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SOUTHLAND CORP. v. GODETTE

May 11, 1992

THE SOUTHLAND CORPORATION, Plaintiff,
v.
McCLURE GODETTE, and EDITH GODETTE, Defendants.



The opinion of the court was delivered by: GEORGE H. REVERCOMB

 This case is now before the Court on plaintiff Southland Corporation's ("Southland") Renewed Motion for Preliminary Injunction. Defendants McClure Godette and Edith Godette ("the Godettes"), after obtaining new counsel, opposed this Renewed Motion, and both parties have been heard in oral argument. Upon consideration of the prior proceedings in this case, the instant Renewed Motion and the parties' briefs, and arguments of counsel at a hearing held May 11, 1992, the Court will deny Southland's request for interim injunctive relief. The Court will also order the parties to proceed to arbitration pursuant to the arbitration clause in the governing Franchise Agreement.

 I. BACKGROUND OF THE CASE

 Southland is a Texas Corporation which owns the 7-Eleven service mark and convenience store system. On or about March 26, 1985, Southland entered into a Franchise Agreement with the Godettes to operate a 7-Eleven convenience store located at 333 Hawaii Avenue, N.E., in Washington, D.C.

 Pursuant to the Franchise Agreement, the Godettes agreed to pay a franchise fee to Southland, invest in the initial inventory of merchandise in the store, and to maintain a specified minimum equity interest or "Net Worth" in the inventory at all times. The Godettes are responsible for operating the store on a day-to-day basis and for the expenses associated with its operation. They are also responsible for keeping and submitting accurate, daily reports of sales receipts to Southland, depositing the store's sales receipts on a daily basis into an account controlled by Southland, keeping Southland advised of their retail selling prices and prices rung up on cash registers, and permitting Southland to conduct audits of the inventory, supplies, and cash register records. The Franchise Agreement also requires the Godettes to use only containers that bear the distinctive 7-Eleven identification for items that are customarily sold in standardized containers.

 The Franchise Agreement provided that it would expire on September 30, 1997, unless terminated by either party at an earlier date. The Godettes were permitted to terminate the contract at any time on three days' notice; Southland was permitted to terminate in the event of material breaches by the Godettes, and it was required to provide 45, 30, or 3 days' prior notice, depending on the nature of the breach.

 Finally, the Franchise Agreement also contains an arbitration clause, which provides in relevant part that

 any controversy relating to this Agreement which the parties cannot mutually resolve (including tort as well as contract claims, claims based upon any federal, state, or local statute, law, order, ordinance, or regulations, and claims arising from any relationship prior to, at the time of entering, during the term of, or upon or after expiration or termination of this Agreement) shall be settled by individual arbitration in accordance with the rules of the American Arbitration Association, except that possessory or receivership claims under Paragraph 6 and requests for specific performance of this Agreement pending arbitration may be filed in court.

 Pl.'s Verified Complt., Ex. 1 P. 31 (emphasis added). This provision further provides that a demand for arbitration shall be made within 10 days after a 30-day or longer notice of termination, or prior to any other notice of termination becoming effective, if the demand is based in whole or in part on termination of the Franchise Agreement.

 On April 29, 1991, Southland served the Godettes with a final notice of termination of the Franchise Agreement, informing them that the contract would be terminated as of May 2, 1991 at 7:00 Southland then filed, on May 2, 1991, a Verified Complaint for Declaratory Judgment, Injunction, Damages and Other Relief ("the Complaint"). The Complaint alleged that, since 1989, the Godettes had misrepresented to Southland the sales volume and gross profits of the store, with the intent to embezzle funds from the store and to deprive Southland of its contractual share of the profits. The Complaint contained allegations that the Godettes had tampered with cash register receipts, erased cumulative sales figures from cash registers, engaged in under-ringing sales on cash registers, failed to price-mark merchandise accurately, failed to inform Southland of the actual prices they were charging for goods sold, under-reported sales of coffee and carbonated beverages, and engaged in other actions designed to defraud Southland. The Complaint contained various counts, including claims for breach of contract, fraud and embezzlement, violation of trademark rights, replevin, unlawful detainer, and the nonapplicability of the District of Columbia Franchise Act of 1988.

 Simultaneously with the filing of its Complaint, Southland moved for a preliminary injunction and a temporary restraining order, seeking, among other things, immediate possession of the store. The parties were heard in an evidentiary hearing before then-District Judge Michael Boudin. By Memorandum Opinion and Order dated September 12, 1991, Judge Boudin, while noting the likelihood that Southland would prevail on the merits, denied Southland's request for interim injunctive relief for failure to make a sufficient showing on the criteria of irreparable harm, balance of hardships, and public interest. However, Judge Boudin did invite Southland to return to the court in the event that the monitoring procedures under the Franchise Agreement proved inadequate to protect Southland's interests during the litigation.

 During the pendency of Southland's Renewed Motion for a Preliminary Injunction, new counsel entered on behalf of the Godettes. On April 28, 1992, counsel filed on behalf of the Godettes an opposition to Southland's Renewed Motion, which contained a demand under the arbitration clause of the Franchise Agreement. she Godettes' opposition also contained, in the alternative to its arbitration demand, a draft order in the event alternative to its arbitration demand, a draft order in the event the Court should grant Southland's request for interim relief. The presence of a draft order in defendants' brief held out the prospect that the parties might negotiate an interim resolution of their differences that would enable Southland to ...


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