Siert v. Spiffy Franchising, LLC.

Background

Alina Siert and A4H, LLC, identified as franchisee plaintiffs, sued Spiffy Franchising, LLC, Get Spiffy, Inc., Scot Wingo, Karl Murphy, and Connor Finnegan. The claims arose from alleged fraudulent business practices and misrepresentations, including alleged failures to provide promised supervision, training, supplies, access to existing nationwide accounts, and assistance with the plaintiffs’ business model.

The parties entered into a written Franchise Agreement containing an arbitration clause requiring binding arbitration of actions arising from or related to the agreement. The agreement also included provisions requiring a North Carolina venue and applying North Carolina law. A California addendum stated that those provisions might not be enforceable under California law. The plaintiffs received the agreement and addendum, had private counsel review and revise them, and negotiated several changes before the agreement was signed.

After mediation did not resolve the dispute, the plaintiffs sent notice of their intent to file arbitration. The defendants responded to arrange a discussion about mediation and arbitration, but did not respond to a later email in which the plaintiffs stated that judicial action was appropriate. The plaintiffs then filed this case.

Court’s Analysis

The parties disputed the validity and enforceability of the arbitration clause, not whether the plaintiffs’ claims fell within its scope. The court applied ordinary contract principles under California law. It considered the plaintiffs’ arguments that the clause lacked mutual assent, was unconscionable, and had been waived by the defendants.

The court held that the defendants had not shown mutual assent to the North Carolina forum and choice-of-law provisions. Mutual assent means that the parties objectively showed agreement to the contractual terms. The California addendum warned that the North Carolina provisions might not be enforceable under California law, and the defendants offered no evidence that they had otherwise indicated they would insist on enforcing those provisions.

The court did not invalidate the entire arbitration clause. It held that the North Carolina forum and choice-of-law provisions could be severed, meaning removed while leaving the remainder of the agreement in effect. The court found that arbitration remained the agreement’s main purpose and that the challenged provisions could be removed without disrupting that purpose.

The court rejected the unconscionability argument. Unconscionability is a contract defense based on unfairness in how an agreement was made or in the agreement’s terms. The court found no procedural unconscionability because the plaintiffs had more than two weeks to review the agreement, had legal counsel, negotiated multiple provisions, and obtained many changes. Because procedural unconscionability was absent, the court did not need to decide substantive unconscionability.

The court also rejected the waiver argument. It found that the defendants’ response to the arbitration notice and their failure to respond to the later email did not show conduct inconsistent with the right to arbitrate. The court noted that the defendants responded in less than one month to the notice and that the plaintiffs filed suit only twenty-three days after the later email.

Ruling and Effect

Judge Edward J. Davila granted in part and denied in part the defendants’ motion to compel arbitration. The plaintiffs are required to arbitrate their claims, but the parties are not bound by the invalid North Carolina forum-selection and choice-of-law provisions in the arbitration clause.

The court stayed the case pending arbitration rather than dismissing it. The parties must notify the court within ten days after reaching a final resolution in the arbitration.