Washington Supreme Court Finds No Prejudice in Arbitration Contract

Richard Birke is a JAMS consultant and has taught dispute resolution for more than 20 years. He is a law school professor and director of the Center for Dispute Resolution at Willamette. Under his leadership, CDR has enjoyed more than a decade of high national rankings in the US and is the 2012 winner of the Ninth Circuit ADR Education Award. Mr. Birke is a two-time award‑winning author, as well as an ADR neutral, consultant and trainer. 

It was a surprise to me the first time I found out that the nationally-known firm Doctor’s Associates was the corporate name for the Subway Sandwiches chain. The chain is now the second largest food vendor in the world with more than 37,000 franchisees. With a workforce that large, it is not a surprise that the name Doctor’s Associates occasionally makes its way into the name of a case.

In 1995, Doctor’s Associates became responsible for one of the most famous arbitration cases of all time – Doctor’s Associates v. Casarotto. In that case, the Montana Supreme Court said that Casarotto did not have to arbitrate with Subway because the arbitration clause violated Montana law that required arbitration clauses to be written in capital letters on the first page of any contract containing such a clause. The U.S. Supreme Court reversed the Montanans, finding their state law to be in violation of the requirement of the Federal Arbitration Act that arbitration contracts be placed on the same footing as any other contract.

In January, another franchisee, based in Washington, was relieved from some of the obligations of an arbitration clause he signed in a Subway franchise agreement. In Saleemi v. Doctor’s Associates, the franchisee, Waqas Saleemi was terminated from his three Subway franchises because he was suspected to be working for a rival sandwich shop. When Saleemi filed suit, Doctor’s Associates argued that he had to travel to Connecticut to arbitrate because he had voluntarily signed a contract with a forum selection clause. A Washington state court judge ruled that Saleemi did not have to go because the forum selection clause was unconscionable. Instead, the arbitration would occur in Washington.

The arbitration went forward and Saleemi won. Doctor’s Associates’ appealed and the Washington Supreme Court held that they had shown no prejudice from moving the arbitration to Washington. As the arbitration provider was a national company, Doctor’s Associates even got the same brand of arbitration they would have gotten had they been in Connecticut.

The Court concluded, “We join the emerging consensus of courts and hold that a party who fails to seek discretionary review of an order compelling arbitration, must show prejudice as a condition of relief from the arbitration award. This approach promotes prime purposes of arbitration, speed and convenience, while allowing the truly aggrieved party to obtain relief.”

Perhaps this case shows that courts are moving in a new direction. In corporate law, choice-of-law provisions in contracts have enjoyed near-universal respect. In arbitration law, it seems that choice-of-law provisions enjoy something less. We’ll be watching closely to see which view will prevail -- the Washington Supreme Court’s view that the purposes of arbitration sometimes trump the parties’ choices or whether the contract will reemerge as the dominant factor. Either way, we’ll keep you posted.