FANTASTIC SAMS FRANCHISE CORP. v. FSRO ASSOCIATION, LTD., United States District Court, D. Massachusetts, October 12, 2011.
Fantastic Sams is the franchisor of a chain of hair salons. Fantastic Sams licenses rights to its name to regional owners who, in turn, license salon owners to operate the actual salons. In this case, Fantastic Sams brought action against a nonprofit association of regional franchise owners, seeking to stay collective arbitration for declaratory relief against franchisor’s alleged breaches of contract and violations of the Massachusetts Consumer Protection Act. The regional franchise owners’ association formed in order to promote the interests of Fantastic Sams Regional Owners, and its membership consists solely of those regional owners.
The franchisor moved to stay the arbitration. The United States District Court held that the franchise agreements containing a ban on “class-wide” arbitration included the Regional Franchise Owners’ claim for “associational” arbitration of claims on a collective basis. The Court, however, also held that the question of whether class arbitration was forbidden under the franchise agreements that were silent on the issue of class-wide arbitration was to be decided in first instance by arbitrator.
Specifically, the Court held that the Franchise agreements’ ban on “class-wide” arbitration included the regional franchise owners’ claim for “associational” arbitration on a collective basis, even if the franchise agreements did not specifically prohibit collective or consolidated actions,. This is because the agreements allowed for arbitration of the owners’ “individual claim only,” and the agreements manifested the signatories’ clear intent that any particular arbitration proceeding could only address the individual franchise owner’s particular grievance.