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The Franchise Memorandum

California Federal Court Grants Stay in Favor of Arbitration
Posted in Arbitration

A federal court in California has granted a franchisor’s motion to stay the case pending arbitration. Morris CM Enterprises, LLC v. Wingstop Franchising, LLC, 2020 WL 5502329 (E.D. Cal. Sept. 11, 2020). Wingstop, a chicken wing restaurant franchisor, terminated Morris CM’s Wingstop franchise. Morris subsequently sued claiming Wingstop wrongfully terminated the franchise. After counterclaiming for violations of the Lanham Act and breach of contract, and obtaining a preliminary injunction requiring Morris to immediately discontinue using Wingstop’s brand and intellectual property, Wingstop moved to stay the proceedings until the dispute could be arbitrated in accordance with the franchise agreement’s arbitration provision.

Morris argued that the arbitration provision was procedurally and substantively unconscionable and thus unenforceable. Wingstop argued that the enforceability of the arbitration provision should be decided by the arbitrator. The court agreed with Wingstop, holding that the arbitrator should determine the enforceability of the arbitration provision. The court reasoned that the arbitration provision itself provided that all disputes relating to the agreement, including its enforceability, were to be submitted for binding arbitration. The court further relied on binding precedent that in such circumstances, the party opposing arbitration must specifically challenge the delegation of the question of arbitrability, not the arbitration provision as a whole. Because Morris did not specifically challenge the delegation of the question of arbitrability, the question of whether the arbitration provision was enforceable should be resolved by the arbitrator. 

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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