United States District Court, D. Arizona
ORDER
James
A. Teilborg, Senior United States District Judge.
Pending
before the Court is Defendants Best Roast Coffee (“Best
Roast”) and Jason Roe’s Motion to Stay the
Proceedings and Compel Arbitration and, Alternatively, Motion
for Dismissal, (Doc. 20). Plaintiff SFM LLC
(“Sprouts”) has responded, (Doc. 21), and
Defendants have replied, (Doc. 25). The Court now rules on
the motion.
I.
Background
Sprouts
operates a chain of grocery stores that emphasizes healthy
and affordable food. (Doc. 1 at 3-4 ¶¶ 16, 18).
Among other items, Sprouts sells pre-packaged products under
its “Sprouts Market Corner” and “Market
Corner Trademarks.” (Id. at 5 ¶ 28).
Sprouts also offers its customers coffee under the trademarks
“Sprouts” and “Sprouts Farmers
Market.” (Id. at ¶ 30). Consumers may
find Sprouts’ branded products only in Sprouts’
grocery stores, or on its web site and “Instacart
platform.” (Id. at 6 ¶ 31).
In
December of 2015, Sprouts entered into a business
relationship with Best Roast, a private label coffee bean and
equipment distributor, whereby Sprouts would order coffee and
coffee-related equipment from Best Roast. (Id. at 8
¶¶ 43-50). When Best Roast failed to deliver on
several of Sprouts’ equipment orders, or to reimburse
Sprouts, Sprouts sued Best Roast and its CEO-Jason Roe-for
damages in October 2017. (Id. at 8-9 ¶¶
51-57). Roe later emailed Sprouts employees to inform them
that Best Roast was “beginning to target Coffee [sic]
customers into Sprouts now, via
www.Sprouts.Coffee” and asking them to
“join [Best Roast] in attracting more attention of
coffee customers, who currently [do] not shop at
[S]prouts.” (Doc. 1-5, Ex. D, at 2). Pictures of
www.sprouts.coffee from May of 2018 reveal that Best
Roast claimed its coffee was sold in Sprouts’ stores
under the Market Corner brand and that Sprouts “uses
equipment, SOP processes, ‘Know How, ’ and Trade
Secrets of Best Roast” pursuant to an agreement between
the parties. (Doc. 1-8, Ex. G, at 2-4, 6-9). Likewise, on
www.bestroast.coffee, Best Roast listed nearly
four-pages-worth of Sprouts locations that it claimed served
Best Roast’s coffee, explaining its “focus now is
guiding, daily coffee drinkers, into resently [sic]
established Sprouts farmers Market Market Corner,
Tea-Coffee-Espresso Bar.” (Doc. 1-7, Ex. F., at 9-13).
Although
Best Roast initially complied with Sprouts’ demand to
cease attempting to associate itself with Sprouts online,
Best Roast resumed this behavior in July of 2019, even
sending Sprouts an email insisting that their relationship
continue. (Doc. 1 at 10-11 ¶¶ 68-70). The email
attached two links to a press release about Best Roast in
which Roe boasted of an ongoing business relationship between
Sprouts and Best Roast. (Docs. 1-10, Ex. I; 1-11, Ex. J).
Later that month, Roe sent an email to Sprouts claiming
“Sprouts and Magnetized water[] was the resent [sic]
topic of discussion in Harvard this year too. I did the
breakthrough innovation as my final assignment in the
‘Disruptive Strategy’ module at Harvard Business
School.” (Doc. 1-13 at 2). He also complained that
Sprouts had “shut down any social media of Sir Richard
Branson and I promoting espresso bars and Sprouts, ” a
decision he felt “did not seem to serve [S]prouts
espresso coffee revenue interest and came at the expense to
Sprouts of lost high profile promotion.” (Id.)
Roe was adamant that, with his help, Sprouts could increase
its “stock price back to its deserving strength above
$25, allot [sic] faster than day to day and conventional
methods would.” (Id.).
On July
25, 2019, Sprouts filed a complaint in this Court seeking
injunctive relief and damages based on claims that Best Roast
engaged in: trademark infringement, cybersquatting, false
endorsement, and false advertising. (Doc. 1 at 16-20).
II.
Discussion
A.
Legal Standard
The
Federal Arbitration Act (“FAA”) applies to
arbitration agreements in contracts affecting interstate
commerce, and provides that such agreements “shall be
valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity” to revoke them. 9 U.S.C.
§§ 1, 2. Thus, when a valid arbitration clause
applies to a dispute, the FAA “leaves no place for the
exercise of discretion by a district court, but instead
mandates that district courts shall direct the
parties to proceed to arbitration on issues as to which an
arbitration agreement has been signed.” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). Of
course, because “arbitration is a matter of contract .
. . a party cannot be required to submit to arbitration any
dispute which he has not agreed so to submit.”
United Steelworkers v. Warrior Gulf & Nav. Co.,
363 U.S. 574, 582 (1960). A court’s first task, then,
is to determine whether the parties have agreed to arbitrate
the dispute in question, applying “general state-law
principles of contract interpretation, while giving due
regard to the federal policy in favor of arbitration by
resolving ambiguities as to the scope of arbitration in favor
of arbitration.” Wagner v. Stratton Oakmont,
Inc., 83 F.3d 1046, 1049 (9th Cir. 1996). “[A]s
with any other contract, the parties’ intentions
control, but those intentions are generously construed as to
issues of arbitrability.” Mitsubishi Motors Corp.
v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626
(1985). But “[t]he presumption in favor of arbitration
. . . does not apply ‘if contractual language is plain
that arbitration of a particular controversy is not within
the scope of the arbitration provision.’”
Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042,
1044–45 (9th Cir. 2009) (citation omitted).
B.
Arbitration
Best
Roast argues that because all of Sprouts’ claims
“arise directly from the parties’ business
relationship established by” their
“Non-Circumvention Agreement” (the
“NCA”) the Court must compel the parties to
arbitrate these claims. (Doc. 20 at 5-8). In response,
Sprouts contends (1) it never agreed to arbitrate the
disputes involved in the instant case and (2) the NCA does
not apply at all because the parties’ indemnification
agreement superseded it. (Doc. 21 at 2). Even assuming the
NCA has not been superseded, the Court agrees with Sprouts.
The
arbitration clause in the NCA provides that “any
dispute, controversy, or claim related to or arising from
the terms of this Agreement . . . shall be settled by
arbitration. (Doc. 20, Ex. D, at 20). For a claim to be
properly characterized as relating to or arising from a given
contract under Arizona law, “it must, at the very
least, raise some issue the resolution of which requires a
reference to or construction of some portion of the contract
itself.” See Dusold v. Porta-John Corp., 807
P.2d 526, 530 (Ariz.Ct.App. 1990); see also Sun Valley
Ranch 308 Ltd. P’ship ex rel. Englewood Props., Inc. v.
Robson, 294 P.3d 125, 131–32 ¶ 22
(Ariz.Ct.App. 2012) (explaining that unjust enrichment claims
would be subject to arbitration clause because whether
defendants were enriched without justification required
examining the contract’s terms). Arizona courts reason
that, when a claim lacks such a connection, parties employing
this language could not reasonably have intended the
arbitration clause to cover it. Dusold, 807 P.2d at
530. Thus, the relevant inquiry is whether resolving
Sprouts’ claims (trademark infringement,
cybersquatting, false endorsement, and false advertising)
necessarily requires consideration of the NCA’s terms.
Aside
from recitals and various miscellaneous provisions-including
the dispute resolution clause-the NCA’s critical terms
are contained in Article I, which is titled
“Non-Circumvention.” (Doc. 20, Ex. D, at 19).
Section I of that Article states that, absent Best
Roast’s permission, Sprouts shall not “contact or
initiate contact at any time for any purpose, either directly
or indirectly, the Opportunity or any officers, directors,
shareholders, consultants, attorneys, employees, agents or
other affiliates of the Opportunity, or any other property or
property whose identity was revealed through the efforts of
[Best Roast].” (Id.). Section I provides
further that, absent Best Roast’s permission, Sprouts
“agrees not to undertake any transaction or a series of
transactions of any kind with the Opportunity or to collect
any fees in connection with the Opportunity.”
(Id.). Although the NCA does not define
“Opportunity, ” neither party disputes that it
refers to Sprout’s opportunity to purchase goods and
services from Best Roast, namely the opportunity to use its
claimed proprietary coffee-making ...