United States District Court, D. Maryland, Southern Division
MEMORANDUM OPINION AND ORDER
W. Grimm United States District Judge
2008 and 2012, Plaintiff Loren Andrew Willcock, a citizen of
Maryland, entered into three separate franchise agreements
with Games2U Franchising, LLC ("Games2U"), a mobile
entertainment company, to operate franchises in Maryland and
Virginia. Jt. Stip. Facts ¶¶ 5-7, ECF No. 27-3;
Franchise Agreements, Jt. Exs. 1-3, ECF Nos. 27-5 to -7
[hereinafter Agrs.]. At some point during the business
relationship, Defendant My Goodness! Games, Inc., a Delaware
corporation with its principal place of business in Austin,
Texas, acquired Games2U.Jt. Stip. Facts ¶¶ 1-2. The
Franchise Agreements are identical in all relevant respects
apart from their geographic scopes. Id. ¶ 8. In
September 2016, both Willcock and Games2U declared the
Franchise Agreements terminated, each party accusing the
other of material breaches. Id. ¶¶ 9-11.
Willcock filed suit in the Circuit Court for Calvert County,
Md. Id. ¶ 13; Calvert Cty. Compl., Willcock
v. My Goodness Games, Inc., No. 04C16001189 (Cir. Ct.
Clavert Cty., Md. Oct. 28, 2016), Jt. Ex. 5, ECF No. 27-9.
Before being served in the Calvert County action, Games2U
filed a Demand for Arbitration against Willcock with the
American Arbitration Association (“AAA”) in
Austin, Texas and also filed suit in the United States
District Court for the Western District of Texas.
Id. ¶ 14; Demand for Arbitration, Jt. Ex. 6,
ECF No. 27-10; Tex. Verified Compl., My Goodness! Games,
Inc. v. Willcock, No. 1:16-cv-1213 (W.D. Tex. Nov. 9,
2016), Jt. Ex. 8, ECF No. 27-12. After being served in the
Calvert County action, Games2U removed the case to this
Court. Notice of Removal, ECF No. 1. With the Parties'
consent, the Western District of Texas transferred the case
to this Court, where the two actions were consolidated. Feb.
3, 2017 Order, ECF No. 21. Two related motions are now
pending before the Court. Games2U has filed a Motion to
Compel Arbitration, ECF No. 27, while Willcock has filed a
Motion to Stay Arbitration, ECF No. 29. The Motions are fully
briefed, Def.'s Mem., ECF No. 27; Pl.'s Opp'n,
ECF No. 28; Def.'s Reply, ECF No. 32, and no hearing is
necessary, Loc. R. 105.6 (D. Md.). With the Parties'
consent, I stayed the AAA arbitration while reviewing and
ruling on the Motions. Consent Order Staying Arb., ECF No.
26. Because I find that the Franchise Agreements unmistakably
delegate resolution of the gateway question of whether the
disputes between the two Parties are subject to arbitration,
I will stay the action pending a decision by the arbitrator
on the arbitrability of the claims.
to the Federal Arbitration Act (FAA), agreements to arbitrate
are “valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation
of any contract.” 9 U.S.C. § 2. The statute
permits a party to an arbitration agreement to bring a motion
in federal district court to compel arbitration and stay the
proceeding pending resolution of the arbitration.
Id. §§ 3-4. In reviewing a motion to
compel arbitration, a court must “engage in a limited
review to ensure that the dispute is arbitrable-i.e., that a
valid agreement to arbitrate exists between the parties and
that the specific dispute falls within the substantive scope
of that agreement.” Hooters of Am., Inc. v.
Phillips, 173 F.3d 933, 938 (4th Cir. 1999) (quoting
Glass v. Kidder Peabody & Co., 114 F.3d 446, 453
(4th Cir. 1997)). This inquiry involves two steps:
“First, we determine who decides whether a particular
dispute is arbitrable: the arbitrator or the court. Second,
if we conclude that the court is the proper forum in which to
adjudicate arbitrability, we then decide whether the dispute
is, in fact arbitrable.” Peabody Holding Co., LLC
v. United Mine Workers of Am., Int'l Union, 665 F.3d
96, 101 (4th Cir. 2012).
the Franchise Agreements in this case contains an arbitration
agreement requiring the parties to arbitrate, among other
things, “all controversies, disputes or claims . . .
arising out of or related to:
20.6.1 Franchisee's operation of the Franchised Business;
20.6.2 this agreement or any other agreement between the
parties or any provision of such agreements;
20.6.3 the relationship of the parties hereto;
20.6.4 the validity of the Agreement or any of the agreements
between the parties or any provision of such agreements . . .
and “any claim which would constitute a compulsory
counterclaim . . . .” Agrs. § 20.6. But the
Agreements also contain riders setting forth modifications
required by Maryland law. Among those modifications, the
rider provides that “[p]ursuant to Section
14-216(c)(25) of the Maryland Franchise Registration and
Disclosure Law, a franchisee is permitted to enter into
litigation with a Franchisor in the State of Maryland
regardless of the language in the Franchise Agreement.”
Maryland Rider ¶ 5, Franchise Agreements. Although
Willcock does not dispute that the arbitration agreement
requires some disputes between him and Games2U to be
arbitrated, he contends that the Maryland Rider creates a
carveout that allows judicial review of all Maryland
disputes. Pl.'s Opp'n 8-9 (“If there is no
Maryland litigation, the parties arbitrate. If there is
Maryland litigation, the parties litigate claims in a
Maryland court instead of arbitrating the dispute.”).
Games2U, by contrast, interprets the Maryland Rider to
provide only a narrow carveout for claims for relief under
the Maryland Franchise Registration and Disclosure Law and
not common-law claims such as the contract claims that each
party asserts against the other in this case. Def.'s Mem.
although the parties do not contest that a valid and
enforceable arbitration agreement exists that applies to some
claims that might arise between them, they disagree about
whether the present dispute must be arbitrated. This raises
the subsidiary question of whether it is for the Court or an
arbitrator to determine whether the Parties' dispute must
be arbitrated. “[P]arties can agree to arbitrate
‘gateway' questions of ‘arbitrability, '
such as whether the parties have agreed to arbitrate or
whether their agreement covers a particular
controversy.” Rent-A-Center, W., Inc. v.
Jackson, 561 U.S. 63, 68-69 (2010). But “[u]nless
the parties clearly and unmistakably provide otherwise, the
question of whether the parties agreed to arbitrate is to be
decided by the court, not the arbitrator.” AT&T
Techs., Inc. v. Commc'ns Workers of Am., 475 U.S.
643, 649 (1986). “When deciding whether the parties
agreed to arbitrate a certain matter (including
arbitrability), courts generally . . . should apply ordinary
state-law principles that govern formation of
contracts.” First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 944 (1995). Texas law governs the
Franchise Agreements in this case. Agrs. § 20.7.
Franchise Agreements incorporate by reference the AAA's
Rules. Agrs. § 20.6. Those Rules provide that
“[t]he arbitrator shall have the power to rule on his
or her own jurisdiction, including any objections with
respect to the existence, scope or validity of the
arbitration agreement.” AAA Commercial Arbitration
Rule, R-7(a) (2013), available at
Games2U, relying on Texas Court of Appeals authority (and
Fifth Circuit synthesis of the same),  argues that this
incorporation constitutes unmistakable evidence that the
parties agreed to arbitrate arbitrability questions.
Def.'s Mem. 8; see also Petrofac, Inc. v.
DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675
(5th Cir. 2012) (“[E]xpress adoption of [the AAA] rules
presents clear and unmistakable evidence that the parties
agreed to arbitrate arbitrability.”); Gilbert v.
Rain & Hail Ins., No. 02-16-00277-CV, 2017 WL
710702, at *4 (Tex. App. 2017) (same); Jody James Farms,
JB v. The Altman Grp., Inc., 506 S.W.3d 595, 600 (Tex.
App. 2016) (applying “majority view” that
“incorporation of the AAA rules constitutes clear and
unmistakable evidence the parties to the policy intended the
arbitrator to decide” questions of arbitrability);
Schulmberger Tech. Corp. v. Baker Hughes, Inc., 355
S.W.3d 791, 803 (Tex. App. 2011) (holding that incorporation
of AAA rules constitute unmistakable evidence of the
parties' intent to allow the arbitrator to decide
arbitrability questions absent “provisions in the
[arbitration agreement] that negate the arbitrator's
power under AAA Rule 7(a) to determine the arbitrability of a
defense raised in arbitration”).
argues that Luchese Boot Co. v. Salano, 473 S.W.3d
404 (Tex. App. 2015) sets forth the governing law in Texas on
whether incorporation of the AAA rules defeats the
presumption that courts decide questions of arbitrability.
Pl.'s Opp'n 4-5. The Luchese Boot court
disagreed with the Fifth Circuit's position in
Petrofac and held that “[i]ncorporation of an
arbitration organization's rules is one factor to
consider in determining the parties' intent, but it is by
no means dispositive.” 473 S.W.3d at 413 n.3. Because
the arbitration agreement at issue in that case was a narrow
one, pertaining only to “a certain class of
‘Covered Disputes, ' ” and also specified
“a large class of ‘Claims Not Covered, '
” the court found the agreement's incorporation of
a rule analogous to AAA Rule 7(a) “not
dispositive” and that the agreement's
“substantive restraints on the arbitrator's
power” meant “that the trial court retained power
to decide gateway questions absent clear, explicit evidence
to the contrary.” Id. at 413-14. Games2U also
acknowledges other contrary Texas Court of Appeals authority
in Haddock ...