# Appendix — Southland Corp. v. Superior Court of the County of Alameda > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1649%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1988 - **Citation:** 486 U.S. 1056 ## Text BF. 746 © IN THE Supreme Court of the United States OCTOBER TERM, 1987 THE SOUTHLAND CORPORATION, RAY BERRY, TAL COLSON, KEITH JENKINS, ROBERT DUNCAN, JOHN P. THOMPSON, JERE W. THOMPSON, WAITON GRAYSON III, JOSEPH S. HARDIN, R G SMITH, EUGENE PENDER, S.R. DOLE, and TERRY DE Barb, ae m etitioners, RICHARD D. and DARLA J. KEATING, MICHAEL M. and GLORIA G. Coy, and HARRY BATTERSBY on behalf of themselves and all other persons similarly situated, Respondents. APPENDIX TO PETITION FOR WRIT OF CERTIORARI TO THE SUPERIOR COURT OF THE COUNTY OF ALAMEDA, CALIFORNIA PETER K. BLEAKLEY MARK J. SPOONER * ROBERT N. WEINER SHELLEY R. SLADE ARNOLD & PORTER 1200 New Hampshire Ave., N.W. Washington, D.C. 20036 (202) 872-6700 CHARLES G. MILLER BARTKO, WELSH, TARRANT & MILLER One Maritime Bldg., Ste. 1440 San Francisco, CA 94111 (415) 956-1900 Attorneys for Petitioners The Southland Corporation, et al. April 1988 * Counsel of Record WILSON - Eres Printing Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 APPENDIX TABLE OF CONTENTS Page . Market Franchise Cases, Judicial Council Coordi- nation Proceeding No. 387 (California Superior Court, County of Alameda, June 26, 1987) Order Se TES OE TI whine ice la . Keating, et al. v. The Southland Corp., et al., Ju- dicial Council Coordination Proceeding No. 387, Docket No. A039472 (California Court of Appeal, First Appellate District, December 16, 1987) Order PI PI iii cc hc ccancniannctankeuakdendeenasinaiexarmerbaaviees 16a The Southland Corp., et al. v. Superior Court, Ju- dicial Council Coordination Proceeding No. 387, Docket No. A039337 (California Court of Appeal, First Appellate District, December 16, 1987) Order Denying Petition for Writ of Mandamus or Prohibi- =P Ra IRR ce resp Re y= MORIA AU Ad AER or OE an Cp CRO 17a The Southland Corp., et al. v. Superior Court, Ju- dicial Council Coordination Proceeding No. 387, Docket Nos. A039337, S003635 (California Supreme Court December 30, 1987) Order granting Applica- I I ar aes gedeenanasckblisschionns 18a The Southland Corp., et al. v. Superior Court, Ju- dicial Council Coordination Proceeding No. 387, Docket Nos. A039337, S003635 (California Supreme Court February 25, 1988) Order denying Petition AMER Cd ey UN ee MA eC UNCR a 19a . Market Franchise Cases, Judicial Council Coordina- tion Proceeding No. 387 (California Superior Court, County of Alameda, March 29, 1988) Order granting Motion for Stay (until April 20, 1988) ...... 20a Keating v. Superior Court, 31 Cal. 3d 584, 183 Cal. Rptr. 360, 645 P.2d 1192 (1962).................................. 24a . Southland Corp. v. Keating, 465 U.S. 1 (1984).......... 75a la SUPERIOR COURT OF CALIFORNIA COUNTY OF ALAMEDA Judicial Council Coordination Proceeding No. 387 Coordination Proceeding Special Title (Rule 1550 (b) ) MARKET FRANCHISE CASES [Filed June 26, 1987] ORDER RE MOTION FOR CLASS CERTIFICATION The motion of Michael M. Coy and Gloria G. Coy, Harry Battersby, and Richard D. Keating and Darla J. Keating (‘‘the class representatives”), for class certifica- tion having duly come on for hearing before this court on September 22, 1986, John F. Wells and Lise A. Pearl- man of the law firm of Stark, Stewart, Wells & Robinson appearing on behalf of the franchisees, Peter Bleakley, Mark J. Spooner and Shelley Slade of the law firm of Arnold & Porter and Charles G. Miller of the law firm of Bartko, Welsh, Tarrant & Miller appearing on behalf of The Southland Corporation, et al. The court having considered the arguments of counsel and all the papers and briefs filed by the parties, and good cause appearing therefor, 2a IT IS HEREBY ORDERED that: 1. The class representatives’ motion for class certifi- cation is granted as to the class described and all claims set forth in the amended and supplemental complaints filed herein on April 18, 1986, except for the claims with respect to misrepresentation of the average earnings of 7-Eleven franchises contained in Counts Four, Five and Six of each of the amended and supplemental complaints. 2. Southland shall have ten (10) days from the date of this order to so notify this court if it wishes to with- draw its motion to compel arbitration and proceed with a class action in this court. 8 Southland shall identify class members and their last known addresses from its records at its expense and provide a list of the same to counsel for the franchisees within thirty (30) days of this order. If Southland does not withdraw its motion to compel arbitration, as pro- vided above, counsel for the class within 30 days of re- ceipt of the list shall mail notice by first class mail, post- age prepaid, in the attached form to all members of the class identified by Southland. The notice shall be modi- fied to include the name(s) of the arbitrator (s) selected by the parties as required in paragraph 7 below and a brief description of the arbitrator (s)’ background and qualifications. The notice shall be printed and shall be given to Southland’s counsel for comments at least ten (10) days prior to the proposed mailing. The notice shall be sent on the court’s stationery and in the court’s enve- lopes. Class members shall be given a period of sixty (60) days after the mailing of notice to opt out of the class arbitration proceedings. If Southland withdraws its motion to compel arbitration, the attached form shall be modified to refiect the change of forum and with such modification, class notice shall proceed as otherwise set forth herein. 8a 4. Within fifteen (15) days after mailing of notice to the class, counsel for the class shall file with the court the mailing list of all persons to whom the class notice was sent. The clerk of this court will make available to counsel for plaintiffs any notices that are returned un- delivered by the post office. Counsel for plaintiffs will provide defendants with a list of any such returned no- tices at which point the court will consider the necessity and any proposals for substituted notice and/or an ex- tension of the period of time for opting out of the class. 5. Until the expiration of the period of time for class members to opt out of the class, Southland, its agents, employees, and counsel, and the named plaintiffs and their counsel, shall not discuss this case with members of the class, or attempt to influence any current or former 7- Eleven franchisee to opt out of the class, to join the class, or to become a named plaintiff in this dispute. South- land, its agents and employees are also prohibited from taking any action at any time to punish any franchisees for joining the class. The court’s order does not affect Southland’s right to communicate with franchisees in the ordinary course of business unrelated to class claims. lt also does not affect the right of plaintiffs’ attorney to communicate with any franchisee or the attorney for any franchisee, who has, on his or her own initiative, consulted with plaintiffs’ attorney. After the expiration of the time for opting out, the above prohibition will remain in effect against Southland, its agents, employees, and counsel during the pendency of these proceedings. No prohibition will apply to plain- tiffs’ counsel with respect to communications with the class after expiration of the time for opting out. 6. Within thirty (30) days of this order, provided Southland elects to remain in arbitration, the parties shall select one or more arbitrators to arbitrate the claims 4a certified for class arbitration. Following class notifica- tion and an opportunity to opt out of the class, classwide arbitration shall thereafter commence in accordance with the decision of the California Supreme Court and the United States Supreme Court in this case, this order, the accompanying Statement of Decision and the terms of the parties’ arbitration agreement. If Southland elects to withdraw its motion to compel arbitration, the class ac- tion shall proceed in this court. 7. As previously included in the Order of J udge Kron- inger filed July 31, 1978, if the action proceeds in arbi- tration, Southland and the other defendants shall either abstain from the use of any discovery that they have had in any of the actions, or stipulate to discovery of at least an equally extensive nature by the franchisees. 8. Arbitration of the coordinated Gouveia, Sampson, Newell, Cheng and Mount cases is stayed pending the expiration of the time for class members to opt out of the class. 9. A stenographic record shall be made of all class proceedings before the arbitrator(s) as provided for in Section 22 of the American Arbitration Association Rules. The court reserves jurisdiction to amend, rescind or modify this order; to consider approval of any settlement proposal; to supervise notices to the class; and to con- sider any application for attorneys’ fees and the award of costs out of any recovery that may be obtained for the class. Dated: June 26, 1987 /s/ Raymond L. Marsh Judge of the Superior Court 5a SUPERIOR COURT OF CALIFORNIA COUNTY OF ALAMEDA Judicial Council Coordination Proceeding No. 387 Coordination Proceeding Special Title (Rule 1550 (b) ) MARKET FRANCHISE CASES [Filed June 26, 1987] STATEMENT OF DECISION This statement of decision follows the order of this court dated November 10, 1986, granting plaintiffs’ mo- tion to certify for classwide arbitration the causes of action of the amended and supplemental complaints filed by Harry Battersby, Richard and Darla Keating and Michael and Gloria G. Coy on April 18, 1986. This case comes before this court on remand from the California Supreme Court to consider whether classwide arbitration proceedings are appropriate in accordance with the guidelines set forth in the opinion of thatecourt in Keating v. Superior Court (1982) 31 Cal.3d 584. This court has determined that such proceedings are appro- priate and in the interests of justice. Southland has argued to this court that the permis- sibility of class arbitration is governed by the Federal Arbitration Act. The court declines to consider this ar- gument because the doctrines of invited error and law of the case preclude Southland from raising such argu- 6a ment at this point in these proceedings. This court has therefore determined the propriety of class arbitration under state law. TRADITIONAL CONSIDERATIONS APPLICABLE TO ALL CLASS ACTIONS In deciding a motion for class certification under Code of Civil Procedure section 382, the California Supreme Court has directed the trial courts of this state to look to Civil Code section 1781 (consumer class actions) and Rule 23 of the Federal Rules of Civil Procedure, for guidance. (Richmond v. Dart Industries (1981) 29 Cal.3d 462 at 469, 470 n.7 [174 Cal.Rptr. 515, 629 P.2d 23]; San Jose v. Superior Court (1974) 12 Cal.3d 447, 453 [115 Cal.Rptr. 797, 525 P.2d 701].) Civil Code section 1781 provides: “(b) The court shall permit the suit to be main- tained on behalf of all members of the represented class if all of the following conditions exist: (1) It is impracticable to bring all members of the class before the court. (2) The questions of law or fact common to the class are substantially similar and predominate over the questions affecting the individual members. (3) The claims or defenses of the representative plaintiffs are typical of the claims or defenses of the class. (4) The representative plaintiffs will fairly and adequately protect the interests of the class.” Pursuant to the directive of the California Supreme Court on remand, this court makes the following deter- minations with respect to class certification: 1. The class defined by each of the franchisees’ claims is sufficiently numerous that it is impracticable to bring Ta all members of the class before the court in one proceed- ing. (Vasquez v. Superior Court (1971) 4 Cal.3d 800.) 2. The class representatives’ claims are typical of the claims of the class members; the class representatives will fairly and adequately protect and represent the in- terests of the class on each of the claims; the attorneys are qualified, experienced, and generally able to conduct the proposed class proceedings; the named plaintiffs are not involved in a collusive suit nor do they have interests antagonistic to those of the remainder of the class. (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462; LaSala v. American Savings & Loan Association (1971) 5 Cal.3d 864, 871.) 3. On the class claims for breach of contract and breach of fiduciary duty for alleged systematic interest overcharges, the class consists of all persons who owned California franchises at any time from and after May 24, 1973. (a) On the contract claim, common issues of inter- pretation of the standardized adhesion contract and whether Southland’s accounting practices breached it predominate. There are no individual issues of liability. Evidence of individualized knowledge on the part of franchisees is irrelevant to prove the meaning of the contract because the standardized adhesion contract must be interpreted to mean what a reasonable franchisee would expect it to mean. Each form of the standardized franchise agreement will mean the same thing for each franchisee who signed it. (Gray v. Zurich Insurance Co. (1966) 55 Cal.App.2d 263, 269-71; LaSala v. American Savings & Loan Assn. (1971) 5 Cal.3d 864; McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 444-50; Keating v. Superior Court (1982) 21 Cal.3d 584.) (b) On the claim for breach of fiduciary duty, common issues, including whether a fiduciary relationship existed between the franchisees and Southland, and, if so, 8a whether Southland breached it, predominate. There are no individual issues on liability. 4. On the claims for violation of section 31300 of the Franchise Investment Law, the class consists of all per- sons who became California franchisees on or after May 24, 1973. (a) On the section 31300 claim for failure to comply with the requirements for exemption from registration set forth in Corporations Code sections 31110 and 31101, common issues of interpretation of the statutes and in- terpretation of Southland’s uniform disclosure documents predominate over any individual issues that may arise including issues in connection with affirmative defenses based upon individual franchisee’s knowledge. (Corp. Code §§ 31300, 31303.) Reliance is not an element of this claim. (b) On the section 31300 claim that Southland sold franchises in violation of section 31202, common issues as to whether Southland wilfully misrepresented or omitted material facts required t be set forth in its disclosure documents predominate over any individual issues that may arise including issues in connection with affirmative defenses based upon individual franchisee’s knowledge. (Corp. Code $§ 31300, 31303.) Reliance is not an element of this claim. 5. On the claim that Southland is liable under section 31301 of the Franchise Investment Law for selling franchises in violation of section 31201, the class con- sists of all persons who became California franchisees on or after May 24, 1975. Common issues include whether Southland made misrepresentations or om‘ssions in its uniform disclosure documents used in the sale of franchises, and the materiality of any misrepresentations or omissions. These common issues predominate over any individual issues that may arise including issues in con- nection with affirmative defenses based upon individual 9a franchisee’s knowledge (Corp. Code §§ 31301, 31304), and rebuttal evidence offered by Southland on the issue of reliance. Reliance on the part of all of the class members may be presumed upon a finding that any mis- representations or omissions in the disclosure documents were material. Individualized evidence of reliance by class members is not necessary. (Affiliated Ute Citizens v. United States (1972) 406 U.S. 154.) 6. On the fraud claim for alleged systematic interest overcharges, the class consists of all persons who became California franchisees on or after May 24, 1974. Com- mon issues include whether Southland made material misrepresentations or suppressed material facts in its uniform disclosure documents; and, if so, whether South- land acted with the requisite scienter. These issues pre- dominate over any individual issues that may arise in- cluding issues with respect to rebuttal evidence relating to individual franchisee’s reliance. Reliance on the part of all of the class members may be presumed from a finding of the materiality of any misrepresentations or omissions. Individualized evidence of reliance by class members is not necessary. (Vasquez v. Superior Court (1971) 4 Cal.3d 800.) 7. On the usury claims, the class consists of all Cali- fornia franchisees who paid interest to Southland on or after May 24, 1975. On the claim for recovery of in- terest payments in excess of the legal maximum, the common issue which predominates is whether usurious interest resulted from Southland’s accounting practices. On the claim based upon the compounding of interest, the common issues which predominate are whether South- land compounded interest and, if so, whether such prac- tice was clearly disclosed in writing. The effective rate of interest for each franchisee will have to be calculated on an individual basis. 8. On the claims for breach of contract and breach of fiduciary duty for systematic inventory overcharges, the 10a class consists of all persons who owned California fran- chises at any time from May 24, 1973, through December 31, 1978. (a) On the contract claim, common issues of the in- terpretation of the standardized franchise agreement and whether Southland breached it by charging more than its average cost for franchisees’ initial inventory and in- ventory shortages predominate. There are no individual issues of liability. Evidence of individualized knowledge _on the part of franchisees is irrelevant to prove the meaning of the contract because the standardized ad- hesion contract must be interpreted to mean what a reasonable franchisee would expect it to mean. Each form of the standardized franchise agreement will mean the same thing for each franchisee who signed it. (Gray v. Zurich Insurance Co. (1966) 55 Cal.App.2d 263, 269- 71; LaSala v. American Savings & Loan Assn. (1971) 5 Cal.8d 864; McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 444-50; Keating v. Superior Court (1982) 21 Cal.3d 584.) (b) On the breach of fiduciary duty claim, common issues which predominate include whether a fiduciary relationship exists between Southland and the franchisees, and, if so, whether Southland violated such fiduciary duty. There are no individual issues on liability. 9. On the claims for alleged violation of section 31300 due to inventory overcharges, the class consists of all persons who became California franchisees between May 24, 1973, and December 31, 1978, inclusive. (a) On the claim for failure to comply with require- ments for exemption from registration, common issues which predominate include the interpretation of the stat- utory requirements for exemption and whether South- land’s uniform disclosure documents complied with the ear: statutory requirements. The common issues predominate over any individual issues that may arise including issues lla in connection with affirmative defenses based upon in- dividual franchisee’s knowledge. Reliance is not an element of this claim. (b) On the section 31300 claim for the alleged sale of franchises in violation of section 31202, common is- sues of the interpretation of the section 31100 disclosure requirements and whether Southland’s uniform disclosure documents misrepresented or omitted material facts re- quired to be set forth predominate over any individual issues that may arise from affirmative defenses based upon individual franchisee’s knowledge. (Corp. Code §§ 31300, 31303.) Reliance is not an element of this claim. 10. On the claim for violation of section 31301 of the Franchise Investment Law due to inventory overcharges, the class consists of all persons wno became California franchisees between May 24, 1975, and December 31, 1978, inclusive. The common issues include whether written misrepresentations or omissions were made to the class with respect to the cost of inventory, and, if so, whether such misrepresentations or omissions were material. Such common issues predominate over any individual issues that may arise including issues in con- nection with affirmative defenses based upon individual franchisee’s knowledge. (Corp. Code §§ 31301, 31304.) Reliance may be presumed from a finding of the mater- iality of any misrepresentations or omissions. Individ- ualized evidence of reliance by class members is not necessary. (Affiliated Ute Citizens v. United States, supra, 406 U.S. 154.) 11. On the franchisees’ claim for fraud based upon alleged inventory overcharges, the class is composed of all persons who became California franchisees between May 24, 1974, and December 31, 1978, inclusive. Com- mon issues include whether Southland misrepresented 12a or omitted material facts respecting the cost of inventory in its uniform disclosure documents, whether any mis- representation or omission was material, whether any misrepresentation or omission was made with the requi- site scienter. Such common issues predominate over any individual issues that may arise including issues with respect to rebuttal evidence on reliance. Reliance may be presumed from a finding of materiality. Individual- ized evidence of reliance by class members is not neces- sary. (Vasquez v. Superior Court, supra, 4 Cal.3d 800.) 12. It appears that damages on all of the class claims may be estimated by mathematical formulae applied to information derived from Southland’s records. In the event the class prevails on the breach of fiduciary duty claims, classwide relief will also be available in the form of an accounting and constructive trust. Punitive dam- ages also may be awarded to the class on the breach of fiduciary duty claims, the claims for violation of the Franchise Investment Law, and the common law fraud claims should the arbitrators determine that there is a basis therefor under Civil Code section 3294. The issues whether Southland acted with fraud, malice or oppression present common issues for the class. 13. It appears that a significant number of class members executed releases upon termination of their franchise relationship with Southland. Southland raises such releases as a defense to all of the class claims as- serted on behalf of those persons who have executed releases. Common issues predominate on this defense. Such common issues are whether the language of the release form includes the claims made on behalf of the class; whether the releases were procured by contin- uing classwide misrepresentations and/or concealment; whether the releases are invalid under Civil Code section 1542; whether the releases are invalid under the anti- waiver provisions of the Franchise Investment Law; and 13a whether releases signed after the first of these class actions was filed on May 24, 1977, should be invalidated because they constitute opt-outs or settlements made without court supervision and without sufficient safe- guards to protect the class members’ rights. Plaintiffs suggest that the issue whether releases constitute im- proper opt-outs should be resolved by the court rather than the arbitrators, since it is the court’s responsibility to supervise class notice and opt-out procedures. The court has decided to have this issue ascertained by the arbitrators, however, in order to minimize judicial in- trusion upon issues affecting the merits of the dispute. SPECIAL CONSIDERATIONS APPLICABLE TO CLASSWIDE ARBITRATION In addition to the traditional considerations involved in deciding whether to certify a class, the California Su- preme Court has directed this court to consider the spe- cial characteristics of arbitration including the impact upon an arbitration of whatever court supervision might be required, and the availability of consolidation as an alternative means of assuring fairness. (Keating v. Su- perior Court (1982) 31 Cal.3d 584, 613.) In accordance therewith this court makes the following additional de- terminations: 14. Classwide arbitration in this case will be manage- able. The court notes that the franchise contract calls for arbitration in accordance with the rules of the American Arbitration Association. Section 22 of those rules provides for a stenographie record of arbitration proceedings. The maintenance of such a record is appro- priate in this case. It would not unduly complicate the proceedings, and would allow the court to safeguard the rights of absent class members to adequate representa- tion. Should any questions regarding the adequacy of representation arise during the course of the arbitration, 14a the parties may bring the transcript before this court for its review. 15. No judicial intrusion upon the conduct of the pro- ceedings themselves seems necessary. It will be the pro- vince of the arbitrators to determine the merits of the dispute and to refer to this court only matters which relate to class certification. The court will have continu- ing jurisdiction to amend, modify or rescind this order, to supervise notices to the class, determine approval of any settlement, and, in the event of any recovery for the class, to rule on any request for an award of attorneys’ fees and costs out of the recovery. The impact of this role upon the arbitration proceeding itself appears minimal. 16. The court has considered consolidation as an al- ternative to ¢'.ss arbitration, and has determined that class certification would provide a better, more efficient and fairer solution to the controversy. The alterative to a class arbitration—requiring hundreds of individual franchisees each to litigate with Southland in a sepa- rate arbitration—would be entirely impractical. Due to the relatively small size of the claims being made, in- dividual arbitration of such claims appears economically unfeasible for most class members. Refusal to certify a class would result in gross unfairness because it would effectively deny opportunity for relief to the vast ma- jority of class members, a class proceeding being their only practical recourse. 17. Class arbitration will not prejudice the legitimate interests of Southland. If it committed classwide wrongs, it should be held accountable. If it did not, it will be ex- onerated in one proceeding binding all class members. Moreover, if Southland considers that the arbitral forum somehow handicaps it from presenting a proper defense, it has the option of returning the entire action to court. (Keating v. Superior Court (1982) 31 Cal.3d 584, 614.) This is adequate protection for its legitimate interests. 15a 18. Southland is a large corporation of vastly superior bargaining strength to that of class members, a portion of whom are current franchisees. There is a danger that potential class members may choose to opt out of the class because of fear of adverse consequences in their on- going relationship with Southland. The court, therefore, will order that Southland is prohibited from discussing this case or any of the class claims with any class mem- ber, from attempting to influence any class member to opt out of the class, or from taking any action to punish a class member for choosing not to opt out. Southland will not be prohibited from communicating with class members in the ordinary course of business unrelated to the class claims. (Cf. Kleiner v. First National Bank of Atlanta (11th Cir. 1985) 751 F.2d 1193.) Based on the papers on file and the arguments of coun- sel, and for the foregoing reasons, the court has deter- mined that class certification is in the interests of justice and has directed the franchisees’ counsel to prepare a proposed form of notice to the class for this court’s ap- proval. The cost of providing the names and last known addresses of class members to counsel for the class shall be borne by Southland; the cost of mailing notice shall be borne by the class. (Civil Service Employees Ins. Co. v. Superior Court (1978) 22 Cal.3d 362, 378, n.9; 4 Witkin, Cal. Procedure (3d Ed. 1985) Pleading § 228, p. 227.) Dated: June 26, 1987 - /s/ Raymond L. Marsh Judge of the Superior Court 16a IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOR THE FIRST APPELLATE DISTRICT DIVISION THREE A039472 RICHARD D. KEATING, et al., Plaintiffs and Respondents, VS. THE SOUTHLAND CORPORATION, et al., Defendants and Appellants. Judicial Council Coordination Proceeding No. 387 BY THE COURT: Respondents’ motion to dismiss appeal is granted. (White, P.J., Barry-Deal, J. and Merrill, J. participated in the decision). . Dated Dec. 16, 1987 /s/ White PJ. 17a IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOR THE FIRST APPELLATE DISTRICT DIVISION THREE A039337 THE SOUTHLAND CORPORATION, et al., Petitioner, Vs. THE SUPERIOR COURT FOR THE COUNTY OF ALAMEDA, Respondent ; RICHARD D. KEATING, et al., Real Party in Interest. Judicial Counci! Coordination Proceeding No. 387 BY THE COURT: Petition for writ of mandate and/or prohibition is de- nied. (White, P.J., Barry-Deal, J. and Merrill, J. partici- pated in the decision). Dated Dec. 16, 1987 /s/ White Pia. 18a IN THE SUPREME COURT : OF THE STATE OF CALIFORNIA IN BANK No. 1/3 A039337, S003635 THE SOUTHLAND CORPORATION et al., Petitioners, V. SUPERIOR COURT OF THE COUNTY OF ALAMEDA, Respondent ; KEATING et al., Real Parties in Interest. [Filed Dec. 30, 1987] Pending final determination of the petition for review filed herein, all proceedings in the Superior Court, County of Alameda, in Judicial Council Coordination Pro- ceeding No. 387, entitled Richard D. Keating et al. v. The Southland Corporation et al., are hereby stayed. /3/ Chief Justice 19a IN THE SUPREME COURT OF THE STATE OF CALIFORNIA IN BANK ist District, Division 3, No. A039337, S003635 THE SOUTHLAND Corr? et al., Petitioners, V. SUPERIOR COURT OF THE COUNTY OF ALAMEDA, Respondent; KEATING et al., Real Parties in Interest. [Filed Feb. 25, 1988] ORDER DENYING REVIEW AFTER JUDGMENT BY THE COURT OF APPEAL Petitioners’ petition for review DENIED. /g/ Chief Justice 20a SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF ALAMEDA DEPT. 20 Date: March 29, 1988 Sara Dalleske, Deputy Clerk HON. RAYMOND MARSH, Judge Lolita Moore, Reporter Coordination Proceeding Special Title (Rule 1550(b) ) Judicial Council Coordination Proceeding No. 387 MARKET FRANCHISE CASES Coordinated Actions: Napa Superior Court No. 37402 (now Ala. 505159-9) KEATING V. SOUTHLAND CORPORATION Santa Clara Superior Court No. 361-187 (now Ala. 505161-4) SAMPSON V. SOUTHLAND CORPORATION Santa Clara Superior Court No. 366-559 (now Ala. 505164-1) NEWELL V. SOUTHLAND CORPORATION Santa Clara Superior Court No. 364-650 (now Ala. 505162-3) CHENG V. SOUTHLAND CORPORATION 21a Alameda Superior Court No. 469216-2 GOUVEIA V. SOUTHLAND CORPORATION Alameda Superior Court No. 473-115-3 SOUTHLAND CORPORATION V. GOUVEIA Alameda Superior Court No. 506120-6 Coy v. THE SOUTHLAND CORPORATION Los Angeles Superior Court No. 0235779 THE SOUTHLAND CORPORATION V. SCOVIS Santa Clara Superior Court No. 390-13 BATTERSBY V. THE SOUTHLAND CORPORATION DEFENDANT SOUTHLAND’S MOTION FOR STAY PENDING U.S. SUPREME COURT REVIEW Avpearing for plaintiff’s Lise Pearlman, Esq., and David Schuricht, Esq. Appearing for defendant Southland Charles G. Miller, Esq. The above entitled action comes regularly on calendar for hearing. The Court entertains argument. The matter is submitted. The Court orders motion for stay granted for thirty (30) days from March 21, 1988. whl Parties on the attached mailing list are so notified on March 30, 1988. by /s/ Sara Dalleske Deputy Clerk 22a MAILING LIST Judicial Council Coordination Proceeding No. 387: MARKET FRANCHISE CASES John F. Wells, Esq. STARK, WELLS, RAHL, FIELD, & SCHWARTZ Lake Merritt Plaza 1999 Harrison Street, Ste. 1300 Oakland, CA 94612 Lise A. Pearlman, Esq. MILLER, STAR & REGALIA One Kaiser Plaza, Suite 1600 Oakland, CA 94612 Charles G. Miller, Esq. BARTKO, WELSH, TARRANT & MILLER One Maritime Plaza, Suite 1440 San Francisco, CA 94111 Mark J. Spooner, Esq. ARNOLD & PORTER 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 Chairperson, Judicial Council of California Administrative Office of the Court Attn: Coordination Attorney 350 McAllister Street, Room 3154 San Francisco, CA 94102 René C. Davidson, County Clerk Alameda County 1225 Fallon Street Oakland, CA 94612 Grace K. Kamakawa, County Clerk and Executive Officer Santa Clara County 191 First Street San Jose, CA 951123 Frank S. Zolin, Executive Officer and County Clerk Los Angeles County P.O. Box 151 Los Angeles, CA 90053 Janice F. Norton, County Clerk, Napa County P.O. Box 880 Napa, CA 94550 23a SUPERIOR COURT OF CALIFORNIA COUNTY OF ALAMEDA Judicial Council Coordination Proceeding No. 387 Coordination Proceeding Special Title (Rule 1550(b) ) MARKET FRANCHISE CASES [Filed Mar. 29, 1988] ORDER GRANTING DEFENDANTS’ MOTION FOR A STAY PENDING U.S. SUPREME COURT REVIEW Upon motion of The Southland Corporation and sev- eral of its officers, directors and employees, defendants in the above-entitled cause (hereinafter collectively referred to as “Southland’’) for a stay of enforcement of the June 26, 1987 Order of this Court (“the Order’) to enable Southland to apply for and obtain a writ of certiorari from the Supreme Court of the United States, and good cause therefor being shown, IT IS ORDERED that the enforcement of the June 26, 1987 Order be, and it hereby is, stayed for a period of 30 days, commencing on March 21, 1988. Dated: 3/29/88 /s/ Raymond L. Marsh Judge of the Superior Court 24a SUPREME COURT OF CALIFORNIA IN BANK S.F. 24242 RICHARD D. KEATING, et ai., ms Petitioners, THE SUPERIOR COURT OF ALAMEDA COUNTY, Respondent. SOUTHLAND CORPORATION et al., Real Parties in Interest. EpWARD J. GouveEIA et al., Plaintiffs and Respondents, Y. SOUTHLAND CORPORATION et al., i Defendants and Appellants. {And 7 other cases. ]* June 10, 1982 *Cheng v. Southland Corporation (Super.Ct. No. 505162-3) ; Newell v. Southland Corporation (Super.Ct. No. 505164-1) ; Samp- son v. Southland Corporation (Super.Ct. No. 505161-4) ; Battersby ». Southland Corporation (Super.Ct. No. 390132) ; Keating v. South- land Corporation (Super.Ct. No. 505159-9) ; Coy v. Southland Cor- poration (Super.Ct. No. 506120-6) ; and Scovis v. Southland Corpo- ration (Super.Ct. No. C-235779). 25a McKenna, Conner & Cuneo, McKenna & Fitting, Aaron M. Peck, Charles G. Miller, Martin H. Kresse, Susan L. Carroll, Los Angeles, Arnold & Porter, Peter K. Bleak- ley, Mark J. Spooner and Peter R. Maier, Washington, D.C., for defendants and appellants and real parties in interest. Robert M. Brown, Brown & Finney, San Francisco, Brown, Joseph & Finney, Linda R. Joseph, John F. Banker, Banker & Linderman, Tiburon, John F. Wells, Lise A. Pearlman, Fonda Karelitz, D. Barratt Irwin, Stark, Stewart & Simon & Stark, Stewart, Simon & Sparrowe, Oakland, for plaintiffs and respondents and petitioners. No appearance for respondent. GRODIN, Justice.** These coordinated cases arise out of disputes between Southland Corporation (Southland), owner and fran- chisor of 7-Eleven convenience food store operations throughout the country, and persons who are, or were, franchised operators of 7-Eleven stores ir California. The issues before us do not concern the merits of those disputes, but rather the forum and procedure for their resolution. Southland contends that the disputes should be submitted to arbitration on an individual (i.e., fran- chisee-by-franchisee) basis, pursuant to an arbitration provision contained in its agreement with each fran- chisee. The franchisees, who have sued Southland! in both individual and class actions on a variety of grounds, and who are all represented by the same law firm, con- tend alternatively that the arbitration provisions are not enforceable on adhesion grounds; that insofar as the ** Assigned by the Chairperson of the Judicial Council. 1 The suits also named certain corporate officers as defendants, but as the parties do not distinguish them with respect to the issues presented here, we shall use the term Southland to include both the corporation and its officers. —— 26a disputes involve alleged violation by Southland of the Franchise Investment Law they are not subject to arbi- tration; and that Southland has waived its right to insist upon arbitration in certain of the cases. Franchisees also contend that if there is to be arbitration it should pro- ceed on a classwide, rather than individual, basis. We will hold that the adhesive nature of the franchise con- tract is not itself a bar to enforcement of the arbitration provision, but that the trial court properly excluded claims based upon alleged violation of the Franchise In- vestment Law. We will affirm the trial court’s holding that there has been no waiver by Southland of its right to insist upon arbitration; but we will remand to the trial court for determination as to whether the interests of justice require that the order to arbitrate be condi- tioned upon Southland’s acceptance of classwide arbitra- tion. We first describe the factual and procedural back- ground relevant to analysis. Under the terms of South- land’s standard 7-Eleven franchise agreement (hereafter the agreement(s}), Southland provides each franchisee with a license to use certain nationally known and fed- erally registered trademarks, a lease or sublease of cer- tain convenience food stores owned or leased by South- land, the financing of store inventories, and advertising and merchandising assistance. The franchisees, in turn, operate the stores, supply Southland with certain book- keeping data, make bank deposits of receipts from the operation of the stores, and pay Southland a fixed per- centage of gross profits. Each of the agreements con- tains an arbitration clause providing, essentially, that ‘“‘{a]ny controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the Rules of the American Arbitration Association . . . and judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof.” —— 27a Between September 1975 and January 1977, fran- chisees Gouveia, Sampson, Cheng and Newell (and one other franchisee whose claim has since been settled) filed individual actions against Southland alleging, among other things, fraud, oral misrepresentation, breach of contract, breach of fiduciary duty, and violation of the disclosure requirements of the Franchise Investment Law (Corp. Code, § 31000 et seq.). In each of these actions except Gouveia, Southland filed an answer in which the failure to arbitrate was an affirmative defense, but it took no further steps based on that defense at the time, nor did it actively seek arbitration until after the Keat- ing action was filed. In Gouveia, Newell and Sampson it filed cross-complaints, and participated in discovery, including taking the depositions of each of the named plaintiffs. In May 1977 franchisee Keating filed a class action on behalf of an asserted class composed of approximately 800 Southland franchisees in California, alleging claims substantially similar to those being claimed by the other franchisees, and alleging also that Southland’s account- ing procedures were unfair and inaccurate. Southland promntly removed Keating to the federal district court, and filed an answer and counterclaim to the complaint. A few days later, it filed an amended answer asserting arbitrewion as a defense. When Keating was remanded to the state courts, at franchisees’ request, Southland pe- titioned to compel arbitration in all of the pending cases, but ruling on that petition was stayed pending deter- mination of a motion by the franchisees for coordina- tion of the actions. By this time, the list of actions in- cluded a class action filed by franchisee Battersby, and the parties stipulated that Battersby would be governed by the rulings in Keating. In November 1977, the motion to coordinate the var- ious actions was granted by the Judicial Council, on con- dition that franchisees file substantially amended com- 28a plaints which would demonstrate the asserted similarities among the actions. The amended complaints contain sub- stantially comparable allegations including claims of misrepresentations in connection with the sale of the fran- chises and inaccurate information about fees, discounts, and the overall performance of 7-Eleven stores. Except for the claims based on the Franchise Invest- ment Law, the trial court granted Southland’s motions to compel arbitration in each of the coordinated actions, without passing upon the franchisees’ request for class certification. Southland then appealed from the order to arbitrate insofar as it excluded claims based on the Fran- chise Investment Law, and the franchisees filed a_peti- tion for writ of mandate or prohibition seeking relief from the order to arbitrate on the various grounds stated above. We proceed to consider the issues presented in the order most convenient for discussion. Initially, we observe that since the franchise agreements were be- tween a Texas corporation and California residents, en- tailed the right to use federally registered trademarks, and contemplated a continuing business relationship be- tween the parties across state lines, they involve inter- state commerce and fall within the ambit of the Federal Arbitration Act. (9 U.S.C. §2.)- We shall, therefore, take that statute into account in passing upon the issues presented. 2 Section 2 provides: “A written provision in any maritime trans- action or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” cael 29a I. ADHESION. In his declaration in opposition to Southland’s petition to compel arbitration, Keating stated the franchise agree- ment was presented to him by Southland representatives on a take-it-or-leave-it basis, with no opportunity to bargain or to negotiate; and that other than the informa- tion set forth in the franchise agreement itself, and 2 pamphlet of the American Arbitration Association de- seribing their procedures, he was “given no verbal or written explanation of the meaning of arbitration, the concept of an arbitration proceeding, the fact that it involved [his] waiver of [his] constitutional rights to a jury trial, a loss of the right to utilize the protection of the courts in the discovery process, nor any information with respect to what arbitration would cost in a pro- cedure of this type.” He, and the other franchisees who, in effect, adopt his declaration, contend that the declara- tion raised questions of fact concerning the enforceability of the arbitration clauses which should have been resolved before arbitration was ordered. The trial court ordered arbitration notwithstanding these contentions. On this score, we find no error. We accept franchisees’ characterization of the fran- chise agreements, and hence the arbitration agreements, as contracts of adhesion, “. . . ‘a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’” (Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817, 171 Cal.Rptr. 604, 623 P.2d 165, quoting from Justice Tobriner’s decision in Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694, 10 Cal.Rptr. 781.) It is undisputed that the franchise agreements in ques- tion here are standardized in form, at least as regards the arbitration provision; and that they are drafted and imposed by defendant, a large corporation of vastly su- perior bargaining strength, upon all parties desiring a 30a 7-Eleven franchise. The California Legislature has de- termined that franchisees are in need of special protec- iton in dealing with franchisors. (Corp. Code, § 31001, see generally Corp. Code, § 31000 et seq.)* While the franchisees were financially interested in establishing a beneficial business relationship with Southland, and while that interest may not constitute a “needed service” in the sense envisaged in Madden v. Kaiser Foundation Hos- mitals (1976) 17 Cal.3d 699, 711, 131 Cal.Rptr. 882, 552 P.2d 1178, or a “service of great importance to the public” as contemplated in Tunkl v. Regents of Univer- sity of California (1963) 60 Cal.2d 92, 99, 32 Cal.Rptr. 33, 383 P.2d 441, it is now clear that those factors are not prerequisite to a finding of adhesion. (Graham v. Scissor-Tail, Inc., supra, 28 Cal.2d at pp. 818, 820, fn. 18, 171 Cal.Rptr. 604, 623 P.2d 165.) It does not follow, however, that the contracts are un- enforceable. “To describe a contract as adhesive in char- acter is not to indicate its legal effect. It is, rather, ‘the 3 Corporations Code section 31001 provides, “The Legislature hereby finds and declares that the widespread sale of franchises is a relatively new form of business which has created numerous problems both from an investment and a business point of view.... [{] It is the intent of this law to provide each prospective fran- chisee with the information neecssary to make an intelligent de- cision regarding franchises being offered. Further, it is the intent of this law . . . to protect the franchisor by providing a better understanding of the relationship between the franchisor and franchisee with regard to their business relationship.” (See Damon, Franchise Investment Law (1971) (2 Pacific L.J. 27, 27-30, 35-36.) The need for such “special protection” has been recognized in other states and by the federal government who have enacted similar legislation. (15 U.S.C. § 45(a)(1) (1964); Fla.Stat.Ann., § 817.416 (1971) and Rules Chap. 2-17 (1974); Hawaii Rev.Stat., § 482E-1 (1974); Ill.Rev.Stat., ch. 12112, § 702 (1974); Ind.Code, § 23-2-2.5- 47 (1975); Mich.Stat.Ann., §19.854(1) [M.C.L.A. § 445.1501] (1974); Minn.Stat., § 80C.01 (1973); Ore.Rev.Stat., § 650.005, rule 40-050 (1975); R.I.Gen.Laws, § 19-28-2 (1973); Va. Code, § 13.1-558 (1972) ; Wash.Rev.Code, § 19.100.010 (1972) ; and Wis.Stat., § 553.01 (1972) Admin. Code, § 31.61.) 3la beginning and not the end of the analysis insofar as en- forceability of its terms is concerned.’ [Citation.]”’ (Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d at p. 819, 171 Cal.Rptr. 604, 623 P.2d 165.) ‘Thus, a contract of adhesion is fully enforceable according to its terms [ci- tations] unless certain other factors are present which, under established legal rules—legislative or judicial— operate to render it otherwise.” (Id., at pp. 819-820, 171 Cal.Rptr. 604, 623 P.2d 165.) “Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or ‘ad- hering’ party will not be enforced against him. [Cita- tions.] The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or ‘unconscionable.’ ” (Id., at p. 820, 171 Cal.Rptr. 604, 623 P.2d 165.) Arbitration in the setting of a contract of adhesion does pose special problems, both because arbitration nec- essarily entails relinquishment of the constitutional right to trial by jury and because it is susceptible of being structured, or utilized, in such a way as to gain unfair advantage to the party with superior bargaining power. Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d 807, 171 Cal.Rptr. 604, 623 P.2d 165, in which the agreement called for arbitration by a presumptively partial tribu- nal, provides an example of that sort of unfairness (see also, Hope v. Superior Court (1981) 122 Cal.App.3d 147, 175 Cal.Rptr. 851). As we shall discuss later in this opinion, reliance upon individual arbitration agree- ments to insulate the stronger party from otherwise ap- propriate class actions may also be inequitable depending upon the circumstances. 32a In the absence of some special element of unfair ad- vantage, however, arbitration is generally considered to be a mutually advantageous process, providing for reso- lution of disputes in a presumptively less costly, more expeditious, and more private manner by an impartial person or persons typically selected by the parties them- selves. (See Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d 699, 131 Cal.Rptr. 882, 552 P.2d 1178.) For these reasons, the fact that provision for arbitration is contained in a contract of adhesion will not, of itself, render the provision unenforceable. (Graham v. Scissor- Tail, Inc., supra, 28 Cal.3d at pp. 819-820, 171 Cal.Rptr. 604, 623 P.2d 165.) Moreover, provision for arbitration in a commercial context is quite common, and reasonably to be antici- pated. Indeed, Keating’s declaration itself makes clear that he was aware of the provision, and of the American Arbitration Association pamphlet making reference to the applicable rules. In such a setting neither he nor the other franchisees are in a position to claim that the ar- bitration provision itself, or the fact that it would entail waiver of jury trial, lack of formal discovery, or certain costs, did not “fall within [their] reasonable expecta- tions.” (Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d at p. 820, 171 Cal.Rptr. 604, 623 P.2d 165.) For these reasons, we conclude that the arbitration provisions of the franchise agreement were, in general, binding and enforceable. We proceed now to consider the remaining issues. II. ARBITRABLITY OF FRANCHISE INVESTMENT LAW CLAIMS. We next consider Southland’s appeal from the trial court’s denial of its petitions to compel arbitration con- cerning certain claims made against it pursuant to the Franchise Investment Law (Corp. Code, § 31000 et seq.). These claims assert, among other things, that Southland ——7~eeeeeeeeee aaa. La 33a — systematically violated section 31202 * of the Corporations Code by willfully making untrue statements of material fact, and by willfully omitting to state material facts which are required to be stated in statements required to be disclosed under section 31101.° The trial court was apparently of the view that these claims were not sub- ject to arbitration as a matter of contract interpretation and also as a consequence of Corporations Code section 31512, part of the Franchise Investment Law, which pro- vides: “Any condition, stipulation or provision purport- ing to bind any person acquiring any franchise to waive compliance with any provision of this law or any rule or order hereunder is void.” Since we agree with the latter conclusion we find it unnecessary to consider the former. In Wilko v. Swan (1953) 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168, the United States Supreme Court inter- preted nearly identical language in section 14 of the Se- curities Act of 1933 (15 15 U.S.C. § 77n)° to permit suit by a customer against a securities brokerage firm for alleged misrepresentation in the sale of securities, not- withstanding a provision for arbitration contained in the margin agreement. The arbitration clause, the court de- cided, constituted a “stipulation,” and the right to select the judicial forum the kind of “provision” that could not be waived in advance under section 14. (346 U.S. at pp. 434-435, 74 S.Ct. at p. 186.) In arriving at this con- * Section 31202 provides: “It is unlawful for any person willfully to make any untrue statement of a material fact in any statement required to be disclosed in writing pursuant to Section 31101, or willfully to omit to state in any such statement any material fact which is required to be stated therein.” 5 Section 31101, subdivision (c) listed some 15 items of informa- tion to be disclosed. ® That language reads: “Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and rezulations of the Commission shall be void.” es 34a clusion, the court observed that section 12(2) of the act “ereated a special right to recover for misrepresentation which differs substantially from the common-law action in that the seller is made to assume the burden of prov- ing lack of scienter” (346 U.S. at p. 431, 74 S.Ct. at p. 184), and that this “special right” was enforceable in any court of competent jurisdiction, with a wide choice of venue (ibid.). The court placed primary emphasis, however, upon the proposition that the effectiveness of the statute “is lessened in arbitration as compared to judicial proceedings” (id., at p. 485, 74 S.Ct. at p. 186), in part because of the limited nature of judicial review (id., at p. 436, 74 S.Ct. at p. 187). “As the protective provisions of the Securities Act require the exercise of judicial di- rection to fairly assure their effectiveness, it seems to us that Congress must have intended [the waiver provi- sion] to apply to waiver of judicial trial and review (id., at p. 437, 74 S.Ct. at p. 188).” 7In Scherk v. Alberto-Culver Co. (1974) 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270, the Supreme Court declined to apply the Wilko rule to a suit under section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5 thereunder, for rescission of a purchase agreement by which Alberto-Culver Co., an American corporation, purchased the trademarks and stock of two foreign corporations. In reaching this conclusion, the court relied primarily on the inter- national character of the tramsaction, reasoning that “[a] parochial refusal by the courts of one country to enforce an international arbitration agreement weuld not only frustrate [policies of cer- tainty and predictability], but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages.” (Id., at pp. 516-517, 94 S.Ct. at pp. 2446-2447.) While the court made reference to the fact that the Securities Exchange Act did not contain the liberal venue provisions of the Securities Act, and suggested that a “colorable argument” could be made for distinguishing Wilko on that ground (id., 417 U.S. at p. 513, 94 S.Ct. at p. 2445), subsequent cases have continued uniformly to apply the Wilko v. Swan rule to actions brought by customers against brokerage houses under the Securities Exchange Act, limit- ing Scherk to the arena of international securities transactions. (Merrill Lynch, Pierce, Fenner & Smith v. Moore (10th Cir. 1978) 35a The evidence is persuasive that in drafting the Fran- chise Investment Law California legislators looked to the Securities Act of 1933 as their model. Not only do the two statutes have the same purpose of protecting in- vestors through preinvestment disclosure statements, but their parallel provisions are often expressed in identical language.* Corporations Code section 31301 contains sub- stantially the same provision relating to scienter as the United States Supreme Court relied upon in Wilko.® And, as we have observed, the waiver language of the two stat- utes is virtually identical. 580 F.2d 823; accord, Mansbach v. Prescott, Ball & Turben (6th Cir. 1979) 598 F.2d 1017; Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (7th Cir. 1977) 558 F.2d 831; Sibley v. Tandy Corp. (5th Cir. 1977) 5483 F.2d 540; Ayres v. Merrill Lynch, Pierce, Fenner & Smith (3d Cir. 1976) 538 F.2d 532.) The Second Circuit has suggested that the relatively equal bargaining status of the parties in Scherk was also a distinguishing factor. (Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 558 F.2d at p. 835; see generally, Gruenbaum, Avoiding the Protections of the Federal Securities Laws: The Anti-Waiver Provisions (1980) 20 Santa Clara L.Rev. 49.) 8 Compare the definition of “sale” under section 2 of the Securi- ties Act (15 U.S.C. § 77b(3)) with that in Corporations Code sec- tion 31018; the definition of “‘misrepresentations by omission” in section 12(2) of the Securities Act (15 U.S.C. § 771(2)) with Cor- porations Code section 31201; the burden of proving due diligence of section 11 of the Securities Act (15 U.S.C. § 77k(b)(3)) with Corporations Code section 31301; the provision for injunction ac- tions in section 20 of the Securities Act (15 U.S.C. § 77t(a)) with Corporations Code section 31400; and the liability of control per- sons of section 15 of the Securities Act (15 U.S.C. § 770) with Corporations Code section 31302. ® Section 31301 provides: “Any person who violates Section 31201 shall be liable to any person (not knowing or having cause to believe that such statement was false or misleading) who, while relying upon such statement shall have purchased a franchise, for damages, unless the defe .dant proves that the plaintiff knew the facts con- cerning the untruth or omission or that the defendant exercised reasonable care and did not know, (or if he had exercised reasonable care would not have known) of the untruth or omission.” 36a “This court has long recognized the principle of statu- tory construction that ‘[w]hen legislation has been ju- dicially construed and a subsequent statute on the same or an analogous subject is framed in the identical lan- guage, it will ordinarily be presumed that the Legislature intended that the language as used in the later enactment would be given a like interpretation. This rule is ap- plicable to state statutes which are patterned after the federal statutes. [Citations.]’” (Belridge Farms v. Ag- ricuitural Labor Relations Bd. (1978) 21 Cal.8d 551, 557, 147 Cal.Rptr. 165, 580 P.2d 665.) The presumption established by that principle of stat- utory construction is reinforced by the language and his- tory of the recently adopted California Franchise Rela- tions Act ‘Bus. & Prof. Code, § 20000 et seq.), regu- lating the grounds and procedure for termination and nonrenewal of franchises. That statute stemmed from hearings conducted in late 1977 by a subcommittee of the state Assembly Committee on Finance, Insurance, and Commerce, chaired by Assemblyman Bruce Young. A preliminary report prepared by that committee prior to hearings refers to the Franchise Investment Law as a “pre-purchase disclosure law patterned after the Securi- ties Act of 1933,” discusses various proposals for extend- ing regulation of franchise relationships, and poses var- ious rhetorical questions in that regard, among them the following: ‘Present law provides for the resolution of franchisee franchisor disputes through the judicial sys- tem. Should the law be modified to provide for other means of resolution such as compulsory arbitration and or a Board of Franchising?” '® The Franchise Re- lations Act as ultimately adopted by the Legislature con- tains both a nonwaiver provision nearly identical to Cor- 10 Assembly Committee on Finance, Insurance, and Commerce, Ad Iloc Subcommittee on Franchising, An Evaluation of the Regula- tion of Franchising in California and Prospective Legislative Revi- sions—Background Notes for Interim Study, page 6. 37a porations Code section 31512 and the following provision authorizing limited arbitrability of disputes under that statute: ‘Nothing contained in this chapter shall limit the right of a franchisor and franchisee to agree before or after a dispute has arisen to binding arbitration of claims under this chapter, provided that: (a) The stand- ards applied in such arbitration are not less than the requirements specified in this chapter; and (b) The arbitrator or arbitrators employed in such arbitration are chosen from a list of impartial arbitrators supplied by the American Arbitration Association or other im- partial person.” (Bus. & Prof. Code, § 20040.) The in- ference is strong, if not inescapable, that the Legislature understood the anti-waiver provision of the Franchise Investment Law to be subject to the Wilko (346 U.S. 427, 74 S.Ct. 182, 98 L.Ed.2d 168) interpretation, and that it intended to establish a different rule for the Franchise Relations Act.'' While we have no evidence as to the policy reasons underlying that distinction, it may be that the Legislature considered arbitration more accept- able in the context of franchise relationships already established, presumably on the basis of proper disclo- sure, or that it considered the more detailed provisions in the Franchise Investment Law for civil liability (Corp. Code, § 31300), administrative regulation ‘Corp. Code, 11 This inference is supported by the following legislative history. Assemblyman Young, who was the author of the bill which became the Franchise Relations Act, sponsored an earlier bill (Assem. Bill No. 944 (1977 Reg. Sess.) ) which provided for similar restrictions upon termination of franchises through addition of a new chapter ($ 31220 et seq.) to the Corporations Code. That bill contained a section providing for a similar nonwaiver provision which read as follows: “31224: (a) Evcept as provided in subdivision (b) of this section, any condition, stipulation, provision, or term of any fran- chise agreement waiving any rights granted under the chapter or relieving any person from liability imposed by this chapter shall be void and unenforceable.” (lamphasis added.) Subdivision (bh) per- mitted agreements for “binding arbitration of disputes” subject to the restrictions presently contained in the new law. — —aeOoereeoorrerereree 38a §$ 31400) and criminal liability (Corp. Code, § 31410 et seq.), to require access to the courts and “the exercise of judicial direction to fairly assure their effectiveness.” (Wilko v. Swan, supra, 346 U.S. at p. 437, 74 S.Ct. at p. 188.) Having determined that the California Legislature in- tended the nonwaiver provision of the California Fran- chise Act to be interpreted in accord with Wilko v. Swan," we turn to Southland’s contention that the stat- ute as so construed may not constitutionally be applied to a “contract evidencing a transaction involving com- merce” within the meaning of the Federal Arbitration Act (FAA). The argument is that the FAA, in man- dating that a provision for arbitration in such a contract “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revoca- tion of any contract” (FAA, § 2), establishes a general principle of arbitrability which preempts any state law or policy restrictive of arbitration, whatever the basis for that law or policy might be, and whether or not federal jurisdiction over the underlying controversy ex- ists. We consider that argument overly broad. The starting point for analysis is Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed. 2d 1270, in which the Supreme Court held that in a federal court diversity action involving a contract sub- ject to the FAA, a claim of fraud in the inducement of the contract (as distinguished from a claim of fraud in the inducement of the arbitration clause), is a question for the arbitrator, and not the court, to decide; and that this rule applies even though the law of the state in which the contract was to be performed might have a different rule. 12 As in Wilko, the agreement here was to arbitrate such disputes as might arise in the future. We express no view as to the enforce- ability of an agreement to arbitrate a pending dispute under the Franchise Investment Law. 39a The Supreme Court in Prima Paint rejected the con- tention that it was “constitutionally impermissible” to apply the FAA because the case was in the federal court solely by reason of diversity of citizenship. “[T]he ques- tion,” the court said, “is not whether Congress may fashion federal substantive rules to govern questions arising in simple diversity cases ... [but] whether Con- gress may prescribe how federal courts are to conduct themselves. with respect to subject matter over which Congress plainly has power to legislate.” (Id., at p. 405, 87 S.Ct. at p. 1806; emphasis added.) The opinion thus left open the question whether or under what circum- stances stafe courts are constitutionally obligated to apply the substantive principles inherent in the federal statute. Shortly after Prima Paint was decided, the New York Court of Appeal indicated it would apply FAA princi- ples to a maritime transaction ‘even if such a result is not constitutionally mandated by the decision in Prima Paint,” in order to discourage forum shopping between state and federal courts. (A/S J. Ludwig Mowinckels R. v. Dow Chem. Co. (1970) 25 N.Y.2d 576, 307 N.Y.S.2d 660, 666, 255 N.E.2d 774, 778.) Since then a number of courts, both federal and state, have adopted the view that while the FAA is not itself a source of federal juris- diction, the statute contains certain principles of ‘“sub- stantive federal law” which must be applied, regardless of forum, where federal jurisdiction exists. (E.g., In re Mercury Const. Corp. (4th Cir. 1981) 656 F.2d 933, 938; E. C. Ernst, Inc. v. Manhattan Const. Co. of Texas (5th Cir. 1977) 551 F.2d 1026, 1040; Pathman Const. Co. v. Knox County Hospital Ass’n (1975) 164 Ind.App. 121, 326 N.E.2d 844, 851; Episcopal Housing Corp. v. Federal Ins. Co. (1977) 269 S.C. 631, 239 S.E.2d 647; Main v. Merrill Lynch, Pierce, Fenner & Smith, Ine. (1977) 67 Cal.App.3d 19, 24-25, 136 Cal.Rptr. 378.) While the federal district court in this case, by its remand, determined that federal jurisdiction over the franchisees’ lawsuit did not exist, the likely explanation 40a for that determination is the presence in the case of defendants whose citizenship precludes requisite diversity. Accordingly, we do not decide the preemption issue on that narrow ground (see In re Mercury Const. Corp., supra, 656 F.2d at p. 942). Rather, we confront squarely the underlying issue of statutory interpretation: whether the principles of ‘“swb- stantive federal law” embodied in the FAA, preclude a state from protecting its franchise investors through a system of statutory regulation including nonwaivable judicial remedies. While there is authority for an affirm- ative answer (Allison v. Medicab Intern., Inc. (1979) 92 Wash.2d 199, 597 P.2d 380, 383; Barron v. Tastee Freez Intern., Inc. (E.D.Wis. 1980) 482 F.Supp. 1213), we respectfully disagree. The FAA was adopted in 1925 (48 Stat. 883), against a background of judicial hostility to arbitration gener- ally. (See Kulukundis Shipping Co. v. Amtorg Trading Corp. (2d Cir. 1942) 126 F.2d 978, 984; Sayre, Develop- ment of Commercial Arbitration Law (1927) 37 Yale L.J. 595.) The apparent purpose of the statute was to remove that hostility, and so “make the benefits of arbi- tration generally available to the business world.” (Rob- ert Lawrence Company v. Devonshire Fabrics, Inc. (2d Cir. 1959) 271 F.2d 402, 407.) While there is nothing in the legislative history of the statute to suggest that Congress considered its application to state courts (see, Sturges and Murphy, Some Confusing Matters Relating to Arbitration Under the United States Arbitration Act (1952) 17 Law & Contemp. Prob. 580, passim), we as- sume that Congress intended to insulate interstate con- tracts from judicial hostility regardless of forum (see Fite & Warmath Const. Co., Inc. v. MYS Corp. (Ky. 1977) 559 S.W.2d 729), and to establish for such con- tracts certain uniform rules of interpretation (see Guin- ness-Harp Corp. v. Jos. Schlitz Brewing (2d Cir. 1980) 613 F.2d 468, 472.) 4la nm In these respects, California law is entirely in accord. Two years after the FAA was enacted, this state adopted its first modern arbitration statute (Stats.1927, ch. 225), declaring arbitration agreements to be irrevocable and enforceable in terms identical to those used in sec- tion 2 of the federal act, and since that time California courts and its Legislature have “consistently reflected a friendly policy toward the arbitration process.” (Kagel, A Study Relating to Arbitration, in Cal. Law Revision Com. Recommendations and Study Relating to Arbitra- tion (1960) p. G-28.) That policy was expanded and clarified in the current arbitration statute which was adopted in 1961 (Stats.1961, ch. 461, § 2 et seq.), and it continues to be the policy of this state (e.g., Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 189, 151 Cal.Rptr. 837, 588 P.2d 1261). Adoption of an affirmative policy toward enforcement of arbitration agreements has never implied, however, that all types of disputes are subject to arbitration. In New York, for example, one of the earliest states to encourage arbitration through statute, certain categories of disputes are insulated from arbitration as a matter of public policy. (See Associated Teachers, etc. v. Bd. of Ed. (1979) 33 N.Y.2d 229 [351 N.Y.S.2d 670, 306 N.E. 2d 791|.) Among these are disputes under state anti- trust laws, on the ground that “through the use of eco- nomic power and contracts of adhesion, containing broad arbitration clauses, antitrust violators may be able to insulate their transgressions of the antitrust law from judicial scrutiny.” (Aimcee Wholesale Corp. v. Tomar Products (1968) 21 N.Y.2d 621, 629 [289 N.Y.S.2d 968, 973-974, 237 N.E.2d 223, 226-227].) The same is true of matters involving the liquidation of insolvent insur- ance companies (Knickerbocker Agency v. Holz (1958) 4 N.Y.2d 245 [173 N.Y.S.2d 602, 607-610, 149 N.E.2d 885, 889-891]), or the usurious character of a purported 42a sales agreement (Durst v. Abrash (1964) 22 A.D.2d 39, 53 N.Y.S.2d 351, 353). Such exceptions to the general principle of arbitrabil- ity, like those expressed in California’s Franchise Invest- ment Law, do not reflect hostility toward arbitration, nor do they constitute an obstacle to the general enforce- ment of arbitration agreements in a manner consistent with federal law. Rather, such exceptions are narrowly confined to rights and remedies created by state regu- latory statutes, and represent a determination that the public interest is best served by maintaining access to the remedies which the Legislature has provided. That Congress intended, through the FAA, to override state policies of that nature seems highly improbable. The question in this case might be more debatable were it not for the fact that California’s policy of protecting judicial remedies for this state’s franchise investors was patterned after, and is consistent with, federal policy in the analogous area of securities investment. There is no suggestion that Congress has preempted the field of franchise investor regulation as it has, for example, the field of labor relations (ef. Teamsters Union v. Oliver (1959) 358 U.S. 283, 79 S.Ct. 297, 3 L.Ed.2d 312). or that the FAA embodies substantive principles intrinsic to a federally regulated field (cf. Textile Workers v. Linco’n Mills (1957) 353 U.S. 448, 77 S.Ct. 923. 1 L.Ed.2d 972). Having left states with power to enact laws in this area, it is hardly likely that Congress in- tended to preclude them from adopting policies which Congress itself has found to be appropriate." 'S We observe that California’s Corporate Securities Law contains a substantially identical nonwaiver provision (Corp. Code, § 25701). Southland’s argument would preclude its application to interstate transactions as well. '* Southland observes that two federal statutes which regulate franchise relationships Petroleum Marketing Practices Act (15 U.S.C. § 2801 et seq.) and Automobile Dealer Suits Against Manu- 43a Preemption principles were recently summarized by the United States Supreme Court in Merrill Lynch, Pierce, Fenner & Smith v. Ware (1973) 414 U.S. 117. 94 S.Ct. 383, 38 L.Ed.2d 348, holding that California’s statutory policy excluding wage claims from arbitration (Lab. Code, § 229) was not preempted by rules prom- ulgated by the New York Stock Exchange pursuant to federal law: “ ‘The principle to be derived from our decisions is that federal regulation of a field of commerce should not be deemed preemptive of state regulatory power in the absence of persuasive reasons—either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.’ [Citation.] [{] In other contexts, pre- emption has been measured by whether the state statute frustrates any part of the purpose of the federal legisla- tion. [Citations.]} And... while prior cases on pre- emption ‘are not precise guidelines,’ because each case turns on the peculiarities and special features of the federal regulatory scheme in question, it is where there is in existence a pervasive and comprehensive scheme of federal regulation that pre-emption follows in order to fulfill the federal statutory purposes. [Citations.] [%] In the area of regulation that we are considering here, Cal- ifornia has manifested a strong policy of protecting its wage earners from what it regards as undesirable eco- nomic pressures affecting the employment relationship. This policy prevails in the absence of interference with the federal regulatory scheme. We find no such inter- ference... .” (414 U.S. at pp. 139-140, 94 S.Ct. at pp. 395-396. ) facturers (15 U.S.C. § 1221 et seq.), do not contain provisions simi- lar to 15 United States Code section 77n. Neither of these statutes imposes analogous disclosure requirements, however, nor has the issue of arbitrability of disputes under them been litigated in re- ported cases. i 44a The court in Ware did not consider the applicability of the FAA, and the holding in the case is consequently not controlling here, but the principles which the court an- nounced strongly support rejection of Southland’s argu- ment. Not only has California “‘manifested a strong policy of protecting its [franchise investors] from what it regards as undesirable economic pressures affecting the [franchise] relationship” (ibid.), it has done so through a regulatory scheme containing remedies which it has deemed appropriate to protect against waiver, and in accordance with policies compatible with the pattern of federal regulation. The United States Supreme Court has “repeatedly warned against the dangers of an approach to statutory construction which confines itself to the bare words of a statute, [citations], for ‘literalness may strangle mean- ing.’ [Citation].” (Lynch v. Overholser (1962) 369 U.S. 705, 710, 82 S.Ct. 1063, 1067, 8 L.Ed.2d 211.! We accept that the FAA contains certain principles of sub- stantive federal law which must be applied, regardless of forum, where federal jurisdiction exists; on that point we are fully in accord with our dissenting colleagues. We simply reject Southland’s argument that those princi- ples are so unyielding as to require enforcement of an agreement to arbitrate a dispute over the application of a regulatory statute which a state legislature, in con- formity with analogous federal policy, has decided should be left to judicial enforcement." 15 Southland urges that exclusion of Franchise Investment Law claims from arbitration will lead to duplicative proceedings because franchisees’ common law claims of fraud and negligent misrepre- sentation involve the “same constellation of facts.” Under federal law, such considerations may be taken into account in determining the order of proceedings, and even in determining whether common law claims should be decided in a judicial forum. (Sibley v. Tandy Corp., supra, 543 F.2d 540, 543, cert. den. (1977) 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82; Miley v. Oppenheimer & Co., Inc. (5th Cir. 1981) 637 F.2d 318.) 45a III. WAIVER. Franchisees contend that Southland waived its right to arbitration by delays in asserting it, and by pursuing legal actions which were inconsistent with it. We will separately consider waiver in connection with Keating, and with the individual actions. The law in this aréa is rather well defined. Arbitra- tion is strongly favored. Courts will closely scrutinize any claims of waiver (Gavlik Const. Co. v. H. F. Camp- bell Co. (3d Cir. 1975) 526 F.2d 777, 783; Seidman & Seidman v. Wolfson (1975) 50 Cal. App.3d 826, 835, 123 Cal.Rptr. 873; 9 U.S.C. $3; Code Civ.Proc., § 1281.2, subd. (a)), and “ ‘indulge every intendment to give ef- fect to such proceedings.’ (Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9 [129 Cal.Rptr. 489].)” (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d 180, 189, 151 Cal.Rptr. 837, 588 P.2d 1261.) Moreover, the burden of proof is “heavy” and rests on the party seek- ing to establish waiver (Martin Marietta Aluminum, Inc. v. General Elec. Co. (9th Cir. 1978) 586 F.2d 143, 146; General Guar. Ins. Co. v. New Orleans General Agency, Inc. (5th Cir. 1970) 427 F.2d 924, 929, fn. 5) which “is not to be lightly inferred.” (Gavlik Const. Co. v. H. F. Campbell Co., supra, 526 F.2d at p. 783; Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 426, 158 Cal.Rptr. 828, 600 P.2d 1060.) The trial court here found no waiver. Because the question of waiver is one of fact, we have noted that the “determination of this question, if supported by substan- tial evidence, is binding on an appellate court. [Cita- tion.| . .. [it is only] in cases where the record before the trial court establishes a lack of waiver as a matter of law, [that] the appellate court may reverse a finding of waiver made by the trial court.” (Doers v. Golden Gate Bridge etc. D’st., supra, 23 Cal.3d at p. 185, 151 Cal. Rptr. 837, 588 P.2d 1261; see Reid Burton Const. v. Carpenters Dist. Council, ete. (10th Cir. 1980) 614 F.2d 46a 698, 703, cert. den. (1980) 449 U.S. 824, 101 S.Ct. 85, 66 L.Ed.2d 27 [adopting a “clearly erroneous” standard of review }.) We have recently acknowledged that while there is no “single test” in establishing waiver, the relevant factors include whether the party seeking arbitration (1) has “previously taken steps inconsistent with an intent to invoke arbitration,” (2) “has unreasonably delayed” in seeking arbitration, (3) or has acted in “bad faith” or with “wilful misconduct.” (Davis v. Blue Cross of North- ern California, supra, 25 Cal.3d at pp. 425-426, 158 Cal. Rptr. 828, 600 P.2d 1060; see Germany v. River Termi- nal Railway Company (6th Cir. 1973) 477 F.2d 546, 547.) We have stressed the significance of the presence or absence of prejudice. Waiver does not occur by mere participation in litigation; there must be “judicial litiqa- tion of the merits of arbitrable issues” (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at p. 188, 151 Cal.Rptr. 837, 588 P.2d 1261), although “waiver could occur prior to a judgment on the merits if prejudice could be demonstrated” (id., at p. 188, fn. 3, 151 Cal. Rptr. 837, 588 P.2d 1261). This result is fully consistent with federal cases which have held that “as an abstract exercise in logic it may appear that it is inconsistent for a party to participate in a lawsuit for breach of a contract, and later to ask the court to stay that litigation pending arbitration. Yet the law is clear that such participation, standing alone, does not constitute a waiver [citations], for there is an overriding federal policy favoring arbi- tration. ... [MlJere delay in seeking a stay of the pro- ceelings without some resultant prejudice to a_ party [citation], cannot carry the day.” (Carcich v. Rederi A/B Nordie (2d Cir. 1968) 389 F.2d 692, 696; see Shinto Shipping Co, v. Fibrex & Shipping Co., Inc. (9th Cir. 1978) 572 F.2d 1328, 1330.) Tested by these principles, the record fully supports the trial court’s conclusion that there was no waiver in Keating. Southland had a legal right to petition for re- 47a moval of the case to the federal district court; it did so promptly, as the statute requires (28 U.S.C. § 1446(b)); and in its amended pleading it asserted the arbitration agreement as a defense. Prior to remand, the only dis- covery which took place consisted of an exchange of doc- uments to franchisees’ benefit. Upon remand, Southland moved promptly to compel arbitration.'* We discern no impropriety on the part of Southland, or prejudice to franchisees, in these brief transactions. In the remaining four individual actions, namely, Gouveia, Sampson, Cheng, and Newell, the trial court granted the motions to arbitrate except as to the Fran- chise Investment Law claims, and stayed the proceedings pending completion of arbitration. In noting the co- ordination of the various actions the court observed that “there are matters which would otherwise be arbitrable which are raised for the first time in the second amended complaint.” It believed that referring to arbitration only some issues while retaining others might well achieve in- consistent results and would serve no useful purpose. The court also observed that in some cases, separately viewed, “there more than likely would have been found to be a waiver.” Franchisees interpret the foregoing trial court remarks as constituting a holding of waiver. They also contend that the trial court erred in misconstruing the coordina- tion of the proceedings as requiring complete consistency of result between the individual cases. We do not agree. Extensively amended complaints have been filed in each ease after the actions had been coordinated at fran- chisees’ request. We cannot say, as a matter of law, that the court erroneously considered the coordinated posture of the cases in finding a lack of waiver of Southland’s right to arbitration. Franchisees themselves asserted in their motion for coordination that “[e]ach of the actions 16 Tt moved also for a change of venue, which was granted by stipulation. ; 48a for which coordination is sought herein is at the same‘ relative stage of development.” Furthermore, the court did not specify in which of the actions a waiver might have appeared, and franchisees’ argument that the trial court found a waiver in any individual case is purely speculative. Moreover, assuming a waiver had occurred as to the charging allegations in the original complaints, such waiver would not extend to issues newly raised. (Cf. Janmort Leas., Ine. v. Econo-Car Intern. (E.D.N.Y. 1979) 475 F. Supp. 1282, 1290.) In seeking coordination and amendment of their complaints, franchisees consid- erably expanded the scope of their pleadings, raising sev- eral new causes of action, injecting new factual elements, and refocusing the direction of their claims. We do not suggest that an amendment to a complaint will, per se, nullify a previous, effective waiver of arbitration in every case. Here, however, franchisees directed a newly concerted attack, evidenced by the filing of amended com- plaints and the motion to coordinate. This sufficiently changed the proceedings, when viewed in their entirety, to permit the trial court to find a lack of waiver of the right to arbitrate the closely interrelated and interde- pendent claims. We are unable to accept franchisees’ argument that any waiver occurred because of Southland’s litigation- related activities in Gouveia, Sampson, Cheng, and Newell. As with similar arguments advanced with reference to the Keating complaint, Southland’s delay in seeking ar- bitration of the other complaints, its filing of counter- claims and actions for unlawful detainer, and its partici- pation in discovery did not require a finding of waiver. (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at p. 188, 151 Cal.Rptr. 837, 588 P.2d 1261; Carcich v. Rederi A’B Nordie, supra, 389 F.2d at p. 696.) Here, Southland raised arbitration as an affirmative defense in its answers to each of the original complaints except in anew taiititia 49a Gouveia. As previously noted, “it is the judicial litiga- tion of the merits of arbitrable disputes which waives a party’s right to arbitration” (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at p. 188, 151 Cal. Rptr. 837, 588 P.2d 1261), and the burden is on fran- chisees to show that the trial court’s determination was not supported by the facts. (See, e.g., Hart v. Orion In- surance Company (10th Cir. 1971) 453 F.2d 1358, 1361.) Because of the mandatory nature of Code of Civil Pro- cedure section 426.30 requiring that any related cause of action be alleged, no waiver arose by reason of the filing of the cross-complaints. As to the unlawful detainer causes of action, the agreements themselves specifically provide that a demand for arbitration “shall not operate to stay ... the right of 7-Eleven to take possession of the Lease Property in accordance with the Agreement.” The contract contemplated that arbitration and litigation of the right to possession would proceed simultaneously. Again, we find most significance in the lack of any prejudice demonstrated by franchisees in Gouveia, Samp- son, Cheng, and Newell. While Southland participated in discovery in the individual actions before demanding ar- bitration, the trial court expressly conditioned its order to compel arbitration on Southland’s agreement either to abstain from the use of further discovery or to extend equally extensive discovery to franchisees. Moreover, the discovery was reciprocal; for example, franchisees’ peti- tion for coordination indicated that evidence of South- land’s bookkeeping practices had already been obtained and was relevant to all of the individual actions. Neither side had completed its discovery, and South- land asserted, without refutation, that the filing of the new complaints significantly raised new issues requiring further discovery should the eases go to trial. The con- dition imposed by the trial court on its order for arbitra- tion, however, prevented Southland from taking advan- tage of any previously discovered information. 50a Our function is to determine whether the trial court’s finding of no waiver is supported by substantial evidence. Franchisees have not made specific claims of prejudice. Nor have we been supplied with any record of the dis- covery proceedings already undertaken by which we could independently assess such claims if made. Accordingly, we cannot conclude that the trial court erred in finding no waiver and in ordering arbitration. IV. CLASS ARBITRATION. The trial court, in ordering arbitration, did not ex- pressly rule upon the motions in Keating and Battersby for class certification. Franchisees contend that if arbi- tration is to proceed the trial court should be instructed to determine the preliminary issues regarding class cer- tification so that it may proceed on a classwide basis. This contention requires us to examine the special prob- lems of unfair advantage which may appear in an ad- hesion setting when individual arbitration agreements are invoked to block an otherwise appropriate class ac- tion." This court has repeatedly emphasized the importance of the class action device for vindicating rights asserted by large groups of persons. We have observed that the class suit “both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation. [Citation.]”’ (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 469, 174 Cal.Rptr. 515, 629 P.2d 28.) Denial of a class action in cases where it is appropriate may have the effect of allowing an unscrupulous wrongdoer to “re- 17 We assume, for purposes of this analysis, that Keating and Battersby would be maintainable as class actions under established principles, but we intimate no opinion as to whether that is, in fact, the case. That will be an issue for the trial court upon remand. 5la tain[] the benefits of its wrungful conduct.” {Vasquez v. Superior Court (1971) 4 Cal.3d 800, 808, 94 Cal.Rptr. 796, 484 P.2d 964.)'* And, as we noted in LaSala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 877, 97 Cal.Rptr. 849, 489 P.2d 1113: “Controversies involv- ing widely used contracts of adhesion present ideal cases for class adjudication; the contracts are uniform, the same principles of interpretation apply to each contract, and all members of the class will share a common inter- est in the interpretation of an agreement to which each is a party.” If the right to a classwide proceeding could be auto- matically eliminated in relationships governed by adhesion contracts through the inclusion of a provision for arbi- tration, the potential for undercutting these class action principles, and for chilling the effective protection of in- terests common-to a group, would be substantial. Arbi- tration proceedings may well provide certain offsetting advantages through savings of time and expense; but, depending upon the nature of the issues and the evidence to be presented, it is at least doubtful that such advan- tages could compensate for the unfairness inherent in forcing hundreds or perhaps thousands, of individuals asserting claims involving common issues of fact and law to litigate them in separate proceedings against a party with vastly superior resources. Because the principles of res judicata and collateral estoppel do not apply in arbi- tration proceedings, any issue resolved against a party such as Southland in one arbitration proceeding would have to be decided anew in a subseque.t arbitration, re- 18 Federal law is in accord. (See, e.g., Weeks v. Bareco Oil Co. (7th Cir. 1941) 125 F.2d 84, 90 (“To permit the defendants to contest liability with each claimant in a single, separate suit, would, in many cases give defendants an advantage which would be almost equivalent to closing the door of justice to all small claimants”); Moscarelli v. Stamm (E.D.N.Y. 1968) 288 F. Supp. 453, 461.) 52a sulting in needless duplication and the potential for in- consistent awards. And while arbitration ideally takes place outside the judicial arena, it would be naive to as- sume, in such a situation, that courts would not be called upon to determine issues ancillarly to the arbitration pro- ceedings. The effect would be to place upon the parties, and upon the courts, many of the burdens which the class action device was designed to avoid. It is common knowledge that arbitration clauses fre- quently appear in standardized contracts of adhesion. A primary consideration which has led courts to uphold such clauses, despite the adhesive nature of the contract, is the belief that arbitration is not oppressive and does not defeat the reasonable expectations of the parties. (Madden v. Kaiser Foundation Hospitals, supra, 17 Cal. 3d 699, 710, 712, 131 Cal.Rptr. 882, 552 P.2d 1178.) If, however, an arbitration clause may be used to insulate the drafter of an adhesive contract from any form of class proceeding, effectively foreclosing many individual claims, it may well be oppressive and may defeat the ex- pectations of the nondrafting party. One possible solution to this dilemma would be to hold that arbitration agreements contained in contracts of adhesion may not operate to stay properly maintainable class actions. (See Harris v. Shearson Hayden Stone, Inc. (1981) 82 A.D.2d 87, 441 N.Y.S.2d 70, 76-79 (dis. opns.); ef. Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal.App.3d 668, 672, 97 Cal. Rptr. 811; Vernon v. Drexel Burnham & Co. (1975) 52 Cal. App.3d 706, 125 Cal.Rptr. 147.) The statutes and public policy supportive of arbitration require, however, that this result be avoided if means are available to give ex- pression to the basic arbitration commitment of the parties. (Graham v. Scissor-Tatl, Inc., supra, 28 Cal.3d 807, 831, 171 Cal.Rptr. 604, 623 P.2d 165.) We turn our attention, therefore, to the solution offered by franchisees: that the arbitration itself proceed on a classwide basis. 53a There is, as the parties acknowledge, an absence of direct authority either supporting or rejecting such a procedure. Analogous authority exists, however, with re- spect to the consolidation of arbitration proceedings in- volving a dispute which concerns several parties each of whom has an agreement with one or more of the others to arbitrate the dispute. “Although the [Federal Arbi- tration} Act does not specifically provide for consolidated arbitrations, courts have frequently ordered consolidated arbitration proceedings when the ‘interests of justice’ so require, either because the issues in dispute are sub- stantially the same and/or because a substantial right might be prejudiced if separate arbitration proceedings are conducted.” (Matter of Czarnikow-Rionda Co., Inc. (S.D.N.Y.1981) 512 F.Supp. 1308, 1309.) Indeed, the Second Circuit has opined that “the liberal purposes of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even encourage the consolidation of arbitration proceedings in proper cases.” (Compania Espanola de Pet., S.A. v. Nereus Ship, (2d Cir. 1975) 527 F.2d 966, 975, cert. den. (1976) 426 U.S. 936, 96 S.Ct. 2650, 49 L.Ed.2d 387; see also, Marine Trading Ltd. v. Ore International Corp. (S.D.N.Y.1977) 432 F.Supp. 683; Robinson v. Warner (D.C.R.1.1974) 370 F.Supp. 828.) Federal courts, in ordering consolidation of arbitration proceedings in these cases, have relied upon rule 81 (a) (3) of the Federal Rules of Civil Procedure, which states that the federal rules apply to certain statutes, including the FAA, “only to the extent that maiters of procedure are not provided for in those statutes.” Thus, rule 42(a), which provides for consolidation of related proceedings, is deemed to apply. Analogous reasoning would support reliance on rule 23, the class action rule, as a basis for ordering classwide arbitrations when the interests of jus- tice so require. A number of state courts also support consolidation of arbitration proceedings, even in the absence of express 54a statutory authority. New York courts take the position that “jurisdiction to enforce contracts to arbitrate im- ports power to regulate the method of enforcement.” (Chariot Textiles Corp. v. Wannalancit Textile Co. (1964) 21 A.D.2d 762, 250 N.Y.S.2d 493, 495 (dis. opn.), revd. on dis. opn. (1966) 18 N.Y.2d 793, 275 N.Y.S.2d 382, 221 N.E.2d 913 [221 N.E.2d 913]; see also Jn re Vigo Steamship Corporation (1970) 26 N.Y.2d 157, 257 N.E.2d 624,, cert. den. sub nom., Frederick Snare Corp. uv. Vigo Steamship Corp. (1970) 400 U.S. 819, 91 S.Ct. 36, 27 L.Ed.2d 46; accord: Grover-Dimond Assoc. v. American Arbitration Ass’n (1973) 297 Minn. 324, 211 N.W.2d 787; see also, Exber, Inc. v. Sletten Construc- tion Company (1976) 92 Nev. 721, 558 P.2d 517; James Stewart Polshek, ete. v. Bergen Iron Wks. (1976) 142 N.J.Super. 516, 362 A.2d 63; Episcopal Housing Corp. v. Federal Ins. Co. (1979) 273 S.C. 181, 255 S.E.2d 451; contra: Stop & Shop Companies, Inc. v. Gilbane Building Co. (1973) 364 Mass. 3825, 304 N.E.2d 429; J. Brodie & Son, Inc. v. George A. Fuller Company (1969) 16 Mich. App. 137, 167 N.W.2d 886; see generally, Annot., Con- solidation of Arbitration Proceedings, 64 A.L.R.3d 528, 529.) In California, consolidation in certain cases is expressly authorized by statute. (Code Civ.Proc., § 1281.3.) * 19 Section 1281.3 was added in 1978 (Stats. 1978, ch. 260, § 2), apparently in response to a Court of Appeal decision holding that courts of this state lacked authority to order consolidation of arbi- tration proceedings. (Atlas Plastering, Inc. v. Superior Court (1977) 72 Cal.App.3d 63, 140 Cal.Rptr. 59.) The section permits consolidation of separate arbitration proceedings when ‘(1) Sepa- rate arbitration agreements or proceedings exist between the same parties; or one party is a party to a separate arbitration agreement or proceeding with a third party; and (2) The disputes arise from the same transactions or series of related transactions; and (3) There is common issue or issues of law or fact creating the possi- bility of conflicting rulings by more than one arbitrator or panel of arbitrators.” 55a Consolidated arbitration often involves a tripartite re- lationship in which the parties in dispute each have a contract with a third party, but not with each other. Each contract may provide a different procedure for ar- bitration, or a different method of-selecting the arbitra- tor. Federal courts have held that a court “can mold the method of selection and the number of arbitrators to im- plement the consolidated proceedings.” (Matter of Czar- nikow-Rionda Co., Inc., supra, 512 F.Supp. at p. 1309.) Similarly, Code of Civil Procedure section 1281.3 pro- vides that consolidated arbitration proceedings may be ordered inter alia, where “one party is a party to a sep- arate arbitration agreement or proceeding with a third party,” and that if the agreements do not mesh in their description of procedure, a court has authority to appoint an arbitrator, and to “resolve [conflicts among the agree- ments] and determine the rights and duties of the various parties to achieve substantial justice under all the cir- cumstances.” Thus, a party may be forced into a coordi- nated arbitration proceeding in a dispute with a party with whom he has no agreement, before an arbitrator he had no voice in selecting and by a procedure he did not agree to. In these respects, an order for classwide arbitration in an adhesion context would call for considerably less in- trusion upon the contractual aspects of the relationship. The members of a class subject to classwide arbitration would all be parties to an agreement with the party against whom their claim is asserted; each of those agree- ments would contain substantially the same arbitration provision; and if any of the members of the class were dissatisfied with the class representative, or with the choice of arbitrator, or for any other reason would prefer to arbitrate on their own, they would be free to opt out _and do so. Moreover, the interests of justice that would be served by ordering classwide arbitration are likely to be even more substantial in some cases than the interests that are thought to justify consolidation. It is unlikely 56a that the state Legislature in adopting the amendment to the Arbitration Act authorizing ecnsolidation of arbitra- tion proceedings, intended to preciude a court from order- ing classwide arbitration in an appropriate case. We conclude that a court is not without authority to do so. Without doubt a judicially ordered classwide arbitra- tion would entail a greater degree of judicial involvement than is normally associated with arbitration, ideally “a complete proceeding, without resort to court facilities.” (East San Bernardino County Water Dist. v. City of San Bernardino (1973) 33 Cal.App.8d 942, 950, 109 Cal.Rptr. 510.) The court would have to make initial determinations regarding certification and notice to the class, and if classwide arbitration proceeds it may be called upon to exercise a measure of external supervision in order to safeguard the rights of absent class members to adequate representation and in the event of dismissal or settlement. A good deal of care, and ingenuity, would be required to avoid judicial intrusion upon the merits of the dispute, or upon the conduct of the proceedings them- selves and to minimize complexity, costs, or delay. (See Class Wide Arbitration: Efficient Adjudication or Pro- cedural Quagmire? (1981) 67 Va.L.Rev. 789.) An adhesion contract is not a normal arbitration set- ting, however, and what is at stake is not some abstract institutional interest but the interests of the affected parties. Classwide arbitration, as Sir Winston Churchill said of democracy, must be evaluated, not in relation to some ideal but in relation to its alternatives. If the alter- native in a case of this sort is to force hundreds of in- dividual franchisees each to litigate its cause with South- land in a separate arbitral forum, then the prospect of ciasswide arbitration, for all its difficulties, may offer a better, more efficient, and fairer solution. Where that is so, and gross unfairness would result from the denial of opportunity to proceed on a classwide basis, then an order structuring arbitration on that basis would be justified. 57a Whether such an order would be justified in a case of this sort is a question appropriately left to the discretion of the trial court. In making that determination, the trial court would be called upon to consider, not only the fac- tors normally relevant to class certification, but the spe- cial characteristics of arbitration as well, including the impact upon an arbitration proceeding of whatever court supervision might be required, and the availability of consolidation as an alternative means of assuring fair- ness. Whether classwide proceedings would prejudice the legitimate interests of the party which drafted the ad- hesion agreement must also be considered, and that party should be given the option of remaining in court rather than submitting. to classwide arbitration. In this case, the trial court did not consider the fran- chisees’ request for classwide arbitration at all, and a fortiori did not consider the factors which we have found to be relevant. Since we are unable to make the determi- nation on this record as a matter of law, the case will be remanded to the trial court on this issue. The order of the trial court is reversed and the cause is remanded for further proceedings consistent with the opinion herein. In light of our opinion, the petition for writ of prohibition or mandate is denied. Each party to bear their own costs. BIRD, C. J.. and NEWMAN and REYNOSO, JJ., concur. RICHARDSON, Justice, concurring and dissenting. I concur with the majority’s conclusions that the ar- bitration agreement is enforceable and that Southland did not waive its right to arbitration. I respectfully dis- sent, however, from the majority’s further holdings that the Franchise Investment Law claims are not subject to arbitration and that class action arbitration is an avail- able valid remedy. 58a A. ARBITRABILITY OF THE FRANCHISE INVESTMENT LAW CLAIMS Contrary to the majority, I believe that the state cannot immunize certain civil actions from application of the Federal Arbitration Act merely by fashioning, after the Federal Securities Act, a statute regulating franchise investments. The United States Supreme Court in Wilko v. Swan (1953) 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168, held that an arbitration clause contained in a margin agrwe- ment was invalid as a forbidden “stipulation” under sec- tion 14 of the federal Securities Act of 1933. (15 U.S.C. $ 77n.) In so holding, the court observed that two stat- utory policies were invoked: (1) the Federal Arbitra- tion Act’s emphasis on “the need for avoiding the delay and expense of litigation” (id., at p. 431, 74 S.Ct. at p. 184, fn. omitted); and (2) the Securities Act’s purpose to protect investors by requiring ‘full and fair disclo- sure... and to prevent fraud.” (Jbid.) The high court stressed that “|w]hen the security buyer, prior to any violation of the Securities Act, waives his right to sue in courts, he gives up more than would a participant in other business transactions. The security buyer has a wider choice of courts and venue. He thus surrenders one of the advantages the Act gives him and surrenders it at a time when he is less able to judge the weight of the handicap the Securities Act places upon his adversary.” (Id., at p. 435, 74 S.Ct. at p. 186.) In measuring the force of the two policies, the Wilko court thus was re- quired to balance two federal statutes, the Arbitration and the Securities Acts. The Wilko court identified one important factor in the weighing process, namely, the existence of 15 United States Code section 77v, which establishes an unusually liberal venue provision for Securities Act litigation. This emphasis on venue was subsequently repeated in Scherk v. Alberto-Culver Co. (1974) 417 U.S. 506, 94 S.Ct. 2449, 59a 41 L.Ed.2d 270, in which the high court declined to in- validate an arbitration clause in a controversy between foreign and domestic parties concerning an alleged vio- lation of the 1934 Securities Exchange Act. The Scherk court specifically emphasized that the 1934 Act’s venue provision (15 U.S.C. § 78aa) “significantly restrict[s|] the plaintiff’s choice of forum” in contrast to section 77v, upon which the court “in particular” relied in Wilko v. Swan. (Id., 417 U.S. at p. 514, 94 S.Ct. at p. 2454, fn. omitted. ) In contrast, the case before us concerns a state statute which is contrary to the federal law. The Wilko reason- ing in balancing between two federal statutes of equal stature thus is not required here. Moreover, unlike the Securities Act of 1933, the state Franchise Investment Law at issue here does not contain a liberal venue pro- vision comparable to that relied on in Wilko. Thus, under the California statute an investor who consents to arbi- tration, thereby waiving the right to sue, does not forgo_ more than other similarly situated parties to routine business contracts or transactions. No different result is mandated by section 31512 of the Corporations Code, which provides that “Any condition, stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with any provisions of this law or any rule or order hereunder is void.” Even if the Legislature had intended that this statute be interpreted according to the principles of Wilko v. Swan, the section nonetheless impermissibly conflicts with the Federal Arbitration Act. Section 31512 is therefore void under the supremacy clause (U.S.Const., art. VI, $2) to the extent that it purports to restrict otherwise permissible arbitration in actions, as here, in- volving interstate commerce. In reaching its conclusion that application of the Fed- eral Arbitration Act here is not required, the majority 60a wholly ignores a substantial line of very respectable au- thority. These cases, as I now develop, hold that in enact- ing the Federal Arbitration Act, Congress created na- tional substantive law, which is binding on state courts even in the absence of federal jurisdiction. In 1959, the United States Court of Appeals for the Second Circuit succinctly expressed the general principle. “We think it is reasonably clear that the Congress in- tended by the Arbitration Act to create a new body of federal substantive law affecting the validity and inter- pretation of arbitration agreements.” (Robert Lawrence Company v. Devonshire Fabrics, Inc. (2d Cir. 1959) 271 F.2d 402, 406, cert. dism. (1960) 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37, italics added.) The Lawrence court observed: “To be sure much of the Act is purely procedural in character and is intended to be applicable only in the federal courts. But Section 2 declaring that arbitration agreements affecting commerce or maritime affairs are ‘valid, irrevocable, and enforceable’ goes be- yond this point and must mean that arbitration agree- ments of this character, previously held by state law to be invalid, revocable, or unenforceable are now made ‘valid, irrevocable, and enforceable.’ This is a declaration of national law equally applicable in state or federal courts.” (Id., at p. 407, italics added.) The United States Supreme Court has aeknowledged the Lawrence holding only in one instance, where it merely note that the Court of Appeals in the case it was then considering had relied upon the Lawrence no- tion of “national substantive law” to hold that “a claim of fraud in the inducement of the contract generally— as opposed to the arbitration clause itself—is for the arbitrators and not for the courts... .” (Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 399-400, 87 S.Ct. 1801, 1803-1804, 18 L.Ed.2d 1270.) The high tri- bunal then affirmed the decision below, “albeit for some- what different reasons.” (Jbid.) Thus the Supreme 6la Court has never rejected the long standing doctrine that the Arbitration Act created national substantive law ap- plicable in appropriate circumstances in state courts. The great majority of lower federal and state courts has continued to adhere to the Lawrence holding. (See Annot. (1979) 95 A.L.R.3d 1145, 1151-1161.) A recent expression of this principle is conteined in Jn re Mercury Const. Corp. (4th Cir. 1981) 656 F.2d 933 (en banc) (cert. granted sub nom. Moses A. Cone Memorial Hos- pital v. Mercury Const. Corp. (1982) U.S. (102 S.Ct. 1426, 71 L.Ed.2d 647]) (three questions were presented in the petition for certiorari; none specifically concerns the scope of the Arbitration Act although one involves the district court’s discretion to stay its proceed- ings pending resolution of identical issues in a state court action involving identical parties). In discussing the ap- plication of the Federal Arbitration Act to state and federal actions the Fourth Circuit noted: “By its express language the Federal Act applies where there is ‘[a] written provision ... in a contract evidencing a trans- action involving commerce to settle by arbitration a con- troversy thereafter arising out of such contract... .” 9 U.S.C. § 2. The constitutional validity of such an Act is found in the incontestable federal control over inter- state commerce. Prima Paint v. Flood & Conklin, 388 U.S. 395, 405, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270.... The Act, however, does not include ianguage conferring independent federal jurisdiction over an action there- under. In order for a plaintiff to assert rights under it in a federal forum, he must establish an independent jurisdictional basis, such as diversity. |Citations.] But if, assuming diversity of the parties, the action meets the jurisdictional requirements of the Act, that action is enforceable in the state courts as well as in federal courts but in either event it is governed by the federal substan- tive law developed in connection with the federal Act and not by state law. E.C. Ernst, Inc. v. Manhattan Const. 62a Co., 551 F.2d 1026, 1040 (5th Cir. 1977) (any questions under the Act are matters of ‘federal law’); Robert Law- rence Co. v. Devonshire Fabrics, Ine., supra, 271 F.2d at 406; Pathman Const. Co. v. Knox County Hospital Ass’n., 164 Ind.App. 121, 326 N.E.2d 844, 851 (1975); Episcopal Housing Corp. v. Federal Ins. Co., 269 S.C. 631, 636, 239 S.E.2d 647 (1977).” (/d., at p. 938, italics in original, fn. omitted.) As described in Lawrence, Congress in enacting the arbitration act sought to coun- teract the hostility of courts and judges to arbitration agreements and to “make the benefits of arbitration gen- erally available to the business world.” (271 F.2d at pp. 406-407; see Prima Paint v. Flood & Conklin, supra, 388 U.S. at p. 405, 87 S.Ct. at p. 1806 [Congress “plainly” — had power to legislate over arbitration ].) Despite the majority’s recognition of the large body of law holding that the act is applicable in state courts in appropriate cases, my colleagues seek to create, judicially, an exception for certain state regulatory practices based on some conclusion that Congress did not intend to pre- empt the area of franchise regulation. The majority, however, fails to acknowledge that Congress has indeed preempted the field of arffitration as applied to any con- tract in interstate commerce to the extent that title 9 of the United States Code applies. No one has urged be- fore us that there is any basis other than the state regu- latory statute upon which to deny application of the Federal Arbitration Act to the contract at issue. In addition to encouraging the enforcement of arbitra- tion agreements, the Arbitration Act also restricts the benefits of the usually disfavored practice of forum shop- ping. As the majority recognizes, the likely explanation for the federal district court’s remand of the action here was that complete diversity did not exist because of the presence of California defendants. Had those defendants not been named, which was, of course, well within a franchisee’s power to choose, the answer would have been | 63a easy. The action could have been readily removed to the federal courts on the basis of diversity and the Arbitra- tion Act unquestionably would have applied. It will thus be seen that the majority implicitly makes the existence or nonexistence of federal jurisdiction the determinative factor in the enforcement of the arbitration clause rather than the existence of a “transaction involving commerce ..’ In so concluding, the majority ignores the critical distinction which exists in the Arbitration Act between the conferral of federal jurisdiction and the creation of federal substantive law applicable in state courts. This promotes forum shopping. In a similar context, the court in Jn re Mercury Const. Corp., supra, specifically observed that, “The addition of the Architect as a party defendant might prevent re- moval of the state action ... but it certainly could not frustrate Mercury’s plain, indisputable right to an arbi- tration of its dispute with the Hospital.” (636 F.2d at p. 942.) The Arbitration Act, construed as national sub- stantive law binding on both federal and state courts, advances consistency. Finally, I find it significant that sister courts which have specifically considered state statutes analogous to the one before us have found that the Arbitration Act prevails over various state attempts to limit its reach. Thus, in Allison v. Medicab (1979) 92 Wash.2d 199, 597 P.2d 380, the Washington Supreme Court reviewed a claim that an arbitration clause in a franchise agreement was invalid under the state’s franchise act which gave to the state courts jurisdiction for causes of action based on violations of the state act. Finding that interstate commerce was involved, the Allison court rejected the argument that Wilko v. Swan, supra, applied to a conflict between a state franchising act and the Federal Arbitra- tion Act. The Allison court instead adopted the weight of authority rule applying the federal act in the face of a contrary state law (id., 597 P.2d at p. 382), conclud- ing that “the supremacy clause of the federal constitu- 64a tion must prevail and thus the Federal Arbitration Act requires enforcement of the arbitration clause in the franchise agreement despite the judicial remedies af- forded by the Franchise Investment Protection Act.” (597 P.2d at pp. 382-383, italics added. ) In similar fashion, in Network Cinema Corporation v. Glassburn (S.D.N.Y. 1973) 357 F. Supp. 169, the federal district court granted an order staying proceedings in a Kansas state court pending arbitration of a dispute be- tween franchisor and franchisee. The Kansas court had held that the arbitration clause signed by the parties was not enforceable under state law. The federal court none- theless found that it was empowered to stay state pro- ceedings “when the dispute in question has been found by the court to be subject to the arbitration provisions of 9 U.S.C. $ 2.” (Id., at p. 172, see also Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1977) 67 Cal.App. 3d 19, 23-25. 136 Cal.Rptr. 378, and cases cited therein [“‘The Federal Arbitration Act, declaring arbitration agreement affecting [interstate] commerce or maritime affairs to be valid, enforceable, and irrevocable, is a dec- laration of national law equally applicable in state or federal courts’”]; Fite & Warmath Const. Co., Inc. v. MYS Corp. (Ky. 1977) 559 S.W.2d 729, 734-735.) Finally, in Barron v. Tastee-Freez Intern., Inc. (E.D. Wis. 1980) 482 F. Supp. 1213, the federal district court considered the enforcement of an arbitration clause in the face of a state statute analogous to section 31512, which it characterized as similar to 15 United States Code section 77n. (482 F. Supp. at pp. 1215-1216). The court felt compelled by the Federal Arbitration Act ‘‘to render void any effort made by a state to protect the remedies of the franchise investors” contrary to the fed- eral act in cases in which the transactions related to in- terstate commerce. (/d., at p. 1217; see also Guinness- Harp Corp. v. Jos. Schlitz Brewing (2d Cir. 1980) 613 F.2d 468, 472.) ‘“‘The policy embodied in Title 9 U.S.C. 65a . . . does not depend for its enforceability on the resi- dence of the parties to a contract but rather on the na- ture of the contract.” (Barron v. Tastee-Freez Intern., Inc., supra, 482 F. Supp. at p. 1217.) The majority attempts to remove a state regulatory statute from the purview of the Federal Arbitration Act in cases involving interstate commerce. In my opinion, its chances of surviving federal review are very dubious. I believe section 31512 is void insofar as it attempts to restrict application of the federal act. Contrary to the majority’s assertion, the issue is not the preemption of the field of franchise investment regulation, but rather the clear language of the federal act and the subsequent state and federal court interpretations which consist- ently demonstrate that the Federal Arbitration Act ap- plies to all claims arising out of transactions in inter- state commerce. ‘Because the United States Arbitration Act is a national substantive law that supplants state ar- bitration laws, a state court is bound to apply the act if the statutory requisites are present;.. .” (Merrill Lynch, Pierce, Fenner, etc. v. Haydu (5th Cir. 1981) 637 F.2d 391, 395, italics added.) As the majority first acknow]l- edges and then ignores, “The Franchise Agreements . involve interstate commerce and fall within the ambit of the Federal Arbitration Act.” (Ante, at p. 364 of 183 Cal.Rptr., at p. 1196 of 645 P.2d.) The conclusion that the federal act must prevail is logical, consistent and supported by case law, statutory language, and congres- sional history. California remains one of the United States, and national substantive law must be applied by us in appropriate cases. B. CLASS ACTION ARBITRATION The majority also concludes that class action arbitra- tion may be an appropriate procedure and has remanded the case for determination by the trial court. In the ab- sence of either statutory or contractual authority, I dis- agree with its holding. a 66a Arbitration is a matter of agreement. It is consensual, being an integral part of the contract. In such situations we have said that the parties “may freely delineate the area of its application.” (O’Malley v. Wilshire Oil Co. (1963) 59 Cal.2d 482, 490, 30 Cal.Rptr. 452, 381 P.2d 188; see Reid Burton Const. v. Carpenters Dist. Council, ete. (10th Cir. 1980) 614 F.2d 698, 702, cert. den. 449 U.S. 824, 101 S.Ct. 85, 66 L.Ed.2d 27.) As a general principle, in considering contract enforcement, “there is perhaps no higher public policy than to uphold and give effect to contracts validly entered into and legally per- missible in subject matter.” (Vernon v. Drexel Burnham & Co. (1975) 52 Cal.App.3d 706, 716, 125 Cal.Rptr. 147.) In the present case, the contracts of the parties do not provide for class arbitration, nor have the parties subsequently agreed thereto. No statute authorizes a court to order arbi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1649%3A2. Public record. Not legal advice.