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The Franchise Memorandum

Court Enforces Arbitration Agreement Contained in Franchise Application
Posted in Arbitration

A Connecticut federal court granted a petition to compel arbitration filed by Subway sandwich restaurant franchisor Doctor’s Associates, Inc. (“Subway”) enforcing an arbitration clause contained in Subway’s application to become a franchisee. Doctor’s Assocs. Inc. v. Burr, 2016 WL 7451620 (D. Conn. Dec. 28, 2016). Prospective franchisees, the Burrs, submitted a Subway franchise application that included the arbitration clause, but Subway declined to grant the Burrs a franchise. In response, the Burrs initiated an action against Subway’s third-party development agent, the Marwaha Group, claiming that it had used its position as Subway’s development agent to interfere with the transaction and secure the Subway franchise for itself. Subway initiated arbitration against the Burrs for declaratory relief relating to facts underlying the Burrs’ lawsuit and thereafter filed the petition to compel arbitration. Because the arbitration clause covered “any and all claims . . . arising out of or relating to” the Burrs’ “application or candidacy” for a Subway franchise, the court found that a dispute between the Burrs and the Marwaha Group was subject to arbitration.

The court rejected the Burrs’ claim that the dispute was not subject to arbitration because the Marwaha Group and its owners were not parties to the arbitration agreement. It noted that the Burrs’ causes of action, which included interference with contractual relations, were directly related to their Subway franchise application and/or their candidacy for a Subway franchise. The court further found that the owners of the Marwaha Group were acting as agents of Subway when the causes of action arose. Hence, even though the Marwaha Group and its owners were not signatories to the Subway franchise application, the Burrs were obligated to arbitrate their claims against the Marwaha Group and Subway.

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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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