The Franchise Memorandum

Meanwhile, the same court held that a franchise agreement delegated to the court the power to determine arbitrability. Han v. Synergy Homecare Franchising, LLC, 2017 WL 446881 (N.D. Cal. Feb. 2, 2017). The issue arose when Synergy moved to dismiss the complaint of its franchisee, Han, and to compel arbitration pursuant to an arbitration clause in the franchise agreement. In furtherance of its motion, Synergy argued that an arbitrator must decide the threshold question of whether the claims asserted by Han were subject to arbitration. Han argued that the question of arbitrability was one for the court. Following a detailed analysis of the grammatical structure and punctuation of the arbitration clause, the court agreed with Han.

Generally, the arbitrability of a claim is a question for the court, unless the parties’ arbitration clause clearly and unmistakably provides otherwise. The incorporation of specified arbitration rules, such as the AAA’s rules, into an arbitration clause through a delegation provision generally constitutes clear and unmistakable evidence of intent to submit the question of arbitrability to arbitration. However, the United States Court of Appeals for the Ninth Circuit recently distinguished between arbitration clauses in which the delegation provision is subject to a carve out of claims from an agreement to arbitrate, and those in which the delegation provision is independent from such a carve out. The latter demonstrates a clear and unmistakable intent to submit the question of arbitrability to arbitration, while the former does not.

The district court held that the arbitration clause contained in Synergy’s franchise agreement was more akin to the former; thus, the court had to determine whether the claims asserted by Han fell within the carve-out provision before compelling arbitration. Specifically, the agreement to arbitrate, carve out of claims, and delegation of arbitration to the AAA were contained in a single sentence, separated by commas (e.g., except for claims relating to x, y, or z, any dispute arising out of this agreement shall be settled by arbitration, in accordance with the AAA’s rules), such that both the agreement to arbitrate and the delegation to the AAA appeared to be subject to the carve-out provision. The court noted that had the clause separated the agreement to arbitrate and the carve out from the delegation provision with a period or a semicolon, the delegation to the AAA would not have been subject to the carve out and the clause would have demonstrated a clear and unmistakable intent to submit the question of arbitrability of all claims to arbitration. Applying the provision to the claims at issue, the court held that the carve out was broad in its wording and excluded several of Han’s claims from arbitration. Pursuant to the Federal Arbitration Act, the court stayed the court action pending arbitration of the arbitrable claims.