November 13, 2023
By: Thomas O’Connell
Citation:
Oakberry SD UTC, LLC v. Oakberry Acai, Inc., 2023 WL 7508163 (S.D. Cal. 2023)
Executive Summary:
In this unpublished decision, the United States District Court for the Southern District of California denied Plaintiff Oakberry SD UTC, LLC’s ex parte application for a temporary restraining order (TRO) to halt arbitration proceedings initiated by Defendants in Miami, Florida. The Plaintiff, a California franchisee, brought claims against Oakberry Acai, Inc. and other related entities, alleging violations of the California Franchise Investment Law (CFIL), fraudulent concealment, breach of contract, and other claims. The court ruled that the Plaintiff failed to demonstrate irreparable harm, as the arbitration proceedings in Miami were unlikely to cause harm that could not be remedied through judicial or arbitral recourse.
Relevant Background:
Oakberry SD UTC, LLC (“Plaintiff”), a California limited liability company, entered into a Trademark Licensing Agreement with Oakberry Acai, Inc., Oakberry USA LLC, and associated entities and individuals (“Defendants”). The Plaintiff alleged that the agreement was effectively the illegal sale of a franchise under the California Franchise Investment Law (Cal. Corp. Code §§ 31000 et seq.) and that the Defendants had failed to provide the required disclosures under that law.
According to the Plaintiff, the Defendants attempted to compel it to sign a Franchise Disclosure Document after the agreement’s execution. When the Plaintiff refused, Defendants allegedly terminated the agreement unilaterally. In response, the Plaintiff filed a lawsuit raising claims under CFIL, the California Business & Professions Code § 17200 (unfair competition), breach of contract, intentional misrepresentation, and unjust enrichment.
Before the lawsuit, Defendants initiated arbitration through the International Centre for Dispute Resolution in Miami, Florida. The Plaintiff argued that the arbitration venue violated California law (Cal. Bus. & Prof. Code § 20040.5, which voids forum selection clauses requiring disputes to be resolved outside California for franchise agreements). Seeking to halt the arbitration, Plaintiff filed an ex parte application for a TRO, claiming irreparable harm from being forced to arbitrate in Miami. Defendants countered that the arbitration clause was enforceable and that Plaintiff’s concerns did not justify emergency relief.
Decision:
The court denied the Plaintiff’s TRO application, citing several reasons:
- The court determined that the Plaintiff’s assertion of arbitration-related costs and venue objections did not meet the standard for irreparable harm. Referencing Camping Construction Co. v. District Council of Iron Workers, 915 F.2d 1333, 1349 (9th Cir. 1990), the court emphasized that delays and costs from arbitration alone do not suffice for injunctive relief. While some courts have found irreparable harm in arbitration proceedings under specific circumstances (Textile Unlimited, Inc. v. A. BMH & Co., 240 F.3d 781, 786 (9th Cir. 2001)), the court found this case distinguishable because the Plaintiff had entered into an agreement containing an arbitration clause.
- The court held that the Plaintiff’s delay in filing the TRO, nearly three weeks after Defendants filed a motion to compel arbitration, undercut its claims of urgency. The court emphasized that delays in seeking injunctive relief weaken claims of irreparable harm, referencing Lydo Enterprises v. City of Las Vegas, 745 F.2d 1211, 1213 (9th Cir. 1984).
- The court observed that the arbitration clause in the agreement did not specify a venue, complicating the Plaintiff’s argument that Miami was improper. The court refrained from determining the clause’s validity at this stage, noting that further factual development was necessary.
- The court rejected the Plaintiff’s contention that arbitration proceedings would irreparably harm its rights. It observed that arbitration decisions could later be vacated if found improper and that the Plaintiff retained avenues to contest arbitrability and venue.
The court concluded that the Plaintiff had not satisfied the requirements for injunctive relief under Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008), particularly the irreparable harm element.
Looking Forward:
This decision provides key considerations for franchisors in structuring and enforcing agreements:
- While federal law, such as the Federal Arbitration Act, often preempts state-level restrictions, ambiguity in arbitration agreements can lead to disputes that could have been avoided with clearer drafting. In this case, the arbitration clause lacked a clearly defined venue, creating opportunities for challenges. Franchisors should review their agreements to ensure they specify venue, procedural rules, and other key terms to reduce the risk of similar disputes.
By learning from decisions like this, franchisors can better protect their interests while maintaining compliance with applicable laws.