Trouard v. Dickey's Barbecue Rests., Inc.

• Decision Date: 01 August 2014
• Docket Number: Case No.: GLR-14-1650,Case No.: PWG-14-1703
• Parties: JUSTIN TROUARD, et al. Plaintiffs, v. DICKEY'S BARBECUE RESTAURANTS, INC., Defendant. CHORLEY ENTERPRISES INC., et al., Plaintiffs, v. DICKEY'S BARBECUE RESTAURANTS, INC., Defendant.
• Court: U.S. District Court — District of Maryland

JUSTIN TROUARD, et al. Plaintiffs, v. DICKEY'S BARBECUE RESTAURANTS, INC., Defendant.

CHORLEY ENTERPRISES INC., et al., Plaintiffs, v. DICKEY'S BARBECUE RESTAURANTS, INC., Defendant.

Case No.: PWG-14-1703

Case No.: GLR-14-1650

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND Southern Division

August 1, 2014

MEMORANDUM OPINION

Plaintiffs Justin Trouard and Jessica Chelton (the "Trouard Plaintiffs") entered into a franchise agreement ("Franchise Agreement") with Defendant Dickey's Barbecue Restaurants, Inc. ("Dickey's") and proceeded to incur significant debt opening and running their restaurant instead of realizing the profits that they expected. Their attorney contacted Dickey's, claiming that Defendants Dickey's, Roland Dickey, Jr., and Jerrel Denton, Director of Business Development for Dickey's, violated the Maryland Franchise Registration and Disclosure Law, Md. Code Ann., Bus. Reg. § 14-201 et seq. ("Maryland Franchise Law"), and asking to discuss mediation. When Defendants pursued arbitration instead of mediation, the Trouard Plaintiffsinformed them that, in their view, the arbitration clause of the Franchise Agreement was unenforceable under the Maryland Franchise Law. Plaintiffs Chorley Enterprises, Inc., Matthew Chorley and Carla Chorley (the "Chorley Plaintiffs")¹ share a similar history, also having entered into a franchise agreement with an arbitration clause² with Dickey's and then lost money trying to run their restaurant. The Chorley Plaintiffs also entered into a development agreement ("Development Agreement") with Dickey's, under which they planned to open a second restaurant; the Development Agreement contained an identical Arbitration Clause. The Trouard Plaintiffs and the Chorley Plaintiffs each filed suit in this Court against Defendants, alleging fraud and violations of the Maryland Franchise Law, and seeking declaratory judgments and injunctive relief from the pending arbitration. At this juncture, I must determine whether the Arbitration Clause is valid and enforceable.³ Because I find that the Arbitration Clause isambiguous with regard to the parties' intent, and that resolution of this issue⁴ involves disputed facts that must be resolved by a jury, I will deny the parties' motions without prejudice and schedule a trial on this limited issue.

I. BACKGROUND

Trouard approached Defendants in August 2012 about opening a Dickey's franchise. Trouard Compl. ¶¶ 10, 21, ECF No. 1. The Trouard Plaintiffs allege that Denton, through phone conversations and a Franchise Disclosure Document ("FDD") that he sent Trouard by email, made several representations about the start-up costs that significantly underestimated the actualcosts, and representations about the profits that overestimated the actual profits. Id. ¶¶ 10-11, 16, 22, 33, 37-39, 55, 82, 96. Trouard received a 2011 Virginia FDD and signed a Virginia franchise agreement in August 2012, id. ¶ 25, but, because the Trouard Plaintiffs could not afford to open a franchise in Virginia, they ultimately selected a Germantown, Maryland location, id. ¶¶ 29-31.

Denton informed Trouard in October 2012 that he would have to sign a Maryland franchise agreement and rescind the Virginia agreement. Id. ¶ 51. Denton sent Trouard the 2011 Maryland FDD, which "contained similar information regarding the estimated initial investment required to open a restaurant as the 2011 VA FDD; however, the amounts were negligibly less." Compl. ¶¶ 33, 36, 51. The Trouard Plaintiffs claim that, on December 21, 2011, the State of Maryland approved the 2012 Maryland FDD, which "made significant and material changes to the information provided in the 2011 MD FDD," specifically by increasing the estimated initial investment by up to 28%," but "Dickey's never provided Trouard with a copy of it, despite the fact that the parties had still not executed a franchise agreement for the Germantown Property by that time." ¶¶ 38, 52. According to the Trouard Plaintiffs, Denton sent Trouard a Maryland Franchise Agreement sometime after "late December 2012," Compl. ¶ 51, and Trouard signed it on February 19, 2013.⁵ ¶ 53. The Trouard Plaintiffs closed their restaurant in January 2014. Trouard Compl. ¶ 60.

Shortly before the restaurant closed, the Trouard Plaintiffs' attorney contacted Defendants, alleging that Defendants committed multiple violations of the Maryland Franchise Registration and Disclosure Law, Md. Code Ann., Bus. Reg. § 14-201 et seq. ("MarylandFranchise Law") when they sold the franchise to the Trouard Plaintiffs. ¶¶ 61-62. Counsel discussed mediation, but then Dickey's filed a demand for arbitration, claiming breach of contract and fraud and seeking more than $620,000 in damages. 63-64. Plaintiffs' counsel⁶ informed Defense counsel that they viewed the Arbitration Clause of the Franchise Agreement as unenforceable under the Maryland Franchise Law. 65. Defendants did not withdraw the arbitration demand, so the Trouard Plaintiffs filed the pending Complaint on May 28, 2014, seeking, inter alia, injunctive relief from the pending arbitration. 67.

Chorley also approached Defendants about opening a Dickey's franchise. Chorley Compl. ¶¶ 11-12, 27, ECF No. 1 in Chorley. Like the Trouard Plaintiffs, they allege that Denton made representations about the cost of opening a Dickey's restaurant that significantly underestimated the actual costs, and representations about the profits that overestimated the actual profits. Chorley Compl. ¶¶ 13-15, 31-32, 43, 49, 51-54. The Chorley Plaintiffs also claim that Defendants provided them with a 2011 FDD, even though a 2012 FDD, which "made significant and material changes to the information provided in the 2011 FDD," was available, and that Defendants did not inform them about the 2012 FDD. Chorley Compl. ¶¶ 22-23, 26. The Chorley Plaintiffs signed a Maryland Franchise Agreement on October 19, 2012. Chorley Compl. ¶¶ 29, 32.

Before the Chorley Plaintiffs opened the restaurant, Denton contacted Chorley and informed him that he was going to sell another franchise near the Chorley Plaintiffs' location, unless the Chorley Plaintiffs entered into a "Development Agreement" to purchase the "territory" around their restaurant and opened a second restaurant. Chorley Compl. ¶ 55-56. Again, Denton made several representations about the costs involved in opening the restaurant and theChorley Plaintiffs' earning potential. Chorley Compl. ¶ 57. The Chorley Plaintiffs signed a Development Agreement on April 30, 2013 and paid Dickey's a $15,000 development fee. Chorley Compl. ¶ 61. The Chorley Plaintiffs incurred significant debt opening the first restaurant and, as of May 21, 2014, when they filed their complaint, they continued to incur debt trying to run it. Chorley Compl. ¶ 53-54. They sought legal advice before opening the second restaurant. Chorley Compl. ¶ 65.

Their attorney contacted Defendants on March 31, 2014, alleging that Defendants committed multiple violations of the Maryland Franchise Law when they sold the franchise to the Chorley Plaintiffs and when they entered into the Development Agreement. 66. The Chorley Plaintiffs requested mediation and were working out the details of where and when to meet, but then Dickey's filed a demand for arbitration on May 1, 2014, claiming violations of the Franchise Agreement and the Development Agreement and seeking more than $600,000 in damages. 67-69. Plaintiffs' counsel informed Defense counsel that arbitration was "premature" and that the Arbitration Clause of the Franchise Agreement was unenforceable under the Maryland Franchise Law. 70. Defendants did not withdraw the arbitration demand, so the Chorley Plaintiffs filed the pending Complaint in Chorley on May 21, 2014. 70-71.

The Plaintiffs' complaints allege fraud and violations of the Maryland Franchise Law, for which they seek monetary damages and rescission of the Franchise Agreement and, in the Chorley's case, the Development Agreement. The complaints also include counts for injunctive relief from the pending arbitration and a declaratory judgment that the Arbitration Clause is unenforceable and that the pending arbitration is void and without any effect. The Plaintiffs demand a jury trial on all issues triable before a jury. Compl. 26.

Contemporaneously with their complaints, the Plaintiffs filed the pending Motion for a Preliminary Injunction, and Defendants have filed a Cross-Motion to Compel Arbitration and to Stay These Actions along with their Opposition. I scheduled a hearing on the motions, ECF No. 19, and the parties agreed by Consent Order not to proceed further with arbitration until I ruled on the preliminary injunction motion, ECF No. 37. Defense counsel contacted the American Arbitration Association to hold the arbitration in abeyance during the pendency of the motion for preliminary injunction. July 8, 2014 Ltr. 1, ECF No. 32. The parties appeared for a hearing on July 17, 2014, at the conclusion of which I stated that I would issue a written ruling. ECF No. 38.

II. SCOPE OF RULING

Plaintiffs ask that the Court determine their claims for equitable relief also at this time. However, the findings necessary to grant a motion for a preliminary injunction are different from the findings necessary for a permanent injunction. Compare Winter v. Natural Res. Defense Council, Inc., 555 U.S. 7, 20 (2008) (stating that, to obtain a preliminary injunction, plaintiffs must establish that (1) they are "likely to succeed on the merits," (2) they are "likely to suffer irreparable harm in the absence of preliminary relief," (3) "the balance of equities tips in [their] favor," and (4) "an injunction is in the public interest"), with Ledo Pizza Sys. Inc. v. Singh, No. WDQ-13-2365, 2014 WL 1347113, at *6 (D. Md. Apr. 3, 2014) ("To obtain a permanent injunction, the plaintiff must show: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3)...