On June 12, 1995, the United States Supreme Court granted a writ of certiorari in the case of Doctor's Associates, Inc. v. Casarotto, reversing and remanding the case to the Montana Supreme Court. The state court had held that an arbitration clause in the petitioner's franchise agreement was not enforceable because the agreement did not bear a conspicuous notice about the arbitration clause on the first page of the agreement, in compliance with a Montana statute.

The case has caused quite a stir among franchisors because of their frequent use of arbitration clauses in franchise agreements. Although the view is not universal, many franchisors believe that arbitration is less costly and time-consuming than litigation and is easier to administer in a uniform manner within franchise systems that function in 50 states. The International Franchise Association had filed an amicus curiae brief in the case for this reason.

Historically, many state governments have been reluctant to enforce arbitration clauses because they believe that arbitration may not provide the same procedural safeguards as litigation. This is particularly true when the subject of the dispute is governed by consumer protection laws like the franchise laws. The Federal Arbitration Act ("FAA") was passed in order to require state courts to honor arbitration agreements for transactions involving interstate commerce.

In the case of Southland Corp. v. Keating, the United States Supreme Court held that a statute that invalidated arbitration clauses in matters governed by California's franchise disclosure law was preempted by the FAA and was therefore unenforceable for this purpose. For some years thereafter, numerous lower court decisions relied on the Southland Corp. decision to strike state statutes that "burdened" arbitration in the franchise arena. However, in the past several years antagonism to arbitration has again arisen in a number of state court decisions that hold that arbitration notice provisions are not preempted by the FAA. Franchisors dislike the wording and presentation that states require them to use in arbitration clause notices. Under state laws, such notices must be in boldface, underlined, all capital letters or large typeface, etc. Franchisors believe that this discourages prospective franchise buyers from signing agreements that contain arbitration clauses.

In reversing and remanding the Doctor's Associates case to the Montana Supreme Court, the United States Supreme Court instructed it to consider its holding further in light of Allied-Bruce Terminix Companies, Inc. v. Dobson. In Terminix, the Supreme Court reaffirmed its position that a state may not refuse to enforce an arbitration clause in a contract that is otherwise enforceable. Its holding in Doctor's Associates makes clear that striking an arbitration clause in a contract in interstate commerce because of failure to comply with a state-imposed notice requirement, whether in a franchise law or in a general law applied to a franchise dispute, is impermissible under the FAA.