A federal court in Maryland recently granted, in part, a franchisor’s motion to compel arbitration in a dispute alleging fraud, negligent misrepresentation, violation of Maryland’s franchise law and consumer protection act, and a violation of the RICO act. MJ Enter. Holdings, Inc. v. Spiffy Franchising, LLC, 2025 WL 2163052 (D. Md. July 30, 2025).
MJ Enterprise and Spiffy entered into a franchise agreement to operate a Get Spiffy car service business. The franchise agreement contained a Maryland state-specific addendum signed by both parties. After facing several financial, logistical, and operational issues, MJ Enterprise ceased operations in 2023. After its closure, MJ Enterprise attempted to mediate its claims for deceptive business practices and, after failing to resolve the claims, sued Spiffy in Maryland federal court in November 2024. Spiffy moved to compel arbitration under the franchise agreement’s arbitration provision.
The court agreed that arbitration of some claims was required and stayed the entirety of the litigation until arbitration was complete. MJ Enterprise opposed Spiffy’s motion to compel arbitration, claiming that (i) the parties did not mutually assent to arbitration; (ii) the arbitration provision was unconscionable under state and federal law; and (iii) Spiffy waived its right to arbitrate the claims. The court first determined that the parties mutually assented to arbitration of certain claims, despite the parties’ execution of a Maryland state addendum prohibiting the waiver of MJ Enterprise’s right to file a lawsuit in Maryland bringing Maryland franchise law claims. The court reasoned that the parties signing of both the franchise agreement and the state addendum showed that the parties mutually agreed to arbitrate all claims except those arising under Maryland’s franchise law. The court held next that MJ Enterprise failed to show the unconscionability of the franchise agreement’s arbitration clause. MJ Enterprise had argued the clause was unconscionable because Spiffy presented MJ Enterprise with the franchise agreement on a take-it-or-leave-it basis. But the court disagreed, reasoning that (i) MJ Enterprise had twenty days to review the franchise agreement prior to signing—and did not request changes to the agreement during that timeframe, and (ii) Spiffy previously agreed to material changes to franchise agreements with other franchisees. Finally, the court rejected MJ Enterprise’s argument that Spiffy waived its right to arbitration, reasoning that, as the party invoking the arbitrable claims, MJ Enterprise had the obligation to file arbitration claims and further reasoning that Spiffy’s actions did not constitute cognizable delay or a waiver of arbitration. The court stayed all claims pending arbitration, concluding that allowing litigation of the Maryland franchise law claim while the remaining claims were resolved in arbitration could lead to confusion and inconsistent results.