Glenn E. Davis, HeplerBroom LLC Partner, obtained dismissal of a national class action brought by five franchisees of a national commercial cleaning franchise. Plaintiffs accused 179 defendants, including the system franchisor, master (regional) franchisors, and over 70 individuals associated with the franchise system of violating §§ 1962(c) & (d) of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiffs alleged the Defendants operate the Stratus franchise system through amorphous a scheme to defraud unit franchisees across the country. In so doing, Plaintiffs ignored their contractual obligation to arbitrate their claims, on an individual as opposed to class basis.
In accordance with the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., Chief Judge Catherine D. Perry of the U.S. District Court for the Eastern District of Missouri, found that the arbitration provision and class-action waiver clause contained in Plaintiffs’ Unit Franchise Agreements are valid, irrevocable, and must be enforced according to their terms. Judge Perry rejected the arbitration agreement was unenforceable as procedurally or substantively unconscionable and concluded the agreement applied to non-signatories who were connected with the Franchise system. “Because plaintiffs’ RICO claims allege that they were defrauded, in part, by thee operation of the unit franchise agreement, the arbitration agreement encompasses those claims…. Any arbitration must be conducted on an individual basis in accordance with the terms of the arbitration agreement.”
The decision effectively ends over a year of significant harm to Stratus’ business reputations and eliminates potential multi-million dollar system-wide exposure.