Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. La.: Franchise agreement issues to be decided by an arbitrator pursuant to agreement, (Aug 28, 2013)

By Jody Coultas, J.D.

The federal district court in New Orleans has held that a dispute between franchisor Planet Beach Franchising Corporation and franchisee David Zaroff must be determined by an arbitrator as agreed to by the parties in their franchise agreement. The franchisee’s motion to dismiss was granted (Planet Beach Franchising Corp. v. Zaroff, August 27,2013, Barbier, C.).

Planet Beach and Zaroff entered into four franchise agreements allowing Zaroff to operate four Planet Beach spas in and around Minneapolis. Zaroff filed a Demand for Arbitration with the American Arbitration Association (AAA) asserting claims against Planet Beach for: (1) alleged violations of the Minnesota Franchise Act, (2) fraud, (3) negligent misrepresentation, (4) breach of contract, and (5) breach of the implied covenant of good faith and fair dealing.

The AAA began administering the proceedings, but Planet Beach objected. The parties agreed to temporarily suspend the arbitration proceedings to allow Planet Beach to file a “Petition to Compel Arbitration in Accordance with Agreements” with the court.

Planet Beach filed its petition, asserting that Zaroff sought arbitration on a consolidated basis of disputes arising under four separate and individual agreements. Zaroff countered that an arbitrator must decide whether he could pursue one arbitration agreement, and that he did not have to bring multiple claims.

Because the parties agreed that an arbitrator would determine the types of issues involved in the claims, the court dismissed Planet Beach’s “Petition to Compel Arbitration in Accordance with Agreements.” The arbitration clause in the agreement stated that “[n]either party shall pursue class claims and/or consolidate the arbitration with any other proceeding to which [Planet Beach] is a party.” The parties also agreed that all disputes and claims relating to the agreement would be settled by arbitration. In cases where the contracting parties would likely have expected a court to decide the issues, the court may go against the presumption in favor of upholding the arbitration agreement. However, the issue of whether the franchise agreements forbade Zaroff from asserting all claims arising out of the four franchise agreement in one arbitration proceeding did not fall within the narrow exception to the presumption in favor of arbitration. There was no evidence that the issue was one that the parties contemplated the issue at hand would be decided by a court.

The case is No. 13-438.

Attorneys: Lawrence G. Pugh, III (Pugh, Accardo, Haas, Radecker, Carey & Hymel) for Planet Beach Franchising Corporation. Eric J. Simonson (McGlinchey Stafford, PLLC) for David Zaroff.

Companies: Planet Beach Franchising Corp.

Cases: FranchisingDistribution LouisianaNews