Extremely Clean Cleaning Servs., LLC v. Caat, Inc.
| Decision Date | 25 February 2019 |
| Docket Number | No. 1:18-cv-02968-SEB-MJD,1:18-cv-02968-SEB-MJD |
| Parties | EXTREMELY CLEAN CLEANING SERVICES, LLC, ALISIA BURKS, Plaintiffs, v. CAAT, INC. an Ohio Corporation, ANAGO CLEANING SYSTEMS, INC. a Florida Corporation, ANAGO FRANCHISING, INC. a Florida Corporation, ALBERTSON FAMILY JANITORIAL HOLDINGS, INC. an Ohio Corporation, CURT ALBERTSON an individual, COREY ALBERTSON an individual, TERESA ALBERTSON an individual, DAVID R. POVLITZ, Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
ORDER ON PENDING MOTIONS SETTING TRIAL (DKTS. 13, 23, 25, 29)
Now before the Court are two motions filed by Defendants seeking to stay these proceedings pending arbitration. Dkts. 13, 29.1 See 9 U.S.C. § 3. There is no motion for an order compelling Plaintiffs to arbitrate in the first instance, see 9 U.S.C. § 4, but "[a] defendant who wants arbitration is often content with a stay, since that will stymie the plaintiff's effort to obtain relief unless he agrees to arbitrate." Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 389 (7th Cir. 1995). The parties' dispute at thisjuncture obviously turns on the necessity of arbitration itself rather than merely the propriety of a stay. We therefore construe the motions to stay as motions to compel and to stay. Hill v. Lynch Chevrolet, Inc., 349 F. Supp. 2d 1118, 1118-19 (N.D. Ill. 2004).
As explained below, Defendants' motions to stay are granted in part. We defer decision on the remaining issues until the trier of fact determines whether the parties have agreed to arbitration.
Plaintiffs are Alisia Burks ("Burks") and her limited liability company, Extremely Clean Cleaning Services, LLC ("Extremely Clean"). Defendants are franchisors and subfranchisors of a cleaning business. We assume the parties' familiarity with the facts, such as they are reflected in the complaint, its various attachments, and Burks's affidavit, but we restate the most relevant assertions here in the light most favorable to Plaintiffs.
Extremely Clean, through Burks, proposed to purchase a cleaning franchise from Defendants. On October 15, 2015, Burks informed Defendants' agent in Indianapolis, Brian Burton ("Burton"), that Burks's mother, Kearl Ash ("Ash"), was being dispatched to Defendants' Indianapolis office on Extremely Clean's behalf to pay the required franchise fee. Ash's signature had previously appeared on a prior contract between Extremely Clean and Defendants and some related documents, but Ash was not a member, manager, or employee of Extremely Clean and had no authorization to act on its behalf.
Burks avers that she made clear to Burton that she was not yet prepared to execute the offered contract to purchase the franchise ("the Franchise Agreement"). Burks soughtadditional time to review the contract's terms with Burton "to make sure [she] fully understood what [she] was signing." Burks Aff. ¶ 21. Burton agreed that Ash could deposit the franchise fee and Burks could review the Franchise Agreement with him and execute it later in the week. Burton represented he would schedule a time for him and Burks to meet.
In depositing the franchise fee, however, Ash also signed the Franchise Agreement, purportedly on behalf of Extremely Clean but for reasons that have not been explained. There is no record of how or why Ash came to do so, nor why Burton permitted or induced her to sign, particularly since to do so was against Burks's contrary instructions to Burton. At that time, Ash was allegedly contemplating purchasing her own franchise from Defendants, which may have generated confusion on one or both sides, but we speculate as to that.
As soon as Ash informed Burks that she had signed the Franchise Agreement, Burks called Burton to inform him that Ash had no authority to execute the Franchise Agreement on Extremely Clean's behalf. Burton thus invited Burks to come to his office the next day to review the terms of the Franchise Agreement and "redo the paperwork." Id. ¶ 17. Burks agreed and went to Burton's office the following day, but Burton failed to appear as scheduled. Reached by telephone, Burton promised to deliver a new contract to Burks at a later time. Neither Burton or any other of Defendants' agents ever did so.
Eventually, Burks let the matter drop. For the next two years, Burks cleaned properties as Defendants' franchisee, sometimes working sixty hours per week and often, unusually, in competition with other of Defendants' franchisees. Over the course of thatperiod, Burks signed a series of "account assumption agreements," whereunder Extremely Clean agreed to assume client accounts from Defendants "subject to the terms of the Franchise Agreement[.]" E.g., Dkt. 1 Ex. C, at 1. Again unusually, payment for the franchisees' services were remitted directly by the clients to Defendants, who then paid their franchisees. Burks was sometimes paid late, sometimes not at all, and often less than Burks believed she was owed.
In March 2018, Defendants abandoned their Indianapolis business without notice to their franchisees, including Burks. This lawsuit followed. The Franchise Agreement contains an arbitration clause, Dkt. 1 Ex. B, at 63-64, which Defendants now seek to enforce against Plaintiffs. The issue now before the Court is whether the Franchise Agreement has been agreed to by the parties sufficiently to render it enforceable.
"[A]rbitration may be compelled if the following three elements are shown: a written agreement to arbitrate, a dispute within the scope of the arbitration agreement, and a refusal to arbitrate." Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th Cir. 2005) (citing 9 U.S.C. § 4; Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909-10 (7th Cir. 1999)).
Here, the second and third elements are undisputed. As to the second, the Franchise Agreement's arbitration clause covers "all controversies, disputes, or claims" touching the Franchise Agreement, including the scope and validity of the Franchise Agreement and its arbitration clause. Dkt. 1 Ex. B, at 63. As to the third, the arbitration clause is mandatory. Id. at 64 ("must be submitted"). See Van Jackson v. Check 'N Go of Ill., Inc., 193 F.R.D. 544, 549 (N.D. Ill. 2000) (). Plaintiffs have demonstrated their refusal to submit to arbitration by filing this lawsuit and by their opposition to Defendants' motions to stay. See Hill v. Lynch Chevrolet, Inc., 349 F. Supp. 2d 1118, 1118 (N.D. Ill. 2004).
The first element, however, is much disputed, and that dispute is properly before us now. Because arbitration is a matter of agreement, the Court, and not the arbitrator, decides whether an agreement to arbitrate was made. 9 U.S.C. § 4; Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299-300 (2010); Janiga v. Questar Corp., 615F.3d 735, 741-42 (7th Cir. 2010). "If the making of the arbitration agreement . . . be in issue, the court shall proceed summarily to the trial thereof." 9 U.S.C. § 4. The Rule 56 standard, Fed. R. Civ. P., is applied to determine whether such trial is warranted. Tinder v. Pinkerton Security, 305 F.3d 728, 735 (7th Cir. 2002) (citations omitted).
State law controls the contract-formation question before us. Janiga, 615 F.3d at 742 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). But which state's law? A federal court sitting in diversity applies the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941). In contract cases, Indiana ordinarily honors the parties' choice of law, where one is expressed. Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002). But "[a] contract's choice-of-law provision may not apply . . . if there is some . . . issue as to the validity of the very formation of the contract." Life Plans, Inc. v. Sec. Life of Denver Ins. Co., 800 F.3d 343, 357 (7th Cir. 2015) (citing Sarnoff v. Am. Home Prods. Corp., 798 F.2d 1075, 1081-82 (7th Cir. 1986), abrogated on other grounds, Hart v. Schering-Plough Corp., 253 F.3d 272 (7th Cir. 2001)). Nucap Indus., Inc. v. Robert Bosch LLC, 273 F. Supp. 3d 986, 1006 (N.D. Ill. 2017) (quotation marks and citation omitted).
In the absence of effective party choice, Indiana applies the law of the state having the "'most intimate contact'" with the transaction. Nat'l Union...
To continue reading
Request your trial