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Toddle Inn FranChising LLC v. KPJ Associates LLC

United States District Court, D. Maine

December 11, 2018

TODDLE INN FRANCHISING, LLC, Plaintiff,
v.
KPJ ASSOCIATES, LLC, et al., Defendants.

          ORDER ON PLAINTIFF'S MOTION TO COMPEL ARBITRATION AND TO STAY PENDING ARBITRATION

          JON D. LEVY U.S. DISTRICT JUDGE.

         Plaintiff Toddle Inn Franchising, LLC (“Toddle Inn”) moves pursuant to 9 U.S.C.A. §§ 2-4 (West 2018) to compel arbitration of its claims against Defendants KPJ Associates, LLC, Kathie L. Murphy, Patrick M. Murphy, and James O. Haskell (collectively, “KPJ”), and to stay this litigation pending arbitration (ECF No. 16). For the reasons explained below, I grant the motion.

         I. FACTUAL BACKGROUND

         Toddle Inn and its affiliate, Toddle Inn Daycare, Inc., operate a franchise business that grants franchisees the right to own and operate daycare centers under the Toddle Inn name. On July 19, 2006, Toddle Inn entered into a Franchise Agreement with KPJ Associates, LLC, which granted KPJ Associates the right to own and operate a Toddle Inn daycare center in Kennebunk. The terms of the Franchise Agreement provided that it would expire ten years from the date it was executed, subject to renewal by the parties.

         The Franchise Agreement also includes an arbitration provision, Section 22.7, titled “Arbitration” (“the Arbitration Clause”), which provides that all disputes between the parties will be arbitrated. It states in relevant part:

All disputes between or among the parties whether now existing or arising in the future, including without limitation, any and all claims, defenses, counterclaims, cross claims, third party claims and intervenor claims, whether or not arising from or related to the negotiation, execution and performance of this agreement or the transaction to which this agreement relates shall be settled by arbitration under the Federal Arbitration Act, as amended, in accordance with the Commercial Arbitration Rules of the American Arbitration Association or any successor body thereto, before a single arbitrator agreed upon by the parties hereto.

ECF No. 3-2 at 37 (all capitalization removed). Section 22.8, titled “Injunctive Relief” (“the Injunctive Relief Clause”) preserves Toddle Inn's rights, as the Franchisor, to pursue injunctive relief:

Notwithstanding the Arbitration Clause in Section 22.7, Franchisor may bring an action for injunctive relief in any court having jurisdiction to enforce the Franchisor's non-competition trademark, and/or proprietary rights, in order to avoid irreparable harm to the Franchisor, its affiliates, or the franchise system as a whole.

Id. at 38 (all capitalization removed).

         A separate provision of the Franchise Agreement, Section 22.3, titled “Cumulative Rights and Remedies, ” similarly states that nothing in the agreement bars the Franchisor's right to obtain injunctive relief, and that no right or remedy that the agreement confers is exclusive of any other. Id. at 36. Finally, Section 17.6, titled “Survival of Certain Provisions” (“the Survival Clause”), provides that “[a]ll obligations of Franchisor and Franchisee which expressly or by their nature survive the expiration or termination of this Agreement shall continue in full force and effect subsequent to and notwithstanding their expiration or termination and until satisfied or by their nature expire.” Id. at 27.

         KPJ Associates did not renew the Franchise Agreement after it expired by its terms on July 19, 2016, but it continued to operate the Kennebunk daycare center under the Toddle Inn name and pay royalties to Toddle Inn for the next two years. On Friday, July 27, 2018, KPJ informed Toddle Inn by a letter that KPJ would resign as a Toddle Inn daycare center effective that evening and would launch a daycare center known as the Kennebunk Children's Academy from the same Kennebunk location beginning on Monday, July 30, 2018.

         On July 31, 2018, Toddle Inn filed this action seeking to enjoin KPJ from violating the post-termination provisions of the parties' Franchise Agreement, including the non-compete clause. The complaint seeks an injunction requiring, among other things, that KPJ Associates “[p]ay all sums owing to Toddle Inn within 5 days of the Court's order.” Also, on July 31, Toddle Inn moved for a temporary restraining order. After a hearing, I denied Toddle Inn's motion for a temporary restraining order (“TRO”) by an order dated August 2, 2018. On August 27, Toddle Inn filed its motion to compel arbitration and to stay these proceedings pending arbitration.

         II. LEGAL ANALYSIS

         The Arbitration Clause in the parties' Franchise Agreement is governed by the Federal Arbitration Act (FAA). See generally 9 U.S.C.A. §§ 1-16 (West 2018). “Federal courts will grant a motion to stay a case and compel arbitration pursuant to the FAA when ‘(i) there exists a written agreement to arbitrate, (ii) the dispute in question falls within the scope of that arbitration agreement, and (iii) the party seeking an arbitral forum has not waived its right to arbitration.'” United States v. Consigli Constr. Co., 873 F.Supp.2d 409, 412 (D. Me. 2012) (quoting Combined Energies v. CCI, Inc.,514 F.3d 168, 171 (1st ...


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