Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—9^th Cir.: Arbitration award enforcing franchise post-termination provisions upheld, (Apr 4, 2014)

By Linda O’Brien, J.D., LL.M.

In a trademark infringement action by a fast food franchisor against a former franchisee for continued use of its trademarks and processes following the termination of the franchise, an arbitrator did not exceed his powers by enforcing certain post-termination provisions of the franchise agreement, the U.S. Court of Appeals in San Francisco has ruled. The district court’s confirmation of the arbitration award was affirmed (Wetzel’s Pretzels, LLC v. Johnson, April 3, 2014, Per Curiam.).

Wetzel’s Pretzels filed suit against Tito and Tariq Johnson, alleging trademark infringement for their continued use of the franchisor’s trademarks and processes after the franchise had been terminated. The dispute went to arbitration, and the arbitrator entered an award in favor of the franchisor, enforcing a provision in the franchise agreement that required the Johnsons to assign their lease and property interests to the franchisor after the franchise agreement was terminated. The federal district court confirmed the arbitration award and the Johnsons appealed.

The court found that the arbitrator did not exceed his powers by enforcing the post-termination provisions of the franchise agreement. To vacate an award on the grounds that the arbitrator exceeded his powers, the franchisee would have to show that the award was completely irrational or exhibited a manifest disregard of law. The franchise agreement between Wetzel’s Pretzels and the Johnsons expressly provided for the assignment of the Johnsons’ lease and property interests to the franchisor once the agreement was terminated. The award was plainly derived from the parties’ agreement. Moreover, under the franchise agreement, all disputes related to the agreement except “provisional injunctive relief” were required to go arbitration. Since the Johnsons never sought a preliminary injunction from the district court regarding the post-termination provisions, they were not deprived of their rights when the arbitrator enforced those provisions.

Additionally, the Johnsons failed to show that the award exhibited manifest disregard of law. There was no evidence presented to show that the arbitrator, by enforcing the post-termination provisions, recognized applicable law that would make the provisions unenforceable and ignored it. Since the arbitrator did not exceed his powers and there was no other reason to vacate the award, the award was properly confirmed, the court concluded.

The case is No. 12-56716.

Attorneys: Calvin E. Davis, Esquire (Gordon & Rees LLP) for Wetzel’s Pretzels, LLC. Victor Jacobovitz (Jacobovitz Law) for Tito Johnson and Tariq Johnson.

Companies: Wetzel’s Pretzels, LLC

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