Red Lion Hotels Franchising Inc. v. MAK, LLC

The “Bill of Rights” contained in Washington’s Franchise Investment Protection Act is applicable as to a franchisor in Washington State and a Franchisee outside Washington State.

Mike Karimi, owner of MAK, LLC, (MAK) entered into a franchise agreement with West Coast Hotels in 2004 to operate a Red Lion Hotel in Modesto, California. Red Lion is incorporated in Washington State. The franchise agreement contained a choice-of-law provision which said all disputed would be governed by Washington law. In July 2008, Red Lion terminated the franchise agreement with MAK. Red Lion sued Karimi and his wife for breach of contract. Karimi counterclaimed for violation of Washington’s Franchise Investment Protection Act (FIPA), Washington’s consumer protection act (CPA), and breach of contract. District Court found for Red Lion on all claims. MAK appealed on three grounds; FIPA’s “Bill of Rights” governs this franchise relationship; Red Lion is equitably estopped from terminating the agreement; Entry of judgment against Mrs. Karimi is improper. A violation of FIPA allows the injured party to bring an action under the CPA. The question this Court decided was whether FIPA applied since MAK was located outside Washington State. The Court finds that the use of “in this state” was based on a California law, which did not contain the “bill of rights” found in Washington. Thus, the “bill of rights” was unique to Washington and should not be limited. Also, using statutory interpretation, the “in this state” term was only applied to certain provisions of FIPA and not to the “bill of rights”. For the estoppel claim, the Court finds that Karimi was not free from fault in the transaction, thus cannot claim estoppel against Red Lion. As for the judgment against Mrs. Karimi, the Court remands to the district court to find whether there is sufficient reason why judgment was entered against her, since she was not a party to the contract. REVERSED IN PART, AFFIRMED IN PART, AND REMANDED