A federal district court in Kansas enforced an agreement to arbitrate between franchisor and franchisee, explaining that since the franchisee objected to the franchise agreement in its entirety, and not just the arbitration agreement, the issue should be submitted to arbitration.

In Brooke Credit Corp. v. Buckeye Insurance Center, No. 07-1322-JTM, 2008 WL 2609808 (D. Kan. June 27, 2008), Brooke franchised insurance agencies throughout the United States. Buckeye was one such franchisee. Brooke filed a lawsuit against Buckeye for breach of its obligations arising from a loan. Buckeye filed several counterclaims against Brooke, including breach of contract and breach of the duty of good faith.

In response, Brooke filed a motion to compel arbitration of the counterclaims pursuant to the franchise agreement between the parties. Buckeye opposed the motion, arguing that the franchise agreement was invalid because there was no "meeting of the minds," thus rendering the arbitration agreement a nullity.

The Court equated Buckeye’s "meeting of the minds" argument to a claim of fraudulent inducement. Additionally, the fraud argument was not specifically aimed at the arbitration agreement, but at the franchise agreement as a whole.

The Court noted that challenges to the validity of an entire contract are to be considered by the arbitrator, not the court. The United States Supreme Court has stated that "if the claim is fraud in the inducement of the arbitration clause, an issue which goes to the making of the agreement to arbitrate, the federal court may proceed," but the court may not consider claims of fraud in the inducement of the contract generally. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 338 U.S. 395, 403-04 (1967); see also Buckeye Cash Checking, Inc. v. Cardegna, 546 U.S. 440, 455-46 (2006).

Since Buckeye’s argument alleged fraudulent inducement of the entire franchise agreement, the counterclaims were subject to arbitration. Accordingly, the Court ordered Buckeye to submit its claims to arbitration.