The Franchise Memorandum

The arbitration clause in a franchise agreement is not superseded by an assignment and assumption agreement when the original franchisee transfers its business, the Georgia Court of Appeals has ruled in affirming a trial court’s order compelling arbitration. Samaca, LLC v. Cellairis Franchise, Inc., 2018 WL 1079806 (Ga. Ct. App. Feb. 28, 2018). Samaca, the successor franchisee, took possession of four existing units in 2014, pursuant to an assignment and assumption agreement to take on the franchise agreements, which contained arbitration requirements. The assignment and assumption agreement itself, however, contained a choice of law provision that talked about a court venue “in the event of litigation” arising out of the assignment and assumption. When a problem later arose, the franchisee did file suit in court, but Cellairis moved for and was granted dismissal based on the mandatory arbitration clause in the underlying franchise agreements.

On appeal, the trial court’s ruling compelling arbitration was upheld. Citing the strong federal policy favoring arbitration, the appellate court found that the original franchise agreements and their arbitration clauses were not “subsumed” by the assumption and assignment agreement. To be superseded or discharged, an existing agreement must be replaced by an inconsistent agreement “completely covering the subject-matter embraced by the original contract,” the court held. In this case, the assumption and assignment agreement was not inconsistent, as it was viewed as part of a series of documents allowing the transfer. In addition, the appellate court ruled that the entire question of whether the dispute was subject to arbitration was for the arbitrator, not the courts, to decide.