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The Franchise Memorandum

District Court Grants Nonsignatory-Franchisor’s Motion to Compel Arbitration
Posted in Arbitration

In Rahmany v. T-Mobile USA, Inc., No. C16-1416-JCC (W.D. Wash. Jan. 5, 2017), a federal court in Washington granted defendant Subway’s motion to compel arbitration based on the plaintiffs’ cellular telephone contracts with T-Mobile, which mandated arbitration. Shortly after entering into those agreements, T-Mobile sent the plaintiffs a text message promoting free Subway sandwiches for T-Mobile customers. The plaintiffs filed a putative class action against T-Mobile and Subway, alleging violations of the Telephone Consumer Protection Act. The plaintiffs then voluntarily dismissed T-Mobile from the case but did not amend their complaint.

In moving to compel arbitration, Subway argued that it should be allowed to enforce— even as a nonsignatory—the arbitration provision of the agreements between T-Mobile and the plaintiffs. The court found that the plaintiffs’ claims related to T-Mobile’s services and devices and therefore fell within the scope of the arbitration agreements. Further, the court found that under California law, the plaintiffs failed to meet their burden of proving that the arbitration agreement was unconscionable. The mere fact that the terms and conditions containing the arbitration clause were incorporated by reference was insufficient to constitute procedural unconscionability. The court also held that the plaintiffs were equitably estopped from avoiding arbitration by suing Subway, a nonsignatory defendant, because their claims against Subway were based on the same facts and were inherently inseparable from their arbitrable claims against the signatory defendant, T-Mobile. Finally, notwithstanding the fact that the Federal Arbitration Act provides for a stay of proceedings once a court finds that the action should be arbitrated, because all of the plaintiffs’ claims were subject to arbitration, the court found that it lacked jurisdiction over the matter and dismissed the complaint.

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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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