Country Kitchen of Mount Vernon, Inc. v. Country Kitchen of Western America, Inc.

293 N.W.2d 118, 1980 N.D. LEXIS 231
CourtNorth Dakota Supreme Court
DecidedApril 23, 1980
DocketCiv. 9703
StatusPublished
Cited by9 cases

This text of 293 N.W.2d 118 (Country Kitchen of Mount Vernon, Inc. v. Country Kitchen of Western America, Inc.) is published on Counsel Stack Legal Research, covering North Dakota Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Country Kitchen of Mount Vernon, Inc. v. Country Kitchen of Western America, Inc., 293 N.W.2d 118, 1980 N.D. LEXIS 231 (N.D. 1980).

Opinions

VANDE WALLE, Justice.

Country Kitchen of Mount Vernon, Inc. (“Mt. Vernon”), appeals from an order of the Ramsey County district court entered on October 22,1979, dissolving a temporary injunction previously ordered by the district court restraining Country Kitchen of Western America, Inc. (“C.K.W.A.”), and Country Kitchen International-West, Inc. (“C.K. I.W.”), from continuing with their application for arbitration within the State of Washington, and dismissing without prejudice Mt. Vernon’s summons and complaint. We affirm.

On October 29,1975, Mt. Vernon, as franchisee, entered into a franchise license agreement (“agreement”) with C.K.W.A. C.K.W.A. was an area licensee of Country Kitchen International, Inc. (“C.K.I.”), and held the rights to develop Country Kitchen restaurants in several States, including North Dakota and Washington.

On March 29, 1979, C.K.I.W., a wholly owned subsidiary of C.K.I., acquired all the outstanding stock of C.K.W.A. Pursuant to the agreement, C.K.I.W. was also assigned all the rights that C.K.W.A. had under the agreement.

On the same day, Mt. Vernon notified C.K.I.W. that it was unilaterally terminating their agreement and intended to dispose of its Country Kitchen outlets. C.K.I.W. responded that it would not authorize such termination and that any attempt at unilateral termination was contrary to the terms of the agreement.1 Nevertheless, Mt. Vernon sold the businesses not as Country Kitchen but as ordinary restaurants.

Subsequently, C.K.I.W. filed a demand for arbitration pursuant to Article 25 of the [119]*119agreement.2 Mt. Vernon objected to arbitration by the Seattle office of the American Arbitration Association on the ground that the contract was invalid and that the Association did not have jurisdiction to hear the matter, but the Association informed Mt. Vernon that it would proceed with arbitration.

Mt. Vernon then secured a temporary injunction and order to show cause in the district court of Ramsey County, North Dakota, restraining C.K.W.A. and C.K.I.W. from continuing their demand for arbitration. In addition, Mt. Vernon commenced an action in the same court praying that the agreement be declared null and void because C.K.W.A. had failed to register the franchise offer as required under the Franchise Investment Law, Chapter 51-19, N.D. C.C.

At the hearing on the order to show cause, C.K.I.W. moved for, among other things, dissolution of the temporary injunction and dismissal of the complaint. The district court found the agreement to be presumptively valid and therefore the provisions for arbitration to be mandatory. It dissolved the temporary injunction and restraining order and dismissed Mt. Vernon’s summons and complaint without prejudice. Mt. Vernon now appeals from the order dissolving the temporary injunction and dismissing the summons and complaint.

Mt. Vernon contends that the agreement is void and unenforceable because the offer of the franchise had not been registered as required by Section 51-19-03, N.D.C.C.3 C.K.I.W. contends that a claim the agreement is void ab initio should be reserved for the arbitrator.

In support of its contention, C.K.I.W. cites Prima Paint v. Flood & Conklin, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), wherein the United States Supreme Court held that a claim of fraud in the inducement of a contract was to be resolved pursuant to the arbitration provision of that contract, where there was no claim of fraud in the inducement of the arbitration clause itself. This rule, which leaves certain issues to be resolved by arbitration rather than by the courts, has been extended by the Federal courts to also include the issue of laches [Operating Engineers v. Flair Builders, Inc., 406 U.S. 487, 92 S.Ct. 1710, 32 L.Ed.2d 248 (1972); see also West Fargo Public Sch. Dist v. West Fargo Ed., 259 N.W.2d 612 (N.D.1977)] and disputes over offers and acceptances [Nuclear Installation, Etc. v. Nuclear Services, 468 F.Supp. 1187 (E.D.Pa. 1979)].

Further support for C.K.I.W.’s position is found in Allison v. Medicab Intern., Inc., 92 Wash.2d 199, 597 P.2d 380 (1979). This was an action brought by a franchisee to rescind a franchise agreement. Like Mt. Vernon, the franchisee in the Washington case alleged that the failure of the defendant to register made the agreement void. See R.C.W. 19.100.020.4 The Washington court held:

[120]*120“The failure to register does not make the agreement void. See Fleetham v. Schneekloth, 52 Wash.2d 176, 324 P.2d 429 (1958). It is simply a controversy ‘arising out of or in connection with [the] Agreement’ and as such becomes subject to the arbitration agreement enforceable under the federal arbitration act.” 92 Wash.2d at 203-204, 597 P.2d at 382.

We agree with the Washington court that an arbitration board could consider the effect on the parties of the franchisor’s failure to register. But when the issue of whether or not the contract is void for failure to register the franchise offer is presented directly to this court, and we have not previously considered the issue, we believe it is appropriate for this court to address the question.

In the absence of any allegations and proof that the failure to register caused harm to the franchisee, we do not believe the Legislature intended franchise agreements to be void in their inception because the franchisor failed to register the offer. The Franchise Investment Law itself provides civil and criminal remedies in the event a violation of the Act occurs. Section 51-19-12, N.D.C.C., states, in part:

“1. Any person who violates any provision of this chapter or any rule or order issued by the commissioner thereunder shall be liable to the franchisee or subfranchisor who may bring an action for damages, for rescission, or for such other relief as the court may deem appropriate.
“3. In any action under this section, the franchisee or subfranchisor, if successful, shall also be entitled to costs and disbursements plus reasonable attorney’s fees.
“5.

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293 N.W.2d 118, 1980 N.D. LEXIS 231, Counsel Stack Legal Research, https://law.counselstack.com/opinion/country-kitchen-of-mount-vernon-inc-v-country-kitchen-of-western-nd-1980.