Pla-Fit Franchise v Patricko et al.

2013 DNH 109

• Court: District Court, D. New Hampshire
• Decided: May 20, 2014
• Docket: 13-CV-489-PB
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Pla-Fit Franchise, LLC

v. Case No. 13-cv-489-PB Opinion No. 2013 DNH 109 Patricko, Inc., et. al

MEMORANDUM AND ORDER

Pla-Fit Franchise, LLC (“Pla-Fit”) sued two of its

franchisees (the “Franchisees”) and their operating companies

for preliminary injunctive relief, permanent injunctive relief,

and damages. After obtaining agreements from the Franchisees

that made a preliminary injunction unnecessary, Pla-Fit moved to

compel the parties to arbitrate in accordance with arbitration

clauses in their franchise agreements. The issue presented by

defendants’ opposition to the motion to compel is whether Pla-

Fit waived its right to compel defendants to arbitrate by filing

its complaint.

I. BACKGROUND

Pla-Fit is a New Hampshire corporation and the franchisor

of Planet Fitness brand gyms. Defendant Patrick Catino owns a

gym in Tewksbury, Massachusetts, that on July 7, 2006 entered into an agreement with Pla-Fit to become a Planet Fitness

franchise. Catino’s gym in Tewksbury is operated by defendant

Patricko, Inc. Defendant Kevin LaVelle and Catino each own a

fifty percent share of a gym in Somerville, Massachusetts, that

on July 7, 2006 also entered into an agreement with Pla-Fit to

become a Planet Fitness franchise. The Somerville gym is

operated by defendant World Gym, Inc.

The franchise agreements contain identical terms, save an

addendum that is irrelevant to the claims at issue. These terms

include rules for negotiation and arbitration. Doc. Nos. 1-1,

1-2. In paragraph 19.12, the agreements state:

All controversies, disputes, or claims between the parties . . . arising from or relating to this Agreement that are not resolved by negotiations within thirty (30) days of the notice of dispute, shall on demand of either party be submitted for arbitration to the American Arbitration Association (“AAA”). The arbitration shall be governed exclusively by the United States Arbitration Act . . . The arbitration proceedings shall be conducted on an individual basis and not on a multi-plaintiff, consolidated, collective or class-wide basis . . . The provisions of this Article 19.12 shall continue in full force and effect subsequent to and notwithstanding expiration or termination of this Agreement.

Within months of entering their respective agreements, the

Franchisees began to spar with Pla-Fit on a variety of issues,

including the quality and condition of fitness equipment, the 2 amount the Franchisees would be required to contribute to

advertising campaigns, and whether the gyms could continue to

offer personal training. These and other concerns culminated in

the Franchisees filing suit on August 30, 2012 in the District

of Massachusetts for breach of contract, conversion, and

violation of the Massachusetts Consumer Protection Statute.

Pla-Fit responded by moving to compel arbitration based on the

arbitration clauses in the franchise agreements. The court

granted Pla-Fit’s motion and ordered the parties to arbitrate

their disputes. See World Gym, Inc. v. Pla-Fit Franchise, LLC,

No. 12-11620-DJC, 2013 WL 3830164, at *1 (D. Mass. July 19,

2013). The Franchisees moved for reconsideration on August 19,

2013. The court ultimately denied the motion for

reconsideration on December 11, 2013. No further filings have

been made in the Massachusetts action.

On May 28, 2013, while the Massachusetts action was

pending, Pla-Fit sent the Franchisees notices of default for

“chronic violations” of Planet Fitness’ standards. Pla-Fit gave

them thirty days to cure their violations. Doc. No. 1-3.

Negotiations continued into the summer, and in late August Pla-

Fit again issued notices of default for the same violations.

3 On September 26, 2013, the Franchisees requested an extension

until June 2014 to cure their alleged defaults. On October 24,

2013, Pla-Fit informed the Franchisees that it would grant them

the requested extension if they (1) agreed to a time period for

compliance; (2) joined the local advertising cooperative; and

(3) provided a general release of their previously asserted

claims. Pla-Fit also made an alternative settlement offer,

requested a response within ten days, and noted that the

Franchisees would be terminated if they refused to resolve all

outstanding issues. Doc. No. 1-7. On November 4, the

Franchisees rejected both proposals.

On November 7, 2013, Pla-Fit sent the Franchisees

termination letters citing the uncured material defaults

originally specified in its prior notices. Termination was

effective immediately. The letters required each gym to remove

all signs and materials identifying themselves as a Planet

Fitness franchise and adhere to other post-termination contract

obligations.

On November 11, 2013, Pla-Fit contacted Franchisee’s

counsel and expressed concern that the two gyms continued to

operate as Planet Fitness franchises. Pla-Fit asked what

4 Franchisees’ intentions were with regard to de-branding their

facilities. On November 12, Franchisee’s counsel replied to the

email by asking “what happen[ed] to my clients’ right to

arbitrate.” Pla-Fit responded, saying “I take your reply below

to my [November 11] question as indicating that your clients do

not intend to comply,” to which Franchisee’s counsel replied,

“comply with what.” Doc. No. 22-2. In response to these

emails, Pla-Fit’s counsel sent Franchisees an email with the

attached complaint and motion for preliminary injunction,

described below, stating “I trust this will answer your

question.”

On November 13, 2013, the Franchisees sent Pla-Fit a

letter expressing an interest in arbitrating all disputes and

requesting a meeting “prior to formal arbitration.” The letter

was incorrectly addressed and Pla-Fit’s attorney did not receive

it until November 18.

On November 14, 2013, Pla-Fit filed its complaint in this

court requesting injunctive relief for trademark infringement,

a declaratory judgment that the Franchisees continued to operate

competitive businesses in violation of their franchise

agreements, and damages for breach of contract. The next day,

5 Pla-Fit filed a motion for a preliminary injunction.

On November 18, Pla-Fit acknowledged receipt of the

November 12 letter. The parties scheduled a meeting for

November 25, with Pla-Fit noting that “[i]f that negotiation

does not fully resolve their dispute, [the Franchisees] may as

they see fit demand arbitration before the AAA as provided in

para. 19.12.” On November 25, 2013, the parties met to discuss

a potential resolution. The Franchisees agreed to de-brand by

removing all materials associating their gyms with Planet

Fitness, but the parties were unable to reach agreement on other

issues. On December 13, 2013, Pla-Fit sent the Franchisees a

proposed order dismissing the entire action and submitting all

disputes to arbitration. Doc. No. 23-4. The parties exchanged

emails regarding arbitration, but could not come to an

agreement. Doc. No. 23-5.

On December 19, 2013, the Franchisees answered Pla-Fit’s

complaint and asserted counterclaims for breach of contract,

conversion, wrongful termination, and violation of the New

Hampshire Consumer Protection Act. N.H. Rev. Stat. Ann. Ch.

358-A. These claims are substantially similar to those that the

Franchisees had brought in the District of Massachusetts action.

6 On January 6, 2014, Pla-Fit filed a Motion to Dismiss

Defendants’ Counterclaims and to Compel Individual Arbitrations.

Doc. No. 17. Pla-Fit also withdrew its request for a

preliminary injunction, which it considered unnecessary after

the Franchisees agreed to comply with Pla-Fit’s de-branding

requests. The next day, the court issued an order denying as

moot the motion for preliminary injunction. The Franchisees

then moved for their attorney to appear pro hac vice and I

granted their motion on January 23. That same day, the parties

filed a nine page Proposed Discovery Plan. The next day, the

Franchisees objected to the Motion to Dismiss and Compel

Arbitration, arguing that Pla-Fit had waived its contractual

right to arbitrate by selectively invoking the jurisdiction of

this court.

II. STANDARD OF REVIEW

The First Circuit has yet to address the proper standard of

review for a motion to compel arbitration. See Cogent Comp.

Sys., Inc. v. Turbochef Techs., Inc., No. 06-280S, 2008 WL

219343, at *1, 5 (D.R.I. Jan. 24, 2008); Boulet v. Bangor Secs.

Inc., 324 F. Supp. 2d 120, 123 (D. Me. 2004). Pla-Fit has moved

7 to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),

and some authority suggests that motions to compel arbitration

should be examined under the Rule 12(b)(6) standard. See Palcko

v. Airborne Express, Inc., 372 F.3d 588, 597 (3d. Cir. 2004).

Other courts have applied the summary judgment standard. See

Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003); Par-

Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51,

54 & n.9 (3d Cir. 1980). In my view, the issue cannot be

resolved in a categorical fashion. Instead, the required

standard will vary depending upon whether the court must look

beyond the complaint to resolve the dispute. If the answer is

apparent on the face of the complaint, the Rule 12(b)(6)

standard will suffice. If the court must consult evidence to

resolve the issue, the summary judgment standard must be

employed. See Guidotti v. Legal Helpers Debt Resolution,

L.L.C., 716 F.3d 764, 773-74 (3d. Cir. 2013) (summary judgment

standard applies to resolve an arbitrability issue if the motion

depends upon facts beyond those pleaded in the complaint).

In the present case, Pla-Fit’s motion turns primarily on

materials that a court ordinarily may consider in resolving a

Rule 12(b)(6) motion such as the Complaint, the franchise

8 agreements, and matters of public record. See Wilson v. HSBC

Mortg. Servs., Inc., 744 F.3d 1, 7 (1st Cir. 2014). The

parties, however, have also cited to affidavits and exhibits

that cannot be considered in ruling on a motion to dismiss.

Because I intend to rely on these materials, I will resolve the

motion using the familiar summary judgment standard. See, e.g.,

Navarro v. Pfizer Corp., 261 F.3d 90, 93-94 (1st Cir. 2001)

(describing summary judgment standard).

III. ANALYSIS

The Franchisees argue that Pla-Fit waived its right to

demand arbitration by invoking this court’s jurisdiction without

expressly reserving its right to arbitrate. I agree that a

party can waive its contractual right to arbitrate by

implication. In re Citigroup v. Travelers Prop. Cas. Corp., 376

F.3d 23, 26 (1st Cir. 2004). Waivers, however, are not to be

lightly inferred, and must be considered in light of the “strong

federal policy favoring arbitration,” dictating that any doubts

“should be resolved in favor of arbitration, whether the problem

at hand is . . . an allegation of waiver, delay, or a like

defense to arbitrability.” Creative Solutions Grp., Inc. v.

9 Pentzer Corp., 252 F.3d 28, 32 (1st Cir. 2001) (quoting Moses H.

Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 25

(1983)).

Acknowledging this preference for enforcing arbitration

agreements, the Franchisees nevertheless cite authority for the

proposition that a party waives its right to arbitrate by

initiating a lawsuit. Gutor Int’l AG v. Raymond Packer Co., 493

F.2d 938, 945 (1st Cir. 1974); see also Navieros Inter-

Americanos, S.A. v. M/V Vasilia Express, 120 F.3d 304, 316 (1st

Cir. 1997). In my view, the Franchisees make too much of these

cases. While a decision to sue may signal a disinclination to

arbitrate, it does not automatically bar a plaintiff from

invoking its arbitration rights. Instead, any arbitration

waiver claim must be judged on its own facts and all relevant

circumstances must be considered. In Re Tyco Int’l Ltd. Secs.

Litig., 422 F.3d 41, 46 (1st Cir. 2005)(arbitration waiver

claims must be decided on the particular facts of each case);

Creative Solutions, 252 F.3d at 32 (identifying multiple factors

in addition to prejudice that may bear on the resolution of an

arbitration waiver claim); Nicholas v. KBR, Inc., 565 F.3d 904,

908 (5th Cir. 2009) (holding that the same legal standard for

10 waiver applies to plaintiffs and defendants).

In the present case, Pla-Fit filed suit in part to protect

itself from what it saw as the irreparable harm it was facing as

a result of defendants’ infringements of its trademarks. A

party may seek preliminary injunctive relief in an otherwise

arbitrable dispute without forfeiting its right to arbitration.

See Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 51 (1st Cir.

1986). This is because a ruling precluding a party who wishes

to arbitrate from seeking a preliminary injunction would

undermine the entire arbitration process by making it less

likely that any party facing immediate harm would ever choose to

arbitrate its claims. Id.

Although Pla-Fit could have made its intentions clearer by

disclosing its plan to arbitrate in its complaint, the

undisputed facts establish that it revealed its proposal to

arbitrate almost immediately after it had satisfied its need for

interim injunctive relief. Doc. Nos. 17, 23-4. Thus, this is

not a case where the moving party recognized that its request

for injunctive relief was moot but continued to press its

damages claim. See Jones Motor Co., Inc. v. Chauffeurs,

Teamsters, & Helpers Local Union No. 633, 671 F.2d 38, 41 (1st

11 Cir. 1982). In short, Pla-Fit did not automatically lose its

right to arbitrate its disputes with the Franchisees simply

because it filed suit against them.

The Franchisees also contend that I should hold that Pla-

Fit waived its right to arbitrate because they were prejudiced

by Pla-Fit’s Complaint and the ensuing litigation. The First

Circuit has identified a number of factors that a court may need

to consider in determining whether a party has waived its

arbitration rights, but the court has emphasized that a party

must show prejudice to succeed on a waiver claim. Creative

Solutions, 252 F.3d at 32-33 (citing Menorah Ins. Co., Ltd. v.

INX Reinsurance Corp., 72 F.3d 218, 221 (1st Cir. 1995) (“It has

been the rule in this Circuit that in order for plaintiffs to

prevail on ‘their claim of waiver, they must show prejudice.’”).

Notwithstanding their claims to the contrary, the

Franchisees have not demonstrated that they were prejudiced by

Pla-Fit’s actions. An inquiry into prejudice involves a

contextual examination of factors such as the length of delay,

the litigation activities engaged in, and whether a party has

been unfairly misled by the process. Restoration Pres. Masonry,

Inc. v. Grove Eur., Ltd., 325 F.3d 54, 61 (1st Cir. 2003).

12 In the present case, Pla-Fit informed the Franchisees of

its willingness to arbitrate less than three weeks after it had

addressed its need for preliminary injunctive relief. It then

followed up with a motion to compel arbitration less than two

months after it became apparent that the parties were not able

to reach an agreement to arbitrate. Taking context into

account, the delay at issue here looks even briefer, as neither

party had initiated discovery when the motion to compel was

filed and the trial remained more than a year away. See

Navieros, 120 F.3d at 316 (where motion was filed one day prior

to start of trial, after less than two months of expedited

litigation, court explained that although the delay was not long

in absolute terms, in context it was “both long and

prejudicial,” as the parties “scrambled to prepare their cases

for trial, incurring expenses that would not have been

occasioned by preparing for an arbitration.”).1 See also

1 With the exception of Navieros, all the cases relied upon by Franchisees that determined that arbitration rights had been waived involved a significantly longer delay than the period at issue here. See, e.g., Kaneko Ford Design v. Citipark, Inc., 249 Cal. Rptr. 544, 549 (Cal. Ct. App. 1988) (five and a half month delay); Lounge-A-Round v. GCM Mills, Inc., 166 Cal. Rptr. 920, 926 (Cal. Ct. App. 1980) (over nine month delay); D.M. Ward Constr. Co., Inc. v. Elec. Corp. of Kan. City, 803 P.2d 593, 598 (Kan. Ct. App. 1990) (ten month delay, with motion to compel 13 Citigroup, 376 F.3d at 28-29 (arbitration rights waived when the

moving party had, among other things, taken depositions and

filed motions for summary judgment). See also Creative

Solutions, 252 F.3d at 33 (arbitration rights not waived when

the moving party had initiated no formal discovery save a

request for damage calculations).

The Franchisees nevertheless argue that they were

prejudiced because they were forced to incur unnecessary

litigation costs as a result of Pla-Fit’s delay in demanding

arbitration. In particular, they argue that they were

unreasonably forced to (i) retain local counsel; (ii) respond to

the Complaint; (iii) de-brand at an accelerated pace; (iv) file

a pro hac vice motion; and (v) file a joint proposed discovery

plan because of Pla-Fit’s failure to invoke its arbitration

rights sooner. I am not convinced.

The arbitration agreements did not require Pla-Fit to

demand arbitration before seeking a preliminary injunction and

the Franchisees failed to respond to Pla-Fit’s request that they

voluntarily de-brand. Thus, Pla-Fit was entitled to proceed

arbitration filed “very close to [within one month of] the trial date”).

14 with its preliminary injunction request and the Franchisees

would have needed to retain local counsel, respond to the

Complaint, and de-brand in order to address Pla-Fit’s

preliminary injunction request even if Pla-Fit had immediately

invoked its right to arbitrate all other matters in the

Complaint. The Franchisees’ pro hac vice motion and the

proposed discovery plan also cannot be attributed to Pla-Fit’s

delay in seeking arbitration because they were filed after Pla-

Fit had filed the motion to compel arbitration.2

I am likewise not satisfied that the Franchisees were

misled by Pla-Fit. Undisputed evidence in the record

demonstrates that the Franchisees either knew, or should have

known, that the primary reason Pla-Fit filed its suit was to

protect its trademark rights by injunction, and that otherwise

it wished to arbitrate all claims.

The Franchisees make two additional arguments, neither of

which is persuasive. First, they contend that Pla-Fit’s suit is

an attempt to strong-arm Franchisees that should not be

2 Defendants have submitted a supplemental memorandum detailing the expenses incurred in branding, de-branding, and otherwise responding to Pla-Fit’s filing that they allege they “would not have incurred absent the imminent threat of litigation and a preliminary injunction.” Doc. No. 26. None of these documents affect my analysis. 15 tolerated because it undermines any prospect of non-adversarial

resolution. I reject this argument because the record will not

support a claim that Pla-Fit acted in bad faith either in

exercising its right to seek injunctive relief or in filing its

motion to compel arbitration.

The Franchisees also argue that their claims should not be

dismissed due to principles of “judicial and arbitral” economy,

arguing that their common ownership of the two franchises should

enable them to jointly resolve their claims. Had the

Franchisees wanted to collectively arbitrate their claims, they

could have negotiated the right to do so when signing their

respective agreements. In the absence of such negotiation, I

must “ensure that private arbitration agreements are enforced

according to their terms.” AT&T Mobility LLC v. Concepcion, 131

S. Ct. 1740, 1750 n.6 (2011); see also Am. Exp. Co. v. Italian

Colors Rest., 133 S. Ct. 2304, 2309 (2013). This argument thus

does not warrant the denial of Pla-Fit’s arbitration request.

IV. CONCLUSION

For the reasons discussed above, I grant Pla-Fit’s Motion

to Compel to the extent that it seeks an order compelling the

parties to arbitrate their disputes. Doc. No. 17. In all other 16 respects the motion is denied. The case shall be stayed and the

clerk shall administratively close the case, subject to

reopening at the request of either party, as appropriate,

following arbitration.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

May 20, 2014

cc: Arthur L. Pressman, Esq. Morgan C. Nighan, Esq. John Ferris Dow, Esq. Daniel K. Sherwood, Esq.