Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Idaho: Former franchisee not entitled to attorney fees as ‘prevailing party’, (Feb 23, 2016)

The dismissal of a franchisor’s suit, which alleged that a former franchisee continued to operate his restaurant in violation of the franchise agreement, did not entitle the former franchisee to attorney fees as the “prevailing party,” according to the federal district court in Boise, Idaho (Arctic Circle Restaurants, Inc. v. Bell, February 15, 2016, Bush, R.).

After filing a suit against David Bell for continuing to operate his restaurant using the franchise trade name after termination of the franchise agreement, Arctic Circle Restaurants, Inc. filed a motion for a temporary restraining order and preliminary injunction. Bell responded by filing a motion to dismiss on the basis that Artic Circle’s claims were subject to the dispute resolution clause in the franchise agreement and that the matter should either be stayed or dismissed in favor of arbitration.

Arctic Circle latter withdrew its motion for a temporary restraining order and preliminary injunction after Bell turned over possession of the restaurant to a business partner who reopened it as an Arctic Circle franchise. Because the dispute resolution clause in the franchise agreement required arbitration of any dispute arising under the franchise agreement, the court granted Bell’s motion to dismiss.

Bell then filed a motion for attorney fees on the grounds that: (1) the franchise agreement provided that the “prevailing party” in an arbitration or judicial proceeding was entitled to reimbursement of its attorney’s fees and costs; and (2) he was the “prevailing party” because his motion to dismiss had been granted.

In response, Arctic Circle argued that the franchise agreement provided that the franchisor was entitled to reimbursement for the attorney fees it incurred in addressing a franchisee’s violations of the franchise agreement. Alternatively, Arctic Circle argued that Bell should not be considered the prevailing party because: (1) its motion for a preliminary injunction and temporary restraining order were withdrawn only because Bell stopped engaging in infringing conduct; and (2) if the motion had not been withdrawn, the court would have dealt with it because the dispute resolution clause in the franchise agreement did not prevent a party from seeking equitable relief from a court.

The court concluded that, when viewing the action as a whole, neither party could claim the status of “prevailing party.” The fact that Arctic Circle did not file its own motion for fees and costs did not mean that Bell was necessarily the “prevailing party,” and each party prevailed on a particular portion of the whole of the case.

The case is No. 4:14-CV-00337-REB.

Attorneys: Kersti Harter Kennedy (Stoel Rives, LLP) for Arctic Circle Restaurants, Inc. Paul C. Echo Hawk (Echo Hawk Law Office) for David Lynn Bell.

Companies: Arctic Circle Restaurants, Inc.

Cases: FranchisingDistribution IdahoNews