Nygaard v. Property Damage Appraisers, Inc.
ORDER signed by District Judge Vince Chhabria on 12/28/17 DENYING 27 Motion to Compel Arbitration; a telephonic Case Management Conference is SET for 1/30/2018 at 02:30 PM before District Judge Vince Chhabria; Case Management Statement is due by 01/23/18. (Benson, A.)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
Dec 28, 2017
CLERK, U.S. DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
BRIAN K. NYGAARD,
Case No. 16-cv-02184-VC
ORDER DENYING MOTION TO
PROPERTY DAMAGE APPRAISERS,
Re: Dkt. No. 27
The question is whether the parties entered into a valid agreement to arbitrate,
notwithstanding the language of the California addendum stating that certain provisions of the
Franchise License Agreement may not be enforceable under California law. See Chiron Corp. v.
Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The Court "appl[ies] ordinary
state-law principles that govern the formation of contracts to decide whether an agreement to
arbitrate exists." Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017)
(internal quotation marks and citation omitted). As discussed in a prior ruling, the choice-of-law
clause in the Franchise License Agreement is invalid, and California law governs questions of
contract formation and interpretation. March 23, 2017 Order at 1-2, Dkt. No. 17.
Under California law, the motion to compel arbitration must be denied. PDA contends it
defies common sense to conclude that a franchisor's acknowledgment that a particular provision
"may not be enforceable under California law" necessarily signifies that there was no meeting of
the minds as to that provision. PDA may well be right about that. But the California Court of
Appeal, like the Ninth Circuit, has held that a proviso like the one in the California addendum
shows that there was no meeting of minds as to the referenced provision, and has applied the rule
in a context very similar to the one here. See Winter v. Window Fashions Professionals, Inc.,
166 Cal. App. 4th 943, 950-51 (2008); see also Laxmi Investments, LLC v. Golf USA, 193 F.3d
1095, 1097 (9th Cir. 1999). Indeed, the California Court of Appeal in Winter expanded Laxmi's
holding. Winter confirmed that Laxmi's approach remained valid, even though California
Business and Professions Code Section 20040.5, as applied to arbitration agreements, had been
held preempted by the Federal Arbitration Act. See 166 Cal. App. 4th at 950; see also Bradley v.
Harris Research, Inc., 275 F.3d 884, 890 (9th Cir. 2001). And it clarified, albeit without much
analysis, that Laxmi's reasoning requires invalidation of what would otherwise be an agreement
to arbitrate (that is, what would be a valid agreement to arbitrate absent the proviso about
enforceability), not just agreements regarding choice of law or forum. See Winter, 166 Cal. App.
4th at 950; compare Laxmi, 193 F.3d at 1098; but see Roberts v. Synergistic Int'l, LLC, 676 F.
Supp. 2d 934, 948-51 (E.D. Cal. 2009). PDA has provided no reason for the Court to believe
that the California Supreme Court would adopt a different rule. See Norcia, 845 F.3d at 1284
(noting that federal courts applying California law are bound by decisions of the California
Supreme Court and that, in the absence of a decision directly on point, federal courts "generally
will follow a published intermediate state court decision regarding California law unless [they]
are convinced that the California Supreme Court would reject it" (internal quotation marks and
citation omitted)). This Court's disagreement with the rationale embodied in Winter and Laxmi is
not enough, on its own, to justify a finding that the California Supreme Court would come out
Here, the relevant portion of the California law addendum, which was separately signed
by the parties, provides that the following paragraph will supplement Section 18 of the Franchise
 The Agreement requires binding arbitration.  The arbitration will occur at the
PDA's corporate headquarters in Fort Worth, Texas, before a sole arbitrator agreed to by
the parties and selected from the panel of arbitrators of the American Arbitration
Association, with the costs being borne by the losing party.  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
(such as Business and Professions Code Section 20040.5, Code of Civil Procedure
Section 1281, and the Federal Arbitration Act) to any provisions of the Franchise
Agreement restricting venue to a forum outside of the State of California.
Decl. of Grady Nance, Ex. A, Dkt. No. 27-2 at 107.
The best reading of this paragraph is one in which "[t]his provision" refers to the
arbitration provision in its entirety, not merely one aspect of it. The sentence that follows the
first one of the paragraph just elaborates on the specific terms of the arbitration provision. Any
interpretation of "this provision" that is cabined to one of the three requirements included in
sentence  is strained. Sentence , at first glance, might seem to limit "this provision" to the
forum-selection clause, as that is the only part of the dispute resolution provision that it
mentions. But, rather than refer to this provision as sentence  does, sentence  refers to "any
provisions" of the agreement that restrict venue to a non-California forum. Accordingly, there is
little reason to think that sentence  is simply clarifying the meaning of sentence . Cf. Segal
v. Silberstein, 156 Cal. App. 4th 627, 633 (2007) ("If possible, we should give effect to every
provision and avoid rendering any part of an agreement surplusage."). Further, because the
question here is whether the parties ever entered into an arbitration agreement in the first place,
there is no basis for resolving any ambiguity in favor of arbitration. See, e.g., Lopez v. Charles
Schwab & Co., 118 Cal. App. 4th 1224, 1229 (2004) ("While it is true that under the FAA, any
doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, that
policy does not come into effect until a court has concluded that under state contract law, the
parties entered into an agreement to arbitrate." (internal quotation marks and citations omitted));
NORCAL Mut. Ins. Co. v. Newton, 84 Cal. App. 4th 64, 74 n.8 (2000) ("California's public
policy favoring alternative dispute resolution does not come into play unless parties have entered
an enforceable arbitration agreement." (citing Badie v. Bank of Am., 67 Cal. App. 4th 779, 787-
90 (1998))). Section 18 of the Agreement therefore does not include a valid arbitration clause.
PDA has pointed to no other provision in the Agreement demonstrating that the parties agreed to
resolve their disputes via arbitration.1
Because governing law compels a conclusion that the parties never entered into an
enforceable arbitration agreement, PDA's motion to compel arbitration is denied. A telephonic
case management conference is scheduled for January 30, 2018 at 2:30 P.M. to discuss how the parties intend
to proceed. The parties' Case Management Statement is due by January 23, 2018, and it should
include a proposed schedule for adjudication of the case. By January 26, Nygaard must email a
telephone conference number and access code to firstname.lastname@example.org, copying PDA.
IT IS SO ORDERED.
Dated: December 28, 2017
United States District Judge
As stated in the prior order, the Court is not persuaded that the analysis in Jacobson v. Snap-on
Tools Co., No. 15-CV-02141-JD, 2015 WL 8293164, at *3-4 (N.D. Cal. Dec. 9, 2015), or
Meadows v. Dickey's Barbecue Restaurants Inc., 144 F. Supp. 3d 1069, 1081 (N.D. Cal. 2015),
should apply here. See March 23, 2017 Order at 2.
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