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PCPA, LLC v. The Flying Butcher, LLC

United States District Court, D. New Hampshire

July 18, 2016

PCPA, LLC, et al.
v.
The Flying Butcher, LLC, et al. Opinion No. 2016 DNH 119

          MEMORANDUM AND ORDER

          Paul Barbadoro Paul Barbadoro United States District Judge

         In March 2016, PCPA, LLC and Prime Choice Brands, LLC sued The Flying Butcher, LLC and Allan Bald in this court. The plaintiffs and the defendants here are also parties to arbitration proceedings in which, plaintiffs claim, the arbitrator improperly decided that the parties’ dispute was not “arbitrable.” Plaintiffs therefore brought this action, seeking declaratory relief, and to stay the arbitration proceedings until the court, rather than the arbitrator, can decide whether their claims are arbitrable.

         Plaintiffs have since moved to dismiss their complaint without prejudice, pursuant to Federal Rule of Civil Procedure 41(a)(2). The defendants oppose plaintiffs’ motion, arguing that a dismissal without prejudice will injure them. Having considered both sides’ arguments, I grant plaintiffs’ motion.

         I. BACKGROUND

         According to plaintiffs’ complaint, defendants Flying Butcher and Allan Bald are former franchisees of Meat House Franchising (“MHF”), the franchisor of The Meat House chain of specialty butcher and grocery shops. In 2012, one or both of the defendants entered into a “Franchise Agreement” to operate a The Meat House store in Amherst, New Hampshire, and also an “Area Development Agreement, ” agreeing to develop and run six The Meat House franchises in a designated area. Doc. No. 1 at 3. The Franchise Agreement included an arbitration clause, requiring the parties to the agreement to resolve disputes “arising out of or relating to [the] operation of the Franchised Business or this Agreement” by “arbitration [with] the American Arbitration Association in New Hampshire.” Doc. No. 1-1 at 35.

         In April 2014, MHF’s secured creditors entered into an Asset Purchase Agreement with PCPA, one of the plaintiffs in this case. Doc. No. 1 at 3. As a result of that Asset Purchase Agreement, PCPA claims that it acquired the right to enforce MHF’s Franchise Agreements and Area Development Agreements, including the agreements with the defendants here. Id.

         Soon thereafter, the parties to this lawsuit had a falling out. According to the plaintiffs, the defendants improperly terminated the Franchise Agreement, and then failed to comply with that agreement’s post-termination non-competition provisions. Id. at 4. Plaintiffs further claim that the defendants violated plaintiffs’ Lanham Act rights by continuing to use The Meat House’s mark without legal authority. Id. The defendants dispute these allegations. Doc. No. 9 at 2.

         On March 16, 2015, plaintiffs filed a statement of claim with the American Arbitration Association (“AAA”) against both Flying Butcher and Bald, asserting claims for breach of contract, trademark infringement, unfair competition and false designation of origin. Doc. No. 1 at 4-5. Plaintiffs asserted that it was appropriate to arbitrate this dispute, because they had validly acquired the right to enforce the Franchise Agreement, including the agreement’s mandatory arbitration provision, against the defendants.[1] Id.

         Approximately ten months later, in January 2016, defendants filed a “Motion for Pre-Hearing Dispositive Ruling that Claimants Lack Standing” with the arbitrator. Id. at 5. In their motion, defendants argued that the Franchise Agreement was not validly transferred to the plaintiffs, that plaintiffs therefore had no right to enforce the agreement’s mandatory arbitration clause, and that the arbitrator thus lacked jurisdiction. Id. The arbitrator apparently agreed. In a March 15, 2016 Interim Order, the arbitrator found that the Franchise Agreement had not been lawfully transferred to the plaintiffs, and, therefore, that the plaintiffs “have no claim to arbitration.” See Doc. Nos. 1 at 7-8; 13 at 1.

         Ten days later, on March 25, plaintiffs commenced this action. Doc. No. 1. Plaintiffs assert that, “[i]n entering the Interim Order the Arbitrator made determinations regarding the ‘arbitrability’ of the disputes between the parties that exceeded the Arbitrator’s mandate and which Plaintiffs contend are issues that are solely within the province of the Court.” Doc. No. 13 at 1-2. Plaintiffs therefore sought a declaration from the court that the Franchise Agreement was validly transferred to plaintiffs, and that plaintiffs could enforce the terms of the Franchise Agreement, including the arbitration provision. Doc. No. 1 at 8. Plaintiffs also sought an order staying the arbitration proceedings until the court decided whether the dispute should be resolved by arbitration. Id. at Contemporaneous with filing their complaint, plaintiffs submitted a motion to the arbitrator. Doc. No. 13 at 2. In their motion, plaintiffs advised the arbitrator of their complaint, and argued that (1) the arbitrability questions should be decided by a court, not the arbitrator, (2) the arbitrator’s Interim Order divested her of jurisdiction to take further action in the arbitration, and (3) the arbitrator should therefore take no further action until the court could decide whether the dispute was arbitrable. Id.

         Undeterred, the arbitrator issued another order on April 15, 2016, stating that she had the authority to decide whether the plaintiffs’ claims were arbitrable, but giving plaintiffs more time to file supplemental briefs. Id. at 2-3. Pursuant to that invitation, plaintiffs submitted additional materials to the arbitrator on April 22. Id. at 3. On May 23, however, the arbitrator issued an order in which she again rejected the plaintiffs’ arguments, and then closed the case. Id.

         That same day, plaintiffs’ attorney contacted defense counsel to explain that plaintiffs planned to dismiss their complaint in this case without prejudice. Id. Defendants nonetheless filed their answer later that afternoon. Doc. No. 9. Then, two days later, defendants submitted a motion for summary judgment. Doc. No. 11. Plaintiffs moved to dismiss their complaint without prejudice on June 2. Doc. No. 13. On June 20, defendants requested leave to amend their answer to add counterclaims. Doc. No. 19.

         II. ANALYSIS

         Plaintiffs have moved, pursuant to Federal Rule of Civil Procedure 41(a)(2), to dismiss their suit without prejudice. In cases, like this one, where (1) the defendants have filed either their answer or a motion for summary judgment, and (2) not all parties stipulate to the dismissal, Rule 41(a)(2) provides that “an action may be dismissed at the plaintiff's request only by court order, on terms that the court considers proper.” ...


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