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Estrada v. Cleannet USA, Inc.

United States District Court, N.D. California

February 24, 2015

ESTHER ESTRADA, et al., Plaintiffs,
CLEANNET USA, INC., et al., Defendants.


JEFFREY S. WHITE, District Judge.

Now before the Court are three motions to dismiss or to compel arbitration, filed by Defendants. (ECF Nos. 40, 41, 42.) Having carefully considered the parties' pleadings and relevant legal authority, the Court hereby GRANTS the motions to compel arbitration.


The following facts are drawn from the operative complaint. Plaintiffs Esther Estrada, Isaac Carrazco, and Maria Jacobo ("Plaintiffs") are California residents who seek to represent a class of individuals allegedly injured by corporate Defendants CleanNet USA, D&G Enterprises, Inc., CleanNet of San Jose, CleanNet of Southern California, CleanNet of San Diego, CleanNet of Sacramento, and individual Defendants Mark Salek and David Crum (collectively, "Defendants"). Defendants are alleged to operate an integrated business wherein CleanNet USA controls its Area Operators, who in turn sell franchises to individuals. Each Plaintiff purchased a franchise. To purchase a franchise, each Plaintiff signed a franchise agreement. All three franchise agreements contained dispute resolution provisions and class action waivers.[1] All three franchise agreements provide that the parties must first attempt to resolve disputes through direct negotiation. (FAC Ex. A; Crum Decl. Exs. A, B.) They then provide that, before a demand for arbitration can be made, the parties must attempt to settle their dispute through mediation. ( Id. ) If that fails, "[a]ll disputes, controversies, and claims of any kind arising between the parties, including but not limited to claims arising out of or relating to this Agreement... shall be settled by arbitration...." ( Id. ) Finally, the agreements provide that "Franchisee shall not seek to arbitrate or litigate as a representative of, or on behalf of, any other person or entity, any dispute, controversy, and claim of any kind arising out of or relating to this Agreement...." ( Id. ) Plaintiffs not only signed these agreements, they initialed each page. ( Id. )

On April 18, 2014, Plaintiffs filed this putative class action. On June 03, 2014, Plaintiffs filed an amended complaint, alleging sixteen causes of action. Defendants now move to compel arbitration, or to dismiss the complaint.


A. Legal Standards Applicable to Motions to Compel Arbitration.

Pursuant to the Federal Arbitration Act ("FAA"), arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Once the Court has determined that an arbitration agreement involves a transaction involving interstate commerce, thereby falling under the FAA, the Court's only role is to determine whether a valid arbitration agreement exists and whether the scope of the parties' dispute falls within that agreement. United Computer Sys. v. AT&T Corp., 298 F.3d 756, 766 (9th Cir. 2002); Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); 9 U.S.C. § 4.

The FAA represents the "liberal federal policy favoring arbitration agreements" and "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Under the FAA, "once [the Court] is satisfied that an agreement for arbitration has been made and has not been honored, " and the dispute falls within the scope of that agreement, the Court must order arbitration. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 400 (1967). The "central purpose of the [FAA is] to ensure that private agreements to arbitrate are enforced according to their terms." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995). The "preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered, a concern which requires that [courts] rigorously enforce agreements to arbitrate." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26 (1985) (quotations omitted).

Notwithstanding the liberal policy favoring arbitration, by entering into an arbitration agreement, two parties are entering into a contract. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989) (noting that arbitration "is a matter of consent, not coercion."). Thus, as with any contract an arbitration agreement is "subject to all defenses to enforcement that apply to contracts generally." Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003).

B. The Franchise Agreements Are Not Unconscionable.

Plaintiffs argue that the dispute resolution provisions are both procedurally and substantively unconscionable. They contend that the unconscionability permeates the entirety of the franchise agreements, and that the agreements as a whole are thus unenforceable.

Unconscionability remains a basic contract defense that may be used to invalidate arbitration provisions. AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 1746 (2011). "Like other contracts, an arbitration provision is invalid if it is both procedurally and substantively unconscionable." Armendariz v. Found. Health Psychare Serv., Inc., 24 Cal.4th 83, 114-15 (2000). Courts apply a sliding scale when analyzing these two factors, but "both must be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability." Grabowski v. Robinson, 817 F.Supp.2d 1159, 1171 ...

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