American Dairy Queen Corp. v. Tantillo

• Decision Date: 15 April 1982
• Docket Number: Civ. A. No. 81-435-B.
• Citation: 536 F. Supp. 718
• Parties: AMERICAN DAIRY QUEEN CORPORATION and DQF, Inc. v. Charles R. TANTILLO, et al.
• Court: U.S. District Court — Middle District of Louisiana

536 F. Supp. 718

AMERICAN DAIRY QUEEN CORPORATION and DQF, Inc. v. Charles R. TANTILLO, et al.

Civ. A. No. 81-435-B.

United States District Court, M. D. Louisiana.

April 15, 1982.

Sam A. LeBlanc, III, Adams & Reese, New Orleans, La., for plaintiffs.

Dando B. Cellini, Donald R. Mintz, Henri Wolbrette, III, Ellis B. Murov, McGlinchey, Stafford & Mintz, New Orleans, La., for defendants.

POLOZOLA, District Judge.

This matter is before the Court on the motion of Charles R. Tantillo, Larry L. Luttjohann, Franchise Development, Dairy Queen of Louisiana, Inc., and Dairy Queen of Prairieville, Inc. to stay all further proceedings pending arbitration of this dispute. The complaint in this matter was filed on June 9, 1981 alleging breach of a territory agreement. The plaintiffs seek an injunction against any continuing violations of the agreement, payment of past due license and advertisement fees, interest on certain promissory notes, recovery of certain sums allegedly due under a lease agreement, and damages for an alleged trademark infringement. On September 30, 1981 the defendants filed an answer and counterclaim. The defendants deny owing anything under the contract and claim that they are entitled to damages because of the plaintiffs' misrepresentations which the defendants claim induced them to enter into the contract.

On March 8, 1982 the defendants filed this motion to stay all proceedings pending arbitration. The plaintiffs oppose this motion, maintaining that the defendants have waived their right to compel arbitration by their activities in this lawsuit. For reasons which follow, the Court finds that defendants' motion to stay these proceedings pending arbitration should be granted.

Paragraph 9 of the territory agreement provides:

In the event any dispute between the parties arising under, out of, in connection with or in relation to this Agreement, said dispute shall be submitted by the parties to binding arbitration in accordance with the Rules and Procedures and under the auspices of the American Arbitration Association. The arbitration shall take place at Minneapolis, Minnesota or at such other place as may be mutually agreeable to the parties. The decision of the arbitrators shall be final and binding on all parties. Notwithstanding the foregoing, Licensee recognizes that the business operations conducted by him hereunder are part of a large number of similar operations selling to the public similar products, and hence the failure on the part of a single Licensee or sublicensee to comply with the terms of his or its license agreement could cause irreparable damage to Company and to some or all other licensees and sublicensees. Therefore, it is mutually agreed that in the event of a breach or threatened breach of any of the terms of this Agreement by Licensee, Company shall forthwith be entitled to an injunction restraining such breach and/or a decree of specific performance without having to show or prove any actual damages. The foregoing equitable remedy shall be in addition to, and not in lieu of, all other remedies or rights which Company might otherwise have by virtue of any breach of this Agreement by Licensee. In the event Company is awarded equitable or legal relief or prevails in an arbitration proceeding hereunder, it shall also be entitled to recover therein its costs and disbursements in obtaining such relief or award including its reasonable attorney fees. (Emphasis added.)

Defendant's motion to stay was brought pursuant to 9 U.S.C. § 1 et seq. of the Federal Arbitration Act. 9 U.S.C. § 3 provides:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

It is well settled that there is a strong federal policy favoring arbitration and a waiver of the right to compel arbitration will not be lightly inferred. United States, etc. v. S. T. C. Construction Company, 472 F.Supp. 1023 (E.D.Penn.1979); Shinto Shipping Company, Ltd. v. Fibrex Shipping Co., Inc., 572 F.2d 1328 (9 Cir. 1978); Hart v. Orion Insurance Company, 453 F.2d 1358 (10 Cir. 1971); United Steelworkers of America v. Warrior and Gulf Navigation, 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Therefore, the burden on one seeking to prove waiver is a heavy one. Sibley v. Tandy Corporation, 543 F.2d 540 (5 Cir. 1977), rehearing 547 F.2d 286, cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82. The question of what constitutes a waiver of the right of arbitration depends on the facts of each case. Burton-Dixie Corporation v. Timothy McCarthy Construction Company, 436 F.2d 405 (5 Cir. 1971). Both parties have cited many cases in support of their respective positions, all of which indicate that a determination of waiver depends on the actions of the parties in the particular case and the facts of each case.

The plaintiffs rely on E. C. Ernest Inc. v. Manhattan Construction Company of Texas, 551 F.2d 1026 (5 Cir. 1977) on rehearing, 559 F.2d 268, cert. denied 434 U.S. 1067, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978), to support their contention that a waiver has resulted from the defendants' actions. In Ernest, the Fifth Circuit stated:

Substantially invoking the litigation machinery qualified as the kind of prejudice ... that is the essence of waiver. 559 F.2d 268, 269

However, the Court does find the Ernest case controlling herein. In Ernest the case had been pending for 2½ years before a motion to stay was filed. Additionally, the party seeking arbitration had crossclaimed, appealed, participated in discovery, and filed several motions. In the case before this Court, the defendants have not participated in the litigation to this degree. A review of the record indicates that the defendants have filed a counterclaim, answered the plaintiffs' interrogatories and filed interrogatories and a motion for production, to which plaintiffs have not responded. The plaintiffs have propounded interrogatories, made production requests, noticed two depositions, and filed motions to compel on their discovery motions. No depositions have actually been taken in this case. A review of the cases indicates that the courts have allowed considerable more activity in this case without finding that a party has waived his contractual right to arbitrate. See, Southwest Industrial Import and Export v. Wilmond Company, Inc., 524 F.2d 468 (5 Cir. 1975) (seller-mover's participation in settlement discussions and self-help measure of re-selling goods in dispute did not amount to a waiver of arbitration right under the contract); General Guaranty Insurance Company v. New Orleans General Agency, Inc., 427 F.2d 924 (5 Cir. 1970) moving party filed answer denying liability, filed a counterclaim, attempted to implead parties, and allowed the other parties to take two depositions before demanding arbitration); J & S Construction Company, Inc. v. Traveler's Indemnity Company, 520 F.2d 809 (1 Cir. 1975) (the defendant answered, demanded a jury trial, answered interrogatories, permitted depositions, and did not move for a stay until thirteen months after the action was commenced); Carcich v. Rederi A/B Nordie, 389 F.2d 692 (2 Cir. 1968), (third party defendant participated in pre-trial proceedings two years before requesting a stay); China Union Lines v. American Marine Underwriters, 458 F.Supp. 132 (S.D.N.Y.1978) (mover had answered and waived two years before requesting stay).

In the case currently before the Court, only nine months have elapsed between the filing of the complaint and the filing of this motion to stay. A minimal amount of discovery has been conducted, most of it by the plaintiffs. A stay order has been issued by the Court limiting discovery to matters pertaining to arbitration.

Many of the cases relied on by the plaintiffs in support of a finding of waiver involved greater litigation participation by the moving party. In E. I. DuPont DeNemours and Company v. Lyles and Lang Construction Company, 219 F.2d 328 (4 Cir. 1955) cert. denied 349 U.S. 956, 75 S.Ct. 882, 99 L.Ed. 1280, the Court found waiver when, in addition to filing a counterclaim, the mover had filed a motion for a...