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A California federal court last month denied Dickey's Barbecue franchisees' motion for an order to consolidate their claims into a single arbitration, in a dispute alleging the franchisor made false and misleading representations in selling franchises.
Previously, the court had determined that the California franchisees had to submit their claims in Meadows v. Dickey's Barbecue Restaurants., Inc. to arbitration. But when they filed a group arbitration demand with the American Arbitration Association (AAA), they were informed they had to file individually, allowing the appointed arbitrator to determine if the claims could be consolidated after satisfying all initial filing requirements.
The lawsuit, filed July 10, 2015 by lead franchisee Amy Meadows and other California franchisees, seeks to represent a class of owners and former owners of Dickey's Barbeque Pit restaurants in the state. All owners purchased their franchises after receiving the Dickey's Franchise Disclosure Document (FDD) and signing the franchise agreement. The complaint alleges fraud, violations of California's Franchise Investment Law, and violations of California's Unfair Competition Law.
The franchisee plaintiffs claim that the FDD contained several misrepresentations relating the following: the cost of converting franchise locations; the use of alternate suppliers by franchisees; the extent to which they would be protected from encroachment by other franchises; the level of on-site support and training Dickey's would provide to franchisees; the accommodations for menu change requests; and the percentage of their sales they would owe to cover Dickey's royalty and marketing fund.
Dickey's franchisees also allege that company employees made additional misrepresentations outside the FDD, including that it would be easy for franchisees to obtain bank financing, that they could expect to earn substantial revenue in their first year of operation, that no prior restaurant experience was necessary, and other false and misleading statements.
In response to the court's decision that the arbitrator had to determine if claims could be consolidated, the franchisees sought a court order to consolidate their individual arbitrations, noting that California law permits consolidation into a single arbitration and that the AAA rules do not provide a mechanism for consolidation. However, the court denied their motion, holding that once the parties are obligated to submit a dispute to arbitration, procedural questions arising out of the dispute must be decided by the arbitrator. The court noted that California courts, the Ninth Circuit Court of Appeals and other federal appellate courts have reached the same conclusion.
As a result, the court stated that each franchisee plaintiff must first individually file its claims with AAA. They may then subsequently request consolidation in accordance with AAA rules.