Bridge Fund Capital vs. Fastbucks Franchisor Ruling Favorable for
Franchisee. Arbitration Provisions Unenforceable in California
by Ed Teixeira
Franchisors that conduct business in California need to be aware of
issues regarding arbitration provisions. Read about this recent court
ruling.
A recent ruling upheld the jurisdiction of California courts regarding
the validity of an arbitration provision in the Fastbucks franchise
agreement. Fastbucks is in the paycheck cashing business.
Bridge Fund, a franchisee of Fastbucks brought an action in California
against the Texas based franchisor on February 28, 2008. The complaint
alleged among other things, breach of the franchise agreements, fraud and
deceit, negligent misrepresentation, violation of the California Franchise
Investment Law (CFIL), Cal. Corp. Code § 31000 et seq., declaratory relief,
and unfair trade practices under California state law. The franchise
agreement contained an arbitration clause.
Fastbucks filed a number of motions which attempted to overturn a
California district court’s ruling. The franchisor wanted to enforce the
arbitration provision.
The district court agreed with the Plaintiffs, and denied Fastbucks's
motion. On appeal, Fastbucks argues that the district court committed three
errors: (1) it failed to apply the "crux of the complaint" rule, pursuant to
which it was for the arbitrator to decide the threshold issue of
arbitrability; (2) it erred in applying California rather than Texas law;
and (3) it abused its discretion in refusing to sever the portions of the
arbitration provision it held to be unconscionable under California law.
Fastbucks removed the case to federal court which upheld the lower court
ruling. The court ruled that four of the five paragraphs of the arbitration
clause are unconscionable, or at least unenforceable, in California. The
court remanded the case to the district court for further proceedings.
© 2010 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached
at franchiseknowhow@gmail.com
|
Are
you thinking about buying a franchise? There's a lot you need to know
before you invest if you want to be successful as a
franchisee. My guide,
