If you have had enough and are ready to sue your franchisor, there are a few things you need to know. First, we sympathize with your situation. Having represented franchisees and dealers exclusively for more than 30 years, we know just how bad some franchise “relationships” can turn out to be.
Second, you may need to pump the brakes. Before you hire just any old plaintiff’s attorney to take your case to court, there could be some key provisions in your franchise agreement that you need to keep in mind.
The Dispute Resolution Provisions in Your Franchise Agreement
Most franchise agreements contain several provisions relating to dispute resolution; and, as you might expect, most of these provisions are designed to be franchisor-friendly. The typical franchise agreement will include some or all of the following:
Before you can sue your franchisor in court, you may first have to submit your claim to mediation. Some franchise agreements even require the parties to submit to mediation before they can go to mandatory arbitration (see below). Mediation is a form of non-binding alternative dispute resolution (ADR) in which the parties attempt to work together with the help of a neutral third-party mediator to amicably resolve their differences.
Arbitration differs from mediation in that the neutral third-party (in this case, an “arbitrator”) makes a decision on behalf of the parties. The arbitrator’s decision may or may not be binding, and in some cases franchise agreements will actually call for a decision to be made by a panel of three or more arbitrators.
Splitting the Costs of ADR
Many franchise agreements state that the franchisor and franchisee must split the costs of mediation or arbitration. While this may initially sound fair, keep in mind the balance of power. Franchisors generally have greater access to capital than their franchisees, and while the cost of paying an arbitrator (or panel of arbitrators) for a week of their time can be a significant expense for the average franchisee, it is usually just a drop in the bucket to their franchisor.
Another common franchise agreement provision states that the prevailing party in any dispute must pay the non-prevailing party’s attorneys’ fees. Even if you are fairly confident in the outcome of your case, the results of ADR and litigation are never guaranteed, and taking on the risk of paying both parties’ legal fees can weigh heavily in the decision of whether to pursue a claim.
Choice of Jurisdiction and Venue
Finally, your franchise agreement also likely specifies the geographic location where any mediation, arbitration or litigation must occur. And, guess what? It’s not in your hometown. Most likely, you will have to travel to the franchisor’s location in order to attempt to enforce its obligations. But, even if your franchise agreement happens to call for a neutral location, the cost factor is once again designed to help insulate the franchisor.
Contact Franchise Litigation Attorney Jeffrey M. Goldstein
If you believe that you may have a claim against your franchisor, one of the first steps – which you need to take quickly – is to have an experienced franchise attorney review your contract and advise you of the steps you will need to take in order to exercise your rights.
At the Goldstein Law Firm, we represent franchisees in disputes with their franchisors nationwide, and we can advise you on the options you have available. To get started with a free, confidential consultation, send us your contact information online or call (202) 293-3947 today.