Wimsatt v. Beverly Hills Weight etc. Internat., Inc., G013719

• Decision Date: 03 March 1995
• Docket Number: No. G013719,G013719
• Citation: 38 Cal.Rptr.2d 612,32 Cal.App.4th 1511
• Court: California Court of Appeals Court of Appeals
• Parties: Lloyd P. WIMSATT et al., Plaintiffs and Appellants, v. BEVERLY HILLS WEIGHT LOSS CLINICS INTERNATIONAL, INC., et al., Defendants and Respondents.

Page 612

38 Cal.Rptr.2d 612

32 Cal.App.4th 1511

Lloyd P. WIMSATT et al., Plaintiffs and Appellants, v. BEVERLY HILLS WEIGHT LOSS CLINICS INTERNATIONAL, INC., et al., Defendants and Respondents.

No. G013719.

Court of Appeal, Fourth District, Division 3, California.

March 3, 1995.

Waier & Urtnowski and Randall S. Waier, Newport Beach, for plaintiffs and appellants.

R. Patrick McCullogh, San Diego, for defendants and respondents Beverly Hills Weight Loss Clinics Intern., Inc. and O.J. Mulkey.

Saxon, Dean, Mason, Brewer & Kincannon, La Jolla, Bruce G. Holden, Rodney W. Bell, W. Charles Hughes and Lewis, D'Amato, Brisbois & Bisgaard, Los Angeles, for defendant and respondent Phil Solomon.

OPINION

SILLS, Presiding Justice.

California's Franchise Investment Law was intended for precisely this case. The law's statement of legislative intent declares that "California franchisees have suffered substantial losses where the franchisor or his representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between franchisor and franchisee, and the prior business experience of the franchisor." (Corp.Code, § 31001.) And that is, indeed, what the plaintiffs have alleged here: an out-of-state franchisor, rather misleadingly named Beverly Hills Weight Loss Clinics International, made a variety of false promises to induce them to plunk down large sums of money for the privilege of operating several weight loss clinics under the Beverly Hills name and trademark complete with palm tree silhouette. ¹

But this case is not quite as straightforward as matching statute to alleged facts. The franchisee plaintiffs signed an agreement with a forum selection clause which obligated them to sue in Virginia, the home base of the defendant franchisor. Yet a critical feature of California's Franchise Investment Law is an antiwaiver statute voiding any provision of a franchise agreement which forces a franchisee to give up any of the protections afforded by the law. (Corp.Code, § 31512.) This case presents the important issue, spared the court in Lu v. Dryclean-U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490, 14 Cal.Rptr.2d 906, of the validity of a forum selection clause in a franchise agreement in light of that antiwaiver statute.

Actually, the case is even less straightforward than that. Plaintiffs first filed a complaint alleging violations of California's Franchise Investment Law in federal court in San Diego, California. Applying federal procedural law, that court determined the plaintiffs had failed to meet their "heavy" burden of making a "strong" showing that enforcement of the forum selection clause would be "so gravely difficult and inconvenient" that they would, in practical effect, be deprived of "their day in court." Noting the plaintiffs had failed to scale this mountain, the federal court dismissed their complaint, albeit without prejudice to file again "in a proper forum."

The plaintiffs next turned to state court in Orange County, but lost there because the trial judge concluded that the plaintiffs were barred by the doctrine of collateral estoppel from challenging the validity of the forum selection clause. They now appeal from the subsequent order of dismissal. ²

We reverse because the issue litigated in the federal proceeding is not identical to the one presented by this case. The federal court's ruling was a matter of federal procedural law, in which there is indeed a heavy burden of proof on the party opposing the enforcement of a forum selection provision. This action, by contrast, turns on state substantive law in which the burden is on franchisors to show that enforcement of a forum selection clause will not subvert substantive rights afforded California citizens. Different sovereignties, different rules, different burdens: no collateral estoppel. The case must be returned for consideration on the merits.

FACTS

The plaintiffs are two couples and a single man living in Southern California. In December 1989, each of them signed a franchise agreement with Beverly Hills Weight Loss Clinics International, Inc., a Virginia corporation. Beverly Hills Clinics offered for sale franchised outpatient weight loss clinics and a line of dietary products. According to the complaint (that is, the complaint filed in the state trial court here), part of the inducement for the investment was the exclusivity of the franchisor's dietary products, its comprehensive training program for new franchisees, the experience of the franchisor's principals The franchise agreements each contained a forum selection clause, which, in pertinent part, provided: "The Franchisee hereby agrees that it will bring any suit to enforce his [sic ] rights under this agreement only in a Virginia Court."

in the weight loss business, the expectation that plaintiffs would not need to expend any more than about $46,000 on their investment, and, perhaps most importantly, the absence of any litigation against the franchisor. In reality, at least as alleged, these representations were untrue. Similar dietary products were out on the market competing with the franchisor's, there was no real attempt at training, the franchisees were required to pay exorbitant markups for the franchisor's dietary products, there were unconscionable advertising fees and there were "numerous" court cases pending against the franchisor.

An addendum to the agreement modified the forum selection clause to make it look a little more reciprocal. That is, the franchisees still agreed to bring "any suit" to enforce their rights under the agreement "only" in a Virginia court, but also consented to the jurisdiction of any California court in the event that the franchisor brought suit to enforce its rights. There was nothing in the addendum, however, to require the franchisor to bring suit in California.

The final paragraph of the addendum also contained this choice of law provision: "In connection with any suit pursuant to Sections 21.1 [in which the franchisees consented to sue "only" in a Virginia court] or 21.2 [in which the franchisees consented to the jurisdiction of a California court if the franchisor sued them], Franchisor and Franchisee hereby agree that the laws of commonwealth of Virginia shall apply unless so prohibited under the laws of California."

In November 1990, plaintiffs filed an action against the franchisor in federal court for the Southern District of California in San Diego, alleging federal antitrust ³ and trademark claims and violations of the California Franchise Investment Law. Federal jurisdiction was predicated only on the presence of a federal question under trademark law. In March 1991, Judge Enright held that the complaint failed to state claims under federal law. Because no diversity jurisdiction had been alleged he exercised his discretion not to hear the pendent state claims under the Franchise Investment Law.

Plaintiffs tried again two months later, filing in May 1991 a second complaint in federal court in San Diego based on diversity jurisdiction. This time they ran smack-dab into the forum selection clause when the franchisor moved to dismiss for lack of proper venue. In January 1992, Judge Rhoades granted the motion in a formal five-page written order. Relying primarily on Manetti-Farrow, Inc. v. Gucci America, Inc. (9th Cir.1988) 858 F.2d 509, he reasoned that parties opposing the enforcement of forum selection clauses bear a heavy burden of showing trial in the contract forum was "so gravely difficult and inconvenient" that they will be deprived of their day in court. Because the plaintiffs did not meet that "heavy" burden, the forum selection clause was "valid and enforceable." Judge Rhoades granted the motion, however, "without prejudice to the plaintiffs' bringing their suit in a proper forum."

Plaintiffs' next complaint was filed in March 1992 in state court in Orange County, California. Here they met with their usual lack of success, but for a slightly different reason--collateral estoppel. In November 1992 Judge Jameson determined that the issue of the "validity and enforceability" of the forum selection clause in the franchise agreement had been fully and fairly litigated in federal court, that order was binding, proper venue was in a Virginia court, and therefore the case should be dismissed.

DISCUSSION

Being a matter of issue preclusion, collateral estoppel is naturally confined to issues "actually litigated." (E.g., Harman v. Mono General Hospital (1982) 131 Cal.App.3d 607, 615, 182 Cal.Rptr. 570 ["central question" on application of collateral estoppel turned on whether public entity status of hospital was actually litigated in prior proceeding]; see also 7 Witkin, Cal. Procedure (3d ed. 1985) Judgment, § 253, p. 692.)

A corollary is that the issue decided previously be "identical" with the one sought to be precluded. (See, e.g., People v. Taylor (1974) 12 Cal.3d 686, 691, 117 Cal.Rptr. 70, 527 P.2d 622 [need for issue decided at previous hearing to be "identical to the one which is sought to be relitigated"]; Stolz v. Bank of America (1993) 15 Cal.App.4th 217, 222, 19 Cal.Rptr.2d 19 ["Collateral estoppel applies if (1) the issue decided in the prior case is identical with the one now presented...."]; Betyar v. Pierce (1988) 205 Cal.App.3d 1250, 1254, 252 Cal.Rptr. 907 [quoting Taylor and finding in license revocation litigation that requirement for identical issue had not been fully satisfied where stipulation that motorist had completed alcohol test was entered in previous criminal drunk driving proceeding].)

Accordingly, where the previous decision rests on a "different factual and legal foundation" than the issue sought to be adjudicated in the case at bar, collateral estoppel effect should be denied. (Bleeck v. State Board of Optometry (1971) 18 Cal.App.3d 415, 428, 95 Cal.Rptr. 860 [refusing to accord collateral estoppel effect to...