The Franchise Memorandum

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 and his company Amie, LLC, under an alter ego theory.

Neither Singh-Loodu nor Amie, LLC appeared or answered in court, so Doctor's Associates moved for default judgment. After initially denying relief because the franchisor had styled the action as a complaint rather than a petition to confirm, the court reconsidered its decision and concluded there was no evidence that the arbitrator exceeded his powers in awarding Doctor's Associates relief. The court also concluded that, although an action for confirming an arbitration award is generally not the proper time to determine a claim to pierce the corporate veil, concerns about the adequacy of proof were not present in the default motion because the facts alleged by a plaintiff must be taken as true. Because Doctor's Associates had alleged that Amie, LLC was the de facto operator of the franchise and made all or most of the payments, the court concluded that an alter ego finding was appropriate and confirmed against both.