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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