Court Opinion

ID: 4090932
Source: CourtListenerOpinion
Date Created: 2016-10-20 04:05:57.20163+00
Date Added: 2024-06-11T14:36:08.175697
License: Public Domain

District of Columbia
                            Court of Appeals
No. 15-CV-145
                                                                  OCT 20 2016
ABU NASER HOSSAIN, et al.,
                                              Appellants,

     v.                                                           CAB-8692-12

JMU PROPERTIES, LLC, et al.,
                                              Appellees.

          On Appeal from the Superior Court of the District of Columbia
                                Civil Division

      BEFORE: FISHER and BLACKBURNE-RIGSBY, Associate Judges; and KING,
Senior Judge.

                                 JUDGMENT

          This case came to be heard on the transcript of record and the briefs filed,
and was argued by counsel. On consideration whereof, and as set forth in the
opinion filed this date, it is now hereby

         ORDERED and ADJUDGED that the judgment is vacated and the case
is remanded for further proceedings consistent with this opinion.

                                       For the Court:

Dated: October 20, 2016.

Opinion by Senior Judge Warren R. King.
Notice: This opinion is subject to formal revision before publication in the
Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the
Court of any formal errors so that corrections may be made before the bound
volumes go to press.

             DISTRICT OF COLUMBIA COURT OF APPEALS

                                No. 15-CV-145                            10/20/16

                    ABU NASER HOSSAIN, et al., APPELLANTS,

                                        V.

                   JMU PROPERTIES, LLC., et al., APPELLEES.

                     Appeal from the Superior Court of the
                             District of Columbia
                               (CAB-8692-12)

                      (Hon. Maurice A. Ross, Trial Judge)

(Argued March 24, 2016                                Decided October 20, 2016)

      Brian P. Murphy for appellants.

      Alex Chanthunya for appellees.

      Before FISHER and BLACKBURNE-RIGSBY, Associate Judges, and KING,
Senior Judge.

      KING, Senior Judge: Following a bench trial, appellants Profound Radiance,

Inc. (“PRI”) and Abu Naser Hossain were found liable on a counter-claim and 3rd-

party complaint for breaching a commercial lease, breaching a franchise

agreement, and fraud, for which the trial court entered a $391,640.82 judgment in

appellees’ favor. They now claim the trial court erred by denying their motion to
                                         2

enforce an arbitration clause in a franchise agreement between the parties,

erroneously entering judgment on behalf of Mickey Sood (“Sood”) and on behalf

of a 3rd-party (“JMU Tax”) not named in the original complaint, and entering

judgment on behalf of a party (“JMU Properties”) for damages under a franchise

agreement to which it was not a party.

      We conclude that the trial court did not err in entering a judgment in

appellee Mickey Sood’s name because the circumstances surrounding both the

lease and franchise agreement clearly show he was an intended 3rd-party

beneficiary of both agreements. However, we also conclude that the judgment

should be reformed consistent with the instructions set forth infra. We are also

satisfied that the trial court did not err in issuing an order, based on waiver,

denying appellants’ motion to stay the proceedings and compel arbitration, which

was entered after the evidentiary phase of the trial was completed and several

months before the entry of judgment.1

      1
         Appellants raise no additional challenges to the judgment in appellees’
favor other than those discussed, infra.
                                        3

                                        I.

      Mickey Sood is the president and managing member of the company known

as JMU Properties, LLC (“JMU Properties”) and the vice president and owner of a

company known as JMU Tax & Preparation Services (“JMU Tax”). Abu Naser

Hossain (“Hossain”) is the President and owner of Profound Radiance, Inc.

(“PRI”), a company that performs tax preparation services. On January 1, 2008,

Hossain, in his capacity as owner of PRI, executed a five-year lease for the office

space located at 1933 18th Street, N.W. (“18th Street office”) with Sood, who

signed as President of JMU Properties. On January 28, 2008, now acting as Vice

President and owner of JMU Tax, Sood executed a franchise agreement with

Hossain, who was again acting on behalf of PRI.

      PRI fell behind in its rent obligations under the lease, and stopped making

payments in November 2011. By November 2012, PRI had failed to pay rent for

twelve months. Acting on behalf of JMU Properties, Sood changed the locks at the

18th Street office. On November 14, 2012, PRI filed a wrongful eviction action

against JMU Properties and Sood. In March 2013, JMU Properties and Sood filed
                                         4

a counter-claim against PRI and a 3rd-party complaint against Hossain2 for, among

other claims, breach of both the lease and the franchise agreement.

      On March 22, 2013, nearly a year before the trial began, PRI moved 3 for

dismissal, or alternatively for summary judgment, arguing that the real party in

interest for claims arising under the franchise agreement—JMU Tax—was not

named as a party in the counter-claim and 3rd-party claim. The trial court denied

that motion on April 26, 2013.      On April 17, 2013, while PRI’s motion for

      2
         In their brief, appellants PRI and Hossain incorrectly argue that “a third-
party complaint can only be filed by [sic] a party that was not an original parties
[sic] to the case.” The applicable rule provides, however, that “a defending party
[here, Sood and JMU Properties], as a 3rd-party plaintiff, may cause a summons
and complaint to be served . . . upon a person [here, Hossain] not a party to the
action who is or may be liable to the 3rd-party plaintiff for all or part of the
plaintiff’s claim against the 3rd-party plaintiff.” Sup. Ct. Civ. R. 14 (a). See also
R. 7 (a).

       The wrongful eviction complaint was brought by PRI (not Hossain) against
Sood and JMU Properties. Because Hossain was not a party to the original action,
he was not subject to a counter-claim. However, he could be brought before the
court by the filing of a 3rd-party complaint, as was done here.
      3
        The motion is captioned Profound Radiance, Inc. (PRI) v. JMU Properties;
however, the first line of the motion inaccurately states: “COMES NOW, the
counterclaim Defendant Abu Naser Hossain . . . and move the court to dismiss the
counterclaim . . . or, in the alternative, for summary judgment.” We note that PRI
was the sole plaintiff in the original action filed claiming wrongful eviction, but
was not named as a party in the body of this motion as such. Further, Hossain was
not the counter-claim defendant (PRI was the counter-claim defendant). Hossain,
however, was named as the 3rd-party complaint defendant.
                                         5

dismissal/summary judgment was pending, JMU Properties and Sood filed a

motion to stay the proceedings and compel arbitration. PRI opposed that motion

on May 20, 2013, arguing that its suit only implicated the lease agreement, which

had no arbitration clause.4 On June 3, 2013, the trial court denied JMU Properties

and Sood’s motion to stay and compel arbitration because it found that there was

no enforceable arbitration provision.

      On February 25, 2014, the parties proceeded to a bench trial. On March 7,

2014, PRI moved to stay the proceedings and compel arbitration. On March 9,

2014, PRI and Hossain moved to file an answer to the 3rd-party complaint, which

had been filed nearly a year earlier. The court did not decide either motion while it

allowed the trial to resume.

      The evidence phase of the trial concluded on March 13, 2014, and the trial

court took the matter under advisement to allow for submission of proposed

findings of fact and conclusions of law. On April 15, 2014, the trial court denied

PRI’s motion to compel, holding that PRI “repeatedly waived his right to

      4
         We note, however, that the counter-claim and 3rd-party claim, which were
filed before the motion to compel arbitration, sought damages under the franchise
agreement, which indisputably includes an arbitration provision. In its motion to
compel arbitration, JMU Properties/Sood argued that “the franchise agreement and
lease agreement are inextricably related.”
                                          6

arbitration. . . .” The trial court did, however, grant PRI’s and Hossain’s motion

for leave to file an answer to the 3rd-party complaint.

      On September 17, 2014, the trial court entered a $391,640.82 judgment 5 in

favor of JMU Properties and Sood on their counter-claim and 3rd-party complaint.6

Before us, neither PRI/Hossain nor JMU Properties/Sood challenges the amounts

awarded. On October 1, 2014, PRI and Hossain moved the trial court to amend or

alter that judgment arguing that it opposed the earlier attempt by JMU

Properties/Sood to compel arbitration because there was no arbitration clause in the

commercial lease agreement and no relationship between the named parties to the

suit—JMU Properties and Sood—and JMU Tax. They further argued that Sood

was not an intended beneficiary of the franchise agreement. On January 7, 2015,

the trial court denied PRI’s and Hossain’s motion to alter judgment. It reiterated

      5
          Based on the lease and the franchise agreement, the trial court found
PRI/Hossain liable on a number of grounds, including unpaid rent plus interest,
fraud, attorneys’ fees, franchise fee costs, and commissions. The exact amounts
for each are set forth in the trial court’s order, totaling $391,640.82.
      6
         The trial court also entered a $100.00 judgment on behalf of PRI and
Hossain on the original claim for wrongful eviction. None of the parties challenge
this award.
                                          7

its original finding7 that Sood was the intended beneficiary of both the lease and

the franchise agreement and that the two documents were intended to function

together. It also found that under the totality of the circumstances, PRI’s and

Hossain’s behavior was inconsistent with a right to arbitrate, resulting in waiver.

      This appeal follows.

                                         II.

      We first address the relationship between Sood, JMU Properties and JMU

Tax. Interpretation of a contract is a legal question this court reviews de novo.

Fort Lincoln Civic Ass’n, Inc. v. Fort Lincoln New Town Corp., 944 A.2d 1055,

1063 (D.C. 2008) (quoting Unfoldment, Inc. v. District of Columbia Contract

Appeals Bd., 909 A.2d 204, 209 (D.C. 2006)). In interpreting a contract, we must

determine how a reasonable person in the position of parties would understand the

disputed provision and honor their expressed intentions. Id. at 1064.

      7
         That finding can be inferred from the trial court’s April 26, 2013, order
denying the motion to dismiss or for summary judgment under circumstances in
which PRI/Hossain argued that Sood was not the real party in interest. The order
does not elaborate the basis for the denial; however, it certainly can be read as
rejecting the argument that Sood was not the real party in interest.
                                          8

      “A third party to a contract ‘may sue to enforce its provisions if the

contracting parties intend the third party to benefit directly thereunder.’” Fields v.

Tillerson, 726 A.2d 670, 672 (D.C. 1999) (quoting Johnson v. Atl. Masonry Co.,

693 A.2d 1117, 1122 (D.C. 1997)). This intent can be shown expressly or by

implication, Fort Lincoln Civic Ass’n, Inc., supra, 944 A.2d at 1064, but only an

intended beneficiary can sue to enforce a contract existing “between two others.”

District of Columbia v. Campbell, 580 A.2d 1295, 1302 (D.C. 1990); see also Fort

Lincoln Civic Ass’n, 944 A.2d at 1064-65 (incidental beneficiaries not eligible to

enforce contractual terms that might benefit them). “To be intended, a beneficiary

need not be named in the contract, as long as he or she is ascertainable from the

contract and the circumstances of the contract.” Kitty Hawk Aircargo, Inc. v.

Arthur D. Little, Inc., 934 F. Supp. 16, 20 (D. Mass. 1996) (interpreting District of

Columbia law) (citing W. Union Tel. Co. v. Massman Constr. Co., 402 A.2d 1275,

1277 (D.C. 1979)); see also Needham v. Hamilton, 459 A.2d 1060, 1061-63 (D.C.

1983) (citations omitted) (discussing the need to limit liability of contracting

parties to intended beneficiaries to limit those eligible to bring future causes of

action). This Court will read the contract as a whole to determine whether “the

third party’s benefit . . . is intended or incidental.” W. Union Tel. Co., supra, 402

A.2d at 1277 (cited with approval in Jahanbein v. The Ndidi Condo. Unit Owners

Ass’n, Inc., 85 A.3d 824, 831 (D.C. 2014)).
                                         9

        We agree with the trial judge’s finding that Sood was an intended 3rd-party

beneficiary of the franchise agreement with PRI and Hossain. It is beyond dispute

that Sood was the sole owner of both JMU Properties and JMU Tax, and clearly

stood to benefit from any commercial arrangements involving those entities. The

record also shows that Sood negotiated and signed both the lease and franchise

agreement in his capacity as the owner of the respective companies. We note, as

did the trial court, that Sood signed the franchise agreement using the title “Vice

President” of JMU Tax, making his involvement plainly ascertainable from the

four corners of the contract.     W. Union Tel. Co., supra, 402 A.2d at 1277.

Moreover, the trial court found that the franchise agreement referred back to the

terms of the lease, a finding which appellants do not now challenge. This, along

with Sood’s testimony that he would not have leased the 18th Street office space to

a non-JMU Tax franchisee, which the trial court credited, demonstrates that the

parties intended the lease and franchise agreement to enable one another. And,

since Sood is an ascertainable 3rd-party beneficiary of the franchise agreement, he

was entitled to counter-claim and bring a 3rd-party suit in his own name to enforce

its terms. Fields, supra, 726 A.2d at 672; W. Union Tel. Co., supra, 402 A.2d at

1277.
                                          10

                                         III.

      We next consider PRI and Hossain’s contention that the trial court erred in

denying PRI’s motion to stay the proceedings and compel arbitration on the basis

that PRI had “repeatedly waived [its] right to arbitration and, in fact, rigorously

fought arbitration until the second day of trial.” In Woodland Ltd. P’ship v. Wulff,

this court relied on the Supreme Court’s decision in Howsam v. Dean Witter

Reynolds, Inc., 537 U.S. 79, 84 (2002), to clarify the “allocation of decision-

making between court and arbitrator.” 868 A.2d 860, 864 (D.C. 2005). Because

“the arbitrator’s authority derives from the consent of the parties,” preliminary

“gateway dispute[s] about whether the parties are bound by a given arbitration

clause raise[] . . . question[s] of arbitrability for the court to decide.” Id. (citing

Howsam, supra, 537 U.S. at 84). Once the court has settled the basic contractual

question, “it is for the arbitrator to resolve other ‘gateway’ matters that the parties

would likely expect that the arbitrator would decide, including procedural

questions which grow out of the dispute and bear on its final disposition . . . and

allegations of waiver, delay, or a like defense to arbitrability.” Id. at 865 (internal

quotation marks and citations omitted). See also Menna v. Plymouth Rock Assur.

Corp., 987 A.2d 458, 465 (D.C. 2010); D.C. Code § 16-4406.
                                         11

      Neither Howsam, Woodland nor Menna, however, addresses the issue before

us: who decides the question of “waiver by litigation conduct” in the circumstances

presented here. Cf. Howsam, supra, 537 U.S. 79; Menna, supra, 987 A.2d 458;

Woodland, supra, 868 A.2d 860. An increasing number of state supreme courts

and federal circuit courts have interpreted Howsam in a way that holds that “waiver

by litigation conduct” is of a different nature than other waiver inquiries

exclusively allocated to the arbitrator’s authority. See, e.g., Hong v. CJ CGV Am.

Holdings, Inc., 166 Cal. Rptr. 3d 100, 113 (Cal. Ct. App. 2013) (citing federal

circuit court and state supreme court cases that hold that waiver by litigation

conduct should be decided by the court as opposed to an arbitrator). In particular,

the First, Third, Sixth, and Eleventh Circuits have carved out an exception to

Howsam’s general presumption: that when the inquiry is waiver by litigation

conduct, the court should decide. Grigsby & Assocs. Inc. v. M Sec. Inv., 664 F.3d
1350 (11th Cir. 2011); JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388 (6th

Cir. 2008); Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207 (3d Cir. 2007); Marie

v. Allied Home Mortg. Corp., 402 F.3d 1 (1st Cir. 2005).

      The Third Circuit points out that Howsam “upset” the traditional general

presumption that courts—not arbitrators—decide issues of waiver. Ehleiter, supra,

482 F.2d at 217-18. In particular, the Third Circuit focuses a portion of its analysis
                                            12

on the comment section of the Revised Uniform Arbitration Action (RUAA).8 Id.

(citing RUAA § 6(c) 7 U.L.A. (Supp. 2002) (Revised Uniform Arbitration Act)).

In reaching its holding, Howsam cited RUAA Section 6 stating “[an] arbitrator

shall decide whether a condition precedent to arbitrability has been fulfilled,” and

“in the absence of an agreement to the contrary, issues of substantive

arbitrability . . . are for a court to decide and issues of procedural arbitrability, i.e.,

whether prerequisites such as time limits, notice, laches, estoppel, and other

conditions precedent to an obligation to arbitration have been met, are for the

arbitrators to decide.” Id. (citing Howsam at 85 (quoting RUAA § 6(c) cmt. 2

(Supp. 2002)). However, the comment to RUAA Section 6 also states that “waiver

is one area where courts, rather than arbitrators, often make the decision as to

enforceability of an arbitration clause.” Id. (quoting RUAA § 6 cmt. 5 (Supp.

2004)).

      The First Circuit puts forth other compelling arguments for this

interpretation, such as the fact that waiver of the right to arbitrate “heavily

implicates judicial procedures,” Marie, supra, 402 F.3d 1 (internal quotation marks

      8
        The District of Columbia adopted the RUAA in 2008. D.C. Code §§ 16-
4401, -4432 (2008) (Revised Uniform Arbitration Act).
                                         13

omitted), and “the trial judge, having been directly involved in the entire course of

the legal proceedings is better positioned to determine [the waiver issue].”

Ehleiter, supra, 482 F.3d at 218 (citing Marie, supra, 402 F.3d at 13) (“The court

should remain free to ‘control the course of proceedings before it and to correct

abuses of those proceedings’ rather than being required to defer to the findings [of]

an arbitrator with no previous involvement in the case.”). Additionally, the First

Circuit stresses that it would be inefficient for a trial court to send a waiver

determination to an arbitrator, who subsequently may have to return the case right

back to the trial court if waiver were found. Marie, supra, 402 F.3d at 13.

      We note, however, that the Eighth Circuit has held in the contrary with

respect to waiver by litigation conduct. See Nat’l Am. Ins. Co. v. Transamerica

Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 2003). But, the underlying

facts in that case involve waiver mostly from prior arbitration proceedings.

Essentially, the facts of Transamerica are the inverse of the case before us: an

arbitration panel already familiar with the parties’ case was favored to decide the

issue of waiver as opposed to a trial judge with no prior involvement in the case.

Id. The Third Circuit persuasively distinguishes the Eighth Circuit’s opinion by

explaining “[to] the extent that Transamerica may be understood as a case

involving waiver by prior arbitration conduct, rather than by prior litigation
                                         14

conduct, the case is plainly distinguishable from ours on this basis.” Ehleiter,

supra, 482 F.3d at 220.

      Obviously, the facts of each case will present different permutations of

activities that may constitute “litigation conduct.” Although the specific facts of

our case are not mirrored in any of the circuit courts’ opinions, PRI’s original

opposition to arbitration and its subsequent motion to compel arbitration fall under

the general “litigation conduct” umbrella since these activities were conducted in

court—i.e., they were more in the nature of actions for a court to decide than an

arbitrator. The Third Circuit sets forth a number of cases that have held that the

“litigation conduct” that allows the trial judge to determine waiver can occur prior

to trial. Ehleiter, supra, 482 F.3d at 223. However, we need not decide today

whether an action invoked earlier than the beginning of trial can constitute

“litigation conduct”9 since trial had clearly commenced in this case before PRI

filed its motion to compel arbitration. It is eminently clear that once trial has

begun, significant “litigation conduct” has taken place.

      9
         We note that in Woodland, supra, 868 A.2d at 864, we held that the
arbitrator should decide the waiver issue where the defense had “filed an answer
and counter-claim, participated in discovery, and filed various [unspecified]
motions.”
                                         15

      Thus, for the reasons stated, we are persuaded that the trial judge can

properly decide whether there has been a “waiver by litigation conduct” in

circumstances like those presented here. In finding waiver, the trial judge properly

relied on the standard that the District of Columbia Circuit has traditionally used: a

“totality of the circumstances” test as to whether the party has acted

“inconsistently” with arbitration.    Nat’l Found. for Cancer Research v. A.G.

Edwards & Sons, 261 U.S. App. D.C. 284, 286, 821 F.2d 772, 774 (1987). The

D.C. Circuit has “held that one example of conduct inconsistent with the right to

arbitrate is active participation in a lawsuit.” Id. at 287 (citing Cornell & Co. v.

Barber & Ross Co., 123 U.S. App. D.C. 378, 379, 360 F.2d 512, 513 (1966)).

Although other Circuits rely on a prejudice-based test, see, e.g., Hoxworth v.

Blinder, Robison & Co., 980 F.2d 912, 925 (3d Cir. 1992), the D.C. Circuit has

never required a finding of prejudice, although it has stated that prejudice may be a

relevant consideration. Khan v. Parsons Global Servs., Ltd., 380 U.S. App. D.C.
320, 521 F.3d 421, 425 (2008); Nat’l Found., supra, 821 F.2d at 777. Here, the

trial judge held that PRI/Hossain acted inconsistently with arbitration by “actively

participating” in litigation by commencing a trial. (“And what could be a more

active participation in litigation than a trial itself?”). The trial judge was further

persuaded by a showing of prejudice, which although not necessary, is a factor that

can be taken into account. We think that the judge’s findings are well-supported
                                         16

by the evidence and that the judge correctly ruled that PRI/Hossain waived

arbitration by its litigation conduct.   Accordingly, we affirm the trial judge’s

finding of waiver.

                                         IV.

      Finally, we remand the case to the trial court and direct the court to enter a

reformed judgment stating that, on the counter-claim of breach of lease, judgment

is in favor of JMU Properties and Sood. On the counter-claim of breach of

contract and fraud, the judgment is in favor of JMU Tax and Sood. The total

award of $391,640.82 should accordingly be recalculated and allocated based on

whether the damages arose out of appellants’ breach of the lease, breach of

contract, or fraud.

      The trial court addressed JMU Tax’s standing and amended the counter-

claim nunc pro tunc in order to add JMU Tax as a party. Consistent with that

ruling and the trial court’s finding that Sood is the “sole owner of both JMU Tax

Service and JMU Properties, LLC” and thus the “real party in interest,” we include

JMU Tax as a party here.
                                        17

      We agree with the trial court that appellants are not prejudiced by the

addition of JMU Tax as a party as “there are no witnesses, documents, or other

discoverable materials to which [appellants] could plausibly claim to have been

denied access as a result of JMU Tax Services not being named on the initial

pleading.”

      For the foregoing reasons, the judgment is vacated and the case10 is

remanded for further proceedings consistent with this opinion.

      10
         See Bell v. United States, 676 A.2d 37, 40-41 (D.C. 1996) (explaining the
difference between a “record” remand and a “case” remand).