Doctor's Associates, Inc. v. Searl ( 2018 )

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DOCTOR’S ASSOCIATES, INC. v. SUSAN E.
SEARL ET AL.
(AC 38482)
Alvord, Sheldon and Bishop, Js.
Syllabus
The plaintiff filed an application to confirm an arbitration award issued in
its favor in connection with the defendants’ alleged breach of a franchise
agreement between the parties regarding the defendants’ operation of
a certain restaurant. The agreement stated that it was governed by
Connecticut law except as otherwise provided in the agreement. A
provision in the agreement’s arbitration clause specified that federal
law preempted any state law restrictions on the enforcement of that
clause. The defendants filed an objection to the plaintiff’s application
and subsequently filed an answer and a special defense seeking to vacate
the award, which the parties and the court treated as a motion to vacate.
The defendants alleged, inter alia, that they did not receive notice of the
arbitration proceeding, and, therefore, the award was not enforceable
against them. The trial court, applying Connecticut law, refused to con-
sider the defendants’ motion to vacate on the ground that it was untimely
and rendered judgment granting the plaintiff’s application to confirm
the arbitration award. On the defendants’ appeal to this court, held that
the trial court should have applied federal law, instead of Connecticut
law, in determining the timeliness of the defendants’ motion to vacate
the arbitration award: when the franchise agreement’s choice of law
clause was read in light of the arbitration clause, it was clear that
although, generally, Connecticut law governed the terms of the
agreement, federal law governed the procedures used to enforce the
arbitration clause, as the parties, by agreeing that federal law preempted
any state law restrictions on the enforcement of the arbitration clause,
made clear that federal law governed the procedures by which the
arbitration clause was enforced and, thus, governed the procedure for
moving to vacate the arbitration award, and application of Connecticut
law would have contradicted the parties contractual intent to use federal
law as expressly agreed to in the franchise agreement; accordingly, the
defendants were entitled to a hearing to determine whether they timely
moved to vacate the arbitration award under the statutory time limit
provided for in federal law, and if so, to address the merits of that motion.
Argued October 23, 2017—officially released February 6, 2018
Procedural History
Application to confirm an arbitration award, brought
to the Superior Court in the judicial district of Ansonia-
Milford, where the defendants filed an objection; there-
after, the defendants filed an answer and a special
defense seeking to vacate the award; subsequently, the
court, Tyma, J., granted the application to confirm the
award and rendered judgment thereon, from which the
defendants appealed to this court. Reversed; further
proceedings.
Scott T. Garosshen, with whom were Karen L. Dowd
and, on the brief, Kimberly A. Knox, for the appel-
lants (defendants).
Frank J. Mottola III, for the appellee (plaintiff).
Opinion
BISHOP, J. The defendants, Susan E. Searl and Randy
A. Searl, doing business as Subway store number 34648,1
appeal from the judgment of the trial court, effectively
dismissing their motion to vacate an arbitration award
for lack of subject matter jurisdiction and granting the
application of the plaintiff, Doctor’s Associates, Inc., to
confirm that award. On appeal, the defendants claim
that the court should have applied federal law, or alter-
natively New York law, instead of Connecticut law, in
determining whether they timely filed their motion to
vacate. We conclude that the court should have applied
federal law in determining the timeliness of the defen-
dants’ motion to vacate and, accordingly, reverse the
judgment of the trial court and remand the case for
further proceedings.2
The following facts and procedural history are rele-
vant to this appeal. The defendants owned and operated
three Subway restaurant franchises under separate
franchise agreements. Only one of the defendants’
stores, store number 34648 (store), and the franchise
agreement for that store (franchise agreement), are at
issue in this case. In October, 2013, the plaintiff notified
the defendants that they were noncompliant with cer-
tain requirements of the franchise agreement regarding
their operation of the store. In February, 2014, the par-
ties entered into a probationary agreement, which pro-
vided that if the defendants were compliant with the
franchise agreement for three months, they would be
reinstated as franchisees of the store.
On April 3, 2014, the plaintiff filed a demand for
arbitration with the American Dispute Resolution Cen-
ter (center), claiming that the defendants had breached
the franchise and probationary agreements. The defen-
dants received notice of the plaintiff’s initiation of the
arbitration proceeding even though the mailing address
on the notice was incorrect. On May 1, 2014, Susan
Searl contacted the plaintiff to discuss the arbitration
and spoke to Jill Fernandez, a case manager in the
plaintiff’s office. Fernandez explained that the defen-
dants ‘‘would be receiving further information regarding
the arbitration process, the selection of an arbitrator,
and the scheduling of a hearing date,’’ and that they
should ‘‘expect to receive further documentation in
June or July [2014].’’ Fernandez also explained that the
defendants ‘‘did not need to make any further decisions
or take any further actions until [they] received the
information regarding the process for selecting an arbi-
trator.’’
On June 20, 2014, the arbitrator found in favor of the
plaintiff and issued an award in its favor. The defen-
dants received notice of the award ‘‘as early as June
26, 2014, and no later than July 1, 2014.’’ Along with
the notice of the award, the defendants received, for the
first time, notice regarding the selection of an arbitrator
and the deadline for the submission of evidence in the
arbitration proceeding. A representative from the cen-
ter informed Susan Searl that the reason the defendants
had not received any communications from the center
between April and June, 2014, was that ‘‘the plaintiff
[had] provided the [center] with the wrong address.’’
(Emphasis added.) On June 26, 2014, a representative
of the plaintiff informed the defendants that, in light of
the arbitrator’s award, there was nothing they could do
‘‘other than sell or close [the store].’’
The plaintiff filed an application to confirm the arbi-
tration award in the Superior Court on August 8, 2014.
On September 4, 2014, the defendants, representing
themselves, filed a pleading entitled ‘‘Objection to Con-
firmation Award.’’3 This pleading explained that the
defendants had never received notice of the arbitration
hearing date and included numerous notes detailing
arguments the defendants would have made had they
been given the opportunity to present their case to the
arbitrator. On October 3, 2014, the defendants, having
retained counsel, filed an ‘‘Answer and Affirmative
Defenses’’ in response to the plaintiff’s application to
confirm the arbitration award. In that pleading, which
the parties treated as a motion to vacate the award, the
defendants similarly alleged that they had not received
notice of the arbitration proceeding, had not had an
opportunity to present evidence, and did not learn that
the arbitration hearing had taken place until after the
arbitrator had issued the award in favor of the plaintiff.
On October 9, 2014, the plaintiff filed a motion to
dismiss the ‘‘Objection to Confirmation Award’’ and the
‘‘Answer and Affirmative Defenses,’’ arguing that the
court lacked subject matter jurisdiction because the
filings had not been made within the thirty day time
period for moving to vacate an arbitration award pro-
vided by General Statutes § 52-420 (b).4 The defendants
responded that the Federal Arbitration Act (act), 9
U.S.C. § 1 et seq., governed the enforcement of the
arbitration award and that their objection to the arbitra-
tion award was sufficiently asserted within the three
month time period following the issuance of the award
prescribed by the act.5 Alternatively, the defendants
argued that, if federal law did not apply, the court should
apply New York law.6 Additionally, the defendants main-
tained that they ‘‘had meritorious defenses to the plain-
tiff’s demand for arbitration, but they were not given
notice or an opportunity to be heard.’’
On September 15, 2015, the trial court issued a memo-
randum of decision in which it (1) denied the plaintiff’s
motion to dismiss, (2) refused to consider the defen-
dants’ special defense seeking to vacate the arbitration
award on the ground that it was untimely, and (3)
granted the plaintiff’s application to confirm the arbitra-
tion award. The court concluded that the act was not
controlling in the present case because the general
choice of law provision in the parties’ franchise
agreement established that Connecticut law governed.
The court also rejected the defendants’ alternative argu-
ment that New York law should apply. Instead, the court
applied Connecticut law. Reasoning that the defendants
did not move to vacate the arbitration award within
thirty days of their receipt of the award, as Connecticut
law requires; see footnote 4 of this opinion; the court
concluded that the defendants’ motion was untimely,
and thus it granted the plaintiff’s application to confirm
the arbitration award. This appeal followed.
The defendants claim that the arbitration award in
favor of the plaintiff is unenforceable because they did
not receive adequate notice of the arbitration proceed-
ing. The defendants assert that, without notice of the
proceeding, the arbitration award is not enforceable
against them. The defendants maintain that because the
parties expressly agreed that the act ‘‘preempts any
state law restrictions . . . on the enforcement of the
arbitration clause in [the franchise agreement],’’ the
court should have applied federal law or, alternatively,
New York law, when determining whether the defen-
dants timely filed their motion to vacate. In response,
the plaintiff argues that the franchise agreement’s gen-
eral choice of law clause clearly requires application
of Connecticut law. We agree with the defendants and
conclude that the court should have applied federal law.
‘‘We review a [trial] court’s decision to confirm or
vacate an arbitration award de novo on questions of
law and for clear error on findings of fact.’’ National
Football League Management Council v. National Foot-
ball League Players Assn., 820 F.3d 527, 536 (2d Cir.
2016); see also Henry v. Imbruce, 178 Conn. App. 820,
828, A.3d (2017) (same). ‘‘Although ordinarily the
question of contract interpretation, being a question of
the parties’ intent, is a question of fact . . . [w]here
there is definitive contract language, the determination
of what the parties intended by their contractual com-
mitments is a question of law. . . .
‘‘In accordance with this principle, our recent cases
have held, in a number of different contexts, that the
contract language at issue was so definitive as to make
the interpretation of that language a question of law
subject to plenary review by this court.’’ (Citations omit-
ted; internal quotation marks omitted.) Tallmadge
Bros., Inc. v. Iriquois Gas Transmission System, L.P.,
252 Conn. 479, 495, 746 A.2d 1277 (2000). In our view,
the terms of the franchise agreement are clear and
unambiguous; therefore, interpretation of this contract
presents a question of law subject to plenary review.
See JSA Financial Corp. v. Quality Kitchen Corp. of
Delaware, 113 Conn. App. 52, 59, 964 A.2d 584 (2009).
‘‘The individual clauses of a contract . . . cannot be
construed by taking them out of context and giving
them an interpretation apart from the contract of which
they are a part. . . . A contract should be construed
so as to give full meaning and effect to all of its provi-
sions . . . . [T]he language of the choice of law por-
tion of the parties’ agreement cannot be read in
isolation, but instead must be considered in light of the
language of the arbitration portion.’’ (Citations omitted;
emphasis in original; internal quotation marks omitted.)
Levine v. Advest, Inc., 244 Conn. 732, 753, 714 A.2d 649
(1998). Moreover, it is a well established principle of
contract interpretation that ‘‘the particular language of
a contract must prevail over the general.’’ (Internal quo-
tation marks omitted.) Israel v. State Farm Mutual
Automobile Ins. Co., 259 Conn. 503, 511, 789 A.2d
974 (2002).
Furthermore, ‘‘[a]ll parties in an arbitration proceed-
ing are entitled to notice and an opportunity to be heard.
. . . Parties must be allowed to present evidence with-
out unreasonable restriction . . . and must be allowed
to confront and cross-examine witnesses. . . . Where
a party to an arbitration does not receive a full and fair
hearing on the merits, a [trial] court will not hesitate
to vacate the award. . . . In [such] cases, vacatur of
the award [is] justified [where] the lack of notice or
denial of an opportunity to be heard involve[s] the mer-
its of the controversy.’’ (Citations omitted; internal quo-
tation marks omitted.) Konkar Maritime Enterprises,
S.A. v. Compagnie Belge D’Affretement, 668 F. Supp.
267, 271 (S.D.N.Y. 1987); see also CEEG (Shanghai)
Solar Science & Technology Co., Ltd. v. LUMOS LLC,
829 F.3d 1201, 1206 (10th Cir. 2016) (‘‘[n]otice must be
reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the [arbi-
tration] and afford them an opportunity to present their
objections’’ [internal quotation marks omitted]).
In the present case, the defendants maintain that
because they did not receive notice of the arbitration
beyond the original demand, which did not contain the
date, time, or place of the arbitration hearing, they were
deprived of their opportunity to be heard, and as a
result, the award is not enforceable against them. In its
memorandum of decision, the court stated: ‘‘The parties
do not dispute the enforceability or scope of the arbitra-
tion clause. As a result, paragraph 10 (f) of the [f]ran-
chise [a]greement is inapplicable to the present
proceeding.’’ We disagree.
Paragraph 10 (f) of the franchise agreement provides
in relevant part: ‘‘Any disputes concerning the enforce-
ability . . . of the arbitration clause shall be resolved
pursuant to the [act] . . . and the parties agree that
the [act] preempts any state law restrictions . . . on
the enforcement of the arbitration clause in this
Agreement.’’ (Emphasis added.) By agreeing that the
act preempts any state law restrictions on the enforce-
ment of the arbitration clause, the parties have made
clear that federal law governs the procedures by which
the arbitration clause contained in the franchise
agreement is to be enforced.7 It necessarily follows that
the procedure for moving to vacate an arbitration award
is governed by federal law. Application of Connecticut’s
statute of limitations for filing a motion to vacate, pursu-
ant to § 52-420 (b), would contradict the parties contrac-
tual intent to use federal law, as expressly agreed to in
the franchise agreement.8
We acknowledge that the parties agreed that Con-
necticut law would govern the franchise agreement.
Paragraph 13 of the franchise agreement states in rele-
vant part: ‘‘The Agreement will be governed by and
construed in accordance with the substantive laws of
the State of Connecticut, without reference to its con-
flicts of law, except as may otherwise be provided in
this Agreement.’’ (Emphasis added.) The franchise
agreement did, in fact, provide otherwise when it speci-
fied, in paragraph 10 (f), that the act preempted any
state law restrictions on the enforcement of the arbitra-
tion clause. As our Supreme Court has instructed, we
must give effect to each provision of the parties’
agreement and not read the choice of law clause in
isolation from the arbitration clause; see Levine v.
Advest, Inc., supra, 244 Conn. 753; and particular lan-
guage in a contract must prevail over general. See Miller
Bros. Construction Co. v. Maryland Casualty Co., 113
Conn. 504, 514, 155 A. 709 (1931).
When the general choice of law clause of the fran-
chise agreement is read in light of the arbitration clause,
it becomes clear that although, generally, Connecticut
law governs the terms of the agreement, federal law
governs the procedures used to enforce the arbitration
clause.9 Compare, e.g., Smith Barney, Harris Upham &
Co. v. Luckie, 85 N.Y.2d 193, 202, 647 N.E.2d 1308, 623
N.Y.S.2d 800 (concluding that when choice of law clause
explained ‘‘that New York law would govern the
agreement and its enforcement,’’ parties intended to
‘‘arbitrate to the extent allowed by [New York] law’’
[emphasis in original; internal quotation marks omit-
ted]), cert. denied sub nom. Manhard v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 516 U.S. 811, 116 S. Ct.
59, 133 L. Ed. 2d 23 (1995), with N.J.R. Associates v.
Tausend, 19 N.Y.3d 597, 602, 973 N.E.2d 730, 950
N.Y.S.2d 320 (2012) (concluding that question of timeli-
ness ‘‘must be resolved by an arbitrator under [the act’s]
principles’’ where choice of law clause provided only
that ‘‘the Agreement shall be governed by, and con-
strued in accordance with, the laws and decisions of the
State of New York,’’ and ‘‘[did] not include the critical
enforcement language’’ [internal quotation marks omit-
ted]). We conclude, therefore, that the defendants are
entitled to a hearing to determine whether they timely
moved to vacate the arbitration award under the statu-
tory time limit provided in the act. See footnote 5 of
this opinion. If the defendants did comply with the
limitations period provided by federal law, the court
shall then reach the merits of the defendants’ motion
to vacate the arbitration award.
The judgment is reversed and the case is remanded
for further proceedings.
In this opinion the other judges concurred.
1
We refer in this opinion to the Searls collectively as the defendants and
to Susan Searl individually by name where appropriate.
2
We note that although the defendants now have closed the Subway store
at issue, the appeal is not moot because they have incurred approximately
$300,000 in fines during this litigation, which the plaintiff is pursuing as a
penalty for their continued operation of the store.
3
The court did not address this pleading in its memorandum of decision.
On remand, however, the court must determine whether this pleading was,
in effect, the defendants’ first motion to vacate the arbitration award.
4
General Statutes § 52-420 (b) provides: ‘‘No motion to vacate, modify or
correct an award may be made after thirty days from the notice of the award
to the party to the arbitration who makes the motion.’’
5
Under federal law, the statute of limitations for moving to vacate, modify,
or correct an arbitration award is set forth in 9 U.S.C. § 12, which provides
in relevant part: ‘‘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. . . .’’
6
Under New York law, the statute of limitations for moving to vacate or
modify an arbitration award is set forth in New York Civil Practice Law
and Rules § 7511 (a), which provides in relevant part: ‘‘An application to
vacate or modify an award may be made by a party within ninety days after
its delivery to him.’’
7
Several cases explain that the act does not preempt state procedural
rules governing the conduct of arbitration, so long as the state procedural
rule does not undermine the goals of the act. See Moscatiello v. Hilliard,
939 A.2d 325, 329 (Pa. 2007) (‘‘[t]he [act] does not preempt the procedural
rules governing arbitration in state courts, as that is beyond its reach’’);
Joseph v. Advest, Inc., 906 A.2d 1205, 1209–10 (Pa. Super. 2006) (‘‘the broad
reach of the [act] will not extend so far as to preempt the procedural rules
of state proceedings because there is no federal policy favoring arbitration
under a certain set of procedural rules; the federal policy is simply to
ensure the enforceability, according to their terms, of private agreements
to arbitrate’’ [internal quotation marks omitted]); Sultar v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., Superior Court, judicial district of New Britain,
Docket No. CV-04-0527411-S (October 13, 2004) (38 Conn. L. Rptr. 108)
(applying Connecticut law and not federal law to determine timeliness of
motion to vacate because Connecticut law ‘‘does not conflict with the pri-
mary purpose of the [act], which is to encourage arbitration to the fullest
scope of the parties’ agreement to arbitrate’’). Here, unlike the cases cited,
the parties expressly agreed in the franchise agreement that federal law
preempted the state law procedures used to enforce the arbitration clause.
Therefore, federal law should have been used to determine whether the
defendants timely filed their motion to vacate. See, e.g., Ungerland v. Morgan
Stanley & Co., 52 Conn. Supp. 164, 172–73, 35 A.3d 1095 (2010) (‘‘[t]he
exception to the use of Connecticut procedural arbitration laws by a Con-
necticut court is when the parties have agreed . . . in an arbitration
agreement . . . to abide by the law of a particular [jurisdiction]’’).
8
The court’s reliance on Hotz Corp. v. Carabetta Builders, Inc., Superior
Court, judicial district of New Haven, Docket Nos. CV-91-0318394-S and CV-
91-0318936-S (November 29, 1991) is misplaced. In Hotz, the court relied
on the United States Supreme Court’s decision in Volt Information Sciences,
Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S.
468, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989), for the principle that ‘‘the
[act] does not preempt this state’s arbitration rules in that the parties have
agreed to abide by Connecticut law to the exclusion of federal arbitration
law . . . .’’ Id., 479; Hotz Corp. v. Carabetta Builders, Inc., supra. The
defendants’ argument in the present case, however, is not that the act, in
general, preempts Connecticut law. Rather, they argue that, pursuant to the
language of the franchise agreement, the parties agreed that federal law
governs, thereby rendering inapplicable any state law restrictions regarding
the enforcement of the arbitration clause. In sum, we do not deviate from
the established precedent that holds that the act does not preempt state
law where the parties agreed to abide by state arbitration rules. In this case,
the parties expressly intended and contracted that federal law would apply
to any disputes regarding the enforcement of the arbitration clause.
9
Although not binding on this court, the Superior Court decision in Sultar
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Superior Court, judicial
district of New Britain, Docket No. CV-04-0527411-S (October 13, 2004) (38
Conn. L. Rptr. 108), is instructive. In Sultar, the parties signed an investment
contract that contained both a choice of law clause and an arbitration clause.
Id. The choice of law clause established that New York law would apply to
the enforcement of the investment contract. Id. The parties did not specify
which law would govern the arbitration clause, i.e., the parties did not
specify whether federal law preempted state law regarding the enforcement
of the arbitration clause. Id. The court concluded that the choice of law
clause did not demonstrate which state’s law the parties intended to apply
to the plaintiff’s motion to vacate the arbitration award. Id. The court
explained that the choice of law clause ‘‘merely provides that the law of
the state of New York applies to the enforcement of the agreement,’’ and
when read in light of the arbitration clause, the ‘‘provisions do not allow
for an interpretation that the parties intended New York law to apply to
the process of vacating the [arbitration] award.’’ Id. The court applied Con-
necticut law because, with no agreement specifying to do otherwise, the
court applied the law of the jurisdiction in which the motion to vacate was
filed. Id.
In the present case, the general choice of law clause does not demonstrate
which law to apply to a motion to vacate an arbitration award, however,
the parties specified in paragraph 10 (f) of the franchise agreement that
federal law preempted state law regarding the enforcement of the arbitration
clause, which includes the process of vacating an arbitration award. Accord-
ingly, reading the general choice of law clause and the arbitration clause
together provides for the conclusion that the parties intended to apply
federal law to the process of vacating an arbitration award. The court,
therefore, should have followed the limitations period provided by the act
when determining whether the defendants timely filed their motion to vacate.