WE CARE HAIR DEVELOPMENT, INC. V. ENGEN
180 F.3d 838 (7th Cir. 1999)
NATURE OF THE CASE: Engen (D), franchisees sought review of a judgment, which held for We
Care (P), franchisor under the Federal Arbitration Act, 9 U.S.C.S. 4, compelled D to
arbitrate their state law claims against P, and stayed state court proceedings pursuant to
the Anti-Injunction Act, 28 U.S.C.S. 2283.
FACTS: All of the appellant-franchisees entered into franchise agreements with We Care
Hair, Inc. The agreements contained a clause requiring arbitration as a condition precedent
to the commencement of legal action for all disputes arising out of or relating to the
franchise agreement. All of the franchisees were required to sublease their premises from a
leasing company, We Care Hair Realty, which is an alter ego of We Care Hair, Inc. The rent
under the subleases is the same as the rent under the master leases between the landlords
and We Care Hair Realty, and the franchisees are directed to pay their rent directly to the
landlords. Arbitration was not required under the subleases. The offering circular also
advises prospective franchisees that the leasing company, We Care Hair Realty, could
terminate a franchisee's sublease without We Care Hair also terminating the franchise
agreement, a situation which could render the franchise agreement valueless. A class action
suit was commenced in state court by Ds and P filed a suit in federal court to compel
arbitration. P prevailed and got an order to compel arbitration, which was appealed. Ds
contend that the District Court was in error because the arbitration clause with the cross
default provisions in the subleases was unconscionable and against public policy.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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