In Management Recruiters Int'l v. Bloor, 129 F.3d 851 (6th Cir., 1997), the Sixth Circuit Court of Appeals held that a contract provision specifying an arbitration forum in Ohio, when the franchisee's home state was Washington, was enforceable against the franchisee because it did not conflict with a Washington statute regarding the location of arbitration hearings. In dicta, the Court strongly suggested that even if a Washington statute precluded arbitration outside the state, such a provision would likely be preempted by the Federal Arbitration Act, 9 USC 1, et seq.
Section 27 of the Franchise Investment Law, enacted in Michigan in 1984, (MCL 445.1527) makes unenforceable certain provisions relating to the franchise, including: "(f) A provision requiring that arbitration or litigation be conducted outside this state...."
This statute was previously construed by a lower court to mean that a provision in a franchise agreement for arbitrating prospective disputes outside the state of Michigan is void. Hambell v. Alphagraphics Franchising Inc., 779 F. Supp. 910 (E.D. Mich., 1991). The Bloor court stated, however, that a state statute which changes the parties' agreement to arbitrate under the Federal Arbitration Act would be of doubtful validity:
The Supreme Court has held that, under Section 2 [of the Federal Arbitration Act], the forum expectations of parties to an arbitration agreement as reflected in a written agreement may not be upset by state law. See Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct.852, 857, 79 LEd 2d 1 (1984).
The conflict is growing between the Federal Arbitration Act which favors the parties' arbitration agreements, and state laws designed to protect resident consumers, employees and small businesses. Although Bloor referred to Washington law and the statements made with respect to preemption were not necessary to the decision, Bloor clearly signals an intention by the federal appellate court in this circuit to preempt any state statute or court decision which operates to limit the terms of the parties' arbitration agreement. Thus, litigants in franchise disputes may see non-Michigan arbitration venue provisions upheld by federal courts sitting in Michigan but struck down by state courts applying Section 27(f).