The federal district court in Michigan granted a motion to stay the franchisee’s case pending resolution of an arbitration between the franchisee and Spray Foam Genie International (“SFGI”), a spray foam insulation business franchisor.
SFGI offers franchises under several models, including an investor model, which allows franchisees to devote time to other jobs. In this model, SFGI manages the operations, provides support services, and allows part-time participation by franchisees after the franchisee invests upfront to open a location. SFGI and TL Jamil LLC (“TL Jamil”) entered into a franchise agreement for TL Jamil to open franchises in Florida and Washington, D.C. that SFGI would then manage.
TL Jamil claimed SFGI failed to deliver the technology, support, and marketing it had promised. TL Jamil also claimed they were forced to spend 40-50 hours per week managing the Florida franchise themselves and asserted that they invested more than $1.3 million, far exceeding the $100,000 to $650,000 range advertised by SFGI.
TL Jamil initiated arbitration proceedings against SFGI as required under the franchise agreement, along with claims against several of SFGI’s officers and related entities. The non-signatory officers and related entity defendants were dismissed from the arbitration proceeding, leaving only SFGI.
TL Jamil subsequently filed a federal action against the SFGI officers and related entities, alleging fraud, embezzlement/conversion, breach of contract, and violations of the Michigan Franchise Investment Law. The SFGI officers and related entities moved to stay the case pending the outcome of the arbitration proceedings against SFGI.
The court concluded that even though SFGI was not a party to the federal action, the arbitration proceedings are “inextricably intertwined” with allegations in the federal action, with nearly identical claims based on the same set of facts. TL Jamil argued that a stay would delay their claims without binding effect because the arbitration results were not directly enforceable against SFGI’s officers and related entities.
The court disagreed, explaining that, unlike other types of stays, the stay in this case does not dismiss the federal claims, but instead just pauses the proceedings until the results of the arbitration clarify the factual and legal issues in dispute. The court concluded that after the arbitration concludes, TL Jamil may proceed against SFGI’s officers and related entities, possibly with stronger factual bases for pleading the claims.
Prospective franchisees should consult with franchise counsel to ensure they understand the dispute resolution provisions contained in the franchise agreement and how those provisions may affect their ability to bring separate actions against the franchisor or related parties in arbitration or in court.
Jamil v. Longe, Case No. 24-13029 (E.D. Mich. Aug. 21, 2025)
