Subway Developments 2000, Inc. v. Subway Franchise Systems of Canada, ULC

Background

Subway Developments 2000, Inc. entered two Development Agent Agreements with Subway Franchise Systems of Canada, ULC on July 15, 2008. The agreements gave Developments the right to develop and service Subway restaurants in two Canadian territories and required termination-related claims to be arbitrated.

Subway terminated the agreements effective August 15, 2022. Developments then began arbitration, seeking a declaration that the terminations were wrongful and other relief. The arbitrator previously ruled that Subway had to make certain interim payments during the arbitration, and this court confirmed that separate award on June 21, 2024.

The arbitration continued, with the parties presenting evidence on both liability and damages. On July 25, 2024, the arbitrator issued a “Final Partial Award.” The arbitrator found that Subway’s terminations were wrongful because the alleged breaches were not material and, even if they were material, Subway had not provided the contractually required opportunity to cure. The arbitrator did not decide damages, stating that the damages remedy required additional proceedings.

Parties’ arguments

Developments petitioned for confirmation of the partial award. Subway opposed confirmation, arguing that the award was not final and therefore could not be confirmed or recognized. Subway alternatively argued that the award should be vacated, meaning canceled by the court.

Developments argued that the parties had agreed to decide liability and damages separately. It also argued that the arbitrator’s finding of such an agreement deserved deference, that the arbitration rules allowed the arbitrator to separate the proceedings, and that Subway’s position was inconsistent with its position in the earlier interim-payments proceeding.

Court’s analysis

The court explained that the Federal Arbitration Act generally does not allow a district court to review an interlocutory arbitration ruling. An arbitration award is ordinarily final only when the arbitrator has completely determined all submitted claims, including both liability and damages. A liability-only award can be final if the parties expressly agreed to bifurcate, or separate, liability and damages.

The court found no express agreement to bifurcate liability and damages. The record showed that the parties discussed separating some proceedings and that the arbitrator contemplated handling damages arising after May 2023 separately. But the parties had presented evidence on both liability and damages, and Subway had not consented to the proposed procedure. The court concluded that the parties contemplated a partial award addressing liability and damages through a particular point in time, followed by a calculation of later damages—not a complete separation of liability from damages.

The court rejected Developments’ reliance on the arbitrator’s later email describing the award as a liability award. The email was sent more than a year after the final hearing, was not an order, and did not establish the required express agreement. The court also held that the arbitrator’s authority under the arbitration rules to separate proceedings did not eliminate the requirement that the parties expressly agree before a liability-only award could be treated as final. Finally, the court found no inconsistency between Subway’s position in this case and its position in the earlier interim-payments proceeding because the two proceedings involved different exceptions to the usual finality rule.

Ruling and effect

Because the parties had not agreed to bifurcate liability and damages, the court held that the partial award was not final. The court therefore lacked authority to review it. In the conclusion, Judge Arun Subramanian denied the petition to confirm the award and denied the cross-petition to vacate the award. The clerk was directed to terminate the case. The opinion does not decide whether the arbitrator’s ruling on the wrongful terminations was correct on the merits.