Goergen v. Black Rock Coffee Bar, LLC
| Docket Number | 3:22-cv-1258-SI,3:22-cv-1259-SI,3:22-cv-1260-SI |
| Decision Date | 06 February 2023 |
| Parties | MICHAEL GOERGEN, as an individual, Plaintiff, v. BLACK ROCK COFFEE BAR, LLC, an Oregon limited liability company, Defendant. CHRISTOPHER LATTANZIO, as an individual, Plaintiff, v. BLACK ROCK COFFEE BAR, LLC, an Oregon limited liability company, Defendant. THE ROBERT LATTANZIO TRUST DATED 6/23/2006 by and through Trustee, Robert Lattanzio, Plaintiff, v. BLACK ROCK COFFEE BAR, LLC, an Oregon limited liability company, Defendant. |
| Court | U.S. District Court — District of Oregon |
Justin G. Reden, REDEN & REDEN APC, 16885 Via Del Campo Court Suite 320, San Diego, CA 92127; and Casey M. Arbenz, PUGET LAW GROUP, 938 Broadway, Tacoma, WA 98402. Of Attorneys for Plaintiffs.
J Matthew Donahue, Joseph L. Franco, and Kristin Asai, HOLLAND & KNIGHT LLP, 601 SW Second Avenue, Suite 1800, Portland OR 97204. Of Attorneys for Defendant.
These cases arise from a dispute between franchisor Black Rock Coffee Bar LLC (Black Rock), the Defendant in the three above-captioned cases, and its franchisees, entities owned in part or otherwise affiliated with Plaintiffs in these cases, Michael Goergen (Goergen), Christopher Lattanzio (Lattanzio), and the Robert Lattanzio Trust (Trust). In June 2020, Black Rock filed a petition to compel arbitration against six limited liability companies (LLC), BR Coffee LLC, BR Rainbow OP LLC, BR Blue Diamond OP LLC, BR Silverado Ranch OP LLC, BR Rainbow North OP LLC, and BR Ft. Apache OP LLC (collectively, the BR Entities). In August 2020, the Court granted Black Rock's petition and ordered the six BR Entities to participate in an arbitration proceeding initiated by Black Rock. Black Rock Coffee Bar, LLC v. BR Coffee, LLC, Case No. 3:20-cv-976-SI, 2020 WL 4728877 (D. Or. Aug. 14, 2020). Black Rock, however, did not include in its petition to compel arbitration any Plaintiffs in the abovecaptioned cases. Accordingly, the Court did not order any of these Plaintiffs to participate in the arbitration between Black Rock and the BR Entities.
During the arbitration between Black Rock and BR Entities, Black Rock asked the arbitrator for leave to amend its complaint to add Goergen, Lattanzio, and the Trust as additional parties in the arbitration proceeding. Plaintiffs objected, arguing that there was no contract requiring arbitration between them and Black Rock and that the arbitrator lacked authority to determine whether these Plaintiffs could be required to participate in the arbitration then pending among Black Rock and the BR Entities. The arbitrator granted Black Rock's motion, but Plaintiffs refused to participate in the arbitration. Instead, they filed an action in federal court in California to determine whether the arbitrator had the authority to determine the threshold issue of arbitrability. Meanwhile, the arbitrator concluded that he did have the authority to determine whether Plaintiffs could be required to arbitrate, determined that they were subject to the arbitration provisions contained in the contracts between Black Rock and the BR Entities, and made substantive findings against Plaintiffs, even though they did not participate in the arbitration. The arbitrator ultimately found in favor of Black Rock and awarded Black Rock tens of millions of dollars in damages, plus attorney's fees.
The federal court in California transferred Plaintiffs' lawsuit to this Court. The Court directed the parties to brief two questions: (1) whether the federal court or the arbitrator was the proper decisionmaker to determine whether Plaintiffs had a valid arbitration agreement with Black Rock; and (2) whether Plaintiffs were subject to the arbitration agreement contained in the contracts between Black Rock and the BR Entities. On January 10, 2023, the Court concluded that it was for the Court, and not the arbitrator, to determine whether Plaintiffs were bound to a valid arbitration agreement with Black Rock. Goergen v. Black Rock Coffee Bar, LLC, 2023 WL 142911, at *3-4 (D. Or. Jan. 10, 2023). The Court then allowed the parties one final simultaneous brief on the question of whether Plaintiffs, as nonsignatories, were nevertheless bound by the underlying contracts between Black Rock and the BR Entities, including the mandatory arbitration provision contained in those agreements. The parties have fully briefed that issue and the question now before the Court is whether Plaintiffs are subject to the arbitration clause contained in the contracts between Black Rock and the BR Entities. The Court does not believe that oral argument will be helpful in resolving this question.
For the following reasons, the Court concludes that Plaintiffs, who are nonsignatories to the contracts between Black Rock and the BR Entities, are not bound by the arbitration agreement in those contracts and there is no valid contract between Plaintiffs and Black Rock requiring arbitration. Although Black Rock ultimately might prevail on the merits of its dispute with Plaintiffs in an appropriate court if a lawsuit were filed, Black Rock is hereby enjoined from directly enforcing against any of the Plaintiffs the arbitration award issued in favor of Black Rock.
In all contracts involving interstate commerce, the Federal Arbitration Act (FAA) specifies that “written agreements to arbitrate controversies arising out of an existing contract ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (quoting 9 U.S.C. § 2). The FAA “leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Id. (emphasis in original) (citing 9 U.S.C. §§ 3-4). The district court must limit itself “to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).
Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983) (emphasis added). But the “liberal federal policy regarding the scope of arbitrable issues is inapposite” to the question of whether a party assented to the arbitration agreement. Comer v. Micor, Inc., 436 F.3d 1098, 1104 n.11 (9th Cir. 2006). The existence of a valid arbitration agreement remains “a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT & T Technologies, Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (quotation marks omitted). Because arbitration is “a matter of contract,” the FAA “places arbitration agreements on an equal footing with other contracts and requires courts to enforce them according to their terms.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010) (citation omitted). Courts also should generally “apply ordinary state-law principles that govern the formation of contracts” to determine whether the parties agreed to arbitrate. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
A court must decide “the threshold issue of the existence of an agreement to arbitrate.” Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991) (emphasis in original). “[P]arties may delegate threshold arbitrability questions to the arbitrator, so long as the parties' agreement does so by ‘clear and unmistakable' evidence,” but “before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 530 (2019) (quoting First Options, 514 U.S. at 944) (emphasis added). In deciding whether an agreement to arbitrate exists, a court should apply a summary judgment-style standard. “Only when there is no genuine issue of fact concerning the formation of the agreement should the court decide as a matter of law” that an agreement to arbitrate exists. Three Valleys, 925 F.2d at 1141 (quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)). A court also must give the party opposing a motion to compel arbitration “the benefit of all reasonable doubts and inferences that may arise.” Id. The party seeking to compel arbitration bears “the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014). When “the making of the arbitration agreement” is at issue, “the court shall proceed summarily to the trial thereof.” 9 U.S.C. § 4. “The court shall hear and determine such issue” if the party alleged to be in violation of the agreement does not demand a jury trial. Id.
Plaintiffs raise several procedural arguments, asserting that the Court should not reach the merits of whether Plaintiffs are subject to arbitration under the franchise agreements among Black Rock and the BR Entities. Plaintiffs first argue that the Court should not decide whether Plaintiffs are subject to arbitration because Black Rock never petitioned to compel arbitration against these Plaintiffs. The Court previously explained that given the unique procedural circumstances of this case, the Court will consider the arbitrability issue on the merits. Plaintiffs filed these three actions in federal court, seeking a declaration that they were not subject to...
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