The Franchise Memorandum

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 arbitration. 

The franchisees then filed a motion seeking attorneys’ fees, arguing that they “prevailed” on the matter because they succeeded in making sure that the case remained in arbitration. In response, the franchisor argued that the franchisees were not the “prevailing party” because the court order did not alter the legal relationship of the parties. The court agreed with the franchisor and declined to award fees. The court noted that the “touchstone” of the prevailing party inquiry is whether there is at least some relief on the merits. While the franchisees succeeded in arguing that the disputed claims were subject to arbitration, there was no evidence that the arbitration panel decided the parties’ dispute. Thus, the franchisees’ victory was merely procedural and did not warrant the award of attorneys’ fees.