People ex rel. Department of Corps. v. Speedee Oil Change Systems, Inc.

On October 18, 1994, the franchisees filed an ex parte application to intervene pursuant to Code of Civil Procedure section 387. On October 21, 1994, the franchisees were granted leave to intervene in the department’s action. On that date, October 21, 1994, the complaint in intervention was filed.

The operative pleading is the second amended complaint in intervention filed on October 10, 1995. The franchisees joined in the causes of action asserted in the department’s July 29, 1994, complaint. In addition, the franchisees asserted causes of action for: fraud; negligent misrepresentation; conspiracy; intentional infliction of emotional distress; breach of contract; unfair business practices (Bus. & Prof. Code, § 17200); Cartwright Act violations (Bus. & Prof. Code, § 16700); declaratory relief; and injunctive relief. The franchisees dismissed their unfair business practices claim as to all defendants prior to trial. The Cartwright Act violation allegations were

The department’s action and the franchisees’ complaint in intervention were severed for trial. The department’s action was tried in June 1996. Judge Richard P. Kalustian issued a statement of decision on March 4, 1997. As to SpeeDee Oil, Judge Kalustian found it failed to reregister two service marks and to disclose the lapsed registration to franchisees; however, no franchisee suffered any detriment as a result of the lapsed registrations. With respect to CalNeva, Judge Kalustian found it violated the Franchise Investment Law by, between September 1992 and April 1993, failing to notify prospective franchisees that SpeeDee Oil had failed to reregister its two service marks (although no franchisee suffered detriment as a result); creating the misimpression in its uniform franchise offering circulars “that a substantial number of franchisees were either in the process of building their stores or very close to it”; misrepresenting the time actually required to open a location after signing a local franchise agreement; misrepresenting available site selection assistance; making improper representations regarding potential earnings; and misrepresenting the costs to open a franchise. A judgment in favor of the department was entered on September 18, 1997. Permanent injunctions were issued as against SpeeDee Oil and CalNeva as well as their responsible officers and directors. They were enjoined from offering or selling franchises in California in violation of any provision of law including but not limited to the Franchise Investment Law. In addition, civil penalties were imposed against the corporate defendants. Civil penalties were imposed against SpeeDee Oil for failure to disclose the lapsed service mark registrations.

In December 1997, SpeeDee Oil and CalNeva appealed the judgment in favor of the department. SpeeDee Oil’s appeal was dismissed in November 1998 for failure to procure the record on appeal. (Cal. Rules of Court, rule 10(c).) The remittitur was issued on January 14, 1999. In an opinion filed on November 18, 1999, we affirmed the judgment as to CalNeva, Mr. Philpot, and W. James Musser. (People v. CalNeva Oil Corp. (Nov. 18, 1999, B118187) [nonpub. opn.].)

The matter proceeded, albeit very slowly, as to the franchisees’ claims. In 1998, Judge Kalustian granted a summary judgment in favor of SpeeDee Oil officers and two directors, Mr. Copp and Mr. Bennett. The franchisees

The standard of review on appeal from an order granting a nonsuit is as follows: “A defendant is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence presented by plaintiff is insufficient to permit a jury to find in his favor. (Campbell v. General Motors Corp. (1982) 32 Cal.3d 112 , 117-118 [ 184 Cal.Rptr. 891 , 649 P.2d 224 , 35 A.L.R.4th 1036 ].) ‘In determining whether plaintiff’s evidence is sufficient, the court may not weigh the evidence or consider the credibility of witnesses. Instead, the evidence most favorable to plaintiff must be accepted as true and conflicting evidence must be disregarded. The court must give “to the plaintiff[’ s] evidence all the value to which it is legally entitled, . . . indulging every legitimate inference which may be drawn from the evidence in plaintiff[’s] favor.” ’ (Id., at p. 118.) A mere ‘scintilla of evidence’ does not create a conflict for the jury’s resolution; ‘there must be substantial evidence to create the necessary conflict.’ (7 Witkin, Cal. Procedure (3d ed. 1985) Trial, § 410, p. 413, italics in original.) [¶] In reviewing a grant of nonsuit, we are ‘guided by the same rule requiring evaluation of the evidence in the light most favorable to the plaintiff.’ (Carson v. Facilities Development Co. (1984) 36 Cal.3d 830 , 839 [ 206 Cal.Rptr. 136 , 686 P.2d 656 ].) We will not sustain the judgment ‘ “unless interpreting the evidence most favorably to plaintiff’s case and most strongly against the defendant

As discussed above, the first Franchise Investment Law statute of limitations found in section 31303 involves misstatements or omissions in documents filed with the Commissioner of Corporations. Section 31303 provides for a four-year period of time in which to file suit. Further, the second Franchise Investment Law statute of limitations found in section 31304, involving misstatements or omissions of fact other than those made to the Commissioner of Corporations, allows for a two-year period of time in which to file suit. Also, under both sections 31303 and 31304, there is a one-year statute of limitations from the date of “discovery by the plaintiff of the facts constituting” a violation. Finally, as to both sections 31303 and 31304, there is a statute of limitations of 90 days after written disclosure of enumerated violations by the Commissioner of Corporations. There is no issue in this case as to the 90-day statute of limitations. There is no testimony that any of the franchisees were ever provided with a written disclosure of violations by the Commissioner of Corporations as to any claims relevant to this litigation.

According to the second amended complaint in intervention, the Almens entered into their local franchise agreement on October 5, 1989. On March 19, 1991, the Almens assigned the local franchise agreement to the Beldoon

The allegations of violations of the Franchise Investment Law made by all plaintiffs arise from their execution of the local franchise agreements and representations made to them prior to signing the contracts. Except for Mr. Howe and Mr. Han, all of the local franchise agreements were executed between 1988 and January 1990. As has been noted, the longest period of limitations in section 31303 is four years and in section 31304 only two years. The complaint in intervention was not filed until October 21,1994. As to the claims of all of the franchisees, except Mr. Howe and Mr. Han, their claims for violations of section 31300 and the statutory provisions cited therein are barred by the outside four-year statute of limitations in section 31303. Further, as to the claims of all the franchisees except Mr. Howe and Mr. Han for section 31201 violations, they are all barred on their face by the section 31304 outer two-year statute of limitations. As to the claims of Mr. Howe and Mr. Han, they require further analysis and will be discussed shortly.

The franchisees contend though that their Franchise Investment Law claims did not accrue until later or were tolled premised on three theories. First, they argue that their Franchise Investment Law causes of action did not accrue until damages had been sustained. (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586 , 596-597 [ 83 Cal.Rptr. 418 , 463 P.2d 770 ]; City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882 , 886-887 [ 101 Cal.Rptr.2d 237 ].) Second, the franchisees argue that because of the fraudulent and oppressive conduct of the franchisors, the statute of limitations did not commence to run as long as the fraud remained concealed. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773 , 788 [ 157 Cal.Rptr. 392 , 598 P.2d 45 ] [“Just as the statute of limitations does not run against an action based on fraud so long as the fraud remains concealed, so ought the statute to be tolled even after the fraud is discovered, for so long as the sheer economic duress or undue influence embedded in the fraud continues to hold the victim in place.” (Italics omitted.)]; see DeRose

However, these delayed discovery or tolling rules do not apply in the case of a Franchise Investment Law claim because of the express language of section 31306. This is an issue of statutory interpretation. We apply the following standard of statutory review described by our Supreme Court: “When interpreting a statute our primary task is to determine the Legislature’s intent. [Citation.] In doing so we turn first to the statutory language, since the words the Legislature chose are the best indicators of its intent. [Citation.]” We must interpret the statute to carry out the Legislature’s intent. (Freedom Newspapers, Inc. v. Orange County Employees Retirement System (1993) 6 Cal.4th 821 , 826 [ 25 Cal.Rptr.2d 148 , 863 P.2d 218 ]; People v. Jones (1993) 5 Cal.4th 1142 , 1146 [ 22 Cal.Rptr.2d 753 , 857 P.2d 1163 .) Further, our Supreme Court has noted: “ ‘If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature (in the case of a statute) . . . (Delaney v. Superior Court (1990) 50 Cal.3d 785 , 798 [ 268 Cal.Rptr. 753 , 789 P.2d 934 .) However, the literal meaning of a statute must be in accord with its purpose, as our Supreme Court noted in Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644 , 658-659 [ 25 Cal.Rptr.2d 109 , 863 P.2d 179 ] as follows: “We are not prohibited ‘from determining whether the literal meaning of a statute comports with its purpose or whether such a construction of one provision is consistent with other provisions of the statute. The meaning of a statute may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. [Citation.] Literal construction should not prevail if it is contrary to the legislative intent apparent in the [statute] . . . .’’’In Lungren v. Deukmejian (1988) 45 Cal.3d 727 , 735 [ 248 Cal.Rptr. 115 , 755 P.2d 299 ], our Supreme Court added: “The intent prevails over the letter, and the letter will, if possible, be so read as to conform to the spirit of the act. [Citations.] An interpretation that renders related provisions nugatory must be avoided [citation]; each sentence must be read not in isolation but in light of the statutory scheme [citation] . . . .”

Section 31306 provides that civil liability under the Franchise Investment Law only arises under its explicit terms. Section 31306 states in relevant part, “Except as explicitly provided in this chapter, no civil liability in favor of any private party shall arise against any person by implication

Under similar circumstances, the California Supreme Court has noted that the Code of Civil Procedure section 340.6 statute of limitations for legal malpractice is not subject to equitable tolling. This is because the legislative history makes it clear that once an injury has been sustained, the statute of limitations commences to run. (Laird v. Blacker (1992) 2 Cal.4th 606 , 618 [ 7 Cal.Rptr.2d 550 , 828 P.2d 691 ] [“Section 340.6, subdivision (a), states that ‘in no event’ shall the prescriptive period be tolled except under those circumstances specified in the statute. Thus, the Legislature expressly intended to disallow tolling under any circumstances not enumerated in the statute”]; Gordon v. Law Offices of Aguirre & Meyer (1999) 70 Cal.App.4th 972 , 979 [ 83 Cal.Rptr.2d 119 ].) In the present case, section 31306 states, “Except as explicitly provided in this chapter, no civil liability in favor of any private party shall arise . . . .” This constitutes an express statement of unequivocal legislative intent that the statute of limitations provisions in sections 31303 and 31304 are to be the sole controlling limits on the time for filing suit under the Franchise Investment Law.

As to Mr. Han and Mr. Howe, they argue they filed suit within four years of the execution of their local franchise agreements. Hence, Mr. Han and Mr. Howe argue they are entitled to the one-year period of limitations in sections 31303 and 31304. Mr. Han alleged that misrepresentations were made concerning the profitability of a SpeeDee Oil franchise. Mr. Han and his late father signed their local franchise agreement on March 29, 1991. There is no evidence Mr. Han or his late father ever relied on any documents provided to the Commissioner of Corporations. In the absence of such reliance, no liability can arise under section 31300. Therefore, the four-year

Mr. Howe signed his local franchise agreement on March 23, 1992. Mr. Howe never testified he relied on any documents filed with the Commissioner of Corporations. Nor did Mr. Howe testify that he relied on any statements made concerning documents filed with the Commissioner of Corporations or the contents of the uniform franchise offering circular. In fact, Mr. Howe testified he did not look at the uniform franchise offering circular “that well” but merely that he “probably looked at it.” Simply stated, Mr. Howe never relied on any documents which were provided to him or filed with the Commissioner of Corporations. Therefore, the outside four-year statute of limitations in section 31303—which governs liability premised on misleading statements in franchise documents filed with the Commissioner of Corporations or papers required by section 31101 to be provided to a franchisee—is unavailable to Mr. Howe.

The question remains whether Mr. Howe can benefit from the two-year statute of limitations in section 31304, which applies to written or oral misrepresentations made by a franchisor. Mr. Howe testified that he relied on oral statements concerning site selection made by various representatives of CalNeva. However, the representations were all made prior to the March 23, 1992, execution of his local franchise agreement. As noted previously, the section 31304 two-year statute of limitations is the outer limit for claims for misleading statements made by franchisor representatives as occurred in this case. Since the complaint in intervention was not filed until October 21, 1994, more than two years after the March 23, 1992, execution of his local franchise agreement and representations which led up to its signing, all of Mr. Howe’s Franchise Investment Law claims are time-barred.

Finally, we explain why, as a matter of statutory interpretation, the two-year and four-year periods set forth in sections 31304 and 31303 respectively impose absolute limits. We apply the standard of statutory