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CINDY'S CANDLE CO. v. WNS

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


September 28, 1989

CINDY'S CANDLE COMPANY, INC., an Illinois corporation, Plaintiff,
v.
WNS, Inc., a Texas corporation, Defendant

The opinion of the court was delivered by: DUFF

MEMORANDUM OPINION

 BRIAN BARNETT DUFF, UNITED STATES DISTRICT JUDGE

 Cindy's Candle Company, Inc. and WNS, Inc. have briefed the issue raised by this court in Cindy's Candle Co., Inc. v. WNS, Inc., 714 F. Supp. 973, 979 (N.D. Ill. 1989), thus permitting the court to answer the question that has been at the heart of their wrangling these many months: does a franchise agreement dated March 8, 1986 for a WNS franchise at Stratford Square require the parties to arbitrate disputes arising under previous agreements relating to other franchises? The court concludes it does not.

 Some preliminary points are in order. Cindy's Candle first asks the court to reconsider its ruling that the March 1986 agreement contains a valid promise to arbitrate disputes under Texas law. The cases which Cindy's Candle cites in support of its position, however, discuss the laws of states other than Texas. They do not persuade the court that the Texas courts would abandon the law discussed in this court's prior ruling. See id. at 976-77.

 Cindy's Candle also asks the court to reconsider its ruling that Texas's common law permits specific enforcement of agreements to arbitrate. See id. at 977. Cindy's Candle presents the argument made by a dissenting judge in Wylie Indep. School D. v. TMS Foundations, 770 S.W.2d 19, 23-24 (Tex. App. 1989) (Howell, dissenting), who observed that the Texas courts were somehow usurping the function of the state legislature in overruling the traditional common law in Texas that a party could not specifically enforce an agreement to arbitrate. While this court sympathizes with Judge Howell's dissent, this court's task is not to apply its own version of Texas law, but rather that version which the court believes the Texas Supreme Court would apply. See Collins Co., Ltd. v. Carboline Co., 837 F.2d 299 (7th Cir. 1988). For the reasons stated in this court's earlier opinion, see Cindy's Candle, 714 F. Supp. at 977, and those expressed by the Wylie majority, see 770 S.W.2d at 22-23, this court believes that the Texas Supreme Court would allow specific enforcement of agreements to arbitrate under Texas common law.

 Now to the parties' dispute over the March 1986 agreement. As the court noted in its prior opinion, the parties agree that the agreement contains an unambiguous arbitration clause. They dispute its interpretation: Cindy's Candle argues that the clause applies to any and all disputes under the March 1986 agreement alone; WNS argues that it applies to any and all disputes between the parties, regardless of the source of the dispute. The parties agree that the court must adopt WNS's interpretation of the March 1986 agreement unless Cindy's Candle can show that, in light of the surrounding circumstances and the pertinent rules of construction, the parties intended to limit the plain language of their agreement. See Cindy's Candle, 714 F. Supp. at 977-78.

 The parties agree that the most helpful indications of their intent lie within the four corners of the March 1986 agreement. See 14 Tex.Jur.3d Contracts ยงยง 186, 188. That agreement indicates that the parties intended the arbitration clause of the agreement to apply only to disputes arising from the agreement. The recitals of the agreement state that the intent of the parties was to allow Cindy's Candle to operate " a franchise." Article I of the agreement appoints Cindy's Candle as franchisee of one store; the license which WNS grants relates solely to that store. Article II covers the parties' payment arrangements, arrangements based on the financial operations of the Stratford Square franchise. Article V discusses duties relating solely to the "licensed business" and the "Designated Premises," Stratford Square. Article VI licenses WNS's proprietary marks " only to their use in connection with the operation of the licensed business at the Designated Premises. . . . "

 The many terms of the agreement thus indicate that the parties had in mind only their relationship respecting the Stratford Square franchise when they entered into the agreement. Further support for this view lies within the arbitration provision itself, Article XXII. That article exempts from arbitration disputes over violations of Article XII paras. A-B, and Article XI, para. B. The articles having these numbers in the Stratford Square agreement relate, respectively, to termination of the franchise on account of bankruptcy or other specified grounds, and termination on account of unauthorized assignment or transfer of the franchise. These are fairly standard contractual provisions, yet rather than using broad language (e.g., exempting "claims relating to violations of the type stated in Article XII"), the arbitration clause specifically refers to Article XII. WNS does not explain how disputes relating to violations of Article XII which are exempted in the March 1986 agreement would differ from similar disputes arising under prior agreements, such that the parties reasonably would have exempted the former but not the latter. WNS also does not contest Cindy's Candle's observation that, if applied literally, the articles enumerated in Article XXII would result in nonsensical exemptions under the parties' prior agreements.

 These circumstances and the terms of the agreement indicate to the court that the parties intended Article XXII to apply only to disputes stemming from the March 1986 agreement, not the parties' prior agreements for other franchises. Accordingly, the court denies WNS's motion to stay the proceedings in this matter pending arbitration.

 DATE: September 28, 1989

19890928

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