Budget Blinds Inc. v. Leclair
| Decision Date | 16 January 2012 |
| Docket Number | Case No. SACV 12-1101 DOC (MLGx) |
| Court | U.S. District Court — Central District of California |
| Parties | BUDGET BLINDS INC. v. JOSH JAMES LECLAIR |
THE HONORABLE DAVID O. CARTER, JUDGE
+-------------------------------+
¦Julie Barrera ¦N/A ¦
+----------------+--------------¦
¦Courtroom Clerk ¦Court Reporter¦
+-------------------------------+
ATTORNEYS PRESENT FOR PLAINTIFF:
ARBITRATION AWARD, GRANTING
CROSS-PETITION TO CONFIRM AWARD
AND RESERVING DECISION ON MOTION
Before the Court are three motions. Budget Blinds Inc. has filed an Amended Petition To Vacate An Arbitration Award (Dkt. 27, hereafter Pet.), Josh James LeClair has filed an Opposition And Cross-Petition To Confirm Arbitration Award (Dkt. 29, hereafter Opp.). For convenience, the parties will be referred to as Budget Blinds and LeClair respectively. LeClair has also filed a Motion For Sanctions (Dkt. 31).1
Budget Blinds is a nationally known window covering business. LeClair applied to become a franchisee, and signed a Franchise Agreement on May 9, 2007. The Agreement's effective date was June 12, 2007, with an initial term for ten years, and an expiration date onJuly 31, 2017. LeClair was assigned a territory in the Northeast area of Madison, Wisconsin. His territory was surrounded by territory belonging to another franchisee, Jeffrey Morris.
Morris and LeClair meet soon after LeClair's franchisee training, and agreed that each could sell in the other's territory to contacts they had developed from prior customers, friends relatives, and networking contacts. (LeClair's territory was previously a "gray area," meaning an area not owned by any franchisee.) The arbitrator further found that the men agreed they would not canvass into each other's territory, and there was no evidence either one had done so. For nearly four years, the men ran their franchises with the above understanding,3 until Morris complained to Budget Blinds that LeClair was selling in his territory. All along, sales by LeClair, including any contended to be outside his territory, were reported to Budget Blinds through Budget Blinds' record keeping, management, and e-mail system, called B-Fast.
In the fall of 2008, LeClair began exploring the idea of a business that cleaned and repaired blinds, to be called Window Valet. LeClair testified at the arbitration hearing, without contradiction, that he discussed that idea with principals of Budget Blinds, at conventions in 2009 and 2010, and that those Budget Blinds principals indicated no interest in the idea. The arbitrator found that LeClair operated his franchise and Window Valet separately.
On April 5, 2011, LeClair's former office manager told Morris that LeClair was making unauthorized sales into Morris' territory. This led to Morris complaining to Budget Blinds, and then to Budget Blinds looking at B-Fast records and e-mails on the Budget Blinds system. The arbitrator found that, prior to filing the Demand for Arbitration, Budget Blinds never contacted LeClair about Morris' complaint, or about Budget Blinds' investigation, and never provided him any sort of notice as to the complaints that became part of the arbitration demand.
Budget Blinds filed a Demand For Arbitration on May 6, 2011, alleging claims of breach of the Franchise Agreement, specifically Sections 2.4 () and 8.09 (prohibiting running a competing business), misappropriation of trade secrets, declaratory relief, and injunctive relief. The declaratoryjudgment Budget Blinds sought was that it was entitled to terminate the Franchise Agreement without further notice, and that LeClair was bound by the post termination provisions of the Agreement.4 The injunctive relief requested would prohibit LeClair from owning a competitor business, as the term is defined in the Franchise Agreement.
LeClair attempted to reach someone at Budget Blinds to discuss the allegations against him, but "at no time subsequent to the Demand for Arbitration was Mr. LeClair able to discuss the matters . . . with any representative of Budget Blinds," short of a referral to Budget Blinds' lawyer. Final Award 10. LeClair filed an answer denying Budget Blinds' allegations and making a counter-claim, as relevant here and detailed further in the analysis section, that Budget Blinds had constructively terminated the Franchise Agreement. Budget Blinds amended its Demand on September 29, 2011, with additional claims for breach of the Franchise Agreement.
The arbitrator held hearings on October 17, 18, and 19, at the JAMS Resolution Center in Orange, CA. On the 19th, the arbitration was recessed until November 17, 2011. Parties then filed Closing Briefs. On January 3, 2012, the arbitrator issued her interim award.
In her award, the arbitrator made clear that she had reviewed all testimony and evidence, and that to the extent her findings and determinations differed from any party's position, "that is the result of determinations as to credibility, relevance, burden of proof considerations and the weighing of the evidence." Final Award 4 (Ex. BB to Mulcahy Decl., hereafter Final Award). She also "considered all of the legal arguments and all authorities as applicable to the various theories" of each party. She ordered further submissions on damages, discussed below in Part III.c., and the Final Award, dated April 9, 2012, awarded LeClair $275,234.58, which includes attorneys' fees.
Further facts will be discussed below in Part III as necessary.
Under the Federal Arbitration Act, after a party to an arbitration applies to confirm the award, the "court must grant such an order unless the award is vacated, modified, orcorrected as prescribed in sections 10 and 11 of [the Arbitration Act]. 8 U.S.C. § 9; Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 640 (9th Cir. 2010). The party seeking to vacate an award bears the burden of establishing grounds to vacate. U.S. Life Ins. v. Super. Nat. Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010). A court may vacate an award where the award was procured by corruption or fraud; where the arbitrator was partial or corrupt; where the arbitrator's misconduct prejudiced the rights of a party; or where the arbitrator exceeds his or her powers. 9 U.S.C. § 10. A court may only review an arbitration award based on these FAA grounds. Schoenduve Corp. v. Lucent Techs., Inc., 442 F. 3d 727, 731-32 (9th Cir. 2006); Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997 (9th Cir. 2003). Arbitrators "exceed their powers not when they merely interpret or apply governing law incorrectly, but when the award is completely irrational, or exhibits a manifest disregard of law." Schoenduve Corp. at 731 (quoting Kyocera, 341 F.3d at 997).
A manifest disregard of the law means TSYS Acquiring Solutions, LLC, v. Electronic Payment Systems, LLC, 2009 U.S. Dist. LEXIS 98470 at *5-6 (quoting Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)). The test for finding manifest disregard requires a reviewing court to find that "the arbitrator misapplied or failed to apply the relevant law . . . in a manner that constitutes a blatant, gross error of law that is apparent on the face of the award." D.R. Horton, 361 F. Supp. 2d at 1100 (citation omitted) (emphasis added). And then such error, "no matter how obvious or outrageous" does not justify vacating an award unless there is evidence "reliably demonstrating" that the arbitrator's misapplication of the law was done "with knowledge of the error of that action and/or the intention to nullify the law or an awareness that he was doing so." Id.
An additional, narrow ground to vacate is that a court cannot enforce an award that violates public policy. This exception that requires the public policy in question to be "explicit," "well defined and dominant." Stead Motors of Walnut Creek v. Auto. Machinists Lodge No. 1173, Int'l Ass'n of Machinists & Aerospace Workers, 886 F.2d 1200, 1210 (9th Cir. 1989) (quoting W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766 (1983)).
Budget Blinds argues that the Court should vacate the Final Award because the Arbitrator exceeded her powers, showed manifest disregard for the law, and violated public policy. Pet. 1.
Budget Blinds' first argument is that the arbitrator's finding that Budget Blinds constructively terminated the Franchise Agreement amounts to "a manifest disregard for the law," and separately violates Budget Blinds' right to seek legal redress without incurring liability. Pet. 1; Cal. Code Civ P. § 1060.
To understand why the arbitrator's finding must be upheld, it is necessary to summarize several of her findings, as well as further testimony that she weighed as part of her determination, and the nature of constructive termination as a matter of Wisconsin law.
In his counterclaims, LeClair contended that Budget Blinds (1) failed to investigate before filing for arbitration, as required by the Franchise Agreement and the Wisconsin law incorporated in the Franchise Agreement; (2) refused LeClair's attempts to discuss the allegations to explore potential remedies; (3) terminated LeClair's access to the B-Fast Internet portal; (4) disconnected LeClair's franchise website; and (5) redirected LeClair's telephone, Internet, and other leads to Budget Blinds franchisees (Ex. J 336-36, 341-42).
Such claims were supported by testimony and the arbitrator's specific findings. LeClair and a Budget...
To continue reading
Request your trial