Court Opinion

ID: 3021287
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:24:30.285141+00
Date Added: 2024-06-11T11:47:27.479644
License: Public Domain

United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                   _____________

                                    No. 97-4243
                                   _____________

Charles S. Barker; Express Golf, Inc.,   *
                                         *
             Appellants,                 *
                                         * Appeal from the United States
      v.                                 * District Court for the
                                         * Eastern District of Missouri.
Golf U.S.A., Inc.,                       *
                                         *
             Appellee.                   *
                                   _____________

                                 Submitted: May 13, 1998
                                     Filed: August 20, 1998
                                  _____________

Before BOWMAN, Chief Judge, HEANEY, and HANSEN, Circuit Judges.
                            _____________

BOWMAN, Chief Judge.

       Express Golf, Inc., a franchisee, and Charles Barker, its owner, sued Golf
U.S.A., Inc., the franchisor, for fraud in state court. The case was removed to federal
district court on diversity grounds, whereupon Golf U.S.A. moved to dismiss on the
ground that an arbitration clause in the franchise agreement required arbitration of the
plaintiffs' claims. The District Court1 granted the motion, and Express and Barker
appeal.

      1
        The Honorable Charles A. Shaw, United States District Judge for the Eastern
District of Missouri.
       The facts of the case are as follows. In a franchise agreement dated
September 18, 1995, Golf U.S.A., an Oklahoma corporation, granted to Express, a
Missouri corporation, the right to operate a golf retail store using Golf U.S.A.'s
methods, name, designs, system, and service marks. That same day, Charles Barker,
the sole shareholder of Express, agreed to guarantee the obligations of Express under
the franchise agreement. The franchise agreement included the following provision:

      Any and all disputes, claims and controversies arising out of or relating
      to this Agreement, performance hereunder or breach hereof, except for
      monies owed to Golf USA pursuant to this Agreement and except as
      described in Paragraph 18.5, shall be resolved by arbitration conducted
      in Oklahoma County, State of Oklahoma, in accordance with the latest
      existing Commercial Rules of Arbitration of the American Arbitration
      Association.

Franchise Agreement para. 18.1, at 29-30. A choice-of-law provision was included,
which specified that the franchise agreement "shall be governed by and construed in
accordance with the laws of the State of Oklahoma." Id. para. 20.1, at 31. The
agreement also contained a provision in 12-point bold-face type that stated, "You
acknowledge that You have received a blank copy of this Agreement in time to afford
ample opportunity to seek legal counsel, and to analyze the various provisions herein."
Id. para. 20.13, at 33.

       The retail operation failed less than nine months after the execution of the
franchise agreement. Soon thereafter, Express and Barker filed the present action,
claiming that fraudulent representations made by Golf U.S.A. about the operation and
success of the franchise induced Barker into signing the franchise agreement. Upon
removal to federal court, the District Court held that the parties' dispute must be
resolved by arbitration pursuant to the arbitration clause contained in the franchise
agreement. We affirm.

                                          -2-
       Our analysis must begin by determining whether the franchise agreement is
subject to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (1994). In an attempt
to declare a national policy favoring arbitration, Congress passed the FAA mandating
the enforcement of arbitration agreements. See 9 U.S.C. § 2. The Supreme Court has
held that the FAA applies to arbitration provisions, thereby mandating their
enforcement, subject to only two limitations. See Southland Corp. v. Keating, 465 U.S.
1, 10-11 (1984). First, the arbitration agreement "must be part of a written maritime
contract or a contract 'evidencing a transaction involving commerce.'" Id. at 11
(quoting 9 U.S.C. § 2). Second, the agreement "may be revoked upon 'grounds as exist
at law or in equity for the revocation of any contract.'" Id. (quoting 9 U.S.C. § 2). The
District Court found, and the parties do not dispute, that the franchise agreement
involves interstate commerce. The parties are located in different states, Oklahoma and
Missouri, and the agreement contemplates the transfer of inventory and money between
the states. The parties do dispute, however, whether the arbitration clause contained
in the franchise agreement is valid.

       Initially, we must determine whether it is for the court or an arbitrator to decide
the validity of the arbitration clause. Express and Barker claim that the arbitration
clause lacks mutuality of obligation, is unconscionable, and violates public policy. The
District Court held that these claims should be decided by an arbitrator. We disagree.
In Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 403-04
(1967), the Supreme Court held that a claim of fraud in the inducement of a contract
as a whole must go to an arbitrator, but "issue[s] which [go] to the 'making' of the
agreement to arbitrate" should be decided by a court. See also Houlihan v. Offerman
& Co., 31 F.3d 692, 694-95 (8th Cir. 1994). In this case, the underlying claim is for
fraud in the inducement of the entire contract, but that is not the issue with which we
are faced today. Rather, Express and Barker assert claims that go to the making of the
arbitration agreement itself. Under Prima Paint, a court must decide whether the
agreement to arbitrate is valid.

                                           -3-
         To decide whether the parties' agreement to arbitrate is valid, we look to state
contract law. See Perry v. Thomas, 482 U.S. 483, 493-94 n.9 (1987) ("[S]tate law,
whether of legislative or judicial origin, is applicable if that law arose to govern issues
concerning the validity, revocability, and enforceability of contracts generally."). We
may apply state law to arbitration agreements only to the extent that it applies to
contracts in general. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281
(1995). Put another way, we may not invalidate an arbitration agreement under any
state law applicable only to arbitration provisions; instead, we may apply only a state's
general contract defenses. See Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687
(1996).

      The question then becomes one of choice-of-law. Which state's laws are we to
apply? Despite a choice-of-law provision in the franchise agreement designating
Oklahoma law, Express and Barker argue that Missouri law should apply. No
persuasive reason having been advanced for setting aside the choice-of-law provision
upon which the parties agreed in their contract, we reject this argument and conclude
that Oklahoma law applies.2

       Express and Barker claim that Golf U.S.A.'s promise to arbitrate is illusory and
therefore fails for lack of mutuality. They argue that virtually any claim can be
converted into a claim for monies owed to Golf U.S.A. pursuant to the agreement and,
as a result, Golf U.S.A. is permitted to litigate any conceivable claim, while they must
arbitrate their claims. To resolve this issue, "we are bound to apply [Oklahoma law]
as we are able to discern it from the rulings of [Oklahoma's] courts." Jackson v.
Anchor Packing Co., 994 F.2d 1295, 1310 (8th Cir. 1993). The Oklahoma courts have
not ruled on the issue of whether mutuality of obligation is required in an arbitration
clause. For the reasons stated below, we believe that the Oklahoma Supreme Court

      2
       We find unpersuasive the reasons articulated in the dissenting opinion for
declaring the choice-of-law provision invalid.

                                           -4-
would hold that mutuality in arbitration clauses is not required.

      In Ditto v. Re/Max Preferred Properties, Inc., 861 P.2d 1000, 1004 (Okla. Ct.
App. 1993), the court of appeals held unenforceable an arbitration clause that excluded
one party from participating in the selection of an arbitrator. In the process, the court
considered an argument that the arbitration clause lacked mutuality of obligation. See
Ditto, 861 P.2d at 1002. The court cited two cases in distinguishing its case from those
that "involve truly one-sided obligations to arbitrate." Id. (citing R.W. Roberts Constr.
Co. v. St. Johns River Water Management Dist., 423 So. 2d 630, 632 (Fla. Ct. App.
1982) and Arcata Graphics Corp. v. Silin, 399 N.Y.S.2d 738, 738-39 (1977)). The
court's consideration of the issue, however, is pure dicta. Id. ("We reject [the lack of
mutuality argument] as a proper ground to challenge the clause at issue [because] . . .
[t]he trial court expressly rested its decision on the unfairness of the arbitration panel.").
Further, the decision in Arcata Graphics to which the court cited has since been
abrogated by Sablosky v. Gordon Co., 73 N.Y.2d 133, 136-37 (1989), wherein the New
York Court of Appeals expressly held that mutuality is not required in arbitration
provisions if there exists consideration for the entire agreement. Thus, we do not read
Ditto to indicate that the Oklahoma courts would require mutuality of obligation in
arbitration clauses where the entire agreement is supported by consideration.

        We are further persuaded that the Oklahoma Supreme Court would not separately
require mutuality in arbitration clauses based on the more recent decision of Shaffer v.
Jeffery, 915 P.2d 910 (Okla. 1996). In Shaffer, the Oklahoma Supreme Court, in
interpreting Oklahoma's arbitration act, rejected the Prima Paint separability doctrine
that "the arbitration clause is a severable part of the contract." Id. at 916. In addition,
Oklahoma has espoused the policy that "'[t]he whole of a contract is to be taken
together, so as to give effect to every part, if reasonably practicable, each clause helping
to interpret the others.'" Pierce Couch Hendrickson Baysinger & Green v. Freede, 936
P.2d 906, 911 (Okla. 1997) (quoting Okla. Stat. Ann. tit. 15, § 157 (West 1993)).

                                             -5-
        Moreover, we find no indication that the Oklahoma Supreme Court would not
join the trend established by decisions holding that consideration for a contract as a
whole covers the arbitration clause. See Doctor's Assocs. v. Distajo, 66 F.3d 438, 452
(2d Cir. 1995) ("Most courts facing this issue have arrived at the same conclusion [that
consideration for the entire contract is sufficient to support the arbitration clause].")
(citing cases), cert. denied, 517 U.S. 1120 (1996); see also Restatement (Second) of
Contracts § 79 (1979) ("If the requirement of consideration is met, there is no additional
requirement of . . . 'mutuality of obligation.'"). Finally, "[a] doctrine that required
separate consideration for arbitration clauses might risk running afoul of [the strong
federal policy favoring arbitration]." Doctor's Assocs., 66 F.3d at 453. For all these
reasons, we conclude that, under Oklahoma law, mutuality of obligation is not required
for arbitration clauses so long as the contract as a whole is supported by consideration.3
In this case, the parties do not contend that the franchise agreement lacks consideration.

      3
        The dissenting opinion relies on an unpublished opinion by the Oklahoma Court
of Appeals in concluding that Oklahoma law requires mutuality of obligation in
arbitration agreements and that this clause is thus violative. See Neighbors v. Lynn
Hickey Dodge, Inc., No. 85676 (Okla. Ct. App. Aug. 6, 1996) (withdrawn from
publication). Neighbors, however, should not be relied upon. After the court of
appeals in Neighbors rendered its decision and released the opinion for publication, one
of the parties petitioned to the Oklahoma Supreme Court for certiorari. On
November 12, 1996, the Oklahoma Supreme Court denied certiorari and issued an
order mandating that the opinion be withdrawn from publication. See Order Nov. 12,
1996. This overt act by the Oklahoma Supreme Court commands our restraint from
relying on or citing to the opinion because we do not know the reason for the
withdrawal. Of course, one possibility is that the supreme court did not agree with the
result. We find it unlikely, as the dissenting opinion suggests, that the opinion may
have been withdrawn because it applies settled law. Our discussion in the text of the
opinion illustrates that the issue is far from settled in the Oklahoma courts. The
Neighbors opinion lacks precedential value, see 8th Cir. R. 28A(k); Okla. Sup. Ct. R.
1.200(b)(5) (unpublished opinions "shall not be considered as precedent by any court
or cited in any brief or other material presented to any court."), and, in these
circumstances, also lacks persuasive value.

                                           -6-
       We also reject Express and Barker's argument that the arbitration clause is
unconscionable, void, and unenforceable. We dismiss the notion that, because the
contract is standardized, the arbitration provision should be void. Unconscionability
generally requires a showing that one party lacked a meaningful choice as to the
inclusion of the challenged provision and that the challenged provision unreasonably
favors the other party. See Coblentz v. Oklahoma Farm Bureau Mut. Ins. Co., 915 P.2d
938, 940 (Okla. Ct. App. 1995). No such showing has been made in this case. We
similarly find that the clause does not violate public policy. See Freeman v. Prudential
Sec., Inc., 856 P.2d 592, 594 (Okla. Ct. App. 1993) ("Ordinarily, agreements of parties
to bind themselves to mandatory arbitration are favored.").

       We also reject Express and Barker's final argument that Golf U.S.A. waived its
right to arbitrate by filing with the District Court a claim for attorney fees after the
District Court's dismissal. "[A]s a matter of federal law, any doubts concerning the
scope of arbitrable issues [such as an allegation of waiver] should be resolved in favor
of arbitration . . . ." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 24-25 (1983). We will find that a party waived its right to arbitrate where that party
"(1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and
(3) prejudiced the other party by these inconsistent acts." Ritzel Communications, Inc.
v. Mid-American Cellular Tel. Co., 989 F.2d 966, 969 (8th Cir. 1993) (citing Stifel,
Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th Cir. 1991)). In Ritzel, the district
court denied several defendants' motion for arbitration, and they appealed. While the
appeal was pending, those defendants continued to litigate the merits of the case in
district court. They filed answers, responded to interrogatories and requests for
production, participated in depositions and pre-trial conferences, and filed numerous
motions and documents in preparation for trial. The case was eventually tried in a six-
day bench trial and judgment was entered against the defendants. We held that the
defendants had waived their right to arbitration "[b]y failing to make the simple effort
of requesting a stay in this court and by proceeding to trial on the merits in the district
court." Id. at 970 (emphasis added). In this case, Golf U.S.A. has not acted

                                            -7-
inconsistently with its right to arbitration because Golf U.S.A. has not attempted to
litigate the merits of the case. To the contrary, it has resisted litigation and has
persuaded the District Court to dismiss the plaintiffs' lawsuit in favor of arbitration.
Furthermore, Express and Barker have not shown any prejudice to themselves. Even
if the District Court grants Golf U.S.A.'s pending motion for attorney fees, that is not
prejudice to Express and Barker for purposes of the rules applicable in determining
whether a waiver of a right to arbitration has occurred.

       In conclusion, we believe that the arbitration provision is valid upon "grounds as
exist at law," 9 U.S.C. § 2, and therefore hold that the FAA mandates the enforcement
of the arbitration clause. We affirm the judgment of the District Court dismissing the
complaint.

HEANEY, Circuit Judge, dissenting.

      I respectfully dissent. As a preliminary matter, I believe that Missouri law, rather
than Oklahoma law, applies. “Federal district courts must apply the choice of law rules
of the state in which they sit when jurisdiction is based on diversity of citizenship.”
Whirlpool Corp. v. Ritter, 929 F.2d 1318, 1320 (8th Cir. 1991) (citing Klaxon Co. v.
Stentor Elec. Co., 313 U.S. 487, 496 (1941)). We review de novo the district court’s
determination of which state’s law to apply. See Salve Regina College v. Russell, 499
U.S. 225, 230 (1991).

      Express filed this case in the Eastern District of Missouri. Therefore, we apply
Missouri’s choice of law rules. Missouri courts follow the Restatement (Second) of
Conflicts when analyzing contractual agreements.4 See Fruin-Colnon Corp v. Missouri

     4
         Section 187 of the Restatement provides:

         (1) The law of the state chosen by the parties to govern their contractual

                                            -8-
Highway & Transp. Comm’n, 736 S.W.2d 41, 44 (Mo. 1987). Because Missouri has
greater contacts, its law would govern the case absent a valid choice of law by the
parties. See Restatement (Second) Conflicts § 187(1)(b). Having carefully reviewed
the record, I also find that Missouri has a materially greater interest in the effect of the
forum-selection clause than Oklahoma. Id. Finally, to determine whether the choice of
law provision is valid, we must ask whether the arbitration clause at issue violates a
fundamental policy of Missouri. Id. I conclude that it does.

       In Electrical & Magneto Service Co. v. Ambac International Corp., 941 F.2d 660
(8th Cir. 1991), our court reviewed Missouri statutes concerning franchise agreements
and concluded that “the Missouri Legislature created a legislative presumption that
franchisees are in an inferior bargaining position with respect to franchisors and thus are
entitled to protection from the oppressive use of the franchisor’s superiority.” Id. at 663
n.3. Although the majority is correct that “we may not invalidate an arbitration

       rights and duties will be applied if the particular issue is one which the
       parties could have resolved by an explicit provision in their agreement
       directed to that issue.

       (2) The law of the state chosen by the parties to govern their contractual
       rights and duties will be applied, even if the particular issue is one which
       the parties could not have resolved by an explicit provision in their
       agreement directed to the issue, unless . . .

                                           ...

         (b) application of the law of the chosen state would be contrary to a
             fundamental policy of a state which has a materially greater interest
             than the chosen state in the determination of the particular issue
             and which . . . would be the state of the applicable law in the
             absence of an effective choice of law by the parties.

Restatement (Second) Conflicts § 187 (1988).

                                            -9-
agreement under any state law applicable only to arbitration provisions[,]” ante at 4, I
would invalidate this arbitration agreement, because rather than single out specific
protections afforded only to arbitration agreements under Missouri law, the Missouri
legislative scheme at issue “is designed to regulate the marketplace to the advantage of
those traditionally thought to have unequal bargaining power as well as those who may
fall victim to unfair business practices.” Id. at 663. In my judgment, the arbitration
provision that allows Golf U.S.A. to sue in court, but requires Express to arbitrate
without the possibility of ever receiving a jury trial, violates a fundamental policy under
Missouri law.

        The Missouri Supreme Court has explicitly approved the legislative scheme
designed to protect Missouri franchisees and has invalidated a forum-selection clause
where the clause was “unreasonable” and unfairly prejudiced the franchisee. See High
Life Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493, 500 (Mo. 1992). In agreeing
with our Ambac decision and in interpreting Missouri franchise law, the court in High
Life stated: “The Eighth Circuit Court of Appeals . . . recognized the strong public
policy reflected in Chapter 407 generally” in protecting franchisees and “the very fact
that this legislation is paternalistic in nature indicates that it is a fundamental policy.”
Id. at 498 (citing Restatement (Second) of Conflicts § 187 comment g). Consistent with
holdings of our court and the Missouri Supreme Court, I would invalidate the arbitration
clause because under Missouri law it is unreasonable and unfairly prejudices Express.

      Even assuming that Oklahoma law applies, the provision at issue violates the
Oklahoma Constitution. The Oklahoma Supreme Court has held that “‘[o]ne party may
not unilaterally decide to have someone other than a jury determine the issues and
thereby destroy the other’s right to a jury trial.’” Massey v. Farmers Ins. Group, 837
P.2d 880, 884 (Okla. 1992) (quoting Molodyh v. Truck Ins. Exch., 744 P.2d 992, 998
(Or. 1987)).

                                           -10-
        In my view, Golf U.S.A has the unilateral right to decide to have someone other
than a jury determine the issues and thereby destroy Express’s right to a jury trial.
While Golf U.S.A. can sue in court for anything involving money damages, Express
may never demand a jury trial and must submit to arbitration.5 My position that the
arbitration provision violates Oklahoma law is bolstered by an unpublished opinion6 of

      5
      Once one closely examines the franchise agreement, it is not hard to understand
why the arbitration agreement is so truly one-sided. Clause 16.4.2 of the franchise
agreement, for example, provides that Golf U.S.A. may terminate the agreement:

      If You [Express] fail to cure a default hereunder, where such default
      materially impairs the goodwill associated with the Golf USA name,
      service mark or logo; but only after You have been given written notice
      to cure said default and have failed to do so after 24 hours.

(J.A. at A-55). Because the provision quoted above is so broad, if Golf U.S.A.
determined that Express “materially impair[ed] the goodwill associated with the Golf
USA name,” Golf U.S.A. could terminate the agreement within twenty-four hours
notice and sue Express in court for monies owed as a result of the alleged breach. On
the other hand, as in this case, where Express claims that Golf U.S.A. materially
breached their agreement, Express is forced to submit to arbitration.
          6
         Although Oklahoma Supreme Court rules provide that unpublished opinions
have no precedential effect, see Okla. Sup. Ct. R. 1.200(b)(5), and “shall not be . . .
cited in any brief or other material presented to any court,” courts interpreting this
provision have found that unpublished opinions may be used for persuasive value. See,
e.g., Tillon v. Capital Cities/ABC Inc., 938 F. Supp. 751, 753 n.1 (N.D. Okla. 1995)
(“Although . . . Oklahoma Court of Appeals’ unpublished opinion[s] [do] not have
precedential value, . . . [they may] be persuasive.”); see also Farmers Ins. Group v.
Stark, 924 P.2d 798, 800 (Okla. Ct. App. 1996) (“The trial court found persuasive and
followed . . . an unpublished opinion . . . of this court.”); Employers Mut. Cas. v.
Mosby, 943 P.2d 593, 594 (Okla. 1997) (discussing Northland v. Nance, an
unpublished court of appeals opinion analyzed in Farmers, and while overruling Nance
because a published court of appeals opinion was on point, never suggested that lower
courts could not use unpublished opinion for persuasive value). Our court has also
stated that one may cite an unpublished opinion of our court if, although lacking

                                         -11-
the Oklahoma Court of Appeals. That court explicitly stated: “Because of the special
guarantee of jury trials granted by our constitution, we hold that a contractual provision
purporting to grant a unilateral right to elect alternative dispute resolution procedures
is not enforceable against the party demanding a jury trial.” See Neighbors v. Lynn
Hickey Dodge, Inc., No. 85.676 at 9 (Okla. Ct. App. Aug. 6, 1996) (J.A. at A-111, A-
119) (emphasis in original).7 There can be no doubt that the Neighbors holding is both
persuasive and on point with respect to this case.8

       We are empowered to predict how the Oklahoma Supreme Court would decide
this matter. In my view, Oklahoma law compels us to find that the unilateral right that
Golf U.S.A. possesses in this case directly contravenes its constitution. It is for this

precedential value, it has persuasive value on a material issue and no published opinion
would serve as well. See 8th Cir. R. 28A(k). In this regard, I do not agree that the
cases cited by the majority sufficiently address the issues before us.
     7
       In Cannon v. Lane, 867 P.2d 1235 (Okla. 1993), the Oklahoma Supreme Court
stated: “Because we hold that the contract before this Court is one ‘with reference to
insurance’ and therefore an exception to the Uniform Arbitration Act, we need not
address the constitutional issue of whether the contract for arbitration of future disputes
deprives the petitioner of a jury trial and violates his constitutional rights under . . . the
Constitution of the State of Oklahoma.” Id. at 1239 n.7. Although the court did not
reach the issue, it is clear that, at the very least, it considered the question open whether
arbitration clauses may deprive one of the right to a jury trial in violation of the
Oklahoma Constitution. This fact, in conjunction with the holdings in Massey and
Neighbors, clearly shows the error made by the majority.
      8
        Interestingly, the court in Neighbors considered the Shaffer opinion, relied on
so heavily by the majority, and yet still found that the arbitration clause violated the
Oklahoma Constitution. See Neighbors, 85.676, at 7 (J.A. at A-117.) One may
question why the Oklahoma Supreme Court withdrew Neighbors from publication,
rather than simply overruling it. Perhaps the reason is that “[o]pinions of the Court of
Civil Appeals which apply settled precedent and do not settle new questions of law
shall not be released for publication.” 20 Ohio St. 1991, § 30.5.

                                            -12-
reason that I respectfully dissent and hope that our court en banc, or the United States
Supreme Court, corrects this transparent misapprehension of our role when hearing
diversity cases.

      A true copy.

             Attest.

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                         -13-