Chorley Enterprises, Inc. v. Dickey's Barbecue Restaurants , 807 F.3d 553 ( 2015 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1799
CHORLEY ENTERPRISES, INC., a Maryland Corporation; MATTHEW
CHORLEY; CARLA CHORLEY,
Plaintiffs - Appellees,
v.
DICKEY’S BARBECUE RESTAURANTS, INC., a Texas corporation;
ROLAND DICKEY, JR.; JERREL DENTON,
Defendants - Appellants.
-----------------------
JAMES STROTHER CROCKETT, JR.,
Court-Assigned Amicus Counsel.
No. 14-1800
JUSTIN TROUARD; JESSICA CHELTON,
Plaintiffs - Appellees,
v.
DICKEY’S BARBECUE RESTAURANTS, INC., a Texas corporation;
ROLAND DICKEY, JR.; JERREL DENTON,
Defendants - Appellants.
-----------------------
JAMES STROTHER CROCKETT, JR.,
Court-Assigned Amicus Counsel.
No. 14-1833
CHORLEY ENTERPRISES, INC., a Maryland Corporation; MATTHEW
CHORLEY; CARLA CHORLEY,
Plaintiffs - Appellants,
v.
DICKEY’S BARBECUE RESTAURANTS, INC., a Texas corporation;
ROLAND DICKEY, JR.; JERREL DENTON,
Defendants - Appellees.
-----------------------
JAMES STROTHER CROCKETT, JR.,
Court-Assigned Amicus Counsel.
No. 14-1834
JUSTIN TROUARD; JESSICA CHELTON,
Plaintiffs - Appellants,
v.
DICKEY’S BARBECUE RESTAURANTS, INC., a Texas corporation;
ROLAND DICKEY, JR.; JERREL DENTON,
Defendants - Appellees.
-----------------------
2
JAMES STROTHER CROCKETT, JR.,
Court-Assigned Amicus Counsel.
Appeals from the United States District Court for the District
of Maryland, at Baltimore and Greenbelt. Paul W. Grimm,
District Judge. (1:14-cv-01650-GLR; 8:14-cv-01703-PWG)
Argued: March 26, 2015 Decided: August 5, 2015
Before DIAZ, FLOYD, and THACKER, Circuit Judges.
Vacated and remanded by published opinion. Judge Floyd wrote
the opinion, in which Judge Diaz and Judge Thacker joined.
ARGUED: Roger Brian Kaplan, GREENBERG TRAURIG, LLP, Florham
Park, New Jersey, for Appellants/Cross-Appellees. Russell James
Gaspar, COHEN MOHR LLP, Washington, D.C., for Appellees/Cross-
Appellants. James Strother Crockett, Jr., SPILMAN, THOMAS &
BATTLE, PLLC, Charleston, West Virginia, as Court-Assigned
Amicus Counsel. ON BRIEF: Aaron Van Nostrand, GREENBERG
TRAURIG, LLP, Florham Park, New Jersey, for Appellants/Cross-
Appellees. Andrew K. Wible, C. Patteson Cardwell, IV, COHEN
MOHR LLP, Washington, D.C., for Appellees/Cross-Appellants.
Sarah B. Smith, SPILMAN, THOMAS & BATTLE, PLLC, Charleston, West
Virginia, for Amicus Curiae.
3
FLOYD, Circuit Judge:
This appeal arises from a franchise dispute. Dickey’s, a
national franchisor of quick-service barbeque restaurants,
claims several of its franchisees in Maryland breached their
franchise agreements by running their restaurants poorly. The
franchisees in turn claim that Dickey’s misrepresented start-up
and other costs in violation of Maryland franchise law, thus
never giving them a chance to succeed. At this stage in the
proceeding, however, we must decide only whether the parties’
claims should be arbitrated, as Dickey’s argues, or heard in
federal court in Maryland, as the franchisees contend.
This issue is governed by the parties’ franchise
agreements. On one hand, the agreements require arbitration of
all claims “arising out of or relating to” the agreements. J.A.
553. On the other hand, the agreements state that the
agreements “shall not require” the franchisees to waive their
“right to file a lawsuit alleging a cause of action arising
under Maryland Franchise Law in any court of competent
jurisdiction in the State of Maryland.” J.A. 555.
The district court held that these provisions create an
ambiguity that only a jury can resolve. In doing so, the
district court appeared to conclude that the agreements set up
an “either/or” scenario: either all the parties’ claims must go
forward in arbitration, or they must all proceed in federal
4
court. For the reasons set forth below, we will reverse. As a
matter of law, the clear and unambiguous language of these
provisions requires that the common law claims asserted by
Dickey’s must proceed in arbitration, while the franchisees’
Maryland Franchise Law claims must proceed in the Maryland
district court.
We recognize that requiring the parties to litigate in two
different forums may be inefficient, and could lead to
conflicting results. But this outcome is mandated by the
Federal Arbitration Act, which requires piecemeal litigation
where, as here, the agreements call for arbitration of some
claims, but not others. Accordingly, we reverse with
instructions to compel arbitration of the common law claims
only. We leave it to the district court’s discretion whether to
stay the franchisees’ Maryland Franchise Law claims pending
conclusion of the arbitration.
I.
Dickey’s Barbeque Restaurants, Inc. (Dickey’s), is a Texas-
based franchisor of quick-service restaurants specializing in
barbequed meats, with franchises operating throughout the United
5
States. 1 Both sets of plaintiffs in this collective appeal –
Justin Trouard and Jessica Chelton (“Trouard and Chelton”), and
Matthew and Carla Chorley and their company, Chorley
Enterprises, Inc. (“the Chorleys”) (collectively, the
“Franchisees”) – previously operated Dickey’s restaurants in
Maryland under franchise agreements signed in 2012. 2
A.
The Franchisees’ respective relationships with Dickey’s
soured shortly after they opened their restaurants.
According to Dickey’s, the Chorleys violated their
franchise agreement by, among other things, failing to pass
certain food safety inspections and receiving numerous customer
complaints. 3 As a result, Dickey’s sent several “notices of
operational deficiencies” to the Chorleys throughout 2013 and
early 2014. In response, the Chorleys asserted that Dickey’s
fraudulently misrepresented the operating costs and estimated
profits during negotiations for the franchise in violation of
1 For ease of reference, we refer to Dickey’s as the
“Franchisor” when using its possessive form.
2 The Chorleys also signed a development agreement granting
them the right to open an additional restaurant, but this
lawsuit was filed before they exercised that right.
3 Because this appeal turns on the terms of the parties’
agreements rather than the specifics of their allegations, we
provide only a high-level summary of the parties’ allegations
here.
6
the Maryland Franchise Registration and Disclosure Law, Md. Code
Bus. Reg. §§ 14-201 to 14-233 (2015) (the “Maryland Franchise
Law”).
Despite initially exploring whether the dispute could be
mediated, Dickey’s ultimately brought arbitration proceedings
against the Chorleys in Texas on May 1, 2014. In the
arbitration demand, Dickey’s asserted three common law claims.
Count I sought a declaratory order finding that the Chorleys
breached their franchise agreement; Count II sought a
declaratory order finding that the Chorleys breached their
development agreement; and Count III sought damages for the
Chorleys’ breach of both agreements.
The Chorleys then brought suit in federal court in
Maryland, seeking to enjoin the arbitration and asking the court
to declare the arbitration provisions unenforceable. The
Chorleys also brought affirmative claims for relief under the
Maryland Franchise Law against Dickey’s, its owner, and its
director of business development (collectively “Dickey’s” or the
“Franchisor”). Dickey’s in turn opposed the motion for
injunctive relief, and also filed a cross-motion to compel
arbitration of all the Chorleys’ claims. In the alternative,
Dickey’s sought to stay those claims pending arbitration.
Trouard and Chelton had a similar history with Dickey’s.
Dickey’s contends that Trouard and Chelton mismanaged their
7
restaurant, while Trouard and Chelton assert that Dickey’s
violated the Maryland Franchise Law by misrepresenting start-up
costs and estimated potential sales and profits. The parties
initially discussed mediating their dispute, but Dickey’s
ultimately filed arbitration in Texas, alleging breach-of-
contract and fraud claims. 4 Trouard and Chelton then filed suit
in Maryland, seeking to enjoin the arbitration and requesting
affirmative relief under the Maryland Franchise Law. Dickey’s
opposed the motion for injunctive relief, and again filed a
cross-motion to compel arbitration or, in the alternative, to
stay the action.
The district court consolidated the Franchisees’ lawsuits
for purposes of deciding these preliminary motions. The
arbitrations are currently being held in abeyance pending a
final decision on the motions for preliminary injunctions and
the cross-motions to compel arbitration.
B.
Both below and here on appeal, the parties’ arguments hinge
on the interplay between two provisions in the Franchisees’
virtually identical franchise agreements: (i) the dispute
4
In its fraud claim, Dickey’s alleges that Trouard and
Chelton falsified sales reports in an effort to misrepresent
their restaurant’s financial performance.
8
resolution provisions in Article 27 and (ii) the Maryland-
specific provisions in Article 29.
Article 27, which contains the “Arbitration Clause,”
requires the parties to first mediate their claims before
proceeding to arbitration. If mediation fails to resolve the
disputes within 90 days after the mediator has been appointed,
either party is entitled to seek arbitration at the office of
the American Arbitration Association located nearest to the
Franchisor’s corporate headquarters in Plano, Texas. In the
Arbitration Clause, the parties also agreed to arbitrate “all
disputes, controversies, claims, causes of action and/or alleged
breaches or failures to perform arising out of or relating to
this Agreement (and attachments) or the relationship created by
this Agreement.” J.A. 553. 5
Notwithstanding this Arbitration Clause, the agreements
also provide that the “STATE SPECIFIC PROVISIONS” in Article 29
“CONTROL.” J.A. 555. And Article 29.1, the “Inconsistent
Provisions Clause,” provides that Maryland law “shall govern and
control any contrary or inconsistent provisions” of the
agreement, and that any such inconsistent provisions are
“modified and amended” so that they comply with Maryland law.
Id. Finally, Article 29.2(4), the “Maryland Clause,” states
5The Chorleys’ development agreement contains a virtually
identical arbitration clause. Id. at 585.
9
that the “provisions of this Agreement shall not require you to
waive your right to file a lawsuit alleging a cause of action
arising under Maryland Franchise Law in any court of competent
jurisdiction in the State of Maryland.” Id. 6
The Maryland Clause is similar (but not identical) to
Section 02.02.08.16(L)(3) of the Code of Maryland Regulations
(the “Regulation”). Under the Regulation, a franchisor violates
the Maryland Franchise Law if it requires a franchisee to
“[w]aive the franchisee’s right to file a lawsuit alleging a
cause of action arising under the Maryland Franchise Law in any
court of competent jurisdiction in this State.” Md. Code Regs.
02.02.08.16(L)(3) (2015).
C.
During the district court proceedings, the parties
presented opposing interpretations of these clauses. The
6 Similarly, a “Maryland Addendum” to the Chorleys’
development agreement provides:
Any provision of this Agreement which
designates jurisdiction or venue outside of
the State of Maryland or requires you to
agree to jurisdiction or venue in a forum
outside of the State of Maryland is void
with respect to any claim arising under the
Maryland Franchise Registration and
Disclosure Law.
J.A. 597.
10
Franchisees claimed that the Maryland Clause fundamentally
conflicts with the Arbitration Clause, thus rendering the
Arbitration Clause void such that all of the parties’ claims
must proceed in the district court. Dickey’s took a different
view, arguing that the Maryland Clause is consistent with the
Arbitration Clause because the Maryland Clause merely preserves
the Franchisees’ right to bring a claim under the Maryland
Franchise Law in either arbitration or in court. Alternatively,
assuming the Franchisees’ interpretation was correct, Dickey’s
argued that the Federal Arbitration Act, (FAA), 9 U.S.C. § 1 et
seq., would preempt the Maryland Clause as an invalid
prohibition on arbitration.
The district court concluded that both parties’ readings of
the Arbitration and Maryland Clauses were plausible, thus
rendering the agreements ambiguous. The district court noted
that under the Franchisor’s interpretation, the “Arbitration
Clause could function in harmony with the Maryland Clause.”
J.A. 32. The court also recognized that under the Franchisees’
“view, the Maryland Clause . . . control[s], and [its] language
refers to litigation only, not arbitration.” Id. Faced with
these conflicting interpretations, the court reasoned that a
jury must determine exactly which claims, if any, the parties
11
agreed to arbitrate. 7 Thus, the district court denied the
parties’ respective motions without prejudice and ordered a jury
trial on the meaning of the franchise agreements. 8
Dickey’s then timely appealed the denial of its motions to
compel, and the Franchisees cross-appealed from the denial of
their motions for preliminary injunctive relief.
II.
Before we can address the merits, we must determine whether
we have jurisdiction over these appeals. We ordinarily review
only final decisions from the district courts. Rota-McLarty v.
Santander Consumer USA, Inc., 700 F.3d 690, 696 (4th Cir. 2012).
And there is no dispute that the order at issue is not final.
Thus, we typically would not have jurisdiction over the parties’
interlocutory appeals, absent an exception to the final order
doctrine.
7 Because the jury could have ultimately agreed with the
Franchisor’s interpretation of the respective clauses, the
district court did not reach the Franchisor’s alternative
argument that the FAA preempts the Maryland Clause.
8 Although the district court also held that the Chorleys’
development agreement was similarly ambiguous “as to whether
[the Chorleys] agreed to litigate Maryland Franchise Act claims
as opposed to arbitrate them,” the court concluded that the
Maryland Addendum was unambiguous with respect to venue. Thus,
assuming a jury found arbitration appropriate under that
agreement, the district court held that any such arbitration
must take place in Maryland, not Texas.
12
A.
Section 16 of the FAA provides just such an exception. 9
U.S.C. § 16. 9 That section authorizes interlocutory appeals from
a district court’s refusal to either stay litigation pending
arbitration under Section 3 of the FAA or compel arbitration
under Section 4 of the FAA. 9 U.S.C. § 16(a)(1); see Dillon v.
BMO Harris Bank, N.A., 787 F.3d 707, 713 (4th Cir. 2015)
(stating that under Section 16, “an order that favors litigation
over arbitration is immediately appealable, even if
interlocutory in nature” (ellipsis omitted)). It is undisputed
that the Franchisor’s motions to compel expressly sought to
enforce the Arbitration Clause under Sections 3 and 4 of the
FAA. The district court’s order also expressly denied the
motions. Thus, on the surface at least, this Court appears to
have jurisdiction under 9 U.S.C. § 16(a)(1).
The Court-appointed amicus disagrees, arguing that this
matter is not as straightforward as it seems. The amicus
reasons that Section 16(a)(1) applies only when a district court
makes a final decision as to whether any or all of the claims
between the parties must proceed to arbitration. Because the
district court reserved a final ruling on the motions until
after a jury trial, the amicus contends the order is not
9
The parties agree that the Arbitration Clause is governed
by the FAA.
13
immediately appealable. In essence, the amicus believes an
interlocutory appeal under Section 16 is always premature if a
district court orders a jury trial under Section 4 before
deciding a motion to compel.
Although we appreciate the amicus’s views, this
interpretation is contrary to the FAA’s plain language. Section
16(a)(1)(b) provides for interlocutory appeals of orders denying
arbitration without stating whether those orders must be final.
A separate subsection, Section 16(a)(3), provides for
interlocutory review of any “final decision with respect to an
arbitration.” 9 U.S.C. § 16(a)(3). If Section 16(a)(1)(b)
applies only to final orders, as the amicus contends, Congress
would have said as much, as it did in Section 16(a)(3). See
Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 102-03 (3d Cir.
2000) (finding it significant “that Congress decided to use the
word ‘final’ in one part of the statute, but declined to do so
in the section that declares that orders denying motions to
compel arbitration are indeed appealable”). Congress did not do
so, of course, because grafting a finality requirement onto
Section 16(a)(1)(b) would read that section out of the statute
by making it redundant with Section 16(a)(3). See id.The amicus’s interpretation would also frustrate the very
purpose of Section 16. As we have previously recognized,
Congress created appellate jurisdiction over non-final orders
14
denying motions to compel arbitration “to effectuate a strong
policy favoring arbitration.” Rota-McLarty, 700 F.3d at 696
(quotation omitted). Refusing to hear an appeal until after a
jury trial would not further this policy. That is especially
true where, as here, the arbitration agreements can be construed
on their face as a matter of law, thereby making a jury trial
unnecessary.
In short, the district court expressly “denied” the motions
to compel arbitration “without prejudice.” J.A. 35. As we have
previously held, and we reiterate again today, that is “all that
is necessary to grant us appellate jurisdiction in this case.”
Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 636 (4th Cir.
2002); see also Quilloin v. Tenet HealthSystem Phila., Inc., 673
F.3d 221, 228 (3d Cir. 2012) (“[T]here can be no doubt that we
have the authority to review an appeal from the District Court's
order denying a motion to compel arbitration, irrespective of
the fact that the order was denied without prejudice.”). 10
10The amicus contends a different result is warranted under
Chase v. Sidney Frank Importing Co., Inc., 133 F.3d 913, 1998 WL
3609 (4th Cir. 1998) (per curiam). In that unpublished opinion,
we concluded that an appeal was not ripe for review when the
district court denied a motion to compel upon determining that
additional factual development was necessary to decide the
defendant’s claim that the arbitration clause had been
fraudulently induced. Amicus’s reliance on Chase is misplaced
for several reasons. Unlike in Chase, no further factual issues
remain here – the Arbitration Clause may be construed as a
matter of law. Additionally, Chase – which as an unpublished
(Continued)
15
B.
The Franchisees also contend we have jurisdiction to hear
their cross-appeal under 28 U.S.C. § 1292(a)(1), which
authorizes interlocutory appeals of orders “refusing . . .
injunctions.” We are not so sure. The Franchisees fail to
address Section 16(b)(4) of the FAA, which expressly prohibits
immediate review of interlocutory orders refusing to enjoin
arbitration. 9 U.S.C. § 16(b)(4). Several of our sister
circuits have concluded that Section 16(b)(4) trumps 28 U.S.C.
§ 1292(a)(1), thus precluding immediate review of such orders.
See Accenture LLP v. Spreng, 647 F.3d 72, 74-75 (2d Cir. 2011)
(collecting cases). Section 16(b)(4) may also preclude us from
exercising pendant appellate jurisdiction over the Franchisees’
cross-appeal under Swint v. Chambers County Commission, 514 U.S.
35, 50-51 (1995) (suggesting that appellate courts may exercise
jurisdiction over non-appealable issues that are “inextricably
intertwined” with a question that is the proper subject of an
immediate appeal).
We decline to decide these issues, however, because
resolution of the Franchisor’s appeal will necessarily decide
decision is not binding on this Court – appears to have been
wrongly decided, and is against the weight of published
authority holding that all orders denying motions to compel
arbitration are immediately appealable under the FAA.
16
the issue presented by the Franchisees’ cross-appeal: whether
arbitration may proceed in Texas. Indeed, the appeal and cross-
appeal present two sides of the same coin: the Franchisor’s
appeal asserts that all the parties’ claims should be arbitrated
in Texas; the Franchisees’ cross-appeal seeks to enjoin the
arbitrations in Texas. We need not step out on a jurisdictional
limb as to the Franchisees’ cross-appeal when deciding the
Franchisor’s appeal – which we clearly have jurisdiction over –
will resolve all the issues raised by the parties. Accordingly,
we dismiss the cross-appeal as moot.
III.
A.
Having concluded that we have jurisdiction over the
Franchisor’s appeal, we turn to the merits of the parties’
contentions. The central issue before us is whether the
district court properly refused to compel arbitration after
concluding that the Maryland Clause renders the Arbitration
Clause ambiguous. We review this issue de novo. Noohi v. Toll
Bros., Inc., 708 F.3d 599, 605 (4th Cir. 2013). “We also review
de novo questions of state contract law concerning the validity
of the parties’ arbitration agreement.” Muriithi v. Shuttle
Express, Inc., 712 F.3d 173, 178 (4th Cir. 2013).
17
As background, Section 2 of the FAA, its “primary
substantive provision,” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24 (1983), makes agreements to
arbitrate “valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. Sections 3 and 4 in turn “provide[]
two parallel devices for enforcing an arbitration agreement: a
stay of litigation in any case raising a dispute referable to
arbitration, 9 U.S.C. § 3, and an affirmative order to engage in
arbitration, § 4.” Moses H. Cone, 460 U.S. at 22.
We will compel arbitration under Section 4 if: (i) the
parties have entered into a valid agreement to arbitrate, and
(ii) the dispute in question falls within the scope of the
arbitration agreement. Muriithi, 712 F.3d at 179 (citation
omitted). “The issue whether a dispute is arbitrable presents
primarily a question of contract interpretation, requiring that
we give effect to the parties’ intentions as expressed in their
agreement.” Id. If we conclude that the parties intended to
arbitrate a dispute, we must enforce that agreement according to
its terms. CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669
(2012). At the same time, it is well-settled that a “party
cannot be required to submit to arbitration any dispute which he
has not agreed to so submit.” Levin v. Alms & Assocs., Inc.,
634 F.3d 260, 266 (4th Cir. 2011) (quotation omitted).
18
B.
In determining the parties’ intent, we apply ordinary state
law principles governing the formation of contracts. First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
And under applicable Maryland Law, 11 we may “construe an
ambiguous contract if there is no factual dispute in the
evidence.” Pacific Indem. Co. v. Interstate Fire & Cas. Co.,
488 A.2d 486, 489 (Md. 1985); see also Sierra Club v. Dominion
Cove Point LNG, L.P., 216 Md. App. 322, 334 (Md. Ct. Spec. App.
2014) (stating that “the mere fact that the parties disagree as
to the meaning does not necessarily render [a contract]
ambiguous” when it could only have one meaning as a matter of
law). In the proceedings below, neither party disputed any
facts: they simply offered conflicting interpretations of the
relevant agreements. Notwithstanding the district court’s
decision to hold a jury trial then, this is precisely the type
of issue we can decide as a matter of law.
11Although the “Governing Law” provisions state that the
franchise agreements “shall be governed by and construed in
accordance with the laws of the State of Texas,” J.A. 553, the
parties agree that Maryland law applies. The district court
also applied Maryland law in its order, and both parties cite to
Maryland law on appeal. Accordingly, we will also apply
Maryland law here. Cf. Cargill, Inc. v. Charles Kowsky Res.,
Inc., 949 F.2d 51, 55 (2d Cir. 1991) (finding waiver of
Massachusetts choice of law provision when both parties relied
on New York law before district court and on appeal).
19
The district court concluded that Section 4 of the FAA
requires a jury trial whenever the parties present conflicting
interpretations of an agreement. The right to a jury trial
under Section 4 of the FAA, however, is not automatic. Rather,
the party seeking a jury trial must make an unequivocal denial
that an arbitration agreement exists — and must also show
sufficient facts in support. Oppenheimer & Co., Inc. v.
Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995); see also Manning v.
Energy Conversion Devices, Inc., 833 F.2d 1096, 1103 (2d Cir.
1987). 12
Not just any factual dispute will do. Rather, the party
requesting a jury trial under Section 4 must provide sufficient
evidence in support of its claims such that a reasonable jury
could return a favorable verdict under applicable law. This
standard is akin to the burden on summary judgment. See
Oppenheimer, 56 F.3d at 358 (comparing Fed. R. Civ. P. 56(c),
(e) to the level of sufficient evidentiary facts needed for jury
trial under 9 U.S.C. § 4). In other words, to obtain a jury
12
Although we have not previously addressed the standard
for obtaining a jury trial under Section 4, we find the Second
Circuit’s approach persuasive and so expressly adopt it here.
Cf. Glass v. Kidder Peabody & Co., 114 F.3d 446, 456 (4th Cir.
1997) (recognizing that the Second Circuit’s decisions are
“preeminent in arbitration law.”).
20
trial, the parties must show genuine issues of material fact
regarding the existence of an agreement to arbitrate. 13
Here, the Franchisees requested a jury trial, but did not
dispute any material facts. Accordingly, the Franchisees are
not entitled to a jury trial under Section 4 of the FAA.
Rather, we will decide whether the parties intended to arbitrate
their disputes as a matter of law based on the plain language of
the agreements.
C.
1.
We first consider whether the parties intended to arbitrate
the Franchisor’s common law claims. This question is governed
by the Arbitration Clause, Ford v. Antwerpen Motorcars, ___ A.3d
___, No. 68, 2015 WL 3937607, at * 3 (Md. July 13, 2015), which
indicates that the Franchisees agreed to arbitrate “all
disputes, controversies, claims, causes of action and/or alleged
breaches or failures to perform arising out of or relating to
13The policy behind the FAA supports this standard. If
parties could request and receive jury trials merely by
advancing conflicting interpretations of contractual language
without any supporting extrinsic evidence, it would frustrate
the very policies that the FAA is meant to promote – the swift
and inexpensive alternative resolution of disputes outside of
the judicial forum.
21
this Agreement (and attachments) or the relationship created by
this Agreement.” J.A. 553.
The Franchisor’s breach of contract claims clearly “arise
out of or relate to” the Franchise Agreements, and thus fall
squarely within the Arbitration Clause. See Am. Recovery Corp.
v. Computerized Thermal Imaging, 96 F.3d 88, 93 (4th Cir. 1996);
see also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.
395, 398 (1967) (labeling as “broad” a clause that required
arbitration of “any controversy or claim arising out of or
relating to this Agreement”). Similarly, the Franchisor’s claim
that Trouard and Chelton fraudulently falsified sales reports
falls within the scope of the Arbitration Clause because that
claim arises directly from the franchise relationship created by
the agreement. See Long v. Silver, 248 F.3d 309, 318 (4th Cir.
2001) (holding that fraud claims must be arbitrated when a
“significant relationship” exists between those claims and the
contract in which the arbitration clause is contained). By the
agreements’ plain language then, it seems clear that the
Franchisees have agreed to arbitrate the Franchisor’s common law
claims.
2.
The Franchisees make several unavailing arguments to avoid
this result. First, the Franchisees contend that Dickey’s
22
cannot arbitrate its dispute because it failed to first seek
mediation as required by Article 27 of the franchise agreements.
According to the Franchisees, mediation is a condition precedent
to invoking the arbitration provision, and so the motions to
compel should be denied for this reason alone.
As the Supreme Court has recently re-affirmed, however,
arbitrators – not courts – must decide whether a condition
precedent to arbitrability has been fulfilled. BG Group PLC v.
Republic of Arg., 134 S. Ct. 1198, 1207-08 (2014); see also
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 85-6 (2002).14
Accordingly, the Franchisees’ argument must be decided by the
arbitrator, not the court. Should the arbitrator decide that
the Franchisees have no duty to arbitrate because Dickey’s
failed to satisfy the mediation condition precedent, the parties
may then seek relief in court under the FAA. See 9 U.S.C. §§ 9-
14Several circuits, including our own in an unpublished
opinion, have refused to compel arbitration when the requesting
party failed to comply with a precondition to arbitration. See
Perdue Farms Inc. v. Design Build Contracting Corp., 263 F.
App’x 380, 383 (4th Cir. 2008) (“Where a condition precedent to
arbitration is not fulfilled, a party to a contract does not
have a right to arbitration.”); HIM Portland LLC v. Devito
Builders Inc., 317 F.3d 41, 44 (1st Cir. 2003) (refusing to
compel arbitration because “[u]nder the plain language of the
contract, the arbitration provision of the agreement is not
triggered until one of the parties requests mediation”);
Kemiron-Atl. Inc. v. Aguakem Int’l Inc., 290 F.3d 1287, 1291
(11th Cir. 2002) (same). All of these cases either predate,
conflict with, or do not consider Howsam and BG Group, however,
and thus do not control here.
23
11 (providing procedure for parties to seek confirmation,
vacatur, or correction of an arbitration decision). But that
possibility is irrelevant at this stage in the proceeding.
3.
The Franchisees next argue that Article 29 “trumps” or
“voids” the Arbitration Clause in its entirety. In support,
they point to language in the agreements stating that the
Maryland Clause applies “notwithstanding anything in th[e]
Agreement in the contrary.” J.A. 555. We disagree. At least
as to the common law claims, the Arbitration Clause is not
contrary to the Maryland Clause. Indeed, the common law claims
do not implicate the Maryland Clause in the first instance,
because that Clause only applies to claims “aris[ing] under
Maryland Franchise law,” and the Franchisor’s claims clearly do
not arise under that Law. J.A. 555. Read together then, the
Arbitration and Maryland Clauses demonstrate that the parties
agreed to arbitrate all disputes except for the narrow carve-out
for Maryland Franchise Law claims as set forth in the Maryland
Clause. 15
15
A similar analysis applies to the Chorleys’ development
agreement. The Maryland Addendum in the development agreement
only requires Maryland venue for “any claim arising under the
Maryland Franchise Registration and Disclosure Law.” J.A. 597.
The Franchisor’s breach of contract claims do not arise under
(Continued)
24
The Franchisees seek to conjure a conflict between the
Maryland Clause and the Arbitration Clause by asserting that
they will be forced to raise their Maryland Franchise Law claims
as affirmative defenses in the arbitration. According to the
Franchisees, a ruling in arbitration on their affirmative
defenses under the Maryland Franchise Law could hypothetically
have preclusive effect on the Maryland district court
proceedings as to those claims. As the argument goes, such a
ruling would effectively negate their right to bring suit in
Maryland court under the Maryland Clause.
We reject this reasoning. As an initial matter, the
Maryland Clause only states that the Franchisees have a right to
“file a lawsuit” bringing Maryland Franchise Law claims in
Maryland court; it does not say the Franchisees also have a
right to bring all “affirmative defenses” based on the Maryland
Franchise Law in court. By its plain language then, the
Maryland Clause does not apply to the Franchisees’ affirmative
defenses. And as set forth above, where the Maryland Clause is
not implicated, the Arbitration Clause controls.
that law. Accordingly, to the extent those claims are based on
the development agreement, they may be arbitrated in Texas.
Conversely, the Chorleys’ Maryland Franchise Law claims under
the development agreement may go forward in Maryland court,
because the Maryland Addendum states that the Arbitration Clause
is “void” as to those claims.
25
Moreover, the FAA requires the exact piecemeal litigation
the Franchisees seek to avoid here, notwithstanding the
potential for conflicting results. KPMG LLP v. Cocchi, 132 S.
Ct. 23, 26 (2011) (per curiam) (“[W]hen a complaint contains
both arbitrable and nonarbitrable claims, the Act requires
courts to compel arbitration of pendent arbitrable claims when
one of the parties files a motion to compel, even where the
result would be the possibly inefficient maintenance of separate
proceedings in different forums.”); see also In re Cotton Yarn
Antitrust Litig., 505 F.3d 274, 285 (4th Cir. 2007) (“[F]ederal
law requires piecemeal resolution when necessary to give effect
to an arbitration agreement.”). Accordingly, we will not
determine the preclusive effect of a hypothetical award at this
stage.
We note that if the parties had wanted to avoid potentially
conflicting results – and thorny questions regarding the
preclusive effect of a potential award 16 – they could have agreed
16
Arbitration awards generally have the same preclusive
effect as court orders, but only to the extent the parties agree
that the issues could be decided in arbitration. Cf. Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 222 (1985) (“[I]t
is far from certain that arbitration proceedings will have any
preclusive effect on the litigation of nonarbitrable federal
claims.”). As explained below, the Franchisees did not agree to
arbitrate their Maryland Franchise Law claims. Thus, even if
the arbitrator rejects the Franchisees’ affirmative defenses,
that ruling arguably may not preclude the district court from
reaching a contrary result on the Maryland Franchise Law claims.
(Continued)
26
on a single forum for all their claims. But they did not. We
will not rewrite their agreements to save them from their own
self-imposed, inefficient arbitration procedures. Accordingly,
we reverse with instructions for the district court to compel
arbitration of the common law claims.
D.
Whether the parties also agreed to arbitrate the
Franchisees’ Maryland Franchise Law claims is another matter.
1.
Unlike the Franchisor’s common law claims, the Franchisees’
claims directly implicate the Maryland Clause. Again, that
Clause states that nothing in the agreements shall “require you
to waive your right to file a lawsuit alleging a cause of action
arising under Maryland Franchise Law in any court of competent
jurisdiction in the State of Maryland.” J.A. 555. Reading the
Arbitration Clause as mandating arbitration of the Franchisees’
Maryland Franchise Law claims would necessarily “require” them
to “waive” their right to file such claims in a “court of
competent jurisdiction in the State of Maryland.” By its plain
For the reasons set forth above, however, we will not decide
this hypothetical question here.
27
language then, the Maryland Clause conflicts with the
Arbitration Clause as to the Franchisees’ Maryland Franchise Law
claims. And because the Maryland Clause applies
“notwithstanding anything in th[e] Agreement in the contrary,”
id., we conclude that it trumps the more general Arbitration
Clause as to Maryland Franchise Law claims, thus allowing the
Franchisees to file those claims in Maryland court.
2.
Dickey’s disagrees, asserting that the Maryland Clause does
not mean what it says. In its view, the Maryland Clause merely
preserves the Franchisees’ right to pursue a claim – in court or
in an arbitration – under the Maryland Franchise Law. In
support, Dickey’s cites three cases purportedly holding that
“words such as ‘lawsuit,’ ‘sue’ and ‘court’ do not negate [an]
arbitration provision, but merely preserve[] the right of a
franchisee to pursue a claim – in court or in arbitration –
under Maryland Franchise Law.” App. Br. at 32 (citing Holmes v.
Coverall N. Am., 649 A.2d 365 (Md. 1994); Zaks v. TES
Franchising, No. 3:01CV2266JBA, 2004 WL 1553611 (D. Conn. July
9, 2004); and CompuCredit, 132 S. Ct. at 669). Its reliance on
these cases is misplaced. As set forth below, none of these
cases addresses language even remotely similar to the Maryland
Clause.
28
First, Holmes is readily distinguishable because it held
only that the Maryland Franchise Law neither prohibits
arbitration nor requires Franchise Law claims to be brought in
Maryland. 649 A.2d at 368. 17 But the text of the Maryland
Clause controls here, not the text of the Maryland Franchise
Law. And the two are fundamentally different. Unlike the
Maryland Franchise Law, the Maryland Clause does not merely use
the words “sue” and “court” in creating a cause of action. 18
Instead, it expressly states that the “provisions of the
Agreement,” including the Arbitration Clause, “shall not
require” the Franchisees to waive their “right to file a lawsuit
alleging a cause of action arising under the Maryland Franchise
Law in any court of competent jurisdiction in this State.” J.A.
555.
In short, Holmes establishes that the Maryland Franchise
Law grants franchisees a right to sue for violations of that
Law, but does not say where that suit must take place; whereas
17
Although Holmes addressed a predecessor version of the
Maryland Franchise Law, the differences between it and the
current version are minor and do not impact the analysis here.
18 The Maryland Franchise Law’s “Civil Liability” section
grants a franchisee the right to “sue” under the Law to “recover
damages sustained by the grant of the franchise,” but does not
state whether that suit must be brought in arbitration or in
court. Md. Code Bus. Reg. § 14-227(b). It also states that a
“court may order the person who sells or grants a franchise to:
(1) rescind the franchise; and (2) make restitution to the
person who buys or is granted a franchise.” Id. § 14-227(c)
(emphasis added).
29
the Maryland Clause goes one step further and expressly grants
franchisees a right to file that suit in Maryland. Accordingly,
neither Holmes nor the Maryland Franchise Law shed any light on
the meaning of the Maryland Clause.
Dickey’s next cites Zaks for the proposition that the
Maryland Franchise Law does not prohibit arbitration. In doing
so, Dickey’s again conflates the Maryland Franchise Law with the
Maryland Clause. Zaks is also inapposite because, unlike here,
the parties there executed an addendum to their agreement
expressly stating that the arbitration provision overrode any
provision permitting suit in Maryland. Zaks, 2004 WL 1553611,
at *2 (“Notwithstanding anything to the contrary in the
Franchise Agreement to which this Addendum is attached, the
following terms and conditions shall control: . . . The
Franchise Agreement requires binding arbitration.”). The
opposite is true here: to the extent they conflict, the Maryland
Clause controls “notwithstanding” the Arbitration Clause. J.A.
555.
Dickey’s also contends that Compucredit, 132 S. Ct. at 669
construed language similar to that in the Maryland Clause.
According to Dickey’s, the Supreme Court held that statutory
language purportedly prohibiting “the waiver” of “the right to
sue” in “court actions” only established a private right of
30
action that could be brought in either arbitration or court.
App. Br. at 36. Dickey’s overstates Compucredit’s holding.
In Compucredit, the Supreme Court considered whether a
federal statute – the Credit Repair Organizations Act (CROA), 15
U.S.C. §1679 et seq. – precludes arbitration of claims alleging
violations of that statute. The plaintiffs contended that “the
right to sue” language in the CROA’s disclosure provision, 15
U.S.C. § 1679c(a), created a right to sue in court, not
arbitration. The Supreme Court disagreed, but not because, as
Dickey’s contends, that language could be read to permit
arbitration. Instead, the Court held that the disclosure
provision was entirely irrelevant because it does not “provide[]
consumers with a right to bring an action in a court of law,”
but rather provides only “the right to receive the [disclosure]
statement, which is meant to describe the consumer protections
that the law elsewhere provides.” 132 S. Ct. at 669-70. In
contrast, the Maryland Clause does not merely provide notice of
rights that are provided elsewhere; rather, as a contractual
commitment, it expressly creates the right itself. 19
19Upon concluding that § 1679c(a) was irrelevant, the Court
then turned to the CROA’s civil liability provision, § 1679g,
which creates a private cause of action for violations of the
statute. § 1679g uses terms like “action,” “class action,” and
“court” in describing the cause of action. The Supreme Court
concluded that this language only established a private right of
action that could be brought in either arbitration or court.
(Continued)
31
If anything, Compucredit supports the Franchisees’ position
that the parties were free to select a Maryland court forum,
notwithstanding the default position that Maryland Franchise Law
claims can be brought in arbitration:
[J]ust as the contemplated availability of
all judicial forums may be reduced to a
single forum by contractual specification,
so also can the contemplated availability of
judicial action be limited to judicial
action compelling or reviewing initial
arbitral adjudication. The parties remain
free to specify such matters, so long as the
guarantee of [the CROA’s civil liability
provision]--the guarantee of the legal power
to impose liability--is preserved.
132 S. Ct. at 671 (emphasis in original). In the same way,
here, Dickey’s and the Franchisees were free under the Maryland
Franchise Law to arbitrate or litigate claims arising under the
Law. But, by agreeing to the Maryland Clause, the parties
expressly chose to litigate those claims in Maryland (while
arbitrating all other claims in Texas). This choice is wholly
consistent with Compucredit, which expressly notes that parties
remain free to agree to forum-selection clauses, notwithstanding
This holding is analogous to Holmes – both the CROA and the
Maryland Franchise Law use words like “court” and “action” in
describing their respective private statutory causes of action.
In contrast to the CROA and the Maryland Franchise Law, however,
the Maryland Clause goes further and expressly states that
Franchisees have the right to file a suit in “any court of
competent jurisdiction in this State.” Both the Maryland
Franchise Law and the CROA lack this specific forum-selection
language. Accordingly, Compucredit does not control this case.
32
civil liability provisions using words such as “court” and
“action.”
Finally, Dickey’s argues that the Regulation does not
prohibit arbitration, and therefore the Maryland Clause must not
either. Again, we disagree. Although some of the language in
the Clause tracks the Regulation, they are not identical. Both
the Regulation and the Clause consist of a single sentence, but
they differ in one fundamental respect: they contain different
subjects. In the Regulation, the subject is the franchisor: it
is the franchisor who may not require the franchisee to waive
their litigation rights. But in the Clause, the subject is the
agreement itself: the “provisions of the agreement” cannot be
read to require that franchisees waive their litigation rights.
This distinction matters. As the district court held, when
the subject is the “franchisor” as in the Regulation, the
Franchisees remain free to agree to arbitrate Maryland Franchise
Law claims – the Regulation only prohibits forced or involuntary
waivers. 20 But when the subject is the “provisions of the
20
The district court made the distinction between voluntary
and involuntary waivers in an effort to read the Regulation as
consistent with the Maryland Franchise Law as required by
Maryland administrative law principles. See J.A. 28 (citing
Lussier v. Md. Racing Comm’n, 684 A.2d 804 (Md. 1996)). The
district court made this distinction in the context of rejecting
the Franchisees’ argument that the Arbitration Clause conflicted
with the Inconsistent Provisions Clause. The Franchisees do not
rely on the Inconsistent Provisions Clause on appeal, however,
(Continued)
33
agreement” as in the Maryland Clause, the parties have already
reached an agreement as to arbitration. And here, that
agreement consists of both the Maryland and Arbitration Clauses,
which demonstrate that the parties intended to arbitrate all
claims except for Maryland Franchise Law claims.
Put differently, under the district court’s interpretation
of the Regulation, the Franchisees were free to waive their
right to file suit in Maryland, as long as that waiver were
voluntary. But the Maryland Clause demonstrates that the
Franchisees did not agree to waive that right in the first
instance, at least as to their Franchise Law claims. Rather,
both parties agreed to litigate those claims in Maryland.
Accordingly, we will not compel arbitration of the Franchisees’
Maryland Franchise Law claims.
3.
Alternatively, Dickey’s contends that if the Maryland
Clause does prohibit arbitration of the Franchisees’ claims,
then the Clause is preempted by the FAA. The district court did
not reach this issue because it referred the threshold
arbitrability question to a jury. Because we have decided this
so we need not determine whether the district court’s
distinction between voluntary and involuntary waivers was
correct.
34
question in the Franchisees’ favor as a matter of law, we will
address this alternative preemption argument here.
It is well established that the FAA “pre-empts application
of state laws which render arbitration agreements
unenforceable.” Volt Info. Scis., Inc. v. Bd. of Trs., 489 U.S.
468, 472 (1989). Thus, where “state law prohibits outright the
arbitration of a . . . claim . . . [t]he conflicting rule is
displaced by the FAA.” Marmet Health Care Ctr., Inc. v. Brown,
132 S. Ct. 1201, 1203-1204 (2012) (citing AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1747 (2011)); Saturn Distr. Corp.
v. Williams, 905 F.2d 719, 722 (4th Cir. 1990).
Our decision in Saturn is particularly instructive.
There, Saturn — an automobile distributor — brought an action
for declaratory and injunctive relief, claiming that the FAA
preempted a Virginia statute prohibiting arbitration of claims
arising out of auto dealership agreements. 905 F.2d at 721.
Saturn submitted its dealer agreement to the Virginia
Commissioner of the Department of Motor Vehicles, but the
Commissioner refused to approve it in light of its arbitration
clause. We concluded that the Virginia statute plainly
conflicted with the FAA and was thus preempted. Id. at 722.
Unlike in Saturn, however, the Maryland Clause is not a
state law prohibiting arbitration. Rather, it is a contractual
provision prohibiting arbitration. And it is generally well-
35
settled that when a “party to a contract voluntarily assumes an
obligation to proceed under certain state laws, traditional
preemption doctrine does not apply to shield a party from
liability for breach of that agreement.” Epps v. JP Morgan
Chase Bank, N.A., 675 F.3d 315, 326 (4th Cir. 2012) (citing Am.
Airlines v. Wolens, 513 U.S. 219, 228 (1995)); see also Coll.
Loan Corp. v. SLM Corp., 396 F.3d 588, 598 (4th Cir. 2005)
(where parties to an agreement voluntarily assume federal
standards in their bargained-for private contract, a party’s
argument that enforcement of the agreement is preempted by that
federal law “boils down to a contention that it was free to
enter into a contract that invoked a federal standard as the
indicator of compliance, then to proceed to breach its duties
thereunder and to shield its breach by pleading preemption.
. . . [F]ederal supremacy does not mandate such a result.”). 21
21Dickey’s contends that these cases establish that “state-
mandated contract provisions are preempted if they contravene
federal law.” App. Br. at 51. None of these cases actually
held as much. Instead, they held only that parties cannot
incorporate state law in their agreements, and then later seek
to shield themselves from that law by pleading preemption. They
did not address the inverse scenario — that is, whether state-
imposed contractual commitments are preempted. The Franchisor’s
citation to Wells Fargo Home Mortg., Inc. v. Neal, 922 A.2d 538(Md. 2007), is particularly misplaced, because that decision
does not even address preemption. Rather, it decided only
whether a borrower could bring a breach of contract claim based
on a lender’s purported failure to comply with federal
regulations allegedly incorporated in the borrower’s deed of
trust. And even if Neal did support the Franchisor’s argument,
(Continued)
36
As the Third Circuit recently recognized, these cases have a
“salutary ‘you’ve made your own bed, now lie in it’” quality.
Del. & Hudson Ry. Co. v. Knoedler Mfrs., Inc., 781 F.3d 656,
667-68 (3d Cir. 2015).
Although none of these cases address FAA preemption, their
reasoning applies equally here. FAA preemption prevents states
from carving out wholesale exceptions to arbitration. See
Concepcion, 131 S. Ct. at 1747. It does not prevent private
parties from agreeing to litigate, rather than arbitrate,
specific claims. Again, the parties were free under Maryland
Franchise Law to either arbitrate or litigate the Franchisees’
claims. See Holmes, 649 A.2d at 368; see also Muriithi, 712
F.3d at 179 (compelling arbitration of Maryland Franchise Law
claims). As set forth in the Maryland Clause, they agreed to
litigate the Maryland Franchise Law claims in Maryland. Nothing
in the FAA preempts or prohibits the parties from making that
choice.
Dickey’s argues this law does not apply because it did not
voluntarily include the Maryland Clause in the agreements.
Rather, Dickey’s asserts that both Maryland law and the Maryland
Commissioner of Securities forced it to include the Clause in
preemption is a matter of federal not state law, and so Neal
does not control here.
37
the agreements as a condition precedent to doing business in
Maryland. 22 We disagree. Dickey’s was not forced to do
anything. If Dickey’s did not want to include the Maryland
Clause, it had several options. It could have simply declined
to do business in Maryland. Or, like the dealer in Saturn, it
could have filed a declaratory action challenging the Maryland
Commissioner of Securities’ position before including the
Maryland Clause in its agreements. See Saturn, 905 F.2d at 721;
see also Sec. Indus. Assoc. v. Connolly, 883 F.2d 1114 (1st Cir.
1989) (finding that FAA preempted state law which was required
to be incorporated in contracts, but only where challengers sued
for a declaratory order before incorporating the provision in
their contracts).
Dickey’s did neither, however. Instead, it chose to add
the Maryland Clauses to its agreements so that it could reap the
benefits of conducting its franchise business in Maryland. It
then waited nearly two years after including the Maryland Clause
in its franchise agreements before challenging the state’s
purported required inclusion of them. Simply put, Dickey’s had
22 In support, Dickey’s cites a declaration executed by the
attorney who drafted the franchise agreements. Neither the
declaration nor the parties’ briefing cites the applicable law
mandating inclusion of the Maryland Clause in the agreements,
and our research has not revealed any such law. The parties
also dispute whether the declaration constitutes inadmissible
hearsay. Because we conclude the declaration is irrelevant in
the first instance, we need not address these issues.
38
multiple options other than agreeing to the Maryland Clause. In
this scenario, we are comfortable holding Dickey’s to the terms
of the agreements.
IV.
Finally, Dickey’s requests that we stay the Franchisees’
Maryland Franchise Law claims in the district court pending
conclusion of the arbitration on its common law claims. The
district court did not decide this issue because it did not
decide whether arbitration should proceed at all. Whether to
grant such a stay is a matter within the district court’s
discretion, Am. Recovery Corp., 96 F.3d at 97, so we leave it to
the district court to decide this matter in the first instance
on remand.
V.
For the foregoing reasons, we vacate the district court’s
order and remand for further proceedings.
VACATED AND REMANDED
39