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Burrell v. 911 Restoration Franchise, Inc.

United States District Court, D. Maryland

November 16, 2017

DONALD BURRELL, et al., Plaintiffs
v.
911 RESTORATION FRANCHISE INC., et al., Defendants.

          MEMORANDUM

          James K. Bredar Chief Judge

         This is a dispute between a franchisee and a franchisor. Plaintiffs Donald Burrell (a franchisee), April Burrell (shareholder of the franchise), and 911 Restoration of Baltimore, Inc. (the franchise business) brought this complaint against 911 Restoration Franchise, Inc. (“911 Restoration” or “the franchisor”) and Idan Shpizear and Peleg Lindenberg, co-founders of 911 Restoration, alleging various statutory, contract, and tort claims related to the franchise agreement. (Compl., ECF No. 1.) Defendants moved to dismiss for lack of subject-matter jurisdiction and for failure to state a claim against Messrs. Shpizear and Lindenberg. (ECF No. 10.) No hearing is necessary to decide the motion. See Local Rule 105.6 (2016). The Court treats the Defendants' motion as a motion to dismiss under Rule 12(b)(1) and as a motion to compel arbitration. The Court finds that it has jurisdiction, but because the parties signed an agreement with a valid arbitration provision that survives rescission of that agreement, the Court will compel arbitration and dismiss the case by accompanying order.

         I. Background [1]

         911 Restoration is a California corporation that offers franchises. (Compl. ¶¶ 5, 9.) It entered into a Franchise Agreement with Mr. Burrell, a Maryland resident, sometime before February 2012. (Compl. ¶¶ 3, 10.) That Agreement included an arbitration provision which stated that “any controversy or dispute arising out of or relating to the franchise or this Agreement . . . shall be submitted to final and binding arbitration as the sole and exclusive remedy.” (Franchise Agreement ¶ 20.1, Mot. Dismiss Ex. 1, ECF No. 10-2.) Furthermore, the Agreement specified that this provision will “continue in full force and effect subsequent to . . . rescission.” (Id. ¶ 20.5.) When Mr. Burrell entered into this Agreement with 911 Restoration, that business was not registered to offer franchises in Maryland. (Compl. ¶ 13.)

         Due to 911 Restoration's unauthorized sale of a franchise to Mr. Burrell, the franchisor consented to entry of an Order by the Securities Division of the Maryland Attorney General in 2017, pursuant to which it made a rescission offer to Mr. Burrell. (Compl. ¶¶ 35.) Mr. Burrell accepted this rescission offer in February 2017. (Id. ¶ 36.) Subsequent to accepting this offer, Mr. Burrell received $11, 257.11 in partial restitution from 911 Restoration, even though he had paid initial franchise fees of $54, 180, leaving $42, 922.89 in initial franchise fees that 911 has not returned to Mr. Burrell. (Id. ¶ 38.)

         Ultimately, due to Defendants' actions in this context, Mr. Burrell suffered financial losses (beyond the initial franchise fees), lost a business opportunity that was usurped by the Defendants, and suffered a stroke. (See Compl. ¶¶ 37-43, 47, 52, 87-92, 97.) Mr. Burrell, along with his wife, who was a stockholder of his franchise, and his franchise business itself, brought this action alleging seven counts, including violation of the Maryland Franchise Act and various contract and tort claims. (Id. ¶¶ 48-98.) Plaintiffs allege damages of over $1, 000, 000 in their complaint, but also state that jurisdiction is proper because the parties are diverse and the “matter in controversy exceeds the sum of Fifty Thousand Dollars.” (Id. ¶ 1.)

         II. Nature of the Motion and Standards of Review

         a. Nature of the Motion

         The Court must first determine how it construes Defendants' motion. Defendants have styled their motion as one to dismiss under Rule 12(b)(1) for lack of subject-matter jurisdiction.[2]Defendants move the Court to dismiss this case for lack of subject matter jurisdiction “(1) because this dispute must be arbitrated, and (2) because there is an insufficient jurisdictional amount in controversy under 28 U.S.C. § 1332.” (Mot. Dismiss at 1.) While an insufficient amount in controversy would deprive this Court of subject-matter jurisdiction, the presence of a valid arbitration agreement would not. Furthermore, in order for the Court to decide that the Federal Arbitration Act (“FAA”) compels arbitration, as the Defendants contend, the Court must have jurisdiction over the case. Therefore, the Defendants should have styled their motion as one to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) or in the alternative a motion to compel arbitration or to dismiss the claims against Shpizear and Lindenberg under Rule 12(b)(6). Nevertheless, because the substantive goals of the Defendants' motion is (relatively) clear, the Court will treat the motion as one challenging subject matter jurisdiction under Rule 12(b)(1), and asking the Court to compel arbitration. See Alamria v. Telcor Intern., Inc., 920 F.Supp. 658, 664 (D. Md. 1996) (treating a motion under Rule 12(b)(6) as a motion to compel arbitration).[3]

         b. Standards of Review for Rule 12(b)(1) and Motion to Compel Arbitration

         The burden of proving subject-matter jurisdiction is on the plaintiff. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). The challenge may be either facial, i.e., the complaint fails to allege facts upon which subject-matter jurisdiction can be based, or factual, i.e., jurisdictional allegations in the complaint are not true. Id. Defendants have raised a facial challenge to subject-matter jurisdiction. Under a facial challenge “the plaintiff[s] [are] afforded the same procedural protection as [they] would receive under a Rule 12(b)(6) consideration, wherein the facts alleged in the complaint are taken as true, and the defendant[s'] challenge must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction.” Beck v. McDonald, 848 F.3d 262, 270 (4th Cir. 2017) (internal quotation marks omitted).

         “The standard of review on a Motion to Compel Arbitration pursuant to the FAA is akin to the burden on summary judgment.” Thomas v. Progressive Leasing, Civ. No. 17-1249, 2017 WL 4805235, at *2 (D. Md. Oct. 25, 2017) (internal quotation marks omitted). Therefore, the burden is on the moving party to demonstrate the absence of any genuine dispute of material fact, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970), and that the movant is “entitled to judgment [compelling arbitration] as a matter of law, ” Fed.R.Civ.P. 56(a).

         III. Analysis

         The Court will first discuss why it has jurisdiction over this case, and then turn to why it will ...


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