The Franchise Memorandum

A federal court in Maryland stayed two cases brought by restaurant franchisees against their franchisor pending arbitration in Trouard v. Dickey's Barbecue Restaurants, Inc., 2016 WL 687487 (D. Md. Feb. 19, 2016). The franchisees claimed that Dickey's violated the Maryland Franchise Registration and Disclosure Law in connection with their franchises and sought mediation. In response, Dickey's pursued arbitration and raised claims of fraud and breach of contract. The franchisees then filed lawsuits against Dickey's in federal district court, arguing that the arbitration clause in their franchise agreements was unenforceable under the Maryland Franchise Law and seeking to enjoin the arbitration proceedings. The court had previously ordered the parties to arbitrate their common law claims and directed them to brief the issue of whether the franchisees' statutory claims, which remained before the court, should be stayed until the arbitration was resolved.

Finding that the arbitrator's decision may preclude the need for litigation, the court exercised its discretion to stay the action during the pendency of the arbitration. The parties agreed that the nonarbitrable Maryland Franchise Law claims were fully intertwined with their arbitrable common law claims, and the court held that it could not assess the possible preclusive effect of an arbitral award until after the arbitration was completed. The court further noted that even if the arbitrator's decision was not preclusive as to all issues, the ruling still could conserve judicial resources by addressing factual questions and providing analysis that might inform the court's decision. Finally, the court reasoned that a stay of the proceedings conserved the parties' resources more effectively than allowing the dispute to simultaneously proceed in two fora.