Toddle Inn Franchising, LLC v. KPJ Associates LLC ( 2021 )

United States Court of Appeals
For the First Circuit
No. 20-1550
TODDLE INN FRANCHISING, LLC,
Plaintiff, Appellee,
v.
KPJ ASSOCIATES, LLC; KATHIE L. MURPHY; PATRICK M. MURPHY; JAMES
O. HASKELL; KENNEBUNK CHILDREN'S ACADEMY, LLC; MURPHY-HASKELL
PROPERTIES, LLC,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Jon D. Levy, U.S. District Judge]
Before
Howard, Chief Judge,
Thompson, Circuit Judge,
and Katzmann, Judge.*
Seth W. Brewster, with whom Micah A. Smart, John S. Bjorn,
and Eaton Peabody were on brief, for appellants.
Timothy J. Bryant, with whom Benjamin S. Piper and Preti
Flaherty were on brief, for appellee.
August 11, 2021
* Of the United States Court of International Trade, sitting
by designation.
THOMPSON, Circuit Judge.
Stage-Setting
This case is about a business relationship gone sour.1
Starting in July 2006, KPJ Associates, LLC ("KPJ") ran
a daycare in Kennebunk, Maine as a franchisee of Toddle Inn
Franchising, LLC ("Toddle"). The contract between them covered
many topics — not a surprise, given the realities of today's
complex commercial world. A few illustrations suffice to make the
point:
• The contract, for example, let KPJ use Toddle's system
(identified by the federally-registered trademark "TODDLE
INN"), which involved uniform standards, methods, and
procedures for the daycare's operation.
• The contract also imposed a bunch of "don'ts" and "dos" on
KPJ, to kick in when the agreement ended. The "don'ts"
included not continuing to run the daycare under the contract;
not continuing to use Toddle's system or confidential
material (the latter term broadly defined to cover things
like competitively-sensitive information); and not continuing
1Because today's appeal emanates from a motion to compel
arbitration and stay federal-court proceedings, "we draw the
relevant facts from the operative complaint and the documents
submitted to the district court in support of" that "motion." See
Cullinane v. Uber Techs., Inc., 893 F.3d 53, 55 (1st Cir. 2018).
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to hold itself out to the public (either directly or
indirectly) as a Toddle franchisee. The "dos" included paying
Toddle all sums owed, specifically listing damages, costs and
expenses, and reasonable attorneys' fees.
• And the contract provided that all disputes be resolved by
arbitration under the Federal Arbitration Act ("FAA"); that
Toddle could sue for injunctive relief, despite the
arbitration provision; and that Toddle could recover
reasonable attorneys' fees and costs incurred in any legal
action or other proceeding if a dispute arose.2
One Friday in July 2018, KPJ notified Toddle that it was
ending the franchise agreement effective 6 p.m. and that it would
open another daycare at the same site the following Monday. A
none-too-pleased Toddle filed a federal complaint against KPJ that
Tuesday, charging unfair competition under the federal Lanham Act,
plus breach of contract and trade-secret misappropriation under
Maine law.3 Among other requests, Toddle asked for an injunction
to stop KPJ from infracting the contract's post-termination
provisions, for payment of "all sums owing to Toddle," and for
reasonable attorneys' fees and costs. Toddle simultaneously moved
We will quote the key parts of the contract as we move along
2
(removing any excess capitalization, however).
Toddle also sued KPJ's guarantors to the contract.
3 But for
simplicity, we refer only to KPJ.
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for a temporary restraining order ("TRO"). And one of the
arguments made in opposing the motion was that Toddle's Lanham Act
claim could not succeed, because of Dastar Corp. v. Twentieth
Century Fox Film Corp. ("Dastar"), 539 U.S. 23 (2003). After a
hearing that same day, the judge denied the TRO motion, without
discussing Dastar. (We, however, will have much to say about
Dastar momentarily.)
Toddle moved a few weeks later to compel arbitration and
stay court proceedings, arguing that the dispute came within the
contract's arbitration clause. KPJ opposed, contending most
relevantly that Toddle waived its right to compel arbitration by
filing its action in federal court and asking for what amounts to
damages, instead of pushing for arbitration from the get-go. KPJ
also answered Toddle's complaint, raising as one of its affirmative
defenses that Dastar barred "each and every" claim by Toddle. And
KPJ counterclaimed for breach of contract, fraud, and unjust
enrichment (among other claims), alleging (in part) that Toddle
never gave it "any operating manual or training."
The judge ultimately compelled arbitration, after
pertinently concluding that Toddle had not acted inconsistently
with its arbitration rights, because the contract explicitly
authorized Toddle to seek injunctive relief; and that KPJ would
not be unfairly prejudiced by having to arbitrate, seeing how the
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sides had not yet participated in any formal discovery. The
arbitrator eventually found for Toddle, finding (for example) that
KPJ had "misappropriated" parts of Toddle's system (including "its
forms and policies," and "the distinctive look and feel of the
Toddle . . . facility") and "made it appear that it was a seamless
continuation from the prior Toddle . . . franchise." Rejecting
KPJ's counterclaims, the arbitrator awarded Toddle $79,000 in
compensatory damages and $145,852 in attorneys' fees and expenses.
Back in federal court, Toddle then moved the judge to confirm the
award, asking as well to recover additional attorneys' fees and
expenses incurred in pressing this motion. KPJ objected, but only
"insofar" as the motion sought extra attorneys' fees and expenses
"not included in the arbitration award." And long story short,
the judge confirmed the award, awarded the additional attorneys'
fees and expenses, and entered judgment accordingly.
Which brings us to today, with KPJ's brief raising three
legal theories for reversal. The first is that the judge
(supposedly) lacked subject-matter jurisdiction because Toddle
presented a frivolous Lanham Act claim, given Dastar.4 The second
4 Subject-matter jurisdiction means the power to resolve the
parties' dispute. See, e.g., Reyes-Colón v. United States, 974
F.3d 56, 58 (1st Cir. 2020). And one of the ways a federal court
can get subject-matter jurisdiction over a case is through what is
known as federal-question jurisdiction. See 28 U.S.C. § 1331
(granting federal district courts original jurisdiction over "all
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is that Toddle (supposedly) waived its right to arbitrate by opting
to litigate before demanding arbitration. And the third is that
the judge (supposedly) had no right to award additional attorneys'
fees and costs. Toddle finds none of these theories persuasive.
Neither do we, for reasons we now explain.
Jurisdiction
We start (as we must) with subject-matter jurisdiction,
see Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94
(1998), considering the issue with fresh eyes ("de novo," in judge-
speak), see Woo v. Spackman, 988 F.3d 47, 50 (1st Cir. 2021), and
seeing if "a federal claim is made manifest within the four corners
of [Toddle's] complaint," see Viqueira v. First Bank, 140 F.3d 12,
17 (1st Cir. 1998) — all while also accepting the complaint's facts
as true and construing them in the light most sympathetic to
Toddle, see Royal v. Leading Edge Prods., Inc., 833 F.2d 1, 1 (1st
Cir. 1987). See generally Lawless v. Steward Health Care Sys.,
LLC, 894 F.3d 9, 17 (1st Cir. 2018) (underscoring that "the
propriety of federal-question jurisdiction must be assayed based
on 'what necessarily appears in the plaintiff's statement of [its]
civil actions arising under the Constitution, laws, or treaties of
the United States").
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own claim'" (quoting Franchise Tax Bd. v. Constr. Laborers Vacation
Tr., 463 U.S. 1, 10 (1983))).5
Toddle's complaint invoked federal-question
jurisdiction via the Lanham Act (and supplemental jurisdiction
over the state claims6) — as the parties agree, the FAA does not
independently provide federal jurisdiction. See, e.g., Hall St.
Assocs. v. Mattel, Inc., 552 U.S. 576, 581-82, 582 n.2 (2008). At
the risk of oversimplification, the Lanham Act (so far as pertinent
to this case) protects against consumer confusion over the source
or sponsorship of goods or services. See, e.g., Dastar, 539 U.S.
5 Caselaw distinguishes between "facial" and "factual"
subject-matter-jurisdiction attacks. See Torres-Negrón v. J & N
Records, LLC, 504 F.3d 151, 162 (1st Cir. 2007). A facial attack
contests jurisdiction based on well-pleaded allegations in the
complaint — which a court takes as true. Id. A factual attack
contests jurisdiction in fact, regardless of what the complaint
says — and a court (broadly speaking, and according to "substantial
authority") need not accept the plaintiff's allegations as true
but can "weigh the evidence and satisfy itself as to the existence
of its power to hear the case." Id. at 163 (quoting Lawrence v.
Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990)). KPJ's attack is a
facial challenge, what with its opening brief referencing the well-
pleaded-complaint rule — which provides that a claim arises under
federal law only if the federal question appears on the face of a
properly pleaded complaint. See Viqueira, 140 F.3d at 17. KPJ's
lead brief cites and quotes Viqueira, by the way (a case we cited
above).
6 A statute — 28 U.S.C. § 1367 — outlines "the supplemental
jurisdiction of the federal courts, which is to say their
jurisdiction over matters related to matters over which federal
jurisdiction is explicitly conferred." Lefkovitz v. Wagner, 395
F.3d 773, 782 (7th Cir. 2005) (Posner, J., for the court).
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at 31 n.4. And section 43(a) of the Lanham Act does that by
creating a federal cause of action for anyone damaged by another's
use[] in commerce any word, term, name,
symbol, or device, or any combination thereof,
or any false designation of origin, false or
misleading description of fact, or false or
misleading representation of fact, which . . .
is likely to cause confusion, or to cause
mistake, or to deceive as to the affiliation,
connection, or association of such person with
another person, or as to the origin,
sponsorship, or approval of his or her goods,
services, or commercial activities by another
person . . . .
See 15 U.S.C. § 1125(a)(1) (also known as § 43(a) of the Act).
Trying to fit its case into the Lanham Act, Toddle's
complaint alleged that KPJ deceived consumers by letting the public
think it is not involved with Toddle, when actually it still used
Toddle's system. Just consider these choice quotes, all lifted
from Toddle's complaint:
• "KPJ has been informing customers that it would no longer be
operating under the name TODDLE INN but stating that its
services would otherwise remain the same."
• KPJ has told "parents . . . that all Toddle . . . contracts
are carrying forward" and that KPJ "would keep all the same
policies in place" at the Kennebunk locale, with "the name"
being "the only thing changing."
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• "Since termination, KPJ has competed unfairly with Toddle
. . . at its TODDLE INN Kennebunk daycare center by holding
itself out to the public as unaffiliated with Toddle . . .,
when in fact it continues to use the Toddle . . . [s]ystem in
providing daycare services" — as shown "by [KPJ's] carrying
on the same manner of operations as [it] did prior to
termination, in the same location, and with the same staff."
• "In so doing KPJ has confused, misled, and deceived the public
as to the origin and affiliation of its services as a means
of generating or retaining business."
Critically for our purposes, just because a complaint
alleges a federal claim does not automatically mean that the
district court has subject-matter jurisdiction. And that is
because a court cannot consider "wholly insubstantial and
frivolous" claims. See Bell v. Hood, 327 U.S. 678, 682-83 (1946);
see also Lawless, 894 F.3d at 18. One way a claim can get tagged
wholly insubstantial and frivolous is if it is "foreclosed by"
Supreme Court precedent — i.e., if the precedent "leave[s] no room
for the inference that the questions sought to be raised" by the
claim "can be the subject of controversy." See Hagans v. Lavine,
415 U.S. 528, 543 (1974) (quotation marks omitted); see also Hatch
v. Town of Middletown, 311 F.3d 83, 84 n.2 (1st Cir. 2002). But
— and it is a big "but" — the flipside is that Supreme Court
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precedent "that merely render[s]" a "claim of doubtful or
questionable merit" does not affect jurisdiction. See Hagans, 415
U.S. at 538 (emphasis added).
Put this all together, and only the most extreme cases
will flunk this substantiality test. See Duke Power Co. v.
Carolina Envtl. Study Grp., 438 U.S. 59, 70 (1978) (explaining
that "the test is whether the cause of action alleged is so
patently without merit as to" preclude jurisdiction (quotation
marks omitted); see generally Boothby v. Soc. Sec. Admin. Comm'r,
132 F.3d 30, 1997 WL 727535, at *1 (1st Cir. 1997) (table)
(collecting cases and stating that raising a colorable federal
claim is hardly an "onerous" task). To again quote our judicial
superiors:
[T]he district court has jurisdiction if "the
right of the petitioners to recover under
their complaint will be sustained if the
Constitution and laws of the United States are
given one construction and will be defeated if
they are given another," unless the claim
"clearly appears to be immaterial and made
solely for the purpose of obtaining
jurisdiction or where such a claim is wholly
insubstantial and frivolous."
Steel Co., 523 U.S. at 89 (citation omitted and quoting Bell, 327
U.S. at 682-83, 685). And given how charitable the substantiality
standard is, it should come as no surprise that a plaintiff can
successfully invoke federal jurisdiction and yet later lose on
some other basis — like, say, failure to state a claim on which
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relief may be granted. See Shapiro v. McManus, 577 U.S. 39, 45
(2015); see also Bell, 327 U.S. at 682.
KPJ pins its reversal hopes on the idea that Dastar
"directly and unequivocally" forecloses Toddle's Lanham Act claim.
Call us unconvinced.
Dastar copied, edited, and sold a video series that
relied entirely on footage from an older series whose copyright
had expired — oh, and Dastar peddled the series as its own. See
539 U.S. at 25-27. The question presented was whether Dastar made
a "false designation of origin . . . which . . . is likely to cause
confusion . . . as to the origin . . . of [Dastar's] goods." Id.
at 31 (emphasis added and quoting 15 U.S.C. § 1125(a)(1)).
Answering "no," the Supreme Court held that the italicized phrase
— "origin of goods" — "refers to the producer of the tangible goods
that are offered for sale, and not to the author of any idea,
concept, or communication in those goods." Id. at 37-38. Reduced
to its essence, the Court's reasoning ran this way: Congress
passed the Lanham Act "to make 'actionable the deceptive and
misleading use of marks,' and 'to protect persons engaged in
commerce against unfair competition.'" Id. at 28 (quoting 15
U.S.C. § 1127). Because the Act was "not designed to protect
originality" like patent and copyright laws, the Court thought
that "hold[ing] otherwise would be akin to finding that § 43(a)
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created a species of perpetual patent and copyright, which Congress
may not do." Id. at 37. So "Dastar," as one court aptly put it,
thus had the right (so far as the Lanham Act
is concerned) to incorporate into its videos
footage taken and edited by others, provided
that it manufactured the finished product and
did not mislead anyone about who should be
held responsible for shortcomings.
Bretford Mfg., Inc. v. Smith Sys. Mfg. Corp., 419 F.3d 576, 580
(7th Cir. 2005).
Trying to shoehorn our case into Dastar, KPJ argues that
Toddle is the "author" of the Toddle system — a "concept (or
method) of running a daycare business," to quote KPJ's appellate
papers. And, the argument continues, KPJ (emphasis ours) "took
and used" the system Toddle "allegedly" developed, "made
modifications . . . and produced its own materials, ideas, and
programs" — much like Dastar did when it modified the original
footage and produced its very own video series. Which means, at
least in KPJ's mind, that Toddle's claim is essentially the same
claim the Supreme Court rejected in Dastar.
The short and simple response, however, is that Toddle's
complaint alleges nothing at all about KPJ's modifying the system.
Not one word. Actually, the complaint alleges the exact opposite:
that (for example, and as noted above) KPJ is running its new
daycare with the same Toddle system, providing the same services
at the same location and using the same staff. Given this
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distinction between Toddle's Lanham Act claim and Dastar's, we
cannot say that Dastar "inescapably render[s]" Toddle's "claim
frivolous." See Hagans, 415 U.S. at 538 (emphasis added). So
even if we had some doubts about Toddle's theory, Toddle's
allegations are not such nonsense that they fail to raise a
colorable federal claim under the not-difficult-to-meet
substantiality standard. After all (and to use slightly different
words than before), a "federal claim need not have merit . . . for
the court to assume jurisdiction" — rather, the claim need only be
"seemingly valid or genuine," and not "wholly insubstantial,
immaterial, or frivolous." See Lawless, 894 F.3d at 18 (quotation
marks and citations omitted, plus emphasis added). And that
definition fits this situation exactly.
The bottom line then is that KPJ's Dastar-based theory
does not help its cause.7 And that is that for the jurisdiction
issue.
KPJ's opening brief seemingly faults the judge for not
7
"independent[ly]" checking his "own subject-matter jurisdiction"
before sending the dispute to arbitration — though KPJ admits that
it "did not raise the [jurisdiction] issue" below. A judge's
subject-matter-jurisdiction determination may be implicit as well
as explicit, however. See United Seniors Ass'n, Inc. v. Philip
Morris USA, 500 F.3d 19, 23 (1st Cir. 2007) (citing Baella-Silva
v. Hulsey, 454 F.3d 5, 10 (1st Cir. 2006)). Conceding as much in
its reply brief, KPJ asks us to "make an independent [i.e., de
novo] determination of whether federal subject matter jurisdiction
exists" — a job we have just done.
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Waiver of Right to Arbitrate
We next address KPJ's charge that the judge erred in
concluding that Toddle did not waive its right to arbitrate through
its litigation conduct, giving fresh-eyed review both to the
judge's "interpretation of the arbitration agreement" and to his
"decision . . . to compel arbitration." See Ouadani v. TF Final
Mile LLC, 876 F.3d 31, 36 (1st Cir. 2017).
The FAA backs "a liberal federal policy favoring
arbitration agreements," see Moses H. Cone Mem'l Hosp. v. Mercury,
460 U.S. 1, 24 (1983), recognizing that arbitration provides a
more simple and less costly way of resolving disputes than
litigation, see Joca-Roca Real Estate, LLC v. Brennan ("Joca-
Roca"), 772 F.3d 945, 949 (1st Cir. 2014). Like any other contract
right, the right to arbitrate may be waived either explicitly or
through an implicit course of conduct. But there is a strong
presumption against inferring waiver — so strong that any
"reasonable doubts as to whether a party has waived the right to
arbitrate should be resolved in favor of arbitration." See In re
Tyco Int'l Ltd. Sec. Litig. ("Tyco"), 422 F.3d 41, 44 (1st Cir.
2005).
As the party arguing waiver by conduct, KPJ bears the
burden of showing more than a "mere delay," see Joca-Roca, 772
F.3d at 948 (quoting Creative Sols. Grp. v. Pentzer Corp., 252
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F.3d 28, 32 (1st Cir. 2001)) — it must show at least a "modicum of
prejudice" too, see Tyco, 422 F.3d at 44 (quoting Rankin v.
Allstate Ins. Co., 336 F.3d 8, 12 (1st Cir. 2003)). Factors to
consider (though no single factor is controlling) include the
extent of Toddle's "delay" in demanding arbitration, the degree to
which Toddle "participated in the litigation," whether
significant "discovery and other litigation-related activities"
occurred, the "proximity" of Toddle's demand "to an anticipated
trial date," and whether the arbitration referral "prejudiced"
KPJ. See Joca-Roca, 772 F.3d at 948. So — and it (almost) goes
without saying — this is an individualized inquiry, particular to
each case's circumstances. See Tyco, 422 F.3d at 46.
Toddle moved to compel arbitration 27 days after filing
suit. During that less-than-a-month stretch, Toddle sparred a bit
with KPJ over the TRO issue8 and asked KPJ to preserve evidence in
KPJ's possession. These hardly seem like the kind of foot-dragging
delay tactics that are inconsistent with Toddle's right to
arbitrate. Just consider Joca-Roca. The plaintiff there
"commenced a civil action, vigorously prosecuted it, and then —
after many months of active litigation — tried to switch horses
midstream to pursue an arbitral remedy." Joca-Roca, 772 F.3d at
8 FYI, the TRO hearing lasted 47 minutes.
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948. We used "vigorously" and "active" as shorthand to describe
how "[d]uring the . . . pretrial proceedings, the parties conducted
sixteen depositions, propounded and answered interrogatories, and
produced and exchanged thousands of pages of documents" — with a
magistrate judge also holding "no fewer than four telephone
conferences to resolve discovery disputes and scheduling
conflicts." Id. at 947. And given all this, we had no trouble
concluding that "the plaintiff's conduct evidenced a clear intent
to forgo arbitration and resolve the disputed matter through
litigation." Id. at 949.9
KPJ spends time arguing that Toddle waived its right to
arbitrate by pursuing injunctive relief in court. True, as KPJ is
quick to observe, the contract provides that "all disputes" will
be arbitrated.10 But the contract also provides (our emphasis)
While Joca-Roca was an "open-and-shut" case of waiver and
9
is not "alone . . . determinative," as KPJ notes, its analysis
guides us — and KPJ offers no persuasive reason why Joca-Roca
cannot help illuminate the path to decision.
10 The arbitration clause pertinently says that
[a]ll disputes between or among the parties
whether now existing or arising in the future,
including without limitation, any and all
claims, defenses, counterclaims, cross
claims, third party claims and intervenor
claims, whether or not arising from or related
to the negotiation, execution and performance
of this agreement or the transaction to which
this agreement relates shall be settled by
arbitration under the [FAA] . . . . The
arbitrator may also award attorney[s'] fees as
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that Toddle may pursue injunctive relief in court,
"notwithstanding the arbitration clause."11 KPJ still urges us to
find ambiguity, because the arbitration clause covers "all
disputes." The gaping hole in this argument is — as just noted —
that the injunctive-relief clause unambiguously carves out an
exception for injunctive relief.
Somewhat relatedly, KPJ accuses Toddle of impermissible
forum shopping — taking the case to court and then asking for
arbitration after losing on its TRO request. But once again, the
contract expressly permitted Toddle to seek injunctive relief in
court before seeking arbitration. Cf. Teradyne, Inc. v. Mostek
Corp., 797 F.2d 43, 51 (1st Cir. 1986) (holding that a district
judge "can grant injunctive relief in an arbitrable dispute pending
arbitration," and explaining that "the congressional desire to
enforce arbitration agreements would frequently be frustrated if
the courts were precluded from issuing preliminary injunctive
set forth in [the attorneys' fees/costs
clause]. The arbitrator shall have continuing
jurisdiction to implement his/her decision.
11 The injunctive-relief clause states that
[n]otwithstanding the arbitration clause
. . ., [Toddle] may bring an action for
injunctive relief in any court having
jurisdiction to enforce [Toddle's] non-
competition[,] trademark, and/or propriety
rights, in order to avoid irreparable harm.
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relief to preserve the status quo pending arbitration and, ipso
facto, the meaningfulness of the arbitration process").
KPJ fares no better in arguing that Toddle waived its
arbitration right by including a damages request in its complaint
for injunctive relief. And that is because KPJ's lead brief offers
no on-point case support for this theory. Which makes this claim
a nonstarter, because "developing a sustained argument out of . . .
legal precedents" is a party's job, not this court's. See Town of
Norwood v. FERC, 202 F.3d 392, 405 (1st Cir. 2000); accord Díaz-
Alarcón v. Flández-Marcel, 944 F.3d 303, 313 (1st Cir. 2019); see
also Joca-Roca, 772 F.3d at 948 (highlighting that "[t]he party
advocating waiver has the burden of demonstrating prejudice").
Undeterred, KPJ insists that it suffered prejudice
because it had "to direct counsel to research and respond to
[Toddle's] motion for temporary restraining order at an emergency
hearing on the same day that motion was filed." Of course, if
Toddle had asked for injunctive relief in arbitration, KPJ would
have done exactly the same thing it did in the district court —
"direct[ed] counsel . . . to respond." And KPJ's lead brief cites
no authority suggesting that it can carry its prejudice burden
through defense costs it would have suffered in any forum.
KPJ also argues that it was prejudiced because it was
"forced to address informal written requests for discovery from
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Toddle . . . while before the [d]istrict [c]ourt" and had to file
an answer and counterclaims "tailor[ed]" to that forum. What KPJ
complains about is simply the reality of dispute resolution,
whether in arbitration or litigation. And KPJ's lead brief
supplies no caselaw indicating that it can satisfy its prejudice
burden by showing it had to do certain things in response to a
suit Toddle had every right to file.
Nor does KPJ's claim that it was "required to operate
[its] business under the specter of a public court case" change
our minds — a claim that strikes us as odd, given that it is KPJ
that is insisting that the case be tried in "public court."
Anyway, KPJ's argument fails because Toddle had the right to seek
injunctive relief in court.12
12 KPJ's reply brief cites Rankin v. Allstate Ins. Co., 336
F.3d 8 (1st Cir. 2003), Cornell & Co. v. Barber & Ross Co., 360
F.2d 512 (D.C. Cir. 1966) (per curiam), and In re Citigroup, Inc.,
Capital Accumulation Plan Litig. ("Citigroup"), 376 F.3d 23 (1st
Cir. 2004), as if they are silver bullets in its appeal. But
unlike here, in Rankin a party did not invoke an arbitration clause
"until after discovery had closed and the long-scheduled trial
date had almost arrived." See 336 F.3d at 13. And unlike here,
in Cornell & Co. "the litigation machinery had been substantially
invoked" when a party tried to exercise its arbitration rights.
See 360 F.2d at 513. And also unlike here, in Citigroup "[t]hree
full years had elapsed between the filing of the complaint" and
the motion to stay and compel arbitration — with lots of
depositions taken and case-management conferences held. See 376
F.3d at 27. Put simply then, these cases are not difference-
makers for KPJ.
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So the judge did not err in ruling that Toddle did not
waive its right to demand arbitration.
Additional Attorneys' Fees and Costs
We last consider KPJ's complaint that the judge slipped
in awarding Toddle attorneys' fees and costs it incurred getting
the arbitration award confirmed. Ordinarily, we review such an
issue for abuse of discretion — mindful that a material error of
law is always an abuse of discretion. See Spooner v. EEN, Inc.,
644 F.3d 62, 66 (1st Cir. 2011); see also Janney Montgomery Scott
LLC v. Tobin, 571 F.3d 162, 164 (1st Cir. 2009). But KPJ disputes
whether the judge had any discretion at all. As KPJ sees it, only
the arbitrator had the power "to determine whether, and in what
amount, to award attorneys' fees and costs," and thus the judge's
award of "additional fees and costs" cannot stand. As framed,
KPJ's attack is a legal issue that we review anew ("de novo," in
legalese) — with us giving no deference to the district judge's
views. See Rivera-Rosario v. U.S. Dep't of Argric., 202 F.3d 35,
36-37 (1st Cir. 2000).
KPJ starts off talking up some nonbinding cases that say
things like:
• "Absent statutory authorization or contractual agreement
between the parties, the prevailing American rule is that
each party in federal litigation pays his own attorneys'
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fees." Menke v. Monchecourt, 17 F.3d 1007, 1009 (7th Cir.
1994) (emphasis added). (The significance of "contractual
agreement" lingo will be clear shortly.)
• And "there is nothing in the [FAA] itself that would authorize
a district court to go beyond confirming an arbitrator['s]
award and independently award additional attorneys' fees."
Id.The problem for KPJ, however, is that the "contractual
agreement" here says that Toddle's right to recover attorneys'
fees and costs is not limited to arbitration proceedings, but
extends to "any legal action or other proceeding" — including
"appeals" and "post judgment proceedings."13 Menke, unlike here,
did not involve a contract provision supporting an attorneys' fees
13 To quote the attorneys' fees/cost clause in full:
If [Toddle] brings any legal action or other
proceeding for the enforcement of this
[a]greement, or is forced to defend itself
because of an alleged dispute, breach, default
or misrepresentation in connection with any
provision of this [a]greement, it shall be
entitled to recover reasonable attorneys'
fees, court costs and all expenses even if not
taxable as court costs (including, without
limitation, all such fees, costs and expenses
incident to arbitration, appeals, bankruptcy
and post judgment proceedings), incurred in
that action or proceeding, in addition to any
other relief to which [Toddle] may be
entitled. Attorneys['] fees include paralegal
fees, administrative costs and all other
charges billed by the attorney.
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and cost award — at least there is nothing to indicate that it
did.
And the same goes for Schlobohm v. Pepperidge Farm, Inc.,
806 F.2d 578 (5th Cir. 1986), Hannibal Pictures v. Les Films De
L'Elysee, No. CV 12-6434 CAS (JCGx), 2012 WL 6608595 (C.D. Cal.
Dec. 18, 2012), and Harkin v. G.W. Sargent-Builder, Inc., No. CV-
03-233, 2005 WL 2727088 (Me. Super. May 18, 2005) — three other
cases KPJ relies on. And Crossville Med. Oncology, P.C. v.
Glenwood Sys., LLC (Crossville), 610 F. App'x 464 (6th Cir. 2015)
— another of KPJ's supposedly favorable cases — does not improve
KPJ's prospects for reversal. The contract there declared "that
the prevailing party [in the arbitration] be awarded costs and
attorneys' fees and the award be entered as a judgment." Id. at
468 (emphasis added). Convinced that that clause only
"authorize[d] an arbitrator to award attorneys' fees and costs
during arbitration, and authorize[d] the district court to enter
the award as a judgment," Crossville said that the "[a]greement"
there did "not anticipate an award of post-arbitration attorneys'
fees for subsequent proceedings and litigation." Id. (last
emphasis added). But our contract does "anticipate" that scenario,
because (to repeat what we wrote moments ago, adding our emphasis)
that document says that if Toddle "brings any legal action or other
proceeding" to enforce the contract, "it shall be entitled to
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recover reasonable attorneys' fees, court costs and all expenses
even if not taxable as court costs (including, without limitation,
all such fees, costs and expenses incident to arbitration, appeals,
bankruptcy, and post judgment proceedings), incurred in that
action or proceeding." And even Crossville suggests that contract
language like "'any action at law . . . necessary to enforce the
terms of this agreement'" — which substantially mirrors the
language in play here — indicates "that the parties' contract
anticipated the payment of costs incurred to confirm an arbitration
award." See id. at 468-69 (discussing and quoting Sailfrog
Software, Inc. v. Theonramp Grp., Inc., No. 97-7014, 1998 WL 30100(N.D. Cal. Jan. 20, 1998)). So the decisions KPJ plays up are not
game-changers (at least not for KPJ).
Still searching for a winning argument, KPJ contends
(our emphasis) that because the contract forced the parties to
arbitrate "[a]ll disputes," Toddle's "fee requests must likewise
be submitted to the arbitrator." KPJ then circles back to the
nonbinding Menke and Harkin decisions. In both cases, the at-
issue contract said something like "the entire dispute was subject
to arbitration," thus making any award of attorneys' fees and costs
necessarily submitted to arbitration as well. See Harkin, 2005 WL
2727088, at *2 (emphasis added; discussing Menke). Also in both
cases, the trial court found the FAA did not allow judges "to add
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attorney[s'] fees to the award as part of a judgment confirming an
award," because "do[ing] so would be to modify the award beyond
the limited areas where modification is permitted by" section 11
of the FAA, see id. — which "allows a federal court to correct
'evident' and 'material' arithmetic or descriptive errors in
arbitral awards," see Cytyc Corp. v. DEKA Prods. Ltd. P'ship, 439
F.3d 27, 33 n.3 (1st Cir. 2006) (quoting 9 U.S.C. § 11). From
there, KPJ notes (quoting the contract) that the arbitration clause
provides that "[t]he arbitrator may also award attorney[s'] fees
as set forth in [the attorneys' fees/costs clause]." And this
mention, according to KPJ (emphasis ours), "makes clear that an
award pursuant to the [attorneys' fees/costs clause] is to be
submitted to arbitration and is within the arbitrator's sole
authority to decide."
But there is a flaw in KPJ's analysis. While the
contract here does let the arbitrator make an award of attorneys'
fees and costs, it does not say only the arbitrator can make such
an award. Instead (and as we have been at pains to stress — at
the risk of becoming tedious), the contract broadly provides (our
emphasis) that Toddle "shall" recover attorneys' fees and costs in
"any legal action or other proceeding for the enforcement of this
[a]greement," listing as examples proceedings ("appeals," "post
judgment proceedings," etc.) that are clearly judicial in nature
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— without intimating even a possible hint of a suggestion that
only the arbitrator can make such an award. Which distinguishes
the present case from the ones KPJ hypes.
The end result here is that the judge did not reversibly
err in the way KPJ claims.
Final Words
We affirm the district judge in all respects and award
Toddle its appellate costs under Fed. R. App. P. 39(a)(2).
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