Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.H.: Principal in former butcher shop franchise not required to arbitrate dispute with franchisor, (Apr 20, 2016)

By Linda O’Brien, J.D., LL.M.

The principal of a limited liability company, who was not a party to or personally liable under the company’s franchise agreement for a butcher shop franchise, was not legally bound to arbitrate a dispute between the company and the franchisor, the federal district court in Concord, New Hampshire has ruled (Bald v. PCPA, LLC, April 19, 2016, McAuliffe, S.).

In 2011, Allan Bald formed The Flying Butcher, LLC and was the sole member of the business organization. In April 2012, The Flying Butcher entered into a franchise agreement and area development agreement with Meat House Franchising (MHF), a franchisor of specialty butcher shops. In 2014, MHF experienced financial issues and sold its rights under its franchise agreements as well as certain intellectual property to PCPA LLC and Prime Choice Brands, LLC. Having acquired the rights to enforce its franchise agreements against MHF franchisees, in March 2015, PCPA and Prime Choice Brands filed a statement of claim with the American Arbitration Association (AAA), asserting that The Flying Butcher and Bald, as its principal, breached the franchise and area development agreements, both which contained mandatory arbitration provisions.

Subsequently, Bald filed suit, seeking a declaratory judgment that he was not bound by the arbitration provisions, since he was not a party in his personal capacity to either the franchise or area development agreement. Before the court was Bald’s motion for summary judgment.

The court found that Bald was not a party to the contracts in his individual capacity. Bald unambiguously signed the franchise agreement in his capacity as an authorized representative of The Flying Butcher and not in his personal capacity. In its decision in Mbahaba v. Morgan, 163 N.H. 561 (2012), the New Hampshire Supreme Court noted that a member, acting as an agent of an LLC, was not personally liable for making a contract when acting within his authority to bind the LLC. In this case, the court stated, both the franchise and area development agreements contained a single signature block, Bald executed those contracts solely on behalf of the company, and Bald did not sign either contract in his personal capacity.

Furthermore, there was no evidence that MHF requested that Bald personally guarantee The Flying Butcher’s obligations under the franchise agreement or that Bald or MHF intended that he would be personally liable under the contract. Given the undisputed facts that Bald was neither a party to, nor personally bound by, the terms of the franchise agreement, Bald was entitled to judgment as a matter of law, the court concluded.

The case is No. 1:15-cv-00219-SM.

Attorneys: Jonathan M. Shirley (Devine Millimet & Branch PA) for Allan Bald. David M. Chaise (Einbinder Dunn & Goniea LLP) and William B. Pribis (Cleveland Waters & Bass PA) for PCPA, LLC and Prime Choice Brands, LLC.

Companies: PCPA, LLC; Prime Choice Brands, LLC

Cases: FranchisingDistribution NewHampshireNews