Doctor’s Associates’ Inc., the franchisor of Subway™ restaurants brought an action in the US District Court for the District of Connecticut to compel arbitration in response to a suit by one of its franchisees for breach of a Stipulated Arbitration Award. DAI alleged that the mandatory arbitration clause contained in its standard franchise agreements mandates arbitration of all disputes between it and the franchisee, including a dispute over the interpretation of the stipulated arbitration award. The District Court disagreed.
Mr. Nijjar was the franchisee of two Subway™ franchises in Virginia. As part of a divorce, Mr. Nijjar transferred his two Subway™ restaurants to Ms. Nijjar. After the transfer, DAI commenced an arbitration to terminate the franchises based upon alleged problems with the manner in which Ms. Nijjar operated the restaurants. To settle the dispute Ms. Nijjar and DAI entered into a stipulated Arbitration Award, that was approved by the arbitrator.
The Stipulated Arbitration Award provided, among other things, that Ms. Nijjar was to transfer the restaurants within 150 days and that if the transfer was not completed within 150 days, the franchises would terminate.
Within the 150 days, the Virginia state court with jurisdiction over their divorce, ordered Ms. Nijjar to transfer the franchises back to Mr. Nijjar. Ms. Nijjar attempted to complete the transfer of the franchises back to Mr. Nijjar to satisfy the state court order and the Stipulated Arbitration Award. DAI refused to approve the transfer to from Ms. Nijjar to Mr. Nijjar, and sought to terminate the franchises based upon Ms. Nijjar’s failure to transfer the franchises.
Ms. Nijjar filed suit against DAI in the Virginia state court alleging bad faith and breach of the Stipulated Arbitration Award by DAI. DAI removed that case to the federal court and Ms. Nijjar amended her complaint to ask the court to enter an order confirming the Stipulated Arbitration Award. The US District Court for the Eastern District of Virginia entered an order confirming the Stipulated Arbitration award, without objection.
Ms. Nijjar then filed a motion to “enforce” the Order Confirming the Stipulated Arbitration Award by requiring “DAI to acknowledge and accept the transfer of two of its franchise stores to Rambir Nijjar.” In response to that motion, DAI commenced an action in the United States District Court for the District of Connecticut alleging that the dispute as to the interpretation of the Stipulated Arbitration Award is subject to the mandatory arbitration clause contained in its standard franchise agreements. Ms. Nijjar claimed that she was seeking to enforce the Stipulated Arbitrator Award and not the underlying franchise agreements and therefore that the mandatory arbitration clauses contained in the underlying franchise agreements did not apply.
The U.S. District Court for the District of Connecticut agreed with the franchisee, holding that because the Virginia lawsuit seeks only to enforce the Stipulated Arbitration Award, the arbitration clauses in the franchise agreements do not apply.