It is important to acknowledge that arbitration is not always the swifter or more cost-effective option for parties seeking resolution to their disputes. While arbitration theoretically offers the potential for greater efficiency and affordability compared to litigation, these advantages may not materialize in practice, particularly when it comes to franchise disputes. Despite this reality, franchise agreements frequently incorporate alternative dispute resolution (ADR) provisions mandating arbitration for all disputes. In light of this, one may wonder why franchisors and their attorneys often treat arbitration provisions as a standard, universal addition to franchise agreements.

This article provides a litigator’s perspective on the current state of arbitration, exploring both its advantages and flaws. It delves into the shortcomings of certain benefits that have traditionally been associated with arbitration and highlights the tangible benefits that arbitration can offer to franchisors operating in California. By examining the present-day landscape, this article aims to shed light on the true advantages of arbitration for franchisors with a presence in the state.

Is Arbitration Faster?

Due to the private nature of arbitration proceedings, there is a lack of accessible recent data regarding the average duration of commercial arbitration cases, from the initial filing to the issuance of the final award by the arbitrator. This poses a challenge when trying to make a direct comparison between the timeline of an arbitration and that of a court action. However, the limited information that is available indicates that the commonly emphasized swiftness of arbitration may not always be as significant as it is often portrayed.

For instance, in the 2016 calendar year, the Financial Industry Regulatory Authority (FINRA) reported the conclusion of 3,635 arbitrations involving securities and employment disputes. According to their data, the median duration of these arbitrations, from the commencement to the hearing, was 17.1 months. Similarly, during the same period, the U.S. District Court for the Central District of California recorded a median duration of 18.3 months from filing to trial for civil cases. While these statistics may not provide a comprehensive picture, they suggest that the timeline for arbitration proceedings may not significantly differ from the time required for a litigated case to progress through the court system.

In comparing arbitration to a court action, it is important to consider the length of the confirmation proceeding associated with arbitration. After an arbitration award is rendered, it cannot be enforced until it is confirmed by a court and judgment is entered. The confirmation process alone can extend the arbitration timeline by up to six months. As a result, the overall duration of an arbitration proceeding can easily surpass that of a typical court action.

Certainly, the purported temporal expediency of arbitration does not, by itself, justify the inclusion of arbitration provisions in franchise agreements.

Does Arbitration Cost Less?

Arbitration costs are closely linked to the duration of the proceeding. While it is theoretically possible for parties to streamline the arbitration process due to its contractual nature, practical limitations arise when attempting to expedite a franchise dispute. Discovery is typically essential in commercial litigation, and conducting a trial without it can be likened to entering a battle without sight—difficult to adequately prepare for the unknown. Documents, depositions, and written responses to interrogatories serve as vital tools that enable parties and their attorneys to assess the case thoroughly and prepare for trial.

Arbitration service providers recognize the importance of discovery in commercial disputes, as evident in the evolution of their procedural rules. In an earlier version of the American Arbitration Association’s (AAA) Commercial Rules, arbitrators were granted limited authority to direct the production of documents, information, and identification of witnesses for the hearing. However, the current version of the AAA’s Commercial Rules expands significantly on the scope of discovery that arbitrators may allow. This includes the exchange of documents upon which the parties intend to rely, updating the production as new documents are discovered, exchanging written discovery requests and materials, and providing detailed instructions on electronic discovery. It is worth noting that increased discovery leads to higher costs for clients.

Arbitration entails significant costs, which encompass various elements such as arbitrators’ fees, administrative fees imposed by the arbitration service provider, and fees associated with the hearing venue. In California Superior Court, initiating an unlimited civil action necessitates an initial filing fee of $435. In contrast, the American Arbitration Association (AAA) charges an initial administrative filing fee based on the claim amount, ranging from $500 to over $10,000. Additionally, there is a “Final Fee” charge between $800 and $12,500 if the matter proceeds to a hearing. Judicial Arbitration and Mediation Services (JAMS) imposes an initial non-refundable filing fee of $1,200 to $2,000, along with a “Case Management Fee” of 12% on all professional fees, encompassing hearing time, pre- and post-hearing activities, and award preparation. Depending on the nature and value of the dispute being arbitrated, these administrative fees can be substantial.

Although administrative fees and facility rental costs may surpass court filing fees, they are typically overshadowed by the hourly rates charged by arbitrators. For instance, the author received a “strike list” from a reputable arbitration service provider, which featured eight prospective franchising arbitrators from Southern California. These arbitrators commanded hourly rates ranging from $350 to $600. If the contractual arbitration provision stipulates a panel of three arbitrators, this figure should be multiplied by three. Consequently, in a complex commercial dispute, the cumulative amount can be staggering.

Undoubtedly, attorneys’ fees constitute the most substantial expense in any litigation. If the arbitration process significantly shorter than a court action, it would logically result in a proportional reduction in attorneys’ fees. However, if the duration of both proceedings is comparable, as indicated previously, commercial arbitration does not present a viable cost-saving alternative to litigation in court.

What Happens If The Other Side Refuses To Pay For Arbitration?

In numerous cases, the substantial costs involved in arbitrating a dispute have been utilized by the wealthier party to exert pressure on the less financially privileged adversary, compelling them to surrender or reach a settlement. Traditionally, if a party failed to pay the required fees, they were barred from pursuing any affirmative claims in the arbitration and risked dismissal of the entire action. However, franchisors should be aware that recent developments in case law have shifted the responsibility of payment to the party seeking to maintain the dispute in arbitration. This change could significantly escalate the arbitration costs for the franchisor.

An example that highlights this recent trend is the Ninth Circuit case of Tillman v. Tillman. In this case, the claimant initially filed a malpractice lawsuit in court, but the respondent law firm successfully moved to compel arbitration, leading the case to be transferred to the AAA. However, the claimant was unable to afford the AAA’s required deposit of $18,562.50. As the respondent declined to cover the deposit on behalf of the claimant, the arbitration was terminated according to the AAA’s rules. Subsequently, the claimant sought to revive her claims in court, but the trial court rejected her request, citing that the Federal Arbitration Act prevented the court from hearing the claims subject to arbitration. Consequently, the case was dismissed, and the claimant appealed the decision.

Upon appeal, the Ninth Circuit overturned the trial court’s dismissal, stating that despite the claimant’s inability to afford the arbitration deposit, she expressed her willingness to arbitrate her claims, and the respondent law firm could have covered the costs but chose not to do so. The Ninth Circuit emphasized the importance of resolving cases on their merits and concluded that the claimant’s failure to pay the deposit did not warrant a severe penalty. Since the AAA proceeding had been terminated before reaching the merits or issuing any award, allowing the claimant’s claims to proceed in district court was the only means to adjudicate them. As a result, the trial court’s decision was reversed, enabling the claimant to proceed with her lawsuit in court, despite her inability to pay her portion of the arbitration fees.

In a similar vein, the Tenth Circuit also rendered a similar decision in Pre-Paid Legal Servs., Inc. v. Cahill. In this case, the plaintiff-employer initiated a lawsuit against its former employee, alleging violations of tort and contract. As per the terms of the employment contract, the former employee invoked the arbitration clause. However, despite the employer fulfilling its obligation by paying its portion of the required fees, the former employee consistently declined to do so. Consequently, the arbitration process was suspended and subsequently terminated due to non-payment of fees. Subsequently, with the termination of the arbitration proceedings, the employer sought the court’s permission to lift the stay that had been imposed pending arbitration. The court granted the request, leading the former employee to file an appeal. The Tenth Circuit determined that the failure to pay arbitration fees constitutes a “default” under the Federal Arbitration Act’s Section 3, and consequently, the former employee’s failure to fulfill his financial obligations precluded him from seeking arbitration. As a result, the court action was permitted to proceed.

The Tillman and Cahill cases exemplify a notable shift in recent case law, enabling disputes governed by valid arbitration agreements to proceed in court if a party fails to fulfill its financial obligations regarding arbitration fees. This emerging trend is likely to impose the responsibility of paying arbitration fees on franchisors who aim to retain their disputes within the arbitration framework. It is crucial for franchisor clients to remain cognizant of this development and be ready to bear the entirety of arbitration costs and fees associated with any arbitration they initiate or compel.

Is Immediate Relief Available In Arbitration?

In numerous franchise disputes, the unauthorized use of the franchisor’s name and trademark by a former franchisee is a common issue. In such cases, the franchisor must promptly seek injunctive relief to halt the unlawful use and mitigate potential damage to the brand. While both the Commercial Rules of the AAA and the JAMS Comprehensive Arbitration Rules grant arbitrators the authority to grant interim relief, the procedural obstacles and the subsequent enforceability of such relief render arbitration an unfavorable forum for franchisors seeking immediate and effective measures.

Obtaining an injunction in arbitration faces significant procedural challenges. First, the appointment of the arbitrator, which can take weeks, must occur before the injunction can be considered. Subsequently, a hearing on the motion for injunctive relief must be conducted. Even if the arbitrator grants the injunction, it must then go through a separate proceeding for confirmation and enforcement in a state or federal court. These procedural complexities and the need for additional court involvement make the process of obtaining and enforcing an injunction in arbitration highly impractical.

Prudent franchisors have included a “carve out” in their franchise agreements that allows them to seek immediate injunctive relief from a court of competent jurisdiction. This “carve out” is a necessary addition to any franchise agreement that contains an agreement to arbitrate.

Is Arbitration Really Private?

Another frequently emphasized advantage of arbitration is its confidential nature, in contrast to public court proceedings. Arbitral hearings are conducted privately, with attendance limited to designated individuals determined by the parties and their counsel. Conversely, court hearings, trials, and associated filings are accessible to the public.

The issue of confidentiality holds significant weight for many franchisors. Maintaining confidentiality is crucial, particularly in cases involving potential franchise law violations, trade secrets disputes, or claims that could result in negative publicity or harm to the brand. However, in practice, the extent of arbitration privacy may be overstated, as a considerable portion of arbitrated disputes are accompanied by related public court actions. Franchisees, for instance, frequently initiate court proceedings against franchisors despite the existence of an arbitration agreement. Although such matters are typically redirected to arbitration, the franchisee’s initial court filings have already brought attention to the nature of the dispute with the franchisor.

Arbitrated disputes can also become public through other avenues. Court involvement becomes necessary to enforce preliminary injunctive relief or subpoenas issued by an arbitrator. Additionally, an arbitration award must be confirmed by a court in order to be enforceable or executable. The related court action, including all attachments, declarations, and exhibits, often undermines the desired privacy element of arbitration that franchisors seek, as these public filings become accessible to the public.

The requirement of Item 3 in a franchise disclosure document (FDD) is an important factor to consider when discussing the confidentiality of a franchise dispute. The Federal Trade Commission (FTC) has established the FTC Rule, a comprehensive pre-sale disclosure rule that applies to all franchisors in the United States. Additionally, California and other states have implemented additional pre-sale disclosure requirements in addition to the federal mandates. Under both the FTC Rule and California’s supplemental laws, franchisors are obligated to disclose any “material civil action,” including arbitration proceedings, in Item 3 of their current FDD. This encompasses allegations of franchise violations, antitrust or securities law violations, fraud, unfair or deceptive practices, and similar claims. In essence, franchise disclosure laws mandate the disclosure of certain disputes regardless of the forum in which they were resolved. Therefore, the use of arbitration does not prevent the disclosure of such disputes.

At the end of the day, although arbitration is a private proceeding, the confidential nature of the arbitration can be substantially eroded by any related court action and by the publication of the arbitration proceeding in Item 3 of the FDD.

The True Benefits of Commercial Arbitration

While the widely promoted advantages of arbitration, such as speed, cost, and privacy, may not be compelling enough to justify the widespread use of arbitration provisions in franchise agreements, there are valid reasons why franchisors should carefully consider this alternative dispute resolution method.

 Preemption of Certain California Franchise Laws

California’s franchisee citizens are provided with a crucial safeguard through an anti-waiver statute, which renders null and void any provision in a franchise agreement that seeks to waive the protections granted by the Franchise Investment Law. This statute encompasses various safeguards, including the prohibition of class action waivers, the right to seek punitive damages, restrictions on out-of-state forum selection clauses, and the entitlement to a trial by jury. Despite the strong public policy underlying these statutory protections, contractual provisions that attempt to waive these safeguards may still be enforced if they are included in an arbitration agreement governed by the Federal Arbitration Act (FAA).

In 2001, the Ninth Circuit found that the FAA preempted the California Franchise Investment Law’s limitation on out-of-state forum selection clauses in agreements to arbitrate.27 The Ninth Circuit’s rationale was later expanded by several U.S. Supreme Court opinions negating the individual state’s ability to legislate terms contrary to those contained within an otherwise valid agreement to arbitrate.28 Sixteen years later, there is little doubt that the FAA generally controls the enforceability of arbitration provisions in franchise agreements (at least, those that provide that they are to be governed by federal law) and preempts any state law seeking to frustrate arbitration agreements.29

The enforceability of class action waivers is seen as a significant advantage for large franchisors under the Federal Arbitration Act (FAA) preemption cases. In the Supreme Court case of AT&T Mobility LLC v. Concepcion, the Court examined whether the FAA prohibits states from making the enforceability of certain arbitration agreements contingent on the availability of classwide arbitration procedures. The Court clarified that Section 2 of the FAA establishes arbitration agreements as “valid, irrevocable, and enforceable, except on such grounds as exist at law or in equity for the revocation of any contract.” Upon reviewing California’s general prohibition of class action waivers, the Court concluded that this prohibition hindered the objectives of the FAA and, therefore, was preempted by the federal law.

Furthermore, under the FAA, agreements to arbitrate can generally enforce punitive damage waivers and out-of-state venue designations. This can be advantageous for franchisors operating in multiple jurisdictions. By specifying a particular venue for arbitration, franchisors can reduce the costs associated with dispute resolution by conducting all proceedings in their own jurisdiction. Additionally, franchisors can strategically benefit from choosing the venue, as it allows them to avoid litigating disputes in jurisdictions with unfavorable laws or unpredictable outcomes. This ability to dictate the venue provides franchisors with greater control and potential advantages in resolving disputes.

Arbitration serves as an effective means for franchisors to circumvent jury trials in California. Franchisees often prefer jury trials due to perceived advantages, with jurors often sympathizing with the franchisee as the underdog. California strongly upholds the public policy of trial by jury, and since the 2005 decision in Grafton Partners, L.P. v. Superior Court, pre-dispute jury trial waivers in contracts have not been upheld by California state courts. Additionally, in 2015, the Ninth Circuit ruled that California’s prohibitions on advance jury trial waivers would be upheld in federal courts when actions are based on California law. As a result of these legal precedents, the only reliable method for a franchisor to avoid a jury trial in California is through arbitration.

Without an agreement to arbitrate governed by the FAA, California’s statutory protections would render any conflicting provisions in franchise agreements void in California and potentially impact agreements involving California franchisees outside of the state. In order to bypass the application of these laws that typically favor franchisees, arbitration becomes the most effective mechanism for franchisors. By incorporating arbitration provisions into their franchise agreements, franchisors can utilize these agreements as tools to mitigate the impact of the various statutory protections provided to franchisees in California. Therefore, franchisors are strongly advised to consider incorporating arbitration provisions in their franchise agreements to navigate and mitigate the effects of these statutory protections.

Knowledgeable Trier-Of-Fact

A notable advantage of arbitration is the ability for parties to select arbitrators who possess specific expertise and experience in the field of franchising. Unlike court proceedings where judges are assigned randomly, arbitration allows parties to choose arbitrators who have qualifications that align with the specific requirements of the arbitration. This includes the option to select arbitrators who are well-versed in franchise laws and have a deep understanding of the intricacies involved in franchising. By having arbitrators with relevant expertise, the parties can benefit from a more informed and specialized decision-making process, which can lead to more effective and accurate resolution of franchise disputes.

Franchise and distribution law is one of a handful of legal specialties certified by the California State Bar.³⁶ Franchising is recognized as a substantive specialty largely due to the complexities and nuances incorporated into state and federal franchise laws – most notably, California’s Franchise Investment Law and Franchise Relations Act. Similar legal issues and fact patterns often arise in franchise litigation. However, judges unfamiliar with these legal issues can face a steep learning curve when presiding over a franchise matter. This extensive judicial education can be avoided if the parties appoint an arbitrator experienced in this area of law.

More importantly, with arbitration, the franchisor can avoid the potentially difficult task of presenting these nuanced franchise issues to a jury. Experienced arbitrators can provide counsel and their clients with a level of comfort and predictability that may not be available in a jury trial.

Finality

Achieving finality and certainty in the resolution of commercial disputes is crucial for businesses. Lengthy litigation proceedings can lead to escalated costs and disrupt the normal operations of a business, causing a state of paralysis. However, arbitration offers a distinct advantage in this regard. The limited legal grounds for appealing an arbitration award, as provided by the Federal Arbitration Act (FAA) and state arbitration statutes, contribute to a higher level of finality compared to traditional trial courts. This means that once an arbitration award is issued, there are typically fewer avenues for the parties to challenge or prolong the resolution process. As a result, arbitration offers businesses a more conclusive and definitive outcome, allowing them to move forward with confidence and allocate their resources more efficiently.

Indeed, the grounds for vacating an arbitration award under the FAA are limited and stringent. The award can only be vacated if it can be proven that corruption or fraud influenced the outcome, if the arbitrator displayed partiality or corruption, if the arbitrator’s misconduct unfairly prejudiced the rights of a party, or if the arbitrator exceeded their powers. It is important to note that a mere misinterpretation or incorrect application of the law does not meet the standard for vacating an award. The standard is much higher and requires a showing that the award is completely irrational or demonstrates a manifest disregard for the law. This means that the arbitrators must not only make an error in the law, but it must be clear from the record that they recognized the applicable law and intentionally disregarded it. Consequently, successfully vacating an arbitration award based on these grounds is a challenging task.

You are correct. Another limited ground for vacating an arbitration award is if the award violates public policy. However, this is also a challenging standard to meet. To successfully challenge an award on public policy grounds, the party must demonstrate that the public policy at stake is explicit, well defined, and dominant. This means that the public policy in question must be clearly articulated in laws, regulations, or other authoritative sources and must carry significant weight in the relevant jurisdiction. Establishing a violation of public policy that meets this high standard is a difficult task.

These potential grounds for vacating an arbitration award are difficult to show and even more difficult to overcome on appeal if challenging the trial court’s denial of a request to vacate the arbitration award. Because of this, the finality of an arbitration award carries with it more certainty than a court judgment or order.

Malleable Process

Arbitration indeed offers flexibility and predictability, which are valuable advantages for franchisors and businesses. Unlike court proceedings, where the schedule is determined by the court’s availability, arbitration allows the parties to tailor the schedule to their specific needs and priorities. This flexibility enables the parties to choose hearing dates, deadlines, and procedures that best accommodate their schedules, as well as the availability of key individuals such as employees, experts, and witnesses.

By having control over the arbitration process, parties can plan and manage their resources more efficiently. They can arrange for witnesses to testify at convenient times, utilize alternative methods of testimony such as video conferencing or written statements, and structure the proceedings in a manner that suits their particular circumstances. This flexibility not only promotes efficiency but also reduces disruptions to the normal course of business operations.

Moreover, the predictability of arbitration allows parties to have a clearer understanding of the timeline and procedure for resolving their disputes. With court proceedings often subject to last-minute changes and delays, arbitration provides a more reliable and manageable framework for conducting the dispute resolution process. This predictability enables parties to plan and allocate resources accordingly, leading to greater efficiency and a more streamlined resolution of the dispute.

Because arbitration is a malleable process, it can better accommodate, and cause less disruption to, franchisors than a court proceeding.

Conclusion

Litigating a franchise dispute can offer valuable insights into the advantages and limitations of arbitration provisions. However, it is important to involve litigators in the process of drafting arbitration clauses in franchise agreements. From a litigator’s perspective, the true value of arbitration for a franchisor goes beyond the traditional notions of cost, speed, and privacy. Instead, it lies in the level of control that arbitration affords the franchisor.

Arbitration provides the franchisor with the ability to exercise control over various aspects of the dispute resolution process. This includes selecting the location of the arbitration, which can be strategically advantageous for franchisors operating in multiple jurisdictions. By determining the venue, franchisors can reduce costs and avoid litigating in jurisdictions that may be unfavorable or uncertain.

Additionally, arbitration allows franchisors to limit the potential damages that can be awarded to franchisees. Through carefully crafted arbitration agreements, franchisors can establish predetermined limitations on the types and amounts of damages that can be sought. This control over potential liability can protect the franchisor’s financial interests.

Furthermore, arbitration enables franchisors to manage the number of parties involved in the dispute. By including provisions for individual arbitration rather than class arbitration, franchisors can avoid the risk of facing large-scale collective actions. This limitation of parties helps streamline the process and maintain control over the proceedings.

Franchisors also have the opportunity to influence the selection of the decision-maker or trier-of-fact in arbitration. This allows them to choose an arbitrator with expertise in franchise law, ensuring a better understanding of the complex legal issues involved.

Lastly, the flexibility of the arbitration procedure itself is advantageous to franchisors. They can tailor the process to suit their specific needs and objectives, accommodating the availability of key individuals and utilizing alternative methods of testimony. This flexibility enhances efficiency and allows for a more customized approach to dispute resolution.

In conclusion, the ability to exercise control over crucial aspects of the dispute resolution process makes arbitration valuable to franchisors. By considering and leveraging the unique characteristics of arbitration, franchisors can advance their business and legal interests in a way that may not be fully realized through litigation alone.

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1 Dispute Resolution Statistics, Historical Statistics for Cases Filed and Closed, at https://www.finra.org/arbitration- and-mediation/dispute-resolution-statistics.

2 Id.

3 Judicial Business of the U.S. Courts, Table C-5 – U.S. District Courts – Median Time Intervals From Filing to Disposition of Civil Cases Terminated, by District and Method of Disposition, During the 12-Month Period Ending

December 31, 2016, at http://www.uscourts.gov/sites/default/files/data_tables/stfj_c5_1231.2016.pdf. For reference, during the 2016 year, the median length of time from filing through trial of civil cases pending before United States District Courts in the Ninth Circuit was 23.9 months.

4 Commercial Arbitration Rules and Mediation PROCEDURES (Including Procedures for Large, Complex

Commercial Disputes), American Arbitration Association, Rules Amended and Effective June 1, 2009, R-21. Exchange of Information, at https://www.adr.org/sites/default/files/Commercial%20Arbitration%20Rules%20and%20Mediation%20Procedures

%20Jun.%2001%2C%202009%20Fee%20schedule%20Jan.%201%2C%202010.pdf.

5 Commercial Arbitration Rules and Mediation Procedures, Including Procedures for Large, Complex Commercial Disputes, American Arbitration Association, Rules Amended and Effective October 1, 2013, R-22. Pre-Hearing

Exchange and Production of Information, at https://www.adr.org/sites/default/files/Commercial%20Rules.pdf.

6 See Cal. Gov. Code §§ 70611, 70602.5, 70602.6.

7 See Commercial Arbitration Rules and Mediation Procedures, Administrative Fee Schedules, Amended and Effective July 1, 2016, at https://www.adr.org/sites/default/files/Commercial%20Fee%20Schedule.pdf.

8 Id.

9 Demand for Arbitration Form, Instructions for Submittal of Arbitration to JAMS, Judicial Arbitration and Mediation Services, at https://www.jamsadr.com/files/Uploads/Documents/JAMS_Arbitration_Demand.pdf.

10 Id.

11  Tillman v. Tillman, 825 F.3d 1069 (9th Cir. 2016).

12  Id. at 1072.

13 Id.

14  Id. at 1073.

15  Id. at 1074.

16 Id. (citing Patalunan v. Galaza, 291 F.3d 639, 642 (9th Cir. 2002)).

17  Tillman, 825 F.3d 1069, 1076.

18 Pre–Paid Legal Services, Inc. v. Cahill, 786 F.3d 1287, 1293-94 (10th Cir. 2015), cert. denied 136 S.Ct. 373 (Oct.

19, 2015).

19  Pre-Paid Legal Services, 786 F.3d at 1294-95 and n. 3.

20  See 9 U.S.C. § 13; Cal. Civ. Proc. Code §§ 1288, 1288.4.

21 An FDD is a legal document which is prepared and presented by a franchisor to prospective buyers of franchises in the pre-sale disclosure process in the United States.

2216 CFR 436.

23 Cal. Code Reg. §§ 310.111(b), 310.114.1.

24  See 16 CFR § 436.5(c).

25 Wimsatt v. Beverly Hills Weight Loss Clinics Int’l, Inc., 32 Cal. App. 4th 1511, 1520 (1995).

26  See Cal. Corp. Code § 31300 et seq.

27 Bradley v. Harris Research Inc., 275 F.3d 884, 892 (9th Cir. 2001) (Finding that “Cal. Bus. & Prof. Code § 20040.5 is not a generally applicable contract defense that applies to any contract, but only to forum selection clauses in franchise agreements. We therefore hold that, under the reasoning of [Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681] and [Perry v. Thomas (1987) 482 U.S. 483], as well as the language of 9 U.S.C. § 2

itself, § 20040.5 is preempted by the FAA.”).

28 See e.g., AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011).

29 See 68 P.L. 40 (The FAA was specifically enacted “[t]o make valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts […].”); see also, 9 U.S.C §§ 3, 4; Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985) (“By its terms, the [Federal Arbitration] Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”).

30  AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

31  Id. at 336 (citing 9 U.S.C. § 2).

32  AT&T Mobility LLC, 563 U.S. at 344.

33 Grafton Partners, L.P. v. Superior Court, 116 P. 3d 479 (2005).

34 In re County of Orange (9th Cir. 2015) 784 F.3d 520, cert. denied sub nom. Tata Consultancy Services Ltd. v. County of Orange, Cal. (2016) 136 S.Ct. 808 [193 L.Ed.2d 714].

35 In fact, a prudent franchisor will include within the agreement to arbitrate certain franchise qualifications and experience that an arbitrator must possess in order to preside over the matter. This additional language in the agreement to arbitrate should help direct the search for potential arbitrators that will be conducted by the arbitration service provider.

36 The rules that govern the certified legal specialization program are contained in Rules of the State Bar, Title 3, Division 2, Chapter 2. “California attorneys who are certified as specialists have taken and passed a written examination in their specialty field, demonstrated a high level of experience in the specialty field, fulfilled ongoing education requirements and been favorably evaluated by other attorneys and judges familiar with their work. Only these attorneys can advertise or identify themselves as ‘certified’ specialists in California because they are the only attorneys who are certified either by the State Bar of California Board of Legal Specialization or an organization whose certification program has been accredited by the State Bar. Such an organization must have requirements for certification that are at least equal to those of the State Bar’s program. Legal Specialization of the State Bar of California.” Statement of The State Bar of California, Board of Legal Specialization, at http://www.calbar.ca.gov/Attorneys/Legal-Specialization. The California Board of Legal Specialization currently provides a certification process for attorneys practicing in the following eleven areas of law: Admiralty and Maritime Law, Appellate Law, Bankruptcy Law, Criminal Law, Estate Planning, Trust and Probate Law, Family Law, Franchise and Distribution Law, Immigration and Nationality Law, Legal Malpractice Law, Taxation Law, and Workers’ Compensation Law. Id.

37  9 U.S.C. § 10.

38 Schoenduve Corp. at 731 (quoting Kyocera, 341 F.3d at 997).

39 TSYS Acquiring Solutions, LLC, v. Electronic Payment Systems, LLC, 2009 U.S. Dist. LEXIS 98470 at *5-6 (quoting Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)).

40 Stead Motors of Walnut Creek v. Auto. Machinists Lodge No. 1173, Int’l Ass’n of Machinists & Aerospace Workers, 886 F.2d 1200, 1210 (9th Cir. 1989) (quoting W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766

(1983)).

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This article was prepared by Kevin A. Adams, a Partner at Mortenson Taggart Adams LLP and head of the firm’s Franchise and Distribution practice group. He represents and counsels franchisors, licensors, manufacturers, and distributors on their business litigation needs, including state and federal franchise laws, intellectual property rights, California employment laws, unfair competition, and related trade regulation matters.

Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice as individual situations will differ and should be discussed with an experienced franchise lawyer. For specific technical or legal advice on the information provided and related topics, please contact Mr. Adams at kadams@mortensontaggart.com.