The Franchise Memorandum

In Money Mailer, LLC v. Brewer, 2017 WL 3017539 (W.D. Wash. July 17, 2017), the United States District Court for the Western District of Washington held that a franchisor had waived its right to compel arbitration under its franchise agreement. Money Mailer’s standard franchise agreement required franchisees to enter into a franchise agreement with the franchisor, Money Mailer Franchise Corporation (“MMFC”), and a separate contract for mailing services with a closely-related entity, Money Mailer, LLC (“MMLLC”). While franchisee Brewer entered into Money Mailer’s standard franchise agreement, which contained a mandatory arbitration clause, there was no separate contract entered into between Brewer and MMLCC for the franchise’s mailing services. After Brewer had been a franchisee for a little over four years, MMLLC sued Brewer for breach of contract and for over $1.7 million in past-due charges to recoup debts on behalf of both itself and MMFC. Brewer asserted counterclaims against both MMLLC and MMFC, including violations of the Washington Consumer Protection Act and the Washington Franchise Investment Protection Act, breach of contract, misrepresentation, and unjust enrichment. MMFC filed a motion for summary judgment, arguing that the mandatory arbitration clause in Brewer’s franchise agreement foreclosed all of Brewer’s counterclaims.

The court disagreed. According to the court, regardless of whether the franchise agreement’s arbitration clause applied, the arbitration clause had been waived because MMLLC filed the lawsuit in part on MMFC’s behalf. That fact, in addition to the fact that Brewer would suffer prejudice from defending against MMLLC’s claims in federal court while being forced to arbitrate other disputes with MMFC, led the court to hold that MMFC had waived its right to compel arbitration.