|FROM:||The Legal Taxi|
|RE:||Whether a franchiser can file for stay proceedings and compel arbitration?|
Validity & enforceability of Arbitration Clause.
Whether a franchiser can file for stay proceedings and compel arbitration?
The parties had a contract with an arbitration clause regarding resolution of any dispute arising between them. The defendant Beta was served with notice of termination pursuant to the "wind up" provisions of a franchise agreement with Acme.Beta’s restaurant was to have ceased operating; however, instead of "winding up" its businesses, Beta filed the instant complaint asserting, among other things, that the arbitration provisions of the agreementwereunconscionable and therefore unenforceable. Acme, a national restaurant chain, filed a motion to stay proceedings and compel arbitration. Can appellant Acmeobtain a stay of proceedings and compel arbitration?
- Relevant Statute & Case.
- Summaries of Key Cases.
9 USCS § 2
§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 USCS § 3
§ 3. Stay of proceedings where issue therein referable to arbitration
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
9 USCS § 4
§ 4. Failure to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration; notice and service thereof; hearing and determination
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28 [ 28 USCS §§ 1 et seq.], in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure [USCS Rules of Civil Procedure].
The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.
§ 445.1527. Void and unenforceable provisions.
Sec. 27. Each of the following provisions is void and unenforceable if contained in any documents relating to a franchise:
(c) A provision that permits a franchisor to terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such failure.
(g) A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise. Good cause shall include, but is not limited to:
- the failure of the proposed transferee to meet the franchisor's then current reasonable qualifications or standards.
- The fact that the proposed transferee is a competitor of the franchisor or sub franchisor.
- The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.
62B Am Jur 2d Private Franchise Contracts § 549:
Thus, an arbitration clause in a franchise agreement is subject to the provisions of the federal act, even though the action is brought in a state court and despite the provisions of the state's franchise investment protection law.
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