The Franchise Memorandum

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 during the height of tax season, the franchisee asked H&R Block if the hearing date could be moved to May. H&R Block agreed, and the hearing date was re-set to May 23, 2011.

After the March 9, 2011, deadline had passed, the franchisee sought to terminate the arbitration, arguing that the parties did not extend the decision deadline (only the hearing date) and that therefore the franchisee had the right under the agreement to terminate the arbitration. The franchisee also argued that the arbitration panel did not have authority to resolve the issue of whether the dispute remained arbitrable, arguing that the court should apply the American Arbitration Association (AAA) rules in effect when the franchise agreement was signed in 1981. The court denied the franchisee’s application for a temporary restraining order. First, it found that the franchisee did not have a substantial likelihood of success on the merits (due to the fact that the franchisee had requested extension of the hearing date in the first place). And on the issue of the panel’s authority to decide its own jurisdiction, the court determined that by choosing the AAA rules as governing, the franchise agreement included all changes and updates to the rules, and that Rule R-7 of the AAA Commercial Arbitration Rules, as amended, clearly gave the arbitrators the ability to decide the matter.