A California federal court stayed proceedings in favor of the franchisor and ordered the parties to undertake the dispute resolution procedures in the franchise agreement, holding that the parties clearly and unmistakably agreed to them.
Ringside Development Company, a franchisor in the biohazard remediation industry, entered into a franchise agreement with Jameson, as franchisee, to operate a Ringside franchised business in California. The franchisee initiated a lawsuit against the franchisor in Alameda County, California, alleging that the franchisor’s equipment and chemicals were substandard and caused harm to the franchisee’s business, along with other causes of action alleging that the franchisor made fraudulent misrepresentations about its products. The franchisor subsequently removed the action to federal court.
The franchise agreement contained a three-step alternative dispute resolution procedure, which required the parties to first meet face-to-face to resolve any disputes, then engage in mediation if the face-to-face meeting is unsuccessful, and ultimately arbitrate their disputes if mediation is unsuccessful. The franchisor maintained that it requested a face-to-face meeting with the franchisee, but the franchisee instead commenced litigation. The franchisor moved to stay the action pending resolution of the dispute through the contractually mandated mediation or arbitration.
The franchisee opposed the stay, arguing the franchisor could not require out-of-district arbitration because the parties did not establish mutual assent to the forum selection and choice-of-law clauses in the franchise agreement. The court found there was sufficient evidence to conclude there was a meeting of the minds between the parties and that the parties agreed in the franchise agreement that any disputes related to venue or choice-of-law are to be resolved by the arbitrator.
The franchisee also argued that the franchisor could not seek to compel arbitration because the franchisor failed to satisfy the mandatory conditions precedent. The court likewise found that the parties delegated to the arbitrator any questions about whether the parties satisfied conditions precedent.
Franchisors should consistently review the dispute resolution provisions contained in their franchise agreement with franchise counsel to ensure the provisions reflect the franchisor’s desired practice. Franchisors should also discuss how applicable state laws may affect the dispute resolution provisions in their franchise agreement with franchise counsel.
Jameson v. Ringside Development Company dba Bio One Colorado, Inc., Case No. 3:24-CV-08654-CRB (N.D. Cal. Feb. 20, 2025)
