Allan Bald v. PCPA, LLC, et al.

2016 DNH 081

• Court: District Court, D. New Hampshire
• Decided: April 19, 2016
• Docket: 15-cv-219-SM
• Status: Published

Opinion

UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Allan Bald, Plaintiff

v. Case No. 15-cv-219-SM Opinion No. 2016 DNH 081 PCPA, LLC, and Prime Choice Brands, LLC, Defendants

O R D E R

This action arises out of the alleged breach of a franchise

agreement between two limited liability companies: The Flying

Butcher, LLC (as franchisee) and Meat House Franchising, LLC (as

franchisor). In April of 2014, Meat House Franchising found

itself in financial distress and the defendants, PCPA and Prime

Choice Brands, acquired the rights to enforce its franchise

agreements against its franchisees. Having acquired those

rights, the defendants, in March of 2015, asserted breach of

contract claims against the Flying Butcher and Allan Bald, its

principal.

Defendants invoked arbitration provisions included in both

The Flying Butcher’s franchise agreement and a related “area

development agreement,” as the appropriate process to resolve its

claims. The Flying Butcher acknowledges that it is contractually

obligated to arbitrate the parties’ disputes. But, Allan Bald, the sole member of The Flying Butcher, LLC, denies that he is a

party (in his personal capacity) to either the Franchise

Agreement or the Area Development Agreement. Accordingly, Bald

brought this action, seeking a declaratory judgment that he is

not legally bound to arbitrate any disputes that may exist

between him and defendants.

Pending before the court is Bald’s motion for summary

judgment. Defendants object, saying there are genuinely disputed

material facts bearing on the dispositive questions posed, that

is, whether Bald, in his personal capacity, is a party to the

Franchise Agreement and/or the Area Development Agreement and, if

so, whether the mandatory arbitration provisions, as worded,

apply to him.

For the reasons discussed, Bald’s motion for summary

judgment is granted.

Standard of Review

When ruling on a motion for summary judgment, the court must

“constru[e] the record in the light most favorable to the non-

moving party and resolv[e] all reasonable inferences in that

party’s favor.” Pierce v. Cotuit Fire Dist., 741 F.3d 295, 301

(1st Cir. 2014). Summary judgment is appropriate when the record

2 reveals “no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R. Civ.

P. 56(a). In this context, “a fact is ‘material’ if it

potentially affects the outcome of the suit and a dispute over it

is ‘genuine’ if the parties’ positions on the issue are supported

by conflicting evidence.” Int’l Ass’n of Machinists & Aerospace

Workers v. Winship Green Nursing Ctr., 103 F.3d 196, 199-200 (1st

Cir. 1996) (citations omitted). See also Nolan v. CN8, 656 F.3d

71, 76 (1st Cir. 2011). Nevertheless, if the non-moving party’s

“evidence is merely colorable, or is not significantly

probative,” no genuine dispute as to a material fact has been

proved, and “summary judgment may be granted.” Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) (citations

omitted).

The key, then, to defeating a properly supported motion for

summary judgment is the non-movant’s ability to support his or

her claims concerning disputed material facts with evidence that

conflicts with that proffered by the moving party. See generally

Fed. R. Civ. P. 56(c). It naturally follows that while a

reviewing court must take into account all properly documented

facts, it may ignore a party’s bald assertions, speculation, and

unsupported conclusions. See Serapion v. Martinez, 119 F.3d 982,

987 (1st Cir. 1997). See also Scott v. Harris, 550 U.S. 372, 380

3 (2007) (“When opposing parties tell two different stories, one of

which is blatantly contradicted by the record, so that no

reasonable jury could believe it, a court should not adopt that

version of the facts for purposes of ruling on a motion for

summary judgment.”).

Background

In 2011, Bald formed The Flying Butcher, LLC, a New

Hampshire limited liability company. Bald is the sole member of

that business organization. On April 20, 2012, The Flying

Butcher entered into a franchising agreement with Meat House

Franchising (“MHF”). See generally Franchise Agreement (document

no. 15-3). At some point in 2014, MHF began to experience

financial distress and franchisees started closing their stores.

In April of 2014, defendants entered into an agreement with MHF’s

secured creditors, pursuant to which defendants apparently

acquired all of the rights that MHF held under the Franchise

Agreement with The Flying Butcher, as well as certain

intellectual property that once belonged to MHF.

According to Bald, The Flying Butcher terminated its

Franchise Agreement on April 2, 2014 - approximately two weeks

before defendants acquired MHF’s assets. Defendants dispute

that, asserting that Bald continued “advertising” using the Meat

4 House name on a Facebook page until at least May 10, 2014. But,

for purposes of resolving Bald’s pending motion, that dispute is

not important.

On March 16, 2015, defendants filed a statement of claim

with the American Arbitration Association (“AAA”), asserting that

both Bald and The Flying Butcher are parties to, and breached,

the Franchise Agreement and Area Development Agreement, both of

which contain mandatory arbitration provisions. Bald objected,

asserting that he was not personally bound by the arbitration

provisions. According to defendants, the AAA determined on April

21, 2015, that defendants met the filing requirements for

arbitration against Bald by reason of the arbitration provision

contained in the Franchise Agreement (it seems the AAA did not

address the arbitration provision said to be included in the Area

Development Agreement). Shortly thereafter, Bald filed this suit

in state court, seeking a judicial declaration that he is not

contractually bound by the arbitration provisions in the

referenced contracts. That action was removed to this court and

Bald subsequently filed the pending motion for summary judgment.

5 Discussion

I. Who Decides Whether a Party is Obligated to Arbitrate?

A preliminary question presented by plaintiff’s motion for

summary judgment is whether this court or the American

Arbitration Association decides whether Bald is subject to the

Franchise Agreement’s arbitration provision. That issue can be

resolved fairly quickly.

As the Supreme Court has observed, it is well-established

that because arbitration is a matter of contract, “a party cannot

be required to submit to arbitration any dispute which he has not

agreed so to submit.” AT & T Techs., Inc. v. Commc’ns Workers of

Am., 475 U.S. 643, 648 (1986). The Court went on to note that,

“[t]his axiom recognizes the fact that arbitrators derive their

authority to resolve disputes only because the parties have

agreed in advance to submit such grievances to arbitration.” Id.

at 648-49. Consequently, “[u]nless the parties clearly and

unmistakably provide otherwise, the question of whether the

parties agreed to arbitrate is to be decided by the court, not

the arbitrator.” Id. at 649 (emphasis supplied). Needless to

say, if Bald is not personally liable under the Franchise

Agreement, he is not obligated to arbitrate any dispute arising

thereunder.

6 II. Is Bald a Party to the Contract in His Individual Capacity?

Bald unambiguously signed the Franchise Agreement in his

capacity as an authorized representative of The Flying Butcher.

The signature block on the contract reads as follows:

The Flying Butcher, LLC By: Allan Bald Title: CEO

Similarly, in June of 2012, Bald executed an “Amendment to

Franchise Agreement” on behalf of “The Flying Butcher, LLC d/b/a

The Meat House of Amherst” as “Allan Bald, Manager, Duly

Authorized.” See Amendment to Franchise Agreement (document no.

16-12) at 4. It seems facially plain, then, that Bald signed not

in his personal capacity but only as the agent of, and on behalf

of the business entity, a disclosed principal.

New Hampshire courts “follow section 328 of the Restatement

(Second) of Agency, which provides that ‘[a]n agent, by making a

contract only on behalf of a competent disclosed or partially

disclosed principal whom he has power so to bind, does not

thereby become liable for its nonperformance.’” GE Mobile Water,

Inc. v. Red Desert Reclamation, LLC, 6 F. Supp. 3d 195, 200

(D.N.H. 2014) (collecting cases). See also Restatement (Third)

Of Agency § 6.01 (2006) (“When an agent acting with actual or

apparent authority makes a contract on behalf of a disclosed

7 principal, (1) the principal and the third party are parties to

the contract; and (2) the agent is not a party to the contract

unless the agent and third party agree otherwise.”).

Consequently, the New Hampshire Supreme Court has noted that:

[A] manager or member, acting as an agent of an LLC, is protected from personal liability for making a contract where acting within his authority to bind the LLC. Thus, where an LLC enters into a contract, the manager’s signature on the contract, with or without a designation as to his representative capacity, does not render him personally liable under the contract. LLC members and managers who disclose that they are contracting on an LLC’s behalf are not liable for a breach because they are not parties to the contract - only the LLC itself is.

Mbahaba v. Morgan, 163 N.H. 561, 565-66 (2012) (citations and

internal punctuation omitted).1

So, the legal presumption is that an authorized member of a

limited liability company who executes a contract on behalf of

that company is not a party to the contract in his or her

personal capacity. And, when parties to a contract wish to bind

1 Of course, a manager or member of an LLC is free to assume personal liability for “any or all of the debts, obligations, and liabilities of the limited liability company,” N.H. Rev. Stat. Ann. (“RSA”) 304-C:23, but his or her agreement to do so must be clearly expressed. Absent such a clear assumption of liability on the part of a member or manager, New Hampshire law is clear: “No member or manager of a limited liability company shall be obligated personally for any such debt, obligation, or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company.” RSA 304-C:23 I(b).

8 that member in his or her individual capacity, they, including

the agent to be personally bound, must express their intentions

clearly and unambiguously. “The most obvious indicator of intent

is the form of the signature. . . . [W]here individual

responsibility is demanded the nearly universal practice is that

the officer signs twice - once as an officer and again as an

individual.” Israel v. Chabra, 537 F.3d 86, 97 (2d Cir. 2008)

(citation omitted). Here, as noted above, no such intent to bind

Bald in his personal capacity is evidenced: both the Franchise

Agreement and the Amendment to Franchise Agreement contain a

single signature block; Bald executed those contracts solely on

behalf of the limited liability company; and he did not sign

either contract in his personal capacity. Indeed, his name does

not appear anywhere in the agreement save for his signature as

agent.

There is no evidence or suggestion that MHF ever asked Bald

to personally guaranty The Flying Butcher’s obligations under the

Franchise Agreement - notwithstanding that the Franchise

Agreement clearly states that MHF would require every “person

with an ownership interest” in the franchisee to sign a personal

guaranty. Franchise Agreement at para. 11(a)(i). Nor did MHF

require Bald to obtain a “Spousal Consent,” as referenced in

Paragraph 12(e) of the Franchise Agreement. That MHF did not

require Bald to sign a personal guaranty or obtain “spousal

9 consent,” and that Bald executed the Franchise Agreement solely

on behalf of The Flying Butcher, support his claim that neither

he nor MHF ever intended that he would be personally liable under

the franchise contract.

Additionally, defendants offer no admissible evidence

suggesting that MHF ever negotiated for, or even discussed,

Bald’s becoming a party to the Agreement in his individual

capacity. Nor has any evidence been offered suggesting a course

of dealing, or acts, or statements by Bald suggesting an intent

on his part to become a party to or personally liable under the

agreement.

Defendants do point to language in the form Franchise

Agreement itself that seems to contemplate that the various

franchisees’ principals are individually liable under the

Franchise Agreements. For example, they point to Paragraph 12

entitled “Covenants,” which specifically references and purports

to bind “You [i.e., The Flying Butcher] and your Principals.”

That paragraph prohibits The Flying Butcher and its principals

from disclosing or improperly using any trade secrets,

proprietary software, business practices, and other proprietary

information and intellectual property of MHF. (Parenthetically,

those are the covenants defendants claim Bald and the Flying

10 Butcher violated.) Additionally, Paragraph 24 of the Franchise

Agreement, which contains the arbitration provision, states that

“you and we (‘the parties’) agree” to be bound by arbitration.

MHF asserts that, reading the Franchise Agreement in its entirety

and as a whole, it should be clear that the parties intended the

pronoun “you” to refer to The Flying Butcher and its principals.2

But defendants offer no other admissible evidence to support

their contention that Bald is personally liable under the

Franchise Agreement. Their position rests entirely upon weak and

inferential evidence based on the language used in the agreement.

Of course, that MHF might have contemplated or even “agreed”

that a franchisee’s principals would be party to and personally

bound by contractual obligations to preserve trade secrets,

proprietary software, etc., does not operate to personally

obligate those individual principals. See, e.g., EQT

Infrastructure Ltd. v. Smith, 861 F. Supp. 2d 220, 233 (S.D.N.Y.

2012) (the ambiguous presence of an individual’s name in a

contract is an insufficient indication of an intent to be

personally bound — that intent must be clear and explicit). If

2 Bald argues, to the contrary, that since the arbitration provision, as worded and unlike paragraph 12, does not include any reference to “Principals,” even if he is deemed to be a party to, or personally liable under the Franchise Agreement, still, he would not be subject to arbitration. It is unnecessary to resolve that interpretive dispute, however.

11 MHF intended to make the Flying Butcher’s principal (or any other

franchisee’s principals) personally liable to MHF under the

Franchise Agreement, it easily could have done so by obtaining

the principal’s clear and explicit consent. MHF did not do so.

See generally DK Joint Venture 1 v. Weyand, 649 F.3d 310 (5th

Cir. 2011) (holding that despite contract language purporting to

bind “affiliates” of corporate signatory (including individual

corporate officers), the parties cannot bind corporate officers

to the contract and its arbitration provision unless those

officers clearly agree to be bound) (collecting cases). See also

EQT Infrastructure, 861 F. Supp. 2d at 232-33 (S.D.N.Y. 2012)

(applying the so-called “Lollo” factors under New York law and

concluding that an agent who signed a contract on behalf of a

disclosed principal was not personally liable under that

contract); American Guild of Musical Artists v. Atlanta Municipal

Theater, Inc., 322 F. Supp. 1154 (N.D. Ga. 1971) (concluding that

agent of nonprofit corporation was not personally bound by

contract, despite provisions stating that he was signing it both

as an agent for his employer and “in his capacity as an

individual” and that “this agreement shall bind him, individually

and personally,” as well as his employer); McCarthy v. Azure, 22

F.3d 351, 361 (1st Cir. 1994) (signing an arbitration agreement

as agent for a disclosed principal is not sufficient to bind the

agent to arbitrate claims against him personally).

12 While the record before the court is perhaps not as fully

developed as it might be, still, there are no material facts

shown to be genuinely disputed, and on this record, the balance

comes down decidedly in favor of Bald. Bald is entitled to

judgment as a matter of law given the undisputed facts, as it is

clear that he is neither a party to, nor personally bound by, the

terms of the Franchise Agreement.

Conclusion

For the foregoing reasons, as well as those set forth in

plaintiff’s legal memoranda, Bald is not a party to, nor is he

personally liable under, nor is he personally bound by the

Franchise Agreement between The Flying Butcher, LLC, and Meat

House Franchising, LLC.3 Consequently, he did not agree to

arbitrate disputes with defendants related to the agreement, and

3 As to the parties’ related contract - the “Area Development Agreement” dated September 10, 2010 - Bald acknowledges that the Franchise Agreement references such a document, but says he has no recollection (or documentary evidence) of having ever signed it. For their part, defendants have failed to produce an executed copy of the Area Development Agreement. But, they say there is circumstantial evidence Bald signed that contract, since he paid an “area development fee.” Of course, that is not evidence that Bald signed such an agreement in his personal capacity; even if Bald did sign that contract (an unknown), it is entirely possible that he signed it solely as an authorized representative of The Flying Butcher or some other corporate entity (as some evidence in the record suggests he may have done). Consequently, on this record, defendants’ only colorable argument is that Bald is personally bound by the arbitration provision in the Franchise Agreement.

13 so is not subject to the mandatory arbitration clause included in

that agreement. Accordingly, Bald’s motion for summary judgment

(document no. 15) is granted.

The rights of the parties having been declared, further

relief in the nature of an injunction is unnecessary. Should

such relief become necessary for any reason, however, plaintiff

may file an appropriate motion in this case and it will be heard.

SO ORDERED.

___________________________ Steven J. McAuliffe United States District Judge

April 19, 2016

cc: Jonathan M. Shirley, Esq. David M. Chaise, Esq. Michael Einbinder, Esq. William B. Pribis, Esq.