Hambell v. Alphagraphics Franchising Inc., 91-CV-76600.

• Decision Date: 26 December 1991
• Docket Number: No. 91-CV-76600.,91-CV-76600.
• Citation: 779 F. Supp. 910
• Parties: Gary HAMBELL and Hollis Hambell, Plaintiffs, v. ALPHAGRAPHICS FRANCHISING INC., an Arizona Corporation, and Alphagraphics, Inc., an Arizona Corporation, Defendants.
• Court: U.S. District Court — Western District of Michigan

779 F. Supp. 910

Gary HAMBELL and Hollis Hambell, Plaintiffs, v. ALPHAGRAPHICS FRANCHISING INC., an Arizona Corporation, and Alphagraphics, Inc., an Arizona Corporation, Defendants.

No. 91-CV-76600.

United States District Court, E.D. Michigan, S.D.

December 26, 1991.

Michael P. Malley, Malley & Brown, Ann Arbor, Mich., for plaintiffs.

Richard M. Selik, Lynn Richardson, Finkel, Whitefield & Selik, Farmington Hills, Mich., Marc P. Seidler, John F. Verhey, Rudnick & Wolfe, Chicago, Ill., for defendants.

OPINION AND ORDER

FEIKENS, District Judge.

Plaintiffs, owners of an Alphagraphics franchise, filed suit in Michigan state court seeking an injunction to prevent an arbitration proceeding filed with the American Arbitration Association ("AAA") by defendants from proceeding in Arizona. The Honorable Ross Campbell of the Washtenaw County Circuit Court entered an ex parte temporary restraining order ("TRO") halting the Arizona arbitration proceeding. Defendants removed the action to federal court based on diversity jurisdiction and immediately filed a motion to dissolve the TRO. At the December 9, 1991 hearing on defendants' motion, plaintiffs moved for remand. Those two motions are now before me. In addition, the parties have agreed that in the event that I conclude that this action was properly removed and that the TRO ought to be dissolved, I proceed to determine the validity of the provision in the franchise agreement requiring that all arbitration proceedings be conducted in Tucson, Arizona under Michigan law.

For the reasons set forth below, I DENY plaintiffs' motion to remand, GRANT defendants' motion to dissolve the temporary restraining order and DECLARE that the provision in the franchise agreement requiring that all arbitrations be conducted in Tucson, Arizona is void and unenforceable pursuant to Michigan law.

BACKGROUND

Gary and Hollis Hambell ("plaintiffs") entered into a franchise agreement ("agreement") with Alphagraphics Inc. and Alphagraphics Franchising, Inc. ("defendants") in February 1987, to operate an Alphagraphics store in Ann Arbor, Michigan. The agreement provides that any arbitration proceedings between the parties are to be conducted in Tucson, Arizona under the auspices of AAA. By the time they signed the agreement, defendants had provided plaintiffs with a "Notice Required By the State of Michigan" ("Notice"), which listed the provisions of the agreement unenforceable under Michigan law. The clause providing that any arbitration take place in Tucson is among those provisions listed as unenforceable in Michigan.

A dispute arose between the parties regarding the operation of the Ann Arbor Alphagraphics franchise, and in August 1991, defendants filed a demand for arbitration in the Phoenix, Arizona regional office of AAA. Defendants requested that the arbitration take place in Tucson, on the basis of the agreement. Plaintiffs requested a redetermination of the arbitration locale, arguing that the provision setting forth Tucson as the arbitration location was invalid. AAA reaffirmed the Tucson locale.

Plaintiffs then sought refuge in the Michigan state courts, filing suit for injunctive relief in the Washtenaw County Circuit Court. There, plaintiffs were granted an ex parte TRO prohibiting the parties or AAA from taking any action in furtherance of the Tucson arbitration proceeding. Defendants removed plaintiffs' state court action to federal court and immediately filed a motion to dissolve the TRO. At the December 9, 1991 hearing on defendants' motion, plaintiffs moved for remand. Those two motions are now before me along with the parties' request that, in the event I conclude that this action was properly removed and that the TRO ought to be dissolved, I proceed to determine the validity of the arbitration location provision in their franchise agreement under Michigan law.

ANALYSIS

1. Plaintiffs' Motion for Remand

Federal courts have removal jurisdiction over any action that could properly have been brought in federal court in the first instance. 28 U.S.C. § 1441. Thus, where there is complete diversity of citizenship among the parties, an action may be removed from state court if the amount in controversy exceeds $50,000. 28 U.S.C. § 1332. Defendants removed this action asserting complete diversity among the parties and an amount in controversy substantially in excess of $50,000. Defendants base this valuation on the amount sought in the underlying arbitration, an amount in excess of $700,000. Plaintiffs do not dispute that there is complete diversity of citizenship among the parties. However, plaintiffs argue that the purely equitable nature of the relief sought by their state court complaint renders the action inherently incapable of meeting the amount in controversy requirement. I disagree.

Actions involving purely equitable relief may be removed as long as the value of the right at issue, or the extent of the injury to be prevented, exceeds $50,000. See, e.g., Goldsmith v. Sutherland, 426 F.2d 1395 (6th Cir.1970). Where the action is one to enforce arbitration, courts determine the amount in controversy by looking through to the amount of the possible award in the underlying arbitration. See, e.g., Davenport v. Procter & Gamble Mfg. Co., 241 F.2d 511 (2d Cir.1957); In re Marcy Lee Mfg. Co., 354 F.2d 42 (2d Cir.1965); State Farm Mutual Automobile Ins. Co. v. Schambelan, 738 F.Supp. 926 (E.D.Pa. 1990); J.E. Sieben Construction Co., Inc. v. Davenport, 494 F.Supp. 1035 (S.D.Iowa 1980). Similarly, the United States Court of Appeals for the Third Circuit has held that a petition to appoint a neutral arbitrator was removable since the underlying arbitration involved a dispute in excess of the jurisdictional amount. Manze v. State Farm Ins. Co., 817 F.2d 1062 (3d Cir.1987). In determining whether the jurisdictional limitation is met, courts may evaluate the amount in controversy taking into account the interests of both parties. Melkus v. Allstate Ins. Co., 503 F.Supp. 842 (E.D.Mich.1980).

Plaintiffs' state court complaint is properly characterized as an action to prevent the enforcement of certain provisions of the parties' arbitration agreement. As such, for the purpose of determining the value of the action it is most analogous to a motion to compel arbitration. Thus, it is appropriate to look through that complaint to the value of the underlying arbitration. Defendants assert and present papers filed in the arbitration action establishing that the value of the underlying arbitration exceeds $700,000. Plaintiffs present nothing to refute this assertion. Therefore, based on the $700,000 at issue in the arbitration action plaintiffs...