N.D. of Texas Holds Signatory May Enjoin Another Signatory From Pursuing Litigation Against Non-Signatory

The Northern District of Texas has held that a signatory to an arbitration agreement may enjoin another signatory from pursuing litigation against a non-signatory.

In Salad Bowl Franchise Corp. v. Crane, No. 3:11-CV-0034-D (N.D. Tex., March 17, 2011), Salad Bowl, a Texas corporation with its principal offices in Dallas, entered into a franchise agreement which contained an arbitration clause with New Mexico residents Mason and Henry Crane (“the Cranes”). Soon after, the Cranes opened a Salad Bowl franchise in a rented location in Albuquerque, NM. In August, 2010, the Cranes’ landlord notified the parties that the Cranes were in default on their business lease due to non-payment. The Cranes failed to bring the lease current and Salad Bowl terminated the franchise agreement.

Salad Bowl initiated arbitration proceedings in Dallas before the American Arbitration Association. At the conclusion of the arbitral proceedings, the parties agreed to a draft Settlement Agreement and Mutual Release. The terms stated Salad Bowl would purchase the Cranes’ restaurant and related assets and further release the Cranes. The Settlement Agreement also contained an arbitration clause. After arbitration, Salad Bowl sent representatives to Albuquerque to prepare the transition and to execute the final Settlement Agreement. The Cranes failed to sign or return a fully executed copy of the Settlement Agreement and instead filed a lawsuit in New Mexico which alleged a number of claims related to both the Franchise and Settlement Agreements against Salad Bowl and Salad Bowl’s co-owners individually. Salad Bowl then filed a petition to compel arbitration and a motion for a preliminary injunction against the Cranes’ New Mexico lawsuit in the Northern District of Texas.

The Northern District stated,

Salad Bowl cites several cases that hold that a non-signatory can compel a signatory to submit to arbitration with the non-signatory . . . and one case that concludes that signatories cannot compel a non-signatory to arbitrate . . . in support of its slightly different proposition that a signatory should be able to enjoin another signatory from pursuing litigation against a non-signatory. (emphasis in original)

Next, the court noted the Fifth Circuit recently held in an unpublished decision that certain non-signatories could compel a signatory to arbitration over litigation when the complaint alleged “substantially interdependent and concerted misconduct” among the non-signatories and another signatory party.

The Northern District of Texas held,

[T]he same rationale that enabled a non-signatory to compel a signatory to arbitrate with the non-signatories in Griffin and Grigson permits a signatory to compel another signatory to submit to arbitration against a non-signatory, so long as it is on the subject matter covered under the Agreement and the non-signatory is being sued for his acts as agent for the signatory.

Since the Cranes’ New Mexico lawsuit was clearly brought against the named individuals for actions they allegedly engaged in while acting in their capacity as co-owners and representatives of Salad Bowl without distinguishing between the alleged actions of each individual or Salad Bowl, Salad Bowl demonstrated a substantial likelihood that the New Mexico lawsuit claims relied upon the terms of the agreement. According to the court, equitable estoppel was appropriate.

The Northern District of Texas issued an injunction against the Cranes’ New Mexico lawsuit.

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