Franchise agreements can contain a dizzying array of confusing terms— “mediation,” “choice of law,” “arbitration,” and so forth. Some of which, if misunderstood or interpreted incorrectly, can wreak havoc for a franchisee facing a dispute with a franchisor.
If you are a franchisee facing potential franchise disputes or franchise lawsuits and are looking for resolution options, the terms presented above are ones you should familiarize yourself with.
The Simple Guide to Franchise Dispute Resolution
To help you better understand what the terms above and legal options mean, and how they may affect you, we have put together the simple guide below to help you understand the basics of franchise dispute resolution.
What are some dispute resolution processes?
Legal options for franchise dispute resolution are litigation, arbitration and mediation. Each is a powerful legal tool, with its own strengths and weaknesses for finding a resolution.
What is the Dispute Resolution Used for?
Franchise dispute resolution can help a franchisee move past a variety of franchise-related issues, including financial disclosure or compliance issues, as well as franchise agreement, termination and territory disputes.
Litigation is a term that refers to franchise dispute resolution by a court. Typically, when a complaint is filed in court, the case will go through three stages.
Stage One: Pleadings
The pleadings stage takes place when the parties exchange the complaint, an answer or motion to dismiss, and perhaps a counterclaim. It is at this stage that the court may consider the question whether a complaint, as stated on the paper, is good or not. If the court decides the claim is good, that means that you can proceed to the next stage. This does not mean that the court is endorsing your claim.
Stage Two: Discovery
The next litigation step for franchise dispute resolution is the discovery stage. In this stage, the parties demand documents from each other, take depositions of knowledgeable witnesses and otherwise find out information about the other’s position.
Stage Three: Dispositive Motion
The next stage is often called the “dispositive motion” stage. At this point, the parties may engage in motions that gather together the evidence taken during the discovery stage in order to present it, on paper, to the court. This is usually called a motion for summary judgment, and one party or the other is asking the court to decide the case on the papers — without a trial.
If the case is not decided in this way, then it will go to trial either before a judge or a jury. Once a verdict or decision is rendered, the parties usually have the right to appeal.
Litigation Timeline and Procedure for Franchise Dispute Resolution
Litigation of a case may be as short as a few months or as long as 10 years if multiple appeals are involved.
The place where a case is heard by a court is called the venue. Usually, a court located in the franchisor’s or franchisee’s location will be the venue of a case. The contract between the parties may specify that litigation will take place in a particular venue. Typically, franchise agreements state that the venue will be the location selected by the franchisor.
Choice of venue should not be confused with choice of law, which refers to the law that will apply to a dispute and that the court will decide. Usually, if there is no contract provision, a court will apply the law of the state where it sits in deciding a case. A contract, however, may state that the law of another state will govern. When a contract contains a choice of law provision and a choice of venue provision, they usually will be the same, but do not have to be. It is possible, for example, that a court in New York could apply Florida law or that a court in California could apply Illinois law.
Arbitration is a type of franchise dispute resolution in which an arbitrator — usually a lawyer but not necessarily — sits as a “judge” and hears each side present evidence and then makes a decision. It is like a franchise lawsuit, but there are several important differences. First, there is no right to appeal an arbitrator’s decision. Second, there is usually no right to discovery in arbitration, although in franchise and dealer cases, the parties often agree to allow discovery because of the complexity of the issues. It is, however, entirely possible that the parties go to arbitration without any documents or discovery from the other side.
Benefits of Arbitration for Franchise Dispute Resolution
Arbitration to seek resolution of a franchise dispute is usually faster than litigation, as a case may be decided in arbitration less than a year after the arbitration complaint has been filed.
The arbitrator is usually selected by the parties from a list supplied by an organization (usually the American Arbitration Association) that supervises the process. The parties must pay the arbitrator as well as the organization that supervises the process. In this regard, arbitration can be quite costly.
Arbitration usually takes place instead of litigation because the agreement between the parties requires arbitration. A provision like this usually cannot be overturned, although there are some exceptions. Further, if there is a choice of law or choice of venue provision in the arbitration clause, it will almost always be upheld. Even if there are state laws that would override such a provision in litigation, they will not override it in arbitration.
Mediation, unlike arbitration or litigation, is a voluntary dispute resolution process that is like a negotiation — except that it is guided and supervised by a mediator, who is typically a retired judge or another attorney with considerable experience. Mediation has become very popular in recent years because it is a quick and efficient way of resolving disputes without going through the lengthy process of litigation or arbitration.
Mediation Procedure and Timeline for Franchise Dispute Resolution
Mediation usually takes just one day.
The parties and their lawyers meet with the mediator, who then puts each side in a conference room and goes back and forth trying to broker a deal. If the mediator is successful in getting the parties to agree to a settlement, then that settlement becomes binding on them. If they do not agree to a settlement, then the mediation process is not binding, and everything that is said in it is confidential.
Faced With a Dispute and Looking for Resolution Guidance?
The franchise attorneys at Garner, Ginsburg & Johnsen P.A. have an established track record in helping with franchise dispute resolution. Contact us for expert legal guidance in all matters franchise-related, including for breach of contract or getting out of a franchise.