Nagrampa v. Mailcoups, Inc

469 F.3d 1257 (9th Cir. 2006)

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Nature of the Case

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Facts

Nagrampa (P) received an offering circular from Mail-Coups (D). P entered into an agreement with D to establish and operate a direct mail coupon advertising franchise. The franchise agreement contains a provision requiring the parties to arbitrate any dispute that arises out of or relates to the franchise agreement. The arbitration provision further provides: This clause shall not be construed to limit D's right to obtain any provisional remedy, including, without limitation, injunctive relief from any court of competent jurisdiction, as may be necessary in D’s sole subjective judgment, to protect its Service Marks and proprietary information. After two years of unprofitable operation, P unilaterally terminated the franchise agreement. D initiated arbitration proceedings by filing a Demand for Arbitration claiming that at the time P terminated the agreement, she owed D in excess of $80,000 in fees. P, in turn, charged that rather than making a forty-one percent profit per year, as D had promised, she incurred over $180,000 in personal debt and had to pay over $400,000 in various fees to D. P's attorney objected to the arbitration proceeding. P filed this action against D in the Superior Court of the State of California, Contra Costa County. P's fifth and sixth causes of action specifically challenge the validity and enforceability of the arbitration provision. Invoking jurisdiction on the basis of diversity of citizenship, D removed this action to the United States District Court for the Northern District of California. D then filed a motion to compel arbitration and dismiss or stay P's action. Misapplying California law, the district court glossed over the question of whether the arbitration provision is procedurally unconscionable and concluded that procedural unconscionability was not a 'dispositive' issue for the motion to compel. P timely appealed. A three-judge panel of our court affirmed the district court on grounds different from those upon which the district court relied. The court now addressed en banc the validity and enforceability of the arbitration provision in P's franchise agreement.