The recent 1st Circuit case Fantastic Sams Franchise Corp. v. FSRO Association Ltd. pitted the hair salon chain against owners of regional franchises. The franchisees claimed that the Fantastic Sams corporation was depressingthe sale price that they could obtain for the businesses by failing to issue legally required disclosure statements— a document similar to a prospectus a franchisee must obtain before selling his business.

The parties had contractually agreed to arbitrate disputes arising under their franchise agreements. The franchisees wanted to arbitrate their claims in an association action—essentially meaning that an association of franchisees would represent the interests of the individual franchise owners collectively in a single case.

“An association action was desirable for its precedential value,” says W. Michael Garner, a Minnesota attorney who represented the franchisees in the case. “We wanted Fantastic Sams to be bound as to all of the members of the association, rather than have multiple, possibly conflicting, decisions.”