The Franchise Memorandum

A federal court in Washington recently granted a motion brought by franchisor Nurse Next Door Home Healthcare Services, Inc. (NND) to compel arbitration of a Florida-based franchisee’s claims. Nurse Next Door Home Healthcare Servs. (USA), Inc. v. Sipp, 2024 WL 3859704 (W.D. Wash. Aug. 19, 2024). In the underlying action, franchisees Aaron and Priyanka Sipp and Sipp Healthcare LLC (the Sipps) alleged that NND sold them six Florida franchises that they could never operate fully in Florida due to the business system requirements and practices not being compatible with Florida’s legal and regulatory requirements. The franchise agreements between the parties contained an arbitration provision requiring all disputes and claims arising out of the franchise agreements to be resolved in arbitration, subject to the Federal Arbitration Act, and venued in Seattle. After an unsuccessful attempt to dissolve the dispute, the Sipps filed suit in Florida, and then NND moved to compel arbitration in Seattle. The Sipps opposed this motion on the grounds that NND failed to comply with a mediation prerequisite in the arbitration provision of the franchise agreements and that enforcement of the arbitration provision would be unfair and unconscionable.

The court granted NND’s motion to compel arbitration, reasoning that the arbitration provision in the franchise agreements is valid and enforceable, and that the disagreement between the parties arises out of the franchise agreements containing the arbitration provision. Although the Sipps argued that NND’s failure to mediate prevented the court from compelling arbitration, the court was not convinced. The Sipps conceded that they agreed to the arbitration provision in the franchise agreements, and thus agreed that all issues of arbitrability should be delegated to the arbitrator. As a result, the court determined that whether mediation was required should be left to the arbitrator to decide. In response to the Sipps’ substantive unconscionability argument, the court determined that, again because the Sipps agreed that the arbitrator was delegated authority to decide issues of arbitrability, and because the arbitrator has authority to allow for remote proceedings, there was no basis to find an arbitration provision that might require cross-country travel unconscionable.