JUDGE CONFIRMS ARBITRATION AWARD AGAINST SELLER OF JANITORIAL FRANCHISES
Raleigh, NC – Superior Court Judge Carl R. Fox entered an order last week confirming the award of a panel of three arbitrators who ruled in favor of a Raleigh man who purchased a janitorial franchise from a Florida-based company named Warjon, Inc., also known as Coverall of Raleigh-Durham. The order requires Coverall to pay David Matthew damages for breach of contract, plus the attorneys’ fees and costs that he incurred in arbitrating his claims.
David Matthew purchased a “P-15,000” janitorial franchise package from Coverall in August 2007. He paid $50,750 ($30,000 in cash and $20,750 through promissory notes) to buy a cleaning business that Coverall promised would entitle him to receive $15,000 per month in business. Under the agreement, Coverall had up to 480 days to fulfill its monthly commitment to Mr. Matthew. After only a few months, however, it became clear to Mr. Matthew that Coverall was not offering the level of business that it had promised. After unsuccessful efforts to negotiate a refund of his down payment, Mr. Matthew sued Coverall in Wake County Superior Court on October 9, 2007, asserting claims for breach of contract, violation of the North Carolina Business Opportunity Sales statute, and unfair and deceptive trade practices. Coverall filed counterclaims, contending that Mr. Matthew failed to satisfy his obligation under the series of promissory notes that he signed to finance his purchase of the franchise. Upon Coverall’s motion, all claims were submitted to arbitration before the American Arbitration Association (AAA).
The AAA panel of arbitrators ruled that Coverall breached the franchise agreement by failing to provide Mr. Matthew the agreed-upon level of monthly business. The panel ruled that Coverall’s “central argument that the Agreement only requires it to provide $15,000 of Initial Business by the end of the 480 day Initial Business Offering Period is contradicted by its own witness’ testimony. . . . The Agreement would be tantamount to an unenforceable illusory contract if [Coverall’s] only requirement was to provide $15,000 of business more than a year after Matthew signed the contract. No competent person would pay $30,000 down and agree to indebtedness of an additional $20,000 in return for a single month of $15,000 worth of business.”
In rejecting Coverall’s counterclaim for breach of the promissory notes, the panel found that while Coverall’s “breach may not have made payment of the notes wholly impossible, it substantially frustrated Matthew’s ability to perform his payment obligation. Even more compelling is that [Coverall’s] part-owner and senior officer Mr. Smid admitted in response to the Panel’s question at the hearing that it would be ‘unfair’ to enforce the notes under the circumstances of this case.”
Mr. Matthew was represented by Daniel T. Blue, Jr. and Dhamian Blue. “We are pleased by the AAA’s ruling and Judge Fox’s confirmation of the award,” said Dan Blue. “While we continue to believe that these types of claims should be submitted to juries rather than arbitrators because of the high costs associated with arbitration, we hope that this ruling shows companies that when they do not prevail, arbitration can be much more costly to them than resolving disputes in our constitutional courts.”
Blue Stephens & Fellers LLP is a boutique law firm based in Raleigh, North Carolina. Its lawyers regularly litigate claims on behalf of plaintiffs for breach of contract, unfair and deceptive trade practices, and fraud. Please visit www.tbsf-law.com for more information.