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Doctor's Associates, Inc. v. Searl

Superior Court of Connecticut, Judicial District of Ansonia-Milford, Derby

September 15, 2015

Doctor's Associates, Inc.
v.
Susan Searl et al

MEMORANDUM OF DECISION

Theodore R. Tyma, J.

The plaintiff brings this action seeking to confirm a favorable arbitration award. The plaintiff owns the Subway trademarks. The defendants, a husband and wife, own and operate three Subway restaurants under separate franchise agreements that all provide for arbitration of disputes. As provided in the agreements, the defendants are independent franchise operators and licensed users of the Subway trademarks. The defendants filed an objection to the plaintiff's application to confirm the arbitration award, [1] and an answer and special defense, but did not file a motion specifically seeking to vacate the award. The defendants' special defense essentially alleges that they were not provided with notice of the arbitration hearing and, as a result, they did not have an opportunity to appear at the hearing to defend the action on the merits. Therefore, the award should be vacated.

The plaintiff has filed a motion to dismiss for a lack of subject matter jurisdiction. The plaintiff contends that the defendants received notice of the arbitration award, but failed to timely file under Connecticut law a motion to vacate the award. The defendants, in an attempt to avoid the adverse effects of the application of Connecticut law, counter that federal or New York arbitration laws are controlling, and their answer and special defense is timely and validly filed under either law.

The following facts are relevant to the determination of the motion. The plaintiff is a foreign corporation headquartered in Milford, Connecticut, and is the franchisor of Subway restaurants. The defendants reside in upstate New York, where they operate their stores.

The present proceedings arise from a " Franchise Agreement" executed by the parties on July 5, 2007, which governs the defendants' Franklinville, New York restaurant designated by franchise number 34648. In October 2013, the defendants were notified by the plaintiff that they were noncompliant with certain contractual requirements concerning the operation of that particular restaurant, and that the plaintiff was terminating the franchise agreement. The letter was received by the defendants despite being incorrectly addressed. Consequently, in February 2014, the defendants signed a probationary agreement that provided if they were compliant in their Franklinville store operations for three months, they would be reinstated as franchisees of the store.

The plaintiff initiated the subject arbitration on April 3, 2014 by filing a demand for arbitration with the American Dispute Resolution Center (ADRC) claiming that the defendants breached the franchise and probationary agreements. The defendants have continuously maintained that they did not breach the agreements.

The sole arbitrator found for the plaintiff, and issued his award on June 20, 2014.[2] The defendant, Susan Searl, states in her affidavit that she received notice of the arbitration award on June 26, 2014, [3] along with, for the first time, notice regarding the selection of the arbitrator and the deadline for the submission of evidence. As a result, Searl called the ADRC inquiring about the documents that she received on June 26th. Searl avers that a representative of ADRC informed her that she did not receive any communications from ADRC between receiving notice of the demand for arbitration in April and notice of the award in the latter part of June because " the plaintiff provided the ADRC with the wrong address." Searl further avers that she called the plaintiff's legal department and spoke to a representative who informed her " that there was nothing that [she] could do other than sell or close store #34648." The defendants characterize that information as false or misleading.

On September 4, 2014, the defendants, representing themselves, filed with this court a pleading entitled " Objection to Confirmation Award." On October 3, 2014, the defendants, through present counsel, filed an " Answer and Affirmative Defenses." Therein, the defendants claim that they " had meritorious defenses to the plaintiff's demand for arbitration but they were not given notice or an opportunity to be heard." The defendants allege in their affirmative defense that the arbitrator exceeded his authority and imperfectly executed his authority by issuing his award despite the fact that the defendants never received notice of the proceedings and an opportunity to be heard. The defendants further allege that the lack of notice and an opportunity to be heard at the arbitration violates public policy, and, to the extent that the arbitration center knew about the lack of notice, is evidence of the center's partiality.[4]

The plaintiff filed the present motion to dismiss on October 9, 2014. The plaintiff alleges that the court lacks subject matter jurisdiction to consider the defendant's answer and special defenses, because it was not filed " within the strict statutory timeframe" required under Connecticut law for an application to vacate. The defendants respond that their answer and affirmative defense should be resolved on the merits based on their claim that either the Federal Arbitration Act or New York arbitration law should govern the present arbitration proceedings, and not Connecticut law. In this regard, the defendants assert that the answer and special defense is timely filed and valid under either federal or New York law.

I

ANALYSIS OF THE APPLICABLE ARBITRATION LAW

A

Whether Federal Arbitration Law Preempts State Law

The court must first determine whether federal law or our state law governing arbitration proceedings, General Statutes § § 52-408 through 52-424, is controlling. " Arbitration is essentially a creature of contract, a contract in which the parties themselves charter a private tribunal for the resolution of their disputes . . . Arbitration agreements are contracts and their meaning is to be determined . . . under accepted rules of [state] contract law . . .

" Judicial construction of an arbitration agreement, however, is not guided solely by the principles of relevant state contract law. The arbitration act; 9 U.S.C. § § 1 through 16; governs written arbitration agreements that pertain to contracts involving interstate commerce. 9 U.S.C. § § 1 and 2. The arbitration act creates a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [a]ct . . ...


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