CUDAHY, Circuit Judge.
Doctor's Associates, Inc. (DAI), co-owned by Peter H. Buck and Frederick DeLuca, is the national franchisor of "Subway" sandwich shops. Appellee Jeffrey Wilhelm is a "development agent" for DAI. In May 1988, Kurt P. Kroll entered into two franchise agreements with DAI, each authorizing Kroll to operate a Subway restaurant in Wisconsin. Under the agreements, Kroll was required to "[b]egin operation of a sandwich shop within 365 days ... at a location found by [Kroll] and approved by [DAI]." ¶ 5(a).
DAI did not immediately notify Kroll that it intended to terminate the franchise agreements. Instead, Janet Flewwellin, an employee in DAI's legal department, contacted Kroll by letter dated July 20, 1989. She informed him that, in an attempt to update its own files, DAI was contacting all of its franchisees who had purchased franchises more than a year earlier but who had yet to open a store. The letter stated that DAI, apparently on its own initiative, was granting Kroll a 180-day "extension" to begin operating his two Subway franchises, but that it was "electing to terminate" the franchises unless Kroll opened his stores during that period.
A year later, Kroll still had not opened either Subway shop. Despite the language in the July 1989 letter to the effect that Kroll's franchises would "terminate without any further notice" if he failed to begin operations during the 180-day extension, Flewwellin sent Kroll another letter, dated July
Kroll filed suit in Wisconsin state court alleging that Flewwellin and Wilhelm had fraudulently misrepresented that they, and through them DAI and the other appellees, intended to reinstate Kroll's two dormant expired franchises.
The duty to arbitrate is one assumed by contract, A.T. & T. Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986), and contracts have temporal as well as substantive limitations. Kroll does not deny that the arbitration clause in the franchise agreements encompasses his claims and that, if it still applies, we must affirm the district court. Instead, he contends that the arbitration clause is immaterial because the franchise agreements expired some months before the fraud of which he complains occurred. We have indeed held that the dead hand of a long-expired arbitration clause cannot govern forever. See, e.g., Local 703, International Brotherhood of Teamsters v. Kennicott Brothers Co., 771 F.2d 300 (7th Cir.1985). But we do not believe that the arbitration clause at issue here is in fact deceased, even though the parties have been willing to sign its death certificate.
We begin by assuming that the franchise agreements expired on or about January 18, 1991, 180 days after Flewwellin's letter to Kroll dated July 18, 1990. Six months later, however, the parties resuscitated the franchise agreements and with them the arbitration clause. According to Kroll's complaint, the following events occurred during July and August 1991:
When Wilhelm agreed that Kroll could use the May 1988 franchises, there was, based on the complaint, an apparent "meeting of the minds" on that point between all of the necessary contracting parties. Kroll desired reinstatement
The conduct of which Kroll complains took place after the agreements had apparently been reactivated. See Complaint ¶ 42 ("In reliance upon these representations [that Kroll could use the May 1988 franchise agreements] [Kroll] then disclosed the details of [the sites upon which he hoped to build Subway shops]"); Complaint ¶ 44 ("As soon as [Kroll] disclosed the locations of these two prospective sites ... [DAI sought to obtain these] locations for franchisees ... other than [Kroll]") & Complaint ¶ 47 ("Immediately after [Kroll] provided ... Wilhelm with the information about the new site locations ... [DAI] immediately refused to permit plaintiff to use his two ... franchise agreements."). These claims undeniably "arise out of or relate to" the putatively revived franchise agreements themselves and, as a result, are within the reach of their arbitration provisions.
Kroll contends that DAI's actions constitute fraud, and they may, although they also seem to us to be along the lines of a breach of contract.
Kroll contends that, even if the arbitration provision is applicable, it lacks mutuality and thus is unenforceable. Kroll points out that Subway franchisees are required to lease the sites for their restaurants from certain real estate leasing companies, owned by DeLuca and Buck,
The arbitration provision in the franchise agreements is unquestionably mutual on its face, i.e., both Kroll and DAI must arbitrate all disputes arising out of or relating to the franchise agreements. We assume, without deciding, that this mutuality could be destroyed if, as Kroll has alleged, DAI were able to avoid its duty to arbitrate by using a group of interlocked, shell corporations. But, even if we also assume (1) that the leasing companies are DAI's "alter egos," (2) that Kroll required to sign a lease with one or more of them prior to opening his Subway franchises and (3) that these companies may seek judicial remedies against Kroll in the event of his breach, we still cannot conclude that the arbitration provision in the franchise agreements is unenforceable.
Kroll also argues that his lawsuit should, at the very least, be allowed to proceed against the individual defendants since he "did not agree to arbitrate anything with ... [Wilhelm], [DeLuca] and [Buck]." Kroll's Br. at 19. We have previously observed, however, that section three of the Federal Arbitration Act "plainly requires that a district court stay litigation where issues presented in the litigation are the subject of an arbitration agreement." Morrie & Shirlee Mages Foundation v. Thrifty Corp., 916 F.2d 402, 407 (7th Cir.1990) (hereinafter Mages). We went on to hold that a stay must be granted, even in favor of persons that are not party to the agreement containing the arbitration clause, if the litigation is an attempt "to evade the agreed-upon resolution of their disputes in the arbitration forum by introducing the identical controversy against a party who is ultimately liable for the arbitrating party's acts." Id.
DeLuca's and Buck's liability, if any, is derivative. They may be potentially liable for any money demands against DAI since they own DAI's stock. We note, however, that the present record is barren of any reason why DAI's corporate veil should be pierced, thereby making DeLuca and Buck liable for DAI's debts in derogation of the corporate law rule of limited liability for shareholders.
Wilhelm's potential liability, on the other hand, is direct — Kroll alleges that he perpetrated a fraud. Nevertheless, we conclude that a stay of the litigation against him is also in order. Our decision in Mages was motivated by the clear language of the Federal Arbitration Act that a stay issue in any suit involving an "issue referable to litigation" as well as by our concern that litigation against a party not bound by an arbitration provision may impair an arbitrator's consideration of claims against a party that is compelled to arbitrate. 916 F.2d at 407 & 9
Finally, despite the district court's acknowledgment that a court must stay litigation in the face of valid arbitration provision, it went on to dismiss Kroll's complaint without prejudice. The district court has cited no authority for this action and we have been unable to find any on our own. Moreover, the relevant portion of the Federal Arbitration Act, pursuant to which the district court acted, authorizes only a stay of litigation pending completion of the arbitration proceedings. Although we agree with the district court that this litigation may not proceed until the arbitrator has finished her work, we conclude that the proper disposition is a stay rather than a dismissal. With this modification, we AFFIRM the judgment of the district court.