Franchising & Distribution Law Blog

Fourth Circuit serves franchisors a double helping of arbitration and litigation

Many franchisors spend considerable time and resources analyzing whether to include a mandatory arbitration provision in their franchise agreements in hopes of warding off franchisees’ class action lawsuits and avoiding costly and drawn-out litigation. Such efforts are now even more complicated, at least in the Fourth Circuit.

Recently, the United States District Court for the Southern District of Indiana denied franchisor Steak n Shake’s motions to compel the non-binding arbitration of three consolidated lawsuits filed by three franchisees. The decision highlights the importance of a franchisor carefully monitoring and updating its dispute resolution policies in the context of the legal risks facing its system.