Opinion
No. 3:01-CV-2605-X
January 19, 2002
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant's Motion to Compel Arbitration, filed December 7, 2001; Plaintiff's Response to Defendant's Motion to Compel Arbitration, filed December 27, 2001; and, Defendant's Reply, filed January 11, 2002. Having considered the evidence, the pleadings, and the applicable law, the court concludes that Defendant's Motion to Compel Arbitration should be GRANTED, and that these proceedings should be STAYED pending final, binding arbitration in Silver Spring, Maryland.
BACKGROUND
Plaintiff Sharju Limited Partnership ("Sharju") filed suit against Defendant Choice Hotels International, Inc. ("Choice"), alleging that Choice tortiously interfered with Sharju' s contract with a third party, Pandora Properties, Inc. ("Pandora"). Specifically, Sharju claims that Choice intentionally misrepresented Sharju's ability to covey certain hotel property to Pandora, thus prompting Pandora to abandon the sale.
Sharju owns and operates a Sleep Inn hotel in Addison, Texas (the "hotel") as Choice's franchisee. The Sleep Inn Franchise Agreement ("Franchise Agreement") governs the relationship between Sharju and Choice with regard to the operation of the hotel. Section 10 of the Franchise Agreement grants Choice a right of first refusal should Sharju elect to sell any hotel covered by the agreement.
Section 10 provides for a fairly specific manner in which Sharju must notify Choice of its intention to sell the hotel. The agreement states, for example, that the
Franchisee shall forthwith notify Franchisor of the terms and conditions of any acceptable, bona fide offer to acquire all or part of Franchisee's interest in the Hotel made to him by a third party (along with a copy of any existing or proposed sales contract). Such writing shall set forth the complete terms of the offer, and Franchisee shall furnish Franchisor with any financial or operating data reasonably required to evaluate such offer.
Defendant's Motion to Compel Arbitration, Exhibit A at 6 [hereinafter "Ex. A at ___ "]. Similarly, should Choice exercise its right of first refusal, it must:
give notice of its decision to do so in writing to Franchisee within ten (10) days after receipt of notification of the offer from Franchisee. Any modified, changed or subsequent offer shall also be submitted to Franchisor in the same manner.
Id. Finally, the Franchise Agreement voids any transfer or attempted transfer that is not in compliance with the above provisions, and deems such non-compliance a material and incurable breach of the entire Agreement. Id.
On July 14, 2000, Sharju and Pandora entered into an Agreement of Purchase and Sale (the "Sale Agreement") wherein Pandora agreed to purchase the hotel from Sharju. The parties dispute whether Sharju complied with Section 10 of the Franchise Agreement. Specifically, Sharju claims it notified Choice of its intent to sell the property in accordance with the Franchise Agreement, and that Choice declined to exercise its right of first refusal within the specified time period. Sharju further alleges that Choice wrongfully interfered with the Sale Agreement by making alleged misrepresentations to the buyer. Choice disputes whether Sharju complied with Section 10, whether Sharju could rightfully convey its interest in the hotel, and whether it did, in fact, make any such misrepresentations to Pandora.
The Franchise Agreement between Choice and Sharju contains an arbitration clause. Section 24 provides that:
[A]ny controversy or claim arising out of or relating to this Agreement . . . shall be submitted to final and binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The substantive law of the State of Maryland shall be applied by the arbitrators. . . . Parties to this Agreement agree that any arbitration shall be conducted at the Franchisor's home office in Silver Spring, Maryland.
Ex. A at 14. Choice moves to compel arbitration of plaintiff's tortious interference claim based on this arbitration clause. Sharju argues that the claim does not "arise out of or relate to" to Franchise Agreement, and thus falls outside the scope of the arbitration clause. For the reasons stated below, the court finds in favor of the defendant.
ANALYSIS
At the outset, the court recognizes the strong federal policy in favoring arbitration under the Federal Arbitration Act ("FAA"). 9 U.S.C. § 2 (West Supp. 2001). Accordingly, courts must resolve any "doubts concerning the scope of arbitrable issues . . . in favor of arbitration." Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The Fifth Circuit further instructs that "arbitration should not be denied `unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.'" Neal v. Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990) ( quoting Commerce Park at DFW Freeport v. Mardian Const. Co., 729 F.2d 334, 338 (5th Cir. 1984)). Moreover, the strong presumption in favor of arbitrability "applies even with greater force," P P Indus., Inc. v. Sutter Corp., 179 F.3d 861, 871 (10th Cir. 1999) (internal citations omitted), when the parties choose a "broad" arbitration clause, Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 398, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Section 24 of the Franchise Agreement broadly mandates arbitration of "any controversy or claim arising out of or relating to this Agreement." Ex. A at 14 (emphasis added). Such "broad" arbitration clauses "are not limited to claims that literally arise under the contract, but rather embrace all disputes having a significant relationship to the contract regardless of the label attached to the dispute." Pennzoil Exploration and Prod Co. v. Ramco Energy Ltd, 139 F.3 d 1061, 1067 (5th Cir. 1998) (deeming "broad" a clause requiring arbitration of any dispute "arising out of or in relation to" the agreement at issue).
With this background in mind, the court must determine whether Sharju's tortious interference claim "touches matters covered by the agreement." Pennzoil, 139 F.3d at 1068. In Ford v. Nylcare Health Plans of the Gulf Coast Inc., the Fifth Circuit restated this standard in a case involving a similar arbitration clause. Under Ford, a "tort claim is `related to' the agreement only if reference to the agreement is required to maintain the action. This is true notwithstanding the fact that the tort claim may implicate the agreement as a factual matter." 141 F.3d 243, 250 n. 7 (5th Cir. 1998) (internal citations omitted). Thus, the district court must examine the facts that underlie plaintiff's cause of action, and determine "whether the action could be maintained without reference to the contract." Id. If the factual allegations "touch matters" covered by the agreement, the claims must be arbitrated "whatever the legal labels attached to them." P P Indus., 179 F.3d at 871 (citations omitted).
In Ford, the Fifth Circuit applied the test required under the Texas General Arbitration Act, Tex. Civ. Prac. Rem. Code Ann. § 171.001-171.098 (Vernon 1997 Pamp. Supp. 2001), but determined that "there is no perceptible difference between the federal and Texas standards in this respect." 141 F.3d at 250 n. 7.
In this case, the success or failure of Sharju's tortious interference claim depends, as a legal matter, on whether the parties complied with the terms of the Franchise Agreement. As noted above, the Franchise Agreement governs the manner in which Sharju must notify Choice of its intention to sell the franchise. The allegations of tortious conduct (i.e. whether Choice wrongfully informed Pandora of Sharju's rights to convey the hotel) is rooted in certain express terms of the Franchise Agreement. The performance or non-performance of these specific contractual duties created by the Franchise Agreement forms a condition precedent to the maintenance of plaintiff's tort claim. The manner in which these contractual provisions are applied and interpreted will most likely determine the outcome of plaintiff's claim. See e.g., Telecom Italia v. Wholesale Telecom Corp., 248 F.3d 1109, 1116 (11th Cir. 2001) (holding arbitration required when "the dispute occurs as a fairly direct result of the performance of contractual duties."). If, for example, Choice proves that Sharju acted in contravention of the agreement, and Choice accurately stated Sharju's rights to convey the property to Pandora, then Choice could not have tortiously interfered with the Sales Agreement. Sharju's allegations are so interwoven with the provisions of the Franchise Agreement that its tortious interference claim cannot be maintained without reference to the contract. Accordingly, the court holds that Sharju's tortious interference claim falls within the scope of the arbitration clause.
CONCLUSION
For the foregoing reasons, Defendant's Motion to Compel Arbitration is GRANTED.
IT IS FURTHER ORDERED that;
1. Plaintiff's claims are hereby referred to final and binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association;
2. Any arbitration of Plaintiff's claims against Defendant shall be conducted in Silver Spring, Maryland, and the law of the State of Maryland shall apply; and,
3. These proceedings are stayed.