Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_07-cv-02351/USCOURTS-cand-5_07-cv-02351-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS, OR IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

**E-Filed 7/23/07**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

ADIBA MAHROOM, et al.,

 Plaintiffs,

 v.

BEST WESTERN INTERNATIONAL, INC.,

 Defendant.

Case Number C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S

MOTION TO DISMISS, OR, IN THE

ALTERNATIVE TO TRANSFER

VENUE 

[re: doc. no.7]

Defendant moves to dismiss the present action, or, in the alternative, to transfer venue,

based upon a forum-selection clause in the membership agreement between the parties. The

Court has considered the moving and opposing papers and the evidence submitted in connection

therewith. For the reasons discussed below, the motion will be denied. 

I. BACKGROUND

Plaintiffs Adiba and Majid Mahroom (“the Mahrooms”) have operated a Best Western

motel in Seaside, California since 1975. Defendant Best Western International, Inc. (“BWI”)

recently gave the Mahrooms notice of termination and instructed them to debrand the motel. The

Mahrooms filed the instant action in the Monterey Superior Court on April 4, 2007, alleging

breach of contract and related claims. BWI removed the action to this Court on April 30, 2007,

Case 5:07-cv-02351-JF Document 53 Filed 07/23/07 Page 1 of 10
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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

and ten days later filed the instant motion to dismiss or transfer venue and an alternative

application for a temporary restraining order (“TRO”). 

BWI filed a lawsuit against the Mahrooms in the United States District Court for the

District of Arizona on April 19, 2007, alleging breach of contract and related claims. BWI

alleges that the Mahrooms unlawfully are continuing to use BWI’s trade name, trademarks,

service marks, logos and other identification symbols, and that such use is harming BWI because

the Mahrooms’s Seaside motel has received poor customer service reports that have been widely

published on the Internet. The Arizona district court denied BWI’s motion for a TRO,

concluding that under the first-to-file rule, this Court properly should determine where the

parties’ disputes should be litigated.

BWI asserts that venue is improper in California because the parties’ membership

agreement includes a forum selection clause which designates Arizona as the proper forum. If

the action is not dismissed, BWI argues that the Court should transfer it to the District of

Arizona. BWI asserts that Arizona is the more convenient forum for both parties because BWI is

located in Arizona, and the Mahrooms previously have traveled to Arizona for motel business

purposes. The Mahrooms oppose this motion arguing that BWI is subject to Cal. Bus. & Prof.

Code § 20001(d)(3), which prohibits the enforcement of such forum-selection clauses in

franchise agreements. On June 15, 2007, following oral argument, this Court ordered both

parties to file supplemental briefs addressing the issue of whether BWI was required under

California law to submit an offering circular to its members, and whether BWI’s Disclosure

Statement was sufficient disclosure to satisfy that requirement. 

The parties submitted their supplemental briefs on June 22, 2007. The Mahrooms assert

that an offering circular is required because BWI has not complied with Cal. Corp. Code §

31101(d). The Mahrooms argue further that BWI’s Disclosure Statement lacks many of the

requirements of an offering circular, including a: list of the names, positions, and business

experiences of the directors, trustees, general partners, and officers of the franchise. Gorman

Declaration ¶ 7. The Mahrooms also claim that they never have received either an offering

circular or a Disclosure Statement. Mahroom Declaration ¶ 4. 

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

BWI argues it is exempt from the requirement that it provide an offering circular under

both Cal. Corp. Code § 31101, or, because the Mahrooms are “experienced franchisees” under

Cal. Corp. Code § 31106. BWI reply pg. 7. BWI also claims that the requirement of an offering

circular does not apply here because the Mahrooms signed their membership agreement with

BWI before Cal. Bus. & Prof. Code § 20001(d)(3) became effective. Id. at pg. 4. 

II. LEGAL STANDARD

This action raises both federal and state issues, and therefore venue is governed by 28

U.S.C. § 1391(b), which states:

(b) A civil action wherein jurisdiction is not founded solely on diversity of

citizenship may, except as otherwise provided by law, be brought only in (1) a

judicial district where any defendant resides, if all defendants reside in the same

State, (2) a judicial district in which a substantial part of the events or omissions

giving rise to the claim occurred, or a substantial part of property that is the

subject of the action is situated, or (3) a judicial district in which any defendant

may be found, if there is no district in which the action may otherwise be brought.

28 U.S.C. § 1391(b) (2007). As BWI is a corporation, BWI is also governed by 28 U.S.C.

1391(c), which states:

(c) For purposes of venue under this chapter, a defendant that is a corporation

shall be deemed to reside in any judicial district in which it is subject to personal

jurisdiction at the time the action is commenced. In a State which has more than

one judicial district and in which a defendant that is a corporation is subject to

personal jurisdiction at the time an action is commenced, such corporation shall

be deemed to reside in any district in that State within which its contacts would be

sufficient to subject it to personal jurisdiction if that district were a separate State,

and, if there is no such district, the corporation shall be deemed to reside in the

district within which it has the most significant contacts.

28 U.S.C. 1391(c) (2007). 

III. DISCUSSION

A. Personal Jurisdiction

A district court sitting in California may exercise personal jurisdiction over a non-resident

defendant if the defendant has “minimum contacts” with California such that maintenance of the

suit “does not offend traditional notions of fair play and substantial justice.” Data Disc, Inc. v.

Systems Technology Associates, Inc., 557 F.2d 1280, 1286 (9th Cir. 1977); see also International

Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). If the nonresident defendant’s contacts with

California are “substantial” or “continuous and systematic,” the defendant is subject to “general

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

jurisdiction” in California even if the cause of action is not related to the defendant’s activities

within the state. Data Disc, 557 F.2d at 1287. If the defendant’s activities within the state are

not so pervasive as to subject it to general jurisdiction, it may be subject to “specific jurisdiction”

if the cause of action is directly related to those activities. Data Disc, 557 F.2d at 1287. The

Ninth Circuit has articulated a three-part test to determine when it is appropriate to exercise

specific jurisdiction over a particular defendant: (1) the nonresident defendant has performed

some act by which he purposefully avails himself of the privilege of conducting activities in the

forum, thereby invoking the benefits and protections of its laws; (2) the claim arises out of or

results from the defendant’s forum-related activities; and (3) exercise of jurisdiction is

reasonable. Id. 

Here, there is no question that BWI has sufficient contact with California to establish

personal jurisdiction. BWI regularly conducts business in California, and it even has a registered

agent in California who is allowed to receive service of process. Opposition at pg. 17. 

Moreover, BWI has an abundant number of hotels and motels affiliated with California, with

ninety-four BWI motels located within 100 miles of San Jose. Id. BWI sends its employees and

agents to California, as shown by BWI’s regular visits to the Mahrooms’ motel to conduct

inspections. Opposition at pg. 18. In fact, neither party asserts that this Court does not have

personal jurisdiction. Accordingly, unless some other policy or legal provision requires a

different venue, venue is proper in this Court pursuant to 28 U.S.C. 1391(b) and (c). 

B. Franchise 

BWI asserts that venue is improper in California because the parties’ membership

agreement includes a forum selection clause designating Arizona as the proper forum for any

legal proceeding. Motion at pg. 1. “Forum selection clauses are prima facie valid and should not

be set aside unless the party challenging enforcement of such a provision can show it is

‘unreasonable’ under the circumstances.” Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 325

(9th Cir. 1996). A forum selection clause is unreasonable if (1) it was incorporated into the

contract through fraud, undue influence, or overweening bargaining power, (2) the selected

forum is so “gravely difficult and inconvenient” that the complaining party will be deprived of

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

their day in court, or (3) the enforcement of the forum selection clause would contravene a strong

public policy of the forum in which the suit is brought. Id. “To establish the unreasonableness

of a forum selection clause, Appellants have the ‘heavy burden of showing that trial in the chosen

forum would be so difficult and inconvenient that they party would be effectively denied their

day in court.’” Id. 

The Mahrooms assert that California public policy precludes judicial enforcement of the

subject forum selection clause because under California law any franchise dispute in which the

franchisee is located in California must be heard in a California court. Specifically, California

Business and Professions Code § 20040.5 states: 

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 (2007). According to the California Business and Professions

Code, a franchise is:

a contract or agreement, either expressed or implied, whether oral or written,

between two or more persons by which:

(a) A franchisee is granted the right to engage in the business of offering, selling

or distributing goods or services under a marketing plan or system prescribed in

substantial part by a franchisor; and

(b) The operation of the franchisee's business pursuant to that plan or system is

substantially associated with the franchisor's trademark, service mark, trade name,

logotype, advertising, or other commercial symbol designating the franchisor or

its affiliate; and

(c) The franchisee is required to pay, directly or indirectly, a franchise fee.

Cal. Bus. & Prof. Code § 20001 (2007). An entity is exempt from California’s franchise

definition if it is in pertinent part: 

A nonprofit organization operated on a cooperative basis by and for independent

retailers which wholesales goods and services primarily to its member retailers

and in which all of the following is applicable:

. . . 

(H) Each member and prospective member is provided with an offering circular

which complies with the specifications of Section 31111 of the Corporations

Code.

Cal. Bus. & Prof. Code § 20001 (2007).

The Mahrooms assert that BWI does not qualify for the nonprofit corporation exception

because it has not provided an offering circular to the Mahrooms and at least one other motel

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 Plaintiff cites Quist v. Best Western International, Inc., 354 N.W.2d 659, 661 (N.D. 1

1984) where the court held that BWI was a franchise. However, North Dakota did not have an

exception to a franchise in its statute as California does. 

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

owner. Opposing at pgs. 10-11 and Affidavit of Eric Cogdill. An offering circular is “a lengthy, 1

complex, and legally significant document that contains many pages of detailed information

about the franchisor’s business structure, financial situation, operations, and more.” Gorman

Declaration ¶ 4. 

BWI asserts that it is exempt from the requirement that it submit an offering circular

under Cal. Corp. Code §§ 31101 and 31106. Cal. Corp. Code § 31101 provides:

Exemption requirements; net worth; experience; disclosure; notice

There shall be exempted from the provisions of Chapter 2 (commencing with

Section 31110) of this part the offer and sale of a franchise if the franchisor

complies with each of the following minimum net worth, experience, disclosure,

and notice filing requirements:

(a) Net worth. The franchisor and, when necessary, a corporation owning at least

80 percent of the franchisor (parent) meet one of the following net worth

requirements, according to financial statements for the fiscal year just ended. The

franchisor and the parent, when necessary, may rely upon the immediately

preceding fiscal year's audited financial statement for 15 months from that fiscal

year end date.

. . .

(b) Experience. The franchisor or a corporation owning at least 80 percent of the

franchisor (parent) complies with one or more of the following conditions

throughout the five-year period immediately preceding the offer and sale of the

franchise, or complies with one of the following conditions during part of the

period and one or more of the following conditions during the balance of the

period:

. . .

(c) Disclosure. (1) Except as provided in subparagraph (2), the franchisor

discloses in writing to each prospective franchisee, at least 10 business days prior

to the execution by the prospective franchisee of any binding franchise or other

agreement, or at least 10 business days prior to the receipt of any consideration,

the following information:

. . .

(d) Notice filing. The franchisor has filed with the commissioner a notice of

exemption and paid the fee required by subdivision (f) of Section 31500 prior to

an offer or sale of a franchise in this state during any calendar year in which one

or more franchises are sold, excluding any material modification.

Cal. Corp. Code § 31101 (2007). 

The language of Cal. Corp. Code § 31101 sets forth four main requirements for

qualification under its provisions: net worth, experience, disclosure, and notice. Cal. Corp. Code

§ 31101 (2007). BWI fulfills the net worth prong of the statute because it has more than

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2

counsel indicated, but the Court will assume that BWI has more than $5,000,000. 

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

$5,000,000 in assets. Ms. Pollack’s declaration demonstrates that BWI fulfills the experience 2

requirement because BWI has 2,300 members and 4,000 affiliated hotels. Pollack June 8

Declaration ¶ 3. However, there is a question as to whether BWI satisfies the notice of

exemption provision, because BWI not provide copies of the notice of exemption for 1994, when

the Mahrooms renewed their agreement. Reply Exhibit A-C. 

However, even assuming that its disclosure statement was adequate to meet the statutory

requirements for an exemption, there is a factual dispute as to whether BWI provided the

Disclosure Statement to the Mahrooms. Mahroom Declaration ¶ 4. BWI argues under Davis v.

Gulf Oil Corp., 572 F. Supp. 1393, 1398 (C.D. Cal. 1983), it only needed to provide the

Disclosure Statement when the parties first signed their initial agreement and not at the time of

subsequent renewals. However, the statute at issue in Davis was not Cal. Corp. Code § 31101

but rather Cal. Corp. Code § 31018. The latter statute expressly states that it does not apply to

renewal agreements, while the disclosure provision in Cal. Corp. Code § 31101 contains no such

limitation. In any event, the Mahrooms assert that they never have received the statement. 

Mahroom Declaration ¶ 4. 

BWI also argues that even if BWI is a franchise under Cal. Bus. & Prof. Code § 20001, it

is exempted from providing an offering circular as the Mahrooms are “experienced franchisees”

as defined in Cal. Corp. Code § 31106. However, this statute appears to pertain to the initial sale

of a franchise to sophisticated buyers, not to renewed agreements with franchisees. 

C. Estoppel

BWI asserts that regardless of whether this Court finds that BWI qualifies under the

nonprofit corporation exception, the Mahrooms are estopped from litigating this case in

California because they have relied on the franchise agreement for many years to use BWI’s

mark. “A promise which the promisor should reasonably expect to induce action or forbearance

on the part of the promisee or a third person and which does induce such action or forbearance is

binding if injustice can be avoided only by enforcement of the promise.” Kajima/Ray Wilson v.

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

Los Angeles County Metropolitan Transp. Authority, 23 Cal.4th 305, 310 (Cal. 2000). While

indeed the Mahrooms have relied on the agreement in order to use BWI’s trademark and

services, BWI has not shown that injustice can be avoided only if the instant case is litigated in

Arizona, especially given California’s strong public policy to the contrary. 

D. Transfer of Venue 

Ordinarily, a plaintiff’s choice of forum is accorded substantial weight, and courts will

not grant a motion under § 1404(a) unless the “convenience” and “justice” factors tip strongly in

favor of transfer. Florens Container v. Cho Yang Shipping, 245 F.Supp.2d 1086, 1092 (N.D.

Cal. 2002); see also Piper Aircraft Co. v. Reyno, 454 U.S. 235, 257 (1981); Decker Coal Co. v.

Commonwealth Edison Co., 805 F.2d 834, 843 (9th Cir. 1986). However, the Court may

disregard the plaintiff’s choice of forum where the plaintiff’s suit is the result of forum-shopping. 

Alltrade. Inc., v. Uniweld Products, Inc., 946 F.2d 622, 628 (9th Cir. 1991). A motion for

transfer pursuant to § 1404(a) lies within the discretion of the Court. Jones v. GNC Franchising,

Inc., 211 F.3d 495, 498 (9th Cir. 2000). The decision whether to grant such a motion turns on

the facts of the particular case. Id. The factors to be weighed in deciding a motion for transfer

include: (1) the location where the relevant agreements were negotiated and executed; (2) the

state that is most familiar with the governing law; (3) the plaintiff's choice of forum; (4) the

respective parties’ contacts with the forum; (5) the contacts relating to the plaintiff’s cause of

action in the chosen forum; (6) the differences in the costs of litigation in the two forums; (7) the

availability of compulsory process to compel attendance of unwilling non-party witnesses; (8) the

ease of access to sources of proof; (9) the presence of a forum selection clause; and (10) that the

relevant public policy of the forum state, if any. Id. at 498-99.

The Mahrooms asserts that it would not be difficult for BWI to litigate in California since

BWI regularly transacts business in California and even has a registered agent in California. 

Opposing at pg. 17. California is the most convenient forum for the Mahrooms, who will be the

principal witnesses with respect to the day-to-day operations of the motel. Opposing at pg. 18. 

The Mahrooms state that it would be financially difficult for them to leave their business during

the legal proceeding. Mahroom Affidavit ¶13. BWI argues that Arizona is the more convenient

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

forum because the contract was signed in Arizona, Arizona is more familiar with laws affecting

BWI, the Mahrooms have significant contacts with Arizona, it would be costly for BWI to send

witnesses to California, BWI can compel unwilling witnesses to appear in Arizona but not

California, and pertinent documents are located in Arizona. Motion at pgs. 19-20. None of these

arguments has sufficient factual support in the record to override the Mahrooms’s choice of

forum, and there is no evidence that the Mahrooms are forum-shopping. 

IV. ORDER 

Good cause therefore appearing, Defendant’s motion to dismiss or in the alternative to

transfer venue is DENIED. 

IT IS SO ORDERED. 

DATED: July 23, 2007

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 07-2351 JF (HRL)

ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE TO TRANSFER VENUE

(JFEX2)

Copies of Order served on:

Antony E. Buchignani: antony.buchignani@dlapiper.com, laverne.patane@dlapiper.com

John C. Gorman: jgorman@gormanmiller.com

Charles Joseph Stiegler: cstiegler@gormanmiller.com 

Case 5:07-cv-02351-JF Document 53 Filed 07/23/07 Page 10 of 10