Careful friends, that JC could be viewed as a Legally Binding Arbitration!

by Oroborus21 7 Replies latest jw friends

  • Oroborus21

    Yup, believe it or not, under the right conditions a Judicial Committee can be deemed as a legally binding arbitration.

    In short,some JW brothers were all in business together (they never learn do they?) they operated this company and another brother obtained a franchise in his area for the business. The franchise contract specified that disputes would be submitted to arbitration, including arbitration of the parties’ choice.

    When the brother who took the franchise broke his contract, the other brothers, led by the (JW) president of the company, insisted on bringing it all before a Judicial Committee.

    The amusing part is that the brother (company president) who dragged the other brother (franchisor) before the JC was smugly sure that things were going to go his way but when the JC looked at it all they decided in favor of the franchisor brother saying that the company had failed to fully support his efforts and meet their obligations towards him so he was released from the agreement.

    After a while, brother-president decided that the JC decision wasn’t valid after all and tried to get the legal machinery going ultimately bringing it to this decision below where the court found that, although it was certainly an unorthodox setting, the parties’ expectations regarding the Judicial Committee amounted to a binding arbitration as contemplated in the contract.

    ……………..for the amusing details the case is below..




    2000 U.S. Dist. LEXIS 6455
    February 1, 2000, Decided
    February 1, 2000, Filed

    DISPOSITION: [*1] Final judgment entered denying TCFC's request for confirmation of the AAA arbitration award, rendering that award null, void, and unenforceable.
    PROCEDURAL POSTURE: Plaintiff, franchisor, brought action for confirmation of American Arbitration Association award, pursuant to the Federal Arbitration Act, 9 U.S.C.S. ? 9, ordering payment to plaintiff of damages, attorney's fees, and arbitration fees and compensation from defendant, franchisee, for franchise agreement breach.

    OVERVIEW: Plaintiff, franchisor, sought arbitration award confirmation under the Federal Arbitration Act, 9 U.S.C.S. ? 9. Defendant, franchisee, did not attend the arbitration. The arbitrators found defendant breached a franchise agreement (agreement), and awarded damages, attorney's fees, and expenses. Defendant argued against confirmation because a prior arbitration award in his favor rendered the arbitrators' award void, and an estoppel defense applied. The parties had submitted their dispute to a local Jehovah's Witnesses judicial committee (committee). Defendant argued the parties agreed the committee decision would be final based on the agreement. Applying the "law of the Bible," the committee found defendant free of contractual obligation based on plaintiff's breaches. Plaintiff argued the committee proceeding was not based on the agreement, advisory only, and not binding. The court found the second arbitration lacked a contract basis or foundation because the first arbitration dissolved the contract, and denied confirmation because the award was null, void, and unenforceable, and the court applied equitable estoppel to preclude the plaintiff from denying the committee decision.

    OUTCOME: Confirmation denied, because second arbitration lacked a contract basis or foundation because the first arbitration dissolved the contract, the award was null, void, and unenforceable, and equitable estoppel applied to preclude plaintiff from denying the committee decision.




    JUDGES: P. Trevor Sharp, U.S. Magistrate Judge.

    OPINION BY: P. Trevor Sharp


    This matter came before the Court on December 7 and 8, 1999 for a bench trial. Plaintiff Total Car Franchising Corporation ("TCFC") called a witnesses Mr. Timothy Galfas II, former President of TCFC, and Mr. Christian Kopp, current Vice President of Franchise Operations. Defendant Doug Anderson testified on his own behalf and presented the testimony of Mr. Thomas Hambrick and Mr. Michael Sulewski, former employees of TCFC. At the close of trial the Court took the matter under consideration, and requested further briefing by the parties of certain [*2] legal issues raised by the evidence. The Court has considered all of the trial evidence and the final briefs of the parties, and now enters this Memorandum Opinion.


    Plaintiff TCFC filed this action pursuant to the Federal Arbitration Act, 9 U.S.C. ? 9, for confirmation of an August 20, 1998 arbitration award by a panel of the American Arbitration Association ("AAA") arbitrators in favor of TCFC. The "Award of Arbitrators" sought to be confirmed is attached to the Complaint in this action. The award recites that Defendant Doug Anderson failed to appear for the AAA arbitration proceedings after due notice. Based upon TCFC's evidence, the arbitrators found that Anderson breached a September 24, 1996 Franchise Agreement between the parties by abandoning his business while operating as a franchisee of TCFC. They further found that Anderson continued to violate the non-competition and confidentiality provisions of the Franchise Agreement after his termination by TCFC. The arbitrators awarded TCFC $ 50,000 from Anderson for his breach of the Franchise Agreement, $ 22,261.50 for TCFC's attorney's fees, and $ 8,449.75 for arbitration [*3] fees and compensation of the arbitrators (pre-paid by TCFC). In answering the Complaint in this judicial action, Defendant Anderson denied that the August 20, 1998 arbitration award by the AAA panel should be confirmed. He presented a number of defenses, including an alleged prior arbitration award in his favor which rendered the AAA award void and of no effect, and an estoppel defense alleged to arise from the prior arbitration. With the issues thus joined, and after full discovery by the parties, the case proceeded to trial before the Court.


    Plaintiff TCFC is a South Carolina corporation with its principal place of business in Duluth, Georgia, and is the franchisor of a system of approximately 300 licensed vehicle appearance technology franchises throughout the United States. TCFC franchises use the "Colors on Parade" service marks, trademarks, and trade dress. On September 24, 1996, TCFC entered into a Limited Rights Franchise Agreement ("Franchise Agreement") with Defendant Anderson, which granted Anderson the right to use the Colors on Parade System within a Designated Marketing Area. Section 12 of the Franchise Agreement sets out procedures for the resolution [*4] of disputes which may arise under the Franchise Agreement. The full text of Section 12 is as follows:
    Colors on Parade has implemented a dispute resolution procedure involving three basic steps. You agree to abide by this procedure. The steps are (1) Private Negotiation, (2) Mediation and (3) Binding Arbitration. The procedure is as follows:

    Step 1 - Private Negotiation - Whenever any cause or potential cause for disagreement may occur within the Colors on Parade community, the parties involved will enter into direct communication with one another. Only persons empowered to act conclusively in behalf of the business may be included in this meeting. The object is to contain the difficulty and resolve it at this level before it goes any farther.

    At this meeting, the parties will implement the following procedure.
    The one bringing the complaint, the claimant, should describe in objective terms the signs or symptoms that indicate a problem or a potential problem may exist.

    The claimant should describe what he/she believes should be happening as contrasted to what he/she actually observes happening.

    The claimant should try to outline a practical way that [*5] he/she thinks will resolve the issue so that it remains contained among the parties involved.

    The respondent must also be allowed to go through the three steps above if he/she cannot agree to some resolution of the issue.

    If the parties can agree to a resolution at this stage, they should immediately write down their understanding. The solution may be handwritten with copies for each person made and signed by both parties.

    Step 2 - Mediation - If the difficulty becomes so severe that the parties cannot bring themselves to meet personally and maintain a factual perspective, they may skip the first step then, and go directly to mediation. Or if the personal talks have totally broken down they will request the intervention of a mediator or mediators.

    Within the Colors on Parade community, in cases of disputes among members of the community, we will provide a list of three suggested mediators to deal with the situation. The disputants may choose one of the mediators. If they are unable to agree on a candidate from the list within 5 business days following receipt of the list, each party will, within 10 business days following receipt of the list, send to us a rating [*6] of the candidates ranked from number 1 to 3 in descending order of preference. The candidate with the lowest combined score will be appointed as the mediator by us. The disputants must inform us of the need for mediation.

    As soon as the parties reach agreement, the mediator must commit the understanding to writing. Each disputant must sign the agreement. The mediator will keep a copy, each disputant will receive a copy and the corporate office will receive a copy for its files.

    Step 3 - Binding Arbitration - If steps 1 and 2 do not bring resolution, a panel of neutral arbitrators will be appointed.

    The parties will each choose one arbitrator. The two arbitrators will select a third. The parties will determine the forum for arbitration. If, however, the parties fail to establish a forum the standard rules of arbitration as set out by the American Arbitration Association will apply. The parties will establish between themselves the law to apply to the proceedings. If, however, they fail to do so the laws of the state of Georgia will apply. The arbitration will be binding and the decision of the arbitrators final.

    The format of the arbitration process is this:
    One [*7] or each disputant submits a demand for arbitration to us. We will assist in the selection of arbitrators and serve as case administrator.

    Once the arbitrators are appointed, they will control the proceedings and all decisions will be final and binding and may be filed in a court of competent jurisdiction.
    (Plaintiff's Exh. 1.)

    TCFC and Anderson worked together under the Franchise Agreement for a period of time, but in April 1997 a dispute arose between TCFC and Anderson concerning their obligations under the Franchise Agreement. The parties held discussions in an attempt to resolve their disagreements, but no resolution could be reached.

    Many officers and employees of TCFC were Jehovah's Witnesses, as was Defendant Anderson. The parties reached an agreement, the scope of which is the subject of this litigation, to submit their dispute to the Winston-Salem Jehovah's Witnesses, by and through its Body of Elders and Judicial Committee, to assist the parties in resolving the dispute. Defendant Anderson maintains in this litigation that the parties agreed that the decision of the Judicial Committee would be final, and constituted "arbitration" under Section 12 of the Franchise [*8] Agreement. Plaintiff TCFC maintains that the proceeding before the Judicial Committee was not a Section 12 arbitration, was advisory only, and did not bind TCFC.

    The Judicial Committee, after an extended proceeding, found in favor of Defendant Anderson, finding that he was free of any contractual obligation to TCFC because TCFC had committed numerous serious breaches of the Franchise Agreement. The Judicial Committee's decision was given in writing to the parties in August 1997. Months later, in February 1998, TCFC commenced arbitration proceedings by filing a demand for arbitration with the AAA. The Demand for Arbitration was served on Anderson. By letter dated February 25, 1998, the AAA notified Anderson of the commencement of arbitration proceedings and further indicated that if he did not answer within ten days, his answer would be deemed "denied." In early March 1998, Anderson responded to the Demand by letter to counsel for TCFC, instructing counsel not to contact him again. Anderson wrote TCFC's president to the effect that their dispute had already been "totally arbitrated" before the Judicial Committee and as far as he was concerned, the matter was closed.

    On July 9, 1998, a [*9] hearing was held before the arbitration panel with Anderson entering no appearance and being found in default. On August 20, 1998, the arbitration panel entered an award in favor of TCFC, and on September 18, 1998, TCFC commenced this action to confirm the award.


    Pursuant to Fed. R. Civ. P. 52, the Court makes the specific findings of fact set out below. Further findings appear in the discussion section of this opinion.

    1. In the Spring of 1997 a dispute arose between Plaintiff TCFC and Defendant Anderson concerning their obligations under the Franchise Agreement between the parties.

    2. Anderson is a Jehovah's Witness. The great majority of the corporate headquarters management of TCFC are Jehovah's Witnesses, including all of the company representatives who dealt with the Anderson dispute extensively in this matter, specifically, former President Galfas, former Director of Franchise Development Michael Sulewski, former Vice President of Franchise Administration Thomas Hambrick, and current Vice President of Franchise Operations Christian Kopp.

    3. Pursuant to the terms of the Franchise Agreement, the parties agreed to enter into a dispute resolution proceeding [*10] and ultimately submitted their dispute to a Judicial Committee of the Jehovah's Witnesses. The parties intended the Judicial Committee to arbitrate the dispute and issue a final decision which would end the controversy. Both parties were fully aware of the rules and procedures followed by the Judicial Committee of the Jehovah's Witnesses and agreed to accept the decision of the Judicial Committee as the final resolution of their dispute under the Franchise Agreement.

    4. Michael Sulewski was named by TCFC President Galfas as the company ombudsman who was in charge of resolving the dispute between TCFC and Anderson. There is no evidence that special or unusual limitations were placed on Sulewski's authority as ombudsman. Sulewski was the primary representative of TCFC who dealt with Anderson in attempting to resolve the parties' dispute. When early negotiations failed, Sulewski proffered to Anderson a settlement offer wherein Anderson would be given additional training at TCFC's expense. Anderson refused that offer of settlement.

    5. Michael Sulewski told Anderson that, since other attempts at settlement had failed, he was taking their dispute to "the highest court," the Judicial Committee [*11] of the Jehovah's Witnesses. Sulewski also warned Anderson that he could be "disfellowshipped" from the Witnesses if he were found by the Judicial Committee to be in the wrong in his dispute with TCFC. Sulewski intended the proceedings before the Judicial Committee to be a final arbitration under Section 12 of the Franchise Agreement, and his statements on the subject lead Anderson to reasonably believe and understand that TCFC had chosen the Jehovah's Witnesses as the forum for arbitration under Section 12 of the contract. Anderson agreed to this procedure.

    6. Sulewski credibly testified that he believed that TCFC, under Timothy Galfas' direction, had previously participated in final arbitration proceedings under Franchise Agreements before Judicial Committees of the Jehovah's Witnesses. It was, in fact, true that TCFC had previously agreed to proceedings before the Jehovah's Witnesses as final arbitrations under Franchise Agreements. These previous arbitrations may have been limited to disputes between franchisees, where the company was not itself a party, but this distinction was not known by Sulewski. Galfas told Sulewski that TCFC had arbitrated business disputes before the Jehovah's [*12] Witnesses and had won most arbitrations. Galfas told Sulewski they had lost one arbitration but had simply proceeded to "beat [the arbitration winner] in the marketplace."

    7. Sulewski believed that the proceeding before the Jehovah's Witnesses would constitute the final resolution of the dispute between TCFC and Anderson, and communicated this understanding to Defendant Anderson. Sulewski reasonably believed that the agreement to finally arbitrate the contract dispute in this forum was directed and ratified by TCFC President Galfas, who said to Sulewski that if the company lost to Anderson before the Judicial Committee, "we'll beat him [Anderson] in the marketplace."

    8. The dispute actually submitted to the Judicial Committee, although couched in the charging document by Sulewski as a representative of TCFC in terms of alleged spiritual failings by Anderson (lying, thievery, fraud), was based exclusively upon the contract disputes between the parties. The charging document was drafted by Michael Sulewski and Thomas Hambrick for TCFC and advised the Jehovah's Witnesses that the parties had been through "step one and step two" in trying to resolve their dispute and were now submitting [*13] their dispute for resolution by a Judicial Committee as a "last resort." The Judicial Committee held two sessions of hearings with Anderson and representatives of TCFC in attendance. The Judicial Committee rendered a decision resolving the dispute wholly in favor of Anderson, finding TCFC in breach of the Franchise Agreement and Anderson under no further contract obligation to TCFC. The decision included specific findings and set out the following:
    1. Colors on Parade field agent Brother Forest Walters failed to provide Brother Anderson with a list of franchisees prior to signing a contract, as required under North Carolina law.

    2. Colors on Parade failed to loan Brother Anderson a copy of the Confidential Operations Manual and other vital written information necessary to the successful operation of his franchise as promised in the contract between Colors on Parade and Brother Anderson.

    3. The availability of technical assistance by Colors on Parade as promised in the contract was inadequate.

    4. Because of problems Brother Anderson encountered when on his own in his assigned territory, training in the "secrets" of Colors on Parade methods appeared to be inadequate [*14] and lacking.

    5. In correspondence to Timothy Galfas, Forest Walters, Chris Kopp and phone calls to various ones in the Colors on Parade organization, Brother Anderson made known his concerns and Colors on Parade's various failures to live up to their responsibilities under the contract.

    6. Because these were not addressed and remedied in a timely way, Brother Anderson concluded that since Colors on Parade had violated the contract, he was no longer obligated to uphold his agreement as stated in the contract. We are in agreement with him in this regard.

    7. Your offer to Brother Anderson at our August 18th meeting, by its generosity, and the point in time during the meeting at which it was presented, indicated to us that you realize Colors on Parade's culpability in the matter, even though you are only willing to admit to "mistakes" on the company's part.
    (Def's Exh. 4.)

    9. After the decision of the Judicial Committee was given to the parties, Michael Sulewski and Thomas Hambrick considered that TCFC's dispute with Defendant Anderson was finally concluded and was resolved. Defendant Anderson had the same understanding of the finality of the Judicial Committee's [*15] determination. Following the issuance of the Judicial Committee's decision, Anderson did not receive any communication from TCFC for several months, until early 1998 when TCFC, through counsel notified Anderson that TCFC was beginning to take steps to arrange first for a mediation, and then for arbitration before the AAA. Anderson refused to take part in any further mediation or arbitration proceedings with TCFC, correctly believing that the parties had agreed to final arbitration of their contract dispute before the Jehovah's Witnesses, and the Judicial Committee had decided that the parties' contract was dissolved.

    10. The AAA proceedings continued despite the fact that Defendant Anderson, after notice, did not appear or participate. A panel of AAA arbitrators ultimately entered a monetary award in favor of TCFC and against Defendant Anderson.


    This may be thought to be an unusual case: parties to a commercial contract include in their franchise agreement a binding dispute resolution process that allows them to choose the forum and the law to be applied in the case of a dispute, and then, when a dispute arises, they agree to refer the dispute to a body of elders within [*16] a religious congregation for final resolution based upon "the law of the Bible." Although this scenario may seem unusual, the evidence clearly shows that this is what occurred in this case. The parties entered into a final dispute resolution under their contract by means of a Jehovah's Witness Judicial Committee proceeding. Three elders acting as the Judicial Committee decided the dispute in favor of Defendant Anderson and determined that the contract between the parties was dissolved in view of numerous breaches by TCFC. Later, when TCFC pursued a second arbitration of the parties' dispute before an AAA panel, the purported second arbitration lacked a contract basis or foundation, for the contract had already been dissolved by the first arbitration decision. Accordingly, the Court will not confirm the second arbitration award as requested in this action by TCFC and will dismiss this action with prejudice, leaving the parties where they stood after the first arbitration.

    More than three-quarters of the headquarter employees of TCFC were Jehovah's Witnesses during the time period relevant to this action. All of the witnesses who testified at trial are Jehovah's Witnesses. 1 The corporate [*17] culture of TCFC was heavily influenced by this predominance of Witnesses within the company, so much so that on several prior occasions business disputes between franchisees of TCFC had been finally resolved under Section 12 of the company's standard Franchise Agreement by submission of the disputes to Judicial Committees of the Jehovah's Witnesses. 2 Timothy Galfas, President of TCFC, had told Michael Sulewski, the ombudsman he appointed to resolve the Anderson dispute, that contractual disputes had previously been resolved this way. Viewed in this light, it is not surprising that TCFC chose the Judicial Committee of Anderson's congregation to be the forum under Section 12 of the contract for final resolution of the business dispute between the parties.


    1 The owners of TCFC, Rob and Kathy Lowery, were at one time Jehovah's Witnesses as well, but according to testimony at trial, withdrew from membership in 1996 or 1997.

    2 TCFC President Galfas wrote an essay entitled "Christians and Contracts." In it, he describes how Judicial Committees of the Jehovah's Witnesses can hold a forum for resolution of business disputes and describes a corporate culture in which a Christian ethic is observed. Galfas has been a Jehovah's Witness elder for over 30 years.

    [*18] Michael Sulewski, the TCFC representative who was assigned primary responsibility for resolving the dispute with Anderson, testified that he fully understood that the proceeding before the body of elders was to be a final resolution under Section 12 of the Franchise Agreement. He had communicated this clearly to Defendant Anderson. Sulewski told Anderson, after private negotiations and discussions with other Witnesses within the company had failed, that he was taking the dispute "to the highest court." Anderson recognized that the Judicial Committee would be comprised of elders selected by the Body of Elders, and that he would not have an opportunity to name one of the arbitrators as contemplated by Section 12. He asked Sulewski point blank, "what happened to me picking an arbitrator," but Sulewski replied simply that, "we're going to take this to the highest court." Thomas Hambrick, the TCFC representative most involved in this matter other than Sulewski, also testified that he understood that the proceeding before the Judicial Committee was to be the final proceeding between the parties. In fact, Hambrick helped draft the "charging document" and cover letter submitted to the Judicial [*19] Committee, wherein the company laid out its case against Defendant Anderson, and informed the committee that "our attempts to resolve this matter have proven unsuccessful. Therefore, as a last resort, we bring the matter to your attention. (Def's Exh. 2.)

    While it is clear that Sulewski and Hambrick agreed with Anderson that the proceeding before the Judicial Committee was to be a final proceeding under Section 12 of the Franchise Agreement, Timothy Galfas and Christian Kopp denied at trial that this was their understanding. Kopp, however, by his own testimony, was only minimally involved in the Anderson dispute, and thus his testimony lacks significant weight. Indeed, he testified that when he came to Raleigh in mid-1997 for what he thought would be a mediation, he was "surprised" to find that a full Judicial Committee proceeding was underway. Clearly he was, as he testified, essentially "out-of-the-loop" with respect to this matter. Nonetheless, despite his distance from the events in issue, Kopp opined at trial that Sulewski just "pushed too far," and lacked authority to commit TCFC to final arbitration before the Judicial Committee, Kopp strongly opined that a Jehovah's Witnesses' [*20] Judicial Committee would not under any circumstances resolve a business dispute between an individual member and a corporation, which could not be a congregation member. When it was pointed out to him that that is clearly what happened in this case, he ventured that the Judicial Committee was "out of line." Kopp further believed that Sulewski was "out of line" in submitting the matter to the Judicial Committee.

    Upon review, the Court finds the evidence to be clear that Sulewski had the authority to submit the Anderson dispute to the elders of the Jehovah's Witnesses for final resolution. Sulewski did so in the first instance because he understood from Timothy Galfas that Judicial Committees had been used on prior occasions to resolve business disputes that arose under the company's Franchise Agreement. Galfas Was well aware that the Anderson dispute was headed for resolution before the Jehovah's Witnesses, and he informed both Sulewski and Hambrick that the Judicial Committee's decision would be final. Although he never used the particular word "final," he told them that if Anderson won before the Judicial Committee, the company would simply "beat him in the marketplace." Both Sulewski [*21] and Hambrick understood from Galfas' statements that he, as President of TCFC, intended the Judicial Committee's decision to be final, and the Court draws the same inference from Galfas' words.

    Galfas testified at trial, when recalled to the stand after the testimony of Christian Kopp, that Sulewski had exceeded his authority when he represented to Defendant Anderson that the proceeding before the Judicial Committee was to be a final arbitration. But when asked on further cross-examination exactly when he had formed this conclusion, Galfas responded that he had realized this absence of authority for the first tine "during this morning's testimony by Chris Kopp." The Court finds this testimony to be remarkable. Only now, years after the events in question, does Galfas, who was president of the company, come to a realization that the highly visible and well-known actions taken by his ombudsman long ago wore "unauthorized." And this is despite the fact that he, not Kopp, was the TCFC officer who dealt with Sulewski on a continuing basis and gave the instructions that Sulewski acted on. Kopp was largely uninvolved in the Anderson matter and had no basis, other than utter surmise, [*22] for knowing whether or not Galfas authorized final arbitration of the Anderson dispute before the Judicial Committee. Galfas' assessment at trial concerning a lack of authority by Sulewski is diametrically at odds with the Court's finding that Galfas advised both Sulewski and Hambrick that the Judicial Committee's decision would be respected and observed by TCFC as the end of the matter and that TCFC would just "beat [Anderson] in the marketplace" if it lost.

    Galfas authorized and ratified Sulewski's agreement to finally arbitrate before the Judicial Committee when he told Sulewski that the company, if it lost, would beat Anderson in the marketplace. There would be no need to rely on an ability to compete in the marketplace if the company still held full legal rights under the contract to seek additional arbitration. Galfas was unpersuasive at trial in attempting to explain away the obvious meaning of his words to Sulewski. When asked for the first time on direct examination if his statement meant that he intended to be bound by the elders' decision, he responded, "No. No. I think the idea was that whatever happened there, we had to continue working, the company had to show in the [*23] marketplace, which is the ultimate arbitrator of any business, that it was not lying down and playing dead, but in the field, the franchisee locally had to do whatever they had to do to keep their business going." 3 This response lacks cogency. The Court considers that Galfas was trying to avoid the obvious implication of his words and, of course, failed.


    3 When asked about this matter a second time later in the trial, Galfas did better, saying that he did not mean to imply that other avenues were not open.

    Plaintiff TCFC has advanced several arguments, based on several lines of testimony and evidence, to justify why the Court should not find that the parties intended the Judicial Committee proceeding of the Jehovah's Witnesses to be a final arbitration of their dispute pursuant to Section 12 of the Franchise Agreement. The Court finds none of these arguments persuasive and none of the related testimony telling. For example, Timothy Galfas and Christian Kopp testified that a company such as TCFC cannot be a [*24] member of the Jehovah's Witnesses and therefore cannot be subject to any enforcement action by a Judicial Committee. With respect to individual Witnesses, a Judicial Committee can privately or publicly reprove or, as an ultimate sanction, "disfellowship" an individual member. Plaintiff argues that since a company cannot be "bound" in the same fashion as an individual, TCFC cannot be found to have intended to be bound. This argument misses the point of arbitration. Arbitrators render decisions, they do not enforce decisions. If there is not voluntary compliance by the losing party, enforcement can be obtained through an action, as here, in federal court. The Court therefore draws no significance from the act that the Judicial Committee of the Jehovah's Witnesses could not enforce its decision against TCFC.

    The Court recognizes that at first blush the charging complaint which initiated the arbitration before the Judicial Committee does not look like a complaint concerning a business dispute. The claims of Sulewski, expressly complaining as a representative of TCFC, are couched in terms of alleged "fraud, thievery, [and] lying" by Anderson, but the testimony of Sulewski and Hambrick [*25] (and even Galfas and Kopp) makes it clear that the only disputes in issue before the Judicial Committee were the precise business disputes the parties had tried to resolve by negotiation but could not (i.e., "lying" means failing to live up to contract vows, "thievery" means failing to pay amounts due under the contract, and "fraud" means never having intended to comply with the contract). The dispute actually resolved by the Judicial Committee was the business dispute between the parties. The Committee applied the "law of the Bible" but the parties were free under Section 12 to agree on the law to be applied by the arbitrators. When they agreed to proceed before the Judicial Committee both sides knew absolutely what law would be applied. This is what they both expected and wanted.

    Galfas and Kopp testified that they never saw a list of mediators for step 2 mediation under the Franchise Agreement or selected an arbitrator under step 3, and therefore there could not have been a step 3 arbitration under Section 12. Nonetheless, Thomas Hambrick thought that the meeting between Anderson and elders Kopp and Sulewski was a mediation and, in any event, it was Sulewski, on behalf [*26] of TCFC, who directly called for the step 3 arbitration by announcing that he was taking the matter to the highest court. Anderson asked Sulewski about his opportunity, set out in Section 12, to designate one of the arbitrators, but Sulewski ignored that request. He specified, and Anderson agreed, that the matter would go to the Judicial Committee, a committee comprised of arbitrators selected from elders of the congregation, without input by the parties. Sulewski testified that the dispute resolution provisions of the contract were sometimes "loosely" applied, and it is clear that such was the case in this instance.

    Defendant Anderson, after winning the arbitration before the Judicial Committee, did not seek to enforce that decision by filing a confirmation action in federal court. No inference arises from this, however, that he believed the decision to be less than final. Anderson won a complete victory before the Judicial Committee, but he was not awarded affirmative or monetary relief against TCFC that needed further enforcement. The Judicial Committee found that TCFC had committed numerous breaches and that, as a result, Anderson was no longer bound by the contract. In short, [*27] the contract between the parties was completely dissolved and each party was free to go about its business without consideration of the provisions of the now defunct Franchise Agreement. Anderson had no reason to pursue any further enforcement action in the matter.

    When the arbitration before the Judicial Committee was over and TCFC had lost, Sulewski and Hambrick assumed that the matter was at an end. Anderson also knew that it was over. After a passage of time, however, TCFC began to change its position with respect to the finality of the Judicial Committee's decision. According to Hambrick (and the Court credits his testimony on this point and in general), a decision was made to turn the matter over to outside counsel for review. There was a concern about impinging "upon the right of the rest of the franchise community to have the legal avenue addressed." In fact, according to Sulewski's testimony, which the Court credits, it was the owners of the company, Rob and Kathy Lowery, who didn't want to leave matters where they stood and who ultimately decided to pursue a second arbitration. Thus, it was not the representatives of TCFC who dealt with the Anderson dispute, certainly not [*28] Sulewski or Hambrick or apparently even Galfas, who decided to take the position that the Judicial Committee decision was not binding on TCFC. In fact, this decision to pursue a second arbitration was directly contradictory to the actions consistently taken in this matter by TCFC representatives Galfas, Sulewski, and Hambrick, and contradictory to all representations made to Defendant Anderson.

    The outcome of this litigation turns on the resolution of the central factual dispute discussed above: Did the parties agree that the proceeding before the Judicial Committee of the Jehovah's Witnesses would constitute a final and binding arbitration of their business dispute under the Franchise Agreement of September 24, 1996? The Court has now answered this question "Yes." The legal ramifications of that answer are straightforward. Since the arbitration before the Jehovah's Witnesses resulted in a decision that dissolved and terminated the contract between the parties, Plaintiff TCFC had no further contract basis for demanding arbitration before the AAA. Therefore, the AAA's proceedings were without legal basis and the award of the AAA panel sought to be enforced in this action is null and [*29] void and will not be enforced by this Court.

    Michae1 Sulewski, acting with both actual and apparent authority to bind TCFC, agreed with Doug Anderson to submit the TCFC/Anderson dispute to the Judicial Committee for final arbitration under the Franchise Agreement. TCFC's president, Timothy Galfas, appointed Sulewski as the company ombudsman to resolve the dispute with Anderson. He placed no special or unusual limitations on Sulewski's authority. The scope of Sulewski's actual authority included all necessary and usual means for executing his assignment. Moreover, Galfas expressly ratified Sulewski's specific agreement to use the Judicial Committee for final arbitration when he told Sulewski that if TCFC lost the arbitration, it would simply beat Anderson in the marketplace.

    In briefing, the parties argue the Georgia and North Carolina law of actual or apparent authority. Under the law of either State, the facts found by the Court establish both the actual and apparent authority of Sulewski to bind TCFC. Georgia agency law is largely codified. HN1See Ga. Stat. ? 10-6-1 et seq. (Relation of principal and agent arises wherever one person, expressly or by implication, authorizes [*30] another to act for him or subsequently ratifies the acts of another in his behalf; agent's authority includes all necessary and usual means for executing it; principal is bound by acts of his agent within scope of his authority.) See generally, Tattersall Club Corp. v. White, 232 Ga. App. 307, 501 S.E.2d 851 (1998). HN2North Carolina law provides that a principal is bound by his agent's contract when the agent acts within the scope of his actual authority or when the agent acts within the scope of his apparent authority, unless the third person has notice that the agent is exceeding actual authority. Institution Food House, Inc. v. Circus Hall of Cream, Inc., 107 N.C. App. 552, 421 S.E.2d 370 (1992). HN3A corporation necessarily acts through its officers or agents. When an agent is held out by a corporation in the ordinary course and permitted to act for it in such a way as to justify a third person in good faith to assume that the agent is making a contract within the scope of his authority, the corporation is bound thereby. Moore v. WOOW, Inc., 253 N.C. 1, 116 S.E.2d 186 (1960).

    Accordingly, TCFC is bound by the agreement made by Sulewski, [*31] its agent, to enter a final and binding arbitration with Anderson before the Judicial Committee. The arbitration decision by the Judicial Committee was that the Franchise Agreement between the parties was wholly dissolved and of no further effect. Neither party had any remaining rights or obligations under the Franchise Agreement, Despite these facts, TCFC subsequently initiated a second arbitration, purportedly under the contract, before the AAA. Anderson refused to participate in the AAA proceeding, and advised TCFC that the matter had already been fully and finally arbitrated before the Judicial Committee and TCFC had lost. When Anderson did not appear for the AAA. proceeding, the AAA arbitrators entered the default award now sought to be enforced by TCFC. However, in view of the prior final arbitration between the parties, which resulted in a decision for dissolution of the contract, the subsequent AAA award is not enforceable and will not be confirmed by this Court.

    HN4Section 3 of the Federal Arbitration Act requires "an agreement in writing" for an arbitration to proceed. 9 U.S.C. ? 3 (1999). Furthermore, "arbitration is a matter of contract and a party cannot [*32] be required to submit to arbitration any dispute which he has not agreed to so submit." Peoples Security Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 809, 812 (4th Cir. 1989) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960)). Under the facts of this case, there was no longer any contract obligation on Anderson's part to arbitrate with TCFC by the time TCFC initiated the proceeding with the AAA. HN5The lack of jurisdiction and the nonexistence of an agreement is an appropriate inquiry for a district court when a party attempts to enforce an arbitration award. Hanes Supply Co. v. Valley Evaporating Co., 261 F.2d 29 (5th Cir. 1958). This is not a case wherein Anderson was required to present a res judicata defense to the AAA arbitrators; here, a prior arbitration had served to end the contract between the parties, not simply resolve a particular claim under a contract that continued to operate after the prior arbitration. Cf., John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 139-40 (3rd Cir. 1998) (under facts where [*33] continued existence of contract between the parties was not in issue, res judicata effect of a prior arbitration should be presented to second arbitration panel).

    The Court further concludes, as an alternative and additional reason for not confirming the AAA arbitration award, that TCFC is equitably estopped from denying the validity and finality of the first arbitration decision made by the Judicial Committee. TCFC's representatives affirmatively represented to Anderson that the Judicial Committee's decision would be final and binding under the Franchise Agreement. TCFC intended that Anderson rely upon this representation and Anderson did in fact reasonably rely. TCFC is charged with actual knowledge that it agreed to finally arbitrate before the Judicial Committee because its authorized agents knew this fact. Defendant Anderson could not have known that TCFC would later repudiate the agreement and the actions of its agents, and Anderson reasonably relied on the acts and representations of TCFC's agents concerning the finality of the arbitration before the Judicial Committee. Anderson would be severely prejudiced if the Judicial Committee's decision were not afforded finality [*34] since he would be required to re-arbitrate a dispute that he had already won. These facts make out an equitable estoppel which is a full and complete defense for Anderson to TCFC's action for confirmation of the AAA award. See generally, Blizzard Bldg. Supply, Inc. v. Smith, 77 N.C. App. 594, 335 S.E.2d 762, 763 (1985) (elements of equitable estoppel include [1] conduct which amounts to a false representation, [2] intention that such representation will be acted on by another party, [3] knowledge of the actual facts, [4] lack of knowledge of the real facts by the other party, and [5] reasonable reliance by the other party to his prejudice.)


    Accordingly, contemporaneously with entry of the Memorandum Opinion, the Court will enter a final judgment denying TCFC's request for confirmation of the AAA arbitration award, rendering that award null, void, and unenforceable.

    P. Trevor Sharp, U.S. Magistrate Judge

    February 1, 2000


    For the reasons set forth in the Memorandum Opinion filed contemporaneously with this Judgment,

    IT IS HEREBY ORDERED AND ADJUDGED that Plaintiff's request for confirmation of the August 20, 1998 arbitration [*35] award, copy attached to the complaint herein, is DENIED, and Plaintiff shall have and recover nothing of Defendant in this action. This action is dismissed with prejudice.

    United States Magistrate Judge

  • crazyblondeb

    So much for not taking your brothers to court....

  • avengers
    So much for not taking your brothers to court....

    second that

  • wha happened?
    wha happened?

    except that nothing previous to a JC is in writing so how do u prove it's binding? And that all parties agree it's binding?

  • R.Crusoe

    I anticipated scriptural refences and footnotes. Clearly you are not inspired by the FDS.

  • JWdaughter

    I thought it interesting that the Lowery's, the owners of the Franchise, withdrew their association as JWs right around the time this went to court. Wonder what the story with that was?

    Just me, being a nosy Nelly.


    tsk tsk brothers...all that with Armegeddon right around the corner

  • sass_my_frass

    So, the owners of the business either disassociated or disfellowshipped, but because of the nature of the contracts they originally drew up, they're held to arbitration by JC. Bummer. Although it looks like both parties of a disagreement can choose their own arbiter, and the two choose a third. I guess if the owner gets a good lawyer they might fight for a decent third arbiter, but otherwise, well bummer!

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