Thursday, September 29, 2005
Is the claim that an arbitration agreement is unconscionable one to be decided by judges or by arbitrators? That’s the issue in a closely watched case in the Ninth Circuit, where an en banc panel of judges on Tuesday heard oral arguments on the matter.
The case, Nagrampa v. MailCoups, Inc., involved a franchisee-franchisor dispute. Plaintiff held a MailCoups franchise in California. The franchise agreement required that all disputes be arbitrated under American Arbitration Association rules in Boston, Massachusetts, and provided that the two sides would split arbitration costs fifty-fifty. Arbitration was to apply to:
Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, including, without limitation, any claim that this Agreement or any portion thereof is invalid, illegal or otherwise voidable or void . . . .
Nagrampa, who claimed that she didn’t know about the arbitration agreement when she signed the form franchise contract, originally participated in the arbitration, but then filed suit claiming that the clause was unconscionable. A three-judge panel of the Ninth Circuit held that the question of unconscionability was one for the arbitrators to decide, not the judge.