The Franchise Memorandum

In Ace Hardware Corp. v. Advanced Caregivers, LLC, 2012 U.S. Dist. LEXIS 150877 (N.D. Ill. Oct. 18, 2012), the United States District Court for the Northern District of Illinois granted franchisor Ace Hardware’s motion to compel arbitration of the fraud claims of the franchises, Advanced Caregivers. Advanced Caregivers had brought suit in federal court in Florida on behalf of itself and a putative nationwide class, alleging that Ace defrauded them in connection with their decision to acquire Ace franchises. The dispute arose after Ace requested that Advanced Caregivers sign a set of revised franchise agreements to correct a minor error. The franchisees claim that they did not notice that the revised agreements also contained arbitration provisions, which were not included in the original set of agreements that they had executed a few months earlier. Ace moved to compel arbitration in federal court in Illinois on the grounds that Advanced Caregivers’ allegations fell within the mandatory arbitration provisions found in the second set of agreements. In opposing the motion, Advanced Caregivers argued that the clauses were unenforceable because they were procedurally unconscionable, fraudulent, or obtained by mutual mistake.

The court held that the arbitration clauses were enforceable based on the second set of executed agreements. According to the court, the franchisees’ claim of mutual mistake failed as a matter of law because they were presumed to have read the contracts before signing them. By signing the second set of agreements, the franchisees expressed their assent to the arbitration clauses. The court further concluded that Ace had no duty to inform Advanced Caregivers of the changes to the contract and that the clauses were not procedurally unconscionable because they were not too difficult to find, read, or understand. Finally, the court rejected Advanced Caregivers’ argument that the contracts had been formed by fraud, reasoning that they easily could have discovered the arbitration provisions given that they appeared directly above the signature lines and that the word “arbitrate” appeared at least a dozen times in one of the documents.