*1 margin shares in a call dur- RealNetworks NAGRAMPA, A. Connie
ing period, a black-out his RealNetworks Plaintiff-Appellant, pursuant lapse shares forfeited to a were argument This rests on Tuffs restriction. period as a conception blackout MAILCOUPS, INC.; The American “lapse If restriction.” we were assume Association, Arbitration arguendo period blackout could be Defendants-Appellees. restriction, lapse argu- considered a Tuffs ment fails because he did not forfeit his No. 03-15955. pursuant lapse RealNetworks stock to a United Court of Appeals, States
restriction, pursuant Agreement to the Ninth Circuit. Morgan he freely entered into with Stan- ley. paid Tuff could have down the debt Argued and En Submitted Morgan Stanley he owed order satis- Sept. Banc 2005. fy margin requirements. Had he done Filed Dec. so, Tuff have been all keep able shares, his blackout pe- RealNetworks fact, notwithstanding.
riod the purpose periods
of the blackout was to ensure that
Tuff retained his RealNetworks stock for period,
the duration the blackout not to
serve as a means to forfeit shares.
Tuff in effect asks this court to hold that a period opposite
blackout has the exact ef-
fect of intended purpose. its We decline
to do so.
IV. CONCLUSION affirm the judgment
We district court’s respect grounds
with to both of Tuffs
appeal. The taxable transfers occurred
when Tuff exercised options, his and 26 1.83-l(e) §
C.F.R. recogni- does not allow ordinary
tion of merely losses because the employer
taxpayer’s imposes pe- blackout against guard trading.
riods to insider
AFFIRMED *6 SCHROEDER,
Before Judge, Chief REINHARDT, KOZINSKI, THOMAS, O’SCANNLAIN, GRABER, WARDLAW, FISHER, GOULD, TALLMAN, CLIFTON, Circuit Judges.
Opinion Judge WARDLAW; by Partial by concurrence Partial Judge Dissent CLIFTON; O’Scannlain; Judge Dissent Dissent Judge KOZINSKI OPINION WARDLAW, Judge, Circuit with whom SCHROEDER, Chief Judge Judges REINHARDT, THOMAS, GRABER, FISHER, join, and GOULD and with Judge joins whom CLIFTON Part as to II-A and II-B.
The question before us is whether a provision to submit to arbitration in writ- ten franchise is valid and en- forceable, requiring therefore the district stay proceedings court to and refer the disputed franchise to arbitra- Bailey, Kate & Leslie Gordon A. Trial tion under Federal Arbitration Act Justice, Oakland, Lawyers CA; for Public (2000). (“FAA”), §§ 9 U.S.C. 1-16 In a *7 Bland, F. Paul Trial for Lawyers Public a opinion, three-judge pan- now-withdrawn Justice, D.C.; Washington, Sanford M. of el our court held that the unconsciona- Cipinko, Law Offices of M. Cipin- Sanford bility provision of an arbitration contained ko, Francisco, CA, San the plaintiff- for agreement question in the franchise is a appellant. Here, for the arbitrator decide. howev- er, the plaintiff did not seek of invalidation Oh, Glenn Plattner J. and Christine S. the agreement franchise as a whole on Gilchrist, LLP, Jenkens & Angeles, Los grounds unconscionability; of instead she CA, for defendant-appellee MailCoups, the challenged unconscionability solely the of Inc. Therefore, provision. the arbitration Warnlof, Sumnick, John & S. Warnlof error that to hold consideration of the Creek, CA; Hufstedler, Shirley Walnut M. unconscionability provi- of the arbitration Foerster, LLP, Morrison Angeles, & Los sion was to be determined the arbitra- CA, for defendant-appellee, the American tor. Arbitration Association. clarify, We case en banc review this recently Supreme as the has reiter- Court ated, complaint crux that when the of the challenges validity enforceability the or of agreement containing the arbitration the Buckeye, 126 agreement.” S.Ct. of whether the entire question then the provision, fails to Judge 1208. O’Scannlain’s dissent whole, is unconscionable as a agreement, law recognize aspect a of California further See to the arbitrator. must be referred provides striking that unconscionable Cashing, Cardegna, v. Inc. Buckeye Check — of leaving the remainder provisions, while 1204, 1209, 163 -, 126 S.Ct. U.S. intact, valid, and agreement the enforce- (2006); Corp. Prima Paint L.Ed.2d 1038 able. Co., Mfg. 388 U.S. & Conklin Flood 403-04, 18 L.Ed.2d 87 S.Ct. closely Nagram- examine One must (1967). crux the is complaint the of When legal apply pa’s complaint invalidity of the contract a not the the why striking principles understand whole, provision rather the arbitration affect provision arbitration does not. decide itself, courts must then the federal agreement at is validity franchise of. invаlid is whether arbitration separate asserts six sue. § 2 and unenforceable under U.S.C. removed) (since in her causes of action2 shirk The federal courts FAA.1 .cannot complaint, state none of which seeks statutory obligation simply to do their so Her invalidate the contract as whole. controlling state law specifically because substantive fifth sixth causes action consider, requires exclusively challenge validity the court analyzing validity provision. Although of the arbi- arbitration course California law argues appropriately under the circumstances sur- provision, tration procedur is making agree- of the entire rounding based, ally part, on its unconscionable 1209-10; Buckeye, 126 S.Ct. at ment. See adhesion, in a contract of Na- inclusion Casarotto, Assocs., Inc. v. Doctor’s does assert the entire grampa L.Ed.2d 116 S.Ct. U.S. invalid; agreement unconscionable Paint, (1996); at 403- Prima U.S. nor she seek form relief does Judge O’Seannlain’s S.Ct. 1801. To con as a whole. agreement mistakenly argues holding dissent trary, pro the other four causes action agreement unconscionable if the franchise vide relief fran- finding partly on based binding upon parties. is valid and adhe- chise contract of analy- provides § FAA required sion—the California law Because directly agreements generally are valid “ground affects sis—is amendment, judi- acknowledges splitting, Judge that affect and res O'Scannlain's dissent *8 Witkin, challenges pro- Nagrampa principles. cata See 4 B.E. California separately independently and from the vision (4th ed.2006). § 25 Under the fed- Procedure aas in two isolated causes of whole system, eral word ‘claim’ denotes the "[t]he Indeed, no cause of action in the action. allegations give rise to an enforceable alleges agree- complaint that the franchise right Federal Practice to relief.” Moore's is invalid because it is contract of ment ed.2006); (3d § see also 10.03[2][a] at 10-23 adhesion; Nagrampa nor does seek to invali- ("A 8(a)(2) pleading which sets Fed.R.Civ.P. agreement; be nor would it date the franchise ... claim relief ... shall contain forth a provision invalidated if the arbitration is (2) plain statement of claim short and deemed unconscionable. showing pleader entitled to re- Russe, ...”); Original Ballet lief. Ballet Ltd. v. 2. A "cause of action” under California law is Theatre, Inc., (2d Cir.1943) 133 F.2d law, equivalent to a "claim” under federal (A aggregate of operative claim "denote[s] upon although system California based give right in facts which rise to enforceable pleading system, code which creates old courts.”). systems pleading between the differences two enforceable, upon grounds proprietary and “save such information. The decision or in of equity as exist at law for the revo- the arbitrator shall binding upon contract,” any required parties cation of are judgment upon we to turn to law to address Na- award may California be entered in court any hav- grampa’s regarding ing jurisdiction the uncon- arguments thereof. The situs of the scionability provision. of arbitration proceedings shall be the re- gional holds that law unconscionable office American Arbitration provisions generally are unenforceable. Boston, Association which is in located provisions may, Such unenforceable how- Massachusetts. The costs of arbitration ever, be severed from valid and en- shall equally by be borne MailCoups and provisions, forceable even those also con- Franchisee. Eaсh shall be re- provision. sponsible tained within the arbitration for the fees and expenses its correctly The district court proceeded respective attorneys and experts. analysis unconscionability under September In years after two as a California law defense enforce- unprofitable operation of MailCoups her ment of the arbitration included franchise, Nagrampa unilaterally terminat- in Nagrampa’s agreement. franchise Be- agreement. ed the franchise This contract cause the court to properly district failed dispute arose December 2001 when Ma- law, apply California which has continued ilCoups proceedings initiated arbitration ruled, to evolve since district court we by filing a Demand for Arbitration with reverse remand for proceed- further AAA, claiming that at the time Na- ings in with opinion. accordance this grampa agreement, terminated the she $80,000 owed MailCoups excess
I turn, fees. Nagrampa, charged that making rather a forty-one percent than June Connie re- profit per year, prom- had MailCoups offering ceived an circular Mail- ised, $180,000 in person- incurred over Coups, On August Inc. Na- $400,000 al debt to pay and had over grampa entered into an with MailCoups. Nagrampa various fees to MailCoups operate establish di- forty-one profit states that percent coupon advertising rect mail franchise figure orally communicated Coups’s Coups system. under Mail Super MailCoups a figure this was not pro- franchise contains a that she had calculated Further- herself. arbitrate, requiring parties vision more, in a letter sent to in accordance with the rules of the September agreed American Arbitration Association pay mailings, the amount due on the (“AAA”), any dispute that out arises which reduced by would be unused Adver- agreement. relates to the franchise tising CoolSavings charges. Funds and The arbitration pro- further vides: MailCoups’s initial arbitration demand *9 California, designated Angeles, shall not
[T]his clause be construed to Los as the MailCoups’ right any hearing limit In a pro- February to obtain locale. letter dated 6, 2002, remedy, objected visional including, Nagrampa’s attorney without limi- to tation, injunctive any clearly relief from court of He proceeding. stated, competent jurisdiction, may be ready willing as neces- are not or “We sary in MailCoups’ subjective judg- sole with also proceed arbitration.” He assert- ment, validity its Marks protect Service and ed “serious concerns about the of terest, fees, attorney’s any other relief that and disagreed and arbitration clause” the might proper. court deem The fourth the compelled “in fact the Nagrampa was that allegations cause of action sets forth further to arbitrate.” He alleged clause the Fran- selection, MailCoups violated' requesting objected the venue Law, again prays and for Nagrampa chise be Con- the for the arbitration that venue suit, interest, damages, legal cost of attor- California, Costa, in which county tra fees, any and ney’s other relief deemed MailCoups fran- operated her Nagrampa and proper. Nagrampa’s fifth causes sixth objected also arbitration chise. He challenge validity specifically of action objections, on Na- clause. Based those fee provi- enforceability of the arbitration and response file counsel refused to a grampa’s action, fifth for sion. The cause of viola- arbitration. of Legal tion the California Consumer procedural skir- Following further Act, §§ Remedies Cal. Civ.Code 1750- mishes, AAA September on provision alleges that arbitration manager parties notified the case one-sided, substantially not fall is does hearing place would take expectations of within the reasonable Na- Boston, Massachusetts, in accordance with unduly grampa, oppressive, and is unlaw- forum selection clause the arbitra- ful, fraudulent, unfair, and unconscionable. provision. tion On October that Nagrampa alleges further the arbitra- suggested pro- that arbitration arbitrator a tion is contained within con- Fresno, California, as a more cost- ceed adhesion, of the AAA tract that has efficient and convenient venue. biased, strong incentive to and that venue, objected vigorously to the Fresno and denies her other AAA confirmed manager and the case that For of process. franchisees due this cause Boston, place arbitration would take action, Nagrampa prays damages, for costs Nagrampa Massachusetts. After failed to suit, interest, fees, attorney’s legal and AAA, obtain fee waiver from the Na- any other relief that court might deem grampa indicating sent that she letter action, for proper. sixth cause participate in the arbitration Competi- violation of the California Unfair proceedings. Law, §§ tion Cal. Bus. & Prof.Code 17200- 17208, alleges Nagrampa acting as Instead, Nagrampa filed this action attorney general to private contest Mail- against MailCoups Superi- and AAA the Coups’s requirement its franchisees California, or Contra Court of State through disputes resolve arbitration. The Buckeye County. Because instructs Costa Nagrampa relief seeks for sixth cause complaint examine the crux of the we of action court preliminarily “this challenge to determine whether it is a enjoin MailCoups permanently Inc. or to arbitra- the contract a whole unilaterally imposing its Arbitration provision, 126 S.Ct. at we de- plaintiff Nagram- A. Provision Connie complaint length. The first scribe the pa” attorney’s and that she be awarded allege law three causes action common fees, suit, costs other relief first, claims for torts: relief might proper. Nagrampa the court deem second, misrepresentation; intentional complaint nowhere in her seeks have negligent misrepresenta- claims relief for the franchise as a whole invali- tion; third, she claims relief fraud dated declared unenforceable. suppression deceit and of fact. For action, January jurisdic- invoking these three causes On *10 suit, diversity prays damages, legal citizenship, for in- tion on the basis of of costs of
1267 glossed MailCoups question this action district court over removed District for of United Court whether the arbitration provision pro- States is cedurally Northern District California. unconscionable and concluded a compel thereafter motion to arbitra- procedural unconscionability filed was not stay Nagrampa’s ac- tion and dismiss “dispositive” a for issue the motion to com- tion, alternatively seeking transfer to the pel. The district court addressed for the United District Court Dis- States whether provision the arbitration is sub- Massachusetts, trict which stantively unconscionable found and opposed principally upon ground that provision is valid both provision is unconscionable. enforceable and that the contract issues were for the Finаlly, arbitrator decide. law Although the choice of clause parties because found that had agreement article 36.17 of franchise agreed Boston, arbitrate Massachu- is that of provides governing law setts, not the district which court Massachusetts, parties both State of 4, presides, § see U.S.C. 9 it dismissed the proceeded throughout have the district action, permitting MailCoups to move in appeal assumption court and on on the the District for Court the District of Mas- governed the franchise compel sachusetts to arbitration. result, by California law. As a the district applied determining court timely California law appealed. On March 21, 2005, whether the arbitration is uncon opinion, in a now-withdrawn scionable. will follow suit because the We three-judge panel our court affirmed the parties their through course conduct grounds district court on different from have agree waived the of the upon those which the district court relied. specifies ment that application Mas Inc., Nagrampa MailCoups, v. 401 F.3d sachusetts See 13 (9th Cir.2005). law. Williston Con 1024 We now address en (4th ed.2005) § (stating tracts 39:27 validity enforceability banc the parties impliedly to a contract waive a provision Nagrampa’s fran- term through clearly course of conduct agreement. chise manifesting an intention to waive the
term).
principle
recognized
This
both in
II
California, Daugherty
v. Kimberly-
Co.
validity
scope
an arbi
Clark Corp.,
Cal.App.3d
14
92
tration
novo.
clause are reviewed de
See
(1971),
Massachusetts,
Cal.Rptr.
and in
120
Int’l, Inc.,
Ticknor v. Choice Hotels
203,
Harrington,
see Porter v.
262 Mass.
(9th Cir.2001).
931,
F.3d
Whether
(Mass.1928).
530,
159 N.E.
to sue
right
has waived the
motion,
ruling on
agreeing
the district
is reviewed de novo.
arbitrate
court,
DirecTV, Inc.,
Mold, Inc.,
quoting
v.
Tech
See Kummetz v.
F.3d
Bischoff
1153,
(9th Cir.1998).
(C.D.Cal.2002),
F.Supp.2d
A dismissal
Paint,
citing
Prima
388 U.S.
403- without leave to amend also is reviewed de
novo.
properly recognized:
Props.
S.Ct.
See Smith
Pac.
& Dev.
(9th
arbitration,
Cir.2003),
“On a
compel
Corp.,
motion
court
358 F.3d
denied,
cannot consider whether the contract as a
cert.
543 U.S.
125 S.Ct.
(2004)
Instead,
underlying
whole is
a court
(noting
unconscionable.
1269 rules, enforceability Accordingly, of the sue.” if the claim holding that is fraud cannot turn state agreement in arbitration the inducement of the arbitration policy and law. Id. public itself—an goes clause issue to which the reasoned, Supreme further that Pri- Court “making” of agreement the to arbi- the proposition ma Paint had established may proceed trate —the federal court to that, of as a matter substantive federal adjudicate it. law, “an arbitration is arbitration 403-04, (footnotes Id. at 87 1801 S.Ct. con- from the remainder of the
severable
omitted)
(quoting
§ 4
9
U.S.C.
the
Id.
“be-
tract.”
The Court concluded that
FAA).
Agree-
respondents challenge
cause
the
hand,
On the other
Court in
ment,
Buck-
its arbitration
specifically
but
eye
approvingly
noted
claims ad-
provisions,
provisions
those
are enforce-
by the
in
plaintiff
vanced
class
apart from the remainder of the con-
Southland
able
1,
Thus,
Supreme
Corp.
Keating,
Id.
in
465
104
tract.”
Court
U.S.
S.Ct.
852,
(1984),
Buckeye
the claim
con-
held that
that the
Similarly,
Prima
plaintiff
requirements
sure
the California
claim challenging
did not include a
Law,
Franchise Investment
Cal. Corp.
validity
provision,
of the
but
arbitration
§
arguing
Code
alleged
rather
that the contract
a whole
claims
induced,
under
fraudulently
rendering
brought
the Franchise Investment
was
judicial
and,
arbitration
required
unеnforceable.
388 Law
consideration
398-400,
therefore,
U.S.
arbitration or failure to must “remain attuned to well- comply We agreement) is not is- claims that supported allegation support makes an grampa fraud or from the sort of resulted arbitrate the contract cause of action that would her fifth power that overwhelming economic *13 adhesion, of adhesion one her contract of is of for the revocation provide grounds of action allegation separate is not a cause v. Corp. Motors Mitsubishi contract.” Inc., Nagrampa independent seeks 473 U.S. for which Chrysler-Plymouth, Soler relief, of 444 as or invalidation 614, 627, such rescission 105 87 L.Ed.2d S.Ct. omitted). allega- (internal contract.3 Nor does this (1985) marks the entire quotation tion, necessary to uncon- though establish complaint” the Examining the “crux of provision, of arbitration Nagram- scionability the abundantly that it clear makes the directly affects only, ground as a that and serve challenge goes specifically, pa’s fi- unlike the usurious agreement, entire Nagrampa’s clause. to the arbitration Buckeye. Prevailing on nance single ground ground allege complaint does action means the fifth or sixth cause of agreement. of the entire for invalidation is not only that the arbitration contrary, very request the first To the effect, enforceable; absolutely her there is no paragraph six of Nagrampa makes indirect, as on the contract “this court decide direct complaint is that forty- unilaterally addition, forty-one of the whole. In requirements the arbitration Nagrampa’s by MailCoups eight Allegations in General imposed on its franchisees unfair, supporting causes unlawful, deceptive complaint state facts the Inc. each are unenforceable, Al- challenging of action arbitration. enjoin and and though also includes four other unilaterally these re- imposing Inc. from targeting action not the arbitra- The two causes of quirements on its franchisees.” pleading claims, provision, and strict her fifth California’s arbitration-related action, rules the requirements restricting seek invalidate sixth causes provided a only ba- of causes of action splitting on the agreement her to strong Na- incentive for do so. unconscionability. Although sis the Pleading requirements entitled relief' for code formulation differ between feder- constituting action’ law the 'facts’ a 'cause of al and California law. California law requires complaint "a state- that a contain intended to avoid the distinctions was constituting the the cause of ment of facts under codes ... and eliminate drawn action, language,” ordinary rigidity and concise sur- unfortunate and confusion 425.10(a)(1), § ex- which Cal.Civ.Proc.Code rounding the words 'cause of action.’ attorney why Nagrampa’s Miller, in- plains Wright & R. 5 Charles Alan Arthur allegation (3d that the contract clude the factual § Practice and Procedure 1216 Federal support of cause of law, of adhesion in was one ed.2006). primary federal Under challenging the arbitration action give pleading requirements aim the is to unconscionable, though even she did not as party. other Unlike under fair notice entire law, seek invalidation Garcia, Conley, reading of ''[a] California hand, Fed- ground. ”[t]he On other Swierkiewicz, host of cases other use term 'cause of Rules do not eral suggests complaint, ... and other action,’ emphasis on the factual their relief-claiming pleadings with need not state aspects 'legal right' than the rather precision all of the elements are neces- Witkin, 4 cause of action.” B.E. legal recovery sary give rise to basis (4th ed.2006). § Procedure 25 The Federal long nature of the as fair notice complaint require that state Rules do not party.” provided opposing action is to the constituting action: all a cause of of the facts N.A., (citing U.S. v. Sorema Swierkiewicz 992, 152 122 S.Ct. L.Ed.2d Conspicuously Federal Rule absent from Gibson, 45-46, (2002); Conley U.S. 8(a)(2) v. requirement in the is the found (1957); Garcia S.Ct. L.Ed.2d pleader set forth the 'facts’ codes Int’l, (D.P.R. F.Supp. Hilton constituting substi- Hotels a ‘cause of action.' The 1951)). showing pleader tution of 'claim Furthermore, genesis of Na condition of employment and excision of grampa’s complaint can be found in the permit- was not proceedings: Nagrampa filed ted. Id. at 17. The First Circuit did not suit after MailCoups successfully it necessary find to address whether the moved the arbitral plaintiffs venue for the contract contract of adhesion argument claims at issue to Paint; Boston and the AAA precluded by Prima to the rejected petition to waive the arbitral contrary, proceeded without comment to words, fees. other filed suit consider the contract of argu- adhesion *14 very after rendering issues the ment in determining plaintiff whether the provision against unconscionable her had had requirements satisfied the for uneon- Thus, been resolved. the crux of Nagram scionability. Id. The First Circuit ulti- pa’s complaint challenge is a mately the arbitra found the arbitration clause en- Where, provision here, tion itself. as no forceable plaintiff because the failed to claim threatens to satisfy invalidate or otherwise the additional requirements for un- directly contract, affect the entire the fed conscionability in demonstrating “both a eral court attacking must decide claims lack of meaningful choice about whether to validity of provision, the arbitration accept even if provision question, requires substantive state law an examina the disputed provisions were so onesided making (internal tion of the of the entire contract as oppressive.” as to be Id. quota- part analysis. omitted). of that tion marks
Our sister circuits also examine
Similarly,
the nа-
the Second Circuit considered
ture of claims to
they
plaintiffs
determine whether
claim that
pro-
the arbitration
that,
are
They
arbitrable.
hold
where the
visions of the London
Exchange
Metal
causes of action or claims within a com- Rules were unenforceable because the con-
are,
essence,
plaint
an effort to invali-
tracts which incorporated them were con-
contract,
date the entire
then the federal
tracts of adhesion.
L.
David
Threlkeld &
court
dispute
will send the
Ltd.,
arbitration.
v. Metallgesellschaft
Co.
923 F.2d
They
where,
(2d
here,
Cir.1991).
also hold that
there
Nagrampa,
Like
are separate
independent
spe-
plaintiff
claims
there did not seek to invali-
cifically challenging enforcement of the ar-
date the entire contract on the basis of
bitration provision, then the
court
federal
adhesion but
to strike its arbitration
proceed
will
challenge
consider the
clause. Id. The Second Circuit considered
arbitrability of
dispute.
the contract of adhesion claim and ulti-
rejected
because,
mately
an arbi-
“[f]or
The
plaintiff
case,
the First Circuit
tration provision to be stricken
aas
con-
Rosenberg
Pierce,
v.
Lynch,
Merrill
Fen
tract of adhesion there must
a showing
Smith,
(1st
Inc.,
ner &
170 F.3d
unfairness,
oppression,
undue
or uncon-
Cir.1999), alleged that
pro
the arbitration
(internal
scionability.”
quotation
Id.
vision
Applica
contained
the Uniform
omitted).
marks
Industry Registration
tion For Securities
(“U-4 Form”),
Or
prerequisite
Transfer
The Third Circuit
examined
contract
broker,
to work as a securities
was unen
allegation
of adhesion
while analyzing the
forceable because it was
procedural unconscionability
adhesive. The
of an arbitra-
plaintiff did not seek to
invalidate the en
in a wrongful discharge and
agreement,
tire U-4
argued
employment
rather
discrimination suit. Alexander
Int’l,
L.P.,
Anthony
clause was adhesive
v.
341 F.3d
(3d Cir.2003).
signing
and invalid because
complaint
U-4 was a
The
filed
validity of the
lenge
enforceability
ac-
five causes of
plaintiff class contained
provision.
Id. at 261.
In
Mu-
Virgin
Washington
Islands law.
tion under
that the arbitration
plaintiffs alleged
Group,
Bailey,
Finance
LLC
tual
employment
(5th
in the
Cir.2004),
plaintiffs,
who
F.3d 260
as a contract
adhe-
was unenforceable
illiterate,
Washing-
against
filed suit
were
on a “take-it-or-
presented to them
sion
Mutual,
they
alleging primarily that
ton
of employ-
leave-it” basis as a condition
charged
insurance
had been sold
unconscionable,
ment,
and offensive
at 262.
they did not need or want.
Id.
plaintiffs to
by forcing
arbi-
public policy
compel
motion
arbitra-
to a
defense
statutory claims.
Id. at 261-62.
trate
tion,
Washington
plaintiffs claimed
plaintiffs did
al-
Nagrampa,
Like
them into
fraudulently
Mutual had
induced
lege
employment
that the entire
agreements to
entering into the
arbitrate
Id.
an invalid contract
adhesion.
by misrepresenting
nature of the docu-
Circuit found that
The Third
because
they
at 265.
signing.
ments that
were
*15
to
unenforce-
“agreement
may
arbitrate
Mu-
Washington
The district court denied
generally applicable
on a
con-
able based
arbitration, finding
compel
motion to
tual’s
defense,
tractual
such
unconseionabili-
provision
proce-
that
the arbitration
was
ty,”
authority
the court had the
to consider
durally
and thus unen-
unconscionable
that
arguments
the arbitration
plaintiffs’s
the
appeal,
Id. at 268. On
forceable.
provision
(citing
invalid. Id.
Doctor’s
was
rejected Washington Mutu-
Fifth Circuit
1652).
Assoc.,
The Fifth Circuit likewise has consid-
fraudu-
misrepresentation
claim of oral
provisions
ered defenses
law.
contract,
Mississippi
lent
inducement under
has limit-
implicate the entire
to claims which chal-
Id. at 266.
ed its consideration
case,
any misrepresentation particular
In the Sixth Circuit
Burden v.
to the ar-
LLC,
Kentucky,
Into Cash
.agreements,
Check
separate
bitration
from the
(6th Cir.2001),
plaintiff
F.3d
agreements.”
However,
loan
Id. at 491.
money
loaned
alleged
class
defendants
the Sixth Circuit
held
alternative
through
at usurious
interest
rates
a grounds
plaintiffs
offered
attacked
pro-
scheme where the defendants would
enforceability
of the arbitration clause
exchange
for a
vide cash
check written
itself, separate from
underlying
loan
If
higher
for a
amount.
the customer did agreements,
required
and thus
a remand
not have sufficient funds to cover the
to the district court to
decide
the first
date,
payment
check
defendants
instance.
Id. at 492-93.
permit
borrower
“roll-over”
employed
Sixth Circuit
similar rea-
agree-
the debt and execute a new loan
soning in
Byrider,
Stout v. J.D.
228 F.3d
ment, paying an additional service fee. Id.
(6th
Cir.2000),
713-15
plain-
where the
alleged
complaint
Plaintiffs’s
violations of
tiff
alleged
class
that the defendant vehicle
(“TILA”),
in Lending
the Truth
Act
leasing company
sales and
engaged in a
1601-1667Í,
§§
U.S.C.
the Racketeer Influ-
practice
standard
of misrepresenting the
Act,
Corrupt
enced and
Organizations
quality and
value
the used vehicles sold
1961-1968,
§§
U.S.C.
and several consum-
and the cost and
pur-
value of warranties
protection
er
Kentucky
statutes under
law.
chased.
complaint alleged
Plaintiffs’s
Vio-
Burden, 267 F.3d at
defense to a
TILA,
lations of the
the Ohio Consumer
arbitration,
compel
plaintiffs
*16
motion to
al-
(“OCSPA”),
Sales Practices Act
Ohio Rev.
that
leged
provision'was
the arbitration
1345.01,
§
Code
and common law fraud.
unenforceable because the initial
loan
Stout,
a fraudulently to enter into the induced to the arbitration been specifically directed contract; separately claims the court none their 749 n. 3. Id. at While clause. independently challenged the arbitra- had attacked the acknowledged Rojas Similarly, in brief, Rojas clause. 31 at 695. clause tion F.3d arbitration , Madol, invalidity only had the claims of went did not indicate whether court whole, plaintiffs as as the procedural contract challenging claim to the made a F.3d acknowledged. ar- unconscionability of the themselves or substantive Therefore, clause itself. bitration claim held that the Rojas court
when
We do not construe either
resolve, it was
the arbitrator
was for
or Prima
to stand for the
Buckeye
Paint
va-
challenged the
discussing a claim that
plaintiffs challenge
that if
ar
principle
contract
a whole.
lidity of the
as
provision as unenforceable due to
bitration
also mis-
O’Scannlain’s dissent
Judge
include
unconscionability,
may not
ad
they
in Bur-
reads the Sixth Circuit’s statement
statutory
contractual
claims
ditional
or
“
den,
grounds
revocation
‘the
for
complaint.5
argument
An
their
specifically to the arbitration
must relate
procedurally
itself is
arbitration
just
not
the contract as
clause and
informed, as
unconscionable
re
(quoting
F.3d
at 492-93
whole.’”
law,
substantive
quired
California state
Am., Inc.
173 F.3d
Phillips,
v.
Hooters of
it is
by a determination of whether
con
Cir.1999)).
(4th
However,
larger
tained within
contract
adhesion.
say
grounds
did not
that the
Burden court
If the district court decides that the arbi
arbi-
must
to the
for revocation
relate
unenforceable, then
provision
tration
clause; it
grounds
said that the
tration
remaining claims that address
separately
must be
as
revocation
asserted
arbitrable;
properly
a whole were never
as
just
“and not
to the arbitration clause
claim such as fraud in the
inducement
(emphasis
as a
the contract
whole.” Id.
jurisdiction
lie within
added).
claims
plaintiffs’s
Unlike
also
court. The district court
has
district
Burden, Nagrampa’s
procedural
claims of
the discretion under
federal arbitration
unconscionability attack
and substantive
law, Buckeye, 126
as well
S.Ct.
itself,
separate
law,.
under California
Cal. Civ.Code
underlying
from the
contract.
apart
1670.5,
§
to sever
unconscionable
arbi
Furthermore,
Eighth
hold-
tration
and enforce the remain
Circuit
Co.,
If,
hand,
of the contract.
on the other
ings in Houlihan
&
der
Offerman
(8th Cir.1994)
Madol,
court
the district
decides
arbitra
F.3d
enforceable,
our
F.3d at
are consistent with
valid
stay
dismiss the action
majority opinion,
Judge O’Scann-
then
should
with
Houlihan,
plain- pending
proceedings
to allow
lain’s dissent.
*19
Indeed,
Witkin,
(citations omitted));
pleading requirements
California
see also B.E.
5.
(4th
2006)
prohibit plaintiffs
splitting
of ac
§
causes
ed.
California Procedure
Crowley
separate
v. Katle
tion into
suits. See
("The special
by
presented
the
situations
rule
man,
8 Cal.4th
splitting
against
of action
cause
sometimes
(1994) ("[NJumerous
cases
881 P.2d
necessary
say
the same
make it
that
set of
only
primary
there is
hold
when
one
will,
only
purpose,
for one
constitute
one
facts
right
judgment
is a
an
first suit
adverse
the
action,
purposes may
cause of
but for other
though the
is based on a
even
second suit
bar
causes.”).
regarded
creating multiple
as
be
theory
remedy.”
or
different
seeks a different
remaining
provisions
the
cost
are unfair.
the
venue and
arbitrator
to decide
claims,
relating to the con-
including
argues
those
that the
While
arbitra-
if,
Finally
after examin-
tract as a whole.
provision
procedurally
is
unconsciona-
the district
complaint,
crux of the
ing the
ble because it is contained
a contract of
challenge
is not to
court concludes
adhesion,
complaint
nowhere in her
does
but, rather,
provision itself
the arbitration
she seek rescission or invalidation of the
contract,
validity of the entire
then
to the
being
entire contract
on it
a con-
based
validity
contract’s
should
the issue of the
Therefore, Nagrampa’s
tract of adhesion.6
considered
an arbitrator
the first
be
argument may
adhesion
be ad-
Buckeye,
vision. proceedings object arbitration ... without claims for and fourth causes of action are ing the arbitration” and therefore and, thus, the contract are not relief under right challenge waived her the arbitra However, fifth Nagrampa’s before us. bility dispute.7 of the spe- causes of action are directed sixth matter, MailCoups wrong. As a factual is cifically provision, plac- to the arbitration Nagrampa’s counsel’s first act was to ob- ing challenges squarely these within the arbitration, ject proceeding stating: with category of claims that must be decided ready willing proceed are not or “We Buckeye, court. federal S.Ct. He also “seri- addition, with arbitration.” asserted in her Nagrampa, 1208-10. validity brief, ous concerns” about the appellate emphasizes further disagreement and his substantively aspects, of arbitration provision unconscionable notion that “we are in fact com- provision, arguing that the with the pelled by alleged clause to arbitrate.” is one-sided and boilerplate, Judge disregards proper” mere meant to cover dissent O’Scannlain's plainly Supreme said in Buck- what Court in the all bases as to the claims asserted eye we and Prima Paint —that must look language complaint. boilerplate That does complaint validity to determine whether the already not asserted in not constitute claim jeopardy. is in of the arbitration complaint, Judge suggests. O'Scannlain The obvious reason for the Court's instruction attorney’s hardly It needs to be said that claims, not, granted, or as to relief is arguments a claim also do not constitute if law, of, causes action. under complaint. they are not asserted in complaint type of claim in the asserted dictates nature of relief elected 7. We note that the district court plaintiff. Nagrampa afforded to the does not question of waiver and the three- reach appropriate assert claim for which the judge panel, by addressing the unconsciona- fran- relief would be invalidation the entire bility on the mer- agreement. language chise The inclusion of its, implicitly rejected MailCoups's waiver ar- *20 seeking the remedies section "such other in gument. the court and further relief as deem 15, 2002, objected August Nagram- ven- On AAA sent specifically further to the He although the schedul- pa and fee he left arbitrator’s provisions, ue possibility negotiating ing outlining those that would be open the order deadlines “strictly The for dis- issues. enforced.” deadline 30, 2002, covery August requests was Nagrampa’s the arbi- “participation” day on her discov- which filed mini- proceedings thereafter was tration a ery filing request. deadline mal, limited and un- procedural to issues 2002; August 19, Na- counterclaim was her dertaking preserve certain actions grampa attempted to file her counterclaim rights.8 Nagrampa’s “participation” con- 15, scheduling on 2002. In or- August ninety-day a sisted of a letter to seek der, arbitrator made clear that continuance, objecting letter the valid- a parties “awaiting final decision with were ity provision (specifically regard venue” the Notice to the and that clauses), one its venue fee conference Hearing only would be once ven- issued order, scheduling that in a call resulted Thus, Nagram- ue had been determined. file a attempt unsuccessful counter-de- pa reasonably by discovery filing acted her mand, accepted that was not when she request and counterclaim her preserve pay could not the fee afford to demanded rights chance AAA and Mail- arbitrator, discovery one set of Coups to im- would relent their efforts requests. Both the counter-demand and fee, pose one-sided and onerous venue discovery requests were filed avoid los- Nagram- upon associated costs clauses right in the ing her to do so event the Indeed, pa. open venue remained an issue fee, venue, amicably issues were and costs 16, through Although 2002. October proceeding resolved before the reached 15, August arbitrator’s 2002 order noted dispute. merits that a call preliminary third conference clearly The record demonstrates that scheduled, was there is no evidence only telephonic preliminary9 hеaring two Thus, this occurred. Nagram- conference held, and that Nagrampa conferences were pa participated any proceedings never present during was one two.10 which even touched merits of the con- On June the arbitrator scheduled subject tractual claims were to be the the first call for the conference first week Although Nagrampa of arbitration. with- 2002, July 2002. Nagram- On June drew from arbitration October notified pa attorney the arbitrator her original objections never her withdrew July be available. On agreement. She elected hearing in the place took absence of instead to include them in her court state attorney. and her both Na- complaint filed November 2002. grampa during present pre- second liminary July call held on The Supreme conference Court has defined waiver relinquishment as the or aban- “intentional 2002. matters, Nagrampa's very preliminary 8. It is ironic with efforts merits and deals amicably question scheduling such Am. resolve the substan- and deadlines. See Ass'n, unconscionability provi- tive of the arbitration Arb. Commercial Rules and Arbitration Procedures, (2003). rights preserve and to sion have been Mediation R-20 by MailCoups alleged twisted into an waiver 10.Judge says Kozinski there were three tele- rights. of those conferences, but there is in the no evidence record, By "preliminary” hearing MailCoups's definition a con- other than statement place hearing Compel, place. that a ference takes before on the Motion to third call took *21 eventually objected by sending a letter right.” a known United States donment of Olano, claiming 113 S.Ct. arbitration 507 U.S. v. (internal (1993) part of the contract. We held that quotations
waiver. The evidence
extensively
than
did be-
more
Kozinski’s conclusion.
support Judge
In
resorting
Nghiem
fore
to the courts.
pre-
involvement in
Nagrampa’s
Electronic, Inc.,
limited
NEC
25 F.3d
liminary
preclude
(9th
matters does not
her
Cir.1994),
plaintiff,
we held that the
challenging arbitrability.
Su-
employee,
challenge
terminated
could not
Court,
Chicago,
Options
First
preme
authority of the
because the
arbitrator
938, 946, 115
S.Ct.
Kaplan,
Inc. v.
U.S.
arbitration,
had “initiated
at-
plaintiff
(1995),
L.Ed.2d 985
considered
hearings
representation,
tended the
with
objecting party
had consented
whether
evidence,
presented
and submitted
clos-
“denied that
plaintiffs
to arbitration. The
filing
ing
fifty pages”
brief of
before
suit
...
disagreement
their
was arbitrable
Fortune,
Similarly, in
Alsweet
state court.
objections to that effect with
filed written
Daniel,
Eldridge, Inc. v.
Unlike waiver, unconscionability forcefully uncon- al and substantive have found scionability present of need not both be to objected arbitrability at the outset “ objection, degree: ‘Essentially sliding never the same dispute, withdrew disregards regu- invoked on the scale is which proceed and did not to arbitration Thus, procedural larity process merits of contract claim. formation ... in challenge proportion contract right did not waive greater harshness or unreasonableness arbitrability dispute. ” themselves.’ the substantive terms C. 15 (quoting Williston on Contracts ed.1972)). (3d 1763A, § at 226-27 “In oth- uncon It is well-established that words, substantively oppres- er more scionability con generally applicable is term, sive the contract the less evidence of defense, which an arbi tract render unconscionability required is procedural provision tration unenforceable. See come to conclusion that term is Assocs., 686-87, 116 Doctor’s 517 at U.S. unenforceable, Id; and vice versa.” see 1652. California courts have ex S.Ct. Court, v. 96 Superior also Mercuro Cal. unconscionability the doctrine of tended 167, 175, App.4th Cal.Rptr.2d 116 671 agreements. See to embrace franchise (2002) (“Given Countrywide’s highly op- Owners, Indep. Ass’n Mailbox Ctr. pressive securing conduct Mercuro’s Court, Superior Cal.App.4th Inc. v. 133 agreement, consent to its arbitration he (2005) 396, 407, 34 659 Cal.Rptr.3d showing need make minimal (“Franchise agreements per are not se agreement’s unconscionabili- substantive unenforceable, provisions but their can be ty.”). if examined to see the characteristics of unconscionability present part are unconscionability Procedural anal whole.”). Because we exercise our di “ ysis ‘oppression’ focuses on or ‘sur versity jurisdiction this con to entertain ” v. prise.’ Flores Transamerica Home- dispute, tract we apply must First, Inc., 846, 853, 93 Cal.App.4th 113 law to determine whether the arbitration (2001). Cal.Rptr.2d “Oppression 376 is arises from an inequality bargaining Ferguson unconscionable. See v. Coun power negotiation that results in no real Industries, Inc., trywide Credit 298 F.3d choice,” meaningful and an absence of (9th 778, Cir.2002); also 782-83 see “[s]urprise while involves the extent Inc., Networks, Juniper 115
Abramson
supposedly agreed-upon
which the
terms
638, 651,
422
Cal.App.4th
9
in prolix
are hidden
fоrm
printed
drafted
(2004) (“Employing general contract
law
party seeking
them.”
enforce
principles,
courts will refuse
[California]
A
(citing
Id
& M Produce Co. v. FMC
to enforce arbitration
that are
provisions
Cal.App.3d
Corp., 135
186 Cal.
contrary
public poli
unconscionable or
(1982)).
114
Rptr.
(internal
omitted)).
cy.”
quotation marks
analyze
California courts
con
An
is sub
“
provisions
tract
procedural
stantively
‘overly
both
if it
unconscionable
is
”
“
unconscionability.
Ar
generates
substantive
See
harsh’ or
results.”
‘one-sided’
Armendariz,
Psychcare
mendariz v.
Health
Found.
Cal.4th at
99 Cal.
Servs., Inc.,
Rptr.2d
Cal.4th
99 Cal.
A
(quoting
P.3d 669
& M
(2000).
Produce,
486-87,
6 P.3d
Rptr.2d
Califor-
Cal.App.3d
Cir.2002) (“The
(9th
114).
279 F.3d
consid
paramount
CaLRptr.
“[T]he
procedurally
DRA is
unconscionable be
conscionability mu
assessing
eration
a contract of adhesion: a stan
cause
Abramson,
Cal.App.4th
tuality.”
*23
”);
....
Aral v. Earth
dard-form contract
law
657,
422. California
re
Cal.Rptr.3d
9
Link, Inc.,
544, 557,
Cal.App.4th
134
36
to have
agreement
an arbitration
quires
(2005)
Armendariz,
(finding “quintes
229
Cal.Rptr.3d
bilaterality,” see
“modicum of
unconscionability”
745,
procedural
sential
117,
6
Cal.Rptr.2d
at
99
24 Cal.4th
of the [arbitration]
where “the terms
669,
provisions
P.3d
a ‘take it or
presented
were
substantively
“unfairly
are
are
one-sided”
...
opportunity
leave it’ basis
with no
unconscionable,
Stiegler,
Little v.
see
Auto
out”). However, the California courts
Inc.,
1064, 1071,
opt
Cal.Rptr.2d
130
29 Cal.4th
(2003).
though
have also held that
“adhesion con
892,
P.3d 979
63
procedurally oppressive,
often are
tracts
sidestepped
court
The district
always
the case.” Morris v.
this is
unconscionability
procedural
requisite
Bancorp,
128
Empire
Redwood
Cal.
“nondispos
erroneously finding
analysis,
App.4th
Cal.Rptr.3d
27
797
Instead,
directly to
it proceeded
itive.”
(2005);
Reynolds,
see also Dean Witter
analysis. The district
the substantive
Court,
758,
Cal.App.3d
v.
211
Superior
Inc.
of
analyze
failure to
the evidence
court’s
(“While
(1989)
769,
we
Cal.Rptr.
259
789
unconscionability in proportion
procedural
recognize significant overlap between
of substantive unconsciona
to the evidence
oppression],
concepts
two
[adhesion
bility
error. Because California
was
they
to hold that
are
prepared
we are not
analyzing
employ
sliding
scale
courts
identical.”).
law,
current
Under
provision is
the entire arbitration
whether
a contract of adhesion
it is unclear whether
unconscionable,
even if the evidence
au
inherently oppressive,
is
and therefore
unconscionability
slight,
procedural
unconscionable,
tomatically
procedurally
unconscion
strong evidence of substantive
separate
is a
element
oppression
whether
ability
tip the scale and render
will
However, both
present.
that must be
Ar
provision unconscionable.
unconscionability
procedural
standards
mendariz,
114,
24
at
99 Cal.
Cal.4th
by finding
that the arbitra
are satisfied
745,
she had Although agreements franchise are all of its accepted agreed ment and they many exhibit commercial contracts including provi- provisions, of consumer contracts. attributes *24 sion. relationship between franchisor and The by prevail- franchisee is characterized a law, the criti California Under universal, inequality of ing, although not unconscionability in procedural cal factor resources between the con- economic in analysis is the manner which con tracting parties. typically, Franchisees disputed presented tract or the clause was always, not are small businessmen negotiated: like the people or businesswomen or unconscionability focuses Procedural Sealys seeking to make the transition disputed in on the manner which being wage earners and for whom party to the in the presented clause is very the franchise is their first business. bargaining position. weaker When the always, typically, Franchisors but not party presented weaker is the clause large corporations. agreements are it it” and told to “take or leave without gross themselves tend to reflect this meaningful negotia- opportunity Usually bargaining disparity. they are tion, proce- therefore oppression, and prepared form contracts the franchisor unconscionability, present. are dural a and offered to franchisees on take-[it-] Bank, Cal.App.4th v. Discover 97 Szetela or leave-it basis. (2002); Cal.Rptr.2d 118 862 see unequal ... Franchising involves the Corp., v. Master Prot. 118 also Martinez bargaining power of franchisors and 107, 114, 12 Cal.App.4th Cal.Rptr.3d 663 franchisees and therefore carries within (2004) (“An that is itself the seeds of abuse. Before the of a it or leave it’ part an essential ‘take established, relationship is abuse is condition, more, without is employment by threatened the franchisor’s use of unconscionable.”); Mercuro, procedurally presented contracts of on a adhesion 174, Cal.App.4th at take-it-or-leave-it basis. (“Procedural unconscionability turns on quotation Internal marks and citations adhesiveness —a set of circumstances omitted. ‘adhering’ which the weaker or Here, substantially a contract was in a
presented
drafted
it
than
stronger party
bargaining position
on a take it or leave
weaker
Mail-
basis.”).
long
Coups.
reported
courts have
rec
As
the franchise offer-
agreements
ing
Nagrampa’s
franchise
have
circular attached to
com-
ognized
Advo,
plaint,
MailCoups’s parent company,
of contracts of adhe
some characteristics
“vastly superior
large corporation
which in 1997 had
sion because of the
bar
$208,553,000
$1,016,492,000in
strength” of
franchisor.
in assets and
gaining
See
Court,
hand,
Keating
Superior
Nagrampa,
revenues.
on the other
Cal.3d
salary
Cal.Rptr.
yearly
approximately
Ass’n
604,
(1981)
171
623
Cal.Rptr;
P.2d 165
(“[I]n
(2000)
827,
Cal.Rptr
1
given
102
.2d
(finding
unconscionability
procedural
case,
might
a contract
be adhesive even if
prominent
pro
where successful and
music
reject
the weaker
could
terms
required by
ducer Bill' Graham was
elsewhere.”);
Supercuts,
v.
go
Stirlen
“realities
pro
of his business
a concert
Inc.,
1519, 1533-34,
Cal.App.4th
51
60 Cal.
contracts”);
moter to
form
A
(1997)
sign [union]
(noting
Rptr.2d 138
that even
489-90,
Co.,
Cal.App.3d
& M Produce
135
at
sophisticated corporate
though
executive
114
Cal.Rptr.
(commenting that
person desperately seeking
not a
em
“was
186
employment
Supreme
among
contract was California
Court
is
ployment,”
many
begun
recognize
it
procedurally unconscionable because
courts that “have
it or
presented
experienced
was
on a “take
leave it
legally unsophisticat
basis”).
Witter,
But see Dean
211 Cal.
may
unfairly surprised
be
ed businessmen
Cal.Rptr.
(noting
789
App.3d
terms”);
259
Nyu
contract
unconscionable
though
may
that “even
contract
be adhe
120
lassy
Corp.,
Lockheed Martin
Cal.
sive,
‘meaningful’
the existence of
alterna
1283-84,
16
296
App.4th
contracting party in
tives available to such
(2004) (finding procedural unconscionabili
supply
the form of other sources of
tends
ty
employee
represented
even
was
where
unconscionability”).
to defeat
claim of
by a
lawyer
negotiations).
settlement
Witter,
Judge
on
Dean
which
Kozinski’s
argues that
the ele
relies,
factually distinguishable.
dissent
is
present
of
surprise
ment
was
because
There,
Appeal
of
the California Court
held
was not
contract was adhesive
plaintiffs
that the combination of the
so
of
informed
existence
of the
meaningful
of
phistication
“a
choice
twenty-
provision,
appeared
page
which
supply”
available alternative sources of
de
agreement.
of
See
thirty-page
five
his claim procedural
feated
unconsciona-
Joseph Hosp.,
Cal.App.3d
63
dispute
in a
of Wheeler v. St.
bility
over
assessment
(cit-
(1976)
345, 359-60,
Cal.Rptr.
fees on an individual retirement account.
Co.,
mistakenly
Judge
Ins.
O’Scannlain’s dissent
v. Westland
ing Smith
Life
111, 122-23,
Cal.Rptr.
v. Bank Amer
Cal.3d
asserts
Brookwood
(“Where
(1975))
ica,
the contract is
P.2d 433
Cal.App.4th
53 Cal.
adhesion,
clari-
conspicuousness and
(1996),
one of
Rptr.2d
proposi
stands for the
may
enough
not
ty
language alone
be
duty
apprise
tion that
had no
satisfy
requirement
awareness.
of the arbitra
Nagrampa of the existence
would de-
a contractual
Where
tion clause or the costs of arbitration.
of the weaker
‘strong’ expectation
feat the
Brookwood,
plaintiff
argue
did not
necessary
it
to call his
party,
also be
the arbitration clause was invalid because
language
provi-
to the
of the
attention
proeedurally
substantively
it
or
uncon
sion.”). However,
law,
under California
scionable, but rather that the arbitration
demonstrated if the
surprise need
clause should not be enforced because
pro-
court
that the arbitration
determines
unilateral mistake.
53 Cal.
oppres-
vision of an adhesive
analysis
Rptr.2d
procedural
515. The
Armendariz,
24 Cal.4th at
sive. See
uneonscionability under California law fo
(“[A]
Cal.Rptr
.2d
tion of the alternative busi opportunities, ability ness of the fran Nagrampa argues that the arbi chisees to read and understand the terms provision substantively tration uncon agreement “beg question of the “one-sided,” scionable because it is con whether the nature of these franchise tains agreements relationship feersplitting and the business unconscionable parties accepted provisions, between the fell arbitral forum and does not within effect,” “repeat player criteria for adhesion contracts.” Id. counteract factor renders the arbitration arbi- impartial failing to ensure thus se.”); conten- Sheet Metal reject Nagrampa’s per unconscionable trator.12 We cf. provision fee-splitting Kinney Int’l Air Condi tions that Workers Ass’n (9th Co., effect” render player “repeat 756 F.2d Cir. tioning substantively un- provision 1985) (holding challenge that to an arbitral First, fee-splitting conscionable. bargaining dispute, award a collective n substantively per se is not provision partiality party alleging evident “[t]he law. under California unconscionable specific facts which indicate must establish (mandat- § 1284.2 See Cal.Civ.Proc.Code improper part [arbi motives on the that ad- rule of arbitration ing default trators]”). Nagrampa specifically has not equally and split be ministrative costs part on the pointed evidence bias individually). borne legal costs AAA or its arbitrators. However, ex- infra, as discussed may im- fee-splitting tent provisions Two other set forth vindicating statu- pede Nagrampa however, clause, exhibit a be unenforceable tory rights, mutuality supporting finding lack of law as con- illegal under California First, unconscionability. substantive trary public policy.. judi gives MailCoups access provisional cial forum to obtain remedies Second, “re merely raising the while it protect property, its intellectual claim, present without peat player effect” arbitral Nagrampa with provides demon particularized more evidence ing Second, her claims. forum to resolve under is insufficient strating impartiality, Boston, designated arbitral forum is an unconsciona- support law to Massachusetts, considerably location v. CIBC finding. See McManus bility MailCoups. advantageous more Cal.App.4th Corp., 109 World Mkts. (2003) 94-95, (holding stronger with Where un was not that an arbitration *27 has restricted the weak bargaining power plaintiff produced because the conscionable forum, but re party er to the arbitral ef “repeat player specific no evidence ability redress for itself the to seek served would not be fect” or that the arbitrator forum, judicial an or Cali in either arbitral arbitration rules allowed impartial, where a lack of mutuali courts have found fornia challenge and peremptory one party each unconscionabili ty supporting substantive challenges for unlimited number of an held ty. Supreme As the California Court 178, Mercuro, cause); at Cal.App.4th 96 Armendariz, unconsciona- in substantive (“While Supreme 671 óur Cal.Rptr.2d 116 in the form of bility may manifest itself ‘repeat play notice of the has taken Court only agreement requiring arbitration effect,’ declared this “an the court has never er dissent, allowing stronger access to the party full Contrary Judge O’Scannlain’s Moreover, MailCoups’s brief argument forum.” her same did not waive provi- argued response unconscionably in that the arbitration provision was mutuality obligation. We have alleged the one-sided na- sion does She "one-sided.” fee-splitting the claim that the provision com- consider in her ture of the arbitration par- both opening provision is because argued point unconscionable plaint this and argued brief, and briefed the issue stating support contention ties have of her us, adequately uphold question the record is before courts "have refused is un- dеny developed, the cost of arbitration the weak- and provisions that work venue Inc., Airlines, disputed. re West See In Am. party any access to a forum in which er real 1161, (9th Cir.2000). claims, while 217 F.3d 1165 defend—her or his to air —or 1286 Appeal justification held that was no claims of the weaker but there
for the
278, 132
the claims of the
provision.
choice of forums for
for the one-sided
Id. at
119,
stronger party.”
1287
selection clauses are valid and
“[F]orum
contract written
non-negotiable
given
unless
Thus,
clearly
should be
effect
enforcement
provision
this
MailCoups.
of the clause would be
In
one-sided,
MailCoups the
effectively giving
unreasonable.”
Commc’ns,
Court,
Superior
v.
tershop
AG
forum and elimi-
judicial
right to choose
191, 196,
Cal.Rptr.2d
127
Cal.App.4th
104
Nagrampa.
for
Cali-
nating such a forum
(2002)
Smith,
(citing
847
Valentino &
consistently have found such
courts
fornia
Smith,
Court,
Superior
Inc. v.
17 Cal.3d
See
provisions unconscionable.
374,
491, 495-96,
Cal.Rptr.
131
551 P.2d
115,
Martinez,
12
at
Cal.
Cal.App.4th
118
(1976)). However,
“place
if
1206
Mercuro,
at
663;
Cal.App.4th
96
Rptr.3d
a forum
manner” restrictions of
selection
Stirlen,
671;
51 Cal.
Cal.Rptr.2d
116
“unduly oppressive,”
Bol
provision are
see
1541-42,
Cal.Rptr.2d
60
138.
at
App.4th
Court,
Superior
Cal.App.4th
87
ter v.
noted,
provision itself
As
(2001),
909-10,
facilitating
its claims would be unconsciona-
pursuing
should be
merce,
rule
general
and as
ble,
intend-
was not
“[arbitration
because
However, this favorable
Id.
welcomed.”
uncon-
Because the
purpose”).
ed for this
selection clauses
of forum
treatment
place requirements
time and
scionable
voluntary
free and
on their
conditioned
agree
entire
Bolter had not tainted the
chosen hav-
place
“with
procurement,
ment,
to sever
Appeal
of
chose
Court
parties
one of the
logical nexus to
ing some
911,
at
104 Cal.
Cal.App.4th
them.
87
long
so
as California
dispute,
or
Rptr.2d 888.
their substantial
not find
consumers will
by
impaired
their
rights significantly
legal
disagree with the view
respectfully
We
Online,
Cal.App.4th
90
Am.
enforcement.”
dissent
expressed
Judge O’Scannlain’s
Therefore, to
699.
Cal.Rptr.2d
108
on the
holding
Bolter rested
enforceable,
jurisdiction
engendered
the selected
and lack of notice
unfairness
“ ‘suitable,’ ‘available,’ and able to
of a clause
by the franchisor’s insertion
must be
”
justice.’
(citing
forum to be out-of-
setting
Id.
the arbitral
‘accomplish substantial
Co.,
agree-
subsequent
into a
franchise
Zapata
407 U.S.
state
Bremen v.
Off-Shore
.
em-
repeatedly
ment.
Bolter court
The
1289 clause; sonableness of the forum selection plain- construed the Id. The court clause. (2) essence, enforceability in argument being, of the clause first tiffs’s Wimsatt, and then Cal.App.4th inconvenient itself. 32 at 38 that the forum was in- simply Cаl.Rptr.2d (shifting “[m]ere state 612 burden of proceeded proof expense additional is not party seeking convenience or a forum enforce selec- (inter- the test of unreasonableness.” in litigation tion clause “to show that omitted). marks quotation nal any contract forum will not diminish in way rights the substantive afforded Cali- Here, by misap- court erred the district law”); under fornia franchisees California law on the substantive plying California Online, 10-11, Cal.App.4th Am. at forum unconscionability of the selection Cal.Rptr.2d (finding policy “identical actually it had not ana- Although clause. shifting which considerations command unconscionability, lyzed procedural franchisor], proof here to [the burden of restrictions found that absence seeking enforcement of fo- harsh, “unfair, which could be considered clause,” rum selection because the statute distinguished Nagram- overly onesided” (CLRA) at issue and the statute Wim- It concluded pa’s case from Bolter. then (FIL) satt contained the same signed had that because prohibiting waivers consumers of agreement containing the arbi- franchise remedies). Thus, statutorily granted un- “valid, it was irrevocable provision, tration law, the of proving der California burden and enforceable.” only not the reasonableness and fairness Moreover, the district court did provision, but also allegations, as Nagrampa’s not consider CLRA’s anti-waiver is not violat- fourth, fifth, causes stated in the and sixth Wimsatt, ed, MailCoups. rests with complaint, action in her that Mail- Cal.App.4th Cal.Rptr.2d at 612. imposition provi of the arbitration Coups’s MailCoups has not this burden. met (1) three California sion violated statutes — parties’ bargaining positions Law were Franchise Investment 31000-31516; (“FIL”), unequal, oppressive §§ in an con- Corp.Code resulting Cal. (2) containing a forum Competition Law tract of adhesion selec- the California Unfair Boston, (“UCL”), places §§ tion clause that venue Bus. & Prof.Code 17200- Cal. (3) Massachusetts, 17208; away a few miles from California Consumer Avon, (“CLRA”), MailCoups headquarters Remedies Act Cal. Civ. Legal away Nagram- non three thousand miles §§ 1750-1785—which establish Code Bolter, Indep. pa’s home. As statutory rights. See waivable Owners, fran- require contract would one-woman Ass’n Mailbox Ctr. 133 Cal. fly (holding operates chisee who from her home Cal.Rptr.3d App.4th country to arbitrate a contract the FIL and the UCL across the that claims under Na- performed in California. public appear signed interest and “affect the Armendariz”); traveling incur additional grampa ... the rules of fall within Autowest, Inc., and “increased costs living expenses 114 Cal. and Gutierrez 99-100, familiar with having 267 associated counsel App.4th Cal.Rptr.3d Bolter, (2003) law.” 87 Cal. (holding provi that an arbitration [Massachusetts] Na- impede statutory rights App.4th un may sion CLRA). her Mail- grampa money operating lost allegations Those bear der the (1) financial hard Coups franchise and faces questions who has both to maintain her ship. or unrea- She not be able proving the unfairness burden *31 misleading if forced not include language her losses could such recover claim to offering later The forum in the circular and then take so in Massachusetts. to do that justification position California law will not has “no selection contrary approach an “A would un- maximizing control. than as means other 910, necessarily public undercut the California advantage [franchisees].” over Bolter, requires which honest disclosures to policy “[a]r- 888. As in Laxmi, 1098; F.3d at franchisees.” those [MailCoups] understood guably, Inc., Bradley v. Research see also Harris fran- еffectively preclude its would terms Cir.2001) (9th 884, 891 it, (holding 275 F.3d against claims raising from ever chisees preempted that section 20040.5 is on costs and burden knowing the increased FAA, because, distinguishing Laxmi in prohibi- be their businesses would small Laxmi, “there that was no evidence Indeed, the effect of tive.” Id. that was ‘ever that indicated Boston, franchisor proceed in requiring arbitration to upon despite insist an out-of-state forum prohibitively costly to Na- a location so contravening California law’ referred par- that was grampa precluded [circular], in the franchisee and the had in the ticipating proceeding.13 po expect agreed it had reason that Moreover, rea- Nagrampa did not have forum,” indicating an out-of-state expect the arbitration would son was no minds on ‘meeting “there Boston; nor, did place apparently, take ” provision’ (quoting selection forum Lax that, MailCoups. We have found where 1097)). mi, 193 F.3d at franchise-offering circular contained suggesting that out-of-state language Nagrampa MailCoups and entered forum selection choice of law clauses into the franchise when may good not be under 20040.5 enforceable section was still considered law, expectation was “no provi there reasonable law and out-of-state forum selection agreed agreements franchisee] had to forum sions franchise were [the Invs., other than California.” Laxmi LLC enforceable under To California law. this (9th USA, end, circular,14 offering F.3d like Golf Cir.1999) (internal Laxmi, quotation offering marks omit- 193 F.3d circular ted). that, regardless We held language suggesting Laxmi contained law, limiting selection, of whether California statute the forum choice of disputes, venue California for franchise termination or clauses nonrenewal 20040.5, § Bus. & Cal. Prof.Code unenforceable under California law. Un FIL, FAA, preempted the franchisor der the the franchisor must disclose that, $9,991.90. Judge Assuming following O'Scannlain’s dissent asserts in the enough money month, had more than deposits husband's and her $6,500 pay the in arbitration fees and to liti- average, withdrawals were close to the forum, gate in an out-of-state on the false $6,500 payment filing then of the initial fee assumption $16,000 average that she had alone, without consideration of the additional during bank in her account rele- required expenses litigate in an out-of-state However, period. vant time the dissent mis- forum, would result in a bank account over- record, construes the contains three which by $388.23. drawn preced- bank statements the three months ing September 2002 for the account held may properly 14. We consider the franchise by Nagrampa jointly husband. The and her circular, offering which was attached as an deposits average monthly during period this Nagrampa's complaint exhibit to and was ad- $41,151.17 average monthly were and the mitted before district court.' $45,031.30. withdrawals debits were ending August balance 2002 was
1291 subject fran- certain information about the will occur at the offices of the Ameri- through and franchisor a Uniform can chise Arbitration Association nearest Offering regis- Franchise and a our home provision Circular office. This not prospectus. Corp.Code tered Cal. be enforceable under California 31119(a). § FIL prohibits The franchisors law. making misrepresentations material (5) Item 17 of this disclosure docu-
or omissions in the offer and sale of ment is modified to include the following §§ franchise. Id. at 31200-31203. Under paragraphs Summary under the column law, illegality when fraud or is California (v) (w) parts of both charts: allegеd, parol rule evidence does California Business Professional Code pre-contract repre- apply, evidence Sections 20000 through provide 20043 vary which sentations contradict rights you concerning termination or an integrated terms of are admis- nonrenewal of a franchise. If the fran- § 1856(g). sible. See Cal.Civ.Proc.Code chise contains a theory supporting The exception law, that is inconsistent with the the law evidence does not contradict “[s]uch will control. integration terms of an effective since agreement requires ap- The franchise purported shows instrument has plication of the laws of the State of Airlines, legal no effect.” See Cont’l Inc. Massachusetts. This may not Douglas Corp., v. McDonnell 216 Cal. be enforceable under California law. 388, 424-25, App.3d Cal.Rptr. 264 779 court, Like the Laxmi we conclude that (1989) Witkin, 2 (quoting California Evi misleading language (3d ed.1986)). § at dence Because offering provided inadequate circular no- Nagrampa argues that the forum selection tice to that the forum selection provision did not fall within her reasonable clause was valid. no thus had expectations, we representa examine the expect reason to that arbitration would in offering tions the franchise circular to place take in Boston. contrary, To the expectations. discern her reasonable every expect she had reason to that, Laxmi, point just salient in as arbitration, any, if would take in place Cal- [MailCoups] “there is no evidence that ifornia, law, in with accordance that it upon ever indicated would insist an expressly as raised in the circular. That out-of-state forum despite the contraven MailCoups initially Angeles, filed for Los ing place at California law5’ the time the California, as the arbitration venue Laxmi, contract was executed. 193 F.3d parties reinforces the conclusion that both at 1097. reasonably expected arbitration to take place The clauses in H Section California. circular,
MailCoups offering which Na Moreover, where a has not re grampa filed as an exhibit to her com actual of a ceived notice forum selection plaint, virtually are identical to those at clause, Appeal the California has Court issue Laxmi: Intershop refused to enforce it. See
(4) Item 17 of this disclosure docu- Commc’ns, AG, 201-02, Cal.App.4th following ment is modified to include the (“A . 127 Cal.Rpt r.2d 847 forum selection paragraph Summary under the column clause within adhesion contract will be (u) part of both charts: long provided ‘as enforced the clause requires adequate [party]
The franchise
notice to the
that he was
binding
jurisdiction
arbitration. The
agreeing
cited
”
979; Abramson,
(alteration
original) (quoting Rptr.2d
63 P.3d
contract.’
Court,
Cal.App.4th Cal.App.4th
Cal.Rptr.3d
Superior
Hunt
(2000)));
Following
principle,
Car-
this
California courts
*33
Court,
Lines,
provisions that
Superior
Inc. v.
have stricken arbitration
nival Cruise
1019, 1026-27,
prevent
286 Cal.
enforcement and vindi-
Cal.App.3d
234
would
(1991)
public
by imposing
Civ.Code
of
Rptr.
(citing
rights
323
Cal.
cation
unrea-
1580) (“[T]he
Armendariz,
§§
forum selec
fees on a
24
party,
sonable
110-11,
745,
...
if
Cal.Rptr.2d
at
99
6
tion clause is unenforceable
Cal.4th
669,
plaintiff
that
did
or
arbitration in a
requiring
court determines
P.3d
[the]
forum,
Absent
and
Am.
notice of
distant
inconvenient
On-
[it]....
have sufficient
line,
12,
notice,
Cal.Rptr.2d
requisite
Cal.App.4th
mutual consent
90
at
108
such
(“California
and no
to
lacking
contractual term is
699
courts will refuse
defer
clause
respect
with
to such
to the selected forum if to do so would
valid contract
exists.”).
misleading language
substantially
rights
of
of
thus
diminish the
Califor-
circular,
offering
in way
well as Mail- nia residents
that violates our
of
proceedings
public policy.”).
institution
Cali
state’s
Because the forum
Coups’s
fornia,
lead us
conclude that
selection
in this case could “force
expectation
public
that arbitra
[Nagrampa]
forgo
had no reasonable
unwaivable
Little,
1079,
place
take
29
130
rights,”
would
in Boston.
Cal.4th at
Cal.
892,
979, by imposing
63
Rptr.2d
P.3d
Second, California courts refuse to
unreasonable costs to arbitrate
claims
provisions
public
arbitration
enforce
Massachusetts,
also be
it
unen
they
if
policy grounds
impede the enforce
public
contrary
forceable as
to California
statutory rights.
of unwaivable
See
ment
Online,
Cal.App.4th
Am.
policy, see
90
at
Lloyd’s
v. Certain
at
Boghos
Underwriters
12-15,
D.
Ar
See
rewriting
short of
the contract.
mendariz,
provision
hold that the arbitration
124-25,
We
MailCoups’s reservation to itself of the
single provision
“no
can strike or
[we]
right
any provisional remedy it
to seek
restrict
order to remove the unconscion
any
compe-
decides it needs from
court of
Id. agreement.”
able taint from the
jurisdiction
substantively uncon-
tent
124-25,
fore, require opinion § 4 district FAA did not . proceed parties to direct the Wardlaw. court should Proceedings continue arbitration. part company majority I with the do reach the in the district court. We provision its that the conclusion validity question law. was unconscionable under California other than “Arti- the franchise district correct I believe that the court was Resolution,” the arbitra- Dispute cle 35: concluding provision. I in the was valid and enforceable. concur by Judge portions
relevant dissents Ill (sections III) O’Scannlain II-D and (section II). them, Judge Like I Kozinski properly undertook to The district court judgment of the district affirm provision in whether the arbitration decide court. agreement is val- franchise meaning id and enforceable within O’SCANNLAIN, Judge, Circuit with 2,§ relied properly upon FAA Cali- *35 TALLMAN Judges whom KOZINSKI and However, analysis. in fornia law its join, Judge and with whom CLIFTON by failing analyze district court erred III, joins dissenting: II-D to Parts and as procedural there whether is evidence I I respectfully dissent because believe weigh unconscionability proce- and both ignores Supreme the Court clear unconscionability on dural and substantive in to entertain precedent choosing Court sliding scale dictated a as Nagrampa’s challenge validity of the Thus, Supreme Court in Armendariz. we addition, I entire franchise contract. In court conclude the district erroneous- majority’s cannot much agree with of the ly found that the arbitration was analysis regarding the uncon- substantive improperly and enforceable and dis- valid scionability of the clause. RE- missed the action. We therefore pro- and REMAND for further VERSE
ceedings opinion. consistent with this I AND
REVERSED REMANDED. Nagrampa, Connie A. a resident of Con- (in County
tra Francisco Costa the San CLIFTON, Judge, concurring in California, $100,000 Circuit Bay area), over earned part dissenting part: in per year a Manager Sales for ValPak Marketing Systems, position Direct a she agree majority I with the that the dis- held 1992-1998. in properly trict court undertook case this In decide the summer of MailCoups, whether Inc.,1 MailCoups representative approached Nagram- in the franchise meaning pa encouraged a Mail- valid and enforceable within to become Coups year, of the Federal Arbitration Act. I also franchisee.2 June of agree MailCoups Nagrampa did not waive her a notebook con- sent object right arbitrability taining offering to the a franchise circular and I dispute. agreement. thus concur II-A franchise After sections incorporated MailCoups MailCoups corporation 2. A franchisee recruits businesses princi- through coupons under the laws Delaware and has to advertise mailed to resi- its pal place of service business in Massachusetts. dences in her area. prepared spreadsheet showing her ex- claims that she never any person- received pected profits, income, costs her contact at al instead incurring substantial confirmed that her calculated living expenses. debt cover her Owing percent profit figure right.” part “about to her precarious financial situa- tion, Nagrampa sent MailCoups Septem- 24, 1998, August Nagrampa signed On ber terminating letter her fran- thirty-page agreement, franchise de- chise and stating her intent to claring penalty perjury under that she pay certain “amounts due” under agreed provi- had read and to each of its agreement. agreement, sions. Article 35 enti- Resolution,” “Dispute tled reads: MailCoups never payment received full amount it claimed was due under Any controversy Arbitration. or claim agreement, franchise Decem- arising relating Agree- out of or to this ber it filed a Demand for ment, Arbitra- thereof, or breach including, tion, seeking $80,000 payment of over limitation, any without claim that this by Nagrampa. owed MailCoups request- Agreement any portion thereof is in- ed the arbitration be Angeles, held Los valid, illegal or otherwise voidable or the location of regional its office. Na- void, shall be submitted to arbitration grampa initially participated in pre- before and in accordance with the rules hearing procedures, objected of the American Arbitration Association holding the arbitration in Angeles, Los Provided, or successor organization. requesting instead that place take however, that this clause shall not be *36 County. Contra Costa parties When the MailCoups’ right construed to limit agree location, were unable to on a the any provisional remedy, obtain includ- (“AAA”) American Arbitration Association limitation, ing, injunctive without relief per arbitrator determined the terms any jurisdic- from competent court of that — agreement franchise arbitra- tion, may as necessary MailCoups’ be —the tion would be held Boston. subjective judgment, sole protect its proprietary Service Marks and informa- When she received a schedule of for fees tion. The decision of the arbitrator arbitration, Nagrampa the requested a binding upon parties shall be the and waiver for all from fees the AAA. Howev- judgment upon the award be en- er, complete necessary she failed to the jurisdiction tered in having court waiver, despite forms to receive the being thereof. The situs of the arbitration requirements. advised of the The waiver proceedings shall regional be the office Nagrampa became moot when ceased her of the American Arbitration Association participation in the following Boston, which is located Massachu- designation the of Boston as the venue. setts. The costs arbitration shall be The arbitration proceeded without her and equally by MailCoups borne and Fran- against resulted in an award her over party chisee. Each responsible shall be $160,000.
for the fees expenses respec- and of its meantime, In Nagrampa filed suit attorneys experts. tive and against MailCoups and the AAA in Califor- agreement The term of the franchise was court, nia alleging MailCoups state years. ten misrepresenta- was liable for common-law fraud, Although Nagrampa sixty violating worked over tion and as for well as week, hours a MailCoups her franchise Legal California Consumer Remedies Act efforts, a Despite was failure. her and California’s franchise and unfair com- II monetary- Nagrampa sought laws. petition injunc- an and damages prov- places California law burden company from enforc- preventing chal- unconscionability on the ing against clause her. ing validity lenging Bank, v. clause.4 See Discover Szetela citizen- diversity of Invoking parties’ Cal.Rptr.2d Cal.App.4th the case to fed- removed ship, MailCoups “[U]nconscionability (Ct.App.2002). compel arbi- court and then moved to eral and a substantive procedural has both stay the court or dismiss tration element, oppression focusing the former on ar- opposition, proceedings. unequal bargaining pow- surprise due to un- was arbitration clause gued er, overly latter or one-sided harsh She and thus unenforceable. conscionable Health Armendariz Found. results.” pro- clause was that the arbitration argued Servs., Inc., Psychcare Cal.4th cedurally unconscionable because (Cal.2000) 6 P.3d agreement contract of [was] “franchise omitted). (internal quotation marks Al- It on a presented to her adhesion. was though present must both elements al- She not take-it-or-leave-it basis. was invali- court to its discretion to exercise any of She negotiate its terms.” lowed unconscionable, they date for the arbitra- gave grounds then three degree. present not be the same need unconscionability: tion clause’s substantive procedural Id. Because and substantive 2) 1) unfair, of Boston venue scale, unconscionability sliding on a exist 3) neutral, Mail- arbitrator was substantively oppressive “the more of arbitra- Coups did not disclose costs term, proce- the less evidence of tion. unconscionability is required dural come is unen- conclusion term The district court concluded that forceable, vice versa.” Id. Mail- granted was valid to dismiss.3 Coups’ motion Nagrampa claims that the franchise *37 timely appealed, three-judge panel and a arbitration clause was both agreement’s by opin- the court affirmed district written procedurally substantively unconscion- Na- Following court, on March 2005. ion At in- able. the district petition majority á that grampa’s rehearing, agreement the “franchise [was] sisted pro- en of the Court voted to rehear the case a contract of adhesion” and therefore cedurally unconscionable. I remain con- banc. majority MailCoups’ agree parties 3. The district court denied motion I with the' compel § because 4 of the Fed- agreement's arbitration have waived the franchise choice ("FAA”) that an requires eral Arbitration Act specified provision, Massachu- of law which hearing place take in the district controlling, by arguing setts law their re- compel which the was filed. See motion spective the basis law causes on of California ("The hearing § proceedings 9 U.S.C. the court both in district and here. See Pan ,.. shall within the district in which the Russo, Cal.App.2d no v. 186 P.2d petition directing for an order such arbitra- ("[A] (Cal.Ct.App.1947) party to a con filed.’’). upon Relying tion is the franchise may by representations conduct tract or agreement’s designation of as the ar- Boston performance waive the condition thereof forum, bitration district court concluded the repre estopped by or be held such conduct or the the that District' of Massachusetts was deny that he waived sentations to has such 'MailCoups proper an or- venue for to obtain performance.”). compelling der arbitration. did cross-appeal. not file a jurisdiction making performance agreement that this lacks of the Court vinced arbitrate.”). argument. consider Buckeye approach. this reaffirmed A S.Ct. at Drawing 1208-09. from Prima has identified two Supreme Court Paint, Buckeye states “unless the validity an challenges types itself, challenge is to the arbitration clause Buckeye agreement. Check validity issue of the contract’s is con- —- U.S.-, Cashing, Cardegna, Inc. v. by sidered arbitrator the first in- 1204, 1208, 168 L.Ed.2d 126 S.Ct. Therefore, stance.” Id. at 1209. “a chal- (2006). challenges specifically type “One lenge to of the validity contract as a validity agreement of the arbitrate.” whole, specifically and not to the arbitra- challenges “The other contract as a clause, go must to the arbitrator.” Id. whole, ground directly either on a added). at 1210 (emphasis Although (e.g., agree- the entire contract affects Buckeye attempt concerned an to invali- induced) or on fraudulently ment was date an entire contract based on “the ille- ground illegality one of the gality provisions,” of one of the contract’s provisions renders the whole contract’s Supreme equated type Court this 4 of invalid.” Id. Section challenge brought ground with one “on a requires two types FAA that these of chal- that directly agreement.” the entire affects lenges differently. be treated See id. See id. at 1208. Corp. Prima Paint v. Flood & Conklin Co.,
Manufacturing 388 U.S. B (1967), recog- 18 L.Ed.2d S.Ct. Nagrampa clearly challenged nized as much when considered the the validi- ty claim of the of “whether a of fraud contract as whole. Even her question complaint against the inducement of contract is to more directed the entire arbi- court, tration incorporates be resolved the federal wheth- clause contract-of- “directly adhesion er the matter is to be referred to the claim that affects the FAA, § 4 of agreement.” Considering arbitrators.” 9 entire See id. Under 4,§ Supreme court must order Court’s classification of this U.S.C. federal type challenge arbitration “once it satisfied that’ the as one must be arbitrator, our making duty for arbitration or considered an could comply the failure to be clearer. When [with *38 ” we challenged, is not in Id. at arbitrate is must look to agreement] issue.’ 4) (altеra- § challenge goes see whether the to the va- (quoting S.Ct. 9 U.S.C. a original). “Accordingly, lidity if of the contract as whole or whether tion the claim goes of it to the “specifically” is fraud the inducement the arbitra- arbitration which goes tion clause itself—an to clause. Id. Whether difficulties result issue jurisdiction from ‘making’ agreement the of to arbi- our lack of should have the issue; may no on our on the proceed bearing trate —the federal court to decision 403-04, adjudicate by it.” we “are rules enacted apply Id. at 87 S.Ct. bound to here, However, may Congress with to a respect the court not “con- 1801. matters — the contract which involving claims of fraud in inducement of commerce—over sider Paint, generally.” legislative power.” the contract Id. at has Prima (“[A] 1801; at 1801. The FAA S.Ct. see id. federal court U.S. 87 S.Ct. may relating specifically respect was enacted with only consider issues the fourth, fifth, In her and sixth at 87 S.Ct. clause.
just See id. such matter. action, Nagrampa causes of asked for 1801. “such other and further relief as the court view, majority’s Na- Contrary to the majority blindly The proper.” deem specifically not and exclu- grampa does later ignores Nagrampa’s statements that target arbitration clause as a sively the relief’ light shed on what “further she she, could con- of contract adhesion. Nor desired. appeal the sidering argument her on the contract and clause was “hidden” of district court Adequate review explained or to her.” “pointed out never requires us to evaluate all relevant docu- Indeed, argues she court, including ments filed with that those agreement procedurally unconscionable the district court to state: “Plain- led was contract because the entire contract agreement tiff characterizes the franchise adhesion, a “take-it-or-leave- offered on adhesion, argues a contract of posi- it” A of her basis. clear statement procedurally it is unconscionable therefore Opposi- tion can be found the Plaintiffs per se.” Because the full record makes [Arbitration], Compel tion to Motion to Nagrampa’s proce- evident that claims Nagram- the district court: “Ms. filed with unconscionability not dural were aimed pa’s franchise contract provision, specifically validity entire adhesion.” It is Buckeye require Prima Paint and us to chal-
franchise argument by leave this to be decided lenges. opposition The brief continues: arbitrator. contract ob- Nagrampa’s “Ms. entire tained fraud therefore should away Turning comprehensive revoked.” analysis documents filed Na- grampa, majority to distill the seeks
Refusing
acknowledge
these state-
Majority
complaint.”
Opinion
“crux of the
by Nagrampa
made
to the district
ments
narrowing technique
This
at 1264.
leads
court,5 majority proclaims:
“[N]owhere
does,
majority
Nagrampa’s
conclude that
complaint
her
seek rescission
cognizable
“specifically and
claims
exclu-
of the
invalidation
entire
based
sively challenge
validity
arbitra-
being
on it
a contract of adhesion.” Ma-
provision.”
Having
1264.
only
1277.
jority Opinion at
Yet
does
conclusion,
majority ap-
reached this
argument
opposition
in her
Nagrampa’s
attack
request
parently
allows
such
brief reveal her
to revoke the en-
any ground,
clause
if
complaint
itself
“even
substantive
agreement,
tire
requires an
no
that she wished
state law
examination of the
offers
reason
believe
only
making
court
sevеr
of the entire contract.”
Id. at
added),
majority
Buckeye
boilerplate,"
(emphasis
states that under
“mere
id.
al-
Prima Paint a court must consider
though Nagrampa
explained
later
what other
complaint to
the "nature
relief
discern
sought.
relief she
*39
may
Majority Opinion
be
at
that
afforded.”
majority’s
analysis
The
flawed
both contorts
majority
1277 n. 6.
that it
The
then concedes
presented
complaint,
the
in
claims
the
“type
claim
com-
the
asserted in the
of
disrespects Nagrampa's
I believe
abilities.
added).
plaint”
(emphasis
that matters.
choosing
capable of
substance
majority
parts of
Next the
decides that certain
capable
complaint,
over form in her
of
complaint
ignored.
particu-
be
the
should
In
arguments”
lar,
reading
"attorney's
before ac-
majority
portion
the
discounts the
of
cepting
in
their inclusion
her submissions
complaint requesting
other
further
"such
proper”
as the court
deem
court.
relief
district
interpretation
ground
Such
would allow us
clause “on a
1271.
[invalidates]
grounds
Buckeye
to reach
Court
entire contract” must be
by
decided
an
arbitrator,
but
not
recognized
“directly affect[ ]
entire
it did
do so.
id.
See
1208, Thus,
Buckeye
at
where
agreement,” Buckeye,
S.Ct.
draws a distinction
making mockery
the FAA
between the
of
types
challenges
thus
of
and its
two
arbitrator,
of
must be
to an
policy”
“national
favor
arbitration.
submitted
majority’s
v.
Corp.
Chrys
approach collapses
Mitsubishi Motors
Soler
into
two
Inc.,
ler-Plymouth,
my view,
one.
Supreme
473 U.S.
had the
Court
(1985).
meant to
an
adopt
approach,
simply
claim that did
of
it was “an attack on
adhesion because
clause alone.”
generally,
contract
not
the formation
the
in Burden
Similarly, the Sixth Circuit8
the
clause itself.”
an attack on
arbitration
LLC,
Kentucky,
267
v.
Into Cash
Check
Court,
Rojas
one
at 749. For the
Id.
(6th Cir.2001),
483,
specifically
F.3d
493
attack
plaintiffs
indication that
was
rejected plaintiffs’ claims that arbitration
limited to the arbitration
was
not
agreements
unenforceable because
were
argument
that
was
adhesion;
such
contained in contracts
“inequality
bargaining power.”
on
based
claims
because
not be considered
could
con-
Tellingly, Nagrampa’s
Id. at 749 n. 3.
clause,
the arbitration
not “attack
they did
based,
part,
on
tract-of-adhesion claim is
underlying
agree-
loan
separate
just
argument.
such an
added).
(emphasis
492 n. 3
ments.” Id. at
Finally,
Eighth
Circuit has held
Circuit returned several
While
Sixth
they
claims must
referred
plaintiffs
to the district court because
be
claims
“arguments of uncon-
arbitration
arbitration when the
specifically concerned
clause,
scionability
fairly
claim
‘cannot
be limited to the
the contract-of-adhesion
”
making of
not
of them.
Id. at 492. Burden’s
the arbitration clause.’ Madol
one
Group,
v.
unambigu-
on
face
Dan
Auto.
372 F.3d
holding
the issue we
Nelson
(8th Cir.2004)
determining
enforceability
(quoting
Houlihan v.
ous: “When
1000
(8th
Co., Inc.,
agreement,
a court ‘can
31
695
an arbitration
&
F.3d
Offerman
Cir.1994)).
Houlihan,
Eighth
grounds
of such
In
Cir
investigate the existence
rejected
attempt
target
cuit
an
an arbi
equity
at law or
the revoca-
exist
However,
grounds
applied
....
tration clause on
tion of
contract
contract,
specifi-
grounds
reasoning
for revocation must relate
the entire
just
plaintiff
presented “any
clause
not
rationale
cally to
had
”
concluding
alleged misrepre
to the contract as whole.’
492-93 for
Phillips,
only
Am. v.
173
to the arbitration
(quoting
relate[d]
Hooters
sentations
added).
(4th
Cir.1999),
(emphasis
9 clause.”
F.3d at 695
F.3d
which cites
2;
Paint,
§
Prima
388 U.S.
402-
U.S.C.
majority
The
to focus
chooses
(alteration
original)).
1301 gence requires D reading the of a contract signing before it. A cannot use his her proffering addition to eontract-of- own lack of diligence to avoid an arbitra- Nagrampa argument, adhesion also con- (internal agreement.” quotation marks tends the arbitration clause alone is omitted)). proeedurally unconscionable because it is twenty-fifth page on thir- found the the Here, MailCoups sent the franchise ty-page agreement franchise because agreement Nagrampa and asked her to was not she informed about clause or return it with signature. her Nagrampa— per- the costs of arbitration. These claims an experienced businessperson who had solely provision’s tain to the arbitration worked years for more than seven in the
validity cognizable and are thus under Pri- direct marketing ample field—had oppor- Buckeye. ma Paint and tunity to read the arbitration clause and to cite authority does not consider its implications; by her own ad- proposition MailCoups for the was mission, she agreement had the franchise required apprise of the existence of containing the nearly arbitration clause for arbitration clause or costs associat- two months. It follows that this case is Indeed, with ed arbitration. California appreciably different those in which case law establishes that had an inexperienced pressured consumer was obligation. no such In Brookwood v. Bank sign an without being afford- America, 1667, 1672, 45 Cal.App.4th ed an opportunity to read or to compre- Cal.Rptr.2d 515 for exam- (Ct.App.1996), See, print. hend the fine e.g., Gutierrez v. an ple, employee sought judicial to obtain a Autowest, Inc., 77, 89, Cal.App.4th employment forum for her discrimination Cal.Rptr.3d (Ct.App.2003) (holding by claiming suit was that she not aware that an in an arbitration clause automobile new-employee paperwork that her includ- lease was proeedurally unconscionable reject- ed arbitration The clause. court where “particularly the clause was incon- employee’s attempt ed evade arbi- spicuous,” it “printed was eight-point tration and explained that “was bound typeface on the side of opposite signa- provisions of the [arbitration] page,” ture and the consumer was not regardless of whether [she] existence). informed of the clause’s Na- it or [was] read aware grampa’s failure to read the when signed clause the document.” [she] (internal lawyer clause—or to consult about its omitted; quotation marks not excuse alterations ramifications —does her from (“Reasonable original); Thus, see complying also id. dili- with in my its terms.10 (4th majority App.3d Cal.Rptr. concludes that Brookwood is Dist. 1982), Supreme and states that inapplicable analysis proce- because "[t]he among many Court "is courts that 'have unconscionability dural under California law begun experienced recognize legal- focuses on the manner which the ly unsophisticated businessmen be un- disputed presented or the clause fairly surprised by unconscionable contract negotiated disparity bargaining and the ” Majority terms.' Opinion at 1283. On the power, party claiming on whether hand, majority one discounts foreknowl- unconscionability procedural should have irrelevant; hand, edge as other provision.” Majority known оf the arbitral majority surprise support enlists unfair its Opinion majority 1284. But when later regarding unconscionability. conclusion And argues procedural unconscionability may majority impor- continues discuss the sophisticated parties, exist even with it cites A knowledge tance of advance under California Corp., & M Produce Co. v. FMC law when it Cal. concludes re- *42 view, any employer has failed make tration Forum because the bene- repeatedly appearing showing was fitted from before that the unconscionable, her claim eight organization arbitrators em- procedurally unconscionability cannot succeed be- ployed in the Central District of California. proce- requires 167, 178, California law both cause Cal.App.4th unconscionability. dural and substantive (Ct.App.2002). readily distinguishable is be- Mercuro Ill suggest cause there is no evidence to that Though Nagrampa’s unconscionability a comparably the AAA uses small number procedural for lack of un- claim fails has of arbitrators or re- conscionability, reject argu- we her peatedly appeared organization. before the the arbitration is ments that Moreover, the AAA Arbitra- Commercial substantively unconscionable as well. As safeguards to incorporate tion Rules neu- notes, majority Nagrampa argued any repeat litigants, tralize bias in favor of was substantive- requiring arbitrators to “disclose to the First, unfair for three ly reasons. she likely any AAA circumstance to affect im- that the venue defeated prwision asserted ... partiality independence, including or Second, ability defend her claims. any past present or with the relationship agreement’s fee-split- claimed that the she parties representatives.” their See Third, ting provision was unconscionable. Rules, R- AAA Commercial Arbitration the AAA a repeat she contended that 19(a). Because either can then re- her.
player
against
and therefore biased
that the
quest
arbitrator be removed from
matter,
this rule minimizes the risk of
A
repeat
corporate
player
favoring
effect
majority
Nagram-
agree
I
with the
parties.
AAA Commercial
See
Arbitration
player”
pa’s “repeat
argument
is without
R-19(b).
Rules,
Majority Opinion
merit. See
at 1284-1286.
Indeed,
uniformly
California courts have
Nagrampa contends that the AAA and
provides
concluded
the AAA
a neutral
an
ruling
its arbitrators have
interest in
dispute
forum
resolution.
for
See Armen
“repeat players”
favor of
such as Mail-
dariz,
Cal.Rptr.2d 745,
Much of Nagrampa’s rights relies to Indep. be vindicated.” Ass’n Inc., upon Owners, Armendariz v. Foundation Health Superior Mailbox Ctr. Court, Services, 396, Psychcare 417, progeny. Cal.App.4th Inc. its 133 34 Cal. Cal.Rptr.2d Rptr.3d 24 Cal.4th 99 6 P.3d 659 (Ct.App.2005); see also Gu (Cal.2000). Armendariz, tierrez, In 114 the Su- at Cal.App.4th Cal. (“We Court of held preme Rptr.3d that where that conclude where a an employer mandatory imposes arbitra- enters into an adhesive consumer arbitration, employment, as a condition of that mandates it is unconscion cannot “require able to on process condition the con employee to any type expense bear posting pay.”). sumer fees he or she cannot However, Center, employee required would not be Mailbox the court was if bring bear he or she free to “to capabili were unable evaluate the financial franchisees,” action in court.” at 687 (emphasis Id. ties so returned omitted). The Armendariz decision case to the trial for further hear court strictly employment ings Cal.App.4th confined to the set- the issue. at Therefore, argument 11. did this issue. not raise waived it. See Inc., Airlines, opposing MailCoups' compel; motion In re Am. 217 F.3d West (9th Cir.2000) (“Absent argued only exceptional the arbitration clause failed cir- cumstances, Nagram- generally disclose the costs. Nowhere did we will not consider pa fee-splitting provision arguments appeal, contend that the first im- raised for the time on so.”). posed high unconscionably although costs. She ac- we have to do Not- discretion cordingly any withstanding foregoing, Nagram- failed to cite of the extensive because concerning propriety pa appellate opening California case law did raise the issue in her brief, fee-splitting arrangements, majority and the district I will assume that the is exer- cising opportunity pass upon court had no this its discretion to consider the issue. Meanwhile, reaching In this conclu- Gutier- Cal.Rptr.3d 659. sion, pаrties’ emphasized the court rez, “presented substantial plaintiffs did not con- original franchise admin- trial court evidence or a forum tain an arbitration clause either ability to their istrative fees exceeded and that the franchisees selection Gutierrez, Cal.App.4th pay.” anticipated have therefore could not event, defen- Cal.Rptr.3d 267. they required travel to an would be never contested dant in Gutierrez their inconvenient location arbitrate Id. inability pay fees. plaintiffs’ fo- The franchisor added the claims. *44 91, 267. Cal.Rptr.3d 7 subsequent to ver- rum clause selection that evidence present cannot Nagrampa contract, to which the franchi- sions of the her prevent fees would if required give to their assent sees were statutory vindicating rights, her from they to their Id. keep wished businesses. issue, in- conceded MailCoups never 907, The Cal.Rptr.2d at 104 888. court ac- Nagrampa’s bank arguing stead specifically “[o]nly person noted that during time the relevant count balance to a fran- contemplating purchase whether not her claim that she could period belied have in chise for the first time would been go to pay to the arbitration fees or afford reject[the to ‘take position franchisor’s] Nagrampa average had an bal- to Boston. Id. it or leave it’ attitude.” $16,000 ac- of in her bank personal ance extenuating circum- Where Bolter’s during period, count the relevant time absent, however, stances are California $6,500 to in enough pay than more validity of courts have sustained the forum this, light is no simply there fees. agreements. in selection clauses franchise holding that arbitration fees basis for California, Drydean-U.S.A. In Lu v. were insurmountable unreason- here Inc., example, upheld the court clause able.12 litigate franchisees to requiring California in against claims their franchisor Florida. C 11 14 Cal.App.4th Cal.Rptr.2d disagree majority’s I must also with The held it (Ct.App.1992). 906 court provision speci- conclusion that the venue — franchisor, was reasonable for the which Boston as the arbitration site—was fying place had its in Mia- principal business unconscionable. mi, designate to Florida the forum for as Nagrampa’s argument on this re- point all n. 14 litigation. Id. 1493 Cal. Court, heavily Superior lies Bolter v. upon Rptr.2d explained 906. The court Cal.Rptr.2d Cal.App.4th or additional ex- “[m]ere inconvenience There, the court held (Ct.App.2001). pense [the not the test forum selec- is in a forum selection clause franchise it unreasonableness since clause’s] unconscionable because plaintiff be assumed that received required fran- carpet-cleaning California under contract consideration for these against to arbitrate their claims things.” chisees Id. omitted). (internal quotation Id. at marks
the franchisor Utah. reason, Virginia reject majority's protection” com- For the same I under law when law, pared the forum clause to California cannot contention that selection might "substantially [Nagrampa’s] point any injury will arbi- diminish she suffer from Boston, plaintiffs particularly where rights.” trating in America On- Mail- Unlike line, Court, Coups Superior Cal.App.4th argument conceded at oral that it is Inc. contesting (Ct.App.2001), applicability of Cal.Rptr.2d 699 who "significantly receive less consumer law. would Nagrampa’s comparable situation is Because had sufficient funds her pursue against claim Lu, that of the franchisees because—as Boston, danger even in there is no recognized oppres- the district court —the “impede Nagrampa venue Bolter absent sive features of the case are vindicating statutory rights.” Major- from agreement. franchise MailCoups’ ity Opinion at 1285. is no There reason to Lu, MailCoups’ designation Like in Bos- consider Boston “a prohibitively location so reasonable, ton as the arbitration site is costly Nagrampa” that she could not MailCoups’ principal Boston place participate. Id. at 1290. Nagrampa had Bolter, business. the provision Unlike participate funds and chose not to. designating Boston as the fo- majority’s contrary, to the assertion rum original was included franchise Nagrampa “may not be able to main- presented Nagrampa, tain claim to recover of her losses or, if she neglected thus knew— Massachusetts,” if to do forced so in read have agreement, she should directly contrary to Any the record. *45 known—that a forum included such is flimsy given claim also the amounts Moreover, selection clause. the franchi- money that were involved the fran- sug- sees in introduced Bolter evidence Nagrampa chise. claims that paid she gesting they would have finan- been $400,000 more than to MailCoups fees cially against unable to their pursue claims two-year over franchise’s her brief exis- they the franchisor if were required tence, receiving personal all while no in- arbitrate in 909- Cal.App.4th Utah. come. To claim now cost a 10, 104 fi- Cal.Rptr.2d 888. The limited plane San round-trip ticket from Francisco ($338.60), presented four-night nancial by Nagrampa stay evidence Boston a hotel ($316.00), ($160.00), and twelve meals will does not that her situa- establish financial prevent from statutory her her vindicating precludes tion Bos- traveling her rights is (priceless) laughable.14 ton for the arbitration. The forum selec- substantively clause therefore is not The provision’s specification unconscionable, unconscionable.13 of a Boston venue is not majority's agreement's integration The reliance on Laxmi Invest the franchise clause. ments, USA, (9th writing by LLC v. 193 F.3d forth in a intended "Terms set Golf curious, 1999), particularly respect parties expression agree- Cir. as a final is with their analysis respect franchise-offering to its ment with to such terms as are in- circu- by lar. cited cluded therein not be contradicted never to this circular or any prior agreement argued evidence of or of a con- that the statements in the had circular agreement.” temporaneous oral impossible parties rendered it for the reach Cal.Civ. Indeed, 1856(a). Proc.Code§ "meeting a of the minds” on venue. offering she did not include circular Even if the forum selection clause were sub- record, excerpts every her statement unconscionable, appropriate stantively made in her concerned briefs the "contract.” remedy would be for this to sever that Court Thus, argu- to the she ever extent made provision, rather than to the arbi- invalidate circular, offering regarding ment has Bolter, entirety. See tration clause in its arguably Perhaps important- waived it. more ("the Cal.App.4th at ly, agreement the franchise here states that provisions be severed and unconscionable can "Agreement ... entire constitutes the enforced”). the rest of the MailCoups between and Franchi- supersedes see as to the ... franchise and all 14. The arbitration in this case was scheduled prior negotiations, understandings, represen- days. price two of a to last round- Thus, any agreements, any.” trip tations from San to Boston on if ticket Francisco $338.60, assuming reliance on the circular is foreclosed based on American Airlines is Sim- an ar- Nagram- majority manufactures Here result in the waiver nor will it that lacks even so statutory gument pa’s rights. I am support. much as bare assertion D I have puzzled; expected reasoned manufactures majority Inexplicably, explanation departure for such drastic by raised that was never argument I past practice. precedent from our as to explanation party. either Without judges, continue to believe “[a]s issue, create new why it decided to of our role is restrained service essence the burden of majority concludes disputes framed impartial arbiters proof MailCoups establish not, suggest, It I litigants. respectfully Nagram- not diminish venue will litigants backup to act as counsel when as a fran- pa’s rights substantive arguments, they or when come poor make original complaint al- chisee. While her having first ‘figure[d] into court without cited leged the statutes violations of Kennedy Lockyer, out’ their cases.” argued that majority, Nagrampa never (O’Scann- (9th Cir.2004) 1041, 1065 F.3d shifted the Mail- these statutes burden lain, J., justifica- no dissenting). There is court, in Coups before the district while creating argu- new or new tion for issues here, in front of the opening brief case, especially to resolve this when ments three-judge panel, or before the en banc opportunity meaningful lacks a panel. heard on these issues. Appellate to Federal Rule of Pursuant *46 Thus, entirely I avoid would this issue 28, practice is to re- Procedure our usual the parties. hold it was waived and argument to make an con- quire parties their “contentions and reasons taining IV them, to the authorities for with citations summary, In I continue to believe appel- on parts record which direction ignore Supreme we Court’s generally lant enforce this relies.” We Buckeye peril Paint and at our Prima “only argued by reviewing spe- rule issues Nagrampa’s when we choose consider distinctly opening in a cifically party’s event, any claim. contract-of-adhesion FAA, 28 F.3d brief.” Greenwood clause here was neither (9th Cir.1994); v. Na see also Carroll substantively proeedurally nor unconscion- Cir.2003) (9th katani, 342 F.3d judg- I affirm the able. would therefore (same); v. Hernandez-Val United States court. ment of district (9th dovinos, 4n. 352 F.3d respectfully I dissent. (“Issues Cir.2003) presented that were not generally to the district court cannot be KOZINSKI, Judge, with whom Circuit time In appeal.”). raised for first Judges O’SCANNLAIN and TALLMAN deed, have refused to “manufacture we join, Judge and with whom CLIFTON arguments” for a offers who II, joins dissenting: toas Part Arpin v. bare assertions. Santa Clara Na- agree Judge I with O’Scannlain that Valley Transp. Agency, 261 F.3d (9th Cir.2001). uneonscionability challenge grampa’s www.lq.com. Ray day per night. As departure Wednesday and suf- See Rachael return demonstrated, can well in Boston on advance See www.mobissimo. one eat
ficient notice. Quinta Boston, Somerville, day. Day: http:// $40 $40 a per See com. The La Massachu- setts, ad/episo approximately seven minutes from www.foodnetwork.com/food/show— office, de/0,1976,FOOD_9947_22423,OO.html. charges $79 AAA's Boston downtown arbitrator, proceedings have decided should been should be held.1 The arbitra- MailCoups tor recognized duty and that her contract with his resolve issue I substantively unconscionable. write and ultimately by issuing did so a formal separately dispute majority’s conclu- ruling on matter. Nagrampa did not waive the sion There was no similar response to Na-
right arbitrability partici- to contest after grampa’s “concerns” about arbitrability. proceedings in the arbitration for pating issue, never briefed the and the year, finding and its almost arbitrator never ruled on it. And Na- procedurally arbitration was unconsciona- grampa explained legal theory never her ble. facts on which her concerns were they thought based. Had that Nagrampa I. Waiver was actually objecting to arbitrability, Ma- majority reads Nagrampa’s Febru- ilCoups and the arbitrator certainly ary letter the arbitrator as a first, have turned to this issue rather than objection “forceful” arbitrability. Maj. wasting months resolving matters that are at 1280. But said never of no consequence if the contract is not objected merely expressed “serious —she arbitrable place. first That Na- “validity” concerns” about the arbi- grampa’s expression of “concerns” was tration clause. This statement contained silence, met with nothing that she did none of the traditional indicia a properly claim, to press an arbitrability fatally un- objection. articulated She never said “I majority’s dermines the conclusion that object,” provided grounds and she no Nagrampa preserved objection by pre- her purported significant- concerns. Most senting it to the arbitrator.2 ly, she never issue to submitted the arbitrator. While failed to make the objection,
For an
of a
example
real
we
faintest allusion to her “concerns” about
*47
letter,
arbitrability during
need look no farther than that same
the course of the arbi-
clearly
tration,
Nagrampa
where
states
she
no
she showed
such reticence
“objects” MailCoups’s
to
to
when
proposal
dealing
hold
with other issues.
In addi-
venue,
in
Angeles.
Los
Mail-
tion to
over
fighting tooth-and-nail
Coups
recognized
discovery
and
request,
the arbitrator
this
she filed a broad
an objection,
everyone spent
pressed
sought
as
the
four counterclaims and
to
part
eight
of the next
majority
better
months deal- have fees waived. The
dismisses
ing
parties
with the matter. The
submit-
these
as
“procedural
activities mere
skir-
mishes,”
argued by way
ted written statements and
but the record shows that Na-
telephone
grampa’s
conference about where
the
participation
the
went to
heart of
says
majority
The
authority
there were two
his
to decide
It
confer-
the issue.
calls,
1278,
maj.
MailCoups’s
ence
at-
certainly
preserve
right
not
her
to withdraw
torney
Nagrampa
lawyer
her
asserts that
arbitrability
from the arbitration and have the
calls,
participated
at least three
and Na-
in
Because,
by
issue
de novo
decided
court.
grampa does not contest this assertion in her
Options
respondent
unlike the
in First
Chi-
brief.
938, 941,
cago,
Kaplan,
Inc. v.
514 U.S.
(1995), Nagram-
S.Ct.
L.Ed.2d
February
2. Even if one reads the
arbitration,
pa
to
was not
consented
she
enti-
arbitrability,
objecting
as
to
letter
I’m not
question
yet
tled to
to
arbitrator
submit
the
Nagrampa.
helps
sure how it
All it would
right to de
retain the
novo consideration of
Nagrampa
ques-
mean is that
submitted the
arbitrator, thereby acquiescing
injudicial proceedings.
the
the
same issue
Daniel,
Eldridge, Inc. v.
724 F.2d
Take the
sweet &
MailCoups.
dispute
her
with
(9th Cir.1983)
curiam),
(per
“[i]t
for all 1355
Nagrampa asked
discovery request:
unjust
allow
made
unreasonable and
describing “assumptions
would be
documents
the
the
Earnings
party]
challenge
legitimacy
[a
by
preparing
Claimant
in which he had
offering
process,
volun
in the franchise
Claims” set forth
period
tarily participated over a
of several
circular,
marketing con-
economic
1357;
also
was months....”
see
Com
at the time
offer
existing
ditions
Rudell,
Accounting
Corp.
Mail- prehensive
financial status of
made and the
Cir.1985) (“It
(7th
was
is far
760 F.2d
franchisees. This
Coups’s existing
ar-
parties contesting
late for
[the
than
would then too
information
more
and allow
arbi
arbitrability;
bitrability]
it is
to sit back
contest
have needed to
forward,
only
after it was
go
have
use-
tration to
that would
been
information
done,
sought, say:
all
and enforcement was
litigating
ful
her case on
to her
raising
way,
agreed
we never
the time came for
oh
merits. When
That
counterclaims,
arbitration clause.
tactic
Nagrampa didn’t elaborate
arbitration, with
commitment
arbitrability.
In-
the law of
its
on
“concerns” about
tolerate.”).
not
stead,
speed,
will
claimed
violated
she
fran-
provisions of California’s
multiple
majority
Nagrampa’s
par
discounts
bespeak
Nagrampa’s actions
chise law.
in the
ticipation
proceedings, because she
only acquiescence
in the arbitrator’s
hearing.
in a
participated
never
merits
authority,
partici-
but a desire to be
full
why
I
matter
But
don’t see
should
proceedings.
pant in the
hearings
whether
which
Thus,
lawyer participated
read
or her
were on
even if we could somehow
matters;
objecting
preliminary
February
letter
merits or
either
event,
un
opposing party
still consider
suffered the
arbitrability,
we must
unnecessary
delay.
Nagrampa’s participation in
fairness of
cost
whether
majority
con- None
on which the
proceedings on matters that have no
cases
in the
arbitrability
participation
so ex-
relies holds
merits
bearing
ceivable
hearings
necessary
have
for waiver. See
right
as to waive
tensive
this
Options,
had
doctrine in
First
514 U.S. at
S.Ct.
to withdraw. Waiver
Unlimited,
19203;
Textile
v. A..BMH
guided
practical policies
context is
Inc.
Co.,
(9th
Act,
Cir.2001);
is &
240 F.3d
of the Federal Arbitration
which
Fortune,
1357;
to a
12A F.2d at
Ficek v. S.
designed
give businesses access
*48
(9th Cir.1964).
Co.,
speedy
resolving dis- Pac.
cheap and
means of
F.2d
majority
v. And
two
on
putes.
Reynolds,
Dean Witter
Inc.
cases which
See
213, 218-19,
Byrd,
heavily,
Options
relies
First
and Tex
470 U.S.
S.Ct.
most
Unlimited,
(1985).
deal
at
tile
don’t
with waiver
REQUIRES YOU TO ARBITRATE
Unconscionability
II. Procedural
AND
IN
SUE
MASSACHUSETTS.
ARBITRATION OR
OUT-OF-STATE
handwringing,
majority
After some
finds that
has
“mini-
MAY
YOU TO
presented
LITIGATION.
FORCE
*49
claims,
contract,
here,
Contrary
majority
by
they
to what
con-
did
there is a
quite
presumption
sent and
are
There is
all issues between them are
waiver
different.
that
Id. In such
parties
by
presumption
no
to be
the arbitrator.
have consented
decided
circumstances,
wishing
party
attempting
and thus
with-
by
by
question
do
draw a
must affir-
establish consent
conduct must
so
from arbitration
right
making
showing
opposing
matively
preserved
a
establish
clear
Thus,
First
party's
conduct
amounts
to consent.
to do so.
conduct
that is insufficient
Options,
may
ACCEPT contracts, by of form cally offered means IT MAY ALSO COST TLEMENT. consistent with standardized nature ARBITRATE OR LIT- TO YOU MORE And, model. Cali- the franchise business IN MASSACHU- U.S. IGATE WITH recognized have that “the fornia courts IN YOUR HOME THAN SETTS for arbitration is [a] fact STATE. in a of adhesion will contained blind to miss this warn- You’d have to be not, itself, render the unen- surprise no here. There was ing. Court, Keating Superior v. 31 forceable.” Cal.Rptr. un- 645 P.2d procedurally is Cal.3d 183 if this So (Cal.1982), Nagram- conscionable, because rev’d on other it must be Keating, majority grounds, Corp. The pa oppressed. Southland was somehow (1984). great of the fi- 79 L.Ed.2d because U.S. S.Ct. finds oppression MailCoups So, agreements general and if franchise and disparity nancial between particular are Nagrampa, pre- and because arbitration clauses form contract, way a find a Nagrampa per oppressive, sented with form not se we must non-negotiable. separate agreements were from the terms of which enforceable this, But, always present these are that are not. To do we must conditions those a signs up closely an individual fran- examine the facts and circum where “[fjranchise chise, yet agreements negotiation. are stances of we do this When so, se per perfectly Nagrampa unenforceable” California. it is clear was not Maj. (quoting Indep. Ass’n oppressed. Owners, Superior Inc. v.
Mailbox Ctr. First, Nagrampa sophisticated busi- Court, Cal.App.4th Cal. special expertise nesswoman with (4th Dist.2005) (internal Rptr.3d quo complaint, mail In direct business. her omitted)). tation marks July states: “On about plaintiff prepared- spreadsheet reflecting typically large are enter- Franchisors profits prospective her costs and based on prises with an established business model with conversations MAILCOUPS INC.’s products suite of services declaration, agent....” In her she states: enjoy nationwide —rec- widespread —often Super- I the materials from reviewed very ognition. point buying That’s Coups and discovered that instead of starting franchise rather than a business basis, line line calculating by costs on a Franchisees tend to be indi- scratch. SuperCoups charged its franchisees hope viduals or families who to achieve lump inflated sum that is later reduced by marketing self-sufficiency economic overcharge refund and other postage products franchisor’s and services. The production credits. invariably franchisor has financial re- Nagram- pro- majority’s sources that far exceed those of the romantic vision of franchisee, modern-day spective “large pa as a business en- Candide shattered do relatively bargaining ability complicated have financial tities little power, depending identity forecasting easy on the and her use of terms such sum,” lump contracting party “postage and the commer- as “inflated over- other agree- charge “production surrounding cial circumstances refund” credits.” reality, savvy v. FMC was a busi- Corp., ment.” A & M Produce Co. *50 473, 489-90, who the direct mail in- Cal.App.3d Cal.Rptr. 135 186 nesswoman knew out, (Ct.App.1982). dustry 114 more than inside was
1311 taking sug- attorney litigation herself. who capable specialized of care of To Nagrampa institutions, denies the re- gest otherwise financial against purchased a spect in her deserves. position a woman self-directed IRA from Dean Witter and provi- sued contest the fee dismissed, contract’s easily according
All this is Witter, sions. Dean 211 majority, Nagrampa Cal.App.3d at “appar- because 762, ently” Cal.Rptr. have or 259 “specialized didn’t education 789. The court held the Maj. at But training in field.” 1283. procedurally contract was not unconsciona by even if this were rec- supported ble, plaintiff because had failed to show nothing I’ve found to support ord—and a meaningful “lack choice” in where [of] why clear it matters. Nagram- it—it’s not purchase an IRA. at Cal.Rptr. 259 pa obviously had what takes to be That plaintiff Dean Witter was very industry. high-level executive this experienced lawyer an while Nagrampa is through gained Whether she these skills an experienced businesswoman is a distinc training, experience, formal a knack tion without a difference. Just business, three, aor combination of the plaintiff pur Dean have could Witter if point sophisti- is that was not Nagrampa an IRA chased from another financial in enough sign as a direct-mail up cated stitution, Nagrampa so could have looked franchisee, nobody is. for another franchisor-all the while con significant Nagrampa It’s also tinuing salary. draw her Dean Witter pressure under economic no because cases, cites numerous from California and job company. held a lucrative with another elsewhere, that precisely reach the same That continued to work her at A party meaningful conclusion: who has a job six-figure while she considered wheth oppressed. choice cannot be id. at See sign er to the contract meant that she was 769-72, Cal.Rptr. (citing 259 789 Kurash strength. negotiating position Dunes, Inc., ige Cal.App.3d v. Indian 200 easily She could have “no” at time said 606, 614, 246 Cal..Rptr. (Ct.App.1988); 310 sought opportunity another franchise Court, Superior Cal.App.3d Parr v. 139 job kept six-figure salary. Cal 440, 444, 188 801 Cal.Rptr. (Ct.App.1983); in recognized ifornia courts have Inc., Motors, Henningsen v. 32 Bloomfield equality bargaining “depends power 69, 87, (N.J.1960)). 161 N.J. A.2d part meaningful on absence choice Inc., v. contracting party; though Supercuts, and even Stirlen Cal. adhesive,.the 1519, Cal.Rptr.2d of App.4th (Ct.App. existence ‘meaningful’ 1997), Stirlen, alternatives available to such very point. on turns this contracting in the form of other corporation did not the arbi disclose supply sources defeat any tends to claim requirement to a sophisticated tration ex unconseionability.” Reyn Dean Witter already accepted ecutive until he had after olds, Court, Superior Cal. Inc. with the defendant. Id. at employment (Ct. Cal.Rptr. App.3d time, By Cal.Rptr .2d 138. he App.1989). position quit previous “highly paid had his major id. corporation,” with a majority distinguish tries to Dean dependent and thus was attorney pointing Witter out that That job new for his livelihood. is a his great degree experience there “had a here, contracts,” very situation from the different one maj. with financial service rejected could have misses of that case where point Witter, and still had an entirely. plaintiff, In Dean franchise have *51 majori- sliding the scale. mortgage other end of to the pay with which income the of ty say that evidence substan- table. does food on the put and “strong unconscionability enough” is tive As antithesis of Stirlen. case is the Our procedur- of “slight” to offset the evidence admits, MailCoups approached But unconscionability. Maj. at 1293. al fran- opening a the of possibility her about ma- merely the conclusion the this states keep to aggressively pursued and chise reach; explain it jority does wants the As solicited alive. negotiations the unconscionability it why substantive the job income and secure good party, with offset “high degree” such a as to finds is of Na- MailCoups’s competitors, with one proce- “slight” degree the or “minimal” trump negoti- held card the grampa the See, unconscionability. e.g., Nyulas dural no,” said and “just have ations: She could sy Corp., Martin 120 Cal. Lockheed for the go scrambling forced 1267, 1286-87, Cal.Rptr.3d App.4th desper- partner, it seems have business (Ct.App.2004). Walking away from the deal ately needed. her no loss of liveli- have caused sophisticated So we’re left with is what sort, hood, since no inconvenience job left a willingly six-figure executive who motivating factors were self-inter-
her sole buy industry in an where a franchise are rea- est ambition. These swell years. for doing business she’d been sons, sure, hardly be but the stuff coercion, surprise no duress There was circum- Under these economic duress. negotiations-indeed, Nagrampa in the stances, I conclude that the con- cannot being by MailCoups. courted aggressively nor negotiations oppressive, were tract the contract for two months be- She had procedural- resulting contract was the taken signed fore she it could have ly unconscionable. longer if But because she’d liked. might spend something like be forced majori- by
I’d much less troubled $800, O’Scannlain dissent at see contrary my colleagues if ty’s conclusion freely order to arbitrate in the venue she they seriously sliding scale test took to, agreed the arbitration clause thrown unconscionability in the procedural discuss out window. Maj. at 1281. Af- opinion. section of all, proce- ter no difference between endeavors, As paternalistic with most (as it) unconscionability I see dural majority’s carries the seeds of opinion uncon- “slight” procedural “minimal” or By irony. invoking the unconsciona- great (as it) scionability majority sees should little bility protect guy” “the doctrine to no there is evi- make difference unless case, majority this has construed Cali- overwhelming uncon- dence of substantive way law in a that will fornia franchise scionability to the “minimal” show- offset “lit- for other opportunities result in fewer ing procedural scale. on the side guys” ever-growing tle in the future. The And, shows, Judge if there O’Scannlain litigation cost of is one of the most serious all, unconscionability it is substantive by and uncontrollable risks faced modern majority overwhelming; near nowhere As have the California courts businesses. pretend it is. doesn’t even recognized, helps businesses is, majority manage by “providing this resolu- pays only lip ser- risk As presumptively less briefly disputes tion of sliding vice to the scale test. It costly, expeditious, more private uncon- more procedural the test discusses person or impartial persons its then manner scionability part opinion, them- gets parties forgets typically all it when it selected about *52 I Cal.Rptr. Keating, surprised selves.” would not be the least to see But, according major- at 1198. to the Supreme P.2d of Court the United States already ity, those who control the soon take a close look at whether production possess means vast eco- doctrine, unconscionability as developed resources on with those of a par nomic courts, some state impor- undermines the major corporation sophisticated are tant policies of the Arbitration Act. enough enter into enforceable arbitra- im- agreements. This undermines the Act,
portant policies of the Arbitration de-
nying potential first-time business owners very meant Congress benefits to se- for them. is that
cure The result fewer -many business
aspiring whom owners— generation
are minorities and first Ameri- INC., a Washington FAMILY willing find cans—will franchisors to offer corporation; Jung Oh, Tae opportunities them the one MailCoups like Plaintiffs-Appellants, to Nagrampa. offered I believe that this contract is While en- valid tirely under California law as con- US CITIZENSHIP AND IMMIGRA state, strued in that courts SERVICES, agency TION majority’s exegesis unconscionability Government, United State Defendant- point disturbing doctrine does to a trend of Appellee. judicial hostility to form contracts. Com- today typically mercial transactions are No. 05-35310. contracts, governed by standardized non-negotiable. of which terms are Court Appeals, United States era the individually-negotiated con- Ninth Circuit. that of tract —like the hand-crafted fliv- Oct. Submitted 2006.* fading living memory.
ver—is from As demonstrates, majority opinion howev- Dec. Filed er, California courts have shown lamen- tendency table to hold the arbitration
clauses such contracts unenforceable. developments
The effect of these is that provisions easily
such are now challenged grounds unconscionability, routinely
channeling disputes away Buckeye
arbitrators into the courts. — Cashing, Cardegna,
Check Inc. v. U.S.
-, 126 S.Ct. 163 L.Ed.2d (2006), squarely stands for the propo-
sition that state law not be used to so
easily authority. divest arbitrators of their
* 34(a)(2). panel unanimously R.App. This this case Fed. finds suit- P. argument. for decision able without oral See