JAI SAI BABA LLC, et al., Plaintiffs, v. CHOICE HOTELS INTERNATIONAL INC. and CHOICE HOTEL OWNERS COUNCIL, Defendants
No. 5:20-cv-02823
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA
March 19, 2021
Joseph F. Leeson, Jr. United States District Judge
Defendants’ Motion to Compel Arbitration and Stay Proceedings, ECF No. 8 – Granted
I. INTRODUCTION
The above-captioned action involves claims by hotel franchisees against the hotel franchisor and the association of franchisees for violations of federal and state laws. Each Plaintiff signed a Franchise Agreement containing an Arbitration Provision. Defendants have filed a Motion to Compel Arbitration and Stay Proceedings. The parties agree that the Arbitration Provisions apply to the claims in this action, but Plaintiffs assert that they should not be enforced. For the reasons set forth below, the Motion to Compel Arbitration and Stay Proceedings is granted.
II. BACKGROUND
Plaintiffs are ninety franchisees that each own and operate one or more hotels that bear a brand mark of Defendant Choice Hotels International, Inc. (“Choice“). Am. Compl. ¶ 5, ECF No. 6. Choice is a hotel franchisor that owns several well-known national hotel brands, including Comfort Inn, Comfort Suites, Quality Inn, Sleep Inn, Clarion, Cambria Suites,
In a 591-paragraph amended complaint, Plaintiffs bring twenty-one counts for violations of the Racketeer Influenced and Corrupt Practices Act (“RICO“),
Plaintiffs further allege “Choice was in individual contractual relationships with each Franchisee through the Franchise Agreements.” Id. ¶ 375. Plaintiffs acknowledge that the Agreements “require[] Franchisees to submit to binding arbitration . . . in Choice‘s Maryland headquarters, regardless of where their franchise is located.” Id. ¶¶ 244-245. Plaintiffs allege, however, that “Choice and CHOC conspired to fraudulently represent to Franchisees that CHOC was a good faith representative of their interests in order to induce them into entering the Agreements and acquire from them a monthly association fee.” Id. ¶ 316; See also ¶ 306. The Amended Complaint states that “Choice uses its superior bargaining power to coerce the Franchisees into accepting onerous, unequal, and unconscionable terms in its Franchise Agreements.” Id. ¶ 140. It alleges:
the terms of the Franchise Agreements and Choice‘s “Rules and Regulations” (which Choice routinely updates and uses an extension of the Franchise Agreements in order to expand the terms of the original agreement, including but not limited to through the imposition of additional fees not specifically disclosed at the time of contracting) are in combination so burdensome to Franchisees and so one-sided in favor of Choice that they must be regarded as unconscionable and unenforceable.
Id. ¶ 281.
Defendants have filed a Motion to Compel Arbitration and Stay Proceedings, arguing that all of Plaintiffs’ claims are subject to valid and binding mandatory arbitration clauses contained within each Plaintiff‘s Franchise Agreement. Mot., ECF No. 8. In response, Plaintiffs acknowledge the presence of Arbitration Provisions, but contend that the Provisions should not be enforced. Resp., ECF No. 9. Plaintiffs further assert that the Arbitration Provisions are not enforceable by CHOC and that if arbitration is compelled, all claims should not proceed on an individual basis. Id. 26-28. Defendants filed a reply opposing Plaintiffs’ arguments and
Upon review of the Motion and responses, as well as the Amended Complaint and the Franchise Agreements that are integral to the claims, the Court notes as follows:
The parties agree that the Arbitration Clauses in all of the Agreements are identical in substance with regards to the issues in the instant Motion. See Mot. 3-4; Resp. 2. The Arbitration Clauses read:
21. Arbitration. Except for our claims against you for indemnification or actions seeking to enjoin you from using any of our Intellectual Property (including the Brand Mark) or the Choice-Related Words in violation of this Agreement or any other related agreements (including the Online Terms of Use), any controversy or claim arising out of or relating to this Agreement or any other related agreements, or the breach of this Agreement or any other related agreements, including any claim that this Agreement or any part of this Agreement or any related agreements is invalid, illegal, or otherwise voidable or void, as well as any claim that we violated any laws in connection with the execution or enforcement of this Agreement or any related agreements and any claims for declaratory relief, will be sent to final and binding arbitration in the state of Maryland before either the American Arbitration Association, J.A.M.S., or National Arbitration Forum in accordance with the Commercial Arbitration Rules of the American Arbitration Association, including its rules for emergency measures of protection, except to the extent that the Commercial Rules of the American Arbitration Association may be interpreted to require you or us to produce documents, witnesses, or information at a time other than at a hearing on the claim without our mutual consent. In the event more than one demand for arbitration is filed in connection with this Agreement or any related agreements, the demand filed with the American Arbitration Association, J.A.M.S., or National Arbitration Forum office having jurisdiction over Maryland proceedings shall take precedence, and any other demand shall be withdrawn and presented in the Maryland filing. The arbitrator will apply the substantive laws of Maryland, without reference to its conflicts of law provision, except that nothing herein shall be construed to establish independently your right to pursue claims under Maryland‘s Franchise Registration and Disclosure Law. Judgment on the arbitration award may be entered in any court having jurisdiction. If any party fails to appear at any properly noticed arbitration hearing, an award may be entered against the party, notwithstanding its failure to appear. Any arbitration will be conducted at our headquarters office in Maryland and the parties agree that any state laws attempting to prohibit arbitration in Maryland are pre-empted by the Federal Arbitration Act. Nothing in this Section 21 will be construed as requiring you or us to make a claim in arbitration before exercising any rights
you or we may have to give notice of default or termination in accordance with the terms of this Agreement or any related agreements.
See Jai Sai Baba LLC Agreement ¶ 21, Ex. A, ECF No. 8-3. The parties also agree that a majority of the Franchise Agreements contain a class action waiver provision. See Mot. 28; Resp. 1. When included, the Class Action Provision states:
22. NO CLASS ACTIONS. Neither you nor we shall seek to litigate or arbitrate against the other party to this Agreement or such party‘s affiliates, either as a representative of, or on behalf of, any other person, class, or entity, any dispute, controversy, or claim of any kind arising out of, or relating to, this Agreement, the rights and obligations of the parties, the sale of the franchise, or other claims or causes of action relating to the performance of either party to this Agreement. No arbitration or other action or proceeding under this Agreement shall add as a party, by consolidation, joinder, or in any other manner, any person or party other than us and you and any person in privity with, or claiming through, in the right of, or on behalf of, us or you, unless both we and you consent in writing. We have the absolute right to refuse such consent. You agree and acknowledge that any proceeding directly or indirectly arising from or relating to this Agreement, the relationship between the parties, or any Agreement or relationship between you and us or any affiliate of ours will be considered unique on its facts and may not be brought as a class or group action.
See Jai Sai Baba LLC Agreement ¶ 22.
The Franchise Agreements also contain varying provisions regarding the franchise association. Many of the Agreements state that it is the Franchisee‘s duty to “join and maintain membership in” a franchise association designated by Choice. See, e.g. Jai Sai Baba LLC Agreement ¶ 6(n). See also Agreements ¶ 6(n), ECF No. 8-4 to 8-10. Other Franchise Agreements contain provisions, in addition to or instead of the duty provision above, stating that the Franchisees “acknowledge and agree that [Choice] will consult with the Franchise Association” on the use of certain fees and/or before making changes to certain policies. See, e.g. Q Hotels LLC Agreement ¶ 19(g), ECF No. 8-4; Elite Hospitality LLC Agreement ¶ 19(g), ECF No. 8-8.
III. STANDARDS OF REVIEW
A. Motion to Compel Arbitration
“The Federal Arbitration Act requires courts to enforce covered arbitration agreements according to their terms.” Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1412 (2019) (citing
“The Arbitration Act 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 an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem‘l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). “The burden is on the party opposing arbitration . . . to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue.” Shearson/American Express v. McMahon, 482 U.S. 220, 227 (1987). “A party opposing a motion to compel arbitration bears the burden of proving the arbitration clause unenforceable.” Antkowiak v. Taxmasters, 455 F. App‘x 156, 159 (3d Cir. 2011) (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 92 (2000)). “All reasonable inferences from the evidence are to be
In deciding a motion to compel arbitration, a district may either employ the motion to dismiss standard under
B. The Effective Vindication Exception
“[S]o long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the [FAA] will continue to serve both its remedial and deterrent
The Supreme Court has acknowledged that “the existence of large arbitration costs could preclude a litigant from effectively vindicating [his or] her federal statutory rights in the arbitral forum.” Green Tree Financial Corp.—Alabama, 531 U.S. at 90. But see Italian Colors Rest., 570 U.S. at 236 (holding that the exception would not apply simply because “it is not worth the expense involved in proving a statutory remedy“). “A party seeking to invalidate an arbitration agreement because arbitration would be prohibitively expensive bears the burden of showing this likelihood.” Spinetti, 324 F.3d at 217. “[T]o meet this burden, a plaintiff must (1) come forward with some evidence to show the projected fees that would apply to their specific arbitrations, and (2) show the party‘s inability to pay those costs.” Hall v. Treasure Bay V. I. Corp., 371 F. App‘x 311, 313 (3d Cir. 2010). This analysis is undertaken on a case-by-case basis. See Monfared v. St. Luke‘s Univ. Health Network, No. 5:15-cv-04017, 2016 U.S. Dist. LEXIS 152435, at *2-3 (E.D. Pa. Nov. 2, 2016); Giordano v. Pep Boys--Manny, Moe & Jack, Inc., No. 99-1281, 2001 U.S. Dist. LEXIS 5433, at *21 (E.D. Pa. Mar. 29, 2001).
Discovery limitations might also prevent a litigant from effectively vindicating his/her rights. However, although the discovery procedures in arbitration forums “might not be as extensive as in the federal courts, by agreeing to arbitrate, a party ‘trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of
C. Unconscionability
“An arbitration provision is void if it is unconscionable.” Freedman v. Comcast Corp., 988 A.2d 68, 85 (Md. App. 2010). Under Maryland law, unconscionability contains two components, substantive and procedural aspects, the latter of which “relates to the individualized circumstances surrounding each contracting party at the time of contracting.” Doyle, 918 A.2d at 1274. “Substantive unconscionability involves those one-sided terms of a contract from which a party seeks relief. . ., while procedural unconscionability deals with the process of making a contract.” Walther v. Sovereign Bank, 872 A.2d 735, 744 (Md. 2005). Procedural and substantive unconscionability “must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” Doyle, 918 A.2d at 1274.
D. Motion to Dismiss - Rule 12(b)(6)
Under Rule 12(b)(6), the court must “accept all factual allegations as true [and] construe the complaint in the light most favorable to the plaintiff.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)) (internal quotation marks omitted). Only if “the ‘[f]actual allegations . . . raise a right to relief above the speculative level‘” has the plaintiff stated a plausible claim. Id. at 234 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, “the tenet that a court must accept as true all of the allegations contained in a
Additionally, “a document integral to or explicitly relied upon in the complaint may be considered.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (internal quotations omitted). The defendant bears the burden of demonstrating that a plaintiff has failed to state a claim upon which relief can be granted. See Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005) (citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991)).
E. Motion for Summary Judgment - Rule 56
Under Rule 56, summary judgment can be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
IV. ANALYSIS
The Franchise Agreements are integral to the Complaint and may be considered when applying the Rule 12(b)(6) standard of review. Although Plaintiffs assert that it is necessary to allow discovery, they have not responded “with additional facts sufficient to place the agreement to arbitrate in issue.” Guidotti, 716 F.3d at 776.
The parties do not dispute that the Franchise Agreements each contain Arbitration Provisions that apply to the claims in this action. See Monfared v. St. Luke‘s Univ. Health Network, 767 F. App‘x 377, 379 (3d Cir. 2019) (requiring as a prerequisite to compelling arbitration, the court must find that the dispute falls within the scope of a valid agreement). Additionally, for the reasons explained below, each of Plaintiffs’ arguments as to why such provisions should not be enforced are rejected.
A. Effective Vindication
Plaintiffs argue that forcing them to arbitrate would prevent them from effectively vindicating their statutory claims for two reasons: (1) the Arbitration Clauses would allow Choice to withhold any prehearing discovery, and (2) the Arbitration Clauses require that the
1. The discovery limitations do not prevent effective vindication.
The Supreme Court has determined that RICO and discrimination claims are arbitrable despite discovery limitations. See Gilmer, 500 U.S. at 1654-55. The Court reasoned that while discovery procedures in arbitration “might not be as extensive as in the federal courts, by agreeing to arbitrate, a party trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.” Id. (quoting Mitsubishi Motors Corp., 473 U.S. at 655).
The discovery provisions in the agreement to arbitrate at issue here do not prevent Plaintiffs from vindicating their rights. See id. In fact, the provisions do not necessarily withhold any discovery. Rather, the provisions state that neither side may be required to produce pre-hearing discovery “without our mutual consent.” See Jai Sai Baba LLC Agreement ¶ 21. This exact provision has been reviewed previously in the federal courts and has been determined not to foreclose pursuit of claims. See Singh v. Choice Hotels Int‘l, Inc., No. 3:07-CV-0378-D, 2007 U.S. Dist. LEXIS 50614, at *18-19 (N.D. Tex. July 11, 2007). In granting the motion to
2. Arbitration costs do not prevent Plaintiffs from vindicating rights.
Plaintiffs assert that depending on the arbitration forum, they must likely expend between $20,000 and $42,000 to arbitrate their claims. See Resp. 16-17. However, these fees are speculative. See Green Tree Fin. Corp.-Alabama, 531 U.S. at 92 (finding that the risk the litigant would be responsible for prohibitive costs was too speculative to justify the invalidation of an arbitration agreement). Plaintiffs do not account for the fact that the administrative fees may be reduced. See, e.g. Exs. A-B. Further, Plaintiffs’ evidence on arbitral fees consists merely of a declaration by Plaintiffs’ counsel stating that “AAA and JAMS commercial arbitrators generally command anywhere between $400 and $875 per hour.” Proper Dec., ECF No. 9-2; Green Tree Fin. Corp.-Alabama, 531 U.S. at 90 n.6 (determining that the litigant‘s citations to an article mentioning the average arbitral fee and to circuit opinions listing incurred fees, along with the statement that arbitration fees are frequently waived, provided no basis on which to ascertain the actual costs and fees to which the litigant would be subject in arbitration). Plaintiffs’ numbers are based on a two-week arbitration and two days of hearings due to the “complexity” of the matter, but this estimated length has no further explanation or support. See Resp. 16. Further, because the arbitrations must proceed individually, as discussed below, the
Plaintiffs have also failed to show their inability to pay the projected costs. These costs must be considered in context and while they might seem high compared to court filing fees, they are not so substantial to deter the bringing of claims. The stream-lined discovery process and efficiencies in the arbitration system, especially when compared to the extended litigation a class-action lawsuit in federal court entails, will likely enable Plaintiffs to resolve their claims more quickly. The projected arbitration costs are far less than the damages requested, see Resp. 15-16 (stating that Plaintiffs “may in fact be entitled to damages in excess of a million dollars.”4), and exceed many of the Affiliation Fees paid by Plaintiffs to enter into the Franchise Agreements, see Franchise Agreements § 4(a), ECF Nos. 8-3 to 8-11. Moreover, Plaintiffs are business companies, not individual persons. Plaintiffs’ own declarations show that the
Furthermore, the ”terms of an arbitration agreement [must] actually prevent an individual from effectively vindicating his or her statutory rights.” Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230, 1234 (10th Cir. 1999) (emphasis added). The terms of the Arbitration Provisions here, however, do not set the fees and costs. See Howell v. Rivergate Toyota, Inc., 144 F. App‘x 475, 480 (6th Cir. 2005) (“[W]e must determine whether the contractual terms identified by Mr. Howell prevent the vindication of statutory rights.“). While Plaintiffs suggest Defendants’ lack of assurances that Plaintiffs would not be required to pay prohibitive costs are further evidence of the arbitration provisions’ substantive unconscionability, see Resp. 18, “an arbitration agreement‘s silence with respect to such matters does not render the agreement
For all these reasons, “[t]he risk’ that [Plaintiffs] will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.” Green Tree Fin. Corp.-Alabama, 531 U.S. at 91.
B. Unconscionable
Plaintiffs assert that the Arbitration Clauses are procedurally and substantively unconscionable because, respectively, they were presented to Plaintiffs on a take-it-or-leave it basis to parties of weaker bargaining power and were contracts of adhesion, and because they deny the right to all pre-hearing discovery without mutual consent, impose prohibitive arbitration costs, dictate the applicable state law that will prove detrimental to Plaintiffs’ claims, and are non-mutual. Resp. 18-26. Defendants’ reply that each Plaintiff is a sophisticated business entity that had the opportunity to negotiate the terms before signing the agreement or to simply walk away and, also, that the choice of state law provisions do not exculpate Choice from liability. Reply 1-4.
1. The Arbitration Provision is not procedurally unconscionable.
“A contract of adhesion has been defined as one ‘that is drafted unilaterally by the dominant party and then presented on a ‘take-it-or-leave-it’ basis to the weaker party who has no real opportunity to bargain about its terms.‘” Meyer v. State Farm Fire & Cas. Co., 582 A.2d 275, 278 (Md. App. 1990) (quoting Restatement (Second) of Conflict of Laws § 187, Comment b). “The fact that a contract is one of adhesion does not mean that either it or any of its terms are invalid or unenforceable.” Meyer, 582 A.2d at 278 (stating that in a contract of adhesion, a “court will, to be sure, look at the contract and its terms with some special care“). “A contract of adhesion is not automatically deemed per se unconscionable.” Walther, 872 A.2d at 744.
Regardless of whether many of the Plaintiffs chose not to be represented by counsel when signing the agreements, Plaintiffs were each business companies operating hotels. In Shaffer, the Third Circuit Court of Appeals stated it was “unaware of any relevant cases in which the court has found an adhesion contract when dealing with the purchase of a franchise rather than a consumer purchase.” Shaffer v. Graybill, 68 F. App‘x 374, 377 (3d Cir. 2003) (finding no support in the record of unequal bargaining power or unconscionability). Plaintiffs’ reliance on Takiedine, which involved an individual person negotiating with a large corporation, is therefore misplaced. See Takiedine v. 7-Eleven, Inc., No. 17-4518, 2019 U.S. Dist. LEXIS 29201, at *1 (E.D. Pa. Feb. 22, 2019). Plaintiffs’ suggestion that they are distinguishable from the plaintiffs in Choice Hotels Int‘l, Inc. v. Chewl‘s Hospitality, Inc. also lacks support. See id. at 815 (finding, inter alia, that Chewl was not an unsophisticated consumer, nor had it demonstrated that it had no viable alternatives, or that it faced the possibility of being excluded from the hotel franchise business if it had refused such an arbitration contract).
Moreover, in response to Defendants’ evidence that there were variations in the Franchise
2. The Arbitration Provision is not substantively unconscionable.
“Substantively unconscionable terms are unreasonably favorable to the more powerful party, impair the integrity of the bargaining process or otherwise contravene the public interest or public policy, attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, or are otherwise unreasonably and unexpectedly harsh.” Freedman, 988 A.2d at 85-86. Plaintiffs have not made this showing.
For the reasons discussed in section A, neither arbitration costs nor the discovery limitations render the Arbitration Provision substantively unconscionable. See also Sayre v. Westlake Servs., LLC, No. -JFM-15-687, 2015 U.S. Dist. LEXIS 133856, at *3 (D. Md. Sep. 30, 2015) (rejecting the argument that requiring the non-prevailing party in arbitration to pay the costs and fees incurred by the prevailing party is unconscionable);7 Singh, 2007 U.S. Dist. LEXIS 50614, at *19, 24-25 (concluding that in a nearly identical franchise agreement, the failure to “disclose the potential costs of arbitration does not of itself establish that the arbitration agreement is unconscionable,” nor are the discovery provisions that only preclude certain discovery “without the parties’ mutual consent” unconscionably one-sided); Freedman, 988 A.2d at 89 (rejecting the litigant‘s argument that discovery in arbitration will necessarily be so limited as to render the Arbitration Provision unconscionable).8
Next, Plaintiffs argue that the Arbitration Provisions “demand application of Maryland law, yet carve out a specific Maryland statute that Choice knows could prove detrimental to it.” Resp. 23. This is incorrect. The Provisions merely state that the substantive laws of Maryland will apply and that “nothing herein shall be construed to establish independently your right to pursue claims under Maryland‘s Franchise Registration and Disclosure Law.” See Jai Sai Baba LLC Agreement ¶ 21 (emphasis added). “[T]he objective meaning of the proviso is that nothing in the arbitration clause or the Franchise Agreement as a whole is to be construed to establish a
Finally, nothing in the Arbitration Provisions exculpate Defendants from liability so as to show a lack of mutuality. See Singh, 2007 U.S. Dist. LEXIS 50614, at *15-17. “Mutuality, [moreover], does not require an exactly even exchange of identical rights and obligations between the two contracting parties before a contract will be deemed valid.” Walther, 872 A.2d at 748. With this understanding, the class action waiver is also not unconscionable. See Muriithi v. Shuttle Express, Inc., 712 F.3d 173, 180-81 (4th Cir. 2013); Walther, 872 A.2d at 750 (“Numerous courts, both federal and state, have rigorously enforced no-class-action provisions in arbitration agreements and found them to be valid provisions of such agreements and not unconscionable.“).
This Court finds that the parties entered into a valid agreement to arbitrate. See Century Indem. Co. v. Certain Underwriters at Lloyd‘s, 584 F.3d 513, 523 (3d Cir. 2009) (holding that “[f]or a court to compel arbitration, it initially must find that there is a valid agreement to arbitrate“).
C. Enforceability by CHOC
Plaintiffs contend that the Arbitration Provisions are not enforceable by CHOC because, regardless of its relationship with Choice, CHOC is a non-signatory and because CHOC had duties independent of the Franchise Agreements. Resp. 26-28. Defendants respond that
Plaintiffs essentially want to have their cake and eat it too. Plaintiffs seek to hold CHOC liable based on its alleged conspiracy with Choice and on CHOC‘s duties associated with and arising from the Franchise Agreements. In the Amended Complaint, Plaintiffs allege, inter alia, that “Choice and CHOC conspired to fraudulently represent to Franchisees that CHOC was a good faith representative of their interests in order to induce them into entering the Agreements and acquire from them a monthly association fee.” See Am. Compl. ¶ 316. In Count IX, brought solely against CHOC, Plaintiffs allege that “CHOC assumed a fiduciary duty to represent the interests of its member Franchisees in negotiations with Choice, because . . . CHOC represents in its mission statement to the Franchisees that its purposes are, inter alia, to . . . assure that [Choice‘s] plans and policies enhance the best interest of the franchisees of the system.” Id. at ¶ 427 (citing to Choice Hotels Owners Council, Missions and Objectives, available at https://www.choiceowners.com). In Count XI, brought against both Defendants, Plaintiffs allege “CHOC owes a duty to account for monies, specifically its use of the monthly association fee provided by Franchisees.” Id. at ¶ 446. Plaintiffs complain that they “are required to pay monthly membership dues to CHOC, and are members of CHOC.” Id. at ¶ 426. The membership obligations and fees arose directly from the Franchise Agreements. See, e.g. Jai Sai Baba LLC Agreement ¶ 6(n) (requiring the Franchisee to “join and maintain membership in” a franchise association designated by Choice). Accordingly, because Plaintiffs’ allegations against CHOC arise out of and directly relate to the Franchise Agreements, CHOC, a non-signatory to
D. Individual Arbitration
Defendants assert that collective arbitration is not appropriate, and that arbitration should proceed on an individual basis. See Mot. 27. They contend that approximately two-thirds of the Franchise Agreements contain an enforceable class action waiver, see, e.g. Jai Sai Baba LLC Agreement ¶ 22, and that the other Agreements’ silence regarding class action arbitration is of no consequence because “silence regarding class arbitration generally indicates a prohibition against class arbitration[.]” Mot. 29 (quoting Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 232 (3d Cir. 2012)). Plaintiffs, however, assert that if arbitration is compelled, they should not be forced to proceed on an individual basis. Resp. 28-29. This argument is based on two reasons: (1) the lack of a class action waiver in many of the Franchise Agreements, and (2) individual arbitration will prevent Plaintiffs from effectively vindicating their claims. Id.
As previously explained, Plaintiffs have not met their burden of showing that individual arbitrations would prevent them from effectively vindicating their rights or that the Arbitration Provision or class action waiver is unconscionable. Additionally, Defendants are correct that “a court may not compel arbitration on a classwide basis when an agreement is ‘silent’ on the availability of such arbitration.” Lamps Plus, Inc., 139 S. Ct. at 1412. Even an ambiguous agreement cannot provide the necessary “contractual basis” to compel class arbitration. See id.
V. CONCLUSION
Plaintiffs entered into valid, enforceable arbitration agreements with Choice that they admit apply to the claims in the instant action. Because these claims, as they relate to CHOC, also arise from the Franchise Agreements, both Defendants may enforce the agreements to arbitrate. Defendants’ Motion to Compel Arbitration and Stay Proceedings is granted. Plaintiffs must proceed to arbitration on an individual basis and the above-captioned action is stayed pending the resolution of these proceedings.9
A separate order follows.
BY THE COURT:
/s/ Joseph F. Leeson, Jr.
JOSEPH F. LEESON, JR.
United States District Judge