The Franchise Memorandum

In Doctor’s Associates, Inc. v. Windham, 2013 U.S. Dist. LEXIS 546 (Conn. App. Nov. 26, 2013), the Connecticut Court of Appeals found that alleged violations of the Connecticut Rules of Professional Conduct by the franchisor’s lawyers, even if they actually occurred, did not constitute sufficient grounds to overturn an arbitration award. Doctor’s Associates had initiated arbitration in this case, seeking to terminate a Subway franchise agreement based on Windham’s failure to complete required store upgrades. Windham failed to make an appearance in the arbitration, despite receiving adequate notices regarding the proceeding. The hearing went ahead without Windham and an award was rendered in Doctor’s Associates’ favor. Windham then filed suit to overturn the award on the grounds that Doctor Associates’ attorney allegedly violated ethical rules by failing to inform the arbitration panel that the parties were negotiating to resolve the dispute and, moreover, that an award in Windham’s favor had been entered in a similar but unconnected matter. After the trial court affirmed the arbitration award and dismissed Windham’s application to vacate it, he filed an appeal.

The appeals court found that the franchisor’s attorney did not violate ethical rules by not notifying the arbitration panel of the results of the unrelated arbitration or by not telling it about the previous settlement negotiations between the parties. The court also commented that it was not the lawyer’s responsibility to present facts or arguments favorable to Windham during the uncontested arbitration hearing. The court also held that even if the allegations of improper behavior had been true, they could not themselves form the basis of a challenge to the award. “The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability.” Finally, the court noted that in order to overturn an arbitration award, the franchisee would have needed to show that the award was rendered by corruption, fraud, or undue means. Since there was no evidence to support any such conclusion, the appeals court affirmed the confirmation of the award and rejection of Windham’s application to vacate.