Interim Relief: Preserving Franchise Goodwill During Termination Proceedings

October 13, 2002 Published Work
Reprinted with Permission of the Franchise Law Journal (American Bar Association), Volume 22, Number 2, Fall 2002

For a variety of reasons, a franchisor may find itself in arbitration seeking to vindicate its right to terminate a franchise agreement. For example, arbitration may be necessary if the franchisee challenges the termination or refuses to comply with its requirements. In addition, some franchisors seek a declaratory ruling before a termination is considered final in order to insulate themselves from future claims for wrongful termination. In an ideal world, a termination arbitration would be much quicker than a court proceeding for a franchisor to rid itself of a franchisee who is damaging the image of the franchise—and the value of the trade or service mark—by violating material provisions of the franchise agreement. The promise of a streamlined procedure for termination, when necessary, was likely one of the factors that led the franchisor to include an arbitration clause in the its standard franchise agreement in the first place. However, as experienced franchisors have discovered, arbitrations can drag on for many months, even years, while the parties deal with assorted legal, procedural, scheduling, and discovery issues, which become even more complex and time-consuming when the franchisee asserts counter claims in the termination proceeding. In short, there are times when an arbitration takes longer than it should. In the meantime, what can the franchisor do with a recalcitrant franchisee who is refusing to accept termination or failing to comply with system standards while the arbitration is pending?