[co-author: Pierce Rose]
A federal court in Tennessee granted franchisor Frost Shades’ motion to compel arbitration of franchisee Lunt’s fraudulent inducement of contract claims, but the court also granted in part franchisee Lunt’s request for a preliminary injunction preventing Frost Shades’ enforcement of noncompete restrictions under the franchise agreement while that arbitration was pending. Lunt v. Frost Shades Franchising, LLC, 2023 WL 3484202 (M.D. Tenn. May 16, 2023). Lunt brought an action against Frost Shades and its owners for fraudulent inducement to contract, including claims of affirmative misrepresentation and fraudulent concealment. Lunt alleged that Frost Shades failed to disclose in the franchise disclosure document past legal actions involving its directors, officers, and others with management responsibility. It also sought a preliminary injunction to enjoin Frost Shades’ enforcement of the noncompete covenant in the franchise agreement pending resolution of the claims. Frost Shades moved to dismiss the complaint and compel arbitration.
The court granted Frost Shades’ motion to compel arbitration. It rejected Lunt’s argument that the substantive law of Tennessee prohibits the arbitration of fraudulent inducement claims, because the Federal Arbitration Act and terms of the contract control the breadth of the arbitration provision. The court further explained that nothing in the franchise agreement reflected a meeting of the minds to exclude fraudulent inducement claims from arbitration. The court also granted Lunt’s motion for a preliminary injunction and enjoined Frost Shades enforcing the noncompete covenants against Lunt pending the resolution of the claims because Lunt could face irreparable harm if he was not able to pursue business opportunities with another window installation company. This harm, according to the court, outweighed Frost Shades’ interest in enforcing the noncompete restrictions because Frost Shades remains capable of selling franchises wherever it complies with state franchising laws.
[View source.]
