Nygaard v. Property Damage Appraisers, Inc.

Filing 17

ORDER signed by District Judge Vince Chhabria on 3/23/2017 ORDERING that the request to transfer is DENIED. This case is STAYED pending mediation in accordance with this Order, and a telephonic case management conference is set for 6/27/2017, at 2:30 pm. CASE STAYED. (Zignago, K.)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA

BRIAN K. NYGAARD,

Case No. 16-cv-02184-VC

Plaintiff,
v.
PROPERTY DAMAGE APPRAISERS,
INC.,

ORDER DENYING MOTION TO
TRANSFER AND STAYING CASE
PENDING MEDIATION
Re: Dkt. No. 4

Defendant.

Both the Ninth Circuit and the California Court of Appeal have interpreted
unenforceability provisos of the kind at issue in the parties' Franchise License Agreement.1 Both
have concluded that such language reflects an absence of the mutual assent required for contract
formation with respect to the affected terms. Laxmi Investments, LLC v. Golf USA, 193 F.3d
1095, 1097-98 (9th Cir. 1999); Winter v. Window Fashions Professionals, Inc., 166 Cal. App.
4th 943, 950 (2008). The Franchise License Agreement therefore does not contain a valid
forum-selection provision, nor does it contain a valid choice-of-law provision. See also Cal.
Bus. & Prof. Code § 20040.5; Jones v. GNC Franchising, Inc., 211 F.3d 495, 497-98 (9th Cir.
2000). Because the only other basis for venue in the Northern District of Texas (the franchiser's

1

See FLA (Dkt. No. 4-2) at Ex N-1, § 1.H ("This agreement requires application of the law of
Texas under certain circumstances. This provision may not be enforceable under California
law." (text bolded and capitalized in original)); id. at 1.I ("[A]rbitration will occur . . . in Fort
Worth, Texas . . . . This provision may not be enforceable under California law. Prospective
franchisees are encouraged to consult private legal counsel to determine the applicability of
California and federal laws . . . to any provisions of the [FLA] restricting venue to a forum
outside the State of California.").

Fort Worth headquarters) is insufficient, the motion to transfer is denied. Jones, 211 F.3d at 499.
The franchiser argues that the facts here are distinguishable from those in Laxmi. See
Reply (Dkt. No. 12) at 8-9. That's true, but every distinction runs in Nygaard's favor. In Laxmi,
the unenforceability language was disclosed to the franchisee in an offering circular before the
agreement was executed. Laxmi, 193 F.3d at 1096. Here, the language was incorporated into the
contract itself, declared an "integral part," and separately signed. FLA (Dkt. No. 4-2) at Ex. N-1.
In Laxmi, the unenforceability language was required by the California regulations governing
offering circulars. Laxmi, 193 F.3d at 1097-98. Here, the language appears to have been an
entirely voluntary addendum. At least one court has read Laxmi as less compelling when the
unenforceability proviso is included in the parties' agreement. Jacobson v. Snap-on Tools Co.,
No. 15-CV-02141-JD, 2015 WL 8293164, at *3 (N.D. Cal. Dec. 9, 2015). But it's difficult to
understand how language reflecting the lack of an objective meeting of the minds could be less
important to the parties' agreement when it's removed from parol evidence and expressly made
part of the contract. Nor, in this case, is there some other, curative evidence of an objective
meeting of the minds. Cf. Meadows v. Dickey's Barbecue Restaurants Inc., 144 F. Supp. 3d
1069, 1081 (N.D. Cal. 2015).
The franchiser's focus on Laxmi is also somewhat misplaced. "Federal law governs the
validity of a forum selection clause," so Laxmi governs on that issue. TAAG Linhas Aereas de
Angola v. Transamerica Airlines, Inc., 915 F.2d 1351, 1353 (9th Cir. 1990). But it governs only
on that issue. "[T]he interpretation of private contracts is ordinarily a question of state law."
Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 474
(1989). Here, California law governs contract formation and construction, including the
threshold validity of the choice-of-law clause. Cf. Trans-Tec Asia v. M/V Harmony Container,
518 F.3d 1120, 1124 (9th Cir. 2008). It is Winter, not Laxmi, that stands for a general rule of
California contract law that finds mutual assent lacking when a provision in the contract
disclaims its own enforceability. It is therefore Winter, not Laxmi, that excludes the choice-oflaw provision from the parties' agreement. See Winter, 166 Cal. App. 4th at 950 (excluding a

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choice-of-law provision).
For the same reason, Winter controls on the License Agreement's mediation provision.
Subsection 18.A requires mediation as a condition precedent to arbitration and names the
franchiser's corporate headquarters as the proper forum. FLA (Dkt. No. 4-2) at § 18.A. This is
then qualified by the understanding, "integral" to the parties' agreement, that "any provision
selecting a forum outside California" may be void. Id. at Ex. N-1. Winter's effect here is
straightforward: Just as Laxmi compels the conclusion that the parties never agreed to a forum
for litigation, Winter compels the conclusion that they never agreed to forum for mediation.2
Mediation remains a condition precedent, but it does not need to take place at the franchiser's
headquarters.
The satisfaction of a condition precedent to arbitration is ordinarily a question of
procedural arbitrability to be answered by an arbitrator. Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 85 (2002). Here, however, there's no reason to address arbitrability (or the
threshold validity of the arbitration provision) because no party is currently seeking to arbitrate.
The franchiser has styled its motion as a request to compel "mediation/arbitration." Def.'s Br.
(Dkt. No. 4) at 1. But the substance of the franchiser's motion makes clear that the only process
it's seeking at the moment is mediation – a process Nygaard has already agreed to.3 The Court
will, of course, compel arbitration "if necessary," as the franchiser proposes. Def.'s Br. (Dkt.
No. 4) at 1. But until the franchiser actually intends to avail itself of a provision in the License
Agreement – that is, until the Court is actually presented with a dispute for arbitration and a
request to send it there – the Court won't pronounce on the provision's validity or enforceability.
Nor is the Court swayed by the franchiser's attempt to conflate the License Agreement's separate

2

Even if Winter did not apply, the California Business and Professions Code might still
invalidate the forum-selection clause. Cal. Bus. & Prof. Code § 20040.5. But see Delamater v.
Anytime Fitness, Inc., 722 F. Supp. 2d 1168, 1177 (E.D. Cal. 2010).
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As discussed at the motion hearing, Nygaard has agreed to mediation provided that mediation
not be restricted to the franchiser's headquarters. See also Opp. (Dkt. 11) at 4. Given that Winter
invalidates the forum-selection clause in the License Agreement's mediation provision, there
appears to be no disagreement that mediation should proceed.

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mediation and arbitration provisions into "mediation/arbitration." The parties' dispute over how
to satisfy mediation is not the same as a dispute over whether or how to satisfy arbitration.
Mediation and arbitration are distinct procedures, both in the License Agreement and under the
Federal Arbitration Act. Portland Gen. Elec. Co. v. U.S. Bank Trust Nat. Ass'n, 218 F.3d 1085,
1086 (9th Cir. 2000); Cheng-Canindin v. Renaissance Hotel Assocs., 50 Cal. App. 4th 676, 68385 (1996); Evanston Ins. Co. v. Cogswell Properties, LLC, 683 F.3d 684, 693 (6th Cir. 2012);
see also N. Roberts, Definitional Avoidance: Arbitration's Common-Law Meaning and the
Federal Arbitration Act, 49 UC Davis L. Rev. 1547 (2016). Only arbitration falls under the
Federal Arbitration Act. 9 U.S.C. §§ 2-4. The franchiser can file a motion to compel arbitration
once it actually wants to compel arbitration. Only then will the Court consider Winter's effect on
the arbitration provision.
This case is stayed pending mediation in accordance with this Order, and a telephonic
case management conference is set for June 27, 2017, at 2:30 pm. If mediation concludes before
the case management conference, the parties must promptly notify the Court. The stay will not
prevent either party from filing a motion to compel arbitration.
IT IS SO ORDERED.
Dated: March 23, 2017
______________________________________
VINCE CHHABRIA
United States District Judge

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