144 F. Supp. 3d 1069
N.D. Cal.2015Background
- Dickey’s Barbeque Restaurants, Inc. (“Dickey’s”) is a Texas-based franchisor; Plaintiffs are California residents seeking to represent a class of current/former Dickey’s franchise owners in California.
- Plaintiffs allege misrepresentations in Franchise Disclosure Documents and in pre-signing statements, as well as California Franchise Investment Law and unfair competition claims, seeking damages and other relief and to declare Article 27 (arbitration) unenforceable.
- Franchise Agreements contain two versions of Article 27: Meadows Plaintiffs’ agreements and Toff Plaintiffs’ agreements, with different arbitration/mediation schemes.
- Meadows and related plaintiffs’ agreements require non-binding mediation before binding arbitration and define disputes broadly; arbitration occurs in Texas under AAA or mutually agreed mediator in Collin County, Texas.
- Toff Plaintiffs’ agreements similarly require arbitration but include broader language; AAA rules can delegate arbitrability, but the court must determine arbitrability for Toff based on sophistication and delegation language.
- Dickey’s moves to compel arbitration on an individual basis, seeking stay of litigation and dismissal of class claims; the court must determine arbitrability and enforceability under a Texas choice-of-law provision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability | Meadows delegated to arbitrator; Toff did not clearly delegate. | Arbitrability delegated via clause and AAA rules for both groups. | Meadows delegated; Toff did not clearly delegate; court to decide arbitrability for Toff. |
| Validity of choice-of-law provision | No meeting of the minds on Texas law; California law should apply. | Franchise disclosures indicate Texas law applies; Texas law governs. | Texas law applies; parties agreed to Texas law. |
| Enforceability of arbitration provision under Texas law | Texas unconscionability may render arbitration provision unenforceable; CFIL considerations argued. | Texas law supports enforcement; no substantive unconscionability under CFIL preemption concerns. | Arbitration provision enforceable under Texas law; CFIL-related preemption concerns not met. |
| Delegation clause unconscionability | Delegation clause itself may be unconscionable under CFIL/CA policy. | Delegation clause valid; unconscionability challenges should be arbitrated (Meadows). | Delegation clause not unconscionable at the threshold; Meadows unconscionability claims reserved for arbitration. |
| Remedy scope and class claims | Class waivers/arbitration scope may bar class claims; need court guidance. | FAA/per Concepcion enforce class-waiver; arbitration to proceed individually. | Class claims stayed pending arbitrator’s determination; arbitration to proceed on individual/substantive claims. |
Key Cases Cited
- Rent-A-Ctr., West, Inc. v. Jackson, 561 U.S. 63 (2010) (gateway questions of arbitrability may be delegated)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (who decides arbitrability depends on agreement)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (delegation of arbitrability governed by the agreement)
- Momot v. Mastro, 652 F.3d 982 (9th Cir. 2011) (delegation of threshold arbitrability language)
- Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) (incorporation of AAA rules may show clear delegation for sophisticated parties)
- Oracle Am., Inc. v. Myriad Group A.G., 724 F.3d 1069 (9th Cir. 2013) (incorporation of AAA rules as evidence of delegation, depending on context)
- Tompkins v. 23andMe, Inc., 2014 WL 2903752 (N.D. Cal. 2014) (consumer contracts may not automatically delegate arbitrability via AAA rules)
- Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494 (Tex. 2015) (one-sided arbitration provisions may be upheld if not unconscionable)
- In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (Tex. 2006) (procedural vs substantive unconscionability; adhesion contracts)
- In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex. 2001) (mutuality not required for enforceability given commercial needs)
- Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir. 2010) (CFIL anti-waiver considerations and enforceability)
- Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459 (Cal. 1992) (California choice-of-law framework)