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Synergistic International, LLC v. Monaghan

United States District Court, Seventh Circuit

October 9, 2013

SYNERGISTIC INTERNATIONAL, LLC, Plaintiff,
v.
BECKY S. MONAGHAN, individually; MICHAEL D. MONAGHAN, Individually; GLASS RX, INC.; and GLASS 1 ONE, INC. d/b/a GLASS ONE OF QUINCY, Defendants.

OPINION

SUE E. MYERSCOUGH, District Judge.

This matter is before the Court on Defendants' Motion to Compel Mediation and/or Arbitration and to Dismiss or Stay Proceedings Pending the Completion of Mediation and/or Arbitration pursuant to Federal Rule of Civil Procedure 12(b)(6), Local Rule 16.4 Alternative Dispute Resolution, §§ 3 and 4 of the United States Arbitration Act, 9 U.S.C. §§ 1-16 and the general authority of the Court (d/e 16). Defendants' Motion is DENIED. Plaintiff has demonstrated that this action falls under the Franchise Agreement's exceptions to the requirement that the parties settle any controversy or claim arising out of or relating to the Franchise Agreement using alternative dispute resolution.

I. BACKGROUND

On June 26, 2002, Synergistic International, Inc., predecessor in interest to Plaintiff, Synergistic International, LLC, entered into a Franchise Agreement with Vance Door, Inc., whereby Vance Door, Inc., agreed to operate as Plaintiff's Franchisee in and around Quincy, Illinois. Defendant Becky S. Monaghan was President, Agent, and Operating Principal of Vance Door, Inc. Defendant Becky Monaghan signed as guarantor of the Franchisee's obligations under the Franchise Agreement. By signing as guarantor, Defendant Becky Monaghan accepted and agreed "to all of the provisions, covenants, conditions, representations, warranties and agreements set forth in the [Franchise] Agreement and [was] obligated to perform thereunder." See d/e 1, Ex. 1 at 29.

The Franchise Agreement required Vance Door, Inc., to operate under the franchise System. The System included use of "the service mark GLASS DOCTOR®, the slogan, WE FIX PANES®, and the GLASS DOCTOR logo and such other trade names, service marks and trademarks as are now and may hereafter be designated by Franchisor for use in connection with the System...." See d/e 1, Ex. 1 at 2.

The Franchise Agreement contains a Texas choice-of-law provision. However, an Addendum to the Franchise Agreement for Illinois Residents, also executed by the parties on June 26, 2002, states:

If any of the provisions of the Franchise Agreement are inconsistent with applicable Illinois state law, then Illinois state law shall apply. Any provision which designates jurisdiction or venue in a forum outside Illinois is void with respect to any cause of action which is otherwise enforceable in Illinois, provided that a Franchise Agreement may provide for arbitration in a forum outside of Illinois.

See d/e 1, Ex. 1 at 27-28, 30.

Section 14 of the Franchise Agreement also states that disputes arising out of the contract shall be settled using mediation and then arbitration:

A. Agreement to Use Procedure. Franchisor and Franchisee have entered into this Agreement in good faith and in the belief that it is mutually advantageous to them. It is with this same spirit of cooperation that they pledge to attempt to amicably resolve any controversy or claim arising out of or relating to this Agreement or the breach thereof or any transaction embodied therein or related thereto (a "Dispute"), without the necessity of litigation. Therefore, if any Dispute arises, the parties shall utilize the procedures described herein before commencing any legal action. If a party commences any legal action, other than as provided for in Section 14.K. hereof, without having first complied with all of the provisions of this Section 14 regarding mediation and arbitration, the other party shall be entitled to a sixty (60) day abatement of the legal action upon filing the appropriate procedural motion in the legal proceeding and bringing this provision to the attention of the court or other legal authority having jurisdiction over the matter.
B. Initiation of Procedure. Should a Dispute arise, the initiating party shall give written notice to the other party, describing the exact nature of the Dispute, its claim for relief and identifying one or more individuals with authority to resolve the Dispute on such party's behalf. The other party shall have (10) business days within which to designate in writing one or more individuals with authority to resolve the Dispute on it's behalf ("Authorized Individuals").
* * * *
J. Arbitration. In order to resolve Disputes which may arise between them more effectively and thereby further their mutually beneficial business relationship, the parties to this Agreement agree that if they are not able to resolve the Dispute through... mediation..., the controversy shall be submitted to binding arbitration.... The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16.

See d/e 1, Ex. 1 at 24-26.

However, at Section 14.K., the Franchise Agreement contains exceptions to using the alternative dispute resolution processes in Section 14 of the Franchise Agreement:

K. Emergency Relief. During the course of a Dispute, should a situation arise relating to the Marks or relating to a situation in which Franchisor will suffer irreparable loss or damage unless Franchisor takes immediate action, including but not limited to threatened or actual conduct in violation of Sections 10 and 13 of this Agreement, Franchisor shall be free to seek declaratory relief, restraining orders and/or preliminary injunctive relief and/or other relief, and such actions or lawsuits shall not be considered in violation of the provisions of this Section 14.

See d/e 1, Ex. 1 at 25.

Section 10 of the Franchise Agreement, titled Proprietary Information and Covenants, protects Plaintiff's franchise specific manuals and confidential information and trade secrets. See d/e 1, Ex. 1 at 15-16 (Sections 10.A. and B.). Section 10.C. sets forth the In-Term & Post-Term Covenants:

Recognizing that Franchisor would be unable to protect its trade secrets against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information among its franchisees if its franchisees were permitted to hold interests in any business other than the Franchise which offers or sells any product or service or component thereof which composes a part of Franchisor's System or which competes directly or indirectly with the Franchise or Franchisor's System ("Competing Business") and acknowledging that, pursuant to this Agreement, Franchisee will receive valuable specialized training and Confidential Information, including, without limitation, information concerning the operational, sales, promotional, and marketing methods and techniques of Franchisor and Franchisor's System, Franchisee therefore covenants and agrees that, except for any interest which Franchisee has in a Competing Business which is identified on Exhibit "A" hereof, to which Franchisor specifically consents, ...

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