Appellants Advanced Fresh Concepts Franchise Corp. and Advanced Fresh Concepts Corp. (collectively AFC or franchisor) appeal from an order denying their motion to compel arbitration of a lawsuit brought by a franchisee, respondent Htay Htay Chin (Chin or franchisee). AFC contends the arbitrator rather than the trial court must determine the validity of the arbitration provision in the franchise agreement that specifically delegates this task to the arbitrator in a clause. (We will refer to this as the delegation clause.) Chin argues the arbitration provision is unconscionable and hence unenforceable in an adhesion contract such as the one in this case. We conclude that, even if the delegation clause by itself is unconscionable, none of the other terms of the arbitration provision is, rendering moot the question about the delegation clause. Because the trial court erred in finding other terms of the arbitration provision unconscionable, we reverse its order denying the motion to compel arbitration.
AFC, a California corporation, is a sushi franchisor. Chin was a franchisee operating food service counters in Missouri under a 2002 franchise agreement with AFC. In 2007, the parties entered into a new franchise agreement, which is the subject of this appeal. The 2007 agreement contained a multipage arbitration provision (section 16.8), which begins with the following delegation clause: "Any dispute that arises out of or relates directly or indirectly to this Agreement or the relationship of the parties hereto, including, without limitation, any claimed breach of this Agreement or any claim that any part of this Agreement (including this Section 16.8 or any part thereof) is invalid, illegal, voidable or void, shall be resolved by arbitration...."
On December 3, 2009, Chin filed a lawsuit against AFC in the Los Angeles Superior Court, alleging breach of contract and other causes of action. AFC moved to compel arbitration. Chin opposed on the ground that the arbitration provision was unconscionable. The trial court denied the motion to compel, ruling that "[t]he arbitration agreement is unconscionable as it limits damages to actual or compensatory damages and elimination of [sic] equitable claims and defenses." The order is appealable. (Code Civ. Proc., § 1294, subd. (a).)
The parties proceeded below under California state law, and neither side argues the dispute is subject to federal preemption under the Federal Arbitration
Since unconscionability is a contract defense, the party opposing arbitration bears the burden of proving that an arbitration provision is unenforceable on that ground. (Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099 [118 Cal.Rptr.2d 862].) Unconscionability is ultimately a question of law, which we review de novo when no meaningful factual disputes exist as to the evidence. (Civ. Code, § 1670.5; Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1567 [98 Cal.Rptr.3d 743] (Parada).) We review the court's resolution of disputed facts for substantial evidence. (Ibid.) When the trial court makes no express findings, we infer that it made every implied factual finding necessary to support its order and review those implied findings for substantial evidence. (Ibid.)
AFC contends that when an arbitration provision contains a delegation clause, as this one does, it is the arbitrator who decides whether the arbitration provision is unconscionable. AFC points to the recent United States Supreme Court decision in Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. ___-___ [177 L.Ed.2d 403, 411-412, 130 S.Ct. 2772, 2778-2779] (Rent-A-Center), which, it argues, holds that the arbitrator must decide whether an arbitration provision is enforceable in cases where the parties have delegated that task to the arbitrator. The holding of Rent-A-Center is narrower than AFC suggests. Rent-A-Center was decided under the FAA, and its holding rests on the fact that the plaintiff had not challenged the unconscionability of the delegation provision of an arbitration
The trial court in this case did not expressly find the franchise agreement was a contract of adhesion or procedurally unconscionable even though the parties submitted declarations on this issue. Nevertheless, since procedural unconscionability is an element of unconscionability (see Armendariz, supra, 24 Cal.4th at p. 114) and the trial court found the arbitration provision to be unconscionable, it implicitly found at least some procedural unconscionability. (See Parada, supra, 176 Cal.App.4th at p. 1567.) Chin's claim that the 2007 franchise agreement was presented to her on a take-it-or-leave-it-basis is based on AFC's regional managers telling her in substance that she had to execute it "as is" or lose the franchise. AFC did not dispute that it drafted the standardized franchise agreement or that it was in a superior bargaining position. AFC's vice-president asserted that regional managers were not responsible for procuring franchise agreements, and no one at AFC's headquarters presented the agreement to Chin on a take-it-or-leave-it basis. These assertions do not create a meaningful conflict in the evidence because they do not affirmatively establish that Chin was made aware of any right she may have had to negotiate or opt out of the arbitration provision, nor do they establish that she had such a right. There is no evidence whether Chin had reasonable alternatives in the franchise marketplace that would not have forced her into arbitration, but the availability of such alternatives is not a decisive factor. (See id. at p. 1573.) Substantial evidence supports the implied finding that the franchise agreement in this case has the qualities of an adhesion contract.
There is substantial authority that a delegation clause in an adhesion contract is unconscionable.
The trial court's decision not to enforce an arbitration provision is reviewed for abuse of discretion. (Ontiveros, supra, 164 Cal.App.4th at p. 515.) The trial court does not abuse its discretion if it refuses to enforce an agreement that is "`permeated with unconscionability'" or needs to be augmented with additional terms, or whose central purpose is tainted by unconscionable terms. (Ibid., citing Armendariz, supra, 24 Cal.4th at pp. 124-125.) We therefore review the terms of the arbitration provision, aside from the delegation clause, to determine if a colorable claim of unconscionability has been made.
The trial court correctly rejected Chin's argument that the injunctive remedy exception in the arbitration provision is one-sided because it includes the parties' consent to the issuance of an injunction for "any failure to immediately cease operation, vacate the location of the operation or cease the use of intellectual property"—that is, whenever the franchisor, rather than the franchisee, seeks injunctive relief. The injunctive remedy exception allows "a party" to go to court for "injunctive or other provisional relief." It does not provide "a choice of forums [solely] for the claims of the stronger party." (Armendariz, supra, 24 Cal.4th at p. 119.)
Chin's principal argument, which the court rejected, is that the cost of arbitration was prohibitive and therefore unconscionable. The argument is
AFC offered to waive the three-arbitrator requirement in Chin's case before it moved to compel arbitration, and counsel confirmed this waiver at oral argument. Thus, whether the waived requirement is unconscionable is probably a moot point. Even were it not moot, the three-arbitrator requirement is not unconscionable. In contrast with Parada, where the use of three arbitrators was completely unjustified, the three-arbitrator requirement in this case is limited to damage claims above $150,000. AFC reasonably justifies the requirement as providing a measure of protection against exaggerated damage claims.
The record on appeal in Parada, supra, 176 Cal.App.4th at page 1580, included the relevant JAMS rules, procedures, and fee schedules, based on which the court could determine that the costs of arbitration were prohibitive. (Ibid.) The record on appeal in this case includes only several pages of an administrative fee schedule excerpted from the commercial arbitration rules of the American Arbitration Association (AAA). It does not include a schedule of arbitrator fees or a complete set of the commercial arbitration rules. In addition, AFC concedes the arbitration agreement does not require that arbitration take place before the AAA, only that it proceed according to the AAA commercial arbitration rules. In Maggio v. Windward Capital Management Co. (2000) 80 Cal.App.4th 1210, 1215 [6 Cal.Rptr.2d 168], the court concluded that the AAA commercial arbitration rules required arbitration before the AAA. (Cf. Knight et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group 2010) ¶ 5:26.10, p. 5-18 [unless the agreement provides otherwise, the selection of a particular Alternative Dispute Resolution provider's rules works as an implied agreement that the provider administer the arbitration].) Because the applicable AAA rules are not in the record, we cannot determine whether they require arbitration before the AAA. But we accept AFC's concession, which counsel confirmed at oral
The trial court did not rule on Chin's challenges to three other terms of the arbitration provision, but they do not raise colorable claims of unconscionability. The confidentiality term of the arbitration provision states that "[e]xcept as may be required by law, no party or arbitrator(s) may disclose the existence, content or results of any arbitration hereunder without the prior written consent of both parties." Chin cites the unfairness of the "repeat player effect," where an employer derives an advantage from repeatedly appearing before the same arbitrators. (See Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 178-179 [16 Cal.Rptr.2d 671].) She does not address the significance of the two limitations placed on the breadth of the confidentiality provision in this case—that it does not apply when disclosure is required by law
The arbitration provision allows an award of fees and costs for "all claims," and limits their amount to one-third of any compensatory damages awarded, or in the case of a successful defense to one-third of "the greatest total amount claimed as damages at any point during the arbitration." Chin claims this facially mutual provision is "blatantly one-sided" and intended to dissuade the pursuit of claims because it limits the amount of recoverable attorney fees. She does not argue that she is otherwise entitled to recover her attorney fees. (Cf. Armendariz, supra, 24 Cal.4th at pp. 103-104 [statutorily available attorney fees recoverable in arbitration].) She also claims that the class action waiver in the arbitration provision is unconscionable but admits that it is not applicable in her case. (Cf. Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 649-650 [14 Cal.Rptr.3d 449] [to be deemed unconscionable, class action waiver must act as "an exculpatory clause or unduly hinder[] plaintiffs from pursuing a legal remedy"].)
The order denying the motion to compel arbitration is reversed. Appellants to have their costs on appeal.
Willhite, J., and Suzukawa, J., concurred.