The Franchise Memorandum

The Texas Court of Appeals recently confirmed an arbitration award in favor of a franchisee, Adams, and against franchisor Prescription Health Network, LLC (“PHN”). Prescription Health Network, LLC v. Adams, 2017 WL 1416875 (Tex. App. Apr. 20, 2017). PHN had raised four principal arguments on appeal: (1) that the award should be vacated because the arbitration panel “exceeded their powers”; (2) that the award should be vacated because the arbitration panel acted with “manifest disregard”; (3) that alternatively, the award should be modified because the arbitration panel acted on a matter not submitted to them; and (4) that the award of attorneys’ fees and costs to Adams should be vacated and that damages, attorneys’ fees, and costs should instead be awarded to PHN as the prevailing party. In its reply brief, PHN argued for the first time that the award should be vacated because the arbitration panel failed to issue a “reasoned award.” Both parties agreed that the FAA governed the case.

The appellate court rejected PHN’s first argument, holding the arbitration panel had the authority to decide deceptive trade practices claims under both the Texas and Florida statutes—and not solely under the Texas statute, as PHN contended—because those claims “arose under or in connection with” the franchise agreement. The court rejected PHN’s second argument, holding nonstatutory grounds such as “manifest disregard of the law” do not support vacatur of arbitration awards under the FAA. Instead, sections 10 and 11 of the FAA contain the exclusive and explicit grounds for vacating or modifying an arbitration award. The court also rejected PHN’s third argument, holding that the Florida claim was “submitted” to the arbitration panel because the franchisees raised the Florida claim as an alternative to the Texas claim. As to PHN’s fourth argument, the court held that PHN was not the “prevailing party,” so PHN was not entitled to attorneys’ fees and costs. Finally, the court held that because PHN had not raised the “reasoned award” issue in its opening brief, it had waived that issue.