Castillo v. Cleannet USA, Inc.

Decision Date18 December 2018
Docket NumberCase No. 17-cv-07277-JCS
Citation358 F.Supp.3d 912
Parties Luis CASTILLO, Plaintiff, v. CLEANNET USA, INC., et al., Defendants.
CourtU.S. District Court — Northern District of California

Carole Vigne, Henry Sanford Hewitt, Mana Barari, Legal Aid at Work, Monique Olivier, Olivier Schreiber & Chao LLP, San Francisco, CA, for Plaintiff.

Laura Emily Hayward, Joshua Eric Elefant, R. Brian Dixon, Littler Mendelson, P.C., Charles G. Miller, Charles Griffith Towle, Sony Broto Barari, Bartko Zankel Bunzel & Miller, San Francisco, CA, for Defendants.

ORDER DENYING MOTION TO COMPEL ARBITRATION

Re: Dkt. No. 65

JOSEPH C. SPERO, Chief Magistrate Judge

I. INTRODUCTION

Plaintiff Luis Castillo brings a putative class action against Defendants CleanNet USA, Inc. ("CleanNet") and D&G Enterprises, Inc. dba CleanNet of the Bay Area and CleanNet of San Jose ("D&G"), asserting claims under the federal Trafficking Victims Protection Reauthorization Act ("TVPRA"), 18 U.S.C. § 1959, and the California Trafficking Victims Protection Act ("CTVPA"), Cal. Civ. Code § 52.5.1 Defendants bring a Motion to Compel Arbitration and Stay the Proceeding ("Motion") based on an arbitration provision in the franchise agreement between D&G and Castillo. The Motion has been fully briefed and the Court has permitted Castillo to file a sur-reply and supplemental evidence to respond to new evidence and arguments filed by Defendants with their Reply brief. A hearing on the motion was held on December 7, 2018 at 9:30 a.m. For the reasons stated below, the Motion is DENIED.2

II. BACKGROUND
A. Factual Background3

Luis Castillo entered into a franchise agreement ("Franchise Agreement") with D&G on September 26, 2011. Declaration of David P. Crum in Support of Defendants CleanNet USA, Inc. and D&G Enterprises, Inc.'s (d/b/a CleanNet of the Bay Area and CleanNet of San Jose) Motion to Compel Arbitration and Stay Proceedings ("Crum Decl.") ¶ 4 & Ex. A. D&G is "an area operator licensed by CleanNet USA to sell franchises and to operate a franchising business using the CleanNet USA® registered marks and proprietary system in the San Francisco Bay area."

Id. ¶ 3. To purchase the franchise, Castillo made a down payment of $8,500 and signed a promissory note for $5,000 on the day he signed the Franchise Agreement. Declaration of Luis Castillo in Support of Plaintiff's Opposition to Defendants' Motion to Compel Arbitration ("Castillo Decl.") ¶ 14; Crum Decl., Ex. B (Promissory Note).

The Franchise Agreement contains a section entitled "Dispute Resolution" that provides, in relevant part, as follows:

XXII. DISPUTE RESOLUTION
The parties to this Agreement recognize that compliance with the terms of this Agreement and the nature of the Franchisor/Franchisee relationship may give rise to the need to resolve disputes between the parties. Both Franchisee and Franchisor wish to avoid the time, expense and disruption that can result from lawsuits, but they desire to have a method of resolving disputes that is mutually acceptable. For this purpose, the parties expressly agree first to resolve disputes by direct negotiation with each other. If such negotiations fail to reach an agreement, the party dissatisfied with the outcome of negotiations must submit the dispute, within 180 days, to mediation and/or arbitration under this Section XXII, as follows:
A. Mediation : Before, and as a necessary condition precedent to, filing a demand for arbitration in accordance with this Agreement, Franchisee and Franchisor shall attempt to settle the dispute through mediation administered by the American Arbitration Association ("AAA") at its office closest in proximity to Franchisor's office in accordance with the Commercial Mediation Rules of the AAA. The filing fee for the proceeding shall be borne by the initiating party. The mediator's compensation and any administrative costs shall be borne equally by both parties. If Franchisee and Franchisor arrive at an agreement through mediation, then that agreement shall be set forth in writing and be binding upon both parties.
B. Arbitration: All disputes, controversies, and claims of any kind arising between the parties, including but not limited to claims arising out of or relating to this Agreement, the rights and obligations of the parties, the sale of the franchise, or other claims or causes of action relating to the performance of either party that are unable to be settled through mediation shall be settled by arbitration administered by the AAA at its office closest in proximity to the Franchisor's office, in accordance with the Federal Arbitration Act and the Commercial Rules of the AAA unless the parties otherwise agree in accordance with Section XXII.C of this Agreement.
1. This Section XXII.B shall survive expiration, non-renewal or termination of this Agreement for any reason.
2. The filing fee for the proceeding shall be borne by the initiating party. The arbitrator's compensation and any administrative costs shall be borne equally by both parties.
3. Either party shall have the right to seek a court order granting injunctive relief where such relief is necessary in order to provide protection on a temporary or preliminary basis while the arbitration process is pursued.
4. The parties expressly agree that an arbitrator shall have the power to enter an award, including injunctive relief, protecting its rights to the same extent a court could do so, and such relief shall be enforceable by a court having jurisdiction under Section XXII.E of this Agreement.
5. No arbitration or action under this Agreement shall include, by consolidation, joinder, or any other manner, any claims by any person or entity in privity with or claiming through or on behalf of Franchisee. Franchisee shall not seek to arbitrate or litigate as a representative of, or on behalf of, any other person or entity, any dispute, controversy of any kind arising out of or relating to this Agreement, the rights and obligations of the parties, the sale of the franchise, or other claims or causes of action relating to the performance of either party to this Agreement.
6. To the fullest extent permitted by law, direct negotiation, followed by mediation and/or binding arbitration, shall be the exclusive means of resolving any and all claims relating to this Agreement, including, but not limited to, claims of breach of contract, breach of the covenant of good faith and fair dealing, fraud, violation of any and all franchise registration, disclosure and/or franchisee protection statutes, regulations, or ordinances, whether federal, state or local, or any other common laws claims.
C. Alternative Procedures: The parties understand that specific disputes may make some flexibility in the foregoing dispute resolution procedures desirable. The parties may modify any of the negotiation, mediation or arbitration procedures as described below, or in any other manner that is mutually agreed:
1. Dispute Resolution Procedural Rules. Either party may propose to use a dispute resolution organization other than the AAA, if the proposed organization has rules governing proceedings that are comparable in scope and formality to the AAA Commercial Rules. Under no circumstances shall either of the parties seek to proceed under the AAA Employment Arbitration Rules. The parties may also agree to use a private mediator or arbitrator who would then operate in accordance with the AAA Commercial Rules or a comparable set of rules.
...

Crum Decl., Ex. A at ECF pp. 41-42. Section XXII also provides for waiver of punitive damages, stating:

FRANCHISEE HEREBY IRREVOCABLY WAVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT OR CLAIM FOR ANY PUNITIVE, EXEMPLARY, CONSEQUENTIAL, OR SPECULATIVE DAMAGES INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, AND AGREES THAT, IN THE EVENT OF A DISPUTE, FRANCHISEE SHALL BE LIMITED TO THE ACTUAL DAMAGES SUSTAINED EXCEPT AS OTHERWISE PROVIDED HEREIN.

Id. (Section XXII(G) ).

Finally, Section XXII contains a savings clause stating that "[i]f any provision of this Section XXII would violate applicable state or federal law, then the parties agree that such provision shall be excluded from the terms of this Agreement, or shall be modified to the minimum extent necessary to make the terms hereof lawful." Id. at ECF p. 82 (Franchise Agreement, Section XXII(F) ). Likewise, the Franchise Agreement contains a separate severability provision that provides as follows:

Except as expressly provided to the contrary herein, each section, part, term and/or provision of this Agreement shall be considered severable, and any section, part, term and/or provision herein is determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation by a court or agency having valid jurisdiction, such shall not impair the operation of, or have any other effect on, such other portions, sections, parts, terms and/or provisions of this Agreement as may remain otherwise intelligible, and the latter shall continue to be given full force and effect and bind the parties hereto, and said invalid sections, parts, terms and/or provisions shall be deemed not to be a part of this Agreement; provided, however, that if Franchisor determines that such finding of invalidity or illegality adversely affects the basic consideration of this Agreement, Franchisor, at its option, may terminate this Agreement.

Id. at ECF p. 83 (Franchise Agreement, Section XXIV(A) ).

The Franchise Agreement also contains a provision addressing the use of English language, which states as follows:

English Language: Franchisee acknowledges that Franchisor's disclosure document and this Agreement are written in the English language. If English is not Franchisee's native language, Franchisee warrants and represents that Franchisee has had the opportunity for translation of the disclosure document and this Agreement; that all aspects of this Agreement have been explained to Franchisee's satisfaction; and that Franchisee understands and accepts
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