In this non-employment case, the Ninth Circuit en? banc? reversed? a? prior panel? ruling? that? the validity of the arbitration agreement at issue was for the arbitrator. Applying California law, the en banc? ?court? ?held? ?that? ?because? ?the? ?plaintiff essentially sought to enforce rather than invalidate the franchise agreement she had signed containing an arbitration clause, her claim was that only the arbitration provision was unconscionable, rather than the contract as whole. The underlying claim had? a? tortured? procedural? history.? The? plaintiff sued the company for breach of her franchise agreement. The company filed for AAA arbitration claiming that she owned it money instead. After a time, the plaintiff refused to participate and filed suit in state court claiming, among other things, that?? the?? arbitration?? clause?? was?? invalid.?? The company removed on the basis of diversity and moved to compel arbitration. The district court granted the motion and the plaintiff appealed. The court en banc reversed by an 8-3 vote. The court ruled that it made no difference that state law required consideration of the making of the entire contract as part of a ruling on the validity of the arbitration clause or that the plaintiff included alternative ?claims ?attacking ?the ?contract ?as? a whole. The majority also ruled that the plaintiff?s limited participation in the arbitration proceedings under protest did not amount to a waiver of her right to challenge the arbitration provision in court. On the merits, the en banc court ruled 7-4 that the arbitration agreement was both procedurally and substantively unconscionable. The majority looked to differences in bargaining positions between the parties, the fact that the clause was in a contract of adhesion, was unilateral with respect to provisional injunctive remedies, and had a burdensome forum selection clause. The majority refused to sever the unconscionable provisions and invalidated the arbitration clause in its entirety. Nagrampa v. Mail Corps, Inc., No. 03-15955 (12/4/06).
Where Crux of Complaint is that Party Seeks Invalidation Only of Arbitration Clause in Franchise Agreement Court Rather than Arbitrator Must Decide Issue
Dec 4, 2006