United States District Court, W.D. Washington, Tacoma
ROBERT SEAN TAYLOR, Trustee for the bankruptcy estate of Robert and Stephanie Taylor, Plaintiff,
MORGAN ROTHSCHILD f/k/a MORGAN HENNING, HAYLEY HENNING, and FRANNET GLOBAL, LLC, Defendants.
ORDER GRANTING DEFENDANT'S MOTION TO COMPEL
BENJAMIN H. SETTLE, UNITED STATES DISTRICT JUDGE
matter comes before the Court on Defendant Morgan Rothschild
f/k/a Morgan Henning's (“Rothschild”) second
motion to compel arbitration. Dkt. 27. The Court has
considered the pleadings filed in support of and in
opposition to the motion and the remainder of the file and
hereby grants the motion 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 agreed to
lift the stay and renote the motion. Dkt. 11. On February 24,
2019, the Court granted the Taylors' motion to substitute
Chapter 7 Trustee Russell Garrett (“Plaintiff) into the
action as Plaintiff in place of the Taylors. Dkt. 19.
2, 2019, the Court denied Rothschild's motion to dismiss
or compel arbitration. Dkt. 25. On May 16, 2019, Rothschild
filed a second motion to change venue and compel arbitration.
Dkt. 27. On May 30, 2019, Plaintiff filed an amended
complaint with leave of the Court adding claims against
Defendant FranNet Global, LLC. Dkts. 31, 33. On May 31, 2019,
Plaintiff responded to Rothschild's motion. Dkt. 34. On
June 7, 2019, Rothschild replied. Dkt. 36.
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. Sean
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.” Dkt. 1-1, ¶ 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.
December 4, 2015, Sean Taylor purchased a Party Princess
Franchise, Dkt. 35, ¶ 5, “for the Washington
territory.” Dkt. 1-1, ¶ 21.The parties'
contract included a Franchise Agreement, a Washington Rider
to the Franchise Agreement, a Franchise Disclosure Document,
and an “Addendum to the Party Princess USA LLC
Disclosure Document for the State of Washington” (the
“Washington Addendum”). See Dkt. 8; Dkt.
8-1. The contract's documents contained a number of
provisions regarding arbitration. In section 16.3, Dispute
Resolution, the Franchise Agreement provided:
a. Except as otherwise provided herein, any dispute, claim or
controversy arising out of or relating to this Agreement, the
breach hereof, the rights and obligations of the parties
hereto or the relationship between the parties, or the entry,
making, interpretation, or performance of either party under
this Agreement . . . shall be settled by arbitration
administered by the American Arbitration Association . . . .
b. Any arbitration shall take place before a sole arbitrator
in Denver, Colorado or, if our headquarters is no longer
located in Denver, Colorado, then the arbitration shall take
place in the city which is our principal place of business at
the time arbitration is commenced. You agree that conducting
the arbitration where we are located is appropriate due to
the multiple locations throughout the United States where our
franchises are located.
8-1 at 47.,  The Washington Rider to the Franchise
Agreement stated in part:
Arbitration shall take place at a site to be determined, at
the time of arbitration, by the arbitrator appointed by the
Denver, Colorado office of the American Arbitration
Association, as applicable, but only if there is a valid and
legal restriction under [FIPA] to prohibit Franchisee and
Franchisee from agreeing on the site for arbitration in
Denver, Colorado. However, Franchisee and Franchisee do not
agree that this is a valid and legal restriction under the
Act, and, unless this restriction is found to be valid and
legal, the parties agree that arbitration shall take place in
Denver, Colorado in accordance with the Franchise Agreement.
Franchisee and Franchisee [sic] believe that each of the
provisions of the Franchise Agreement, including all venue
provisions, are fully enforceable.
8-1 at 75. The Franchise Disclosure Document listed as the
first “Risk Factor” of buying a franchise that:
THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES WITH
U.S. BY MEDIATION AND ARBITRATION ONLY IN COLORADO.
OUT-OF-STATE MEDIATION AND ARBITRATION MAY FORCE YOU TO
ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO
COST YOU MORE TO MEDIATE OR ARBITRATE WITH U.S. IN COLORADO
THAN IN YOUR OWN STATE.
Decl. ¶ 3; Dkt. 8-1 at 84. It listed effective dates of
the Franchise Disclosure Document for some states, but the
effective date for Washington was blank. Dkt. 8-1 at 85. The
Washington Addendum to the Franchise Disclosure Document
featured an arbitration clause which was functionally
identical to the Washington Rider to the Franchise Agreement.
Dkt. 8-1 at 137. As part of the purchase, “[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, ”
Dkt. 1-1, ¶ 21.
December 18, 2015, the Washington Department of Financial
Institutions (“DFI”) responded to Party
Princess's counsel notifying him of additional steps
Party Princess would need to take to secure registration as a
franchisor in Washington, including revisions to the
Washington Addendum to the Franchise Disclosure Document
regarding arbitration and to the Washington Addendum to the
Franchise Agreement regarding arbitration. Dkt. 35-2 at 3. In
January 2016, according to Rothschild, Party Princess
provided supplemental or amended information to the 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 declares that
he sent Sean Taylor a new franchise agreement by email to
sign. Id. Sean Taylor testified in his deposition
that he had no recollection of receiving the email and no
recollection of responding to it. Dkt. 34 at 3 (citing Dkt.
35, ¶ 10; Dkt. 35-5).
declares that the Taylors moved to the Pacific Northwest
“sometime during 2016.” Rothschild Decl. ¶
2. The Taylors alleged that despite Sean Taylor's
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, the Taylors 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.
The Taylors filed for bankruptcy on September 27, 2018. Dkt.
15 at 3; Dkt. 8-1 at 249-304. According to Rothschild's
counsel, the arbitration proceedings have been suspended
since September 27, 2018 after the Taylors filed for
bankruptcy and “[t]here has been no arbitration hearing
to date, nor is a hearing date scheduled.” Dkt. 37,
Third Declaration of Curt Roy Hineline, ¶ 7. 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 against
Rothschild-intentional misrepresentation, negligent
misrepresentation, violation of Washington's Franchise
Investment Protection Act (“FIPA”), RCW Chapter
19.100, and Washington's Consumer Protection Act