A federal court in California recently granted franchisor Spiffy Franchising, LLC’s motion to compel arbitration of a franchisee’s claims, but found the North Carolina forum selection and choice of law provisions in the franchise agreement’s arbitration clause invalid. Alina Siert, et al. v. Spiffy Franchising, LLC., et al., 2024 WL 5046727 (N.D. Cal. Dec. 9, 2024). The franchisee filed suit against Spiffy in the Northern District of California against Spiffy alleging fraudulent business practices and misrepresentations. In response, Spiffy filed a motion to compel arbitration in North Carolina based on the franchise agreement’s arbitration clause and the forum selection and choice of law provisions requiring that all disputes be heard in North Carolina and be governed by North Carolina law.
In response to Spiffy’s motion to compel, the franchisee argued that the arbitration clause was invalid because of (1) lack of mutual assent, (2) unconscionability, and (3) waiver. First, the franchisee argued that the arbitration clause lacked mutual assent because the California Addendum to the franchise agreement stated that the forum selection and choice of law provisions may not be enforceable under California law. The court agreed, finding that the California Addendum undermined Spiffy’s argument for mutual assent and that Spiffy failed to provide any evidence that it otherwise indicated to the franchisee that it would insist on enforcing the North Carolina provisions. The court did not find the entire arbitration clause invalid based on lack of mutual assent, however, because the forum selection and choice of law provisions could be severed without disrupting the chief objective of the clause: an agreement to arbitrate. Next, the franchisee argued that the arbitration clause was procedurally unconscionable because it was a contract of adhesion with disparity in bargaining power. The court rejected this argument, finding that the record showed the franchisee had actively, and in a meaningful way, negotiated material changes to the franchise agreement. Finally, the franchisee argued that Spiffy waived its right to compel arbitration because it failed to initiate arbitration within 30 days of the franchisee’s initial written notice of the dispute and failed to respond to the franchisee’s emails regarding arbitration. The court was unpersuaded. The court noted (1) that the franchisee brought the grievances, so Spiffy could not be obligated to initiate arbitration against itself, and (2) that 23 days was not a sufficient gap in time for Spiffy’s lack of response to constitute waiver of its right to demand arbitration of the grievances.
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