Magazine article Dispute Resolution Journal

Franchise: Preemption of State Law by FAA

Magazine article Dispute Resolution Journal

Franchise: Preemption of State Law by FAA

Article excerpt

The I st Circuit held that the Federal Arbitration Act preempts a provision in the Rhode Island Franchise Investment Act that invalidates outof-state arbitrations.

The case involved a dispute between Gloria Jean's Gourmet Coffees Franchising Corp. and KKW Enterprises. The franchise agreement, which was heavily negotiated, provided for all disputes to be arbitrated and administered by the Chicago office of the American Arbitration Association. Five-and-a-half years after entering into a franchise relationship, KKW, the franchisee, filed suit against the franchisor. The suit alleged a variety of common law claims for damages and rescission. It also alleged violations of the R.I. Franchise Investment Act. The franchisor moved to stay the suit pending arbitration. The district court held that all the claims were referable to arbitration but it denied the motion because the franchisor had not actually demanded arbitration, as required by the parties' agreement. The franchisor immediately filed a demand for arbitration with the AAA in Chicago, seeking a declaration of no liability. It then renewed its motion to stay the suit pending arbitration, while the franchisee moved to stay the arbitration.

The district court granted the franchisor's motion to stay the lawsuit pending arbitration with respect to all but the statutory claims. As to those claims the court granted the franchisee's motion to stay the arbitration. The district court reasoned that the parties' forumselection clause calling for arbitration in Chicago was invalid under 19-28. …

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