Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Cal.: Choice-of-law provision in distributorship agreements required application of California law, (Aug 18, 2015)

By Edward L. Puzzo, J.D.

The federal district court in Fresno, California declined to reconsider its earlier ruling that California law applied under the choice-of-law provisions of distributorship agreements, rendering unviable the franchisee’s claims of violations of North Carolina’s unfair trade practices law. The court also clarified that the ruling applied to a proposed replacement agreement that did not contain the California choice-of-law provision (G.P.P., Inc. v. Guardian Protection Products, Inc., August 14, 2015, Oberto, S.).

G.P.P., Inc. alleged that it was a franchisee of Guardian Protection Products, Inc. pursuant to nine distributorship agreements entered into many years ago and automatically renewed annually. GIS alleged that in 2014, Guardian attempted to coerce it into signing a new 2015 Form Agreement, which was far less favorable to GIS, to supplant the existing distributorship agreements, by threatening termination.

GIS alleged that Guardian had violated the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) by not providing the disclosures required by the FTC Franchise Rule either initially, upon renewal of the Distributorship Agreements, or upon presentation of the newer 2015 Form Agreement.

In a prior ruling, the court found that the choice-of-law provisions in the existing distributorship agreements governed all claims under those agreements, and dismissed with prejudice GIS’ claims under the North Carolina UDTPA. GIS then moved for clarification of court’s ruling as to whether the dismissal extended to the UDTPA claim relating to the 2015 Form Agreement, which did not contain a California choice-of-law provision.

Proposed agreement. In California, parties' contractual choice-of-law clauses designating a particular law to govern the contract will encompass any claims related to or arising out of the contract, no matter how they are characterized, the court observed. Under California's broad interpretation of the scope of claims encompassed by a contractual choice-of-law agreement, even disclosures pertaining to the 2015 Form Agreement were considered related to the existing distributor agreements and governed by the choice-of-law provision in the existing distributor agreements. The UDTPA claim related to the 2015 agreement would thereby also be extinguished.

The court concluded that GIS had not carried its burden of showing how North Carolina law would apply under the choice-of-law analysis. Consequently, reconsideration of the earlier ruling was not warranted.

The case is Civil Action No. 1:15-cv-00321-SKO.

Attorneys: Craig Bolton (Wilson Sonsini Goodrich & Rosati), and Michael J. Lockerby (Foley & Lardner LLP) for G.P.P., Inc. Aaron Paul Rudin (Gordon & Rees LLP) for Guardian Protection Products, Inc.

Companies: G.P.P., Inc.; Guardian Protection Products, Inc.

Cases: FranchisingDistribution StateUnfairTradePractices CaliforniaNews