United States District Court, E.D. California
BRIAN K. NYGAARD, Plaintiff,
PROPERTY DAMAGE APPRAISERS, INC., Defendant.
ORDER DENYING MOTION TO TRANSFER AND STAYING CASE
PENDING MEDIATION RE: DKT. NO. 4
CHHABRIA, UNITED STATES DISTRICT JUDGE
the Ninth Circuit and the California Court of Appeal have
interpreted unenforceability provisos of the kind at issue in
the parties' Franchise License Agreement. 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 Fort Worth
headquarters) is insufficient, the motion to transfer is
denied. Jones, 211 F.3d at 499.
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.
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-of-law provision
from the parties' agreement. See Winter, 166
Cal.App.4th at 950 (excluding a choice-of-law provision).
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.Mediation remains a condition
precedent, but it does not need to take place at 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
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 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, 683-85
(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.
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.
IS SO ORDERED.
 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
 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.
 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, ...