Courts Grant Two Separate Franchisors’ Motions to Dismiss Lawsuits and Enforce Contractual Mediation Provision

11/01/2013

Despite both mandatory mediation and binding arbitration provisions in its franchise agreement, an existing franchisee brought suit in California state court seeking both damages and injunctive relief against a franchisor client. Jim Susag and Cyndi Klaus removed the case from state court to federal court and then brought a motion to dismiss the lawsuit, arguing that the mandatory mediation clause required mediation before any dispute was commenced. Over the franchisee’s objection that mediation would be futile, the federal district court granted the franchisor’s motion to dismiss, finding that the mandatory, pre-dispute mediation clause in the franchise agreement was binding on the franchisee. The court also awarded the franchisor its attorneys’ fees in seeking to dismiss the lawsuit in favor of mediation.

Following the dismissal, Chuck Modell accompanied the client to mediation, where the franchisee rejected all settlement proposals made in a nine-hour mediation. The franchise litigation team filed a Demand for Arbitration in Minnesota the next morning, and two weeks later the franchisee’s lawyer called and settled the case on terms less favorable than the client’s last offer in mediation. In each case, Jim Susag argued the motions and had the lawsuits dismissed. Each dismissal led to favorable settlements by our clients.