The Franchise Memorandum

In Bapu Corp. v. Choice Hotels Int’l, Inc., 2010 U.S. App. LEXIS 5540 (3d Cir. Mar. 16, 2010), Choice Hotels terminated its franchisee after it failed to renovate. Early in arbitration proceedings the franchisee contended that the termination was time-barred under Maryland law and the limitations period in the franchise agreement. The arbitrator addressed this issue preliminarily, ruling that the issue was premature, and allowed the franchisee to renew its defense later. The franchisee stopped participating in the arbitration and, instead, tried to challenge the termination in a New Jersey federal court.  The court rejected that effort.  The arbitrator then awarded Choice Hotels over $150,000 in damages and costs. 

The franchisee went back to court and sought to vacate the award, asserting that Choice Hotels’ claims were time-barred by the three-year limitations period in the franchise agreement. But the court confirmed the award. On appeal to the Third Circuit, the court reviewed whether the arbitrator had “manifestly disregarded” whether he had jurisdiction over Choice Hotels’ claims in light of the applicable statutory and contractual limitations periods.  Citing the federal court’s findings that the franchisee failed to act on a later opportunity to renew its objection to jurisdiction, the Third Circuit concluded that the issues of jurisdiction and arbitrability had been waived.