Keating v. Superior Court, Alameda County

• Citation: 167 Cal.Rptr. 481,109 Cal.App.3d 784
• Court: California Court of Appeals
• Decision Date: 28 August 1980
• Parties: Richard D. KEATING et al., Petitioners, v. SUPERIOR COURT, ALAMEDA COUNTY, Respondent, The SOUTHLAND CORPORATION et al., Real Parties in Interest. Paulino GARZA et al., Plaintiffs and Respondents, v. The SOUTHLAND CORPORATION et al., Defendants and Appellants. (And 8 other cases.) * Civ. 45162, Civ. 46123.

Page 481

167 Cal.Rptr. 481

109 Cal.App.3d 784

Richard D. KEATING et al., Petitioners, v. SUPERIOR COURT, ALAMEDA COUNTY, Respondent, The SOUTHLAND CORPORATION et al., Real Parties in Interest.

Paulino GARZA et al., Plaintiffs and Respondents, v. The SOUTHLAND CORPORATION et al., Defendants and Appellants.

(And 8 other cases.) ^*

Civ. 45162, Civ. 46123.

Court of Appeal, First District, Division 3, California.

Aug. 28, 1980.

Rehearing denied September 26, 1980.

Robert M. Brown, Linda R. Joseph, Brown, Joseph & Finney, San Francisco, John F. Wells, Fonda Karelitz, Stark, Stewart & Simon, Oakland, John F. Banker, Banker & Linderman, Tiburon, for petitioners and respondents.

McKenna & Fitting, San Francisco, Aaron M. Peck, Los Angeles, Charles G. Miller, San Francisco, Susan L. Carroll, Los Angeles, Arnold & Porter, Peter K. Bleakley, Mark J. Spooner, Washington, D. C., for real parties in interest and defendants-appellants.

FEINBERG, Associate Justice.

Pursuant to stipulation, we ordered these two cases consolidated because both concern the trial court's orders regarding the propriety of arbitration vis-a-vis franchisors and franchisees.

In Keating, et al. v. Superior Court, petitioners (franchisees), seek a writ of prohibition or mandate to set aside the trial court's order to arbitrate pursuant to a contractual arbitration provision. Petitioners claim that the trial court erred: (1) by ruling that the contracts containing the arbitration clauses were not contracts of adhesion and by denying petitioners an evidentiary hearing concerning the validity of the arbitration clauses before ordering arbitration; (2) by failing to find that real parties had waived the right to compel arbitration; and (3) by failing to decide certain class action issues before ordering arbitration so that any arbitration could be conducted on a class-wide basis.

In Garza, et al. v. The Southland Corporation, et al., appellants (franchisors), claim that the trial court erred by failing to order arbitration of certain claims based upon the California Franchise Investment Law. They contend that, by their terms, the arbitration clauses require this result and that Corporations Code section 31512 does not invalidate contractual provisions calling for arbitration of claims arising under the Franchise Investment Law.

KEATING, ET AL. v. SUPERIOR COURT

Petitioners are current and former franchise operators of 7-Eleven Stores in the Bay Area. Real parties are The Southland Corporation (franchisors) and various current and former employees of the corporation. This petition arises from a group of cases which were coordinated under the title "Market Franchise Cases" (Judicial Council Coordination Proceeding No. 387). ¹ Petitioners' complaints included claims of fraud, misrepresentation and breach of contract, in addition to allegations of violations of the Franchise Investment Law.

Real parties filed their first petition to compel arbitration on September 28, 1977 in the Keating case. Ultimately, similar petitions were filed in all of the cases, and those petitions were granted with respect to all matters except the Franchise Investment Law claims.

I. The trial court did not err by denying petitioners an evidentiary hearing concerning the validity of the arbitration clauses before ordering arbitration.

All of the franchise agreements contained arbitration provisions. Real parties assert that the clause contained in the Keating contract is identical to or representative of the provisions contained in the other contracts. That clause is reproduced in the margin. ²

In his declaration in opposition to real parties' petition to compel arbitration, Richard D. Keating stated that:

" . . .

"2) Other than the information that is set forth in an American Arbitration Association pamphlet . . . and the information that is set forth in the Southland Store Agreement within the arbitration paragraphs . . . and what was set forth on page SA-78 . . . , I was given no verbal or written explanation of the meaning of arbitration, the concept of an arbitration proceeding, the fact that it involved my waiver of my constitutional rights to a jury trial, a loss of the right to utilize the protection of the courts in the discovery process, nor any information with respect to what arbitration would cost in a procedure of this type;

"3) The Southland agreements were presented to me by Southland representatives on a take it or leave it basis. I was given no opportunity to bargain or to negotiate with respect to any paragraph or clause within the said agreements. I was advised in effect, that the only way I could obtain the 7-11 franchise was to acquiesce to the entire printed agreement that was presented to me by the Southland representatives.

"4) There was nothing presented to me in writing or verbally that bore on the subject of the scope or limits of the subject matter to which the arbitration paragraphs purportly (sic) apply;

"5) The first time that I was aware of any aspect of what the arbitration clause might conceivingly (sic) be interpreted as meaning and the effect that said clause would have on my right to a jury and discovery and the possible impact on me as to the cost of such arbitration, occurred after I first contacted my attorneys in this case."

The American Arbitration Association pamphlet to which the declaration refers includes a reproduction of a sample commercial arbitration clause and general information about the association and its services. The association's tribunals were described as follows: "Important arbitration tribunals of AAA are: Commercial, Accident Claims, Labor and International. Each tribunal is administered under Rules which govern conduct of parties, arbitrators and the administrative agency. Members of the Association and non-members are treated equally. Arbitrations conducted in this way result in awards that are enforceable under law. The Association cooperates closely with lawyers and trade associations." The other information to which the Keating declaration refers is the following statement which appeared in very large print by itself under an even larger caption, "ARBITRATION."

"SHOULD A DISPUTE ARISE BETWEEN YOU AND 7-ELEVEN, THE DISAGREEMENT WILL BE SETTLED BY THE AMERICAN ARBITRATION ASSOCIATION."

The trial court found that the contracts were not adhesion contracts, as a matter of law.

Petitioners contend that Keating's affidavit raised a triable issue of fact concerning the validity of the arbitration clauses which should have been resolved before arbitration was ordered. They argue that, not only did the affidavit establish that the clauses were part of adhesion contracts about which petitioners were unable to bargain or negotiate, but also that the affidavit demonstrated real parties' failure to inform petitioners that agreeing to arbitration would result in waiving their rights to jury trial, discovery and punitive damages as a remedy for fraud nor were they informed of the costs of arbitration in an "unusual" or "complex" case such as this one.

Initially, it should be noted that since the franchise agreements were between a Texas corporation and California residents, entailed the right to use federally registered trademarks, and contemplated a continuing business relationship between the parties across state lines, they involve interstate commerce and fall within the ambit of the Federal Arbitration Act. ³ However, we find it unnecessary to address the subject of preemption at this juncture because we have concluded that both federal and state law require us to reject petitioners' adhesion contract theory.

Since petitioners were neither consumers nor persons who would have had to accept the agreements at issue or forego necessary goods or services, the franchise agreements were not made in the setting in which the courts are most concerned with the doctrine of adhesion contracts. (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 711, 131 Cal.Rptr. 882, 552 P.2d 1178.) Petitioners were persons interested in establishing a beneficial business relationship with Southland Corporation, who, no doubt, could have gone elsewhere if they were dissatisfied with the proffered arrangement. Nevertheless, it cannot be said that the parties possessed absolute parity of bargaining power. Southland drafted the contracts, and Keating claimed that they were present on a "take it or leave it" basis, a fact which is relevant to the determination of whether a contract is one of adhesion. (Id., at pp. 710-711, 131 Cal.Rptr. 882, 552 P.2d 1178; Rust v. Drexel Firestone Inc. (S.D.N.Y. 1972) 352 F.Supp. 715, 717.)

However, the critical question under both the federal and California standards does not appear to be whether an agreement is an adhesion contract but, rather, whether the arbitration clause itself is oppressive or defeats the reasonable expectations of the parties. (Arkoosh v. Dean Witter & Co., Inc. (D.Neb. 1976) 415 F.Supp. 535, 543; Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d at pp. 710, 712, 131 Cal.Rptr. 882, 552 P.2d 1178.) There is no indication that the franchisees and the franchisors were not equally affected by the arbitration clause.

Despite the importance of the constitutional right to a jury trial in a civil case (U.S.Const., 7th Amend.; Cal. Const., art. I, § 16), the failure to include an express waiver of this right in an arbitration agreement does not render the agreement unenforceable. (Madden v. Kaiser Hospitals, supra, 17 Cal.3d at p. 714, 131 Cal.Rptr. 882, 552 P.2d 1178.) Given this proposition, a fortiori, such an express waiver was not required respecting petitioners' rights to discovery and punitive damages nor were real parties required to give petitioners the aforementioned information regarding costs in order for the arbitration provision to be enforceable.

Petitioners rely upon Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1977) 67 Cal.App.3d 19, 24, ...