A Los Angeles County judge told Quiznos last week that it could not shut down two franchises in Long Beach, California and ordered the parties to arbitrate their dispute over the franchisees' exclusivity rights. The franchisees of the Long Beach stores claim that the company's opening of two new stores less than two miles away siphoned customers from their two franchises and caused a one-third drop in revenue. According to one news source, although the Quiznos franchise agreements do not restrict the company from opening franchises close to existing locations, the franchisees claim that the company breached the implied covenant of good faith and fair dealing by "dump[ing] competition on top of . . . existing franchisees." Although the franchise agreements provided for arbitration in Colorado, the court denied Quizno's motion to compel arbitration in Colorado and ordered arbitration to occur in Los Angeles County instead, where the franchises are located. This decision was a clear departure from federal policy enforcing forum selection clauses in arbitration as part of favoring arbitration under the Federal Arbitration Act.
Posted by franchiselawblog at September 3, 2005 05:50 PM