Arbitration Over Cross-Border Lingerie Franchise Results in California Supreme Court Decision Confirming Broad Arbitrator Powers
Los Angeles (June 23, 2008) LAWFUEL – Trial lawyers with global law firm Squire, Sanders & Dempsey L.L.P. represented Celine Gueyffier in an appeal before the California Supreme Court that resulted in a landmark decision bolstering the role of private arbitration as an independent dispute resolution mechanism.
“This decision will become part of the holy trinity of California Supreme Court cases establishing broad arbitration powers,” said Squire Sanders partner Douglas J. Rovens, who argued the case before the state Supreme Court and handled the underlying arbitration. The court’s decision was based on two previous groundbreaking arbitration rulings in 1992 and 1994.
The decision ended a three-year legal battle over a failed franchise agreement between French citizen Celine Gueyffier and UK-based Ann Summers Ltd. Gueyffier planned to enter the US market with a California-based franchise chain selling Ann Summers Ltd. goods – sex toys and lingerie. When the store plans fizzled, both sides claimed breach of contract. The matter went to arbitration and came before the California Supreme Court on the issue of arbitrators’ powers.
“The arbitrator concluded our client had not received training and guidance promised by the franchisor, which prompted our client to end the relationship,” Rovens said. “The arbitrator also concluded that because these breaches of contract could not be remedied, our client was not bound by a contractual agreement to give the franchisor written notice and 60 days to solve the problem before Ann Summers could be held in breach.”
The arbitrator’s award was confirmed by Los Angeles Superior Court Judge George H. Wu, who now sits on the federal bench. The Court of Appeals Division Five reversed that decision in a published opinion, concluding the arbitrator had overstepped his role by changing a material term in the contract. The California Supreme Court, however, concluded unanimously that the arbitrator’s decision was well within his powers.
“The court concluded an arbitrator does not exceed his or her powers by applying equitable defenses to excuse a party from performing a material condition – in this case, the condition that before the franchisor can be found in breach of the franchise agreement by the arbitrator, the franchisee must provide notice and opportunity to cure the breach. The court specifically held that the arbitrator was empowered to interpret and apply agreements made by the parties to the facts he found to exist, particularly the power to decide when particular clauses apply,” Rovens said.
“This is an issue of broad import because a finding that an arbitrator has exceeded his or her powers is a universal ground for vacating or refusing to enforce an arbitration award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. sec. 201 et seq., the Federal
Arbitration Act, 9 U.S.C. sec. 1 et seq., state arbitration laws and arbitration laws of many countries,” Rovens said. “The decision provides useful guidance to practitioners in terms of both how to draft an arbitration clause to restrict the scope of an arbitrator’s powers and how to resist after-the-fact claims that an arbitrator has exceeded his or her powers.”
Founded in 1890, Squire, Sanders & Dempsey L.L.P. has lawyers in 32 offices in 15 countries around the world. With one of the strongest integrated global platforms and a longstanding one-firm philosophy, Squire Sanders provides sophisticated seamless legal counsel worldwide. Offices in the Americas are located in Cincinnati, Cleveland, Columbus, Houston, Los Angeles, Miami, New York, Palo Alto, Phoenix, San Francisco, Tallahassee, Tampa, Tysons Corner, Washington DC, West Palm Beach, Caracas, Rio de Janeiro, Santo Domingo and São Paulo. In Europe, offices are in Bratislava, Brussels, Budapest, Frankfurt, Kyiv, London, Moscow, Prague and Warsaw. In Asia, offices are in Beijing, Hong Kong, Shanghai and Tokyo. Associated offices include Bucharest, Buenos Aires, Dublin and Santiago.