We Care Hair Development, Inc. v. Engen

Engen (defendant) owned and operated a franchise of We Care Hair Development, Inc. (We Care Hair) (plaintiff). The franchise agreement between We Care Hair and Engen provided that all disputes arising out of or relating to the franchise agreement could be submitted to arbitration before the commencement of legal action by either party. Additionally, in a separate agreement, Engen was required to sublease the property for the franchise from We Care Realty, an alter ego of We Care Hair. Engen was required under the sublease agreement to pay rent directly to an intermediary landlord. The landlord paid rent monies to We Care Hair. Arbitration was not required under the terms of the sublease. Rather, the sublease provided that the landlord could evict Engen for any breach of the sublease agreement. Additionally, the sublease stated that breaches of Engen’s franchise agreement with We Care Hair would be treated as breaches of the sublease agreement. The result of this agreement was that the landlord, without submitting a dispute to arbitration, could terminate the sublease and evict Engen for any breach of the sublease, including a breach of the franchise agreement. We Care Hair brought suit against Engen in federal district court. In response, Engen brought a state law claim against We Care Hair in state court alleging that the sublease agreement was unconscionable by permitting the landlord to bring eviction proceedings against Engen without submitting the eviction claim to arbitration. The federal district court ordered Engen to submit his state law claims to arbitration and enjoined Engen from proceeding in the state court lawsuit against We Care Hair. Engen appealed.