Court Opinion

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Date Created: 2015-10-13 21:53:18.863559+00
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Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

7-3-2003

Shaffer v. Graybill
Precedential or Non-Precedential: Non-Precedential

Docket No. 02-1260

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Recommended Citation
"Shaffer v. Graybill" (2003). 2003 Decisions. Paper 389.
http://digitalcommons.law.villanova.edu/thirdcircuit_2003/389

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                                                    NOT PRECEDENTIAL

  UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

                             No. 02-1260

                        MICHAEL SHAFFER

                                   v.

       SUSAN GRAYBILL, as an Individual and as Administratrix
               of the Estate of Dennis M. Graybill;
          MINUTEMAN PRESS INTERNATIONAL, INC.;
                       ROBERT EMM ETT

          Minuteman Press International, Inc.; Robert Emmett
                                                     Appellants

            On Appeal from the United States District Court
                for the Middle District of Pennsylvania
                        (D.C. No. 01-cv-01065)
                District Judge: Hon. Sylvia H. Rambo

              Submitted Under Third Circuit LAR 34.1(a)
                           May 22, 2003

Before: SCIRICA, Chief Judge, SLOVITER and NYGAARD, Circuit Judges

                         (Filed: July 3, 2003 )

                     OPINION OF THE COURT
SLOVITER, Circuit Judge.

         Before us is an appeal by Defendants Susan Graybill, Minuteman Press

International, Inc. and Robert Emmett from the District Court’s order denying

reconsideration of its earlier order denying Defendants’ motion to dismiss or, in the

alternative, to stay the action pending arbitration. Although we ordinarily do not have

jurisdiction over an appeal from an order denying a motion to dismiss, section 16(a) of

the Federal Arbitration Act (“FAA”) provides that an appeal may be taken from an order

refusing a stay of any action seeking arbitration under section 3 of the FAA. See 9 U.S.C.

§ 16(a). We note as a preliminary matter that federal policy favors arbitration. See

Medtronic Ave, Inc. v. Advanced Cardiovascular Systems, 247 F.3d 44, 55 (3d Cir.

2001).

                                             I.

                                       Introduction

         Michael A. Shaffer, a former Minuteman Press franchisee located in Lemoyne,

Pennsylvania, commenced this action in the Court of Common Pleas of Cumberland

County, Pennsylvania. Shaffer named as Defendants Susan Graybill, who, with her now

deceased husband Dennis Graybill sold Shaffer the franchise, Minuteman Press

International, the franchiser, and Robert Emmett. The complaint sought damages for

negligence, fraud, fraudulent misrepresentation, civil conspiracy, and emotional distress,

as well as declaratory relief. The case was subsequently removed to the United States

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District Court for the Middle District of Pennsylvania.

       Minuteman Press is a New York corporation which offers and sells franchises to

“Minuteman Press Full Service Printing Centers,” which are printing and copying centers.

Robert Emmett is an agent for Minuteman. Susan Graybill and Dennis Graybill, residents

of Pennsylvania, owned and operated a Minuteman Franchise in Lemoyne, Pennsylvania.

Beginning in November of 1999, Shaffer entered into discussions with Emmett for the

purchase of a M inuteman franchise. On September 6, 2000, Shaffer and the Graybills

entered into an asset purchase agreement with respect to the Lemoyne Minuteman

Franchise. At the same time, Shaffer negotiated a franchise agreement with Minuteman

through its representative, Emmett.

       Paragraph 23 of the franchise agreement contains an “Arbitration and Litigation”

clause which provides that the “Federal Arbitration Act shall apply to all claims arising

out of or relating to this Agreement or the breach thereof . . . Any controversy or claim

arising out of or relating to this Agreement or the breach thereof, shall be settled by

arbitration.” App. at 119.

       Shaffer claims that approximately five months after he entered into the franchise,

the business failed to perform as promised. He filed this action alleging, among other

things, that Defendants conspired to fraudulently induce him to purchase the Lemoyne

Franchise. Asserting that all of Shaffer’s claims are subject to an arbitration agreement

between the parties, Defendants filed a motion to dismiss the claims raised or, in the

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alternative, to stay proceedings pending arbitration of such claims, pursuant to section 3

of the FAA. On December 21, 2001, the District Court issued an order and memorandum

denying Defendants’ motion for relief and refusing to enforce the parties’ arbitration

agreement. Defendants’ motion seeking reconsideration was denied, and they timely filed

this appeal.

                                              II.

                                         Discussion

       Under the FAA, a court, on application of one of the parties to an agreement to

arbitrate, must stay a judicial action commenced in that court which is the subject of an

arbitration clause or, in the alternative, must dismiss any arbitrable claims. 9 U.S.C. §§ 3-

4. In the current case, it is undisputed that the arbitration clause applies to the claims

brought by Shaffer. However, Shaffer alleges that the arbitration clause is unenforceable

because it is a contract of adhesion as he had no bargaining power when he entered into

the contract, the contract was dictated on a “take it or leave it basis” and the arbitration

agreement is required of all those who wish to purchase a franchise. App. at 47. Finding

that these allegations amounted to a valid cause of action, the District Court denied

Defendants’ motion to stay the action pending arbitration. On appeal, Defendants argue

that the District Court erred in not staying the proceedings pending arbitration. We

exercise plenary review over the legal questions concerning the applicability and scope of

an arbitration agreement. Medtronic, 247 F.3d at 53.

                                               4
       The FAA makes agreements enforceable to the same extent as other contracts, and

federal law presumptively favors the enforcement of arbitration agreements. Harris v.

Green Tree Financial Corp., 183 F.3d 173, 178 (3d Cir. 1999). Thus, while states may

regulate contracts, including arbitration clauses, they must be careful that state law does

not contravene policies under the FAA and congressional intent to favor arbitration

clauses. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686 (1996). In the current

case, the District Court appears to have overlooked the strong policy favoring the

enforcement of arbitration agreements. Furthermore, the court’s conclusion that Shaffer

presents a “valid cause of action,” vis-á-vis his contract of adhesion allegations, does not

follow from the facts presented.

       Quoting from Black’s Law Dictionary, Pennsylvania has defined a contract of

adhesion as a:

              standardized contract form offered to consumers of goods and
              services on [an] essentially ‘take it or leave it’ basis without
              affording [the] consumer [a] realistic opportunity to bargain
              and under such conditions that [the] consumer cannot obtain
              [the] desired product or services except by acquiescing in
              [the] form contract.

Denlinger, Inc. v. Dendler, 608 A.2d 1061, 1066 (Pa. Super. Ct. 1992). In Denlinger, the

Pennsylvania Superior Court noted that whether a contract is one of adhesion must be

determined on an individual basis by looking at the particular circumstances involved. Id.

at 1067.

                                              5
       Without explanation, the District Court simply quoted from Denlinger, reiterated

Shaffer’s allegations regarding the arbitration agreement, and concluded that the

allegations amounted to a valid cause of action so that it would not dismiss the complaint

on the basis that the FAA prohibited the court from hearing the matter. We conclude that

the District Court erred in so holding.

       As a preliminary matter, it appears that the District Court conflated two distinct

doctrines, namely that of fraud in the inducement and adhesion contracts. Before

addressing Shaffer’s allegations that the arbitration clause was a contract of adhesion, the

District Court presented the legal principles guiding a court’s power to adjudicate claims

that there is fraud in the inducement of arbitration clauses. It should be noted that Shaffer

does not allege, and the District Court did not find, that there was fraud in the inducement

of the arbitration clause. As to the arbitration clause, Shaffer solely alleges that it is a

contract of adhesion.

       We are unaware of any relevant cases in which the court has found an adhesion

contract when dealing with the purchase of a franchise rather than a consumer purchase.

Cf. J & R Ice Cream v. California Smoothie Licensing, 31 F.3d 1259 (3d Cir. 1994)

(holding commercial franchises are not covered by New Jersey Consumer Fraud Act

because they are businesses and not consumer goods). Furthermore, in Denlinger itself,

the court expressed its lack of concern for unequal bargaining power when neither of the

parties involved were consumers. 608 A.2d at 1066. The court concluded that the

                                               6
Appellant was an experienced businessman in spite of his repeated argument that he was

only a high school graduate. Id.; see also AAMCO Transmissions, Inc. v. Harris, 1990

WL 83336, at *4 (E.D.Pa. 1990) (holding that a franchise contract requiring franchisee to

waive right to jury trial was not adhesion contract as franchisee was “perfectly free to

reject the deal”). Similarly, we see no reason to view Shaffer as anything but an

experienced businessman who was free to reject the deal at issue.

       Furthermore, an adhesion contract that will not be enforced must be one that is

unconscionable or oppressive, unreasonably favoring one party over another. See, e.g.,

Gilmore v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (1991); Seus v. John Niveen &

Co., Inc., 146 F.3d 175, 184 (3d Cir. 1998); Witmer v. Exxon Corp., 434 A.2d 1222, 1228

(1981). In this case, the arbitration clause clearly did not favor one party over another as

it equally applied to both parties.

       In sum, we see no support in the record of unequal bargaining power or

unconscionability to support the District Court’s conclusion that Shaffer’s allegations

sufficiently stated a cause of action. This lack of support coupled with the presumptive

enforcement of arbitration agreements leads us to conclude that the District Court

improperly denied Defendants’ motion to stay the proceedings pursuant to arbitration.

                                            III.

                                        Conclusion

                                              7
       The actions commenced by Shaffer against Defendants are subject to a previously

agreed upon arbitration clause which provides for arbitration in the state of New York.

Because a district court may not compel arbitration outside the district in which it sits, 9

U.S.C. § 4, the order of the District Court refusing to stay the action is reversed and the

court is directed to dismiss the action or, after giving the parties the opportunity to be

heard, transfer the action to an appropriate district court in New York where the court will

presumably stay the action and direct arbitration.

                       TO THE CLERK:

                               Please file the foregoing opinion.

                                                  /s/ Dolores K. Sloviter
                                                  Circuit Judge

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