FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RED LION HOTELS FRANCHISING,
INC.,
Plaintiff-counter-defendant-
Appellee,
No. 10-35465
v.
MAK, LLC; MAHMOUD KARIMI, D.C. No.
2:08-cv-00262-EFS
AKA Mike Karimi; JANE DOE
OPINION
KARIMI, individually and as a
marital community,
Defendants-counter-claimants-
Appellants.
Appeal from the United States District Court
for the Eastern District of Washington
Edward F. Shea, District Judge, Presiding
Argued and Submitted
June 7, 2011—Seattle, Washington
Filed December 7, 2011
Before: Stephen Reinhardt, William A. Fletcher, and
Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge William A. Fletcher;
Partial Concurrence and Partial Dissent by Judge Rawlinson
20795
RED LION HOTELS v. MAK, LLC 20797
COUNSEL
Douglas Clayton Berry, GRAHAM & DUNN, PC, Seattle,
Washington, for the appellee.
Michael Karimi; LAW OFFICE OF MICHAEL KARIMI,
Modesto, California, Michael A. Maurer, LUKINS & ANNIS,
P.S., Spokane, Washington, for the appellants.
20798 RED LION HOTELS v. MAK, LLC
OPINION
W. FLETCHER, Circuit Judge:
This litigation arises out of a franchise agreement between
West Coast Hotels, Inc., and Mahmoud (“Mike”) Karimi. The
successor in interest to West Coast Hotels is Red Lion Hotels
Franchising, Inc. (“Red Lion”). West Coast Hotels was, and
Red Lion is, incorporated in Washington State with their
headquarters in Spokane. Karimi and his hotel management
company MAK, LLC (collectively, “Karimi”) operated a Red
Lion franchise in Modesto, California. Red Lion terminated
the franchise and sued Karimi for breach of contract. Karimi
counterclaimed, asserting state-law claims, including a claim
based on the “franchisee bill of rights” of the Washington
Franchise Investment Protection Act (“FIPA”).
The district court granted summary judgment to Red Lion
on Karimi’s counterclaim under FIPA’s bill of rights on the
ground that FIPA does not apply extraterritorially. After a
bench trial, the court held for Red Lion on its contract claim.
The primary question before us is whether a non-
Washington franchisee may assert a claim against a Washing-
ton franchisor under FIPA’s bill of rights. For the reasons
explained in this opinion, we conclude that an out-of-state
franchisee may assert such a claim against an in-state franchi-
sor.
I. Background
Mike Karimi has worked in the hotel industry since the
1980s. He owns a hotel management company, MAK, LLC,
and operates several hotels through MAK.
In 2004, the Khatri brothers, friends of Karimi’s, asked him
to take over the operation of a hotel they owned in Modesto,
California. Karimi was concerned about doing so because the
RED LION HOTELS v. MAK, LLC 20799
hotel was in poor condition — only 40 out of 186 guest rooms
were usable — and needed significant renovations. Nonethe-
less, Karimi assumed the former operator’s 99-year lease on
December 1, 2004. Shortly thereafter, Karimi negotiated a
franchise agreement with West Coast Hotels. For conve-
nience, we will refer to West Coast Hotels, and to its succes-
sor in interest Red Lion, simply as Red Lion. Karimi asked
for and received certain non-standard concessions in the fran-
chise agreement. The franchise term was shortened to five
years; the royalty fee for the first year of operations was
reduced; and Karimi was given the option to terminate the
agreement in the first year without having to pay liquidated
damages.
The franchise agreement contained several sections relating
to hotel quality and improvements. One section provided that
[Red Lion] may from time to time require you to
modernize, rehabilitate and/or upgrade the Hotel’s
fixtures, equipment, furnishings, furniture, signs,
computer hardware and software and related equip-
ment, supplies and other items to meet the then cur-
rent standards and specifications specified in the
Manual. . . . [Y]ou will make all these changes at
your sole cost and expense. . . . We may make lim-
ited exceptions to some of those standards based on
local conditions or special circumstances but we are
not required to do so.
Red Lion reserved the right to change its Manual, a written
collection of standards and requirements for franchises, at any
time. The agreement required Karimi to bear the costs of
complying with any new standards. The agreement also gave
Red Lion the right to inspect the hotel at any time to deter-
mine whether it complied with standards set forth in the
agreement and the Manual.
The franchise agreement also contained provisions relating
to termination of the franchise. Section 14(a) gave Red Lion
20800 RED LION HOTELS v. MAK, LLC
the power to terminate the agreement if the franchisee failed
to cure an “Event of Default” within thirty days after notice.
That section provided:
An “Event of Default” will occur if you fail to sat-
isfy or comply with any of the obligations, require-
ments, conditions, or terms set forth in . . . this
Agreement, the Manual . . . , or any attachment to
this Agreement . . . . An “Event of Default” will also
occur if you make any misrepresentations to us,
whether in entering into this Agreement, or in the
performance of your obligations to us.
Section 14(c) provided that if Red Lion terminated the agree-
ment under Section 14(a), Red Lion would receive liquidated
damages.
Finally, the agreement contained a choice-of-law provision
in the event of litigation. Section 16(b) provided:
[T]his Agreement, all relations between us, and any
and all disputes between us, whether sounding in
contract, tort, or otherwise, are to be exclusively
construed in accordance with and/or governed by (as
applicable) the laws of the State of Washington with-
out recourse to Washington (or any other) choice of
law or conflicts of law principles. . . . Nothing in this
section is intended to invoke the application of any
franchise, business opportunity, antitrust, “implied
covenant,” unfair competition, fiduciary or any other
doctrine of law of the State of Washington or any
other state which would not otherwise apply absent
this Paragraph 16.b.
After the franchise agreement became effective on Febru-
ary 1, 2005, Karimi began renovating the hotel. Among other
things, he purchased new bedding, furniture, wallpaper, ped-
estal sinks, and air-conditioning units, and replaced the exte-
RED LION HOTELS v. MAK, LLC 20801
rior brick face with stucco. Karimi testified at trial that he
spent around $1.5 million on the renovations.
In early 2005, Red Lion began a concerted effort to
improve the quality of its hotels. A central part of the effort
was the creation of new “brand standards,” which were to
apply to all hotels in the chain. The new brand standards were
based on AAA’s rating system, which awards hotels between
one and five diamonds. Red Lion’s standards were based on
AAA’s three-diamond standard. The new standards were
announced to franchise owners at a meeting in January 2007.
Franchise owners were told that they would receive a Prop-
erty Improvement Plan, or PIP, that contained individualized
lists of required improvements for each hotel.
Karimi was unable to attend the January 2007 meeting
because he was hospitalized, but he was told in a February 20,
2007 letter from Red Lion that he would be given a PIP that
would have to be completed by December 31, 2007. At some
point in early 2007, Michael Castro, then the Director of
Brand Services at Red Lion, met with Karimi at the Red Lion
Modesto to prepare the PIP for the hotel. Castro sent the com-
pleted PIP to Karimi on May 15, 2007. The PIP contained
more than 100 required improvements. Karimi refused to sign
the PIP because of one requirement. He had installed pedestal
sinks as part of his improvements to the hotel; the PIP
required, instead, granite vanities with undermounted sinks.
Karimi testified at trial that he had discussed the sink issue
with Castro, and that Castro had granted him a waiver for
pedestal sinks. Castro testified that he could not recall grant-
ing such a waiver. Karimi testified that he asked for a revised
PIP, but that none was ever sent.
Under the original PIP sent by Castro, MAK was required
to receive written confirmation from Red Lion that all furni-
ture, fixtures, and equipment met or exceeded brand stan-
dards. The PIP also required written approval from Red Lion
of any “changes or revisions to [the] scope of work or design
20802 RED LION HOTELS v. MAK, LLC
elements.” Finally, any extensions of more than 90 days after
the December 31, 2007 deadline required written approval
from Red Lion.
In July 2007, John Taffin, an executive vice president at
Red Lion, toured the Red Lion Modesto to assess progress on
the PIP. In September 2007, Taffin sent Karimi a letter
reminding him of the December deadline. On October 10,
2007, a third-party contractor conducted an annual inspection
of Karimi’s franchise, as specified in Red Lion’s brand stan-
dards manual. Karimi received a grade of eighty-five percent,
one point less than the passing grade of eighty-six percent. In
late November 2007, Todd Cooley, who had succeeded Mike
Castro as the director of brand services, inspected the Red
Lion Modesto. He testified at trial that the hotel looked “old
and tired,” and that the renovations were “substantially
incomplete.”
From November 2007 until June 2008, there was no contact
between Karimi and Red Lion about either the PIP or the
December 31, 2007 deadline. In early June 2008, Mark Fiel-
ding, an accountant at Red Lion, stayed in the Modesto hotel
while attending a wedding. Cooley had given Fielding a brand
standards manual and had asked him to “look around” the
hotel, although Fielding had no experience evaluating compli-
ance with brand standards. Fielding testified that he observed
that several fixtures in the bathroom did not comply with
brand standards and that the hotel looked “old, tired, worn
out, kind of well used.” He reported to Cooley that the hotel
“needed some TLC.”
On June 17, 2008, two weeks after Fielding’s stay at the
hotel, Red Lion sent Karimi a “Notice of Default and Termi-
nation.” Taffin testified that the Notice of Default was
prompted by a chain-wide decision to deal “aggressive[ly]”
with franchises that had not completed the PIPs by the
December 31, 2007 deadline. The Notice of Default included
an updated PIP containing a list of improvements that were
RED LION HOTELS v. MAK, LLC 20803
required to cure the default and avoid termination. The notice
stated:
You must immediately demonstrate to us that
MAK, LLC is making the necessary improvements
to the Hotel in compliance with the PIP, and has a
reasonable expectation of completing all required
improvements in a time frame that is acceptable to
us.
IF MAK, LLC DEFAULTS ARE NOT
TIMELY CURED TO RED LION’S SATISFAC-
TION, MAK, LCC’S Franchise License Agree-
ment shall be deemed to have been terminated
without further notice to MAK, LLC 30 days
from the effective date of this Notice.
(Emphasis in original.)
Karimi replied on June 19, stating that all but four items
from the updated PIP had been completed, and that the
remaining items would be completed by August 2008. Karimi
also wrote that “should that scheduled completion time be
unacceptable to Red Lion Hotels we are prepared to complete
our entire PIP within 30 days from the effective date of [Red
Lion’s] notice. Since we have no guidance as to what would
be an acceptable time frame to Red Lion Hotels, I trust that
if our current scheduled completion date is unacceptable in
the judgment of Red Lion Hotels, the fact of that judgment
will be communicated to me without delay.”
Red Lion did not send a letter in response to Karimi’s June
19 letter. Instead, Cooley personally visited the hotel on July
9. In an inspection that lasted about ten minutes, Cooley
determined that the improvements that Karimi said had been
completed were, in fact, “substantially incomplete” and “the
things that Mr. Karimi had implied . . . [weren’t] accurate.”
Cooley took several photographs during his inspection. At
20804 RED LION HOTELS v. MAK, LLC
trial, the parties vigorously disputed whether the photographs
were actually from July 2008 rather than from Cooley’s
November 2007 visit. Lori Knoll, the Red Lion Modesto’s
manager, and Michel Cockrum, who did hotel maintenance,
testified that the photographs could not have been taken in
July 2008, because they depicted features of the hotel that had
been changed by July 2008. However, Gurdial Dhatt, Red
Lion’s director of Information Technology, testified that
metadata in the electronic files showed that the pictures were
indeed taken on July 9, 2008, and Karimi’s expert agreed that
the metadata on those pictures did not appear to have been
altered.
After Cooley’s July 2008 inspection, Red Lion decided that
Karimi’s letter was “not an accurate portrayal of what was
happening at the property.” On July 30, 2008, Red Lion sent
Karimi a letter terminating his franchise agreement on the
ground that “the improvements were not consistently applied
to the entire property as represented in [Karimi’s] letter.”
Red Lion then sued MAK, Karimi, and Karimi’s wife in
federal district court, asserting breach of the franchise agree-
ment and its accompanying personal guarantees, and seeking
liquidated damages. Defendants counterclaimed for violations
of Washington’s Franchise Investment Protection Act
(“FIPA”), Washington’s Consumer Protection Act (“CPA”),
and breach of the franchise agreement.
Red Lion moved for summary judgment on Karimi’s FIPA
and CPA counterclaims. The district court granted summary
judgment on the FIPA claim, holding that a California com-
pany operating a franchise in California could not invoke
FIPA against Red Lion because “the overall statutory scheme
evinces the legislature’s intent to confine FIPA’s reach to
franchises operating ‘in this state’ [i.e., Washington].”
Because Karimi’s CPA claim was predicated on his FIPA
claim, the court also granted summary judgment on the CPA
claim.
RED LION HOTELS v. MAK, LLC 20805
After a bench trial on the remaining claims, the district
court found that Karimi had not complied with Red Lion’s
brand standards or the PIP, and that he had not been granted
waivers that would excuse his noncompliance. The district
court credited Taffin, Cooley, and Castro’s testimony, and
found that Cooley’s photographs had been taken during his
July 2008 hotel inspection. The court further found that
Karimi’s June 19, 2008 letter had misrepresented the state of
the improvements to the hotel. The court held that Karimi had
failed to comply with the franchise agreement and that Red
Lion was justified in terminating the agreement. The court did
not specifically address Karimi’s affirmative defense that Red
Lion was equitably estopped from terminating the franchise
agreement. The court entered judgment in favor of Red Lion
and awarded damages and attorney’s fees to Red Lion.
Karimi timely appealed. In his appeal, he argues that (1)
FIPA’s “bill of rights” applies to his franchise, even though
it is located outside Washington State, (2) Red Lion was equi-
tably estopped from terminating the franchise agreement, and
(3) entry of judgment against his wife was improper because
she was not a party to the franchise agreement or its accompa-
nying personal guarantee.
II. Standard of Review
We review a grant of summary judgment de novo. We must
determine, viewing the evidence in the light most favorable to
the non-moving party, whether the district court correctly
applied the relevant substantive law and whether there are any
genuine issues of material fact. FreecycleSunnyvale v. Free-
cycle Network, 626 F.3d 509, 514 (9th Cir. 2010).
We review a district court’s findings of fact for clear error.
OneBeacon Ins. Co. v. Haas Indus., Inc., 634 F.3d 1092, 1096
(9th Cir. 2011). A finding of fact is clearly erroneous “if it is
(1) illogical, (2) implausible, or (3) without support in infer-
ences that may be drawn from the facts in the record.” Seller
20806 RED LION HOTELS v. MAK, LLC
Agency Council, Inc. v. Kennedy Ctr. for Real Estate Educ.,
Inc., 621 F.3d 981, 986 (9th Cir. 2010). (internal quotation
marks and citation omitted). The court’s conclusions of law
are reviewed de novo. OneBeacon Ins. Co., 634 F.3d at 1096.
We review a district court’s rejection of an equitable estop-
pel defense for abuse of discretion. Kingman Reef Atoll Invs.,
LLC v. United States, 541 F.3d 1189, 1195 (9th Cir. 2008).
III. Discussion
A. FIPA Claim
Under the choice-of-law provision in the franchise agree-
ment, Washington law applies to this dispute “without
recourse to Washington (or any other) choice of law or con-
flicts of law principles.” We construe the provision to mean
that we should apply Washington law only insofar as that law,
according to its own terms, would be applicable.
[1] The question before us is whether Washington’s Fran-
chise Investment Protection Act (“FIPA”) applies to MAK, a
non-Washington franchisee in its relationship with Red Lion,
a Washington franchisor. FIPA was enacted “to curb franchi-
sor sales abuses and unfair competitive practices.” Corporate
Res., Inc. v. Eagle Hardware & Garden, Inc., 62 P.3d 544,
546 (Wash. Ct. App. 2003). FIPA deals mainly with registra-
tion and disclosure requirements, but it also contains a
“franchisee bill of rights,” which is intended to “ameliorate[ ]
the non-negotiable nature of the franchisor-franchisee rela-
tionship.” East Wind Express, Inc. v. Airborne Freight Corp.,
974 P.2d 369, 372 (Wash. Ct. App. 1999); WASH. REV. CODE
§ 19.100.180. Karimi alleges that Red Lion violated provi-
sions of FIPA’s bill of rights. FIPA does not specify a remedy
for a violation of the bill of rights, but a franchisee may bring
an action under Washington’s Consumer Protection Act based
on a FIPA violation. Id. § 19.86.020 (Consumer Protection
Act); see also Nelson v. Nat’l Fund Raising Consultants, Inc.,
RED LION HOTELS v. MAK, LLC 20807
842 P.2d 473, 478 (Wash. 1992) (“The Legislature has pro-
vided [that] violations of the Franchise Investment Protection
Act are per se unfair trade practices under the Consumer Pro-
tection Act.”).
[2] FIPA’s bill of rights does not contain—indeed, has
never contained—language limiting its application to the rela-
tion between a franchisor and franchisee “in this state.” The
bill of rights provides:
Relation between franchisor and franchisee —
Rights and prohibitions.
Without limiting the other provisions of this chapter,
the following specific rights and prohibitions shall
govern the relation between the franchisor or sub-
franchisor and the franchisees:
(1) The parties shall deal with each other in
good faith.
(2) For the purposes of this chapter and
without limiting its general application, it
shall be an unfair or deceptive act or prac-
tice or an unfair method of competition and
therefore unlawful and a violation of this
chapter for any person to:
(a-j) [listing prohibited acts, practices,
and unfair methods of competition]
WASH. REV. CODE § 19.100.180.
[3] By contrast, several of FIPA’s provisions contain an
explicit statement that they apply to actions “in this state,”
with the clear implication that they apply only “in this state.”
These provisions are as follows, with emphasis added
throughout. The sale, or offer of sale, of a franchise in the
20808 RED LION HOTELS v. MAK, LLC
state must be registered in the state. WASH. REV. CODE
§ 19.100.020 (“It is unlawful for any franchisor or subfranchi-
sor to sell or offer to sell any franchise in this state unless the
offer of the franchise has been registered . . .”). Advertise-
ments published in the state for sale of a franchise that is sub-
ject to FIPA’s registration requirement must be filed with the
state director of financial institutions. Id. § 19.100.100 (“No
person shall publish in this state any advertisements offering
a franchise subject to the registration requirements of this law
unless a true copy of the advertisement has been filed in the
office of the director . . . .”). No advertisement concerning a
franchise subject to FIPA’s registration requirement may be
published in the state after the director has found it contains
a false or misleading statement. Id. § 19.100.110 (“No person
shall publish in this state any advertisement concerning a
franchise subject to the registration requirements of this chap-
ter after the director finds that the advertisement contains any
statements that are false or misleading . . . .”). Any franchise
broker selling or offering to sell a franchise in the state must
register with the state. Id. § 19.100.140 (“It is unlawful for
any franchise broker to offer to sell or sell a franchise in this
state unless the franchise broker is registered under this chap-
ter.”). Untrue statements of material fact or the employment
of any fraudulent device, scheme, or artifice, in connection
with any offer or sale of a franchise in the state are forbidden.
Id. § 19.100.170 (“It is unlawful for any person in connection
with the offer, sale, or purchase of any franchise or subfran-
chise in this state directly or indirectly: (1) To make any
untrue statement of material fact in any application, notice, or
report filed with the director under this law . . . . (3) To
employ any device, scheme, or artifice to defraud.”).
In 1991, the Washington legislature amended FIPA to pro-
vide a definition of the phrase “in this state” contained in the
statute. The legislature did so largely based on a law review
article written some years earlier by Professor Donald Chisum
of the University of Washington Law School, who had
pointed out that the meaning of “in this state” was unclear.
RED LION HOTELS v. MAK, LLC 20809
See Donald S. Chisum, State Regulation of Franchising: The
Washington Experience, 48 WASH. L. REV. 291, 337-38
(1973). Professor Chisum recommended that Washington
adopt a definition comparable to the definition contained in
California’s Franchise Investment Law. Id. The Washington
legislature amended FIPA to include a definition similar to
that which Professor Chisum had recommended. 1991 Wash.
Legis. Serv. Ch. 226 (West).
By its terms, the definition of “in this state” provided by the
1991 amendments applies only to § 19.100.020. See WASH.
REV. CODE § 19.100.020(2) (“For the purposes of this section,
an offer to sell a franchise is made in this state when: (a) The
offer is directed by the offeror into this state from within or
outside this state and is received where it is directed, (b) the
offer originates from this state and violates the franchise or
business opportunity law of the state or foreign jurisdiction
into which it is directed, (c) the offeree is a resident of this
state, or (d) the franchise business that is the subject of the
offer is to be located or operated, wholly or partly, in this
state.”); id. § 19.100.020(3) (“For the purpose of this section,
a sale of any franchise is made in this state when: (a) An offer
to sell is accepted in this state, (b) an offer originating from
this state is accepted and violates the franchise or business
opportunity law of the state or foreign jurisdiction in which it
is accepted, (c) the purchaser of the franchise is a resident of
this state, or (d) the franchise business that is the subject of
the sale is to be located or operated, wholly or partly, in this
state.”).
The district court recognized that § 19.100.180, the FIPA
provision at issue here, does not contain the phrase “in this
state” or any other a territorial limitation. It nonetheless con-
cluded that the “overall statutory scheme,” as well as the 1991
amendments prompted by Professor Chisum’s recommenda-
tion, “evince[ ] the legislature’s intent to confine FIPA’s reach
to franchises operating ‘in this state.’ ” In support of its con-
clusion, the district court cited the provisions of FIPA that do
20810 RED LION HOTELS v. MAK, LLC
contain territorial limitations. We disagree with the court’s
conclusion.
In recommending that a definition of the phrase “in this
state” be added to § 19.100.020, Professor Chisum did not
suggest that all of FIPA was territorially limited. On the con-
trary, he distinguished between the sale-related provisions of
FIPA, which were modeled after a California law, and the
franchisee bill of rights, which he called “unique” to Wash-
ington. Chisum, State Regulation of Franchising, 48 WASH. L.
REV. at 370. As to the latter, he wrote that “The Act does not
indicate the territorial coverage of [the franchisee bill of
rights].” Id. at 341. Chisum did not recommend that the legis-
lature add a territorial limitation to the franchisee bill of
rights. He recommended only that the legislature define the
limitation where it already existed in FIPA. The Washington
legislature did no more than what Professor Chisum recom-
mended.
FIPA’s bill of rights applies to the “relation between the
franchisor or subfranchisor and the franchisees.” WASH. REV.
CODE § 10.100.180. “Franchisor” is defined in FIPA as “a per-
son who grants a franchise to another person.” Id.
§ 19.100.010(8). “Franchisee” is defined as “a person to
whom a franchise is offered or granted.” Id. § 19.100.010(7).
A “franchise” is defined as “[a]n agreement, express or
implied, oral or written, by which: (i) A person is granted the
right to engage in the business of offering, selling, or distrib-
uting goods or services under a marketing plan prescribed or
suggested in substantial part by the grantor or its affiliate; (ii)
The operation of the business is substantially associated with
a trademark, service mark, trade name, advertising, or other
commercial symbol designating, owned by, or licensed by the
grantor or its affiliate; and (iii) The person pays, agrees to
pay, or is required to pay, directly or indirectly, a franchise
fee.” Id. § 19.100.010(4).
[4] As a matter of general principle, “[i]f a state law does
not have limitations on its geographical scope, courts will
RED LION HOTELS v. MAK, LLC 20811
apply it to a contract governed by that state’s law, even if
parts of the contract are performed outside of the state.”
Gravquick A/S v. Trimble Navigation Int’l, Ltd., 323 F.3d
1219, 1223 (9th Cir. 2003). The fact that FIPA’s provisions
relating to sales of franchises contain a territorial limitation
does not lead us to conclude that FIPA’s bill of rights is simi-
larly limited. Indeed, the inclusion of explicit territorial limi-
tations in the sale-related provision, and the failure to include
such a limitation in the bill of rights, suggests the opposite
conclusion. Under ordinary rules of statutory construction, we
presume that the Washington legislature made a deliberate
choice to impose territorial limitations on some, but not all,
of FIPA’s provisions. “[W]here [the legislature] includes par-
ticular language in one section of a statute but omits it in
another section of the same Act, it is generally presumed that
[the legislature] acts intentionally and purposely in the dispa-
rate inclusion or exclusion.” Kucana v. Holder, 130 S. Ct.
827, 838 (2010) (internal quotation marks and citation omit-
ted); see also In re Detention of D.F.F., 183 P.3d 302, 306
(Wash. App. 2008) (“When a statute or rule provides for spe-
cifically enumerated exceptions, we presume that the absence
of other exceptions is intentional.”).
The district court relied on Taylor v. 1-800-Got-Junk?,
LLC, 632 F. Supp. 2d 1048 (W.D. Wash. 2009), in reaching
its conclusion that FIPA does not protect Karimi. In Taylor,
plaintiff franchisees were residents of Oregon who owned and
operated a franchise in Oregon. Defendant franchisor was a
Delaware corporation with headquarters in Vancouver, British
Columbia, Canada. The franchise agreement provided for the
application of Washington law. Id. at 1049. After the franchi-
sor terminated the franchise agreement, plaintiffs sued, alleg-
ing fraud. Id. at 1050. The franchisor argued that plaintiffs
had waived their FIPA claims in a previous settlement. The
plaintiffs, in response, pointed to FIPA’s anti-waiver provi-
sion, WASH. REV. CODE § 19.100.220, which invalidates cer-
tain settlements of FIPA claims. Id. at 1051. Taylor thus
20812 RED LION HOTELS v. MAK, LLC
turned on whether FIPA’s anti-waiver provision applied. Id.
at 1051.
The Taylor court concluded that the presence of territorial
limitations in the sale-related provisions of FIPA, combined
with the 1991 amendments, means that FIPA does not apply
to a franchise agreement in which both franchisor and franchi-
see are located outside Washington, and in which the plain-
tiffs’ claims are based on events that occurred outside
Washington. Id. at 1052, 1054. The court concluded that the
settlement was valid and that plaintiffs had therefore waived
their claims. Id. at 1054-55.
To the degree that the district court’s opinion in Taylor can
be read to hold that all provisions of FIPA are limited by the
explicit territorial limitations in its sale-related provisions, we
disagree with that reading. But it is clear that the Taylor court
reached the right result on the facts of the case. Plaintiffs’
underlying FIPA claim was for fraud in the sale of the fran-
chise, and FIPA’s fraud provision contains an explicit territo-
rial limitation. Id. at 1050; WASH. REV. CODE § 19.100.170.
Further, the dispute had no connection to Washington other
than the choice-of-law and choice-of-forum clause in the fran-
chise agreement. Neither the franchisor nor the franchisee was
a Washington citizen or resident; the franchise was located
outside Washington; the alleged fraud on which the suit was
based occurred outside Washington; and the settlement agree-
ment was reached outside Washington. Under these circum-
stances, the district court in Taylor was clearly correct in
concluding that the Washington legislature did not intend
FIPA to apply, even though the anti-waiver provision,
§ 19.100.220, did not contain an explicit territorial limitation.
However, we conclude that FIPA’s bill of rights does apply
to the case before us. In his 1973 article, Professor Chisum
discussed the likely application of FIPA’s bill of rights to the
case in which a franchise or franchisee is located in Washing-
ton. Chisum at 341-42. His view was that FIPA’s bill of rights
RED LION HOTELS v. MAK, LLC 20813
should apply to a franchise located in Washington, “especial-
ly” if the franchisee, as well as the franchise, are located in
Washington. Id. at 341. The reason is obvious: The Washing-
ton legislature wished to protect Washington franchises and
franchisees from unfair practices by out-of-state franchisors.
[5] Professor Chisum did not discuss the case in which an
out-of-state franchise or franchisee seeks protection against a
franchisor located in Washington. Despite this lack of discus-
sion it is easy to see why the Washington legislature might
have wanted to apply FIPA’s bill of rights to all franchises
and franchisees of Washington franchisors. For example, the
legislature might have wanted to reassure potential out-of-
state franchisees that they will be fairly treated by, and
thereby encourage them to do business with, Washington
franchisors.
Professor Chisum noted that Washington’s FIPA was mod-
eled in part on California’s Franchise Investment Law, and his
recommendation that FIPA be amended to contain a definition
of “in this state” was based on a desire to conform Washing-
ton to California law. Id. at 335, 337-38. In Gravquick, we
construed California’s Equipment Dealers Act (a subspecies
of California franchise law) to protect a non-California dealer
against the unfair practices of a California dealer. Gravquick
A/S v. Thimble Navigation Int’l Ltd., 323 F.3d 1219, 1223
(9th Cir. 2003) If Gravquick’s interpretation of California’s
Equipment Dealer’s Act is applied to Washington’s FIPA bill
of rights, an out-of-state franchise and franchisee are pro-
tected against practices of a Washington franchisor that are
illegal under FIPA’s bill of rights.
[6] We conclude the best interpretation of FIPA’s bill of
rights is the same as our interpretation of California’s analo-
gous Equipment Dealers Act. In the case now before us, the
franchisor is incorporated in Washington and has its head-
quarters in Washington, and the franchise agreement provides
for the application of Washington law. We hold that FIPA’s
20814 RED LION HOTELS v. MAK, LLC
bill of rights applies to this dispute even though the franchise
is located outside Washington.
[7] Red Lion argues that even if the FIPA’s bill of rights
applies to the franchise agreement, Karimi’s only remedy is
a claim under the CPA, and only Washington residents can
bring CPA claims. At the time of the briefing in this case, the
Washington Supreme Court had recently held that, in the con-
text of the case before it, the CPA was limited to claims
brought by Washington residents. Schnall v. AT&T Wireless
Servs., Inc., 225 P.3d 929, 938-39 (Wash. 2010). However,
the Washington Supreme Court has since withdrawn that por-
tion of the opinion. Schnall v. AT&T Wireless Servs., Inc., 171
Wash. 2d 260, ___ P.3d ___ (Wash. 2011). The territorial
reach of the CPA is thus an open question. We agree with Red
Lion that the CPA provides the remedy for violation of
FIPA’s bill of rights. We remand to the district court to con-
sider the merits of Karimi’s FIPA counterclaim under FIPA’s
bill of rights and to determine whether Karimi is entitled to
a remedy under the CPA.
B. Equitable Estoppel
Karimi argues, independent of any defense under FIPA’s
bill of rights, that Red Lion is equitably estopped under
Washington law from terminating the franchise agreement.
Red Lion argues under Washington law that it is not equitably
estopped. Karimi points to Red Lion’s June 17 letter requiring
him to complete the PIP “in a time frame that is acceptable
to us.” Karimi notes that he wrote back immediately to Red
Lion with a proposal to finish the work by August and with
a request that Red Lion tell him whether his proposed sched-
ule was acceptable. He offered in his letter to complete the
PIP within 30 days if necessary. Rather than respond directly
to the letter, Red Lion terminated the agreement on July 30,
2008.
Under Washington law, equitable estoppel requires (1) a
statement or act inconsistent with the claim afterwards
RED LION HOTELS v. MAK, LLC 20815
asserted; (2) an action by the other party on the faith of that
statement or act; and (3) an injury to the other party if the
claimant is allowed to contradict or repudiate his earlier state-
ment or act. Liebergesell v. Evans, 613 P.2d 1170, 1175
(Wash. 1980). A party claiming estoppel must “be free from
fault in the transaction at issue,” Rhoades v. City of Battle
Ground, 63 P.3d 142, 151 (Wash. Ct. App. 2002), and “must
have proceeded in good faith and with clean hands,” Mut. of
Enumclaw Ins. Co. v. Cox, 757 P.2d 499, 503 (Wash. 1988)
(internal quotation marks and citation omitted). “A person
may not base a claim of estoppel on conduct . . . induced by
his own conduct, concealment, or representations, especially
when fraudulent.” Id. (internal citation marks and quotation
omitted).
[8] Red Lion terminated the franchise agreement based on
its conclusion that Karimi had misrepresented conditions in
the hotel in his June 19 letter. The district court specifically
credited the Red Lion managers’ testimony and found that the
pictures Cooley took in July 2008 accurately depicted the
state of the hotel. The court found that Karimi’s description
of his progress in the June 19 letter was “not accurate,” “that
Mr. Cooley was correct in his assertions that [the PIP items]
were not carried out, that there were misrepresentations and
that, indeed, the Red Lion was justified in terminating the
franchise.” Karimi has not challenged those factual findings.
Thus, Karimi was not “free from fault” in the transaction. See
Rhoades, 63 P.3d at 151. On the contrary, according to Red
Lion managers’ credible testimony, Karimi’s misrepresenta-
tions led directly to the decision to terminate the franchise
agreement. Karimi therefore cannot succeed on an equitable
estoppel defense. Mut. of Enumclaw Ins. Co., 757 P.2d at 503.
C. Judgment Against Karimi’s Wife
Karimi contends on appeal that the district court entered
judgment against his wife improperly, given that she was
20816 RED LION HOTELS v. MAK, LLC
never a party to any agreement with Red Lion. Karimi did not
raise this argument in the district court.
Judgment was entered against Karimi’s wife, labeled Jane
Doe Karimi in the judgment, “individually and as a marital
community.” WASH. REV. CODE § 26.16.190 provides:
For all injuries committed by a married person or
domestic partner, there shall be no recovery against
the separate property of the other spouse or other
domestic partner except in cases where there would
be joint responsibility if the marriage or the state
registered domestic partnership did not exist.
[9] It appears that Karimi’s wife was not a party to any
agreement with Red Lion. We leave it to the district court on
remand to determine if there is any reason, procedural or sub-
stantive, why judgment should be entered against her, and, if
appropriate, to amend the judgment.
Conclusion
Because FIPA’s bill of rights applies to the franchise agree-
ment at issue in this case, we remand to the district court to
consider Karimi’s FIPA counterclaim and to determine the
availability of a remedy under the CPA. We agree with the
district court’s conclusion that Red Lion is not equitably
estopped from terminating the franchise agreement. We
remand for consideration by the district court of the entry of
judgment against Karimi’s wife. Costs on appeal to Appel-
lants.
REVERSED IN PART, AFFIRMED IN PART, AND
REMANDED.
RED LION HOTELS v. MAK, LLC 20817
RAWLINSON, Circuit Judge, concurring in part and dissent-
ing in part:
I concur in the majority’s conclusion that the franchisee
may not rely upon the doctrine of equitable estoppel to avoid
termination of the franchise agreement. However, I do not
join the decision to “leave it [to] the district court on remand
to determine if there is any reason judgment should be entered
against [the franchisee’s spouse] . . .” Because this issue was
not raised in the district court, it was not properly considered
on appeal. See State of Ariz. v. Components, Inc., 66 F.3d 213,
217 (9th Cir. 1995) (explaining that we do not reach issues
not raised in the district court). Because the issue was not
raised in district court, we should not address it at all. See id.
I also dissent from the majority’s holding that Washing-
ton’s Franchise Investment Protection Act may be applied to
the California franchise at issue in this case.
I start my analysis with the general understanding that a
state legislature does not act with intent to affect matters out-
side the borders of its state. See Grennan v. Crowley-Marine
Svcs., Inc., 116 P.3d 1024, 1029 (Wash. App. 2005) (discuss-
ing the presumption against extraterritoriality). A state legisla-
ture’s primary concern, understandably, is for the citizens the
state representatives were elected to represent. Indeed, a bed-
rock principle of our legal system is that each state has an
overriding interest in protecting the citizens of that state from
harm, and a much lesser interest in protecting citizens of other
states from harm. See Donald S. Chisum, State Regulation of
Franchising: The Washington Experience, 48 Wash. L. Rev.
291, 339 n.240 (1973) (noting that Washington’s interest is in
protecting Washington residents).
I also approach this analysis with the understanding that
because this case is in federal court pursuant to diversity juris-
diction, we must decide this case as we predict the Washing-
20818 RED LION HOTELS v. MAK, LLC
ton state courts would. See Allstate Ins. Co. v. Hughes, 358
F.3d 1089, 1094 (9th Cir. 2004).
The majority opinion relies on Professor Chisum’s law
review article to support its conclusion that Washington’s
franchisee bill of rights applies outside the state. See Majority
Opinion, p. 20810. The majority reads Professor Chisum’s
article as “recommend[ing] only that the legislature define the
[territorial] limitation where it already existed in the [Fran-
chise Investment Protection Act] . . . .” Id. That reading is not
completely accurate. Rather, Professor Chisum specifically
suggested that the legislature should do as the California leg-
islature had done and define the term “in this state.” Chisum,
State Regulation of Franchising, 48 Wash. L. Rev. at 337-38.
That suggestion pertained only to “advertising, soliciting and
selling franchises . . .” Id. at 337. As to Section 18, Professor
Chisum recommended that it “be construed as applying to all
franchises located in Washington . . . Id. at 341 (emphasis
added); see also, id. at 339 n.240 (focusing on Washington
residents and not residents of other states). If, as the majority
posits, the legislature took its cue from Professor Chisum,
there would be no need to further refine the provisions of Sec-
tion 18 because as the majority noted, Professor Chisum made
no recommendation to change Section 18. The lack of a rec-
ommendation is understandable in view of Professor Chi-
sum’s interpretation limiting the provisions of Chapter 18 to
“franchises located in Washington. . . .” Id. at 341.
The professor’s interpretation is consistent with that of the
experienced district court judge, who is considerably more
familiar with Washington state law than are we. The district
court judge relied on a prior district court opinion, Taylor v.
1-800-Got-Junk?, LLC, 632 F. Supp. 2d 1048 (W.D. Wash.
2009). In that case, the district court concluded that “FIPA’s
legislative history confirms that its language defining conduct
‘in this state’ was intended to provide a territorial limitation
on the scope of the Act. . . .” Id. at 1052. The district court’s
observation encompassed the entire Act and not just certain
RED LION HOTELS v. MAK, LLC 20819
portions of the Act. The district court reiterated that the
amendment to the Act “demonstrate[d] a clear intent to limit
the territorial coverage of the Act to specific conduct that can
be said to occur” in the State of Washington. Id. As in Taylor,
the franchisee in this case conducted no business in the state
of Washington. Therefore, I would affirm the district court’s
decision that the Franchise Investment Protection Act was
unavailable to franchisee Red Lion Hotels. I dissent from the
majority’s holding to the contrary.