Essence Skin Clinic, LLC v. Wakaya Perfection, LLC

Background

Wakaya Perfection, LLC is described in the opinion as a multi-level marketing company headquartered in Utah. Jennifer Sanneman is described as the founder and chief executive officer of Essence Skin Clinic, based in Rochester, Minnesota. In late 2016, Sanneman invested in Wakaya and entered an Endorsement Agreement with it on or around December 28, 2016. The agreement required Sanneman to license her image, name, likeness, and voice for Wakaya’s commercial purposes and to invest $250,000 with Wakaya.

The agreement contained a broad dispute-resolution provision requiring binding arbitration of any controversy or claim arising out of or relating to the agreement that could not be resolved by the parties. Plaintiffs later alleged that Wakaya and its representatives had deceived Sanneman before she entered the agreement by misrepresenting the company and failing to disclose Wakaya’s ongoing litigation in another matter. Plaintiffs asserted six claims, including state securities-law violations, breach of contract, fraud, promissory estoppel, and unjust enrichment.

Defendants moved to compel arbitration and asked the court either to dismiss the complaint or to dismiss for lack of jurisdiction. Plaintiffs argued that the arbitration provision was invalid because the agreement had been terminated, that the Minnesota Blue Sky Law prevented enforcement of the provision, and that their claims did not arise out of or relate to the agreement.

Analysis

The court applied the Federal Arbitration Act, which requires courts to enforce valid arbitration agreements. It considered whether a valid arbitration agreement existed and whether the dispute fell within its scope.

The court rejected the argument that termination of the agreement ended the arbitration provision. It found no express or implied indication that the parties intended to eliminate arbitration when the agreement was terminated. The court also stated that Minnesota Blue Sky Law and related common-law claims are subject to arbitration, so the securities-law claim did not prevent enforcement of the provision.

The court further held that all six claims fell within the arbitration provision. Each claim either expressly relied on the agreement or alleged that Sanneman had been fraudulently induced to enter it. Although some arguments were based on securities law, the court reasoned that the securities-law theory concerned the agreement itself as a security and therefore related to the agreement.

Ruling

The court granted in part and denied in part Defendants’ Motion to Dismiss and Compel Arbitration or to Dismiss for Lack of Jurisdiction. It compelled Plaintiffs to arbitrate all claims and stayed the federal action pending the outcome of arbitration. The court found dismissal premature.