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Delamater v. Anytime Fitness

June 25, 2010

TERRY DELAMATER, INDIVIDUALLY AND DBA FAMILY FITNESS OF ROYAL, LLC, PLAINTIFF,
v.
ANYTIME FITNESS, INC., DEFENDANT.



ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

(Doc. Nos. 7, 15)

This is a contractual dispute between plaintiff Terry Delamater ("Delamater")*fn1 and Defendant Anytime Fitness, LLC. ("Anytime Fitness")*fn2 regarding various fitness gym franchise agreements (collectively "Franchise Agreements"). The Franchise Agreements require mediation before the parties initiate litigation or arbitration. Delamater seeks declaratory relief and requests that the Court declare that the parties must mediate in California, and that the Franchise Agreements' non-competition clauses are void and unenforceable under California law. Both parties now move for summary judgment. After reviewing the cross motions of the parties, the Court will deny Delamater's motion and grant Anytime Fitness' motion and dismiss Delamater's complaint without prejudice.

FACTUAL BACKGROUND*fn3

Anytime Fitness owns and licenses over 1,200 24-hour fitness facilities. See Jennifer Yiangou Decl. ¶4. Members join individual facilities and have reciprocal membership at all Anytime Fitness locations. Id. at 7. Delamater is an Anytime Fitness franchisee. In December 2004, Delamater and Anytime Fitness executed an Area Development Agreement under which Delamater agreed to establish Anytime Fitness franchises in Kern County, California. See Yiangou Decl. ¶14. Pursuant to the Area Development Agreement, Delamater entered into four franchise agreements for gym facilities in Kern County: (1) Oildale in December 2004, ("Oildale Agreement") See PUMF Nos. 5-6; (2) Tehachapi in October 2005 ("Tehachapi Agreement") See PUMF No.13; DUMF No. 15; (3) Westchester in December 2007 ("Westchester Agreement").*fn4 See PUMF No. 9; and (4) an undeveloped location in April 2009 ("2009 Agreement"). The Oildale Agreement terminated on December 7, 2009. See PUMF No. 7. The Tehachapi and Westchester Agreements have not yet expired. See PUMF Nos. 10, 14.

The Tehachapi Agreement and Westchester Agreement provide that the franchise relationship will be governed by the laws of Minnesota. See DUMF No. 23; PUMF No. 12.*fn5

The Westchester Agreement also contains a "State Specific Addendum to Franchise Agreement," which provides that "[t]he Franchise Agreement requires application of the laws and forum of Minnesota. This provision may not be enforceable under California law." See PUMF No. 12.

The Franchise Agreements contain non-competition clauses. Each Franchise Agreement contains a provision that relates to competition during the term of the agreement ("In-Term Non-Compete"). See PUMF No.16. The In-Term Non-Compete provision states that Delamater, "will not, directly or indirectly, during the term of this Agreement... own, operate, lease, franchise, engage in, be connected with, have any interest in, or assist any person or entity engaged in any other fitness center wherever located, whether within the Protected Territory or elsewhere..." Westchester Franchise Agreement Section 17.A. The Westchester Agreement contains a covenant not to compete, which extends beyond the termination of the franchise agreement ("Post-Termination Non-Compete"). See PUMF No. 17.

The Franchise Agreements contain clauses requiring the parties to engage in mediation if they have a dispute involving the agreements or the franchise relationship. See DUMF No. 22; See Franchise Agreements, Section 18.B. The mediation clause provides in relevant part:

Mediation

Except where [Anytime Fitness] believe[s] it is necessary to seek equitable relief, or to recover monies you owe us, we each agree to enter into mediation of all disputes involving this Agreement or any other aspect of this relationship between us, for a minimum of four (4) hours, prior to initiation any legal action or arbitration against the other.

1. Upon written notice by either of us to the other of our desire to mediate, the party receiving the notice will select an independent entity that provides mediation services to serve as mediator in the proceeding. If the party receiving the notice of intent to mediate does not name such an organization within ten (10) days from the date of the notice of intention to mediate is received, then the other party may proceed as if this Section 18B did not exist, or, at its option, make the selection of the organization to provide mediation services... Theperson actually mediating the dispute will be required to have at least five (5) years of experience as either a franchisee or franchisor (or as an officer of such an entity) or in franchise law. You and we will equally share the cost of the mediator. The mediator will select the location for the mediation, but unless we both agree otherwise, the mediation will be held in a metropolitan area with at least 250,000 persons that is not located within one hundred (100) miles of either your principal office or our principal office. (Emphasis added).

2. Except for matters where we are permitted to bring an action or arbitration without first mediating the dispute, if either party initiates litigation or arbitration without complying with their obligation to mediate in accordance with this paragraph (unless the other party has failed to respond on a timely basis or has indicated it will not engage in mediation in accordance with the provisions of this Section 18B), then upon petition of whichever of us has a lawsuit or arbitration proceeding brought against us, the court or arbitrator will dismiss the litigation or arbitration without prejudice, and award attorneys' fees and costs to the party seeking dismissal in an amount equal to the attorneys' fees and costs the party seeking dismissal incurred. If the court or arbitrator refuses for any reason to dismiss the action, then regardless of the outcome of the action, or of any award given in the action, the party initiation the litigation or arbitration will be responsible for all attorneys' fees and costs incurred through the litigation or arbitration by the other party as damages for failing to comply with the provisions of this Section 18B. (Emphasis added).

Westchester Franchise Agreement, Section 18.B.

On October 19, 2009, Delamater demanded written confirmation from Anytime Fitness that Anytime Fitness would not interfere with Delamater's intention of opening up his own fitness center, and would not attempt to enforce the non-compete clauses. See PUMF No. 19; DUMF No. 42. After receipt of Delamater's letter, the parties discussed the matter and Anytime Fitness' counsel threatened litigation against Delamater, including injunctive relief, claiming that: (1) the post-termination non-competition clause in the Oildale Franchise Agreement was valid; and (2) the in-term non-compete provisions in the Westchester Agreement and the Tehachapi Agreement were enforceable. See PUMF No. 21.

On or about, November 5, 2009, Delamater made a demand for mediation and requested that the mediation occur before the Oildale Agreement expired on December 7, 2009. See DUMF No. 44. Delamater demanded that mediation take place in California. See PUMF No. 22. Delamater proposed a retired judge in Tulare County, California, as the mediator. See DUMF No. 45. On November 13, 2009, Anytime Fitness agreed to mediation. See DUMF No. 46. Anytime Fitness requested that mediation occur consistent with the Franchise Agreements in a location selected by the mediator. See PUMF No. 22. The mediation organization indicated that it could accommodate Delamater's request that the mediation be held prior to December 8, 2009, if the mediation was held in Atlanta. See James M. Susag Affidavit ¶ 5.

On November 18, 2009, Delamater filed a complaint for declaratory judgment with this Court. See DUMF No. 51. Delamater requests that the Court declare the following: (1) the parties must mediate in California; (2) the non-competition clauses are void and unenforceable; and (3) Delamater's continued operation of a non-affiliated Anytime Fitness center at the Oildale location is not a violation of the Franchise Agreements. Delamater also seeks injunctive relief enjoining Anytime Fitness from attempting to enforce its non-competition clauses and from interfering with Delamater's operation of its Oildale fitness gym.

On December 8, 2009, Delamater filed a motion for summary judgment. On December 28, 2009, Anytime Fitness filed a cross motion for summary judgment.

On December 11, 2009, Anytime Fitness, Inc. converted from a corporation to a limited liability company (Anytime Fitness, LLC) under Minn. Stat. §302A.681. See Chris A. Ingvalson Declaration ¶5. On January 5, 2010, the California Secretary of State issued a Certificate of Qualification, which indicates that Anytime Fitness Inc. was qualified to conduct business as of December 7, 2009. See Chris A. Ingvalson Declaration Exhibit B. On January 15, 2010, the California Secretary of State issued a Certificate of Qualification, which indicates that Anytime Fitness LLC was qualified to conduct business as of January 15, 2010. See Chris A. Ingvalson Exhibit D.

On February 1, 2010, Anytime Fitness filed a reply. On February 2, 2010, Delamater filed an objection to Anytime Fitness' reply on the grounds that it was untimely.*fn6

On February 2, 2010, Anytime Fitness filed an answer and counter-claims. Anytime Fitness' counter-claims allege the following: (1) Breach of Franchise Agreements*fn7 (Violation of Covenant not ...


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