A state appellate court in Michigan affirmed in part and reversed in part a trial court’s decision compelling arbitration and denying a motion to rescind two contracts related to a failed effort to establish a franchise system in Mallad v. Lefty’s Holdings, LLC, No. 368913, 2025 WL 2902032 (Mich. Ct. App. Oct. 10, 2025).
In 2020, Allie Mallad and Nayfe Berry agreed to convert Lefty’s Cheesesteaks, a group of restaurants owned by Berry, into a franchise system and expand nationwide. As part of the deal, Mallad was to receive an ownership interest in Lefty’s in exchange for Berry receiving an ownership interest in Mallad’s company, Red Effect Holdings, LLC. Mallad and Berry executed both a master agreement and an operating agreement. The master agreement included a forum-selection clause requiring disputes to be litigated in courts in Wayne County, Michigan, while the operating agreement contained an arbitration clause for disputes arising from the operating agreement. After the relationship deteriorated, Mallad filed suit demanding an accounting and alleging various claims including breach of contract, member oppression, and tortious interference. Mallad sued Berry, Lefty’s Holdings, LLC, Lefty’s Cheesesteaks Franchising, LLC, and two individuals associated with Berry—Sam Hussein Berry, and Shady Abulhassan. The defendants moved to compel arbitration based on the operating agreement and also moved to rescind the agreements, alleging fraud. The trial court granted the motion to compel arbitration and denied the rescission motion without prejudice.
The appellate court held that the trial court erred by dismissing the case instead of staying it pending arbitration, as required under Michigan’s Uniform Arbitration Act. The appellate court, like the trial court, rejected Mallad’s argument that the master agreement’s forum-selection clause overrode the arbitration clause in the operating agreement, finding no conflict between the two, and therefore affirmed most of the order compelling arbitration. However, the appellate court reversed the order compelling arbitration as it pertained to a single claim by Mallad against Abulhassan. It found that the tortious interference claim, pleaded in the alternative, was not subject to arbitration because Abulhassan did not sign the operating agreement and the claim was not based on any allegation that Abulhassan was an agent of the LLC governed by the operating agreement. Finally, the appellate court upheld the trial court’s decision to deny the defendants’ motion to rescind the agreements without prejudice, citing procedural deficiencies and lack of substantive argument at the trial level.
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