Holmes v. Coverall North America, Inc.

• Court: Maryland Court of Appeals
• Writing for the Court: BISHOP
• Citation: Holmes v. Coverall North America, Inc., 633 A.2d 932, 98 Md.App. 519 (Md. App. 1993)
• Decision Date: 01 September 1993
• Docket Number: No. 458,458
• Parties: Ronald T. HOLMES, et al. v. COVERALL NORTH AMERICA, INC., et al. ,

Page 519

98 Md.App. 519

633 A.2d 932

Ronald T. HOLMES, et al. v. COVERALL NORTH AMERICA, INC., et al.

No. 458, Sept. Term, 1993.

Court of Special Appeals of Maryland.

Dec. 8, 1993.

Certiorari Granted March 25, 1994.

Eliot G. Striar, Columbia, for appellants.

C. Torrence Armstrong (Frederick P. Helm, McGuire, Woods, Battle & Boothe, Alexandria, VA, Morton A. Sacks Gerard G. Magrogan, McGuire, Woods, Battle & Boothe, Baltimore, Arthur G. House and Hadley, House & Rabin, Bethesda, on the brief), for appellees.

Argued before BISHOP, FISCHER and CATHELL, JJ.

BISHOP, Judge.

Appellants, Ronald T. Holmes ("Holmes") and Holmestar Corporation doing business as Coverall of Baltimore, Inc. ("Holmestar"), filed a complaint in the Circuit Court for Howard County against Appellees, Coverall North America, Inc. ("Coverall"), Shahyar Alex Zayanderoudi also known as Alex Roudi ("Roudi"), and the attorney and other individual officers, directors, and employees of Coverall, alleging violations of the Maryland Franchise Act (Count I), fraud in the inducement (Count II), negligent misrepresentation (Count III), and professional malpractice (Count IV). Coverall then filed a Petition for Order of Arbitration and for Stay of Action Pending Arbitration or for Dismissal of Action. The trial court granted the petition and ordered that the case be submitted to arbitration pursuant to the franchise agreement and that the action be stayed pending the outcome of arbitration.

Appellants filed a Motion to Alter or Amend Judgment along with a Petition to Stay Arbitration. The trial court struck its order compelling arbitration, and instead, granted Appellants' Petition to Stay Arbitration. Coverall then filed a Request for Clarification of the court's order. In response to that request, the trial court reinstated its original order staying the action and ordering that arbitration proceed in accordance with the franchise agreement. Appellants filed a timely notice of appeal to this Court.

Upon Appellees' motion, we dismissed Appellants' appeal pursuant to Rule 8-602(a)(1) because the court's order was not a final appealable judgment. Appellants then filed a Petition for Writ of Certiorari, which the Court of Appeals granted. The Court of Appeals, in a per curiam order, vacated this Court's judgment and remanded the case for consideration of the merits of the appeal, 330 Md. 114, 622 A.2d 744.

Issues

Appellants raise three issues, which we shall consolidate into the following two issues:

I. Whether the circuit court erred when it ordered arbitration and stayed the action.

II. Whether the legislative findings and intent enunciated in the Maryland Franchise Act, and the judicial powers and civil rights and remedies granted in that Act, compel the conclusion that the circuit court exceeded its jurisdiction when it ordered arbitration and stayed the action.

Facts

In the case sub judice, the trial court ordered arbitration and stayed the underlying action pending the outcome of arbitration, based solely on the averments in Appellants' complaint, Coverall's petition, and Appellants' response to that petition. The trial court did not conduct a hearing, and the parties did not supply the court with affidavits or a stipulation of facts. Because the trial court's function in ruling on Coverall's petition was similar to the function performed by a court when considering a motion to dismiss, we shall "assume the truth of all well-pleaded facts in [Appellants'] complaint, as well as inferences which may reasonably be drawn from those well-pleaded facts[,]" when determining whether the court erred when it ordered arbitration and stayed the action. Lee v. Denro, Inc., 91 Md.App. 822, 828, 605 A.2d 1017 (1992). We shall also consider those facts included in Coverall's petition that Appellants admitted in their response.

Coverall is engaged in the business of offering and selling franchises related to commercial janitorial and building cleaning services. In October 1987, Holmes read an advertisement for Coverall franchises in a magazine and wrote for and received material about the company. Holmes had several conversations with Roudi--Coverall's president, chief financial officer, and sole shareholder--and visited two Coverall regional franchises and the Coverall headquarters in San Diego, California.

During the trip to San Diego, Roudi gave Holmes comparison costs and profit projections for several future Coverall franchise sites, including Baltimore. Based on those business forecasts and other data about the franchise that Coverall provided, Holmes decided to purchase a Coverall franchise in the Baltimore area.

On February 22, 1988, Holmes met with Roudi in Coverall's Philadelphia office, signed a Coverall service franchise agreement ("the Agreement") to purchase a Coverall franchise in Maryland, and gave Roudi a check for $10,000 as a deposit for the franchise. The Agreement provided for the payment of a $140,000 franchise fee, together with monthly royalty payments of up to four percent of gross revenues and monthly business development fees of one and one-half percent of gross revenues, beginning in the sixth month of franchise operations. The Agreement also contained the following relevant provisions:

11. Franchisee's Obligations Upon Termination

* * * * * *

B. The termination of this Agreement for any reason shall not be deemed to release the Franchisee from any and all sums due or to become due hereunder or from its obligations regarding noncompetition and such other obligations as set forth herein.

* * * * * *

20. Arbitration

Any claim or controversy arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration, in accordance with the rules then prevailing of the American Arbitration Association. The parties agree that the arbitrator or arbitrators may grant injunctive relief as well as damages to the prevailing party. Judgment upon an award by the aforementioned arbitrator(s) filed in a court of competent jurisdiction shall be binding.

On March 15, 1988, Holmes paid Roudi an additional $48,000 and signed an $82,000 promissory note payable to Coverall. In late March or early April 1988, Holmes met with Roudi in Baltimore and Roudi helped him negotiate a lease for office space in Jessup, Maryland. On April 23, 1988, Holmestar--a corporation established by Holmes--signed the lease. Operations were scheduled to begin on May 23, 1988, but when the space was not ready on time, the opening of the franchise office was delayed until July 1, 1988.

On July 6, 1988, Roudi arrived in Baltimore to train Holmes in the operations of the franchise. On July 12, 1988, Roudi told Holmes:

We have to have some more paperwork signed. Since the Maryland office did not open on time, you have to sign a new agreement because that's what the girl uses to put the information into the computer. We have to change your completion of training and agreement dates. Otherwise, if she enters the information from the old agreement (i.e. the agreement signed on February 22, 1988) into the computer they will start billing you for the loan payments and royalties on October 10, 1988, instead of January 10, 1989.

On July 12, 1988, based on Roudi's representations and at his request, Holmes signed a new agreement to purchase a Coverall franchise in Maryland and gave it to Roudi. At the same time, Roudi told Holmes to give him a "new check" for $58,000, and Roudi, in turn, returned the $58,000 that Holmes had previously paid him in February and March 1988. Holmes subsequently obtained a copy of the second franchise agreement from Roudi and noticed that Roudi had dated the agreement May 12, 1988, not July 12, 1988.

Approximately a year later, Holmes learned for the first time that the Maryland Securities Commissioner did not approve the Coverall offering prospectus for Maryland until May 6, 1988, and thus, Coverall had not been registered to sell franchises in Maryland as required by Art. 56, § 347(a) when it sold a service franchise to Holmes on February 22, 1988. This information had not been disclosed to Holmes when he signed the second franchise agreement. In addition, Holmes contends that Roudi and Coverall should have offered to rescind the Agreement and return the partial franchise fee of $58,000 and all other monies Appellants paid, or to make restitution to Appellants for damages they sustained as a result of the transaction, but they did not do so. On August 3, 1989, Coverall terminated the Agreement as a result of Holmestar's default thereunder. On August 14, 1989, Appellants notified Coverall that, due to Coverall's violations of the Maryland Franchise Act, Holmestar was rescinding the Agreement. Holmestar then assigned and transferred to Coverall all of its contracts, leases, and assets. To date, Coverall has failed to reimburse and compensate Appellants for moneys paid and damages proximately sustained in connection with the Agreement transaction.

Discussion

I

In Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 103-04, 468 A.2d 91 (1983), the Court of Appeals summarized the law of arbitration in Maryland:

Arbitration is the process whereby parties voluntarily agree to substitute a private tribunal for the public tribunal otherwise available to them. Arbitration is a matter of contract which the parties should be allowed to conduct in accordance with their agreement. A party cannot be required to submit any dispute to arbitration that it has not agreed to submit.

The Maryland Uniform Arbitration Act ... embodies a legislative policy favoring enforcement of executory agreements to arbitrate. In accord with this legislative policy, the Act strictly confines the function of the court in suits to compel arbitration to the resolution of a single issue--is there an agreement to arbitrate the subject matter of a particular dispute. Where the language of the arbitration clause is clear, and it is plain that the...