The Gateway Question to Arbitrability is a Matter for the Arbitrator to Decide

Posted on Blog October 22, 2015


Typically, franchisors insist on including arbitration provisions in their franchise agreements with the franchisees for various reasons including, but not limited, having more control over the litigation process to resolve their disputes. The arbitration clauses in most franchise agreements are broadly worded to include all disputes arising out of or relating to the franchise agreement. Courts have often construed the “arising out of relating to” language very broadly to include most, if not, all disputes regarding the franchise relationship. Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1116 (11th Cir. 2001).

Nevertheless, arbitration provisions often include carve-outs of certain claims that the parties contracted not to arbitrate. In some instances, the carve-outs to the arbitration provision include claims for injunctive relief. Franchisors, who will often race to the courthouse steps to obtain an injunction enjoining the franchisee from continuing to operate its franchise, often exploit the carve-out for injunctive relief to avoid going to arbitration. To that end, franchisors couch their claims for injunctive as a claim to preserve the status quo pending the outcome of the arbitration.

That is precisely the position that Cellairis Franchise, Inc., the franchisor in our case, has taken. In Cellairis, Cellairis took the position that the District Court, not the arbitrator, has the authority to determine whether Cellairis’ claim for injunctive relief is arbitrable. Cellairis also argued that the District Court was the proper forum for deciding its injunctive relief because Cellairis was only seeking to preserve the status quo pending the resolution of the arbitration with our client. The District Court rejected this argument and found that Cellairis’ claim for injunctive relief should be resolved by the arbitrator.  Cellairis Franchise Inc. et al. v. Duarte, Case No. 2-15-CV00101-WCO (N.D. Ga. Jul. 20, 2015). The District court reasoned that Cellairis’ claim for injunctive relief would undermine the integrity of the arbitration process by substantially altering the parties’ position ahead of the arbitration.

The upshot of Cellairis is that the franchisors are not entitled to avoid the result compelled by an arbitration provision they draft by casting their request for a preliminary injunction as interim relief pending arbitration.

 

zarco

Beshoy Rizk
Associate


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