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Franchiser Loses Out Because of Working in Contract Arbitration Clause

Thursday, July, 5, 2012

Total Car Care lost a case with a former franchiser because of the arbitration wording in its contract. Unless Total can get the case heard by a higher judge, it will likely miss out on its chance for contract arbitration.


The franchiser moved to dismiss a former franchisee's lawsuit, claiming both parties agreed to enter into legal arbitration concerning any disputes. But a Roanoke, WV judge has ruled otherwise.

What's the Contract Arbitration Conflict?


The contract it makes franchises sign states that franchisees won't operate a competing business for two years after they stop franchising as a Total Car Care operator. The franchiser believes that its former franchisee, Devin Hamden, has violated that agreement.


The contract also states that the franchisee will agree to binding arbitration with Total Car Care. Unfortunately, one judge believes that Total Car Care never actually agreed to hold itself bound!

How a Contract's Language can Hurt the Original Drawer


U.S. District Judge James C. Turk called into question whether or not both parties had agree to abide by the arbitration clause. His interpretation of the language of the contract, says that Total Car Care did not, in fact, agree be bound by contract arbitration (or for that matter, any other kind).


One of several examples cited is the statement, "You agree to be bound by this procedure." That statement does not use the words "us" or "we," which were used to refer to Total Car Care through the contract.


Thus the judge ruled that, in the language of the signed agreement, Total Car Care was actually placing itself as a neutral party, and not as a party bound by the arbitration clause.

Is the Legal Arbitration's Interpretation Fair?


You might think that the judge's interpretation of the contract leans too heavily on the letter of the contract. And while that could be true, it's not unheard of for franchisers and other businesses to use vague language in contracts so that they are not bound by their own requirements.


Any case, the judge has decided for them that there will be no more contract arbitration in this case—at least for now.