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SPECIALTY BAKERIES v. ROBHAL

April 15, 1997

SPECIALTY BAKERIES, INC., et al.
v.
ROBHAL, INC., et al.



The opinion of the court was delivered by: BARTLE

 Bartle, J.

 April 15, 1997

 This matter may be succinctly summarized as a biting battle over bagels between a franchisor and franchisee. Not surprisingly, each side argues that the other's case is full of holes.

 The court has subject matter jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332. *fn1" After a hearing on franchisor's motion for a preliminary injunction, the court makes the following findings of fact and conclusions of law, pursuant to Rule 52 of the Federal Rules of Civil Procedure.

 I

 The plaintiffs in this action are Specialty Bakeries, Inc. ("Specialty Bakeries"), Rocco Fiorentino ("Fiorentino"), Frank Guglielmo ("Guglielmo"), John Gerber, Jr. ("Gerber"), and Manhattan Bagel Company, Inc. ("Manhattan Bagel Company") (hereinafter collectively "franchisor"). *fn2" Specialty Bakeries formerly traded as "Bagel Builders," a franchise system of retail bagel stores. On May 22, 1996, through a merger transaction, Specialty Bakeries became a wholly-owned subsidiary of Manhattan Bagel Company. Specialty Bakeries, Guglielmo, Fiorentino, and Gerber thereupon became employees and shareholders of Manhattan Bagel Company. Defendants are HalRob, Inc. ("HalRob") and RobHal Management, Inc. ("RobHal") (hereinafter collectively "HalRob"). *fn3"

 In September, 1995 HalRob and RobHal entered into a written franchise agreement with Specialty Bakeries entitled "Bagel Builders Franchise Agreement" as well as a first amendment thereto. As a result, HalRob obtained the right to operate a franchise for a Bagel Builders Restaurant in Broomall, Pennsylvania. The Broomall location, with which we are concerned here, opened as a Bagel Builders in April, 1996.

 The franchise contract contains an arbitration provision which is at the heart of the controversy before the court. It reads:

 
A. AGREEMENT TO ARBITRATE
 
All disputes and claims under this Agreement, the rights and obligations of the parties hereto, your purchase of goods or other claims or causes of action relating to the performance of either party, and/or the purchase of the franchise shall be settled by arbitration at the office of the American Arbitration Association in Philadelphia, Pennsylvania, in accordance with the Federal Arbitration Act and the Commercial Rules of the American Arbitration Association. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. This agreement to arbitrate shall survive any termination or expiration of this Agreement.

 B. PRELIMINARY RELIEF

 
Nothing contained herein shall prevent us from applying to or obtaining from any court having jurisdiction a writ of attachment, temporary injunction, preliminary injunction and/or other emergency relief available to safeguard and protect our interest before the filing of any arbitration proceeding or pending the trial or handing down of a decision or award pursuant to any arbitration proceeding conducted hereunder.

 Franchise Agreement P XXVIII.

 The parties also agreed to a first amendment which added the following to the above provisions:

 A. AGREEMENT TO ARBITRATE

 
The following language is to be added to this Paragraph:
 
Any arbitration award shall be final, binding, and non-appealable. The fees of the Association and the arbitrator shall be paid by the losing party as designated by the arbitrator. The arbitration hearing shall be conducted pursuant to the Federal Arbitration Act.

 B. PRELIMINARY RELIEF

 
The following language is to be added to this Paragraph:

 First Amendment P XXVIII. In the first amendment, the parties also agreed to a non-compete clause which HalRob contends gave it an exclusive territory within a four mile radius of their Broomall restaurant. The amendment states in relevant part, "... nor shall Franchisor, within four (4) miles of the Franchisee's restaurant location, approve another Bagel Builders Franchise restaurant location for a third party, or execute a written Lease Agreement for a restaurant location as a company-owned, Bagel Builders location." First Amendment P XXIV(B).

 Prior to Manhattan Bagel Company's acquisition of Specialty Bakeries in May, 1996, the former had two franchisees operating under the name of "Manhattan Bagel" within four miles of HalRob's Bagel Builders Restaurant. Manhattan Bagel Company also had an agreement dated July, 1995, with a new franchisee. That ...


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