What are the potential implications of the Aerus franchise agreement requiring binding arbitration in Dallas, Texas for California franchisees?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
- Governing Law and Dispute Resolution.6 Subject to Company's rights under federal trademark laws, all claims arising out of or relating to this Agreement and/or the parties' relationship will be governed by, and will be interpreted in accordance with, the substantive laws of the State of Texas, excluding choice of law principals and irrespective of any conflict of laws. The parties agree that any state law or regulation applicable to the offer or sale of franchises or the franchise relationship will not apply unless the jurisdictional provisions are independently met. Franchisee waives, to the fullest extent permitted by law, the rights and protections provided by any such franchise law or regulation.
Except as may be otherwise provided hereunder in the case of actions for injunctive relief by Company or Company's Affiliates, the parties agree that all disputes, controversies or claims that may directly or indirectly arise among them (including their agents and employees), out of or relating to this Agreement and/or the Franchised Business, shall be submitted to, and determined by, binding arbitration. Any such action shall be conducted on an individual basis, and not as part of a consolidated, common, or class action, and Franchisee waives any and all rights to proceed on a consolidated, common, or class basis. Such arbitration shall be conducted before a single arbitrator in Dallas, Texas pursuant to the Commercial Arbitration Rules then in effect of the American Arbitration Association. The arbitrator shall be an independent third party arbitrator selected by Company. The fees of the arbitration initially shall be paid one-half by Company and one-half by Franchisee; provided, however, that the prevailing party in any such arbitration shall be entitled to recover its reasonable attorneys' fees, costs and expenses (and any interest) incurred in connection with the arbitration. Company shall not be liable to Franchisee or any of Franchisee's principals for any such dispute, controversy or claim in an aggregate amount greater
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, franchise disputes will be resolved through binding arbitration in Dallas, Texas. This has significant implications for California franchisees because they are required to travel to Dallas for arbitration, which can increase costs due to travel expenses, lodging, and potentially needing to hire Texas-based legal counsel. The agreement also specifies that any action shall be conducted on an individual basis, preventing franchisees from participating in class action lawsuits.
Additionally, the franchise agreement is governed by Texas law, excluding its choice of law principles. This means that Texas law will be applied in disputes, which may be different from California law and could impact the outcome of a dispute. The FDD states that franchisees waive rights and protections provided by any franchise law or regulation to the fullest extent permitted by law.
While the arbitration fees are initially split equally between Aerus and the franchisee, the prevailing party is entitled to recover reasonable attorney's fees, costs, and expenses. However, Aerus's liability to the franchisee is capped at the total Standard Allocation collected from the franchised business during the six months preceding the dispute being submitted to arbitration. This limitation on liability could restrict the amount a franchisee can recover, even if they win the arbitration.
Prospective franchisees should be aware of these factors and consider the potential costs and legal implications of arbitrating disputes in Texas under Texas law. It is advisable to seek legal counsel to fully understand the implications of these provisions before entering into a franchise agreement with Aerus.