The Franchise Memorandum

Similarly, a federal court in Pennsylvania has dismissed a lawsuit brought by 90 hotel franchisees, enforcing the arbitration provisions in their franchise agreements and ordering all 90 franchisees to arbitrate their claims individually. Jai Sai Baba LLC v. Choice Hotels Int'l Inc., 2021 WL 1049994 (E.D. Pa. Mar. 19, 2021). The franchise agreements entered into between Choice Hotels and its franchisees contained binding arbitration provisions, which, among other things, prohibited prehearing discovery. Most of the franchise agreements also included a class action wavier, but some agreements were silent as to class arbitration. Despite the arbitration and waiver provisions, 90 franchisees filed suit together
against Choice Hotels, alleging a variety of federal and state law claims. Choice Hotels moved to compel arbitration.

The court rejected the franchisees’ arguments that these agreements to arbitrate were unenforceable. The court found that neither the arbitration provisions’ limitation of discovery nor the additional costs of arbitration prevented the franchisees from effectively vindicating their federal statutory rights. Nor did these factors render the arbitration provisions unconscionable in this business setting. Finding the arbitration provisions in the franchise agreements were enforceable, the court compelled arbitration. It further found that it lacked the basis to compel class arbitration and ordered individual arbitration for all the franchisees.