Quinn Emanuel Scores Critical Win Against Global Franchisor in Cross-Border Arbitration

Quinn Emanuel recently secured an exceptional cross-border arbitration victory in the kind of bet-the-company case we are known for trying and winning.

The outcome we secured for our client, Maxiva, S.A. de C.V. – the exclusive Mexican franchisee of General Nutrition Centers (GNC), the American multinational health and wellness retailer and manufacturer – is valued at more than $150 million and preserves the client’s rights and profitability for the remaining 60-plus years of its franchise term. The arbitration is captioned Maxiva, S.A. de C.V. v. GNC Holdings, LLC, General Nutrition Corporation, General Nutrition Franchising, Inc., and General Nutrition International, Inc., ICDR Case No. 01-23-0003-4773. 

The win came in a hard-fought arbitration against the global retailer, which we tried before the International Centre for Dispute Resolution (the international division of the American Arbitration Association). The dispute involved interrelated franchise and distribution agreements governed by Pennsylvania and Mexican law.

After three years of fiercely contested arbitration, the arbitrator issued a final award finding GNC liable for breaching its franchise and distribution agreements with Maxiva, including the parties’ Mutual Commitment Clause, and for violating the principle of good faith embodied in the doctrine of own acts under Mexican law. 

The dispute arose from new policies GNC imposed on its franchisees following its bankruptcy. Chief among them was a “Third-Party Migration” policy and practices that prevented Maxiva from purchasing products directly from approved third-party brands and instead required it to purchase those same products only from GNC, at a markup. GNC also sought to impose a new assortment of products and prices on Maxiva, in violation of Maxiva’s right to access the same products and prices offered GNC’s U.S. franchisees. The arbitrator found that GNC’s policies and conduct violated Maxiva’s rights under the distribution agreement, the franchise agreement and applicable law, and harmed Maxiva by boosting GNC’s profits at Maxiva’s expense. The policies threatened to slash Maxiva’s profitability and force the closure of a significant number of its stores. GNC was also ordered to refrain from applying the challenged policies, or any similar policies or practices, to Maxiva going forward.

In addition, we secured the dismissal of all GNC’s counterclaims, and our client was awarded millions of dollars in damages for lost profits, plus interest. GNC was also ordered to reimburse the arbitration fees and a portion of our client’s costs and attorneys’ fees.

It was a high-stakes case, the kind that prompts so many parties to bring in Quinn Emanuel. If the franchisor’s new policies had been applied to our client, they would have forced the client either to close nearly 80% of its stores or face bankruptcy.

The victory is a testament to Quinn Emanuel’s capabilities in complex international arbitrations involving multiple bodies of law, and to the team’s dedication and outstanding lawyering. The team was led by Quinn Emanuel partners Lucas Loviscek, David Orta, and Daniel Lombard.

The QE associates on the case included Woo Yong Chung, Laura Santos-Bishop, Thomas Poston (currently on a clerkship), Julia Rodrigues and Jack La Jeunesse.

Carlos Brehm and his team at leading Mexican law firm Santamarina & Steta acted as Mexican local counsel in the proceedings.