One of today’s cases is an important one from the Eighth Circuit dealing with waivers. It is a must read for any franchise or distribution counsel.
Breadeaux’s Pisa, LLC v. Beckman Brothers, Ltd., 2023 U.S. App. LEXIS 27365 (8th Cir. October 16, 2023), is an important case for franchisors and other businesses that may need quick action to stop a counterparty’s violation of contractual obligations.
The case finds its roots in a franchise dispute. After the termination of Beckman’s franchise, Beckman’s d/b/a Main Street Pizza opened another pizza restaurant in the same location. Breadeaux’s claimed that, by doing so, Beckman’s violated post-termination non-compete prohibitions in the franchise agreement. Relying upon a provision allowing the franchisor to seek injunctive relief outside of arbitration, it filed an action in U.S. District Court and moved for an injunction. The District Court denied the injunction, and a discovery dispute arose. After losing its objections to Defendant’s discovery requests and about six months after filing suit, Breadeaux’s moved to stay the action pending arbitration. The District Court denied the stay. This appeal followed under 9 U.S.C. § 16.
Judge Erickson, writing for himself, Chief Judge Smith, and Judge Melloy, holds that Breadeaux’s waived any right to arbitrate. The court opines that Plaintiff “acted inconsistently with its right by seeking a permanent injunction against Main Street Pizza which would require a determination of arbitrable issues.” This potentially harsh precedent is softened by an intimation that, if Breadeaux had sought arbitration as soon as the request for preliminary relief was denied, the court might reach a different result. Nevertheless, this Circuit-wide precedent raises a hurdle for parties who need to move quickly to stop a violation of their contractual rights. Even though the AAA and other institutions now have provisions for emergency arbitrators, the arbitral process still takes longer than a trip to the local court for ex parte temporary relief and a follow-up preliminary injunction.
Worker in Interstate Commerce; Employment Arbitration Provisions; Duress
Marino v. CVS Health, 2023 U.S. Dist. LEXIS 185010 (S.D.N.Y. October 16, 2023)(Briccetti, J), holds that a pharmacist does not fall within the exception to a court’s authority to compel arbitration under the FAA related to claims of a “worker engaged in . . . commerce,” even though the drugs which plaintiff handled may move across state lines. Relying on the Second Circuit’s holding in Bissonnette v. LePage Park Street, LLC, 49 F. 4th 655, 661 (2nd Cir. 2022), the court opines that the exception applies only to those working in “an industry . . . which pegs its charges chiefly to the movement of goods or passengers, and the industry’s predominant source of commercial revenue is generated by that movement.” The opinion also highlights the effectiveness of an opt-out provision in counteracting claims of duress.
SCOTUS recently granted cert. to review Bissonnette; briefing is still in process; and the court has not set a date for argument. Watch this space.
Arbitration Costs Do Not Constitute Irreparable Harm
In Mekari v. Access Restoration U.S., Inc., 2023 U.S. Dist. LEXIS 185093 (E.D. La. October 13, 2023), the court holds that the costs of arbitration do not constitute irreparable harm. Therefore, it denies Mekari’s request to enjoin enforcement of an arbitration provision which Plaintiff claims is invalid.
Enjoy the rest of the week. I will be off-line on Thursday and Friday. However, if anything significant breaks, I’ll post it to LinkedIn.
David Reif, FCIArb