United States District Court, W.D. Washington, Tacoma
RUSSELL D. GARRETT, Trustee for the bankruptcy estate of Robert and Stephanie Taylor, Plaintiff,
MORGAN ROTHSCHILD f/k/a MORGAN HENNING, HALEY HENNING, and JOHN DOES 1-10, Defendants.
ORDER DENYING DEFENDANT MORGAN ROTHSCHILD'S
MOTION TO DISMISS OR TO COMPEL ARBITRATION
BENJAMIN H. SETTLE UNITED STATES DISTRICT JUDGE.
matter comes before the Court on Defendant Morgan Rothschild
f/k/a Morgan Henning's (“Rothschild”) motion
to dismiss or in the alternative to compel arbitration. Dkt.
7. The Court has considered the pleadings filed in support of
and in opposition to the motion and the remainder of the file
and hereby denies the motion to dismiss or compel arbitration
for the reasons stated herein.
September 17, 2018, Robert Sean Taylor (“Sean
Taylor”) and Stephanie Taylor (“the
Taylors”) filed suit against Rothschild, his ex-spouse
Haley Henning (“Henning”), and John Does 1-10 in
the Washington Superior Court for Clark County. Dkt. 1-1. On
October 25, 2018, Rothschild removed the case to this Court.
Dkt. 1. On November 16, 2018, Rothschild moved to
dismiss or in the alternative to compel arbitration and stay
the case. Dkt. 7. On December 11, 2018, the Court entered a
stay pursuant to the parties' stipulation for the parties
to pursue settlement discussions and for the Taylors'
counsel to seek litigation approval from the Bankruptcy
Court. Dkts. 9, 10. On January 7, 2019, the parties
stipulated to lift the stay and renote the motion. On January
14, 2019, the Taylors responded. Dkt. 12. On January 25,
2019, Rothschild replied. Dkt. 16. On February 24, 2019, the
Court granted a motion to substitute Chapter 7 Trustee
Russell Garret into the action as Plaintiff in place of the
Taylors. Dkt. 19.
case involves a dispute between a franchisor and disenchanted
franchisees. Rothschild runs Party Princess International
(“Party Princess”). Dkt. 1-1, ¶ 2. Henning,
his former spouse, worked with Rothschild on the business and
advised on franchises. Id. In October 2015, Party
Princess filed paperwork to register in Washington as a
franchisor, but the filing was unsuccessful. See
Dkt. 8, Declaration of Morgan Rothschild (“Rothschild
Decl.”), ¶ 8.
point in 2015, Sean Taylor consulted a franchise broker about
investment opportunities who referred him to Rothschild. Dkt.
1-1, ¶ 15. At this time, all parties resided in
California. See Dkt. 12 at 2, 3; Dkt. 16 at 6.
Taylor and Rothschild spoke by phone, and Rothschild
“informed Taylor that a Google advertising campaign
alone in Taylor's prospective territory would generate at
least $100, 000 per year for Taylor, ” but Rothschild
“could not put the projections in writing due to
regulatory prohibitions.” Id. ¶ 17.
Rothschild also told Sean Taylor that meeting Party
Princess's requirement that each franchise host 40
parties per month would be “easily achievable.”
Id. ¶ 18. Henning and Stephanie Taylor met
during the initial disclosure process and communicated by
phone, text, and in-person meetings. Id. ¶ 20.
Rothschild and Henning “portrayed themselves as a team
to the Taylors.” Id.
December 2015, Sean Taylor purchased a Party Princess
Franchise “for the Washington territory, ” and
“[Rothschild] caused Party Princess to send written
documents to Taylor stating that the worst-case-scenario
revenue data for Taylor would be $90, 000 in gross revenues
based solely on spending $2, 190 per month on the Google
advertising campaign.” Id. ¶
In January 2016, according to Rothschild, Party Princess
provided supplemental or amended information to the
Washington Department of Financial Institutions
(“DFI”) and successfully registered as a
franchisor. Rothschild Decl. ¶ 8. In February 2016,
Rothschild “notified Mr. Taylor that Party
Princess's franchisor registration had not been effective
in Washington at the time the Taylors originally signed the
Franchise Agreement.” Id. On February 27,
2016, Rothschild sent Taylor a new franchise agreement by
email to sign. Id. Rothschild declares that the
Taylors moved to the Pacific Northwest “sometime during
2016.” Id. ¶ 2. Taylor alleges that
despite his continued efforts to operate the franchise,
“including fully funding the marketing campaign, [he]
never achieved the results promised by [Rothschild].”
Dkt. 1-1, ¶ 24.
October 2017, Taylor filed a complaint about Party Princess
with the DFI's Securities Division. Id. ¶
25. Party Princess then filed an arbitration claim
“seeking to terminate Taylor's franchise, ”
and the parties began arbitration in Colorado.
Id.As noted, the Taylors filed this lawsuit on
September 17, 2018. Dkt. 1-1. The Taylors claim that they
have lost “well over $200, 000” in investments in
the franchise. Id. ¶ 28.
Taylors assert four causes of action. Id.
¶¶ 29-50. The first cause, for intentional
misrepresentation, alleges that Rothschild made knowing false
representations about likely revenue from the franchise and
the amount of effort needed to earn profits and that Taylor
relied on these statements in purchasing the franchise and
were damaged when their franchise failed to return the
expected profit. Id. ¶¶ 29-33. The second
cause, for negligent misrepresentation, makes the same
allegations, except that it alleges that Rothschild should
have known his representations were false. Id.
¶¶ 34-38. The third cause, for violation of the
FIPA constituting violation of Washington's Consumer
Protection Act, alleges Rothschild and Party Princess either
failed to provide a franchise disclosure document or provided
one that did not comply with Washington law because Party
Princess was not properly registered as Washington
franchisor, made false statements and omitted material facts
in connection with the sale, and sold the franchise without
being registered to do so in Washington. Id.
¶¶ 39-43. The third cause also alleges that
“Defendants' wrongful conduct involves a matter of
substantial public interest as other Washington citizens have
been harmed in a similar manner.” Id. ¶
44. The fourth cause of action, for unjust enrichment,
alleges that “[d]uring the process of selling a
franchise to Taylor” Rothschild made false
representations about the franchise's earning potential,
that the Taylors paid Rothschild for a franchise in reliance
on these statements, that despite Taylor's significant
additional investments, he never achieved the promised
results, and that Rothschild unjustly retained the benefits
conferred on him. Id. ¶¶ 46-50.
puts forward six reasons why the Court should dismiss this
case: (1) the Court lacks personal jurisdiction over the
defendants, (2) all claims are compulsory counterclaims to an
ongoing arbitration, (3) all claims were the subject of a
final dismissal in the ongoing arbitration and are barred by
res judicata, (4) all claims are barred by collateral
estoppel, (5) all claims are barred by the parties'
contracted statute of limitations, and (6) all claims are
barred by warrants and representations in the underlying
contract. Dkt. 7 at 1-2.
alternative, Rothschild asks the Court to stay the case and
compel the Taylors' claims to arbitration. Id.
at 2. Finally, Rothschild claims that whether the Court
dismisses the case or compels arbitration, he is entitled to
attorneys' fees. Id.
against a defendant may be dismissed when a court lacks
personal jurisdiction. Fed.R.Civ.P. 12(b)(2). When a
defendant seeks dismissal on these grounds, the plaintiff
must prove jurisdiction is appropriate. Picot v.
Weston, 780 F.3d 1206, 1211 (9th Cir. 2015). To
determine whether it has jurisdiction over a defendant, a
federal court applies the law of the state in which it sits,
if that law is consistent with federal due process.
Daimler AG v. Bauman, 571 U.S. 117, 126 (2014).
Washington grants courts the maximum jurisdictional reach
permitted by due process. Easter v. Am. W. Fin., 381
F.3d 948, 960 (9th Cir. 2004). Thus, the only question
remaining the Court whether its exercise of jurisdiction
comports with the limitations imposed by due process.
Helicopteros Nacionales de Colombia, S.A. v. Hall,
466 U.S. 408, 413 (1984). A court may not exercise
jurisdiction over a defendant if that exercise of
jurisdiction “offend[s] traditional notions of fair
play and substantial justice.” Int'l Shoe Co.
v. Washington, 326 U.S. 310, 316 (1945). Fair play and
substantial justice mandate that a defendant has minimum
contacts with the forum state before it may be hailed into a
court in that forum. Id. The extent of those
contacts can result in either general or specific
jurisdiction. Goodyear Dunlop Tires Operations, S.A. v.
Brown, 564 U.S. 915, 919 (2011). If the requirements for
either are met, a court has jurisdiction over the parties.
Helicopteros, 466 U.S. at 413-14.
jurisdiction permits a court to consider claims against a
person or a corporation for any conduct, even that which
occurred outside the forum state. Goodyear, 564 U.S.
at 924; Daimler, 571 U.S. at 126-27. “For an
individual, the paradigm forum for the exercise of general
jurisdiction is the individual's domicile; for a
corporation, it is an equivalent place, one in which the
corporation is fairly regarded as at home.”
Goodyear, 564 U.S. at 919. The Taylors do not
specify whether they believe the Court has general or
specific personal jurisdiction over Rothschild. See
Dkt. 12 at 8-10. However, they do not provide evidence
contradicting Rothschild's statements in his declaration
that he has never had business offices in Washington, owned
property in Washington, or been a Washington resident.
Compare Dkt. 12 with Rothschild Decl.
¶¶ 1-2. Therefore, the Court concludes it does not
have general jurisdiction over Rothschild.