The Franchise Memorandum

The Superior Court of New Jersey, Appellate Division, has upheld a lower court’s decision to enforce the arbitration provision in a franchise agreement between Angel Tips and its franchisee. Glamorous Inc. v. Angel Tips, Inc., 2017 WL 2705412 (N.J. Super. Ct. App. Div. June 23, 2017). In doing so, the appellate court noted that the parties’ franchise agreement called for arbitration of “all controversies disputes or claims between them,” with only a few exceptions, including any claims made by the franchisor against the franchisee for money owed. The court held that a dispute between the parties relating to the franchisee’s contractual obligation to renovate the premises of its franchised business did not fall within any of the arbitration provision’s stated exceptions and, therefore, was subject to arbitration.

As part of its opinion, the appellate court dismissed the franchisee’s claim that enforcement of the arbitration provision was contrary to New Jersey public policy, noting that the United States Supreme Court has repeatedly interpreted the Federal Arbitration Act to favor enforcement of arbitration provisions without regard for state law. The court also dismissed the franchisee’s argument that the lower court “rewrote” the arbitration provision by not holding that the renovation requirement was really a demand for money owed to the franchisor and, therefore, not subject to arbitration.