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Girard's Mandatory Arbitration piece is fife with errors ...

Had Mr. Girard contacted us for comments, we would have been pleased to offer our perspective on the issues that his piece raised. As with most things there are two sides to every story, but Mr. Girard?s reliance on a limited number of sources has left his piece woefully slanted against franchising and the International Franchise Association.

I have listed two of what we believe to be the most significant misstatements in his story below along with specific rebuttal points. In the meantime, let me briefly explain the IFA?s opposition to H.R. 1020, the so-called ?Arbitration Fairness Act.? As Mr. Girard?s piece points out, arbitration can be a sensible approach to resolving complex business disputes, and franchise disputes most often involve interpreting the terms of a contract between two business partners. Successful franchising involves sustaining an ongoing business relationship between franchisor and franchisee over a period of many years. In our view, it is imperative that business disputes in franchising be resolved expeditiously and with as little cost and acrimony as possible. We support a number of tools including mediation and arbitration as valid alternatives to litigation. It is our concern that enactment of H.R. 1020 will eliminate arbitration as an alternative to litigation and result in complicated business disputes being dumped into overburdened courts, significantly threatening the franchise model. As the old saw goes, justice delayed is frequently justice denied. Moreover, this bill would retroactively invalidate a clause in thousands and thousands of existing contracts, and we view this as an unwarranted intrusion on the basic freedom to enter into contracts and expect that these contracts will be upheld by law.

We are very concerned that this legislation, like Mr. Girard?s article, is premised on a few anecdotes as opposed to valid evidence. There is no empirical data that I am aware of that supports any of the conclusions that his article has drawn. In fact, the Federal Trade Commission recently completed a thorough overhaul of the Franchise Rule. Regulatory proceedings took more than a decade, involving multiple public hearings and more than three hundred comments from interested parties. The Commission specifically considered whether additional regulation of contract terms was necessary, and they ultimately concluded that such additional regulation was not justified, noting that the public record failed to show a pattern of unfairness in practices or acts in franchising. In all of the submissions by all of the parties, the subject of mandatory binding arbitration in franchise contracts was hardly raised, if at all.

The story noted that this case is still pending in the courts. The Coffee Beanery has asked the US Supreme Court to consider an appeal, and the International Franchise Association has filed a friend of the court brief in support of the Coffee Beanery petition. The underlying question before the Supreme Court is whether or not there can be judicial review of arbitration decisions for grounds that are not clearly stated in Section 10 of the Federal Arbitration Act. In a recent Supreme Court decision, the Court clearly said that only Section 10 provides grounds for vacating an award, raising a valid question in our minds of whether the Sixth Circuit is correct in their ruling. We believe that this case is an important test of whether or not there is a national policy favoring arbitration, and we are concerned that a failure by the Supreme Court to reverse the Sixth Circuit?s decision will open up more and more arbitration cases to costly and lengthy judicial review. While the article implies that the judicial attacks on arbitration are compelling evidence of arbitration?s failings, another observer might conclude that arbitration is under attack by an activist judiciary in California seeking to write new laws.

Now, let me outline a couple of the most outrageous misstatements in the Girard piece and attempt to correct the record:

(1) ?Many franchisors are misusing mandatory binding arbitration clauses? ? We know of no empirical data that supports this conclusion. Arbitration is simply a process like litigation is a process. It is not inherently more or less fair than litigation. One of the key advantages of arbitration is that complex commercial cases such as franchise cases can be heard by neutral arbitrators who have a background in franchising or the underlying business model. In litigation, you get a judge or a jury who have no background in the business or industry in question. In theory, arbitration should be quicker and less expensive than litigation; and this has appeal to franchise systems that want to manage their exposure to litigation expenses. I should point out that there is current research showing that approximately 45 percent of franchise agreements contain an arbitration clause, while 55 percent of franchise systems do not.

(2) ?The Federal Arbitration Act?generally pre-empts state franchise laws? ? The FAA?s pre-emption ...

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Keep the "S" in SBIR!!!

As a small business owner, I have been writing letters to Congress on this issue. However, we seem to have powerful forces against us.