Cold Stone Creamery sign - closed for the day. Photo/pws

PHOENIX – A district court has denied a Miami-based franchisee’s motion to dismiss Cold Stone Creamery’s filing to compel arbitration in Arizona. In doing so, the judge explained that the franchisee had not responded to the franchisor’s opposition motion.  He further stated that franchisee Nutty Buddies Inc did not cite the rule of civil procedure under which it brought the motion to dismiss, although he assumed it was brought under Rule 12(b)(6) (Federal Rule of Civil Procedures dealing with technical issues).

In issuing his full decision, U.S. District Judge David G. Campbell explained the backdrop to the case. Nutty Buddies is a franchisee and its owner Rudy Puig is a member of the National Independent Association of Cold Stone Creamery Franchisees, Inc, (NIACCF), an association at that time comprised of over one hundred franchise owners. The organization filed a complaint earlier in the year for declaratory relief against Cold Stone in circuit court in Miami-Dade county. Its complaint alleged the franchisor failed to provide information related to monies received from third-parties, those funds designated for the benefit of franchisees.

Cold Stone balked at the association’s complaint, stating the matter had to be arbitrated individually against each member according to their franchise agreements. Attorneys at law firm Zarco Einhorn Salkowski & Brito had argued that their client NIACCF  as an association had standing to assert claims in a consolidated arbitration. It asked the court to rule in favor of the “first-filed” NIACCF lawsuit. But in his analysis, Judge Campbell ruled the association’s argument misapplies the “first-to-file” rule, which requires the same dispute between the same parties.

The judge concluded the order, saying that the Nutty Buddies franchisee had entered into one or more franchise agreements with Cold Stone on June 28, 2004, which included a broad arbitration clause. That clause requires all controversies or disputes between the parties, related to their relationship, be arbitrated in Phoenix, Arizona. He ruled that according to Cold Stone, the NIACCF lawsuit asserts claims on behalf of Nutty Buddies franchisee that arise out of its franchise agreement. Such claims are subject to arbitration.

“Taken as true,” the judge said of the signed franchise agreement, “these allegations state a claim to compel arbitration.” 

Robert Zarco, lead counsel in the case for Nutty Buddies, Inc., said their firm was not surprised by the court’s decision given the existence of the standard arbitration provision in the franchise agreement. But he added, “We are a bit taken aback at the fact that the court was led by Cold Stone in the direction of issuing what we believe to be an advisory opinion on whether Nutty Buddies is obligated to arbitrate its disputes with Cold Stone. Nutty Buddies has not filed any lawsuit against Cold Stone so asking the court to enter an order which finds that Nutty Buddies, if it wants to bring a claim against Cold Stone, must do so in arbitration to be an improper attempt by Cold Stone to get direction as to how to proceed in resolving its disputes with its franchisees, which we believe to be improper.”

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