Gueyffier v. Ann Summers, Ltd.

• Decision Date: 26 October 2006
• Docket Number: No. B186996.,B186996.
• Citation: 144 Cal.App.4th 166,50 Cal.Rptr.3d 294
• Court: California Court of Appeals
• Parties: Celine GUEYFFIER, Plaintiff and Respondent, v. ANN SUMMERS, LTD., Defendant and Appellant.

50 Cal.Rptr.3d 294

144 Cal.App.4th 166

Celine GUEYFFIER, Plaintiff and Respondent, v. ANN SUMMERS, LTD., Defendant and Appellant.

No. B186996.

Court of Appeal, Second District, Division 5.

October 26, 2006.

Jenkens & Gilchrist, Glenn J. Plattner, Santa Monica, and Keith D. Klein, Los Angeles, for Defendant and Appellant.

Zelle, Hoffman, Voelbel, Mason, & Gette, Douglas J. Rovens and Marc J. Shrake, Los Angeles, for Plaintiff and Respondent.

TURNER, P.J.

I. INTRODUCTION

This appeal arises out of cross-proceedings to confirm and vacate an international commercial arbitration award entered in California following an American Arbitration Association adjudication. The arbitration occurred under a franchise agreement between Celine Gueyffier (plaintiff), a French citizen residing in the United States, and Ann Summers, Ltd., a British corporation (defendant).¹ The franchise agreement provided, as an expressly material term, that defendant could not be found in breach of the contract absent prompt detailed written notice of the alleged breach and a reasonable opportunity to cure. The franchise agreement, including the arbitration clause, also barred the arbitrator from modifying any of its material terms. Defendant appeals from a September 12, 2005 judgment confirming the arbitration award in favor of plaintiff. Defendant contends the arbitrator exceeded his powers when he failed to enforce the notice and cure provision; therefore, the award must be vacated.

Under California arbitration law, specifically Code of Civil Procedure² section 1286.2, subdivision (a)(4), a court must vacate an arbitration award if it finds the arbitrator exceeded her or his powers and the decision cannot be corrected without affecting its merits. However, there are several possible sources of authority that may have a bearing on the recognition and enforcement of the present award where the parties are not United States citizens: chapter 1 of the United States Arbitration Act (9 U.S.C. § 1 et seq.); the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1970, 21 U.S.T. 2517, T.I.A.S. No. 6997); chapter 2 of the United States Arbitration Act (9 U.S.C. § 201 et seq.); the California Arbitration Act (§ 1280 et seq.); and the California international commercial arbitration law. (§ 1297.11 et seq.) We must first determine what law governs defendant's petition to vacate the present award. It is critical to emphasize that this case involves an arbitration award made in the United States and sought to be enforced in this country. We are not concerned with an arbitration award rendered in or under the procedural law of a foreign jurisdiction and sought to be enforced here as to which the vacatur analysis will differ. (Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc. (2d Cir.1997) 126 F.3d 15, 20, 22-23; M&C Corp. v. Erwin Behr GmbH & Co., KG (6th Cir.1996) 87 F.3d 844, 851; International Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, Industrial & Comercial (S.D.N.Y. 1990) 745 F.Supp. 172, 181-182; see Jacada, Ltd. v. Int'l Mktg. Strategies, Inc. (6th Cir.2005) 401 F.3d 701, 709, fn. 8.)

We conclude the vacatur provisions of the California Arbitration Act govern the petition to vacate the arbitration award. We further find the arbitrator exceeded his powers within the meaning of section 1286.2, subdivision (a)(4) when he failed to enforce the contractual notice and cure provision. Accordingly, we reverse the judgment. We direct the trial court to vacate the arbitration award and proceed pursuant to section 1287.

II. BACKGROUND

A. The Franchise Agreement

The parties entered into a franchise agreement effective December 6, 1999. Plaintiff obtained a license to operate an Ann Summers store in Los Angeles. The dispute resolution section of the franchise agreement provided in part: "Except as provided in Section 20.2 [actions for injunctive or other provisional relief, or involving trade or service marks], any controversy or claim between Franchisor and Franchisee arising out of or relating to this Agreement or any alleged breach hereof, including any issues pertaining to the arbitrability of such controversy or claim and any claim that this Agreement or any part hereof is invalid, illegal, or otherwise voidable or void, shall be submitted to binding arbitration. Said arbitration shall be conducted before and in accordance with the Commercial Rules of the American Arbitration Association (`AAA'). Judgement upon any award rendered may be entered in any Court having jurisdiction thereof. Except to the extent prohibited by Applicable Law, the proceedings shall be held in the city nearest the Franchisee's Store in which the [American Arbitration Association] maintains an office and facilities for conducting arbitration." With respect to defendant's obligations, the franchise agreement provided in Article 7.2: "Franchisor Default. Franchisor shall not, and can not be held in breach of this Agreement until (i) Franchisor shall have received from Franchisee, promptly after Franchisee first learns of the alleged breach, a written notice specifying in detail the facts constituting the alleged breach; and (ii) Franchisor shall have failed to remedy the breach within a reasonable period of time after such notice, which period shall not be less than 60 days.... This is a material term of this Agreement and may not be modified or changed by any arbitrator in an arbitration proceeding or otherwise." Consistent with the foregoing, the arbitration clause also stated, "In no event may the material provisions of this Agreement including, but not limited to the method of operation, Authorised Product line sold or monetary obligations specified in this Agreement, amendments to this Agreement or in the Operations Manual be modified or changed by the arbitrator at any arbitration hearing."

B. The Arbitration

In May 2001, defendant filed an arbitration demand. Plaintiff filed a counterclaim. Arbitration hearings were conducted in August and September 2004. In his final award, issued on February 2, 2005, the arbitrator found: "In March 2001, [plaintiff] briefly opened and then closed, an Ann Summers franchise store in the Beverly Center which is located in the Los Angeles area. [Plaintiff] re-opened her store under the trade name *What Lies Beneath,' which store she operated for approximately two years before closing permanently. [¶] ... [¶] On or about May 2, 2001, [defendant] filed its demand for arbitration with the Los Angeles office of the [American Arbitration Association]. Pursuant to the applicable rules of the [American Arbitration Association], the arbitration was assigned to the International Centre for Dispute Resolution (`ICDR') of the [American Arbitration Association] for administration. On or about May 22, 2001, [plaintiff] filed a counterclaim. [¶] ... [¶] The Agreement is a valid and binding agreement between the parties. Pursuant to the Agreement, [defendant] obligated itself as franchisor to provide [plaintiff] as franchisee with operations manuals ..., training and assistance ..., and an advertising program.... Based upon the evidence presented, [defendant] failed to meet its obligations to provide operations manuals, training and assistance, and an advertising program. [¶] [Plaintiff] was given operations manuals which had been drafted for use in the [United Kingdom] without any modification for use in the United States or California. Several of the provisions in the operations manuals were contrary to public policy in California. [¶] [Plaintiff] was invited to attend a two-week training in the [United Kingdom]. She was given an agenda for the training, but several of those listed on the agenda were not aware that they were to provide training. Other portions of the agenda were simply cancelled. After spending several days of attending haphazard meetings, stocking an Ann Summers company store, and finding no further value in the training, [plaintiff] justifiably left before the end of the two-week stay. [¶] [Plaintiff] was not given any advertising program by [defendant] other than to send someone to dress the windows in the entry to the Beverly Center store. The image of the Beverly Center store, while purportedly conforming to the `soft look' of the Ann Summers Dublin store, drew a harsh reaction from customers in the upscale Beverly Center. The Arbitrator finds that the incidents of tomatoes being thrown at the store and insults being yelled at [plaintiff] did occur. The Los Angeles market was well-chosen as an entry market into the United States. However, [defendant] did little to introduce its products into the Los Angeles market and to mitigate the potential negative reaction from opening a lingerie and sex toy shop in an upscale mall in Beverly Hills. This lack of attention to the opening in Los Angeles contrasts to the store opening in Dublin, Ireland. [Defendant], knowing the conservative underpinnings of Irish culture, took care with public relations, sent a company representative to be onsite for the opening in Dublin and to handle the foreseeable negative reaction from disgruntled shoppers. No such preparation or support was given to [plaintiff], who bore the brunt of the hostility and insults without support, [¶] The Arbitrator finds that [defendant] did not meet its obligations to provide operations manuals, training and assistance, or an advertising program. The effect of these breaches is seen in the disastrous opening of the Beverly Center store. By the time [plaintiff] was finally able to open the Beverly Center store, the effect of the breaches was not curable. Giving written notice to provide ... operations manuals, training and assistance, and an advertising program within a reasonable period of time would have been an idle act. Therefore, the requirement of giving sixty (60) days written notice (Article 7.2) is moot. The consequence of the foregoing analysis is a...