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1-800-Got Junk? LLC v. Superior Court of Los Angeles County

October 21, 2010

1-800-GOT JUNK? LLC, PETITIONER,
v.
SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT; MILLENNIUM ASSET RECOVERY, INC., REAL PARTY IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. Rita Miller, Judge. Petition denied. (Los Angeles County Super. Ct. No. BC373596).

The opinion of the court was delivered by: Klein, P. J.

CERTIFIED FOR PUBLICATION

Millennium Asset Recovery, Inc. (Millennium), a franchisee, is suing Petitioner 1-800-Got Junk? LLC (Got Junk), the franchisor, for wrongfully terminating Millennium's franchise.*fn1 The franchise agreement specifies the application of the law of Washington State. Millennium seeks to enforce the choice of law provision in the franchise agreement. Got Junk contends the choice of law provision in its franchise agreement is unenforceable because there is no reasonable basis for the application of Washington law; Got Junk seeks the application of California law.*fn2 Following a bifurcated choice of law trial, the trial court held Washington law applies to this action.

In the instant petition, Got Junk seeks a writ of mandate directing respondent superior court to vacate its order that the law of Washington State applies to this action and to enter a new order that California law applies. We conclude the trial court properly gave credence to the choice of law provision in the franchise agreement and therefore we deny Got Junk's petition for writ of mandate.

The essential issues are (1) whether a reasonable basis existed for the inclusion of the Washington choice of law provision in the franchise agreement; and (2), if so, whether California public policy precludes application of the parties' chosen law.

Because a multi-state franchisor has an interest in having its franchise agreements governed by a uniform body of law, Got Junk had a reasonable basis for inserting a choice of law provision in the franchise agreement. As for the designation of Washington law in particular, given that state's proximity to Got Junk's headquarters in Vancouver, Canada, there was a reasonable basis the parties' choice of law.

The remaining issue is whether enforcement of the Washington choice of law provision is barred by section 20010 of the California Franchise Relations Act (CFRA) (§ 20000 et seq.). In order to protect franchisees domiciled or operating in California (§ 20015), section 20010 declares: "Any condition, stipulation or provision purporting to bind any person to waive compliance with any provision of this law is contrary to public policy and void." (Italics added.)

In this instance, Washington State is more protective of franchisees than California, in that the Washington Franchise Investment Protection Act (WFIPA) restricts the franchisor to four situations in which a franchisor can summarily terminate a franchise without providing notice and an opportunity to cure (Wash. Rev. Code § 19.100.180),*fn3 while the California statutory scheme provides for immediate termination without opportunity to cure in the same four situations as well as numerous others. (§ 20021, subds. (a) through (k).) Thus, the instant franchise agreement, by giving the franchisee superior protection under Washington law, does not require a franchisee to "waive compliance" with any provision of the CFRA. (§ 20010.) Therefore, enforcement of the instant choice of law provision does not contravene California public policy and is not barred by section 20010.

FACTUAL AND PROCEDURAL BACKGROUND

1. Facts

a. Formation of the Franchise Relationship

Defendant and petitioner Got Junk, a Delaware limited liability company, the franchisor, is a junk removal franchise business headquartered in Vancouver, British Columbia, Canada.

On December 26, 2003, plaintiff and real party in interest Millennium Asset Recovery, Inc. (Millennium), the franchisee, entered into an agreement with Got Junk to operate a Got Junk franchise in various territories in the Los Angeles area, including Century City, Beverly Hills and Westwood.

b. Pertinent Provisions Relating to Choice of Law

The franchise agreement at paragraph 21.12 contains the following choice of law provision: "Governing Law. This agreement shall be construed and interpreted according to the laws of the state of Washington."

The franchise agreement contains an integration clause at paragraph 21.8, to wit: "Entire Agreement. This agreement and the other documents referred to herein or contemplated hereby set forth the entire agreement between Franchisor and Franchisee...." (Italics added.)

The franchise agreement made specific reference to Got Junk's 2003 Uniform Franchise Offering Circular (UFOC). The 2003 UFOC contained the following advisements: "The franchise agreement states that Washington law governs the agreement, and this law may not provide the same protections and benefits as local law.... Even though the franchise agreement provides that Washington law applies, your law may supersede it in your state."

The 2003 UFOC also contains a State Specific Addendum. With respect to California, the addendum provides: "The franchise agreement requires application of the laws... of the State of Washington. This provision may not be enforceable under California law."*fn4

c. Got Junk's Termination of the Franchise for Millennium's Alleged Underreporting of Revenue

The franchise agreement obligates the franchisee, Millennium, to pay a percentage of its gross revenue to Got Junk on every junk removal job it performs.

Effective May 11, 2007, Got Junk terminated Millennium's franchise on the grounds Millennium deliberately had not reported certain jobs and the gross revenue derived from such jobs, and had not paid to Got Junk the monies to which the franchisor was entitled under the agreement. Got Junk declared Millennium's falsifying of reports a material default of the franchise agreement and terminated the franchise without giving Millennium an opportunity to cure the default.

Millennium denies any wrongdoing but concedes its drivers pocketed money on at least three jobs without reporting the payments either to Millennium or to Got Junk.

2. Proceedings

a. Pleadings

On July 2, 2007, Millennium filed suit against Got Junk in the superior court in Los Angeles County. The gravamen of the second amended complaint, which is the operative pleading, is that Got Junk breached the franchise agreement by terminating the franchise without cause, in that Got Junk had no reasonable basis for its contention Millennium intentionally failed to pay amounts due under the agreement. Invoking the choice of law provision in the franchise agreement, Millennium further alleged the termination was in violation of the WFIPA (Wash. Rev. Code § 19.100.010 et seq.), specifically, section 19.100.180, which strictly limits the circumstances in which a franchisor can terminate a franchisee without providing notice or an opportunity to cure. Millennium pled Got Junk's failure to give it an opportunity to cure the alleged underpayment was in violation of WFIPA.

The second amended complaint included causes of action for breach of written contract, breach of the implied covenant of good faith and fair dealing, tortious interference with prospective economic advantage and defamation. Millennium, whose sole shareholder is Brenda Cotton (Cotton), an African American woman, further pled Got Junk acted with a discriminatory motive, in violation of the California Fair Dealership Law (Civ. Code, § 84.)*fn5

By way of relief, Millennium sought, inter alia, compensatory and punitive damages, as well as specific performance and an accounting.

Got Junk answered, generally denying the allegations and raising numerous affirmative defenses.

b. Millennium's first motion for Summary Adjudication

On October 2, 2008, Millennium filed its first motion for summary adjudication, directed at the cause of action for breach of written contract. Millennium contended summary adjudication was appropriate because the franchise agreement specifies Washington law shall govern, and Got Junk's termination of Millennium's franchise without giving Millennium notice and an opportunity to cure violated the WFIPA.

Because Millennium filed its operative pleading, the second amended complaint, after it filed the motion for summary adjudication, the trial court (Hon. Rita Miller) declined to rule on the motion for summary adjudication. The court ruled "Millennium must file a new motion for summary adjudication. Defendant... is entitled to oppose a new motion for summary adjudication ...


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