Jesse Cohen, et al. v. Stratis Business Centers, Inc.

Under New Jersey law, forum selection provisions in franchise agreements have been rendered enforceable. In Kubis v. Perszyk Assoc. v. Sun Microsystems, 680 A.2d 618 (N.J. 1996), the New Jersey Supreme Court held that the Forum-selection clauses in contracts subject to the New Jersey Franchise Practices Act are presumptively invalid and should not be enforced unless franchisor can satisfy burden of proving that clause was not imposed on the franchisee unfairly on the basis of its superior bargaining position. As a result, franchisors could not enforce their Forum-selection clauses to franchisees located in New Jersey. However, recently, the United States District Court held in Jesse Cohen, et al. v. Stratis Business Centers, Inc., et al.,, in a non-published decision, that the holding in Kubis applied only to judicial forums, as opposed to arbitral forums.

In Jesse Cohen, the franchise agreement contained an arbitration clause that stated in pertinent part, “[A]ny claim…that cannot be settled through negotiations, will be resolved solely and exclusively by binding arbitration initiated at and supervised by the [American Arbitration Association] office nearest to our home office at the time…”

The District Court held that the Federal Arbitration Act (“FAA”) preempts Kubis to the extent that it invalidates forum selection clauses. In the past, District Courts sitting in other circuits have reached similar conclusions as the Jesse Cohen Court. However, this is the first decision in the third circuit (where New Jersey sits), to distinguish the New Jersey Supreme Court’s ruling as not extending to arbitral forums and being preempted by the pro-arbitration policy of the FAA.