The Franchise Memorandum

The Supreme Court of Washington recently upheld a trial court’s order compelling arbitration in Washington, despite clauses in a franchise agreement providing disputes would be arbitrated in Connecticut, under Connecticut law (except for Connecticut franchise law). In Saleemi v. Doctor’s Associates, Inc., 292 P.3d 108 (Wash. Jan. 17, 2013), the plaintiffs sought to compel arbitration over DAI’s termination of their Subway franchises in Washington. The trial court ruled that the forum selection and choice of law provisions of the franchise agreement were unenforceable, and entered an order compelling arbitration in Washington. DAI did not seek discretionary review of that order, and the plaintiffs prevailed at the ensuing arbitration.

On appeal, DAI asked the Supreme Court of Washington to vacate the original order compelling arbitration. The court noted that a party failing to seek discretionary review of an order compelling arbitration does not waive its right to challenge the order after arbitration. The court, however, held that the challenging party still must show prejudice in the ensuing arbitration before a court can vacate the original order to compel. The court noted that the “unusual” choice of law provision in the franchise agreement explicitly stated that Connecticut franchise law would not apply to disputes, and DAI conceded that the Washington franchise law applied by the arbitrator was the correct governing law in the case. Furthermore, the Washington arbitration was conducted by the same arbitration group and under the same arbitration rules as otherwise required by the parties’ agreement. The court concluded that, because DAI had not demonstrated how the outcome of the arbitration might have been different had the trial court applied the franchise agreement’s forum selection and choice of law provisions, any error in the trial court’s order would have been harmless.