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Glen P. Farrell v. Subway International

March 23, 2011

GLEN P. FARRELL, PETITIONER,
v.
SUBWAY INTERNATIONAL, B.V., RESPONDENT.



The opinion of the court was delivered by: John F. Keenan, United States District Judge:

Memorandum Opinion and Order

Before the Court is Glen P. Farrell's ("Farrell" or "Petitioner") petition to stay arbitration initiated by Subway International, B.V. ("Subway" or "Respondent"). Farrell also requests that the Court invalidate the forum selection provision in the parties' arbitration agreement. For the following reasons, Farrell's petition for a stay of arbitration is granted, but a properly initiated arbitration should proceed in New York City as the parties agreed.

I.BACKGROUND

Farrell is a citizen of the Republic of Ireland and operates three SUBWAY franchises in Dublin, Ireland. (Verified Pet. ¶ 1.) SUBWAY is a registered trademark of Doctor's Associates Inc. ("DAI"), which owns the proprietary system for franchising restaurants under the SUBWAY trade name and service mark. (Semel Aff. Ex. B, Franchise Agreement at 1.) Subway International is a Netherlands corporation with a sublicense to franchise and operate SUBWAY restaurants in the Republic of Ireland. (Verified Pet. ¶ 2.)

On August 20, 2008, the parties entered into Franchise Agreement #45720 (the "Agreement") allowing Farrell to operate a SUBWAY sandwich shop in Dublin, Ireland. (Semel Aff. Ex. B, Franchise Agreement.) The Agreement provides for arbitration of any dispute between the parties. (Id. ¶ 10.) Beginning in 2009, Farrell complained to Subway and Irish authorities concerning alleged conduct by Subway not relevant to the petition at hand. (Verified Pet. ¶¶ 5-7.) On September 9, 2010, Subway filed a demand for arbitration (the "Demand") with the American Dispute Resolution Center, Inc. ("ADRC") (Id. ¶ 9.) The Demand requested that the arbitration take place in New York City. (Id.) Soon afterward, pursuant to N.Y. C.P.L.R. § 7503(b), Farrell filed the instant petition in New York Supreme Court seeking a stay of arbitration. Subway removed the action to federal court pursuant to 9 U.S.C. § 205 and 28 U.S.C. § 1441. Farrell has refused to participate in the arbitration begun by Subway, and there is no pending motion by Subway to compel arbitration.

II.DISCUSSION

Petitioner does not object to arbitration. (Id. ¶ 8.) Rather, he contests the procedure by which Respondent initiated arbitration as contrary to the directions provided in the Agreement. Petitioner challenges the Demand on two independent grounds. First, Petitioner argues that the filing of the Demand with ADRC violated the Agreement, which does not allow one party to unilaterally choose the arbitrator or appointing authority. Second, Petitioner asserts that the arbitral forum selection clause in the Agreement designating New York as the site for arbitration hearings is void.

A. Subject Matter Jurisdiction

While neither party has disputed that the Court has subject matter jurisdiction over this matter, the Court must nevertheless determine whether jurisdiction exists. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38, enforces arbitration agreements involving at least one foreign party. The Convention requires that:

Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

21 U.S.T. 2517, Art. II(1). The United States enabled the Convention in Chapter 2 of the Federal Arbitration Act ("FAA"). Pursuant to § 203 of the FAA, federal courts have original jurisdiction of any "action or proceeding falling under the Convention." 9 U.S.C. § 203. An arbitration agreement falls under the Convention if it "aris[es] out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title." 9 U.S.C. § 202. Additionally, an agreement falling under the Convention must have a reasonable relation with one or more foreign states.

Id.; see Jones v. Sea Tow Servs. Freeport N.Y. Inc., 30 F.3d 360, 365-66 (2d Cir. 1994). Actions relating to an arbitration agreement that falls under the Convention may be removed to federal court. 9 U.S.C. § 205.

There is no dispute that the arbitration agreement arises out of a contractual franchise relationship between an Irish citizen and a Dutch corporation, with performance of the contract occurring in Ireland. Because the Agreement falls under the Convention, the Court has subject matter jurisdiction, and this action was properly removed to federal court under § 205 of the FAA.

Although the parties do not address the issue, there is some disagreement within this District as to whether the Court has the power to stay arbitration under the FAA. Compare Ghassabian v. Hematian, No. 08 Civ. 4400, 2008 WL 3982885, at *2 (S.D.N.Y. Aug. 27, 2008) (no federal authority to stay an arbitration), with Oppenheimer & Co. Inc. v. Deutsche Bank AG, No. 09 Civ. 8154, 2009 WL 4884158, at *3 (S.D.N.Y. Dec. 16, 2009) (characterizing Ghassabian as an "outlier" and assuming that district court may stay arbitration). However, this case arises under the Convention, which, as implemented by the FAA, provides that: "[a] court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States." 9 U.S.C. ยง 206. The Court agrees that "Section 206 unequivocally directs the court to order arbitration where appropriate. It would follow . . . that the court should have a concomitant power to enjoin arbitration where arbitration is inappropriate. A failure to do so would frustrate the goals of arbitration, ...


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