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Court Denies Franchisor's Motion for Summary Judgment and Motion to Compel Arbitration
Posted in Arbitration

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 nonpayment and, on behalf of Money Mailer, for unpaid royalties, and Brewer then asserted claims against Money Mailer and the LLC. Money Mailer moved for summary judgment to dismiss the claims on the basis that Brewer was required to arbitrate his claims as to Money Mailer. While the franchise agreement between Money Mailer and Brewer required those parties to arbitrate their dispute, the agreement between the LLC and Brewer did not. Brewer opposed Money Mailer's motion and contended that Money Mailer had waived its right to arbitrate because it had agreed to allow the LLC to bring claims on its behalf.

The court agreed with Brewer. Regarding the issue of arbitrability, the court pointed out that, although the incorporation of the American Arbitration Association rules into an agreement typically demonstrates clear evidence of the parties' intent to arbitrate, here, the incorporation of the rules into the franchise agreement did not demonstrate such intent. Brewer had no prior legal experience or training as a franchisee and therefore, pursuant to Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015), the AAA's rules did not show a "clear and unmistakable" intent to delegate the question of arbitrability. The court also pointed to the Washington State addendum to the franchise agreement, which contained language that contemplated that Brewer would have recourse to the courts in at least some cases. As to the issue of waiver, the court concluded that there was at least a possibility that Money Mailer had waived its rights. Money Mailer was aware of its right to arbitration, it acted inconsistently with that right by allowing the LLC to bring claims on its behalf in court, and Money Mailer's actions would likely prejudice Brewer by requiring him to defend claims in court and in arbitration. Therefore, the court denied Money Mailer's motion for summary judgment and motion to compel arbitration, but noted that after discovery, Money Mailer could move for the same relief if it could demonstrate that the LLC was not seeking any amount due under the franchise agreement.

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

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