In the intricate world of franchising agreements, disputes often arise over the interpretation and execution of contractual obligations. This is exemplified by the case between Plaintiff Ashwant Singh (“Singh”), owner of Clean Future Technologies, LLC (“Clean Future”), and Defendant Batteries Plus, LLC (“Batteries Plus”), a prominent franchisor of retail stores specializing in batteries and related products. Singh v. Batteries Plus, LLC, 2024 WL 2132525 (E.D. Cal. May 10, 2024). Singh filed a lawsuit against Batteries Plus, claiming that the company had misrepresented the costs of operating a franchise, provided inflated revenue projections, allowed another franchisee to infringe on his territory, and failed to provide the promised support, creating a hostile work environment. Central to this case was the arbitration clause within the Franchise Agreement (“FA”) and whether it was enforceable. The Court’s decision ultimately hinged on nuanced interpretations of contract law and unconscionability doctrines.
Singh entered into a FA with Batteries Plus, a Wisconsin-based franchisor that operates over 600 retail stores under the “Batteries Plus” trademark. These stores sell batteries, light bulbs, and related items, and offer device repair services. Singh received the company’s 2021 Franchise Disclosure Document (“FDD”) on January 31, 2022, which included crucial information about purchasing a franchise and a summary of the FA and its provisions.
The FDD explicitly advised prospective franchisees to consult an advisor and thoroughly review the document. Notably, it contained a clause requiring all disputes to be resolved through mediation and arbitration in Wisconsin. Singh, however, claimed he was not adequately informed about the inclusion of the FA within the FDD and that its terms, particularly the arbitration clause, were not properly explained.
On April 18, 2022, before signing any agreement, Singh made a wire transfer of $9,900 to Batteries Plus as part of the first installment of the franchise fee. A week later, on April 25, 2022, Batteries Plus sent Singh the 2022 FDD without explaining the reason for sending a second FDD. The 2022 FDD contained the same information as the 2021 FDD, including disclosures about the arbitration clause and a copy of the FA. Singh signed and acknowledged receipt of both FDDs. On May 10, 2022, a representative from Batteries Plus sent the FA to Singh for his signature. Victor Daher (“Daher”), the Vice President of Franchise Development for Batteries Plus, sent Singh a text message instructing him to complete the paperwork and submit the agreed-upon fees by the next day. Singh understood this to mean he needed to complete the paperwork quickly to secure his franchise. Both Singh and Batteries Plus signed the FA on the same day. The agreement stipulated that it was binding on the parties and their respective successors and assigns, and that it did not confer any rights or remedies to any third parties.
Singh later assigned his rights under the agreement to his company, Clean Future. Following the agreement, Singh alleged that Batteries Plus misrepresented the operational costs, provided inflated revenue projections, allowed territorial infringements by other franchisees, and failed to offer adequate support, which led to a hostile work environment.
The Court first addressed whether defendants Daher and Jason Edward Moss (“Moss”), executives at Batteries Plus, had the standing to compel arbitration. Although they were not signatories to the FA, the Court found that as agents of Batteries Plus, Daher and Moss had the authority to enforce the arbitration clause. This was based on the principle that agents acting within the scope of their roles are entitled to enforce the contractual provisions of the entity they represent.
The defendants contended that the question of whether the arbitration clause applied to the dispute should be decided by an arbitrator. However, the Court found no clear and unmistakable language in the FA delegating this decision to an arbitrator. Therefore, the Court itself decided on the arbitrability of the dispute.
Defendants were required to prove the existence of a valid arbitration agreement. Despite Singh’s claims of insufficient explanation and the arbitration provision being buried within the lengthy document, the Court presumed that Singh had read and understood the contract. The Court found that the FA, including the arbitration clause, was valid since Singh had received the FDDs containing the arbitration clause and had signed the agreement.
Singh argued that the arbitration clause was procedurally unconscionable because the agreement was presented as a non-negotiable, take-it-or-leave-it contract, and he had limited time to review it. Additionally, the arbitration provision was buried within the document, and Singh was not represented by counsel. The Court found minimal procedural unconscionability due to the adhesive nature of the contract and some element of surprise.
Singh claimed the arbitration clause was substantively unconscionable because it was one-sided, allowing Batteries Plus to seek judicial relief while restricting Singh to arbitration, mandated arbitration in Wisconsin, prohibited punitive damages, and included a class action waiver. The Court found the provisions allowing Batteries Plus to seek judicial relief and prohibiting punitive damages to be substantively unconscionable. However, it upheld the venue restriction, noting that Singh had ample notice of this requirement, and found the class action waiver permissible under federal law.
The FA included a severability clause allowing invalid or unenforceable provisions to be removed without affecting the rest of the agreement. The Court severed the provisions related to punitive damages and the one-sided judicial relief but upheld the remaining arbitration agreement. This made the arbitration clause enforceable.
The Court granted the motion to compel arbitration after severing the unconscionable provisions. It determined that Singh had agreed to arbitrate disputes arising from the FA and that the arbitration clause, with the unconscionable elements removed, was valid. The Court dismissed the case without prejudice and directed the parties to resolve their disputes through arbitration, as specified in the agreement. The Clerk of Court was instructed to close the case, marking the transition of the legal dispute to the arbitration process.
This case underscores the importance of clear contractual definitions and highlights the challenges of disputing business decisions under an arbitration clause when those decisions are aligned with established practices. It also emphasizes the necessity for plaintiffs to provide detailed evidence to support claims of breach under such standards, demonstrating the difficulty of challenging arbitration clauses in Franchise Agreements.
