The Franchise Memorandum

Franchisor World of Beer Franchising, Inc. (“WOB”) recently lost an appeal of the district court’s denial of its motion for a preliminary injunction. World of Beer Franchising, Inc. v. MWB Development I, LLC, 2017 WL 4618565 (11th Cir. Oct. 16, 2017). WOB and three franchisee entities owned and operated by Evan Matz were parties to three franchise agreements to operate World of Beer restaurants. After mutual termination of the agreements, Matz began operating competing businesses. WOB sought to enjoin Matz from using its marks, confidential information, and trade dress and from violating the post-termination noncompete covenant. The district court denied WOB’s motion on the basis that the franchise agreements required the parties to first mediate their dispute. WOB appealed, arguing that the district court misinterpreted the dispute resolution provisions of the franchise agreements.

The franchise agreements included a general requirement that all disputes, except those relating to the marks, be submitted to arbitration. The agreements also required that, before commencing arbitration, the parties submit disputes to nonbinding mediation. The same section required submission of any dispute to mediation contemporaneously with any request for injunctive relief. Further, the agreements stated that in connection with any request for injunctive relief, the parties must submit the dispute to arbitration. Determining that each of those provisions could be interpreted together, the court held that WOB was required to submit the dispute to mediation and arbitration contemporaneously with its motion for a preliminary injunction. WOB argued that because its claim related to the marks, the dispute was not subject to arbitration, and therefore also exempt from mediation. The court disagreed, finding that the scope of WOB’s claims extended beyond the marks. In addition, the court noted that the agreements required the parties to submit the dispute to mediation regardless of whether the dispute was arbitrable. WOB alternatively argued that even if mediation was required, it had sufficiently attempted to comply with that requirement because it had asked Matz whether he preferred mediating through the AAA or a private mediator, and Matz did not respond. The court was unmoved by this argument, noting that the franchise agreements expressly required mediation under the AAA Commercial Mediation Rules, making it possible for WOB to submit the dispute to mediation without any cooperation from Matz. Therefore, because WOB did not submit the dispute to mediation contemporaneously with its motion for injunctive relief, the Eleventh Circuit affirmed the district court’s order denying WOB’s motion for a preliminary injunction.