Washington, DC—When Annapolis couple Deborah Williams and Richard Welshans invested more than $1 million in 2004 into starting up their Coffee Beanery franchise coffee shop, buried deep in contract with the Michigan corporation was a clause that all disputes would be settled by “Binding Mandatory Arbitration” a non-judicial but legally binding process that robs individuals of their Seventh Amendment right to settle disputes in a court of law.
It was a clause that would come back to haunt them.
In September 2006, the Maryland Attorney General found that the Coffee Beanery had violated the state’s franchise law by “making material misrepresentations” regarding it franchise offering.
It was little satisfaction for the couple, whose franchise floundered due to the company’s misrepresentations. Williams and Welshans next turned to recoup operating loses, lost wages and other damages they’d suffered because of the Coffee Beanery’s misrepresentations that have since led to the closing of the franchise. However, they were denied their right to bring suit in the Maryland court before a jury of peers. Instead, because of the binding mandatory arbitration clause, they were required to travel to Michigan and have their case heard by an arbitrator chosen by the company. Small wonder what happened next: not only did they not win the case, but they spent over $100,000 in arbitration costs and were ordered to pay the Coffee Beanery $150,000. The judgment has sent the couple into bankruptcy.
Recently introduced legislation, the Arbitration Fairness Act of 2007, in the House (H.R.3010) and Senate (S. 1782) outlawing Binding Mandatory Arbitration in franchise agreements, nursing home contracts and other consumer agreements might have saved Deborah Williams and Richard Welshans.
Williams, now bankrupt, will be among those victims speaking out against Binding Mandatory Arbitration contracts in Congressional testimony at 2 p.m. on Thursday, October 25 at a hearing before the House Commercial and Administrative Law Subcommittee, chaired by Rep. Linda Sanchez (D-CA). (Location: 2141 Rayburn House Office Building.)