Saleemi v. Doctor’s Associates, Inc.: the Washington Supreme Court Heightens the Burden for Parties Appealing Confirmation of an Arbitration Award
Posted Jan 30, 2013
Benjamin D. Greenbergview author profile and contact info
On January 17, 2013, the Washington State Supreme Court issued a decision in Saleemi v. Doctor's Associates, Inc., addressing whether a party who does not seek discretionary interlocutory review of a ruling ordering arbitration in Washington and invalidating a contractual choice of venue clause must demonstrate prejudice arising from the trial court’s order compelling arbitration in order to challenge the ruling on appeal from a judgment confirming the arbitration award. The Court held that if a party waits to seek discretionary review of an order compelling arbitration on grounds of venue, damage limitations, or choice of law until after the arbitrator’s award, the party must show prejudice in order for an appellate court to address the merits of the party’s challenge. The effect of the decision may be to cause further delay and costs to litigants by encouraging parties to seek interlocutory appellate review of orders compelling arbitration to avoid being faced with the higher burden of establishing prejudice that would accompany a subsequent challenge to an arbitration award. On the other hand, Saleemi may also encourage parties to resolve important procedural issues at the outset of the arbitration, and thereby avoid the lost time and resources that inevitably are incurred when an arbitration award is vacated.
In Saleemi, plaintiffs entered into three franchise agreements with the defendant to own and operate three franchises in Washington. The franchise agreements provided that any disputes would be arbitrated in Bridgeport, Connecticut, under Connecticut law, but stated Connecticut Franchise Law would not apply to franchises located outside of Connecticut. After a dispute arose, the plaintiffs filed suit in Pierce County Superior Court. A superior court judge found the choice of law and forum selection clause unenforceable and entered an order compelling arbitration in Washington, under Washington law, and with no limitations on damages—contrary to a provision in the franchise agreements. The defendant did not seek discretionary review of the Superior Court’s ruling and plaintiffs ultimately prevailed at the arbitration.
The defendant then sought to vacate the award, primarily on the grounds that the trial court’s initial order compelling arbitration was in error. The trial court denied the motion to vacate and the defendant appealed. The Court of Appeals concluded that even if the trial judge's order was incorrect, the defendant had not shown prejudice and was not entitled to relief.
The Washington Supreme Court concurred with the Court of Appeals and held that where a party fails to seek discretionary review of an order compelling arbitration, the party challenging the order must show prejudice as a condition of relief from the arbitration award. The Court reasoned that this approach promotes the prime purposes of arbitration, speed and convenience, while allowing a truly aggrieved party to obtain relief. Thus, the Court analyzed whether the Defendants had been prejudiced by: (i) the application of Washington law to the dispute, (ii) the arbitrator’s ruling that there would be no limit on damages, and (iii) the fact that the arbitration was conducted in Washington rather than Connecticut. Finding the defendants failed to prove any prejudice, the Court affirmed.
Justice Madsen issued a concurring opinion, agreeing with the result, but disagreeing with the majority’s new prejudice standard. Justice Madsen opined that the majority’s prejudice standard encourages motions for interlocutory discretionary review, which in turn causes delay, contravening the goal of arbitration as providing an efficient, swift form of dispute resolution. Justice Madsen went on to note that it should be rare to permit discretionary review of such orders as it causes unnecessary delay to the arbitral process. Thus, parties should not be penalized for failing to seek review that generally should not be granted. Instead, Justice Madsen argued de novo review of a court’s order to compel arbitration is the proper standard of review and in accord with both Washington precedent and case law in other jurisdictions.
While it remains to be seen whether the Saleemi decision will affect litigants’ behavior, there is a possibility that the decision may increase the frequency of interlocutory appeals, resulting in delays and increased costs associated with arbitrating a dispute. As Justice Madsen’s concurring opinion points out, the majority decision incentivizes parties to seek interlocutory review of a court order to compel arbitration. While parties may not always be inclined to do so, the prospect of facing a burden of establishing prejudice for failing to request discretionary review should be considered before acquiescing to a trial court’s order compelling arbitration.
Though Saleemi may have the effect of increasing costs and delays due to more frequent interlocutory appeals, the majority’s analysis also discussed the potential time and cost savings associated with avoiding the need to vacate decisions based on procedural grounds that should have been addressed at the outset. Thus, by heightening the burden for vacating an arbitration award on initial procedural grounds such as venue, the Court placed a barrier to litigants wasting significant amounts of time and money by throwing out an entire arbitration proceeding and award based on procedural issues that were likely known when the court issued the initial order compelling arbitration.
Accordingly, while the Washington Supreme Court’s decision may have the effect of increasing time and costs in the early stages of an arbitral matter, the overall effect may be to lower the amount of arbitration awards that courts will vacate based on procedural grounds and/or deter litigants from attempting to take a second bite at the apple post-arbitration.