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Federal Court in New Hampshire Finds Franchisor Did Not Forfeit Right to Arbitrate Dispute by Seeking Preliminary Injunction
Posted in Arbitration

The United States District Court for the District of New Hampshire recently granted a franchisor's motion to compel arbitration, finding it had not waived its rights to arbitrate a dispute by having first sought preliminary injunctive relief. Pla-Fit Franchise, LLC v. Patricko, Inc., 2014 U.S. Dist. LEXIS 69047 (D.N.H. May 20, 2014). Pla-Fit sued its former franchisee, Patricko, seeking injunctive relief for trademark infringement, a declaratory judgment that Patricko had violated the post-termination non-compete provisions of the franchise agreements between the parties, and damages for breach of contract. Patricko responded with counterclaims. Shortly thereafter, the parties reached an agreement that resolved the infringement issues, mooting the injunction motion, but were not able to reach an agreement on the remaining claims. Pla-Fit then filed a motion to compel arbitration and to dismiss Patricko's counterclaims.

Patricko argued that Pla-Fit waived its right to compel arbitration by filing the motion for a preliminary injunction. The court disagreed and reasoned that, while a party may waive its contractual right to arbitrate, such waivers are not to be lightly inferred, and any doubts should always be resolved in favor of arbitration. It concluded Pla-Fit made its intentions to arbitrate known within three weeks after the resolution of the injunctive claims, which was less than two months after it had filed the motion for a preliminary injunction. To rise to the level of prejudice necessary to waive Pla-Fit's contractual right to arbitration, more was required. The delay was not prejudicial, discovery had not commenced, nor had the case advanced, and nothing in the record supported a conclusion that Pla-Fit had acted in bad faith or attempted to mislead Patricko about its intention to arbitrate the remaining claims. Accordingly, the court granted Pla-Fit's motion to compel arbitration.

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