Chin v. Advanced Fresh Concepts Franchise Corp.
194 Cal. App. 4th 704
| Cal. Ct. App. | 2011Background
- AFC is a California sushi franchisor; Chin is a Missouri franchisee under a 2002 and then a 2007 franchise agreement.
- The 2007 agreement contains a multipage arbitration provision with a delegation clause stating arbitrability issues shall be resolved by arbitration.
- Chin filed suit in Los Angeles Superior Court alleging breach of contract and related claims; AFC moved to compel arbitration.
- The trial court denied arbitration, finding the arbitration provision unconscionable for limiting damages and equitable relief.
- The issue on appeal was whether the delegation clause or other terms render the arbitration provision unconscionable and unenforceable.
- The appellate court reversed, holding the other terms were not unconscionable and the grant of arbitration should be enforced.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Delegation clause unconscionable? | Chin argues the delegation clause is unconscionable in an adhesion contract. | AFC contends the clause delegates arbitrability to the arbitrator and may be enforced unless unconscionable. | Delegation unconscionability not dispositive; other terms save arbitration clause. |
| Are other terms unconscionable apart from delegation? | Chin claims other terms in the arbitration provision are unconscionable. | AFC contends the remaining terms are not unconscionable and arbitration should proceed. | Other terms are not unconscionable; trial court erred by denying arbitration. |
| Cost and panel size (three arbitrators) unconscionable? | Chin relies on higher costs from a three-arbitrator panel as prohibitive. | AFC offered waiver and argues the clause is reasonably protective of damages. | Three-arbitrator requirement not unconscionable given waiver and record; not fatal to arbitration. |
| Damages limitations unconscionable? | Chin argues the cap on damages and attorney fees is one-sided and restrictive. | AFC argues limits are facially mutual and do not bar cognizable equitable claims or statutory remedies. | Damages and fees limitations are not unconscionable; not a basis to abstain from arbitration. |
Key Cases Cited
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (set of unconscionability elements and severability framework)
- Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (U.S. Supreme Court 2010) (delegation under FAA; limited applicability in state law)
- Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547 (Cal. App. 2004) (clarifies when arbitrator decides scope of arbitrability)
- Murphy v. Check ’N Go of California, Inc., 156 Cal.App.4th 138 (Cal. App. 2007) (delegation clause concerns in adhesion contracts)
- Ontiveros v. DHL Express (USA), Inc., 164 Cal.App.4th 494 (Cal. App. 2008) (adhesion contracts; delegation clauses may be unconscionable)
- Parada v. Superior Court, 176 Cal.App.4th 1554 (Cal. App. 2009) (costs in arbitration; context-specific; not controlling here)
- Keating v. Superior Court, 31 Cal.3d 584 (Cal. 1982) (arbitration in franchise context; enforceability despite adhesion)
- Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005) (scope and validity of arbitration agreements; unconscionability framework)