In Yogo Factory Franchising, Inc. v. Edmond Ying, et al., US District Court D. New Jersey 2014), the court enforced the arbitration clause and held that the arbitration clause should be applied to all the franchisee’s claims arising from the franchise agreement.
In this case, the franchisee alleged breach of contract, tort and statutory claims against the franchisor. In addition to contending that the franchisor breached the terms of the franchise agreement, the franchisee also alleged that the franchisor committed fraud during the sales process, and did not comply with the FTC disclosure requirements. The franchisee argued that the arbitration clause should be construed narrowly to only apply to the breach of contract claims and not the tort or statutory claims. The franchisee agreed that its claim that the franchisor breached the franchise agreement would be subject to the arbitration clause, but contended that its claims that it was fraudulently induced to enter into the franchise agreement, that the franchisor did not comply with the FTC disclosure laws, etc., were not subject to arbitration. The court disagreed and reasoned that the arbitration clause should be interpreted broadly to apply to all the franchisee’s claims, not just the breach of contract.
Had the court applied the franchisee’s reasoning, then it would have created an end run for franchisees to avoid arbitration provisions by simply including tort or statutory claims in its complaints. The court’s decision re-affirmed a “presumption in favor of arbitrability when determining both the existence and scope of an arbitration agreement”.
In sum, if a franchise agreement contains an arbitration clause, the parties should continue to expect a New Jersey court to broadly enforce the arbitration provision to all claims arising out of the franchise agreement.