Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 1 of 11

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1 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 1 of 11 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION PHILLIP M. HEWSON, Plaintiff, v. PEPPERIDGE FARM, INC., Defendant. Civil Action No.: 5:18-cv OLG DEFENDANT S OPPOSED MOTION FOR JUDGMENT ON THE PLEADINGS AND COMPELLING PLAINTIFF S CLAIMS TO ARBITRATION Defendant Pepperidge Farm, Incorporated ( Pepperidge Farm ), by and through its undersigned counsel, respectfully moves this Court pursuant to Federal Rule of Civil Procedure 12(c) and 9 U.S.C. 2 and 4 of the Federal Arbitration Act ( FAA ) for a judgment on the pleadings dismissing and compelling arbitration of all of the claims made by Plaintiff Phillip M. Hewson ( Plaintiff ) and ordering that the arbitrators set the schedule and other procedures governing the arbitration. I. INTRODUCTION This is an unusual case, as both parties agree that it belongs in arbitration. In fact, both parties are contemporaneously moving forward under the applicable arbitration provision they have selected their respective arbitrators who are now jointly selecting a third. For reasons unknown to Pepperidge Farm, however, Plaintiff filed this action in court (initially in the 150th Judicial District of Texas before Pepperidge Farm removed it to this Court) and asks this Court to dictate the schedule and procedure of the arbitration. But the law is clear that those decisions are for arbitrators, not the Court. Nevertheless, Plaintiff has to date refused multiple requests to dismiss the complaint. Accordingly, and for the reasons set forth herein, Pepperidge Farm 1

2 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 2 of 11 respectfully submits that this Court should dismiss this action and allow the arbitrators to set the schedule and procedures of the arbitration. II. FACTS Pursuant to the Consignment Agreement between Plaintiff and Pepperidge Farm, Plaintiff owns the exclusive geographic right to distribute certain Pepperidge Farm-branded products within a specific geographic territory. See Consignment Agreement, attached to Plaintiff s Original Petition as Exhibit A. The Consignment Agreement confers on Pepperidge Farm the right to purchase some or all of Plaintiff s distributorship. Consignment Agreement 20. ( [Pepperidge Farm] shall have the right in its discretion to purchase all or any portion of the Distributorship at any time upon written notice to [Plaintiff]. ); see Original Pet. at VI. On February 9, 2018, Pepperidge Farm gave written notice to Plaintiff that it was exercising its right under Paragraph 20 of the Consignment Agreement to purchase all existing and future club rights within your Distributorship in other words, a portion of the Distributorship. See Original Pet. at VII; Consignment Agreement The Consignment Agreement provides that, in exchange for such rights, Pepperidge Farm shall pay to Plaintiff a sum equal to (a) the fair market value of [the club rights] on the date set forth in the written notice plus (b) 25% of such fair market value, to be determined either by agreement between Pepperidge Farm and Plaintiff or, if they shall be unable to agree, by three arbitrators, one of whom shall be chosen by [Pepperidge Farm] and one by [Plaintiff] and the third by the two first 1 Plaintiff correctly notes that club rights include the right to sell certain Pepperidge Farmbranded products to retail stores within Hewson s territory commonly (though not necessarily) dedicated to large sizes and bulk sales to consumers who may be required to pay a membership fee to shop therein (e.g., Costco, Sam s Club, B.J. s etc.). See Orig. Pet. at VII. 2

3 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 3 of 11 chosen. Id. It further provides that [t]he determination of fair market value by a majority of the three arbitrators shall be final and binding upon both [Pepperidge Farm] and [Plaintiff]. Id. Plaintiff and Pepperidge Farm have attempted to negotiate a price representing the fair market value of his right to service club stores within his territory but they have been unable to do so. See Orig. Pet. at VIII. Accordingly, Plaintiff seeks to invoke the arbitration provision of Paragraph 20 of the Consignment Agreement and asks this Court to send this matter to arbitration. Id. Pepperidge Farm agrees that the dispute belongs in arbitration, and confirmed as much to Plaintiff multiple times before and after this action was filed. See Answer at VIII, IX, XI ( Pepperidge Farm informed Plaintiff via on April 2, 2018 that [b]oth sides agree that arbitration is the mechanism for resolution of a valuation dispute in these circumstances, so it would seem to make the most sense to start by discussing next steps for arbitration within the parameters of the contract which we haven t yet done and Pepperidge Farm again confirmed to Plaintiff on April 19 and May 7, 11 and 14, 2018 that it agrees the parties should proceed to arbitration expeditiously ). In fact, the arbitration process is already underway in that on May 4, 2018 the parties selected and exchanged arbitrators (see Answer at IX, XI), who, pursuant to the Consignment Agreement, will now mutually agree on a third arbitrator. See supra at 2-3. Plaintiff, however, also requests that this Court order [Pepperidge Farm] to agree to a reasonable schedule for disposition of the arbitration; in the alternative, if [Pepperidge Farm] refuses to agree to a reasonable schedule, then [Plaintiff] requests that the Court establish a schedule. See Orig. Pet. at IX. Plaintiff does not allege nor could he that Pepperidge Farm has in any way refused to participate in arbitration or set an arbitration schedule; on the contrary, Pepperidge Farm has confirmed that it agrees that the parties should proceed to arbitration expeditiously and the arbitration process is underway. See Answer at IX, XI. 3

4 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 4 of 11 A. Legal Standard III. ARGUMENT AND AUTHORITIES Federal Rule of Civil Procedure 12(c) provides that [a]fter the pleadings are closed but early enough not to delay trial a party may move for judgment on the pleadings. A motion for judgment on the pleadings is subject to the same standards as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Funke v. Deutsche Bank Nat. Tr. Co., No. 5:14-CV- 307-DAE, 2014 WL , at *2 (W.D. Tex. Oct. 17, 2014) (citing In re Great Lakes Dredge & Dock Co. LLC, 624 F.3d 201, (5th Cir. 2010). Accordingly, [j]udgment on the pleadings is appropriate only if there are no disputed issues of fact and only questions of law remain. Id. (citing United States v Acres of Land, More or Less, Situate in Parishes of Orleans and Jefferson, La., 705 F.3d 540, 543 (5th Cir. 2013) and Brittan Commc ns Int l Corp. v. Sw. Bell Tel. Co., 313 F.3d 899, 904 (5th Cir. 2002). And [t]o avoid a judgment under 12(c), a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id. (citing Great Lakes, 624 F.3d at 210 and Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). B. The Consignment Agreement Requires This Dispute to Be Submitted to Binding Arbitration, and the Arbitrators Should Determine the Procedures. This action does not belong in court. The parties agree that Paragraph 20 of the Consignment Agreement contains a valid and binding agreement to arbitrate. See Orig. Pet. at VIII, IX, XI; Answer at VII, IX, XI; see also 9 U.S.C. 2 ( A written provision in any... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. ). 4

5 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 5 of 11 The only dispute is who as between the Court or the arbitrators should determine the schedule and procedures of the arbitration. The law is clear that the arbitrators decide those details. See 9 U.S.C. 4 (limiting right to petition federal court to circumstances where one party fails, neglects, or refuses to accede to arbitration agreement, in which case the court may order that such arbitration proceed in the manner provided for in such agreement (emphasis added)); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 84 S. Ct. 909, 918, 11 L. Ed. 2d 898 (1964) ( Once it is determined, as we have, that the parties are obligated to submit the subject matter of a dispute to arbitration, procedural questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator. ); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S. Ct. 588, 592, 154 L. Ed. 2d 491 (2002) (holding that procedural questions are presumptively not for the judge, but for an arbitrator, to decide (internal quotations omitted)); Matthews v. Priority Energy Servs., LLC, No. 6:15-CV-448, 2017 WL , at *3 (E.D. Tex. Dec. 7, 2017) ( [T]he Court has very limited jurisdiction to intervene in the arbitration process before an award is issued [and t]he Court s ability to intervene is limited to the decision of whether an agreement to arbitrate exists and enforcement of that agreement.... (internal quotations omitted)); Yancey & Jamieson, Inc. v. Mapp Constr., L.L.C., No. CV JWDEWD, 2016 WL , at *7 (M.D. La. Mar. 10, 2016) ( In the absence of statutory or agreed to procedures, the arbitrators have broad discretion in conducting the proceedings, and a primary purpose of arbitration is a rejection of civil procedure. (internal quotations omitted)). That the Consignment Agreement is silent on the applicable rules for arbitration is immaterial, as numerous courts have recognized. The parties have agreed to select arbitrators, and those arbitrators are empowered to set the procedure (including the schedule) of the 5

6 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 6 of 11 arbitration. See, e.g., Garcia v. Strike, LLC, No. 2:14-CV-71, 2014 WL , at *2, 4 (S.D. Tex. July 17, 2014) (compelling claims to arbitration, denying plaintiff s request for the court to select the arbitral forum (American Arbitration Association), and administratively closing case where arbitration agreement was silent on much of the procedure to be followed, including responsibility for costs, potential arbitrators, the nature of the disputes covered, applicable procedural rules ); Keebler Co. v. Truck Drivers, Local 170, 247 F.3d 8, 11 (1st Cir. 2001) ( Where an arbitration agreement is silent, court customs do not stand as binding default rules.... Rather, the arbitrator is free to set his own rules of procedure so long as he stays within the bounds of fundamental fairness. ); Lockard v. EYM King of Kansas, LLC, No JAR- JPO, 2017 WL , at *5 (D. Kan. Sept. 12, 2017) (holding that a lack of arbitration procedures in the Arbitration Agreement does not render the agreement unenforceable because the arbitrator can decide the other procedural aspects of the arbitration ); Badinelli v. Tuxedo Club, 183 F. Supp. 3d 450, 455 (S.D.N.Y. 2016) (same). 2 Plaintiff s request that this Court intervene in the arbitration process is at odds with black letter law and should be rejected. 2 Any suggestion by Plaintiff that this Court s intervention may be necessary in the event that the arbirators selected by the parties are unable to agree upon a third arbitrator is speculative and premature. See Garcia, 2014 WL , at *2, 4 (denying plaintiff s request to select arbitrator and holding that if the parties cannot agree to an arbitrator, they may apply to the Court for relief, but compelling claims to arbitration and administratively closing case in meantime); Gonzales v. Bailey, No. 5:16-CV-401-OLG, 2017 WL , at *1 (W.D. Tex. Oct. 6, 2017) (Garcia, C.J.) ( Nor does the FAA authorize a court to hear pre-award disputes over the qualifications of an arbitrator to serve, unless the dispute raises concerns that the very validity of the agreement [is] at issue (citation and quotation marks omitted)); Affiliated FM Ins. Co. v. Bridge Terminal Transp. Servs., Inc., No. 14 CIV. 6938, 2015 WL , at *3 (S.D.N.Y. Feb. 18, 2015) (compelling claims to arbitration and denying defendant s request for court to appoint an arbitrator because court appointment is unnecessary at this time because the arbitration agreement provides that the arbitration shall be jointly selected by the parties, and so the parties should commence such joint selection ). 6

7 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 7 of 11 C. Plaintiff s Claims Should Be Dismissed. Because there is no dispute that Plaintiff s claims belong in arbitration, dismissal is appropriate. See Fedmet Corp. v. M/V BUYALYK, 194 F.3d 674, 678 (5th Cir. 1999) (quoting Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) ( The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration. )); see also Satarino v. A.G. Edwards & Sons, Inc., 941 F. Supp. 609, (N.D. Tex. 1996). As the Fifth Circuit instructed in FedMet Corp.: Given our ruling that all issues raised in this action are arbitrable and must be submitted to arbitration, retaining jurisdiction and staying the action will serve no purpose. Any post-arbitration remedies sought by the parties will not entail renewed considerations and adjudication of the merits of the controversy but would be circumscribed to a judicial review of the arbitrator s award in the limited manner prescribed by law. 194 F.3d at 678 (quoting Alford, 975 F.2d at 1164); see also Cohen v. Brooke Corp., No. SA-07- CA-594-OG, 2007 WL , at *4 (W.D. Tex. Dec. 18, 2007) (Garcia, C. J.) ( Because all of plaintiff s claims are subject to binding arbitration, this cause is DISMISSED WITH PREJUDICE (citing Alford, 975 F.2d at 1164); Garza v. Henry, No. SA-14-CA-877-OLG, 2015 WL , at *1 (W.D. Tex. Jan. 12, 2015) (Garcia, C. J.) (adopting Magistrate Judge s report and recommendation to grant motion to compel arbitration and dismiss case with prejudice). Dismissal is appropriate notwithstanding Plaintiff s request for [a] judgment confirming the arbitrators award, fees and costs, and pre-judgment and post-judgment interest. See Orig. Pet. at XI. Those requests are premature given that an arbitration proceeding has just begun and there is no final award to enforce. Arriola v. Martinez, No. 5:15-CV-1097-OLG, 2016 WL , at *1 (W.D. Tex. July 15, 2016) (Garcia, C. J.) ( [T]he Court ordered the parties to advise the Court whether the Interim Award was sufficiently final and definite to be capable of 7

8 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 8 of 11 confirmation. (emphasis added)); Stebbins v. Texas, No. 3:11-CV-2227-N BK, 2011 WL , at *3 (N.D. Tex. Oct. 24, 2011), report and recommendation adopted, No. 3:11-CV N BK, 2011 WL (N.D. Tex. Dec. 9, 2011) (issuing sanctions warning against plaintiff who filed multiple lawsuits asking the court to confirm nonexistent arbitration awards ); Local 15 Int'l Bhd. of Elec. Workers v. Commonwealth Edison Co., No. 03 C 9127, 2004 WL , at *3 (N.D. Ill. July 1, 2004) (denying motion to enforce arbitration award as premature because [e]nforcement is only appropriate if there is a final award as to liability and remedy ); McGregor Van De Moere, Inc. v. Paychex, Inc., 927 F. Supp. 616, 617 (W.D.N.Y. 1996) ( An arbitration award must be final before it can become subject to judicial review under the FAA. ). Accordingly, the Court s retention of jurisdiction during the pendency of arbitration would serve no purpose, and dismissal is the only appropriate course. IV. LOCAL RULE 7.1(i) CONFERENCE Pursuant to Local Rule 7.1(i) of this Court, counsel for Pepperidge Farm and counsel for Plaintiff conferred in good-faith to attempt to resolve this matter by agreement, but were unable to do so. Specifically, Pepperidge Farm asked Plaintiff on multiple occasions to voluntarily dismiss this action given that the parties agreed that the dispute belongs in arbitration and that arbitration had already commenced. Plaintiff refused to dismiss this action, stating that he could not do so because [t]here is no organization specified in the Consignment Agreement, such as the American Arbitration Association, to which we can submit the demand for arbitration, so I can think of no way to compel arbitration other than to file suit and that court assistance may be needed to obtain [a third arbitrator] if there two arbitrators selected by the parties are unable to agree upon one. On May 18, 2018, the parties conferred again by telephone and Pepperidge Farm explained to Plaintiff s counsel that there is law directly on point on the issues set forth in 8

9 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 9 of 11 this Motion. Nevertheless, Plaintiff still refused to dismiss the case and confirmed that he would oppose this Motion. As a result, Pepperidge Farm intends to file a separate motion seeking its reasonable attorneys fees and costs in defending this lawsuit and any other relief, legal or equitable, to which it is entitled. See e.g., Multiband Corp. v. Block, No , 2012 WL , at *10, 13 (E.D. Mich. May 21, 2012) (ordering plaintiff to pay defendant s attorney fees where Plaintiff s counsel should have known that the claims in the amended complaint were subject to arbitration based on the plain language of the parties contract); Gonick v. Drexel Burnham Lambert, Inc., 711 F. Supp. 981, 987 (N.D. Cal. 1988) (imposing sanctions against plaintiff who commenced litigation in court where it was settled law that his claims were subject to arbitration); see also Perry v. Lyons, No. CV A-09-CA-714-LY, 2010 WL , at *2 (W.D. Tex. June 18, 2010) (warning plaintiffs counsel that [g]iven the busy docket of this Court, they should proceed with great caution in filing lawsuit where claims were already subject to and litigated in binding arbitration, and noting that [p]laintiffs and their counsel may be sanctioned for bringing a redundant, and thus frivolous, federal lawsuit ). Pepperidge Farm will set forth the basis for its request including its multiple requests to Plaintiff to withdraw this lawsuit more fully in its forthcoming motion. V. CONCLUSION For the foregoing reasons, Pepperidge Farm respectfully requests that the Court promptly dismiss this lawsuit with prejudice and without setting the schedule or other procedures for the arbitration. 9

10 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 10 of 11 Dated: May 18, 2018 Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP /s/ T. Cullen Wallace T. Cullen Wallace State Bar No cullen.wallace@morganlewis.com 1000 Louisiana Street, Suite 4000 Houston, TX T F Paul C. Evans (pro hac vice application forthcoming) paul.evans@morganlewis.com 1701 Market Street Philadelphia, PA T F Attorneys for Defendant Pepperidge Farm, Incorporated 10

11 Case 5:18-cv OLG Document 4 Filed 05/18/18 Page 11 of 11 CERTIFICATE OF SERVICE I hereby certify that on the 18th day of May 2018, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following: Paul T. Curl Herbert S. Hill CURL STAHL GEIS, A PROFESSIONAL CORPORATION 700 North St. Mary s Street, Suite 1800 San Antonio, TX Attorneys for Plaintiff /s/ T. Cullen Wallace T. Cullen Wallace 11