ANTHONY W. ISHII, Chief Judge.
This is a contractual dispute between
Anytime Fitness owns and licenses over 1,200 24-hour fitness facilities. See Jennifer Yiangou Decl. ¶ 4. Members join individual facilities and have reciprocal membership at all Anytime Fitness locations. Id. at 7. Delamater is an Anytime Fitness franchisee. In December 2004, Delamater and Anytime Fitness executed an Area Development Agreement under which Delamater agreed to establish Anytime Fitness franchises in Kern County, California. See Yiangou Decl. ¶ 14. Pursuant to the Area Development Agreement, Delamater entered into four franchise agreements for gym facilities in Kern County: (1) Oildale in December 2004, ("Oildale Agreement") See PUMF Nos. 5-6; (2) Tehachapi in October 2005 ("Tehachapi Agreement") See PUMF No. 13; DUMF No. 15; (3) Westchester in December 2007 ("Westchester Agreement").
The Tehachapi Agreement and Westchester Agreement provide that the franchise relationship will be governed by the laws of Minnesota. See DUMF No. 23; PUMF No. 12.
The Franchise Agreements contain non-competition clauses. Each Franchise Agreement contains a provision that relates to competition during the term of the agreement ("In-Term Non-Compete"). See PUMF No. 16. The In-Term Non-Compete provision states that Delamater, "will not, directly or indirectly, during the term of this Agreement ... own, operate, lease, franchise, engage in, be connected with, have any interest in, or assist any
The Franchise Agreements contain clauses requiring the parties to engage in mediation if they have a dispute involving the agreements or the franchise relationship. See DUMF No. 22; See Franchise Agreements, Section 18.B. The mediation clause provides in relevant part:
Westchester Franchise Agreement, Section 18.B.
On October 19, 2009, Delamater demanded written confirmation from Anytime Fitness that Anytime Fitness would not interfere with Delamater's intention of opening up his own fitness center, and would not attempt to enforce the non-compete
On or about, November 5, 2009, Delamater made a demand for mediation and requested that the mediation occur before the Oildale Agreement expired on December 7, 2009. See DUMF No. 44. Delamater demanded that mediation take place in California. See PUMF No. 22. Delamater proposed a retired judge in Tulare County, California, as the mediator. See DUMF No. 45. On November 13, 2009, Anytime Fitness agreed to mediation. See DUMF No. 46. Anytime Fitness requested that mediation occur consistent with the Franchise Agreements in a location selected by the mediator. See PUMF No. 22. The mediation organization indicated that it could accommodate Delamater's request that the mediation be held prior to December 8, 2009, if the mediation was held in Atlanta. See James M. Susag Affidavit ¶ 5.
On November 18, 2009, Delamater filed a complaint for declaratory judgment with this Court. See DUMF No. 51. Delamater requests that the Court declare the following: (1) the parties must mediate in California; (2) the non-competition clauses are void and unenforceable; and (3) Delamater's continued operation of a non-affiliated Anytime Fitness center at the Oildale location is not a violation of the Franchise Agreements. Delamater also seeks injunctive relief enjoining Anytime Fitness from attempting to enforce its non-competition clauses and from interfering with Delamater's operation of its Oildale fitness gym.
On December 8, 2009, Delamater filed a motion for summary judgment. On December 28, 2009, Anytime Fitness filed a cross motion for summary judgment.
On December 11, 2009, Anytime Fitness, Inc. converted from a corporation to a limited liability company (Anytime Fitness, LLC) under Minn. Stat. § 302A.681. See Chris A. Ingvalson Declaration ¶ 5. On January 5, 2010, the California Secretary of State issued a Certificate of Qualification, which indicates that Anytime Fitness Inc. was qualified to conduct business as of December 7, 2009. See Chris A. Ingvalson Declaration Exhibit B. On January 15, 2010, the California Secretary of State issued a Certificate of Qualification, which indicates that Anytime Fitness LLC was qualified to conduct business as of January 15, 2010. See Chris A. Ingvalson Exhibit D.
On February 1, 2010, Anytime Fitness filed a reply. On February 2, 2010, Delamater filed an objection to Anytime Fitness' reply on the grounds that it was untimely.
On February 2, 2010, Anytime Fitness filed an answer and counter-claims. Anytime Fitness' counter-claims allege the following: (1) Breach of Franchise Agreements
Summary judgment is appropriate when it is demonstrated that there exists no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Fortyune v. American Multi-Cinema, Inc., 364 F.3d 1075, 1080 (9th Cir.2004). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying the portions of the declarations (if any), pleadings, and discovery that demonstrate an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir.2007). A fact is "material" if it might affect the outcome of the suit under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Thrifty Oil Co. v. Bank of America Nat'l Trust & Savings Assn., 322 F.3d 1039, 1046 (9th Cir.2002). A dispute is "genuine" as to a material fact if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Anderson, 477 U.S. at 248, 106 S.Ct. 2505; Long v. County of Los Angeles, 442 F.3d 1178, 1185 (9th Cir.2006).
Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the movant. Soremekun, 509 F.3d at 984. Where the non-moving party will have the burden of proof on an issue at trial, the movant may prevail by presenting evidence that negates an essential element of the non-moving party's claim or by merely pointing out that there is an absence of evidence to support an essential element of the non-moving party's claim. See James River Ins. Co. v. Schenk, P.C., 523 F.3d 915, 923 (9th Cir.2008); Soremekun, 509 F.3d at 984; Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1105-06 (9th Cir.2000). If a moving party fails to carry its burden of production, then "the non-moving party has no obligation to produce anything, even if the non-moving party would have the ultimate burden of persuasion." Nissan Fire & Marine Ins. Co. v. Fritz Companies, 210 F.3d 1099, 1102-03 (9th Cir.2000). If the moving party meets its initial burden, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Nissan Fire & Marine, 210 F.3d at 1103. The opposing party cannot "`rest upon the mere allegations or denials of [its] pleading' but must instead produce evidence that `sets forth specific facts showing that there is a genuine issue for trial.'" Estate of Tucker v. Interscope Records, 515 F.3d 1019, 1030 (9th Cir.2008) (quoting Fed. R. Civ. Pro. 56(e)).
The evidence of the opposing party is to be believed, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. See Anderson, 477 U.S. at 255, 106 S.Ct. 2505; Matsushita, 475 U.S. at 587, 106 S.Ct. 1348; Stegall v. Citadel Broad., Co., 350 F.3d 1061, 1065 (9th Cir.2003). Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. See Sanders v. City of Fresno, 551 F.Supp.2d 1149, 1163 (E.D.Cal.2008); UMG Recordings,
Delamater argues that he should be granted summary judgment for four reasons: (1) the Franchise Agreements mediation forum selection provisions violate California Business Profession Code because they require Delamater to mediate in a non-California venue; (2) public policy concerns favor requiring mediation in California; (3) the non-competition clauses are unenforceable pursuant to California law;
Anytime Fitness argues that it should be granted summary judgment for two reasons: (1) the Franchise Agreements require mediation as a pre-condition to initiating any legal action or arbitration and Delamater did not first engage in mediation; and (2) the mediation forum selection clause, which may require mediation outside California, is enforceable.
Delamater argues that Anytime Fitness may not maintain any action
Cal. Corp.Code § 17456(a) provides that: "A foreign limited liability company transacting intrastate business in this state shall not maintain any action, suit, or proceeding in any court of this state until it has registered in this state." Anytime Fitness LLC was in compliance with Cal. Corp.Code § 17456(a) for two reasons: (1) Anytime Fitness LLC is not a new entity and was converted by Anytime Fitness Inc., into a limited liability company, and retained the same rights and obligations as Anytime Fitness Inc.; and (2) Anytime Fitness LLC and Anytime Fitness Inc. were registered to do business in California when Anytime Fitness LLC filed its motion for summary judgment on December 28, 2009 and counter complaint on February 2, 2010.
"[T]he continuing legal existence of a corporation depends on the law of the state of incorporation." The Capital Gold Group, Inc. v. Nortier, 176 Cal.App.4th 1119, 98 Cal.Rptr.3d 439 (2009) (citing to CM Record Corp. v. MCA Records, Inc., 168 Cal.App.3d 965, 967, 214 Cal.Rptr. 409 (1985)). Anytime Fitness Inc. was incorporated in Minnesota. On December 11, 2009, Anytime Fitness Inc. was converted to Anytime Fitness LLC. See Chris A. Ingvalson Declaration at ¶ 5. Under Minnesota law, a converted organization is "for all purposes the same organization as the converting organization, having been incorporated or organized on the date that the converting organization was originally incorporated or organized." Minn.Stat. § 302A.691(2)(a). The converted organization retains all of the property, debts, liabilities, obligations, rights, privileges and immunities of the converting organization. Minn.Stat. § 302A.691(2)(b). Additionally, an action by or against the converting organization may be continued by or against the converted organization, as if the conversion had not occurred. Id. There is no evidence that Anytime Fitness Inc.'s corporate status was ever suspended, revoked, or dissolved. Therefore, Anytime Fitness LLC's motion for summary judgment and counter complaint against Delamater could have been continued in the name of Anytime Fitness LLC, because under Minnesota law, Anytime Fitness LLC is deemed to be the same entity as Anytime Fitness Inc. and has all of the same rights and causes of action. Pursuant to the laws of Minnesota, Anytime Fitness LLC had the capacity to file a motion or complaint after the conversion.
Based on Anytime Fitness' declarations, Anytime Fitness LLC and Anytime Fitness Inc. were registered to do business in California during the filing of the motion for summary judgment and counter complaint. Anytime Fitness Inc. was qualified to conduct business as of December 7, 2009. See Chris A. Ingvalson Declaration Exhibit B. Anytime Fitness LLC was qualified to conduct business as of January 15,
Accordingly, Anytime Fitness LLC had the capacity to file a complaint and motion for summary judgment in California.
Enforceability of Mediation Forum Selection Provision
The Franchise Agreements explicitly state that Delamater and Anytime Fitness will mediate disputes relating to the Franchise Agreement or franchise relationship prior to initiating litigation or arbitration
See Franchise Agreements, Section 18.B.
Delamater concedes that the Franchise Agreements make mediation a condition precedent to filing a lawsuit. See Joint Scheduling Report, Delamater's Contentions at page 4. While Delamater concedes that mediation is required in this case, he argues that the mediation forum selection clause is invalid because it requires him to mediate outside of California, in violation of Business Professions Code § 20040.5. California Business Professions Code § 20040.5 (also known as the California Franchise Relations Act), provides 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 § 20040.5.
The Court finds that the mediation forum selection provision at issue is enforceable for several reasons. First, Delamater has not met his burden to show that § 20040.5 applies to a nonbinding mediation forum selection provision such as the one at issue.
Section 20040.5 provides that a provision that limits venue to a non-California forum is void with respect to any "claim" arising under or related to the Franchise Agreement. Based on the plain language of § 20040.5, the statute only applies if there is a claim at issue. Section 20040.5 does not define "claim." The parties do not advocate for a particular definition. A claim is "a demand for money, property, or a legal remedy to which one asserts a
Based on the court's understanding of a "claim," in this context, the court finds that § 20040.5 only applies to situations in which a party is asserting a claim for relief or a demand for a legal remedy. A party can assert a claim for relief by initiating an action in a court (as Delamater has done here by asserting claims for declaratory relief and injunctive relief in this district court) or by commencing an arbitration proceeding. An arbitration is a "hearing and determination of a case in controversy by an arbiter." Merriam Webster Online Dictionary, available at http://www. merriam-webster.com/ (last visited June 14, 2010). The American Arbitration Association
A party can also make a demand for a legal remedy in arbitration. An arbiter follows the applicable substantive law and may grant any remedy or relief provided by law or equity, including monetary and injunctive relief. See The National Arbitration Forum Code of Procedure Rule 5G, August 1, 2008.
In contrast, in a mediation, a party does not assert claims for relief or make demands for a legal remedy. Mediation is a process in which "a neutral third person with no decision making power intervenes in the dispute to help the litigants voluntarily reach their own agreement." Jeld-Wen, Inc. v. Sup. Ct., 146 Cal.App.4th 536, 540, 53 Cal.Rptr.3d 115 (2007). Mediators do not impose decisions on disputing parties; rather, they encourage disputing parties to find a common ground and resolve their dispute on their own terms. In comparison, an arbitrator may make either a binding decision, in which case the decision is final, legally enforceable, and has limited grounds for challenge; or they may make a non-binding decision, in which case either party may reject the arbitrator's decision and opt to litigate. Here, pursuant to the Franchise Agreements, the parties agreed to binding arbitration. See Westchester Franchise Agreement Section 18.-C.3.
Moreover, the language of the Franchise Agreements provide further support that the parties did not contemplate submitting "claims" to mediation. The parties agreed to enter into mediation of all "disputes" involving the Franchise Agreements and agreed that all "disputes and claims" must be resolved by arbitration. See Westchester Franchise Agreement Sections 18.B, 18.C.
Further, the legislative history further supports the Court's finding that § 20040.5 does not render the forum selection mediation provision unenforceable.
Id. at 2.
The legislative history reveals that the purpose was to prevent franchisees from having to litigate their claims out of state, which would could result in considerable expense, inconvenience, and possible prejudice. The mediation forum selection clause at issue does not require Delamater to litigate his actions in another state. The provision only requires Delamater to mediate for four hours. The expense of flying to another state for a four hour mediation would not cause Delamater to suffer the considerable expense or inconvenience that is associated with litigation or arbitration. Unlike an arbitration or litigation, in a mediation, the parties do not conduct discovery, present evidence, put on witnesses, or have their case decided by a judge or arbiter.
Accordingly, Delamater has not meet his burden to show that § 20040.5 would invalidate the subject mediation provision.
Second, with respect to Delamater's argument that public policy reasons render the provision invalid, the Court is not persuaded. Delamater relies heavily on Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir.2000). In that case, the parties entered into an agreement that contained a forum selection clause that provided that any action instituted by a franchisee against the franchisor shall be brought only within Pennsylvania. The franchise holder brought suit in California. The franchisor filed a motion to dismiss. The trial court denied the motion to dismiss and concluded that the forum selection clause was unenforceable because it contravened California's strong public policy against such provisions. The Court of Appeals affirmed the trial court's decision and held that:
Jones, 211 F.3d at 498. (Emphasis added).
Jones is distinguishable because that case involved a venue provision that required the franchisee to litigate outside of California. The court did not hold that a franchisee cannot be forced to mediate a dispute outside of California. The mediation provision at issue here does not require Delamater to litigate in a non-California venue. Delamater is not required to resolve his claims in mediation. As
Delamater also relies on Roberts v. Synergistic International, LLC, 676 F.Supp.2d 934 (E.D.Cal.2009). In Roberts, the franchise holder brought suit against the franchisor in California. The franchisor moved for dismissal, arguing that the case had to be arbitrated first. The forum selection clause in Roberts provided that if the parties could not agree on a location, the arbitration would be held in Texas. The parties executed an addendum that provided that:
Roberts, 676 F.Supp.2d at 939-940. The court struck the franchise agreement's forum selection clause for lack of a meeting of the minds because, given the amendment, the franchisee had no reasonable expectation that the arbitration would take place in Texas, in the event that the parties could not agree on a location,
Roberts is distinguishable because in that case, the court was dealing with an arbitration provision. The court did not hold that a franchisee cannot be forced to mediate a dispute outside of California. The Roberts court held that the addendum executed by the parties rendered the provision void because there was no meeting of the minds. In the instant matter, the parties did not execute an addendum that modified the mediation provision. Here, the parties executed a state specific addendum that provided that: "The Franchise Agreement requires application of the laws and forum of Minnesota. This provision may not be enforceable under California law." See Westchester State Specific Addendum To Franchise Agreement as Required by the California Franchise Investment Law. The addendum cannot modify the mediation provision because the mediation provision does not restrict venue to Minnesota or even reference Minnesota. Thus, the addendum only modifies the Franchise Agreements' venue provision, which provides that the sole forum for litigation is Minnesota.
Moreover, Delamater contends that: "While the Court in Roberts allowed for arbitration, the Court ruled that the arbitration venue would be in California." See Delamater's Opposition to Anytime Fitness' Motion for Summary Judgment at page 10. Delamater has misstated the court's holding because the Roberts court actually ordered the parties to meet and confer and attempt in good faith to reach a mutually agreeable location for the arbitration and that if they were unable to reach an agreement, the parties could petition the court to make a decision on the location of the arbitration. See Roberts, 676 F.Supp.2d at 953. Ultimately, the parties met and conferred and agreed on a mutually agreeable location in California. The Roberts court, however, did not order the parties to arbitrate in California.
There is no dispute that the parties have not engaged in mediation. "Failure to mediate a dispute pursuant to a contract that makes mediation a condition
Accordingly, IT IS HEREBY ORDERED that:
1. Anytime Fitness' motion for summary judgment is GRANTED;
2. Delamater's complaint is DISMISSED without prejudice;
3. Delamater's motion for summary judgment is DENIED; and
4. The Court grants Anytime Fitness' request for leave of Court to document its attorneys' fees and costs incurred in preparing its response to Delamater's motion for summary judgment.
IT IS SO ORDERED.
