The Franchise Memorandum

After juggling three separate federal and state statutes, the Arkansas Supreme Court determined last month that a statutory franchise claim is subject to arbitration.  In Gruma Corp. v. Morrison, 2010 Ark. LEXIS 182 (Ark. April 1, 2010), the parties had entered into a distribution agreement that contained a clause requiring the arbitration of all claims relating to the agreement.  After Gruma terminated the agreement, Morrison sued in Arkansas state court alleging various tort claims and violations of the Arkansas Franchise Practices Act (AFPA). In response, Gruma moved to compel arbitration in accordance with the agreement and the Federal Arbitration Act.  Morrison contended that arbitration could not be compelled under the Arkansas Uniform Arbitration Act because, under that statute, tort claims were not subject to arbitration.  He also argued that his AFPA claims were not subject to arbitration because it would limit his substantive rights. The trial court granted Morrison’s motion.

On appeal, the Arkansas Supreme Court was asked to determine whether the Federal Arbitration Act or the Arkansas Uniform Arbitration Act applied and whether a cause of action under the AFPA is subject to arbitration.  The court held that the Federal Arbitration Act applied and, therefore, claims sounding in tort were subject to arbitration.  The court also determined that the parties’ agreement to arbitrate their disputes did not limit or waive any substantive rights that Morrison had under the AFPA, but that issues regarding arbitration rights were to be decided by the arbitrator.