May 25, 2022
By: Thomas O’Connell
Citation:
Cronin v. Advanced Fresh Concepts Franchise Corporation, Not Reported in Fed. Supp., 2022 WL 2063476 (C.D. Cal. 2022)
Executive Summary:
In this unpublished decision, Judge Stephen V. Wilson of the United States District Court for the Central District of California denied Annemarie Cronin’s petition to vacate a final arbitration award entered by a panel of three arbitrators under the American Arbitration Association (AAA). The case involved Annemarie Cronin (Plaintiff) and Advanced Fresh Concepts Franchise Corporation (Defendant). Cronin alleged employment misclassification, breach of the implied covenant of good faith and fair dealing, and arbitrator partiality. The court upheld the arbitration panel’s ruling, concluding that Cronin failed to provide sufficient evidence to overturn the award under the Federal Arbitration Act (FAA).
Relevant Background:
Annemarie Cronin (Plaintiff) was employed by Advanced Fresh Concepts Franchise Corporation (AFC) (Defendant) before transitioning into a franchisee role through a Franchise Agreement. Cronin alleged that after developing a successful franchise operation, AFC engaged in discriminatory practices aimed at seizing the franchise location and forcing her to return to her prior managerial position.
Following the termination of the Franchise Agreement, Cronin filed an action asserting claims including breach of contract, fraud, wrongful termination, and retaliation. AFC successfully compelled arbitration under the Franchise Agreement, arguing that it mandated arbitration in accordance with the American Arbitration Association (AAA) Commercial Arbitration Rules. Cronin initially submitted her arbitration demand under the AAA Employment Arbitration Rules, which AFC objected to, citing the Agreement’s specific reference to the Commercial Arbitration Rules. The AAA dismissed the action on that basis.
Cronin then attempted to pursue arbitration through ADR Services, but AFC objected once again, referencing the Agreement’s requirement that at least one arbitrator have franchise law expertise. ADR Services indicated they could not meet this requirement, leading to further delays. Ultimately, Cronin refilled her arbitration demand with the AAA under the Commercial Arbitration Rules, and AFC did not object. A three-member arbitration panel was appointed, and the arbitration proceeded. Following a six-day evidentiary hearing, the panel issued a final ruling in favor of AFC.
Cronin filed a petition to vacate the arbitration award on three primary grounds. First, she argued that the panel erred in finding that there was no employment relationship between her and AFC. Second, Cronin contended that the panel improperly refused to consider her claim for breach of the implied covenant of good faith and fair dealing. Third, she asserted that AFC’s counsel, Grant Nigolian, failed to disclose his status as a member of the AAA’s Commercial Panel, thereby raising questions of impartiality.
Decision:
The court denied Plaintiff’s petition on all ground:
- First, on the issue of employment misclassification, the court found Cronin’s arguments that the arbitration panel misapplied California Labor Code § 3357, which presumes employee status, and improperly relied on North Carolina law as insufficient, emphasizing her failure to provide necessary records and transcripts from the arbitration proceedings. Without these materials evidence, the court concluded there was no basis to overturn the panel’s findings. The court cited Lagstein v. Certain Underwriters at Lloyd’s, London, 607 F.3d 634 (9th Cir. 2010), which limited judicial review of arbitration awards to the grounds established under the Federal Arbitration Act (FAA).
- Secondly, the court agreed with the arbitration panel’s determination regarding the breach of the implied covenant of good faith and fair dealing, that Cronin had not properly pleaded this claim. The panel noted that Cronin raised the issue for the first time in opposition to AFC’s dispositive motion and had not sought leave to amend her claims, as required under AAA Commercial Rule R-6. The court highlighted the importance of procedural compliance, referencing Digerati Holdings, LLC v. Young Money Ent., LLC, 194 Cal. App. 4th 873 (2011), which reaffirmed that claims introduced beyond the initial pleadings may be dismissed if they lack proper procedural support.
- Finally, the court rejected Cronin’s claim of arbitrator bias, concluding that AFC’s counsel’s role as an AAA Commercial Panel arbitrator did not create a conflict warranting vacatur. The court reasoned that this information was publicly available through Nigolian’s LinkedIn profile and law firm website, and Cronin’s failure to raise an objection prior to arbitration constituted a waiver of the issue. The court referred to Fidelity Fed. Bank v. Durga Ma Corp., 386 F.3d 1306 (9th Cir. 2004), which held that parties with constructive knowledge of potential arbitrator conflicts must object before arbitration or forfeit their right to contest the award based on partiality.
Looking Forward:
This case reinforces several important considerations for franchisors, franchisees and other business stakeholders:
- The court’s decision showcases the value of clearly drafted arbitration clauses that require the use of specific arbitration rules, such as the AAA Commercial Arbitration Rules, and the appointment of arbitrators with expertise in franchise law. By including such provisions, franchisors can ensure that disputes are resolved within a framework that limits the risk of procedural challenges, as demonstrated by AFC’s successful enforcement of the arbitration agreement.
- Franchisors should take note of the court’s affirmation that franchisees cannot raise new claims mid-arbitration without seeking leave from the panel. This reinforces the importance of maintaining strict procedural controls to prevent claimants from expanding the scope of disputes late in the process, ultimately protecting franchisors from unnecessary litigation.
- Additionally, the case serves as a reminder that allegations of arbitrator partiality must be substantiated by concrete evidence. Franchisors benefit from this precedent, as it reaffirms that concurrent professional relationships between arbitrators and counsel such as serving on the same arbitration panels are insufficient to justify vacatur absent a clear and direct conflict of interest. This offers franchisors greater confidence in the integrity of arbitration outcomes, reducing the likelihood of awards being overturned on speculative grounds.
- Finally, the decision reflects the courts’ continued deference to arbitration agreements and highlights the need for franchisors enforce these agreements diligently.