Laxmi Investments v. Golf USA., 98-15758

• Decision Date: 11 February 1999
• Docket Number: No. 98-15758,98-15758
• Citation: 193 F.3d 1095
• Parties: (9th Cir. 1999) LAXMI INVESTMENTS, LLC, a California limited liability company, Plaintiff-Appellant, v. GOLF USA, an Oklahoma corporation, Defendant-Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1095

193 F.3d 1095 (9th Cir. 1999)

LAXMI INVESTMENTS, LLC, a California limited liability company, Plaintiff-Appellant, v. GOLF USA, an Oklahoma corporation, Defendant-Appellee.

No. 98-15758

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted February 11, 1999--San Francisco, California

Decided September 30, 1999

John C. Gorman, Gorman & Miller, San Jose, California, for the plaintiff-appellant.

Terry T. Johnson and Rebecca A. Mitchells, Wilson Sonsini Goodrich & Rosati, Palo Alto, California, for the defendant appellee.

Appeal from the United States District Court for the Northern District of California; Ronald M. Whyte, District Judge, Presiding.

Before: Mary M. Schroeder, Ferdinand F. Fernandez, Barry G. Silverman, Circuit Judges.

SCHROEDER, Circuit Judge:

This is a dispute in which the parties have agreed to arbitration but disagree on the venue. The parties entered into a franchise agreement that specified an Oklahoma forum, but the offering circular pointed out that California law requires a California forum for franchise agreement dispute resolution. The district court for the Northern District of California held that the arbitration must proceed in Oklahoma and dismissed the franchisee's suit on the ground that the Federal Arbitration Act requires the enforcement of the parties' agreement exactly as the agreement provides. We hold that the parties never clearly agreed to an Oklahoma forum, and so we reverse and remand.

Factual Background

Plaintiff and appellant Laxmi Corporation ("Laxmi") briefly operated a golf retail franchise in Monterey, California for defendant and appellee Golf USA, Inc. ("Golf USA"). Laxmi is a closely-held corporation owned by Narendra and Viraj Patel. Golf USA is an international golf store franchisor.

Golf USA first offered to sell a franchise to the Patels in May 1995. As required by law, Golf USA gave the Patels a Uniform Franchise Operating Circular, a document that summarizes some of the material terms of the franchise agreement. The offering circular stated in part that:

California Business and Professions Code Sections 20000 through 20043 provide rights to the Franchisee concerning termination or non-renewal of a franchise. If the Franchise agreement contains a provision that is inconsistent with the law, the law will control. The Franchise Agreement requires application of the laws of Oklahoma. This provision may not be enforceable under California law.

The Franchise Agreement also requires binding arbitration. The arbitration will occur in Oklahoma County, State of Oklahoma . . . . This provision may not be enforceable under California law.

The parties entered into the written franchise contract on May 15, 1995. Unlike the offering circular, the contract made no mention of California law. It stated that all disputes "shall be resolved by arbitration conducted in Oklahoma County, State of Oklahoma, in accordance with the latest existing Commercial Rules of Arbitration of the American Arbitration Association."

Laxmi operated the franchise at a loss for about a year. When the business failed, Laxmi filed a Demand for Arbitration with the American Arbitration Association ("AAA"), requesting that the arbitration take place in California. Laxmi based its position on a section of the California Franchise Relations Act ("CFRA") that establishes that a "provision in a franchise agreement restricting venue to a forum outside this state is void with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within this state." Cal. Bus. & Prof. Code S 20040.5. Golf USA objected to the California venue on the ground that the contractual provision requiring arbitration in Oklahoma was valid because the Federal Arbitration Act, 9 U.S.C. SS 114, preempted the CFRA.

The AAA ruled that it could not interpret statutes to determine venue, and therefore concluded that the arbitration should be held in Oklahoma, the forum specified in the franchise contract. Laxmi then dismissed its arbitration proceeding and filed suit in California state court. As amended, the complaint alleged violation of the California franchise laws, breach of contract, negligence, intentional misrepresentation, and other related state law theories. Golf USA removed the action to the Northern District of California on diversity grounds and moved to dismiss or in the alternative to transfer to Oklahoma. The district court treated the matter as a petition by Laxmi to compel arbitration in California. The court agreed with Golf USA that the Federal Arbitration Act preempts the California statute and that arbitration should therefore proceed in Oklahoma. Because it lacked authority to compel arbitration in Oklahoma, the district court dismissed Laxmi's case. Laxmi appeals.

Discussion

The parties spend much of their efforts disputing whether the Federal Arbitration Act preempts section 20040.5 of the California Franchise Relations Act. We need not decide that issue, because even if California's statutory requirement of a California forum is preempted by the FAA, the parties in this case never agreed to a forum outside California.

Laxmi argues that there was no meeting of the minds on the forum-selection provision. It points us to Alphagraphics Franchising, Inc. v. Whaler Graphics, Inc., 840 F. Supp. 708 (D. Ariz. 1993), a well-reasoned case similar to the dispute before us. In Alphagraphics, the plaintiff franchisor offered the defendants a franchise to operate an Alphagraphics store in Michigan. As required by Michigan law, the...