and Sanford Woodward ARBITRATOR`S AWARD

IN ARBITRATION
Brad Woodward
UNDER THE UTAH UNIFORM ARBITRATION
ACT
and Sanford Woodward
VS.
Bajio, LLC, and Bajio Mountain West,
LLC
ARBITRATOR'S
AWARD
The Parties' Appointment of the Arbitrator and
Submission of their Disputes to Binding Arbitration
1. In late April 2011, the Claimants Brad Woodward and Sanford Woodward ("the
Wood wards") and the Respondent Bajio, Ll.C ("Rajio, LLC") and the
Respondent i3ajio Mountain West, LLC ("BDjio Mountain West, LLC")
(collectively Bajio Mountain West, LLC> and Bajio Mountain West, LLC are
"Bnjio' herein) (collectively the Wood wards and Bajio are "the Parties" herein),
through their then respective counsel, appointed JAMES R. HOLI3ROOK ("the
Arbitrator") pursuant to Utah Code Ann. § 7813-11-112 to hear and decide the
Parties' claims, counterclaims, and defenses ("the Parties' Disputes") as discussed
below, which they submitted to binding arbitration to be conducted by the
Arbitrator pursuant to the Utah Uniform Arbitration Act, Utah Code Ann. § 78B11-101, et seq.
2. Bajio Mountain West, LLC represents that since October 19, 2009, it is the
successor-in-interest
to, assumed the obligations of, and agreed to indemnify
Bajio, LtC under the Woodwards' Franchise Agreement. Bajio Mountain West,
LJ .C, through its then counsel, appeared voluntarily as a Party in this arbitration
and Bajio Mountain West, LLC thereafter participated as a Party as the
Respondent and Counter-Claimant in this arbitration.
3. The Woodwards' claims discussed below, which they submitted to binding
arbitration, are as set forth. in their Complaint in Arbitration dated September
15,
2010.
4. Bajio's defenses and counterclaims
discussed below, which Bajio submitted to
binding arbitration, are as set forth in the Reply and Counterclaim in Arbitration
dated September 27, 2010.
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5. The Woodwards' defenses to Bajios counterclaims discussed below, which they
submitted to binding arbitration, are as set forth in their Reply to Counterclaims
dated October 1,2010.
The Woodwnrds' Claims
6. The Woodwards in their First Cause of Action allege that Bajio is liable for
intentional or negligent material misrepresentations and omissions by knowingly
or recklessly providing false information on which the Woodwards reasonably
relied to their detriment and damage and by failing to disclose true information
which Bajio had a duty to disclose to them. The Woodwards in their First Cause
of Action seek rescission of their Franchise Agreement and reimbursement of all
moneys which they expended in reliance on the Franchise Agreement, plus
consequential damages, interest, attorneys' fees, and costs of arbitration.
7. The Woodwards in their Second Cause of Action allege that Bajio is liable for
fraudulently inducing them to enter into the Franchise Agreement, for which they
seek a declaratory judgment that the Franchise Agreement was void 11-omthe
beginning and therefore must he rescinded and the Woodwards must be placed
back into their condition before they entered into the Franchise Agreement,
including recovery of compensatory, consequential, and punitive damages.
8. The Woodwards in their Third Cause of Action allege that Bajio is liable for
violating § 13-11-3(2) of the Utah Consumer Sales Practices Act, Utah Code Ann.
§ 13-11-1, et seq., for which they are entitled to recovery of their compensatory
and consequential damages and COUlt costs> plus accrued interest, attorneys' Lees,
and costs of arbitration,
9. The Woodwards in their Fourth Cause of Action allege that Baiio is liable for
breach of contract for which they seek their general, compensatory, and
consequential damages, plus accrued interest, attorneys' fees, and costs of
arbi tration.
10. The Woodwards in their Fifth Cause of Action allege that Bajio is liable for
breach of the covenant of good faith and fair dealing by its actions alleged in their
Complaint, for which the Woodwards seek their general, compensatory, and
consequential damages, plus accrued interest, attorneys' fees, and costs of
arbitration.
11. The Woodwards in their Sixth Cause of Action allege that Bajio is liable for their
complete indemnification under the Franchise Agreement, for which they seek
indemnification in the amount of $1 ,647,070, plus accrued interest, attorneys'
fees, and costs of arbitration.
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Bajio's Defenses and Counterclaims
12. Bajio admits that it provided the Wood wards with a Uniform Franchise Offering
Circular and with standard disclosure information given to all potential
franchisees ..Bajio alleges that Bajio denies giving the Woodwards any
representations Or assurances about profitability.
13. Bajio admits that a site review process OCCUlTedand admits discussions with the
Woodwards about the Hofheins franchise rights. 13ajio admits it provided the
Woodwards with a Franchise Disclosure Agreement. Bajio allege« that the
Woodwards knew that their location was within Hofheins' 3-mile exclusive
territory. Bajio alleges that the Wood wards , restaurant was not within Gamber's
3~mile exclusive territory. Bajio alleges that the Woodwards failed to operate their
restaurant appropriately or in a businesslike manner. Bajio alleges that the
Woodwards' eviction was due solely to their breach or their lease obligations.
14. Bajio admits that it agreed to provide the Woodwards with defense and
indemnification of liability under the Holheins Lawsuit. Bajio admits it agreed to
pay the fees and expenses of Grant Sumsion to represent the Wcodwards in the
Hofheins Lawsuit. Bajio denies that it controlled Mr. Sumsion's representation of
the Woodwards. Bajio admits that, upon resolution its disputes with Hofheins,
Bajio notified the Woodwa.rds that its Obligation for indemnification and payment
of counsel ended.
15. As an affirmative defense, Bajio alleges that the Woodwards had full and
complete knowledge of the sales, food costs, financial status, and risks of Bajio
restaurants, because of a consulting agreement between Bajio and a company
owned and controlled by Brad Woodward. Specifically, Bajio alleges that Brad
Woodward served as a consultant in the operation of various Subway restaurants
for which he coordinated the purchase of food and supplies and received a
percentage of these purchases. Because of Brad Woodward's knowledge of the
operation of Subway franchises, the Woodwards became Subway franchisees and
owners and operators of Subway restaurants.
16. Bajio alleges as affirmative defenses: the Woodwards have no standing to assert
this action and, therefore, it should be dismissed; waiver, assumption of the risk;
the amount of damages are capped by limitations in the franchise Agreement;
estoppels and laches; preclusion of reliance on prior oral agreements or
statements; the statute of frauds; the Woodwards relied on their own agents; they
have failed to mitigate their damages; their claims are made in bad faith or
without merit in violation of Utah Code Ann. § 76B-5-585; they caused their own
damages; their fault is equal to or greater than any fault of Bajio; their damages
were caused by third parties which Bajio did not control; their damages were
caused by economic circumstances which Bajio did not control; and Bajio is
entitled to spoliation of evidence presumptions.
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17. Bajio in its prayer for relief requests dismissal of the Woodwards'
prejudice, plus award of Bajios costs and attorneys' fees.
Complaint with
1R. As its First Calise of Action under its Counterclaims, Bajio alleges that Urad
Woodward became the food purchasing consultant for Bajio restaurants, for
which he was paid a half-percent (1/2 %) of the gross purchases hy those
restaurants. Bajio alleges that, in his capacity as the food purchasing consultant
for Bajio restaurants, Brad Woodward met weekly with the operating
management of these Bajio restaurants, received their weekly sales numbers, and
was familiar with their profitability (particularly franchisor-owned Bajio
restaurants). Bajio alleges that Brad Woodward had a duty of loyalty to Bajio and
Bajio franchisees to obtain the lowest prices for food and supplies to increase the
profitability or their restaurants. Bajio alleges that, based 011 Brad Woodward's
knowledge of the Bajio franchise system and the operation of these Hajio
restaurants, the Woodwards decided to purchase a Bajio franchise and open a
Bajio restaurant for which they chose their Murray location.
19. Bajio alleges that, as part of their franchise, the Woodwards agreed that Bajio
Leasing would be the tenant under the principal lease and would sublease the
properly to the Woodwards as a subtenant, and that the Woodwards agreed to pay
all lease payments, common area expenses, and operation costs directly to the
landlord. Bajio alleges that the Woodwards breached the lease by failing to pay
the rent obligations. The landlord filed suit and obtained a judgment against the
Woodwards, including a judgment of eviction. The Woodwards closed their
restaurant, still owing the landlord considerable money. Baiio Leasing, as the
tenant, was required to negotiate a resolution with the landlord, which included
payment of $20,000. Bajio is the successor-in-interest
to Bajio Leasing's breachof-lease claims against the Woodwards.
20. As its Second Cause of Action under its Counterclaims, Bajio alleges that the
Woodwards owe Bajio $2,699 for del inqucnt royalty payments, $1,024 for
advertising payments, and $380 for charge-back fees.
21. As its Third Cause of Action under its Counterclaims, Bajio alleges that the
franchises of the Woodwards and Hofhcins required disputes to be resolved
through binding arbitration. Bajio alleges that the Woodwards wanted to get out
of their restaurant obligations, through sale or other means. Bajio alleges that
Hofheins also wanted to get out of his restaurant obligations. Bajio alleges that
llofhcins, through his counsel Ronald Madson, filed the Hofheins Lawsuit in
Third District Court seeking substantial damages for the Woodwards' violation of
Holhcins' exclusive 3-mile territory provision in his Bajio franchise
. ("Hofheins/Woodwards
Disputes). The Woodwards were represented in the
Hofheins Lawsuit by Daniel Steele as their counsel.
22. Bajio alleges that, as the real party in interest, it intervened in the Hofheins
Lawsuit to stay the litigation and compel arbitration. Bajio alleges it was required
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under the Woodwards' Bajio Franchise to indemnify them against the
Hofheins/Wocdwards
Disputes. Bajio alleges that, because Mr. Steele had to file
a third-party complaint asserting non-arbitrable claims against Bajio, Grant
Surnsion was engaged to defend the Wood wards in the Ilofheins Lawsuit. The
District Court eventually stayed the Hofheins Lawsuit and compelled arbitration,
23. Bajio alleges that the Woodwards and Hofheins agreed to cooperate to pursue the
Hofheins Lawsuit aggressively and assert legal and procedural theories beneficial
to them but detrimental to Bajio, so as 10 pressure Bajio to provide relief to the
Wuodwards and Hofheins to which they were not entitled under their Franchises.
24. Bajio alleges that Bajio and Hofheins entered into settlement negotiations to
resolve Hofhcins' claims against the Woodwards and against Bajio. During these
negotiations, on June 25, 2010., Mr. Steele filed a third-party complaint on behalf
of the Woodwards against Bajio. Thereafter, on July 21 and July 26, 2010,
Messrs. Steele and Sumsion withdrew as counsel for the Woodwards.
25. Bajio alleges that the Hofheins/Woodwards
Disputes were settled on August 2,
2010., by Bajio 's purchase of three Hofheins restaurants and the cancellation of
his Bajio Franchise agreements. Hofheins was represented in the Hofheins
Lawsuit by Mr. Madson who now represents the Woodwards. Bajio alleges that,
by settling the Hofheins/Woodwards
Disputes and paying Mr. Sumsion 's legal
fees, Bajio performed its indemnification respousibilities under the Woodwards'
Franchise. Bajio alleges that the only claims that remain are the Woodwards'
claims against Bajio, and Baiio's counterclaims against the Wooc1wards.
26. Bajio alleges that, notwithstanding
its settlement of the Hofheins/Woodwards
Disputes, Hofheins and the Woodwards agreed to a confession of judgment from
the Woodwnrds in favor of Hofheins, which the Woodwards are now using to
assert claims against Bajio in this arbitration. Bajio alleges that it is damaged by
the Woodwards's confession of judgment, for which it seeks an award against the
Wood wards. Bajio also alleges it is entitled to repayment from the Woodwards of
all amounts paid by Bajio in its settlement of the Hofheins/Woodwards
disputes.
including all attorneys' fees previously paid to the Woodwards' counsel.
27, As its Fourth Cause of Action under its Counterclaims, Bajio alleges that the
Woodwards knew that Bajio's settlement of the Hofhcins/Woodwards
Disputes in
the Hofhcins Lawsuit would eliminate every claim by Hofheins against the
Woodwards. Bajio alleges that it would not have entered into settlement of the
Hofhcins/Woodwards
Disputes in the Holheins Lawsuit, if Bajio had known that
the Woodwards were going to use their confession of'judgment in favor of
Hofheins to assertclaims against Bajio in this arbitration. Bajio alleges that, in
agreeing to settle the Hofheins/Woodwards
disputes in the Hofheins Lawsuit, it
reasonably relied on the Woodwards' intentional omission to disclose this
material fact, to its damage and detriment {or which it seeks an award against the
Woodwards, plus repayment from the Woodwards of all amounts paid by Bajio in
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its settlement of the Hofheins/Woodwards
Disputes, including all attorneys'
previously paid to the Woodwards' counsel.
The Wootlwards'
Response
to Rujio's Counterclaims
2~. The Woodwards deny liability as to each of Bejios
dismissal thereof, plus costs and attorneys' fees.
Withdrawal
fees
counterclaims
and pray for
of Bajio's Counsel and BaBo's Failure to Appear or Apnoint
COun!'lei
29. On May 5, 2011, the Arbitrator ordered Bajio, LLC and Bajio Mountain West,
LLC to produce specific documents in their possession or under their control as
requested by the Woodwards, As to any document withheld based on a claim of
privilege, the Arbitrator ordered Bajio, LLC and Bajio Mountain West, LLC to
describe the type of document (c.g., letter, ernail, ctc.), its date, its general subject,
who created it, and to whom it was sent.
30. On May 5, 2011, the Arbitrator ruled that the Parties may either enter into a
stipulation as to discovery and motion practice, with suggestions as to convenient
hearing dates, times, and location, or the Arbitrator would issue a scheduling
order that would control the arbitration proceedings.
31.. A week later, on May 12, 2011, Neil Sabin, counsel for Bajio, LLC and Bajio
Mountain West, LLC, filed a "Notice of Withdrawal of Counsel," without any
entry of appearance of new counsel.
32. On May 18,2011, the Woodwards'
counsel sent a letter to Bajio, LLC at its
address
record requesting the contact information for Bajios new counsel.
There was no response from Bajio to this letter.
or
33. On June 3, 2011, the Woodwards' counsel sent. a Notice to Appear or Appoint
Counsel, pursuant to Utah Rule of Civil Procedure 74(c), to 13ajio, LLC and Bajio
Mountain West, LLC, at their addresses of record informing them of their
responsibility to appear personally or appoint counsel. There was no response
from either to that Notice.
34. On June 27, 2011, the Woodwards' counsel sent a Notice of Arbitration Hearing
to Bajio, LLC and Bajio Mountain West, LLC, and their former attorney, Neil
Sabin, at their respective addresses of record noticing an arbitration hearing on
July 19,2011, at 9:00 am at the law offices of Madson & Madson in Alpine, Utah.
There was no response trorn Bajio, LLC or Bajio Mountain West, LLC or Mr.
Sabin to that Notice.
35. After receiving the Notice of Arbitration Hearing, neither Bajio, LLC nor Bajio
Mountain West, LLC, nor Mr. Sabin objected to the hearing date or requested that
the hearing be rescheduled to a more convenient time.
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The Arbitratiun
Hearing
36. The arbitration hearing herein took place as scheduled on July 19~20J 1, at 9:00
am at the law offices of Madson & Madson in Alpine, Utah. The Woodwards
appeared and were represented by their counsel. Neither Bajio, LLC nor Bajio
Mountain West, LLC appeared by representative or by counsel.
37. After the Arbitrator determined that Bajio, Ll ,C and Bajio Mountain West, LLC
and their last counsel or record, Mr. Sabin, had received actual notice of the
arbitration hearing and had failed to appear by representative or by counsel, the
Arbitrator proceeded with the hearing.
38. At the hearing, the Woodwards marked and offered hearing exhibits which were
received into evidence. The Woodwards also called live witnesses who testified
under oath: Bryan Hofheins; Dale Gibson; John Holbrook (who is not related or
known to the Arbitrator); Brad Woodward; and Sanford Woodward.
39. On July 21,2011, the Woodwards submitted a Post-Arbitration Brief After
receiving the Post-Arbitration Brief, the Arbitrator closed the hearing on July 22,
2011.
Bajio's Fraud in the Inducement
of the Woodwards'
Franchise Agreement
40. The Woodwards proved by clear and convincing evidence that Hajio, LLC and
Bajio Mountain West, LLC arc jointly and severally liable for making intentional
and negligent material misrepresentations and omissions by knowingly or
recklessly providing false information on which the Woodwards reasonably relied
to their detriment and damage and by failing to disclose true information which
Bajio had a duty to disclose to them,
41. Brad Wood ward knew and trusted the principals of Hunter Management
Company who were development agents for Subway restaurant operations with
whom Brad Woodward worked as a franchisee and as a consultant. Hunter
Management Company and these same principals then became the development
agents for Bajio restaurants and were the same people with whom Brad
Woodward worked as a franchisee and as a consultant.
42. Bajio, LLC (and its successor Bajio Mountain West, LLC) (and their principals,
collectively "Bajio" hereinafter) is the owner/franchisor of the Bajio franchise
system under which Bajio offers and sells franchises for establishing and
operating restaurants featuring Mexican and Southwestern cuisine under the trade
name and service mark "Bajio Mexican Grill."
43. Bajio provided the Woodwards with pro forma statements of the financial
performance of franchisor-owned Bajio restaurants in Utah. Bajio represented to
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the Woodwards that these financial statements gave a reliable indication of the
profitability of a Bajio restaurant in Salt Lake County in the range of $2,000 to
$5,000 per week. 13ajio represented to the Woodwards that their Bajio restaurant
would have similar profitability. The Woodwards did not have independent
information about the profitability of these other Bajio restaurants. Bajio knew or
should have \(I1Ownthat these financial statements were false or misleading. Bajio
made these false or misleading financial statements intending the Woodwards to
rely thereon to in order to induce the Wood wards to enter into a Franchise
Agreement. The Woodwards reasonably relied on Bajio's false ur misleading
financial statements in deciding to purchase their Bajio Franchise and incur
substantial expenses, which they did to their detriment.
44. Bajio in its Franchise Disclosure Agreement with the Woodwards (the "Offering
Circular") represented that "We have complete unrestricted discretion to approve
a location and we will not unreasonably withhold approval of a location that you
find. There may be certain restrictions for development in territories we have
granted to an Area Developer or for restaurant locations that arc within either a 3
or 5 mile radius of au existing Bajio restaurant."
45. From among a number of potential locations provided to them by a real estate
broker referred to them by Bajio, the Woodwards selected a location at 5470
South 900 East in Murray, Utah, as their Franchise location and the location of
their Bajio restaurant. Bajio represented to the Woodwards that Bajio had initiated
a "site review" process enabling other Bajio franchisees to agree to or contest the
Woodwards' selected location. Bajio informed the Woodwards that their proposed
Bajio restaurant would not take sales away from the two closest Bajio restaurants:
one owned by Bryan Hofheins, located at 4361 South State in Murray, and the
other owned hy Darrel Gambel, located at 8000 South and Union Park l3Ivd. in
Salt Lake County. Bajio informed the Woodwards that Hofheins contractually
held Baiio restaurant area development rights for the area from 6200 South to 600
North in Salt Lake County and had the right of first refusal for the Woodwards'
location.
46. Bajio then falsely told the Woodwards that:
a. they had made an offer to Hofheins to develop a restaurant at the
Woodwards' location and Hofheins had rejected the offer;
b. Hofheins had waived his right to prevent a restaurant from being
developed at the Wood wards ' location;
c.
there were no contractual impediments
preventing the Woodward» from
opening a Bajio restaurant at their selected location; and
d. Bajio's studies showed there would be no impinging of sales by nearby
Bajio restaurants.
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Bajio knew each of these material representations was false. Bajio made these
false representations intending the Woodwards to rely thereon to in order to
induce the Wood wards to enter into a Franchise Agreement. The Woodwards
reasonably relied on Bajios false representations of material fact in deciding to
purchase their I3ajio franchise and incur substantial expenses, which they did to
their detriment. Had the Woodwards known that these representations were false,
they would not have purchased their Bajio Franchise and incurred substantial
expenses.
47. Although Brad Woodward previously served as a consultant in the operation of
various franchisor-owned Bajio restaurants for which he coordinated the purchase
of food and supplies and received a percentage of these purchases, the
Woodwards did not 1010W the sales, financial status, and risks of'Bajio restaurants.
48. Bajio in November 2006 told the Woodwards that Bajio had completed its site
review and that Bajio could offer a franchise to the Woodwards at their location,
Bajio did not inform the Woodwards that Hofheins owned an exclusive territory
within a 3-mi Ie radi us of his Bajio restaurant at 436 J South State, or that the
Woodwards' location was within Hofheins' exclusive territory, Bajio knew that
each of these facts was material to the Woodwards' decision about purchasing a
Bajio franchise at their selected location. Bajio knowingly concealed these facts
from the Woodwards intending them to rely on such concealment in order to
induce the Woodwards to enter into a Franchise Agreement. The Woodwards
reasonably relied 011 Bajio's knowing concealment of these material facts in
deciding to purchase their Bajio Franchise, which they did to their detriment, Had
the Woodwards known these material facts, they would not have purchased their
Bajio Franchise and incurred substantial expenses.
49. Thereafter, Bajio approved the Woodwards' operation of a Bajio restaurant at the
Woodwards' location and the Parties executed a Franchise Agreement dated
December 21} 2006 ("Franchise Agreement"), under which the Woodwards were
the franchisees and Bajio was the franchisor, for which the Woodwards paid Bajio
a Franchise Fee of$10,OOO.
50. Bajio controlled the lease of the Woodwards' restaurant location. As part of their
Franchise, the Woodwards agreed that Dajio Leasing would be the tenant under
the principal lease at their location and Bajio Leasing would sublease the property
to the Woodwards as a subtenant. The Woodwards agreed to pay all lease
payments, common area expenses, and operation costs directly to thelandlord.
Bajio admits it is the successor-in-interest
to Bajio Leasing's claims against the
Woodwards.
51. The Woodwards thereafter: entered into a one-year lease guarantee; borrowed
money on a substantial commercial loan; purchased equipment; built out their
restaurant; and hired and trained personnel. In February 2008, the Woodwards
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opened their Bajio restaurant. The average gross sales at their Bajio restaurant
were less than their operating and debt service eosts and were nowhere close to
the weekly profits which Bajio had represented to them as the profitability of a
Bajio restaurant in Salt Lake County.
52. To operate their restaurant at an ongoing loss, the Woodwards: loaned money to
the restaurant personally and from their Subway stores; incurred overdraft and
other unpaid check fees; owed unpaid taxes and unpaid workers' compensation
insurance premiums; and incurred legal fees.
53. When the Woodwards closed their restaurant, they still owed the landlord
considerable money. In May 2010; the Woodwards were evicted from their
premises by Bajio, thereby forfeiting their lease security deposit.
The Woodwards Are Entitled to Compensatory Damages
54. The Woodwards proved by clear and convincing evidence that Bajio, LLC and
Bajio Mountain West, LLC are jointly and severally liable for compensatory
damages to the Woodwards caused by their fraud.
55. The Woodwards also proved by clear and convincing evidence that Bajio, LtC
and Bajio Mountain West, LtC are jointly and severally liable for Bajios fraud in
violation of the Utah Consumer Sales Practices Act, Utah Code Ann. § 13-11-1, et
seq., for which the Woodwards are entitled to damages and legal fees.
56. For Bajios fraud, the Woodwards are entitled to rescission of their Franchise
Agreement and reimbursement of' all moneys which they expended in reliance on
the Franchise Agreement, plus prejudgment interest, attorneys' fees, and costs of
arbitration.
or
57. Bajio's fraud caused the Woodwards to suffer actual damages in the amount
$1,408,428 for: purchasing their Bajio franchise; entering into a one-year lease
guarantee; borrowing money on a commercial loan and on loans from the
Woodwards personally and from their Subway stores; purchasing equipment;
completing the build-out of their restaurant; incurring start-up and training costs;
operating the restaurant at a loss; incurring overdraft and other unpaid check fee
expenses; owing unpaid taxes and unpaid workers' compensation insurance
premiums; forfeiting their lease security deposit; legal fees; and costs of this
arbitration.
The Woodwards Are Entitled to Prejudgment Interest
5R. The Woodwards arc entitled to prejudgment interest on their actual damages at
the Utah prejudgment interest rate of 10% per year. The amount of such
prejudgment interest from the filing of their complaint on September 15, 2010,
the date of this Award is $120,777.
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Tht Woodwards
Are Entitled to Consequential
Damages
59. Bajio, LLC and Bajio Mountain West, LLC are jointly and severally liable for
reasonable, foreseeable, non-speculative consequential damages to the
Woodwards caused by their fraud.
60. Bajio's fraud caused the Woodwards to suffer consequential damages for the
forced sale of their Subway stores at less than fair market value and the related
loss of income from these Subway stores for a reasonably foreseeable period of
time. Bajios fraud also caused destruction of the Woodwards' personal and
business credit.
61. The Woodwards seck consequential damages in the amount of $8,414,822.
Arbitrator has determined that the reasonable, foreseeable, non-speculative
amount of consequential damages caused by 13ajio' s fraud is $2,669,173.
The Woodwards
The
Arc Entitled to Punitive Damag~s
62. Utah Code Ann. § 78B-11-122 authorizes the award of punitive damages in
arbitration, if the award is authorized by law ill a civil action involving the same
claim and the evidence produced at the hearing justifies the award under the legal
standards otherwise applicable to the claim. To award punitive damages, the
arbitrator shall specify in the award the basis in fact justifying, and the basis in
law authorizing, the award and state separately the amount of the punitive
damages. The basis in fact justifying the award of punitive damages and the basis
in law authorizing such award against Bajio, LLC and Bajio Mountain West, LLC
are set forth below.
63. Utah Code Ann. § 788-8-20 Iprovides that punitive damages may be awarded if
compensatory damages are awarded and it is established by clear and convincing
evidence that the acts or omissions of the tortfcasor are the resul t of willful and
malicious or intentionally fraudulent conduct, or conduct that manifests a
knowing and reckless indifference toward, and a disregard of, the rights of others.
64. Under Utah law, the appropriate amount of punitive damages is to be determined
by consideration of a number of factors including: the relative wealth of the
tortfeasor; the nature of the misconduct; the facts and circumstances surrounding
the misconduct; the effect of the misconduct on the lives of the persons damaged
by it; the probability of future recurrence of the misconduct; the relationship of
the parties; and the amount of actual damages awarded. While these factors do not
comprise an exclusive list, nor carry decisive weight individually, all factors must
be considered and a justification of a substantial award must be couched in terms
of one or more of these factors. After considering all these factors, in this case, as
discussed below, the Arbitrator determined the amount of punitive damages to be
awarded herein based on: the nature of Bajios misconduct; the facts and
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circumstances surrounding Bujio's misconduct; the effect of Bajio's misconduct
on the lives of the Woodwards who were damaged by it; the relationship of the
Parties; and the amount of actual damages awarded herein.
65. The Woodwards proved by clear and convincing evidence that Bajio, LLC and
Bajio Mountain West, LLC are jointly and severally liable [or punitive damages
to the Woodwards for:
a.
Bajios intentionally fraudulent conduct which induced the Woodwards
into entering into their Franchise Agreement to their substantial detriment
(as described above); and
b. Bajio's conduct thereafter (described below) which was willful and
malicious and manifests a knowing and reckless indifference toward, and
a disregard of, the rights of the Woodwards.
66. Only after the Woodwards' restaurant was built did Ilofheins learn that Bajio had
put another franchised restaurant in his exclusive designated territory. On April
30,2009, Hofheins informed Bajio that it had located the Woodwards' restaurant
in his exclusive designated territory and that it must be removed. When Bajio took
no action, on August 1R, 2009, the Woodwards were SLLed by Holhcins ("the
Hofheins Lawsuit") who correctly alleged that: as a Bajio Area Developer, he had
an exclusive territory within a 3-mile radius of their Bajio restaurant; he had not
relinquished his rights to this exclusive territory; and he had not been given the
required written notice Or the first right olrelusal [rom Bajio for development of
the Woodwards' location (collectively, the "Hofheins/Woodwards
Disputes").
67. Bajio was required under the Woodwards' Franchise Agreement to indemnity
them against the Hofheins/Woodwards
Disputes. The Woodwards tendered
defense of the Hofhcins Lawsuit to Bajio which controlled their legal defense
through counsel paid for by Bajio. The Wood wards were repeatedly told that they
could remain in and operate their restaurant, because Hofhcins' claims were
without merit.
68. Bajio also intervened in the Hofheins Lawsuit as the real party in interest in order
to stay the litigation and compel arbitration. When the Woodwards' counsel,
Daniel Steele, filed a third-party complaint against Bajio asserting non-arbitrable
claims and theories beneficial to the Woodwards but detrimental to Bajio, Bajio
replaced Mr. Steele with Grant Sums ion. The District Court eventually stayed the
Hofheins Lawsuit and compelled arbitration. On July 21 and July 26, 2010,
Messrs. Steele and Sumsion withdrew as counsel for the Woodwards.
G9. The pendency of the Hofhcins Lawsuit prevented the Woodwards from being able
to sell their Bajio restaurant. The Wood wards wanted to get out of their restaurant
obligations, through sale or other means, but were prevented from doing so by
Bajio's control of their defense in the Hofheins Lawsuit. The Woodwards' Bajio-
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controlled legal counsel wrongly defended the Woodwards' continued presence in
their restaurant from August 2009 through April 2010, thereby increasing the
Woodwards' ongoing losses, as well as increasing their ongoing damages to
Hofheins, Baiio's objective was for the Woodwards' financial losses to drive
them out of business during the pendency of the Hofheins Lawsuit, so they were
no longer competing with Hofheins, which would have limited Bajiu's damage
exposure to Hofhcins,
70. Baiio evicted the Woodwards from their restaurant during the last week of April,
2010. Bajio then ceased to defend the Woodwards once their restaurant went (Jut
of business and the Woodwards were no longer competing with Hofheins. On
May 3, 20t 0, after evicting the Woodwards from their restaurant, Bajio admitted
in court that: Hofhcins did have all exclusive territory within a 3·mile radius of
their Bajio restaurant; and the Woodwards were not legally allowed to have a
Bajio restaurant in Hofheins' exclusive territory. Bajio made this admission in.
order to compel the Woodwards into arbitration in the Hofheins Lawsuit, and
thereby avoid litigation ofthe Woodwards' non-arbitrable claims and theories
beneficial to the Woodwards but detrimental to Bajio. On May 3, 20)0, after
evicting the Woodwards from their restaurant, Bajio terminated the Woodwards'
counsel, Grant Sumsion, and told the Woodwards that Bajio no longer had an
obligation to indemnify the Woodwards against claims asserted by Holhcins,
71. The Woodwards approached Hofheins who informed them that he was in
negotiations with Bajio which included: Hofheins would dismiss the Hofhcins
Lawsuit without prejudice against the Woodwards; Bajio "s purchase of Hofheins'
three franchises was to be paid to Ilofheins by Bajio over five years with a large
balloon payment at the end offive years ("Hofhcins/Bajio Asset Purchase
Agreement "); only upon complete performance by Bajio under the
Holhcins/Bajio Asset Purchase Agreement, would Hofheins have to release or
dismiss with prejudice his claims against the Woodwards. If Bajio defaulted on its
obligations under the Hofheins/Bajin Asset Purchase Agreement, Hofheins could
reinstate the Hofheins T.awsuit and pursue all damages caused by Bajio for
placing the Woodwards in Hofheins' exclusive 3-milc territory.
72. Before Ilofheins and Bajio reached their settlement agreement ("Hofheins/Bajio
Settlement"), Hofheins and the Woodwards entered into a settlement agreement
("Hofheins/Woodwards Settlement") which included: a confession of judgment in
the amount of the damages caused to Hofheins for breach of his exclusive 3-mile
territor.y; a covenant not to execute whereby Hofheins would not seek to collect
the judgment from the Woodwards; their agreement that the confession of
judgment would be filed only if Bajio defaulted on its obligations under the
Hofheins/Bajio Asset Purchase Agreement; and an assignment to Hofheins of the
proceeds that the Woodwards would be entitled to recover from Bajio for
indemnification when and if the confession of judgment is filed against the
Woodwards. The purpose of the Hofheins/Woodwards Settlement was to protect
the Woodwards against the claims-reinstatement consequences ofBajio's default
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under the Hofheins/Bajio Asset Purchase Agreement, because Bajio refused to
indemnify The Woodwards on claims asserted against them by Hofheins.
73. The Woodwards have not been released from the Hofheins/Woodwards
Disputes.
The Holhcins/Bajio Settlement does not resolve the Hofheins/Woodwards
Disputes. because it does not eliminate every claim by Ilofheins against the
Woodwards, but only postpones such claims, pending full and complete future
performance by Bajio of the Hofhcins/Bajio Asset Purchase Agreement.
74. Bajio settled the Hofheins/Woodwards Disputes on August 2,2010, by Bujios
purchase of three Hofhcins restaurants and the cancellation of his Bajio Franchise
Agreements. By settling the Hofheins/Woodwards
Disputes the claims that
remain are the Woodwards' claims against Bajio, and Bajios counterclaims
against the Woodwards, arbitrated herein.
75. For twelve months, from April, 2009, until the Woodwards
went out of business
in April, 2010, Bajio refused to settle with the Woodwards for the damages
caused to them by Bajio for intentionally and fraudulently putting their restaurant
in Hofheins' exclusive 3-mile territory, so that both restaurants cannibalized each
other's sales. Since settling with Hofheins, Bajio has refused to settle with the
Woodwards. After being ordered to produce documents in this arbitration, Bajio
refused to participate further, refused to appoint new counsel, and refused to
attend the arbitration hearing.
76. Bajios willful and malicious conduct toward the Wootlwards enabled Bajio to
obtain the Woodwards' royalty payments of 10% of their gross sales to Bajio until
they went out of business, i.e., Bajio made money from the Woodwards while
their restaurant was unprofitable
and was going out of business.
77. Bajios willful and malicious conduct toward the Woodwards was a substantial
contributing cause of them having to sell their Subway restaurants which Brad
Woodward had developed as a source of retirement income for him and as a
livelihood for Sanford and his other sons.
Bajio's willful and malicious conduct toward the Woodwards was a source of
great stress in Brad Woodward's marriage and was a substantial contributing
cause of his divorce.
78. The Woodwards seek punitive damages in tbe amount of$7,634,452.6S. For the
factual and legal bases set forth above, the Arbitrator has determined that punitive
damages should be awarded to the Woodwards in the amount of three times their
compensatory damages of$1,408,428 awarded herein, for a total amount of
punitive damages of $4,225,284.
79. Utah Code Ann.
S 7813~11-122
provides that the first $50,000 of punitive damages
shall be awarded to the Woodwards, and any amount in excess of$50,000 shall be
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divided equally between the State of Utah and the Woodwards,
each entered accordingly.
withjudgment
to
Remedies Awarded to the Woodwards
RO. Bajio, LLC and Bajio Mountain West, LLC are jointly and seve-rally liable for
compensatory damages in the amount of $1 ,408,428, which they shall pay
immediately to the Woodwards.
81. Bajio, LLC and Bajio Mountain West, LLC arc jointly and severally liable for
prejudgment interest at the Utah statutory rate of 10% per annum from the filing
of the Complaint on September 15,201 () through the date of this Award in the
amount of $ I 20,777, which they shall pay immediately to the Woodwards.
82. Bajio, LLC and Bajio Mountain West, LLC are jointly and severally liable for
consequential damages in the amount of $2,669, 173, which they shall pay
immediately to the Woodwards.
RJ. Bajio, LLC and Bajio Mountain West, LLC are jointly and severally liable for
punitive damages in the amount of $4,225,284, which they shall pay immediately
to the Woodwards arid the State of Utah. Under the provisions of Utah Code Ann.
§ 78B-8~201(3» the first $50,000 olpunitive damages arc awarded to the
Woodwards. The amount of puniti ve damages in excess of $50,000 collected by
the Woodwards shall be divided equally between the State of Utah and the
Woodwards subject to the provisions of Utah Code Ann. § 78B-8-201 (3 )(b)
through (e).
84. Utah Code Ann. ~ 78B-11-122 provides that an arbitrator's fees must be paid as
provided in the award. In this case, the Parties agreed to compensate the
Arbitrator in the amount of $300 per hour and the Arbitrator has incurred 32.25
hours for a total amount of fees of$9,675.00, which have been paid to the
Arbitrator from the Parties' fee deposits herein as follows: $7,500.00 from Bajios
lee deposit herein and $2,175.00 from the Woodwards' fee deposit herein.
85. Given the nature of Bajio's fraud, as described above, Bajio, LLC and Bajio
Mountain West, LLC are jointly and severally liable for all the Arbitrator's fees
herein which shall be borne entirely by Bajio, LLC and Bajio Mountain West,
LLC, and not divided equally between the Woodwards and Bajio. Therefore,
Baiio, LLC and Bajio Mountain West, LLC immediately shall pay the sum of
$2,175.00 to the Woodwards for that portion of the Arbitrator's lees paid from the
Woodwards' fee deposit herein.
80. Bajio, LLC and Bajio Mountain West, LLC arc jointly and severally liable for
post-judgment interest at the Utah statutory rate after the date of this Award on all
amounts awarded herein, until full paid.
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R7. Utah Code Ann. ~ 7RB-11-122 authorizes an arbitrator to award any remedies as
the arbitrator considers just and appropriate under the circumstances of the
arbitration proceeding. The fact that a remedy could not or would not be granted
by the court is not a ground for refusing to confirm an award under Section 7813·
11·123 or for vacating an award under Section 78B-11-124. In this regard, the
Arbitrator orders:
a. Bajio, LLC and Bajio Mountain West, LLC shall produce to the
Wooclwarc1s the documents in their possession or under their control as
ordered by the Arbitrator on May 5) 2011;
b. Bajio, LLC and Bajio Mountain
West., LLC shall indemnify the
Woodwards against any future claims-reinstatement
consequences of any
default by Bajio under the Hofheins/Bajio Asset Purchase Agreement;
c.
The Woodwards immediately shall give notice 10 the Utah Attorney
General and the Utah State Treasurer of the award of punitive damages
herein comply in accordance with the provisions of Utah Code Ann. §
78B-8-202; and
d. The Woodwards in collecting punitive damages awarded herein shall
comply with the provisions of Utah Code Ann. § 78B"8-201(3).
88. This AW!lI'd is in full satisfaction of the Parties' Disputes, including all claims,
defenses, and counterclaims submitted to arbitration herein by the Parties. Any
such claims, defenses, and counterclaims not expressly granted in this Award are
hereby denied.
r...
BY THE ARBITRATOR:
R-·~
Dated: July 27,2011
Arbitrator
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Service of Award
A signed original of this Award was sent by depositing such in the United States Mail,
first-class postage paid, this 27111day of July, 2011, to:
Ronald R. Madson, Esq.
MADSON & MADSON
112 South Main Street
Alpine, Utah 84004
Bajio, LLC
c/o Subway World Headquarters
325 me Drive
Milford, Connecticut 06461·3059
Baiio Mountain West, LLC
551 East Slate Rd.
SLlite 201
American Fork, Utah 84003
Neil R. Sabin, Esq.
NIELSEN & SENIOR
5217 South State Street
Suite 400
Salt Lake City, Utah 84107
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