Opinion
No. FST CV 08 5007365 S
July 3, 2008
MEMORANDUM OF DECISION
On May 6, 2008, the plaintiff filed an application for prejudgment remedies and injunctive relief against the defendants. In that application the plaintiff claims that the defendants committed fraud in connection with the sale of three children's hair salons located in Westport, Cos Cob and Larchmont, New York, together with related franchises to the plaintiff in 2006. The plaintiff claims that as part of the transaction with respect to each location the parties executed a "Bill of Sale and Asset Purchase Agreement" with defendant, Sharkey's Cuts for Kids, LLC and a "Franchising Agreement" with defendant, Sharkey's Franchising Co., LLC.
Presently at issue is a Motion to Stay dated June 2, 2008 filed by all the defendants. In that motion the defendants claim that the plaintiff "is a party to several written agreements requiring that all disputes pertaining to the agreements be arbitrated." Relying upon General Statutes § 52-409 and the Federal Arbitration Act, 9 U. S. C. § 1 et seq., the defendants ask the court to stay further proceedings. Attached to that motion as exhibits were copies of the three Asset Purchase Agreements and the three Franchise Agreements. The plaintiff has filed an objection to the motion to stay, claiming that the arbitration clauses in question are very limited ones which are not applicable to the plaintiff's claims.
The arbitration clause at issue is found only in the three "Franchise Agreements" each dated March 10, 2006. Paragraph 28 of those agreement provides: "If any controversy or dispute arises between the parties in connection with the performance, interpretation or application of this agreement, except for controversies or disputes where the provisional or injunctive relieve is sought . . . or for any dispute involving potential infringement by the franchisee of the marks, the controversy or dispute will be settled by binding arbitration." The court must determine whether the arbitration clause precludes a judicial determination of the plaintiff's claims and instead, requires the parties to resolve the plaintiff's claims through arbitration.
No Connecticut cases can be found which interpret or apply the exact language used in paragraph 28. However, there are a number of cases from other jurisdictions which consider the precise language used in that paragraph. In each case, the court has held that such language is to be construed broadly. See, e.g. Babcock Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 230 (Tex.App.-Houston [14th Dist.] 1993, writ denied); McReynolds v. Elston, 222 S.W.3d 731, 740 (Tex.App. 2007). These decisions are in accord with a larger number of cases which hold that clauses limiting arbitration to disputes relating to the "interpretation and/or performance" of the agreement" are to be construed broadly. See e.g. United Offshore Co. v. Southern Deepwater Pipeline Co., 899 F.2d 405, 410 (5th Cir. 1990); Local 5-857 Paper, Allied-Industrial, Chemical Energy Workers Int'l Union v. Conoco, Inc., 320 F.3d 1123, 1124 n. 1, 1126 (10th Cir. 2003).
However, when such an arbitration clause is used in conjunction with a broader provision in which the parties agree to submit to litigation, the arbitration provision is to be construed narrowly. See Brown v. T-Ink, LLC, 2007 Del.Ch.LEXIS 174 (Del.Ch. Dec. 4, 2007). In Brown, the court found that the language used in the arbitration clause was considerably more narrow than that used in other arbitration clauses. Further, and more importantly, the court relied on the fact that the arbitration language was in stark contrast to the broad language used in a separate jury-trial waiver provision. Because of the broad language used in the litigation provision, the court determined that the drafters knew how to use broad language, but chose not to employ such broad language in the arbitration clause. See also E*Trade Financial Corp. v. Deutche Bank AG, 420 F.Sup.2d 273 (2006) ("[w]hen a contract contains both a broad disputes provision permitting lawsuits and also an arbitration requirement set forth in one narrow context, courts routinely limit the arbitration requirement to disputes arising squarely in that narrow context"). Finally, as a result of the court's narrow reading of the arbitration clause in Brown, the court determined that the arbitration clause did not require the plaintiff to submit his claim for fraudulent inducement to arbitration.
The same line of reasoning applies to the present case. While the arbitration clause here also encompasses disputes connected to the "application" of each franchise agreement, the addition of the word "application" cannot be said to substantively enlarge the scope of the arbitration clause beyond the scope of the clause at issue in Brown. Moreover, paragraph 27 of the Franchise Agreement provides that the parties "consent to the exclusive jurisdiction of the state and federal courts located in the State of Connecticut in connection with any dispute based on or arising out of or in connection with this agreement, which is not resolved in accordance with [the arbitration clause]."
No terms of the Franchise Agreements purport to require that issues arising out of or in connection with the Asset Purchase Agreements or the Bills of Sale be subject to arbitration. In fact neither of those documents are even mentioned in the Franchise Agreements. On the other hand, paragraph 3.2(d) of each Asset Purchase Agreement specifies that the Franchise Agreement is to be delivered by the seller to the buyer at closing. The form of the Franchise Agreement is attached to each Asset Purchase Agreement as "Exhibit D."
In Policemens Firemen's Retirement Board v. Sullivan, 173 Conn. 1, 11, 376 A.2d 399 (1977), the court noted that "[n]o one is under a duty to submit any question to arbitration except to the extent that he has signified his willingness." Indeed, "[a]rbitration is a creature of contract." Stratford v. International Ass'n. of Firefighters, 248 Conn. 108, 121, 728 A.2d 1063 (1999). "In determining whether a party is bound to arbitrate, the courts look at the language employed in the contract." Scinto v. Sosin, 51 Conn.App. 222, 239, 721 A.2d 552, cert. denied, 247 Conn. 963, 724 A.2d 1125 (1998). "Our statutes do not require any particular words or form to create an arbitration agreement. The intent of the parties that arbitration be the exclusive method for the settlement of disputes arising under the contract must be clearly manifested. This express intent by both parties to enter into the arbitration agreement is essential to its existence . . . An agreement to arbitrate must be clear and direct and not depend on implication." (Internal quotation marks omitted.) Jacob v. Seaboard, Inc., 28 Conn.App. 270, 273, 610 A.2d 189 (1992). "An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." (Internal quotation marks omitted.) ALCA Construction Co. v. Waterbury Housing Authority, 49 Conn.App. 78, 82, 713 A.2d 886 (1998).
The defendants have failed to explain how the plaintiff could be compelled to arbitrate any claims arising out of or connected with the Asset Purchase Agreements. Additionally, based on the language the parties employed in the Franchise Agreement, the court cannot find, with positive assurance, that the clause is susceptible to an interpretation requiring disputes, such as the present one, to be subject to arbitration. Under these circumstances the court finds that the limited language of Paragraph 28 of the Franchise Agreements cannot be construed as requiring the plaintiff to arbitrate the claims alleged in its draft complaint. Accordingly, the objection to the motion to stay is sustained and the motion to stay is denied.