A franchise contract which requires arbitration of claims unless a party waives its rights to both a jury trial and punitive damages is not unconscionable if those waivers are knowingly, voluntarily, and mutually made, according to a federal district court in Virginia.

In Dunkin' Donuts Franchised Restaurants LLC v. Manassas Donut Inc., No. 1:07cv446 (JCC), 2008 WL 110474 (E.D. Va. Jan. 8, 2008), Dunkin' Donuts entered into several franchisee contracts with Manassas Donut. After an independent inspection of one of Manassas Donut's stores, Dunkin' Donuts filed a complaint against the franchisee for breach of contract and trademark infringement.

Manassas Donut counterclaimed and demanded a jury trial. Dunkin' Donuts moved to strike Manassas Donut's demand for a jury trial and request for punitive damages, citing the waiver of both within the contract.

The Court found that Manassas Donut knowingly and voluntarily waived its rights to a jury trial and to any punitive damages, noting that the contract clearly and conspicuously stated each waiver in two locations within the contract. Furthermore, the Court determined that Manassas Donut was a sophisticated franchisee that had the opportunity to have legal counsel review the waivers, but chose not to do so.

Manassas Donut also maintained that the waivers were unconscionable due to a lack of mutuality, claiming that Dunkin' Donuts was allowed to bring all claims to court, while the franchisee was required to waive its right to a jury trial and to punitive damages in order to choose litigation. The contract stated that if a party did not agree to the two waivers, the contract required arbitration instead of litigation.

The Court rejected this lack of mutuality argument, noting that, when read alongside subsequent provisions, the contract required either party to arbitrate its claims, unless the party bringing the claims waived its rights to both a jury trial and punitive damages.