The Franchise Memorandum

The United States District Court for the Eastern District of Michigan recently granted in part McBride Research Laboratories, Inc.’s motion for summary judgment, finding that the parties’ broad contractual agreement to arbitrate in Georgia any disputes arising out of or relating to the distributor agreement required dismissal of the plaintiff’s claim. Prude v. McBride Research Laboratories, Inc. (E.D. Mich. Feb. 8, 2008).

The plaintiff argued that he was not bound by the agreement to arbitrate because the agreement was unenforceable under section 27(f) of Michigan’s Franchise Investment law in that the contract required arbitration to be conducted in Georgia. The court found that Section 27(f) of Michigan’s Franchise Investment Law is preempted under the Federal Arbitration Act, thus even if the distributor agreement were found to be governed by the Michigan statute, the plaintiff was foreclosed from arguing that the arbitration clause in the distributor agreement was unenforceable.

The plaintiff also argued that McBride had waived its right to compel him to arbitrate his claims because it filed a motion for summary judgment in which it simultaneously argued that the plaintiff’s claims were subject to arbitration and thus must be dismissed and, inconsistent with that first argument, that the plaintiff could not show that the parties’ commercial relationship fell within the scope of Michigan’s Franchise Investment Law. The court rejected this argument and found that McBrides’s actions were not inconsistent with an intent to assert its right to compel arbitration, thus McBride had not waived its right to arbitrate.