Citing a prior intra-district decision, a federal district court in Michigan has held that a Michigan state law prohibiting extra-territorial arbitration of franchise disputes is preempted by the Federal Arbitration Act.

In Prude v. McBride Research Laboratories, Inc., No. 07-13472, 2008 WL 360636 (E.D. Mich. Feb. 8, 2008), franchisee Prude entered into a distributor contract with franchisor McBride. The contract contained an arbitration agreement. A dispute arose between the parties over the distributor contract's termination after Prude had allegedly failed to meet certain sales goals.

Prude filed a court action, but McBride sought to compel arbitration. Prude argued that the arbitration agreement was unenforceable because it violated the Michigan Franchise Investment Law's prohibition on provisions requiring out-of-state arbitration. See Mich. Comp. Laws § 445.1527(f).

The Court adopted the conclusion reached in Flint Warm Air Supply Company v. York International Corp., 115 F.Supp.2d 820 (E.D. Mich. 2000) that the Federal Arbitration Act preempted Michigan's attempt to prohibit the out-of-state arbitration of franchise disputes. It agreed with the Flint Warm Air court that such state law restrictions imposed "limitations on the method and manner of arbitration, which cannot be permitted under the Federal Arbitration Act and the Supremacy Clause."

The Court also held that McBride had not waived its right to compel arbitration by asserting an alternative defense in its pleadings, and that the language of the arbitration agreement was broad enough to encompass the franchise-related statutory claims asserted by Prude.