Opinion ID: 685662
Heading Depth: 2
Heading Rank: 1

Heading: Validity of the Clause.

Text: 9 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. 10 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 for injury, but also to deter unfair conduct. 11 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. 12 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. 13 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. 14 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)). 15 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)). 16 Third, the arbitration clause expressly forfeits Graham Oil's statutorily-mandated right to a one-year statute of limitations on its claims against ARCO. The clause reduces the time in which a claim can be brought from one year to 90 days, or in some cases six months. Compare 15 U.S.C. Sec. 2805(a) ([N]o such action may be maintained unless commenced within 1 year after ... the date the franchisor fails to comply with [certain] requirements ... of this title.) with Appendix, EXHIBIT E Sec. A (The party waives the right to seek any relief or pursue any claim not included in an arbitration demand filed ... within 90 days following the date the party knew or should have known of the facts giving rise to the claim [and in no event more than six months after the occurrence of the facts giving rise to the claim] (emphasis added)). 17 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 included in the franchise agreement, ARCO violated the purpose as well as the specific terms of the PMPA. 18 Because the arbitration clause employed by ARCO compels Graham Oil to surrender important statutorily-mandated rights afforded franchisees by the PMPA, we hold that the clause contravenes the Act. 19