Court Watch

Twenty years ago, arbitration clauses were rarely found in franchise agreements, but they have become considerably more popular over the last two decades. However, while there are many franchisors that prefer arbitration over court, there are some issues that franchisors prefer not to have decided by arbitration ' in particular, those relating to trademarks. Thus, it is common for broad arbitration provisions to have broad exceptions for disputes relating to trademarks. This was the case in Synergistic International LLC v. Monaghan, Bus. Franchise Guide (CCH) '15,146 (C.D. Ill., Oct. 10, 2013).

After the franchise agreement at issue in Synergistic expired, the franchisee committed numerous violations of the post-term covenants, including the non-compete and the cessation of trademark use provisions. Rather than instituting an arbitration proceeding, the franchisor immediately brought suit asking the court for, among other things, injunctive, declaratory and monetary relief. Arbitration was generally required under the franchise agreement, but each party had the right to opt out of arbitration under certain circumstances, including where disputes related to trademarks. Defendant franchisee argued, unsuccessfully, that all the issues should be decided by arbitration. The plaintiff franchisor successfully demonstrated, among other things, that all of the issues were “related to the marks” ' including claims that: defendant failed to cease using plaintiff's methods of operations, telephone numbers and plaintiff's mark; failed to transfer the business to the franchisor as required by the franchise agreement; defendant established a competing business to which defendant's assets were transferred; and defendant failed to comply with the non-compete and other post-term obligations. Therefore, the court allowed the lawsuit to proceed in court, foregoing arbitration entirely.