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Bapu Corp. v. Choice Hotels International

September 8, 2008

BAPU CORP., HARSHAD S. PATEL, PLAINTIFFS,
v.
CHOICE HOTELS INTERNATIONAL, INC., DEFENDANT.



The opinion of the court was delivered by: William J. Martini, U.S.D.J.

OPINION

HON. WILLIAM J. MARTINI

Defendant files a motion to reconsider this Court's order granting Plaintiffs' motion to vacate an arbitration award, denying Defendant's motion to confirm the award, and denying Defendant's motion to dismiss Plaintiffs' complaint. The Court's reasoning behind this order was that Defendant failed to initiate the arbitration within the applicable statute of limitations. Defendant now argues the Court overlooked that this statute of limitations evaluation was a question for the arbitrator, not the Court. The Court agrees. The Court further finds that the arbitration award is valid, despite Plaintiffs' arguments to the contrary, which the Court finds unpersuasive. Accordingly, Defendant's motion to reconsider, motion to confirm the arbitration award, and motion to dismiss Plaintiffs' complaint are GRANTED, and Plaintiffs' motion to vacate the arbitration award is DENIED.

I. FACTS AND PROCEDURE

This suit concerns the validity of an arbitration award in a contract dispute. Plaintiffs in this case breached a contract with Defendant. Defendant initiated arbitration pursuant to the contract and secured an award. The parties now dispute the arbitration's validity.

A. The Contract

In 2000, the two Plaintiffs, Bapu Corporation and Bapu President Harshad Patel, entered into a franchise contract with Defendant, Choice Hotels International, Inc. (First Am. Compl. ¶¶ 1, 6, 7; Aff. of Harshad Patel ¶ 1; Decl. of John Mueller Ex. B.) The contract provided Plaintiffs the right to operate a building that Plaintiffs were then leasing as a Quality Inn hotel. (Patel Aff. ¶ 4; Mueller Decl. Ex. B.) Under the contract, Plaintiffs had to renovate the building before they could operate it as a Quality Inn. (Mueller Decl. Ex. B Addendum No. 1.) The contract required Plaintiffs to complete this renovation by November 30, 2000.*fn1

The contract also contained two relevant provisions regulating disputes between the parties. First, the contract contained an arbitration clause requiring arbitration of "any controversy or claim arising out of or relating to this Agreement." (Mueller Decl. Ex. B ¶ 22.) Second, the contract stated that "[n]either party may file a claim . . . arising out of or relating to this Agreement after 3 years from the date that the claim arose, unless applicable law states a shorter statute of limitations." (Mueller Decl. Ex. B ¶ 20(k).)

B. The Breach

As of the deadline for renovations on November 30, 2000, Plaintiffs had not completed the required renovations. (Mueller Decl. Ex. C.) Defendant then sought to unilaterally extend the deadline. On May 8, 2001, Defendant sent Plaintiffs a letter purporting to extend the time for Plaintiffs to begin the renovations until September 28, 2001. (Mueller Decl. Ex. C.) Plaintiffs deny having ever received this letter and sent no response. (Patel Aff. ¶ 20(d)(iii).) Having not received a response, Defendant on October 16, 2001, sent Plaintiffs another letter offering to extend the renovation deadline for another three months, until January 16, 2002, if Plaintiffs agreed to pay a $5,000 extension fee. (Mueller Decl. Ex. C.) Plaintiffs declined this offer. (Pls.' Mem. of Law in Opp'n to Def.'s Mot. to Dismiss 4.)

Defendant accordingly began the process of terminating the contract. Between 2002 and 2004, Defendant sent Plaintiffs letters on three separate occasions titled "Notice of Default." (Mueller Decl. Exs. D, E, F.) These letters demanded that Plaintiffs complete their promised renovations and threatened termination of the contract if Plaintiffs did not. (Mueller Decl. Exs. D, E, F.) Plaintiffs did not complete the promised renovations. Finally on September 15, 2004, Defendant sent Plaintiffs a letter titled "Notice of Termination." (Mueller Decl. Ex. G.) In the letter, Defendants purported to terminate the contract and claimed to be entitled to damages. (Mueller Decl. Ex. G.)

C. The Arbitration

On October 19, 2006, Defendant served Plaintiffs with a demand for arbitration. (Mueller Decl. Ex. H.) The demand for arbitration sought "recovery of damages . . . sustained due to a breach by Respondents of a franchise agreement that required Respondents to complete changes and additions to upgrade the hotel." (Mueller Decl. Ex. H.)

Plaintiffs objected to the arbitration on several grounds, including on the grounds that the arbitration was barred by the applicable statute of limitations. On April 23, 2007, Plaintiffs filed a letter with the arbitrator stating that they would suffer prejudice by participating in the arbitration. (Mueller Decl. Ex. Q.) Plaintiffs argued, inter alia, "Choice could succeed in committing a deception upon the AAA, having used these proceedings to avoid dismissal as to personal jurisdiction and the limitations period." (Mueller Decl. Ex. Q.) On June 10, 2007, Plaintiffs filed another letter with the arbitrator stating that "the alleged contract automatically terminated within six months of signing so that there is a statute of limitations bar to this matter." (Mueller Decl. Ex. S.)

In a prehearing opinion, the arbitrator acknowledged Plaintiffs' statute of limitations argument but refused to address it before the hearing. The arbitrator stated as follows:

This dispute is heavily fact based on one that cannot be disposed of by way of a preliminary motion at this time. The issues of statute of limitations and laches are pertinent issues, but they will have to wait for another day. I cannot ...


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