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Log In / Register | Apr 26, 2018

Arbitrator Rejects Tilted Kilt's Damage Claim as 'Disproportionate, Unreasonable, Unconscionable and Grossly Oppressive'

In a recent post on this site, I argued that (absent a specific agreement) there is no general requirement that the Awards issued in arbitration must remain secret and that:

Lawyers that try cases for a living know both intrinsically and anecdotally the risk of hearing frivolous arguments and perjury is much higher when the offending lawyers and witnesses believe their words will most likely remain secret.  The deliberately mistaken belief that arguments can be made in secret, often heard from franchisors seeking one-sided advantage from secrecy, inevitably spawns the presentation of arguments that would be sanctionable if made in open court and which sometimes cross the line into moral outrage.   

A perfect example of this was presented in a recently concluded Arbitration in which the Arbitrator rejected a $25 million damages claim being asserted by the Franchisor against a terminated Area Developer as being “disproportionate, unreasonable, unconscionable and grossly oppressive.”  The same Arbitrator held that the Franchisor could not recover Liquidated Damages from the same Area Developer, which was also a franchisee of a failed unit, because the LD clause was an unenforceable penalty under the facts of the case.

I respectfully submit that in a court of law, in a trial open to the press and public and where the decision would be published and become a precedent for future cases, a franchisor would be very reluctant to make claims that are “disproportionate, unreasonable, unconscionable and grossly oppressive.”  So why did Tilted Kilt Franchise Operating LLC (the proprietor of the TILTED KILT “breastuarant” pubs) feel free to make these “disproportionate, unreasonable, unconscionable and grossly oppressive” arguments in Arbitration?   The apparent reason is this franchisor would prefer to argue in perceived secrecy, lest the world of prospective franchisees be clued in to how this franchisor and its attorneys (veteran members of the American Bar Association Forum on Franchising) prefer to operate.

​Not only does the perception of secrecy spawn bad behavior, in this as in most areas of life, a deeper problem is that secrecy in arbitration serves by design to weaken the "common law" by creating a new brand of "private law" in which the same franchisor is free to repeat the same “disproportionate, unreasonable, unconscionable and grossly oppressive" arguments in its next arbitration.  Injured from this intended secrecy are the next franchisees that might not have the same success defeating these claims as well as future franchisees who might buy into a brand without knowing it is dealing with a company that is all too willing to make arguments and claims that do indeed cross the line into moral outrage.

My colleague Jackie Condella and I are proud to have defeated these damage claims in this particular case and we would be delighted to share the elements of the arguments we made to benefit other franchisees facing similary ludicrous claims.

But there was another aspect of this decision we find equally troubling that we will address in a separate post.

​Until then, lawyers committed to justice must work towards bringing arbitration awards into the light of day.

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