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Damon's Restaurants, Inc. v. Sun Pacific Management

November 16, 2006

DAMON'S RESTAURANTS, INC. PLAINTIFF,
v.
SUN PACIFIC MANAGEMENT, LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Gregory L. Frost

Magistrate Judge Norah M. King

OPINION AND ORDER

This matter comes before this Court for consideration of a Motion to Dismiss Certain Claims, Motion to Compel Arbitration of Such Claims, and Motion to Stay this Action Pending Arbitration (Doc. # 19) filed by Defendant, Sun Pacific Management ("SPM"); a Memorandum in Opposition (Doc. # 21) filed by Plaintiff, Damon's Restaurants, Inc.("Damon's); and a Reply Memorandum. (Doc. # 22.) For the reasons that follow, this Court GRANTS in part and DENIES in part Defendant's Motion. (Doc. # 19.)

I. Facts

On or about June 3, 2002 and on or about February 27, 2003, Damon's entered into franchising agreements with SPM, which was signed by M. Jamil Akhtar and Mrs. Joan Akhtar (hereinafter Akhtars) as a members of SPM. (Doc. # 1-1 ¶¶ 7, 20.) The franchising agreements were for a ten-year period. The franchising agreements allowed SPM to use the naming designations and trademarks of Damon's in the operation of their business and provided that "the use of any other trade name in conducting such business of this franchise is strictly prohibited."

The agreements also required SPM to pay royalty fees to Damon's.*fn1 Id. ¶¶ 9, 10. Subsequent to efforts by Damon's to collect on amounts due from SPM under the franchising agreements, Damon's learned that the name of the restaurants had been changed but the restaurants were still utilizing Damon's menu, emulating the look of Damon's, and even using the Damon's trademark on "receipts, food and beverage licenses and kitchen staff attire." Id. ¶ 13. Damon's provided SPM and Akhtar[s] with notice of the termination of the franchising agreements, and as of June 24, 2006 the restaurant at issue was still operating as previously alleged by Damon's.*fn2 Id. ¶¶ 17-18.

Damon's filed suit against SPM and the Akhtars in this Court on June 30, 2006 alleging nine separate counts and requesting ten measures of relief. Id. ¶¶ 1-10, 21-64. SPM and the Akhtars responded seeking to compel arbitration of certain claims, to dismiss the allegedly arbitrable claims, to stay the remaining matters pending arbitration, and to grant their motion to dismiss for lack of personal jurisdiction over the Akhtars. (Doc. # 19.)

II. Discussion

At present this dispute between the parties centers on which claims are subject to Section XXVI of each Franchise Agreement ("arbitration clause"), which sets forth a broad arbitration clause followed by three narrow exceptions. It states:

[That] any claim or controversy arising out of or relating to this Agreement or the breach hereof or any other part of their relationship . . . shall be submitted to arbitration . . . which decision shall be binding on Franchisor and Franchisee. (Doc. # 19 at 3.)

There are three exceptions that are not subject to arbitration, including: actions to "collect past due royalties," "prevent the improper use of or an infringement upon [Damon's] marks," or "to stop the opening of a Damon's Restaurant." Id.

This Court must determine which claims are arbitrable and which claims fall within the exception to the arbitration clause. The Supreme Court has stated that:

The Federal Arbitration Act ("FAA") establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or ...


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