Under what circumstances would a dispute with Cream not be subject to the arbitration clause?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL BASIS AND THAT A PROCEEDING REQUIRED UNDER THIS SECTION TO BE SUBMITTED TO ARBITRATION MAY NOT BE: (1) CONDUCTED ON A CLASS-WIDE BASIS; (2) COMMENCED, CONDUCTED OR CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING; (3) JOINED WITH ANY SEPARATE CONTROVERSY, DISPUTE OR CLAIM OF AN UNAFFILIATED THIRD-PARTY; OR (4) BROUGHT ON YOUR BEHALF BY ANY ASSOCIATION OR AGENT. Notwithstanding the foregoing, if any court or arbitrator determines that all or any part of the preceding sentence is unenforceable with respect to a dispute, controversy or claim that otherwise would be subject to arbitration under this Section, then all parties agree that this arbitration clause shall not apply to that dispute, controversy or claim and that such dispute, controversy or claim shall be resolved in a judicial proceeding in accordance with the dispute resolution provisions of this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, disputes may not be subject to arbitration if a court or arbitrator determines that the clause prohibiting class-wide actions, consolidated proceedings, or third-party claims is unenforceable. In such cases, the dispute will be resolved in a judicial proceeding as per the agreement's dispute resolution provisions. This means that while Cream generally prefers arbitration for resolving disputes, there are specific circumstances where a court or arbitrator might deem the arbitration clause unenforceable, particularly concerning the scope of the arbitration (e.g., class actions).
For a prospective Cream franchisee, this is important because it clarifies the dispute resolution process. Typically, franchise agreements favor arbitration due to its potential for faster and more cost-effective resolution compared to litigation. However, this clause provides an exception, allowing for judicial proceedings if the restrictions on class actions or consolidated arbitrations are deemed unenforceable. This could arise if a franchisee believes their dispute is better suited for a class action or involves multiple parties, and a court agrees that the arbitration restrictions are unfair or legally unsound.
This provision offers a degree of protection for franchisees, ensuring that they are not entirely locked into arbitration if the specific terms of the arbitration clause are found to be unenforceable. It is essential for potential Cream franchisees to understand this exception and consult with legal counsel to assess its implications for their specific circumstances. Franchisees should consider the potential benefits and drawbacks of arbitration versus judicial proceedings, especially in the context of potential disputes that could involve multiple franchisees or broader legal issues.
It's also worth noting that the determination of unenforceability rests with a court or arbitrator, meaning that a franchisee would need to initiate a legal challenge to the arbitration clause to trigger this exception. This adds a layer of complexity and cost, as the franchisee would need to demonstrate why the restrictions on class actions or consolidated proceedings are not enforceable in their particular case. Therefore, while the exception exists, it is not a guaranteed pathway to judicial proceedings and requires careful consideration and legal strategy.