Brian Nygaard v. Prop. Damage Appraisers ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 7 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIAN K. NYGAARD, DBA BKN No. 18-15055
Appraisals, Inc., DBA PDA Sacramento,
DBA PDA Stockton, D.C. No. 2:16-cv-02184-VC
Plaintiff-Appellee,
MEMORANDUM*
v.
PROPERTY DAMAGE APPRAISERS,
INC.,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of California
Vince Chhabria, District Judge, Presiding
Argued and Submitted June 3, 2019
Seattle, Washington
Before: D.W. NELSON, BEA, and N.R. SMITH, Circuit Judges.
Property Damage Appraisers, Inc. appeals the district court’s order denying
its motion to compel arbitration in a diversity action brought by Brian Nygaard and
BKN Appraisals, Inc. We review de novo the district court’s denial of a motion to
compel arbitration. Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1259 (9th Cir.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
2017). Because the district court correctly held that, applying California contract
law, there was no “meeting of the minds” regarding arbitration based on the
franchise license agreements, we affirm.
“[T]he [Federal Arbitration Act (FAA)] provides that arbitration agreements
are generally valid and enforceable, ‘save upon such grounds as exist at law or in
equity for the revocation of any contract.’” Nagrampa v. MailCoups, Inc., 469 F.3d
1257, 1264–65 (9th Cir. 2006) (en banc). In a diversity case, we “apply ordinary
state-law principles that govern the formation of contracts to decide whether an
agreement to arbitrate exists” and “follow a published intermediate state court
decision regarding California law unless [we] are convinced that the California
Supreme Court would reject it.” Norcia v. Samsung Telecomms. Am., LLC, 845
F.3d 1279, 1283–84 (9th Cir. 2017) (citations omitted).
We are bound by the California Court of Appeal’s decision in Winter v.
Window Fashions Professionals, Inc., 166 Cal. App. 4th 943 (2008). In a case
containing the same language at issue here—a venue selection clause containing
the phrase “[t]his provision may not be enforceable under California law”—Winter
invalidated an entire arbitration provision because there was no meeting of the
minds. Id. at 950 (citing Laxmi Investments, LLC v. Golf USA, 193 F.3d 1095 (9th
Cir. 1999)). No California court has issued a decision contrary to Winter. Contrary
to Appellant’s contentions, the court in MKJA, Inc. v. 123 Fit Franchising, LLC
2
did not reach the issue whether Winter was correctly decided because it found there
was no jurisdiction. 191 Cal. App. 4th 643, 662 (2011). Footnote 9 in that opinion
describes the defendant’s argument, not the court’s opinion. Id. at 662 n.9. We are
not “convinced that the California Supreme Court would reject” Winter; therefore,
we are bound to follow it. Norcia, 845 F.3d at 1283.
California regulations mandate only that the language in question, “[t]his
provision may not be enforceable under California law,” be included in a Uniform
Offering Circular. 10 Cal. Code Reg. § 310.114.1(c)(B)(v); Cal. Civ. Prac. Bus.
Litig. § 23:7; Cal. Corp. Code § 31114. The offering circular is required to be
provided to prospective buyers, and functions as a pre-contract disclosure. Cal.
Corp. Code § 31119. In the instant case, the language was not provided to the
parties in a pre-contract offering circular; rather, it was included in an addendum to
the franchise agreement itself that was signed and executed on the same date as the
franchise agreement. The fact that the parties included the language voluntarily,
rather than as required by law, makes the case to follow Winter that much stronger.
Lastly, Winter does not violate the FAA. The FAA “permits arbitration
agreements to be declared unenforceable ‘upon such grounds as exist at law or in
equity for the revocation of any contract.’” Concepcion, 563 U.S at 339.
Arbitration agreements may be invalidated by “generally applicable contract
defenses, such as fraud, duress, or unconscionability.” Id. Lack of mutual consent,
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or “meeting of the minds,” is a “generally applicable contract defense[]” that
continues to be an important inquiry in California contract law. See, e.g., Pierson v.
Helmerich & Payne Internat. Drilling Co., 4 Cal.App.5th 608, 630 (2016); HM
DG, Inc. v. Amini, 219 Cal. App. 4th 1100, 1109 (2013).
It is not the case that every state law ruling that “stand[s] as an obstacle to
the FAA’s objectives” violates Concepcion. See AT&T Mobility v. Concepcion,
563 U.S. 333, 343 (2011). Concepcion simply requires courts to “place arbitration
agreements on an equal footing with other contracts.” Id. at 339; cf. Kindred
Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1426 (2017) (finding
Kentucky’s “clear-statement rule” preempted by the FAA because it applied only
to waivers of trial by jury). Here, Winter’s holding that a venue selection clause as
to which there was no assent because of the phrase “[t]his provision may not be
enforceable under California law” is not limited to arbitration agreements by the
holding’s text. If Winter were preempted by the FAA, every court construing
ambiguous language in arbitration agreements would be forced to conclude that the
language favored arbitration.
AFFIRMED.
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FILED
Brian Nygaard v. Property Damage Appraisers, Inc., No. 18-15055
AUG 7 2019
N.R. SMITH, Circuit Judge, dissenting: MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
The majority affirms the district court’s denial of Property Damage
Appraisers’ (PDA) motion to compel arbitration on the theory that a lack of
“meeting of the minds,” regarding a provision about where to arbitrate disputes,
totally eliminates the agreement to arbitrate disputes. Because the majority has
overlooked a severability clause, sidestepped circuit precedent, and ducked under
the Supreme Court’s preemption cases, I cannot agree.
Section 18 of the Franchise Agreement contains a broad arbitration clause
requiring the parties to submit any claims or disputes to arbitration.1 Section 18
also requires the arbitration to be held in Fort Worth, Texas. Section 18 was
thereafter supplemented by an addendum that confirms “[t]he Agreement requires
binding arbitration.” The supplemental language also states that “[t]he arbitration
will occur at the PDA’s corporate headquarters in Fort Worth, Texas . . . [t]his
1
The relevant provision reads:
With respect to any claims, controversies or disputes which are not
finally resolved through mediation or as otherwise provided above,
the parties agree to submit their dispute to arbitration in accordance
with the commercial rules of the AAA then in effect. The arbitration
shall be held in Fort Worth, Texas at PDA’s corporate headquarters,
before a sole arbitrator agreed to by the parties and selected from the
panel of arbitrators of the AAA.
provision may not be enforceable under California law.” However, the phrase
beginning “[t]his provision” does not amend the general agreement to arbitrate. It
refers only to the forum selection component of the addendum.2
Before our circuit decided (in Bradley, 275 F.3d at 892) that the FAA
preempted the requirement to include the “may not be enforceable under California
law” language, we had already confronted that same “may not be enforceable
under California law” language in Laxmi. See 193 F.3d at 1097–98. In Laxmi, we
eliminated the requirement that the parties arbitrate out-of-state (the franchise
agreement provided arbitration would occur in Oklahoma), because there was no
evidence that the franchisor would seek to enforce the out-of-state forum
requirement. Id. at 1097. However, we still ordered the parties to arbitrate. In
other words, we enforced the arbitration provision despite no “meeting of the
minds” on the out-of-state venue provision. See Nagrampa v. MailCoups, Inc.,
469 F.3d 1257, 1291 (9th Cir. 2006) (en banc) (“The salient point is that, just as in
2
The majority believes that the language “[t]his provision may not be
enforceable under California law” is a reference to California regulations requiring
such language to be included in a Uniform Offering Circular, Maj. Op. 3, despite
the fact that a separate California law required this provision in franchise
agreements. See Cal. Bus. & Prof. Code section 20040.5; Laxmi Invs., LLC v. Golf
USA, 193 F.3d 1095, 1097–98 (9th Cir. 1999). The trouble with the majority’s
belief: our circuit has since held that the Federal Arbitration Act (FAA) preempts
Cal. Bus. & Prof. Code section 20040.5. See Bradley v. Harris Research, Inc., 275
F.3d 884, 892 (9th Cir. 2001).
2
Laxmi, ‘there is no evidence that [MailCoups] ever indicated that it would insist
upon an out-of-state forum despite the contravening California law’ in place at the
time the contract was executed.” (alteration in original) (quoting Laxmi, 193 F.3d
at 1097)); Bradley, 275 F.3d at 891 (emphasizing that in Laxmi, “the forum
selection clause in that franchise agreement was unenforceable because the parties
never clearly agreed on the venue in which arbitration was to take place”).
After our circuit held the FAA preempted the California law requiring the
“may not be enforceable under California law” language, a California appellate
court decided Winter v. Window Fashions Professionals, Inc., 83 Cal. Rptr. 3d 89
(Cal. Ct. App. 2008). Generally, we would follow Winter, because it is “a
published intermediate state court decision regarding California law”—that is,
“unless we are convinced that the California Supreme Court would reject it.”
Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1284 (9th Cir. 2017)
(internal quotation marks and citations omitted). The California Supreme Court
will see Winter for what it is: a preempted misapplication of Laxmi.3
Contrary to the majority’s argument, that the case for following Winter is
stronger because the “may not be enforceable language” was included voluntarily
3
A different California court of appeals already characterized Winter as
“wrongly decided.” MKJA, Inc. v. 123 Fit Franchising, LLC, 119 Cal. Rptr. 3d
634, 647 n.9 (Cal. Ct. App. 2011).
3
in the addendum (rather than being required by state law in to appear in the pre-
contract offering circular), the fact that the parties voluntarily included the
language suggests there was a meeting of the minds. See Maj. Op. 3.
Furthermore, Winter relies exclusively on Laxmi, yet does not explain why it
extends Laxmi—which ordered arbitration, just without the forum selection
provision—to invalidate the entire arbitration provision. Winter, 83 Cal. Rptr. 3d
at 94–95. Nor does Winter cite to generally applicable California doctrine on
“meeting of the minds” to explain how Laxmi’s lack of “meeting of the minds” on
the forum selection provision infects the “meeting of the minds” on the agreement
to arbitrate disputes. Id.
Finally, and perhaps most importantly, Winter’s application of California
law on “meeting of the minds” skates into FAA preemption. See AT & T Mobility
LLC v. Concepcion, 563 U.S. 333, 343 (2011) (noting that a state law rule that
“stand[s] as an obstacle to the accomplishment of the FAA’s objectives” will be
deemed preempted); Bradley, 275 F.3d at 890 (insulating from preemption only
state law rules that are “generally applicable” or apply to “any contract”) (citations
omitted). That California law generally requires “meeting of the minds” is not
enough to save Winter from the jaws of the Supreme Court’s arbitration
jurisprudence. Recall Winter cancelled an agreement to arbitrate just because the
4
parties had no “meeting of the minds” on where the arbitration would happen.
Winter thus creates the sort of special “obstacle” for enforcing arbitration clauses
that the FAA preempts. Concepcion, 563 U.S. at 343.
To make matters worse, the majority offers two feeble defenses that should
give every reader pause: (1) “Winter’s holding that a venue selection clause as to
which there was no assent . . . is not limited to arbitration agreements by the
holding’s text” and (2) a contrary holding would require every court to construe
ambiguous language in favor of arbitration. Maj. Op. 4. First, the idea that the
FAA only preempts state rules that explicitly single out arbitration agreements
squarely contradicts modern Supreme Court jurisprudence. See Kindred Nursing
Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1426 (2017) (“The [FAA] also
displaces any rule that covertly accomplishes the same objective by disfavoring
contracts that (oh so coincidentally) have the defining features of arbitration
agreements.”). Further, construing ambiguous agreements in favor of arbitration
has been black-letter law for more than 35 years. See Moses H. Cone Mem’l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983) (“The Arbitration Act
establishes that, as a matter of federal law, any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration, whether the problem at
hand is the construction of the contract language itself or an allegation of waiver,
5
delay, or a like defense to arbitrability.”).
Even if Winter did require us to conclude that a lack of “meeting of the
minds” on the forum selection provision negates the agreement to arbitrate
altogether, the majority cannot write the severability clause out of the franchise
agreement. The broadly-drafted severability clause in the Agreement requires us to
consider “each portion, section, part, term and provision” of the Agreement to be
severable, and “if, for any reason, any section, part, term or provision is determined
to be invalid and contrary to . . . law . . . this shall not impair the operation of, or
have any other effect upon, such other portions, sections, parts, terms and
provisions of this Agreement as may remain otherwise intelligible.” The impact of
the severability provision could not be clearer: even if Winter requires us to excise
the term providing for arbitration in Texas, we must preserve the parties’
agreement to arbitrate their disputes. If we must perform any necessary surgery on
the Agreement, the severability clause requires to use a scalpel, not a hacksaw.
6