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16 Franchise L.J. 1 (1996-1997)

handle is hein.journals/fchlj16 and id is 1 raw text is: FRANiCHISE LAw JOURNAL AMERICAN BAR ASSOCIATION QUARTERLY JOURNAL OF THE FORUM ON FRANCHISING VOLUME 16, NUMBER I - SUMMER 1996 FRANCHISE AGREEMENTS: Contracts of Adhesion? By JAMES V. JORDAN AND JUDITH B. GITTERMAN I. Adhesion Contracts Aform contract that is offered as a take-it-or- leave-it proposition is a contract of adhesion. There is no possibility of negotiation: the only alternative to complete adherence is outright rejection.' Franchisors are frequently faced with a fran- chisee's argument that a provision of a franchise agreement should James V. Jordan not be enforced because the agree- ment is a contract of adhesion. Often, a franchisee will claim that the franchisor's greater sophistication resulted in a one-sided agreement, offered to the franchisee on a take-it-or-leave-it basis. When a fran- chisee claims that a contract provision is unenforceable, courts then must determine: (1) whether the franchise agree- ment is an adhesion contract, and, if so, (2) whether the agree- ment, or selected provisions, should be enforced.2 A finding that a franchise agreement is an adhesion contract is not dis- positive of the question of its enforceability. Many courts have held that adhesion contracts are enforceable, absent an additional finding of unfairness or unconscionability. However, when a court does find a contract of adhesion, the resulting judicial intervention may be far-reaching. For example, in Graham Oil Co. v. ARCO Products Co,' the Ninth Circuit recently held that, under the Petroleum Market- ing Practices Act (PMPA), the arbitration clause of a dealer's agreement was unenforceable. The Ninth Circuit concluded that the clause's provisions, including a mutual waiver of exemplary damages, an agreement that each side would bear its own attorneys' fees, and a six month statute of limitations, were at variance with protections available under the PMPA.4 As a result, rather than holding that the offending provi- sions were unenforceable, the court struck the entire arbitra- tion clause: Mr. Jordan and Ms. Gitterman are partners at Solish, Jordan, Arbiter & Wiener, Los Angeles, California. Our decision to strike the entire clause rests in part upon the fact that the offensive provisions clearly rep- resent an attempt by ARCO to achieve through arbitration what Congress has expressly forbidden. Congress enacted the PMPA pre- cisely to prevent the type of agree- ment that ARCO included in the arbitration clause of its franchise contract.5 The court held: Judith B. Gitterman If franchisees could be compelled to surrender their statutorily-mandated protections as a condition of obtaining franchise agreements, then franchisors could use their superior bargaining power to deprive franchisees of the PMPA's protections. In effect, the franchisors could simply continue their earlier practice of presenting prospec- (continued on page 15) L,

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