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finding that "Washington cases addressing the issue [of substantive unconscionability with respect to attorneys fees] found provisions that did not guarantee that the prevailing party could later recover its costs and fees to be potentially problematic."
Summary of this case from Huang v. Washington Mutual BankOpinion
No. 60069-9-I.
May 12, 2008.
Appeal from a judgment of the Superior Court for King County, No. 06-2-13191-6, Michael Hayden, J., entered May 4, 2007.
Affirmed by unpublished opinion per Cox, J., concurred in by Ellington and Leach, JJ.
At issue is whether the franchise agreement between the franchisees, Sammy Enterprises, Inc. and Imsoon Lee (collectively, "Sammy") and the franchisor, O.P.E.N. America, Inc. ("OpenWorks") is enforceable. Specifically, Sammy contends that the agreement, which contains an agreement to arbitrate, is procedurally and substantively unconscionable. Under the circumstances of this case, we disagree and affirm.
In June 2003, Imsoon and Chul Jae Lee and their business partner, Kyung Soon Kim, met with OpenWorks' regional director Michelle Dux to discuss the possibility of purchasing a janitorial franchise from OpenWorks. At the meeting, Dux explained the franchise system and provided Kim and the Lees with a copy of OpenWorks' circular and franchise agreement. Although the parties discussed OpenWorks' franchise system and fees during this meeting, they did not discuss the fact that the agreement contained an arbitration clause. During the meeting, Kim's adult daughter served as an English translator for Kim and the Lees, who were not fluent in English.
At least 10 days later, Kim returned to Dux's office to sign the agreement. The record does not reflect precisely how many days passed between the two meetings, but Sammy concedes in its brief that the Lees were provided with the circular "prior to their signing as required by law." The Franchise Investment Protection Act (FIPA) requires franchisors to provide the offering circular at least 10 days prior to signing a franchise agreement. Lee also stated in his declaration that he paid the franchise fee "[a]bout ten days after our initial meeting."
The Lees did not sign the agreement because they were then involved in a janitorial franchise agreement with another franchisor. After the Lees terminated that relationship, Kim assigned the OpenWorks agreement to the Lees and their business entity, Sammy Enterprises.
After beginning to perform under the agreement, Sammy was dissatisfied with the amount of janitorial work OpenWorks provided. Sammy commenced this action, alleging violations of the Franchise Investment Protection Act (FIPA), violations of the Consumer Protection Act (CPA), misrepresentation, fraud, and breach of contract. Nothing in the complaint challenges the arbitration provision of the franchise agreement. In response, OpenWorks moved to compel arbitration.
After briefing on the issue, the trial court granted the motion to compel, subject to the following conditions in its order:
1. The arbitration fees (filing, administrative, arbitrator fees) shall be paid by OPEN.
2. The arbitrator shall have the power to grant any appropriate relief including injunctive relief, or punitive damages under FIPA or CPA.
3. OPEN may not assert a statute of limitations defense based on the short period provided under the contract.
4. Parties shall arrange arbitration w/ retired Judge Steve Scott at JDR or another by mutual agreement.
Clerk's Papers at 269-70.
Following arbitration subject to these conditions, the arbitrator found in favor of OpenWorks and awarded costs and fees in favor of OpenWorks, as provided for in the franchise agreement. OpenWorks moved for an order confirming arbitration. Sammy moved to vacate the award on the basis that the agreement was unconscionable, among other reasons. The trial court granted OpenWorks' motion and entered judgment for OpenWorks.
Sammy appeals.
ARBITRATION AGREEMENT
The Federal Arbitration Act (FAA) was enacted ?`to reverse the longstanding judicial hostility to arbitration agreements . . . and to place arbitration agreements upon the same footing as other contracts.'" Section two of the FAA provides that written arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." This requirement embodies "a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." The effect of this section is to create a body of substantive federal law on arbitration that state and federal courts must apply to arbitration agreements that fall under the Act's coverage. Courts must indulge every presumption in favor of arbitration. Washington has a similar policy favoring the arbitration of disputes.
9 U.S.C. § 1-16.
Al-Safin v. Circuit City Stores, Inc., 394 F.3d 1254, 1257 (9th Cir. 2005) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991)).
9 U.S.C. § 2.
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983), superseded on other grounds by 9 U.S.C. § 16(b)(1).
Perry v. Thomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 96 L. Ed. 2d 426 (1987).
Moses, 460 U.S. at 25.
RCW 7.04A.060; former RCW 7.04.010 (2004).
Although courts presume arbitrability, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate an arbitration agreement without violating the FAA. But courts may not invalidate arbitration agreements based on laws that apply only to arbitration agreements.
Adler v. Fred Lind Manor, 153 Wn.2d 331, 342, 103 P.3d 773 (2004).
Id.
We review the arbitrability of a dispute de novo. The party opposing arbitration bears the burden of showing that the agreement is not enforceable.
Id.
Id. (citing Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 92, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000)).
Here, as the parties appear to acknowledge, the FAA applies both because the franchise agreement so provides, and because the contract involves interstate commerce.
Clerk's Papers at 130 (Agreement § 11.7).
See 9 U.S.C. § 2 (the Federal Arbitration Act governs arbitration agreements in contracts "involving commerce"); Clerk's Papers at 560, 563 (agreement to do business between an Arizona corporation and a Washington sole proprietorship); Allison v. Medicab Int'l, Inc., 92 Wn.2d 199, 202, 597 P.2d 380 (1979) (franchise agreement between New York corporation and Washington resident was in interstate commerce); Pinkis v. Network Cinema Corp., 9 Wn. App. 337, 340, 512 P.2d 751 (1973) (franchise agreement between parties in different states was in interstate commerce in part because the corporation provided the individual with advice, training, materials, assistance, and advertising).
There is a dispute between the parties whether the courts or the arbitrator should decide the challenges at issue in this case. The law is clear that the courts decide whether the agreement to arbitrate is enforceable, and if so, the arbitrator decides all other issues.
In Buckeye Check Cashing, Inc. v. Cardegna, the United States Supreme Court held that under the FAA, courts should only consider challenges to the validity of the arbitration clause itself. But if a party raises defenses to the contract as a whole, which contains the arbitration clause, those challenges should be addressed in arbitration, not by the court. As a matter of "substantive, federal arbitration law," the arbitration clause in a contract is severable from the remainder of the agreement, regardless of state severability rules.
546 U.S. 440, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006).
Id. at 445-46.
Id.
Here, Sammy challenges both the arbitration clause specifically and the contract as a whole. In accordance with Buckeye, we only consider Sammy's challenge that the arbitration clause is substantively unconscionable and its challenge that the agreement is procedurally unconscionable, insofar as that challenge is directed to the arbitration clause specifically. Sammy's challenge of other specific clauses in the agreement are matters that were properly submitted to the arbitrator for decision.
See Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1270, 1277 (9th Cir. 2006) (applying Buckeye and considering procedural unconscionability because the crux of the complaint sought invalidity of the arbitration provision specifically, not the contract as a whole).
See also Pinkis, 9 Wn. App. at 342 (applying U.S. Supreme Court precedent and declining to consider any issue other than the validity of the arbitration clause itself); accord In re Marriage of Bernard, 137 Wn. App. 827, 832-33, 155 P.3d 171 (2007), review granted, No. 80348-0, 2008 WL 1779441 (Apr. 1, 2008).
PROCEDURAL UNCONSCIONABILITY
Sammy argues that the agreement is void because it is procedurally unconscionable. We disagree.
Unconscionability is a generally applicable defense that may apply to void arbitration agreements without violating the FAA.
Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293, 303 n. 3, 103 P.3d 753 (2004).
Parties to a contract are normally bound to its terms. But a valid defense to the contract exists if it is substantively or procedurally unconscionable. We review unconscionability as an issue of law.
Id. at 302.
Id. at 302-03.
Id.
Procedural unconscionability is:
"the lack of meaningful choice, considering all the circumstances surrounding the transaction including [t]he manner in which the contract was entered, whether each party had a reasonable opportunity to understand the terms of the contract, and whether the important terms [were] hidden in a maze of fine print."
Id. at 303 (quoting Nelson v. McGoldrick, 127 Wn.2d 124, 131, 896 P.2d 1258 (1995)) (internal quotations omitted).
Sammy argues that the agreement in this case is an adhesion contract. Whether a contract is one of adhesion depends upon an analysis of the following factors:
"(1) whether the contract is a standard form printed contract, (2)
whether it was prepared by one party and submitted to the other on a `take it or leave it' basis, and (3) whether there was no true equality of bargaining power between the parties."
Adler, 153 Wn.2d at 347 (quoting Yakima County (W. Valley) Fire Prot. Dist. No. 12 v. City of Yakima, 122 Wn.2d 371, 393, 858 P.2d 245 (1993)) (internal quotations omitted).
But an adhesion contract is not necessarily procedurally unconscionable. The key inquiry is whether the party lacked meaningful choice.
Id. at 348.
Zuver, 153 Wn.2d at 305.
In Adler v. Fred Lind Manor, for example, the supreme court remanded the matter for a determination of whether an adhesion contract between an employer and its employees was procedurally unconscionable. The court concluded that the arbitration language was not buried in fine print, and "[p]erhaps most importantly," the employee had a week to consider the agreement and seek advice if he desired. The court remanded the matter only because Adler's version of the facts was that he was forced to sign the agreement under dire financial circumstances and a threat of being fired.
153 Wn.2d 331, 342, 103 P.3d 773 (2004).
Id. at 349. The court noted that this fact weighed against his claim that his limited English skills prevented him from understanding the agreement.
Id. at 350.
In Adler's companion case, Zuver v. Airtouch Communications, Inc., the Page 9 supreme court found that an adhesion contract of employment was not procedurally unconscionable when the employee's argument rested solely on her lack of bargaining power. The court stated that more was needed:
153 Wn.2d 293, 103 P.3d 753 (2004).
At minimum, an employee who asserts an arbitration agreement is procedurally unconscionable must show some evidence that the employer refused to respond to her questions or concerns, placed undue pressure on her to sign the agreement without providing her with a reasonable opportunity to consider its terms, and/or that the terms of the agreement were set forth in such a way that an average person could not understand them.
Id. at 306-07.
The court also again noted the importance of the fact that the employee had 15 days to consider the agreement and seek any advice she wished.
Id. at 306.
The agreement in this case is an adhesion contract because it was a standard form contract created by OpenWorks and submitted to Kim for acceptance without any opportunity for Kim to change its terms. Moreover, there was no true equality of bargaining power between them.
Sammy, however, fails to establish that Kim had a lack of meaningful choice in entering into the franchise agreement. Here, Kim attended a meeting along with the Lees and a translator. Dux explained the franchise system at OpenWorks, including fees. Significantly, as in Adler andZuver, Kim had at least 10 days to review the agreement, seek advice of counsel or anyone else, seek help interpreting English terms, and decide whether to sign the agreement.
Further, although the circular and the agreement together constituted Page 10 more than 200 pages, the arbitration clause was not buried in fine print. The agreement itself was 33 pages, in regular typeface with double spaces between paragraphs. The primary arbitration provision was labeled, " 11.7 Arbitration.," and the provisions dealing with arbitration described aspects of arbitration such as initiation of arbitration and statute of limitations.
More importantly, Sammy admits in its brief that the cover page for the entire circular and agreement package contains a warning in bold, capital letters that any disputes must be settled by arbitration. In short, Sammy's argument that Kim was unaware of the allegedly hidden provision is simply not persuasive.
See Clerk's Papers at 35.
Sammy argues that Kim's and the Lees' lack of English proficiency, and Dux's knowledge of this fact, should lead to a finding of procedural unconscionability. This, too, is unpersuasive. As Sammy acknowledges, Kim's adult daughter was fluent in both English and Korean and served as a translator during the initial meeting. Moreover, they had at least 10 days to discuss the document with whomever they chose before signing.
Sammy also argues that Kim's daughter lacked relevant business skills. Her skills in business are irrelevant to whether she was a competent interpreter, which is not disputed in the record. Furthermore, Lee had some prior experience in purchasing janitorial franchises, which negates his claim that he completely lacked business knowledge and experience. Finally, as noted above, they had at least 10 days to discuss the agreement with whomever they Page 11 believed could provide them with any additional input regarding business aspects of this transaction.
We conclude that this franchise agreement was not procedurally unconscionable.
SUBSTANTIVE UNCONSCIONABILITY
Relying on Al-Safin v. Circuit City Stores, Inc. and Nagrampa v. MailCoups, Inc., Sammy argues that section 11.8 of the agreement is "skewed even more in favor of OpenWorks than those held unconscionable in" those cases. We consider whether Sammy has demonstrated that the arbitration provisions are substantively unconscionable.
394 F.3d 1254 (9th Cir. 2005).
469 F.3d 1257 (9th Cir. 2006).
Substantive unconscionability exists when a clause or term in the contract is one-sided or overly harsh. Terms such as ?`[s]hocking to the conscience,' `monstrously harsh,' and `exceedingly calloused'" are often used to define substantively unconscionable provisions.
Adler, 153 Wn.2d at 344.
Id. at 344-45.
Unilateral Application
Sammy contends that the agreement to arbitrate is overly harsh because it requires Sammy to arbitrate all claims but allows OpenWorks to seek limited relief in court. We disagree.
Section 11.8 of the agreement states:
Injunctive Remedy for Breach. You recognize that you are a member of a Franchise Network and that your acts and omissions may have a positive or negative effect on the success of other businesses operating under OpenWorks' Trade Names and in substantial association with its Marks. Your failure to comply with the terms of this Agreement is likely to cause irreparable damage to OpenWorks and to some or all of the other franchisees of OpenWorks. For this reason, you agree that if OpenWorks can demonstrate to a court of competent jurisdiction that there is a substantial likelihood of a breach or threatened breach of any of the terms of this Agreement by you, OpenWorks will be entitled , without posting a bond, to a temporary restraining order or preliminary injunction enjoining the breach and/or to a decree of specific performance , without showing or proving any actual damage, until a final determination is made by an arbitrator.
Clerk's Papers at 131 (emphasis added) (bold heading in original).
As in Adler, we start by interpreting the agreement's terms, employing Washington's context rule. The text of section 11.8 plainly states that OpenWorks' right to seek judicial relief is limited to obtaining injunctive relief and/or specific performance when an alleged breach of the franchise agreement by Sammy occurs. The injunctive relief is limited in duration, that is, " until a final determination is made by an arbitrator " respecting the alleged breach. Nothing here suggests that OpenWorks may seek judicial relief to resolve any claim of breach by Sammy. To the contrary, the last sentence of the paragraph makes clear that the arbitrator shall determine all such claims.
Because Sammy does not challenge either the provision regarding waiver of the bond requirement for injunctions or the standard for obtaining such an injunction, we express no opinion about the validity of these portions of section 11.8.
We also note that the first two sentences of section 11.8 state the agreed business reason for the provision permitting OpenWorks to seek injunctive relief and/or specific performance. Sammy does not argue in its briefing or otherwise that any of the provisions in these first two sentences is improper.
There is nothing in the record to suggest that the parties' statements or conduct modify the words of the first two sentences of section 11.8. Likewise, there is nothing to suggest their statements or actions modify any of the other words of section 11.8. The question is whether the plain words of section 11.8 render the arbitration provision substantively unconscionable. The answer to that question is unclear. Sammy argues that lack of mutuality dooms the provisions of section 11.8 that it attacks. However, a lack of mutuality of obligations alone does not invalidate an agreement.
Our supreme court recently stated in an arbitration case involving a claim of substantive unconscionability, "Washington courts have long held that mutuality of obligation means both parties are bound to perform the contract's terms — not that both parties have identical requirements." Rather, as that court also stated, it is "the effect of [an] arbitration provision" that determines whether it "is so one-sided and harsh that it is substantively unconscionable." In short, substantive unconscionability does not concern "whether the parties have mirror obligations under the agreement, but rather whether the effect of the provision is so `one-sided' as to render it patently `overly harsh.'"
Zuver, 153 Wn.2d at 317.
Id. at 317 n. 16, 318 (emphasis added).
Id. at n. 16.
Sammy does not cite Zuver to support its claim that the provisions of section 11.8 are so "one-sided" as to render them patently "overly harsh," as our supreme court has stated the relevant test. We also note both our supreme court in Zuver and the Ninth Circuit have cited with approval in this general area the California Supreme Court case of Armendariz v. Foundation Health Psychcare Services, Inc. Although our supreme court has cited that case with approval, it has not had occasion to apply it to these circumstances.
Id. ("The conclusion we reach here is aptly supported by the reasoning set forth in Armendariz. `[A] unilateral arbitration agreement imposed by the employer without reasonable justification reflects the very mistrust of arbitration that has been repudiated by the United States Supreme Court in Doctor's Associates, Inc. v. Casarotto, [ 517 U.S. 681, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996)], and other cases. . . .'").
Nagrampa, 469 F.3d at 1280-81.
24 Cal. 4th 83, 6 P.3d 669, 99 Cal. Rptr. 2d 745 (2000).
In Armendariz, the California Supreme Court discussed a lower appellate court decision, Stirlen v. Supercuts, Inc. The California Supreme Court noted Page 15 that the court in Stirlen did not hold that all lack of mutuality in a contract of adhesion was invalid. Rather, where ?`a contract can provide a "margin of safety" that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need,'" the provision is not unconscionable. The California Supreme Court further stated that the "business realities" that create the special need for such an advantage should be explained in the contract itself.
Id. at 116-17 (discussing Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 60 Cal. Rptr. 2d 138 (1997)).
Id. at 117 (quoting Stirlen, 51 Cal. App. 4th at 1536).
Id. (quoting Stirlen, 51 Cal. App. 4th at 1536).
Here, section 11.8, one focus of Sammy's challenge, includes in its first two sentences a statement of the "business realities" that create a special need for limited access to court while arbitration of the claimed breach occurs. Sammy did not challenge, either in its brief or during oral argument, the validity of the provisions in either of these sentences. Importantly, Sammy cites no authority to refute this principle that Armendariz clearly states. Moreover, Sammy does not argue why this principle should not be applied to the facts of this case.
Instead, Sammy relies on Al-Safin to argue that section 11.8 is substantively unconscionable. That case is arguably distinguishable.
There, the Ninth Circuit invalidated under Washington law a one-sided arbitration provision that required the employee to arbitrate all claims against the employer but did not impose the same requirement on the employer. More specifically, the employer could have sought judicial relief for any and all claims. The federal court cited Zuver andAdler, decided by our supreme court, and concluded that the provision was one-sided and overly harsh.
Id.
Of the seven reasons discussed in Al-Safin for the substantive unconscionability challenge, only the unilateral nature of the agreement is relevant to this case. There are important differences, however, between the agreement to arbitrate in this case and the one in Al-Safin. There, the agreement was unilateral in the sense that the employee was limited to arbitration in obtaining relief for employment claims while the employer was not so limited for any claims against the employee.
Id.; see also Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1173 (9th Cir. 2003); Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893-94 (9th Cir. 2002) (discussing the same contract provision).
Here, OpenWorks' unilateral right to limited judicial relief by way of injunction and/or specific performance supplements, and does not supplant, the arbitrator's role in resolving breach of contract claims. Moreover, the explanation of the business necessity for this type of provision, which is unchallenged on appeal, appears to meet the standard that Armendariz requires.
Sammy also heavily relies on Nagrampa v. MailCoups, Inc. There, a divided Ninth Circuit court, sitting en banc, held that under California law, an arbitration provision was substantively unconscionable. It required franchisees to arbitrate but allowed the franchisor to seek "any provisional remedy" in court "to protect its Service Marks and proprietary information."
469 F.3d 1257 (9th Cir. 2006).
Id. at 1285-86.
The majority's analysis purports to give effect to Armendariz, but arguably does not properly apply the principles of that case. CitingArmendariz and other California state cases, the court in Nagrampa recognized that ?`unconscionability turns not only on a one-sided result, but also on an absence of justification for it.'" Yet the majority asserts that subsequent California cases have routinely dismissed clauses whose business justification for unilateral provisions is the protection of proprietary information. The facts of our case are different from those California state cases in that OpenWorks asserted a legitimate business justification for the narrow exception to arbitration it reserved for itself in section 11.8.
Id. at 1286 (quoting O'Hare v. Mun. Res. Consultants, 107 Cal. App. 4th 267, 273, 132 Cal. Rptr. 2d 116 (2003)).
Nagrampa, 469 F.3d at 1287 (citing O'Hare, 107 Cal. App. 4th at 277; Mercuro v. Superior Court, 96 Cal. App. 4th 167, 177, 116 Cal. Rptr. 2d 671 (2002); Stirlen, 51 Cal. App. 4th at 1536-37).
See, e.g., Torrance v. Aames Funding Corp., 242 F. Supp. 2d 862, 872 (D. Or. 2002) (upholding a partially one-sided arbitration provision based on a legitimate business justification).
In short, we are not convinced that the Nagrampa majority's dismissive attitude toward business justifications inserted into agreements gives fair treatment to the principle articulated in Armendariz.
We have discussed above our concerns about the substantive unconscionability argument that Sammy makes. Unfortunately, the briefing by the parties does not address these concerns to the extent that we deem necessary to decide the question.
In any event, we conclude that it is unnecessary for us to decide whether the unilateral provision of section 11.8 is substantively unconscionable. Rather, we may assume without deciding that it is. The question then is whether the provision is severable. We address that question later in this opinion.
Next, Sammy argues that provisions in the promissory note and equipment lease contribute to the one-sidedness of the agreement. As Sammy conceded during oral argument, however, it did not sign either of these instruments. Sammy has not explained why such provisions to which it is not bound have prejudiced it in any way. We fail to see any relevance of this argument to the question of substantive unconscionability under the circumstances of this case. Accordingly, we will not consider the hypothetical question of what, if any, bearing these instruments might have on the questions we must decide here.
Sammy next challenges the limitation on its ability to seek injunctive relief and punitive damages. The agreement states, "You waive any rights you may have to demand trial by jury or to seek punitive damages from OpenWorks or its Affiliates." The same section provides that the arbitrator shall not have the Page 19 power to assess punitive damages. The State Law Addendum to the agreement stated that the provisions of the agreement that limit rights or remedies under FIPA will not be enforced. The addendum does not address the CPA.
Clerk's Papers at 130 (Agreement § 11.7).
Clerk's Papers at 130.
It is unclear to us how waiver of the right to trial by jury by requiring arbitration is unconscionable. As to the other challenges, Sammy's argument ignores the fact that the trial judge granting the order compelling arbitration severed these limitations from the agreement. The court specifically gave the arbitrator the authority to grant any relief appropriate under the CPA and FIPA, including punitive damages. For this reason, we again decline to consider the hypothetical question that Sammy presents.
Arbitration and Attorney Fees / Financial Hardship
Sammy argues that unconscionable provisions in the agreement allow the prevailing party to recover all costs and fees. This argument is unpersuasive.
In Mendez v. Palm Harbor Homes, Inc., the court applied an equitable defense to the enforcement of an arbitration agreement based on cost. Under the doctrine, an arbitration agreement can be stricken when the party can show "that prohibitive costs are likely to render the arbitral forum inaccessible."
111 Wn. App. 446, 45 P.3d 594 (2002).
Id. at 465.
Here, Sammy fails to demonstrate financial hardship. The trial judge granting the order compelling arbitration specifically required OpenWorks to pay all arbitration fees, severing the contrary provision from the agreement. Thus, the issue is moot.
See Zuver, 153 Wn.2d at 309-10 n. 7 (offer to pay moots the issue because the test requires evidence showing an inability to pay).
As to the prevailing party rule, Sammy cites no authority supporting the conclusion that this type of fee provision is unfair. To the contrary, the Washington cases addressing the issue found provisions that did not guarantee that the prevailing party could later recover its costs and fees to be potentially problematic.
See Zuver, 153 Wn.2d at 312; Adler, 153 Wn.2d at 355.
The Statute of Limitations Provision
The agreement provides that Sammy must deliver written notice of any arbitration proceeding within 30 days and commence arbitration within 90 days.
We also decline to address this issue, which is moot. First, the State Law Addendum to the agreement states that the statute of limitations will not be enforced if it conflicts with rights under FIPA. Second, the trial judge granting the order to compel arbitration specifically stated that OpenWorks could not assert a statute of limitations defense.
The English Language Provision
Sammy challenges the agreement provision requiring the individual franchisee or its manager to be fluent in English.
We do not address this issue under Buckeye because it is not a challenge to the enforceability of the arbitration clause, which is severable from the remainder of the agreement as a matter of substantive federal law. Further, it is not ripe for review because OpenWorks never attempted to enforce it against Sammy.
The Termination Provisions
Sammy argues that OpenWorks has a unilateral right to terminate the agreement if it determines that it is substantively unconscionable.
Pursuant to Buckeye, we do not address this issue because it is irrelevant to the validity of the arbitration clause, which is severable from the remainder of the agreement as a matter of substantive federal law.
SEVERANCE
Sammy finally argues that the provisions that it challenges are not severable from the franchise agreement despite the severability clause in the document. We disagree.
In Washington, severability of contract provisions depends largely on the contract's terms and on the intention of the parties. ButBuckeye prevents state courts from invalidating arbitration agreements based on a lack of severability of other unconscionable provisions. Buckeye requires us to give effect to the parties' agreement to arbitrate disputes unless the arbitration clause itself is unconscionable.
Adler, 153 Wn.2d at 359.
Buckeye, 546 U.S. at 445-46.
Here, the parties agreed when they signed the franchise agreement that a court could sever provisions of the agreement that might be determined to be unenforceable:
Severability. Each provision of this Agreement will be considered severable. If, for any reason, any provision is determined to be invalid or in conflict with any existing or future law or regulation, that provision will not impair the operation of the remaining provisions of this Agreement. The invalid provisions will be deemed not to be a part of this Agreement. . . .
Clerk's Papers at 132.
We note that the trial court in this case ruled in a manner consistent with the agreement of the parties by, in effect, severing several provisions that Sammy challenged below. The court ordered arbitration without permitting enforcement of these provisions. OpenWorks has not cross-appealed the trial court's decision in this respect, and Sammy does not challenge this aspect of the trial court's decision.
We have assumed without deciding that the unilateral provision in section 11.8 permitting OpenWorks limited judicial relief while claims are arbitrated is substantively unconscionable. But we also conclude that if the provision is unconscionable, it is also severable.
In Zuver, the supreme court severed two unconscionable provisions — a confidentiality provision and a provision limiting remedies — from the agreement to arbitrate. Likewise, in Adler, the court severed two unconscionable provisions (limiting attorney fees and statute of limitations) and enforced "the primary thrust of their agreement," the agreement to arbitrate all claims. Here also, we can easily sever the one provision that may be substantively unconscionable and enforce the parties' general agreement to arbitrate all claims.
To summarize, Sammy has failed to establish that the agreement to arbitrate is procedurally unconscionable. Assuming without deciding that the unilateral right to relief in the arbitration provision is substantively unconscionable, it is severable. We emphasize that we express no opinion on the validity or enforceability of any of the arbitration provisions in the agreement other than those argued in this case and discussed in this opinion.
We affirm the arbitration order and judgment.
WE CONCUR: