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A Federal District Court in Michigan refused to vacate an arbitration award in a franchise agreement dispute involving allegations that one of the parties committed perjury at the arbitration hearing.
In The Coffee Beanery Ltd. v. WW L.L.C., No. 06-10408, 2007 WL 1500533 (E.D. Mich. May 23, 2007), franchisee WW L.L.C. (WW) entered into an agreement with franchisor The Coffee Beanery Ltd. (Coffee Beanery) to own an operate one of Coffee Beanery's coffee cafes.
When WW later sued, arguing that Coffee Beanery had misled it into entering into the franchise agreement, Coffee Beanery initiated arbitration proceedings as provided for in the agreement. The arbitrator ultimately issued an award in favor of Coffee Beanery, and against WW.
WW sought to have the award vacated on numerous grounds, including an accusation that a representative of Coffee Beanery – Joanne Shaw – had perjured herself at the arbitration hearing by claiming that Coffee Beanery had made required changes to its franchise agreements.
In rejecting WW's motion to vacate, the Court noted first that WW failed to point to the relevant testimony where the alleged perjury occurred. More importantly, even assuming the false statement had been made, WW failed to meet the three part test used to evaluate whether an arbitration award should be vacated for fraud.
More specifically, this test requires a party to establish, "(1) clear and convincing evidence of fraud, (2) that the fraud materially relates to an issue involved in the arbitration, and (3) that due diligence would not have prompted the discovery of the fraud during or prior to the arbitration."
Even assuming that WW could establish the first two elements, the Court noted that there was no doubt that WW "was aware or could have discovered the alleged falsity" of Coffee Beanery's claims during the arbitration.
Since it had, or could have obtained, copies of Coffee Beanery's updated franchise agreements, and since WW had the opportunity to cross-examine Shaw in regard to the alleged perjury, the Court held that the perjury claims did not form a basis for vacating the award, and so proceeded to confirm it.
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