Alphagraphics Franchising v. Whaler Graphics, CIV 92-757-TUC-WDB.
| Decision Date | 25 January 1993 |
| Docket Number | No. CIV 92-757-TUC-WDB.,CIV 92-757-TUC-WDB. |
| Citation | 840 F. Supp. 708 |
| Parties | ALPHAGRAPHICS FRANCHISING, INC., et al., Plaintiffs, v. WHALER GRAPHICS, INC., et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
Marc P. Seidler, John Frederick Verhey, Rudnick & Wolfe, Chicago, IL, Michael John Rusing, Rusing & Lopez, Tucson, AZ, for Alphagraphics Franchising, Inc.
Whaler Graphics Inc., pro se.
John C. Whaley, pro se.
Sharon Whaley, pro se.
Pending before the Court is Plaintiffs' November 4, 1992 Motion to Compel Arbitration. For the following reasons, the Court will deny the Motion and direct that the arbitration hearings be held in Michigan.
Plaintiff Alphagraphics, Inc. is a Delaware corporation with its principal place of business in Tucson, Arizona. Plaintiff Alphagraphics Franchising, Inc. is a wholly-owned subsidiary of Alphagraphics, Inc. Defendants John and Sharon Whaley are franchisees. They own and operate an Alphagraphics store in Livonia, Michigan through their corporation, Whaler Graphics, Inc.
The parties entered into a franchise agreement in January 1990. In March 1992, the parties entered into a new form of franchise agreement. The franchise agreements provide for arbitration in Tucson. According to Plaintiffs, almost immediately thereafter, Defendants ("Whaleys") stopped making royalty payments. Additionally, Plaintiffs assert that Defendants failed to pay them $27,000.00, which was due on a promissory note. In September 1992, Plaintiffs filed an arbitration demand against Defendants with the Phoenix regional office of the American Arbitration Association ("AAA"). Defendants have refused to arbitrate in Tucson.
Defendants, however, do not dispute that the dispute is subject to arbitration. They merely contend that the provision in the franchise agreement calling for arbitration in Tucson is overridden by what the Whaleys characterize as Plaintiffs' pre-contractual promises not to enforce the forum selection clause. Thus, the locus of the arbitration is the only issue.
At the time Plaintiffs presented their franchise offering to Defendants, they also provided Defendants with a two-page notice pursuant to Section 27 of the Michigan Franchise Investment Law ("MFIL Notice"), M.C.L.A. §§ 445.1501-46, as required by the disclosure rules of the Federal Trade Commission. The MFIL Notice, in pertinent part provides, that:
M.C.L.A. § 445.1527(f). The MFIL requires franchisors to file a notice with Michigan's Attorney General prior to offering franchises in the state. The Whaleys state that Alphagraphics filed such a notice and thereby indicated its intent to abide by Michigan law by providing the two-page notice to them. The Whaleys assert that they relied on the notice and believed that Plaintiffs would honor their commitment not to enforce the franchise agreement's requirement that disputes be arbitrated in Tucson.
Defendants cite the Court to an order issued by the Hon. John Feikens, U.S. District Judge. See Hambell, et al. v. Alphagraphics Franchising, Inc., et al., 779 F.Supp. 910 (E.D.Mich.1991). According to the Whaleys, "under identical circumstances, Alphagraphics was recently ordered by a U.S. District Court in Detroit, Michigan, to honor its commitment to another Michigan franchisee not to arbitrate a franchise dispute outside the State of Michigan." Memorandum, at 3.
On December 14, 1992, the Whaleys filed a Supplemental Memorandum indicating that the Phoenix regional office of the AAA had determined that "the appropriate locale for hearings in this matter is Ann Arbor, Michigan." November 30, 1992 AAA Letter (attached to Defendants' Supplemental Memorandum). Alphagraphics, however, notes that the Phoenix regional office of the AAA has agreed to hold the arbitration proceedings in abeyance pending the Court's decision on the locus of the arbitration hearings. See December 16, 1992 AAA Letter (attached to Reply as Exhibit A).
Section 2 of the FAA provides "that a written agreement to arbitrate in any contract involving interstate commerce or a maritime transaction `shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 1253, 103 L.Ed.2d 488 (1989). The FAA "was designed `to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate,' and place such agreements `upon the same footing as other contracts.'" Id. (citations omitted). The United States Supreme Court has stated that it "sees nothing in the Act indicating that the broad principle of enforceability is subject to any additional limitations under state law." Southland Corp. v. Keating, 465 U.S. 1, 11, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984).
The FAA does not contain any express preemption provisions and does not indicate a congressional intent to occupy the entire field of arbitration. Volt, 489 U.S. at 477, 109 S.Ct. at 1254. "But even when Congress has not completely displaced state regulation in an area, state law may nonetheless be preempted to the extent that it actually conflicts with federal law—that is, to the extent that it `stands as an obstacle to the full accomplishment and execution of the full purposes and objectives of Congress.'" Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941)). Congressional passage of the FAA "was motivated first and foremost by a congressional desire to enforce agreements into which parties had entered." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985). "It simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms." Volt, 489 U.S. at 478, 109 S.Ct. at 1255.
....
Because the FAA's primary purpose is to ensure that arbitration agreements are enforced according to their terms and Section 27(f) of the MFIL imposes limitations on the method and manner by which the parties agreed to arbitrate their disputes, it is preempted. A number of courts have found state statutes imposing limitations on the method and manner of arbitration preempted because the statutes conflicted with the FAA's mandate to enforce arbitration agreements on an equal footing with other contracts. See Saturn Distrib. Corp. v. Williams, 905 F.2d 719 (4th Cir.), cert. denied, 498 U.S. 983, 111 S.Ct. 516, 112 L.Ed.2d 527 (1990); Securities Indus. Ass'n v. Connolly, 883 F.2d 1114 (1st Cir.1989), cert. denied, 495 U.S. 956, 110 S.Ct. 2559, 109 L.Ed.2d 742 (1990); Webb v. R. Rowland & Co., Inc., 800 F.2d 803 (8th Cir.1986); Collins Radio Co. v. Ex-Cell-O Corp., 467 F.2d 995 (8th Cir.1972); Securities Indus. Ass'n v. Lewis, 751 F.Supp. 205 (S.D.Fla.1990); Seymour v. Gloria Jean's Coffee Bean Franchising Corp., 732 F.Supp. 988 (D.Minn.1990). In each of the above cases, the state statute placed greater restrictions on arbitration agreements than on other contracts and, thus, the courts held them to be preempted. Here, the Michigan statute at issue is no different.
The Whaleys' reliance on Hambell, et al. v. Alphagraphics Franchising, Inc., et al. is inapposite because it does not address the preemption problem.
Because enforcement of Section 27(f) of the MFIL is barred, the Whaleys cannot escape enforcement of the forum selection clause "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Thus, the only defenses available to the Whaleys against the forum selection clause are grounds such as fraud, duress, mistake, bias, lack of mutuality, or adhesion. The franchise agreement contains an integration clause, which provides that:
The preambles and exhibits are a part of this Agreement which, together with the Operating Manuals, constitutes the entire agreement of the parties except as provided below, and there are no other oral or written understandings or...
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