"Does and "Will" are not equal, or Arbitration clauses are tricky things: Federal court in Connecticut rules against franchisor, allows Colorado lawsuit to proceed in court
In what appears at first blush to be a ruling contravening the general law mandating arbitration in Doctors Associates, Inc. v. Alemayehu, the Honorable Janet Hall of The United States District Court, District of Connecticut, after detailed analysis found a long-used franchise application lacked mutuality and therefore could not be enforced by the prospective franchisor.
Alemayehu, a Colorado resident, completed a franchise application for a store to be located in Colorado. The application was signed by Alemayehu and mandated that he arbitrate any disputes in the franchisor’s “home” state of Connecticut. The franchisor neither [counter]signed the application nor even agreed to review it.
When Alemayehu heard nothing about his application, he brought a lawsuit in Colorado alleging discrimination. The franchisor moved the suit to Connecticut and then sought to compel arbitration there.
In a detailed analysis of the facts and law, Judge Hall ruled while Alemayehu made enforceable promises and agreements to the franchisor, the franchisor promised nothing in return. In part the ruling was based upon the franchisor’s assertion that while it does review applications, it will not review and consider all applications. The Court found the lack of an obligation to actually review and consider the franchise application meant the franchisor gave nothing to Alemayehu in exchange for his promise to arbitrate. As such the Court refused to compel arbitration.
While the Alemayehu case once again demonstrates the importance of careful drafting, it also demonstrates that in litigation there are no sure outcomes.