Federal Court Dismisses Franchisee Complaint Against UNITS Franchising Group Based On Preemption And Inadequate Pleading

On July 9, 2026, the United States District Court for the Central District of California issued its decision in So Cal Storage, LLC et al. v. UNITS Franchising Group, Inc., 2026 WL 2045621 (C.D. Cal. July 9, 2026), granting a franchisor's motion to dismiss the franchisees’ claims arising from alleged misrepresentations, software failures, vendor restrictions, and misuse of advertising fund contributions. The court dismissed all claims after finding that many of the common law fraud claims were preempted by the California Franchise Investment Law and that the franchisees failed to adequately plead the other claims. The court dismissed the claims without prejudice and granted leave to amend.

FACTS AND RULINGS

The plaintiffs were four California franchisees operating UNITS Moving and Portable Storage businesses under separate franchise agreements entered between 2008 and 2022. The franchisees alleged that UNITS Franchising Group, Inc. made misrepresentations concerning its proprietary system, software, long-distance move revenue, and franchisee financial performance. They also alleged that the franchisor improperly restricted vendor choices, mishandled advertising fund contributions, and failed to provide adequate software support.

Choice-of-Law Provision Enforced as to Common Law Claims

A choice-of-law provision in the franchise agreement expressly excluded “any law regulating the sale of franchises or governing the relationship between a franchisor and franchisee.” The court thus concluded that the South Carolina choice-of-law provisions did not apply to the CFIL statutory claims but did apply to the common law claims, finding that “[t]here is no fundamental California state policy against applying a foreign jurisdiction’s statutes of limitations to claims brought within California courts. California public policy does not prohibit the application of the One-Year Limitation of Claim Clause.” (citations omitted). Applying South Carolina law, the court concluded, however, that the agreements’ one-year limitations period was unenforceable because South Carolina law prohibits contractual shortening of applicable statutes of limitations.

Fraud and Negligent Misrepresentation Claims Preempted by CFIL

The court held that the franchisees’ fraud and negligent misrepresentation claims were preempted by the California Franchise Investment Law because they were based on the same alleged disclosure violations underlying the statutory franchise claims. The court found that, despite the amendment of the CFIL’s preemption clause in 2023 under Cal. Corp. Code § 31306, “section 31306 still preempts fraud or misrepresentation claims based on CFIL violations before January 1, 2023.” The court thus found that all the alleged misrepresentations were within the scope of the CFIL and preempted.

UCL Claim Not Preempted, But Dismissed Based on Potentially Adequate Legal Remedies

The court found that the UCL claim was not entirely preempted because it was based in part on post-sale conduct, but dismissed the claim because the franchisees failed to plead that legal remedies were inadequate.

Software-Based Breach of Contract Claim Rejected

The court held that the franchise agreements did not expressly guarantee software functionality or support obligations and therefore failed to support a software-based breach of contract claim.

Advertising Fund Claims Dismissed

The court dismissed the advertising fund breach of contract claim because the complaint failed to identify the specific contractual provisions allegedly breached.

Implied Covenant, Accounting, and CFIL Claims Dismissed

The court dismissed claims for breach of the implied covenant of good faith and fair dealing, specific performance for an accounting, and violations of the CFIL, finding that the complaint failed to satisfy applicable pleading requirements.

KEY TAKEAWAYS

Common law fraud claims may be preempted when they merely duplicate alleged CFIL disclosure violations and fall within the statute.

Choice-of-law provisions in franchise agreements may be enforceable in California with respect to common law claims.

Franchise plaintiffs should identify specific contractual provisions allegedly breached.

Software-related claims may fail where franchise agreements do not expressly create performance or support obligations.

CFIL statutory claims sounding in fraud remain subject to Rule 9(b)’s heightened pleading standards in federal court and likely under similar state court standards for specific pleading.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.