Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—DMd: Hotel Franchisor Choice Was Entitled to Confirmation of Arbitrator’s Award Against Terminated Franchisees, (Feb 6, 2013)

By Peter Reap, J.D., LLM

Hotel franchisor Choice Hotels International, Inc. was entitled to summary judgment on its motion to confirm an arbitrator’s award of $78,210 against the terminated franchisees of a Rodeway Inn in Tampa, Florida, the federal district court in Greenbelt, Maryland, has decided (Choice Hotels International, Inc. v. Adi Sagar Motel Corporation, Inc., February 5, 2013, Chasanow, D.). The franchisees’ only argument, that there was a “material miscalculation in the arbitrator’s award of liquidated damages, was untimely and rejected.

After the franchisor terminated the parties’ agreement for the nonpayment of franchise fees and other charges, the dispute over the amounts still owing the franchisor was submitted to arbitration pursuant to the franchise agreement. Despite the fact that notice was given, the franchisees (specifically, ADI Sagar Motel Corporation, Inc., Dilip Mehta, Rajendra Patel, and Bharat Patel, or the “defendants”) did not participate in the arbitration proceedings.

In support of its motion for summary judgment, Choice submitted the affidavit of its Director of Credit, which attached the parties’ franchise agreement, the notice of default, the notice of termination, a statement of account as of May 13, 2010, a spreadsheet showing interest calculations as of December 14, 2011, and a document showing lost profits damages through December 29, 2011, the court noted. The defendants did not respond to the motion, nor did they challenge any of the substantive allegations contained in Choice’s complaint. In their answer, however, two of the defendants, the Patels alleged a “material miscalculation” in the arbitrator’s award of liquidated damages.

Insofar as the Patels sought modification of the arbitration award pursuant to 9 U.S.C. §11(a), their motion was untimely, the court held. “Notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered,” 9 U.S.C. §12, and a motion to modify filed or served after this three-month period was time-barred.

Here, the arbitration award was issued on January 9, 2012; thus, the Patels had until April 9, 2012, to give notice of their motion to modify. Choice argued, and the record supported, that the Patels gave no such notice until the filing of their answer, which was initially received in the northern division clerk’s office on September 24, 2012. Their motion was untimely by over five months, at the very least, according to the court.

The Patels did not challenge Choice’s argument in this regard, nor did they assert that any exception to the time limitation set forth in § 12 should apply, and it was doubtful that they could do so, the court said.

Choice established that there was a valid contract between the parties requiring arbitration of “any controversy or claim arising out of or relating to this Agreement” and that its demands for arbitration arose from the defendants’ breach of the parties’ franchise agreement. Thus, the claims resolved at arbitration were within the scope of the parties’ agreement. Moreover, the evidence submitted by Choice in support of its motion amply supported the arbitration award. Choice’s motion for summary judgment was granted.

The case is Civil Action No. DKC 12-1835.

Attorneys: Kristen Kwiatkowski Bugel, Choice Hotels International Inc., for Choice Hotels International, Inc.

Companies: Choice Hotels International, Inc.; ADI Sagar Motel Corporation, Inc.

Cases: FranchisingDistribution MarylandNews