Excessive Arbitration Fees Not Enough To Allow Franchisee To Avoid Arbitration
By Kevin A. Adams on November 13, 2013
Last week, the California Northern District Court denied a franchisee’s request for a temporary restraining order – asking the court to enjoin the franchisor from arbitrating the parties’ dispute – because the franchisee’s anticipated injuries were limited to the substantial sums of money he would have to pay the American Arbitration Association, the arbitrator and others defending the arbitration. The court found that these expenses would not subject the franchisee to irreparable harm as is required for a TRO to issue.
In the case of Terrance v. Metal Supermarket Franchising Am., Inc., Metal Supermarkets, the self-proclaimed “world’s largest small quantity metal distributor,” exercised its option to purchase the assets of one of its franchisee’s businesses following the expiration of the franchisee’s 10-year franchise agreement. After the parties could not reach an agreement on the proper valuation of the assets, the franchisee filed a declaratory action in state court asking the court to set the purchase price for the assets.
Metal Supermarkets removed the case to the California Northern District Court and simultaneously initiated an arbitration before the American Arbitration Association in Washington D.C., as provided for in the franchise agreement.
Instead of participating in the arbitration, the franchisee requested a temporary restraining order from the District Court, asking it to enjoin Metal Supermarkets from proceeding with the arbitration – arguing that the arbitration provides that this type of dispute is to be resolved in court and, alternatively, the arbitration provision is unconscionable and unenforceable.
In support of its requested relief, the franchisee argued that if the arbitration would be allowed to go forward, he would be irreparable harmed as a result of the “substantial amounts of money” he would be required to pay the AAA, the “tens of thousands of dollars” he would have to pay to the arbitrator and local counsel in Washington, D.C, and the “significant housing and travel expenses” he would incur traveling to Washington D.C. to defend himself.
The court summarily dismissed the franchisee’s request finding that the alleged monetary injuries the franchisee faced if the arbitration went forward did not rise to the level of “irreparable harm” as required for a TRO. Explaining that “monetary injury is not normally considered irreparable,” the court denied the franchisee’s request.
The court further added that the franchisee, if correct regarding the unenforceability of the arbitration provision, is free to seek damages for the harm incurred in defending the arbitration proceeding.
It is well known that monetary damages do not constitute irreparable harm – thus, the franchisee’s claimed harm in the form of expenses associated with the arbitration had no chance of supporting his requested injunctive relief.
Theoretically, if the franchisee had been able to show that the expense associated with the arbitration precluded him from participating in that arbitration – i.e., he could not afford such an undertaking – the harm would not have been limited to monetary damages. Thus, a finding of irreparable harm may have been reached by the court. However, because this argument was not made, we do not know which way the court would have come down.
It is abundantly clear however, no matter the cost of an arbitration proceeding, if a party is able to participate in that proceeding, the court will not enjoin the other party from pursuing the arbitration.
Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice as individual situations will differ and should be discussed with an experienced franchise lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
 Terrance v. Metal Supermarket Franchising Am., Inc., 2013 U.S. Dist. LEXIS 160615 (N.D. Cal. Nov. 8, 2013)
 Id. at *4.
 Id. at *5.