Opinion
21-P-1039
07-15-2022
FRANCINE WEINER-GOVOSTES v. MARK LEAHY, personal representative,[1] & others.[2]
Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass.App.Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).
The panelists are listed in order of seniority.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
In dispute is the ownership of ten Dunkin' Donuts franchises. That dispute was the subject of ongoing arbitration proceedings initiated by plaintiff Francine Weiner-Govostes. By order docketed on September 15, 2021 (stay order), a Superior Court judge issued an emergency stay of the arbitration and allowed this litigation to proceed in its place. Weiner-Govostes appealed the stay order as of right pursuant to G. L.c. 251, § 18 (a) (2). Because we agree with Weiner-Govostes that the judge lacked valid grounds to stay the arbitration, we vacate the stay order and remand this matter for entry of a revised order consistent with this memorandum and order.
Background.
After a nineteen-year marriage, Weiner-Govostes and Paul Govostes (decedent) divorced in 2012. Nevertheless, the two former spouses entered into an unusual arrangement with regard to the family business, ownership and operation of the ten Dunkin' Donut franchises. That arrangement was set forth in a "joint tenancy and operating agreement" (2012 agreement), under which the former spouses agreed to jointly own and operate the franchises going forward. Each held a right of survivorship, meaning that the surviving former spouse automatically would obtain full ownership of the franchises upon the death of the other.
We pass over the minor complication that a small portion of one franchise was owned by a third party.
The 2012 agreement included a termination provision that applied if the former spouses' belief that they would be able to run the businesses together proved unduly optimistic. Specifically, it recognized that "if either of the Owners reasonably determines over time that he or she believes it is impossible to continue to manage the [franchises] together, either Owner may request in writing to the other, that they shall meet . . . to try to negotiate an amicable disposition of the [franchises] based upon a 50/50 division of their respective equity interests in the [franchises]." If such a meeting did not result in a negotiated resolution, then the party who did not trigger the termination process had the right to buy out the party that did. With an exception not here applicable, "any unresolved controversy, claim, or dispute arising out of or related to this Agreement or the breach of any provision hereof shall be settled by binding arbitration."
In such a buy-out, the price would be determined in accordance with various standards and procedures set forth in the 2012 agreement.
It appears uncontested that after their divorce, Weiner-Govostes and the decedent operated the franchises together for several years, although the parties dispute how amicable that relationship was. In or about December of 2019, the decedent was diagnosed with terminal lung cancer. The decedent thereafter moved to live with his sister, Debra Foundas, and in March of 2020, he executed a will that apparently named her his sole heir. On August 5, 2020, the decedent succumbed to his illness. On July 20, 2020, that is, just over two weeks before his death, the decedent allegedly signed a letter indicating his intent to terminate the arrangement set forth in the 2012 agreement. An electronic version of that letter (July 2020 letter) was sent to Weiner-Govostes on July 24, 2020, as an attachment to an e-mail from attorney Michael Morizio. Although a copy of the July 2020 letter is not before us, it appears undisputed that the letter stated that the decedent had found it impossible to continue to work with his former wife. As noted, the 2012 agreement contemplated that the next step in any termination process would have been a meeting to attempt a negotiated partition of the parties' interest in the franchises. It appears uncontested that such a meeting did not take place before the decedent's death, although the parties appear to dispute the reason for this. The principal underlying controversy is whether prior to the decedent's death, the July 2020 letter served to terminate the survivorship rights held by Weiner-Govostes. If so, then the decedent's interest in the franchises passed to his estate, and would eventually devolve to his heir(s). If not, then Weiner-Govostes automatically took ownership of the decedent's interests upon his death.
In February of 2021, Weiner-Govostes initiated the arbitration process against the personal representative of the decedent's estate (estate) to determine the validity and effectiveness of the July 2020 letter. At the heart of her claim was the argument that the letter did not properly invoke the termination provision because the decedent could not have "reasonably determine[d]" that the parties no longer could get along. Instead, she maintained that the July 2020 letter amounted, at best, to an improper deathbed effort by the decedent to repudiate the survivorship provision to which he had agreed. Weiner-Govostes also raised numerous additional grounds in her demand for arbitration. For example, she alleged that the decedent lacked the requisite mental capacity when he purportedly had signed the letter, and she questioned even whether the signature in the letter was his. Some of the additional grounds that Weiner-Govostes raised implicated the actions of Foundas and Morizio. For example, Weiner-Govostes alleged that when the "gravely ill" decedent was living with Foundas, he was subjected to "undue influence."
It appears uncontested that the estate brought various counterclaims against Weiner-Govostes in the arbitration proceedings, although the document asserting those counterclaims is not part of the record before us. We note, however, that the counterclaims that the estate eventually filed in court are before us, and they detail various claims for declaratory relief and damages that the estate is seeking. For example, the estate alleges that it is owed reimbursement for loans that the decedent had made to individual franchises that were outstanding at the time of his death.
The arbitration proceeded apace, and following discovery and prehearing briefing, a merits hearing before a panel of arbitrators was scheduled to commence on September 13, 2021, later postponed to September 15, 2021. Meanwhile, however, with the one-year anniversary of the decedent's death approaching, Weiner-Govostes on July 19, 2021, filed a Superior Court complaint against the estate. Joined as defendants were Foundas and Morizio. A mere ten days later, Weiner-Govostes moved to stay the litigation. She explained that she had filed the litigation merely as a placeholder for statute of limitations purposes and that she intended to continue to proceed with the arbitration.
The estate and Foundas opposed the motion to stay the litigation and filed their own motions asserting that it was the arbitration that should be stayed. After a lengthy hearing, the judge issued the stay order, which, as noted, stayed the arbitration and allowed the litigation to go forward in its place. The judge reasoned that although Foundas and Morizio were not parties to the arbitration proceedings, those proceedings might have preclusive impacts on them, and that, as a result, allowing the arbitration to go forward would be unfair and potentially might interfere with their rights to a jury trial. Weiner-Govostes then moved for reconsideration of the stay order. As part of that motion, she stated that if the arbitration were allowed to proceed, she "will immediately amend her [d]emand [for arbitration] to drop all allegations of improper conduct by either Foundas and/or Morizio." The judge summarily denied the motion for reconsideration, and this appeal followed.
The franchises apparently have since been sold to third parties, with the proceeds placed in escrow. Nothing in the current appeal turns on this development.
Discussion.
We begin by noting that the appellees have never claimed that Weiner-Govostes's demand for arbitration falls outside the scope of the arbitration provision set forth in the 2012 agreement. In any event, the language of that provision is indisputably broad, subjecting to arbitration any dispute "arising out of or relating to" the 2012 agreement. See Drywall Sys., Inc. v. ZVI Constr. Co., 435 Mass. 664, 666-667 (2002) (construing such language as "plac[ing] no limits on arbitrable claims"). Thus, the principal question before us is whether the grounds on which the judge relied justified his staying an otherwise valid arbitration proceeding.
1. The rights of third parties.
As noted, the judge's driving concern was the potential impact that the arbitration proceedings might have on the legal rights of Foundas and Morizio, who were not parties to the arbitration. Obviously, the outcome of the arbitration proceedings could directly affect whether Foundas eventually received her brother's interest in the franchises. However, as Weiner-Govostes highlights, Foundas's legal rights are limited to whatever assets are properly part of the estate. Weiner-Govostes in effect argues that at least so long as the arbitration were to turn on issues unrelated to any claims that she may have against Foundas,Foundas has no independent legally cognizable interest in whether the issues related to the 2012 agreement are resolved in arbitration or litigation. The appellees counter that Foundas (and Morizio) could find themselves bound by the arbitration even though they are not parties to it, and that -- depending on how the arbitrators ruled -- this could deprive them of jury trial rights. As the estate and Foundas have put it, the allegations that Weiner-Govostes made in the arbitration "clearly implicate the doctrines of res judicata and collateral estoppel and threaten Foundas' constitutional and sacred right to a jury trial."
When pressed at oral argument, Weiner-Govostes declined to reaffirm her earlier statement that she necessarily would delete her allegations of undue influence and fraud from the arbitration. For purposes of this appeal, we assume that she has not made a binding commitment to drop such allegations.
Arbitration can have a preclusive effect on third parties under limited circumstances. See Bourque v. Cape Southport Assocs., LLC, 60 Mass.App.Ct. 271, 274 (2004) ("one who is not a party to the arbitration may use the arbitration award to bind his adversary in a later proceeding if . . . that adversary or his privy was a party to the arbitration and had a full and fair opportunity to litigate the issue" [citation omitted]). See also Walker v. Kollyer, 85 Mass.App.Ct. 311, 323 (2014) (discussing circumstances in which nonsignatory to arbitration agreement can be forced into arbitration). In this appeal, the parties have adopted counterintuitive and confusing positions on the extent to which Foundas and Morizio would be bound by the arbitration.
In the end, we need not engage in speculation about how the arbitrators might rule and what the potential preclusive effect of that ruling might be with respect to Foundas and Morizio. That is because the narrow question before us is whether the judge's concern about potential impacts of the arbitration on third party rights presented a valid ground to stay the arbitration. It plainly did not. The appellees have not cited any case that supports their position that an otherwise proper arbitration proceeding may be stayed because it might eventually present unfair preclusive effects on third parties. Based on long-settled law, this is unsurprising. See Danvers v. Wexler Constr. Co., 12 Mass.App.Ct. 160, 163-166 (1981) (concerns about judicial economy and potential unfairness to other parties arising from having same controversy addressed in both arbitration and litigation were not valid grounds for ignoring clear terms of broad arbitration agreement). To the extent that Foundas and Morizio claim that they might be entitled to a jury trial on some potential aspects of this controversy, we see no reason to resolve the legitimacy of such arguments in advance of knowing in whose favor the arbitrators will rule and on what grounds. Once the arbitration has been resolved, it should become clear what, if anything, remains to be resolved in the litigation.
In order to reduce potential overlap between the arbitration and the litigation with regard to Foundas and Morizio, the arbitrators, who have considerable discretion in managing the case, may find it useful to consider first whether Weiner-Govostes should prevail for reasons independent of any conduct by Foundas and Morizio. See Danvers, 12 Mass.App.Ct. at 168 n.9 (making similar suggestion).
2. Waiver.
The estate argued in Superior Court that the arbitration should be stayed on the additional ground that Weiner-Govostes waived her right to arbitration by filing this litigation. On appeal, the estate and Foundas claim that the judge in fact accepted this alternative argument. That claim is belied by the judge's memorandum of decision, which mentions the waiver issue but does not actually resolve it. Nevertheless, because we could affirm the stay order on any ground fairly raised by the record, we proceed to address the question of waiver.
As Weiner-Govostes now acknowledges, whether she waived her rights to arbitration through her conduct in the litigation is a judicial question, not one for the arbitrators. See Kettle Black of MA, LLC v. Commonwealth Pain Mgt. Connection, LLC, 101 Mass.App.Ct. 109, 115 (2022) (waiver of arbitrability by litigation is presumptively for courts to decide).
Weiner-Govostes initiated the arbitration proceedings and quite actively litigated this dispute in that forum until the arbitration was stayed over her objection on the very day that the merits hearing before the arbitrators was scheduled to commence. While it is true that she herself initiated this judicial action, she almost immediately thereafter sought to stay the litigation while noting that she had filed it merely as a placeholder. In short, the appellees have not demonstrated that Weiner-Govostes ever wavered in asserting her arbitration rights, or acted inconsistently with them. There plainly was no waiver.
3. Disposition.
Because the judge had no valid ground to stay the arbitration, his allowance of the appellees' motions to stay the arbitration must be vacated and the arbitration allowed to proceed. Whether the judge also erred in denying Weiner-Govostes's motion to stay the litigation presents somewhat different issues. Under the case law, where parties have agreed to resolve a particular dispute by arbitration, "litigation to resolve [that] matter ordinarily should be stayed." Chambers v. Gold Medal Bakery, Inc., 83 Mass.App.Ct. 234, 250 n.22 (2013), citing Ross v. Health &Retirement Properties Trust, 46 Mass.App.Ct. 82, 87 n.7 (1998); Danvers, 12 Mass.App.Ct. at 162 n.3, 166. We see no reason to deviate from that general rule here. Accordingly, we conclude that count I of the complaint, which seeks a declaratory judgment with regard to the ownership of the decedent's interest in the franchises, should be stayed pending completion of the arbitration.
Neither side briefed whether the litigation should be fully stayed if the stay of arbitration were vacated. We pressed both sides on this issue at oral argument. There seemed to be common agreement that some parts of the litigation did not have to be stayed if the arbitration were to proceed, but it was also clear that the parties had not thought through the issues.
In addition, whether a stay of litigation to resolve the "particular matter" should follow is treated as "necessarily implicated in an interlocutory appeal of a denial of a motion to compel arbitration." Chambers, 83 Mass.App.Ct. at 250 n.22.
The same logic applies to the estate's ten judicial counterclaims against Weiner-Govostes, which all implicate the 2012 agreement.
In addition to count I, Weiner-Govostes brought seven other counts against the estate (counts II, III, IV, VI, VII, VIII, and IX). We discern no reason for us to resolve whether those counts should be stayed at this time, because those counts already are inactive for a reason unrelated to the pending arbitration.
We take judicial notice that, on the estate's motion, a different Superior Court judge has ordered those additional counts dismissed, although no final judgment has entered.
That leaves the seven counts that Weiner-Govostes pleaded against Foundas and Morizio (counts V, X, XI, XII, XIII, XIV, and XV). Competing arguments can be made as to whether such counts should be stayed pending the completion of the arbitration. On one hand, obvious judicial economy interests favor the granting of a stay; indeed, it seems likely that resolution of the arbitration could at least partially moot such counts. On the other hand, to the extent that the counts against Foundas and Morizio would not be subject to arbitration, some argument can be made that they should be allowed to proceed. See Chambers, 83 Mass.App.Ct. at 250 &nn. 21, 22. Resolution of the competing interests "implicates critical case management concerns best left to the trial court judge." Id. at 250. This is especially true given that there is some "doubt whether we even would have jurisdiction to consider such issues in this appeal." Id.
In light of these considerations, we vacate the stay order and remand this matter for entry of a new order that allows the arbitration to proceed and that in the interim stays count I of
Weiner-Govostes's complaint and the estate's judicial counterclaims. We leave it to the judge's discretion whether the remaining counts should be stayed pending resolution of the arbitration.
So ordered.