Bradley v. Harris Research

• Citation: 275 F.3d 884
• Decision Date: 28 December 2001
• Docket Number: PLAINTIFFS-APPELLEES,No. 00-16021,DEFENDANT-APPELLANT,CHEM-DRY,00-16021
• Parties: (9th Cir. 2001) MICHAEL BRADLEY, DBAOF CAMPBELL/SARATOGA; PATRICIA SMITH BRADLEY, DBAOF CAMPBELL/SARATOGA,, v. HARRIS RESEARCH, INC., A UTAH CORPORATION,
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 884

275 F.3d 884 (9th Cir. 2001)

MICHAEL BRADLEY, DBA CHEM-DRY OF CAMPBELL/SARATOGA; PATRICIA SMITH BRADLEY, DBA CHEM-DRY OF CAMPBELL/SARATOGA, PLAINTIFFS-APPELLEES, v. HARRIS RESEARCH, INC., A UTAH CORPORATION, DEFENDANT-APPELLANT.

No. 00-16021

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted November 7, 2001

Filed Dec. 28, 2001

Timothy C. Houpt, Salt Lake City, Utah, for the defendant-appellant.

John C. Gorman, San Jose, California, for the plaintiffs-appellees.

Eric H. Karp, Boston, Massachusetts, for amicus curiae American Franchisee Association.

Appeal from the United States District Court for the Northern District of California James Ware, District Judge, Presiding D.C. No. CV 98-21019 JW

Before: John T. Noonan, Michael Daly Hawkins, and A. Wallace Tashima, Circuit Judges.

TASHIMA, Circuit Judge:

Harris Research, Inc. ("HRI") appeals an order of the district court denying its motion for summary judgment, dismissing the case, and ordering the parties to participate in private arbitration. A franchise agreement between HRI and Appellees Michael and Patricia Bradley provided for arbitration of disputes to take place in Utah. HRI contends that the Federal Arbitration Act ("FAA" or "Act") preempts Cal. Bus. & Prof. Code §§ 20040.5, the California statute on which the district court relied to compel arbitration in California, rather than in Utah. We have jurisdiction pursuant to 28 U.S.C.§§ 1291. See Interactive Flight Techs., Inc. v. Swissair Swiss Air Transp. Co., 249 F.3d 1177, 1179 (9th Cir. 2001) (concluding that an order of dismissal compelling arbitration was a final judgment). We conclude that the FAA preempts §§ 20040.5; accordingly, we reverse and remand.

BACKGROUND

HRI is a Utah corporation that franchises Chem-Dry carpet cleaning franchises. In June 1983, the Bradleys acquired two Chem-Dry franchises and executed two Franchise License Agreements in connection therewith ("1983 Agreements"). Each of the 1983 Agreements provided that, "[f]ollowing the initial five (5) year period, this agreement shall be automatically renewed for additional consecutive five (5) year periods on subsequent five (5) year anniversary dates without any renewal fees being paid by FRANCHISEE. FRANCHISEE will, however, be required to sign a then current Franchise Agreement." On May 6, 1988, the parties extended the 1983 Agreements to June 1998, pursuant to a settlement agreement in a lawsuit brought by the Bradleys against HRI.

On January 30, 1998, HRI sent the Bradleys two identical letters (one per franchise) notifying them of HRI's"intent to allow renewal" of the franchises for additional five-year terms, provided that the Bradleys sign current franchise agreements and other paperwork and return them by July 20, 1998. HRI asked that the Bradleys respond in writing by March 3, 1998, and further provided that the contract date had been extended from June 9, 1998, to August 3, 1998, in order to allow the Bradleys sufficient time to review the paperwork.

On April 22, 1998, HRI sent the Bradleys another letter, stating, "[b]ecause you failed to respond by March 3, we can only assume that you have elected to not renew each of the above referenced franchises." HRI therefore stated that, as of August 3, 1998, the two franchises were to be considered "non-renewed" and would no longer be in effect.

On July 16, 1998, the Bradleys' attorney sent HRI a letter stating that the 1983 Agreements had been "automatically renewed pursuant to their original terms," citing Cal. Bus. & Prof. Code §§ 20025.¹ In case it were later determined, however, that the Bradleys were mistaken, they enclosed franchise renewal documents that they had "signed and returned to HRI conditionally and under protest," in order to protect their business rights, but without waiver of their right to challenge the validity of the agreements ("1998 Agreements"). The 1998 Agreements contained an arbitration clause requiring disputes to be submitted to arbitration in Salt Lake City, Utah, and providing that all arbitration matters were to be governed by the FAA.² The letter further expressed the Bradleys' view that the contracts were "contracts of adhesion and lack[ed] mutuality."

On July 29, 1998, HRI sent the Bradleys' attorney a letter setting forth its position, pointing out that the 1983 Agreements required the Bradleys to sign new franchise agreements if they wished to renew the franchises. HRI asserted that its January 30, 1998, letter constituted the notice required by Cal. Bus. & Prof. Code §§ 20025, and that the franchises were not renewed because of the Bradleys' failure to execute the 1998 Agreements unconditionally and to execute a Release Agreement and a Velda Equipment Agreement. Nonetheless, HRI offered the Bradleys another 30-day period within which to execute the required documents, "without condition, qualification or protest."

On July 30, 1998, HRI sent the Bradleys new sets of renewal documents, including copies of the 1998 Agreements. HRI informed the Bradleys that, in order to renew their franchises, they needed to execute the documents by September 4, 1998, in accordance with the terms of the July 29 letter, unaccompanied by "any conditions, qualifications or protests that could impact in any way the creation of binding agreements."

The Bradleys did not execute the new documents, instead filing this suit against HRI, on July 31, 1998. The Bradleys contended that they were entitled to continue operating their franchises under the 1983 Agreements and sought a declaration of their right to do so. They further sought a determination of the enforceability of the 1998 Agreements, contending not only that they were adhesion contracts, but that they violated Cal. Bus. & Prof. Code §§ 20040.5 by requiring disputes to be resolved outside California. The Bradleys also alleged that the 1983 and the 1998 Agreements violated Cal. Bus. & Prof. Code §§ 16600,³ and that HRI engaged in unfair business practices. HRI moved for summary judgment on the first claim--the Bradleys' rights under the 1983 Agreements. HRI sought a declaration that the franchises were not validly renewed upon the expiration of the 1983 Agreements, or, in the alternative, that the Bradleys renewed their franchises under the terms of the 1998 Agreements and hence were required to arbitrate all claims raised in the lawsuit pursuant to the arbitration provision in the 1998 Agreements.

The district court rejected the Bradleys' argument that they were entitled to "automatically renew" the 1983 Agreements without signing new franchise agreements, pointing to ¶¶ III of the 1983 Agreements, which explicitly stated that the franchisee was required to sign "a then current Franchise Agreement" in order to renew. The court then addressed HRI's contention that it was entitled to terminate the 1983 Agreements under Cal. Bus. & Prof. Code §§ 20025(f), which permits a franchisor to refuse to renew if it provides 180 days prior written notice and the parties fail to agree to changes or additions to the franchise agreement. The court concluded that HRI had given the requisite statutory notice of intent not to renew, but that the Bradleys did not "fail to agree" to the terms of the 1998 Agreements. The court reasoned that the Bradleys' execution of the 1998 Agreements evidenced their intent to be bound by the agreement, and that by signing "under protest," they intended only "to preserve their ability to challenge the legality of certain provisions of the agreements."

Because the Bradleys executed the 1998 Agreements, they were bound by all of its provisions, including the arbitration clause. The court, however, concluded that the arbitration clause was enforceable only if the arbitration was conducted in California, citing Cal. Bus. & Prof. Code §§ 20040.5.⁴ The court therefore denied HRI's motion for summary judgment, ordered the parties to participate in arbitration in California, and dismissed the case.

STANDARD OF REVIEW

The district court's order compelling arbitration is subject to de novo review. Harden v. Roadway Package Sys., Inc., 249 F.3d 1137, 1140 (9th Cir. 2001). The factual findings underlying the district court's decision are reviewed for clear error. Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 936 (9th Cir. 2001).

DISCUSSION

HRI contends that the district court erred in holding that §§ 20040.5 invalidates the 1998 Agreements' arbitration clause requiring arbitration to take place in Utah. HRI's claim is based solely on its argument that the FAA preempts the California statute and governs the 1998 Agreements. ⁵ The Act provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. §§ 2.⁶

The FAA was designed " `to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate.' " Volt Info. Scis., Inc. v. Bd. of Trs. of the Leland Stanford Jr. Univ., 489 U.S. 468, 474 (1989) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-20 (1985))."The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration." Id. at 477 (citation omitted). However, state law "may nonetheless be pre-empted to the extent that it actually conflicts with federal law--that is, to the extent that it `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)). Thus, a provision of...