Coffee Beanery Franchisees Uncover Arbitrator Bias

AAA Gave Approval Despite Knowing Conflict of Interest

FLUSHING, Mich. (Blue MauMau) - After six months of exhaustive and costly attempts to obtain documents from the state of Maryland, Coffee Beanery franchisees were able to uncover new information pertinent to their case. One event that helped trigger their research was receiving a packet of unsolicited documents in the mail, including a series of letters from the Office of the Attorney General addressed to Paul R. Fransway, attorney for The Coffee Beanery. Some were about the company's renewals, stating numerous deficiencies. The letters ran from 2001 to 2005, and uncovered, among other things, that the accountant who worked for Coffee Beanery was the same person who worked for the arbitrator.

In addition to those documents, Deborah Williams and Richard Welshans, with their attorney Harry M. Rifkin, received clearance from the AG's office to view other documents relevant to their case. Because the time limit had passed for receiving copies free of charge by mail, they paid approximately $1000 for them. After they pored over the documents, financial material and correspondence, they uncovered details regarding their lawsuit and arbitration, both in which the ruling went against them.

Appeal Brief Alleges Broad Overreach by Arbitrator

On January 25, Rifkin filed his brief in the appeal of the Sixth Circuit. He expressed strong feelings regarding his filing, saying, "This was an outrageous injustice. It was more than just a situation where you have an irrational decision from an arbitrator, which is unfortunately all too common." Rifkin said it was also more than just a case where the arbitrator has an institutional bias, which is also too common. "But," he added, "I believe that this is a case where there was a deliberate manipulation of the system from the AAA on down through the opposing counsel and opposing party, such that we were doomed to fail before we even started, regardless of the merits of our case."

The Notice of Appeal was filed June 22, 2007, after the judgment order confirming the Arbitration Award, which was entered May 23. But on August 22, the court denied the franchisees' motion for reconsideration.

Rifkin asked the court to abandon the award and allow his clients to pursue their claims under the U.S. District Court in Maryland pursuant to the Maryland Franchise Registration and Disclosure Act. That court is where the franchisees initiated their action on the grounds that the dispute should not have been arbitrated in the first place, that the arbitration provision is unconscionable.

The appeal brief explains that the past legal proceedings in the case have a "rather convoluted history and brightly illustrate the flaws in the arbitration process and the judicial oversight of the process . . ." It states, "While there have been many cases in the past involving outrageous decisions by arbitrators, the Welshans/Williams case is much more than that. This is also a case of broad overreach by the arbitrator, in deciding claims and issues outside of the contract to arbitrate, conflict of interest by the arbitrator procedural irregularities. This is additionally a case where the lower court improperly sent claims outside of the agreement to arbitrate to the arbitrator."

Lower Court and AAA Erred in Ordering Arbitration

Prior to the arbitration, Welshans and Williams filed their mediation demand, part of the terms of their franchise agreement, to be completed within 60 days. Although the mediator had been appointed in March 2005, the mediation never took place, even though they never waived their rights to mediation. According to the brief, the counsel for Coffee Beanery kept delaying the scheduling.

In November 2005, Williams and Welshan retained Rifkin as their new counsel in hope of resolving their dispute. But on November 17, the AAA sent a notice to all parties with a list of proposed arbitrators. Shortly after, Rifkin wrote to AAA objecting to the arbitration proceedings, and In December, he filed an action in the U.S. District Court for the District of Maryland seeking relief against The Coffee Beanery and various officers and employees pursuant to the Maryland Franchise Registration and Disclosure Law, claiming The Coffee Beanery did not require arbitration. Rifkin also alleged on behalf of his clients that other claims were not arbitrable under the terms of the arbitration provisions in the franchise agreement.

Arbitrator's Manifest Disregard for Law

One pertinent issue in the arbitration is whether or not AAA should have put the arbitrator, JoAnne Barron, on the list of potential arbitrators, when it knew Barron's own accountant, Jane Johnson of Yeo & Yeo, was also the personal accountant for The Coffee Beanery. Rifkin expressed that the arbitrator and The Coffee Beanery sharing the same accountant was a conflict of interest, and it was undisputable that she never should have been picked. Yeo & Yeo, Johnson's firm, had also been retained as Coffee Beanery's expert both to testify as to the proprietary of its financial records and system and to rebut Welshans/Williams damage claims. Rifkin stated that financial disclosure given by Coffee Beanery are at issue in this case.

If there were irregularities in appointing the arbitrator, Rifkin also questions if the arbitration was valid and asks if Barron exceeded her authority in arbitrating claims which were not subject to the arbitration clause. In their appeal brief, while they raise the issue of whether AAA improperly chose the arbitrator without giving them an opportunity to participate in selection, they also ask if the arbitrator showed manifest disregard of the law in her award.

Coffee Beanery Response

Karl V. Fink, Pear, Sperling Eggan & Daniels, P.C., counsel for The Coffee Beanery, said they would be filing their response by February 26. He said they did not think there was any merit to the appeal. "Arbitration awards, generally speaking, are supposed to be confirmed by the courts unless there are certain grounds, which don't exist in this case. We think Judge Duggan was right in that there is no basis for an appeal. Of course, people have the right to take it to appeal. We understand that."

The Coffee Beanery is no longer registered in Maryland or Illinois. Rifkin said in closing, "As proven by the actions of Maryland and Illinois attorney generals, my clients were defrauded in the sale of the franchise to them. I think it's time that the courts stepped up and didn't give the arbitration providers and arbitrators carte blanche because to do so is a perversion of the American system of justice."

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• Coffee Beanery Franchisees Fight On Despite Losses
• Coffee Beanery Franchisees' Motion Denied . . . Again