Opinion ID: 618470
Heading Depth: 3
Heading Rank: 1

Heading: FIPA Claim

Text: Under the choice-of-law provision in the franchise agreement, Washington law applies to this dispute without recourse to Washington (or any other) choice of law or conflicts of law principles. We construe the provision to mean that we should apply Washington law only insofar as that law, according to its own terms, would be applicable. The question before us is whether Washington's Franchise Investment Protection Act (FIPA) applies to MAK, a non-Washington franchisee in its relationship with Red Lion, a Washington franchisor. FIPA was enacted to curb franchisor sales abuses and unfair competitive practices. Corporate Res., Inc. v. Eagle Hardware & Garden, Inc., 115 Wash.App. 343, 62 P.3d 544, 546 (2003). FIPA deals mainly with registration and disclosure requirements, but it also contains a franchisee bill of rights, which is intended to ameliorate[] the non-negotiable nature of the franchisor-franchisee relationship. East Wind Express, Inc. v. Airborne Freight Corp., 95 Wash.App. 98, 974 P.2d 369, 372 (1999); WASH. REV. CODE § 19.100.180. Karimi alleges that Red Lion violated provisions of FIPA's bill of rights. FIPA does not specify a remedy for a violation of the bill of rights, but a franchisee may bring an action under Washington's Consumer Protection Act based on a FIPA violation. Id. § 19.86.020 (Consumer Protection Act); see also Nelson v. Nat'l Fund Raising Consultants, Inc., 120 Wash.2d 382, 842 P.2d 473, 478 (1992) (The Legislature has provided [that] violations of the Franchise Investment Protection Act are per se unfair trade practices under the Consumer Protection Act.). FIPA's bill of rights does not contain indeed, has never containedlanguage limiting its application to the relation between a franchisor and franchisee in this state. The bill of rights provides: Relation between franchisor and franchiseeRights and prohibitions. Without limiting the other provisions of this chapter, the following specific rights and prohibitions shall govern the relation between the franchisor or subfranchisor and the franchisees: (1) The parties shall deal with each other in good faith. (2) For the purposes of this chapter and without limiting its general application, it shall be an unfair or deceptive act or practice or an unfair method of competition and therefore unlawful and a violation of this chapter for any person to: (a-j) [listing prohibited acts, practices, and unfair methods of competition] WASH. REV. CODE § 19.100.180. By contrast, several of FIPA's provisions contain an explicit statement that they apply to actions in this state, with the clear implication that they apply only in this state. These provisions are as follows, with emphasis added throughout. The sale, or offer of sale, of a franchise in the state must be registered in the state. WASH. REV. CODE § 19.100.020 (It is unlawful for any franchisor or subfranchisor to sell or offer to sell any franchise in this state unless the offer of the franchise has been registered ...). Advertisements published in the state for sale of a franchise that is subject to FIPA's registration requirement must be filed with the state director of financial institutions. Id. § 19.100.100 (No person shall publish in this state any advertisements offering a franchise subject to the registration requirements of this law unless a true copy of the advertisement has been filed in the office of the director....). No advertisement concerning a franchise subject to FIPA's registration requirement may be published in the state after the director has found it contains a false or misleading statement. Id. § 19.100.110 (No person shall publish in this state any advertisement concerning a franchise subject to the registration requirements of this chapter after the director finds that the advertisement contains any statements that are false or misleading....). Any franchise broker selling or offering to sell a franchise in the state must register with the state. Id. § 19.100.140 (It is unlawful for any franchise broker to offer to sell or sell a franchise in this state unless the franchise broker is registered under this chapter.). Untrue statements of material fact or the employment of any fraudulent device, scheme, or artifice, in connection with any offer or sale of a franchise in the state are forbidden. Id. § 19.100.170 (It is unlawful for any person in connection with the offer, sale, or purchase of any franchise or subfranchise in this state directly or indirectly: (1) To make any untrue statement of material fact in any application, notice, or report filed with the director under this law.... (3) To employ any device, scheme, or artifice to defraud.). In 1991, the Washington legislature amended FIPA to provide a definition of the phrase in this state contained in the statute. The legislature did so largely based on a law review article written some years earlier by Professor Donald Chisum of the University of Washington Law School, who had pointed out that the meaning of in this state was unclear. See Donald S. Chisum, State Regulation of Franchising: The Washington Experience, 48 WASH. L. REV. 291, 337-38 (1973). Professor Chisum recommended that Washington adopt a definition comparable to the definition contained in California's Franchise Investment Law. Id. The Washington legislature amended FIPA to include a definition similar to that which Professor Chisum had recommended. 1991 Wash. Legis. Serv. Ch. 226 (West). By its terms, the definition of in this state provided by the 1991 amendments applies only to § 19.100.020. See WASH. REV. CODE § 19.100.020(2) (For the purposes of this section, an offer to sell a franchise is made in this state when: (a) The offer is directed by the offeror into this state from within or outside this state and is received where it is directed, (b) the offer originates from this state and violates the franchise or business opportunity law of the state or foreign jurisdiction into which it is directed, (c) the offeree is a resident of this state, or (d) the franchise business that is the subject of the offer is to be located or operated, wholly or partly, in this state.); id. § 19.100.020(3) (For the purpose of this section, a sale of any franchise is made in this state when: (a) An offer to sell is accepted in this state, (b) an offer originating from this state is accepted and violates the franchise or business opportunity law of the state or foreign jurisdiction in which it is accepted, (c) the purchaser of the franchise is a resident of this state, or (d) the franchise business that is the subject of the sale is to be located or operated, wholly or partly, in this state.). The district court recognized that § 19.100.180, the FIPA provision at issue here, does not contain the phrase in this state or any other a territorial limitation. It nonetheless concluded that the overall statutory scheme, as well as the 1991 amendments prompted by Professor Chisum's recommendation, evince[] the legislature's intent to confine FIPA's reach to franchises operating `in this state.' In support of its conclusion, the district court cited the provisions of FIPA that do contain territorial limitations. We disagree with the court's conclusion. In recommending that a definition of the phrase in this state be added to § 19.100.020, Professor Chisum did not suggest that all of FIPA was territorially limited. On the contrary, he distinguished between the sale-related provisions of FIPA, which were modeled after a California law, and the franchisee bill of rights, which he called unique to Washington. Chisum, 48 WASH. L. REV. at 370. As to the latter, he wrote that The Act does not indicate the territorial coverage of [the franchisee bill of rights]. Id. at 341. Chisum did not recommend that the legislature add a territorial limitation to the franchisee bill of rights. He recommended only that the legislature define the limitation where it already existed in FIPA. The Washington legislature did no more than what Professor Chisum recommended. FIPA's bill of rights applies to the relation between the franchisor or subfranchisor and the franchisees. WASH. REV. CODE § 19.100.180. Franchisor is defined in FIPA as a person who grants a franchise to another person. Id. § 19.100.010(8). Franchisee is defined as a person to whom a franchise is offered or granted. Id. § 19.100.010(7). A franchise is defined as [a]n agreement, express or implied, oral or written, by which: (i) A person is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan prescribed or suggested in substantial part by the grantor or its affiliate; (ii) The operation of the business is substantially associated with a trademark, service mark, trade name, advertising, or other commercial symbol designating, owned by, or licensed by the grantor or its affiliate; and (iii) The person pays, agrees to pay, or is required to pay, directly or indirectly, a franchise fee. Id. § 19.100.010(4). As a matter of general principle, [i]f a state law does not have limitations on its geographical scope, courts will apply it to a contract governed by that state's law, even if parts of the contract are performed outside of the state. Gravquick A/S v. Trimble Navigation Int'l, Ltd., 323 F.3d 1219, 1223 (9th Cir. 2003). The fact that FIPA's provisions relating to sales of franchises contain a territorial limitation does not lead us to conclude that FIPA's bill of rights is similarly limited. Indeed, the inclusion of explicit territorial limitations in the sale-related provision, and the failure to include such a limitation in the bill of rights, suggests the opposite conclusion. Under ordinary rules of statutory construction, we presume that the Washington legislature made a deliberate choice to impose territorial limitations on some, but not all, of FIPA's provisions. [W]here [the legislature] includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that [the legislature] acts intentionally and purposely in the disparate inclusion or exclusion. Kucana v. Holder, ___ U.S. ___, 130 S.Ct. 827, 838, 175 L.Ed.2d 694 (2010) (internal quotation marks and citation omitted); see also In re Detention of D.F.F., 144 Wash. App. 214, 183 P.3d 302, 306 (2008) (When a statute or rule provides for specifically enumerated exceptions, we presume that the absence of other exceptions is intentional.). The district court relied on Taylor v. 1-800-Got-Junk?, LLC, 632 F.Supp.2d 1048 (W.D.Wash.2009), in reaching its conclusion that FIPA does not protect Karimi. In Taylor, plaintiff franchisees were residents of Oregon who owned and operated a franchise in Oregon. Defendant franchisor was a Delaware corporation with headquarters in Vancouver, British Columbia, Canada. The franchise agreement provided for the application of Washington law. Id. at 1049. After the franchisor terminated the franchise agreement, plaintiffs sued, alleging fraud. Id. at 1050. The franchisor argued that plaintiffs had waived their FIPA claims in a previous settlement. The plaintiffs, in response, pointed to FIPA's anti-waiver provision, WASH. REV. CODE § 19.100.220, which invalidates certain settlements of FIPA claims. Id. at 1051. Taylor thus turned on whether FIPA's anti-waiver provision applied. Id. at 1051. The Taylor court concluded that the presence of territorial limitations in the sale-related provisions of FIPA, combined with the 1991 amendments, means that FIPA does not apply to a franchise agreement in which both franchisor and franchisee are located outside Washington, and in which the plaintiffs' claims are based on events that occurred outside Washington. Id. at 1052, 1054. The court concluded that the settlement was valid and that plaintiffs had therefore waived their claims. Id. at 1054-55. To the degree that the district court's opinion in Taylor can be read to hold that all provisions of FIPA are limited by the explicit territorial limitations in its sale-related provisions, we disagree with that reading. But it is clear that the Taylor court reached the right result on the facts of the case. Plaintiffs' underlying FIPA claim was for fraud in the sale of the franchise, and FIPA's fraud provision contains an explicit territorial limitation. Id. at 1050; WASH. REV. CODE § 19.100.170. Further, the dispute had no connection to Washington other than the choice-of-law and choice-of-forum clause in the franchise agreement. Neither the franchisor nor the franchisee was a Washington citizen or resident; the franchise was located outside Washington; the alleged fraud on which the suit was based occurred outside Washington; and the settlement agreement was reached outside Washington. Under these circumstances, the district court in Taylor was clearly correct in concluding that the Washington legislature did not intend FIPA to apply, even though the anti-waiver provision, § 19.100.220, did not contain an explicit territorial limitation. However, we conclude that FIPA's bill of rights does apply to the case before us. In his 1973 article, Professor Chisum discussed the likely application of FIPA's bill of rights to the case in which a franchise or franchisee is located in Washington. Chisum, 48 WASH. L. REV. at 341-42. His view was that FIPA's bill of rights should apply to a franchise located in Washington, especially if the franchisee, as well as the franchise, are located in Washington. Id. at 341. The reason is obvious: The Washington legislature wished to protect Washington franchises and franchisees from unfair practices by out-of-state franchisors. Professor Chisum did not discuss the case in which an out-of-state franchise or franchisee seeks protection against a franchisor located in Washington. Despite this lack of discussion it is easy to see why the Washington legislature might have wanted to apply FIPA's bill of rights to all franchises and franchisees of Washington franchisors. For example, the legislature might have wanted to reassure potential out-of-state franchisees that they will be fairly treated by, and thereby encourage them to do business with, Washington franchisors. Professor Chisum noted that Washington's FIPA was modeled in part on California's Franchise Investment Law, and his recommendation that FIPA be amended to contain a definition of in this state was based on a desire to conform Washington to California law. Id. at 335, 337-38. In Gravquick, we construed California's Equipment Dealers Act (a subspecies of California franchise law) to protect a non-California dealer against the unfair practices of a California dealer. Gravquick A/S v. Trimble Navigation Int'l Ltd., 323 F.3d 1219, 1223 (9th Cir.2003) If Gravquick 's interpretation of California's Equipment Dealer's Act is applied to Washington's FIPA bill of rights, an out-of-state franchise and franchisee are protected against practices of a Washington franchisor that are illegal under FIPA's bill of rights. We conclude the best interpretation of FIPA's bill of rights is the same as our interpretation of California's analogous Equipment Dealers Act. In the case now before us, the franchisor is incorporated in Washington and has its headquarters in Washington, and the franchise agreement provides for the application of Washington law. We hold that FIPA's bill of rights applies to this dispute even though the franchise is located outside Washington. Red Lion argues that even if the FIPA's bill of rights applies to the franchise agreement, Karimi's only remedy is a claim under the CPA, and only Washington residents can bring CPA claims. At the time of the briefing in this case, the Washington Supreme Court had recently held that, in the context of the case before it, the CPA was limited to claims brought by Washington residents. Schnall v. AT & T Wireless Servs., Inc., 168 Wash.2d 125, 225 P.3d 929, 938-39 (2010). However, the Washington Supreme Court has since withdrawn that portion of the opinion. Schnall v. AT & T Wireless Servs., Inc., 171 Wash.2d 260, 259 P.3d 129 (2011). The territorial reach of the CPA is thus an open question. We agree with Red Lion that the CPA provides the remedy for violation of FIPA's bill of rights. We remand to the district court to consider the merits of Karimi's FIPA counterclaim under FIPA's bill of rights and to determine whether Karimi is entitled to a remedy under the CPA.