Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—4th Cir.: Arbitration on the menu for Dickey’s Barbecue franchisees, (Aug 6, 2015)

By Greg Hammond, J.D.

Dickey’s Barbecue Restaurants, Inc., a national franchisor of quick-service barbeque restaurants, could compel franchisees to arbitrate common law breach of contract and fraud claims, the U.S. Court of Appeals in Richmond, Virginia, has determined. A lower court’s order denying Dickey’s motion to compel arbitration was therefore reversed and remanded (Chorley Enterprises, Inc. v. Dickey’s Barbecue Restaurants, Inc., August 5, 2015, Floyd, H.).

Dickey’s brought arbitration proceedings against various franchisees, claiming that they breached their franchise agreements by running their restaurants poorly, along with common law claims of fraud and breach of contract. In response, the franchisees filed suit in the federal district court in Greenbelt, Maryland, claiming that Dickey’s misrepresented start-up and other costs in violation of Maryland franchise law.

The franchise agreements at issue require arbitration of all claims “arising out of or relating to” the agreements. However, the agreements also state that they “shall not require” the franchisees to waive their “right to file a lawsuit alleging a cause of action arising under Maryland Franchise Law in any court of competent jurisdiction in the State of Maryland” (the Maryland Clause). The lower court denied Dickey’s motion to compel arbitration, finding that the two conflicting provisions in the parties’ franchise agreements created an ambiguity that only a jury can resolve. Dickey’s appealed.

The appellate court looked to the plain language of the agreements to determine whether the parties intended to arbitrate their disputes as a matter of law. The common law claims of fraud and breach of contract, according to the court, fell squarely within “all disputes, controversies, claims, causes of action and/or alleged breaches or failures to perform arising out of or relating to” the franchise agreement. Consequently, the franchisees agreed to arbitrate Dickey’s common law claims, the court concluded.

Nevertheless, because the Maryland Clause applies “notwithstanding anything in the Agreement in the contrary,” the court determined that it trumps the more general arbitration clause as to the Maryland franchise law claims. The franchisees were therefore able to file those claims in Maryland court. Dickey’s argument that the Federal Arbitration Act preempts the Maryland Clause was unavailing. The court noted that when a party to a contract voluntarily assumes an obligation to proceed under certain state laws, traditional preemption doctrine does not apply to shield a party from liability for breach of that agreement.

Lastly, Dickey’s request that the appellate court stay the Maryland franchise law claims was left for the district court to decide. The lower court’s order denying Dickey’s motion to compel was therefore vacated and remanded with instructions for the district court to compel arbitration of the common law claims.

The case numbers are 14-1799, 14-1800, 14-1833, and 14-1834.

Attorneys: Roger B. Kaplan (Greenberg Traurig, LLP) for appellants/cross-appellants. Russell J. Gaspal (Cohen Mohr LLP) for appellees/cross-appellants.

Companies: Dickey’s Barbecue Restaurants, Inc.; Chorley Enterprises, Inc.

Cases: FranchisingDistribution MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews