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Bridge Fund Capital vs. Fastbucks Franchisor Ruling Favorable for Franchisee. Arbitration Provisions Unenforceable in California

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Franchisors that conduct business in California need to be aware of issues regarding arbitration provisions. Read about this recent court ruling.

A recent ruling upheld the jurisdiction of California courts regarding the validity of an arbitration provision in the Fastbucks franchise agreement. Fastbucks is in the paycheck cashing business.

 

Bridge Fund, a franchisee of Fastbucks brought an action in California against the Texas based franchisor on February 28, 2008. The complaint alleged among other things, breach of the franchise agreements, fraud and deceit, negligent misrepresentation, violation of the California Franchise Investment Law (CFIL), Cal. Corp. Code § 31000 et seq., declaratory relief, and unfair trade practices under California state law. The franchise agreement contained an arbitration clause.

Fastbucks filed a number of motions which attempted to overturn a California district court’s ruling. The franchisor wanted to enforce the arbitration provision.

The district court agreed with the Plaintiffs, and denied Fastbucks's motion. On appeal, Fastbucks argues that the district court committed three errors: (1) it failed to apply the "crux of the complaint" rule, pursuant to which it was for the arbitrator to decide the threshold issue of arbitrability; (2) it erred in applying California rather than Texas law; and (3) it abused its discretion in refusing to sever the portions of the arbitration provision it held to be unconscionable under California law.

 

Fastbucks removed the case to federal court which upheld the lower court ruling. The court ruled that four of the five paragraphs of the arbitration clause are unconscionable, or at least unenforceable, in California. The court remanded the case to the district court for further proceedings.

© 2010 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com

 

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