Brian Nygaard v. Prop. Damage Appraisers

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 7, 2019
• Docket: 18-15055
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS AUG 7 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT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,

3 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.

4 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.