The Franchise Memorandum

An Oregon federal court, in JuiceMe, LLC v. Booster Juice Ltd. P’ship, 2010 U.S. Dist. LEXIS 77375 (D. Ore. July 30, 2010), denied the defendant franchisors’ motions to dismiss and stayed the case pending arbitration. The plaintiffs, who are U.S. and Canadian Booster Juice franchisees, had filed a demand for arbitration with the American Arbitration Association in January 2008 against Booster Juice Limited Partnership, the franchisor of the Booster Juice system in the U.S., and other related parties. The plaintiffs later added AW Holdings Corporation, the franchisor of the Booster Juice system in Canada, and other related parties. The demand for arbitration raised claims relating to the plaintiffs’ franchise agreements and regional development agreements with the defendants. While each of the agreements contained valid arbitration clauses, none of them described who was responsible for paying arbitration costs. To address this issue, in August 2008, the plaintiffs, U.S. Defendants, and Canadian Defendants each orally agreed to pay one-third of the arbitration costs.

After discovery, the U.S. Defendants notified the AAA in November 2009 that they were unable to pay their share of arbitration costs, which at that time were approximately $58,000. Because the plaintiffs and Canadian Defendants were unwilling to pay the U.S. Defendants’ share of arbitration costs, the AAA ultimately terminated the arbitration because of insufficient funding. Thereafter, the plaintiffs filed a complaint against the U.S. and Canadian Defendants in federal court, bringing claims similar to those in their demand for arbitration. The U.S. and Canadian Defendants filed motions to dismiss contending, among other things, that the court lacked jurisdiction because the plaintiffs’ claims were subject to arbitration.

The court denied both motions to dismiss the federal case but attempted to return the matter to arbitration. In addressing the Canadian Defendants’ motion, the court noted that they did not fail to pay their share of arbitration costs, did not agree to pay the U.S. Defendants’ share of arbitration costs, and did not fail or refuse to arbitrate the matter. Thus, the court found that the claims against the Canadian Defendants remained subject to arbitration. As to the U.S. Defendants’ motion to dismiss, the court concluded that the issue of whether their refusal to pay their portion of arbitration costs in accordance with the parties’ oral agreement constituted default, neglect, or refusal to arbitrate under the agreements, is one for the arbitrators, and not for the court, to decide. Accordingly, the court stayed the claims pending a decision by the arbitrators.