The Franchise Memorandum

A federal court in Louisiana has ruled that the arbitrator is the appropriate person to decide both substantive questions and questions of arbitrability under a franchise agreement requiring arbitration of “all disputes.” Planet Beach Franchising Corp. v. Zaroff, 2013 U.S. Dist. LEXIS 121908 (E.D. La. Aug. 27, 2013). This case began when the owners of four Planet Beach salons, all operated under separate franchise agreements, filed a demand for arbitration claiming that Planet Beach allegedly made a number of material misrepresentations and omissions in its sales documents and elsewhere during the process of selling franchises to the franchisees between the years 2005 and 2008. Planet Beach filed a motion in federal court to compel arbitration, contending that the terms of the franchise agreements did not allow the franchisees to consolidate their claims and assert one demand for arbitration. The franchisees opposed that motion and filed a motion to dismiss.

The issue before the federal court was who should determine whether the franchisees could consolidate their claims and move forward with one arbitration proceeding—the court or the arbitrator. Planet Beach contended that it was for the court to decide the issue. The court disagreed. It determined that the arbitration clauses were broadly worded in that they provided for arbitration of “all disputes” and claims “relating to this Agreement or any other agreement entered into between the parties . . . .” The court reasoned that the parties had agreed to submit their dispute to arbitration, including the question of arbitrability, and therefore it was for the arbitrator to decide whether the franchisees could assert all of their claims in one arbitration action.