The Enforceability Of A Class Action Waiver


Gold, Et Al. V. Melt Franchising, Llc, Et Al

By James M. Mulcahy on November 08, 2012

Mulcahy LLP obtains for franchisor an early dismissal of nationwide class action suit filed by fifteen disgruntled franchisees located throughout the country.

Mulcahy LLP secures an important ruling on behalf of a franchisor in California’s Second Appellate District. The ruling, which upholds the enforceability of a class action waiver in a franchise agreement, provides a roadmap for franchisors attempting to avoid or defeat class action claims by franchisees. Although the opinion is unpublished, and thus cannot be cited as authority, the rationale of the opinion suggests that the rule enunciated in Discover Bank v. Superior Court – that class action waivers are often unenforceable in the consumer context – has a more limited application in the franchise context.

Many franchise agreements contain provisions barring class-action suits by franchisees. These prohibitions prevent groups of disgruntled franchisees from combining their resources in a joint suit against the franchisor. But under Discover Bank v. Superior Court [36 Cal.4th 148 (2005)], class action waivers are typically found unenforceable in certain contexts. Now, an appellate ruling procured by Mulcahy LLP suggests that the rule enunciated in Discover Bank has limited applicability in the franchise context.

In Gold, et al. v. Melt Franchising, LLC, et al. (Los Angeles County Superior Court Case No. BC377783), seven Melt franchisees in four states filed a suit alleging, among other things, that Melt defrauded the franchisees and violated state franchise statutes. Mulcahy LLP, acting on behalf of Melt and individual Melt officers named in the suit, moved to dismiss the case, arguing that the class action waiver in the parties’ franchise agreement precluded a class action claim, and that the purported class members did not enjoy a sufficient unity of interest to properly constitute a class.

The trial court accepted both of Mulcahy LLP’s arguments, and the appellate court affirmed on the ground that the class action waiver was enforceable and precluded a class action claim. The appellate court’s decision in Gold is not published, so franchisors may not rely on it as authority in pursuing the arguments the court accepted. Nevertheless, as discussed more thoroughly below, a franchisor has a good chance of defeating many class action claims on a motion to dismiss by examining the court’s rationale and advancing similar arguments to those Mulcahy LLP advanced on Melt’s behalf.

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