Wolsey, Ltd. v. Foodmaker, Inc.

In this suit to compel arbitration, we must examine the' interplay between federal and state law in the application of a contract’s arbitration clause.

I

In February of 1991, Foodmaker International (“Foodmaker”), a franchiser of Jack in the Box fast food restaurants, entered into a Development Agreement with Wolsey, Ltd. (‘Wolsey”), a Hong Kong corporation, which gave Wolsey the right to develop Jack in the Box restaurants in Hong Kong and Macau for five years. The Development Agreement established a three-step dispute resolution process to be used for all disputes between Foodmaker and Wolsey: (1) a senior executive officer meeting; (2) non-binding arbitration under the rules of the American Arbitration Association; and (3) litigation in federal court.

In March of 1994, Wolsey invoked the dispute resolution procedure in the Development Agreement. Wolsey alleged that it had been fraudulently induced to enter into the Development Agreement by the express and implied misrepresentations of various Food-maker executives that, if Wolsey successfully opened Jack in the Box restaurants in Hong Kong, Foodmaker would give Wolsey similar development rights to expand into China and…