Doctor's Assocs. Inc. v. Carbonell

• Decision Date: 29 June 2015
• Docket Number: NO. 33,997,33,997
• Parties: DOCTOR'S ASSOCIATES INC., Plaintiff/Counter-Defendant-Appellant, v. JOSE LUIS CARBONELL and VICTORIA CARBONELL, Defendants/Counter-Plaintiffs-Appellees, and JOSE LUIS CARBONELL and VICTORIA CARBONELL, Third Party Plaintiffs-Appellees, v. CAROL ENGLISH, Third Party Defendant-Appellant.
• Court: Court of Appeals of New Mexico

DOCTOR'S ASSOCIATES INC., Plaintiff/Counter-Defendant-Appellant, v. JOSE LUIS CARBONELL and VICTORIA CARBONELL, Defendants/Counter-Plaintiffs-Appellees,andJOSE LUIS CARBONELL and VICTORIA CARBONELL, Third Party Plaintiffs-Appellees, v. CAROL ENGLISH, Third Party Defendant-Appellant.

NO. 33,997

COURT OF APPEALS OF THE STATE OF NEW MEXICO

June 29, 2015

This memorandum opinion was not selected for publication in the New Mexico Appellate Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date.

APPEAL FROM THE DISTRICT COURT OF GRANT COUNTY

Henry Quintero, District Judge

Gordon Davis Johnson & Shane P.C.

John M. Dickey

El Paso, TX

for Appellants Doctor's Associates, Inc. and Carol English

Scott Hulse P.C.

Casey S. Stevenson

El Paso, TX

for Appellees

MEMORANDUM OPINION

WECHSLER, Judge.

{1} Appellants Doctor's Associates, Inc. (DAI) and Carol English appeal the district court's order denying their motion to compel arbitration. We affirm.

BACKGROUND

{2} DAI and Jose Luis Carbonell and Victoria Carbonell were parties to a franchise agreement under which DAI, as franchisor, granted the Carbonells, as franchisees, the right to operate a Subway restaurant in Silver City, New Mexico. English was DAI's development agent. The parties' rights and responsibilities were largely governed by a franchise agreement, which contained an arbitration clause. As relevant to this appeal, the scope of the arbitration clause provided that "[a]ny dispute, controversy or claim arising out of or relating to this [a]greement or the breach thereof shall be settled by arbitration."

{3} Following the procedures established in the franchise agreement, on April 11, 2012, DAI submitted a demand for arbitration to the American Dispute Resolution Center, Inc. Prior to a scheduled hearing before an arbitrator, the parties entered into a stipulated award, resolving the need for arbitration. The arbitrator approved the stipulated award.

{4} In the stipulated award, the Carbonells admitted to violating the franchise agreement by failing to adhere to certain requirements of the franchisor's operations manual. They agreed to "transfer the restaurant in accordance with the standard transfer procedures established by [DAI] to a buyer approved by [DAI] within ninety (90) days[.]" The stipulated award additionally contained the following provisions:

6. This Award is the Final Award. It is effective immediately, without the necessity of further hearing and can be confirmed in any court having jurisdiction.

. . .

9. The [p]arties agree and understand that this Stipulated Award contains the entire understanding of the parties.

{5} The transfer did not take place within the specified period. On May 7, 2013, DAI filed an action in district court, alleging that the Carbonells had breached the stipulated award and requesting that the court confirm "the arbitration award as set forth in the [s]tipulated [a]ward." It subsequently filed an amended complaint. The Carbonells filed an answer, counterclaim, and third-party complaint. In theircounterclaim and third-party complaint, they claimed that DAI breached the franchise agreement and the stipulated award and, with English, a third-party defendant, had engaged in a civil conspiracy and fraudulent misconduct in connection with the Carbonells' transfer of the restaurant. English filed an answer to the third-party complaint.

{6} On November 27, 2013, DAI and English moved the district court to compel arbitration based on the arbitration clause of the franchise agreement. In response, the Carbonells argued that the matter was properly before the district court because their counterclaim did not arise from the franchise agreement, but from the stipulated award that did not contain an arbitration clause. Because their counterclaim and cross-claims referred to the franchise agreement in addition to the stipulated award, the Carbonells asserted that they would seek leave to amend the counterclaim and third-party complaint "to clarify that their claims arise only from" the stipulated award. The Carbonells reiterated this position at the beginning of their argument on the motion.

{7} After hearing argument on the motion, the district court issued an order denying the motion. It concluded that there was no agreement to arbitrate because the Carbonells' claims arose from the stipulated award, not from the franchise agreement or through arbitration, the stipulated award did not require arbitration, and thestipulated award did not contain language incorporating the arbitration requirements of the franchise agreement.

ABSENCE OF AGREEMENT TO ARBITRATE

{8} The issue on appeal, as it did in the district court, centers on whether the Carbonells' claims are based on the stipulated agreement or the franchise agreement. As explained by the district court, a court cannot compel arbitration in the absence of an enforceable agreement to arbitrate. Alexander v. Calton & Assocs., Inc., 2005-NMCA-034, ¶ 9, 137 N.M. 293, 110 P.3d 509. We decide this issue as a matter of contract. See Clay v. N.M. Title Loans, Inc., 2012-NMCA-102, ¶ 14, 288 P.3d 888 ("[The general] rule is that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." (internal quotation marks and citation omitted)). In doing so, we seek to fulfill the intent of the parties and look to the plain meaning of the contractual language when possible. Id. ¶¶ 14, 20; Santa Fe Techs., Inc. v. Argus Networks, Inc., 2002-NMCA-030, ¶ 52, 131 N.M. 772, 42 P.3d 1221. We review de novo the district court's denial of the motion to compel arbitration. Cordova v. World Fin. Corp. of N.M., 2009-NMSC-021, ¶ 11, 146 N.M. 256, 208 P.3d 901.

{9} There is no question that the parties had a valid, enforceable arbitration clause as contained in the franchise agreement. It was broad in scope and required the parties to settle by arbitration "[a]ny dispute, controversy or claim arising out of or relating to" the franchise agreement. However, although a broad arbitration clause requires a broad interpretation as to its scope, the claims at issue must bear a "'reasonable relationship' to the contract in which the arbitration clause is found." Clay, 2012-NMCA-102, ¶ 14; Santa Fe Techs., 2002-NMCA-030, ¶¶ 52, 55.

{10} The franchise agreement arbitration provision clearly applied to disputes arising from the franchise agreement and led the parties to pursue arbitration arising from their dispute concerning the operations of the Carbonells' restaurant. The question before us, however, is not as simple. When the parties proceeded to arbitrate the operations dispute, they entered into another agreement: the stipulated award.

{11} Appellants argue that the stipulated award flows from the franchise agreement because the franchise agreement governed the entire relationship of the parties. According to Appellants, "[a]ll claims arise out [of] or relate to the . . . [f]ranchise [a]greement and simply could not have arisen in the absence of the parties' franchise relationship."

{12} Although we agree with Appellants that the parties intended the franchise agreement to govern their relationship, we do not agree that the parties could not varytheir relationship such that all consequences of their actions would be controlled by the franchise agreement merely because it was the first agreement between them. See Clay, 2012-NMCA-102, ¶ 22 (citing with approval Aiken v. World Fin. Corp. of S.C., 644 S.E.2d 705, 708 (S.C. 2007), that "applying what amounts to a but-for causation standard essentially includes every dispute imaginable between the parties, which greatly oversimplifies the parties' agreement to arbitrate claims between them" and stating that "[s]uch a result is illogical and unconscionable." (alteration, internal quotation marks, and citation omitted)).¹ The stipulated award, which, according to DAI, "could not have arisen in the absence of the parties' franchise relationship[,]" varied the parties' relationship. It added another express, written agreement between them. We thus must examine the stipulated award in addition to the franchiseagreement in order to determine the intent of the parties regarding arbitration. See CC Hous. Corp. v. Ryder Truck Rental, Inc., 1987-NMSC-117, ¶ 6, 106 N.M. 577, 746 P.2d 1109 ("When discerning the purpose, meaning, and intent of the parties to a contract, the court's duty is confined to interpreting the contract that the parties made for themselves, and absent any ambiguity, the court may not alter or fabricate a new agreement for the parties.").

{13} The parties expressed in the stipulated award the provisions of the franchise agreement that would pertain to their agreement under the stipulated award. In this regard, the stipulated award incorporated provisions of the franchise agreement that were necessary to carry out the terms of the stipulated award and for the Carbonells to continue to operate the restaurant pending a transfer, such as those pertaining to the termination of the franchise agreement, insurance requirements, the applicability of the operations manual, and non-compete provisions. The transfer was to follow DAI's standard transfer procedures. The parties stated in the stipulated agreement: "The [p]arties agree and understand that this [s]tipulated [a]ward contains the entire understanding of the parties." The stipulated award does not contain a provision requiring arbitration.

{14} Based on the parties' language, as expressed in both their franchise agreement and stipulated award, we conclude, as did the district court, that the parties did notintend the arbitration clause of the franchise agreement to apply to claims that arose out of the...