April 03, 2026|Franchise Frontlines
April 3, 2026 | United States District Court for the Central District of California | Unpublished Order
Executive Summary
In an unpublished order, Judge Kenly Kiya Kato of the United States District Court for the Central District of California granted plaintiff George Florea’s application for a preliminary injunction preventing The Cornwell Quality Tools Company from continuing arbitration efforts while the court considered the enforceability of the arbitration provision in the parties’ Franchise Agreement. Plaintiff, a former Cornwell tools franchisee in San Bernardino County, alleged that Cornwell misclassified its dealers as independent contractors rather than employees and deprived them of protections under California law. Cornwell sought to proceed with arbitration under a Franchise Agreement that required binding arbitration, applied Ohio law to the arbitration procedure, and selected Akron, Ohio as the default arbitration location absent agreement. Plaintiff argued that the arbitration provision lacked mutual assent because the California appendix to the Franchise Agreement stated that the arbitration provision “may not be enforceable under California law.” The court concluded that plaintiff showed a likelihood of success on his claim that the arbitration clause was invalid for lack of mutual assent and enjoined Cornwell from continuing arbitration efforts until the court ruled on Cornwell’s forthcoming motion to compel arbitration.
Relevant Background
Cornwell manufactures, distributes, and sells professional automotive repair tools and related equipment. According to the complaint, Cornwell reaches customers through advertising and order channels, and then carries out sales primarily through dealers who drive mobile dealerships stocked with Cornwell tools. Plaintiff alleged that these dealers are franchisees who purchase territories from Cornwell.
On January 24, 2024, plaintiff entered into a Franchise Agreement with Cornwell for franchisee rights in San Bernardino County. The agreement contained a mandatory arbitration provision requiring issues “arising out of” or “relating to” the agreement to be resolved through binding arbitration under American Arbitration Association rules. The agreement also provided that Ohio law governed the arbitration procedure and that arbitration would take place at a location mutually agreed by the parties or, absent agreement, in Akron, Ohio.
Attached to the Franchise Agreement was a state-specific appendix that proposed material modifications. The California appendix included language addressing arbitration. It stated that the Franchise Agreement required binding arbitration, that arbitration would occur at a location agreed by the parties or, absent agreement, in Akron, Ohio, and that each party would pay its own costs and expenses, including reasonable attorneys’ fees. It then stated: “This provision may not be enforceable under California law.” The appendix also separately stated that the Franchise Agreement required application of Ohio law and that this provision also “may not be enforceable under California law.”
Plaintiff later ended his business relationship with Cornwell and filed a putative class action alleging that Cornwell misclassified him and others as independent contractors rather than employees. He alleged that the classification deprived him of protections such as overtime pay, reimbursement of business expenses, and other California Labor Code rights. He also sought declaratory relief that the Franchise Agreement’s arbitration provision was void and unenforceable.
Plaintiff then applied for a preliminary injunction preventing Cornwell from continuing arbitration while the court considered Cornwell’s forthcoming motion to compel arbitration. Cornwell opposed the request, arguing among other things that the court lacked subject-matter jurisdiction to issue the injunction, that the matter was moot, and that plaintiff had not shown irreparable harm.
Decision
The court applied the familiar four-factor preliminary injunction framework: likelihood of success on the merits, likelihood of irreparable harm, balance of equities, and public interest. The court emphasized that likelihood of success is the most important factor.
The court first rejected Cornwell’s jurisdictional objections. It distinguished between jurisdiction to adjudicate the controversy and the type of relief available once jurisdiction exists. Because plaintiff alleged diversity jurisdiction and directly challenged the enforceability of the arbitration clause itself, the court concluded that it could decide whether the parties intended to arbitrate and could consider injunctive relief. The court also found a live controversy despite Cornwell’s willingness to arbitrate in California, because the core issue was whether plaintiff had any obligation to arbitrate at all.
On likelihood of success, the court held that plaintiff had shown a likelihood of prevailing on his argument that the arbitration clause was invalid for lack of mutual assent. Applying California contract principles, the court explained that mutual assent requires the parties to agree to the same thing in the same sense. The court then addressed California franchise disclosure law, noting that franchisors seeking franchisees in California must provide disclosures identifying certain provisions that may not be enforceable under California law. But the court observed that including that language in a way that contradicts the franchise agreement may be misleading and may suggest a lack of mutual assent.
The placement of the disclaimer language mattered. The Franchise Agreement required arbitration. The California appendix, which supplemented, amended, and modified the Franchise Agreement, repeated that the agreement required binding arbitration but then stated that “this provision may not be enforceable under California law.” The court read that language naturally as referring to the arbitration provision as a whole, not merely to one aspect of the clause such as the forum or cost allocation. Based on that language, the court concluded that a franchisee signing both the Franchise Agreement and appendix may not have had a reasonable expectation that he agreed to arbitrate.
The court relied on several franchise-arbitration decisions involving similar California addendum language, including decisions finding no meeting of the minds where an addendum expressly disclaimed enforceability of arbitration in California. The court also noted a prior decision involving Cornwell and identical language, in which another Central District of California court found no agreement to arbitrate. Based on this authority and the language before it, the court found that plaintiff had shown a likelihood of success, or at least a serious question, on his declaratory relief claim.
The remaining injunction factors also favored plaintiff. The court held that forcing a party to arbitrate in the likely absence of a contractual duty to do so constitutes irreparable harm. It rejected Cornwell’s arguments that an injunction would disrupt the parties’ dispute-resolution mechanism, reasoning that those concerns carried little force if no duty to arbitrate existed. The balance of equities therefore favored plaintiff.
The court also found that the public interest favored an injunction. The court emphasized that the Federal Arbitration Act makes arbitration agreements as enforceable as other contracts, but not more so. Allowing arbitration to proceed without a valid arbitration agreement would not serve the public interest. The court therefore granted plaintiff’s application and enjoined Cornwell from continuing arbitration efforts until the court ruled on Cornwell’s forthcoming motion to compel arbitration.
Importantly, the court did not decide the merits of plaintiff’s worker-classification claims. It did not hold that Cornwell dealers are employees, that Cornwell violated California wage-and-hour law, or that arbitration could never be required in a California franchise relationship. The decision addressed a narrower contract-formation issue: whether the specific Franchise Agreement and California appendix showed mutual assent to arbitrate.
Looking Forward
This decision is a useful reminder that arbitration enforceability often turns on drafting details, not just the presence of an arbitration clause. Cornwell’s Franchise Agreement required arbitration, but the California appendix stated that the arbitration provision may not be enforceable under California law. The court found that this combination likely undermined mutual assent. For franchisors, the lesson is not that arbitration provisions are categorically unavailable in California franchise agreements. The lesson is that the executed agreement, state appendix, and disclosure documents must communicate the parties’ intent with precision.
California franchise addenda deserve particular care. Franchisors often include state-specific language to comply with franchise registration and disclosure requirements. That language may be appropriate in an FDD or state addendum, but it can create avoidable risk if copied into an executed agreement in a way that appears to amend, qualify, or contradict the arbitration clause. If the franchisor intends the parties to arbitrate, the agreement should say so clearly and should avoid language that a court may read as disclaiming the arbitration obligation itself.
The decision also underscores the importance of separating different concepts within arbitration provisions. Arbitration obligation, forum, governing law, cost allocation, attorneys’ fees, class waiver, delegation, and procedural rules are distinct issues. A statement that “this provision may not be enforceable” may create uncertainty if it is not clear which component the statement addresses. Franchisors should consider whether state-specific caveats can be drafted to identify the precise provision at issue rather than clouding the entire arbitration agreement.
The order also illustrates how preliminary injunctions can become part of arbitration strategy. A franchisor may expect to compel arbitration early, but a franchisee can seek to pause arbitration first if the franchisee challenges the arbitration clause itself. Where the court sees a serious contract-formation issue, the franchisor may lose the ability to proceed in arbitration before the court resolves enforceability. That can affect timing, cost, leverage, and forum strategy.
For franchise systems with mobile dealer, route, or territory-based models, the case also highlights the overlap between franchise law and worker-classification litigation. Plaintiff alleged that Cornwell’s dealers were misclassified as independent contractors and sought California employment protections. The court did not decide that issue, but the allegation explains why arbitration mattered. Franchisors using dealer or independent-contractor models should keep the classification and dispute-resolution analyses separate, while ensuring that both the operational relationship and the agreement language support the intended structure.
The public-interest discussion is also worth noting. The court did not treat the Federal Arbitration Act as requiring arbitration at all costs. It emphasized that arbitration agreements should be enforced like other contracts, not more favorably than other contracts. That framing reinforces the need for clear assent. A strong arbitration program depends on contract formation, not just favorable federal arbitration policy.
This ruling should be read narrowly. It is a preliminary injunction order, and the court enjoined arbitration only until it rules on Cornwell’s forthcoming motion to compel. The court found likelihood of success on the arbitration-formation issue; it did not enter a final merits ruling on arbitrability or worker classification. Still, the reasoning provides a practical drafting warning for franchisors operating in California.
Taken together, Florea v. Cornwell Quality Tools shows that state-specific franchise addendum language can have real consequences. Franchisors should review California appendices, FDD state addenda, executed agreements, and arbitration provisions together to ensure they do not unintentionally create ambiguity. Clear drafting may preserve the intended dispute-resolution mechanism; imprecise caveats may give plaintiffs a path to avoid arbitration at least long enough to litigate enforceability in court.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
