Justia Arbitration & Mediation Opinion Summaries

Plaintiff makes glucose monitors and other diabetes-related products that incorporate software written by defendant, under a contract that entitles it to use the software for two years after the contractâs initial term, 2006-2010, and any extension. It also gives plaintiff a right of first refusal should defendant agree to sell its stock or assets to one of plaintiffâs competitors "during the term of this Agreement." Defendant would not extend the contract after the original expiration date. Plaintiff learned that investors in defendant were negotiating to sell stock to a company that plaintiff considers a competitor. Defendant asserted that, because the transaction would not close until 2011, the right of first refusal did not apply. Plaintiff sought an injunction pending arbitration. Based on concerns about irreparable harm to each party, the district court entered an injunction to allow the sale to proceed, subject to a requirement that plaintiff be allowed to use the software through 2012; the injunction expires when the arbitrator renders a decision. The Seventh Circuit affirmed, modifying to add conditions to ensure that defendant remains a separate firm so that the transaction can be undone if the arbitrator rules in plaintiffâs favor.

Residents of Missouri contracted with a Texas franchisor to operate tax preparation franchises near St. Louis. The contract contained an arbitration clause and identified Texas as the forum for both arbitration and litigation. When the businesses failed, the franchisees sued the Texas company in Illinois. The district court dismissed. The Seventh Circuit affirmed. The court noted that the parties had not briefed Texas law, but that the Illinois Franchise Act, 815 ILCS 705/4, allows out-of-state arbitration agreements, despite disallowing forum selection; the Federal Arbitration Act, 9 U.S.C. 1, strongly favors agreements for arbitration. Even if the Texas company knowingly authorized a franchise in Illinois, the arbitration clause justified dismissal. The district court did not have jurisdiction to order arbitration outside the district, but the issue was not waived. The court rejected claims of fraudulent inducement and unconscionability.