Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—ConnAppCt.: Arbitration award terminating Subway franchise agreement affirmed, (Nov 20, 2013)

By Linda O’Brien, J.D., LL.M.

An arbitration award rendered at an ex parte hearing that allowed Subway to terminate a franchise agreement was not procured by due means, a Connecticut appellate court has ruled (Doctor’s Associates, Inc. V. Windham, officially released November 26, 2013, Bear, J.). The trial court’s court’s confirmation of the arbitration award and grant of Subway’s application for prejudgment remedy were affirmed.

Doctor’s Associates, Inc. (Subway) was the owner of the Subway franchise system. Troy W. Windham operated two Subway stores under two separate franchise agreements. Claiming that Windham had violated the terms of his franchise agreements concerning certain décor upgrades, Subway sought to terminate the franchise agreements. Each agreement required that disputes between the parties would be settled by arbitration. Windham retained counsel regarding the dispute concerning the first store. After an arbitration hearing in 2010, an arbitrator ruled in favor of Windham, concluding that he was excused from timely performing the décor upgrades.

Although Windham’s counsel contacted Subway during pre-arbitration negotiations concerning the second store, he did not file an appearance with the arbitration resolution center and did not receive any notices concerning arbitration proceedings for the second store. Windham did not dispute that he personally received notices from the center regarding an arbitration hearing for the second store.

An arbitration hearing concerning the second store was held without the presence of either Windham or his counsel, and an award was rendered in favor of Subway terminating the franchise agreement for the second store. The trial court, in reviewing the arbitration award, found that Windham failed to show that the award was procured by undue means and denied his application to vacate the award. The trial court also granted Subway’s application for prejudgment remedy to secure its rights with respect to an award of damages against Windham.

Windham argued that Subway’s counsel failed to disclose to the arbitrator that there was a prior arbitration which involved similar issues and was resolved in Windham’s favor or that Windham had retained counsel to engage in negotiations with Subway regarding the second store. The omissions were material and adverse to Subway’s position and Subway’s counsel’s behavior at the ex parte hearing demonstrated that the award was procured by undue means. In affirming the decision of the trial court, the appellate court found that there was no evidence that Subway’s counsel acted improperly at the arbitration hearing. If Windham wanted to present his claims and defenses to the arbitrator, he should have either attended the hearing himself or had his counsel file an appearance. Subway’s counsel was not required to present Windham’s case in his absence, the court noted.

The court also affirmed the trial court’s denial of Windham’s motion to dismiss Subway’s application for prejudgment remedy. The trial court had subject matter jurisdiction to confirm the arbitration award. Although the arbitration proceeding was not a civil action, a judgment rendered following such proceeding will have the same force and effect as if it were rendered in a civil action, according to the court. Additionally, Subway’s service of the application for prejudgment remedy was proper, since it complied with the relevant statutory procedures and the order of the trial court.

The case is No. AC 34372.

Attorneys: Jonathan M. Starble (Starble & Harris LLC) for Troy W. Windham. Frank J. Mottola III for Doctor’s Associates, Inc.

Companies: Doctor’s Associates, Inc.

Cases: FranchisingDistribution ConnecticutNews