Court Opinion

ID: 2967424
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:33:35.528846+00
Date Added: 2024-06-11T13:14:00.693532
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

CHOICE HOTELS INTERNATIONAL,           
INCORPORATED,
                 Plaintiff-Appellee,
                 v.
BSR TROPICANA RESORT,                         No. 00-2507
INCORPORATED, a Florida
Corporation; SUSAN HOUNSOM;
MILTON JOHNSON,
             Defendants-Appellants.
                                       
           Appeal from the United States District Court
            for the District of Maryland, at Greenbelt.
                 Peter J. Messitte, District Judge.
                        (CA-00-2305-PJM)

                      Argued: May 8, 2001

                      Decided: June 8, 2001

      Before WILKINSON, Chief Judge, and WILKINS and
                  LUTTIG, Circuit Judges.

Vacated and remanded by published opinion. Judge Wilkins wrote the
opinion, in which Chief Judge Wilkinson and Judge Luttig joined.

                           COUNSEL

ARGUED: Onkar Nath Sharma, SHARMA & BHANDARI, Silver
Spring, Maryland, for Appellants. Kerry Shanahan McGeever, Silver
Spring, Maryland, for Appellee.
2             CHOICE HOTELS v. BSR TROPICANA RESORT
                              OPINION

WILKINS, Circuit Judge:

   SR Tropicana Resort, Incorporated and two affiliated individuals
(collectively, "BSR") appeal the denial of their motion to dismiss a
lawsuit against them in favor of arbitration. Because the relevant con-
tractual language requires arbitration of one of the two claims against
BSR, we vacate the decision of the district court and remand for fur-
ther proceedings.

                                  I.

   This case arises from a franchise agreement ("the Agreement")
between BSR and Appellee Choice Hotels International, Incorporated
(Choice). Under the Agreement, BSR agreed to open a motel in Dav-
enport, Florida, and Choice authorized BSR to use the "Quality Inn"
brand name. Three terms of the Agreement are relevant here. First,
BSR was required to pay Choice a non-refundable $25,000 "affilia-
tion fee" upon signing the Agreement. J.A. 10. Second, in the event
of termination, the Agreement allowed Choice to recover liquidated
damages. Third, the Agreement contained the following arbitration
provision:

    Except for claims for indemnification, actions for collection
    of moneys owed [to Choice] under this Agreement, or
    actions seeking to enjoin [BSR] from using [Choice’s trade-
    marks] in violation of this Agreement, any controversy or
    claim relating to this Agreement, or the breach of this
    Agreement, including any claim that this Agreement or any
    part of this Agreement is invalid, illegal, or otherwise void-
    able or void, will be sent to final and binding arbitration
    ....

Id. at 20 (emphasis added).

   After less than two years, and before BSR opened its hotel, Choice
sued BSR, alleging that (1) BSR failed to pay the affiliation fee and
(2) BSR breached the Agreement, prompting Choice to terminate it
               CHOICE HOTELS v. BSR TROPICANA RESORT                   3
and causing damages to Choice of $586,600. BSR moved to dismiss,
asserting, inter alia, that the Agreement required arbitration of
Choice’s claims. The district court denied the motion; as is relevant
here, the court ruled that Choice’s claims were not arbitrable because
they fell within the exception for "actions for collection of moneys
owed." After the district court denied reconsideration, BSR took this
interlocutory appeal. See 9 U.S.C.A. § 16(a) (West 1999) (authorizing
interlocutory appeals from certain orders favoring litigation over arbi-
tration).

                                   II.

  Before addressing BSR’s appellate claim, we must consider
Choice’s contention that BSR never properly invoked the Federal
Arbitration Act (FAA). We hold that this contention is meritless.

   As is relevant here, the FAA requires a district court, upon motion
by any party, to stay judicial proceedings involving issues covered by
written arbitration agreements. See 9 U.S.C.A. § 3 (West 1999).
According to Choice, BSR’s motion to dismiss was not a proper § 3
motion because the sole remedy available under § 3 is a stay. Not-
withstanding the terms of § 3, however, dismissal is a proper remedy
when all of the issues presented in a lawsuit are arbitrable. See Alford
v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).
Moreover, a hyper-technical reading of BSR’s pleadings would be
inconsistent with the "liberal federal policy favoring arbitration agree-
ments." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983). BSR made clear during proceedings in the district
court that it was "seeking enforcement of the arbitration clause of the
Agreement." J.A. 141. This is sufficient to invoke the full spectrum
of remedies under the FAA, including a stay under § 3.

                                  III.

   We now turn to BSR’s assertion that the Agreement requires arbi-
tration of both of Choice’s claims. Because this appeal involves a
matter of contract interpretation, we review the decision of the district
court de novo. See United States v. Bankers Ins. Co., 245 F.3d 315,
319 (4th Cir. 2001). Agreements to arbitrate are construed according
to the ordinary rules of contract interpretation, as augmented by a fed-
4              CHOICE HOTELS v. BSR TROPICANA RESORT
eral policy requiring that all ambiguities be resolved in favor of arbi-
tration. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
944-45 (1995).

                                   A.

   The Agreement provides for arbitration of "any controversy or
claim relating to this Agreement, or the breach of this Agreement,"
subject to three exceptions. J.A. 20. This appeal requires us to inter-
pret one of these exceptions, which embraces "actions for collection
of moneys owed [to Choice] under this Agreement" ("the collection
exemption"). Id.

   The crucial terms within this phrase are "collection" and "owed."
"To collect a debt or claim is to obtain payment or liquidation of it,
either by personal solicitation or legal proceedings." Black’s Law Dic-
tionary 263 (6th ed. 1990) (emphasis added). To "owe" means "[t]o
be bound to do or omit something, especially to pay a debt." Id. at
1105. Both of these definitions point us to the word "debt," which
denotes a "sum of money due by certain and express agreement" or
a "fixed and certain obligation to pay money or some other valuable
thing or things." Id. at 403. In light of these definitions, we hold that
the collection exemption applies to actions by Choice to enforce spe-
cific payment obligations that are "fixed" by the Agreement and not
contingent on additional events. This interpretation of the phrase "ac-
tions for collection" accords with the ordinary understanding of the
phrase "collection action." See, e.g., Young v. Commissioner, 240
F.3d 369, 372 (4th Cir. 2001) (referring to "collection action" against
defaulting debtor); cf. Laborers Health & Welfare Trust Fund v.
Advanced Lightweight Concrete Co., 484 U.S. 539, 548-51 (1988)
(holding, in the context of the Employee Retirement Income Security
Act, that a procedure known as a "collection action" may be used to
enforce payment of promised contributions to retirement plans but not
to determine whether additional contributions are mandated by law).

   The parties offer two alternative readings of the collection exemp-
tion. BSR contends that the exemption is limited to the enforcement
of judgments. For its part, Choice asserts that the phrase embraces all
actions seeking monetary damages. We find neither of these interpre-
tations persuasive.
               CHOICE HOTELS v. BSR TROPICANA RESORT                   5
   Under BSR’s interpretation, most disputes between Choice and
BSR would proceed to arbitration first, and then Choice could resort
to judicial proceedings to recover damages awarded by the arbitrator.
This interpretation is inconsistent with the contractual language refer-
ring to "moneys owed . . . under this Agreement," J.A. 20 (emphasis
added), which describes debts arising from the Agreement rather than
debts imposed by judicial or arbitral judgment. Moreover, under
BSR’s interpretation, the collection exemption applies only after
claims have already been arbitrated; this is not a plausible reading of
a phrase designed to exclude certain claims from arbitration.

   Choice, by contrast, favors an extremely broad reading of the col-
lection exemption. According to Choice, the exemption excludes from
arbitration all claims (by Choice) seeking monetary damages. Given
the opportunity at oral argument to identify claims that would be arbi-
trable, counsel for Choice was able to offer only two examples—
demands for specific performance and actions for replevin. Choice’s
interpretation is intuitively unsatisfying, however, because most
breach of contract claims seek monetary relief; consequently, most
breach of contract claims by Choice would be exempt from arbitra-
tion, notwithstanding that the arbitration clause expressly embraces
"any controversy or claim relating to . . . the breach of this Agree-
ment." Id. Our discomfort with Choice’s interpretation is heightened
by the fact that a separate exemption within the arbitration clause
excludes certain equitable actions brought by Choice to arrest "viola-
tion[s] of this Agreement." Id. Thus, the interpretation urged by
Choice effectively transforms the arbitration provision into a unilat-
eral commitment by BSR to arbitrate its claims, while claims by
Choice are subject to judicial determination. We are reluctant to give
the arbitration provision this effect, as the structure of the provision
does not imply such an imbalance in its application.

   At best, Choice’s construction offers a minimally plausible alterna-
tive to the interpretation we set forth above and thereby renders the
collection exemption ambiguous. To resolve this ambiguity, we resort
to three interpretive guides. First, as noted above, federal policy
requires that ambiguities in arbitration clauses be resolved in favor of
arbitration. See Am. Recovery Corp. v. Computerized Thermal Imag-
ing, Inc., 96 F.3d 88, 92 (4th Cir. 1996) ("[W]e may not deny a
party’s request to arbitrate an issue unless it may be said with positive
6              CHOICE HOTELS v. BSR TROPICANA RESORT
assurance that the arbitration clause is not susceptible of an interpreta-
tion that covers the asserted dispute." (internal quotation marks omit-
ted)); see also Armijo v. Prudential Ins. Co., 72 F.3d 793, 800 (10th
Cir. 1995) (noting that policy favoring broad construction of arbitra-
tion clauses compels narrow construction of exceptions to arbitration
clauses). Second, when faced with a general rule and enumerated
exceptions, we interpret the exceptions narrowly, lest they overwhelm
the rule. See Commissioner v. Clark, 489 U.S. 726, 739 (1989). Third,
any doubts in the interpretation of a contract must be resolved against
the drafter—in this case, Choice. See Bankers Ins., 245 F.3d at 321
n.7. These principles uniformly support a narrow reading of the col-
lection exemption and a correspondingly expansive construction of
the general arbitration requirement. Accordingly, we reject Choice’s
interpretation of the collection exemption and adhere to the conclu-
sion that only traditional collection actions are excluded from the
arbitration requirement.

                                   B.

   Having determined the scope of the collection exemption, we must
now consider the extent to which it applies to Choice’s claims. We
hold that Choice’s effort to recover the affiliation fee is a collection
action subject to the collection exemption; the breach of contract
claim, however, falls outside the exemption.

   The Agreement between Choice and BSR expressly requires BSR
to pay the affiliation fee. The fee is part of the contract itself, not a
remedy for either party’s deviation from the contract. Moreover, the
amount of the fee ($25,000) is a sum certain under the Agreement.
Thus, Choice’s effort to enforce this contractual provision provides a
classic example of a collection action. See Briargate Condo. Ass’n v.
Carpenter, 976 F.2d 868, 869 (4th Cir. 1992) (characterizing suit to
compel payment of condominium fees as "collection action").
Accordingly, under the collection exemption, this claim is not subject
to arbitration. Furthermore, because this claim is not arbitrable, BSR
was not entitled to dismissal of Choice’s complaint in its entirety.

   We nevertheless vacate the order of the district court because
Choice’s breach of contract claim is not within the collection exemp-
tion and therefore is subject to arbitration. The Agreement provides
               CHOICE HOTELS v. BSR TROPICANA RESORT                   7
for liquidated damages in the event of termination, and Choice specif-
ically invoked this provision in its complaint; thus, the amount of
Choice’s damage request is, like the affiliation fee, contractually
determined. BSR’s obligation to pay this amount, however, does not
arise from the formation of the contract, but rather from an alleged
breach of contract. Because this is not a debt subject to collection, the
collection exemption does not apply. By contrast, the general terms
of the arbitration clause specifically embrace claims arising from "the
breach of this Agreement." J.A. 20. BSR is therefore entitled to arbi-
tration of this issue and to a stay of proceedings while the arbitration
takes place.

                                  IV.

   In sum, Choice’s complaint is not subject to dismissal, because it
contains at least one non-arbitrable claim. However, Choice’s breach
of contract claim is arbitrable under the Agreement. We therefore
vacate the decision of the district court and remand with instructions
to stay proceedings on this claim pending arbitration. The court may,
in its discretion, stay proceedings on the affiliation fee claim as well.
See Am. Recovery Corp., 96 F.3d at 97.

                                        VACATED AND REMANDED