The Franchise Memorandum

In Jewelry Repair Enterprises, Inc. v. Ajani, 2010 LEXIS 61651 (Fla. Ct. App. May 5, 2010), the Florida Court of Appeals upheld a clause in a franchise agreement excepting noncompetition issues from binding arbitration. The case supports the proposition that contracts will be interpreted according to their plain meaning and that exceptions to binding arbitration provisions will be upheld. In this case, the franchisor terminated the franchisees and sued them for breach of contract after learning the franchisees were operating competing businesses. The franchisees moved to dismiss the complaint, invoking the right to arbitrate under the franchise agreement. The franchisees, however, did not quote the entire provision to the court and excluded the portion of the provision that excepted “claims related to noncompetition covenants” from binding arbitration.

The appeals court reversed the trial court’s order to stay the action pending arbitration. The court held that the contract should be construed according to the plain language of the agreement, which clearly stated that claims relating to noncompetition covenants were excepted from arbitration.