District of Connecticut Confirms Arbitration Award against Owner of Greek Subway Franchise
Yamuna Bhaskaran | Bloomberg Law
Panayota Bletas entered into a franchise agreement with Subway International, B.V. (SIBV), a Netherlands limited liability corporation with its principal place of business in Amsterdam, under which she owned and operated a Subway sandwich franchise in Greece. Pursuant to a dispute resolution clause in the agreement, SIBV filed a Demand for Arbitration with the International Centre for Dispute Resolution, claiming that Bletas had failed to pay required royalty and advertising fees. Following a hearing, the arbitrator issued a final award terminating the franchise agreement, awarding SIBV €13,868.90 for the outstanding fees and awarding Bletas €5,600 for document production and translation costs.
After Bletas paid the net amount owed to SIBV, SIBV filed suit in the U.S. District Court for the District of Connecticut to confirm the arbitration award. Bletas argued that the award should not be confirmed on the grounds of fraud and perjury, violation of public policy and the franchise agreement, and res judicata.
Bletas claimed that one of SIBV’s witnesses committed perjury by misstating the percent of gross sales owed for advertising fees. Bletas, however, failed to raise the issue during the arbitration and did not provide the Court with any reason why she could not have done so. In any event, the arbitration award itself calculated damages using the correct 3.5 percent figure.
Bletas also argued that the arbitrator’s failure to expressly mandate withholding taxes on the award violated public policy as well as the terms of the agreement, which required tax withholding. The parties agreed that “public policy dictates that all applicable tax payments on the award should be made to the appropriate authorities,” and a violation of public policy was a valid basis to decline to enforce the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Court held, however, that the award’s silence on the issue did not violate of public policy because it did not “create an explicit conflict with other laws and legal precedents,” as the parties were still free to comply with the tax laws. (Internal quotation omitted.) The Court similarly concluded that the terms of the agreement were not violated by the award’s silence.
The Court likewise found no merit in Bletas’s claim that the award was barred by res judicata because of an earlier arbitration award involving a different Subway restaurant owned by Bletas and another person. It concluded that the prior award could not have a preclusive effect because the franchise agreement prohibited consolidating claims involving “any other franchisee, individual or entity,” meaning that the claims arbitrated in the instant case could not have been raised in the earlier arbitration. Furthermore, the agreement expressly provided that any arbitration award would not have “any collateral effect on any other dispute whatsoever, whether in litigation, arbitration, or other dispute resolution proceeding.”
Accordingly, the Court granted the application to confirm the arbitration award.
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