Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.H.: Franchisor wins dismissal of its own complaint amid ongoing arbitration dispute, (Jul 20, 2016)

By Elizabeth C. Pope, J.D.

In the latest ruling by the federal district court in Concord, New Hampshire, in an ongoing dispute between a franchisor and a former franchisee, the franchisor won its motion to dismiss voluntarily its own request for a declaratory judgment to stay an arbitration order where the former franchisees, named as defendants in the complaint, failed to show they would suffer legal prejudice if the franchisor’s motion was granted (PCPA, LLC v. The Flying Butcher, LLC, July 18, 2016, Barbadoro, P.).

Franchise dispute. The Flying Butcher LLC entered into a franchise agreement with Meat House Franchising (MHF), which included an arbitration clause. Subsequently, MHF entered into an asset purchase agreement with PCPA LLC.

PCPA asserted that as a result of the asset purchase agreement it acquired the right to enforce MHF’s franchise agreements, including the arbitration clause. Thus, when a dispute between Flying Butcher and PCPA occurred, PCPA filed an arbitration claim for, among other things, breach of contract and trademark infringement.

PCPA suffered an initial defeat when the court ruled in April 2016 that the owner of the Flying Butcher was not personally liable under the franchise agreement and therefore not required to arbitrate.

PCPA’s troubles with arbitration continued when the arbitrator found that PCPA had "no claim to arbitration" because the franchise agreement had not been lawfully transferred. PCPA filed suit in district court, seeking a declaratory judgment that the franchise agreement was valid and that the arbitrator’s ruling had exceeded her authority.

About two months later, having received a second unfavorable ruling from the arbitrator, PCPA moved to dismiss its own declaratory judgment action without prejudice. The Flying Butcher opposed the motion, having filed its own motion for summary judgment.

No legal prejudice. The court granted PCPA’s motion to dismiss its suit without prejudice under Federal Rules of Civil Procedure 41(a)(2), concluding the dismissal would not result in "legal prejudice" to the Flying Butcher. The court explained that the litigation was in its early stages: no pre-trial conference had been scheduled and it appeared that no meaningful discovery had occurred. Further, no evidence existed that PCPA delayed its pursuit of the case.

While often the existence of a defendant’s motion for summary judgment may incline a court to deny a voluntary dismissal request from the plaintiff, in this instance the court declined to give this factor "much significance," noting the defendants filed their summary judgment motion before discovery had begun and only after they learned from PCPA’s counsel of its intent to move for voluntary dismissal. Finally, the court found PCPA’s explanation for the dismissal request—the arbitrator’s actions rendered many of PCPA’s claims moot—to be "plausible."

The case is No. 16-cv-112-PB.

Attorneys: James A. Goniea (Einbinder Dunn & Goniea LLP) and Steven C. Reingold (Jager Smith PC) for PCPA, LLC and Prime Choice Brands, LLC. Jonathan M. Shirley (Devine Millimet & Branch PA) for The Flying Butcher, LLC.

Companies: PCPA, LLC; Prime Choice Brands, LLC; The Flying Butcher, LLC

Cases: FranchisingDistribution NewHampshireNews