Choice Hotels International, Inc. v. Patel , 236 F. App'x 868 ( 2007 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1984
CHOICE HOTELS INTERNATIONAL, INCORPORATED, a
Delaware Corporation,
Plaintiff - Appellee,
versus
PIUS RAJNIKANT PATEL,
Defendant - Appellant,
and
P&D INTERNATIONAL INVESTMENT, INCORPORATED;
DINESHKUMAR PATEL,
Defendants.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CA-04-2752-8-AW)
Submitted: April 11, 2007 Decided: June 7, 2007
Before MOTZ, KING, and GREGORY, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
Onkar N. Sharma, SHARMA LAW GROUP, Silver Spring, Maryland, for
Appellant. Kerry S. McGeever, Silver Spring, Maryland, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
Pius Patel1 appeals from the district court’s order
denying his motion to stay the action in favor of arbitration
(“August 2005 order”), pursuant to 9 U.S.C. § 3 (2000), in this
action initiated by Choice Hotels International, Inc. (“Choice”).
For the reasons stated below, we vacate this order and remand the
case to the district court for further proceedings.
Patel and Choice entered into a franchise agreement for
the operation of a Comfort Inn hotel in Columbia, South Carolina.
Choice claimed that Patel defaulted on various fees and failed to
cease displaying Choice’s trademarks after Choice sent notice of
termination, in violation of the franchise agreement. Choice
initiated this action in district court, raising several trademark-
related claims and alleging breach of contract.
Patel moved to dismiss the action due to Choice’s failure
to submit the controversy to arbitration pursuant to the
arbitration clause2 in the franchise agreement. Simultaneously,
1
Pius Patel was one of three named defendants in district
court. The district court entered a default judgment against the
other two defendants, P&D International Investment, Inc., and
Dineshkumar Patel. Only Pius Patel has appealed from the order at
issue.
2
The arbitration clause provided that claims would “be sent to
final and binding arbitration before either the American
Arbitration Association or J.A.M.S./Endispute in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association, except to the extent that those rules may be
interpreted to require [Choice] to produce documents or
information.” Further, the arbitration clause provided that the
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however, Patel assailed the arbitration clause, claiming it
violated South Carolina law, insulated Choice from discovery, and
unfairly burdened him by requiring proceedings to be held in
Maryland. Nevertheless, Patel took the position that the
arbitration clause “was, at least initially, enforceable.” Patel
contended he should present his arguments regarding the arbitration
clause to the arbitrator in the first instance.3
Although Patel styled his pleading as a motion to dismiss
for failure to submit the case to arbitration, the district court
found it could not “determine that the parties entered into a valid
arbitration agreement and that the dispute at hand falls within the
scope of the agreement.” The court denied Patel’s motion
(“November 2004 order”), and Patel did not appeal from that denial.
arbitrator would “apply the substantive laws of Maryland, without
reference to its conflict of laws provision,” and arbitration
proceedings would “be conducted at [Choice’s] headquarters office
in Maryland.” The three types of claims excepted from the
arbitration clause were claims against Patel for indemnification,
actions for collections of money owed to Choice under the franchise
agreement, and actions seeking to enjoin Patel from using Choice’s
trademarks.
3
Patel analogized his case to Vimar Seguros y Reaseguros,
S.A. v. M/V Sky Reefer, 515 U.S. 528, 539-41 (1995), and PacifiCare
Health Systems, Inc. v. Book, 538 U.S. 401 (2003). In PacifiCare,
which relied heavily on Vimar, the Supreme Court declined to
address whether the parties’ arbitration agreements would prevent
an arbitrator from awarding treble damages under an applicable
federal statute. Id. at 406-07. Since the Court did not know how
the arbitrator would evaluate the issue, the questions of whether
the issue rendered the agreements unenforceable and whether it was
for courts or arbitrators to decide enforceability in the first
instance were “unusually abstract.” Id. at 407. We express no
opinion concerning the application of these cases to Patel’s case.
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Seven months later, Patel filed a similar motion
requesting the district court stay the case in favor of
arbitration. In this motion, Patel stated on three occasions that
he would seek to present his arguments to the arbitrator in the
first instance. Choice opposed the motion, contending the district
court’s denial of Patel’s prior motion constituted the law of the
case. The district court found Patel’s motion “appear[ed] to be
merely a renewal of arguments set forth” in his prior motion to
dismiss. In August 2005, the court denied Patel’s motion for a
stay pending arbitration, and Patel appealed from this denial.
This court reviews de novo the district court’s denial of
Patel’s motion to stay the case for arbitration. See Johnson v.
Circuit City Stores, 148 F.3d 373, 377 (4th Cir. 1998). Pursuant
to Glass v. Kidder, Peabody & Co., Inc., 114 F.3d 446, 453 (4th
Cir. 1997), the district court conducted a substantive
arbitrability inquiry in its November 2004 order, engaging in a
limited review to ensure that a valid agreement to arbitrate
existed and that the specific disputes fell within the substantive
scope of that agreement. The district court found it was unable to
determine if Patel, who assailed the arbitration clause and raised
substantive defenses in his motions, sought “rigorous enforcement”
of the arbitration clause.4 See Dean Witter Reynolds, Inc. v.
4
The district court’s phrasing is taken from Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985) (“The preeminent
concern of Congress in passing the [Federal Arbitration] Act was to
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Byrd, 470 U.S. 213, 221 (1985). Although it acknowledged the
“liberal policy favoring arbitration agreements,” Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), the
district court stated that it could not conclude whether the
dispute was arbitrable. It made the same determination in its
August 2005 order.
As Choice notes, Patel failed to appeal the November 2004
order, which was immediately appealable. See 9 U.S.C. § 16(a)(1)
(2000). Therefore, according to Choice, the November 2004 order
became final; Choice argues Patel is bound by the district court’s
November 2004 finding concerning arbitrability as the law of the
case. We disagree. The law of the case doctrine, “a rule of
practice, based upon sound policy that when an issue is once
litigated and decided, that should be the end of the matter,”
United States v. United States Smelter Refining & Min. Co., 339
U.S. 186 (1950), is inapplicable here. The November 2004 order was
“appealable because Congress, notwithstanding [the order’s]
interlocutory character, had made it appealable.” Id. at 199.
Patel could have appealed the order, “but [he was] not bound to,”
enforce private agreements into which parties had entered, and that
concern requires that we rigorously enforce agreements to arbitrate
. . . .”). This court has also employed the phrase. See Glass v.
Kidder Peabody & Co., Inc., 114 F.3d 446, 451 (4th Cir. 1997)
(“Thus, the Act’s enactment signaled a sharp and complete shift
from an attitude of inveterate hostility toward arbitration
agreements to one strongly favoring arbitration and encouraging the
rigorous enforcement of all arbitration agreements.”).
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as “it requires a final judgment to sustain the application of the
rule of the law of the case just as it does for the kindred rule of
res judicata.” Id. Accordingly, we conclude the November 2004
order does not bind Patel on the issue of arbitrability under the
law of the case doctrine.
Furthermore, although we recognize Patel’s confusing
pleadings greatly contributed to the district court’s orders
denying arbitration, we vacate the court’s August 2005 order.
Patel maintained in district court that he was “faced with
submitting [his] defenses and arguments to the arbitrator in the
first instance to comply with the [a]rbitration clause.”
Regardless of the substantive arguments he planned on submitting to
the arbitrator, he did not ask the district court to alter or void
the arbitration clause in conformity with his wishes.
On appeal, Patel reiterates he seeks to submit the matter
to arbitration pursuant to the arbitration clause. For its part,
Choice has consistently stated, notwithstanding its challenges to
Patel’s arguments on appeal, that it would be willing to submit all
of its claims to arbitration. In light of the “directive to
resolve doubts and ambiguities in favor of arbitration,” Washington
Square Securities, Inc. v. Aune, 385 F.3d 432, 438 (4th Cir. 2004),
we conclude arbitration would provide the best course for this
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litigation, provided there exist arbitrable claims under the
arbitration clause.5
Therefore, we vacate the district court’s August 2005
order and remand to the district court for a determination of which
claims, if any, are within the scope of the arbitration agreement.
Enforcement of agreements to arbitrate under the Federal
Arbitration Act may require piecemeal litigation, see Dean Witter
Reynolds, 470 U.S. at 221, and the decision to stay the litigation
of any claims or issues found to be non-arbitrable is a matter
largely within the district court’s discretion to control its
docket. Moses H. Cone Mem’l Hosp., 460 U.S. at 20 n.23; Summer
Rain v. Donning Co./Publishers, Inc., 964 F.2d 1455, 1461 (4th Cir.
1992). Therefore, we leave for the district court the question of
whether to stay any non-arbitrable claims pending arbitration. See
American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96
F.3d 88, 97 (4th Cir. 1996).
We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials before
the court and argument would not aid the decisional process.
VACATED AND REMANDED
5
We note, without deciding, that Choice’s breach of contract
claim is potentially arbitrable pursuant to Choice Hotels Int’l,
Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 710-12 (4th Cir.
2001).
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