Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_15-cv-00321/USCOURTS-caed-1_15-cv-00321-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1330 Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

G.P.P., INC. dba GUARDIAN 

INNOVATIVE SOLUTIONS,

Plaintiff,

v.

GUARDIAN PROTECTION 

PRODUCTS, INC., 

Defendant.

_____________________________________/

Case No. 1:15-cv-00321-SKO

ORDER DENYING IN PART AND 

GRANTING IN PART DEFENDANT'S 

MOTION TO DISMISS

(Doc. 16)

I. INTRODUCTION

On April 23, 2015, Defendant Guardian Protection Products, Inc. ("Guardian") filed a 

motion to dismiss Plaintiff G.P.P. Inc., dba Guardian Innovative Solutions' ("GIS") complaint. 

(Doc. 16.) On May 20, 2015, GIS filed a brief in opposition to Guardian's motion, and on May 27, 

2015, Guardian filed a reply brief. (Doc. 22.) At the Court's direction, GIS filed a sur-reply on 

June 2, 2015, and Guardian filed a response to GIS' sur-reply on June 4, 2015. Having reviewed 

the parties' papers and all supporting material, the matter was found suitable for decision without 

oral argument pursuant to Local Rule 230(g), and the June 17, 2015, hearing was vacated. 

For the reasons set forth below, Guardian's motion to dismiss is DENIED IN PART AND 

GRANTED IN PART.

1

 

1 The parties consented to the jurisdiction of a U.S. Magistrate Judge for all purposes. (Docs. 11, 12.)

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II. PLAINTIFF'S ALLEGATIONS2

GIS is family-run business that has purchased products from Guardian for nearly 30 years. 

Guardian is a Delaware company with its principal place of business in North Carolina. Guardian 

sells furniture and upholstery protection products, furniture warranties, and other related items to 

distributors such as GIS, who in turn sell to retail chains and establishments. (Doc. 1, ¶¶ 1-2.)

In May 1988, GIS and Guardian entered into a written agreement whereby GIS acquired 

distribution rights to Guardian's products in certain counties in Pennsylvania (the "Pennsylvania 

Agreement"). The Pennsylvania Agreement required GIS to make a minimum initial purchase of 

$40,000 of Guardian's products. So long as GIS made purchases that were in a sum sufficient to 

meet an annual purchase agreement, the Pennsylvania Agreement automatically renewed on an 

annual basis. (Doc. 1, ¶ 5.) 

GIS and Guardian subsequently entered into other agreements whereby GIS acquired 

exclusive distribution rights to Guardian's products in Maryland, Washington, D.C., certain 

remaining counties in Pennsylvania, specified counties in Western New York (collectively the 

"Mid-Atlantic Agreement"), and Ohio (the "Ohio Agreement"). The Mid-Atlantic Agreement 

required GIS to purchase $75,000 of Guardian's products as consideration for the exclusive 

distribution rights, and so long as GIS met a minimum annual purchase requirement, the MidAtlantic Agreement automatically renewed annually. The Ohio Agreement required GIS to make 

an initial purchase of $20,000 of Guardian's products and to pay an additional $20,000 fee. 

Provided that GIS made purchases in a sum sufficient to meet an annual purchase requirement, the 

Ohio Agreement automatically renewed on an annual basis. (Doc. 1, ¶¶ 6-7.)

Pursuant to a written assignment of three other written agreements originally entered into 

between Guardian and another company, GIS obtained exclusive distribution rights to Guardian's 

products in Illinois (the "Cook County Agreement"); Indiana (the "Indiana Agreement"); and Iowa 

and certain counties in Eastern Missouri (the "Midwest Agreement"). So long as GIS met 

 

2 GIS' allegations are drawn from the complaint and are not factual findings made by the Court. (Doc. 1.)

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minimum annual purchase requirements under each of these agreements, they each automatically 

renewed on an annual basis. (Doc. 1, ¶ 8.)

In March 2010, pursuant to three additional written assignments originally entered into 

between Guardian and another company, GIS acquired exclusive distribution rights to Guardian's

products in Alabama (the "Alabama Agreement); Florida (the "Florida Agreement"), and 

Tennessee (the "Tennessee Agreement") (collectively, these nine agreements will be referred to as 

the "Distributor Agreements."). To obtain the assignment of these Distributor Agreements, GIS 

paid $50,000 to the company who had originally entered into these Distributor Agreements with 

Guardian. (Doc. 1, ¶ 9.)

GIS alleges that each of these Distributor Agreements constitutes a franchise. (Doc. 1, ¶¶ 

28-31.) GIS maintains that at no time before offering a "franchise" in connection with each of 

these Distributor Agreements did Guardian ever provide GIS with a Uniform Franchise Offering 

Circular or Franchise Disclosure Document in accordance with the Federal Trade Commission 

("FTC") Franchise Rule, 16 C.F.R., pt. 436. GIS also alleges that Guardian failed to register its 

franchise offering in accordance with the franchise disclosure and registration laws of Maryland, 

New York, Indiana, and Illinois. (Doc. 1, ¶¶ 33-34.)

Beyond franchise disclosure violations, Guardian began to engage in a series of wrongful 

acts including refusal to pay commission due GIS; improperly purporting to terminate the 

Alabama, Florida, and Tennessee Agreements; and making actual and implicit threats to terminate 

the existing Distributor Agreements unless GIS entered into a new agreement (the "2015 

Agreement") that contains much less advantageous terms and conditions to GIS than the existing 

Distributor Agreements. Moreover, GIS claims the 2015 Agreement constitutes a franchise itself

within the meaning of federal and state law, but Guardian failed to provide the required 

disclosures and, where applicable, state registration of its franchise offering. (Doc. 1, ¶¶ 35-37.)

Additionally, GIS alleges it discovered in 2010 that Guardian was violating the existing 

Agreements by directly selling products in GIS' exclusive territory to retail locations associated 

with Bob's Discount Furniture. (Doc. 1, ¶¶ 13-15.) To resolve this, GIS and Guardian agreed that 

Guardian would pay GIS a 5% commission on all sales of Guardian's products made to Bob's 

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Discount Furniture retail locations in GIS's Exclusive Territory for the duration of such sales. 

Guardian made payments under this agreement until November 2014. In December 2014, 

however, Guardian stopped paying GIS the 5% commission.

GIS filed a complaint on February 27, 2015, alleging the following causes of action: 

(1) breach of the Alabama, Florida, and Tennessee Agreements; (2) breach of the implied 

covenants of good faith and fair dealing in the Alabama, Florida, and Tennessee Agreements; 

(3) breach of Bob's Discount Furniture Agreement; (4) breach of the implied covenant of good 

faith and fair dealing of Bob's Discount Furniture Agreement; (5) declaratory judgment that 

termination of the Cook County Agreement would violate the Illinois Franchise Disclosure Act; 

(6) declaratory judgment that termination of the Iowa Agreement would violate Iowa Code 

§ 523H.1, et seq.; (7) declaratory judgment that termination of the Iowa Agreement would violate 

Iowa Code § 537A.10, et seq.; (8) breach of the duty of good faith in violation of Iowa Code 

§ 523H.1, et seq.; (9) breach of the duty of good faith in violation of Iowa Code § 537A.10 et seq.; 

(10) negligence per se; (11) violation of the North Carolina Unfair and Deceptive Trade Practices 

Act, N.C. Gen. Stat. § 75-1.1, et. seq.; and (12) breach of the implied covenants of good faith and 

fair dealing of the Pennsylvania, Mid-Atlantic, Cook County, Indiana, and Midwest Agreements.

On April 23, 2015, Guardian filed a motion to dismiss GIS' complaint, which is currently 

pending before the Court.

III. DISCUSSION

A. Guardian's Motion to Dismiss Pursuant to Rule 12(b)(1) for Lack of Standing is 

DENIED

Guardian argues GIS' Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Twelfth Causes of 

action should be dismissed because GIS was not a signatory to the Pennsylvania, Mid-Atlantic, 

Ohio, Cook County, Indiana, or Midwest Agreements attached to the complaint (Doc. 1, Exs. 1-3, 

5-7). According to Guardian, these exhibits therefore contradict GIS' allegation that it is a party to 

these agreements. Because of this inconsistency, GIS' allegation that it is party to these 

agreements is not entitled to a presumption of truth. Someone who is not a party to a contract has 

no standing to bring claims arising out of that contract. As GIS has not established that it is a 

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party to these agreements, GIS has not met its jurisdictional requirement to sufficiently allege 

standing under Article III of the Constitution, which deprives the court of jurisdiction over any 

contract claims related to these particular agreements under Federal Rule of Civil Procedure 

12(b)(1).

GIS contends it has repeatedly alleged (1) it is a party to these agreements; (2) a significant 

course of conduct between itself and Guardian under these agreements; and (3) that Guardian has

threatened to terminate these agreements. GIS also maintains it operates pursuant to various 

"doing business as" (dba) names, and each of the agreements authorized GIS to operate under 

certain Guardian-based dba names in different licensed territories. Taken together, these 

allegations and the exhibits are sufficient to infer that GIS is a party to the agreements as alleged,

and the agreements themselves do not contradict these allegations. 

1. Standards Applicable to Motions to Dismiss Pursuant to Rule 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) allows a defendant to raise a defense by motion 

that the court lacks jurisdiction over the complaint because of a lack of standing. White v. Lee, 

227 F.3d 1214, 1242 (9th Cir. 2000). Pursuant to Article III, federal courts may adjudicate only 

actual cases or controversies. U.S. Const. art. III, § 2, cl. 1. Part of the case or controversy 

requirement implicates the doctrine of standing, which requires the plaintiff to suffer an actual or 

imminent injury in fact. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). The 

plaintiff has the burden of establishing the elements required for standing. Takhar v. Kessler, 

76 F.3d 995, 1000 (9th Cir. 1996). Motions under Rule 12(b)(1) may challenge jurisdiction 

facially or factually. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In 

other words, a 12(b)(1) motion to dismiss may attack either the sufficiency of the allegations 

supporting subject matter jurisdiction (facial attack) or the existence of subject matter jurisdiction 

in fact (factual attack). A factual attack on jurisdiction is made by presenting appropriate extrinsic 

evidence, and the party opposing the motion is then required to furnish affidavits or other evidence 

necessary to satisfy its burden of establishing subject matter jurisdiction. Savage v. Glendale 

Union High Sch. Dist. No. 205, 343 F.3d 1036, 1040 (9th Cir. 2003). 

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The standards applied by courts in conducting a jurisdictional analysis vary according to 

the nature of the jurisdictional challenge. Thus, in a facial challenge, the court must accept the 

plaintiff's allegations as true, and "the motion is granted only if the plaintiff fails to allege an 

element necessary for subject matter jurisdiction." Westlands Water Dist. Distrib. Dist. v. NRDC,

276 F. Supp. 2d 1046, 1049 (E.D. Cal. 2003). In a factual challenge, the court is not required to 

presume the truthfulness of the plaintiff's allegations and may resolve factual issues in an 

evidentiary hearing. White, 227 F.3d at 1242. In resolving the matter on declarations without an 

evidentiary hearing, the court presumes the truthfulness of the complaint's allegations. McLachlan 

v. Bell, 261 F.3d 908, 909 (9th Cir. 2001).

2. GIS Pled Sufficient Facts to Establish Standing to Assert Its Contract Claims 

Guardian's attack of GIS' complaint under Rule 12(b)(1) is facial because no additional 

facts are offered to challenge GIS' allegations; rather, Guardian takes aim at the sufficiency of 

GIS' allegations regarding standing. Attached to GIS' complaint are, among other exhibits, 6

agreements and an assignment agreement. Each agreement, with the exception of the assignment 

agreement in Exhibit 4, is signed by Guardian and a distributor (signatory 2):

Exhibit Signatory 2 Region/Area

1

Frank Gibson, Treasurer on behalf of 1330, Inc. 

Pennsylvania

2

Charles Gibson, President on behalf of Three 

Rivers Distributors, Inc. Mid-Atlantic

3

Charles Gibson, President on behalf of Three 

Rivers Distributors, Inc. Ohio

5

Jack R. Castella, owner, on behalf of GPP 

Northern Illinois Cook County

6

Jack Castella, owner, on behalf of GPP Indiana

Indiana

7

Jack, and Sonya Castella,, Jr., dba Guardian 

Midwest Midwest

4

Assignment Agreement between Frank Gibson, 

President, on behalf of Guardian North East and 

Jack Castella Jr., President, on behalf of 

Guardian Mid-West

Assignment of Cook County, 

Indiana, and Midwest

Agreements

In considering the sufficiency of the complaint, the court is required to take all allegations 

of material fact as true and construe them in the light most favorable to the nonmoving party. 

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Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). When a plaintiff 

has attached exhibits to the complaint, those exhibits may be considered in determining whether 

dismissal is proper without converting the motion to one for summary judgment. Cooper v. Bell, 

628 F.2d 1208, 1210 n.2 (9th Cir. 1980), overruled on other grounds as recognized in Valenzuela 

v. Kraft, Inc., 801 F.2d 1170, 1174 (9th Cir. 1986). However, documents attached to the 

complaint that are inconsistent with the allegations such that they are mutually exclusive are not 

entitled to a presumption of truth. Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 

2010). Reading GIS' complaint and construing the allegations in the light most favorable to GIS 

requires the court to synthesize the documents attached to the complaint with the allegations, if 

such a synthesis can be logically made. 

Here, the allegations of the complaint can be logically and plausibly reconciled with the 

agreements attached to the complaint. The fact that GIS itself is not a signatory to certain

agreements attached to the complaint does not, as a matter of law, preclude GIS from being a party 

to these agreements. Under California law, a right arising out of an obligation may be transferred 

by the person to whom the obligation is due; "[t]he burden of an obligation may be transferred 

with the consent of the party entitled to its benefit, but not otherwise." Cal. Civ. Code §§ 1457, 

1458. California has a strong policy in favor of the free transferability of all types of property, 

including rights under contracts. See Farmland Irrigation Co. v. Dopplmaier, 48 Cal. 2d 208, 222 

(1957). Absent a contract provision prohibiting assignment, which is strictly construed, a contract 

may be transferred or assigned. Baum v. Duckor, Spradling & Metzger, 72 Cal. App. 4th 54, 64 

(1999). Although GIS does not allege with specificity how it became a party under various

agreements, it nonetheless alleges that it is a party to these agreements by which it obtained 

"exclusive distribution rights." (Doc. 1, ¶¶ 5-7.) GIS also alleges it acquired exclusive 

distribution rights under three of the agreements in April 23, 2007, by assignment (the Cook 

County, Indiana, and Midwest Agreements), which is attached to the complaint and was consented 

to by Guardian. (Doc. 1, Ex. 4.) Although GIS is not a signatory to the assignment (see Doc. 1, 

Ex. 4), it is plausible that the assignment itself was re-assigned to GIS. Each of the agreements 

contains a clause that allows the distributor to sell or transfer the distributorship under the terms of 

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the agreement, provided Guardian is notified and consents to the sale or transfer of the agreement. 

(Doc. 1-1, Exhibit 1, ¶ 6(a); Doc. 1-2, Exhibit 2, ¶ 6(a); Doc. 1-3, ¶ 6(a); Doc. 1-5, Exhibit 5, ¶ 

6(a); Doc. 1-6, Exhibit 6, ¶ 6(a); Doc. 1-7, Exhibit 7, ¶ 6(a).)

Moreover, as noted by GIS, it has alleged significant conduct between GIS and Guardian

sufficient to infer that GIS is a party to the Pennsylvania, Mid-Atlantic, Ohio, Cook County, 

Indiana, and Midwest Agreements, notwithstanding that it is not a signatory to these agreements. 

For example, GIS alleged that under each of the agreements, Guardian has licensed GIS to use 

certain of its trademarks (Doc. 1, ¶ 30); Guardian has provided substantial assistance to, or 

exercised substantial control over, GIS (Doc. 1, ¶ 30(a)); GIS has sold goods and services in 

accordance with a marketing plan prescribed in substantial part by Guardian (Doc. 1, ¶ 31(b); and 

GIS has paid a non-de minimis fee to Guardian for the right to sell goods and services under the 

Licensed Trademarks (Doc. 1, ¶ 31(d)). 

The complaint also alleges that Guardian has threatened to terminate the Pennsylvania, 

Mid-Atlantic, Ohio, Cook County, Indiana, and Midwest Agreements with GIS unless GIS enters 

into a new distribution agreement, the "2015 Form Agreement" (Doc. 1, ¶¶ 12, 35.) This alleged 

course of conduct is sufficient to infer a contractual relationship supporting GIS' allegation that it 

is a party to these agreements. Additionally, because the agreements each allow transfer of the 

agreements and California law permits assignment or transfer of contractual obligations, GIS' 

claim that it is a party to the agreements is plausible even though it is not a signatory to the 

Pennsylvania, Mid-Atlantic, Ohio, Cook County, Indiana, and the Midwest Agreements. Thus, 

the agreements attached to the complaint are not necessarily inconsistent with the allegations of 

the complaint, and the allegations are entitled to a presumption of truth. As the allegation that GIS 

is a party to these agreements is presumed true at this stage, GIS has standing to bring claims 

related to these Agreements. Guardian's motion to dismiss GIS' Fifth, Sixth, Seventh, Eighth, 

Ninth, Tenth, and Twelfth Causes of Action for lack of standing under Federal Rule of Civil 

Procedure 12(b)(1) is DENIED.

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B. Guardian's Motion to Dismiss Pursuant to Rule 12(b)(6) is DENIED in part and 

GRANTED in part

Motions brought pursuant to Federal Rule of Civil Procedure 12(b)(6) test the sufficiency 

of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). 

"Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts 

alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 

(9th Cir. 1990). A plaintiff must set forth "enough facts to state a claim to relief that is plausible 

on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial 

plausibility when the plaintiff pleads factual content that allows the court to draw reasonable 

inferences that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 

662, 678 (2009).

In considering whether a complaint states a claim on which relief may be granted, the court 

accepts as true the allegations in the complaint and construes the allegations in the light most 

favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). The court is not 

required to assume the truth of legal conclusions that are cast in the form of factual allegations. 

Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Although Rule 8(a) does 

not require detailed factual allegations, "it demands more than an unadorned, the defendantunlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers 

more "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." 

Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 676 ("Threadbare recitals of the elements of 

a cause of action, supported by mere conclusory statements, do not suffice."). It is inappropriate 

to assume that the plaintiff "can prove facts which it has not alleged or that defendants have 

violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., 

Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). 

In ruling on a motion to dismiss brought under Rule 12(b)(6), the court is permitted to 

consider material which is properly submitted as part of the complaint, documents that are not 

physically attached to the complaint if their authenticity is not contested and the plaintiff's 

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complaint necessarily relies on them, and matters of public record. Lee v. City of L.A., 250 F.3d 

668, 688-89 (9th Cir. 2001).

1. GIS' First Cause of Action for Breach of the Alabama, Florida, and Tennessee 

Agreements is Sufficiently Pled

Guardian argues GIS' First Cause of Action for breach of the Alabama, Florida, and

Tennessee Agreements is inadequately pled and must be dismissed. Guardian contends GIS must 

describe all bases upon which it contends Guardian breached the Alabama, Florida, and Tennessee 

agreements, not merely a "selected sample," and cite the specific contractual provisions breached. 

In pleading its claim for breach of these Agreements, GIS alleged Guardian breached "by, inter 

alia, purporting to terminate or actually terminating the agreements without cause and refusing to 

recognize the agreements as continuing to be valid and in effect, as alleged above, without cause 

and in violation of the terms of the agreement, as alleged above." (Doc. 1, ¶ 44.) By pleading the 

breaching conduct using the term "inter alia," GIS did not set forth all of the purported violations. 

Guardian argues such a vague allegation that does not specifically allege every breach of the 

contract prejudices Guardian by forcing it to address periodically expanding or evolving 

allegations. (Doc. 16, pp. 16-17.)

GIS argues Guardian cites no authority to support its argument that all bases for any 

possible breach of contract claim must be specifically alleged to sufficiently state a claim for 

breach of contract. The only case cited by Guardian is Burke v. 401 N. Wabash Venture, LLC, No. 

08 C 5330, 2010 WL 2330334 (N.D. Ill. June 9, 2010), but this case did not hold that a plaintiff 

must describe all bases for any possible breach of contract to sufficiently state a claim and, even if 

it did, Burke is an Illinois case that does not apply California law. GIS contends it has adequately 

alleged breaching conduct by Guardian and has sufficiently pleaded its contract claim.

To state a cognizable claim for breach of contract, the plaintiff must plead (1) a contract, 

(2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damage 

to the plaintiff. Walsh v. West Valley Mission Cmty. Coll. Dist., 66 Cal. App. 4th 1532, 1545 

(1998). GIS alleges the existence of a contract – i.e., the Alabama, Florida, and Tennessee 

Agreements, and that these agreements provided GIS with exclusive purchase rights for 

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Guardian's products in the defined regions. (Doc. 1, ¶ 43.) GIS alleges Guardian's breach – i.e., 

purporting to terminate or actually terminating the Distributor Agreements without cause and 

refusing to recognize the Distributor Agreements as valid. (Doc. 1, ¶ 44.) GIS alleges its 

performance and damages – i.e., that it has performed all of its obligations under the Agreements,

and that it has been damaged by Guardian's breach. (Doc. 1, ¶¶ 45-46.) Although not every 

potential breach of the Distributor Agreements may have been alleged, Guardian has provided no 

persuasive case authority that all manner of possible breaches must be specifically articulated in 

the complaint to state a claim for breach of contract. The use of the term "inter alia" in describing 

the conduct constituting the alleged breach by Guardian does not render the claim non-specific or 

not cognizable. 

The Federal Rules require only that a complaint contain sufficient factual allegations to 

give the defendant fair notice of the claim for relief and show that a claim has "substantive 

plausibility." Johnson v. City of Shelby, __ U.S. __, 135 S.Ct. 346 (2014) (per curiam). As GIS 

has sufficiently alleged all the elements of its contract claim in more than a formulaic or 

conclusory manner, the pleading requirement is satisfied. That is not to say, however, that unpled 

theories of breach may be litigated. Rather, to the extent other, unpled grounds for breach become 

known during discovery, the pleadings must be timely amended. Moreover, if theories of breach 

were known to GIS at the time of the initial complaint but simply not alleged, subsequent attempts 

to amend the pleadings to include such theories would likely be denied, mitigating any prejudice 

to Guardian. See Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 799 (9th Cir. 1991) (eight-month delay 

between time of obtaining relevant fact and seeking leave to amend is unreasonable). Guardian's 

motion to dismiss GIS' First Cause of Action is DENIED.

2. GIS' Third Cause of Action for Breach of the Bob's Discount Furniture 

Agreement is Sufficiently Pled

GIS' Third Cause of Action for breach alleges that, after discovering in 2010 that Guardian 

was selling its products directly to Bob's Discount Furniture in territories exclusively reserved to 

GIS, the two companies agreed that Guardian would pay GIS a 5% commission on all sales 

Guardian made to Bob's Discount Furniture retail locations in GIS' exclusive territory. Although 

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Guardian had agreed to the 5% commission payments and had been making the commission 

payments, it refused to pay the 5% commission after November 2014. (Doc. 1, ¶ 14.) As such,

Guardian breached this agreement by failing to pay GIS all commission owed under the 

agreement. 

Guardian contends this contract claim is insufficiently pled for several reasons: GIS has 

not alleged (1) whether the agreement is oral or written; (2) any of the details as to when the 

agreement was made or who signed it; and (3) any of the terms or the legal effect of the terms of 

the agreement. GIS has failed to plead all the material terms of the alleged agreement.

GIS argues the federal pleading standards require only sufficient factual allegations to 

establish each of the elements of the claim and to put Guardian on notice as to the basis of the 

claim, even if further facts must be developed during discovery.

In federal court in California,

[a] cause of action for breach must include facts demonstrating (1) that a contract 

exists between the parties, (2) that plaintiff performed his contractual duties or was 

excused from nonperformance, (3) that the defendant breached those contractual 

duties, and (4) that plaintiff's damages were a result of the breach.

Walters v. Fidelity Mortgage of Cal., Inc., No. 2:09-cv-3317 FCD-KJM, 2010 WL 1493131 at *7 

(E.D. Cal. Aug. 14, 2010). Federal procedural rules do not require the contract at issue to be 

attached to the complaint; rather the contract terms may be pled in the complaint. Mortgage 

Industry Solutions, Inc. v. Collabera, Inc., No. Civ S-10-2636-KJM-DAD, 2011 WL 1135907 

(E.D. Cal. Mar. 25, 2011). In Collabera, Inc., the court found a contract claim sufficiently pled 

where the plaintiff alleged that it entered into a contract for the development of a search engine for 

mortgage information, the plaintiff paid the defendant's predecessor $300,000, the amount due 

under the agreement, that defendant refused to turn over the software incorporating the plaintiff's 

idea resulting in a breach, and the plaintiff lost access to its intellectual property as a result. Id. at 

*2-3.

Similarly here, GIS alleges that it entered into an agreement with Guardian whereby 

Guardian would pay 5% commission on all sales of Guardian's products made to Bob's Discount 

Furniture retail locations in GIS' exclusive territory for as long as such sales were being made; 

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Guardian made payments until November 2014 but stopped paying GIS in December 2014. (Doc. 

1, ¶¶ 13-14.) GIS also alleges it has performed its duties under the contract, and as a result of 

failing to pay the commission due under the Agreement, GIS has been damaged. (Doc. 1, ¶¶ 59-

64.) Although there is no allegation whether the agreement is oral or written, Guardian provides 

no authority that this is mandated under federal notice pleading requirements. See TreeFrog 

Developments, Inc. v. Seidio, Inc., No. 13-cv-158-IEG (KSC), 2013 WL 4028096, *3 n.3 (S.D. 

Cal. Aug. 6, 2013). Guardian notes that GIS has not alleged when the Agreement was made, who 

entered into the Agreement on either party's behalf, the frequency with which the parties agreed 

that commission payments were to be made, how the payments were to be made, or what 

consideration on the part of GIS supported the Agreement. 

Although many of the specific details of the Agreement are not alleged, the allegations are 

sufficient to show that the claim has substantive plausibility. There is an allegation of an 

agreement to pay a 5% commission on sales Guardian makes to a furniture store in GIS' exclusive 

territory, which was paid by Guardian through November 2014, but Guardian has not paid the 

Commission since that time, which has damaged GIS. This is more detail than a formulaic 

recitation of the elements of a contract claim. As to consideration, there is a plausible inference 

that by agreeing to allow Guardian to continue to make direct sales in GIS' otherwise exclusive 

territory, this was the consideration GIS gave in return for the sales commission paid by Guardian. 

Also, the fact that Guardian made payments on sales, but stopped doing so abruptly in December 

2014, provides an inference that Guardian continued to make sales in GIS' exclusive territory but 

began refusing to pay the agreed-upon commission. Although the allegations are not of 

heightened specificity, the relevant, necessary terms of the contract have been alleged. Guardian's

motion to dismiss Plaintiff's Third Cause of Action for breach of the Bob's Discount Furniture

Agreement is DENIED.

///

///

///

///

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3. The Second and Fourth Causes of Action for Breach of the Implied Covenant 

of Good Faith and Fair Dealing in the Alabama, Florida, and Tennessee 

and the Bob's Discount Furniture Agreements Are Recognized by California 

Law And Are Not Duplicative of the Underlying Contract Claims

Guardian asserts that outside the context of an insurance policy, California law does not 

recognize a separate cause of action for breach of the implied covenant of good faith and fair 

dealing when joined with a claim for breach of an express term of the same contract. Guardian 

argues that GIS' Second Cause of Action for breach of the implied covenant of good faith and fair 

dealing with respect to the Alabama, Florida, and Tennessee Agreements and its Fourth Cause of 

Action for breach of the implied covenant with respect to Bob's Discount Furniture Agreement are 

duplicative of GIS' contract claims related to these agreements and must be dismissed.

GIS contends that with respect to both agreements, Guardian "engaged in bad faith conduct 

above and beyond merely breaching the Bob's Discount Furniture Agreement and the Alabama, 

Florida, and Tennessee Agreements." Specifically, Guardian's purported termination of and 

refusal to perform its obligations to GIS under these agreements are "part of a series of wrongful, 

coercive acts whereby Guardian has tried to pressure GIS to enter into a new relationship and sign 

new contracts that are significantly more advantageous for Guardian and dramatically less 

advantageous for GIS." (Doc. 21, 20:19-21.) Therefore, GIS' claims for breaches of the implied 

covenant are not duplicative of its contract claims.

Conduct that breaches the covenant of good faith and fair dealing goes beyond mere breach 

of the contractual duty itself. "It involves unfair dealing, whether or not it also constitutes breach 

of a consensual contract term, promoted by a conscious and deliberate act that 'unfairly frustrates 

the agreed common purposes and disappoints the reasonable expectation of the other party.'" 

Celador Int'l Ltd. v. Walt Disney Co., 347 F. Supp. 2d 846, 852 (C.D. Cal. 2004) (quoting Careau 

& Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990)). In a claim for breach 

of the implied covenant, "[i]f the allegations do not go beyond the statement of a mere contract 

breach and, relying on the same alleged acts, simply seek the same damages or other relief already 

claimed in a companion contract cause of action, they may be disregarded as superfluous." 

Careau & Co., 222 Cal. App. 3d at 1395. A claim for breach of the implied covenant of good 

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faith and fair dealing is not duplicative of a breach of contract claim when a plaintiff alleges that 

the defendant acted in bad faith to frustrate the benefits of the alleged contract. See Celador Int'l 

Ltd., 347 F. Supp. 2d at 853. As explained in Celador, the claim for breach of the covenant will 

always be based on the same facts as the breach of contract, and the court "should not 

mechanically inquire whether the same facts are alleged and whether the same remedy is sought. 

Rather, the challenge brought by Careau and its progeny is to distinguish two claims based on the 

same facts. If they cannot be distinguished, then the natural conclusion is that they are 

duplicative." Id. 

Although Guardian argues breaches of the implied covenant of good faith and fair dealing 

are not recognized under California law outside the insurance context, as discussed above, this is 

not correct.3 A claim for breach of the implied covenant is viable so long as it is distinct from an 

underlying breach of contract claim. Celador Int'l Ltd. v. Walt Disney Co., 347 F. Supp. 2d at 

853; see also Ladd v. Warner Bros. Entm't, Inc, 184 Cal. App. 4th 1298, 1308 (2010) (recognizing 

breach of implied covenant of good faith and fair dealing outside insurance context).

Additionally, GIS has sufficiently alleged bad-faith conduct on the part of Guardian

distinct from its breach of contract claims. GIS alleges Guardian's conduct in refusing to pay 

commission under Bob's Discount Furniture Agreement, Guardian's purported termination of the 

Alabama, Florida, and Tennessee Agreements, and the threat to terminate every other existing 

agreement was all intended by Guardian to force GIS to enter into a new "Distributorship 

Agreement" that contains less advantageous terms and conditions for GIS than the existing 

agreements. (Doc. 1, ¶ 12.) Moreover, in purporting to terminate the Alabama, Tennessee, and 

Florida Agreements, Guardian allegedly "attempted to downplay the significance" of the notice to 

terminate it sent to GIS and asserted that GIS and Guardian could continue to do business in these 

territories despite the threat of termination, which GIS contends adversely affected its business and 

business decisions. Thus, not only has GIS alleged that the contracts were breached by Guardian's 

 

3 Claims for tort damages pursuant to the implied covenant of good faith and fair dealing are generally not recognized 

in California outside the context of insurance law. Glendale Fed. Sav. & Loan Ass'n v. Marina View Heights Dev. 

Co., 66 Cal. App. 3d 101, 135 n. 8 (1977) ("A bad faith cause of action sounding in tort has never been extended to 

contractual relationships other than in the insurance field.").

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behavior, but Guardian did so with a bad-faith motive to hurt GIS' business interests in an effort to

leverage GIS into accepting a new agreement that is less advantageous than all the prior 

Distributor Agreements. The allegations supporting the breaches of the implied covenant in GIS' 

Second and Fourth causes of action for breach of the implied covenant of good faith and fair 

dealing are sufficiently distinct from the underlying breaches of contract such that the implied 

covenant claims are not redundant and duplicative.

4. Iowa Franchise Law Declaratory Relief Causes of Action Six through 

Nine are DISMISSED Without Prejudice and With Leave to Amend

GIS' Sixth through Ninth Causes of Action seek declaratory judgments that termination of 

the Iowa Agreement violates the 1992 and 2000 Iowa Franchise Acts. (Doc. 1, ¶¶ 80-96.) GIS 

alleges that the Midwest Agreement, which includes Iowa, is a franchise within the meaning of 

Iowa law. Although GIS has a business presence in Iowa, Guardian is now requiring GIS to 

develop a physical presence in each state where it operates a franchise on behalf of Guardian. 

Iowa law does not allow a franchisor to terminate a franchise prior to the expiration of its term 

except for good cause and on written notice stating the basis for termination along with a 

reasonable time to cure the default. Iowa Code § 523H.7. GIS alleges Guardian has threatened to 

terminate the Midwest Agreement and GIS' exclusive distributorship in Iowa territory, but it gave 

no notice or explanation for this action other than the agreement was "no longer applicable to the 

current business." GIS alleges this threatened termination without good cause violates Iowa Code 

§ 523H.7. Further, Guardian's failure to provide GIS with written notice or an opportunity to cure 

violates Iowa Code § 537A.10(7)(b), which is GIS' Seventh Cause of Action. In its Eighth and 

Ninth Causes of Action, GIS alleges that Guardian's threatened termination of the Midwest 

Agreement also violates Iowa Code § 523H.10 and § 537A.10(11), which impose on the parties to 

the agreement a duty of good faith performance and enforcement of the franchise agreement. GIS 

alleges that Defendant has breached its duty of good faith under Sections 523H.10 and 

537A.10(11) by threatening to terminate the Midwest Agreement without good cause and by using 

the Midwest Agreement as leverage to force GIS to re-negotiate its other agreements with 

Guardian.

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a. GIS' Physical Presence in the State of Iowa Is Insufficiently Pled

Guardian contends GIS' Sixth, Seventh, Eighth, and Ninth causes of action regarding the 

1992 and 2000 Iowa Franchise Acts must be dismissed. Guardian argues that because GIS does 

not allege that it operates from premises physically located in Iowa, its claims under the Iowa 

Code are not viable. The Iowa Code pertaining to franchises applies to any franchise in Iowa so 

long as the premises from which the franchise is operated are physically located in the state of 

Iowa. Am. Express. Fin. Advisors, Inc. v. Yantis, 358 F. Supp. 2d 818, 827 (N.D. Iowa 2005). 

Iowa law provides that a franchise is deemed to be operating in the state of Iowa only if the 

franchisee's principal business office is physically located in Iowa. Iowa Code § 523H.2 and 

537A.10(2). The complaint alleges GIS is a Pennsylvania corporation based in Pitcaim, 

Pennsylvania. Although GIS alleges it has a "business presence" in each state where it operates a 

franchise on behalf of Guardian, GIS also alleges that Guardian is requiring GIS to develop a 

physical presence in the Iowa, which suggests that GIS does not currently operate from premises 

physically located in Iowa as required by both the 1992 and 2000 Acts.

GIS argues it operates from premises "physically located" in Iowa, despite that it does not 

have a "physical presence" in Iowa. Considering all allegations in the light most favorable to GIS, 

this is sufficient to infer that GIS operates from Iowa as required under the Iowa Franchise Acts.

The Iowa Franchise Act of 1992 (the "1992 Act"), Iowa Code § 523H, et seq, and the Iowa 

Franchise Act of 2000 (the "2000 Act"), Iowa Code § 537A.10, et seq., were created to protect 

franchisees operating in Iowa from abuses by franchisors and to equalize the bargaining power 

between franchisees and franchisors. Equipment Mfrs. Inst. v. Janklow, 300 F.3d 842, 861 (8th 

Cir. 2002). Both the 1992 Act and the 2000 Act apply to any franchise in Iowa as long as the 

premises from which the franchise is operated are physically located in the state of Iowa:

This chapter applies to a new or existing franchise that is operated in the state of 

Iowa. For purposes of this chapter, the franchise is operated in this state only if the 

premises from which the franchise is operated is physically located in this state. 

For purposes of this chapter, a franchise including marketing rights in or to this 

state, is deemed to be operated in this state only if the franchisee's principal 

business office is physically located in this state . . . 

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Iowa Code §§ 523H.2, 537A.10(2). 

The complaint does not allege facts that GIS' "principle business office is physically 

located" in Iowa; rather, it alleges that "GIS has a business presence in the state of Iowa." There 

is, however, no indication or other facts showing what that "business presence" is or how it meets 

the requirements of the 1992 and 2000 Acts which provide that the franchisee's "principal business 

office" must be physically located in the state of Iowa for a franchise to be considered to be 

"operated" in Iowa. GIS' bare allegation that it has a "business presence" in Iowa is insufficient to 

maintain causes of action under the 1992 and 2000 Iowa Franchise Acts. It is not clear, however, 

that GIS cannot remedy this defect by pleading additional facts showing GIS operates a franchise 

in Iowa in the manner required by the Acts. Therefore, the Sixth through Ninth Causes of action 

are DISMISSED without prejudice and with leave to amend.

b. GIS May Plead Claims Under the 1992 Act and the 2000 Act

To the extent GIS is able to sufficiently allege it operates in the state of Iowa, Guardian 

argues only one of Iowa's Franchise Acts applies, not both. In Holiday Inns Franchising v. 

Branstand, the Eighth Circuit held that the 1992 Act could not constitutionally apply to franchises 

governed by contracts signed before the 1992 Act's effective date. 29 F.3d 383, 384 (8th Cir. 

1994). Accordingly, when it was enacted, the 2000 Act expressly stated that it applied only to a 

new or existing franchise that is subject to an agreement entered into on or after July 1, 2000. 

Iowa Code §537A.10(2). Guardian maintains that because GIS alleges the Distributor Agreement 

was executed in 1998, only the 1992 Act applies – i.e., by its express terms, the 2000 Act cannot

apply.

GIS argues Guardian ignores its allegation that GIS became a franchisee under the 

agreement in 2007, and that the Midwest Agreement automatically renewed on an annual basis. 

(Doc. 1, ¶ 8.) "Each iteration of the Midwest Agreement to which GIS was a party therefore was 

subject to both the 1992 Act and the 2000 Act." (Doc. 21, 34: 1-2.) Each Midwest Agreement to 

which GIS was a party came after 1992 and 2000, subjecting Guardian to both the 1992 Act and 

the 2000 Act under Iowa law. 

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Here, the original agreement was allegedly entered in 1998, but it was assigned to GIS in 

2007 and renewed every year thereafter. Neither the facts alleged nor the parties' arguments make 

clear whether the date of the original agreement or the dates of subsequent renewal agreements 

govern which Act applies. Even if Guardian is correct and only one of the statutes may apply, 

GIS is permitted to state inconsistent claims while facts are developed to properly ascertain 

whether the assignment or the subsequent renewals govern which Act applies. Federal Rule 

8(d)(3) permits a party to state as many separate claims as it has, regardless of consistency. It is 

plausible that a different Act would govern the original agreement and subsequent renewals of the 

agreement. GIS is entitled to state its claim under both Acts, even if only one statute may 

ultimately apply. Fed. R. Civ. Proc. 8(d)(3).

5. The Law Applicable to GIS' Tenth and Eleventh Causes of Action

GIS' Tenth Cause of Action alleges a common law claim of negligence per se against 

Guardian. (Doc. 1, ¶¶ 142-152.) GIS alleges that, pursuant to the various Distributor Agreements, 

GIS is a "franchisee" within the meaning of the FTC Franchise Rule under 16 C.F.R. § 436.1(i), 

and Guardian is a "franchisor" under 16 C.F.R. § 436.1(k). The FTC Franchise Rule requires the 

franchisor to provide GIS with disclosure documents, including the franchisor's financial 

information, patents, trademarks, and territories. 4 GIS alleges Guardian never provided GIS with 

the necessary disclosures at any time, and this failure damaged GIS. GIS' Eleventh Cause of 

Action asserts Guardian's failure to make required franchise disclosures under both federal and 

state law violated the North Carolina Unfair and Deceptive Trade Practices Act ("UDTPA"). 

Guardian contends that GIS' claim for negligence per se for failure to make disclosures 

required by the FTC Franchise Rule should be dismissed because (1) negligence per se is not a 

cause of action recognized in California absent a recognized underlying duty; (2) California does 

 

4

In 1978, the FTC promulgated a series of "disclosure Requirements and Prohibitions Concerning Franchising and 

Business Opportunity Ventures," known commonly as the Franchise Rule. The FTC Franchise Rule requires 

franchisors to provide a prospective franchisee with a detailed disclosure statement prior to selling a franchise. The 

disclosure statement must present certain enumerated facts about the franchisor's corporate history, its financial 

condition, the track record of other franchisees, and the background of its principle officers. The FTC Franchise Rule 

was intended to protect prospective purchasers from the financial hardships that arisen when they purchase franchises 

or other business opportunity ventures without essential, reliable information about them. Am. Jur. 2d, Private 

Franchise Contracts § 26 (citing 16 C.F.R. § 436.1).

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not impose a common law duty of franchisors to provide prospective franchisees with the 

disclosure document outlined in the FTC Franchise Rule; and (3) the FTC Franchise Rules does 

not provide a private right of action and cannot form the basis of a negligence per se claim. 

GIS argues that California law is not applicable to its claim for negligence per se. 

Pursuant the factors identified in Davis Moreno Constr., Inc. v. Frontier Steel Bldgs. Corp, No. 

CV-F-08-854-OWW-SMS, 2009 WL 1476990 (E.D. Cal. May 26, 2009), the jurisdictions where 

GIS suffered its injuries provide the appropriate applicable law. If GIS were a franchisee in 

California, its remedy would lie under the California Franchise Relations Act rather than the 

doctrine of negligence per se. Failure to apply the law of the states where GIS suffered its 

injuries, i.e., the jurisdictions involved in the various Distributor Agreements, deprives GIS of a 

remedy for Guardian's franchise law violations, which would be contrary to public policy. 

Further, this claim arose in each of the jurisdictions in which Guardian offered a franchise and 

violated the FTC Franchise Rule. In many of those states, federal courts have expressly held that 

violation of federal law is actionable as negligence per se even if the federal law giving rise to the 

duty does not expressly afford a private right of action – i.e. the FTC Franchise Rule. GIS 

maintains this is clearly the law in Pennsylvania, as well as in many of the states where Guardian 

granted distribution rights in violation of the FTC Franchise Rule. In other words, the unlawful 

conduct was experienced in jurisdictions which recognize a claim for failure to comply with 

federal law. This weighs in favor of applying the law of other states. Moreover, applying the 

negligence per se law of a foreign jurisdiction does not violate a fundamental public policy of 

California. Rather, public policy of California requires disclosures of this nature. If GIS were a 

California franchisee, its remedy would lie under the California Franchise Relations Act rather 

than the common law doctrine of negligence per se. Depriving GIS of a remedy for Guardian's 

franchise law violations would be contrary to public policy of California and of other states with a 

materially greater interest in this controversy than California.

In its reply brief, Guardian argues that California law applies to these claims because the 

Distributor Agreements that form the basis of GIS' claims contain a forum selection clause that 

indicates California law will govern any dispute regarding the contract, including both GIS' 

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negligence per se claim and its claim under the UDTPA. Because California law does not 

recognize a negligence per se claim and because the UDTPA claim arises under North Carolina 

law and not California law, both claims must be dismissed.

In its sur-reply, GIS responds that such a choice-of-law provision does not apply to tort 

causes of action and only governs claims arising under the contract. The language of the 

Distributor Agreements is not broad enough to govern forum selection for tort claims that do not 

arise under the scope of the Distributor Agreement. 

In its supplemental reply brief, Guardian argues that California choice-of-law rules apply 

to determine whether the choice-of-law provision in the Distributor Agreements applies to GIS' 

claims. According to Guardian, California will give effect to a choice-of-law provision that relates 

to any claim arising from the agreement, whether or not that claim sounds in contract or in tort.

a. Choice of Law

A federal court sitting in diversity must apply the forum state's choice of law rules to 

determine the controlling substantive law. Fields v. Legacy Health System, 413 F.3d 943, 950 (9th 

Cir. 2005). Thus, a federal court in California exercising its diversity jurisdiction must ordinarily 

follow California's choice-of-law rules. When a contract contains a choice-of-law provision, 

courts applying California's choice-of-law rules follow Nedlloyd Lines B.V. v. Super. Ct., 3 Cal. 

4th 459 (1992). When there is no advance agreement on applicable law, but the action involves 

claims of residents from outside California, the trial court may analyze the governmental interests 

of the various jurisdictions involved to select the most appropriate law. Washington Mutual Bank, 

FA v. Super. Ct., 24 Cal. 4th 906, 915 (2001).

Under the Nedlloyd analysis, all claims "arising from or related to" a contract are covered 

by the contract's choice-of-law clause, regardless of whether they are characterized as contract or 

tort claims. Nedlloyd, 3 Cal. 4th at 470. "When two sophisticated, commercial entities agree to a 

choice-of-law clause . . . , the most reasonable interpretation of their actions is that they intended 

for the clause to apply to all causes of action arising from or related to their contract." Id. at 468.

In determining the enforceability of arm's length contractual choice-of-law provisions, 

California courts apply the principles set forth in Restatement Second of Conflict of Laws section 

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187 (the "Restatement"), which reflects a strong policy favoring the enforcement of such 

provisions. Id. at 464-65 (citing Rest. 2d Confl. § 187). "[T]he proper approach under 

Restatement section 187, subdivision (2) is for the court first to determine either: (1) whether the 

chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is 

any other reasonable basis for the parties' choice of law." If neither of these two tests is met, "that 

is the end of the inquiry, and the court need not enforce the parties' choice of law." Id. at 466. If 

either test is met, the court must next determine whether the chosen state's law is contrary to a 

fundamental policy of California. Id.

The second test is the governmental interest analysis applicable when the parties have not 

contractually agreed on the applicable law or where the plaintiff's claims do not arise under the 

contract provision, "but the action involves the claims of residents from outside California, [then] 

the trial court may analyze the governmental interests of the various jurisdictions involved to 

select the most appropriate law." Washington Mutual Bank, FA, 24 Cal. 4th. at 915. Under this 

test, the foreign law proponent must identify the applicable law in each potentially concerned state 

and must show it materially differs from the law of California. If the laws are materially different, 

the second step is to determine what interest, if any, each state has in having its own law applied to 

the case. Only if the foreign law proponent satisfies its burden of showing the first two elements 

will the court then determine whose interests would be more impaired if its laws were not applied.

b. The Nedlloyd Analysis Governs the Choice of Law

The forum state is California and the underlying agreements selected California as the 

choice of law to govern disputes. Therefore, the court must look to California choice-of-law rules 

to determine whether the contract governs the law of GIS' claims. Here, because there is a 

contract between the parties specifying their choice of law as California, the Nedlloyd analysis is 

applicable. GIS' contention in its sur-reply that choice-of-law contract provisions are not 

applicable to tort claims and its reliance on Lincoln General Insurance Co. v. Access Claims 

Administrators, Inc. ("Lincoln General"), No. Civ. S-07-1015-LKK-EFB, 2007 WL 2492436 

(E.D. Cal. Aug. 30, 2007), are unpersuasive. The parties in Lincoln General had agreed to the 

application of Pennsylvania law. Thus, Pennsylvania choice-of-law rules were applied by the 

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court, not that of California. Id. (citing Nedlloyd for the proposition that the choice of law clause 

applies to interpreting the clause itself). The court noted the choice-of-law provision was narrow –

it provided that the "Agreement shall be interpreted and construed in accordance with the laws of 

the State of Pennsylvania." Id. at *5. To interpret the scope of the choice of law provision, the 

court acknowledged it was bound by Pennsylvania law, noted there was no Pennsylvania case 

directly on point, and proceeded to analyze other persuasive authority to determine how broadly to 

interpret the scope of the provision. 

Here, the choice-of-law provision provides that "[t]he choice of law of the parties is the 

law of the State of California." (See, e.g., Doc. 1, Ex. 1, ¶ 13.) Unlike Lincoln General, the 

choice of law specifies California, not Pennsylvania to interpret its scope. Therefore, the Court 

must examine California law. 

Under California law, the Nedlloyd test applies and broadly construes choice-of-law 

provisions to encompass any claims – however styled – arising out of or related to the contract. 

Nedlloyd, 3 Cal. 4th at 468-69. Nedlloyd involved the following choice-of-law provision in a 

shareholder's agreement: "This agreement shall be governed by and construed in accordance with 

Hong Kong law and each party hereby irrevocably submits to the non-exclusive jurisdiction and 

service of process of the Hong Kong courts." Nedlloyd, 3 Cal. 4th at 463. Although the plaintiff

argued its fiduciary duty cause of action was not governed by the clause because it was 

independent of the shareholders' agreement and outside its intended scope, the court disagreed,

finding that when "two sophisticated, commercial entities agree to a choice-of-law clause like the 

one in this case, the most reasonable interpretation of their actions is that they intended for the 

clause to apply to all causes of action arising from or related to their contract." Id. at 469.

Moreover, the term "governed by" was broad wording reflecting the parties' clear contemplation 

that the agreement was to be completely and absolutely controlled by Hong Kong law. Id. The 

fiduciary duty claim only existed because of the shareholders' agreement, and thus the choice-oflaw provision in the shareholders' agreement controlled. Further, the court reasoned its 

interpretation of the clause was one that comported with common sense and commercial reality: 

"We seriously doubt that any rational businessperson, attempting to provide by contract for an 

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efficient and businesslike resolution of possible future disputes, would intend that the laws of 

multiple jurisdictions would apply to a single controversy having its origin in a single, contractbased relationship." Id. 

The choice-of-law claim in this case is similarly broad and sets forth the parties' choice of 

law as the State of California, with no exceptions or qualifications. Moreover, both GIS'

negligence per se claim and its UDTPA claim relate to Guardian's alleged failure to provide 

proper disclosures under the FTC Franchise Rule and state laws pertaining to franchisors. GIS' 

claims of negligence per se and violations of the UDTPA arise directly out of Guardian's alleged 

failure to make disclosures pursuant to its duties as a franchisor under the Distributor Agreements. 

These claims arise specifically because GIS alleges the Distributor Agreements establish

franchises, which allegedly trigger disclosures. Without the Distributor Agreements, there would 

be no franchises and no concomitant disclosure requirements, and thus no claims for failure to 

make these disclosures. As such, GIS' claims for negligence per se and violation of the UDTPA 

fall within the scope of the choice-of-law provision in the Distributor Agreements. This is very 

similar to the fiduciary duty claims asserted by the plaintiff in Nedlloyd. As the court noted in that 

case, the plaintiff would not have had a fiduciary duty claim but for the shareholders' agreement 

that contained the broad choice-of-law provision. Nedlloyd, 3 Cal. 4th at 469 ("Nedlloyd's 

fiduciary duties, if any, arise from-and can exist only because of-the shareholders' agreement 

pursuant to which Seawinds's stock was purchased by Nedlloyd.") 

c. The Choice-of-Law Provision in the Distributor Agreements is 

Enforceable

Once a court determines a claim falls within the scope of a choice-of-law provision, it must 

consider whether the clause is enforceable. Nedlloyd, 3 Cal. 4th at 464-65. In California, this 

analysis is governed by Restatement Section 187. Id. "[T]he proper approach under Restatement 

section 187, subdivision (2) is for the court first to determine either: (1) whether the chosen state 

has a substantial relationship to the parties or their transaction, or (2) whether there is any other 

reasonable basis for the parties' choice of law." Id. at 466. 

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Here, Guardian had a substantial relationship to California at the time the Distributor 

Agreements were executed. Specifically, Guardian was doing business in California and had its 

principal place of business in California at the time the Distributor Agreements were signed. The 

Distributor Agreements themselves state that Guardian was a California Corporation, and they

were executed in California. California therefore had a substantial relationship to the parties, and 

the parties' choice of law had a reasonable basis. Nedlloyd, 3 Cal. 4th at 467 (the chosen state has 

a substantial relationship to the parties or their contract when "one of the parties is domiciled" in 

that state.) 

d. Fundamental Public Policy of California is Not Offended by Applying 

California Law

Once the party who seeks application of the choice-of-law provision demonstrates a 

substantial relationship, the party who would avoid the choice of law provision bears the burden of 

showing that the chosen state's law is contrary to a fundamental policy of California. Nedlloyd, 

3 Cal. 4th at 466. If there is a fundamental conflict with California law, the court must determine 

whether California has a "materially greater interest than the chosen state in the determination of 

the particular issue. . . ." Id. (quoting Restatement § 187(2)). 

GIS frames this analysis by arguing the application of California law would extinguish two 

of its claims, which would offend California public policy by depriving GIS of a remedy it would 

otherwise have were it a franchisee in California. GIS further argues that foreign jurisdictions –

those jurisdictions involved in the Distributor Agreements – have a materially greater interest in 

this controversy than California. Specifically, GIS notes that Pennsylvania has a materially 

greater interest than California because this is where the Guardian's alleged disclosure failures 

were felt – i.e., GIS' home state. Further, the states the Distributor Agreements relate to are also 

implicated because the claims involve franchise activity in those particular states. Finally, North 

Carolina has a materially greater interest than California because Guardian has its principal place 

of business there, and the decision not to disclose would have occurred in North Carolina. 

The fact that application of the choice-of-law clause would extinguish claims is not a 

reason to apply different substantive law. For example, in Medimatch, Inc. v. Lucent Technologies 

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Inc., 120 F. Supp. 2d 842, 861-62 (N.D. Cal. 2000), the court considered a choice-of-law 

provision that specified New Jersey law. The plaintiffs conceded that New Jersey law applied, but 

argued that to the extent New Jersey law did not provide a remedy, they should be entitled to 

pursue their claim under California law. The court determined that the "mere fact that the chosen 

law provides greater or lesser protection than California law, or that in a particular application the 

chosen law would not provide protection while California law would, are not reasons for applying 

California law." Id. 

Similarly here, GIS argues that to apply California law extinguishes its negligence per se

claim and deprives it of a tort remedy it would have under the law of other jurisdictions that could 

potentially be applied. The standard, however, is whether the chosen law – here, California – is so 

offensive to California public policy as to be "prejudicial to recognized standards of morality and 

to the general interest of the citizens." Wong v. Tenneco, 39 Cal. 3d 126, 135-36 (1985). 

Applying California law is not offensive to California public policy, even if claims of the out-ofstate franchisee are extinguished because of application of the choice-of-law provision.

GIS also does not state which state's substantive law should govern its negligence per se

claim. There are multiple jurisdictions involved because the Distributor Agreements apply to 

locations in a number of states. Moreover, GIS itself is a Pennsylvania corporation, and Guardian 

has its principal place of business in North Carolina. GIS has not definitively identified what law 

should be applied to its negligence per se claim instead of California law or which particular 

foreign jurisdiction's laws necessarily permit a negligence per se claim. 

Guardian correctly notes it is GIS' burden to show why foreign law should apply, and not 

the parties' choice-of-law agreement. Keegan v. Am. Honda Motor Co., Inc., 284 F.R.D. 504 

(C.D. Cal. 2012). There is a strong policy in California favoring the enforcement of choice-of-law 

provisions. Nedlloyd, 3 Cal. 4th at 464. In the absence of a compelling argument regarding how 

application of California law will violate fundamental California public policy, California law 

shall apply.

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e. Application of California Law Precludes GIS' Negligence Per se and 

UTDPA Causes of Action

Under California law, application of the doctrine of negligence per se means the conduct 

prescribed by a statute has been adopted as the standard of care for a reasonable person in the 

circumstances, and a violation of the statute is presumed to be negligence. Alcala v. Vazmar 

Corp., 167 Cal. App. 4th 747, 755 (2008). Negligence per se, however, is merely a codified 

evidentiary doctrine and not an independent cause of action. Carson v. Depuy Spine, Inc. 365 F. 

App'x. 812 (9th Cir. 2010) (unpublished); Campos v. City of Merced, 709 F. Supp. 2d 944, 966 

(E.D. Cal. 2010). California law requires that an underlying claim of ordinary negligence must be 

viable before the presumption of negligence per se based on the violation of a statute, regulation, 

or ordinance may be applied. Rosales v. City of Los Angeles, 82 Cal. App. 4th 419, 430 (2000). 

California law does not recognize a negligence per se claim for failure to make disclosures under 

the FTC Franchise Rule, and the FTC Franchise Rule does not itself confer a private right of 

action. A negligence per se claim must be dismissed when the complaint discloses no underlying 

tort duty. Moreover, GIS does not dispute that California law extinguishes GIS' negligence per se

claim for violations of the FTC Franchise Rule and state law versions of the FTC Franchise Rule. 

GIS' Tenth Cause of Action for negligence per se is DISMISSED with prejudice and without leave 

to amend.

GIS' Eleventh Cause of Action for violation of the North Carolina UDTPA is also subject 

to dismissal under the Distributor Agreement choice-of-law provision. The UDTPA is a North 

Carolina statute, and the parties do not identify a choice-of-law exclusion or waiver provision in 

the statute. Because California law applies, GIS' UDTPA claim under North Carolina law is not 

viable, and it is DISMISSED with prejudice and without leave to amend.

IV. CONCLUSION AND ORDER

For the reasons set forth above, Guardian's motion to dismiss is DENIED in part and 

GRANTED in part. Accordingly, it is HEREBY ORDERED that:

1. Guardian's motion to dismiss under Rule 12(b)(1) is DENIED;

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2. Guardian's motion to dismiss Plaintiff's First, Second, Third, and Fourth Causes of 

Action under Rule 12(b)(6) is DENIED;

3. GIS' Sixth, Seventh, Eighth, and Ninth Causes of Action are DISMISSED pursuant 

to Rule 12(b)(6) without prejudice and with leave to amend;

4. GIS' Tenth and Eleventh Causes of Action are DISMISSED with prejudice and 

without leave to amend; and

5. GIS may file an amended complaint within 14 days of the date of this order.

IT IS SO ORDERED.

Dated: June 30, 2015 /s/ Sheila K. Oberto 

UNITED STATES MAGISTRATE JUDGE

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