For Ledgers franchises in Maryland, what is the potential impact of the Federal Arbitration Act on the enforceability of the forum selection requirement?

According to Ledgers' 2025 Franchise Disclosure Document, there is a dispute concerning the enforceability of the forum selection requirement in Maryland due to the Federal Arbitration Act (FAA). The Franchise Agreement mandates that disputes are resolved through arbitration. However, Maryland franchise regulations state that it is an unfair or deceptive practice to require a franchisee to waive their right to file a lawsuit in Maryland claiming a violation of the Maryland Franchise Law.

The FDD acknowledges that because of the FAA, there is some dispute as to whether the forum selection requirement is legally enforceable. This means that while Ledgers prefers disputes to be settled through arbitration, a Maryland franchisee might argue that they cannot be forced to waive their right to sue in Maryland courts under the Maryland Franchise Law. The FAA generally favors the enforcement of arbitration agreements, but state laws can sometimes provide exceptions or limitations, leading to potential legal challenges regarding which law takes precedence.

For a prospective Ledgers franchisee in Maryland, this means the enforceability of the arbitration clause in the Franchise Agreement is not guaranteed. If a dispute arises, the franchisee may have grounds to argue that they should be allowed to pursue the matter in Maryland courts, despite the arbitration clause. This could result in higher legal costs and a longer resolution process, as the issue of forum selection may need to be litigated before the actual dispute is addressed. It is advisable for prospective franchisees to seek legal counsel to fully understand their rights and options under both the Franchise Agreement and Maryland law.