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Cohen v. Stratis Business Centers, Inc.

2005 WL 3008807 (U.S. Dist. Ct. D. N.J. 2005) (Unpublished)

FRANCHISES; FORUM SELECTION; ARBITRATION—Although New Jersey case law holds that forum selection clauses in franchise agreements are presumptively invalid, that holding applies to judicial forums and not to arbitral forums.

A franchise agreement stated, in relevant part: “[A]ny claim ... that cannot be settled through negotiations will be resolved solely and exclusively by binding arbitration initiated at and supervised by the [American Arbitration Association] office nearest [the franchisor’s] home office at the time, unless agreed otherwise by the parties.” It was undisputed that the franchisor’s principal office was in Dallas, Texas and that it was the “home office” referenced in the clause. A New Jersey case, Kubis & Perszyk Assocs. v. Sun Microsystems, 680 A.2d 618 (N.J. 1996) “stands for the proposition that forum selection clauses in franchise agreements are presumptively invalid.” Nonetheless, the Court, in the dispute as to where arbitration of the dispute over the franchise agreement should take place, held that the Kubis decision only relates to judicial forums as opposed to arbitral forums. That New Jersey case “involved a judicial forum selection clause, not an arbitral forum selection clause.” Therefore, the Kubis case “did not even need to address the applicability of such a decision to an arbitration agreement” under the Federal Arbitration Act (FAA). With that in mind, the Court, in this particular case, held that “insofar as Kubis can be said to invalidate forum selection clauses in franchise agreements, this Court finds that the FAA preempts such a validation.” Further, despite the holding in the Kubis case, even if the FAA did not preempt that holding, the Court believed that the requirement to hold the arbitration in Texas would be enforceable. The Court believed that the general principle remained that a forum selection clause is valid when there has been no “fraud, influence, or overweening bargaining power.” Further, the objecting party bears “the burden of demonstrating” why it should not be bound to the contractual choice of forum.

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