Nygaard v. Property Damage Appraisers, Inc.
2:16-cv-02184-VC
E.D. Cal.Dec 28, 2017Background
- Plaintiff Brian Nygaard sued Property Damage Appraisers, Inc. (PDA); PDA moved to compel arbitration under Section 18 of a Franchise License Agreement.
- The parties separately signed a California addendum that supplements Section 18 with a four-sentence arbitration paragraph.
- The addendum describes the arbitration terms (AAA, Texas forum, costs to losing party) and then states: "This provision may not be enforceable under California law."
- The court previously held the agreement’s choice-of-law clause invalid; California law governs contract formation and interpretation.
- The central question became whether the addendum’s proviso showing possible unenforceability meant the parties never formed an enforceable agreement to arbitrate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether parties formed an enforceable arbitration agreement given the addendum's statement that "This provision may not be enforceable under California law." | Nygaard: proviso shows no meeting of minds; thus no enforceable arbitration agreement. | PDA: proviso does not necessarily negate mutual assent to arbitration; common-sense reading could preserve agreement. | Court held no enforceable arbitration agreement — proviso negated meeting of minds under California authority. |
| What does the phrase "this provision" refer to? | Nygaard: it refers to the arbitration provision as a whole. | PDA: could be read to refer only to specific aspects (e.g., forum selection). | Court interpreted "this provision" to encompass the entire arbitration clause, not just one element. |
| Whether federal FAA policy to resolve doubts in favor of arbitration requires resolving ambiguities in favor of arbitration at formation stage | Nygaard: policy applies only after a court finds a valid arbitration agreement exists. | PDA: FAA policy favors arbitration and should inform interpretation. | Court held FAA policy does not apply until state contract law shows an agreement to arbitrate exists. |
| Whether lower court decisions reaching the opposite result control here | Nygaard: earlier California and Ninth Circuit decisions (Laxmi, Winter) control. | PDA: other Northern District cases (e.g., Jacobson, Meadows) support denying that rule here. | Court followed California intermediate appellate and Ninth Circuit precedent (Laxmi, Winter) and rejected PDA's reliance on different district decisions. |
Key Cases Cited
- Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126 (9th Cir. 2000) (federal courts apply ordinary state-law contract principles to determine existence of arbitration agreement)
- Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279 (9th Cir. 2017) (federal courts applying California law bound by California Supreme Court; follow published intermediate decisions absent convincing reason otherwise)
- Winter v. Window Fashions Profs., Inc., 166 Cal. App. 4th 943 (Cal. Ct. App. 2008) (proviso that a provision "may not be enforceable under California law" shows lack of mutual assent to that provision, invalidating arbitration clause)
- Laxmi Invs., LLC v. Golf USA, 193 F.3d 1095 (9th Cir. 1999) (approach treating such provisos as negating mutual assent to arbitration agreements)