Opinion
Case No.: CV-01-2052 CAS (JWJx)
August 29, 2001
Gregory Oxford, for Plaintiff.
Wallace Allan, for Defendant.
MINUTE ORDER
DEFENDANT'S MOTION TO STAY PENDING ARBITRATION (filed on June 25, 2000)
I. INTRODUCTION
This case arises from alleged discrimination based on race by defendants General Motors Corp. ["GMC"] and Saturn of Palmdale ["SOP"] against plaintiff Jerry Lockhart, as set forth in a complaint filed on March 2, 2001, and a first amended complaint ("FAC") filed on April 26, 2001. Plaintiff, an African American, graduated from General Motors' Minority Dealer Development Program in the 1990. FAC, ¶ 20. Plaintiff claims that his participation in this program entitled him to a guaranteed opportunity to own and operate a GM automobile dealership. Id., ¶ 12.
According to the FAC, defendants violated Title VII of the Civil Rights Act of 1964, 42 U.S.C. ¶¶ 2000e et. seq., and various state laws by racially discriminating against plaintiff when they allegedly denied him an opportunity to operate a dealership in Las Vegas, Nevada. Id., ¶ 114, 143, 153. Plaintiff further alleges that he was terminated by SOP in retaliation for a letter his counsel sent to defendants on July 6, 2000, which letter complained of discriminatory actions plaintiff had suffered since 1990. Id., ¶¶ 121, 160. The FAC asserts additional claims for relief for: (1) fraud, (2) negligent misrepresentation, (3) breach of implied contract, (4) intentional interference with economic perspective, and (5) breach of implied covenant of good faith and fair dealing. Id., ¶¶ 167-208.
Defendant contends that all of plaintiff's claims are subject to mandatory arbitration in accordance with an arbitration agreement ("Arbitration Agreement") which plaintiff signed on March 17, 2000. Defs.' Motion for Stay, 2-3. The Arbitration Agreement provides that the parties "expressly waive their respective rights to a jury trial and agree to submit to mandatory and binding arbitration . . . any and all claims, demands, causes of action, disputes or controversies" between them. Arbitration Agreement, Lockhart Decl., Ex. K, ¶ 1. Accordingly, defendants filed the instant motion on June 25, 2000, for a stay of this action pending arbitration of plaintiff's claims in accordance with the agreement and the Federal Arbitration Act ("FAA").
Plaintiff admits that he "reviewed" and executed the Arbitration Agreement and a companion stockholders agreement which expressly refers to it (Lockhart Decl., ¶ 24), and that he told Ms. Ruby Henderson of GMC before signing these documents that he was reviewing them "very carefully." Henderson Decl., ¶ 10. Plaintiff does not dispute that his claims are within the scope of the Arbitration Agreement as written. Plaintiff nonetheless raises two arguments in opposition to the motion to stay. First, he alleges that there was no consideration for the Arbitration Agreement. Pl.'s Opp'n, 2. In addition, he claims that he failed to "realize that the documents [he] was executing . . . purported to waive [his rights to litigate any claims . . . against General Motors." Lockhart Decl., ¶ 25.
II. STANDARD FOR STAYING ACTION PENDING ARBITRATION
To determine whether the Court should grant defendant's motion to stay the action pending arbitration, the Court must determine whether the Arbitration Agreement is enforceable. The relevant statutory authority on the enforceability of arbitration agreements is the FAA. Section 2 of the FAA provides in relevant part that:
A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.9 U.S.C. § 2 (1999). Simply stated, the FAA "compels judicial enforcement of a wide range of written arbitration agreements." Circuit City Stores, Inc. v. Adams, 121 S.Ct. 1302, 1307 (2001).
One exception to the enforceability of arbitration agreements is where, according to state law, the agreement was improperly formed. "Whether the parties [are] required to arbitrate [is] a matter to be determined by the court on the basis of their contract." United Ass'n of Journeymen. etc., Local No. 342 v. Bechtel Constr. Co., 128 F.3d 1318, 1323 (9th Cir. 1997). In doing so, federal courts "generally should apply ordinary state-law principles that govern the formation of contracts," but "must also take into account the strong federal policy favoring enforcement of agreements to arbitrate, resolving any doubts concerning the scope of arbitrable issues in favor of arbitration." Bosinger v. Phillips Plastics Corp., 57 F. Supp.2d 986, 990 (S.D. Cal. 1999) (citing First Options of Chicago. Inc. v. Kaplan, 514 U.S. 938, 944 (1995), and Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987)).
III. ANALYSIS
A. LACK OF CONSIDERATION
Plaintiff asserts that the Arbitration Agreement is invalid as a contract under California law for lack of mutual consideration. However, it is well settled that mutual promises made by parties to a contract to submit claims to arbitration constitute sufficient consideration to support the agreement.
Paragraph 1 of the Arbitration Agreement includes mutual promises by all parties to waive trial by jury and submit their disputes to binding arbitration. It is axiomatic in modern contract law that"where [an] agreement consists of mutual promises, the one promise [is] the consideration for the other; and it has never been seriously questioned that such an agreement is valid, and that the parties are bound to fulfill their respective stipulations." Storm v. United States, 94 U.S. 76, 83 (1876); Mercer v. Lemmens, 230 Cal.App.2d 167, 171 ("In a bilateral contract . . . the promise of one party is consideration for that of another and any valid promise is sufficient consideration for another promise"). The exchange of mutual promises as sufficient consideration extends to promises to arbitrate. Beggs Bros. Fruit Co. v. United Farmers Ass'n of California, 41 Cal.App.2d 766, 770 (1940) (rejecting a claim that an arbitration agreement among multiple parties was void for lack of consideration and stating that "each party made the same promise [i.e., the promise to arbitrate disputes] to each and every other party. Further, such promise constituted a consideration."). Because defendants GMC and SOP, and plaintiff Lockhart all agreed to submit to binding arbitration any claims they had against each other, there was a mutual exchange of promises sufficient to create consideration under California (as well as Michigan) law.
Because Paragraph 7 of the Arbitration Agreement provides that Michigan state law should govern those matters of "interpretation, enforcement and proceedings of the arbitration" not covered by the FAA, the Court notes that Michigan and California law are in accord on this issue. See Michigan Bean Co. v. Senn, 93 Mich. App. 440, 444 (1979) (plaintiff's implied promise to pay defeated any argument "that mutuality of consideration was lacking" to support defendant's promise).
B. PLAINTIFF'S CLAIMED FAILURE TO UNDERSTAND THE IMPORT OF THE ARBITRATION AGREEMENT
Plaintiff claims that when he executed the Arbitration Agreement (along with several other documents) on March 17, 2000, he did not realize that he was waiving his right to litigate claims against the defendants. Lockhart Decl. ¶ 25. However, plaintiff stated that he had "reviewed" the documents before executing them. Lockhart Decl. ¶ 24. Additionally, plaintiff told Ruby Henderson, a GM employee who had telephoned him in regard to the documents, that he was "reviewing them very carefully." Henderson Decl. ¶ 10. The Arbitration Agreement is clearly labeled as such and the language of its first paragraph "[the parties to the agreement] expressly waive their respective rights to a jury trial and submit to mandatory and binding arbitration . . . any and all claims, demands, causes of actions, disputes or controversies against any other Party [arising out of or related to the parties commercial relationship]" leaves little to the imagination. Lockhart Decl., Ex. K, ¶ 1. It is difficult to imagine that plaintiff, a sophisticated businessman and certified public accountant (Lockhart Decl. ¶ 10), could have actually read the agreement and not understood its import.
Even if plaintiff did not read or understand the agreement, both federal and California case law support the enforcement of a properly executed, written arbitration agreement. In Cohen v. Wedbush, Noble, Cooke, Inc., the Ninth Circuit upheld an agreement to arbitrate against a claim that the defendant had fraudulently misrepresented the contents of that agreement, stating that:
"[w]e see no unfairness in expecting parties to read contracts before they sign them. . . . `[Otherwise] [c]ontracts would become no more than presumptive statements of the parties' intentions, instead of legally enforceable agreements.' This reasoning is particularly persuasive in the context of arbitration clauses, where permitting plaintiffs to present their claims to a jury would frustrate the very policies these clauses, and the Arbitration Act itself, are meant to promote. . . ."
841 F.2d at 287-88 (9th Cir. 1988) (quoting Turner v. Johnson Johnson, 809 F.2d 90, 96 (1st Cir. 1981)). California courts have also repeatedly enforced written arbitration agreements that parties allegedly failed to read. In Vernon v. Drexel Burnham Co., 52 Cal.App.3d 706, 714 (1975), the Court of Appeal rejected plaintiff's contention that an arbitration clause which he had not read should not be enforced against him stating "[t]his contention is not meritorious. [Plaintiff] is in effect asking for retrospective unilateral contractual immunity which is contrary to the law of California. . . ." At least three other California decisions have upheld arbitration clauses that plaintiffs claimed not to have read. Ware v. Merrill Lynch. Pierce, Fenner Smith. Inc., 24 Cal.App.3d 35, 42 (1972), aff'd 414 U.S. 117 (1973); Frame v. Merrill Lynch, Pierce, Fenner Smith, Inc., 20 Cal.App.3d 668, 671 (1971); Federico v. Frick 3 Cal.App.3d 872 (1970).
The Court notes that Michigan and California law are in accord on this issue as well. See Hart v. Christy, 497 N.W.2d 194, 195 (1992) ("It is undisputed that Christy voluntarily signed an agreement in which he promised to submit all disputes arising out of the account to arbitration. His alleged failure to read it or understand it is no defense"); see also Feinberg v. Straith Clinic, 390 N.W.2d 697, 700 (1986) ("Failure to read a contract document provides a ground for rescission only where the failure was not induced by carelessness alone but instead was induced by some stratagem, trick or artifice by the parties seeking to enforce the contract").
Here the language of the agreement is clear and unambiguous, and plaintiff's assertion that he should not be bound thereby because he did not understand the language of the agreement is contrary to law. Therefore, plaintiff's alleged failure to understand the import of an arbitration agreement which he admits to having reviewed and which he executed does not immunize him from the enforcement of that agreement.
IV. CONCLUSION
For the foregoing reasons, the defendant's motion to stay the action pending arbitration is granted.
IT IS SO ORDERED.
CIVIL MINUTES — GENERAL
PROCEEDINGS: DEFENDANT'S MOTION TO STAY (FILED 6/25/01)
The above entitled motion was argued. The Court grants the motion. A separate ruling will issue.
IT IS SO ORDERED.