Enlightened Armadillo Incorporated et al v. Freeman

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Enlightened Armadillo Incorporated, et al.,
Plaintiffs,
v.
Lance Freeman,
Defendant.
No. CV-25-02663-PHX-JJT
ORDER
At issue is Defendant Lance Freeman’s second Motion to Dismiss (Doc. 22, Mot.),
to which Plaintiffs Enlightened Armadillo, Inc., Mark and Ella Hrubant, and Snug Holding
Company LLC (“Plaintiffs”) responded (Doc. 24, Resp.), and Defendant replied (Doc. 26,
Reply). For the reasons below, the Court will grant in part and deny in part Defendant’s
Motion.
I. BACKGROUND1
The following facts are drawn from Plaintiffs’ First Amended Complaint (Doc. 19,
FAC), taken as true, and construed in the light most favorable to the Plaintiffs as the
nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009).
Enlightened Armadillo, Inc., and its owners Mark and Ella Hrubant are residents of
Texas (“Texas Plaintiffs”) and Snug Holding Company, LLC is a Georgia company
(“Georgia Plaintiff”). (FAC ¶¶ 25–28.) Defendant is an Arizona resident. (FAC ¶ 29.) He
served as the President of Franchise Development for Xponential, which owned Yoga Six
1 When referring to papers submitted by the parties, the Court cites to the page number as
generated by the Electronic Court Filing system, not the parties’ own page demarcation.
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Franchise, LLC (“Yoga Six”). (FAC ¶ 4.) Defendant “and his team” told Plaintiffs that
Yoga Six franchises retained sufficient membership, were profitable, and were “turn-key.”
(FAC ¶¶ 10, 15-16, 45–63.) These communications were done by phone and video in the
time leading up to Plaintiffs entering their respective franchise agreements. (FAC ¶¶ 15–
16, 45–63.) Defendant distributed and discussed franchise disclosure documents that,
according to Plaintiffs, failed to disclose individuals with management responsibility of
Yoga Six, litigation and settlements involving those individuals, and the actual initial
investment cost and financial performance of franchises. (FAC ¶¶ 112–13, 142–43, 150,
152–56, 173, 187, 203, 219, 233.) Georgia Plaintiff entered a franchise agreement with
Yoga Six on June 7, 2021, and Texas Plaintiffs did the same on November 24, 2021
(“Agreements”). (FAC ¶¶ 9, 64.) Plaintiffs experienced delays in opening the franchise
studios, membership attrition, and significant monthly losses after opening. (FAC ¶¶ 65–
83.) Plaintiffs have since closed their franchises. (FAC ¶¶ 11, 21.)
On November 22, 2023, Plaintiffs sued Defendant and other individuals and entities
related to Yoga Six in California state court.2 (Mot. at 3–4; Resp. at 2.) Plaintiffs brought
several causes of action arising under the California Franchise Investment Law (“CFIL”),
Cal. Corp. Code § 31001 et seq., that regulates and governs the sale of franchises in that
state. The CFIL also “prohibit[s] the sale of franchises where the sale would lead to fraud
or a likelihood that the franchisor’s promises would not be fulfilled,” and provides
remedies for injured franchisees. Cal. Corp. Code § 31001.
On April 22, 2025, Defendant was dismissed from the California state court action
for lack of personal jurisdiction. (Resp. at 1–2.) On July 28, 2025, Plaintiffs commenced
the instant action against Defendant here in his home state, bringing seven claims arising
under the CFIL and one claim of common law fraudulent misrepresentation. (See Doc. 1.)
Later, Plaintiffs amended their pleading3 to add one claim arising under the Arizona
2 According to the parties’ briefing, this action is ongoing. See Enlightened Armadillo, Inc.,
et al. v. Yoga Six Franchise, LLC, Case No. 30-2023-01367265-CU-AT-CJC.
3 As an administrative matter, the Court will deny as moot Defendant’s first Motion to
Dismiss (Doc. 16), which they filed prior to Plaintiffs amending their pleading as a matter
of course.
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Consumer Fraud Act (“ACFA”). (FAC ¶¶ 239–45.) Defendant now moves to dismiss all
claims against him under various theories.
Upon review of the parties’ briefing, the Court was unpersuaded that California state
law applied to Plaintiffs’ claims against Defendant. The Court ordered the parties to submit
additional briefing on which state’s law controls each of Plaintiffs’ claims or issues raised
in the First Amended Complaint (Doc. 27), and they did (Doc. 28, Def. Br.; Doc. 29).
II. LEGAL STANDARD
A. Motion to Dismiss
Rule 12(b)(6) is designed to “test[] the legal sufficiency of a claim.” Navarro v.
Block, 250 F.3d 729, 732 (9th Cir. 2001). A dismissal under Rule 12(b)(6) for failure to
state a claim can be based on either: (1) the lack of a cognizable legal theory; or (2) the
absence of sufficient factual allegations to support a cognizable legal theory. Balistreri v.
Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). When analyzing a complaint for
failure to state a claim, the well-pled factual allegations are taken as true and construed in
the light most favorable to the nonmoving party. Cousins, 568 F.3d at 1067. A plaintiff
must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id.
“While a complaint attacked by a Rule 12(b)(6) motion does not need detailed
factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief
requires more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555 (citation modified). Legal
conclusions couched as factual allegations are not entitled to the assumption of truth and
therefore are insufficient to defeat a motion to dismiss for failure to state a claim. Iqbal,
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556 U.S. at 679–80. However, “a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable, and that recovery is very remote
and unlikely.” Twombly, 550 U.S. at 556 (citation modified).
B. Judicial Notice
In ruling upon a motion to dismiss, the court may consider only the complaint, any
exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of
Evidence 201. See Mir v. Little Co. of Mary Hospital, 844 F.2d 646, 649 (9th Cir. 1988).
The court may take judicial notice of facts “not subject to reasonable dispute” because they
are either: “(1) generally known within the territorial jurisdiction of the trial court or (2)
capable of accurate and ready determination by resort to sources whose accuracy cannot
reasonably be questioned.” Fed. R. Evid. 201; see also Lee v. City of Los Angeles, 250 F.3d
668, 689 (9th Cir. 2001) (noting that the court may take judicial notice of undisputed
“matters of public record”). The court may disregard allegations in a complaint that are
contradicted by matters properly subject to judicial notice. Daniels–Hall v. Nat’l Educ.
Ass’n, 629 F.3d 992, 998 (9th Cir. 2010).
C. Statutes of Limitations
At this stage, dismissal on statute of limitations grounds is appropriate when,
“accepting all well-pled facts in the complaint as true, it appears beyond doubt that the
plaintiff can prove no set of facts that would establish the timeliness of the claim.” United
States v. Page, 106 F.4th 834, 838 (9th Cir. 2024) (citation modified). Dismissals are
inappropriate “where the applicability of the equitable tolling doctrine depended upon
factual questions not clearly resolved in the pleadings” or where “factual and legal issues
are not sufficiently clear to permit [a court] to determine with certainty whether the doctrine
could be successfully invoked.” Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1207
(9th Cir. 1995).
D. Choice of Law
“Choice of law requires determining the single state’s substantive law that applies
to a particular plaintiff’s claims.” Cimoli v. Alacer Corp., 587 F. Supp. 3d 978, 988 (N.D.
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Cal. 2022) (emphasis in original). When, as here, the Court has jurisdiction based on the
diversity of the parties, it must apply Arizona’s conflict of law rules to decide which state’s
law should govern the issues raised in the case. See Klaxon Co. v. Stentor Electric Mfg.
Co., 313 U.S. 487, 496 (1941). “Arizona is the forum state, and thus its law will govern
both procedural issues and the choice of law regarding substantive issues.” Pounders v.
Enserch E & C, Inc., 232 Ariz. 352, 354, 306 P.3d 9, 11 (2013). Which state’s law will
determine the rights and liabilities of the parties is a substantive matter to be determined
by a choice of law analysis, and Arizona applies the Restatement (Second) of Conflict of
Laws (“Restatement”). Bryant v. Silverman, 703 P.2d 1190, 1191 (Ariz. 1985). The proper
procedural law to be applied, however, will usually be the law of forum state. Restatement
§ 142(1). As relevant here, Arizona courts consider statutes of limitation to be procedural,
so those Arizona statutes would ordinarily apply even in cases involving another state’s
substantive law. Albano v. Shea Homes Ltd. P’ship, 227 Ariz. 121, 127 (2011); see also
Restatement § 142 (noting that the statute of limitations of the forum apply). However, the
Restatement distinguishes between statutes of limitations barring the remedy and those
barring the right. Restatement § 143. Arizona courts have developed this distinction to
mean that statutes barring the right, also known as “statutes of repose” or “nonclaim
statutes,” are substantive law and will be taken from the state bearing the most significant
relationship to the parties pursuant to the choice of law analysis.
Traditionally, the difficulty arises in distinguishing between statutes of limitation
and repose. According to the Arizona Supreme Court, the two statutes are similar in that
they both identify the outer limits of time in which an action can be brought and extinguish
legal rights if not enforced timely. Cox v. Ponce in & for Cnty. of Maricopa, 251 Ariz. 302,
305 (2021). They differ in that statutes of limitation can be tolled while statutes of repose
cannot. Id. at 305–06. The purpose of a statute of repose reveals why this distinction is
helpful, as those statutes are “intended to establish a limit beyond which no suit may be
pursued, and sets a period of time within which claims must be brought regardless of when
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the cause of action may accrue. Thus, under statutes of repose, a claim may be barred if it
does not accrue within the allowable statutory period.” Id. at 306 (citation modified).
III. ANALYSIS
In briefing the conflict of laws analysis, the parties both conclude that the
substantive law of California applies to all Plaintiffs’ claims. “[T]he Court need not and
does not question the parties’ assumptions on that point,” so California law shall apply to
the substantive matters here. Moddha Interactive, Inc. v. Philips Elec. N. Am. Corp., 92 F.
Supp. 3d 982, 989 (D. Haw. 2015) (applying the law cited by the parties to a motion to
dismiss), aff’d, 654 F. App’x 484 (Fed. Cir. 2016).
A. Count Nine: Common Law Fraudulent Misrepresentation
The Court will consider Plaintiffs’ claims in reverse order, beginning with the ninth
claim for common law fraudulent misrepresentation. (FAC ¶¶ 246–55.) That claim is based
on Defendant’s various representations he made to Plaintiffs to induce them into
purchasing their franchises. (Id.) These representations are the same as those that form the
basis for Plaintiffs’ claims arising under the CFIL.
Defendant argues that the common law claim is preempted by the CFIL pursuant to
§ 31306. In the version of the CFIL that was effective until December 31, 2022, § 31306
stated that “no civil liability in favor of any private party shall arise against any person by
implication from or as a result of the violation of any provision of this law or any rule or
order hereunder,” but also included a savings clause providing that “[n]othing in this
chapter shall limit any liability which may exist by virtue of any other statute or under
common law if this law were not in effect.” Cal. Corp. Code § 31306 (1971).
California state courts interpreted this version of § 31306 to mean “that those
allegations of fraud that are based on CFIL violations are preempted, while claims
independent of CFIL violations are not. Put differently, section 31306 is best understood
as displacing those claims that rest on misrepresentations or omissions covered by the
several provisions of the CFIL, and the saving clause merely clarifies that the CFIL does
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not completely preempt the field.” Samica Enters., LLC v. Mail Boxes Etc. USA, Inc., 637
F. Supp. 2d 712, 721 (C.D. Cal. 2008).
While the CFIL was amended on January 1, 2023, to remove the preemption clause
of § 31306, see Cal. Corp. Code § 31306 (2023), at least one court determined that it has
no retroactive effect, meaning § 31306 still preempts fraud or misrepresentation claims
based on CFIL violations predating January 1, 2023. Bundoo Khan Ca LLC v. MAK Al
Haaj Bundoo Khan, No. 8:24-CV-02274-JVS-ADS, 2025 WL 1674488, at *7 (C.D. Cal.
May 13, 2025). Based on the authority cited by Defendant, which Plaintiffs do not dispute
or provide contrary authority thereto, the Court will apply the version of § 31306 that
existed at the time that Plaintiffs entered their Agreements in 2021, and that version
preempts the fraudulent misrepresentation claim because it is based on the same conduct
giving rise to the CFIL violations. Accordingly, the Court dismisses Count Nine.
B. Count Eight: ACFA Claim
Plaintiffs’ eighth claim arises under the ACFA and, according to Plaintiffs, is pled
in the alternative. Plaintiffs concede that “[i]f the Court ultimately determines the CFIL
applies to all of Defendant’s conduct, then the CFIL count would supersede” the ACFA
claim. (Resp. at 8.) The Court agrees and accordingly dismisses Count Eight.
C. Counts One through Seven: CFIL Claims
Plaintiffs’ remaining claims are brought under the CFIL. Specifically, Plaintiffs
assert their first, second, fourth, and seventh claims under § 31200 and their third, fifth,
and sixth claims under both § 31200 and § 31201.4
1. Statutes of Limitations
Claims asserting a violation of § 31200 of the CFIL are barred after the earliest of:
(1) four years after the violation; (2) one year after the discovery by the plaintiff of the facts
constituting the violation; or (3) 90 days after delivery to the franchisee of a written notice
disclosing the violation. See Cal. Corp. Code § 31303. Claims asserting a violation of
4 Plaintiffs assert that their third, fifth, and sixth claims are for violations of the CFIL
§ 32101, but that section does not exist. The Court presumes, as Defendant did, that
Plaintiffs meant § 31201, as was cited in other portions of the First Amended Complaint.
(See FAC ¶ 149; Mot. at 3, 7, 10; Resp. at 15 n.6; Reply at 2.)
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§ 31201 are barred by the same three-part limitation above except that the four-year limit
is shortened to two years. See Cal. Corp. Code § 31304.
Defendant argues these claims should be dismissed because they are barred under
the CFIL’s statutes of limitations set forth in §§ 31303 and 31304. (Mot. at 7–9.) Plaintiffs
respond that Arizona’s limitation saving statute, A.R.S. § 12-504, tolls those statutes of
limitations. (Resp. at 5–6.)
In determining whether this State’s tolling principles apply, the Court must
determine whether §§ 31303–04 of the CFIL are statutes of limitations or repose.
Defendant argues, and Plaintiffs do not contest, that §§ 31303–04 impose absolute 4-year
and 2-year limits, respectively, from the date the violation occurred, and those limits cannot
be tolled. (Mot. at 8.) California case law supports Defendant’s position. People ex rel.
Dep’t of Corps. v. SpeeDee Oil Change Sys., Inc., 95 Cal. App. 4th 709, 727 (2002), as
modified (Feb. 1, 2002), as modified (Feb. 8, 2002) (“Once the four-year or two-year period
expires, a plaintiff’s belated discovery of the fact constituting [a CFIL] violation cannot
serve to extend the statute of limitations. In other words, the four-year bar in section 31303
and the two-year limit in section 31304 are absolute.”); see also Quick Dispense, Inc. v.
Vitality Foodservice, Inc., No. 8:23-CV-02322-FWS-ADS, 2024 WL 2925589, at *3 (C.D.
Cal. June 4, 2024).
After considering the plain language of §§ 31303–04 and the California state courts’
interpretation of that plain language, the Court determines that those statutes bar a potential
litigant’s right to bring an action after two or four years no matter when the litigant
discovers the violation or their injury. The Arizona Supreme Court has identified this very
feature as one that characterizes a statute of repose, Cox, 251 Ariz. at 305–06, and that
guides the Court’s decision here. Accordingly, the portions of §§ 31303–04 that establish
the two- and four-year limits constitute substantive law that must be applied to Plaintiffs’
CFIL claims.
Having decided that the two- and four-year limits of §§ 31303–04 apply, the Court
must determine whether they bar Plaintiffs’ CFIL claims. Georgia Plaintiff entered its
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Agreement on June 7, 2021, which means the § 31200 claims are barred after June 7, 2025,
and the § 31201 claims are barred after June 7, 2023. As to Texas Plaintiffs, they entered
their Agreement on November 24, 2021, so the § 31200 claims are barred after November
24, 2025, while the § 31201 claims are barred after November 24, 2023. Plaintiffs filed this
action on July 28, 2025. Under the absolute time limitations imposed by §§ 31303–04, all
of Georgia Plaintiff’s CFIL claims are barred and the portion of Texas Plaintiffs’ claims
arising under § 31201 are barred, leaving only Texas Plaintiffs’ claims asserted under §
31200.
Defendant argues that these remaining claims are also barred under the portion of
§ 31303 that limits § 31200 claims after one year from the time that the violations were
discovered. According to Defendant, that time limitation cannot be tolled, and Plaintiffs
filed this action too late because they had known of their claims at least by November 22,
2023, when they sued Defendant in California for the same claims based on the same
operative facts. (Compare FAC (counts one through seven) with Doc. 25-1 (counts one
through eight).) If Defendant’s argument is to be credited, Plaintiffs would have had to file
this action against Defendant here no later than November 22, 2024, to survive the one-
year discovery limitation.
The one-year discovery limitation in §§ 31303–04, however, presents more as a
traditional statute of limitations that is ordinarily based upon the time that a litigant should
or does discover facts giving rise to claims. Unlike statutes of repose, statutes of limitation
can be tolled. See McCloud v. Ariz. Dep’t of Pub. Safety, 217 Ariz. 82, 87 (Ariz. Ct. App.
2007) (“It is hornbook law that limitations periods are ‘customarily subject to equitable
tolling.’”) (citing Young v. United States, 535 U.S. 43, 49 (2002)). In essence, §§ 31303–
04 are “hybrid” statutes that feature both repose and limitation and are both substantive
and procedural.5
. . .
5 Hybrid statutes of this sort exist all over the country. In fact, the Ninth Circuit has
identified various “hybrid” state and federal statutes that featured both repose and
limitation. See Bennett v. United States, 44 F.4th 929, 933 (9th Cir. 2022) (collecting cases
and discussing the Federal Tort Claims Act).
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Both Arizona and California courts toll “the limitation period of a second action
during the pendency of a first action later found to be defective.” Collier v. City of
Pasadena, 142 Cal. App. 3d 917, 923 (Cal. Ct. App. 1983); see McCloud, 217 Ariz. at 87.
While Arizona has gone further and codified this principle in a limitation saving statute,
see A.R.S. § 12-504, California courts nonetheless toll statutes of limitations applying to
claims that were, at one point, timely filed but were later re-filed outside of the limitation
period. Collier, 142 Cal. App. 3d at 923–26. Whether this Court were to apply the equitable
tolling as codified in A.R.S. § 12-504 or as announced in California case law, the outcome
is the same: the one-year discovery limitation of § 31303 was tolled in the time that
Plaintiffs pursued their claims against this Defendant in the California state court.
Defendant argues that tolling the one-year limitation period would undermine the
CFIL. But, as discussed above, § 31303 of the CFIL is a hybrid statute that imposes both
an absolute 4-year limitation and an equitable 1-year discovery limitation. The discovery
limitation, of course, is subject to the absolute boundary of four years, but Texas Plaintiffs’
remaining claims do not offend that four-year boundary. Within those four years in which
the filing of the remaining claims fall, the traditional principles of equitable tolling as to
discovery of the § 31200 violations may apply. This not only serves the purpose of the
CFIL that affords franchisees recourse against violations of franchisors, but it also serves
California public policy that seeks to “avoid[] the hardship upon plaintiffs of being
compelled to pursue simultaneously several duplicative actions on the same set of facts,”
Collier, 142 Cal. App. 3d at 926, and comports with A.R.S. § 12-504.
Having established that equitable tolling may apply to the one-year discovery
limitation of § 31303, the Court now evaluates the parties’ arguments as to whether it saves
Texas Plaintiffs’ remaining claims here. On this point, the Court takes judicial notice of
Plaintiffs’ original complaint against Defendant and others that was filed in the Orange
County Superior Court of California on November 22, 2023 (Doc. 17-1), and that state
court’s order ruling on demurrer issued April 22, 2025 (Doc. 25-2). The Court will not take
the facts asserted in these documents as true; rather, it will consider only the dates of those
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documents and the claims originally brought by Plaintiffs to determine whether the instant
claims were equitably tolled.
Defendant argues that Plaintiffs knew of their claims as of November 22, 2023,
when they filed the California state action, which means that Plaintiffs would have had to
file the instant claims in this Court by November 22, 2024, to comply with the one-year
discovery limitation. (Mot. at 7–8.) But under either A.R.S. § 12-504 or California case
law, the day that Plaintiffs filed the first action—which is the same day that Defendant
argues that Plaintiffs must have discovered their claims—was the day that the one-year
discovery limitation began tolling. The tolling period ended when Defendant was
dismissed from the California state action on April 22, 2025, for want of personal
jurisdiction. Plaintiffs filed this action five months later, well within the one-year discovery
limitation period.
Next, Defendants argue that Plaintiffs must have known about their claims
sometime before they filed the first action. (Mot. at 8.) Maybe so, but Defendant does not
pinpoint for the Court when that knowledge would have arisen in relation to the filing of
the California action. When Texas Plaintiffs discovered the § 31200 violations is not
readily apparent from the face of the First Amended Complaint such that this Court could
determine that the claims are time barred. Whether Plaintiffs did, in fact, discover those
violations before they filed the first action is the kind of factual determination that is
inappropriate at this stage.
2. Contractual Waiver and Liability Shifting Provision
Defendant advances one final argument for dismissal: Plaintiffs are bound to pursue
the instant claims against Yoga Six alone, having released Defendant and other Yoga Six
agents from suit in the Agreements. (Mot. at 12–17.) Defendant argues that two sections
of the Agreements, §§ 17.6 and 18.4, shift all liability for Plaintiffs’ claims to Yoga Six
alone, sparing Defendant for his alleged misconduct. The Court will take judicial notice of
the Agreements upon Defendant’s request (Docs. 23-3, 23-4), which are referenced by
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Plaintiffs in their First Amended Complaint and are not disputed as to their contents. (See
FAC ¶ 64.)
The relevant portion of § 17.6 of the Agreements, at least according to Defendant,
states the following:
All claims, obligations, liabilities, or causes of action (whether
in contract or in tort, in law or in equity, or granted by statute)
that may be based upon, in respect of, arise under, out or by
reason of, be connected with, or relate in any manner to this
Agreement, or the negotiation, execution, or performance of
this Agreement (including any representation or warranty
made in, in connection with, or as an inducement to this
Agreement, but not including separate undertaking such as
guarantees of performance, personal guaranties, or corporate
guarantees), may be made only against (and are those solely
of) the entities that are expressly identified as parties in the
preamble to this Agreement (“Contracting Parties”).
(Doc. 23-3 § 17.6.) Defendant argues that “[t]he plain meaning of these liability shifting
provisions is that all claims, obligations, liabilities or causes of action that Plaintiffs may
have that relate in any manner to the Franchise Agreements or the negotiation, execution
and performance of the same may only be asserted against Yoga Six.” (Def. Br. at 10.)
The Court previously noted that § 17.6 contains an exclusionary clause that states
“. . . to the maximum extent permitted by law, each Contracting Party hereby waives and
releases all such liabilities, claims, causes of action, and obligations against any such
Nonparty Affiliates, unless such liabilities, claims, causes of action, and obligations
arise from deliberately fraudulent acts.” (Doc. 27 at 2 (emphasis in original).)
In his supplemental brief, Defendant argues that the exclusionary clause pertains
only to certain claims related to the Franchise Agreements. (Def. Br. at 10.) The Court
disagrees. The exclusionary clause expressly and broadly states that the liability limitation
of § 17.6 does not apply to claims against a Yoga Six agent for the agent’s deliberately
fraudulent acts. (Doc. 23-3 § 17.6; Doc. 23-4 § 17.6.) Plaintiffs argue, and Defendant does
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not contest, that each of Plaintiffs’ claims falls within the exclusionary clause of § 17.6, at
least as currently pled.
Next, Defendant argues that even if Plaintiffs’ claims fall within the exclusionary
clause of § 17.6, Plaintiffs are still bound to pursue those claims against Yoga Six only
under the liability shifting provision of § 18.4. That provision asserts:
FRANCHISEE AGREES AND ACKNOWLEDGES THAT
FULFILLMENT OF ANY AND ALL OF FRANCHISOR’S
OBLIGATIONS WRITTEN IN THIS AGREEMENT OR
BASED ON ANY ORAL COMMUNICATIONS WHICH
MAY BE RULED TO BE BINDING IN A COURT OF LAW
SHALL BE FRANCHISOR’S SOLE RESPONSIBILITY
AND NONE OF FRANCHISOR’S AGENTS,
REPRESENTATIVES, NOR ANY INDIVIDUALS
ASSOCIATED WITH FRANCHISOR’S FRANCHISE
COMPANY SHALL BE PERSONALLY LIABLE TO
FRANCHISEE FOR ANY REASON . . .
(Doc. 23-3 § 18.4.) The parties dispute whether this liability shifting provision is
enforceable under two California state laws: (1) California Civil Code § 1668; and (2)
§ 31512 of the CFIL.
Section 1668 states that “[a]ll contracts which have for their object, directly or
indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the
person or property of another, or violation of law, whether willful or negligent, are against
the policy of the law.” In essence, § 1668 “prevents parties from granting themselves
licenses to commit future aggravated wrongs.” New England Country Foods, LLC v.
VanLaw Food Prods., Inc., 17 Cal. 5th 703, 710 (Cal. 2025) (citation omitted). California
courts have determined that § 1668 “does not apply to every contract or every violation of
law.” Health Net of California, Inc. v. Dep’t of Health Servs., 113 Cal. App. 4th 224, 233
(Cal. Ct. App. 2003). Still, the courts are clear that “a party cannot contract away liability
for his fraudulent or intentional acts or for his negligent violations of statutory law” under
§ 1668. Id. at 234. “The language surrounding the word ‘exempt’ [] suggests that section
1668 should be read broadly.” VanLaw, 567 P.3d at 68.
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Defendant suggests that the liability shifting clause is enforceable because it merely
shifts liability to Yoga Six and does not exculpate Yoga Six from its agent’s liability, which
means Plaintiffs can still seek redress for alleged wrongs. Defendant points to Farnham v.
Sequoia Holdings, Inc., 60 Cal. App. 4th 69, 77 (Cal. Ct. App. 1997), for the proposition
that “barring claims against non-parties to a contract—as opposed to provisions that
purport to completely exculpate liability—are permissible.” (Mot. at 15.) Importantly, the
court in Farnham expressly limited its holding to cases that involve contractual limitations
of ordinary negligence tort claims, which the court held was not invalid per se under
§ 1668. Farnham, 60 Cal. App. 4th at 77 n.7 (“We are concerned in this case with a claim
of defamation, and express no view about the validity of the ‘sole remedy’ provision if [the
plaintiff’s] claim alleged fraud or some other intentional tort.”) (noting that there existed a
line of cases that invalidated limitations on liability for fraud claims). But here, the claims
brought by Plaintiffs concern Defendant’s allegedly willful, fraudulent conduct and
violations of law that induced Plaintiffs to enter into the Agreements.
As Plaintiffs point out, the California Supreme Court has expressly disapproved of
Farnham and similar cases “to the extent they suggest a limitation on damages for willful
injury may be valid in some circumstances.” VanLaw, 567 P.3d at 69. In VanLaw, the court
clarified that “no context-dependent analysis is required to determine whether a particular
release of liability for ‘willful injury’ is barred by section 1668,” and noted that “[w]hile
ordinary negligence may be released in some circumstances . . . there is no similar
flexibility for willful injury.” Id. at 67.
Defendant contends that “VanLaw is entirely inapposite” because the provisions at
issue here “in no way limit the damages Plaintiffs can seek in this matter . . . against Yoga
Six.” (Reply at 11.) But VanLaw does not suggest that an individual tortfeasor may be
released from liability so long as a plaintiff can recover from a different tortfeasor, which
was the principle established in Farnham as to ordinary negligence tort claims. Rather,
VanLaw clarified that § 1668 is inflexible when it comes to willful tortious conduct or
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fraud, see id. at 67, which this Court interprets to mean that the language of § 1668 must
be applied strictly to intentional tort and fraud claims.
The Court’s reading of VanLaw is supported by that court’s explication of public
policy which, first and foremost, discourages willful tortious conduct and fraud:
[T]ort law arises from social policy, imposing duties on every
community member for the protection of every other
community member. Although private parties have wide
latitude to form contracts, that latitude is bounded by these
broader social policies. And our tort system’s concern with
vindicating social policy is at its zenith when it comes to willful
wrongs . . . [P]ermitting contracts that reduce accountability
for willful harm would effectively allow parties to put a price
on violating our social policy against such harm.
Id. at 68 (citations omitted).
Defendant’s reliance on Dance Fitness Michigan, LLC v. AKT Franchise, LLC, No.
823CV01643JVSJDEX, 2023 WL 7549894, at *8 (C.D. Cal. Nov. 13, 2023), fails to
persuade the Court to read VanLaw differently. The court in Dance Fitness held that a
franchisee’s CFIL claims against the franchisor’s agents were precluded under a liability
shifting provision like the one at issue here. The court in Dance Fitness reached its holding
under the reasoning of Farnham, but the basis of that holding was invalidated when the
California Supreme Court expressly disapproved of Farnham’s holding as to claims
involving intentional tort claims.
As applied here, under VanLaw, § 1668 invalidates the liability shifting provision
of § 18.4 to the extent it limits Defendant’s own responsibility for his own alleged fraud
and willful injury to Plaintiffs. Cal. Civ. Code § 1668 (prohibiting contractual liability
exceptions of “any one from responsibility for his own fraud, or willful injury to the person
or property of another, or violation of law, whether willful or negligent . . .”).
All Texas Plaintiffs’ surviving claims arising under § 31200 sound in tort, and all
of them are based on Defendant’s alleged intentional fraud, misrepresentation, and
violation of law as it relates to distributing and discussing documents that contained
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material misrepresentations regarding the franchise. Whether or not these allegations state
a claim under § 31200 is not an issue currently before the Court, as Defendant does not test
the sufficiency of those allegations. Rather, the Court must only determine whether these
claims, which are based on the purported fraud and willful misconduct of Defendant, are
the kind that fall within the protection of § 1668. As currently pled, they do.
Because the liability shifting provisions found in §§ 17.6 and 18.4 of the
Agreements are unenforceable under California Code § 1668 as to Texas Plaintiffs’
surviving claims, the Court need not consider Defendant’s other arguments regarding the
enforceability of those provisions under the CFIL.
D. Leave to Amend
Ninth Circuit courts freely grant leave to amend a pleading when justice so requires
even when a party has not requested leave. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.
2000). Leave must be granted after a pleading is dismissed “if it appears at all possible that
the plaintiff can correct the defect.” Id. (citation modified). Count Eight asserting an
Arizona state law claim cannot be cured because California state law applies to the instant
matter. Count Nine cannot be cured either, because that common law claim is preempted
by the CFIL under which Plaintiffs’ claims arise. The portion of Counts One through Seven
that are time barred under §§ 31303–04 are not amendable because no facts could possibly
toll the four- and two-year absolute time limitations that passed by the time Plaintiffs filed
the instant action. Accordingly, the claims that are dismissed herein are dismissed without
leave to amend.
IT IS ORDERED granting in part and denying in part Defendant’s Motion to
Dismiss (Doc. 22). The Court dismisses, without leave to amend, Counts Eight and Nine
as to all Plaintiffs, Counts One through Seven as to Snug Holding Company LLC, and the
portions of Counts One through Seven asserted by Enlightened Armadillo, Inc., Mark and
Ella Hrubant under § 31201 of the CFIL. The portions of Counts One through Seven
asserted by Enlightened Armadillo, Inc., Mark and Ella Hrubant under § 31200 of the CFIL
may proceed.
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IT IS FURTHER ORDERED dismissing Snug Holding Company LLC as a party
to this matter.
IT IS FURTHER ORDERED denying as moot Defendant’s Motion to Dismiss
(Doc. 16).
Dated this 29th day of May, 2026.
Honorable John J. Tuchi
United States District Judge
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