Hometown Pizza, Inc. v. Hometown Pizza II, LLC

HOMETOWN PIZZA, INC. Plaintiff v. HOMETOWN PIZZA II, LLC Defendants

Civil Action No. 3:22-cv-20-RGJ

United States District Court, W.D. Kentucky, Louisville Division

April 27, 2022

MEMORANDUM OPINION AND ORDER

Rebecca Grady Jennings, District Judge

Defendant Hometown Pizza II, LLC, (“Hometown II”) moves to compel arbitration or in the alternative to dismiss Plaintiff Hometown Pizza, Inc.'s (“Hometown”) Complaint. [DE 10]. Hometown moved for leave to file a surreply [DE 16], and Hometown II responded. [DE 17]. These matters are ripe. [DE 14; DE 15; DE 16]. For the reasons below, Hometown II's Motion to Compel Arbitration [DE 10] is DENIED, Hometown II's Motion to Dismiss [DE 10] is DENIED, and Hometown's Motion for Leave to File Surreply [DE 16] is DENIED.

I. BACKGROUND

Michael and Mary Foster (“Fosters”) founded Hometown Pizza, Inc. and operate restaurants under the name “Hometown Pizza.” [DE 1 at 3; DE 10-1 at 93]. In July 2010, Thomas Brown (“Brown”) contracted with the Fosters to serve as Chief Operating Officer and Vice President of Hometown. [DE 1 at 4; DE 10-1 at 93-94]. At the same time, Brown and the Fosters signed the Limited Liability Company Operating Agreement of Hometown Pizza II, LLC (“Operating Agreement”) creating Hometown II. [DE 1 at 4; DE 10-1 at 93-94; DE 10-5]. Brown received an 80 percent interest in Hometown II, and the Fosters each received 10 percent. [DE 1 at 4; DE 10-1 at 94; DE 10-5 at 163]. Hometown and Hometown II also signed an agreement in which Hometown II agreed to purchase supplies from Hometown and to pay a fee if the contract were terminated (“Supply Facilitation Agreement”). [DE 1 at 4-5]. Hometown and Hometown II also signed a licensing agreement (“License Agreement”) in which Hometown II received a license to use Hometown's intellectual property. [Id. at 5]. The restaurants also had a booklet outlining an arbitration process for workplace disputes (“Dispute Resolution Program”). [DE 10-1 at 95; DE 10-7; DE 14 at 241-42].

Hometown terminated Brown's employment in 2021, and subsequently terminated the Supply Facilitation Agreement and License Agreement. [DE 1 at 7]. Hometown alleges that Hometown II has continued to use its intellectual property. [Id. at 8-14]. Hometown and Brown are engaged in related arbitration. [DE 10-1 at 95; DE 14 at 241].

Hometown sued Hometown II, alleging federal and state trademark infringement and unfair competition, state law unfair and deceptive trade practices, and breach of contract. [DE 1 at 14-20]. Hometown also seeks injunctive relief and indemnification on its breach of contract claim. [Id. at 20-22].

II. DISCUSSION

I. Hometown's Motion for Leave to File Surreply [DE 16].

Hometown II argues that the Court should deny Hometown's motion for leave to file a surreply because Hometown II made no unique arguments in its Reply brief and Hometown is making unique arguments in its surreply. [DE 17 at 371]. Hometown did not reply.

“Although the Federal Rules of Civil Procedure do not expressly permit the filing of surreplies, such filings may be allowed in the appropriate circumstances, especially ‘[w]hen new submissions and/or arguments are included in a reply brief, and a nonmovant's ability to respond to the new evidence has been vitiated.'” Key v. Shelby Cty., 551 Fed.Appx. 262, 265 (6th Cir. 2014) (quoting Seay v. Tennessee Valley Auth., 339 F.3d 454, 481 (6th Cir. 2003)). “As many courts have noted, ‘[s]ur-replies . . . are highly disfavored.'” Liberty Legal Found. v. Nat'l Democratic Party of the USA, Inc., 875 F.Supp.2d 791, 797 (W.D. Tenn. 2012) (quoting In re Enron Corp. Sec., 465 F.Supp.2d 687, 691 n.4 (S.D. Tex. 2006)). “The Sixth Circuit has held that a district court does not abuse its discretion in denying leave to file a sur-reply where the opposing party's reply did not raise any new legal arguments or introduce new evidence.” Id.; see also, e.g., Key, 551 Fed.Appx. at 265 (holding that district court's denial of motion to file sur-reply was not abuse of discretion due to lack of new arguments raised in reply and six-month delay between filing of reply and motion for sur-reply). Whether to permit a party to surreply is in the court's discretion. See Key, 551 Fed.Appx. at 264 (citing Eng'g & Mfg. Servs., LLC v. Ashton, 387 Fed.Appx. 575, 583 (6th Cir. 2010); Tanielian v. DaimlerChrysler Corp., 108 Fed.Appx. 386, 387 (6th Cir. 2004)).

Here, the timing of the surreply is not troubling, as Hometown filed it within five days of Hometown II's reply. [DE 15; DE 16]. The argument Hometown raises in the surreply brief is that a quotation Hometown II relies on resulted from scrivener error. [DE 16-1 at 366-68]. The quotation is “Mr. Brown entered into a valid and enforceable contract with Hometown vis-a-vis the Hometown-II Operating Agreement.” [DE 15 at 355; DE 16-1 at 366]. This quotation appears in Hometown II's Motion to Compel Arbitration. [DE 10-1 at 96-97]. Hometown II does not make novel arguments about this quotation in its reply brief. [See DE 10-1; DE 15]. Because Hometown II's reply “did not raise any new legal arguments or introduce new evidence, ” the Court will exercise its discretion to DENY Hometown's motion for leave to file a sur-reply. Liberty Legal Foundation, 875 F.Supp.2d at 797.

II. Motion to Compel Arbitration [DE 10].

Hometown II argues that two arbitration agreements existed between the parties: the Operating Agreement and the Dispute Resolution Program. [DE 10-1 at 98]. Hometown II argues that Hometown acknowledges in the arbitration proceedings with Brown that it was a party to the Operating Agreement. [Id. at 97]. Hometown argues that the Operating Agreement is not valid because neither Hometown nor Hometown II is a party to it. [DE 14 at 237-38]. Hometown also argues that the Dispute Resolution Agreement is not valid because it only covers employee claims, and Hometown II is not an employee. [Id. at 241-42]. Hometown also argues that Hometown and Hometown II are parties to the License Agreement, which contains a provision stating that Hometown has the right to prosecute infringement of the agreement and has no arbitration provision. [Id. at 238-39].

A. Standard

Congress enacted the United States Arbitration Act of 1925 (“FAA”), 9 U.S.C.A. § 1-16, and federal and Kentucky law favors enforcing arbitration agreements. See Whalen v. Lord & Moses, LLC, No. CIV. A. 09-192-JBC, 2009 WL 3766327, at *1 (E.D. Ky. Nov. 10, 2009). The FAA's purpose was to put arbitration agreements “upon the same footing as other contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991).

Section 4 of the FAA provides that a party may petition a court to compel arbitration. FAA § 4. After receiving such a petition, the Court “shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” Id. Even so, the Court first “must engage in a limited review to determine whether the dispute is arbitrable.” Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir. 2004) (quoting Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)). Generally, any doubts about arbitrability should be resolved in favor of arbitration. Fazio v. Lehman Bros., 340 F.3d 386, 392 (6th Cir. 2003) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). “[W]hile we must bear in mind the presumption of arbitrability, the cornerstone of our inquiry rests upon whether we can resolve the instant case without reference to the agreement containing the arbitration clause.” NCR Corp. v. Korala Assocs., Ltd., 512 F.3d 807, 814 (6th Cir. 2008). “If such a reference is not necessary to the resolution of a particular claim, then compelled arbitration is inappropriate, unless the intent of the parties indicates otherwise.” Id.

In determining whether the dispute is arbitrable, the Court first looks to whether the parties formed a valid arbitration agreement. See Braxton v. O'Charley's Rest. Properties, LLC, 1 F.Supp.3d 722, 725 (W.D. Ky. 2014) (“Such review, the Sixth Circuit advises, requires the Court to determine first whether a valid agreement to arbitrate exists between the parties, and second whether the specific dispute falls within the substantive scope of the agreement.) (internal citations and quotations omitted). “In order to show that the validity of the agreement is ‘in issue,' the party opposing arbitration must show a genuine issue of material fact as to the validity of the agreement to arbitrate, ” and the necessary showing “mirrors that required to withstand summary judgment in a civil suit.” Great Earth Companies, Inc. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002) (quoting Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 129-30 (2d Cir. 1997)).

If the Court determines that a valid agreement existed, then the Court must determine whether the claim falls within the scope of the arbitration agreement. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985). Here, the parties dispute whether they were signatories to the Operating Agreement or Dispute Resolution Program and whether the claims arise from these contracts.^[1] The Sixth Circuit has recognized five theories under which a non-party or non-signatory to an arbitration agreement may still be bound to arbitrate disputes arising from it: “(1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter ego, and (5) estoppel.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003) (citing Thomson-CSF, S.A. v. Am. Arb. Ass'n, 64 F.3d 773, 776 (2d Cir. 1995)). Common law contract...