Bapu Corp.; Harshad S. Patel v. CHOICE HOTELS INTERNATIONAL, INC. On Appeal from the United States District Court…

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 09-1011
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BAPU CORP.;
HARSHAD S. PATEL,
Appellants
v.
CHOICE HOTELS INTERNATIONAL, INC.
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 07-cv-5938)
District Judge: Honorable William J. Martini
_______________
Submitted Under Third Circuit LAR 34.1(a)
February 26, 2010
Before: CHAGARES, STAPLETON, and LOURIE*, Circuit Judges.
(Filed: March 16, 2010)
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OPINION OF THE COURT
_______________
_______________
*Honorable Alan D. Lourie, Circuit Judge of the United States Court of Appeals
for the Federal Circuit sitting by designation.

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LOURIE, Circuit Judge.
Bapu Corporation (“Bapu”) and its president, Harshad S. Patel (collectively,
“appellants”) appeal from the decision of the United States District Court for the District of
New Jersey denying appellants’ motion to vacate an arbitration award to Choice Hotels
International, Inc. (“Choice”). Bapu Corp. v. Choice Hotels Int’l, Inc., No. 07-CV-5938,
2008 WL 4192056 (D.N.J. Sept. 8, 2008). Because appellants have failed to show that the
District Court erred in its decision, we will affirm.
I. BACKGROUND
In 2000, the appellants entered into a franchise agreement with Choice allowing them
to open and operate a hotel under the name Quality Inn. The agreement required appellants
to renovate the building that they were leasing before they could operate it as a Quality Inn.
Under the agreement, all renovations were to be completed by November 30, 2000.
Appellants failed to make the required renovations by the deadline. Soon thereafter, Choice
offered to extend the deadline for a fee. Choice contends it sent two such offers to the
appellants. The first offer was sent on May 8, 2001, allowing the appellants an extension
until September 28, 2001 to complete the renovations. The second offer was sent on October
16, 2001, extending the renovation deadline for another three months, until January 16, 2002.
The appellants contend that they did not receive the first offer, and agree that they did not
accept the second offer. Between 2002 and 2004, Choice sent default notices to the appellant,
threatening termination of the contract unless appellants completed the renovation. On

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November 15, 2004, Choice finally sent appellants a notice of termination, stating that the
contract had been terminated and that Choice was entitled to damages.
On October 19, 2006, Choice served Patel with a demand for arbitration, seeking
recovery of damages sustained due to the breach of the franchise agreement by both Patel and
Bapu. Appellants responded and objected to the arbitration on several grounds, including
that it was barred by the statute of limitations applicable to the franchise agreement under
Maryland law. Following their preliminary filing, appellants declined to participate in the
arbitration. On December 13, 2007, the arbitrator conducted an arbitration hearing to
consider the evidence in the case. Appellants failed to appear for the hearing. Instead, the
appellants filed a complaint against Choice in the District Court of New Jersey. Appellants
moved the Court to enjoin further arbitration proceedings, which it denied.
On January 9, 2008, the arbitrator issued his decision, awarding damages to Choice
in the amount of $142,560 and costs in the amount of $7,975. Appellants moved the District
Court to vacate the arbitration award. The Court initially granted appellants’ motion to
vacate the arbitration award, reasoning that the three-year period of limitations in the
franchise agreement barred Choice from initiating arbitration in 2006. Bapu Corp. v. Choice
Hotels Int’l, Inc., No. 07-CV-5938, 2008 WL 2559306 (D.N.J. June 24, 2008). However,
upon reconsideration, the Court decided that it had overlooked the fact that, in the franchise
agreement, the parties had agreed to submit the question of arbitrability itself to an arbitrator.
Bapu Corp., 2008 WL 4192056, at *4. Therefore, the Court concluded, it would be improper

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for it to substitute its judgment for the arbitrator’s judgment with respect to whether the
parties had agreed to arbitrate disputes more than three years old. Id. The Court also rejected
various other grounds that the appellants had presented as justification for the Court to vacate
the arbitration award. Id. at *4-7. The Court therefore granted Choice’s motion to confirm
the arbitration award. Id. at *7. The District Court entered judgment on November 20, 2008.
Appellants timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291.
II. DISCUSSION
“We review a district court’s denial of a motion to vacate a commercial arbitration
award de novo.” Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir. 2003); Kaplan v. First
Options of Chi., Inc., 19 F.3d 1503, 1509 (3d Cir. 1994). Under the Federal Arbitration Act
(“FAA”), there is a strong presumption in favor of enforcing arbitration awards. Brentwood
Med. Assocs. v. United Mine Workers, 396 F.3d 237, 241 (3d Cir. 2005). When parties agree
to arbitrate, they agree to do so fully cognizant of the fact that an arbitrator’s decision can
only be judicially vacated under exceedingly narrow circumstances. Dluhos, 321 F.3d at
369-70.
Section 10 of the FAA provides in part as follows:
In any of the following cases the United States court in and for the district
wherein the award was made may make an order vacating the award upon
the application of any party to the arbitration-
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or
either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone
the hearing, upon sufficient cause shown, or in refusing to hear evidence

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pertinent and material to the controversy; or of any other misbehavior by
which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed
them that a mutual, final, and definite award upon the subject matter
submitted was not made.
9 U.S.C. § 10(a). The Supreme Court has recently held that section 10 of the FAA provides
the exclusive grounds for vacatur of an arbitration award. Hall Street Associates, L.L.C. v.
Mattel, Inc., 552 U.S. 576, 584 (2008).
A. The Three Year Limitations Period
Appellants argue that the arbitrator’s decision to proceed with arbitration in this case
was irrational. Appellants point out that the provisions of the American Arbitration
Association (“AAA”) Commercial Rules require an arbitrator to rule on any jurisdictional
issues put forth by the parties. Appellants contend that the arbitrator here refused to properly
interpret the franchise agreement or apply the law of Maryland to bar Choice’s claim against
the appellants. Appellants argue that the contractual limitations period of the agreement
required claims to be made within three years of accrual. Similarly, they argue that the
general statute of limitations for Maryland, whose law was chosen under the agreement,
mandates that a civil action at law shall be filed within three years from the date that it
accrues. Appellants argue that Choice’s claim accrued in 2000, when the appellants failed
to complete renovations to the hotel before the deadline set in the agreement. Therefore,
appellants argue, Choice’s claim brought in 2006 was barred by the three-year limitations
period. Appellants argue that the arbitrator manifestly disregarded the law by failing to

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address the jurisdictional issue and that the District Court erred in declining to vacate the
arbitration award in light of what appellants considered was the arbitrator’s manifest
disregard of the law.
Choice responds that the arbitrator not only addressed the issue of jurisdiction in his
preliminary rulings, but also allowed the appellants to renew objections to his jurisdiction.
Choice contends, moreover, that appellants abandoned the jurisdictional dispute when they
failed to renew their objections or even attend the arbitration. Choice argues that appellants
would have us re-weigh and re-examine evidence presented to the arbitrator to reach a
different conclusion on whether Choice’s claim was barred. Choice contends that the FAA
does not allow us to do so.
Preliminarily, the parties dispute whether an arbitrator’s manifest disregard of the law
may independently support a decision to vacate an arbitration award following the Supreme
Court’s decision in Hall Street. In Hall Street, the Court held that under the FAA, section
10 of the Act provides the exclusive grounds for vacatur of an arbitration award. Id. at 586.
It did not, however, expressly decide whether the judicially created doctrine allowing vacatur
of an arbitration award for manifest disregard of the law by an arbitrator would continue to
exist as an independent basis for vacatur. While our sister circuits are split on this question,
we have yet rule on it. See Andorra Services Inc. v. Venfleet, Ltd., No. 08-4902, 2009 WL
4691635 at *4 n.5 (3d Cir. Dec. 10, 2009). However, we see no need to decide the issue here
because this case does not present one of those “exceedingly narrow” circumstances

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supporting a vacatur based on manifest disregard of the law. See Metromedia Energy, Inc.
v. Enserch Energy Servs., Inc., 409 F.3d 574, 578 (3d Cir. 2005) (“Vacatur is appropriate
only in ‘exceedingly narrow’ circumstances, such as where arbitrators are partial or corrupt,
or where an arbitration panel manifestly disregards, rather than merely erroneously interprets,
the law.”). Here, the arbitrator, while denying the appellants’ initial motion on the limitations
issue as premature, also made clear to the appellants that they were allowed to raise the issue
again once the record was more complete. Appellants failed to do so and therefore waived
the issue. There is nothing in the record to indicate that the arbitrator disregarded the law.
See Dluhos, 321 F.3d at 370 (stating that even an erroneous interpretation of the law is
insufficient basis for vacatur). Further, appellants have presented no evidence to
demonstrate that the arbitrator, in deciding to arbitrate this case, exceeded his power or
violated any other grounds under section 10 of the FAA. We thus agree with the District
Court that the question of arbitrability was one for the arbitrator to decide and that appellants’
arguments regarding the arbitrator’s jurisdiction over the case do not present grounds for
vacatur of the arbitrator’s decision.
B. Arbitrator’s Bias or Corruption
Appellants argue that the arbitrator was biased toward Choice. They note that the
arbitrator was previously a partner in a law firm that had represented a company in which
Choice’s present chief executive officer was a board member. They argue that the arbitrator
knew of that fact when he was selected as the arbitrator for this case by the AAA, but did not

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disclose this to the appellants. Appellants note that the arbitrator even communicated with
them concerning the present case through his former law firm’s fax machine. Given these
facts, appellants argue, the District Court erred when it did not vacate the arbitrator’s award
based on evident bias.
Choice responds that the arbitrator is a well-regarded state judge and is highly
credible. Choice contends that appellants have presented no evidence to prove that the
arbitrator was aware of the tangential connection and misrepresented it to the appellants. In
fact, Choice notes, the arbitrator did conduct a conflicts check and found no potential
conflicts prior to the arbitration. Choice also points out that appellants accepted the
arbitrator’s findings and never raised the issue during the arbitration. Choice argues that the
District Court properly found the connection to be too attenuated to give any appearance of
bias.
We agree with the District Court that appellants failed to demonstrate an “evident
partiality” on part of the arbitrator necessary to vacate an award under 9 U.S.C. § 10(a)(2).
We have held that in order to meet this standard, the movant must demonstrate that a
reasonable person would have concluded that the arbitrator was partial to the opposing party
at the arbitration. Kaplan, 19 F.3d at 1523 n.30 (citation omitted). In other words, the
evidence presented to the court must be “powerfully suggestive of bias.” Id. We disagree
with appellants that proof of a remote link between the arbitrator’s former law firm and
Choice, one that the arbitrator was likely unaware of at the time of arbitration, constitutes

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such strong evidence. See Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1358 (6th Cir.
1989) (proof of actual bias, not merely an appearance of bias is necessary to invalidate an
arbitrator’s award). Furthermore, appellants refused to participate in the arbitration or
present any arguments to the arbitrator on the merits of their case. The arbitrator relied on
arguments and evidence presented by Choice in coming to his decision, and there is no
evidence to suggest that the arbitrator’s decision was motivated by bias. The District Court
properly rejected appellants’ argument that section 10(a)(2) of the FAA required vacatur of
the arbitrator’s award in this case.
C. Improper Service of the Demand for Arbitration
Appellants argue that the arbitration was commenced improperly because appellant
Bapu was never served with the October 19, 2006 arbitration demand. It is undisputed that
Choice instead served the demand on a different entity with the same name in Georgia.
Appellant Harshad Patel was therefore the only party to the case who received the demand.
Appellants contend that these facts were never revealed during the arbitration and that the
arbitrator had no jurisdiction over at least one of the appellants. Appellants argue that the
District Court erred when it found the incorrect service to be an innocent mistake. According
to the appellants, a lack of jurisdiction over one of the parties to the arbitration should qualify
as a ground for vacatur under section 10(a)(1) of the FAA.
Choice responds that mere inadvertent service of a demand for arbitration on the
wrong entity does not constitute fraud. It represents that it made an honest clerical mistake.

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However, it notes that Patel, the president of Bapu, was indeed served with the demand and
had notice that Choice’s claim was against both appellants. Choice further notes that Patel
is the company’s designated representative and the signatory to the agreement between the
parties. Choice also points out that both appellants did initially participate in the arbitration.
Therefore, Choice argues, the District Court properly found that appellants suffered no
prejudice from its mistake.
We agree with the District Court that Choice’s failure to serve Bapu does not suffice
to vacate the arbitrator’s award under section 10(a)(1) of the FAA. In reviewing cases under
section 10(a), other circuits have relied upon a three-prong test to determine whether an
arbitration award should be vacated for fraud. Bonar v. Dean Witter Reynolds, Inc., 835 F.2d
1378, 1383 (11th Cir. 1988). Under that test, the movant must establish (1) by clear and
convincing evidence, (2) fraud that was not discoverable through the exercise of due
diligence prior to or during the arbitration, and (3) was materially related to an issue in the
arbitration. Id. Here, appellants have failed to satisfy any of the three prongs of this test.
There is no evidence whatsoever to support appellants argument that Choice fraudulently
served the arbitration demand on the wrong entity. Moreover, given that both appellants did
initially participate in the arbitration, Choice’s mistake in serving the wrong entity did not
implicate any of the issues decided at the arbitration.
III. CONCLUSION
For the foregoing reasons, we will affirm the District Court’s order confirming the
arbitration award.

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