Doctor's Assoc. v. Carbonell

This memorandum opinion was not selected for publication in the New Mexico Appellate Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date. 1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO 2 DOCTOR’S ASSOCIATES INC., 3 Plaintiff/Counter-Defendant-Appellant, 4 v. NO. 33,997 5 JOSE LUIS CARBONELL and 6 VICTORIA CARBONELL, 7 Defendants/Counter-Plaintiffs-Appellees, 8 and 9 JOSE LUIS CARBONELL and 10 VICTORIA CARBONELL, 11 Third Party Plaintiffs-Appellees, 12 v. 13 CAROL ENGLISH, 14 Third Party Defendant-Appellant. 15 APPEAL FROM THE DISTRICT COURT OF GRANT COUNTY 16 Henry Quintero, District Judge 1 Gordon Davis Johnson & Shane P.C. 2 John M. Dickey 3 El Paso, TX 4 for Appellants Doctor’s Associates, Inc. and Carol English 5 Scott Hulse P.C. 6 Casey S. Stevenson 7 El Paso, TX 8 for Appellees 9 MEMORANDUM OPINION 10 WECHSLER, Judge. 11 {1} Appellants Doctor’s Associates, Inc. (DAI) and Carol English appeal the district 12 court’s order denying their motion to compel arbitration. We affirm. 13 BACKGROUND 14 {2} DAI and Jose Luis Carbonell and Victoria Carbonell were parties to a franchise 15 agreement under which DAI, as franchisor, granted the Carbonells, as franchisees, the 16 right to operate a Subway restaurant in Silver City, New Mexico. English was DAI’s 17 development agent. The parties’ rights and responsibilities were largely governed by 18 a franchise agreement, which contained an arbitration clause. As relevant to this 19 appeal, the scope of the arbitration clause provided that “[a]ny dispute, controversy 20 or claim arising out of or relating to this [a]greement or the breach thereof shall be 21 settled by arbitration.” [2] 1 {3} Following the procedures established in the franchise agreement, on April 11, 2 2012, DAI submitted a demand for arbitration to the American Dispute Resolution 3 Center, Inc. Prior to a scheduled hearing before an arbitrator, the parties entered into 4 a stipulated award, resolving the need for arbitration. The arbitrator approved the 5 stipulated award. 6 {4} In the stipulated award, the Carbonells admitted to violating the franchise 7 agreement by failing to adhere to certain requirements of the franchisor’s operations 8 manual. They agreed to “transfer the restaurant in accordance with the standard 9 transfer procedures established by [DAI] to a buyer approved by [DAI] within ninety 10 (90) days[.]” The stipulated award additionally contained the following provisions: 11 6. This Award is the Final Award. It is effective immediately, 12 without the necessity of further hearing and can be confirmed in 13 any court having jurisdiction. 14 ... 15 9. The [p]arties agree and understand that this Stipulated Award 16 contains the entire understanding of the parties. 17 {5} The transfer did not take place within the specified period. On May 7, 2013, 18 DAI filed an action in district court, alleging that the Carbonells had breached the 19 stipulated award and requesting that the court confirm “the arbitration award as set 20 forth in the [s]tipulated [a]ward.” It subsequently filed an amended complaint. The 21 Carbonells filed an answer, counterclaim, and third-party complaint. In their [3] 1 counterclaim and third-party complaint, they claimed that DAI breached the franchise 2 agreement and the stipulated award and, with English, a third-party defendant, had 3 engaged in a civil conspiracy and fraudulent misconduct in connection with the 4 Carbonells’ transfer of the restaurant. English filed an answer to the third-party 5 complaint. 6 {6} On November 27, 2013, DAI and English moved the district court to compel 7 arbitration based on the arbitration clause of the franchise agreement. In response, the 8 Carbonells argued that the matter was properly before the district court because their 9 counterclaim did not arise from the franchise agreement, but from the stipulated award 10 that did not contain an arbitration clause. Because their counterclaim and cross-claims 11 referred to the franchise agreement in addition to the stipulated award, the Carbonells 12 asserted that they would seek leave to amend the counterclaim and third-party 13 complaint “to clarify that their claims arise only from” the stipulated award. The 14 Carbonells reiterated this position at the beginning of their argument on the motion. 15 {7} After hearing argument on the motion, the district court issued an order denying 16 the motion. It concluded that there was no agreement to arbitrate because the 17 Carbonells’ claims arose from the stipulated award, not from the franchise agreement 18 or through arbitration, the stipulated award did not require arbitration, and the [4] 1 stipulated award did not contain language incorporating the arbitration requirements 2 of the franchise agreement. 3 ABSENCE OF AGREEMENT TO ARBITRATE 4 {8} The issue on appeal, as it did in the district court, centers on whether the 5 Carbonells’ claims are based on the stipulated agreement or the franchise agreement. 6 As explained by the district court, a court cannot compel arbitration in the absence of 7 an enforceable agreement to arbitrate. Alexander v. Calton & Assocs., Inc., 2005- 8 NMCA-034, ¶ 9, 137 N.M. 293 , 110 P.3d 509 . We decide this issue as a matter of 9 contract. See Clay v. N.M. Title Loans, Inc., 2012-NMCA-102, ¶ 14 , 288 P.3d 888 10 (“[The general] rule is that arbitration is a matter of contract and a party cannot be 11 required to submit to arbitration any dispute which he has not agreed so to submit.” 12 (internal quotation marks and citation omitted)). In doing so, we seek to fulfill the 13 intent of the parties and look to the plain meaning of the contractual language when 14 possible. Id. ¶¶ 14, 20; Santa Fe Techs., Inc. v. Argus Networks, Inc., 2002-NMCA- 15 030, ¶ 52, 131 N.M. 772 , 42 P.3d 1221 . We review de novo the district court’s denial 16 of the motion to compel arbitration. Cordova v. World Fin. Corp. of N.M., 2009- 17 NMSC-021, ¶ 11, 146 N.M. 256 , 208 P.3d 901 . [5] 1 {9} There is no question that the parties had a valid, enforceable arbitration clause 2 as contained in the franchise agreement. It was broad in scope and required the parties 3 to settle by arbitration “[a]ny dispute, controversy or claim arising out of or relating 4 to” the franchise agreement. However, although a broad arbitration clause requires a 5 broad interpretation as to its scope, the claims at issue must bear a “‘reasonable 6 relationship’ to the contract in which the arbitration clause is found.” Clay, 2012- 7 NMCA-102, ¶ 14; Santa Fe Techs., 2002-NMCA-030, ¶¶ 52, 55 . 8 {10} The franchise agreement arbitration provision clearly applied to disputes arising 9 from the franchise agreement and led the parties to pursue arbitration arising from 10 their dispute concerning the operations of the Carbonells’ restaurant. The question 11 before us, however, is not as simple. When the parties proceeded to arbitrate the 12 operations dispute, they entered into another agreement: the stipulated award. 13 {11} Appellants argue that the stipulated award flows from the franchise agreement 14 because the franchise agreement governed the entire relationship of the parties. 15 According to Appellants, “[a]ll claims arise out [of] or relate to the . . . [f]ranchise 16 [a]greement and simply could not have arisen in the absence of the parties’ franchise 17 relationship.” 18 {12} Although we agree with Appellants that the parties intended the franchise 19 agreement to govern their relationship, we do not agree that the parties could not vary [6] 1 their relationship such that all consequences of their actions would be controlled by 2 the franchise agreement merely because it was the first agreement between them. See 3 Clay, 2012-NMCA-102 , ¶ 22 (citing with approval Aiken v. World Fin. Corp. of S.C., [4] 644 S.E.2d 705, 708 (S.C. 2007), that “applying what amounts to a but-for causation 5 standard essentially includes every dispute imaginable between the parties, which 6 greatly oversimplifies the parties’ agreement to arbitrate claims between them” and 7 stating that “[s]uch a result is illogical and unconscionable.” (alteration, internal 8 quotation marks, and citation omitted)).1 The stipulated award, which, according to 9 DAI, “could not have arisen in the absence of the parties’ franchise relationship[,]” 10 varied the parties’ relationship. It added another express, written agreement between 11 them. We thus must examine the stipulated award in addition to the franchise [1] 12 Appellants also rely on trial court cases in which DAI has been a party in 13 support of its “but-for” position. The only reported case cited is Doctor’s Associates, 14 Inc. v. Quinn, 42 F.Supp.2d 184 (D.Conn.1999). In that case, a DAI development 15 agent alleged that DAI had orally agreed to share losses incurred when the agent, at 16 DAI’s request, purchased and resold DAI franchises. Id. at 185-86 . The development 17 agent and DAI had previously entered into a development agent agreement that 18 contained a similar arbitration clause to the franchise agreement at issue in this appeal. [19] Id. at 185 . The federal district court, in ordering that the development agent’s damages 20 claim was subject to arbitration, determined that the dispute “clearly [arose] out of 21 [the] defendant’s role as a development agent for [the] plaintiff[,]” and that the 22 development agent’s “role as development agent and his rights and obligations as 23 defined in the [development agent a]greement will be an issue” in the lawsuit 24 involving the oral agreement. Id. at 187-88 . Because of its different facts, Quinn is not 25 persuasive. [7] 1 agreement in order to determine the intent of the parties regarding arbitration. See CC 2 Hous. Corp. v. Ryder Truck Rental, Inc., 1987-NMSC-117 , ¶ 6, 106 N.M. 577 , 746 3 P.2d 1109 (“When discerning the purpose, meaning, and intent of the parties to a 4 contract, the court’s duty is confined to interpreting the contract that the parties made 5 for themselves, and absent any ambiguity, the court may not alter or fabricate a new 6 agreement for the parties.”). 7 {13} The parties expressed in the stipulated award the provisions of the franchise 8 agreement that would pertain to their agreement under the stipulated award. In this 9 regard, the stipulated award incorporated provisions of the franchise agreement that 10 were necessary to carry out the terms of the stipulated award and for the Carbonells 11 to continue to operate the restaurant pending a transfer, such as those pertaining to the 12 termination of the franchise agreement, insurance requirements, the applicability of 13 the operations manual, and non-compete provisions. The transfer was to follow DAI’s 14 standard transfer procedures. The parties stated in the stipulated agreement: “The 15 [p]arties agree and understand that this [s]tipulated [a]ward contains the entire 16 understanding of the parties.” The stipulated award does not contain a provision 17 requiring arbitration. 18 {14} Based on the parties’ language, as expressed in both their franchise agreement 19 and stipulated award, we conclude, as did the district court, that the parties did not [8] 1 intend the arbitration clause of the franchise agreement to apply to claims that arose 2 out of the stipulated award. See Clay, 2012-NMCA-102, ¶ 14 (requiring a reasonable 3 relationship between the claims at issue and the contract containing the arbitration 4 clause). The parties varied their relationship with the stipulated award. Most 5 importantly, they included the merger clause in which they expressed the intent that 6 the stipulated award was “the entire understanding.” They designated the aspects of 7 the franchise agreement that they believed were appropriate while the Carbonells 8 operated the restaurant pursuant to the stipulated agreement. Thus, although the 9 franchise agreement still provided the background for the parties’ relationship, the 10 parties focused on the stipulated award to complete their relationship. 11 {15} Appellants argue that the arbitration clause of the franchise agreement remained 12 in effect after the stipulated award because “[i]t would be unnecessary and duplicative 13 to again include the arbitration provision” in the stipulated award. In this regard, 14 Appellants point to the provisions of the stipulated award that required continued 15 compliance with the franchise agreement for insurance and non-compete protections. 16 They contend that such provisions “make clear that the Carbonells were expected to 17 continue to comply with the terms of” the franchise agreement. However, we consider 18 these provisions to be inconsistent with an intent that the provisions of the franchise 19 agreement continued in effect without mention in the stipulated award. If the parties [9] 1 made such an assumption, it would not have been necessary to specifically state that 2 the insurance and non-compete provisions had continued effect. See Bank of N.M. v. 3 Sholer, 1984-NMSC-118 , ¶ 6, 102 N.M. 78 , 691 P.2d 465 (“A contract must be 4 construed as a harmonious whole, and every word or phrase must be given meaning 5 and significance according to its importance in the context of the whole contract.”). 6 {16} Appellants further assert that the Carbonells’ claims “specifically relate to the 7 termination and attempted transfer” of the franchise agreement.2 But, the Carbonells’ 8 claims pertain to the transfer of the Carbonells’ Silver City restaurant and other 9 restaurants, which was the express subject matter of the stipulated award. Appellants 10 do not otherwise specifically tie the Carbonells’ claims to the franchise agreement. We 11 conclude that the parties did not intend for the arbitration clause of the franchise 12 agreement to apply to the Carbonells’ claims. See Benz v. Town Ctr. Land, LLC, [13] 2013-NMCA-111, ¶ 31 , 314 P.3d 688 (“The purpose, meaning, and intent of the 14 parties to a contract is to be deduced from the language employed by them; and where 15 such language is not ambiguous, it is conclusive.” (alteration, internal quotation 16 marks, and citation omitted)). [2] 16 Appellants also assert that the Carbonells allege in their counterclaim that they 17 “have performed as required under the franchise agreement” as well as the stipulated 18 award. As we have noted, however, the Carbonells have stated to the district court that 19 they would amend their counterclaim and third-party complaint to make it clear that 20 they only alleged a breach of the stipulated award. [10] 1 {17} Appellants additionally state that the language of the stipulated award 2 “contains the entire understanding of the parties[,]” was a “boilerplate merger 3 clause[,]” and contend that it was insufficient to supersede the arbitration clause of the 4 franchise agreement. Appellants rely on Riley Manufacturing Co. v. Anchor Glass 5 Container Corp., 157 F.3d 775 (10th Cir. 1998), in this regard. 6 {18} In Riley, the parties entered into a manufacturing agreement that included an 7 arbitration clause. Id. at 776-77 . After a copyright dispute arose, the parties entered 8 into mutual releases and a settlement agreement. Id. at 777 . In the settlement 9 agreement, the parties agreed to reestablish a business relationship. Id. at 778 . The 10 settlement agreement contained a merger clause, stating that the settlement agreement 11 constituted the entire agreement of the parties and “cancels, terminates and supersedes 12 any and all prior representations and agreements relating to the subject matter 13 thereof.” Id. (internal quotation marks omitted). The Tenth Circuit addressed the 14 merger clause in the context of a subsequent lawsuit, concluding that the merger 15 clause canceled provisions that related to the subject matter of the settlement 16 agreement, the specific copyright designs at issue in the original threatened lawsuit 17 as well as the continuing use of the plaintiff’s copyright designs, but that the 18 arbitration clause of the manufacturing agreement would apply to other issues that 19 were not the subject matter of the settlement agreement. Id. at 778, 783 . The Tenth [11] 1 Circuit also expressed the presumption that an arbitration provision is presumed to 2 survive the expiration of the parties’ contract unless there is “some express or implied 3 evidence that the parties intend to override this presumption[.]” Id. at 781 . It noted that 4 there is no longer a presumption if the parties “express or clearly imply an intent to 5 repudiate post-expiration arbitrability” or “the dispute cannot be said to arise under 6 the previous contract.” Id. 7 {19} Appellants argue from Riley that the merger provision in this case is insufficient 8 to repudiate the arbitration provision of the franchise agreement because it neither 9 expressly nor clearly implies that arbitration does not apply. However, we do not 10 believe that Riley affects our reasoning in this case for three reasons. 11 {20} First, the holding in Riley relied on the specific language in the settlement 12 agreement and the facts of that case. Second, even if we were to apply a presumption 13 of survival absent evidence to the contrary, (1) we can reasonably imply from the 14 language of the stipulated award that the parties did not intend for the arbitration 15 provision of the franchise agreement to apply to a breach of the stipulated award, and 16 (2) the present dispute did not arise from the franchise agreement. Third, although the 17 parties’ intent would have been more clearly stated if they had included language in 18 the stipulated award similar to the cancellation language in Riley, in construing the 19 intent of the parties, we cannot disregard the language that they did use. See Montoya [12] 1 v. Villa Linda Mall, Ltd., 1990-NMSC-053 , ¶ 8, 110 N.M. 128 , 793 P.2d 258 (“It is 2 black letter law that, absent an ambiguity, a court is bound to interpret and enforce a 3 contract’s clear language and cannot create a new agreement for the parties.”). 4 STIPULATED AWARD AS ARBITRATION AWARD 5 {21} The district court found that the stipulated award “was entered into in lieu of 6 arbitration. It was not reached through arbitration, or facilitated by an arbitrator.” 7 Appellants assert that the district court erred in these findings. They address these 8 findings on appeal, although they question their relevance. We do not address 9 Appellants’ argument in this regard because it does not affect our determination of the 10 appeal. 11 CONCLUSION 12 {22} We affirm the order of the district court denying the motion to compel. 13 {23} IT IS SO ORDERED. 14 ________________________________ 15 JAMES J. WECHSLER, Judge 16 WE CONCUR: 17 ________________________________ 18 JONATHAN B. SUTIN, Judge [13] 1 ________________________________ 2 RODERICK T. KENNEDY, Judge