The Franchise Memorandum

In Ahluwalia v. QFA Royalties, LLC, 2009 WL 262466 (Colo. App. Feb. 5, 2009), a franchisee appealed a district court decision affirming an arbitration award of over $600,000 against him in a dispute with Quizno’s. The franchisee claimed, first, that the arbitration award was invalid because two of the three franchise agreements in dispute did not contain arbitration provisions and, second, that the district court erred in applying the “manifest disregard” standard to the arbitrator’s decision. The franchisee lost on both counts.

The court found persuasive authority to conclude that “incorporating the AAA Commercial Arbitration Rules into [one of the]  agreement[s]…authorized the arbitrator to decide arbitrability issues, including whether all three franchise agreements were subject to the 2001 arbitration clause.” Therefore, the arbitrator in this case had jurisdiction to apply the decision to disputes under all three agreements. On the issue of the appropriate standard of review, the court also ruled against the franchisee, finding that the FAA, not Colorado law, applied, and that the arbitrator’s decision could be overturned only if the arbitrator manifestly disregarded the law.