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The Franchise Memorandum

Court Denies Franchisor’s Motion to Dismiss or Compel Arbitration of Franchisee’s Claims
Posted in Arbitration

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 registration was not effective at the time of the sale. When the Taylors failed to achieve the amount of revenue Rothschild had allegedly promised them, they filed a complaint about Party Princess with the Securities Division of the Washington Department of Financial Institutions. Rothschild then commenced arbitration proceedings against the Taylors seeking to terminate their franchise, and the Taylors responded by filing a lawsuit against Rothschild asserting claims of intentional and negligent misrepresentation, violation of Washington’s Franchise Investment Protection Act, and unjust enrichment. Rothschild filed a motion to dismiss the Taylors’ claims or in the alternative to compel the Taylors to arbitrate them pursuant to the franchise agreement’s arbitration clause.

Among other things, Rothschild argued that the case could not proceed because the issues in dispute were already being litigated in the arbitration proceeding and that the claims were barred by representations in the underlying contract. The court disagreed, holding that whether the issues were being fully litigated in the ongoing arbitration, or whether a valid and enforceable contract even existed between the parties, were disputed questions of fact. The court also ruled that Rothschild did not sufficiently establish that an enforceable arbitration agreement existed between the parties and noted that the question was better suited for resolution on summary judgment. Accordingly, the court denied Rothschild’s motion.

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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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