The Franchise Memorandum

The District of Columbia Court of Appeals recently affirmed a lower court’s denial of a franchisee’s late attempt to compel arbitration. In Hossain v. JMU Properties, LLC, 2016 WL 6134871 (D.C. Oct. 20, 2016), Hossain, a franchisee, sued its landlord and the landlord’s owner for wrongful eviction. The landlord’s owner, who also owned the taxpreparation franchisor that had contracted with Hossain, responded by suing Hossain for breach of the franchise agreement. Early in the case, JMU brought a motion to stay the proceedings and compel arbitration pursuant to an arbitration provision in the franchise agreement. Hossain opposed the motion arguing that the claims were made under the lease, which did not contain an arbitration clause. The trial court ruled in favor of Hossain and denied the motion to compel arbitration, and the parties continued with the litigation.

Nearly a year later and after a bench trial had begun, Hossain changed course and asked the court to stay the proceedings and compel arbitration in accordance with the franchise agreement. The trial court denied the request holding that Hossain had waived its right to arbitration by virtue of its litigation conduct – namely, its previous opposition to arbitration and its active participation in the litigation. The court then found Hossain liable for breaching the franchise agreement. Hossain appealed and argued that the trial court should have stayed the matter and compelled arbitration. The court of appeals disagreed, holding that the trial court’s findings of waiver by litigation conduct were well supported by the evidence.