The Franchise Memorandum

In Kairy v. Supershuttle International, Inc., No., 2012 U.S. Dist. LEXIS 134945 (N.D. Cal. Sept. 20, 2012), the United States District Court for the Northern District of California granted a franchisor’s motion to stay proceedings and to compel individual arbitration of franchisees’ claims. The franchisees, who are former airport shuttle drivers, brought suit in federal court alleging that Supershuttle violated the Fair Labor Standards Act and applicable state law by failing to pay minimum wages and overtime. Supershuttle moved to compel arbitration on the grounds that the franchise agreements specifically called for arbitration in the event of any controversy between the parties, and most of the agreements provided that the arbitrations had to proceed on an individual, not class-wide basis. In opposing the motion, the franchisees argued that Supershuttle had waived arbitration and that the arbitration agreements were unconscionable.

The court found that Supershuttle did not waive its right to enforce the class action waivers in the franchise agreements, reasoning that it would have been futile for Supershuttle to try to compel individual arbitration any earlier. California and Ninth Circuit law previously prohibited similar arbitration agreements with class action waivers, and Supershuttle moved promptly to invoke the arbitration provisions once newer Supreme Court precedent made it clear that they could be enforced as written. The court further held the franchisees failed to demonstrate they would suffer prejudice in arbitration. The court also found the arbitration provisions not unconscionable, given that the franchisees received a 14-day period before signing the agreements and the agreements’ potentially burdensome fee-splitting requirements could be severed.