Graham Oil Co. v. ARCO Products Co., a Div. of Atlantic Richfield Co.

• Decision Date: 13 March 1995
• Docket Number: Nos. 92-35007,92-35380,s. 92-35007
• Citation: 43 F.3d 1244
• Parties: GRAHAM OIL CO., an Oregon corporation, Plaintiff-Appellant, v. ARCO PRODUCTS CO., A DIVISION OF ATLANTIC RICHFIELD CO., a Delaware corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1244

43 F.3d 1244

GRAHAM OIL CO., an Oregon corporation, Plaintiff-Appellant, v. ARCO PRODUCTS CO., A DIVISION OF ATLANTIC RICHFIELD CO., a

Delaware corporation, Defendant-Appellee.

Nos. 92-35007, 92-35380.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 2, 1993.

Decided Dec. 16, 1994.

As Amended March 13, 1995.

Mildred J. Carmack, Schwabe, Williamson & Wyatt, Portland, OR, for plaintiff-appellant.

Charles F. Adams, Stoel, Rives, Boley, Jones & Grey, Portland, OR, for defendant-appellee.

Appeals from the United States District Court for the District of Oregon.

Before: REINHARDT, BRUNETTI, and FERNANDEZ, Circuit Judges.

Opinion by Judge REINHARDT; Dissent by Judge FERNANDEZ.

REINHARDT, Circuit Judge:

I. INTRODUCTION

Graham Oil Co. ("Graham Oil") appeals the judgment of the district court, which dismissed, with prejudice, all of its claims against ARCO Products Co. ("ARCO"). The claims were dismissed because Graham Oil Graham Oil contends that the arbitration clause is invalid because it requires the surrender of certain rights provided under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. Secs. 2801-2806. Accordingly, it argues that the district court--not an arbitrator--must decide the merits of its claims under the PMPA. We agree.

refused to submit to arbitration as required by an arbitration clause in its distributorship agreement with ARCO.

II. FACTS

For nearly forty years, Graham Oil was a branded distributor of ARCO gasoline in Coos Bay, Oregon. On October 2, 1990, Graham Oil and ARCO entered into a Branded Distributor Gasoline Agreement ("Agreement"), which was effective from January 1, 1991, to December 31, 1993. Among other things, the parties agreed that Graham Oil would purchase a minimum amount of gasoline each month during the two-year period of the Agreement.

On November 10, 1991, ARCO notified Graham Oil that it intended to terminate the Agreement as of October 31, 1991, because Graham Oil had not been purchasing the required minimum amount of gasoline as specified in the Agreement. On November 27, 1991, Graham Oil filed a motion for a preliminary injunction against ARCO in federal district court. Graham Oil argued that ARCO had violated the PMPA by deliberately raising its prices so that Graham Oil would be unable to meet the minimum gasoline requirements. Accordingly, Graham Oil argued that ARCO should not be allowed to terminate the Agreement.

On December 3, 1991, the district court issued a preliminary injunction that prohibited ARCO from terminating the Agreement for 90 days. Instead of reaching the merits of Graham Oil's claims under the PMPA, however, the court found that arbitration was Graham Oil's exclusive remedy. The court required the parties to complete the arbitration within 90 days.

Graham Oil appealed the district court's order and refused to submit to arbitration. Upon the expiration of the 90 days, ARCO moved for summary judgment. Graham Oil filed a cross-motion to keep the court's preliminary injunction in force pending the resolution of its appeal. The court denied Graham Oil's cross-motion and granted summary judgment in favor of ARCO. On appeal, Graham Oil argues that the arbitration clause in the Agreement is invalid and that the court must determine the merits of its claims under the PMPA.

III. ANALYSIS

This case involves the validity of an arbitration clause that, in addition to specifying arbitration as the means by which disputes are to be resolved, purports to waive certain statutory rights conferred upon petroleum franchisees by the PMPA. We conclude that the clause is invalid. As a result, we strike it and remand for further proceedings.

A. Validity of the Clause.

1. Purpose of the PMPA. In determining the validity of the arbitration clause, we first review the purpose of the PMPA. Congress enacted the PMPA with the primary goal of "protecting franchisees." See Khorenian v. Union Oil Co., 761 F.2d 533, 535 (9th Cir.1985) (internal quotes omitted). Such protection was needed in order to correct the great "disparity of bargaining power" between petroleum franchisors and franchisees. See S.Rep. No. 731, 95th Cong., 2d Sess., in 1978 U.S.C.C.A.N. 873, 876 [hereinafter Legislative History ]. According to the legislative history of the PMPA, petroleum franchise agreements generally are nothing more than "contracts of adhesion" that perpetuate the "continuing vulnerability of the franchisee to the demands and actions of the franchisor." Id.

In order to correct some of the effects of this disparity in bargaining power, Congress enacted certain protections for franchisees like Graham Oil. Essentially, the Act affords franchisees statutory remedies for the arbitrary or discriminatory termination (or non-renewal) of franchises by their franchisors. Id. Among other things, these protections include exemplary damages, reasonable attorney's fees, and a one-year statute of limitations. See 15 U.S.C. Sec. 2805; Legislative History at 899. These rights and benefits are, of course, not only designed to compensate 2. Arbitration Clause. Turning to the arbitration clause, we note as an initial matter that arbitration is a form of dispute resolution that finds favor in the courts. In a number of instances, the Supreme Court has upheld agreements to submit statutory claims to arbitration, see, e.g., Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991) ("It is by now clear that statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the [Federal Arbitration Act, 9 U.S.C. Sec. 2 et seq.]."), including claims involving unfair business practices. Among the claims in that category are those arising under the Sherman Act, the Securities Exchange Act of 1934, and the Securities Act of 1933. See, e.g., Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989); Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Some of the arbitration provisions--like the provisions here--have been contained in form agreements executed before the dispute arose. See, e.g., De Quijas, 490 U.S. at 478, 109 S.Ct. at 1918; McMahon, 482 U.S. at 223, 107 S.Ct. at 2335.

for injury, but also to deter unfair conduct.

3. Analysis. Nothing in the PMPA suggests that Congress intended to change the general presumption in favor of upholding agreements to submit statutory claims to arbitration. A simple agreement for arbitration of disputes is valid, whether or not contained in a franchise agreement. Such a provision constitutes nothing more than an agreement to substitute one legitimate dispute resolution forum for another and involves no surrender of statutory protections or benefits.

However, the fact that franchisees may agree to an arbitral forum for the resolution of statutory disputes in no way suggests that they may be forced by those with dominant economic power to surrender the statutorily-mandated rights and benefits that Congress intended them to possess. This is certainly true in cases arising under the PMPA, which was enacted to shield franchisees from the gross "disparity of bargaining power" that exists between them and franchisors. If franchisees could be compelled to surrender their statutorily-mandated protections as a condition of obtaining franchise agreements, then franchisors could use their superior bargaining power to deprive franchisees of the PMPA's protections. In effect, the franchisors could simply continue their earlier practice of presenting prospective franchisees with contracts of adhesion that deny them the rights and benefits afforded by Congress. In that way, the PMPA would quickly be nullified.

Here, the arbitration clause ¹ purports to forfeit certain important statutorily-mandated rights or benefits afforded to Graham Oil and other franchisees by the PMPA. First, the arbitration clause expressly forfeits Graham Oil's statutorily-mandated right to recover exemplary damages from ARCO if Graham Oil prevails on certain claims. The clause provides that neither party can be awarded exemplary damages. Compare 15 U.S.C. Sec. 2805(d)(1)(B) ("If the franchisee prevails in [certain] action[s] ... such franchisee shall be entitled ... to exemplary damages, where appropriate...." (emphasis added)) with Agreement Sec. 22(b) ("The arbitrator(s) may not assess punitive or exemplary damages...." (emphasis added)).

Second, the arbitration clause expressly forfeits Graham Oil's statutorily-mandated right to recover reasonable attorney's fees from ARCO if Graham Oil prevails on certain claims. The clause provides that each party will bear its own attorney's fees. Compare 15 U.S.C. Sec. 2805(d)(1)(C) ("If the franchisee prevails in [certain] action[s] ... such franchisee shall be entitled ... to reasonable attorney and expert witness fees to be paid by the franchisor...." (emphasis added)) with Agreement Sec. 22(a) ("Each party shall pay its own costs and expenses, including attorneys' fees related to such arbitration...." (emphasis added)).

Third, the arbitration clause expressly forfeits Graham Oil's statutorily-mandated right Each of the three statutory rights is important to the effectuation of the PMPA's policies. The purpose of exemplary damages is to deter franchisors from engaging in improper terminations of franchise agreements. The purpose of attorney's fees is to deter franchisors from improperly contesting meritorious claims. Finally, the purpose of a one-year statute of limitations is to afford franchisees a reasonable period of time in which to seek relief for improper terminations and other abuses by petroleum franchisors. In attempting to strip franchisees of these statutory rights and benefits by means of an arbitration clause...