Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D.N.C.: Franchisees’ claims against franchisor subject to arbitration, (Nov 12, 2014)

By Jody Coultas, J.D.

A franchisor of claims adjusting businesses was entitled to stay a contract action brought by franchisees, pending arbitration of claims, based on an arbitration clause in the franchise agreements, the federal district court in Charlotte has held (Contino v. Frontier Adjusters, Inc., November 6, 2014, Whitney, F.).

The franchisees alleged numerous causes of action arising out of six franchise agreements between non-party Southern Claims Adjusting, Inc., a North Carolina corporation owned by a franchisee, and franchisor Frontier Adjusters, Inc.

Frontier argued that the franchise agreements and personal guarantees are governed by Arizona law and contained an exclusive Arizona forum selection provision and mandatory binding arbitration clause. Frontier already commenced an arbitration proceeding before the American Arbitration Association in Arizona.

The Federal Arbitration Act requires federal courts to stay a case pending arbitration of “any issue referable to arbitration under an agreement in writing for such arbitration.” Courts may order arbitration if there has been a failure to comply with an arbitration agreement. Under Arizona law, which governed the franchise agreements and guarantees at issue, a written arbitration agreement is valid, enforceable, and irrevocable, unless the contract is illegal.

Because the arbitration agreement was valid and applied to the issues at hand, the court granted Frontier’s motion to stay the proceedings pending arbitration. The franchisee owners read and signed the agreements and guarantees. The terms made clear that the arbitration provisions applied to any claims arising from the agreements. The dispute fell within the scope of the arbitration clause. The franchisees would not be prejudiced by enforcement of the arbitration provisions because the litigation is only in its beginning stages, and neither party has yet expended significant amounts of time or money.

The case is No. 3:14-CV-00550-FDW-DSC.

Attorneys: Derek Paul Adler (DeVore, Acton & Stafford, PA) for Jayson Contino. Andrew Joseph Poltorak (Ulmer & Berne) for Frontier Adjusters, Inc., Frontier Adjusters of Arizona, Inc., Frontier Adjusters of America, Inc., and Merrymeeting, Inc.

Companies: Frontier Adjusters, Inc.; Southern Claims Adjusting, Inc.

Cases: FranchisingDistribution NorthCarolinaNews