Ky. Peerless Distilling, LLC v. Fetzer Vineyards Corp.

KENTUCKY PEERLESS DISTILLING, LLC, Plaintiff, v. FETZER VINEYARDS CORPORATION, Defendant.

Civil Action No. 3:22-CV-037-CHB

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

April 19, 2022

MEMORANDUM OPINION AND ORDER

CLARIA HORN BOOM, UNITED STATES DISTRICT COURT JUDGE

This matter is before the Court on the Motion to Dismiss Plaintiff's Complaint Or, in the Alternative, To Stay Pending Arbitration filed by Defendant Fetzer Vineyards Corporation (“Fetzer”), [R. 30]. Plaintiff Kentucky Peerless Distilling, LLC (“Peerless”) responded, [R. 35], and Fetzer replied, [R. 40]. This matter is ripe for review. For the reasons set forth herein, the Court will grant in part and deny in part Fetzer's Motion to Dismiss.

I. Background

In February 2017, Fetzer and Peerless entered into a ten-year Distribution Agreement, which defined the framework in which Fetzer, a multi-national wine manufacturer and distributor would exclusively market and sale Peerless's Products^[1] in the agreed upon Territory.^[2] [R. 9, pp. 3-4, 6, ¶¶ 10, 13 21]. Under the Distribution Agreement, Peerless could terminate the contract if Fetzer breached any of its material duties (as outlined in the contract) and failed to cure the breach(es) within thirty days. [R. 9, p. 6, ¶ 22; R. 35-1, pp. 10-11, § 10.1]. In addition, the Distribution Agreement contained the following arbitration provision:

16.6 Dispute Resolution.

(a) In the event of any dispute between the Parties with respect to the validity, performance, interpretation, construction or breach of this Agreement (a “Dispute”), the Parties agree first to try in good faith to settle the dispute by mediation in Dallas, Texas, administered by the American Arbitration Association under its Commercial mediation Procedures.

(b) If settlement is not reached within 60 days after service of a written demand for mediation, any unresolved Dispute shall be submitted to binding arbitration, to be held in Dallas, Texas, U.S.A., in accordance with the Commercial Arbitration Rules of the American Arbitration Association The decision of the arbitrators shall be final and binding upon the Parties, and may be enforced in any court of competent jurisdiction. Notwithstanding the provisions of this Section, the Producer shall have the right to seek relief, including preliminary and permanent injunctive relief, in any court of competent jurisdiction to prevent the unauthorized use or disclosure or misappropriation of any of the Intellectual Property Right or any of the Producer's Confidential Information and to collect monies owed by the Distributor to the Producer hereunder.

[R. 35-1, pp. 17-18].

In early November 2021, Peerless informed Fetzer via letter that it was terminating the Distribution Agreement due to Fetzer breaching several of its material duties. [R. 9, p. 7, ¶ 25]. Specifically, the letter alleged that Fetzer breached the Distribution Agreement by: owning, distributing, marketing, and/or selling another brand of whiskey; failing to purchase 100% of Peerless's Product pursuant to § 6.4; failing to conscientiously and diligently market and sell the Products pursuant to § 6.1; failing to use best efforts to promote the sale of the Products in the Territory in accordance with KRS 355.2-306; failing to provide an Annual Business Plan for 2022; and failing to pay for certain Products delivered by Peerless. Id. ¶¶ 25-26. The termination letter also stated that the termination of the Distribution Agreement was effective as of the close of business on December 31, 2021. Id. ¶ 27; see also [R. 9-2, p. 2].

When informal negotiations between Peerless and Fetzer were unsuccessful, Fetzer invoked the Distribution Agreement's dispute resolution provision, seeking to enforce mediation prior to submitting to binding arbitration. [R. 30, p. 6; R. 30-4; R. 35-1, pp. 17-18]. When the parties could not agree as to the details of mediation (i.e., the location and mediator), Peerless decided to “proceed directly with arbitration ... since 60 days ha[d] lapsed since Fetzer's written demand for mediation.” [R. 30-4, p. 1]. On January 26, 2022, Peerless commenced arbitration with the American Arbitration Association (“AAA”), alleging breach of contract. [R. 30, p. 6; R. 35, p. 7]. That same day, Peerless also filed a Complaint, [R. 1], against Fetzer in this Court.

On February 3, 2022, Peerless filed an Amended Complaint, [R. 9], alleging the following counts: (1) Breach of Contract; (2) Breach of Contract -- Attorneys' Fees and Costs; (3) Unjust Enrichment; (4) Tortious Interference with Prospective Business, Contractual, and Economic Relations -- Damages; and (5) Tortious Interference with Prospective Business, Contractual, and Economic Relations -- Injunctive Relief. [R. 9, pp. 13-20, ¶¶ 63-101]. Peerless also filed a Motion for Temporary Restraining Order (“TRO”) against Fetzer, [R. 10]. In Response to the TRO, the Court held a telephonic status conference on February 4, 2022. See [R. 12]. During the conference, the parties expressed a possibility of reaching an agreement as to the TRO without the Court's intervention. [R. 14, p. 1]. As such, the Court encouraged the parties to reach a resolution amongst themselves and scheduled a second status conference for February 14, 2022. Id. at 2.

During the second status conference, the parties again expressed a possibility of reaching an agreement as to the TRO without the Court's intervention. [R. 18, p. 1]. As a result, the Court encouraged the parties to reach a resolution amongst themselves and scheduled a third status conference for February 23, 2022. Id. at 2; [R. 25]. However, the third status conference revealed that the parties were unable to reach an agreement amongst themselves. [R. 29, p. 1-2]. Both parties requested the Court to set a briefing schedule as to the pending TRO. Id. at 1-2. Fetzer also informed the Court that it intended to file a Motion to Dismiss and a Motion to Compel Arbitration. Id. at 2. As such, the Court set a briefing schedule for both the TRO and Fetzer's anticipated Motion to Dismiss and Motion to Compel Arbitration. Id. On March 9, 2022, Fetzer filed its Motion to Dismiss Plaintiff's Complaint Or, In the Alternative, To Stay Pending Arbitration (“Motion to Dismiss”), [R. 30]. In accordance with the set briefing schedules, the parties filed their respective briefs for both the TRO and Motion to Dismiss. See [R. 30; R. 31; R. 34; R. 35; R. 40; R. 41]. After Fetzer's Motion to Dismiss, [R. 30], had been fully briefed and submitted to the Court, Peerless filed Supplemental Evidence Supporting Its Opposition to Defendant's Motion to Dismiss (“Notice”), [R. 42]. Fetzer filed objections to such submission, [R. 43].

Because the Court will grant Fetzer's Motion to Dismiss, Peerless's TRO, [R. 10], is not addressed in this opinion, but denied as moot.

II. Analysis

A. Arbitration Standard

In this Circuit, “[i]n 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, ” a showing that “mirrors that required to withstand summary judgment in a civil suit.” Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002). Therefore, district courts in Kentucky evaluate a motion to compel arbitration as one for summary judgment under Fed.R.Civ.P. 56(c). See Arnold v. Rent-A-Center, Inc., No. 11-18-JBC, 2011 U.S. Dist. LEXIS 51284, 2011 WL 1810145, at *2 (E.D. Ky. May 12, 2011)) (“This court will treat the motion to compel arbitration as one for summary judgment ...”); Weddle Enters., Inc. v. Treviicos-Soletanche, J.V., No. 1:14-CV-00061-JHM, 2014 U.S. Dist. LEXIS 146812, at *2 (W.D. Ky. Oct. 15, 2014) (“A motion to dismiss based on the existence of a valid arbitration agreement is not evaluated under the usual Fed.R.Civ.P. 12(b)(6) standard. Instead, courts apply the standard applicable to motions for summary judgment.”) (internal citation omitted); see also Mester v. McGraw Hill, LLC, No. 2:21-cv-1741, 2022 U.S. Dist. LEXIS 780, *2 (S.D. Ohio Jan. 4, 2022) (citing Great Earth Cos., 288 F.3d 878, 889 (6th Cir. 2002)) (“Where, as here, the parties proffer and rely upon matters outside of and not referred to in the pleadings, a motion to dismiss based on the existence of a valid arbitration agreement is not evaluated under the usual Fed.R.Civ.P. 12(b)(6) standard. Instead, the standard applicable to motions for summary judgement is applied.”). Peerless, the party opposing arbitration, “must show a genuine issue of material fact as to the validity of the agreement to arbitrate.” Great Earth Cos., 288 F.3d at 889 (internal quotations and citation omitted). The Court “must view all facts and inferences drawn therefrom in the light most favorable to [Peerless], and determine whether the evidence presented is such that a reasonable finder of fact could conclude that no valid agreement to arbitrate exists.” Id.

B. Arbitrability

The Federal Arbitration Act (“FAA”) was enacted “to ensure judicial enforcement of privately made agreements to arbitrate.” Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219 (1985). In other words, the FAA recognizes that “arbitration is a matter of contract” and that contracts must be enforced “according to their terms.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). The Supreme Court has recognized that “parties may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘gateway' questions of ‘arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 529 (2019) (quoting Rent-A-Center, 561 U.S. at 68-69). “And...