S.C. to Hear Arbitration Dispute Involving Sex Toy Seller

Thursday, January 18, 2007

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S.C. to Hear Arbitration Dispute Involving Sex Toy Seller

By KENNETH OFGANG, Staff Writer

The California Supreme Court yesterday agreed to decide whether California or foreign law determines the validity of an arbitration award when a dispute between aliens is resolved by arbitration that is conducted in this state applying substantive foreign law.

The justices, at their weekly conference in San Francisco, voted 5-1 to review the ruling of Div. Five of this district’s Court of Appeal in Gueyffier v. Ann Summers, Ltd., B186996, with Justice Joyce L. Kennard opposed and Justice Carlos Moreno absent and not voting.

The Court of Appeal, applying California law, invalidated the arbitration award in favor of French citizen Celine Gueyffier against Ann Summers, a British corporation that sells lingerie and sex toys online, at house parties, and at stores in Spain, Ireland, and the United Kingdom. The company’s Web site does not list any current U.S. locations.

The appellate panel ruled the arbitrator failed to enforce a notice-and-cure provision in the parties’ contract.

Gueyffier, a U.S. resident, contracted with Ann Summers, Ltd. to operate an Ann Summers franchise at the Beverly Center. The agreement provided, among other things, that neither party could be held in breach without first being given notice and at least 60 days to cure, that the agreement would be governed by English law, that any dispute would be arbitrated under the rules of the American Arbitration Association, and that the arbitrator could not alter any material term of the agreement.

The store closed in March 2001 after three days in operation, and Gueyffier demanded arbitration of her claim that she was entitled to damages for breach of contract.

Following arbitration hearings, the arbitrator found that the training given the plaintiff was inadequate and unsuited to an American marketplace, that the company failed to advertise the business, that its faiure “to mitigate the potential negative reaction from opening a lingerie and sex toy shop in an upscale mall” led to protest at which tomatoes were thrown at the store and insults were yelled at the plaintiff,” and that the results were “disastrous.”

The arbitrator also found that the notice-and-cure provision was “moot” because “[b]y the time [plaintiff] was finally able to open the Beverly Center store, the effect of the breaches was not curable.” Los Angeles Superior Court Judge George H. Wu granted the plaintiff’s petition to confirm the award and denied the defendant’s petition to vacate it.

But Presiding Justice Paul A. Turner, writing for the Court of Appeal, said that the award should have been vacated under Code of Civil Procedure Sec. 1286.2(a)(4), a provision of the California Arbitration Act requiring such action if “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.”

Turner agreed with the plaintiff that because the parties are foreign nationals, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards applies. But nothing in that treaty, commonly called the New York Convention, or in federal law, Turner explained, precludes state courts from exercising jurisdiction, or from applying state law, in a proceeding to vacate an award.

Turner said the arbitrator exceeded his powers by “constru[ing] the franchise agreement as allowing him to excuse the notice and cure requirement by finding it would have been an idle act to comply.”