Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—SuperCtNJ: Franchisee’s claims against franchisor were subject to arbitration, despite inconvenience of multiple proceedings, (Jun 21, 2013)

By John W. Arden, J.D., LL.M.

A Mexican restaurant franchisee’s claim that its franchisor was liable for damages, interest, costs, and attorney fees that a landlord might obtain from the franchisee was subject to an arbitration clause of the franchise agreement, according to the New Jersey Superior Court, Appellate Division (Woodbridge Center Property LLC v. AMP Food Holdings, LLC, June 20, 2013, Per Curiam). A trial court decision, denying the franchisor’s motion to compel arbitration based on the inconvenience it would cause, was reversed.

In October 2010, AMP Food Holdings entered into a franchise agreement with Panchero’s Franchise Corp. to establish a Panchero’s Mexican Grill restaurant. The individual owners signed a guaranty and assumption of obligations, stipulating that AMP would pay and perform all undertakings of the agreement and that each individual owner would be personally liable for breaches of the agreement.

The franchise agreement contained a clause under which the franchisor and franchisee agreed to submit all controversies, disputes, and claims to binding arbitration on demand of either party. The agreement also required application of Illinois law and the use of an Illinois forum.

In July 2011, AMP signed a lease agreement with Woodbridge Center Property LLC for space in the Woodbridge Center Mall. The lease was guaranteed by the owners of AMP and their spouses. Even though the lease required AMP to open for business within 150 days, AMP failed to take possession of the leased premises. In February 2012, Woodbridge filed a complaint against AMP, its owners, and lease guarantors for damages, alleging they were in default of the lease by failing to take possession of the premises and failing to pay rent.

AMP filed a third-party complaint against Panchero’s, alleging that the franchisor was liable for all damages, interest, costs, and attorney fees that might be obtained by Woodbridge because Panchero’s failed to help the franchisee obtain a lease and failed to provide plans to build a franchised restaurant. Panchero’s filed a motion to compel arbitration in lieu of an answer to the third-party complaint. AMP opposed the motion, arguing that an order mandating arbitration would require it to litigate in three forums—an Illinois arbitration against Panchero’s, this litigation against Woodbridge in New Jersey, and in federal court.

The trial court denied the motion to compel arbitration, stating that granting arbitration would generate a “multiplicity of litigation.” Panchero’s motion for reconsideration was denied “not because the [arbitration clause] was unclear,” but because Panchero’s did not raise any new issues or arguments.

On appeal, the franchisor argued that the trial court erred in denying its motion to compel arbitration because AMP’s claims were within the scope of the arbitration agreement and because the law does not give a court discretion to abrogate the parties’ intent to arbitrate simply because multiple proceedings would be generated. The New Jersey appellate court agreed.

The Federal Arbitration Act requires piecemeal resolution when necessary to give effect to an arbitration agreement, the court held. The possible inconvenience of a party is not a sufficiently compelling ground to overcome New Jersey’s strong public policy favoring arbitration where the parties have expressly agreed to it.

In this case, the terms of the franchise agreement were not ambiguous, and the claims of AMP’s third-party complaint were encompassed under the clause’s coverage of all controversies, disputes, and claims between the franchisor and franchisee. Thus, the third party complaint was ordered dismissed. Woodbridge’s right to pursue its claims against AMP, its owners, and its lease guarantors was not affected.

The case is Docket No. A-6277-11T2.

Attorneys: Justin W. Oravetz (Archer & Greiner) for Panchero’s Franchise Corporation. Mitchell J. Kassoff (Mitchell J. Kassoff) for AMP Food Holdings, LLC. Dinah E. Hendon (Lasser Hochman, LLC) for Woodbridge Center Property, LLC.

Companies: Panchero’s Franchise Corporation; AMP Food Holdings, LLC; Woodbridge Center Property, LLC

Cases: FranchisingDistribution NewJerseyNews