Franchisees Need to Support the Arbitration Fairness Act of 2009

Federal appellate courts continue to put their full weight behind arbitration and erode the flexibility of judges to set aside or at least limit one-sided arbitration schemes and results.   In Rent-A-Center West, Inc. v. Jackson, ___ U.S. ___, 2010 WL 2471058 (June 21, 2010) the United States Supreme Court held that an arbitrator rather than a federal district court had authority to hear an unconscionability-based challenge to an arbitration agreement where the arbitration agreement expressly delegated to an arbitrator exclusive authority to resolve such disputes.  This case provides a road map to franchisors that will undoubtedly follow it to irrevocably lock franchisees into one-sided arbitration schemes.  

Yesterday, in Medicine Shoppe Intern., Inc. v. Turner Investments, Inc.  2010 WL 2836621, 4 (8th Cir. 2010), federal Court of Appeals confirmed an award of lost almost $500,000 against a franchisee for a franchisor’s lost future profits despite arguments that the such damages were not available and had not been properly proved under applicable law. The court of appeals declined to review “the merits of [the arbitrator’s] conclusions.” 

The Arbitration Fairness Act of 2009 (House Bill 1020) is a bill under consideration with our Congress that would take these matters out of arbitration and eliminate the enforceability of pre-dispute arbitration clauses in franchise, employment, and consumer contracts.  This is a law of vital importance to franchisees and franchisees must express support to their Representatives for it to have a chance of passing.  There can be no doubt that franchisors are heavily lobbying and spending millions against this bill because they are afraid of juries and rights of appeal.  Therefore, to combat such efforts, it is essential that franchisees mobilize in grass roots fashion by getting their co-franchisees, franchisee associations, family, friends, and others to express support for this bill.  

The serious concerns about arbitration have been well-expressed by the sponsoring Congressional Representatives in the proposed findings supporting the act which in pertinent part provide:  

The Congress finds the following:

(4) Private arbitration companies are some times under great pressure to devise systems that favor the corporate repeat players who decide whether those companies will receive their lucrative business.

(5) Mandatory arbitration undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators’ decisions. With the knowledge that their rulings will not be seriously examined by a court applying current law, arbitrators enjoy near complete freedom to ignore the law and even their own rules.

(6) Mandatory arbitration is a poor system for protecting civil rights and consumer rights because it is not transparent. While the American civil justice system features publicly accountable decision makers who generally issue written decisions that are widely available to the public, arbitration offers none of these features.

(7) Many corporations add to their arbitration clauses unfair provisions that deliberately tilt thesystems against individuals, including provisions that strip individuals of substantive statutory rights, ban class actions, and force people to arbitrate their claims hundreds of miles from their homes. While some courts have been protective of individuals, too many courts have upheld even egregiously unfair mandatory arbitration clauses in deference to a supposed Federal policy favoring arbitration over the constitutional rights of individuals.   

Concerned franchisees and citizens should immediately call on their Congressional Representatives to support the Arbitration Fairness Act of 2009 (House Bill 1020) that would amend Section 2(b) of the FAA to render invalid any pre-dispute arbitration agreement that purports to require arbitration of “an employment, consumer, or franchise dispute.”   

To make this process as simple and convenient as possible, the franchisee law firm of Lagarias & Boulter L.L.P. has provided on its website at www.lb-attorneys.com  and its blog and www.franchiseelawblog.com a template letter that anyone is free to cut and paste in whole or in part and e-mail to your Representative.  There, you will also find a convenient link to your Congressional Representative’s e-mail address and contact information.  Alternatively, a franchisee can submit full contact information, name, address, telephone number, e-mail address, and name of franchise (if applicable) along with express permission to do so to Lagarias & Boulter L.L.P. and the firm will submit a letter to your Representative on your behalf at no cost.