1-800-GOT JUNK? LLC v. Superior Court
189 Cal. App. 4th 500, 2010 Cal. App. LEXIS 1805, 116 Cal. Rptr. 3d 923 (2010)
Rule of Law:
A contractual choice-of-law provision is enforceable if there is a reasonable basis for the choice, and its application does not contravene a fundamental public policy of the forum state by diminishing the rights afforded to the more vulnerable party, particularly under anti-waiver statutes.
Facts:
- 1-800-Got Junk? LLC (Got Junk), a Delaware limited liability company, is a junk removal franchise business headquartered in Vancouver, British Columbia, Canada.
- On December 26, 2003, Millennium Asset Recovery, Inc. (Millennium) entered into a franchise agreement with Got Junk to operate a Got Junk franchise in various territories in the Los Angeles area, including Century City, Beverly Hills, and Westwood.
- The franchise agreement between Got Junk and Millennium contained a choice of law provision stating, 'This agreement shall be construed and interpreted according to the laws of the state of Washington.'
- Got Junk's 2003 uniform franchise offering circular (UFOC), referenced in the agreement, advised Millennium that Washington law governs but that local law might supersede it, and that the provision 'may not be enforceable under California law.'
- The franchise agreement obligated Millennium to pay a percentage of its gross revenue to Got Junk for every junk removal job performed.
- Effective May 11, 2007, Got Junk terminated Millennium's franchise without providing an opportunity to cure, on the grounds that Millennium deliberately underreported certain jobs and the gross revenue derived from them, failing to pay Got Junk the monies due.
- Millennium denies wrongdoing but conceded that its drivers pocketed money on at least three jobs without reporting the payments to either Millennium or Got Junk.
Procedural Posture:
- On July 2, 2007, Millennium Asset Recovery, Inc. (Millennium) filed suit against 1-800-Got Junk? LLC (Got Junk) in the Superior Court of Los Angeles County (trial court), alleging breach of contract and other claims, and invoking the Washington choice of law provision in their franchise agreement.
- Millennium filed a first motion for summary adjudication on October 2, 2008, which the trial court declined to rule on because it was filed before Millennium's operative second amended complaint.
- Millennium filed a second motion for summary adjudication on April 28, 2009, which the trial court (Hon. Morris B. Jones) denied, ruling it would not wholly dispose of the breach of contract claim and that Millennium failed to establish a reasonable basis for the choice of Washington law.
- At a status conference on September 4, 2009, the trial court (Hon. Rita Miller) indicated it would conduct a bifurcated trial on the choice of law issue, directing the parties to submit declarations.
- On January 6, 2010, following a hearing on the bifurcated choice of law determination, the trial court (Hon. Rita Miller) ruled that Washington law applies, finding a reasonable basis for its designation.
- On January 14, 2010, Got Junk filed the instant petition for writ of mandate with the California Court of Appeal, seeking to overturn the trial court’s ruling that Washington law applies to the breach of contract action.
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Issue:
Does a choice-of-law provision in a California franchise agreement, designating Washington law, violate California public policy under the California Franchise Relations Act (CFRA) if Washington law provides greater protection to the franchisee than California law?
Opinions:
Majority - Klein, P.J.
No, a choice-of-law provision in a franchise agreement designating Washington law does not violate California public policy under the CFRA when Washington law provides greater protection to the franchisee than California law; therefore, the trial court properly held the choice of law provision is enforceable. The court applied the two-part test from Nedlloyd Lines B.V. v. Superior Court and Restatement (Second) of Conflict of Laws § 187(2). First, the court found a reasonable basis for the inclusion of the Washington choice of law provision. It recognized that a multistate franchisor like Got Junk has a legitimate interest in having its franchise agreements governed by a uniform body of law to increase predictability and consistency across its operations. Furthermore, Washington State's geographical proximity to Got Junk's headquarters in Vancouver, Canada, provided a reasonable basis for selecting its law. Second, the court addressed whether enforcement of the Washington law would be contrary to a fundamental public policy of California, specifically section 20010 of the California Franchise Relations Act (CFRA), which voids any provision purporting to bind a person to 'waive compliance' with the CFRA. By comparing the CFRA's termination provisions (allowing 11 grounds for immediate termination without cure under Bus. & Prof. Code § 20021) with Washington's Franchise Investment Protection Act (WFIPA) (allowing only 4 situations for summary termination under Wn. Rev. Code § 19.100.180(2)(j)), the court determined that Washington law offers superior protection to the franchisee against summary termination. Since the chosen Washington law enhances, rather than diminishes, Millennium's rights under the CFRA, it does not constitute a 'waiver of compliance' and thus does not contravene California public policy. The court emphasized that California's Legislature could have categorically prohibited choice-of-law provisions, as it did for forum selection clauses, but chose instead to void them only if they subverted a franchisee's protections.
Concurring - Croskey, J., and Aldrich, J.
Justices Croskey and Aldrich concurred with the majority opinion's reasoning and conclusion.
Analysis:
This case significantly clarifies the parameters for enforcing choice-of-law provisions in California franchise agreements, particularly in light of the state's robust franchisee protection laws. It establishes that California courts will uphold such provisions, even when designating out-of-state law, provided there's a reasonable basis for the choice and the chosen law offers equal or greater protection to the franchisee than California's own statutes. This promotes contractual freedom and predictability for multistate franchisors while upholding the underlying public policy of protecting franchisees. Future cases will likely hinge on a direct comparison of the substantive protections offered by the chosen law versus California law, focusing on whether the out-of-state law diminishes or enhances the franchisee's rights.
