Dispute Resolution System Design

You are the General Counsel of Mission Foods, Inc., a San Diego based corporation and franchisor of a chain of 1500 franchises throughout the United States.  Your franchises are named Burrito Bell and serve primarily Mexican fast food (tacos, burritos, etc.).  The CEO of the company has requested that you conduct a thorough review of the way legal disputes are handled by Mission Foods and to recommend to her how to address the explosion of costs related to legal disputes over the past few years ($8.3 million in 2010, $10.2 million in 2011 and $10.9 million in 2012).  The legal expenses for these years break down as follows:

 

2010    2011    2012

Franchisor/Franchisee Disputes             $4.1 million       $5.5 million       $5.8 million

Mission Foods Employee Lawsuits                 $3.0 million       $3.2 million       $3.4 million

Self Insured “Slip & Fall” Lawsuits     $0.8 million     $0.9 million    $1.0 million

Vendor Contract Disputes                              $0.4 million       $0.6 million     $0.7 million

 

[Note: These figures represent only the costs and fees for outside litigators hired to

   defend or prosecute these actions; they do not include sums paid for claims where liability was

   found against Mission Foods, Inc. nor for any internal costs relating to legal staff time,

   human resources time or other corporate time and expenses devoted to these disputes.

   They also do not include any costs or fees incurred by franchisees defending

   actions filed against them by their employees or others.]

 

1047 of the franchises are owned by independent franchisees and 453 are company-owned.   Including the company-owned franchisees, Mission Foods grossed $1.2 billion in 2012.  Mission Foods, Inc.  has 5045 employees, approximately 10% of which are employed in the corporate headquarters and the remainder in the company-owned franchises; there are no employees of Mission Foods, Inc. working for any of the independently owned franchises.  The annual employee turnover rate in the company-owned franchises generally ranges from 25 to 30% and in the corporation headquarters, 5 to 10%.

 

Due to two recent large judgments against Mission Foods – one an age discrimination suit brought by a former manager of a company-owned franchise and another a sexual harassment claim in the corporate headquarters (against a middle manager) – the CEO is especially anxious to address the employment area.  She is also very concerned about the increase in franchisor/franchisee disputes, including a particularly disturbing recent arbitration where 25 franchisees banded together to file a class action arbitration against Mission Foods and the U.S. District Court denied the company’s request to unconsolidated them (have them heard as separate arbitrations).  Currently, the franchisor/franshisee agreements contain only a standard, very general AAA arbitration clause calling for arbitration under their rules.  There are no other dispute resolution processes (e.g., mediation) called for in either these agreements or relating to employment claims or issues in the corporation.

 

In three-single spaced pages or less (in normal font and with normal margins) (e.g., 12 point New Times Roman), you are to recommend a new dispute resolution system to the CEO to help the company manage its legal and other resources for handling these disputes in more effective and cost-efficient ways.   To do this, you may use the JAMS dispute resolution clause drafting guides from the copied materials for this class, plus anything from the websites of the American Arbitration Association (www.adr.org) or the International Institute for Conflict Prevention and Resolution/Center for Public Resources (www.cpradr.org), class reading materials, class discussions and exercises.  If needed to save writing space, you may incorporate ADR clause language from the provider sources by reference rather than including the full provisions. As part of this recommended system, please also include how you believe it would be best to implement any new dispute resolution processes.

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