Saleemi v. Doctor's Associates, Inc.
Saleemi v. Doctor's Associates, Inc.
Opinion of the Court
¶1 Doctor’s Associates Inc. (DAI) entered into three franchise agreements with Waqas Saleemi and Farooq Sharyar (collectively Saleemi). Each agreement required the parties to arbitrate their disputes in Connecticut, under Connecticut substantive law, and included a damages-limitation provision. After a dispute arose, DAI filed for arbitration in Connecticut and Saleemi filed a civil lawsuit against DAI in Washington. When DAI moved to compel arbitration under the terms of the agreements, the
FACTS
I. Franchise Agreements, Alleged Breach, and Lawsuit
¶2 DAI franchises Subway sandwich shops. On March 2, 2004, June 14, 2006, and June 21, 2006, DAI and Saleemi entered into franchise agreements for three Subway stores in Pierce County. Each of these agreements required binding arbitration in Connecticut and contained choice of law, attorney fee, and damages-limitation provisions.
¶4 On August 28, Saleemi filed a civil complaint against DAI in Pierce County Superior Court, alleging that Saleemi had cured the default and that DATs attempt to terminate the agreements without an opportunity to cure violated RCW 19.100.180(2)( j).
II. Trial Court Order Compelling Arbitration in Washington, under Washington Law, without Damages Limitation
¶5 In its answer, DAI asserted that the superior court “lack[ed] appropriate jurisdiction over the parties” because the agreements required arbitration, challenged the superior court’s venue, and asked the superior court to dismiss Saleemi’s complaint and award attorney fees and costs. CP at 6. But DAI also asserted a “counterclaim,” asking the superior court to enter an order compelling arbitration and
It is undisputed that the Agreements provide that the laws of the [S]tate of Connecticut shall govern the interpretation and enforcement of the Agreements. The Agreements do provide for the application of the Franchise Investment Protection Act [(FIPA), ch. 19.100 RCW,] of this state. However, there is nothing in that statute which restricts the use of a choice of forum or an arbitration clause. Therefore, the Washington FIPA still provides no basis for this lawsuit.
CP at 11. Saleemi opposed the motion to compel.
¶6 At the motion hearing, the superior court stated that its “biggest concern” was the venue provision, noting that it was particularly concerned because the “alleged non-compete issue” occurred in Washington, and it might be a hardship for Saleemi to face arbitration in Connecticut when all the witnesses were in Washington. Verbatim Tr. of Proceedings (VTP) (Sept. 19, 2008) at 5, 7. Although DAI acknowledged that the venue provision was severable and stated that it would proceed with arbitration in Washington if the superior court ordered such arbitration, DAI continued to argue that the superior court should find that Saleemi was required to arbitrate the matter in Connecticut.
III. Arbitration Award and Motion To Vacate Arbitration Award
¶8 The parties proceeded to arbitration in Washington before an American Arbitration Association arbitrator. CP at 222. In his “interim award,” the arbitrator (1) found in Saleemi’s favor and (2) stated, “Claimant DAI shall pay to respondents ‘compensatory damages’ as that term is defined in section 17 of exhibit 52.[
¶9 On January 22, 2010, the superior court heard argument on both of these motions. DAI argued that the superior court had exceeded its authority when it decided that the venue, choice of law, and damages-limitation provisions were unconscionable. DAI asserted that the validity of these three provisions was a question for the arbitrator in Connecticut and that the superior court lacked the authority to address them.
¶10 In response, the superior court asked DAI why it had proceeded to arbitration rather than moving for discretionary review of the 2008 order.
We looked at that particular issue at the time, to be frank. We looked at the statute . . . , and we came to the conclusion that the likelihood of the Court taking it back at that particular point was not very great and the costs and expenses at that particular point in time, who knew, the cost and expenses of taking the appeal would not be a wise allocation. We thought we would get a decision, a different decision, but it would have been a discretionary review. So that alone is not grounds. I’ve cited to the case law in that particular area and that’s not a final order.
*89 ... So that’s the particular reason for it. We made a decision for economic reasons at that time that we thought we could take this particular shot. It’s not like we didn’t raise all of these issues in the first go-round. We did. Every issue that I am raising now is in the briefs that we submitted, originally.
So what we have now is mainly the benefit of new case law that has come down since the Court’s original determination in September of 2008 that clearly directs that the trial court enter an order that does not weigh upon this particular process and leaves these matters for the arbitrator.
Verbatim Report of Proceedings (VRP) (Jan. 22, 2010) at 7-8.
¶11 The superior court denied DATs motion to vacate and granted Saleemi’s motion to confirm the arbitration award. The superior court stated:
Well, I think you knew you had a tough row to hoe when you got here this morning, and I’m going to deny your motion to vacate. You know, I don’t even need to hear from the plaintiffs in terms of this portion of it. I think there were other remedies in 2008. It is clear that the defense is unhappy with the result, so you’re trying to get a second bite at the apple and it’s not going to happen on my watch. Let the Court of Appeals sort that part of it out.
VRP (Jan. 22, 2010) at 9. Saleemi later moved for attorney fees related to confirming the arbitration award. The superior court awarded Saleemi $6,453.33 in attorney fees.
¶12 DAI appeals (1) the superior court’s September 2008 order requiring arbitration in Washington, under Washington law, and without any damages limitations;
ANALYSIS
I. Threshold Issue: Review of 2008 Ruling
¶13 As a preliminary matter, Saleemi asserts that we cannot consider DATs challenges to the superior court’s September 2008 order because DAI did not appeal that ruling before proceeding to arbitration. Instead, Saleemi asserts that we can examine only whether the superior court later had any ground for rejecting the arbitrator’s decision under RCW 7.04A.230.
¶15 Although DAI could have moved for discretionary review of the September 2008 order, that order was not appealable of right, and DAI was not required to appeal the ruling until after a final order was issued in this matter. All-Rite Contracting Co. v. Omey, 27 Wn.2d 898, 900-01, 181 P.2d 636 (1947); ACF Prop. Mgmt., Inc. v. Chaussee, 69 Wn. App. 913, 921 n.7, 850 P.2d 1387, review denied, 122 Wn.2d 1019 (1993); Teufel Constr. Co. v. Am. Arbitration Ass’n, 3 Wn. App. 24, 25, 472 P.2d 572 (1970). That DAI failed to move for discretionary review does not prevent us from considering the propriety of the September 2008 order. See RAP 2.2; RAP 2.3(a); ACF Prop. Mgmt., Inc., 69 Wn. App. at 921-22 (a party does not waive the issue of arbitrability by failing to seek discretionary review of decision on arbitrability in motion to compel arbitration); see also RAP 2.4(b).
¶16 Saleemi also appears to assert that we may review the September 2008 order only under the statutory grounds set out in RCW 7.04A.230. Although we review
¶17 Saleemi also suggests that DAI waived its right to appeal the 2008 order by acquiescing to the superior court’s 2008 order and proceeding with the arbitration under the terms of that order. In effect, Saleemi is asserting that by failing to move for discretionary review, DAI waived its right to challenge the September 2008 order. But DAI clearly objected to the 2008 order before going forward with the arbitration, and Saleemi does not direct us to any law that required DAI to move for discretionary review before a final order was entered in this matter. See ACF Prop. Mgmt., Inc., 69 Wn. App. at 922.
¶18 Saleemi also argues that DAI invited any error here. He maintains that the following statement from DAI during the September 19, 2009 hearing amounted to an invitation to arbitrate in Washington:
Therefore, we would request very simply that you order this matter go before arbitration. We believe it should take place in Connecticut. If you should choose and say that Connecticut is an improper forum, then it can take place in the state of Washington. But the long and the short of it, the essence of this dispute must be resolved in arbitration and not in [s]uperior [cjourts.
VTP (Sept. 19, 2008) at 16-17. We disagree.
II. Failure To Seek Discretionary Review Requires DAI To Establish Prejudice
¶20 DAI does not challenge the superior court’s authority to compel arbitration or to determine the enforceability of the arbitration agreement generally.
¶21 As we discussed above, a party does not waive its right to challenge an interlocutory order that is not a final order appealable as of right by failing to move for discretionary review. But a party is not necessarily allowed to acquiesce to the interlocutory order and wait to appeal the allegedly adverse interlocutory ruling until it knows the outcome of the proceedings without any consequences. In cases like this, which involve venue decisions, case law supports requiring a party that knowingly chooses to await the outcome of the proceeding before challenging an interlocutory order on a venue motion to show that it suffered prejudice before this court will grant relief. See Lincoln v. Transamerica Inv. Corp., 89 Wn.2d 571, 578, 573 P.2d 1316 (1978) (if the party objecting to venue fails to move for discretionary review, then the appellate courts require that party to show that the denial of motion to change venue was prejudicial). Because of the similar procedural posture here,
¶22 The only prejudice DAI alleges is that it was denied the benefit of arbitration in Connecticut, under Connecticut law, subject to the damages limitation. But it is DATs burden to show not only that the proceedings could have been different but that there is some possibility that the outcome of the proceedings could have been different had the arbitration been held in Connecticut, under Connecticut law, subject to the damages limitation. See Coutee v. Barington Capital Grp., LP, 336 F.3d 1128, 1134-35 (9th Cir. 2003) (examining whether arbitrator’s failure to follow valid, enforceable choice of law clause was harmless; refusing to apply bright-line rule that would require automatic vacation of arbitration award if choice of law clause was not followed and emphasizing that harmless error approach does not contradict the Federal Arbitration Act); Barnes v. Logan, 122 F.3d 820 (9th Cir. 1997) (applying harmless error analysis in choice of law context), cert. denied, 523 U.S. 1059 (1998); Lincoln, 89 Wn.2d at 578 (possible venue error not presumptively prejudicial). The record does not suggest that the arbitration that occurred under the 2008 ruling would have differed if it had been conducted under the terms in the agreements: (1) the arbitration was conducted by the arbitration association designated in the contracts and the same association would have been responsible for any arbitration in Connecticut, (2) DAI does not describe any advantage it would have received had the arbitration physically occurred in Connecticut, (3) DAI repeatedly admits that Washington FIPA would have applied and points to no differences between Washington and Connecticut law that could have affected these proceedings, (4) the record shows that the arbitrator in fact directed the parties to apply the damages limitation by requiring that the parties apply the definition of “compensatory damages”
¶23 Because DAI fails to allege, let alone establish, any prejudice, we affirm the superior court’s 2008 order compelling arbitration in Washington, under Washington law, without a damages limitation. Additionally, because DATs challenges to the order affirming the arbitrator’s award all relate to its challenge to the 2008 order, we also affirm the order confirming the amended arbitration award.
III. Attorney Fees
A. Fees on Motion To Compel
¶24 In addition to challenging the 2008 superior court order, DAI also argues that the superior court erred when it did not award DAI attorney fees and costs incurred in enforcing the arbitration clause, as required under paragraph 10(e) of the agreements and RCW 4.84.330.
¶25 After DAI started arbitration proceedings in Connecticut, Saleemi responded by initiating a civil action in the superior court rather than moving for arbitration in Washington or Connecticut. In its answer to Saleemi’s civil claim and motion to compel arbitration, DAI asserted that it was entitled to attorney fees under the three franchise agreements. When the superior court entered the order compelling arbitration, it did not address any attorney fees
B. Attorney Fees and Costs Related to Confirmation of Arbitrator’s Award
¶26 DAI also argues that if we reverse the superior court’s order confirming the arbitrator’s award, the superior court also erred in awarding Saleemi attorney fees and costs incurred in confirming the arbitrator’s award. Because we do not reverse the superior court, this argument fails.
C. Attorney Fees and Costs on Appeal
¶27 Finally, DAI argues that it is also entitled to attorney fees and costs on appeal. Because DAI is not the prevailing party on appeal, we deny DATs request for attorney fees and costs on appeal.
On application of a prevailing party to a contested judicial proceeding under [RCW] 7.04A.230 . . . , the court may add to a judgment confirming, vacating without directing a rehearing, modifying, or correcting an award, attorneys’ fees and other reasonable expenses of litigation incurred in a judicial proceeding after the award is made.
Saleemi is the substantially prevailing party. Accordingly, we award Saleemi attorney fees and costs under RCW 7.04A-.250 to be determined upon his compliance with RAP 18.1.
¶29 We affirm the superior court’s 2008 order compelling arbitration and the order confirming the arbitrator’s award. But we remand to the superior court to determine attorney fees and costs related to DATs motion to compel arbitration and to award those fees and costs to DAI.
Review granted at 174 Wn.2d 1001 (2012).
RCW 19.100.180(2)(j) states, in part:
(2) Por the purposes of this chapter and without limiting its general application, it shall be an unfair or deceptive act or practice or an unfair method of competition and therefore unlawful and a violation of this chapter for any person to:
(j) Terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include, without limitation, the failure of the franchisee to comply with lawful material provisions of the franchise or other agreement between the franchisor and the franchisee and to cure such default after being given written notice thereof and a reasonable opportunity, which in no event need be more than thirty days, to cure such default, or if such default cannot reasonably be cured within thirty days, the failure of the franchisee to initiate within thirty days substantial and continuing action to cure such default.
(Emphasis added.)
Saleemi also moved to amend his complaint “to include the claim that the arbitration paragraphs in the Franchise Agreements are unconscionable under the laws of the State of Washington.” CP at 81. But Saleemi withdrew his motion to amend the complaint after the trial court ordered arbitration in Washington.
For example, DATs counsel argued:
If the Court rules that the matter go to arbitration but orders that it take place in Washington, my client will, of course, abide by that particular determination, but there’s no question that this matter has to be decided by arbitration, under*87 the agreement, is scheduled to take place and should take place a[t] a forum in the state of Connecticut.
Certainly, under a situation such as this, the Court should... order that the arbitration take place and should order that the arbitration take place in the venue where the parties, by agreement, not once, not twice, but on three separate occasions agreed to the venue that would be set.
VTP (Sept. 19, 2008) at 8-9.
The superior court also orally ruled:
Well, I am going to find that the forum selection is unconscionable under this circumstance and — but on the other hand, I am going to order that there be arbitration in the state of Washington. I’m also going to order that there be no limit to the remedies in the arbitration.
So you’re going to get your arbitration, but we’re going to have Washington law, Washington forum, and no limit to the remedies.
VTP (Sept. 19, 2008) at 17.
The reference to “section 17 of exhibit 52” appears to be to section 17 of the agreements. Section 17 set out the damages-limitation clause, which contained two alternative methods for calculating compensatory damages. CP at 38, 54, 68-69.
The arbitrator also indicated that this award would bear interest from the date of the award until paid in full. The superior court later determined that the start date of the prejudgment interest award was incorrect. That portion of the superior court’s decision is not at issue in this appeal.
Specifically, the superior court stated:
[M]y question [is], if now a year and a half later with a result which clearly the defendant is not very happy with, now say, oh, what you did a year and a half ago was wrong, when you had an opportunity to at least ask for a discretionary review on a critical issue, obviously. If this should have gone to Connecticut, that should have been decided then.
Verbatim Report of Proceedings (Jan. 22, 2010) at 7.
We note that DAI does not assert that the superior court erred in compelling arbitration or that the matter was not subject to arbitration under the arbitration clause.
RCW 7.04A.230 provides:
(1) Upon motion of a party to the arbitration proceeding, the court shall vacate an award if:
(a) The award was procured by corruption, fraud, or other undue means;
(b) There was:
(1) Evident partiality by an arbitrator appointed as a neutral;
(ii) Corruption by an arbitrator; or
(iii) Misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding;
(c) An arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to consider evidence material to the controversy, or otherwise conducted the hearing contrary to RCW 7.04A.150, so as to prejudice substantially the rights of a party to the arbitration proceeding;
(d) An arbitrator exceeded the arbitrator’s powers;
(e) There was no agreement to arbitrate, unless the person participated in the arbitration proceeding without raising the objection under RCW 7.04A.150(3) not later than the commencement of the arbitration hearing; or
(f) The arbitration was conducted without proper notice of the initiation of an arbitration as required in RCW 7.04A.090 so as to prejudice substantially the rights of a party to the arbitration proceeding.
(2) A motion under this section must be filed within ninety days after the movant receives notice of the award in a record under RCW 7.04A.190 or within ninety days after the movant receives notice of an arbitrator’s award in a record on a motion to modify or correct an award under RCW 7.04A.200, unless the motion is predicated upon the ground that the award was procured by corruption, fraud, or other undue means, in which case it must be filed
(3) In vacating an award on a ground other than that set forth in subsection (1)(e) of this section, the court may order a rehearing before a new arbitrator. If the award is vacated on a ground stated in subsection (1)(c), (d), or (f) of this section, the court may order a rehearing before the arbitrator who made the award or the arbitrator’s successor. The arbitrator must render the decision in the rehearing within the same time as that provided in RCW 7.04A.190(2) for an award.
(4) If a motion to vacate an award is denied and a motion to modify or correct the award is not pending, the court shall confirm the award.
See Expert Drywall, Inc. v. Ellis-Don Constr., Inc., 86 Wn. App. 884, 888, 939 P.2d 1258 (1997), review denied, 134 Wn.2d 1011 (1998).
See Br. of Appellant at 14 (“If the arbitration clause is enforceable, all other disputes subject to the parties’ agreement to arbitrate must be determined by arbitration.”); see Br. of Appellant at 15 (“Thus, where there is a challenge to the enforceability of an arbitration agreement clause, the court must determine that issue in isolation. RCW 7.04A.060(2).” (emphasis added)).
In supplemental briefing this court ordered, DAI asserts that we should presume prejudice because there is no record of the arbitration so we cannot determine if anything that occurred in arbitration was prejudicial. But, as we discussed above, we are examining the trial court’s 2008 ruling, not the arbitration itself, and DAI could establish the required prejudice by presenting information outside the arbitration record, such as establishing that there are differences between Connecticut and Washington law that could have made a difference in this case or that DAI would have had access to additional evidence in a different venue. DAI also asserts that harmless error is improper when reviewing an arbitrator’s decision. Again, we are not reviewing the arbitration itself but, rather, the trial court’s 2008 ruling, so this argument is inapposite.
DAI also asserts that we should presume prejudice because the errors here are similar to instructional errors resulting in errors of law. But DAI does not show that any error of law occurred here, a preliminary step that is required before we presume prejudice. See Keller v. City of Spokane, 146 Wn.2d 237, 249, 44 P.3d 845 (2002) (in general an instructional error will not be reversed absent a showing of prejudice, but “[a] clear misstatement of the law, however, is presumed to be prejudicial”).
DAI further argues that we should presume prejudice because these are “structural errors” that “taintfed]” the entire proceedings. Appellants’ Suppl. Br. at 3. But DAI offers no support for this assertion, nor does it show that the arbitration here was conducted under different procedural or substantive rules or law than would have applied if the arbitration had occurred in Connecticut or under Connecticut law.
RCW 4.84.330 provides:
In any action on a contract. . . entered into after September 21, 1977, where such contract... specifically provides that attorney’s fees and costs, which are incurred to enforce the provisions of such contract..., shall be awarded to one of the parties, the prevailing party, whether he is the party specified in the contract or lease or not, shall be entitled to reasonable attorney’s fees in addition to costs and necessary disbursements.
(Emphasis added.)
Paragraph 10(e) provides:
Any disputes concerning the enforceability or scope of the arbitration clause shall be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. § [1] et seq. (“FAA”), and the parties agree that the FAA preempts any state law restrictions (including the site of the arbitration) on the enforcement of the arbitration clause in this Agreement. If, prior to an Arbitrator’s final decision, either we or you commence an action in any court of a claim that arises out of or relates to this Agreement (except for the purpose of enforcing the arbitration clause or as otherwise permitted by this Agreement), that party will be responsible for the other party’s expenses of enforcing the arbitration clause, including court costs, arbitration filing fees and other costs and attorney’s fees.
CP at 35, 51, 65 (emphasis added).
Saleemi requests fees under RCW 19.86.090. We decline to consider this request because although he asserts that the arbitrator awarded fees and costs under chapter 19.86 RCW, nothing in the record supports that claim.
Reference
- Full Case Name
- Waqas Saleemi v. Doctor's Associates, Inc.
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- 7 cases
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- Published