In a dispute over whether individuals signing a franchise agreement are subject to the franchise agreement’s arbitration provisions, a federal court in Wisconsin denied a motion to dismiss a request for the federal court to determine arbitrability. Marcus Corp. v. MKD Inv. Holdings, LLC, 2026 WL 194651 (E.D. Wis. Jan. 26, 2026).
In July 2022 and December 2023, MKD Investment Holdings signed franchise agreements with Verlo Mattress to operate two franchise locations. Dirk Stallman was the president of Verlo at that time and signed the franchise agreement on Verlo’s behalf. Other involved parties—Marcus Corporation and Marcus Investments (collectively, “Marcus”)—have an unknown relationship with the franchise agreement but did not sign it. In December 2024, MKD filed a demand for arbitration against Verlo, Stallman, and Marcus alleging, among other things, violations of Wisconsin’s franchise law and Wisconsin’s and Texas’s deceptive trade practices acts, negligent misrepresentation, and fraudulent inducement. In January 2025, Stallman and Marcus objected to the arbitration, arguing that they were not parties to the franchise agreement and did not agree to the franchise agreement’s arbitration provisions. The arbitrator disagreed, holding in August 2025 that Stallman and Marcus were properly joined in arbitration. Stallman and Marcus then sued in Wisconsin federal court seeking a declaration that they are not parties to the franchise agreement, are not subject to the franchise agreement’s arbitration provisions, and are not obligated to arbitrate with MKD. MKD moved to dismiss Stallman and Marcus’ claim for declaratory relief.
The federal district court in Wisconsin denied MKD’s motion to dismiss. Despite MKD’s arguments otherwise, the court first determined that it could properly exercise jurisdiction over the arbitrability question because (1) doing so would help settle the controversy and clarify the legal issues, (2) it was unclear whether arbitration was a better forum for the dispute, and (3) Stallman and Marcus did not have an improper motive in seeking the court’s declaration. The court next found that it could properly decide the question of arbitrability because neither Stallman, individually, nor Marcus signed the franchise agreement and thus did not clearly delegate the question of arbitrability to an arbitrator. Finally, the court found that Stallman and Marcus did not waive judicial review by participating in the arbitration because they argued at the outset of the arbitration that the arbitrator had no jurisdiction over the dispute.