United States District Court, E.D. Pennsylvania
September 16, 2016, Petitioners Franlogic Scout Development,
LLC, Ed Samane, Lisa Kornstein, Howard Soloway, and Steve
Pruitt (“Petitioners”) filed a Petition to Compel
Arbitration. (Doc. No. 1.) On December 14, 2016, Respondent
Scott Holdings, Inc. filed a Motion to Dismiss the Petition.
(Doc. No. 2.) In an Opinion and Order dated July 12, 2017,
the Court denied the Petition to Compel Arbitration, granted
the Motion to Dismiss, and ordered that the case be closed.
(Doc. Nos. 16, 17.) Before the Court are Respondent's
Motion to Expand the Time to Move for Attorneys' Fees and
Motion for Attorneys' Fees. (Doc. No. 19.) For reasons
that follow, the Court will deny the Motions.
2015, Brian and Jacqueline Scott formed Scott Holdings, Inc.
to open retail stores in San Francisco, California. (Doc. No.
1 ¶ 15.) On July 30, 2015, Respondent Scott Holdings
entered into two agreements with Franlogic Scout Development,
LLC (“Franlogic”) to purchase and operate a
franchise named “Scout and Molly's, ” which
would sell women's clothing and accessories.
(Id. ¶¶ 10, 16, 18.) The two agreements
are: (1) an Area Development Agreement (“ADA”),
and (2) a Franchise Agreement (“FA”).
(Id. ¶¶ 16-18.)
established the franchisor-franchisee relationship between
Franlogic and Scott Holdings. (Doc. No. 14 at 4.) It gave
Scott Holdings the “right to develop and
establish” two stores within a designated marketing
area in San Francisco, California provided that Scott
Holdings “open[ed] and commenc[ed] operations of such
Stores in strict accordance with the mandatory development
schedule.” (Doc. No. 2-2 ¶ 1.) It also required
Scott Holdings to pay Franlogic a development fee.
(Id. ¶ 2.) In addition, the ADA mandated that
Scott Holdings enter into a contemporaneous FA for the first
store, as well as a separate FA for each additional store
that Scott Holdings opened. (Id. ¶¶ 3-4.)
In accordance with the terms of the ADA, the parties entered
into a FA for the opening of the first store. (Doc. No. 1-1.)
the FA, Scott Holdings obtained the right to license the
Scout and Molly's proprietary system in order to open one
retail store. (Id. ¶ 1.) Scott Holdings paid a
$50, 000 franchise fee to Franlogic and agreed to pay
royalties to Franlogic from revenue generated by the store.
(Id. ¶ 3.) The FA required Scott Holdings to
find a location to open the first Scout and Molly's store
within 120 days of the FA's execution. (Id.)
the ADA and FA, disputes between the parties are handled
differently. Although the ADA contains a dispute resolution
provision, it does not have an arbitration clause.
(See Doc. No. 2-1 ¶¶ 12-13.) The FA has an
arbitration clause. (Doc. No. 1-1 ¶ 21(a).) Although the
two agreements include different dispute resolution
provisions, the ADA controls when a conflict arises. In fact,
the ADA expressly states that its terms will control in the
event of a conflict between the two agreements. (Doc. No. 2-1
¶ 27.) The ADA states in pertinent part:
In the event of a conflict between this [Area Development]
Agreement and any Franchise Agreements(s), the terms,
conditions and intent of this [Area Development] Agreement
(Id.) In the event of a conflict between the ADA and
the FA, the terms of the ADA will govern.
after purchasing the franchise, Scott Holdings began having
problems with opening the Scout and Molly's stores.
(See Doc. No. 1-3.) The Scotts felt that Franlogic
and its officers made false and misleading representations
during their negotiations, underestimating the total cost to
set up the stores and miscalculating the amount of time the
Scotts would need to spend managing the operation.
26, 2016, Respondent Scott Holdings initiated an action
against Franlogic in California Superior Court seeking a
rescission of the ADA. (Id.) In particular,
Respondent alleges that Petitioners violated provisions of
the California Franchise Investment law, engaged in false
advertising, and committed unfair trade practices when
negotiating with the Scotts to enter into the ADA. (Doc. No.
2-6 ¶¶ 32-37, 49-64.) Respondent alleges that
Petitioners made material misrepresentations and induced the
Scotts to enter into the ADA, without a full disclosure of
the obligations the Scotts would encumber. (Id.
¶¶ 14-15.) In that case, Respondent does not seek
relief under the FA in California. (Id.)
September 16, 2016, Franlogic filed a Notice of Removal,
removing the California case from California Superior Court
to the United States District Court for the Northern District
of California. (Doc. No. 2-6.) On October 7, 2016, Franlogic
filed its Answer to the Complaint. (Id.) That case
is still being litigated there. (Id.)
September 21, 2016, Petitioners initiated the action before
this Court by filing a Petition to Compel Arbitration. (Doc.
No. 1.) Rather than filing a motion to compel arbitration in
California, Petitioners decided to institute an action in
this Court. Petitioners argued that the FA should govern any
controversy between Franlogic and Scott Holdings and that
under the FA's dispute resolution provision, the parties
should proceed to arbitration. (Id. ¶¶
21-30.) On December 14, 2016, Respondent filed a ...