Golden Krust Franchising, Inc. v. Auctus Restaurant Group, Inc.

Background

Golden Krust Franchising, Inc., the franchisor of Golden Krust Caribbean Bakery & Grill, entered into franchise agreements with Actus Restaurant Group, Inc. and Klayrock, LLC. Actus operated a restaurant in Coconut Creek, Florida, and Klayrock operated a restaurant in Pembroke Pines, Florida.

Actus and Klayrock began arbitration against Golden Krust and asserted seven causes of action, including breach of contract, breach of the implied duty of good faith and fair dealing, violations of the Florida Franchise Act and Florida Deceptive and Unfair Trade Practices Act, tortious interference, and federal price discrimination. After a hearing on the merits, the arbitrator found Golden Krust liable for breach of contract and violations of the Florida Deceptive and Unfair Trade Practices Act.

The arbitrator found that Golden Krust charged franchises not owned and operated by family members of Golden Krust’s founder higher royalties and advertising fees than it charged family-owned franchises. The arbitrator also found that Golden Krust sold food products to family-owned franchises at lower prices than the prices charged to Respondents through Golden Krust’s distributor. The arbitrator awarded Respondents $623,090 in lost past profits, later adding $43,527.16 in interest; $899,184.17 in attorney’s fees and costs; and $35,600 in American Arbitration Association fees. Golden Krust’s motion asking the arbitrator to correct the damages calculation was denied.

Arguments and standard of review

Golden Krust petitioned under Section 10 of the Federal Arbitration Act to vacate, or set aside, the final arbitration award. It argued that the award was internally inconsistent and that the arbitrator acted in manifest disregard of the law—that is, knowingly ignored a clearly established and clearly applicable legal rule. Respondents filed a counter-petition asking the court to confirm, or enforce, the award.

The court explained that federal courts give arbitration decisions substantial deference. Under the Federal Arbitration Act, an award may be vacated only in narrow circumstances, such as corruption, evident partiality, serious procedural misconduct, or the arbitrator’s exceeding of the arbitrator’s authority. The court also explained that it could not vacate an award merely because it disagreed with the arbitrator’s factual or legal conclusions if the award had a barely colorable justification.

Analysis

The court rejected Golden Krust’s argument that the award was internally inconsistent. It held that internal inconsistencies generally are not grounds for vacating an arbitration award. Unlike awards that are so ambiguous or contradictory that they cannot be understood, this award stated definite amounts to be paid. The court also found that Golden Krust had presented a clear interpretation of the award, which further showed that the award was not incomprehensible. The court therefore declined to vacate the award or send it back to the arbitrator for clarification.

The court also rejected the manifest-disregard argument. Golden Krust argued that lost past profits could not be recovered under the Florida Deceptive and Unfair Trade Practices Act. The court noted that Florida federal courts were divided on whether past lost profits were recoverable under that statute, and that neither the Florida Supreme Court nor the Eleventh Circuit had resolved the issue. Because the arbitrator selected one side of a conflict in the case law, the court held that the arbitrator could not have manifestly disregarded a clearly established legal rule.

Golden Krust also argued that the record lacked evidence connecting the lost-profit award to the conduct underlying the arbitrator’s liability findings. The court held that this argument improperly asked the court to reweigh the arbitration evidence. The court nevertheless conducted the limited review permitted in this context and concluded that the damages were reasonably related to the higher royalties, advertising fees, and food-product prices that supported the liability findings. The award therefore met the required minimal justification standard.

Disposition

The court denied Golden Krust’s Petition to Vacate the Arbitration Award and granted Respondents’ Counter-Petition to Confirm the Arbitration Award. The Clerk was directed to terminate both filings and close the case.