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Super Motels or Super Fraud?
Description Investors signed a contract to become a Motel 8 franchisee and paid a fee. Later, wanting out, they asserted Motel 8 told them they could have their money back. Motel 8 asserts no such statement. The court held the contract required arbitration, so it would not hear the matter. The contract appears to be complete, and there is no evidence of fraud in arbitration, so the matter must go to arbitration.
Topic Alternate Dispute Resolution
Key Words Fraud, Oral Promise, Contract, Franchise
C A S E   S U M M A R Y
Facts Rainbow Investments owned a motel. They agreed for their motel to become a Super 8 Motel by paying $21,000 to become a franchise, which required them to make repairs to meet Motel 8 standards. Rainbow claimed that the agreement was signed with an oral understanding that the money would be returned if the repairs were too expensive. Learning that repairs would cost $168,000, Rainbow requested its money back to cancel the deal. Super 8 claimed the money was nonrefundable. Rainbow sued. Super 8 moved to stay judicial proceedings and compel arbitration under the terms of the agreement. Rainbow claims fraud was used to induce the signing of the contract, so the arbitration clause cannot be enforced.
District Court Decision Motion granted to direct the parties to proceed to arbitration. Regardless of the merits of the claims regarding fraud in the making of the contract, there is no evidence of fraud in the arbitration provision. There is a signed contract; one party claims it is valid, the other claims it was induced by fraud. While there are disputes regarding the purpose of the $21,000 payment and conflict over whether Rainbow had the right to rescind, the arbitration clause covers all disputes.
Citation Rainbow Investments v. Super 8 Motels, ---F.Supp.--- (1997 WL 464509, M.D. Ala.)
973 F. Supp. 1387 (M.D. Ala., 1997)

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