Lasalla v. Doctor's Associates, Inc.

Decision Date13 June 2006
Docket NumberNo. 17483.,17483.
CourtConnecticut Supreme Court
PartiesMichael J. LaSALLA v. DOCTOR'S ASSOCIATES, INC.

Aaron S. Bayer, with whom were Erica L. Amarante and Marianne Sadowski, Hartford, for the appellant (defendant).

Raymond A. Garcia, with whom was Nicole Liguori Micklich, New Haven, for the appellee (plaintiff).

BORDEN, KATZ, PALMER, VERTEFEUILLE and ZARELLA, Js.

BORDEN, J.

The principal issue in this appeal is whether a voluntary arbitration panel is bound to apply the doctrine of claim preclusion to a second arbitration claim involving the interpretation of the same provision of a contract between the same parties. The defendant, Doctor's Associates, Inc., appeals1 from the judgment of the trial court confirming an arbitration award in favor of the plaintiff, Michael J. LaSalla, and denying the defendant's application to vacate the award. The defendant claims that the award: (1) violated public policy; and (2) was issued in manifest disregard of the law. We disagree and, accordingly, we affirm the judgment of the trial court.

The parties entered into a voluntary, unrestricted arbitration proceeding. The arbitration panel ruled in favor of the plaintiff. The plaintiff applied to the trial court to confirm the award, and the defendant applied to vacate the award. The trial court rendered judgment granting the plaintiff's application to confirm and denying the defendant's application to vacate the award. This appeal followed.

Certain of the facts, and the following procedural history, are undisputed. The defendant is a franchiser of Subway sandwich shops that contracts with development agents, who, in turn, develop and support Subway stores in particular areas. On February 1, 1986, the plaintiff and the defendant entered into a development agent agreement pursuant to which the plaintiff became a development agent for northwestern Florida (plaintiff's territory), and the defendant agreed to pay to the plaintiff one third of the royalties and transfer fees that it receives from the Subway stores located in the plaintiff's territory, subject, however, to a reduction based on a modifier. Because, prior to the execution of the agreement, there were already twenty-nine Subway stores in the plaintiff's territory, the modifier was designed to reduce the payments from the defendant to the plaintiff to reflect those previously established stores.2

The agreement has a broad, unrestricted arbitration clause, requiring that "any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the Commercial Rules of the American Arbitration Association. . . ." In 1998, the plaintiff filed a claim for arbitration before the American Arbitration Association (1998 arbitration) regarding several matters in dispute between the parties under the agreement. Among the items in dispute was the interpretation of the modifier as applied to stores that were in existence at the time of the execution of the agreement, but that subsequently were "`permanently closed' . . . ."3 The plaintiff presented the arbitrators in that proceeding with an exhibit indicating that, of the twenty-nine stores in existence on February 1, 1986, six had been permanently closed and nine had been relocated. On the basis of this exhibit, the plaintiff claimed that the denominator of the modifier should be reduced by the six permanently closed stores4 and, therefore, the calculation of the modifier that the defendant had been using should be changed to reflect the larger figure claimed by the plaintiff. In this connection, moreover, although the plaintiff sought money damages with respect to his other claims in the arbitration, as to the modifier issue he sought only a declaration of the modifier's proper interpretation and application, not money damages.

The panel in the 1998 arbitration agreed with the plaintiff, and, in an award dated June 14, 2000, declared: "The denominator of the modifier . . . shall be reduced for each store that was in place when the [agreement] was signed and thereafter permanently closed, so that the modifier will be determined in the manner suggested by [the plaintiff], reflected on [his exhibit, which chose a measurement date of January 30, 1999], that produces a modifier of 0.8642857, rather than in the manner suggested by [the defendant], that produces a modifier of 0.8214286." The plaintiff then applied to the Superior Court to vacate the panel's award, based upon two other issues in the arbitration upon which he had not prevailed. The defendant correspondingly applied to the court to confirm the award in its entirety. In June, 2002, the trial court, Alander, J., denied the plaintiff's application to vacate and granted the defendant's application to confirm the award. The plaintiff did not appeal further.

In November, 2002, the plaintiff filed the arbitration claim that is involved in the present case before the American Dispute Resolution Center.5 In his prayer for relief, the plaintiff sought "the enforcement of" the agreement and of the award in the 1998 arbitration. He stated that the award in the 1998 arbitration "provided relief to [him] in the form of a declaration of certain rights that arise under the [agreement]. Based on that declaration, [the plaintiff] now seeks an award of money damages, legal fees, interest and cost of this arbitration." He quoted the award in the 1998 arbitration regarding the modifier. He claimed that, since February 1, 1986, when the agreement was executed, until the award in the 1998 arbitration, the defendant had underpaid the plaintiff in breach of the agreement. He stated that, "[b]ased on the [award in the 1998 arbitration], it is now clear that the [m]odifier clause should have been interpreted to be flexible and subject to adjustment, taking into consideration the criteria set forth in the [agreement]," and that as a result of the defendant's "misapplication of the [m]odifier, [the plaintiff] has been underpaid for [fourteen] years." He stated, further, that, even after the 1998 arbitration, the defendant "has refused to make good on the unpaid balance in conformity with the [a]ward [in the 1998 arbitration]," and that the defendant had taken the position that "the panel's interpretation of the [m]odifier only applies prospectively, from the date of the [a]ward forward." Finally, the plaintiff sought "an appropriate award of money damages," and "a declaration that the determination of the net number of units added to the [t]erritory is governed by the contractual definition of the term `unit' so that in the future, the parties will be able to conduct business without further disputes on the application of this clause. For this purpose, a `unit' should be taken out of the [m]odifier calculation when it closes at one location and ceases operations at that location, as described in the [agreement]."

The defendant moved the arbitration panel to dismiss the arbitration demand on the grounds of, among other things,6 res judicata, or claim preclusion. The defendant presented a brief to the panel, fully explaining the factual background of the dispute between the parties, the ruling in the 1998 arbitration, the ruling of the court confirming that award, and the legal bases for its motion. In response, the plaintiff filed an objection to the motion, presenting his factual and legal arguments in favor of continuing the arbitration. The panel denied the motion to dismiss.

Ultimately, the panel issued two interim awards and a final award. The substance of the awards was as follows: (1) the award in the 1998 arbitration was retroactive to the execution of the agreement, but damages would be recoverable by the plaintiff "only from June 15, 1992";7 (2) for purposes of determining the numerator and denominator of the modifier, only units paying a royalty were to be considered a "`unit'"; (3) for purposes of calculating the denominator of the modifier, a "`permanently closed'" unit was to be determined on a case-by-case basis, considering a number of factors;8 (4) nine relocated stores affected the modifier, resulting in a modifier as of January 30, 1999, of 0.90714;9 and (5) the plaintiff was entitled to damages in the amount of $1,096,011 and interest to the date of the award in the amount of $608,434.

The defendant applied to vacate, and the plaintiff applied to confirm the award. The trial court, Stevens, J., rejected the defendant's claims that the award violated the public policy of claim preclusion, and that the award's treatment of the doctrine of claim preclusion and its award of interest were in manifest disregard for the law. Accordingly, because it was an unrestricted submission and the award was within the submission, the court confirmed the award.

I

The defendant does not take issue with the propositions that a voluntary arbitration award issued pursuant to an unrestricted submission must be confirmed so long as the award is within the submission, and that, in the absence of an applicable exception to this rule in the present case, this award meets that standard. The defendant relies on the public policy exception to that rule, namely, that such an award nonetheless must be vacated if it "would violate some explicit public policy that is well defined and dominant. . . ." (Internal quotation marks omitted.) MedValUSA Health Programs, Inc. v. MemberWorks, Inc., 273 Conn. 634, 655, 872 A.2d 423, cert. denied sub nom. Vertrue, Inc. v. MedValUSA Health Programs, Inc., ___ U.S. ___, 126 S.Ct. 479, 163 L.Ed.2d 363 (2005). Specifically, the defendant claims that the award violates the explicit, well-defined and dominant policy of claim preclusion, and the corresponding explicit, well-defined and dominant policy of the finality and binding nature of arbitration proceedings. Thus, the...

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