Paradies Shops v. Brothers Petroleum ( 2022 )

Case: 21-30225 Document: 00516420817 Page: 1 Date Filed: 08/05/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
August 5, 2022
No. 21-30225
Lyle W. Cayce
Clerk
Paradies Shops, L.L.C.,
Plaintiff—Appellant/Cross-Appellee,
versus
Brothers Petroleum, L.L.C.,
Defendant—Appellee/Cross-Appellant,
______________________________
Brothers Petroleum, L.L.C.,
Plaintiff—Appellee/Cross-Appellant,
versus
Paradies Shops, L.L.C.,
Defendant—Appellant/Cross-Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC Nos. 2:20-CV-1278, 2:20-CV-3260
Before Richman, Chief Judge, and Higginbotham and Elrod,
Circuit Judges.
Case: 21-30225 Document: 00516420817 Page: 2 Date Filed: 08/05/2022
No. 21-30225
Per Curiam:*
Paradies Shops (“Paradies”) plans and operates retail concessions at
airports. Brothers Petroleum (“Brothers”) is a convenience store in the New
Orleans metro area. Paradies dropped Brothers as one of its proposed brands
in the retail space for the Louis Armstrong New Orleans International
Airport (“the airport”). Brothers demanded arbitration while Paradies
sought a declaration that there was no arbitration agreement and moved for a
preliminary injunction under 28 U.S.C. § 1651 pending trial of that decision.
There was no trial. In denying the injunction, the district court found there
was an enforceable contract to arbitrate and refused to stay the arbitration.
The district court then declined to revisit the issue of whether there was an
agreement to arbitrate after arbitration concluded. Accordingly, we remand
so that the district court can determine whether there was an arbitration
agreement.
I.
In 2016, the airport solicited bids for concessions for a new terminal.
Paradies began negotiating an agreement with Brothers to include a Brothers
convenience store in its bid to the airport. Paradies provided Brothers the
following documents: a letter of authorization (“LOA”), an addendum to the
LOA (“Addendum”), and a non-disclosure agreement. “Exhibit B Form of
License Agreement” from the Addendum included an arbitration provision. 1
In October 2016, Paradies emailed an initial version of the documents
to Brothers requesting immediate signature for all the documents aside from
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
1
The arbitration provision required that “[i]f any dispute arises under this
Agreement, the parties shall seek to resolve any such dispute between them . . . through
binding arbitration in New Orleans, Louisiana.”
2
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Exhibit B. Exhibit B was marked as “[r]eview and comment but not required
to be submitted with our proposal.”
On November 1, Brothers signed all the documents, including Exhibit
B. That same day, Karen Suttle, in-house counsel for Paradies, emailed
Brothers clarifying that “we won’t execute the License now—only if we win.
The LOA and Addendum (which includes the license as a template) are the
controlling documents.” A third-party who was facilitating communications
between the parties requested that Suttle “[h]old the License agreement
until Paradies win[s] the bid but a blank copy should be attached to the
LOA.” Suttle then provided the third-party with corrected copies of the
documents including the “Addendum to LOA (fully executed with form of
negotiated License attached).” Paradies won the airport bid in 2017. Over the
next nearly two years, Paradies and Brothers continued to work on the layout
of the convenience store.
In 2019, Paradies learned that two Brothers principals were indicted
on six dozen federal criminal counts, including charges related to their
operation of the Brothers stores. Suttle wrote Brothers informing them that
Paradies decided “to rescind the licensing opportunity set forth in the Letter
of Authorization and associated Addendum dated October 31, 2016.”
Brothers then filed a demand for arbitration pursuant to Exhibit B. In July
2019, Paradies filed a declaratory judgment action arguing that there was no
arbitration agreement. 2 In May 2020, Paradies sought to enjoin the
arbitration proceeding pending the resolution of the declaratory judgment
2
The action was originally filed in Georgia state court. The action was then
removed to the United States District Court for the Northern District of Georgia and
transferred to the United States District Court for the Eastern District of Louisiana.
3
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action. After a hearing, the district court denied Paradies’s motion for
injunctive relief.
Because the final arbitration hearing was set for July 2020, Paradies
appealed the district court’s denial of injunctive relief. This Court dismissed
the appeal for lack of jurisdiction. The arbitration proceeded, and the
arbitrator entered a final award in favor of Brothers in October 2020. In
district court, Brothers moved to confirm the arbitration award while
Paradies moved to vacate the arbitration award. The district court modified
the arbitrator’s final award in part. Both parties appealed.
Paradies argues that the district court erred in not granting Paradies’s
motion to vacate as there was no arbitration agreement. Brothers argues that
the district court erred in modifying the arbitrator’s final award and in
considering a letter from the airport’s general counsel suggesting that the
airport would not allow Paradies to use Brothers’ “marks,” or logos and
branding, as the letter was not presented in the arbitration proceeding. 3
II.
In reviewing the district court’s denial of a motion to vacate an
arbitration award, we review de novo questions of law. 4 We review findings
of fact for clear error. 5
3
The district court modified the award “on the grounds that specific performance
[was] impracticable,” excluding the portions of the arbitrator’s award requiring Paradies
to use Brothers’ marks in the branded airport shop and to pay the license fee from June
2020 until October 2026.
4
Prescott v. Northlake Christian Sch., 369 F.3d 491, 494 (5th Cir. 2004).
5
Id.4
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III.
Because it is not clear whether there is an arbitration agreement, we
remand for the limited purpose that the district court make this
determination.
Under the Federal Arbitration Act (FAA), if the party against
arbitration puts “the making of the arbitration agreement . . . in issue, the
court shall proceed summarily to the trial thereof. If no jury trial be demanded
by the party alleged to be in default . . . the court shall hear and determine
such issue.” 6 While we have “not established the precise showing a party
must make” to put the making of the arbitration agreement in issue, a party
“must make at least some showing that under prevailing law, he would be
relieved of his contractual obligation to arbitrate if his allegations proved to
be true,” and “he must produce at least some evidence to substantiate his
factual allegations.” 7
Paradies has met this burden. First, the contractual language in the
LOA and Addendum suggest that the parties planned to execute a definitive
license agreement in the future and that Exhibit B was provided merely as an
example license agreement. 8 Second, Suttle testified that Paradies
6
9 U.S.C. § 4.
7
Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1154 (5th Cir.
1992) (citation omitted). See also Chester v. DIRECTV, L.L.C., 607 F. App’x 362, 364–65
(5th Cir. 2015) (per curiam) (finding that a party met this burden when he introduced an
affidavit claiming that he did not remember signing an arbitration agreement and that, had
he been given an arbitration agreement, he would have not signed it unless he was
threatened with termination).
8
The Addendum provides that “If Paradies is awarded a master lease . . . then
Paradies and Licensor will negotiate in good faith a definitive product supply and license
agreement (the ‘License Agreement’).” The Addendum also referred to Exhibit B as “the
form of License Agreement to be utilized by the parties.”
5
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“deliberately did not offer [the license agreement] contract to Brothers.”
Finally, Suttle sent multiple emails to Brothers during the document
exchange suggesting that the parties intended to formally execute a license
agreement at a later time.
The district court’s hearing was insufficient to determine whether
there was an arbitration agreement after Paradise put the making of an
arbitration agreement in issue. The district court only considered “the
materials that [the parties] supplied . . . in connection with the original
complaint, the motion for injunctive relief, and the responses as well as
replies.” Additionally, the district court failed to revisit this issue later as it
believed it already determined that there was an arbitration agreement at the
preliminary injunction hearing. This hearing fell short of the trial
contemplated by the FAA after a party puts the making of an arbitration
agreement in issue. 9
IV.
Accordingly, we REMAND for the limited purpose that the district
court determine whether there was an agreement to arbitrate.
9
See 9 U.S.C. § 4. For example, in Chester, after the party put the making of the
arbitration agreement in issue, the district court held a bench trial to determine whether
there was an arbitration agreement, considering both submitted evidence as well as
testimony from witnesses. Chester, 607 F. App’x at 365–66.
6