Court Watch

Now that class action waiver provisions in arbitration agreements have been upheld by the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the franchisee community is looking for creative ways to bring group claims that will not run afoul of such provisions. One such attempt was partially thwarted in Fantastic Sams Franchise Corp. v. FSRG Association, Ltd., 2011 WL 4899975 (U.S. Dist. Ct., D. Mass. Oct. 12, 2011), where a regional owners' association brought an “association” or “representative” claim in arbitration on behalf of its members for breach of the regional agreements and declaratory relief. In response, Fantastic Sams Hair Salons filed a federal court action and moved for a preliminary injunction to enjoin the representative action from proceeding, and after the American Arbitration Association denied its request to stay matters pending court resolution, sought a temporary restraining order. A majority of the franchise agreements at issue contained provisions that prohibited arbitration on a “class-wide basis” and required arbitration of the regional owners' “individual claims only.” The remainder simply included standard language that referred all claims or disputes to arbitration, without any reference to class arbitration, and gave the arbitrator broad powers to determine the validity of the arbitration agreement. With regard to the majority of the agreements, the court held that because it was clear and unambiguous that individual arbitrations were required, the court, and not the arbitrator, would determine if the group claims could be arbitrated. The court was clearly persuaded by the “individual claims only” language, since the prohibition against class actions did not mention representative actions, although the court did view the group arbitration as an “attempted end-run around” the class action prohibition. However, with respect to the remaining contracts, which were ambiguous or silent as to whether they precluded class actions, the court held that it was up to the arbitrator to decide if those contracts prohibited representative actions. The court referred to the Supreme Court's earlier ruling in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), that stressed that where the agreement was silent as to whether class arbitration would be permitted, it would be up to the arbitrator to decide that issue, since it was really a matter of contractual interpretation. Fantastic Sams argued, based on Stolt-Nielsen S.A. et al. v. Animal Feeds International Corp., 130 S.Ct. 1758 (2010), that it should not be compelled to arbitrate as a class action unless it expressly agreed to do so. The court noted that might be true, but it was for the arbitrator to decide whether or not Fantastic Sams had agreed or not, based on his or her construction of the agreements.