Opinion
No. CV 07-5009321
September 6, 2007
MEMORANDUM OF DECISION
The defendant D.E.I. Franchise Systems, Inc. (hereinafter "DEI") moves, pursuant to Conn. Gen. Stat. § 52-409, to stay this action pending arbitration and for an order of this court to compel arbitration of the dispute.
The facts are as follows:
The defendant DEI, a New York corporation, is engaged in the business of selling franchises providing sales training programs and materials targeted primarily toward small and medium sized businesses. On November 22, 2004, DEI and plaintiff, Peter Gallasso entered into a franchise agreement granting Gallasso the exclusive right to provide sales training services to customers as a DEI franchisee for the territory of Hartford and Tolland counties.
Plaintiff Gallasso brings this action in two counts: the first, pursuant to Conn. Gen. Stat. § 36b-74, to void the contract on the grounds that defendant DEI used untrue or misleading statements and violated other provisions of the Connecticut Business Opportunity Investment Act, Section 36b-60, et seq., and the second count for a violation of the Connecticut Unfair Trade Practices Act.
The franchise agreement contains the following arbitration clause:
This agreement is a written agreement evidencing a transaction involving commerce and is, therefore, subject to the terms and provisions of the Federal Arbitration Act, Title 9 of the United States Code. Except for a controversy or claim relating to the ownership of any of the Franchisor's Marks or unauthorized use or disclosure of Franchisor's Confidential Information, all disputes arising out of or relating to this agreement, or to any other agreements between the parties or with regard to interpretation, formation or breach of this or any other agreement between the parties shall be settled by binding arbitration conducted in New York, New York, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect . . .
Franchisee expressly acknowledges that franchisee has read the terms of this binding arbitration provision and specifically affirms that this provision is entered into willingly and voluntary and without any fraud, duress or undue influence on the part of the Franchisor or any of Franchisor's agents or employees.
The franchise agreement further contains a further provision that "all agreements and covenants contained herein are severable."
Section 52-409 provides:
If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration.
In this case, the defendant has indicated its willingness to submit to and proceed with the arbitration.
The plaintiff makes three arguments to avoid the impact of § 52-409. First he argues that his complaint alleges the franchise agreement is void by reason of violation of the Business Opportunity Investment Act and by reason of false representation and that issue must be decided by the court. The law is clear that the fact the contract may be voidable by reason of violation of a statute does not preclude enforcement of the arbitration clause in this case. In Nausbaum v. Kimberly Timbers, Ltd., 271 Conn. 665 (2004) the Supreme Court held that violation of the notice provisions of the New Home Construction Act (Section 20-417a, et seq.) did not prevent the court compelling arbitration.
As to the allegation of false representation in the complaint, it relates to inducement to enter into the franchise agreement, but does not implicate specifically the arbitration clause. In Two Sisters, Inc. v. Gosch Co., 171 Conn. 493 (1976) the plaintiff there claimed the contract was obtained by fraud and as a result, the question of the contract's validity should be decided by the court before arbitration could proceed. The court disagreed. The court noted that the plaintiff did not claim that they were fraudulently induced to agree to arbitrate the disputes under the contract. It said "Since the plaintiffs failed to allege fraud which materially affected their decision to resolve any disputes under this contract through arbitration, there is no error in the court's conclusion that the plaintiffs' claim of fraudulent inducement was for the arbitrator."
In Two Sisters, Inc., the arbitration clause provided for the arbitration of all disputes arising out the provisions of the contract, "the breach of the contract, the making or validity of the contract or the circumstances of the execution of the contract." In the instant case the arbitration clause, likewise, is similarly broad. It provides for the arbitration of "all disputes arising out of or relating to this Agreement, or any other agreement between the parties, or with regard to the interpretation, formation or breach of this or any other agreement between the parties." As a consequence, the court holds that the plaintiff's claims should be submitted to arbitration under the specific terms of the arbitration clause in this case.
Plaintiff's second argument is that the Connecticut Business Opportunity Investment Act at § 36b-74 provides plaintiff with an independent right to bring an action to recover damages and that that act supercedes the arbitration clause. This argument has no merit. An arbitrator may not be empowered to decide a constitutional issue ( Stratford v. International Association of Firefighters, AFL-CIO, Local 998, 248 Conn. 107, 116 (1999)), but he can decide issues arising out of claimed violations of any statutes, including the Business Opportunity Investment Act, as long as the contract between the parties provide for arbitration. Moreover, the two exceptions in the arbitration clause, relating to ownership of the franchisor's trademarks or unauthorized use of the franchisor's confidential information, are not related to the dispute between the parties in this case.
The third argument of the plaintiff is that the franchise agreement grants the plaintiff an independent right to bring an action to recover damages under Connecticut law. Plaintiff is referring to the provision in the contract requiring that it be interpreted and construed in accordance with the laws of the state of New York, "excluding any law regulating the sale of franchises." In Connecticut there is a law relating to the sale of franchises, namely the Connecticut Business Opportunity Act. However, this provision simply provides for New York state law to be applied in this case and does not create an independent cause of action under Connecticut law. It is a choice of law provision and has no other significance.
Based on the foregoing, the court concludes that defendant's motion to stay plaintiff's action pursuant to Section 52-409 and to compel arbitration pursuant to Section 52-410, is granted.