Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Md.: Maryland Franchise Law claims stayed pending arbitration, (Feb 22, 2016)

By Michael Menzhuber, J.D., LL.M.

Claims by franchisees that Dickey’s Barbeque Restaurants, Inc. violated the Maryland Franchise Law were stayed during the pendency of arbitration by the federal district court in Greenbelt, Maryland (Trouard v. Dickey’s Barbecue Restaurants, Inc., February 19, 2016, Grimm, P.).

Justin Trouard and Jessica Chelton, Chorley Enterprises, Inc, Matthew Chorley, and Carla Chorley entered into franchise agreements with Dickey’s. Each of the franchise agreements contained an arbitration clause, providing for resolution of disputes by both mediation and arbitration.

Trouard, Chelton, and the Chorelys lost money operating their restaurants and sought mediation with Dickey’s. Dickey’s filed a demand for arbitration of its claims of breach of contract and fraud against the franchisees. The franchisees responded by filing a suit against Dickey’s, alleging fraud and violations of the Maryland Franchise Law and seeking declaratory judgments and injunctive relief. After determining that the Franchise Law issue should remain in litigation, the court ordered the parties to submit briefs concerning whether the issue should be stayed pending the resolution of the arbitration proceedings.

The franchisees opposed the stay on the basis that the franchise agreements specifically excluded claims under the Franchise Law from the scope of arbitration. They argued that: (1) any decision by an arbitrator regarding the existence of a valid and enforceable contract would necessarily be provisional and advisory; and (2) a finding that the franchisees breached the franchise agreement was valid only if the court subsequently ruled against the franchisees on their claims under the Franchise Law. The franchisees also argued that a stay would prejudice them because they would be required to prematurely defend against claims that they believed would ultimately be rendered moot by litigation.

Dickey’s, on the other hand, argued that the litigation should be stayed because: (1) the arbitrator’s decision on the validity of the franchise agreements might have a preclusive effect; and (2) the case could not continue until the arbitrator had made that determination. The court agreed with Dickey’s. It determined that it could not assess the preclusive effect of arbitration until after the arbitrator reached a decision. It further determined that, even though the arbitrator’s decision might not settle questions of fact pertinent to nonarbitrable claims because it might not have a preclusive effect, it still could conserve judicial resources by addressing those questions of fact and providing a well-reasoned analysis for the court to follow.

The court also found that: (1) a stay would neither remedy nor exacerbate the possibilities of confusion and inconsistent results; and (2) if the litigation was not stayed, the parties would have to spend time and money on the litigation of issues that arbitration might resolve, while simultaneously expending their resources on arbitration, until either the court or the arbitrator reached a final decision.

The case is No. PWG-14-1730 and No. GLR-14-1650.

Attorneys: Justin Trouard, pro se. Andrew K. Wible (Cohen Mohr LLP) for Chorley Enterprises, Inc. Jerry Stouck (Greenberg Traurig LLP) and Precious Murchison Gittens (Hooper Lundy and Bookman PC) for Dickey's Barbecue Restaurants, Inc.

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

Cases: FranchisingDistribution MarylandNews