Chorley Enters., Inc. v. Dickey's Barbecue Rests., Inc., s. 14–1799

• Decision Date: 05 August 2015
• Docket Number: 14–1833,14–1800,Nos. 14–1799,14–1834.,s. 14–1799
• Parties: CHORLEY ENTERPRISES, INC., a Maryland Corporation; Matthew Chorley; Carla Chorley, Plaintiffs–Appellees, v. DICKEY'S BARBECUE RESTAURANTS, INC., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellants. James Strother Crockett, Jr., Court–Assigned Amicus Counsel. Justin Trouard; Jessica Chelton, Plaintiffs–Appellees, v. Dickey's Barbecue Restaurants, Inc., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellants. James Strother Crockett, Jr., Court–Assigned Amicus Counsel. Chorley Enterprises, Inc., a Maryland Corporation; Matthew Chorley; Carla Chorley, Plaintiffs–Appellants, v. Dickey's Barbecue Restaurants, Inc., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellees. James Strother Crockett, Jr., Court–Assigned Amicus Counsel. Justin Trouard; Jessica Chelton, Plaintiffs–Appellants, v. Dickey's Barbecue Restaurants, Inc., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellees. James Strother Crockett, Jr., Court–Assigned Amicus Counsel.
• Court: U.S. Court of Appeals — Fourth Circuit

807 F.3d 553

CHORLEY ENTERPRISES, INC., a Maryland Corporation; Matthew Chorley; Carla Chorley, Plaintiffs–Appellees,

v.DICKEY'S BARBECUE RESTAURANTS, INC., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellants.

James Strother Crockett, Jr., Court–Assigned Amicus Counsel.

Justin Trouard; Jessica Chelton, Plaintiffs–Appellees,

v.Dickey's Barbecue Restaurants, Inc., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellants.

James Strother Crockett, Jr., Court–Assigned Amicus Counsel.

Chorley Enterprises, Inc., a Maryland Corporation; Matthew Chorley; Carla Chorley, Plaintiffs–Appellants,

v.Dickey's Barbecue Restaurants, Inc., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellees.

James Strother Crockett, Jr., Court–Assigned Amicus Counsel.

Justin Trouard; Jessica Chelton, Plaintiffs–Appellants,

v.Dickey's Barbecue Restaurants, Inc., a Texas corporation; Roland Dickey, Jr.; Jerrel Denton, Defendants–Appellees.

James Strother Crockett, Jr., Court–Assigned Amicus Counsel.

Nos. 14–1799

14–1800

14–1833

14–1834.

United States Court of Appeals, Fourth Circuit.

Argued: March 26, 2015.

Decided: Aug. 5, 2015.

ARGUED:Roger Brian Kaplan, Greenberg Traurig, LLP, Florham Park, New Jersey, for Appellants/Cross–Appellees. Russell James Gaspar, Cohen Mohr LLP, Washington, D.C., for Appellees/Cross–Appellants. James Strother Crockett, Jr., Spilman, Thomas & Battle, PLLC, Charleston, West Virginia, as Court–Assigned Amicus Counsel. ON BRIEF:Aaron Van Nostrand, Greenberg Traurig, LLP, Florham Park, New Jersey, for Appellants/Cross–Appellees. Andrew K. Wible, C. Patteson Cardwell, IV, Cohen Mohr LLP, Washington, D.C., for Appellees/Cross–Appellants. Sarah B. Smith, Spilman, Thomas & Battle, PLLC, Charleston, West Virginia, for Amicus Curiae.

Before DIAZ, FLOYD, and THACKER, Circuit Judges.

Vacated and remanded by published opinion. Judge FLOYD wrote the opinion, in which Judge DIAZ and Judge THACKER joined.

FLOYD, Circuit Judge:

This appeal arises from a franchise dispute. Dickey's, a national franchisor of quick-service barbeque restaurants, claims several of its franchisees in Maryland breached their franchise agreements by running their restaurants poorly. The franchisees in turn claim that Dickey's misrepresented start-up and other costs in violation of Maryland franchise law, thus never giving them a chance to succeed. At this stage in the proceeding, however, we must decide only whether the parties' claims should be arbitrated, as Dickey's argues, or heard in federal court in Maryland, as the franchisees contend.

This issue is governed by the parties' franchise agreements. On one hand, the agreements require arbitration of all claims "arising out of or relating to" the agreements. J.A. 553. On the other hand, the agreements state that the agreements "shall not require" the franchisees to waive their "right to file a lawsuit alleging a cause of action arising under Maryland Franchise Law in any court of competent jurisdiction in the State of Maryland." J.A. 555.

The district court held that these provisions create an ambiguity that only a jury can resolve. In doing so, the district court appeared to conclude that the agreements set up an "either/or" scenario: either all the parties' claims must go forward in arbitration, or they must all proceed in federal court. For the reasons set forth below, we will reverse. As a matter of law, the clear and unambiguous language of these provisions requires that the common law claims asserted by Dickey's must proceed in arbitration, while the franchisees' Maryland Franchise Law claims must proceed in the Maryland district court.

We recognize that requiring the parties to litigate in two different forums may be inefficient, and could lead to conflicting results. But this outcome is mandated by the Federal Arbitration Act, which requires piecemeal litigation where, as here, the agreements call for arbitration of some claims, but not others. Accordingly, we reverse with instructions to compel arbitration of the common law claims only. We leave it to the district court's discretion whether to stay the franchisees' Maryland Franchise Law claims pending conclusion of the arbitration.

I.

Dickey's Barbeque Restaurants, Inc. (Dickey's), is a Texas-based franchisor of quick-service restaurants specializing in barbequed meats, with franchises operating throughout the United States.¹ Both sets of plaintiffs in this collective appeal—Justin Trouard and Jessica Chelton ("Trouard and Chelton"), and Matthew and Carla Chorley and their company, Chorley Enterprises, Inc. ("the Chorleys") (collectively, the "Franchisees")—previously operated Dickey's restaurants in Maryland under franchise agreements signed in 2012.²

A.

The Franchisees' respective relationships with Dickey's soured shortly after they opened their restaurants.

According to Dickey's, the Chorleys violated their franchise agreement by, among other things, failing to pass certain food safety inspections and receiving numerous customer complaints.³ As a result, Dickey's sent several "notices of operational deficiencies" to the Chorleys throughout 2013 and early 2014. In response, the Chorleys asserted that Dickey's fraudulently misrepresented the operating costs and estimated profits during negotiations for the franchise in violation of the Maryland Franchise Registration and Disclosure Law, Md. Code Bus. Reg. §§ 14–201 to 14–233 (2015) (the "Maryland Franchise Law").

Despite initially exploring whether the dispute could be mediated, Dickey's ultimately brought arbitration proceedings against the Chorleys in Texas on May 1, 2014. In the arbitration demand, Dickey's asserted three common law claims. Count I sought a declaratory order finding that the Chorleys breached their franchise agreement; Count II sought a declaratory order finding that the Chorleys breached their development agreement; and Count III sought damages for the Chorleys' breach of both agreements.

The Chorleys then brought suit in federal court in Maryland, seeking to enjoin the arbitration and asking the court to declare the arbitration provisions unenforceable. The Chorleys also brought affirmative claims for relief under the Maryland Franchise Law against Dickey's, its owner, and its director of business development (collectively "Dickey's" or the "Franchisor"). Dickey's in turn opposed the motion for injunctive relief, and also filed a cross-motion to compel arbitration of all the Chorleys' claims. In the alternative, Dickey's sought to stay those claims pending arbitration.

Trouard and Chelton had a similar history with Dickey's. Dickey's contends that Trouard and Chelton mismanaged their restaurant, while Trouard and Chelton assert that Dickey's violated the Maryland Franchise Law by misrepresenting start-up costs and estimated potential sales and profits. The parties initially discussed mediating their dispute, but Dickey's ultimately filed arbitration in Texas, alleging breach-of-contract and fraud claims.⁴ Trouard and Chelton then filed suit in Maryland, seeking to enjoin the arbitration and requesting affirmative relief under the Maryland Franchise Law. Dickey's opposed the motion for injunctive relief, and again filed a cross-motion to compel arbitration or, in the alternative, to stay the action.

The district court consolidated the Franchisees' lawsuits for purposes of deciding these preliminary motions. The arbitrations are currently being held in abeyance pending a final decision on the motions for preliminary injunctions and the cross-motions to compel arbitration.

B.

Both below and here on appeal, the parties' arguments hinge on the interplay between two provisions in the Franchisees' virtually identical franchise agreements: (i) the dispute resolution provisions in Article 27 and (ii) the Maryland-specific provisions in Article 29.

Article 27, which contains the "Arbitration Clause," requires the parties to first mediate their claims before proceeding to arbitration. If mediation fails to resolve the disputes within 90 days after the mediator has been appointed, either party is entitled to seek arbitration at the office of the American Arbitration Association located nearest to the Franchisor's corporate headquarters in Plano, Texas. In the Arbitration Clause, the parties also agreed to arbitrate "all disputes, controversies, claims, causes of action and/or alleged breaches or failures to perform arising out of or relating to this Agreement (and attachments) or the relationship created by this Agreement." J.A. 553.⁵

Notwithstanding this Arbitration Clause, the agreements also provide that the "STATE SPECIFIC PROVISIONS" in Article 29 "CONTROL." J.A. 555. And Article 29.1, the "Inconsistent Provisions Clause," provides that Maryland law "shall govern and control any contrary or inconsistent provisions" of the agreement, and that any such inconsistent provisions are "modified and amended" so that they comply with Maryland law. Id. Finally, Article 29.2(4), the "Maryland Clause," states that the "provisions of this Agreement shall not require you to waive your right to file a lawsuit alleging a cause of action arising under Maryland Franchise Law in any court of competent jurisdiction in the State of Maryland." Id.⁶

The Maryland Clause is similar (but not identical) to Section 02.02.08.16(L)(3) of the Code of Maryland Regulations (the "Regulation"). Under the Regulation, a franchisor violates the Maryland Franchise Law if it requires a franchisee to "[w]aive the franchisee's right to file a lawsuit alleging a cause of action arising under the Maryland Franchise Law in any court of competent jurisdiction in this State." Md. Code Regs. 02.02.08.16(L)(3) (2015).

C.

During the district court proceedings, the parties presented opposing interpretations of these clauses. The Franchisees claimed that the Maryland Clause fundamentally conflicts with the Arbitration Clause, thus rendering the Arbitration Clause void such that all of the...