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Cary Ichter Obtains $6,546,100 Arbitration Award on Behalf of Clients in Franchise Dispute

Cary Ichter Obtains $6,546,100 Arbitration Award on Behalf of Clients in Franchise Dispute

On December 2, 2010, the Superior Court of Gwinnett County confirmed an arbitration award obtained by Cary Ichter on behalf of his clients with a total value of $6,546,100.  The arbitration arose out of a franchise dispute, involving a child care franchisor and five franchised businesses and their owners.  The franchisees had terminated their relationship with the franchisor and its affiliate, alleging that they had been fraudulently induced to enter into the relationship.  The franchisees sued, and the franchisor moved to compel arbitration.

In the arbitration, the franchisor sought to recover $5,425,000 against the franchisees, consisting of nearly $1 million due under certain promissory notes and over $4 million in future franchise fees.  The franchisees counterclaimed in the arbitration seeking to rescind for fraud and seeking to recover damages.  Although the FTC Act, which governs franchise relationships, does not provide for a private cause of action for failure to comply with its disclosure requirements, the franchisees asserted a breach of duty claim under OCGA § 51-1-6 for failure to comply with the terms of the Act.  Section 51-1-6 provides that if someone owes a duty to another which is breached and causes injury, a claim will lie under Georgia law.  This creative and novel approach effectively incorporated the provisions of the FTC Act into Georgia law by way of the statute.

The arbitration panel denied the franchisor’s motion for summary judgment on the franchisees’ claims, and after a two week hearing, issued an award denying the franchisor’s claims, rescinding the various agreements between the parties, and awarding the franchisees damages in the amount of $1,121,100, including attorneys’ fees.  The Superior Court confirmed the award, denying the franchisor’s motion to vacate the award and rejecting arguments against confirmation.

For more information regarding this matter or Ichter Davis’ franchise practice, call Cary Ichter at 404-869-7600.

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