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A federal district court in Maine recently relied on the express terms of the franchise agreement between the parties and awarded the franchisor the attorneys’ fees and costs it incurred enforcing and collecting on an arbitration award and defending the franchisee’s appeal of the judgment. Toddle Inn Franchising, LLC v. KPJ Assocs. LLC, 2021 WL 5828029 (D. Me. Dec. 8, 2021).

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A federal court in Massachusetts dismissed a franchisee’s declaratory judgment, consumer protection, and fraud claims against a franchisor, two of its employees, and its outside counsel and enforced the arbitration clause in the parties’ franchise agreement. Restuccia v. H&R Block Tax Services LLC, et al. 2021 WL 4658734 (D. Mass. Oct. 7, 2021), Restuccia converted his accounting firm into an H&R Block franchise through a series of agreements he entered into in 2015.

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The First Circuit Court of Appeals has affirmed a district court’s confirmation of an arbitration award, concluding that franchisor Toddle Inn Franchising had not waived its contractual right to arbitrate by initially seeking injunctive relief in court.

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A federal court in Pennsylvania granted a former franchisee’s motion for reconsideration of its order staying proceedings holding the franchisor’s arbitration agreement invalid. Takiedine v. 7-Eleven, Inc., 2021 WL 3223070 (E.D. Pa. July 29, 2021). In 2017, Azmi Takiedine, a 7-Eleven franchisee for over 40 years, brought suit in district court alleging that 7-Eleven failed its duties regarding vendor negotiating practices as required by the parties’ franchise agreement. The contract included an arbitration agreement requiring disputes arising under the ...

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A federal court in Oregon held that plaintiff franchisee employees were bound by the arbitration provision of relevant franchise agreements and could be compelled to arbitrate by affiliates of the franchisor, even though none of them were parties to the franchise agreements.

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The Eleventh Circuit Court of Appeals recently affirmed a ruling that forklift manufacturer Taylor Group could not be compelled to arbitrate a dispute pursuant to an arbitration provision in an agreement to which it was not a party.

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A federal court in Michigan has denied a franchisor’s motion to compel arbitration because the court determined that the dispute arose from a service contract that was outside the scope of the arbitration provision in the separate franchise agreements.

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A federal court in Illinois dismissed certain putative class action claims related to pandemic closures of Planet Fitness franchises, compelling arbitration against one named plaintiff while dismissing claims of another for failure to name the franchisee.

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Similarly, a federal court in Pennsylvania has dismissed a lawsuit brought by 90 hotel franchisees, enforcing the arbitration provisions in their franchise agreements and ordering all 90 franchisees to arbitrate their claims individually.

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A federal court in California rejected City Beverages’ request to disqualify JAMS from arbitrating its contractual dispute with Monster Energy. Monster Energy Co. v. City Beverages, LLC, 2021 WL 650275 (C.D. Cal. Feb. 17, 2021).

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A federal court in Tennessee has granted a franchisor’s motion to compel arbitration of all of a franchisee’s claims.

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A federal court in California has granted a franchisor’s motion to stay the case pending arbitration.

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A federal court in Oregon compelled arbitration over the objections of franchisees who claimed they were fraudulently induced to enter franchise agreements because of false representations made by the franchisor’s counsel. Black Rock Coffee Bar, LLC v. BR Coffee, LLC, 2020 WL 4728877 (D. Or. Aug. 14, 2020). Black Rock, a coffee shop franchisor, became embroiled in a dispute over initial franchise fees with a company that had opened three franchised Black Rock coffee shops. In response, Black Rock exercised its option under the territory and franchise agreements to purportedly ...

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In another recent decision from the Sixth Circuit Court of Appeals, the court affirmed a ruling that incorporation of the AAA Rules into an arbitration agreement provides the “clear and unmistakable” evidence required under Supreme Court precedent that the parties agreed to arbitrate the question of arbitrability. Blanton v. Domino's Pizza Franchising LLC, 2020 WL 3263002 (6th Cir. June 17, 2020). The AAA Rules provide, in part, that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or ...

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A federal court in Ohio held that an arbitration provision in a franchise agreement was enforceable despite arguments that the agreement was rescinded or that it was contrary to Ohio law. Scarso Enters., Inc. v. Honor Yoga Mgmt., LLC, 2020 WL 2496941 (N.D. Ohio May 14, 2020). Plaintiff Scarso is a former franchisee that operated a yoga studio under the trade name of franchisor Honor Yoga. Scarso entered a development agreement with Honor Yoga to develop three studios and a franchise agreement for the first studio. When that studio underperformed, Scarso sought to renegotiate the ...

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The Third Circuit Court of Appeals has held that Coverall franchisees must submit their employee misclassification claims against a subfranchisor to arbitration, but remanded the question of whether the franchisor can invoke the same arbitration provision even though it is not a party to the plaintiffs’ franchise agreements. Richardson v. Coverall N. Am., Inc., 2020 WL 2028523 (3rd Cir. Apr. 28, 2020). Plaintiffs Richardson and Silva signed subfranchise agreements with Sojul, LLC in 2016 and 2005, respectively, to operate Coverall commercial cleaning franchised ...

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A federal court in Connecticut has ruled that Subway customers can pursue class action claims against the company for unwanted text messages in violation of the Telephone Consumer Protection Act (TCPA). Soliman v. Subway Franchisee Advertising Fund Trust Ltd., 2020 WL 161328 (D. Conn. Mar. 5, 2020). Named-plaintiff Marina Soliman, along with other Subway customers, alleges that, upon entering a Subway restaurant, a Subway employee informed her of a promotion whereby customers could sign up for text messages to receive discounts and other promotional information from Subway ...

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In another putative class action in Connecticut, a federal court declined to dismiss an employee misclassification lawsuit against Coverall North America, Inc., a janitorial services franchisor, but agreed to stay the action and compel arbitration. Bille v. Coverall N. Am., Inc., 2020 WL 1185251 (D. Conn. Mar. 11, 2020). Plaintiffs Caribe Billie and Quincy Reeves, both Coverall franchisees, alleged that Coverall had misclassified them as independent contractors and withheld portions of their wages in violation of Connecticut law. Coverall sought to dismiss the case, in part ...

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A putative antitrust class action against a shock absorber manufacturer may proceed in federal court, the Sixth Circuit Court of Appeals recently held, affirming denial of the manufacturer’s motion to compel arbitration. In re: Auto. Parts Antitrust Litig., 951 F.3d 377 (6th Cir. 2020). This dispute arose after retailers of automotive parts brought antitrust claims against KYB Corporation and KYB Americas Corporation. KYB manufactures car parts and distributes them through its subsidiary KYB Americas, which contracts with a network of retailers who then resell the parts to ...

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The Ninth Circuit has reversed an arbitration award because of the “evident partiality” of an arbitrator who failed to disclose an ownership interest in JAMS. Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019). Monster Energy and a former distributor, Olympic Eagle, commenced an arbitration to resolve a dispute regarding Monster’s termination of Olympic Eagle’s distribution agreement. The parties’ agreement specified that arbitration would be conducted before JAMS Orange County. The parties selected an arbitrator from a list of seven ...

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In the appeal of a case that appeared in Issue 236 of The GPMemorandum, the Third Circuit reversed a lower court and enforced an arbitration clause between a manufacturer and one of its distributors. In re Remicade (Direct Purchaser) Antitrust Litigation, 938 F.3d 515 (3d Cir. 2019). The distributor, Rochester Drug Cooperative (“RDC”), was a direct purchaser and wholesaler of a drug produced by manufacturer Johnson and Johnson (“J&J”) under a distributor agreement. For years, that drug was the only one of its type on the market, but that position was threatened when the FDA ...

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A federal court in Michigan has granted a franchisor’s motion to compel arbitration and has dismissed the plaintiffs’ antitrust claims. Blanton v. Domino’s Pizza Franchising LLC, 2019 WL 5543027 (E.D. Mich. Oct. 25, 2019). Plaintiffs Blanton and Piersing worked for separate Domino’s franchisees in separate states and signed different arbitration agreements with their respective employers. However, they joined together and brought claims on behalf of themselves, and all others similarly situated, alleging a conspiracy between Domino’s and its franchisees to ...

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In another appellate decision interpreting arbitration provisions, the United States Court of Appeals for the Tenth Circuit affirmed the denial of a franchisor’s motion to compel arbitration, finding that the parties had not entered into a “written” agreement to arbitrate the claims at issue as required by the Federal Arbitration Act. Campbell Invs., LLC v. Dickey's Barbecue Rests., Inc., 2019 WL 4235345 (10th Cir. Sept. 6, 2019). Campbell Investments initially signed a Dickey’s development agreement and franchise agreement for a restaurant in Ogden, Utah. Both ...

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The United States Court of Appeals for the Second Circuit has upheld an arbitration agreement between Doctor’s Associates, Inc. (“DAI”), the franchisor of Subway restaurants, and a prospective franchisee, finding that it was supported by sufficient consideration during the application process. Doctor’s Associates, Inc. v. Alemayehu, 934 F.3d 245 (2d Cir. 2019). In 2016, Alemayehu sought to purchase an existing Subway franchise in Colorado. As part of the application process, Alemayehu checked a box on an online form agreeing to submit any claims arising from the ...

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A federal court in Washington recently granted a motion to compel arbitration pursuant to a forum selection clause in a Party Princess franchise agreement. Taylor v. Rothschild, 2019 WL 3067255 (W.D. Wash. July 12, 2019). The agreement included a broadly worded arbitration clause requiring the parties to submit all disputes arising therefrom to binding arbitration in Denver, Colorado. Party Princess, the franchisor, commenced an arbitration alleging breaches of the franchise agreement. Instead of asserting counterclaims in the arbitration, however, the franchisee ...

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A federal court in Missouri granted the motion of H&R Block Tax Services (“Block”) to compel individual arbitration of a putative antitrust class action challenging an antipoaching provision contained in Block’s franchise agreements. Davidow v. H&R Block, Inc., 2019 WL 2090690 (W.D. Mo. May 13, 2019). Plaintiff Janice Davidow’s complaint alleged that the antipoaching provision unreasonably restricted the mobility and suppressed the compensation of employees of Block and its franchisees. That provision prohibited a Block franchisee from soliciting any employee of ...

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A federal court in Washington denied a franchisor’s motion to dismiss or compel arbitration of a franchisee’s claims after finding that material questions of fact remained as to whether a valid and enforceable franchise contract existed between the parties. Garrett v. Rothschild, 2019 WL 1957929 (W.D. Wash. May 2, 2019). Morgan Rothschild, the owner of the Party Princess International franchise system, sold a franchise to Sean and Stephanie Taylor that they planned to operate in Washington. Party Princess had filed paperwork to register in Washington as a franchisor but the ...

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The Supreme Court has resolved a split in the federal circuit courts of appeals, holding that the Federal Arbitration Act does not allow a federal court to deny a motion to compel arbitration on the basis that the claim of arbitrability is “wholly groundless.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019). Archer and White, a dental equipment distributor, sued an equipment manufacturer and Henry Schein, Inc. for various remedies including injunctive relief. Archer and White’s distribution agreement provided that “[a]ny dispute arising under or ...

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A California appellate court reversed the trial court’s ruling that an arbitration agreement related to a former Papa John’s employee was unconscionable in Spaulding v. PJCA-2 LP, 2019 WL 517667 (Cal. Ct. App. Feb. 11, 2019). Plaintiff Jason Spaulding began working in a restaurant operated by defendant Papa John’s in 2009, and Papa John’s later sold the business to a franchisee, PJCA-2. PJCA-2 offered to continue to employ Spaulding at the restaurant but required him to review and sign a 40-page new hire package, which included a four-page arbitration agreement. Spaulding ...

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A franchise agreement’s arbitration clause was not rendered entirely void under Ohio’s business opportunity laws the Northern District of Ohio recently held, granting the franchisor’s motion to stay the federal court proceedings pending arbitration. Party Princess Toledo, LLC v. Party Princess USA LLC, 2019 WL 524186 (N.D. Ohio Feb. 11, 2019). After an Ohio franchisee sued Party Princess for a variety of claims arising under the parties’ franchise agreement, Party Princess moved to stay the proceedings pursuant to the agreement’s arbitration clause, which ...

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A New York federal district court upheld an arbitral award that denied attorneys’ fees to Benihana in a dispute with its licensee, Benihana of Tokyo (“BOT”). Benihana Inc. v. Benihana of Tokyo, LLC, 2019 WL 251729 (S.D.N.Y. Jan. 17, 2019). BOT had initiated an arbitration against Benihana for breach of the parties’ license agreement, and Benihana counterclaimed for breach of the agreement and requested that the arbitrator uphold its earlier termination of the agreement. In conjunction with its counterclaim, Benihana sought to recover attorneys’ fees pursuant to the ...

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The federal court in Maine also recently granted a motion to compel arbitration filed by daycare center franchisor Toddle Inn Franchising, holding that the arbitration provision included in its franchise agreement with franchisee KPJ Associates survived the expiration of the agreement. Toddle Inn Franchising, LLC v. KPJ Assocs., LLC, 2018 WL 6515129 (D. Me. Dec. 11, 2018). The dispute arose when, after operating for two years under an expired franchise agreement, KPJ notified Toddle Inn that it intended to open a competing daycare center at its Toddle Inn franchised business ...

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A Louisiana federal court dismissed a franchisee’s attempt to avoid arbitrating a dispute that was arbitrable by agreement between the parties in Kirksey v. Doctor’s Associates Inc., 2018 WL 66510121 (E.D. La. Dec. 19, 2018). Doctor’s Associates Inc., franchisor of the Subway brand, and Kirksey were parties to a franchise agreement containing an arbitration clause that required them to arbitrate their disputes in Connecticut. On the eve of an arbitration hearing between the parties in Connecticut, Kirksey filed suit against Subway in Louisiana state court seeking a ...

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The United States District Court for the Eastern District of Pennsylvania has denied a drug manufacturer’s motion to compel arbitration of a putative class member’s antitrust claim. In re Remicade Antitrust Litig., 2018 WL 5314775 (E.D. Pa. Oct. 26, 2018). The plaintiff at issue was an authorized distributor, pursuant to a distributor agreement, of an infliximab medication called Remicade. The distributor alleged the drug manufacturer monopolized the infliximab market and artificially inflated prices by entering into third-party contracts and imposing rebate ...

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The United States District Court for the Western District of North Carolina granted a motion to compel arbitration in a dispute arising out of a voluntarily terminated dealer agreement. High Country Dealerships, Inc. v. Polaris Sales, Inc., 2018 WL 3620494 (W.D.N.D. July 30, 2018). (Gray Plant Mooty represents defendantsupplier Polaris Sales in this case.) The agreement contained a broadly worded arbitration clause requiring the plaintiff (the terminated dealer) to submit all disputes with Polaris to binding arbitration in Minneapolis, Minnesota. Instead of pursuing ...

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In a landmark non-franchise decision, the United States Supreme Court held, 5-4, that employers can require employees to individually arbitrate employment law claims without violating federal labor laws. Epic Sys. Corp. v. Lewis, 2018 WL 2292444 (U.S. May 21, 2018). Employees of Epic Systems Corporation entered into an arbitration agreement that required them to resolve employment disputes through individual arbitration and waive their right to participate in class actions. A former Epic employee brought an action in federal court against the company, on behalf of himself and ...

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The federal court in Connecticut denied a former Subway franchisee’s motion to vacate an arbitration award, finding that the franchisee failed to show that the arbitrator was guilty of misconduct in refusing to continue a hearing and reserving judgment on two of the franchisee’s motions. The court also declined to find that the arbitrator exceeded his powers by issuing an ex parte award to the franchisor, and confirmed the arbitrator’s award. Vyas v. Doctor’s Assocs., Inc., 2018 WL 1440179 (D. Conn. Mar. 21, 2018). Doctor’s Associates (DAI), the franchisor of Subway, had ...

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A federal court in Tennessee has confirmed an arbitrator’s award of damages and rescission against a franchisor, Medex, and in favor of a franchisee. Altruist, LLC v. Medex Patient Transp., LLC, 2018 WL 1704111 (M.D. Tenn. Apr. 9, 2018). The franchisee had asserted various claims, including breach of contract, misrepresentation, and breach of the covenant of good faith and fair dealing against Medex, arising out of a failure to disclose a bankruptcy in the FDD and unfulfilled promises of “back door” services including a call center, dispatch, and route management. In seeking ...

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The arbitration clause in a franchise agreement is not superseded by an assignment and assumption agreement when the original franchisee transfers its business, the Georgia Court of Appeals has ruled in affirming a trial court’s order compelling arbitration. Samaca, LLC v. Cellairis Franchise, Inc., 2018 WL 1079806 (Ga. Ct. App. Feb. 28, 2018). Samaca, the successor franchisee, took possession of four existing units in 2014, pursuant to an assignment and assumption agreement to take on the franchise agreements, which contained arbitration requirements. The assignment and ...

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A federal district court in Maryland recently enforced an arbitration provision in a rescinded franchise agreement. Burrell v. 911 Restoration Franchise Inc., 2017 WL 5517383 (D. Md. Nov. 17, 2017). The franchisor, 911 Restoration, previously offered to rescind its franchise agreement with franchisee Burrell because 911 Restoration was not authorized to sell franchises in Maryland at the time the franchise agreement was executed. Although Burrell accepted the rescission offer, it subsequently brought an action against 911 Restoration alleging damages of more than ...

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The federal court in Massachusetts has denied a franchisor’s motion to vacate an arbitration award and granted a franchisee’s motion to confirm the award on the grounds that the franchisor failed to show that the arbitrator was partial to the franchisee or that the arbitrator had exceeded her powers. System4, LLC v. Ribeiro, 2017 WL 3461292 (D. Mass. Aug. 11, 2017). In 2010, a state court putative class action was filed against franchisor System4 and master franchisee NECCS, Inc. on behalf of unit franchisee cleaning workers who claimed that System4 and NECCS had misclassified ...

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In Money Mailer, LLC v. Brewer, 2017 WL 3017539 (W.D. Wash. July 17, 2017), the United States District Court for the Western District of Washington held that a franchisor had waived its right to compel arbitration under its franchise agreement. Money Mailer’s standard franchise agreement required franchisees to enter into a franchise agreement with the franchisor, Money Mailer Franchise Corporation (“MMFC”), and a separate contract for mailing services with a closely-related entity, Money Mailer, LLC (“MMLLC”). While franchisee Brewer entered into Money ...

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Meanwhile, a federal court in New Jersey granted a franchisor’s motion to compel arbitration finding, among other things, that a franchisee’s claims fell within the scope of the parties’ arbitration agreements (as contained in seven franchise agreements), and that any differences between the arbitration provisions could be reconciled. Mitnick v. Yogurtland Franchising, Inc., 2017 WL 3503324 (D.N.J. Aug. 16, 2017). The franchisee had argued that the arbitration provisions contained different language, were in conflict, and did not specify a uniform method of ...

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The Superior Court of New Jersey, Appellate Division, has upheld a lower court’s decision to enforce the arbitration provision in a franchise agreement between Angel Tips and its franchisee. Glamorous Inc. v. Angel Tips, Inc., 2017 WL 2705412 (N.J. Super. Ct. App. Div. June 23, 2017). In doing so, the appellate court noted that the parties’ franchise agreement called for arbitration of “all controversies disputes or claims between them,” with only a few exceptions, including any claims made by the franchisor against the franchisee for money owed. The court held that a ...

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A district court in Texas denied a franchisee’s motion to compel arbitration in Stockade Companies, LLC v. Kelly Restaurant Group, LLC, 2017 WL 1968328 (W.D. Tex. May 11, 2017). Although the parties’ franchise agreements contained an arbitration clause, the court held that the substance of the claims at issue had been expressly excluded from the arbitration clause. In part because the substance of the claims were excluded from arbitration, the court also held that the franchise agreements did not contain sufficient evidence that the parties had agreed to arbitrate the issue of ...

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A federal district court in Illinois granted a franchisor’s motion to confirm an arbitration award in Hyatt Franchising, LLC v. Shen Zhen New World I, LLC, 2017 WL 1397553 (N.D. Ill. Apr. 19, 2017). The hotel franchisor had been awarded over $10 million in damages and fees in an arbitration to enforce the termination of a California franchisee’s franchise agreement for repeated failure to meet its payment obligations and for failure to timely complete required renovations. The franchisee moved to vacate the arbitrator’s award on three grounds: (1) the arbitrator engaged in ...

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The Texas Court of Appeals recently confirmed an arbitration award in favor of a franchisee, Adams, and against franchisor Prescription Health Network, LLC (“PHN”). Prescription Health Network, LLC v. Adams, 2017 WL 1416875 (Tex. App. Apr. 20, 2017). PHN had raised four principal arguments on appeal: (1) that the award should be vacated because the arbitration panel “exceeded their powers”; (2) that the award should be vacated because the arbitration panel acted with “manifest disregard”; (3) that alternatively, the award should be modified because the ...

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A Michigan federal court recently found that it lacked the authority to determine the arbitrability of a dispute between an American manufacturer and a foreign dealer in Arabian Motors Group, W.L.L. v. Ford Motor Co., 2017 WL 218081 (E.D. Mich. Jan 19, 2017). A Kuwaiti dealer alleged that it could not be compelled to arbitrate its dispute with an American manufacturer as required by the parties' resale agreement. The dealer claimed that the agreement's delegation clause was unenforceable under the federal Motor Vehicle Franchise Contract Arbitration Fairness Act. The court found ...

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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 ...

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The United States District Court for the Northern District of California denied a former franchisee’s motion for vacatur of an arbitration award and affirmed the arbitration award in favor of franchisor Jiffy Lube International, Inc. on the grounds that the franchisee failed to show the arbitrator’s manifest disregard for the law. Stevens v. Jiffy Lube Int’l, Inc., 2017 WL 512888 (N.D. Cal. Feb. 8, 2017). After Randy and Elissa Stevens failed to successfully negotiate a new lease with their existing landlord, Jiffy Lube terminated their franchise agreement for loss of right ...

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In Frye v. Wild Bird Centers of America, Inc., 2017 WL 605285 (D. Md. Feb. 14, 2017), the district court upheld an arbitration award that equitably tolled the start of a posttermination noncompetition period until the date of actual compliance. Gray Plant Mooty represented the franchisor in the case. The franchisees, Frye, had allowed their franchise agreement to expire, but they nevertheless continued to use the Wild Bird Centers of America’s (“WBCA’s”) marks and to operate a WBCA store at their Colorado location without paying any fees to WBCA, without WBCA’s ...

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In Rahmany v. T-Mobile USA, Inc., No. C16-1416-JCC (W.D. Wash. Jan. 5, 2017), a federal court in Washington granted defendant Subway’s motion to compel arbitration based on the plaintiffs’ cellular telephone contracts with T-Mobile, which mandated arbitration. Shortly after entering into those agreements, T-Mobile sent the plaintiffs a text message promoting free Subway sandwiches for T-Mobile customers. The plaintiffs filed a putative class action against T-Mobile and Subway, alleging violations of the Telephone Consumer Protection Act. The plaintiffs then ...

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A federal court in California has denied franchisees’ motion for an order to consolidate their claims into a single arbitration. Meadows v. Dickey’s Barbecue Rests., Inc., 2016 WL 7386138 (N.D. Cal. Dec. 21, 2016). This case arose from a dispute regarding whether franchisor Dickey’s Barbecue Restaurants made false and misleading representations to the plaintiffs, all of whom are owners and former owners of Dickey’s franchises in California. The court had previously determined that the franchisees’ claims in this matter must be submitted to arbitration. Subsequent ...

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A federal court in Florida recently ordered a franchisor and franchisee to proceed to arbitration following an earlier entry of a preliminary injunction against the franchisee. Pirtek USA, LLC v. Twillman, 2016 WL 7116205 (M.D. Fla. Dec. 7, 2016). The case involved claims of unfair competition, fraud, and breach of the noncompete and confidentiality provisions of a franchise agreement between the parties. Following entry of the preliminary injunction order, Twillman, a Pirtek franchisee, filed several motions seeking, among other things, relief from and/or modification of ...

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The United States Court of Appeals for the Eleventh Circuit denied a franchisee’s appeal of a district court’s confirmation of an arbitration award in Careminders Home Care, Inc. v. Kianka, 2016 WL 7228808 (11th Cir. Dec. 14, 2016). In arbitration, Compassionate Care, a former franchisee of CareMinders Home Care, claimed that the franchisor had breached the franchise agreement and committed fraud as to the parties’ business relationship. After the arbitrator found in favor of CareMinders, the franchisor petitioned the district court to confirm the arbitration award ...

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Similarly, the Appellate Court of Illinois affirmed an order dismissing a franchisee’s complaint and ordering the parties to submit to arbitration, despite the fact that the defendants were not signatories to the franchise agreement. In Kim v. Kim, 2016 IL App. (1st) 153296-U (Ill. App. Ct. Nov. 30, 2016), a franchisee sued employees of the franchisor claiming that the employees had fraudulently induced him to enter into a franchise agreement with the franchisor. The franchisor itself was not a defendant. Citing to the franchise agreement’s arbitration clause, the employees ...

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A Connecticut federal court granted a petition to compel arbitration filed by Subway sandwich restaurant franchisor Doctor’s Associates, Inc. (“Subway”) enforcing an arbitration clause contained in Subway’s application to become a franchisee. Doctor’s Assocs. Inc. v. Burr, 2016 WL 7451620 (D. Conn. Dec. 28, 2016). Prospective franchisees, the Burrs, submitted a Subway franchise application that included the arbitration clause, but Subway declined to grant the Burrs a franchise. In response, the Burrs initiated an action against Subway’s third-party ...

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The District of Columbia Court of Appeals recently affirmed a lower court’s denial of a franchisee’s late attempt to compel arbitration. In Hossain v. JMU Properties, LLC, 2016 WL 6134871 (D.C. Oct. 20, 2016), Hossain, a franchisee, sued its landlord and the landlord’s owner for wrongful eviction. The landlord’s owner, who also owned the taxpreparation franchisor that had contracted with Hossain, responded by suing Hossain for breach of the franchise agreement. Early in the case, JMU brought a motion to stay the proceedings and compel arbitration pursuant to an ...

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In PCPA, LLC v. The Flying Butcher, LLC, 2016 WL 3920170 (D.N.H. July 18, 2016), a federal court granted the plaintiffs’ motion to dismiss their complaint without prejudice. The Flying Butcher, former franchisees of Meat House Franchising, executed a franchise agreement with Meat House that included an arbitration clause that covered disputes “arising out of or relating to operation of the Franchised Business or this Agreement.” In 2014, Meat House’s secured creditors entered into an Asset Purchase Agreement with one of the plaintiffs – PCPA, LLC – pursuant to which ...

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A federal court in New York denied the petition of franchisor Benihana, Inc. to vacate an arbitration award, finding that the arbitration panel acted within its broad authority in concluding that even though Benihana had the right to terminate its license agreement with franchisee Benihana of Tokyo, LLC (“BOT”), Benihana’s decision to terminate was unreasonable. Benihana, Inc. v. Benihana of Tokyo, LLC, No. 15-cv-7428 (S.D.N.Y. July 15, 2016). In challenging the arbitration panel’s decision, Benihana conceded that the license agreement language required the panel to ...

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Former Florida franchisees brought a complaint for $14 million in damages against Del Taco, a Mexican and American food quick service restaurant franchisor headquartered in California. Following a five-day arbitration in Los Angeles, a panel of three arbitrators found in Del Taco’s favor on all counts. Floridel, LLC v. Del Taco, LLC, AAA No. 01-14-0001-9403 (June 15, 2016). Gray Plant Mooty represented Del Taco in the arbitration. The claimants, a corporation and its principals who had developed three Del Taco restaurants in Florida, brought claims in late 2014, alleging that ...

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On May 5, 2016, the Consumer Financial Protection Bureau ("CFPB") issued a proposed rule that would prohibit the use of mandatory arbitration clauses in consumer financial services contracts that waive class action lawsuits. Although the proposed rule is aimed at regulating providers of consumer financial services, a number of commentators have highlighted the broad scope of the rule and its applicability to banks, credit unions, consumer lenders, payday lenders, certain auto lenders, loan servicers, debt settlement firms, installment lenders, money transfer services ...

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Meanwhile, a federal district court in Washington has denied Money Mailer Franchise Corporation's motion for summary judgment and motion to compel arbitration against one of its franchisees. Money Mailer, LLC v. Brewer, 2016 WL 1393492 (W.D. Wash. Apr. 8, 2016). Brewer entered into a franchise agreement with Money Mailer that required him to contract with Money Mailer's affiliated company, Money Mailer, LLC (the "LLC"), for the use of certain equipment and supplies in the operation of his franchised business. The LLC filed a complaint against Brewer for breach of contract for ...

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The United States Court of Appeals for the Ninth Circuit recently ruled that an international arbitration clause was unenforceable because the agreement containing the clause was not binding on the parties. Casa Del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 2016 WL 1016779 (9th Cir. Mar. 15, 2016). The court reversed the district court's finding that the question of arbitrability was for an arbitrator to decide, finding instead that the threshold issue of whether the parties had agreed to submit their dispute to arbitration through a binding agreement, in the first place, was for ...

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Meanwhile, a Florida federal court has denied a franchisee's motion to stay proceedings and compel arbitration of the claims filed against it by its franchisor, Jewelry Repair Enterprises. Jewelry Repair Enters., Inc. v. Son Le Enters., Inc., 2016 WL 660904 (S.D. Fla. Feb. 18, 2016). Jewelry Repair's claims all arose from Son Le's alleged violations of the post-termination obligations and restrictive covenants contained in the parties' franchise agreement. One section of the franchise agreement provided for binding arbitration in the event of a dispute, while a subsequent ...

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A federal court in Maryland stayed two cases brought by restaurant franchisees against their franchisor pending arbitration in Trouard v. Dickey's Barbecue Restaurants, Inc., 2016 WL 687487 (D. Md. Feb. 19, 2016). The franchisees claimed that Dickey's violated the Maryland Franchise Registration and Disclosure Law in connection with their franchises and sought mediation. In response, Dickey's pursued arbitration and raised claims of fraud and breach of contract. The franchisees then filed lawsuits against Dickey's in federal district court, arguing that the arbitration ...

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The United States Court of Appeals for the Third Circuit recently weighed in on an issue that often arises in the franchise and distribution context — class arbitrability. In Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d Cir. Jan. 5, 2016), the court concluded that, while no magic language is required to overcome the presumption in favor of judicial control over this issue, the adoption by the parties of the rules of the American Arbitration Association (which provide for arbitrators to decide the issue) does not "clearly and unmistakably" delegate the ...

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Meanwhile, a federal court in California has granted a franchisor's motion to compel arbitration in a putative class action lawsuit filed by one of its franchisees. Jacobson v. Snap-on Tools Co., 2015 WL 8293164 (N.D. Cal. Dec. 9, 2015). Jacobson argued that his work was so closely regulated by Snap-on Tools, a franchisor of automotive and shop equipment, that he should be treated as an employee under California law, rather than as an independent franchisee, and that Snap-on Tools failed to properly pay him for employment-related expenses, overtime, and meal and rest breaks. Snap-on ...

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The United States Supreme Court recently reaffirmed the strong federal policy favoring arbitration under the Federal Arbitration Act. In DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (U.S. Dec. 14, 2015), the court overturned a decision by a California Court of Appeals, which had invalidated an arbitration provision that included a class action waiver. In doing so, the court held that the arbitration agreement had to be enforced.

After DIRECTV customers commenced a putative class action seeking damages for violation of various California consumer protection laws, DIRECTV moved to ...

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The United States Court of Appeals for the Fourth Circuit recently bifurcated a franchisor's common law claims from several franchisees' Maryland Franchise Law claims pursuant to the Federal Arbitration Act, and required the franchisor to pursue its claims in arbitration while the franchisees pursue their claims in Maryland district court. Chorley Enters. v. Dickey's Barbecue, 2015 U.S. App. LEXIS 13652 (4th Cir. 2015). Dickey's, a national franchisor of quick-service barbecue restaurants, claimed several of its Maryland franchisees breached their franchise agreements by ...

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The United States District Court for the Southern District of Georgia granted a franchisor's motion to compel arbitration, concluding that a franchisee and its employee were not transportation employees of the franchisor, and thus not exempt from the Federal Arbitration Act. Morning Star Assocs., Inc. v. Unishippers Global Logistics, LLC, 2015 U.S. Dist. LEXIS 66042 (S.D. Ga. May 20, 2015). The case arose out of three franchise agreements between Morning Star and Unishippers and a noncompetition agreement between Morning Star and one of its employees. Each of the franchise ...

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The Illinois Court of Appeals held that an arbitrator did not make a gross error of law in concluding that the exemption to the Illinois Franchise Disclosure Act's disclosure requirements did not apply where the franchisor and franchisee were controlled by the same individual and they entered into a franchise agreement when that individual was already in negotiations to sell the franchise to another party. McGill v. Wortham, 2015 III. App. Unpub. LEXIS 1052 (III. App. Ct. May 15, 2015). The arbitrator found that the franchisees, McGill, were entitled to rescission of the franchise ...

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The Massachusetts Supreme Judicial Court found that a franchisor could compel subfranchisees to arbitrate their disputes under arbitration clauses in the sub-franchise agreements, even if the franchisor was not a signatory to such agreements. Machado v. System4 LLC, 2015 Mass. Lexis 163 (Mass. Apr. 13, 2015). The plaintiff franchisees of a System4 subfranchisor filed a complaint against the subfranchisor and System4 alleging breach of contract and violations of the Massachusetts Wage Act. The subfranchisor and System4 filed a motion to stay proceedings pending arbitration ...

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The Second Circuit has affirmed in part and reversed in part a district court's injunction in aid of arbitration in a license agreement dispute. Benihana, Inc. v. Benihana of Tokyo, LLC, 2015 WL 1903587 (2nd Cir. Apr. 28, 2015). For many years, Benihana of Tokyo had been operating a restaurant in Hawaii pursuant to a license agreement with Benihana, Inc. ("Benihana America"). Despite provisions in the license agreement that prohibited Benihana of Tokyo from serving unapproved menu items, the restaurant began serving hamburgers without approval. After Benihana America terminated ...

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A federal court in Pennsylvania recently ruled that a cleaning service franchisee must arbitrate his claims against a franchisor on an individual basis, upholding the franchise agreement's arbitration clause and class action waiver. Torres v. CleanNet USA, Inc., 2015 WL 500163 (E.D. Pa. Feb. 5, 2015). Torres claimed CleanNet and its two subfranchisors engaged in a scheme to misclassify franchisees as independent contractors to avoid their obligations under state labor laws. Citing the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion, the court ...

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In an unusual twist, an Idaho federal court granted a former franchisee's motion to dismiss, or alternatively, a motion to stay the action pending arbitration, because the franchisor's claims were subject to the franchise agreement's arbitration clause. Arctic Circle Rests. v. Bell, 2015 U.S. Dist. LEXIS 24342 (D. Idaho Feb. 26, 2015). Arctic Circle, a franchisor, filed an action to enforce certain provisions of the franchise agreement, as well as claims under trademark and unfair competition law, after Bell continued to use trademarks owned by Arctic Circle and refused to ...

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A federal court in Illinois recently held that it lacked subject-matter jurisdiction over a putative franchisee class action in light of the binding arbitration provision in the governing franchise agreement. Sanchez v. CleanNet USA, Inc., 2015 U.S. Dist. LEXIS 5383 (N.D. III. Jan. 15, 2015). The named plaintiff, Sanchez, filed suit against franchisor CleanNet USA and area operator CleanNet IL claiming violation of the Fair Labor Standards Act. Both defendants moved for dismissal based on a mandatory arbitration provision in the franchise agreement. In response, Sanchez ...

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Affirming a district court decision that had in turn confirmed an arbitration award for a franchisor, the United States Court of Appeals for the Seventh Circuit last Friday ruled that an arbitrator's alleged error of law would not constitute manifest disregard of the law. Renard v. Ameriprise Fin. Servs., Inc., 2015 U.S. App. LEXIS 1558 (7th Cir. Jan. 30, 2015). Ameriprise, the franchisor in this case, had won an arbitration award against the Wisconsin-based franchisee, Renard, of more than $448,000 on promissory notes. In the arbitration hearing, Renard had argued that he did not ...

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A federal court in New Jersey recently granted a franchisor default judgment confirming an arbitration award against a former franchisee. Doctor's Assocs. Inc. v. Singh-Loodu, 2014 U.S. Dist. LEXIS 142208 (D.N.J. Oct. 6, 2014). Doctor's Associates prevailed in arbitration proceedings against Singh-Loodu, which terminated his Subway franchise, enjoined him from continuing to use its marks, and awarded monetary damages for each day he continued to operate the store. After arbitration, Doctor's Associates sought to confirm the award in federal court against both Singh-Loodu ...

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A franchisor's adoption of an arbitration policy a month after lawsuits were commenced against it could not force franchisees to arbitrate prior to pursuing litigation, the United States Court of Appeals for the Seventh Circuit ruled last week. Druco Rests., Inc. v. Steak n Shake Enters., Inc., 2014 U.S. App. Lexis 16869 (7th Cir. Aug. 29, 2014). This case arose in the context of franchisee challenges to Steak n Shake's new pricing and promotion policy, which required adherence to company pricing on menu items as well as participation in promotions. After the franchisees filed suit in ...

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A federal court in Maryland has held that an arbitration clause in a franchise agreement is ambiguous and has set a jury trial to determine whether the parties intended to arbitrate the franchisee's claims or litigate them in court. Trouard v. Dickey's Barbeque Restaurants, Inc., 2014 U.S. Dist. LEXIS 106218 (D. Md. Aug. 1, 2014). The franchisee plaintiffs in this case claimed Dickey's understated the start-up costs involved and overstated the expected profits with respect to their franchises. The franchise agreement at issue contained an arbitration clause that required the ...

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The Third Circuit has announced a decision regarding the availability of classwide arbitration in an employment agreement that could have significant impact on arbitration agreements in franchising. Opalinski v. Robert Half Int'l, Inc., 2014 U.S. App. LEXIS 14538 (3rd Cir. July 30, 2014). The underlying dispute arose when two former employees of Robert Half International filed a class action complaint against it for alleged violations of the Fair Labor Standards Act. Robert Half moved to compel arbitration of the claims, which the district court granted while also holding that ...

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The United States District Court for the District of New Hampshire recently granted a franchisor's motion to compel arbitration, finding it had not waived its rights to arbitrate a dispute by having first sought preliminary injunctive relief. Pla-Fit Franchise, LLC v. Patricko, Inc., 2014 U.S. Dist. LEXIS 69047 (D.N.H. May 20, 2014). Pla-Fit sued its former franchisee, Patricko, seeking injunctive relief for trademark infringement, a declaratory judgment that Patricko had violated the post-termination non-compete provisions of the franchise agreements between the ...

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A federal district court in California recently denied a franchisee’s motion for a preliminary injunction to prevent a franchisor from proceeding with arbitration, finding that the arbitration provision was neither procedurally nor substantially unconscionable. The dispute in Moody v. Metal Supermarket Franchising America Inc., 2014 WL 988811 (N.D. Cal. Mar. 10, 2014), involved Metal Supermarket’s exercise of its option to purchase Moody’s assets upon termination and the proper purchase price for those assets. After Moody filed a state court action seeking a ...

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In Doctor’s Associates Inc. v. White, 2014 U.S. Dist. LEXIS 11433 (D.N.J. Jan. 30, 2014), the federal court in New Jersey granted partial reconsideration of an order refusing to confirm an arbitration award. Doctor’s Associates, Inc. (“DAI”) had initiated arbitration against franchisee White for breach of his Subway franchise agreement. After DAI won the arbitration, it filed a lawsuit in federal court to confirm the award against both White and Coach Investments & Developers. Although Coach was not party to the arbitration, DAI argued that Coach was the alter ego of the ...

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In Doctor’s Associates, Inc. v. Edison Subs, LLC, 2014 U.S. Dist. LEXIS 371(D. Conn. Jan. 3, 2014), the United States District Court for the District of Connecticut denied Subway’s motion to compel arbitration of claims arising out of a franchise agreement that Edison assumed pursuant to an oral assignment agreement. Edison, the defendant, did not receive or review the written franchise agreement before assuming it. After being involuntarily ejected from the franchised business premises after two years of operation, Edison filed a complaint in state court alleging breach of ...

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A federal court in Indiana has granted a franchisor’s motion to stay proceedings in three related lawsuits pending appeal to the Seventh Circuit. Druco Rests., Inc. v. Steak n Shake Enters., 2014 U.S. Dist. LEXIS 8198 (S.D. Ind. Jan. 23, 2014). Three franchisees had filed separate lawsuits against Steak n Shake (“SNS”) alleging breach of contract, fraud, and violations under their respective state franchise laws. After SNS sought to stay all three actions and compel arbitration, the trial court concluded the respective agreements contained only “nonbinding” ...

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As part of the continuing saga of Awuah v. Coverall N. Am., Inc., 2013 U.S. Dist. LEXIS 171870 (D. Mass. Dec. 5, 2013), a Massachusetts federal district court recently reexamined the arbitrability of some of the plaintiffs’ state wage claims. At prior phases of the Awuah litigation, a class of plaintiffs was certified and later obtained a final judgment in their favor. This certified class excluded certain Coverall franchisees who had signed a franchise agreement with Coverall containing an arbitration provision. Following the Massachusetts Supreme Judicial Court’s 2012 ...

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In Dickey’s Barbecue Restaurants, Inc. v. Mathieu, 2013 U.S. Dist. LEXIS 133204 (N.D. Tex. Sept. 18, 2013), a dispute arose when Mathieu failed to comply with various terms of his franchise agreement, including failure to (1) operate the franchised restaurant, (2) make payments, (3) meet food safety standards, and (4) purchase and sell approved products. After Mathieu advised Dickey’s Barbeque that he was ceasing operations of his franchised business, Dickey’s commenced a lawsuit to seek, among other things, a declaration that Mathieu violated the material terms of the ...

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A federal court in Louisiana has ruled that the arbitrator is the appropriate person to decide both substantive questions and questions of arbitrability under a franchise agreement requiring arbitration of “all disputes.” Planet Beach Franchising Corp. v. Zaroff, 2013 U.S. Dist. LEXIS 121908 (E.D. La. Aug. 27, 2013). This case began when the owners of four Planet Beach salons, all operated under separate franchise agreements, filed a demand for arbitration claiming that Planet Beach allegedly made a number of material misrepresentations and omissions in its sales ...

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A federal court in Illinois found that an arbitration agreement in a franchisor’s online employment application is valid and enforceable, and held that the arbitrator should decide whether the arbitration agreement allows class arbitration. Chatman v. Pizza Hut, Inc., 2013 U.S. Dist. LEXIS 73426 (N.D. Ill. May 23, 2013). The case was brought as a class action in state court by a delivery driver on behalf of himself and all other similarly situated employees. The plaintiff asserted claims against Pizza Hut and the franchisee under the Illinois Wage Payment and Collection Act and ...

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The Fourth Circuit overturned a district court’s decision not to enforce a franchise agreement’s arbitration clause in Muriithi v. Shuttle Express, Inc., 712 F.3d 173 (4th Cir. Apr. 1, 2013). The lower court had denied Shuttle Express’s motion to compel arbitration after concluding that the arbitration clause was unconscionable because of (1) a class action waiver; (2) a requirement that the parties split arbitration fees; and (3) a one-year limitation on claims arising under the agreement. The Fourth Circuit concluded that the district court’s first rationale was not ...

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A previously vacated award of $1.4 million to a former Thomas Kinkade artwork dealer was not revived on appeal this month due to the same irregularities in the arbitration process that had caused a federal district court to reject the award in 2010. Thomas Kinkade Co. v. White, 2013 U.S. App. LEXIS 6537 (6th Cir. Apr. 2, 2013). As reported in Issue 129 of The GPMemorandum, the district court had found that a dealer and his appointed arbitrator’s business dealings with the supposedly “neutral” third arbitrator caused bias that ruined the arbitration. “Evident partiality or ...

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The United States District Court for the Central District of California recently upheld an arbitrator’s finding that a franchisor had constructively terminated a franchise agreement in violation of the Wisconsin Fair Dealership Law (WFDL), when, among other things, the franchisor cut off the franchisee’s access to the franchise system’s record-keeping and management web portal and its external website. In Budget Blinds Inc. v. LeClair, 2013 U.S. Dist. LEXIS 7463 (C.D. Cal. Jan. 16, 2013), two neighboring Budget Blinds franchisees became embroiled in a dispute ...

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A United States District Court in Iowa has granted a franchisor’s motion to dismiss the complaint filed by its franchisee and enforced the applicable arbitration provisions. Cahill v. Alternative Wines, Inc., 2013 LEXIS 14588 (N.D. Iowa Feb. 4, 2013). The franchisee sued the franchisor and its CEO for breach of a purchase agreement and services agreement between the franchisee and the franchisor, violation of Iowa business opportunity laws, and fraud. The defendants moved to stay or dismiss, seeking to enforce the services agreement’s provision requiring arbitration in ...

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The Supreme Court of Washington recently upheld a trial court’s order compelling arbitration in Washington, despite clauses in a franchise agreement providing disputes would be arbitrated in Connecticut, under Connecticut law (except for Connecticut franchise law). In Saleemi v. Doctor’s Associates, Inc., 292 P.3d 108 (Wash. Jan. 17, 2013), the plaintiffs sought to compel arbitration over DAI’s termination of their Subway franchises in Washington. The trial court ruled that the forum selection and choice of law provisions of the franchise agreement were ...

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A United States District Court in Connecticut granted a franchisor’s motion to compel arbitration of a dispute with several of its franchisees.  EA Independent Franchisee Assoc., LLC v. Edible Arrangements Int’l, Inc., 2012 U.S. Dist. LEXIS 166082 (D. Conn. Nov. 22, 2012). The franchisee association filed a declaratory judgment action against Edible Arrangements alleging breaches of franchise agreements for the imposition of several system changes, including hours of operation and purchasing requirements, and Edible Arrangement’s failure to disclose its ...

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The franchisor has gained a victory in the ongoing litigation between Coverall North America, Inc. and its franchisees. In Awuah v. Coverall North America, Inc., 2012 U.S. App. LEXIS 26461 (1st Cir. Dec. 27, 2012), the First Circuit held that a sub-group of purported class members who became Coverall franchisees by signing Consent to Transfer Agreements or Guaranties to Coverall’s franchise agreements must arbitrate their claims against Coverall. The district court had determined that this sub-group did not have to arbitrate their claims because, as a matter of contract ...

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In Ace Hardware Corp. v. Advanced Caregivers, LLC, 2012 U.S. Dist. LEXIS 150877 (N.D. Ill. Oct. 18, 2012), the United States District Court for the Northern District of Illinois granted franchisor Ace Hardware’s motion to compel arbitration of the fraud claims of the franchises, Advanced Caregivers. Advanced Caregivers had brought suit in federal court in Florida on behalf of itself and a putative nationwide class, alleging that Ace defrauded them in connection with their decision to acquire Ace franchises. The dispute arose after Ace requested that Advanced Caregivers sign a ...

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An Arizona federal district court this month ruled that a franchisor could continue to seek to compel arbitration against a member of its franchisee association, even though the association itself had first sued the franchisor in another state. Cold Stone Creamery, Inc. v. Nutty Buddies, Inc., 2012 U.S. Dist. LEXIS 142955 (D. Ariz. Oct. 3, 2012). The Arizona case filed by Cold Stone seeks a declaratory judgment against franchisee Nutty Buddies, Inc. to compel arbitration of the dispute at the heart of a separate state-court action brought earlier in Florida by the Cold Stone ...

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In Kairy v. Supershuttle International, Inc., No., 2012 U.S. Dist. LEXIS 134945 (N.D. Cal. Sept. 20, 2012), the United States District Court for the Northern District of California granted a franchisor’s motion to stay proceedings and to compel individual arbitration of franchisees’ claims. The franchisees, who are former airport shuttle drivers, brought suit in federal court alleging that Supershuttle violated the Fair Labor Standards Act and applicable state law by failing to pay minimum wages and overtime. Supershuttle moved to compel arbitration on the grounds that ...

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An association representing its 35 regional franchisee members brought an arbitration proceeding against franchisor Fantastic Sams for breach of contract and other claims on behalf of its members. In Fantastic Sams Franchise Corp. v. FSRO Association Ltd., 683 F.3d 18 (1st Cir. June 27, 2012), FSRO sought declaratory and injunctive relief, but not damages. Fantastic Sams filed a motion in federal court to stay the arbitration and to compel the Association’s members to arbitrate their claims individually. The court granted that motion in part, finding that 25 of the members’ ...

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In Mac Tools v. Diaz, U.S. Dist. LEXIS 56197 (S.D. Ohio Apr. 23, 2012), the U.S. District Court for the Southern District of Ohio enforced an arbitration provision against a distributor’s wife even though she did not sign the distribution agreement at issue. Although the wife did not sign the agreement, she did invest personal funds in her husband’s Mac Tools distributorship and participated in the acquisition and development of the business. When the distributorship failed, she brought suit against Mac Tools in state court, alleging that it had fraudulently induced her and her ...

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In Senior Services of Palm Beach, LLC v. ABCSP Inc., 2012 U.S. Dist. LEXIS 79038 (S.D. Fla. June 7, 2012), a Florida federal court dismissed the case brought by Senior Services of Palm Beach against ABCSP Inc., a franchisor of home health care businesses, and granted ABCSP's motion to compel arbitration in California. Gray Plant Mooty represented franchisor ABCSP in this case.

Senior Services owned an ABCSP franchise in southern Florida. It brought suit against ABCSP over various disputes relating to its franchise agreement. ABCSP filed a motion to compel arbitration, arguing that ...

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In NIACCF, Inc. v. Cold Stone Creamery, Inc., 2012 U.S. Dist. LEXIS 70256 (S.D. Fla. May 21, 2012), the U.S. District Court for the Southern District of Florida stayed an action brought by NIACFF, a national organization of Cold Stone franchisees, against Cold Stone pending the outcome of a motion to compel arbitration of the individual franchisees' claims. NIACCF sued Cold Stone in federal court regarding Cold Stone's alleged failure to provide accounting and disclosures related to its receipt of third-party payments, such as vendor rebates and gift cards. Cold Stone moved to ...

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The power to determine the appropriateness of a class arbitration was conferred on an arbitrator last month in a somewhat unusual context in Medicine Shoppe International, Inc, v. Edlucy, Inc., et al., 2012 U.S. Dist. LEXIS 67133 (E.D. Mo. May 14, 2012). This decision arose on franchisor Medicine Shoppe International's (MSI's) federal court motion to enjoin a collective arbitration, as the franchisor argued that separate arbitration agreements necessitated individual arbitration proceedings. In this case, it was MSI that was in the position of arguing that the court (rather ...

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A recent decision from the Maine federal district court underscores the need to review provisions in franchise agreements to ensure that they do not have unintended consequences. In Oliver Stores v. JCB, Inc., 2011 U.S. Dist. LEXIS 149718 (D. Maine Dec. 29, 2011), the magistrate judge granted a motion to compel arbitration of two of the three counts of the complaint, but held that the remaining count survived because of the agreement’s savings clause. The savings clause provided that “[i]f any provision herein contravenes the laws or regulations of any state or other ...

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The Washington Court of Appeals recently upheld a lower court decision affirming an arbitration award against a franchisor after the trial court refused to enforce the venue requirements in the franchise agreement’s arbitration clause. In Saleemi v. Doctor’s Associates, Inc., 2012 Wash. App. LEXIS 96 (Wash. Ct. App. Jan. 24, 2012), the defendant-appellant (DAI) was the franchisor of Subway restaurants. Saleemi was a franchisee with three restaurants in the state of Washington. DAI alleged that the plaintiff had breached its franchise agreement by violating its ...

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The United States District Court for the Southern District of Ohio recently enforced a franchise agreement’s arbitration provision, rejecting a franchisee’s claim of unconscionability. In Rodriguez v. Tropical Smoothie Franchise Development Corp., 2012 U.S. Dist. LEXIS 750 (S.D. Ohio, Jan. 4 2012), a franchisee brought suit against the franchisor of the Tropical Smoothie chain alleging that Tropical Smoothie violated state franchise disclosure laws, resulting in failure of the franchisee’s business. Tropical Smoothie moved to dismiss or stay the proceedings and ...

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A federal district court dismissed a complaint brought by international franchisees against a franchisor, a senior federal judge, and an arbitrator challenging the handling of arbitrations brought in the United States. Bletas v. Deluca, 2011 U.S. Dist. LEXIS 133132 (S.D.N.Y. Nov. 15, 2011), arose out of a longstanding dispute between Subway and its franchisees in Greece for nonpayment and standards violations. Subway terminated the franchise agreements and then initiated arbitration proceedings against the franchisees in the United States to enforce the terminations and ...

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In Zammer v. Herman Miller, Inc., 2011 U.S. Dist. LEXIS 119900 (E.D. Penn. Oct. 18, 2011), Zammer entered into an agreement with his employer, Herman Miller, under which he could purchase his dealership provided he met certain performance goals. Herman Miller terminated Zammer’s contract on the grounds that he had failed to meet those goals. Despite the presence of a mandatory arbitration clause in the contract, Zammer brought suit against Herman Miller. Herman Miller successfully moved to compel arbitration. The arbitrator found in favor of Herman Miller on all but one of ...

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In Minnesota Supply Co. v. Mitsubishi Caterpillar Forklift America Inc., et al., 2011 U.S. Dist. LEXIS 113913 (D. Minn. Sep. 30, 2011), a Minnesota-based equipment dealer was a party to three different agreements with three different, but related, suppliers.  The first agreement had an Ohio forum selection clause.  The second had Virginia choice of law and forum selection clauses.  In 2009, those suppliers merged, consolidating the supply of both equipment lines in a single source, but retaining their separate distribution agreements.  In 2010, the dealer entered into an agreement ...

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A federal court in Pennsylvania recently granted a franchisee’s motion to compel arbitration, while simultaneously granting the franchisor’s motion for a preliminary injunction. AAMCO Transmissions, Inc. v . Dunlap, 2011 U.S. Dist. LEXIS 91130 (E.D. Pa. Aug. 16, 2011), involved a lengthy dispute over the franchisor’s termination of the franchise agreement. In 2007, AAMCO sued to enforce termination, which resulted in a settlement agreement allowing Dunlap to operate the franchises for their remaining terms for the limited purpose of giving him an opportunity to sell ...

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The United States Supreme Court’s arbitration-friendly decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011), was extended this month to a group of “franchisees” who sought to claim they were really employees. Green v. SuperShuttle International, Inc., 2011 U.S. App. LEXIS 18483 (8th Cir. Sept. 6, 2011). The franchisees in this case are current and former shuttle drivers who alleged (on a class basis) violations of the Minnesota Fair Labor Standards Act. As reported in Issue 135 of The GPMemorandum, the federal district court compelled arbitration on an ...

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A federal district court for the Northern District of Illinois recently refused to dismiss, in favor of arbitration, a distributor’s claim for unlawful termination. In Metro Premium Wines v. Bolger Vineyards, Inc., 2011 U.S. Dist. LEXIS 65306 (N.D. Ill. June 14, 2011), a producer of wines terminated a 20-year-old oral distribution relationship with its exclusive distributor in the Chicago area. The distributor’s suit alleged that the winemaker had conspired with another distributor to eliminate the plaintiff and to take over its customer contacts and other confidential ...

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A Michigan federal court recently decided that an arbitration provision contained in a franchise agreement governed claims arising out of a subsequent, related agreement. The parties in Braverman Props., LLC v. Boston Pizza Rests, 2011 U.S. Dist. LEXIS 68536 (W.D. Mich. June 27, 2011), had a franchise agreement that included an arbitration provision requiring arbitration of “any and all controversies, claims and disputes between [the parties] arising out of or related to this Agreement.” The franchise agreement also gave the franchisor, Boston Pizza Restaurants, a right ...

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Does an arbitration clause have to use the word “binding” to be binding?  That was the question raised in Akaoma v. Supershuttle Int’l Corp., 2011 U.S. App. LEXIS 12763 (4th Cir. June 22, 2011). The parties arbitrated a dispute under a franchise agreement, and the defendant franchisor succeeded on all but one claim. The federal district court granted the franchisor’s motion to confirm the arbitration award. On appeal to the Fourth Circuit, the franchisee challenged the district court's holding that the arbitration was binding, on the grounds that the ...

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In Wild v. H&R Block Tax Services LLC, AAA Case No. 77 114 266 10 (June 15, 2011), a panel of arbitrators upheld the termination of an H&R Block franchisee who had refused to convert to H&R Block’s proprietary tax return preparation software when Block made that software mandatory for all system offices. (Gray Plant Mooty represented the franchisor in this case.) Although the franchisee had been allowed to use other tax return preparation software for many years, the panel held that Block should not be penalized for its patience as it sought to convince its franchisees to voluntarily ...

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In Wild v. H&R Block, Inc., 2011 U.S. Dist. LEXIS 55140 (D. Colo. May 12, 2011), a franchisee unsuccessfully sought a temporary restraining order to enjoin a pending arbitration between it and franchisor H&R Block. The franchise agreement between the parties provided that if a final award in arbitration was not rendered within 180 days of the notice of arbitration, either party could terminate the arbitration and pursue the matter in court, and the decision deadline in this case became March 9, 2011. The arbitration hearing was set for March 1-3, 2011, but because the hearing was set ...

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Plaintiffs hoping to avoid having to comply with contractual arbitration clauses were given a glimmer of hope in Brooks v. Fetch! Pet Care, Inc., 2011 N.J. Super. LEXIS 1236 (N.J. Super. Ct. App. Div. May 13, 2011). In this case, the New Jersey Superior Court reversed the trial court’s dismissal of the plaintiffs’ complaint and remanded the case for further discovery. The trial court held that the constitutional Supremacy Clause and Federal Arbitration Act (“FAA”) required enforcement of the mandatory arbitration provision in the parties’ franchise agreement, which ...

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The Seventh Circuit Court of Appeals recently upheld the dismissal of a franchise-related lawsuit in light of the existence of a binding arbitration provision. In Faulkenberg v. CB Tax Franchise Systems, LP, 2011 U.S. App. LEXIS 6391 (7th Cir. Mar. 29, 2011), a disgruntled franchisee brought suit against its tax preparation franchisor after closing its five franchised outlets. The franchisee-plaintiff alleged, among other things, that the franchisor violated the Illinois Franchise Disclosure Act by failing to register its offering circular in the state prior to the sale. The ...

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A Minnesota federal court recently confirmed an arbitrator’s award despite a clarification to which the losing former franchisee objected. In Wakeman v. Aqua2 Acquisition, Inc., 2011 U.S. Dist. LEXIS 14672 (Feb. 14, 2011), in which Gray Plant Mooty represented the franchisor of the AutoQual system, the franchisor had sought to prevent the former franchisee from operating a competing business in violation of his franchise agreement’s post-termination restrictive covenant. AutoQual commenced an arbitration proceeding to enforce that restrictive covenant, and it ...

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Last week, a state appellate court in California issued what appears to be an important ruling upholding a franchisor’s right to arbitrate in another state against a California franchisee. MKJA, Inc. v. 123 Fit Franchising, LLC, 2011 Ca. App. LEXIS 6 (Cal. App. 4th Dist., Div. 1 Jan. 4, 2011). This appeal was from a California state court’s order that had lifted a stay of the franchisee’s California litigation. The trial court had found that the franchisee could not afford to arbitrate in Colorado, thus the stay previously issued under California Code Civ. Pro. §1281.4 had been ...

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In Edible Arrangements Int’l, Inc. v. JHRV Enter., Inc., 2010 U.S. Dist. LEXIS 105614 (D. Conn. Oct. 1, 2010), a Connecticut federal court enforced franchise agreements that provided for arbitration in Connecticut of all disputes arising from the franchise relationship. The franchisee had operated 18 stores in California. The franchisor and franchisee had entered into a settlement agreement to resolve one series of disputes, and the settlement agreement provided that any dispute arising out of that agreement would be resolved in California state court.

Approximately one ...

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In contrast to the California law ruling referenced above, a recent decision by the federal district court in Minnesota underscores the bulk of the judiciary’s strong preference for enforcing arbitration agreements according to their terms. In Green v. SuperShuttle Int’l, Inc., 2010 U.S. Dist. LEXIS 95235 (D. Minn. Sept. 13, 2010), the court granted a defendant franchisor’s motion to dismiss the plaintiff franchisees’ claims and to compel arbitration based on the plain language of the arbitration agreement in the parties' franchise agreements. The franchise ...

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In Bridge Fund Capital Corp. v. Big Bad 1, LLC, 2010 U.S. App. LEXIS 19309 (9th Cir. Sept. 16, 2010), the Ninth Circuit rejected a franchisor’s appeal from a district court’s holding that an arbitration clause contained in its franchise agreement was unenforceable under California law. The franchisor had first argued that the question of arbitrability was one to be decided by the arbitrator, not a court. The court disagreed, finding that the franchisee had raised a specific challenge to the arbitration clause itself, separate and apart from its challenge to the franchise ...

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An Oregon federal court, in JuiceMe, LLC v. Booster Juice Ltd. P’ship, 2010 U.S. Dist. LEXIS 77375 (D. Ore. July 30, 2010), denied the defendant franchisors’ motions to dismiss and stayed the case pending arbitration. The plaintiffs, who are U.S. and Canadian Booster Juice franchisees, had filed a demand for arbitration with the American Arbitration Association in January 2008 against Booster Juice Limited Partnership, the franchisor of the Booster Juice system in the U.S., and other related parties. The plaintiffs later added AW Holdings Corporation, the franchisor of the ...

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A recent case from a Michigan federal court represents a mixed bag for franchisors seeking to require arbitration of claims brought by franchisees. In Binder v. Medicine Shoppe Int’l, Inc., 2010 U.S. Dist. LEXIS 72614 (E.D. Mich. July 20, 2010), a corporate franchisee signed a franchise agreement containing an arbitration clause. Its principals also signed personal guaranty agreements, under which they agreed to be personally bound by the franchise agreement.

When a dispute arose between the parties, the franchisor commenced arbitration against both the corporate ...

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The Third and Eighth Circuits recently affirmed arbitration awards in favor of franchisors, despite similar arguments by franchisees. Most recently, in Paul Green School of Rock Music Franchising, LLC v. Smith, 2010 U.S. App. LEXIS 16082 (3d Cir. August 2, 2010), the Third Circuit sidestepped the question of whether “manifest disregard of the law” remains a ground to vacate an arbitration award after the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc. Describing a “circuit split” on that question, the Third Circuit simply ruled that the law ...

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In Jewelry Repair Enterprises, Inc. v. Ajani, 2010 LEXIS 61651 (Fla. Ct. App. May 5, 2010), the Florida Court of Appeals upheld a clause in a franchise agreement excepting noncompetition issues from binding arbitration. The case supports the proposition that contracts will be interpreted according to their plain meaning and that exceptions to binding arbitration provisions will be upheld. In this case, the franchisor terminated the franchisees and sued them for breach of contract after learning the franchisees were operating competing businesses. The franchisees moved to ...

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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 ...

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 In Reid v. SuperShuttle Int’l Inc., 2010 U.S. Dist. LEXIS 26831 (E.D.N.Y.  Mar. 22, 2010), a New York federal court granted a franchisor’s motion to compel arbitration and, in doing so, upheld a waiver in the arbitration clause of the affected plaintiffs’ rights to bring class action claims. A group of SuperShuttle franchisees had brought a class action suit, claiming that they were employees of SuperShuttle rather than franchisees and that they were owed wages and employee benefits under various federal and New York state laws. SuperShuttle filed a motion to compel individual ...

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The United States Supreme Court likely ignited an intense battle in state and federal courts around the country with its decision last week that a class action arbitration may not be imposed on a party who has not agreed to it.  In Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (U.S. April 27, 2010), a 5-3 majority reversed the Second Circuit’s decision that had upheld an arbitration panel decision to allow a price-fixing case to proceed on a class basis in arbitration.  (Justice Sotomayor, a former judge on the Second Circuit, did not participate)  The specific issue addressed ...

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In Bapu Corp. v. Choice Hotels Int’l, Inc., 2010 U.S. App. LEXIS 5540 (3d Cir. Mar. 16, 2010), Choice Hotels terminated its franchisee after it failed to renovate. Early in arbitration proceedings the franchisee contended that the termination was time-barred under Maryland law and the limitations period in the franchise agreement. The arbitrator addressed this issue preliminarily, ruling that the issue was premature, and allowed the franchisee to renew its defense later. The franchisee stopped participating in the arbitration and, instead, tried to challenge the ...

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Despite the heavy presumption in favor of the enforceability of final arbitration awards, a federal court in Michigan recently vacated a final award upon finding that one member of the arbitration panel had displayed evident bias. In The Thomas Kinkade Co. v. Lighthouse Galleries, LLC, 2010 U.S. Dist. LEXIS 6443 (E.D. Mich. Jan. 27, 2010), the issue was whether an arbitrator’s late disclosure of his conflicts of interest and law partners’ association with the defendants prejudiced the parties’ arbitration. At arbitration, one of the arbitrators disclosed that certain of ...

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In Foot Solutions, Inc. v. Washio, 2009 WL 4261213 (N.D. Ga. Nov. 24, 2009), a Georgia federal court declined to award attorneys’ fees to franchisees who had successfully argued that their claims were subject to arbitration. After the franchisees had initiated arbitration, the franchisor filed suit in federal court, alleging that the franchisees had improperly filed their demand  because they failed to follow the dispute resolution procedures in the franchise agreement. The federal court dismissed the franchisor’s action, holding that the disputed claims were properly in ...

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In O’Neal v. Total Car Franchising Corp., 2009 WL 4827152 (La. App. 2d Cir., Dec. 16, 2009), a Louisiana appellate found for O’Neal on appeal finding that the arbitration clause in his area developer agreement did not apply to the dispute between O’Neal and the franchisor, Total Car Franchising Corporation (“TCF”), which was the franchisor of the Colors on Parade system.

O’Neal and TCF entered into an area developer agreement under which O’Neal agreed to arbitrate all “disagreements within the Colors on Parade community” providing that “[o]ne or each ...

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In Roberts v. Synergistic Int’l, 2009 WL 3642776 (E.D. Cal. Oct. 30, 2009), Synergistic (which operates as the franchisor for the Glass Doctor franchise system) moved to compel arbitration after the franchisee sued claiming, among other things, that Synergistic breached the parties’ franchise agreement by failing to provide proper training, adequate support, and an effective advertising campaign. The franchisee argued that the arbitration provision was unenforceable because there was no “meeting of the minds” between the parties. It also argued that the ...

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The Ohio Court of Appeals recently ordered an advertising cooperative to arbitrate its claims against a franchisor, while simultaneously permitting the cooperative to litigate its related claims against individual franchisees. In Cleveland-Akron-Canton Advertising Cooperative v. Physician’s Weight Loss Centers of Am., Inc., 2009 WL 3490756 (Ohio Ct. App. Oct. 29, 2009), the cooperative brought suit against the franchisor to recover mandatory advertising contributions owed by franchisees pursuant to an agreement between the franchisees and the cooperative. The ...

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The Eighth Circuit last month held that a supplier could not compel arbitration of a dealer’s cross-claim against it under the arbitration clause of the dealer agreement because the supplier was not a party to that agreement. In so ruling, the Eighth Circuit reversed the district court, which had found that arbitration could be compelled. The appellate decision is Donaldson Co., Inc. v. Burroughs Diesel, Inc., No. 08-2705 (8th Cir. July 20, 2009).

The supplier argued that although it was not a party to the dealer agreement, arbitration was required because the dealer’s claim was ...

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In U-Save Auto Rental of America, Inc. v. Furlo, 2009 WL 901922 (S.D. Miss. Mar. 31, 2009), a Mississippi federal district court denied a franchisee’s motion to set aside the judgment and dismiss franchisor U-Save’s suit to confirm the arbitration award based upon lack of subject matter jurisdiction. In reaching its decision, and finding that it had jurisdiction over U-Save’s suit to confirm the award, the court held that the amount in controversy in U-Save’s suit should be determined based on the amount the franchisee demanded in the underlying complaint rather than the ...

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A Pennsylvania federal court has confirmed an arbitrator’s dismissal of a counterclaim brought by a California franchisee under the California Franchise Investment Law (CFIL) and enforced a covenant not to compete despite the fact that California law disfavors such provisions. Paul Green School of Rock Music Franchising, LLC v. Smith, 2009 WL 426175 (E.D. Pa. Feb. 17, 2009). The franchisee in this case had operated a music lesson franchise in California under an agreement that contained Pennsylvania choice of law and venue provisions. The franchisor began the case by filing an ...

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In Vaden v. Discover Bank, et al., No. 07-773 (U.S. Sup. Ct. March 9, 2009), the United States Supreme Court held last week that under the Federal Arbitration Act (FAA), the district court is to “look through” a petition to compel arbitration to determine whether the underlying claim states a federal question that would allow for removal of the case from state court to federal court. As part of its holding, the Court noted that the FAA does not itself confer subject matter jurisdiction and such jurisdiction does not arise because of the content of a counterclaim, much like the ...

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In Doctor’s Associates, Inc. v. Nat, 2009 WL 162680 (Cal. App. 2 Dist. Jan. 26, 2009), the California Court of Appeals upheld a lower court ruling affirming an arbitrator’s decision that a franchisor breached its obligations to assist a Subway franchisee in the sale of his franchises. Franchisor Doctor’s Associates, Inc. (“DAI”) had originally filed an arbitration seeking to terminate the franchisee’s two locations in Southern California for underreporting of sales and other breaches of the franchise agreements. During the course of this initial arbitration, the ...

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In IJL Dominicana S.A. v. It’s Just Lunch Int’l, LLC, 2009 WL 305187 (C.D. Cal. Feb. 6, 2009), the United States District Court for the Central District of California this month enforced an arbitration clause in a franchise agreement and granted in part a franchisor’s motion to compel arbitration, but severed a significant portion of the clause on unconscionability grounds in accordance with the Ninth Circuit Nagrampa decision, which continues to have broad implications for franchisors.  

In the new case, the plaintiff franchisees filed suit against the ...

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In Ahluwalia v. QFA Royalties, LLC, 2009 WL 262466 (Colo. App. Feb. 5, 2009), a franchisee appealed a district court decision affirming an arbitration award of over $600,000 against him in a dispute with Quizno’s. The franchisee claimed, first, that the arbitration award was invalid because two of the three franchise agreements in dispute did not contain arbitration provisions and, second, that the district court erred in applying the “manifest disregard” standard to the arbitrator’s decision. The franchisee lost on both counts.

The court found persuasive authority to ...

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In Awuah v. Coverall North Am., Inc., 2009 WL 159423 (1st Cir. Jan. 23, 2009), several franchisees filed a class action against the franchisor in Massachusetts federal district court alleging fraud, breach of contract, and violations of various minimum wage, overtime, and consumer protection laws. In response to the lawsuit, the franchisor moved to compel arbitration and stay the pending litigation, based upon arbitration provisions contained in three of the applicable franchise agreements. The franchisees responded that the arbitration clauses were unconscionable and that ...

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In Bencharsky v. Cottman Transmission Systems, LLC, 2008 WL 5411500 (N.D. Cal. Dec. 29, 2008), the United States District Court for the Northern District of California enforced an arbitration clause in a franchise agreement, but with some significant limitations. The franchisee had filed the lawsuit alleging breach of contract, fraud, negligent misrepresentation, interference with contract, and violation of the California Franchise Investment Law (CFIL). The factual basis for the action was that, among other things, the franchisor had refused to renew the franchise ...

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A Pennsylvania federal court has confirmed an arbitrator’s award for the franchisor despite one of the co-franchisees’ claims that he did not receive notice of the arbitration. In AAMCO Transmissions, Inc. v. Sally, 2008 WL 5272449 (E.D. Pa. Dec. 17, 2008), two individuals signed the franchise agreement together, but one franchisee left the day-to-day business operations entirely to his co-franchisee son-in-law. Soon thereafter, AAMCO discovered that the franchisees collectively had underreported sales and committed other breaches of the franchise agreement ...

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In Coffee Beanery, Ltd. v. WW, L.L.C., 2008 WL 4899478 (6th Cir. Nov. 14, 2008), the United States Court of Appeals for the Sixth Circuit vacated an arbitration award that had been entered in favor of franchisor Coffee Beanery, Ltd., as the appeals court held that the arbitrator manifestly disregarded the law. The court concluded that the United States Supreme Court’s recent decision in Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008), did not limit the review of arbitration awards under the well-established “manifest disregard” standard. That standard ...

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In Perry v. Ice House America, LLC, 2008 WL 4216550 (E.D. Ark. Sept. 12, 2008), the United States District Court for the Eastern District of Arkansas broadly construed an arbitration clause in a distributorship agreement in granting the defendant’s motion to stay the litigation pending a the outcome of arbitration. The plaintiffs had filed suit claiming that Ice House America, a manufacturer of ice production and delivery products, had, among other things, breached the distributorship agreement and the duty of good faith and fair dealing. Ice House America filed a petition to ...

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In Ron Winter, et al. v. Window Fashions Professionals, Inc., 2008 WL 3845229 (Cal. App. 5 Dist., August 19, 2008), the California Court of Appeals affirmed the trial court’s decision that there was no meeting of the minds on an arbitration clause in a franchise agreement due to a state addendum to the franchisor’s Uniform Franchise Offering Circular (“UFOC”).

Ron Winter and Window Fashions Professionals, Inc. (“WFP”) entered into a franchise agreement that required the parties to submit claims to binding arbitration in Dallas County, Texas and provided that the ...

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In Bridge Fund Capital Corporation v. Fastbucks Franchise Corporation, 2008 WL 3876341 (E.D. Cal. Aug. 20, 2008), the court dismissed a franchisor’s motion to dismiss or stay the action pending the outcome of arbitration because it declined to enforce the choice of law, choice of forum, and arbitration clauses in the franchise agreements at issue. This case demonstrates how careful franchisors must be, especially in cases where courts would apply California law, with respect to contractual provisions in franchise agreements that create one-sided legal rights in their favor.

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The federal district court in New Jersey has changed its mind and has now confirmed an arbitration award won by a franchisor. Bapu Corp. v. Choice Hotels International, Inc., 2008 WL 4192056 (D.N.J. Sept. 8, 2008). The court’s earlier decision, as reported in Issue 109 of The GPMemorandum, had vacated the award based on the court’s belief that the applicable statute of limitations had expired before the franchisor commenced the arbitration. In reconsidering that decision, the court realized that the statute of limitations evaluation was for the arbitrator, not the court, to ...

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The Sixth Circuit Court of Appeals has taken the relatively rare step of vacating an arbitration award on the grounds of “manifest disregard for the law.” In Coffee Beanery, LTD. v. WW, L.L.C., 2008 WL 3838010 (6th Cir. Aug. 8, 2008), an unsuccessful franchisee sued its franchisor alleging, among other claims, fraud, negligent misrepresentation, breach of contract, and violation of several franchise disclosure laws. The franchisor successfully moved to dismiss the court action and compel arbitration, based on the franchise agreement’s arbitration clause. At ...

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Choice Hotels International, Inc.'s arbitration award against a franchisee was recently vacated by the United States District Court for the District of New Jersey. In Bapu Corp. v. Choice Hotels Int'l, Inc., 2008 WL 2559306 (D.N.J. June 24, 2008), a hotel franchisee filed suit against Choice Hotels requesting relief from an arbitration award and relief under the franchise agreement.

Choice Hotels in 2006 had won an arbitration award of $142,560 in liquidated damages against the franchisee after the franchisee had been terminated for failing to make renovations to its hotel by a ...

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Franchisee Celine Gueyffier’s attempted opening of an Ann Summers store in Los Angeles was a failure, leading each party to file an arbitration claim asserting that the other had breached the parties’ franchise agreement. The arbitrator found for Gueyffier, concluding that Ann Summers did not provide promised training, guidance, and assistance. In his written award, the arbitrator held that Gueyffier’s failure to give Ann Summers notice of the breach and an opportunity to cure was immaterial because the breaches were incurable.

In Gueyffier v. Ann Summers, Ltd., 2008 WL ...

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In a non-franchise case, the court in Liebrand v. Brinker Rest. Corp., 2008 WL 2445544 (Cal. App. 4 Dist. June 18, 2008), upheld the trial court’s denial of Brinker’s motion to compel arbitration, concluding it had failed to meet its burden of proving Liebrand agreed to arbitrate an employment dispute. The trial court determined that the arbitration agreement was void because it was both procedurally and substantively unconscionable, specifically because it was an adhesion contract that mandated arbitration take place in Texas and required that Liebrand share the costs. On ...

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In June the United States District Court for the Eastern District of Louisiana held that a franchisee who had initiated an arbitration and later withdrew the proceeding had not waived his right to compel another arbitration after the franchisor filed an action against him in federal district court. The case is Planet Beach Franchising Corp. v. Richey, 2008 WL 2598907 (E.D. La. June 25, 2008).

The franchisee in this action initiated the arbitration proceedings pursuant to the arbitration clause in the franchise agreement three years into the relationship with Planet Beach ...

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In Jimmy John’s Franchise, LLC v. Kelsey, 2008 WL 1722188 (C.D. Ill. Apr. 10, 2008), Jimmy John’s sought to vacate an arbitration award on the ground that the arbitrator had exceeded his authority under the Federal Arbitration Act and had disregarded the law in awarding damages to the franchisee’s guarantor. More specifically, Jimmy John’s argued that the arbitrator either did not read the agreement in dispute between the parties or disregarded the agreement entirely and implemented his notion of what was fair and reasonable.

In denying Jimmy John’s motion, an Illinois ...

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Two more courts have weighed in on the unconscionability of arbitration clauses. In Sammy Enterprises v. O.P.E.N. America, Inc., 2008 WL 2010357 (Wash. App. Div. 1 May 12, 2008), the Washington Court of Appeals upheld enforcement of an arbitration provision despite the franchisee’s challenge. And in Smith v. Paul Green School of Rock Music Franchising, LLC., 2008 WL 2037721 (C.D. Cal. May 5, 2008), a federal district court in California refused a California franchisee’s request to stop an arbitration from being conducted in Pennsylvania, the home state of the franchisor.

In ...

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In Volvo Trucks North America, Inc. v. Crescent Ford Truck Sales, Inc., 2008 WL 506099 (E.D. La. Feb. 21, 2008), the court considered questions regarding the arbitrability of a suit between an automobile manufacturer and one of its dealers. After Volvo issued Crescent Ford a notice of non-renewal of the parties’ dealer agreement, Crescent filed a petition with the Louisiana Motor Vehicle Commission (“LMVC”) to preclude the termination, arguing that Volvo failed to properly allege just cause for the termination as required under Louisiana law. As part of the proceedings ...

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The United States District Court for the Eastern District of Michigan recently granted in part McBride Research Laboratories, Inc.’s motion for summary judgment, finding that the parties’ broad contractual agreement to arbitrate in Georgia any disputes arising out of or relating to the distributor agreement required dismissal of the plaintiff’s claim. Prude v. McBride Research Laboratories, Inc. (E.D. Mich. Feb. 8, 2008).

The plaintiff argued that he was not bound by the agreement to arbitrate because the agreement was unenforceable under section 27(f) of Michigan’s ...

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In C.V. Sullivan Co., Inc. v. Graham Web International, Inc., 2008 WL 249060 (D.N.H. Jan. 28, 2008), a federal court in New Hampshire granted a manufacturer’s motion to dismiss state-law claims that the court found to be subject to arbitration. Sullivan was terminated as a distributor of beauty supply products manufactured by GWI pursuant to a “Sullivan Distribution Agreement.” Sullivan filed suit, alleging that GWI breached its implied contractual obligation to act fairly and in good faith, engaged in unfair and deceptive trade practices, and tortiously interfered with ...

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In Choice Hotels Int’l, Inc. v. SM Property Management, LLC, 2008 WL 518807 (4th Cir. Feb. 28, 2008), the franchisor had sought in federal court to confirm an arbitration award that it obtained by default against one of its franchisees. In response, the franchisee moved to vacate the arbitration award on the ground that it did not receive proper notice of the arbitration proceeding because no notice was ever sent to the franchisee’s designated representative, as required by the franchise agreement. The federal district court vacated the arbitration award upon determining that ...

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In In re Bath Junkie Franchise, Inc., 2008 WL 324760 (Tex. Ct. App. Feb. 7, 2008), a Texas Court of Appeals held that a dispute arising from a franchisor and franchisee’s mutual termination agreement was subject to the arbitration provision contained within the parties’ franchise agreement. The franchisee filed the lawsuit seeking damages after the franchisor failed to make the required “buy out” payment pursuant to the mutual termination agreement executed by the parties. Approximately 14 months after the franchisee commenced its lawsuit, the franchisor moved to ...

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In Kayne v. Thomas Kinkade Company, 2007 WL 4287364 (N.D. Cal. Dec. 5, 2007), the court issued another ruling in the long-standing battle between former dealer David Kayne against the Thomas Kinkade Company (“Thomas Kinkade”). Prior to the present action, Thomas Kinkade obtained an arbitration award against Kayne’s Georgia corporation in excess of $631,000. Thomas Kinkade initiated a new action to collect the outstanding balance against Kayne individually under the terms of an Application for Credit and Personal Guaranty he signed. In response, Kayne filed a lawsuit in ...

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In the Spinks v. Krystal Co., 2007 WL 4568992 (D.S.C. Dec. 20, 2007), a federal court in South Carolina granted franchisor Krystal Company’s motion to compel arbitration. The case highlights the importance of carefully crafting guaranty agreements.

In the spring of 2004, Spinks Investment, Inc. and franchisor Krystal Company entered into franchise agreements for two shops located in South Carolina. Two years later, Spinks Investment closed and abandoned both franchises. Krystal notified Spinks Investment that it had terminated the franchises and that it would submit the ...

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About this Publication

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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