The Franchise Memorandum

A federal court in Pennsylvania recently granted a franchisee’s motion to compel arbitration, while simultaneously granting the franchisor’s motion for a preliminary injunction. AAMCO Transmissions, Inc. v . Dunlap, 2011 U.S. Dist. LEXIS 91130 (E.D. Pa. Aug. 16, 2011), involved a lengthy dispute over the franchisor’s termination of the franchise agreement. In 2007, AAMCO sued to enforce termination, which resulted in a settlement agreement allowing Dunlap to operate the franchises for their remaining terms for the limited purpose of giving him an opportunity to sell his AAMCO centers to third party purchasers. When Dunlap failed to meet the terms of the settlement agreement, AAMCO initiated the current lawsuit and moved for a preliminary injunction to require him to cease operating the remaining terminated franchise location. Dunlap moved to dismiss the lawsuit and to compel arbitration pursuant to a broad arbitration clause contained in the franchise agreement.

AAMCO opposed Dunlap’s motion, arguing that he had waived his right to arbitrate because he had never attempted to enforce the arbitration clause during the 2007 lawsuit. The court found, however, that Dunlap had not waived his right to arbitrate—even though he fully litigated the 2007 lawsuit—because the 2007 action was separate from the current lawsuit. It noted that AAMCO filed a new lawsuit and never contended that this lawsuit was a continuation of the 2007 action and that Dunlap moved to compel arbitration early in the second suit. The court also found that granting one party’s motion to compel did not prevent it from granting the opposing party’s motion for a preliminary injunction, even if the injunction would not merely preserve the status quo. The court determined that because it granted AAMCO’s motion for a preliminary injunction, forcing Dunlap to cease operating his remaining AAMCO center, AAMCO would suffer no prejudice by arbitrating the remaining issues.