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Inc. v. Alemayehu

United States District Court, D. Connecticut

June 7, 2018



          Janet C. Hall United States District Judge

         This case comes before the court pursuant to a Petition to Compel Arbitration filed by the plaintiff, Doctor's Associates, Inc. (“DAI”). See Petition to Compel Arbitration (“Petition”) (Doc. No. 1). DAI is the franchisor of Subway sandwich shops in the United States. See id at 2. The defendant, Girum Alemayehu (“Alemayehu”), submitted an application to become a Subway franchisee on or about February 15, 2017. See id at ¶ 6. Pursuant to the Federal Arbitration Act (“FAA”), title 9 section 4 of the United States Code, DAI moves to compel arbitration of claims that Alemayehu has raised in United States District Court, District of Colorado, against DAI and a DAI Development Agent, John Marshall; a staff person of the Development Agent, Connie Gemignani; and John Marshall's corporate entity, Clear Stone Development, Inc (collectively “the DA”). See Exh. B, Petition (“Colorado Complaint”) (Doc. No. 1-2). Alemayehu opposes DAI's Petition. See generally Memorandum in Opposition to Plaintiff's Petition to Compel Arbitration (“Opposition”) (Doc. No. 18).

         For the following reasons, DAI's Petition to Compel Arbitration (Doc. No. 1) is denied.


         The plaintiff, DAI, is the franchisor of Subway restaurants. Petition at ¶ 2. DAI is incorporated in Florida and has its principal place of business in Connecticut. Id. The defendant, Alemayehu is a resident and citizen of Colorado. Id. at ¶ 3. Alemayehu submitted a Subway franchise application on February 15, 2017. See generally Exh. A, Mot. to Compel (“Franchise Application”). The Franchise Application is two pages long, and contains the following provision for residents of the United States, Puerto Rico, Guam, and Canada:

I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out of or relating to my application or candidacy for the grant of a SUBWAY franchise from Franchisor, pursuant to the laws of Connecticut, USA, and by binding arbitration only. I agree that the arbitration will be administered by either the American Arbitration Association or its successor (“AAA”) or the American Dispute Resolution Center or its successor (“ADRC”) at the discretion of the party first filing a demand for arbitration. I understand that AAA will administer the arbitration in accordance with its administrative rules (including, as applicable, the Commercial Rules of the AAA and the Expedited Procedures of such rules), and ADRC will administer the arbitration in accordance with its administrative rules (including, as applicable, the Rules of Commercial Arbitration or under the Rules for Expedited Commercial Arbitration). If both AAA and ADRC are no longer in business, then I understand that the parties will mutually agree upon an alternative administrative arbitration agency. If the parties cannot mutually agree, then the parties agree to take the matter to a court of competent jurisdiction to select the agency. I agree that arbitration will be held in Bridgeport, Connecticut, USA, conducted in English and decided by a single arbitrator.

Franchise Application at 3.

         On or about January 26, 2018, Alemayehu filed a Complaint and Jury Demand in the United States District Court for the District of Colorado alleging that his franchise application was denied due to his race, and bringing claims of racial discrimination in the making of a contract pursuant to section 1981 of title 42 of the United States Code, tortious interference with a contract, extreme and outrageous conduct, fraud, violations of the Colorado consumer protection statute, breach of contract, and civil conspiracy. See generally Colorado Complaint.


         The FAA provides that a district court shall compel arbitration if a “party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration” moves the court for an order compelling arbitration, so long as the court is satisfied, after hearing the parties, “that the making of the agreement for arbitration or the failure to comply therewith is not in issue.” 9 U.S.C. § 4. “A dispute is arbitrable only if the parties contractually bind themselves to arbitrate it.” Telenor Mobile Comms. AS v. Storm LLC, 584 F.3d 396, 405-06 (2d Cir. 2009). Arbitrability disputes under the FAA are governed by a summary judgment standard. See Alvarez v. Coca-Cola Refreshments, USA, Inc., 914 F.Supp.2d 256, 256 (E.D.N.Y. 2012). If there is a genuine dispute of material fact as to the existence or validity of an agreement to arbitrate or a breach of that agreement, the parties are entitled to a jury trial on the disputed facts. Telenor Mobile Comms. AS, 584 F.3d at 411; see Schnabel v. Trilegiant Corp., 697 F.3d 110, 118 (2d Cir. 2012) (“[A] trial is warranted only if there exists one or more genuine issues of material fact regarding whether the parties have entered into such an agreement.”).

         In determining whether parties have agreed to arbitrate, state law applies. See Trilegiant, 697 F.3d at 119; Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 45 (2d Cir. 1993). The Franchise Application includes a choice of law provision selecting Connecticut law. See Franchise Application at 2. However, because the dispute before the court is whether the Franchise Application is a binding contract, the choice of law provision in the Franchise Application “does not determine the law that the [c]ourt should apply to determine whether the arbitration clause was part of any agreement between the parties unless and until it is determined that the parties have agreed to and are bound by it.” Trilegiant, 697 F.3d at 119; but see Motorola Credit Corp. v. Uzan, 388 F.3d 39, 50 (2d Cir. 2004), cert. denied sub nom., 544 U.S. 1044 (2005) (“[A] choice-of-law clause in a contract will apply to disputes about the existence or validity of that contract.”).

         Because this court has diversity jurisdiction over this case, Connecticut's choice of law rules apply. See Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir. 2001) (“A federal trial court sitting in diversity jurisdiction must apply the law of the forum state to determine the choice-of-law.”). Connecticut has substantially adopted the Restatement (Second) of Conflict of Laws for its choice of law rules. See General Accident Ins. Co. v. Mortara, 314 Conn. 339, 346 (2014) (noting that section 188 of the Restatement (Second) governs contracts without choice of law provisions). Section 188(2) directs courts to consider several factors to determine the law that should be applied, including: (1) “the place of contracting;” (2) “the place of negotiation of the contract;” (3) “the place of performance;” (4) “the location of the subject matter of the contract;” and (5) “the domicil, residence, nationality, place of incorporation, and place of business of the parties.” Restatement (Second) of Conflict of Laws § 188(2). “These contacts are to be evaluated according to their relative importance with respect to the particular issue.” Id. In addition, Section 188(3) states, “If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied.” Id. at § 188(3).

         In this case, the Franchise Application was completed in Colorado for a franchise located in Colorado. Alemayehu is a citizen of Colorado, while DAI is incorporated in Florida and has its principal place of business in Connecticut. Considering the totality of the circumstances in this case, the court concludes that Colorado law should be applied to analyze whether the parties in this case entered into an agreement to arbitrate disputes arising out of Alemayehu's Franchise Application.[1]

         Pursuant to Colorado contract law, “[t]he first step in establishing the existence of a contract is showing that it was properly formed.” PayoutOne v. Coral Mortgage Bankers, 602 F.Supp.2d 1219, 1224 (D. Colo. 2009). “Contract formation requires mutual assent to an exchange between competent parties--where an offer is made and accepted--regarding a subject matter which is certain, and for which there is legal consideration.” Id.; see Indus. Prods. Int'l, Inc. v. Emo Trans, Inc., 962 P.2d 983, 988 (Colo.App. 1997). Colorado sets a low bar for consideration. See W. Fed. Sav. & Loan Ass'n v. Nat'l Homes Corp., 167 Colo. 93, 103 (1968) (“A benefit to the promisor or detriment to the promisee can constitute consideration, however slight.”). However, “[a] unilateral promise is not sufficient ...

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