In the
United States Court of Appeals
For the Seventh Circuit
No. 09-1874
JON F AULKENBERG , B YRON L EM ASTER,
and JF M ARKETING, LLC,
Plaintiffs-Appellants,
v.
CB T AX F RANCHISE S YSTEMS, LP, C OLBERT B ALL
T AX S ERVICE, INC., A L C OLBERT, and JA JA B ALL,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Illinois.
No. 08-cv-521—William D. Stiehl, Judge.
A RGUED N OVEMBER 9, 2009—D ECIDED M ARCH 29, 2011
Before E VANS and S YKES, Circuit Judges, and D ER-
Y EGHIAYAN, District Judge.
The Honorable Samuel Der-Yeghiayan, United States
District Judge for the Northern District of Illinois, sitting by
designation.
2 No. 09-1874
S YKES, Circuit Judge. Jon Faulkenberg and Byron
LeMaster, residents of Missouri, contracted with CB Tax
Franchise Systems, LP, a company headquartered in
Texas, to operate five tax-preparation franchises in and
around St. Louis. The franchise agreement contained
two clauses that are common in franchising and central
to this case: an arbitration clause and a forum-
selection clause. Under the arbitration provision, CB Tax
franchisees must submit all disputes with the company
to arbitration in Texas before filing suit. If arbitra-
tion is unsuccessful, the forum-selection clause permits
franchisees to sue—but only in Texas. How then did
this suit end up in Illinois?
According to Faulkenberg and LeMaster, one of their
CB Tax franchises was located in Alton, Illinois, near
the Illinois-Missouri border and adjacent to St. Louis.
When their franchises failed, they sued CB Tax in state
court in Madison County, Illinois, alleging common-
law fraud and violations of the Illinois Franchise Dis-
closure Act of 1987, 815 ILL. C OMP . S TAT. 705/1 et seq. The
Illinois Franchise Act voids all forum-selection clauses
in franchise agreements, which helps explain the plain-
tiffs’ forum-selection decision. Id. 705/4. Faulkenberg
and LeMaster claimed they were fraudulently induced
to purchase the CB Tax franchises and also that CB
Tax failed to register the Alton franchise with Illinois
regulatory authorities as required under the Act. CB Tax
removed the suit to federal court and then moved to
dismiss for improper venue based on both the forum-
selection and arbitration clauses in the franchise agree-
ment.
No. 09-1874 3
The district court granted the motion based on
the forum-selection clause. The court first held that the
Franchise Act did not apply because the parties
had no connection to Illinois; because the Act did not
apply, the forum-selection clause was enforceable and
venue in Illinois was improper. The factual premise for
the first of these rulings is mistaken. At the motion-to-
dismiss stage, the court was required to accept the plain-
tiffs’ allegation that one of the franchises they purchased
was located in Alton, Illinois. Moreover, the uncontested
evidence the parties submitted on the Rule 12(b)(3)
motion bears this out as a matter of fact.
Still, the case was properly dismissed for improper
venue. Although the Franchise Act voids forum-
selection clauses in franchise agreements, it expressly
permits out-of-state arbitration, 815 ILL. C OMP. S TAT. 705/4,
and the parties’ franchise agreement contained a broad
arbitration clause requiring all disputes to be submitted
to arbitration in Texas. A court may dismiss for
improper venue based on either a forum-selection clause
or an arbitration provision; both are properly asserted
as objections to venue. The Federal Arbitration Act
(“FAA”), 9 U.S.C. §§ 1 et seq., strongly favors arbitra-
tion when the parties have agreed to it, as they clearly
did here. We therefore affirm.
I. Background
Faulkenberg and LeMaster became interested in oper-
ating a CB Tax franchise in September 2007. In response
to their inquiry, CB Tax sent them a Uniform Franchise
4 No. 09-1874
Offering Circular and a copy of the CB Tax franchise
agreement. The circular stated that all CB Tax franchises
are governed by the standard franchise agreement;
this document summarized the franchise agreement in
plain language. Under a section entitled “Renewal, Termi-
nation, Transfer and Dispute Resolution,” the circular
says: “All claims are subject to arbitration in Houston,
Texas,” and “[a]ll proceedings shall be brought” in Texas.
Faulkenberg signed a receipt acknowledging that he
received the circular and the accompanying standard
franchise agreement. The receipt instructs prospective
franchisees to “[r]ead this offering circular and all agree-
ments carefully,” but Faulkenberg admits that he did
not do so. He claims not to have noticed any reference
to an arbitration provision or a forum-selection clause
in the circular. His business partner LeMaster neither
read nor signed the circular.
In late October 2007, Faulkenberg emailed CB Tax to
request a reduction in the franchise fee. A CB Tax em-
ployee emailed back with a “revised annual fee agree-
ment” reflecting a lower fee. The employee attached a
sample CB Tax business plan to the email, telling
Faulkenberg that it “will be a useful plan for your
future CB franchises.” The cover page of the business
plan says, “[CB Tax] Business Plan, Union, New Jersey,
Franchise Owner: Walter McDowell.” The plan provided
an overview of the tax-preparation industry and a how-
to guide for the management and operation of a CB Tax
franchise. The CB Tax employee also attached a promis-
sory note to the email. On October 31, 2007, Faulkenberg
No. 09-1874 5
and LeMaster wired $15,000 to CB Tax as consideration
for their purchase of five CB Tax franchises.
In November 2007 the parties executed the franchise
agreement, although they dispute both the precise date
and the manner of execution. CB Tax maintains that
Faulkenberg and LeMaster signed the agreement in
Texas on November 8, 2007. Faulkenberg and LeMaster
contend they were not in Texas on that date. According
to their version of events, they attended a franchise
training session at CB Tax offices in Houston on
November 17 and at that time signed several sheets of
paper but were not given the entire franchise agreement.
The franchise agreement itself bears out CB Tax’s con-
tention. It is dated November 8, 2007, and signed by
both Faulkenberg and LeMaster, as well as a representa-
tive of CB Tax. More specifically, on Page A-1 of the
agreement, Faulkenberg and LeMaster filled in their
names and the November 8, 2007 date. This page plainly
states that by signing the agreement, the franchisees
attest that they understood they were signing a legally
binding franchise contract. Faulkenberg and LeMaster
also filled in their names and the November 8 date on
page A-32 of the agreement. That page states (among
other things) that “[e]ach party affirms to the other that
it has had the opportunity to consult and discuss the
provisions of this Agreement (including the exhibits
and attachments hereto)” with independent legal counsel.
The signature page of the agreement is signed by both
Faulkenberg and LeMaster and a representative of CB
Tax. In addition, Faulkenberg and LeMaster signed
6 No. 09-1874
various exhibits to the franchise agreement, including
a “Controlling Principals Guaranty,” a “Certificate of
Franchisee,” and a “Release of Claims.” These docu-
ments refer explicitly to the franchise agreement and
the franchisees’ rights and obligations under it.
The franchise agreement contains the following broad
arbitration provision: “[A]ny claim, controversy or
dispute arising out of or relating to the franchise, . . .
including, but not limited to, any claim . . . concerning
the entry into, the performance under or the termination
of the agreement . . . shall . . . be referred to arbitration”
in Houston, Texas. The forum-selection clause provides
that any litigation “against any party to this Agreement
arising out of this Agreement or the transactions con-
templated thereby shall be brought in the United
States District Court for the Southern District of Texas
or in any court of appropriate jurisdiction in Harris
County, Texas.”
The parties dispute whether their agreement included
a franchise to be located in Alton, Illinois. Faulkenberg
and LeMaster submitted two emails suggesting that
everyone understood that one of the five franchises
under discussion would be in Alton. The first email
specifically refers to an address in Alton: “2835 Homer
Adams Pkwy, Alton, IL 62002.” The second mentions
the zip codes of the five proposed franchise locations
and includes the zip code applicable to Alton. A reply
from a representative of CB Tax indicates that these
locations were “duly noted.” In an affidavit, however,
this employee said he assumed all of the locations were
No. 09-1874 7
in Missouri. Faulkenberg and LeMaster also claim that
a representative of CB Tax personally inspected the
Alton location and remarked that it was better than
the other proposed locations in Missouri. CB Tax does
not deny that this inspection took place. The record
also contains a printout of a page on CB Tax’s website
indicating that a CB Tax franchise was located at
“2823 Homer Adams Pkwy” in Alton, Illinois.
Less than six months after signing the franchise agree-
ment, Faulkenberg and LeMaster closed all of their
CB Tax outlets. They then filed suit against CB Tax
in Madison County, Illinois, alleging violations of the
Franchise Act for selling an Illinois franchise without
proper registration and making fraudulent misrepre-
sentations in connection with the sale of a franchise in
Illinois. They also alleged common-law fraud. CB Tax
removed the suit to federal court and then moved to
dismiss for improper venue under Rule 12(b)(3) of the
Federal Rules of Civil Procedure.
CB Tax advanced two arguments in support of the
motion. The first was that the forum-selection clause in
the franchise agreement precluded suit in Illinois. The
Franchise Act, if applicable, voids forum-selection
clauses in franchise agreements, but CB Tax argued that
the Act did not apply because the parties never
agreed to locate a franchise in Illinois. The company’s
fallback argument was based on the arbitration clause,
which requires that all disputes be submitted to arbitra-
tion in Houston. While the motion to dismiss was
pending, CB Tax filed a motion to compel arbitration.
8 No. 09-1874
The district court granted the motion to dismiss based
on the forum-selection clause and denied without preju-
dice the motion to compel arbitration. The court ap-
parently rejected the plaintiffs’ contention that the par-
ties’ agreement included a franchise located in Illi-
nois. We say “apparently” because the judge did not
address the point directly. The judge simply noted that
the “plaintiffs do not contend that they are Illinois resi-
dents, nor that any part of this agreement was com-
pleted in Illinois,” and as such the Franchise Act did not
“override” the forum-selection clause in the franchise
agreement. Faulkenberg and LeMaster appealed.
II. Discussion
We review de novo the district court’s order dismissing
this case for improper venue, construing all facts and
drawing reasonable inferences in favor of the plaintiffs.
Kochert v. Adagen Med. Int’l, Inc., 491 F.3d 674, 677 (7th
Cir. 2007). Section 4 of the Franchise Act voids
“[a]ny provision in a franchise agreement that designates
jurisdiction or venue in a forum outside of this State . . . .”
815 ILL. C OMP. S TAT. 705/4. The district court held that
the Act was inapplicable because the parties had no
connection to Illinois. This holding implicitly rejected
the plaintiffs’ contention that the franchise agreement
included a franchise located in Illinois. This was wrong
as a factual matter. At the motion-to-dismiss stage of
the proceedings, the judge was required to accept the
plaintiffs’ version of events as true; this includes their
allegation about a franchise located in Alton, Illinois.
No. 09-1874 9
The Franchise Act provides a statutory cause of action
for fraud “[i]n connection with the offer or sale of any
franchise made in this State.” 815 ILL. C OMP. S TAT. 705/6.
For purposes of section 6, a sale is “made in this State”
when “the franchised business is or will be located in this
State.” Id. Faulkenberg and LeMaster alleged that they
purchased the franchise rights to five CB Tax franchises,
including one to be located in Alton, Illinois, and they
submitted evidence substantiating this allegation in
their response to the motion to dismiss. That evidence
includes the two emails Faulkenberg sent to CB Tax
expressly referring to the Illinois location, and the email
response from a CB Tax employee acknowledging that
the Illinois location, and the others in Missouri, had
been “duly noted.” CB Tax’s own website listed a
franchise in Alton on the same street as the location
mentioned in Faulkenberg’s email, albeit at a different
address.
Faulkenberg and LeMaster also offered evidence that
a CB Tax representative personally inspected the Alton
location and found it to be the best of the five
proposed sites. CB Tax does not deny that this inspec-
tion took place, but nonetheless maintains that it never
knowingly authorized the franchise location in Illinois.
However, the company now concedes the existence of
a genuine factual dispute on this question. Accordingly,
the case should not have been dismissed based on
the forum-selection clause.
But the arbitration clause in the agreement provides
an alternative basis for dismissal. Although section 4 of
10 No. 09-1874
the Franchise Act voids forum-selection clauses in fran-
chise agreements, it specifically permits arbitration out-
side of Illinois: “Any provision in a franchise agreement
that designates jurisdiction or venue in a forum outside
of this State is void, provided that a franchise agreement
may provide for arbitration in a forum outside of this State.” 815
ILL. C OMP. S TAT. 705/4 (emphasis added). If the parties
agreed to arbitrate all disputes in Texas, then the case
was correctly dismissed for improper venue based on the
arbitration provision rather than the forum-selection
clause.
Faulkenberg and LeMaster contend that we cannot
reach the arbitration-clause issue because the district
court did not address it. It is true as a general matter
that we will not consider an argument not passed on
below, but we may appropriately do so where, as here,
the parties have briefed it and the resolution is clear. AAR
Int’l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 523 (7th
Cir. 2001). CB Tax’s motion to dismiss for improper
venue specifically included an argument based on the
arbitration clause. In addition, CB Tax filed a motion to
compel arbitration in the district court, and the plain-
tiffs filed a response. CB Tax devoted most of its appel-
late brief to the arbitration-clause argument, and Faulken-
berg and LeMaster responded to the argument in their
reply. The arbitration-clause issue has been fully
briefed—both in the district court and here—and
provides an independent basis on which to affirm. See
Brooks v. Ross, 578 F.3d 574, 578 (7th Cir. 2009) (“[W]e
may affirm on any ground contained in the record.”).
No. 09-1874 11
Faulkenberg and LeMaster suggest in the alternative
that CB Tax waived its right to rely on the arbitration
clause by filing a motion to dismiss for improper
venue. This argument is clearly foreclosed by circuit
precedent: “A party does not waive its right to arbitrate
a dispute by filing a motion to dismiss or a motion to
transfer venue.” Halim v. Great Gatsby’s Auction Gallery,
Inc., 516 F.3d 557, 562 (7th Cir. 2008). Moreover, we have
held that a motion to dismiss based on a contractual
arbitration clause is appropriately “conceptualized as
an objection to venue, and hence properly raised under
Rule 12(b)(3).” Auto. Mechs. Local 701 Welfare & Pension
Funds v. Vanguard Car Rental USA, Inc., 502 F.3d 740,
746 (7th Cir. 2007); see also Cont’l Cas. Co. v. Am. Nat’l Ins.
Co., 417 F.3d 727, 733 (7th Cir. 2005).
The plaintiffs rely on a handful of out-of-circuit district-
court decisions to support their waiver argument, but
none of the cases they cite holds that filing a motion to
dismiss for improper venue waives the right to arbitrate.
All relate to waiver by other types of litigation conduct.
See, e.g., Mozingo v. S. Fin. Group, Inc., 520 F. Supp. 2d 725,
730-31 (D.S.C. 2007) (plaintiff waived right to compel
arbitration by filing complaint with the Department of
Labor and appealing to an administrative law judge,
who granted summary judgment for defendants);
Karnette v. Wolpoff & Abramson, L.L.P., 444 F. Supp. 2d 640,
648 (E.D. Va. 2006) (defendant waived right to compel
arbitration by filing a motion for summary judgment).
Before we proceed to the merits of the arbitration-
clause issue, we have a few observations on the proce-
12 No. 09-1874
dural posture of the case. Both parties briefed the appeal
as if we were reviewing a denial of a motion to compel
arbitration under § 4 of the FAA. See 9 U.S.C. § 4
(setting forth procedures governing motions to compel
arbitration). For example, CB Tax discussed at length
the elements necessary to grant a motion to compel
arbitration under § 4. Faulkenberg and LeMaster, for
their part, demanded that we remand for a jury trial
pursuant to § 4 of the FAA on the question whether
they agreed to arbitrate. See id. (An aggrieved party
may demand a jury trial to determine whether they
entered into an agreement to arbitrate.). These references
to § 4 of the FAA, however, are off the mark.
This is an appeal from an order of dismissal for improper
venue. After granting CB Tax’s motion to dismiss
under Rule 12(b)(3), the district court simply denied,
without prejudice, CB Tax’s motion to compel arbitration.
Accordingly, the court did not address the merits of the
motion to compel arbitration, and CB Tax did not cross-
appeal from the order denying this motion. This is just
as well because under § 4 of the FAA, a district court
cannot compel arbitration outside the confines of its
district. See Haber v. Biomet, Inc., 578 F.3d 553, 558 (7th
Cir. 2009) (“[O]nly the district court in that forum can
issue a § 4 order compelling arbitration. Otherwise, the
clause of § 4 mandating that the arbitration and the
order to compel issue from the same district would be
meaningless.” (quotation marks omitted)). In this situa-
tion, we have held that a Rule 12(b)(3) motion to
dismiss for improper venue, rather than a motion to stay
or to compel arbitration, is the proper procedure to use
No. 09-1874 13
when the arbitration clause requires arbitration outside
the confines of the district court’s district. Cont’l Ins. Co.
v. M/V Orsula, 354 F.3d 603, 606-07 (7th Cir. 2003).
The implications of this procedural posture are two-
fold: First, we are not limited by the strictures of § 4
regarding a motion to compel arbitration; and second,
Faulkenberg and LeMaster may not avail themselves of
§ 4’s jury-trial mechanism.2
As a general matter, the FAA provides that an arbitra-
tion provision in a “contract evidencing a transaction
involving commerce . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C. § 2.
The Supreme Court has explained that the FAA “estab-
lishes that, as a matter of federal law, any doubts con-
cerning the scope of arbitrable issues should be resolved
in favor of arbitration.” Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Notwith-
standing this strong federal policy in favor of arbitra-
tion, the FAA’s provisions are “not to be construed so
broadly as to include claims that were never intended
for arbitration.” Am. United Logistics, Inc. v. Catellus Dev.
2
In any event, a jury trial is only appropriate where there is
a genuine dispute whether the parties agreed to arbitrate. See
Sat. Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1196
(7th Cir. 1987) (explaining that a party will receive a jury trial
“only if there is a triable issue concerning the existence or
scope of the agreement”). As we explain, infra, there is no
genuine factual dispute on this issue.
14 No. 09-1874
Corp., 319 F.3d 921, 929 (7th Cir. 2003)); see also First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995)
(explaining that arbitration “is a way to resolve those
disputes—but only those disputes—that the parties have
agreed to submit to arbitration”). Whether the parties
have validly agreed to arbitrate is governed by state-
law principles of contract formation. Cont’l Cas., 417 F.3d
at 730 (citing Kaplan, 514 U.S. at 944)).
As for which state’s law applies to this question, we
would normally respect the law chosen in the franchise
agreement—here, that is Texas. Hofeld v. Nationwide Life
Ins. Co., 322 N.E.2d 454, 458 (1975) (“Generally, the law
applicable to a contract is that which the parties
intended, assuming such an intent. When that intent is
expressed, it should be followed.”). But neither side has
mentioned Texas law, either in the district court or on
appeal. Instead, the parties have cited Illinois caselaw and
cases from our court applying Illinois law. Moreover, the
parties have not identified, and we have not located, any
differences between Texas and Illinois law regarding
basic contract-formation principles; the use of one
rather than the other would not produce a different
result.3 Nor have the parties asked us to apply any law
3
As we explain, infra, the contract-formation question in this
case turns on whether Faulkenberg and LeMaster can plead
ignorance to a contract they have signed. The answer is “no”
under either Illinois or Texas law. Compare Melena v.
Anheuser-Busch, Inc., 847 N.E.2d 99, 108 (Ill. 2006) (noting “the
usual maxim of contract law that a party to an agreement is
(continued...)
No. 09-1874 15
other than that of Illinois. In the absence of such a
request, we apply Illinois law to the question whether
the parties agreed to submit disputes to arbitration. See
S. Ill. Riverboat Casino Cruises, Inc. v. Triangle Insulation &
Sheet Metal Co., 302 F.3d 667, 672 (7th Cir. 2002) (applying
Illinois law “[b]ecause neither party contends that Illi-
nois’[] choice of law rules require us to apply the sub-
stantive law of another state”). We make this decision
notwithstanding the choice-of-law provision in the par-
ties’ own agreement. See Cont’l Cas., 417 F.3d at 734
n.8 (applying Illinois law to issue of contract formation
despite contract provisions choosing out-of-state laws).
In Illinois a party to a contract is charged with knowl-
edge of and assent to a signed agreement. Melena v.
Anheuser-Busch, Inc., 847 N.E.2d 99, 108 (Ill. 2006) (enforc-
ing arbitration agreement under common-law contract
principles). Faulkenberg and LeMaster had a duty before
signing the franchise agreement to read and understand
its contents. Magnus v. Lutheran Gen. Health Care Sys.,
601 N.E.2d 907, 915 (Ill. App. Ct. 1992). Ignorance of the
contract’s arbitration provision is no defense if they
failed to read the contract before signing. Breckenridge v.
Cambridge Homes, Inc., 616 N.E.2d 615, 620 (Ill. App. Ct.
1993) (“A party who has had an opportunity to read a
3
(...continued)
charged with knowledge of and assent to the agreement
signed”), with In re Bank of Am., N.A., 278 S.W.3d 342, 344 (Tex.
2009) (“We have always presumed that a party who signs
a contract knows its contents.” (quotation marks omitted)).
16 No. 09-1874
contract before signing, but signs before reading, cannot
later plead lack of understanding.”).
When ruling on a motion to dismiss for improper
venue, the district court is not “obligated to limit its
consideration to the pleadings [or to] convert the motion
to one for summary judgment” if the parties submit
evidence outside the pleadings. Cont’l Cas., 417 F.3d at 733.
It is appropriate, then, for us to consider the evidence
submitted with the motion—in particular, the franchise
agreement and the circular offering. This evidence—most
of it undisputed—convincingly establishes that Faulken-
berg and LeMaster agreed to submit any disputes with
CB Tax to arbitration in Texas. First, Faulkenberg signed
a receipt attesting that he had received the circular,
which contained a plain-language summary of the fran-
chise agreement. The cover sheet of the circular says that
Texas law governs the agreement and suits must be
brought in Texas. Item 17 of the circular, entitled “Re-
newal, Termination, Transfer, and Dispute Resolution,”
contains a discussion of “[d]ispute resolution by arbitra-
tion or mediation,” and this section plainly states that
“[a]ll claims are subject to arbitration in Houston, Texas.”
Faulkenberg also acknowledged receiving a copy of the
franchise agreement, which contains the arbitration
provision setting forth in detail the requirements of
arbitration in Texas. And despite their equivocation on
the subject, there is no doubt that Faulkenberg and
LeMaster signed the franchise agreement. Their
signatures appear, with that of a CB Tax representative,
on the signature page of the agreement. That page
No. 09-1874 17
states that “the parties hereto have duly executed and
delivered this Agreement.” They also signed numerous
exhibits indicating they understood the franchise agree-
ment and agreed to be bound by it. The parties acknowl-
edged by their signatures on the “Controlling Principals
Guaranty” that they “unconditionally, irrevocably and
absolutely guarantee . . . the discharge . . . of [their] obliga-
tions pursuant to the Agreement.” This document also
contains an explicit acknowledgment by Faulkenberg
and LeMaster that they read and understood the terms
of the franchise agreement. As if more were needed,
Faulkenberg and LeMaster also signed a “Certificate
of Franchisee” certifying their compliance with the repre-
sentations and warranties of the franchise agreement, as
well as a “Release of Claims” reciting that they had
“executed” the franchise agreement.
Despite this conclusive evidence, Faulkenberg and
LeMaster insist that they didn’t know they were signing
a franchise agreement. They thought (or so they contend)
they were signing a different agreement altogether—
the “revised proposal” that CB Tax had emailed them
the previous year. This “revised proposal,” however, was
nothing more than an email in which CB Tax agreed
to reduce the franchise fee. The email attached a sample
CB Tax “Business Plan” from a franchisee in New Jersey
that CB Tax said would provide “a useful plan for
[their] future CB franchises.” The business plan itself is
obviously not a franchise agreement; it simply describes
in general terms the tax-preparation business. The
email also contained a draft promissory note setting
forth payment terms; the promissory note could not
18 No. 09-1874
have been mistaken for a franchise agreement. Moreover,
the franchise agreement itself—which bears the plain-
tiffs’ signatures—makes no reference to a “revised pro-
posal,” a “Business Plan,” or a draft promissory note.
In short, there is no factual support whatsoever for the
plaintiffs’ contention that they thought they were signing
something other than a franchise agreement—an agree-
ment that clearly contains a provision requiring all dis-
putes to be submitted to arbitration in Texas.
Accordingly, this case was properly dismissed for
improper venue based on the arbitration clause in the
franchise agreement. Arbitration clauses containing
language such as “arising out of” are “extremely broad”
and “necessarily create a presumption of arbitrability.”
Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907,
909-10 (7th Cir. 1999); see also Sweet Dreams Unlimited, Inc.
v. Dial-A-Mattress Int’l, Ltd., 1 F.3d 639, 642 (7th Cir. 1993).
The CB Tax arbitration provision is comprehensive. It
provides that “any claim, controversy or dispute arising
out of or relating to this Agreement” will be submitted
to mediation and arbitration in Texas. The plaintiffs’
allegations that CB Tax misrepresented certain aspects
of operating a tax franchise and failed to register the
Alton franchise in Illinois easily fall under this broad
provision.
The plaintiffs’ claim that they were fraudulently
induced into signing the franchise agreement does not
save this case from dismissal. The only relevant inquiry
at this stage is whether the arbitration clause itself was
fraudulently induced—that is, whether there was fraud
No. 09-1874 19
that “goes to the ‘making’ of the agreement to arbitrate.”
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.
395, 404 (1967); see also James v. McDonald’s Corp., 417
F.3d 672, 680 (7th Cir. 2005) (holding under Prima Paint
that a game-show contestant had to submit claim to
arbitration because allegations of fraud related to the
entire agreement and not “uniquely to the arbitration
clause”). Faulkenberg and LeMaster have not alleged
fraud relating solely to the arbitration clause. They
allege instead that they were tricked into signing the
franchise agreement and were otherwise misled during
contract negotiations. This general allegation of fraud is
not enough to avoid the arbitration clause. Stated dif-
ferently, the plaintiffs cannot get out from under the
arbitration clause simply by alleging the entire contract
was a product of fraud. See Sweet Dreams, 1 F.3d at 642
n.4 (“[A] court may consider a claim that a contracting
party was fraudulently induced to include an arbitra-
tion provision in the agreement but not claims that the
entire contract was the product of fraud.”).4
4
Illinois courts interpreting claims under the Franchise Act in
the context of the FAA have also rejected the franchisees’
fraudulent-inducement argument:
[T]he party later seeking to avoid arbitration should not
be allowed to do so by merely alleging that no contract (and,
implicitly, no arbitration agreement) exists. Indeed, [that
result] could effectively end arbitration of contractual
disputes in Illinois because almost any plaintiff can
find some theory or claim upon which to allege that no
contract existed, thereby avoiding arbitration.
(continued...)
20 No. 09-1874
Finally, the plaintiffs’ contention that the arbitration
provision is unconscionable is essentially a rehash of
their fraudulent-inducement argument. Arbitration pro-
visions are standard features in franchise agreements, and
Faulkenberg and LeMaster have failed to articulate why
this arbitration clause is unconscionable. Courts have
routinely sent claims to arbitration on the basis of virtually
identical contract language. See, e.g., Prima Paint, 388 U.S.
at 406; McDonald’s Corp., 417 F.3d at 680; Sweet Dreams, 1
F.3d at 642-44. As we have explained, the plaintiffs’
allegation that the contract was fraudulently induced is
not enough to escape the arbitration provision; nor does
it render the arbitration clause unconscionable. Indeed,
the Franchise Act explicitly permits arbitration outside
of Illinois, 815 ILL. C OMP. STAT. 705/4, and this is further
indication that arbitration clauses requiring out-of-
state arbitration are not unconscionable.
Accordingly, although the district court improperly
relied on the forum-selection clause, dismissal was ap-
propriate based on the arbitration clause in the franchise
agreement. We A FFIRM the court’s order dismissing
the case for improper venue pursuant to Rule 12(b)(3).
4
(...continued)
Cusamano v. Norrell Health Care, Inc., 607 N.E.2d 246, 250-51 (Ill.
App. Ct. 1993) (citation omitted) (cited with approval by
Jensen v. Quik Int’l, 820 N.E.2d 462, 468 (Ill. 2004)).
3-29-11