Court Opinion

ID: 9494372
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:36:37.334613+00
Date Added: 2024-06-11T17:56:22.941762
License: Public Domain

TASHIMA, Circuit Judge,
dissenting:
Because I do not believe that the contract at issue was an adhesion contract or that its arbitration clause was so one-sided as to make it unconscionable, I respectfully dissent. The arbitration clause does not violate Montana’s public policy; therefore, Maryland law should apply. Because I also conclude that Maryland law would not prevent the enforcement of the arbitration clause, I would reverse the district court’s denial of Choice’s motion to dismiss or to compel arbitration.1
The concept of adhesion first arose in the insurance context, see Fitzgerald v. Aetna Ins. Co., 176 Mont. 186, 577 P.2d 370, 373 (1978) (finding “insurance policy [to be] an adhesion contract”), but has since been applied to other areas. See, e.g., Anderson v. Baker, 196 Mont. 494, 641 P.2d 1035, 1039 (1982) (consumer and bank); Passage v. Prudential-Bache Sec., Inc., 223 Mont. 60, 727 P.2d 1298, 1301 (1986) (finding a contract of adhesion where consumer was “faced with an industry wide practice of including Arbitration Clauses in standardized brokerage contracts” and thus “face[d] the possibility of being excluded from the securities market unless he accepted] a contract with such an agreement to arbitrate”); Iwen v. U.S. West Direct, 293 Mont. 512, 977 P.2d 989, 995 (1999) (finding a contract of adhesion between a consumer and telephone company because consumer had no opportunity to negotiate agreement for advertising in the Yellow Pages). As theáe cases demonstrate, however, Montana has used the adhesion doctrine to protect unsophisticated consumers in consumer transactions with no meaningful choice. The rule of adhesion has never been applied to commercial contracts between sophisticated business organizations.2
Plaintiffs are not unsophisticated “consumers” under any definition of the term and this is not a consumer transaction. Ticknor Lodging Corp., the contracting *943party and primary plaintiff, owns and operates at least two hotel properties-the one at issue and another in Colorado. Plaintiffs have been operating these properties under franchise agreements with two separate franchisors-one with Prime Rate and the other with Redwood Lodge. Ticknor is an experienced and sophisticated motel franchise operator. Additionally, unlike the plaintiffs in the cases cited above, the Ticknors have not demonstrated that they had no other viable alternatives, ie., that they “face[d] the possibility of being excluded from the [hotel franchise] market unless [they] accepted] a contract with such an agreement to arbitrate.” Passage, 727 P.2d at 1301.3 Rather, the record suggests that plaintiffs made a conscious decision to change their affiliation because they believed that the Econo Lodge mark and system would increase their profitability. They willingly accepted the negotiated burdens of the new franchise agreement in return for the expected benefits of the Econo Lodge mark.4 In other words, plaintiffs had not only a theoretical, but also an actual, choice. No adhesion contract was crammed down their throat.
This is in direct contrast to the case solely relied upon by the majority. In Iwen, the plaintiff-a consumer seeking to place an ad in the Yellow Pages-was faced with a Hobson’s choice: either accept the contract as presented, or forego advertising with the only publisher of Yellow Pages in the relevant marketing area. On that fact alone, the case is distinguishable.5
Furthermore, even if the contract is one of adhesion, I do not agree that Iwen dictates a finding of unconscionability. It is true, as the Majority contends, that the parties’ obligations to arbitrate differ in some respect.6 But should either party wish to proceed' against the other for almost any obligation under the contract, that party must do so through arbitration. Thus, in that respect, there is complete mutuality of obligations.7 By comparison, *944in Iwen, “the sole remedy for either party [was] the cost of the advertisement.” 977 P.2d at 996. In enforcing this remedy, the “stronger” party could go to court while the “weaker” party was limited to arbitration. Id. at 995-96. The court found that arrangement unconscionable. Once again, the parties’ remedies here are not so limited. As such, the clause is not so one-sided as to be unconscionable under Montana law.
We recently noted that the unconsciona-bility analysis has two prongs-proeedural unconscionability (the manner and circumstances of contract formation, ie., was it truly a contract of adhesion), and substantive unconscionability (which analyzes the terms of the agreement, ie., is so one-sided as to shock the conscience). Soltani v. West. & So. Life Ins. Co., 258 F.3d 1038, 1040 (9th Cir.2001). Although Soltani was a case under California law, our analysis here should proceed in the same way, with the same objective. Under such an analysis, this clearly is not an unenforceable adhesion contract-there was neither procedural unconscionability nor substantive un-eonscionability-and the agreement should be enforced. See id.
Because the arbitration clause does not violate Montana law, the parties’ choice of law should be enforced and Maryland law applied to this dispute. Maryland courts “treat the mutual promises to arbitrate as an independently enforceable contract. The parties have exchanged mutual promises to arbitrate disputes under the contract and each promise provides consideration for the other.” Holmes v. Coverall N. Am., Inc., 336 Md. 534, 649 A.2d 365, 370 (1994). Thus, as long as “there are no infirmities in the formation of the arbitration agreement itself; that is, that there is a mutual exchange of promises to arbitrate, ... [the court’s] inquiry ceases, as the agreement to arbitrate has been established as a valid and enforceable contract.” Id. Here, as stated above, there is a mutual exchange of promises to arbitrate mutually-assertable claims. Therefore, under Maryland law, the arbitration clause is enforceable.
The district court’s order should be reversed and the case remanded with directions to grant Choice’s motion to compel arbitration.

. Although not entirely free from doubt, I accept for purposes of this dissent the majority’s conclusion that the judicially-created Montana rule, making one-sided arbitration clauses in adhesion contracts unenforceable, does not run afoul of Doctor’s Assoc., Inc. v. Casarotto, 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). See maj. op. at 941. Similarly, it is not at all clear, contrary to the majority’s assertion, that "Montana has a materially greater interest in the transaction than does Maiyland,” id. at 938, in this action in which none of the parties is a resident or domiciliary of, or is headquartered in, Montana. I accept this conclusion also, however, for the purposes of the analysis that follows.

. Recognizing that its application of the adhesion doctrine to this commercial contract is anomalous, the majority purports to “take the law as we find it.” Maj. op. at 941. In its very next sentence, however, the majority concedes that what it in fact is doing is predicting what "the Montana Supreme Court would likely hold.” Id.

. Indeed, plaintiffs presumably could have continued their relationship with Prime Rate.

. Contrary to the majority's assertion, this was a negotiated transaction. In its choice of law analysis, the district court expressly found that "\n]egotiations took place between James Ticknor and a Choice representative in Montana.” Maj. op. at 13086 (emphasis added). The majority does not challenge this finding as clearly erroneous; in fact, it relies on it in concluding that the district court's choice of law analysis was correct.

. Under the majority's rule, every form contract between parties of even slightly unequal bargaining power is a contract of adhesion- and thus is prone to invalidation. Clearly, the Montana Supreme Court did not envision such a rule.

. These differences, however, are immaterial to the mutuality analysis. Choice reserved its right to sue for three things: indemnity, trademark enforcement, and moneys owed under the contract. At first glance, it may seem unfair to allow Choice, but not Ticknor, to sue for these breaches. But, Ticknor does not have a right of indemnification against Choice, nor does it have any trademark rights to protect. It makes sense that indemnification claims are not required to be arbitrated because they invariably arise out of third-party claims which are often already in litigation, where the convenient remedy, if tender of the defense is rejected, is to bring a third-party claim for indemnification. As for trademark claims, the classic remedy for infringement is a federal court injunction, a remedy an arbitrator has no power to enforce. Furthermore, Ticknor could not file an action for "collection of moneys ... under this Agreement” because Choice has no monetary obligations to Ticknor under the contract. Thus, in the mutuality analysis, it makes no difference that Choice is not required to arbitrate these claims. Like the Ticknors, Choice is required to arbitrate all of its other claims under the agreement.

.For instance, any breach by Ticknor unrelated to payment of monies owed would be arbitrable. Such breaches, for example, could include a failure to follow the aesthetic rules or a failure to maintain insurance. *944Ironically, in fact, in this case, it was Choice who sought to arbitrate its claims under the agreement and plaintiffs who are attempting to avoid arbitration of Choice's claims.