Opinion ID: 685662
Heading Depth: 2
Heading Rank: 2

Heading: Severability of the Clause.

Text: 20 Having determined that ARCO's arbitration clause violates federal law, we turn to the question of its severability. Arbitration clauses [must] be treated as severable from the documents in which they appear unless there is clear intent to the contrary. Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 476 (9th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992). Here, there is no evidence of any contrary intent. 2 More important from a practical standpoint, neither party suggests that if the arbitration clause is unlawful, the entire contract must be invalidated. Accordingly, we conclude that, as in the usual case, the arbitration clause here is severable. 21 The more difficult question is whether the entire arbitration clause should be severed, or simply the provisions pertaining to exemplary damages, attorney's fees, and the statute of limitations. Relying on principles that are analogous to those we use in determining whether a particular clause is severable from an entire contract, we conclude that in this case the entire clause must be eliminated. 22 It is a well-known principle in contract law that a clause cannot be severed from a contract when it is an integrated part of the contract. As one leading treatise has noted, a contract should be treated as entire when by consideration of its terms, nature and purposes each and all of the parts appear to be interdependent and common to one another. Joseph D. Calamari & Joseph M. Perillo, Contracts 478 n. 76 (3d ed. 1987). As we noted in one of our early surveys of contract law, a contract is entire, and not severable, when, by its terms, nature, and purpose, it contemplates and intends that each and all of its parts, [and] material provisions ... are common to the other, and interdependent. Hudson v. Wylie, 242 F.2d 435, 446 (9th Cir.1957). 23 Here, the offending parts of the arbitration clause do not merely involve a single, isolated provision; the arbitration clause in this case is a highly integrated unit containing three different illegal provisions. Unlike the other clauses, the arbitration clause here includes a survival provision that expressly preserves the entire clause in the event the contract is declared invalid. Moreover, it establishes a unified procedure for handling all disputes, and its various unlawful provisions are all a part of that overall procedure. Thus, we conclude that the clause must be treated as a whole and that its various provisions are not severable. 24 Our decision to strike the entire clause rests in part upon the fact that the offensive provisions clearly represent an attempt by ARCO to achieve through arbitration what Congress has expressly forbidden. Congress enacted the PMPA precisely to prevent the type of agreement that ARCO included in the arbitration clause of its franchise contract. ARCO attempted to use an arbitration clause to achieve its unlawful ends. Such a blatant misuse of the arbitration procedure serves to taint the entire clause. As a leading treatise notes, severance is inappropriate when the entire clause represents an integrated scheme to contravene public policy. See E. Allan Farnsworth, Farnsworth on Contracts Sec. 5.8, at 70 (1990). For the above reasons, we conclude that the entire arbitration clause, and not merely the offensive provisions, must be stricken from the contract. We remand to the district court, which is the proper forum for the resolution of this underlying dispute.