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Bridge Fund Capital, Corp. v. FastBuck Franchise Corp.

May 11, 2009

BRIDGE FUND CAPITAL, CORPORATION, ET AL., PLAINTIFFS,
v.
FASTBUCK FRANCHISE CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER

Presently before the Court is Defendants' Motion for Stay of Action Pending Resolution of Ninth Circuit Appeal. For the following reasons, Defendants' Motion is granted.*fn1

BACKGROUND

In 2006, each Plaintiff executed separate franchise agreements with Defendant FastBuck Franchise Corporation for the operation of payday loan and check cashing franchises within California.

Plaintiff Bridge Fund operated its franchise in Montclair, California, and Plaintiff Big Bad operated its franchise in Stockton, California. FastBuck is a Nevada Corporation with its principal place of business in Texas. Defendant Horton was, at all relevant times herein, the Chief Executive Officer of FastBuck and a member of its Board of Directors.

Plaintiffs assert that FastBuck has been offering payday lending franchises via franchise agreements, a written Uniform Franchise Offering Circular ("UFOC"), a website, and other materials, since at least 2003. Further, Plaintiffs allege that Horton was and is actively involved in the marketing of FastBuck franchises to Plaintiffs and others. FastBuck's franchise marketing allegedly included representations of a unique system with substantial forms and training, a manual for the business system, and forms and collections materials for loans which were proper for use in California.

Plaintiffs' respective franchise agreements with FastBuck each contained an arbitration provision requiring all disputes arising between the parties to be resolved through arbitration primarily under the rules of the American Arbitration Association ("AAA"). These franchise agreements also contained choice of law and choice of forum provisions requiring that any action to resolve a dispute take place in Texas in accordance with Texas law.

Plaintiffs received UFOCs from FastBuck in conjunction with the franchise agreements. These UFOCs contained an addendum pertaining to the enforcement of the franchise agreements under California law ("California Appendix").

Plaintiffs claim that the California Appendix modifies the franchise agreements so that they are in compliance with California law, and this compliance requires Plaintiffs' disputes with Defendants to be resolved in California in accordance with California law. Further, Plaintiffs claim that the arbitration provisions included in the franchise agreements are unenforceable as they are both procedurally and substantively unconscionable under California law.

On February 28, 2008, Plaintiffs filed their Complaint in state court alleging breach of written franchise contracts, fraud and deceit, negligent misrepresentation, violation of the California Franchise Investment Law ("CFIL"), and unfair trade practices under the California Business and Professions Code § 17200. Plaintiffs seek damages, declaratory relief, and injunctive relief including the rescission of the franchise agreements. Plaintiffs allege Defendants made material misrepresentations and omissions regarding Defendants' franchises. Specifically, Plaintiffs allege that FastBuck has no proven franchise system, no business manual, and provided little training and forms improper for use in California. Plaintiffs allege they learned of the franchise system's non-compliance with California law only after an inspection by the State of California.

On April 9, 2008, Defendants successfully removed the action to this Court under diversity jurisdiction. On May 30, 2008, Defendants filed a Motion to Dismiss under Rules 12(b)(1) and 12(b)(6), or alternatively, to Stay the Action pending Arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 3 ("FAA"). According to Defendants, that arbitration, in Texas, under Texas law, was the required dispute resolution forum for Plaintiffs' claims, pursuant to their respective franchise agreements with FastBuck.

In addressing that motion, this Court applied California choice of law rules and stated that California courts strongly favor the enforcement of choice of law provisions. The Court determined that application of the law of the chosen state (Texas) would be contrary to a fundamental policy of a state that has a materially greater interest in the determination of the issue (California). The Court also concluded that the arbitration clause was unconscionable and, therefore, unenforceable. Accordingly, the Court denied Defendants' motion.

Defendants subsequently appealed and the parties stipulated to stay proceedings in this Court pending participation in the Ninth Circuit mediation program. Mediation was unsuccessful and the stipulated stay since expired. Defendants now move to stay proceedings in this Court pending the outcome of the Ninth ...


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