The opinion of the court was delivered by: VIRGINIA A. Phillips U.S. District Judge
[Motion filed on August 18, 2008]
ORDER GRANTING IN PART AND DENYING IN PART APPLICATION TO COMPEL ARBITRATION
Plaintiffs IJL Dominicana, S.A. and Rita Paiewonsky ("Plaintiffs") named It's Just Lunch International, LLC, Daniel Dolan, and Irene LaCota (collectively "IJL") in a Complaint filed August 18, 2008.
IJL filed an Application to Compel Arbitration ("Appl."); Plaintiffs' Opposition ("Opp'n") thereto, and IJL's Reply were filed timely and the Court heard the matter on January 26, 2009. After reviewing and considering all papers filed in support of, and in opposition to, the Application, as well as the arguments advanced by counsel at the hearing, the Court GRANTS IN PART and DENIES IN PART the Application, severing unconscionable portions but compelling arbitration.
I. THE ARBITRATION PROVISION
The Franchise Agreement signed by Plaintiffs and IJL contain what will be referred to as the "arbitration provision" under the heading "GOVERNING LAW, CONSENT TO JURISDICTION AND ARBITRATION":
This Agreement shall be interpreted under the laws of the state of Nevada, U.S.A. and any dispute between the parties, whether arising under this Agreement or from any other aspect of the parties' relationship, shall be governed by and determined in accordance with the substantive laws of the State of Nevada, U.S.A., which laws shall prevail in the event of any conflict of law. Any and all disputes arising out of this Agreement and the transactions contemplated herein between FRANCHISEE and IJL or IJL's affiliates shall be submitted for binding arbitration to be administered by the American Arbitration Association (the "AAA"). Such arbitration proceeding shall be conducted in English by a single arbitrator selected by the AAA, at a location to be determined by the arbitrator within twenty (20) miles of IJL's then current principal place of business, according to the international arbitration rules of the AAA and governed by the substantive laws of the State of Nevada, U.S.A., except for issues concerning the arbitration or arbitrability which shall be governed by the United States Federal Arbitration Act. The parties further agree that arbitration shall be conducted on an individual, not a class-wide, basis and that none of the parties hereto shall be entitled to consolidation of arbitration proceedings involving such parties with those of any third party, nor shall the arbitrator or any court be empowered to order such consolidation. In connection with such arbitration, the parties waive to the fullest extent permitted by law, any right to or claim for any punitive or exemplary damages against the other and agree that each party shall be limited to the recovery of any actual damages sustained by it. (Lagarias Decl., Ex. 1 to Ex. N. 34-35.)
Under the Federal Arbitration Act ("FAA"), "upon being satisfied that the making of the agreement for arbitration . . . is not in issue the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4. The district court must determine (1) whether a valid, enforceable arbitration agreement exists and (2) whether the claims asserted in the complaint are within the scope of the arbitration agreement. Id..; Howard Elec. & Mech. Co., Inc. v. Frank Briscoe Co., Inc., 754 F.2d 847, 849 (9th Cir. 1985); Chiron Corp. v. Ortho Diagnostic System, Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)("The court's role under the Act is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.")
The FAA requires that "[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Through the FAA, Congress created a liberal federal policy favoring arbitration agreements. Perry v. Thomas, 482 U.S. 483, 489 (1987), quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983).
"[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. . ." Moses, 460 U.S. at 24-25. "The standard for demonstrating arbitrability is not high. . . . Such [arbitration] agreements are to be rigorously enforced." Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999). [Citations omitted.]
Plaintiffs seek to avoid arbitration on the basis that the arbitration clause, in whole or in part, is unconscionable. If the Court finds unconscionability, it may either invalidate the arbitration clause as a ...