarranted factual inferences, or legal conclusions" as true. Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir.2005). While legal conclusions may provide the framework of a complaint, they must be supported by factual allegations. Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. In deciding a 12(b)(6) motion to dismiss for failure to state a claim, "courts must limit their inquiry to the facts stated in the complaint and the documents either attached to or incorporated in the complaint." Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir.1996).
The Court agrees with the AJJN Group that the central questions in this case are: (1) who should make the determination as to whether the AJJN Group can pursue one arbitration proceeding against Planet Beach consisting of all of their claims that arise or relate to the four franchise agreements, and (2) whether the AJJN Group be allowed to pursue their claims against Planet Beach in one arbitration proceeding. Because the Court finds that the question of whether the contracts prohibit the AJJN Group from asserting all of its claims arising out of the four franchise agreements in one arbitration proceeding is a question of contract interpretation that the parties agreed to submit to an arbitrator, the Court need not reach the second question.
Although non-binding, the Court finds the plurality's reasoning in Green Tree v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) instructive on the question of the appropriate decision-maker. In Bazzle, the parties disputed whether an arbitration agreement forbid class arbitration. Id. at 451, 123 S.Ct. 2402. In this case, the parties dispute the meaning of the provision in the arbitration clauses of the four franchise agreements, stating that "[n]either party shall pursue class claims and/or consolidate the arbitration with any other proceeding to which [Planet Beach] is a party." In Bazzle, the plurality found:
Id.
Here, like in Bazzle, the arbitration agreement contains broad language. The parties agreed in each of the franchise agreements that "all disputes and claims relating to this Agreement or any other agreement entered into between the parties, the rights and obligations of the parties, or any other claims or cause of action relating to the making, interpretation, or performance of either party under this Agreement, shall be settled by arbitration." Similarly, the parties' dispute over the meaning of the identical non-consolidation provisions in the arbitration agreements relate to the individual agreements as well as "any other agreement entered into between the parties." Thus, it appears that, like in Bazzle, the parties agreed that an arbitrator would decide the issue, and the presumption in favor of resolving the scope of arbitrable issues in favor of arbitration strengthens that conclusion.
Although the Bazzle plurality observed that there are narrow circumstances, "typically involv[ing] matters of a kind that `contracting parties would likely have expected a court' to decide," in which courts assume that the parties intended courts, not arbitrators, to decide particular matters related to arbitration, it determined that the question at issue there — "whether the contracts forbid class arbitration," — did not fall into the narrow exception. Id. at 452, 123 S.Ct. 2402. The Court reasoned that:
Id. at 452-53, 123 S.Ct. 2402.
The same can be said of the question here — whether the agreements forbid the AJJN Group from asserting all claims arising out of the four franchise agreement in one arbitration proceeding. Planet Beach interprets the arbitration provisions in the agreements to preclude the AJJN Group from asserting all claims arising out of the four agreements in a single arbitration proceeding against Planet Beach. The AJJN Group interprets the provision to allow joinder of all of its claims arising out of the four agreements in a single arbitration proceeding against Planet Beach. Under the AJJN Group's interpretation, the provision only prevents the AJJN Group from joining its arbitration proceeding against Planet Beach with an arbitration proceeding brought against Planet Beach by a third party. The question here is analogous to the question of whether contracts forbid class arbitration and, thus, concerns the "kind of arbitration proceedings the parties agreed to," "contract interpretation," and "arbitration procedures." The Court finds the plurality's reasoning persuasive and agrees that this analogous matter of contract interpretation is one that the parties agreed an arbitrator, not the Court, would determine.
The Court does not agree with the AJJN Group that the Fifth Circuit's decision in Pedcor Management Co., Inc. v. Nations Personnel of Texas, Inc., 343 F.3d 355
Id. at 1772.
Nevertheless, while neither Bazzle nor Pedcor Management are binding authorities, the Court agrees with the AJJN Group, that Stolt-Nielsen in no way affirmatively instructs courts to determine whether an agreement forbids class arbitration. Since the Stolt-Nielsen Court simply declined to re-consider the question that the Bazzle plurality addressed, the decision does not impact the Court's decision to look to the Bazzle plurality's reasoning as persuasive authority.
None of Planet Beach's arguments convince the Court that the parties contemplated that the relevant question would be decided by a court, rather than an arbitrator. Planet Beach argues, primarily relying on the plain language of Section 4 of the FAA, that the Court has the power to order arbitration "in accordance with the terms of the four separate arbitration agreements," and that there is no basis to cede that authority to the arbitrator. However, Planet Beach's argument ignores the doctrine interpreting the FAA in general and Section 4 of the FAA in particular. As discussed above, the Court views Planet Beach's "Petition to Compel Arbitration in Accordance with Agreements," as an attempt to have the Court decide a dispute that the parties agreed to submit to an arbitrator. Planet Beach attempts to argue that the parties did not agree to submit the dispute to an arbitrator, because there is no provision expressly providing for the selection of a threshold arbitrator. However, there is also no provision in the agreements expressly providing that a court would decide matters of contract interpretation and arbitration procedure. The Court finds that the absence of a specific provision governing the appointment of a "threshold arbitrator," is not the type of clear indication necessary to overcome the presumption of arbitrability. Similarly, the fact that the arbitration agreement contemplates that Planet Beach could seek injunctive relief in court pending arbitration has no bearing on the Court's determination that the parties agreed to submit this dispute to an arbitrator. Finally, the Court does not find Planet Beach's non-binding authorities persuasive.
Moreover, this result does not, as Planet Beach contends, render the parties' contractual invocation of the FAA and its enforcement provisions surplusage. The doctrine clarifies that when parties move to compel arbitration under Section 4 of the FAA, courts only determine certain limited issues. Webb v. Investacorp, Inc.,
A significant portion of Planet Beach's "Petition to Compel Arbitration in Accordance with Agreements," consists of legal arguments and conclusions regarding the interpretation of the arbitration clauses in the franchise agreements. (Rec. Doc. 1, ¶¶ 2-8, 19, 25-28, 30, 36-38). Disregarding all of Planet Beach's legal conclusions and assuming that all well-pleaded facts in Planet Beach's Petition to Compel Arbitration are true, the Court finds that Planet Beach is not entitled to the relief it seeks — the resolution of an issue that the parties agreed to submit to an arbitrator. Thus, Planet Beach's "Petition to Compel Arbitration in Accordance with Agreements" should be dismissed.
Accordingly,
9 U.S.C. § 4.
