Reserve Industries Corporation et al v. Roll Em Up Franchise Group, LLC et al

1:24-cv-01074NmdNov 26, 2025

Full text

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
RESERVE INDUSTRIES CORPORATION
and FMP VENTURES, INC.,
Plaintiffs,
v.
ROLL EM UP FRANCHISE GROUP, LLC
and RYAN USREY,
Defendants.
Civ. No. 24‐1074 GBW/JMR
ROLL EM UP FRANCHISE GROUP, LLC
and RYAN USREY,
Counter‐Plaintiffs,
v.
RESERVE INDUSTRIES CORPORATION,
FMP VENTURES, INC., and
NATHANIEL POLLOCK,
Counter‐Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on Plaintiffs’ Motion to Dismiss
Counterclaim (doc. 29) and Defendants’ Motion to Compel Arbitration and to Stay
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Proceedings (doc. 31). Having reviewed the briefing and relevant law, the Court will
grant both motions in part and deny them in part. 1
I. 	BACKGROUND
Plaintiffs Reserve Industries Corporation (“Reserve Industries”) and FMP
Ventures, Inc. (“FMP”) filed suit in this court on October 23, 2024. Doc. 1. Their
complaint alleges as follows. On or about November 8, 2021, FMP, Reserve Industries
and Counter‐Defendant Nathaniel Pollock contracted with Defendant Roll Em Up
Franchise Group, LLC (“Roll Em Up”) to purchase the rights to own and operate a Roll‐
Em‐Up Taquitos restaurant located at 3585 S. Fort Apache Road, Las Vegas, Nevada
89147. Id. at ¶ 15. The purchase was made pursuant to an Area Development
Agreement (“ADA”) executed by FMP and Roll Em Up. Id. FMP is a joint venture
between Reserve Industries and Mr. Pollock, created to own and operate a franchise
restaurant. Id. at ¶¶ 6, 14
In 2023, Reserve Industries and Mr. Pollock decided to sell the franchise and
contacted Defendant Ryan Usrey, Roll Em Up’s CEO. Id. at ¶ 16–17. On or about
December 12, 2023, FMP, Reserve Industries and Mr. Pollock sold the franchise back to
Roll Em Up pursuant to the Asset Purchase Agreement (“APA”) executed on the same
date. Id. at ¶ 20. According to the APA’s terms, in exchange for the restaurant, Roll Em
1 The Court finds that a hearing is unnecessary to resolve the motions. Plaintiffs’ request for oral
argument (doc. 35 at 1) is therefore denied.
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Up was to provide a $205,000 secured promissory note in favor of FMP and to assume
liabilities including a stockholder note in the amount of $595,000. Id. at ¶ 22.
Assumption of the stockholder note was effectuated by Roll Em Up’s contemporaneous
execution of the Amended and Restated Loan Agreement (“ARLA”). Id. at ¶ 23; see doc.
1‐4. Monthly installments of $6,693.75 were due beginning January 1, 2024. Doc. 1 at ¶
25.
Defendants failed to deliver the promissory note to FMP and made no associated
payments. Id. at ¶¶ 32–33. Roll Em Up likewise failed to make any payments on the
stockholder note. Id. at ¶ 26. In accordance with the ARLA’s provisions, Reserve
Industries sent Roll Em Up and Mr. Usrey a notice of acceleration on August 26, 2024,
making the entire stockholder note immediately due and payable. Id. at ¶ 28.
Defendants did not respond. Id. at ¶ 29. Meanwhile, Defendants sold the franchise to a
new franchisee. Id. at ¶ 18. Plaintiffs assert claims of breach of contract based on the
ARLA and the APA or, in the alternative, a claim of unjust enrichment. Id. at ¶¶ 38–69.
On April 4, 2025, Defendants filed an answer and counter‐complaint. Doc. 14.
They do not dispute that the APA was signed on December 12, 2023, but allege that Mr.
Pollock, individually and on behalf of Reserve Industries and FMP, made false
statements and material omissions leading up to its execution. Id. at ¶¶ 6, 9.
Specifically, they allege Mr. Pollock did not disclose a substantial loan that withdrew
funds from the restaurant’s accounts; that utilities were not included with the rent; that
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rent had gone unpaid for an extended period; that restaurant employees had assaulted
a customer and her child; or that employees had been openly using illegal drugs on the
premises.2 Id. at ¶ 9. He also did not provide financial disclosures required under the
APA. Id. at ¶ 8. Counter‐Defendants closed the restaurant on December 17, 2023, but
did not provide the required disclosures or attempt to resolve the other issues, and
refused to provide the new franchise operator with keys or possession of the premises.
Id. at ¶ 11–12. On April 19, 2024, the restaurant caught on fire as a result of Counter‐
Defendants’ non‐compliant buildout and has not operated since. Id. at ¶ 13.
Defendants allege they would never have signed the APA, and would immediately
have terminated the ADA, but for Cross‐Defendants’ fraudulent inducement and
concealment. Id. at ¶ 68. They further allege that FMP breached the ADA by failing to
open new locations on schedule or to operate the franchise in compliance with Roll Em
Up’s system standards. Id. at ¶¶ 95–96. They assert counterclaims of fraudulent
inducement, negligent misrepresentation, breach of contract based on the APA and
ADA, breach of the implied covenant of good faith and fair dealing based on the APA
and ADA, gross negligence, and for declaratory relief. Id. at ¶¶ 71–119
2 Based on Defendants’ own allegations, it appears they were not entirely unaware of the
employee drug use. They allege that within four months of the restaurant’s opening, Mr. Usrey
confronted Mr. Pollock about a rumor that employees were selling cocaine and marijuana through the
drive‐thru and using drugs in the kitchen. Doc. 14 at ¶ 4. Mr. Pollock “acknowledged the drug sales,
claimed that he fired at least one individual who was involved, and promised to stop distributing or
using illegal drugs at the Las Vegas Restaurant location.” Id.
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Defendants now move to compel arbitration of all claims, and Plaintiffs move to
dismiss several of the counterclaims against them. See docs. 29, 31.
II. 	LEGAL STANDARD
A. 	Federal Arbitration Act
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et. seq., governs the
enforcement of arbitration agreements involving commerce. See Am. Express Co. v.
Italian Colors Rest., 570 U.S. 228, 232–33 (2013). It provides that arbitration agreements
“shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law
or in equity for the revocation of any contract.” 9 U.S.C. § 2. There is a “presumption of
arbitrability” under the FAA, AT&T Techs. v. Commc’ns Workers of Am., 475 U.S. 643, 650
(1986), which reflects “a strong national policy favoring the resolution of commercial
disputes through arbitration,” Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d
775, 779 (10th Cir. 1998) (citing Allied‐Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270–71
(1995)). Doubts about the arbitrability of a particular dispute “should be resolved in
favor of arbitration.” Id. (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24–25 (1983)). However, arbitration should be ordered “only where the court
is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a
valid provision specifically committing such disputes to an arbitrator) its enforceability
or applicability to the dispute is in issue.” Granite Rock Co. v. Int’l Bd. of Teamsters, 561
U.S. 287, 299 (2010). When a party contests either formation or applicability, the court
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must resolve the disagreement. Id. at 299–300. The court “look[s] to state law principles
of contract formation to tell . . . whether an agreement to arbitrate has been reached.”
Avedon Engineering, Inc. v. Seatex, 126 F.3d 1279, 1287 (10th Cir. 1997).
In addition to agreeing to arbitrate disputes, “parties can agree to arbitrate
‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to
arbitrate or whether their agreement covers a particular controversy.” Rent‐A‐Center,
W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010). The court “should not assume that the
parties agreed to arbitrate arbitrability unless there is ‘clear and unmistakable’ evidence
that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)
(quoting AT&T Techs., 475 U.S. at 649). In other words, when determining who should
decide arbitrability, the usual presumption in favor of arbitration is reversed. Id. at 944–
45. (quoting Mitsubishi Motors Corp. v. Soler Chrysler‐Plymouth, Inc., 473 U.S. 614, 626
(1985)). But “[w]hen the parties’ contract delegates the arbitrability question to an
arbitrator, a court may not override the contract,” even if the court believes the
argument for arbitration of a particular dispute is “wholly groundless.” Henry Schein,
Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 68 (2019).
B. 	Rule 12(b)(6)
To survive a motion to dismiss for failure to state a claim, the complaint “must
contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is
plausible on its face.’” Leverington v. City of Colorado Springs, 643 F.3d 719, 723 (10th Cir.
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2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). This standard does not require
“detailed factual allegations,” but it does require more than “labels and conclusions” or
“a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). When ruling on a 12(b)(6) motion, the court must “assume the
truth of all well‐pleaded facts in the complaint, and draw all reasonable inferences
therefrom in the light most favorable to the plaintiffs.” Leverington, 643 F.3d at 723
(quoting Dias v. City & Cnty. Of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009)). The court
need not accept the truth of any legal conclusions. Iqbal, 556 U.S. at 678.
Generally, the court may consider materials outside the complaint “only by
converting the motion to dismiss to a motion for summary judgment.” Lincoln v.
Maketa, 880 F.3d 533, 537 n.1 (10th Cir. 2018) (citing Utah Gospel Mission v. Salt Lake City
Corp., 425 F.3d 1249, 1253 (10th Cir. 2005)). However, the court may properly consider
“documents incorporated by reference in the complaint” and “documents referred to in
and central to the complaint, when no party disputes its authenticity.” Clinton v. Sec.
Ben. Life Ins. Co., 63 F.4th 1264, 1275 (10th Cir. 2023) (quoting Berneike v. CitiMortgage,
Inc., 708 F.3d 1141, 1146 (10th Cir. 2013)). Because the APA and ADA are attached,
respectively, to the complaint and countercomplaint; both documents are central to and
referenced in the pleadings; and no party disputes their authenticity, the Court finds
they are properly considered on motion to dismiss without conversion to summary
judgment.
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III. 	MOTION TO COMPEL A RBITRATION
Defendants move to compel arbitration of all claims and counterclaims in this
action. They argue that, pursuant to the ADA’s delegation clause, all claims must be
referred to an arbitrator to determine whether they fall within the scope of the
agreement. Plaintiffs contend that their claims are brought under the APA, which has
no arbitration clause, and therefore the claims are not subject to arbitration.
A. 	Delegation of the Arbitrability Determination
The ADA and the APA contain two apparently conflicting provisions with
respect to who decides disputes between the parties, including who decides the
gateway issue of arbitrability. Section 7.2(a) of the ADA, which was executed on
November 8, 2021, and covers the contemplated opening and operation of the franchise
restaurants, states in relevant part:
Any Dispute between Franchisor (or its affiliated entities) and Franchisee
(or its Principal Equity Owners or affiliated entities) not settled through
the procedures described in section 7.1 above, or any determination of the
scope or applicability of this agreement to arbitrate, will be resolved
through binding arbitration . . . .
Doc. 14‐1 at 11. “Dispute” is defined in § 7.1(a) as “any dispute, claim or controversy
arising out of or relating to this Agreement or any alleged breach hereof, including any
claim that this Agreement or any part hereof is invalid, illegal or otherwise voidable or
void.” Id. at 10. Section 7.2(c) provides that “[t]he arbitration award will be final and
binding on the parties,” with no provision for appeal to the courts. Id. at 11. Section
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7.2(f) states: “This arbitration provision is deemed to be self‐executing and will remain
in full force and effect after expiration or termination of this Agreement.” Id.
The APA, which was executed on December 12, 2023, and governs the sale of the
franchise back to Defendants, states in § 7.09(b):
ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE ANCILLARY DOCUMENTS3
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
MAY BE INSTITUTED IN THE STATE COURTS OR FEDERAL COURTS
OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN
ALBUQUERQUE, BERNALILLO COUNTY, NEW MEXICO, AND EACH
PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING.
Doc. 1‐2 at 16. In addition, § 7.05 of the APA contains the following merger clause:
This Agreement and the Ancillary Documents constitute the sole and
entire agreement of the Parties with respect to the subject matter
contained herein and therein, and supersede all prior and
contemporaneous understandings and agreements, both written and oral,
with respect to such subject matter.
Id. at 15.
Before applying the ADA’s delegation clause to refer the question of arbitrability
to an arbitrator, the Court must determine whether the ADA was superseded by the
3 “Ancillary Documents” are defined as “the Bill of Sale, the Assignment and Assumption
Agreement, the Seller Note, the Stockholder Note, and the other agreements, instruments and documents
required to be delivered at the Closing or in connection with this Agreement.” Doc. 1‐2 at 2. The
specified closing deliverables include “confirmation of the termination of the Franchise Agreement duly
executed by Buyer, which termination shall release Seller, Selling Stockholders, and their respective
Affiliates from any continuing obligations or liabilities thereunder.” Id. at 9.
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APA. “Where . . . parties have agreed to two contracts—one sending arbitrability
disputes to arbitration, and the other either explicitly or implicitly sending arbitrability
disputes to the courts—a court must decide which contract governs.” Coinbase, Inc. v.
Suski, 602 U.S. 143, 152 (2024) (emphasis in original). In other words, “a court, not an
arbitrator, must decide whether the parties’ first agreement was superseded by their
second.” Id. The parties in Coinbase had executed two agreements: the first containing
an arbitration clause delegating the arbitrability determination, and the second
conferring “sole jurisdiction of any controversies” on the California courts. Id. at 146.
The Supreme Court held that in light of the “conflict between the delegation clause in
the first contract and the forum selection clause in the second,” the question whether
the parties agreed to arbitrate arbitrability could be answered “only by determining
which contract applies.” Id. at 150. Therefore, the court, and not an arbitrator, had to
make the threshold determination.
The same reasoning applies here. The arbitration clause of the ADA conflicts
with the forum selection clause of the APA. Under the ADA, all disputes must be
arbitrated. See doc. 14‐1 at 11. Under the APA, the state and federal courts of New
Mexico have exclusive jurisdiction. See doc. 1‐2 at 16. The facts of this case are
analogous—indeed, with respect to the dispute resolution provisions of the two
agreements, nearly identical—to the facts of Coinbase. Accordingly, this Court plainly
cannot find there is “clear and unmistakable evidence” that the parties intended the
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arbitrator to decide the issue of arbitrability. Riley, 157 F.3d at 780. On the contrary, the
parties’ intent to delegate is at the very least ambiguous. The Court—and not an
arbitrator—must therefore determine which agreement controls and whether the claims
are arbitrable.
B. 	Arbitrability of Plaintiffs’ Claims
There is no dispute that the ADA is a validly executed agreement and contains
an arbitration clause. Therefore, the question is whether the APA supersedes the
ADA’s delegation clause with respect to Plaintiffs’ claims, or otherwise controls
Plaintiffs’ claims. The Court finds that it does.
The Tenth Circuit’s reasoning in Riley is instructive. In that case the parties’ first
agreement, the “Manufacturing Agreement,” included an arbitration clause.4 157 F.3d
at 777. The parties’ second agreement, the “Settlement Agreement,” had no arbitration
provision and made “no mention of any other dispute resolution mechanisms,” but
contained a merger clause stating that the agreement “cancels, terminates and
supersedes any and all prior representations and agreements relating to the subject
matter thereof.” Id. at 778. The court found that the first agreement’s arbitration clause
was not totally superseded by the second agreement’s merger clause, but that it was
superseded with respect to the subject matter of the second agreement:
4 The arbitration clause in the parties’ first agreement was very similar to the one in the ADA: it
mandated arbitration of “all disputes arising out of or relating to” the agreement. Riley, 157 F.3d at 777
n.1.
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Instead of Riley’s contention that the Settlement Agreement superseded
all of the Manufacturing Agreement, we conclude that the merger clause
in the Settlement Agreement cancels only those provisions of the
Manufacturing Agreement that related to the specific “subject matter” of
the Settlement Agreement. Therefore, in order to determine the scope of
the merger clause . . . we must identify the “subject matter” of the
Settlement Agreement.
Id. at 783. The court defined the “subject matter” of the second agreement by reference
to the substantive provisions of the document. Id. at 783–85. Only claims that arose
under the first agreement, and did not relate to the subject matter of the second
agreement, were arbitrable. Id. at 784.
The same reasoning applies to the present case. The APA contains a similar
merger clause to the Riley parties’ second agreement and makes no provision for
arbitration. In fact, the case for supersession here is more compelling than in Riley
because rather than remaining silent about other dispute resolution mechanisms, see id.
at 777, the APA provides an alternate mechanism—litigation of “any” suit, action or
proceeding in the courts of New Mexico, doc. 1‐2 at 16. As in Riley, the subject matter of
the APA—selling the franchise from FMP back to Roll Em Up—is related to but distinct
from the subject matter of the ADA, which conferred on FMP the right to open and
operate a franchise. Plaintiffs’ claims clearly arise out of the APA and the associated
sale transaction; they do not rely on the terms of the ADA and do not arise from the
opening or operation of the franchise. See generally doc. 1. Consequently, the Court
finds that the APA superseded the ADA with respect to the APA’s subject matter.
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This finding is consistent with state law contract principles governing formation.
New Mexico5 courts have repeatedly refused to extend arbitration clauses beyond the
specific subject matter of the parties’ agreement. See Clay v. N.M. Title Loans, Inc., 288
P.3d 888, 894 (N.M. Ct. App. 2012) (arbitrable claims “must bear a ‘reasonable
relationship’ to the contract in which the arbitration clause is found”) (citation omitted);
Santa Fe Techs., Inc. v. Argus Networks, Inc., 42 P.3d 1221, 1238 (N.M. Ct. App. 2001)
(claims were outside the scope of the parties’ arbitration clause because they “do not
implicate the rights and obligations set out by the Agreement”). They have explicitly
rejected a “but‐for” causation standard when determining whether subsequent claims
arise under the agreement. See Clay, 288 P.3d at 897 (“The mere fact that the dispute
would not have arisen but for the existence of the contract . . . is insufficient by itself to
transform a dispute into one arising out of or relating to the agreement.” (quoting Aiken
v. World Finance Corp. of South Carolina, 644 S.E. 2d 702, 708 (S.C. 2007))). And, as a
general rule of construction, “an integration clause replaces or supersedes prior and
contemporaneous contracts concerning the same transaction[.]” Martinez v. Galles
5 The Court applies New Mexico law because the formation and superseding effect of the APA,
not the ADA, is principally at issue here. The APA must be construed under New Mexico law. See doc. 1‐
2 at 16 (“This Agreement shall be governed by and construed in accordance with the internal laws of the
State of New Mexico without giving effect to any choice or conflict of law provision or rule (whether of
the State of New Mexico or any other jurisdiction).” The ADA is governed by Nevada law. See doc. 14‐1
at 13 (“The laws of the state where the Development Area is located govern this Agreement, without
regard to conflicts of laws.”). Even if Nevada law were properly applied here, the parties have provided
no authority to suggest that it would compel a different result. Incidentally, the different choice of law
provisions—which directly conflict and cannot be reconciled if applied to the same claims—provide
further evidence of the parties’ intent for the APA to supersede the ADA, at least with respect to subject
matter covered by the APA.
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Chevrolet Co., 551 P.3d 862, 867 (N.M. Ct. App. 2024) (citing Nakashima v. State Farm Mut.
Auto. Ins. Co., 153 P.3d 664, 668 (N.M. Ct. App. 2007)).
In Doctor’s Assocs. v. Carbonell, 2015 N.M. App. Unpub. LEXIS 252 (N.M. Ct. App.
June 29, 2015), the New Mexico Court of Appeals applied these principles to find that a
later agreement with a merger clause superseded the prior agreement’s arbitration
clause. The parties first entered into a franchise agreement with an arbitration clause,
then subsequently entered into a stipulated agreement with a merger clause and no
dispute resolution provision. Id. at *2. Each party brought claims against the other for
failure to comply with the stipulated agreement, and the franchisor moved to compel
arbitration. Id. at *3. The court rejected an argument that “the stipulated award flows
from the franchise agreement because the franchise agreement governed the entire
relationship of the parties,” id. at *5–6, and held instead that the issue “centers on
whether the [franchisees’] claims are based on the stipulated agreement or the franchise
agreement,” id. at *4. The court likewise rejected an argument by the franchisor,
purportedly based on Riley, that the merger clause did not “expressly” or “clearly”
repudiate the arbitration provision. Id. at *13. The court found: “[W]e can reasonably
imply from the language of the stipulated award that the parties did not intend for the
arbitration provision of the franchise agreement to apply to a breach of the stipulated
award.” Id. at *13. Arbitration was therefore denied. Although Carbonell is
unpublished, this Court finds its reasoning persuasive regarding New Mexico contract
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law. The facts are closely analogous to the case at hand and the Court finds, for the
same reasons, that the ADA’s arbitration clause does not apply to Plaintiffs’ claims.
Defendants argue, citing Riley, that the APA does not “clearly or expressly
supersede the ADA’s arbitration clause.” Doc. 31 at 8. They contend that § 7.2(g) of the
ADA, which states that the arbitration provision “will remain in full force and effect
after expiration or termination of this Agreement,” doc. 14‐1 at 11, provides for ongoing
arbitrability. This contention is correct as far as it goes, but nothing prevented § 7.2(g)
from being superseded by a later agreement. It merely reinforced the usual rule that
“[u]nder the federal common law of arbitrability, an arbitration provision in a contract
is presumed to survive the expiration of that contract unless there is some express or
implied evidence that the parties intend to override this presumption.” Riley, 157 F.3d
at 781. As discussed above, there is evidence here that the parties so intended.
Defendants also argue that § 12 of the proposed Voluntary Mutual Termination
and Release Agreement (“Termination Agreement”) expressly incorporates the ADA’s
arbitration clause. See doc. 31‐4 at 3 (“Jurisdiction: The Parties agree that any disputes
relating to the enforcement of this Agreement will be governed by the dispute
resolution provisions set out in the Area Development Agreement.”). There are several
difficulties with this position. The first is that, as Defendants admit, the Termination
Agreement was never executed because Roll Em Up did not sign it. See doc. 31‐1 at ¶ 6
(“The Termination Agreement was never signed or adopted by [Roll Em Up].”). This
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flaw is particularly problematic because the closing deliverable was “confirmation of
the termination of the Franchise Agreement duly executed by Buyer,” i.e., Roll Em Up.
Nevertheless, Defendants argue that it was an “Ancillary Document” to the APA and
formed part of the entire, integrated agreement between the parties. See doc. 1‐2 at 15
(“This Agreement and the Ancillary Documents constitute the sole and entire
agreement of the Parties with respect to the subject matter contained herein and therein
. . . .”). But even if the unexecuted Termination Agreement is a valid Ancillary
Document under the APA, the APA specifically provides:
In the event of any inconsistency between the statements in the body of
this Agreement and those in the Ancillary Documents, the Exhibits and
Disclosure Schedules (other than an exception expressly set forth as such
in the Disclosure Schedules), the statements in the body of this Agreement
will control.
Id. The Termination Agreement contains no similar provision. See generally doc. 31‐4. If
both documents are read together as an integrated whole, the plain language of the
APA resolves the inconsistency between the dispute resolution provisions. See
Martinez, 551 P.3d at 865 (“Merger or integration clauses providing that the terms of a
contract are intended to govern over prior or contemporaneous contracts, and to
supersede the terms of those contracts in whole or in part, can effectively resolve what
would otherwise be an irreconcilable conflict[.]”). In short, to the extent the
Termination Agreement is an Ancillary Document whose dispute resolution provision
conflicts with the APA, the APA’s forum selection clause predominates.
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Finally, in their reply brief, Defendants argue that the APA’s “permissive forum
selection clause,” which provides only that actions “may” be brought in New Mexico
courts, does not amount to a clear repudiation of the ADA’s arbitration clause. Doc. 40
at 5. But a forum selection clause conferring “exclusive jurisdiction” on certain courts
need not be more specific in order to supersede a prior arbitration clause. See, e.g., Suski
v. Coinbase, 55 F.4th 1227, 1231 (9th Cir. 2022), aff’d, 602 U.S. 143 (2024) (“Coinbase is
correct that the Official Rules contain no language specifically revoking the parties’
arbitration agreement in the User Agreement. By including the forum selection clause,
however, the Official Rules evince the parties’ intent not to be governed by the User
Agreement’s arbitration clause when addressing controversies concerning the
sweepstakes.”). In fact, the second, superseding agreement need not contain a forum
selection clause at all. See Riley, 157 F.3d at 778 (finding the second agreement revoked
the prior right of the parties to demand arbitration although it contained “no mention of
any other dispute resolution mechanisms”); Carbonell, 2015 N.M. App. Unpub. LEXIS
252, at *11 (rejecting the appellant’s argument that the “boilerplate merger clause” of the
second agreement was “insufficient to supersede the arbitration clause of the franchise
agreement,” even though the second agreement did not mention arbitration or contain a
forum selection clause). Moreover, even in the absence of a superseding contract, an
arbitration clause like the one in the ADA covers only those disputes that arise out of or
are reasonably related to the agreement. See Santa Fe Techs., 42 P.3d at 1239 (“We deem
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it of utmost importance that the parties’ Agreement does not state in an unlimited
manner . . . that any disputes that may arise between the parties in the future shall be
subject to arbitration. Instead, and more narrowly, it covers only those disputes arising
out of or relating to the Agreement.”).
Reading the merger clause, the forum selection clause, and all relevant
documents together, the Court finds that the parties did not intend the ADA’s
arbitration clause to apply to claims arising under the APA or related to its subject
matter. The Court likewise finds that Plaintiffs’ claims do not arise under or relate to
the ADA. The motion to compel arbitration of Plaintiffs’ claims is therefore denied.
C. 	Arbitrability of Counterclaims
Defendants move to compel arbitration of “all underlying dispute[s],” doc. 31 at
2, and “all claims,” id. at 15. They argue that the arbitration clause “covers the claims
and counterclaims at issue.” Id. at 2 (emphasis added). Defendants’ motion must
therefore be construed as a motion to compel arbitration of both Plaintiffs’ claims and
Defendants’ own counterclaims.
As explained above, the Court agrees with Defendants that the APA did not
wholly supersede the ADA. The APA states in plain language that it constitutes the
sole and entire agreement of the parties “with respect to the subject matter contained
herein” and that it supersedes all prior and contemporaneous agreements “with respect
to such subject matter.” Doc. 1‐2 at 15 (emphasis added). Consequently, counterclaims
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arising from or related to the APA may go forward in litigation, while counterclaims
that relate solely to Counter‐Defendants’ obligations under the ADA must be arbitrated.
See Riley, 157 F.3d at 784 (“[N]owhere does the [second] Agreement affect the right of
the parties to demand arbitration on topics unrelated to the enumerated ‘subject matter’
of the [second] Agreement.”).
Counts One, Two, Three, and Five (respectively for fraudulent inducement,
negligent misrepresentation, breach of contract, and breach of the implied covenant of
good faith and fair dealing) relate directly to the APA and are therefore non‐arbitrable.
See doc. 14 at ¶¶ 71–90, 100–03. On the other hand, Count Four is a straightforward
claim for breach of the ADA, relating solely to obligations under the ADA, and must
therefore be arbitrated. See id. at ¶¶ 91–99.
Count Six is styled as a claim for breach of the implied covenant of good faith
and fair dealing under the ADA, but contains no factual allegations relating to the
ADA. See id. at ¶¶ 104–08. Instead it repeats the factual allegations from Count Five:
that Counter‐Defendants deliberately concealed facts while negotiating the APA, made
no attempt to resolve or disclose the issues at closing, abandoned the restaurant instead
of closing the sale properly, and attempted to enforce the stockholder note loan
obligation even though its purpose was frustrated by the failed closing of the APA. See
id. at ¶ 106. “To determine the nature of a claim, courts examine the substance of a
plaintiffʹs allegations, not merely the labels applied to them.” Johnson v. Dep’t of Veterans
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Affs., 351 F. Appʹx 288, 290 (10th Cir. 2009) (citing Weaver v. United States, 98 F.3d 518,
520 (10th Cir. 1996)); see also Benavidez v. United States, 177 F.3d 927, 931 (10th Cir. 1999)
(“To determine the nature of an asserted claim, we focus not on the label the plaintiff
uses, but on the conduct upon which he premises his claim as supported by the
record.”). Because the allegations in Count Six relate to the APA, not the ADA, the
Court finds the claim is not within the scope of the arbitration clause.
Count Seven asserts a claim of gross negligence based on faulty work,
maintenance and construction that ultimately caused the restaurant to burn down in a
fire. See doc. 14 at ¶¶ 109–115. Specifically, Defendants allege that Counter‐Defendants
“undertook or oversaw electrical work and other maintenance or construction activities
at the Las Vegas Restaurant premises in a careless, negligent, and reckless manner prior
to abandoning the location” and “performed faulty electrical installations or repairs that
did not meet applicable safety standards and created a serious risk of fire.” Id. at ¶ 110.
This claim does not relate to the APA; therefore, the dispositive question is whether it
relates to the ADA. The ADA’s principal subject matter is the opening and operation of
Roll Em Up Taquitos franchise restaurants, doc. 14‐1 at 5, and it specifically addresses
the development obligation to “construct, equip, and open” each restaurant, id. at 6.
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21
The Court finds that the maintenance and construction of the restaurant can fairly be
said to relate to the subject matter of the ADA. The arbitration clause therefore applies.6
Finally, Count Eight is a claim for declaratory relief and seeks the following
judgments: (1) that the APA is void, (2) that the stockholder note and promissory note
are unenforceable, (3) that the ADA was materially breached and has no further effect,
and (4) that no party has a continuing obligation arising out of the “attempted sale” of
the Las Vegas restaurant. Doc. 14 at ¶ 119. To the extent it seeks a declaratory
judgment that the ADA was breached, the claim must be arbitrated. The other requests
for declaratory relief arise under the APA and may proceed in litigation. 7
D. 	Requests to Stay and Sever Arbitrable Claims
Having determined that some claims are arbitrable and some are not, the Court
must decide how litigation should proceed. Defendants request a stay of the entire case
even if only some claims are subject to arbitration. Doc. 31 at 15. Counter‐Defendants,
on the other hand, request that if the arbitrable counterclaims are not dismissed, the
6 Plaintiffs contend the ADA relates only to opening “additional restaurants,” which they do not
interpret as including the restaurant that was actually opened. See doc. 29 at 10. There is no record
evidence of a separate agreement governing the opening of the first restaurant, see doc. 35 at 10 (“no
franchise agreement was ever signed”), and the Court does not construe the ADA so narrowly.
7 Although Counter‐Defendants argue with respect to Plaintiffs’ claims that non‐signatories
Reserve Industries and Mr. Pollock cannot be compelled to arbitrate, see doc. 35 at 8, they do not make this
argument with respect to the counterclaims. On the contrary, they ask this Court to compel arbitration of
counterclaims under the ADA. Id. at 11. At any rate, given that Mr. Pollock was FMP’s President and
signed the ADA on its behalf, see doc. 14‐1 at 14, and given that Reserve Industries is almost certainly an
”affiliated entity” and/or a “Principal Equity Owner” of FMP, see id. at 11, Defendants’ argument that Mr.
Pollock and Reserve Industries are bound by the ADA’s arbitration clause is compelling.
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22
Court should “sever and stay those claims, and then compel them to arbitration.” Doc.
35 at 11.
As a preliminary matter, the Court finds that a stay of the arbitrable claims—
rather than dismissal—is appropriate. The Supreme Court has held that where all
claims are arbitrable and a party requests a stay pending arbitration, “§ 3 of the FAA
compels the court to stay the proceeding.” Smith v. Spizzirri, 601 U.S. 472, 478 (2024).
Although here only some claims are arbitrable, the Court finds that the same logic
applies to support a stay of those claims pending arbitration. The remaining question,
therefore, is whether litigation of all claims should be stayed.
The Tenth Circuit has held that “the mere fact that piecemeal litigation results
from the combination of arbitrable and nonarbitrable issues is not reason enough to stay
[the] entire case.” Riley, 157 F.3d at 785 (citing Coors Brewing Co. v. Molson Breweries, 51
F.3d 1511, 1517 (10th Cir. 1995)). Rather, the Court should determine
whether a resolution of [the] arbitrable claims will have a preclusive effect
on the nonarbitrable claims that remain subject to litigation. If there will
be such a preclusive effect, especially if the arbitrable claims predominate
over the nonarbitrable claims, then the district court should consider
whether to stay the federal‐court litigation of the nonarbitrable claims
pending the arbitration outcome on the arbitrable claims.
Id. at 785 (citing Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856 (2d Cir. 1987)); see
also United Comm’ns Hub, Inc. v. Qwest Comm’ns, Inc., 46 F. App’x 412, 415 (9th Cir. 2002)
(“Expanding the stay, so as to encompass all of the nonarbitrable claims in the case, is
[only] appropriate where the arbitrable claims predominate, or where the outcome of
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23
the nonarbitrable claims will depend upon the arbitrator’s decision.” (citation omitted)
(alterations in original)); AgGrow Oils, L.L.C. v. Nat’l Union Fire Ins. Co., 242 F.3d 777, 783
(8th Cir. 2001) (“[I]ssues such as the risk of inconsistent ruling, the extent to which the
parties will be bound by the arbitrators’ decision, and the prejudice that may result
from delays must be weighed in determining whether to grant a discretionary stay, and
in fashioning the precise contours of any stay.”).
Defendants argue that “whether the APA was ever validly formed depends on
whether the APA was induced by fraud—a determination inextricably tied to the
misconduct under the ADA.” Doc. 40 at 10. By the same token, they contend,
“resolution of the fraudulent inducement claim will necessary involve factual findings
regarding Reserve Parties’ operational misconduct and concealment thereof.” Id.
Counter‐Defendants argue that there is “no common question of law or fact between
the claims arising under the APA and the claims arising under the ADA.” Doc. 35 at 12.
It appears from a review of the pleadings that there may be some overlapping
factual determinations between the arbitrable claims and the non‐arbitrable ones. If this
is true, the arbitrator’s determination could conceivably have preclusive effect on the
litigation. See MACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th Cir. 2005) (“[A] valid
and final award by arbitration generally has the same effect under the rules of res
judicata as a judgment of a court.” (citing Restatement (Second) of Judgments § 84(1) &
cmt. b (1980)); Romero v. TitleMax of N.M., Inc., Civ. No. 17‐775 KG/SCY, 2022 U.S. Dist.
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LEXIS 46732, at *13 (D.N.M. Mar. 15, 2022) (“New Mexico courts give preclusive effects
to arbitration awards if the ‘arbitration affords opportunity for presentation of evidence
and argument substantially similar in form and scope to judicial proceedings.’”
(quoting Rex, Inc. v. Manufactured Hous. Comm. of State of N.M, Manufactured Hous. Div.,
892 P.2d 947, 952 (N.M. 1995))). On the other hand, it appears the overlap is likely not
as significant as Defendants assert. The ADA and APA are governed by different
substantive law, see doc. 1‐2 at 16, doc. 14‐1 at 13, and findings by the arbitrator seem
unlikely to determine the outcome of any claim in litigation. For instance, a factual
finding that illegal drug activity was occurring at the restaurant, or that rent and
utilities were unpaid, might bear on but would not dispose of the claims and
counterclaims under the APA, which involve factual questions about concealment and
principles of New Mexico contract formation.
Based on these complex considerations, the Court finds the issue has been
inadequately briefed. The parties understandably devoted little argument to the proper
scope of a stay if only some claims were arbitrated, and the Court will give them an
additional opportunity to brief the issue before making its final decision. For the time
being, therefore, the Court will stay all arbitrable claims and will issue a temporary stay
of the entire case.
The Court will deny Counter‐Defendants’ request to sever the arbitrable claims.
Rule 21 governs misjoinder and grants courts the ability to “sever any claim against a
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party.” Fed. R. Civ. P. 21. Misjoinder “occurs when there is no common question of
law or fact or when . . . the events that give rise to the plaintiff’s claims against
defendants do not stem from the same transaction.” Nasious v. City & Cnty. of Denver,
415 F. App’x 877, 880 (10th Cir. 2011) (quoting DirecTV, Inc. v. Leto, 467 F.3d 842, 844 (3d
Cir. 2006)). “It is within the district court’s broad discretion whether to sever a claim
under Rule 21.” Rice v. Sunrise Express, Inc., 209 F.3d 1008, 1016 (7th Cir. 2000). To
determine whether severance is appropriate, courts have considered such factors as
“whether settlement or judicial economy would be promoted, whether prejudice would
be averted by severance, and whether different witnesses and documentary proof are
required for separate claims.” Gonzales v. N.M. Depʹt of Health, Civ. No. 22‐525 WJ/SCY,
2024 U.S. Dist. LEXIS 36361, at *5 (D.N.M. Feb. 29, 2024) (citing Safe Streets All. v.
Alternative Holistic Healing, 2015 U.S. Dist. LEXIS 91323, at *5 (D. Colo. July 14, 2015)).
The Court finds that the arbitrable counterclaims are not misjoined because they
plainly involve common questions of law and fact to the nonarbitrable claims. For
instance, Defendants allege that the same conduct which breached the ADA was
fraudulently concealed from them while negotiating and executing the APA. The
claims also arise from the same “series of transactions or occurrences,” see Fed. R. Civ.
P. 20(a)(1)(A). The Court finds no reason to exercise its discretion and sever the claims.
As noted above, the Court has the power to stay only certain claims pending arbitration
if that is warranted. Plaintiffs do not explain how severing the arbitrable claims, rather
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than merely staying those claims and proceeding with the remainder in litigation,
would promote settlement or judicial economy or avert prejudice. The Court sees no
benefit to severance and the request is therefore denied.
IV. 	M OTION TO DISMISS COUNTERCLAIMS
Plaintiffs Reserve Industries and FMP move to dismiss the counterclaims against
them for fraudulent inducement, negligent misrepresentation, breach of the implied
covenant of good faith and fair dealing under the ADA, and gross negligence. Doc. 29.
A. 	Sufficiency of Factual Allegations Against Reserve Industries
Plaintiffs contend that Defendants fail to state a counterclaim against Reserve
Industries for fraudulent inducement or negligent misrepresentation because the
alleged facts relate only to Mr. Pollock’s actions and knowledge. Id. at 4–5. They also
contend that Defendants have not met the heightened pleading standard for fraud
under Rule 9(b).8 See Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or mistake.”); Gaddy v.
Corp. of the President of the Church of Jesus Christ of Latter‐Day Saints, 148 F.4th 1202, 1210
(10th Cir. 2025) (“This language requires a complaint alleging fraud to set forth the
8 Plaintiffs did not originally reference Rule 9(b) in their motion. See doc. 29 at 5–6. However,
Defendants raised it in their response, see doc. 36 at 6–8, and Plaintiffs’ related arguments in the reply brief
are therefore properly considered. C.f. In re Motor Fuel Temperature Sales Pracs. Litig., 872 F.3d 1094, 1112
n.5 (10th Cir. 2017) (“[A]rguments raised for the first time in a reply brief are waived.”).
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time, place and contents of the false representation, the identity of the party making the
false statements and the consequences thereof.”) (quotation and citation omitted).
Ordinarily, a federal court looks to the choice‐of‐law rules of the forum state to
determine which substantive law applies. Pikk v. Pedersen (In re Zagg Inc. Shareholder
Derivative Action), 826 F.3d 1222, 1228 (10th Cir. 2016). But where the parties agree a
particular state’s law should apply, the Court need not conduct its own analysis. See id.
(“The parties agree that Nevada law should apply to the futility issue . . . and we see no
reason to search for a reason to disagree.”); TMJ Implants, Inc. v. Aetna, Inc., 498 F.3d
1175, 1180–81 (10th Cir. 2007) (“The parties agree that the applicable substantive law is
that of Colorado . . . [w]e therefore assume that this case is governed by Colorado
substantive law[.]”). Because both Plaintiffs and Defendants cite cases involving New
Mexico tort law and neither suggest that another state’s law may apply, the Court will
assume that New Mexico law applies to the counterclaims unless otherwise specified.
To bring a claim of fraudulent inducement under New Mexico law, the plaintiff
must show: “1) a misrepresentation of fact or failure to disclose a material fact; where 2)
the falsity was known to the maker or where the representation or concealment was
reckless; 3) the maker acted with the intent to deceive and to induce the other party to
act in reliance; and 4) the other party actually relied on the representation or
concealment.” Woodworker’s Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 994
(10th Cir. 1999) (citing Lotspeich v. Golden Oil Co., 961 P.2d 790, 792 (N.M. Ct. App.
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1998)). To claim negligent misrepresentation, the plaintiff must show that: “(1) the
defendant made a material representation to plaintiff, (2) the plaintiff relied upon the
representation, (3) the defendant knew the representation was false or made it
recklessly, and (4) the defendant intended to induce reliance by the plaintiff.” Robey v.
Parnell, 392 P.3d 642, 652 (N.M. Ct. App. 2017) (citation omitted).
The Court finds that the counter‐complaint successfully alleges the requisite
elements against at least some of the Counter‐Defendants. Defendants allege that Mr.
Pollock, “individually and on behalf of Reserve and FMP,” made material
misrepresentations about the total cost of the restaurant buildout, the quality of
construction and its compliance with applicable laws, the operational costs of the
business, the liabilities of the business, and employee misconduct involving illegal
drugs. Doc. 14 at ¶ 6. These alleged misrepresentations included failing to disclose “a
significant loan with Toast Capital” and “tens of thousands of dollars owed in unpaid
rent and electrical utilities.” Id. Defendants allege that misleading conversations
between them and Mr. Pollock took place on May 23, 2023 (concerning operating costs
and rent), September 26, 2023 (concerning drug activity), and November 6, 2023
(concerning operating costs, rent, and utilities). Id. at ¶¶ 36, 37, 38. The contents of Mr.
Pollock’s statements are quoted. Id. Defendants allege the statements were knowingly
false and made to induce them to repurchase the franchise. Id. at ¶¶ 45–47. They allege
they relied on the false statements and omissions. Id. at ¶¶ 46, 65–69. They also allege
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that “[p]rior to signing the APA, Pollock, FMP, and Reserve did not disclose the Toast
loan to [Roll Em Up] or Usrey.” Id. at ¶ 51.
The question at hand is whether the allegations are sufficient to state a claim
against Reserve Industries. Nearly all of the supporting factual allegations rely on an
agency theory to establish Reserve Industries’ liability. Under New Mexico law, “[a]n
agent is one authorized by another to act on his behalf and under his control.” N.M.
Military Inst. v. NMMI Alumni Ass’n, 458 P.3d 434, 440 (N.M. Ct. App. 2018) (quoting
Hansler v. Bass, 743 P.2d 1031,1036 (N.M. Ct. App. 1987)). “In determining whether an
agency relationship exists, the ‘principal consideration’ is ‘the control, or right to
control’ the agent’s conduct.” Id. (quoting Shaver v. Bell, 397 P.2d 723, 727 (N.M. 1964)).
The APA shows that Reserve Industries and Mr. Pollock were joint “Selling
Stockholders” of FMP, doc. 1‐2 at 1, and Plaintiffs’ motion does not dispute that Mr.
Pollock acted on behalf of FMP. But none of the facts alleged establish that Mr. Pollock
had any authority to act on behalf of Reserve Industries. The conclusory allegation that
Mr. Pollock acted “on behalf of Reserve,” without more specific factual support, is
insufficient to state a claim relying on agency. Likewise, the allegation that Mr. Pollock
“participated in a conspiracy with Reserve,” doc. 14 at ¶ 20, is wholly conclusory and
the Court need not accept its truth. The allegation that “[p]rior to signing the APA,
Pollock, FMP, and Reserve did not disclose the Toast loan to [Roll Em Up] or Usrey,” id.
at ¶ 51, does not rely on an agency theory. But it fails to meet Rule 9(b)’s heightened
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pleading standard for fraudulent inducement because it does not “set forth the time,
place and contents of the false representation.” See Gaddy, 148 F.4th at 1210.
A closer question is presented by the claim of negligent misrepresentation.
Although there is some disagreement among federal courts, this Court finds persuasive
the reasoning of City of Raton v. Ark. River Power Auth., 600 F. Supp. 2d 1130, 1142–44
(D.N.M. 2008), that negligent misrepresentation is not subject to Rule 9(b). The
counterclaim for negligent misrepresentation is therefore reviewed under the ordinary
Rule 8 pleading standard. While the allegations against Reserve Industries border on
conclusory, the Court finds there is just enough factual detail to state a claim based on
failure to disclose the loan. Under New Mexico law, “[n]egligent misrepresentation can
be established by commission or omission.” Cobb v. Gammon, 389 P.3d 1058, 1070 (N.M.
Ct. App. 2016) (citation omitted). A party may be liable for damages caused by a failure
to disclose “so long as there exists a duty to disclose.” Id. (citing Gouveia v. Citicorp
Person‐to‐Person Fin. Ctr., Inc., 686 P.2d 262, 266–67 (N.M. Ct. App. 1984)). Such duty
may exist if a party “knows that the other party to a contemplated transaction is acting
under a mistaken belief, or if he has superior knowledge not within the reach of the
other party.” Woodworker’s Supply, 170 F.3d at 994 (citing Krupiak v. Payton, 561 P.2d
1345, 1346 (N.M. 1977)). Defendants allege that Reserve Industries did not disclose the
Toast loan prior to signing the APA and that it “deliberately concealed” the information
from Roll Em Up and Mr. Usrey, doc. 14 at ¶ 72. They also allege that Reserve
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Industries and the other Counter‐Defendants were the “sellers, operators, and insiders
to the Las Vegas Restaurant business” and “were in a special position of knowledge
such that Cross‐Complainants [sic] were entitled to rely on the accuracy of the
information given.” Id. at ¶ 83. These facts, though scant, are more than “labels and
conclusions,” see Twombly, 550 U.S. at 555, and state a claim for negligent
misrepresentation under New Mexico law. The motion is therefore granted as to Count
One against Reserve Industries, and denied as to Count Two.
B. 	Express Waiver of Claims
Plaintiffs argue that Defendants expressly waived their counterclaims of
fraudulent inducement and negligent misrepresentation via § 5.07 of the APA, which
states:
Buyer has conducted its own independent investigation, review and
analysis of the Business and the Purchased Assets, and acknowledges that
it has been provided adequate access to the personnel, properties, assets,
premises, book and records and other documents and data of Seller for
such purposes. Buyer acknowledges and agrees that: (a) in making its
decision to enter into this Agreement and to consummate the transactions
contemplated hereby, Buyer has relied solely upon its own investigation
and the express warranties of Seller set forth in ARTICLE IV of this
Agreement (included related portions of the Disclosure Schedules); and
(b) neither Seller nor any other Person has made any representation or
warranty as to Seller, the Business, the Purchased Assets or this
Agreement, except as expressly set forth in ARTICLE IV of this
Agreement (including the related portions of the Disclosure Schedules).
Doc. 1‐2 at 13; see doc. 29 at 6.
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It is well settled that “in New Mexico exculpatory clauses do not preclude
liability.” Jones v. Augé, 344 P.3d 989, 999 (N.M. Ct. App. 2014) (quoting Golden Cone
Concepts, Inc. v. Villa Linda Mall, Ltd., 820 P.2d 1323, 1325 (N.M. 1991)). “A party
fraudulently induced to enter into a contract ‘cannot be precluded from seeking redress
by a provision inserted in the contract by the party perpetrating the fraud, designed to
shut the mouth of the adverse party as to such fraudulent representations which led up
to the making of the contract.’” Id. (quoting Golden Cone, 820 P.2d at 1325–26). This
principle is true for negligent as well as fraudulent misrepresentations. See Golden Cone,
820 P.2d at 1325 (holding the exculpatory clause did not bar plaintiff’s
“misrepresentation claims,” which included both fraudulent misrepresentation and
negligent representation); Macgregor v. MiMedx Grp., Inc., 2021 U.S. Dist LEXIS 94767, at
*16–17 (D.N.M. May 18, 2021) (reviewing case law and determining that this general
rule applies to claims of negligent misrepresentation). Plaintiffs cite no authority to
support their contrary position. Accordingly, the Court finds no ground for dismissal
on the basis of § 5.07.
C. 	Economic Loss Doctrine
Plaintiffs argue the counterclaims of fraudulent inducement, negligent
misrepresentation, and gross negligence are barred by the economic loss doctrine,
which “prevents plaintiffs from recovering in tort economic losses to which their
entitlement flows only from a contract.” Doc. 29 at 6–7 (quoting U.S. ex rel. Custom
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Grading, Inc. v. Great Am. Ins. Co., 952 F. Supp. 2d 1259, 1269 (D.N.M. 2013)). Because
the Court has already determined that the counterclaim for gross negligence must be
arbitrated, only the counterclaims for fraudulent inducement and negligent
misrepresentation are considered.
As an initial matter, since New Mexico’s adoption of the economic loss doctrine
in 1989, see Utah Int’l, Inc. v. Caterpillar Tractor Co., 775 P.2d 741 (N.M. Ct. App. 1989),
“application of the rule by New Mexico courts has occurred only in the context of strict
products liability cases.” NM‐Emerald, LLC v. Interstate Dev., LLC, 488 P.3d 707, 711
(N.M. Ct. App. 2021); see also Gutierrez v. Padilla, 2023 N.M. App. Unpub. LEXIS 117, at
*15–16 (N.M. Ct. App. Mar. 29, 2023). The court in NM‐Emerald noted “multiple
variations and exceptions” in the way that other states apply the doctrine and declined
to decide whether it might be expanded in New Mexico because of the parties’
inadequate briefing. 488 P.3d at 711–12. To date, the undersigned is aware of no case
law establishing the economic loss doctrine outside of the product liability context, and
Plaintiffs articulate no persuasive argument for extending it.
Moreover, the claims of fraudulent inducement and negligent misrepresentation
in this case do not “flow[] only from a contract.” See Custom Grading, 952 F. Supp. 2d at
1269. They precede the execution of the APA and rely on tort principles, not on the
terms of the contract. See SE Techs., Inc. v. Summit Elec. Supply Co., Civ. No. 00‐1511
LG/LFG, 2002 U.S. Dist. LEXIS 30083, at *11–12 (D.N.M. Feb. 28, 2002) (finding
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34
economic loss doctrine inapplicable to fraudulent and negligent misrepresentation
claims because they arise out of “stated misrepresentations” and “accordingly derive
from the law of torts rather than from the law of contracts”). New Mexico’s state courts
have consistently allowed similar claims to go forward despite the existence of a
contract. See, e.g., Golden Cone, 820 P.2d at 1325–26 (recognizing claims of fraudulent
and negligent misrepresentation arising from the defendant’s conduct prior to signing
the contract). The Court therefore finds the economic loss doctrine does not bar
Defendants’ counterclaims.
D. 	Breach of the Implied Covenant of Good Faith and Fair Dealing
Plaintiffs move for dismissal of Count Six, titled “Breach of Implied Covenant of
Good Faith and Fair Dealing (ADA).” Doc. 14 at ¶¶ 104–08. As previously discussed,
Count Six contains no factual allegations that relate to the ADA. The Court must
examine “the substance of [the] allegations, not merely the labels applied to them.”
Johnson, 351 F. Appʹx at 290 (citing Weaver, 98 F.3d at 520). In consequence, the
counterclaim is not arbitrable under the ADA but is duplicative of Count Five (breach
of the implied covenant under the APA), with which it shares all substantive factual
allegations. “Duplicative claims may be dismissed pursuant to Rule 12(b)(6) or may be
stricken pursuant to Rule 12(f) as ‘redundant, immaterial, impertinent, or scandalous’
for the sake of judicial efficiency.” Hallum v. Four Corners Ob‐Gyn, Civ. No. 17‐007
MV/SCY, 2019 U.S. Dist. LEXIS 43773, at *17 (D.N.M. Mar. 18, 2019) (citation omitted);
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see, e.g., Brown v. City of Tulsa, 124 F.4th 1251, 1263 (10th Cir. 2025) (finding duplicative
claim was properly dismissed). The Court finds dismissal is appropriate here.
Counterclaimants argue in their response that their “allegations is [sic] not
confined to the specific averments in Counterclaim ¶ 101–103”9 because “they expressly
‘incorporate by reference all prior paragraphs” and “the entirety of the incorporated
allegations should be considered in evaluating the sufficiency of [their] claim.” Doc. 36
at 11 n.2. But the Court is under no obligation to conduct a scavenger hunt for
potentially relevant allegations:
We have approved a district court’s similar refusal to “search through the
several paragraphs of the plaintiffs’ ‘Introductory Allegations’ and
attempt to match the factual assertions with the elements of all subsections
of the RICO statute to determine if the complaint states a claim for relief.”
Glenn v. First Nat’l Bank in Grand Junction, 868 F.2d 368, 371 (10th Cir.
1989). Nor are defendants required “to ‘piece’ together the plaintiffs’
complaint.” Id.
Hart v. Salois, 605 F. App’x 694, 701 (10th Cir. 2015) (addressing the plaintiff’s failure to
connect his separate claims with the complaint’s factual allegations). Counterclaimants
are represented by counsel. The Court will not guess at their legal theories or act as
their advocate to determine which particular factual allegations might support a claim
under the ADA. The Court likewise will not accept the facts presented in the response
9 Presumably this is meant to refer to ¶¶ 104–08; Plaintiffs moved only to dismiss Count Six, the
claim for breach of implied covenant of good faith and fair dealing “regarding the Area Development
Agreement (ADA).” Doc. 29 at 7. Paragraphs 100–103 contain the allegations of Count Five.
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brief, see doc. 36 at 11, as if they had been properly pled in Count Six. The motion is
therefore granted as to this claim.
E. 	Claims Under the ADA
Finally, Plaintiffs move for dismissal of any claims against them under the ADA
for improper venue pursuant to Fed. R. Civ. P. 12(b)(3). Doc. 29 at 9–10. Plaintiffs’
argument on this point is that this Court is the “improper venue” because the claims
against them based on the ADA should be arbitrated rather than litigated here. As
described above, the Court finds that several of the counterclaims arise under the ADA
and should therefore be stayed pending arbitration. This ruling resolves Plaintiffs’
improper venue argument as they have presented it.
However, the Court will also address a venue issue with respect to this Court’s
authority to compel arbitration of the counterclaims. The ADA’s arbitration clause
states: “All hearings and other proceedings will take place at the JAMS Inland Empire
business location in Riverside County, California, or if Franchisor so elects, at another
JAMS business location nearest where Franchisee’s (or an applicable Principal Equity
Owner’s) principal place of business is then located.” Doc. 14‐1 at 11. According to the
complaint, FMP has its principal place of business in Las Vegas, Nevada, and Reserve
Industries—which is likely a “Principal Equity Owner” under the ADA10 —has its
10 Section 5.1 of the ADA defines “Principal Equity Owners” as “persons owning more than 20%
of Franchisee.” Doc. 14‐1 at 9. According to the complaint, FMP is a “joint venture” between Reserve
Industries and Mr. Pollock, and “all of the issued and outstanding stock of FMP is owned by Reserve and
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principal place of business in Albuquerque, New Mexico. Doc. 1 at ¶¶ 5–6. It therefore
seems that arbitration might be proper, at Roll Em Up’s election, in either California,
Nevada, or New Mexico.
Section 4 of the FAA provides in relevant part that the “hearing and
proceedings” under the parties’ arbitration agreement “shall be within the district in
which the petition for an order directing such arbitration is filed.” 9 U.S.C. § 4. The
Tenth Circuit has held that “where the parties agreed to arbitrate in a particular forum
only a district court in that forum has authority to compel arbitration under § 4.” Ansari
v. Qwest Commc’ns Corp., 414 F.3d 1214, 1219–20 (10th Cir. 2005). In other words, “a
district court lacks authority to compel arbitration in other districts, or in its own district
if another has been specified for arbitration.” Id. at 1220 (quoting Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 328 (7th Cir. 1995)). Therefore, under Ansari,
this Court might have lacked authority to compel arbitration if Roll Em Up were to elect
arbitration in California or Nevada. However, this rule “is not jurisdictional but ‘one of
venue which the parties . . . waive[] by not raising the issue before the district court.’”
Cavlovic v. J.C. Penney Corp., 884 F.3d 1051, 1059 (10th Cir. 2018) (quoting 1mage Software,
Inc. v. Reynolds & Reynolds Co., 459 F.3d 1044, 1051–52 (10th Cir. 2006)). In this case, both
parties have waived it.
Pollock.” Doc. 1 at ¶ 6. While the Court cannot conclusively determine the percentage of stock held by
Reserve Industries, as opposed to Mr. Pollock, it appears likely that Reserve Industries owns more than
20% of FMP.
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Defendants clearly waived any objection by asking the Court to compel
arbitration. See doc. 31; Cavlovic, 884 F.3d at 1059 (finding the defendant “disclaimed the
forum/venue provisions of its agreement [when it] moved the [District of Kansas] to
order arbitration” (quoting Sanchez v. Nitro‐Lift Techs., L.L.C., 762 F.3d 1139, 1152 (10th
Cir. 2014)) (alterations in original)). Although Plaintiffs request dismissal based on
“improper venue,” doc. 29 at 10, they have also asked the Court to sever and stay all
claims under the ADA and “compel them to arbitration,” doc. 35 at 11. They have
likewise asked this Court to decide whether the counterclaims are subject to the ADA’s
arbitration clause. Doc. 42 at 10. They have not questioned this Court’s authority to
compel arbitration, suggested that the claims should be transferred to a different federal
district, or referenced the law on venue cited above. The Court therefore finds that
Plaintiffs have also waived any objection based upon the Ansari holding regarding
authority to compel arbitration, both by asking the Court to compel arbitration of the
counterclaims and by failing to make that specific argument in the briefing. As the
issue is waived by both parties, the Court has the authority to compel arbitration and
does so herein.
Plaintiffs also argue that punitive damages claims should be dismissed under
Section 7.2(e) the ADA, which states: “TO THE MAXIMUM EXTENT PERMITTED BY
LAW, THE PARTIES WAIVE ALL RIGHTS THEY MAY HAVE TO SEEK PUNITIVE
DAMAGES FROM ONE ANOTHER.” Doc. 14‐1 at 11; see doc. 29 at 12. To the extent
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claims arise under the ADA, they are subject to arbitration and the Court has no power
to determine the parties’ entitlement to punitive damages. To the extent claims are
unrelated to the ADA, the provision simply does not apply.
V. 	CONCLUSION
For the foregoing reasons, Plaintiffs’ Motion to Dismiss Counterclaim (doc. 29) is
GRANTED IN PART and DENIED IN PART. Defendants’ Motion to Compel
Arbitration and to Stay Proceedings (doc. 31) is GRANTED IN PART and DENIED IN
PART. It is ORDERED as follows:
(1) 	Counter‐Plaintiffs are ORDERED to arbitrate of Counts Four and Seven of
the Counter‐Complaint, and to arbitrate the portion of Count Eight relating to whether
the ADA was breached;
(2) 	Count Six of the Counter‐Complaint is DISMISSED WITHOUT
PREJUDICE and Count One is DISMISSED WITHOUT PREJUDICE as to Counter‐
Defendant Reserve Industries Corporation;
(3) 	All proceedings in this action are hereby STAYED;
(4) 	No later than 30 days from the date of this Order, the parties shall submit
supplemental briefing about whether all claims should remain stayed pending
arbitration. The briefing is strictly limited to ten (10) pages and arguments unrelated to
the stay will not be considered; and
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(5) 	The parties shall file a joint status report no later than 30 days from the
date of this Order, and every three months thereafter, updating the Court as to the
progress of the arbitration proceedings.
IT IS SO ORDERED.
_____________________________________________
GREGORY B. WORMUTH
CHIEF UNITED STATES MAGISTRATE JUDGE
Presiding by Consent
Case 1:24-cv-01074-GBW-JMR Document 45 Filed 11/26/25 Page 40 of 40

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