O 1

2 3 4 5 6 7

8 United States District Court 9 Central District of California

10

11 CS ANAHEIM HOTEL INVESTMENTS Case № 8:24-cv-02131-ODW (ADSx)

LLC,

12 Plaintiff, ORDER GRANTING 13 v. DEFENDANT’S MOTION TO 14 COMPEL ARBITRATION [15]

CHOICE HOTELS INTERNATIONAL,

15

INC.,

16 Defendant. 17 18 I. INTRODUCTION 19 Plaintiff CS Anaheim Hotel Investments LLC (“CS Anaheim”) brings this 20 action concerning a franchise dispute against Defendant Choice Hotels International, 21 Inc. (“Choice”). (Compl., ECF No. 1.) Choice now moves to compel arbitration. 22 (Mot. Compel Arb. (“Motion” or “Mot.”), ECF No. 15.) For the reasons below, the 23 Court GRANTS Choice’s Motion.1 24 II. BACKGROUND 25 Choice is a hotel franchisor that owns more than twenty brands and grants hotel 26 franchisees the right to use its brands. (Compl. ¶¶ 33–35.) Curtis Olson, the indirect 27

28 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 1 controlling member and sole manager of CS Anaheim, is the owner and CEO of 2 Nexus Companies (“Nexus”). (Id. ¶ 37.) Olson and Nexus executives develop and 3 own hotels operating under franchisor-licensed brands. (Id. ¶¶ 38–39.) On April 15, 4 2016, CS Anaheim and Choice entered into a Franchise Agreement, under which CS 5 Anaheim agreed to and does operate a hotel under Choice’s Cambria hotels & suites 6 brand (the “Hotel”). (Decl. Jeff Gross ISO Mot. (“Gross Decl.”) ¶ 10, Ex. A 7 (“Franchise Agreement” or “FA”), ECF No. 15-1.) 8 Prior to entering into the Franchise Agreement, Choice provided CS Anaheim a 9 Financial Disclosure Document (“FDD”), including an addendum (the “Addendum”) 10 for the State of California. (Decl. Cory W. Alder ISO Opp’n (“Alder Decl.”) ¶ 10, 11 ECF No. 19-2; Gross Decl. ¶ 5, Ex. B at 34–109 (“FDD”), Ex. B at 110–11 12 (“Addendum”), ECF No. 15-1.) The Addendum states, among other things, that 13 “[t]he Franchise Agreement requires venue to be limited in Maryland. This provision 14 may not be enforceable under California law.” (Addendum ¶ 17.4.) 15 Before executing the Franchise Agreement, Olson, Nexus, and its executives 16 conducted “a thorough due diligence process,” including reviewing the FDD and 17 negotiating the terms of the Franchise Agreement. (Alder ¶ 13.) Choice initially 18 presented CS Anaheim “with a standardized form contract, consisting of twenty-eight 19 single-spaced pages,” which ultimately became the Franchise Agreement. (Id. ¶ 29.) 20 Although the parties negotiated deal- and project- specific provisions, (id. ¶ 34; Gross 21 Decl. ¶¶ 8–9), they did not negotiate the arbitration clause, (Alder ¶ 32). According to 22 a Nexus executive, besides “certain deal- or project-specific provisions, the 23 [F]ranchise [A]gremeent was offered on a take it or leave it basis.” (Id. ¶ 35.) 24 The Franchise Agreement has a provision that, excluding certain intellectual 25 property claims, requires arbitration of “any controversy or claim arising out of or 26 relating to th[e] Agreement . . . including any claim that th[e] Agreement or any part 27 of th[e] Agreement or any related agreements is invalid, illegal, or otherwise voidable 28 or void.” (FA § 21.) Such claims must “be sent to final and binding arbitration in the 1 state of Maryland,” and the arbitrator must apply “the substantive laws of Maryland, 2 without reference to its conflict of laws provision.” (Id.) Thus, this arbitration 3 provision includes a delegation clause and a forum selection clause. 4 In December 2019, CS Anaheim opened the Hotel. (Compl. ¶¶ 48–49.) In late 5 2023, CS Anaheim discovered that Choice was not complying with its obligations 6 under the Franchise Agreement. (Id. ¶ 59.) For instance, under the Franchise 7 Agreement, CS Anaheim is required to buy certain products from Choice’s chosen 8 qualified vendors. (Id. ¶¶ 66–67.) Choice represented that it would only limit the 9 number of qualified vendors if such vendors provided franchisees with certain 10 benefits, including volume-discounted pricing. (Id.) However, Choice limits the 11 number of qualified vendors in exchange for kickbacks from those vendors. (Id. 12 ¶ 83.) Qualified vendors pass on the cost of the kickbacks to franchisees, leading to 13 franchisees like CS Anaheim paying above-market prices for goods and services. (Id. 14 ¶¶ 78–83, 86.) Choice’s kickback scheme caused CS Anaheim to spend millions of 15 dollars on goods and services from qualified vendors without the benefit of Choice’s 16 promised volume-discounted pricing. (Id. ¶ 104.) CS Anaheim also alleges that 17 Choice improperly uses system fees that CS Anaheim pays to fund Choice’s own 18 business development activities, when those system fees should have been spent on 19 marketing and advertising. (Id. ¶ 119.) Finally, CS Anaheim claims that Choice has 20 charged fees not previously disclosed and failed to provide adequate systems in 21 violation of the Franchise Agreement. (Id. ¶¶ 134, 143.) 22 Based on these allegations, CS Anaheim brings claims for breach of contract 23 and of the implied covenant of good faith and fair dealing and fraud. (Id. ¶¶ 156–78.) 24 CS Anaheim also seeks declaratory judgment that it may terminate the Franchise 25 Agreement without paying liquidated damages. (Id. ¶¶ 179–84.) Choice now moves 26 27 28 1 the Court to compel arbitration and stay the case pending completion of arbitration. 2 (Mot.) The Motion is fully briefed. (Opp’n, ECF No. 19; Reply, ECF No. 20.)2 3 III. LEGAL STANDARD 4 The Federal Arbitration Act (“FAA”) is meant to “ensur[e] that private 5 arbitration agreements are enforced according to their terms.” AT&T Mobility LLC v. 6 Concepcion, 563 U.S. 333, 344 (2011) (alteration in original). Section 2 of the FAA 7 creates a policy favoring enforcement, stating that arbitration clauses in contracts 8 “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or 9 in equity for the revocation of any contract.” Cox v. Ocean View Hotel Corp., 10 533 F.3d 1114, 1119 (9th Cir. 2008) (quoting 9 U.S.C. § 2). Under the FAA, a party 11 to such an agreement may petition an appropriate federal district court to compel 12 arbitration. 9 U.S.C. § 4. 13 The FAA governs a contract dispute relating to an arbitration provision if the 14 contract affects interstate commerce. Allied-Bruce Terminix Cos., Inc. v. Dobson, 15 513 U.S. 265, 273–74 (1995). When it applies, the FAA restricts a court’s arbitration 16 inquiry to two threshold questions: (1) whether there was an agreement to arbitrate 17 between the parties; and (2) whether the agreement covers the dispute. Cox, 533 F.3d 18 at 1119. A delegation provision further limits a court’s review by assigning these 19 gateway questions to an arbitrator. Bielski v. Coinbase, Inc., 87 F.4th 1003, 1009 20 (9th Cir. 2023). If an arbitration agreement contains a delegation provision, a party 21 opposing arbitration must specifically challenge the delegation provision. Rent-A- 22 Center, West, Inc. v. Jackson, 561 U.S. 63, 72 (2010). If the party fails to do so, a 23 court must treat the provision as valid, order arbitration and leave “any challenge to 24 the validity of the Agreement as a whole for the arbitrator.” Id. The FAA “permits 25

26 2 Eleven days after Choice filed its Reply and three days after the Court took the matter under submission, CS Anaheim sought leave to file a sur-reply. (Mot. Sur-Reply, ECF No. 25.) The Court 27 denied the request, ruling that “additional briefing [is] unnecessary for decision on the Motion.” 28 (Order Den. Mot. Sur-Reply, ECF No. 27.) As discussed in this Order, the issue CS Anaheim sought to address—which law the Court should apply, (Mot. Sur-Reply 2)—is not dispositive. 1 agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, 2 such as fraud, duress, or unconscionability,’ but not by defenses that apply only to 3 arbitration or that derive their meaning from the fact that an agreement to arbitrate is 4 at issue.” Concepcion, 563 U.S. at 339. 5 IV. DISCUSSION 6 Based on the Franchise Agreement’s arbitration and delegation provisions, (FA 7 § 21), Choice asks the court to compel arbitration and stay the case. (Mot.). CS 8 Anaheim does not contest that the Franchise Agreement contains arbitration and 9 delegation provisions. (See Opp’n.) Instead, CS Anaheim argues that these 10 provisions are unenforceable because the forum selection clause is unenforceable, the 11 delegation clause is unconscionable, and the arbitration clause in its entirety is 12 unconscionable. (Opp’n 5–26.) Before turning to these arguments, the Court first 13 considers the parties’ disagreement as to what state’s law to apply. 14 A. Choice of Law 15 As a threshold issue, the parties argue over which law the Court must apply. 16 Choice contends that the Franchise Agreement calls for the Court to apply Maryland 17 law. (Opp’n 9 n.4; see FA § 20.f (“The Agreement . . . will be interpreted under the 18 substantive laws of Maryland, not including its conflict of laws provisions or such 19 provisions of any other jurisdiction . . . .”).) CS Anaheim argues that this choice-of- 20 law provision is unenforceable and the Court must apply California law.3 21 In its opposition brief, CS Anaheim does not cite any Maryland law or contest 22 that if Maryland law governed, the Court must compel arbitration. (See Opp’n.) In 23 fact, CS Anaheim admits that it “did not address why the arbitration clause is 24

25 3 In opposing Choice’s argument for Maryland law, CS Anaheim does not specifically reference the choice-of-law provision in section 20 of the Franchise Agreement. (See Opp’n.) Rather, CS 26 Anaheim argues against the choice-of-law provision in section 21, the arbitration provision, which requires the arbitrator to apply Maryland law. (Id. at 23–25.) However, CS Anaheim’s arguments 27 apply equally to both choice-of-law provisions, in sections 20 and 21. As CS Anaheim cites only 28 California law, the Court construes CS Anaheim as arguing which law the Court should apply to the Motion. 1 unenforceable under Maryland law.” (Mot. Sur-Reply ¶ 1.) CS Anaheim only argues 2 that the delegation and arbitration clauses are unenforceable under California law. 3 (See Opp’n; Mot. Sur-Reply.) Therefore, if Maryland law applies, the Court must 4 compel arbitration here. See Shakur v. Schriro, 514 F.3d 878, 892 (9th Cir. 2008) 5 (holding that opposing party waives arguments by not raising them in an opposition); 6 Lloyd v. Niceta, 255 Md. App. 663, 686 (2022), aff’d, 485 Md. 422 (2023) (“The 7 burden of establishing [unconscionability] is on the party challenging the . . . 8 agreement.” (second alteration in original)). As the Court determines that the 9 Franchise Agreement’s delegation clause is also enforceable under California law, the 10 Court need not resolve the parties’ dispute over which law applies. Either way, the 11 outcome is the same—CS Anaheim must arbitrate its claims against Choice. 12 B. Mutuality 13 CS Anaheim argues that the Court cannot compel arbitration because the 14 arbitration clause is unenforceable for lack of mutuality. (Opp’n 8–11.) The 15 Franchise Agreement states that applicable claims “will be sent to final and binding 16 arbitration in the state of Maryland.” (FA § 21.) CS Anaheim acknowledges this, (see 17 Opp’n 8), but argues that the parties did not mutually agree to a Maryland forum 18 because the Addendum warns that the forum selection “provision may not be 19 enforceable under California law,” (Addendum ¶ 17.4; see Opp’n 8–9). CS Anaheim 20 contends that this lack of mutuality as to the forum selection clause extends to the 21 arbitration clause as a whole, including the delegation clause. (Opp’n 9–11.) That the 22 lack of mutuality over the forum invalidates the delegation clause is essential to CS 23 Anaheim’s argument because, as discussed above, if the delegation clause is 24 enforceable, the Court must compel arbitration without addressing the enforceability 25 of the Franchise Agreement’s other terms. See Rent-A-Center, 561 U.S. at 72. 26 CS Anaheim relies primarily on three cases for its argument. 27 First, in Laxmi, the franchise agreement circular required under California law 28 disclosed, “The [f]ranchise [a]greement also requires binding arbitration. The 1 arbitration will occur in Oklahoma County, State of Oklahoma . . . This provision may 2 not be enforceable under California law.” Laxmi Invs., LLC v. Golf USA, 193 F.3d 3 1095, 1096 (9th Cir. 1999) (third alteration in original). The franchise agreement 4 itself stated that all arbitration must be done in Oklahoma. Id. Because of the 5 franchisor’s warning in the circular that the forum selection provision “may not be 6 enforceable under California law,” the Ninth Circuit concluded that the parties did not 7 have a meeting of the minds that the arbitration take place in Oklahoma and remanded 8 to the district court to compel arbitration in California. Id. at 1096, 1098. 9 Next, nearly a decade later, in Winter, the California Court of Appeal examined 10 a nearly identical franchise agreement circular, which stated, “The franchise 11 agreement requires binding arbitration. The arbitration will occur at Dallas County, 12 Texas with the costs being borne by the losing party. This provision may not be 13 enforceable under California law.” Winter v. Window Fashions Pros., Inc., 166 Cal. 14 App. 4th 943, 946 (2008). There, the court extended Laxmi’s holding and found no 15 mutual assent as to the entire arbitration clause, not just the forum selection clause. 16 Id. at 950–51. 17 Last, more than a decade after Winter, in an unpublished opinion of a divided 18 panel, the Ninth Circuit in Nygaard rejected a defendant’s argument that a lack of 19 mutual assent as to the forum meant that only the forum selection clause was 20 unenforceable, and that the lack of mutual assent did not reach the entire arbitration 21 provision. Nygaard v. Prop. Damage Appraisers, Inc. (Nygaard II), 779 F. App’x 22 474, 476 (9th Cir. 2019). In ruling that the parties’ absence of mutual assent as to the 23 forum selection clause invalidated the entire arbitration clause, the Ninth Circuit held 24 that it was bound by Winter. Nygaard II, 779 F. App’x 474 at 476. 25 However, the Addendum in this case differs in a critical way to the circulars in 26 Laxmi, Winter, and Nygaard. In those cases, the relevant clause in the circular 27 explicitly referenced arbitration. See Laxmi, 193 F.3d at 1096 (“The Franchise 28 Agreement also requires binding arbitration. The arbitration will occur in Oklahoma 1 County, State of Oklahoma . . . This provision may not be enforceable under 2 California law.” (emphasis added)); Winter, 166 Cal. App. 4th at 946 (“The franchise 3 agreement requires binding arbitration. The arbitration will occur at Dallas County, 4 Texas with the costs being borne by the losing party. This provision may not be 5 enforceable under California law.” (emphasis added)); Nygaard v. Prop. Damage 6 Appraisers, Inc. (Nygaard I), No. 16-cv-02184-VC, 2017 WL 8793228, at *2 7 (E.D. Cal. Dec. 28, 2017), aff’d, 779 F. App’x 474 (9th Cir. 2019) (“[1] The 8 Agreement requires binding arbitration. [2] The arbitration will occur . . . in Fort 9 Worth, Texas, before a sole arbitrator . . . [3] This provision may not be enforceable 10 under California law.” (number alterations in original) (emphasis added)). As the 11 district court in Nygaard I held, where the disclosure explicitly referenced arbitration, 12 “the best reading of th[e] paragraph is one in which ‘[t]his provision’ refers to the 13 arbitration provision in its entirety, not merely one aspect of it.” 2017 WL 8793228, 14 at *2 (alteration in original). 15 Here, in contrast to CS Anaheim’s cases, the disclosure about enforceability of 16 the forum selection provision does not even mention arbitration. Rather, the 17 Addendum states, “The Franchise Agreement requires venue to be limited to 18 Maryland. This provision may not be enforceable under California law.” (Addendum 19 ¶ 17.4.) Unlike in Laxmi, Winter, and Nygaard, there can be no ambiguity that the 20 Addendum’s “[t]his provision” refers to the forum selection requirement only, and not 21 the entire arbitration provision. See Streedharan v. Stanley Indus. & Auto., LLC 22 (Streedharan I), 630 F. Supp. 3d 1244, 1266–67 (C.D. Cal. 2022) (distinguishing 23 Winter and Nygaard on similar basis), rev’d on other grounds, No. 22-55999, 24 2023 WL 9067587 (9th Cir. Jan. 4, 2023).4 Therefore, even if the parties did not 25 mutually agree to the selected forum, they did mutually assent to the remainder of the 26

4 In an unpublished opinion, the Ninth Circuit affirmed Streedharan I’s finding of mutual assent as 27 to the arbitration clause on other grounds. Streedharan v. Stanley Indus. & Auto., LLC (Streedharan 28 II), No. 22-55999, 2023 WL 9067587, at *1 (9th Cir. Jan. 4, 2023). Under Streedharan II’s alternative reasoning, the result would be the same—the parties assented to the arbitration clause. 1 arbitration provision. Accordingly, to the extent the forum selection clause is not 2 enforceable, it does not invalidate the remainder of the arbitration provision.5 3 CS Anaheim argues that this Court should invalidate the entire arbitration 4 clause because to do otherwise would be “at odds with” Salinas v. Cornwell Quality 5 Tools Co., No. 5:19-cv-02275-JGB (SPx), 2020 WL 4258788 (C.D. Cal. Mar. 20, 6 2020). (Opp’n 10.) But that case concerned a disclosure similar to the ones in Laxmi, 7 Winter, and Nygaard, not like the one here. See Salinas, 2020 WL 4258788, at *3 8 (“The Franchise Agreement requires binding arbitration. The arbitration will occur at 9 the location that you and Cornwell agree, or, in the absence of any agreement, in 10 Akron, Ohio. . . . This provision may not be enforceable under California law.” 11 (emphasis added)). Therefore, Salinas does not conflict with the Court’s conclusion 12 above, that any lack of mutuality as to the forum does not extend to the arbitration 13 clause as a whole. 14 Accordingly, the Court finds that even if the forum selection provision is 15 unenforceable, it does not invalidate the entire arbitration clause. 16 C. Unconscionability 17 Choice argues the Court must compel arbitration because the Franchise 18 Agreement contains a delegation clause that delegates the question of arbitrability to 19 the arbitrator in the first instance. (Mot. 15–17.) CS Anaheim does not contest the 20 presence of the delegation clause and instead contends the delegation clause is 21 unenforceable as it is unconscionable. (Opp’n 5–7.) 22 23 5 While not necessary to its analysis, the Court notes that section 20.a of the Franchise Agreement 24 contains a severability clause that sates: 25 If any section of this Agreement is held to be illegal, invalid or unenforceable, both parties agree that (i) the section will be removed; (ii) this Agreement will be 26 understood and enforced as if the illegal, invalid, or unenforceable section had never been in this Agreement; and (iii) the remaining sections will remain in full force and 27 effect and will not be affected by the illegal, invalid, or unenforceable section or by 28 its removal. A section similar to the removed section will be automatically added as a part of this Agreement to the maximum extent enforceable. 1 “Because a court must enforce an agreement that, as here, clearly and 2 unmistakably delegates arbitrability questions to the arbitrator, the only remaining 3 question is whether the particular agreement to delegate arbitrability . . . is itself 4 unconscionable.” Brennan v. Opus Bank, 796 F.3d 1125, 1132 (9th Cir. 2015). In 5 such circumstances, a party challenging the enforceability of the delegation provision 6 must specifically argue that the delegation clause itself is unenforceable, as opposed to 7 the arbitration provision as a whole. Rent-A-Center, 561 U.S. at 71. CS Anaheim 8 challenges the delegation clause in particular. (Opp’n 5–7.) Therefore, because CS 9 Anaheim “specifically challenges the delegation provision,” the Court “must consider 10 the challenge before ordering compliance.” Bielski, 87 F.4th at 1009. “[C]onsidering 11 the delegation provision in context,” the Court “evaluate[s] whether it is 12 unconscionable.” Id. at 1013. 13 Under California law, “[u]nconscionability has both a procedural and a 14 substantive element.” Ramirez v. Charter Commc’ns, Inc., 16 Cal. 5th 478, 492 15 (2024). Procedural unconscionability “addresses the circumstances of contract 16 negotiation and formation, focusing on oppression or surprise due to unequal 17 bargaining power.” Id. (quoting Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev., 18 LLC, 55 Cal. 4th 223, 246 (2012)). Substantive unconscionability focuses on whether 19 the contract’s terms are “unfair” or “one-sided.” Id. at 493. “Both procedural and 20 substantive elements must be present to conclude a term is unconscionable, but these 21 required elements need not be present to the same degree.” Id. Instead, “[c]ourts 22 apply a sliding scale analysis under which ‘the more substantively oppressive [a] term, 23 the less evidence of procedural unconscionability is required to come to the 24 conclusion that the term is unenforceable, and vice versa.’” Id. (second alteration in 25 original) (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 26 114 (2000)). “The ultimate issue in every case is whether the terms of the contract are 27 sufficiently unfair, in view of all relevant circumstances, that a court should withhold 28 enforcement.” Id. at 495 (quoting Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1245 1 (2016)). “The party resisting enforcement of an arbitration agreement has the burden 2 to establish unconscionability.” Id. at 492. 3 CS Anaheim argues that the delegation clause is procedurally unconscionable 4 because Choice offered the clause on a take-it-or-leave-it basis. (Opp’n 6.) “Where a 5 franchise agreement is a contract of adhesion, courts have found “minimal procedural 6 unconscionability.” Smith v. Paul Green Sch. of Rock Music Franchising, LLC, 7 No. 08-cv-00888-DDP (MANx), 2008 WL 2037721, at *3 (C.D. Cal. May 5, 2008); 8 see Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1284 (9th Cir. 2006) (noting that 9 defendant had “overwhelming bargaining power, drafted the contract, and presented it 10 to [plaintiff] on a take-it-or-leave-it basis” amounted to only minimal evidence of 11 procedural unconscionability). Therefore, even if the Franchise Agreement is an 12 adhesion contract, there would be, at most, minimal procedural unconscionability. 13 The Court need not reach this issue because, as discussed below, CS Anaheim fails to 14 show the delegation clause is substantively unconscionable. See Ramirez, 16 Cal. 5th 15 at 492 (“Both procedural and substantive elements must be present to conclude a term 16 is unconscionable . . . .”). 17 CS Anaheim asserts that the delegation clause is substantively unconscionable 18 for two reasons: (1) there was no “meeting of the minds as to venue,” so the parties 19 “have not agreed on what arbitrator will decide” arbitrability, and (2) “the arbitrator is 20 precluded from applying California unconscionability standards.” (Opp’n 6.) 21 As to the first issue, the Court has already concluded that, even if there was no 22 meeting of the minds as to forum, that does not invalidate the arbitration provision. 23 Further, if the forum selection clause is unenforceable, then it is not part of the 24 Franchise Agreement and should not be considered in determining whether the 25 delegation clause is unconscionable. See Marin Storage & Trucking, Inc. v. Benco 26 Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1049 (2001) (explaining that there 27 can be no unconscionability defense if there was no mutual assent because a finding of 28 unconscionability “presupposes an existing contract”). Accordingly, CS Anaheim’s 1 argument that the delegation clause is unconscionable due to lack of mutual assent as 2 to the forum fails. 3 As to the second argument, CS Anaheim contends the delegation clause is 4 unconscionable because it prohibits the arbitrator from applying California 5 unconscionability standards. (Opp’n 6–7.) In support, CS Anaheim relies on the 6 California Court of Appeal’s decision in Pinela v. Neiman Marcus Group, Inc., 7 238 Cal. App. 4th 227 (2015), which concerned claims California employees brought 8 against their employer. (Id.) There, the arbitration agreement had a delegation clause 9 that delegated questions of the agreement’s enforceability to the arbitrator. Pinela, 10 238 Cal. App. 4th at 240. It also had a choice of law provision that provided: 11 This Agreement shall be construed, governed by, and enforced in accordance with the laws of the State of Texas (except where specifically 12 stated otherwise herein), except that for claims or defenses arising under 13 federal law, the arbitrator shall follow the substantive law as set forth by 14 the United States Supreme Court and the United States Court of Appeals for the Fifth Circuit. The arbitrator does not have the authority to 15 enlarge, add to, subtract from, disregard, or . . . otherwise alter the 16 parties’ rights under such laws, except to the extent set forth herein. The parties recognize that [Neiman Marcus Group] operates in many states in 17 interstate commerce. Therefore, it is acknowledged and agreed that the 18 Federal Arbitration Act, 9 U.S.C. § 1, et seq., shall govern this Agreement and the arbitration. 19 20 Id. at 243–44 (first alteration in original). In holding that the delegation provision was 21 substantively unconscionable, the Pinela court found that the agreement’s choice of 22 law provision did not allow the arbitrator to “(1) apply California law to determine 23 whether the Agreement is unconscionable, or even (2) limit the application of the 24 choice of law provision to the extent necessary to prevent substantial injustice, as 25 California law would require.” Id. at 248. 26 CS Anaheim argues that the Franchise Agreement has the same problem as the 27 agreement in Pinela. (Opp’n 6–7.) But the Franchise Agreement’s choice of law 28 clause is nothing like the one in Pinela and does not prevent an arbitrator from 1 applying California unconscionability law. In Pinela, in finding the clause 2 unconscionable, the court relied on the language of the agreement that “states the 3 arbitrator would not have authority to alter the rights the parties have under Texas 4 law.” Pinela, 238 Cal. App. 4th at 248. This language is absent from the Franchise 5 Agreement. (See FA.) The Court joins other courts that have declined to expand 6 Pinela outside of its context; CS Anaheim “is free to argue in arbitration that 7 California law applies and renders the choice-of-law or any other provision 8 unconscionable.” Rodrigue v. Ctr. for the Advancement of Sci. in Space, Inc., 9 No. 5:22-cv-00485-SB (KKx), 2022 WL 3012214, at *4 (C.D. Cal. May 10, 2022); 10 see e.g., Gountoumas v. Giaran, Inc., No. 18-cv-07720-JFW (PJWx), 2018 WL 11 6930761, at *9 (C.D. Cal. Nov. 21, 2018) (“[A]s this Court would be required to do if 12 [p]laintiff’s claims remained in this Court, the arbitrator will be required to conduct 13 the choice-of-law analysis.”); Wainwright v. Melaleuca, No. 2:19-cv-02330-JAM-DB, 14 2020 WL 417546, at *6 (E.D. Cal. Jan. 24, 2020), aff’d, 844 F. App’x 958 (9th Cir. 15 2021) (explaining that Pinela’s choice-of-law provision “materially differs from the 16 one at issue here,” because the Pinela agreement “not only set forth a choice-of-law, 17 but also prohibited the arbitrator from finding that choice unenforceable”). 18 Accordingly, CS Anaheim’s argument that the delegation clause is unconscionable 19 because the arbitrator cannot apply California unconscionability laws fails. 20 CS Anaheim fails to show substantive unconscionability, so, as noted, the Court 21 need not consider CS Anaheim’s arguments as to procedural unconscionability. See 22 Ramirez, 16 Cal. 5th at 492. As the delegation clause is enforceable, the 23 enforceability of the arbitration provision is a question for the arbitrator. See Fli-Lo 24 Falcon, LLC v. Amazon.com, Inc., 97 F.4th 1190, 1201 (9th Cir. 2024) (rejecting 25 challenge to delegation provision and leaving remaining unconscionability challenges 26 to the arbitrator). Accordingly, the Court compels arbitration. 27 28 1 Vv. CONCLUSION 2 For the forgoing reasons the Court GRANTS Choice’s Motion to Compel 3 || Arbitration. (ECF No. 15.) The parties are hereby COMPELLED to arbitrate the 4|| clams CS Anaheim asserts in the Complaint. This action is stayed pending 5 || completion of the arbitration. 6 Starting on August 15, 2025, and by the fifteenth of the month every 7 || three (3) months thereafter, the parties shall file a Joint Status Report informing the 8 | Court of the status of arbitration. Furthermore, the parties shall file a Joint Status 9 || Report no later than ten (10) days following the conclusion of arbitration. 10 11 IT IS SO ORDERED. 12 13 May 9, 2025 spare ae 15 Gil: Yip 16 OTIS D. WRIGHT, II 4 UNITED STATES DISTRICT JUDGE

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