Choice Hotels International, Inc. v. Shiv Hospitality, L.L.C.

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

CHOICE HOTELS INTERNATIONAL, 
INCORPORATED,
Plaintiff-Appellee,
v.
 No. 05-2201
SHIV HOSPITALITY, L.L.C.;
BHAGIRATH S. JOSHI; ALAKNANDA B.
JOSHI,
Defendants-Appellants.

CHOICE HOTELS INTERNATIONAL, 
INCORPORATED,
Plaintiff-Appellee,
v.
 No. 06-1043
SHIV HOSPITALITY, L.L.C.;
BHAGIRATH S. JOSHI; ALAKNANDA B.
JOSHI,
Defendants-Appellants.

Appeals from the United States District Court
for the District of Maryland, at Greenbelt.
Marvin J. Garbis, Senior District Judge.
(CA-00-3462-8-MJG)

Argued: May 24, 2007

Decided: June 20, 2007

Before WIDENER, WILLIAMS, and SHEDD, Circuit Judges.
2 CHOICE HOTELS INT’L v. SHIV HOSPITALITY
Affirmed by published opinion. Judge Williams wrote the opinion, in
which Judge Widener and Judge Shedd joined.

COUNSEL

ARGUED: Onkar Nath Sharma, Silver Spring, Maryland, for Appel-
lants. Jeremy W. Schulman, SHULMAN, ROGERS, GANDAL,
PORDY & ECKER, P.A., Rockville, Maryland, for Appellee. ON
BRIEF: Kerry S. McGeever, Silver Spring, Maryland, for Appellee.

OPINION

WILLIAMS, Circuit Judge:

Appellants Shiv Hospitality, Bhagirath Joshi, and Alaknanda Joshi
(collectively "Shiv") appeal the district court’s confirmation of an
arbitrator’s award to Appellee Choice Hotels International. The award
stemmed from a failed franchise agreement between Shiv and Choice
Hotels. Because the district court had jurisdiction to confirm the
award and Shiv’s objections were time barred, we affirm.

I.

In 1998, Choice Hotels and Shiv entered into a franchise agreement
authorizing Shiv to use Choice Hotels’ brand name, Quality Inn, for
a hotel in Denham Springs, Louisiana. Shiv began operating the hotel
in April 1999. Soon thereafter, Shiv defaulted on payments of various
franchise fees, and Choice Hotels ultimately terminated the franchise
agreement on June 8, 2000.

On November 22, 2000, Choice Hotels filed suit for breach of con-
tract in the District of Maryland,1 seeking $116,432.28 in money dam-
ages as well as interest, attorney fees, and costs. Shiv thereafter filed
a motion to dismiss, contending that the district court lacked personal
1
The franchise agreement was made in Silver Spring, Maryland, which
is Choice Hotels’ principal place of business.
 CHOICE HOTELS INT’L v. SHIV HOSPITALITY 3
jurisdiction over Shiv and subject matter jurisdiction over the dispute.
Shiv further argued that venue was improper and that Choice Hotels’
claims had to be dismissed because of the franchise agreement’s arbi-
tration provision. On April 30, 2001, the district court denied Shiv’s
motion to dismiss.

Shiv promptly noted an appeal and was prepared to argue that
Choice Hotels’ claims were required to proceed to arbitration. While
Shiv’s appeal was pending, we decided Choice Hotels Int’l, Inc. v.
BSR Tropicana Resort, Inc., 252 F.3d 707 (4th Cir 2001), which con-
cerned a nearly identical arbitration agreement. In that opinion, we
rejected Choice Hotels’ "extremely broad reading" of the arbitration
exceptions that would result in excluding from arbitration "all claims
(by Choice) seeking monetary damages." Id. at 711. In light of the
BSR Tropicana opinion, we remanded the Shiv appeal to the district
court for further consideration.

Upon remand, the district court interpreted BSR Tropicana as
requiring the parties to proceed with arbitration with most of their
claims. Accordingly, the court issued an order on November 28, 2001,
staying the case "pending resolution of the arbitration proceedings."
(J.A. at 247.)2 The parties then proceeded to arbitration, where they
both made claims against one another.

The arbitration hearing began on March 17, 2003. The arbitration
resulted in an award granting Choice Hotels’ claims for (1) franchise
and service charges, (2) communications agreement charges, and (3)
interest of 1.5% on the awards. The arbitrator also denied Choice
Hotels’ claims for lost profits due to early termination and trademark
infringement and Shiv’s counterclaim for breach of contract. Finally,
the arbitrator denied both parties’ claims for attorney fees and costs.
The total arbitration award to Choice Hotels was $59,208.75 plus
1.5% interest each month until paid. The award was final on Decem-
ber 9, 2003.

On September 15, 2004, approximately nine months after the
award was finalized, Choice Hotels returned to the district court and
2
Citations to the "J.A." refer to the joint appendix filed with this
appeal.
4 CHOICE HOTELS INT’L v. SHIV HOSPITALITY
asked it to reopen the case to confirm the arbitration award. On Octo-
ber 4, 2004, Shiv filed an opposition to Choice Hotels’ application to
confirm and further contended that the award should be vacated. Shiv
also asked for $36,935.00 in attorney fees and costs.

In Shiv’s application, it claimed that the district court lacked sub-
ject matter jurisdiction to confirm the award because the award was
less than $75,000. In the alternative, Shiv contended that the arbitrator
lacked jurisdiction over the case and that Shiv was contractually enti-
tled to an award of attorney fees under the franchise agreement.

The district court rejected Shiv’s arguments and confirmed the
award. With respect to the subject matter jurisdiction argument, the
district court found that the amount in controversy was actually
$96,143.75 because the court had to take into account the $59,208.75
that Choice Hotels wanted confirmed and the $36,935.00 that Shiv
was asking for in attorney fees pursuant to the franchise agreement.3
See, e.g., Sarnoff v. Am. Home Prods. Corp., 798 F.2d 1075, 1078
(7th Cir. 1986) ("[W]here a litigant has a right, based on contract,
statute, or other legal authority, to an award of attorney’s fees if he
prevails in the litigation, a reasonable estimate of those fees may be
included in determining whether the jurisdiction minimum is satis-
fied." (internal quotation marks omitted)). With respect to Shiv’s
arguments on the merits, the district court found that Shiv was proce-
durally barred from attempting to vacate or modify the award because
it did not challenge the award within three months of its filing.

Shiv timely appealed. We have appellate jurisdiction pursuant to 28
U.S.C.A. § 1291 (West 2006).

II.

Shiv argues that the district court erred in finding that subject mat-
ter jurisdiction existed, and we, therefore, must dismiss for lack of
jurisdiction. We review de novo questions of subject matter jurisdic-
3
As an alternative grounds for jurisdiction, the district court found that
the amount in controversy requirement was satisfied because by the time
Choice Hotels made its motion to reopen to confirm the award, the inter-
est from the award had made the total award equal to more than $75,000.
 CHOICE HOTELS INT’L v. SHIV HOSPITALITY 5
tion. Md. Stadium Auth. v. Ellerbe Becket Inc., 407 F.3d 255, 260 (4th
Cir. 2005).

As a court of limited jurisdiction, we are obligated to satisfy ourself
of our jurisdiction as well as that of the district court. See, e.g., United
States v. Hadden, 475 F.3d 652, 659 (4th Cir. 2007). "When the lower
federal court lacks jurisdiction, we have jurisdiction on appeal, not of
the merits but merely for the purpose of correcting the error of the
lower court in entertaining the suit." Arizonans for Official English v.
Arizona, 520 U.S. 43, 73 (1997) (internal quotation marks omitted).

If federal jurisdiction is proper in this case, it must be under the
diversity of citizenship statute, 28 U.S.C.A. § 1332 (West 2006), as
no federal question exists and the Federal Arbitration Act does not
itself create federal-question jurisdiction. See, e.g., Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Co., 460 U.S. 1, 25 n.32 (1983)
("The Arbitration Act is something of an anomaly in the field of
federal-court jurisdiction. It creates a body of federal substantive law
establishing and regulating the duty to honor an agreement to arbi-
trate, yet it does not create any independent federal-question jurisdic-
tion . . . .").

Under § 1332, district courts "shall have original jurisdiction of all
civil actions where the matter in controversy exceeds the sum or value
of $75,000, exclusive of interest and costs, and is between . . . citizens
of different States." 28 U.S.C.A. § 1332. Here, the parties are com-
pletely diverse: Shiv Hospitality is a Louisiana company and the
Joshis are Louisiana citizens whereas Choice Hotels is a Delaware
corporation. Shiv, however, argues that because Choice Hotels sought
only to confirm the arbitrator’s award of $59,208.75, the amount in
controversy was equal to exactly that sum, and the $75,000 threshold
was therefore not met. We disagree.

Courts have taken different approaches when determining the
amount in controversy at issue in an application to confirm or vacate
an arbitration award. See generally Christopher L. Frost, Welcome to
the Jungle: Rethinking the Amount in Controversy in a Petition to
Vacate an Arbitration Award Under the Federal Arbitration Act, 32
Pepp. L. Rev. 227 (2005). For example, some courts have held that
the amount in controversy is equal to the amount of the award regard-
6 CHOICE HOTELS INT’L v. SHIV HOSPITALITY
less of how much was sought at the beginning of the arbitration pro-
ceeding. See Baltin v. Alaron Trading Corp., 128 F.3d 1466, 1472
(11th Cir. 1997) (holding that because the amount sought to be
vacated was only $36,284.69, there was a "legal certainty" the amount
in controversy could not be met). Other courts appear to measure the
amount in controversy by examining the amount sought in arbitration,
as opposed to the actual amount awarded. See Am. Guar. Co. v. Cald-
well, 72 F.2d 209, 211 (9th Cir. 1934) ("It is the amount in contro-
versy which determines jurisdiction, not the amount of the award.").
Finally, most courts appear to adopt a mixed approach when con-
fronted with an application to vacate an award and reopen the arbitra-
tion. Under such an approach, "the amount in controversy in a suit
challenging an arbitration award includes the matter at stake in the
arbitration, provided the plaintiff is seeking to reopen the arbitration."
Sirotzky v. N.Y. Stock Exchange, 347 F.3d 985, 989 (7th Cir. 2003).
Thus, the amount in controversy in such situations is the amount
awarded in arbitration in addition to the amount that would be at play
if arbitration was reopened.

Although we have yet to opine on this interesting question, we
have no occasion to do so here, as these cases are inapposite to our
inquiry. In the aforementioned cases, the parties filed actions in the
district court after a final award by an arbitrator. Choice Hotels, on
the other hand, filed its initial complaint in late 2000 and its amended
complaint in early 2001, and its federal action was stayed pending
arbitration. We are therefore presented with a situation quite different
from one in which the parties proceed directly to arbitration and then
file a complaint in district court seeking confirmation or vacatur of an
arbitration award. Here, Choice Hotels first filed a complaint in dis-
trict court, and the district court then stayed the complaint until after
arbitration. It was only after the arbitrator issued its award that Choice
Hotels asked the district court to reopen the original case.

The black letter rule "has long been to decide what the amount in
controversy is from the complaint itself, unless it appears or is in
some way shown that the amount stated in the complaint is not
claimed in ‘good faith.’" Horton v. Liberty Mut. Ins. Co., 367 U.S.
348, 353 (1961). Thus, for example, jurisdiction is not suddenly lack-
ing over an appeal simply because the judgment awarded by a district
court is less than $75,000. Likewise, parties deciding to settle a suit
 CHOICE HOTELS INT’L v. SHIV HOSPITALITY 7
for less than $75,000 do not suddenly divest a district court of juris-
diction to approve the settlement.

Choice Hotels demanded well over $75,000 in its complaint, and
there is no allegation that claim was not in good faith. That Choice
Hotels did not win a judgment in arbitration for that amount is irrele-
vant in this context. "Events occurring subsequent to the institution of
suit which reduce the amount recoverable below the statutory limit do
not oust jurisdiction." St. Paul Mercury Indem. Co. v. Red Cab Co.,
303 U.S. 283, 289-90 (1938); see Hood v. Bell, 84 F.2d 136, 137 (4th
Cir. 1936) (holding that a court does not lose diversity jurisdiction
"because of a subsequent change in the conditions upon which juris-
diction was originally based").

Because the district court simply stayed this action, and then
reopened it to confirm the award, we must determine the amount in
controversy from the complaint itself. We therefore hold that the dis-
trict court had subject matter jurisdiction under § 1332 because the
good faith amount in controversy contained in Choice Hotels’ com-
plaint well exceeded the $75,000 threshold.4

III.

Shiv further contends that the arbitrator exceeded its authority and
disregarded our prior precedents and the law in granting an award to
Choice Hotels.5 We review de novo the district court’s decision to
4
Because the amount in controversy requirement was satisfied under
Choice Hotels’ complaint, we need not, and do not, address whether the
amount in controversy could have been satisfied based on the interest
accrued on the arbitrator’s award or Shiv’s counterclaim for attorney fees
under the franchise agreement.
5
It is somewhat ironic that Shiv is now contesting the arbitrator’s
authority to issue the award in this case. It originally contested Choice
Hotels’ "refus[al] to arbitrate its claims resulting from the unilateral ter-
mination of the Agreement." (J.A. at 47.) It now contends that some of
those claims were not subject to arbitration. See Rock-Tenn Co. v. United
Paperworkers Int’l Union, 184 F.3d 330, 334 (4th Cir. 1999) (holding
that "parties can manifest their agreement to arbitrate by conduct, for
example by submitting without objection to arbitration of a dispute").
8 CHOICE HOTELS INT’L v. SHIV HOSPITALITY
confirm an arbitration award. Peoples Sec. Life Ins. Co. v. Monumen-
tal Life Ins. Co., 991 F.2d 141, 145 (4th Cir. 1993).

Federal courts must give "great deference" to an arbitration award.
Id. The Supreme Court has explained that because parties have autho-
rized an arbitrator "to give meaning to the language of [an] agree-
ment, a court should not reject an award on the ground that an
arbitrator misread the contract." United Paperworkers Int’l Union v.
Misco, Inc., 484 U.S. 29, 38 (1987). "As long as the arbitrator is even
arguably construing or applying the contract," a court may not vacate
the arbitrator’s judgment. Id. Therefore, an award may be reversed
only "when arbitrators understand and correctly state the law, but pro-
ceed to disregard the same." Upshor Coals Corp. v. United Mine
Workers, 933 F.2d 225, 229 (4th Cir. 1991) (internal quotation marks
omitted).

The district court found that Shiv’s claims contesting confirmation
were time barred. We agree.

Under the Federal Arbitration Act, "[n]otice of motion to vacate,
modify, or correct an award must be served upon the adverse party
or his attorney within three months after the award is filed or deliv-
ered." 9 U.S.C.A. § 12 (West 1999). The arbitration award here was
issued on December 9, 2003. This gave Shiv until March 9, 2003 to
contest the award. Shiv missed this deadline by approximately six
months.

In Taylor v. Nelson, we were faced with a case nearly identical to
this case. 788 F.2d 220 (4th Cir. 1986). Nelson sought confirmation
of an arbitration award. Five months after the award was issued, Tay-
lor sought to vacate it, and the district court complied. We reversed,
holding that "once the three-month period has expired, an attempt to
vacate an arbitration award could not be made even in opposition to
a later motion to confirm." Id. at 225. In doing so, we explained:

A confirmation proceeding under 9 U.S.C. § 9 is intended to
be summary: confirmation can only be denied if an award
has been corrected, vacated, or modified in accordance with
the Federal Arbitration Act. Under the Act, vacation of an
award is obtainable by serving a motion to vacate within
 CHOICE HOTELS INT’L v. SHIV HOSPITALITY 9
three months of the rendering of the award. 9 U.S.C. § 12.
Because Nelson did not move for confirmation until April
10, 1985, almost seven months after the award was filed,
Taylor would be prevented from seeking a vacatur of the
award unless there was pending in the district court a
timely-filed motion to vacate or unless a tolling or due dili-
gence exception operated to excuse his failure to make a
timely motion.

Id. (footnote omitted).

In Taylor, we also assumed, for the sake of argument, that due dili-
gence or tolling were exceptions to the three-month bar.6 Id. Never-
theless, we held that Taylor was not entitled to any reprieve because
Taylor chose "to wait longer than three months before he made a
motion to vacate, and . . . that has proven fatal to his attempt to over-
turn the arbitration award. Taylor remained free at all times to pursue
the statutory remedy of § 12 within the time limits set out by that stat-
ute, and he is not entitled to the benefit of any due diligence or tolling
exceptions to the three-month rule, even if such exceptions exist." Id.
at 226.

Shiv, likewise, can offer no reason for why it chose to wait until
Choice Hotels sought to confirm the award before attempting to
vacate the award. In a confusing manner, it appears to argue that it
chose not to file within three months because the award was obvi-
ously contrary to Fourth Circuit law. But this makes no sense. If the
award was without-a-doubt ultra vires, Shiv should have been jump-
ing at the chance to return to federal court and have the award
vacated. Instead, it chose to do nothing.

6
We noted, however, that such an assumption was "questionable." Tay-
lor v. Nelson, 788 F.2d 220, 225 (4th Cir. 1986). But see Young v. United
States, 535 U.S. 43, 49-50 (2002) (noting that "Congress must be pre-
sumed to draft limitations periods in light of" the principle "that limita-
tions periods are customarily subject to equitable tolling unless tolling
would be inconsistent with the text of the relevant statute" (internal quo-
tation marks and citation omitted)).
10 CHOICE HOTELS INT’L v. SHIV HOSPITALITY
IV.

The Federal Arbitration Act gives a party one year to confirm an
award, but mandates that any issue concerning vacatur be filed within
three months of the award. This is a sensible policy that allows the
confirmation process to be streamlined. Instead of filing within three
months, however, Shiv decided to sleep on its rights and presumably
hope that Choice Hotels would not timely file for confirmation. This
was poor strategy, as Shiv has offered no reason, compelling or other-
wise, for why it did not file to vacate the award within three months.
Accordingly, we affirm the district court’s confirmation of the award.

AFFIRMED