Opposition Brief — ITT Consumer Financial Corp. v. Patterson

oe J

a

No. 93-952

In The } =

Supreme Court of the United States

October Term, 1993

*

ITT CONSUMER FINANCIAL CORP., AETNA

FINANCE CO., ITT LYNDON PROPERTY INS. CO.,

ITT LYNDON LIFE INS. CO., JOHN M. HIGGINS

AND ASAD ZAFARI,

Petitioners,

ABBE KANAREK PATTERSON, et al.,

Respondents.

on

On Petition For A Writ Of Certiorari

To The California Court Of Appeal

First Appellate District

.

OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

4

PATRICIA STURDEVANT, Esq-* BRIAN Newcoms, Esq.

James C. STURDEVANT, Esq. 770 Menlo Avenue,

Kim E. Carp, Esq. Suite 101

STURDEVANT & STURDEVANT Menlo Park, California

A Professional Corporation 94025

785 Market Street, (415) 322-7780

Suite 500 :

San Francisco, California RUDOLFO ARos, Esq.

—7C¢ ‘Te ‘ ( , c ( c bond ~ .

ve 1107 Second Street,

94103-2012 aie

=. aes ae Suite 330

4] 95-4140 a |

(419) 495-414 Sacramento, California

95814

(916) 444-8155

Attorneys for Respondents

*Counsel of Record

COOKLE LAW BRIEF PRINTING CO) f

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether the California Court of Appeal erred in

applying general principles of contract law to determine

the underlying validity of an arbitration provision

alleged to be unconscionable and unenforceable because

it effectively denied consumers a fair opportunity to pre-

sent or defend claims.

il

TABLE OF CONTENTS

Page

QUESTION PREREIN VEGAS « <sxekneso5se ae ea i

TASLE. OF CORMTENGS.. oicsssecekn isin eaneee ees li

TABLE OF AU RGIS 05s. xscdivaswaesesaene a iii

OPPOSITION TO WRIT OF CERTIORARI.......... 1

See 8 58 mee 8 ree rr re Gt te 2

STATEMENT OF THE CARE «6. ccsecdcecscaasasaans 5

REASONS FOR DENYING THE WRIT............. 10

I. THE DECISION OF THE COURT OF APPEAL IS

NOT IN CONFLICT WITH EITHER THE DECI-

SIONS OF THIS COURT OR THE DECISIONS

OF THE NINTH CIRCUIT AS TO THE

APPLICABLE LAW IN DETERMINING THE

VALIDITY AND ENFORCEABILITY OF ARBI-

TRATION AGREEMENTS GOVERNED BY THE

FEDERAL ARBITRATION ACT ............... 10

Il. EVEN IF THIS COURT INTENDED TO REVISIT

THE ISSUE DECIDED IN PERRY V. THOMAS,

THE COURT SHOULD NOT ISSUE A WRIT IN

THIS CASE BECAUSE THE GENERAL PRINCI-

PLES OF STATE CONTRACT LAW APPLIED BY

THE CALIFORNIA COURT OF APPEAL ARE

NOT IN CONFLICT WITH FEDERAL LAW ... 21

Ill. THERE IS NO JUSTIFICATION FOR THIS

COURT’S REVIEW BECAUSE THE CALIFOR-

NIA COURT OF APPEAL DECISION IS

UNIQUE TO THE PARTICULAR FACTS OF

THIS CASE, DOES NOT CREATE PRECEDENT

FOR THE STATE OF CALIFORNIA, AND DOES

NOT EVIDENCE ANY STATEWIDE HOSTILITY

TOWARD ENFORCEMENT OF ARBITRATION

AGREEMENTS ....« 6 csc csvevicineeeseriesss 26

COU LLIN 5 5 6s ence ne ec 29

ili

TABLE OF AUTHORITIES

Page

Cases:

A & M Produce Co. v. FMC Corp., 135 Cal.App.3d

473, 186 Cal.Rptr. 114 (Cal.App.4 Dist. 1982)

Sr ee ee ee 10, 21, 22

Bayma v. Smith Barney, Harris, Upham & Co., Inc.,

784 F.2d 1023 (9th Cir. 1986)............... 14, 15, 16

Bolanos v. Khalatian, 231 Cal.App.3d 1586, 283

Cal.Rptr. 209 (Cal.App. 2 Dist. 1991).............. 28

Carboni v. Arrospide 2 Cal.App.4th 76, 2 Cal.Rptr.

2d 845 (Cal.App. 1 Dist. 1992) rev. denied ......... 23

Coenen v. R.W. Pressprich & Co., 453 F.2d 1209 (2d

Cir. 1972), cert. denied, 406 U.S. 949 (of) ee 20

Cohen v. Wedbush, Noble, Cooke, inc., 841 F.2d 282

I BO nooo o es esas ee scarbdcnsccnceds... 15, 17

Cost Brothers, Inc. v. Travelers Indemnity Company,

760 F.2d 58 (3d Cir. 1985) ........0............... 19

Dean Witter Reynolds v. Superior Court, 211

Cal.App.3d 758, 259 Cal.Rptr. 789 (Cal.App. 1

Dist. 1989), rev. denied ............................ 23

Eassa Properties v. Shearson Lehman Brothers, 851

F.2d 1301 (11th Cir. 1988)...................... 19, 20

Ericksen, Arbuthnot, Etc. v. 100 Oak Street, 35 Cal.3d

312, 197 Cal.Rptr. 581, 673 P.2d 251 G3 eee 28

Flink v. Carlson, 856 F.2d 44 (8th Cir. 1988).......... 19

Geldermann & Co. v. Lane Processing, Inc., 527 F.2d

tae >. | re 22, 23

iV

TABLE OF AUTHORITIES - Continued

Page

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

BED Due Se COMED 60800 554bccns canes suas 13, 17, 24

Hope v. Superior Court, 122 Cal.App.3d 147, 175

Cal.Rptr. 851 (Cal.App. 1 Dist. 1981), cert.

rm, “Tae WD. Dae ona hxc eo crviccaberss bisuwexess 15

Hume v. United States, 132 U.S. 406 (1889)........... 22

In re Hart Ski Mfg. Co., 711 F.2d 845 (8th Cir. 1983) .... 20

Industralease Automated & Scientific Eq. Corp., Etc.,

58 A.D.2d 482, 396 N.Y.S.2d 427 (1977) ........... 22

Izzy v. Mesquite Country Club, 186 Cal.App.3d

1309, 231 Cal.Rptr. 315 (Cal.App. 4 Dist. 1986) .... 28

Mago v. Shearson Lehman Hutton, Inc., 956 F.2d 932

Pee SOc dy Crea veer e cee Ce Lee Rare a Ke 17

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

CFD Mise WOO CUGNO bs asco e et isaessie 11, 12, 13, 14, 24

Moncharsh v. Heily & Blase, 3 Cal.4th 1, 10 Cal.Rptr.

2d 183, 832 P.2d 899, reh’g. denied (1992).......... 27

Moses H. Cone Memorial Hosp. v. Mercury Construc-

tion Co., 460 U.S. 1 (1983) ...........3, 12, 14, 15, 16

Neal v. Hardee's Food Systems, Inc., 918 F.2d 34 (5th

oe eg ay | ee ree ee re 19

Passage v. Prudential-Bache Securities, Inc., 727 P.2d

1298 (Mont. 1986), cert. denied, 480 U.S. 905

bg er err ee rer re rrr rr ere or rr ear ere 24

Perdue v. Crocker National Bank, 38 Cal.3d 913, 216

Cal.Rptr. 345, 702 P.2d 503 (1985), appeal dis-

NE re Or OO a oad toa a eecwkede cress 23

TABLE OF AUTHORITIES - Continued

Page

Perry v. Thomas, 482 U.S. 483 (1987)............. passim

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

iad: See RRND cas cS ae we we meaner an een ae ed 11, 18

Rodriguez De Quijas v. Shearson/American Exp., Inc.,

0 Oe CI os ed scvddeee ee ee 24

Rowland v. Paine Webber, Inc., 4 Cal.App.4th 279, 6

Cal.Rptr. 2d 20 (Cal.App.2 Dist. 1992)............. 28

Saturn Distribution Corp. v. Williams, 905 F.2d 719

(4th Cir.), cert. denied, 498 U.S. 983 iL.) eee 20

Securities Industry Ass'n v. Connolly, 883 F.2d 1114

(1st Cir. 1989), cert. denied, 495 U.S. 956 (1990) .... 20

Southland Corp. v. Keating, 465 U.S. 1 (1984) ..11, 13, 16

Teledyne, Inc. v. Kone Corporation, 892 F.2d 1404

(ie Cat. ORE). i.e ccciiieir are eee 18

Volt Info. Sciences v. Bd. of Trustees, 489 U.S. 468

(RGOPE sae nse whens 0an4s cremate 11, 13, 14

Webb v. Rowland & Co., Inc., 800 F.2d 803 (8th Cir.

SPD a wo aos de RAE LE RY Ch SRA ee 24

Williams v. Walker-Thomas Furniture Company, 350

rae 40 (0. Che I: ee 22

STATUTES:

Vi

TABLE OF AUTHORITIES —- Continued

OrTrHerR AUTHORITIES:

Section 2-302 Uniform Commercial Code (West

1989) ae Ast Pe tar

1 Arthur Corbin, Corbin on Contracts, § 128 (1992

Supp.)

Restatement Second Contracts 2d, § 208 (1979)

Page

ean

No. 93-952

= —

In The

Supreme Court of the United States

October Term, 1993

+

ITT CONSUMER FINANCIAL CORP., AETNA

FINANCE CO., ITT LYNDON PROPERTY INS. CO.,

ITT LYNDON LIFE INS. CO., JOHN M. HIGGINS

AND ASAD ZAFARI,

Petitioners,

ABBE KANAREK PATTERSON, et al.,

Respondents.

e

On Petition For A Writ Of Certiorari

To The California Court Of Appeal

First Appellate District

-

OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

>

Respondents Johnny Davis, James P. Jacobs, Thomas

Pierce, Zenia M. Velasco, Dona Wessels, Jorge De La O,

and John Lang, on behalf of themselves and a proposed

class of similarly-situated California consumers, (here-

inafter referred to collectively as “Respondents”),

respectfully request that this Court deny the Petition for

Writ of Certiorari pending in this matter.

+

INTRODUCTION

This is a factually-unique case in which the California

Court of Appeal was required to determine, as a matter of

basic contract law, the underlying validity and enfor-

ceability of an arbitration provision. Based on evidence in

the record and applying general principles of state con-

tract law, the Court of Appeal held that the arbitration

provision, which was contained in a standard form con-

tract for small consumer loans, and which required Cali-

fornia consumers to submit to arbitration in a forum

located in Minneapolis, Minnesota, was unconscionable

and therefore unenforceable.

The decision below raises no issue that is not con-

clusively resolved by the provisions of the Federal Arbi-

tration Act itself, 9 U.S.C. §2, (“the FAA”), and by

previous well-considered decisions of this Court. Further-

more, as Respondents will demonstrate in the sections

following, there is no conflict between the decision of the

Court of Appeal below and the decisions of the Ninth

Circuit interpreting and applying the FAA. Rather, Peti-

tioners have attempted to create the appearance of con-

flict, where none in fact exists, by deliberately ignoring

an important distinction between two issues that arise in

cases governed by the FAA. The first issue, which is the

issue that arose in this case, is the question of the under-

lying validity and enforceability of the arbitration agree-

ment. This Court has previously instructed that this

determination is to be made according to general princi-

ples of state contract law. See Perry v. Thomas, 482 U.S.

483, 492 n.9 (1987); 9 U.S.C. §2. The second issue that

frequently arises, but which was not present in any man-

ner in this case, is the scope of the arbitrable issues under

an admittedly valid and enforceable arbitration agree-

ment. This Court has ruled that such a determination is to

be made as a matter of federal law. See Moses H. Cone

Memorial Hosp. v. Mercury Construction Co., 460 U.S. 1,

24-25 (1983). Once this important distinction is made

between the validity of an arbitration provision under

general principles of contract law, and the arbitrability of

a particular dispute as a matter of federal law, it is quite

clear that there is no conflict among the lower courts, and

accordingly, there is no basis for this Court’s review.

Moreover, as will be demonstrated herein, regardless

of whether state or federal law applies, the result would

be the same in this case. At bottom, what is before this

Court is an arbitration provision that two courts, exercis-

ing de novo review of substantial evidence in the record,

and applying long-established and generally-applicable

principles of contract law, have found to be unconscion-

able and unenforceable. The Federal Arbitration Act

itself, and the numerous decisions of this Court interpret-

ing that statute, establish that an arbitration provision is

rendered unenforceable or revocable “upon such grounds

as exist in law or in equity for the revocation of any

contract.” 9 U.S.C. §2.! That is precisely the principle that

1 It is important to note that the record below is devoid of

any evidence or finding, as a matter of fact or law, that the small

consumer loan transactions at issue actually involved interstate

commerce such that the Federal Arbitration Act applied. Peti-

tioners argued in the courts below that ‘ne provision was gov-

erned by the FAA, and there was much briefing by both parties

as to the applicability and requirements of federal law. Respon-

dents denied that the FAA applied, however, because the trans-

actions occurred entirely within California between California

was applied by the trial court and by the California Court

of Appeal in this case. The state law standard for deter-

mining unconscionability applied by the court below is

generally applicable to any contract provision, and is

derived directly from federal common law. The decision

below applying that standard to the disputed arbitration

provision was limited to the unique facts of this case and

was well supported by evidence in the record. The deter-

mination would not have been any differenti had the court

applied federal common law.

Petitioners have also argued that the decision below

indicates that California courts are hostile to arbitration

agreements. This assertion is similarly contrary to estab-

lished law. California courts, in particular the California

Supreme Court, have repeatedly emphasized the state’s

strong policy favoring arbitration and the courts’ willing-

ness to enforce valid arbitration agreements. The arbitra-

tion agreement in this case was denied enforcement by

the Court of Appeal solely because the unique facts and

circumstances of this case clearly rendered the provision

unconscionable as a matter of basic contract law. This

very limited decision neither resulted from, nor evi-

denced any, hostility toward arbitration agreements. Nor

does the decision conflict in any way with the provisions

of the FAA, the decisions of this Court, or the decisions of

the Ninth Circuit. Indeed, because the sole issue in this

consumers and businesses licensed to make loans by the State of

California. Respondents also argued that, regardless of whether

the FAA applied, the preliminary determination as to whether a

valid and enforceable agreement existed was to be made accord-

ing to state law. Perry v. Thomas, supra, 482 U.S. 483, 492, n.9.

case is the basic validity of a contract provision, the case

presents no federal question whatsoever.

+

STATEMENT OF THE CASE

This is a consumer class action in which Respon-

dents, all lower and middle income consumers residing in

California, allege that Petitioners engaged in unlawful,

unfair, and fraudulent business practices in the soliciting,

making, and collecting of small consumer loans, and in

the collateral sale of credit insurance policies.2 Respon-

dents allege, inter alia, that Petitioners falsely advertised

consumer loan products; deceived borrowers about the

terms of loan transactions and loan documents; forced

consumers to purchase various insurance policies as part

of the loan transaction; deceived consumers about addi-

tional charges imposed for insurance; systematically

churned borrowers’ accounts; and engaged in a pattern of

* The original Complaint in this action was filed on Sep-

tember 26, 1991 on behalf of ten named plaintiffs and a pro-

posed consumer class. A companion case was filed on behalf of

Respondent John Lang. Only four of the original ten named

plaintiffs in the Patterson action, and John Lang, signed loan

documents containing the disputed arbitration provision. Two

additional plaintiffs were added by a subsequent amended com-

plaint. Thus, although there are twelve named plaintiffs in the

action, only six are Respondents to this Petition. The remaining

six plaintiffs, and all other members of the proposed class

whose loan documents did not contain the arbitration provision

are unaffected by the arbitration dispute. Thus, the parties have

litigated substantive law and motion matters and proceeded

with discovery as to the “non-arbitration” plaintiffs and other

class members.

6

unlawful and abusive debt collection practices. Respon-

dents allege causes of action under several California

consumer protection statutes and common law theories of

recovery, and seek class certification, injunctive and

declaratory reliet, restitution, compensatory and punitive

damages, and attorneys’ fees and costs.

Atter the action was initially removed to federal

court, and subsequently remanded to the state court,

Petitioners moved to compel arbitration against Respon-

dents based on a standardized arbitration clause that was

contained in one of the numerous standard form docu-

ments they were required to sign at the time they took

out their loans. This provision purported to obligate

Respondents to resolve any claims against ITT Financial

Services “by binding arbitration by the National Arbitra-

tion Forum, Minneapolis, Minnesota.” The provision also

asserted that the transaction was in interstate commerce

and subject to the Federal Arbitration Act, 9 U.S.C.

§§1-14. Respondents opposed the motion to compel arbi-

tration on several grounds, including, inter alia, that the

provision was unconscionable in its setting, purpose and

etfect, and therefore unenforceable under general princi-

ples of contract law; and that Respondents did not know

that the documents they were required to sign contained

an arbitration provision, and did not knowingly consent

to arbitration.

To support the claim of unconscionability, Respon-

dents presented substantial evidence regarding the cir-

cumstances under which the arbitration agreements were

signed, and the purpose and effect of the arbitration

————————————————

provision.’ As an initial matter, the evidence established

that Respondents are all relatively unsophisticated con-

sumer borrowers. The evidence also established that, at

the time they took out their loans, these consumers were

instructed to sign several documents, but were not aware

and were not informed by Petitioners that one of the

documents contained an arbitration provision. The evi-

dence further established that the disputed provision was

merely one paragraph on a form that, although titled

“Agreement for Dispute Resolution,” for most unsophis-

ticated consumers, appeared to contain only customer

service information, not contractual provisions.

The evidence also established that, by designating a

distant, expensive, and inaccessible forum — the National

Arbitration Forum, located in Minneapolis, Minnesota

(the “NAF”) — the arbitration provision was designed to,

and effectively did, deny California consumers any real

opportunity to present or to defend claims against Peti-

tioners. Specifically, the evidence showed that after Peti-

tioners filed claims against California consumers in the

Minnesota forum, the NAF sent notification of the claim

and invited the consumer to send in a written response to

Minnesota. If a California consumer failed to send in a

written response in the time allowed, a default award

was entered through a purely administrative process. No

arbitration occurred. If a consumer did send in a written

response, jurisdiction was deemed conferred on the NAF

in Minnesota, and an arbitrator sitting in Minnesota

3 This evidence was presented to the trial court in the form

of sworn declarations and exhibits attached thereto. The full

record was transmitted to the Court of Appeal.

would render an award based solely on the documents

submitted. Under the NAF rules, no participatory hearing

was ever held unless the consumer specifically requested

such a hearing and submitted the minimum three-hour

hearing fee of $750.00.

Although Petitioners asserted that California resi-

dents could request a hearing in their home district, and

that indigent persons could obtain a waiver of the hear-

ing fee, the evidence established that the NAF rules on

these issues were unintelligible, ambiguous and mislead-

ing.4 (Petition Appendix, at 8a.) Despite their attempts to

justify the NAF rules regarding hearing fees, fee waivers,

and hearing location, Petitioners failed to present any

evidence that any California consumer had ever obtained

a participatory hearing through the NAF, either in Cali-

fornia or elsewhere. Rather, the evidence in the record,

including declarations submitted by NAF personnel and

the trial court’s own records, established that, as a practi-

cal matter, Petitioners used the arbitration provision rou-

tinely to obtain default arbitration awards against

California consumers through a purely administrative

process at the NAF in Minneapolis, and then to convert

those awards into judgments in California courts. Based

on this evidence, and applying well-established princi-

ples of contract law, the trial court found the arbitration

provision to be unconscionable and unenforceable, and

4 In the lower courts, Petitioners repeatedly characterized

the NAF as “headquartered” in Minneapolis. No evidence was

ever introduced, however, to indicate that the NAF had any

office or facility other than the one located in Minneapolis. Nor

was there any evidence presented of any NAF facility in Califor-

nia or of any NAF proceeding ever occurring in California.

on that basis denied Petitioner’s motion to compel arbi-

tration.® (See Petition Appendix, 14a-19a.)

On appeal, applying de novo review, the California

Court of Appeal independently examined the evidence in

the record, applied long-standing and well-established

standards of unconscionability under California law that

are applicable to contracts in general, and unanimously

concluded that the arbitration provision was unconscion-

able as a matter of law and therefore unenforceable. (See

Petition Appendix, at 3a-13a.) The court made this deter-

mination based on findings both as to the circumstances

under which the arbitration provision was presented for

signature to consumer borrowers, and the effect of the

provision in discouraging and/or denying consumers

any meaningful opportunity to present or to defend

claims. Contrary to misrepresentations made by Peti-

tioners, the court did not determine that the provision

was unconscionable merely because it was a contract of

adhesion. In fact, the Court specifically noted that “a

contract of adhesion is still fully enforceable.” (Appendix,

at 5a.) Rather, the findings that the standardized contract

was one of adhesion between parties of great disparity of

bargaining power, that there had been no negotiation of

terms, and that Respondents were unaware of the arbitra-

tion provision, were merely factors in the Court of

Appeal’s overall determination that the provision was

procedurally and substantively unconscionable.

° The trial court made no findings as to whether Respon-

dents had consented to arbitration, or whether their signature

on the arbitration agreements had been procured by fraud.

10

The decision of the Court of Appeal was based on the

standard for determining unconscionability set forth in A

& M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 186

Cal.Rptr. 114 (Cal.App.4 Dist. 1982). This standard has

long been held applicable to contracts generally, and was

applied by the Court of Appeal to the arbitration provi-

sion just as it would have been applied to any other

contract term. Furthermore, the standard for determining

unconscionability set forth in A & M Produce, and applied

by the Court of Appeal below, is derived directly from

federal common law. (See discussion at II., infra.)

After their petition for rehearing was denied by the

Court of Appeal, Petitioners petitioned the California

Supreme Court for review. Although the California

Supreme Court has made clear in recent years its unre-

lenting commitment to the enforcement of valid arbitra-

tion agreements, and its own strong endorsement of

judicial policy favoring arbitration, that Court unani-

mously denied review in this case.

+

REASONS FOR DENYING THE WRIT

I. THE DECISION OF THE COURT OF APPEAL IS

NOT IN CONFLICT WITH EITHER THE DECI-

SIONS OF THIS COURT OR THE DECISIONS OF

THE NINTH CIRCUIT AS TO THE APPLICABLE

LAW IN DETERMINING THE VALIDITY OF ARBI-

TRATION AGREEMENTS GOVERNED BY THE

FEDERAL ARBITRATION ACT.

The decision of the California Court of Appeal is fully

consistent with the provisions of the FAA, applicable

11

decisions of this Court, and the decisions of the Ninth Circuit

Court of Appeals. As is explained below, the conflict Peti-

tioners have attempted to create simply does not exist.

Section 2 of the Federal Arbitration Act specifically

provides that an arbitration agreement is “valid, irrevoca-

ble, and enforceable, save upon grounds as exist at law or

equity for the revocation of any contract.” 9 U.S.C. §2

(emphasis added). Thus, arbitration agreements are sub-

ject to the same general principles of contract law that

would render any contractual provision invalid, unenfor-

ceable or revocable. Mitsubishi Motors Corp. v. Soler Chrys-

ler-Plymouth, 473 U.S. 614, 625 (1985); Southland Corp. v.

Keating, 465 U.S. 1, 16 n.11 (1984). In the past, this Court

has cautioned that privately-negotiated agreements to

arbitrate are “as enforceable as other contracts, but not

more so.” Volt Info. Sciences v. Bd. of Trustees, 489 U.S. 468,

478 (1989), quoting Prima Paint Corp. v. Flood & Conklin

Mfg. Co., 388 U.S. 395, 404 n.12 (1967) (emphasis added).

There is no support in either the Federal Arbitration Act,

or in the decisions of this Court, for Petitioners’ conten-

tion that, as a matter of federal law, arbitration provisions

are to be accorded special status and excused fundamen-

tal defects that would annul any other contract provision.

This Court has also specifically addressed and

answered the issue Petitioners claim is raised by this

Petition — whether it is state or federal law that is to be

applied in determining if an arbitration provision is revo-

cable “upon grounds as exist at law or equity for the

revocation of any contract.” 9 U.S.C. §2. This Court has

consistently and repeatedly instructed that the prelimi-

nary determination of the validity of an arbitration agree-

ment is to be made according to general principles of

12

state contract law. In Perry v. Thomas, supra, 482 U.S., at

492 n.9, this Court stated as follows:

We also decline to address Thomas’ claim that

the arbitration agreement in this case constitutes

an unconscionabie, unenforceable contract of

adhesion. This issue was not decided below, see

nn. 4 and 6, supra, and may likewise be consid-

ered on remand.

We note, however, the choice-of-law issue that

arises when defenses such as Thomas’ so-called

‘standing’ and unconscionability arguments are

asserted. In instances such as these, the text of

§2 provides the touchstone for choosing

between state-law principles and the principles

of federal common law envisioned by the pas-

sage of that statute: An agreement to arbitrate is

valid, irrevocable, and enforceable, as a matter of

federal law, see Moses H. Cone Memorial Hospital v.

Mercury Construction Corp., 460 U.S. 1, 24, 103

S.Ct. 927, 74 L.Ed.2d 765 (1983), ‘save upon

grounds as exist at law or in equity for the

revocation of any contract.’ 9 U.S.C. §2

(emphasis added). Thus state law, whether of

legislative or judicial origin, is applicable if that

law arose to govern issues concerning the val-

idity, revocability, and enforceability of con-

tracts generally.

(Emphasis in original.)

Petitioners have asserted that this Court’s very clear

instruction in Perry was merely “dictum,” and have

falsely suggested that it conflicted with earlier decisions

of this Court and other Courts of Appeal. (Petition, at 16.)

In fact, the holding in Perry was fully consistent with

earlier decisions of this Court. See e.g., Mitsubishi Motors

13

Corp. v. Soler Chrysler-Plymouth, supra, 473 U.S., at 627

(“Of course, courts should remain attuned to well-

supported claims that the agreement to arbitrate resulted

from the sort of fraud or overwhelming economic power

that would provide grounds ‘for the revocation of any

contract.’ 9 U.S.C. §2.”); Southland Corp. v. Keating, supra,

465 U.S., at 16 n.11. (“We agree, of course, that a party

may assert general contract defenses such as fraud to

avoid the enforcement of an arbitration agreement.). Fur-

thermore, the Perry rule was subsequently referenced and

reaffirmed in this Court’s decision in Volt Info. Sciences v.

Board of Trustees, supra, 489 U.S., at 475-76, a case conspic-

uously absent from the Petition, in which the Court

stated:

These cases of course establish that, in applying

general state-law principles of contract interpreta-

tion of an arbitration agreement within the scope of

the Act, see Perry v. Thomas, 482 U.S. 483, 493,

n.9,...due regard must be given to the federal

policy favoring arbitration, and ambiguities as

to the scope of the arbitration clause itself

resolved in favor of arbitration.

(Emphasis added.) See also Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 1656 (1991) (reaf-

firming the holding in Mitsubishi Motors Corp. that courts

should remain attuned to well-supported claims of

unequal bargaining power in determining the enfor-

ceability of an arbitration provision). Thus, this Court has

made clear in Perry v. Thomas, and in decisions prior and

subsequent to Perry, that the initial determination of the

underlying validity and enforceability of an arbitration

agreement is to be made according to general principles

of state contract law.

14

[he cases cited by Petitioners in their attempt to

create the appearance of conflict are easily distinguish-

able. In Moses H. Cone Memorial Hospital v. Mercury Con

struction Corp., supra, 460 U.S. 1, and in the Ninth Circuit

cases cited in the Petition, the issue addressed was

whether a particular dispute was within the scope of the

parties’ admittedly valid arbitration agreement, (i.e., the

“arbitrability” of the dispute). It is well-established that

this is a separate issue that is to be decided as a matter of

federal substantive law. This was first made clear in this

Court’s decision in Moses H. Cone, supra, 460 U.S., at

24-25. In that case, this Court stated as follows:

[he basic issue presented in Mercury’s federal

suit was the arbitrability of the dispute between

Mercury and the Hospital. Federal law in the

terms of the Arbitration Act governs that issue

in either state or federal court.

[he Arbitration Act establishes that, as a matter

of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of

arbitration, whether the problem at hand is the

construction of the contract language itself or an

allegation of waiver, delay, or a like defense to

arbitrability

(Emphasis added.) See also Mitsubishi Motors Corp., supra,

473 U.S., at 626 (the decision as to whether a particular

dispute is within the scope of the parties’ agreement to

arbitrate is to be made according to the federal substan-

tive law of arbitrability); Volt Info. Sciences, supra, 489

U.S., at 475-76 (although general state-law principles gov-

ern basic interpretation of the validity of an arbitration

15

agreement, determinations as to the scope of the arbitra-

ble issues under the agreement must be resolved accord-

ing to federal policy favoring arbitration).

The Ninth Circuit cases cited by Petitioners all derive

from this Court’s holding in Moses H. Cone. The line of

cases begins with Bayma v. Sriith Barney, Harris, Upham &

Co., Inc., 784 F.2d 1023 (9th Cir. 1986), a case which

preceded this Court's instruction in Perry, that it is state

law principles that govern underlying issues of validity,

by at least a year. 482 U.S., at 492 n.9. The issue presented

in the Bayma case was whether an employment dispute

was arbitrable under the terms of an arbitration agree-

ment in an employee contract. The district court had

found the provision revocable under state law. Id., at

1923; accord Hope v. Superior Court, 122 Cal.App.3d 147,

175 Cal. Rptr. 851 (Cal.App. 1 Dist.), cert. denied, 456 U.S.

910 (1981). The Ninth Circuit, however, defined the issue

as one of arbitrability, i.c., whether the employment dis-

pute was arbitrable or whether it was exempt from the

requirements of the arbitration provision. Id., at 1024.

Relying on this Court’s holding in Moses H. Cone, the

Ninth Circuit held that federal law applied on the issue of

arbitrability and did not permit the state to carve out

exceptions. The court concluded that, “[i]f the contract is

one ‘involving commerce,’ then the question of arbitra-

bility is controlled by federal law and not by state law.”

Id., at 1025.

In Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282

(9th Cir. 1988), decided less than a year after this Court's

decision in Perry v. Thomas, sophisticated investors

attempted to avoid arbitration of their disputes with a

stock brokerage firm. Although the court generally stated

16

that “the availability and validity of defenses against

arbitration are therefore to be governed by application of

federal standards,” (841 F.2d at 285, citing Bayma), the

court again defined the issue as primarily one of arbitra-

bility of the issues, rather than the underlying validity of

the agreement. See e.g., id., at 285 (“ ‘[Q]uestions of arbi

trability must be addressed with a healthy regard for the

tederal policy favoring arbitration’ ”), citing Moses H.

Cone, 460 U.S., at 24; id., at 286 (“state law adhesion

contract principles may not be invoked to bar arbitrability

of disputes under the Arbitration Act”), citing Bayma, 784

F.2d, at 1024 (emphasis added).°

The Ninth Circuit also acknowledged in the Cohen

decision that general principles of contract law apply toa

court’s determination of the underlying validity of an

© There is clearly a recognizable distinction between the

application of state law adhesion principles to the underlying

validity of an agreement, and the application of such principles

to a determination of the arbitrability of a particular dispute. As

the California Court of Appeal recognized in this case, and as

this Court has previously instructed, while contracts of adhe-

ston are fully enforceable, “courts should remain attuned to

well-supported claims that the agreement to arbitrate resulted

from the sort of fraud or overwhelming economic power that

would provide grounds ‘for the revocation of any contract.’ 9

U.S.C. § 2.” Southland Corp. v. Keating, supra, 465 U.S., at 16, n.11.

In contrast, state law principles of adhesion are preempted by

tederal law when determining the scope of an admittedly valid

arbitration agreement. Whereas state law would require that the

scope of a contract provision be construed against the drafter,

federal law requires that the scope of an arbitration agreement

be broadly construed, such that “any doubts about the scope of

arbitrable issues should be resolved in favor of arbitration.”

Moses H. Cone Memorial Hosp., supra, 460 U.S., at 24.

17

arbitration provision. Like the Respondents in this case,

the plaintiffs in Cohen also asserted that the arbitration

provision at issue was unconscionable because the forum

designated (the NYSE) was presumptively biased. The

Ninth Circuit did not dismiss this contention as inap-

propriate under federal law. Rather, the court made a

substantive determination that “because Congress has

committed to the SEC the task for ensuring that the

federal rights established by the Securities Acts are not

compromised by inadequate arbitration procedures, we

are bound by the commission’s determination that the

procedures at issue here are satisfactory.” Id., at 286.

Similarly, in response to the plaintiffs’ contention that

their consent to the arbitration provision had been

induced by fraud, the Ninth Circuit applied “traditional

common law principles” and rejected the plaintiffs’ claim

of reliance. Id., at 287.

Finally, in Mago v. Shearson Lehman Hutton, Inc., 956

F.2d 932 (9th Cir. 1992), the primary issue was whether

the plaintiff’s Title VII claim was within the scope of

arbitrable issues. Because the plaintiff also challenged the

arbitration agreement as an unenforceable contract of

adhesion, the Ninth Circuit again repeated its holding in

Bayma and Cohen that “state law adhesion principles may

not be invoked to bar arbitrability of disputes under the

[Federal] Arbitration Act.” Id., at 956 F.2d, at 932 (citation

omitted). The Ninth Circuit also acknowledged, however,

this Court’s instruction that “ ‘courts should remain

attuned to well-supported claims that the agreement to

arbitrate resulted from the sort of fraud or overwhelming

economic power that would provide grounds for the

oe

revocation of any contract,’ ” citing Gilmer v. Interstate/

18

Johnson Lane Corp., supra, 111 S.Ct., at 1656, and remanded

to the district court for a determination on the factual

issue of adhesion. Id., at 934-35.

Furthermore, in a case not cited by Petitioners, the

Ninth Circuit explicitly recognized that is general state

law principles that apply in determining the underlying

validity of an arbitration clause. In Teledyne, Inc. v. Kone

Corporation, 892 F.2d 1404 (9th Cir. 1990), a party to an

arbitration clause sought to avoid arbitration by denying

the existence of the contract as a whole. Citing Prima

Paint Corp., supra, 388 U.S., at 402-04, the Ninth Circuit

held that cases must be submitted to arbitration unless

there is a challenge to the arbitration provision “which is

separate and distinct from any challenge to the underlying

contract.” Teledyne, Inc., supra, 892 F.2d, at 1410. The court

then noted that, under the Section 2 of the FAA, “general

principles of law and equity” are relevant in determining

whether there is an independent challenge to an arbitra-

tion clause, and that it is in this “narrow class of cases in

which state law 1s relevant under the Federal Arbitration

Act.” Id., at 1410-11.

Thus, like this Court, the Ninth Circuit has held that

federal law applies when the issue presented is the arbi-

trability of a particular dispute governed by the FAA.

When the issue presented is the underlying validity of an

arbitration provision, however, as was the issue in this

case, the Ninth Circuit has acknowledged that it is gen-

eral principles of state contract law that govern such a

determination. Accordingly, there is no conflict between

the decisions of the Ninth Circuit and the opinion of the

California Court of Appeal in this case.

19

Moreover, once this important distinction is made

between the issues of underlying validity and arbitra-

bility, the supposed conflict between the California Court

of Appeal decision in this case and the decisions of other

federal courts cited by Petitioners similarly evaporates.

For example, in Neal v. Hardee's Food Systems, Inc., 918

F.2d 34 (5th Cir. 1990), reh’g. denied, the court defined the

issue presented as “whether the broad arbitration clause

contained in the License Agreements entered into

between the parties applies to the claims contained in

Neal’s petition pending in the district court.” 918 F.2d, at

36. In a footnote, the court noted that “federal law appli-

cable to this decision simply comprises generally accept-

able principles of contract law. ... We look to state law to

shape these general principles.” Id., at 37-38, n.5 (citations

omitted). See also Eassa Properties v. Shearson Lehman

Brothers, 851 F.2d 1301, 1304 n.7 (11th Cir. 1988) (“While

federal law may govern the interpretation and enforce-

ment of a valid arbitration agreement, state law governs

the question of whether such an agreement exists in the

first instance.”); Cost Brothers, Inc. v. Travelers Indemnity

Company, 760 F.2d 58, 60 (3d Cir. 1985) (while federal law

governs the construction of an arbitration agreement, the

actual question presented was one of surety law to which

state surety law applied); Flink v. Carlson, 856 F.2d 44, 46,

n.2 (8th Cir. 1988) (the question of what persons are

bound by an arbitration agreement subject to the FAA is a

question of federal law, “but since that question involves

the ‘general law’ of contracts and agency, federal courts

look to state law in shaping federal law”).

20

The illusion of conflict is further dissipated once

proper distinctions are made between cases decided prior

to this Court’s 1987 decision in Perry v. Thomas, and those

decided subsequent to the decision. See e.g., Petition, at

footnote 5, in which the Petitioners compare Eassa Proper

ties, supra, 851 F.2d, at 1304, a case decided in 1988, with

In re Hart Ski Mfg. Co., 711 F.2d 845 (8th Cir. 1983), a one-

page opinion decided in 1983, four years prior to Perry.

Similarly, on page 16 of the Petition, the Petitioners criti-

cize this Court’s holding in Perry as inconsistent with

Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, #211 (2d

Cir. 1972), cert. denied, 406 U.S. 949 (1972), a decision of

the Second Circuit Court of Appeals that preceded this

Court’s decision in Perry by at least fifteen years.

The post-Perry decisions of the First and Fourth Cir-

cuits in Securities Industry Ass’n v. Connolly, 883 F.2d 1114

(Ist Cir. 1989), cert. dented 495 U.S. 956 (1990), and Saturn

Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir.), cert.

denied 498 U.S. 983 (1990), demonstrate that the Circuit

Courts of Appeal have no difficulty in applying the Perry

instruction. In those cases, the courts acknowledged the

applicability of general principles of state contract law in

determining the underlying validity of an arbitration pro-

vision, but invalidated state laws that imposed special

restrictions on the formation of arbitration agreements.

The decisions were thus fully consistent with both this

Court’s holding in Perry and with the decisions of other

Circuit Courts of Appeal.

Thus, while federal courts have not always exercised

a great deal of precision in describing when federal law

applies to arbitration agreements governed by the FAA

and when general principles of state contract law are

inten ain i

21

applicable, there is no actual conflict on this issue among

the lower courts. This Court's holding in Perry v. Thomas

settled the issue and need not be revisited.

Il. EVEN IF THIS COURT INTENDED TO REVISIT

THE ISSUE DECIDED IN PERRY YV. THOMAS, THE

COURT SHOULD NOT ISSUE A WRIT IN THIS

CASE BECAUSE THE GENERAL PRINCIPLES OF

STATE CONTRACT LAW APPLIED BY THE CALI-

FORNIA COURT OF APPEAL ARE NOT IN CON-

FLICT WITH FEDERAL LAW.

Even if this Court were inclined to revisit the issue it

resolved in Perry v. Thomas, this case is not the proper

vehicle for doing so. The doctrine of unconscionability

applied by the California Court of Appeal in this case to

invalidate the ITT arbitration provision is not unique to

California law, is not uniquely applicable to arbitration

agreements, and does not conflict in any way with federal

common law. Thus, if this court intended to instruct state

or federal courts further on the limitations of applying

unique state law principles to arbitration agreements

governed by the FAA, review in this case would not

accomplish that purpose. Moreover, if the Court desired

to reexamine the application of state law principles of

contract interpretation to arbitration agreements gov-

erned by the FAA, the issue should be addressed in a case

in which there is a clear conflict between the applicable

state and federal law. No such conflict exists in this case.

rhe doctrine of unconscionability applied by the Cal-

itornia Court of Appeal in this case, as set forth in A & M.

Produce Co. v. FMC Corp., supra, 135 Cal.App.3d 473, is

derived directly from the Uniform Commercial Code and

22

federal common law. Indeed, in describing the doctrine,

the A & M Produce court cited and relied heavily upon the

well-known case Williams v. Walker-Thomas Furniture Com-

pany, 350 F.2d 445 (D.C. Cir. 1965), in which the court

described the doctrine of unconscionability, as a matter of

federal common law, in terms almost identical to those

applied by the California Court of Appeal in this case.

Unconscionability has generally been recog-

nized to include an absence of meaningful

choice on the part of one of the parties together

with contract terms which are unreasonably

favorable to the other party.

Williams, 350 F.2d, at 449.

The A & M Produce case also notes that California’s

doctrine of unconscionability is derived from section

2-302 of the Uniform Commercial Code, which has long

been applied by both federal and state courts to deny

enforcement of unconscionable contract provisions. See

e.g., § 2-302 Uniform Commercial Code (West 1989); Wil-

liams v. Walker-Thomas Furniture Company, supra, 350 F.2d,

at 449; Industralease Automated & Scientific Eg. Corp., Etc.,

58 A.D.2d 482, 396 N.Y.S.2d 427 (1977); Geldermann & Co.

v. Lane Processing, Inc., 527 F.2d 571, 575 (8th Cir. 1975). In

Geldermann & Co., the court explained that the doctrine of

unconscionability as currently codified in U.C.C. § 2-302

originated in English common law, and was first

approved by the Supreme Court in 1889 in Hume v. United

States, 132 U.S. 406, 411 (1889). In describing the doctrine,

the court in Geldermann & Co. emphasized the same con-

siderations that formed the basis of the California’s

court’s analysis in A & M Produce Co. — whether there was

a gross inequity of bargaining power between the parties,

23

whether the aggrieved party was aware of and compre-

hended the provision in question, and whether the provi-

sion at issue was a commercially reasonable allocation of

risks. 527 F.2d, at 575-76; see also 1 Arthur Corbin, Corbin

on Contracts, § 128 (1992 Supp.); Restatement Second Con-

tracts 2d, § 208, (1979).7 Thus, the doctrine of uncons-

cionability applied by the California Court of Appeal in

this case is one of the most long-standing and generally-

applicable principles of both federal and state contract

law that “exist[s] at law or equity for the revocation of

any contract.” 9 U.S.C. § 2. Accordingly, regardless of

whether the California Court of Appeal had applied state

or federal common law, based on the evidence in the

record, the result would have been the same.

This Court has always been mindful of the possibility

of unfairness in the arbitration context, and has never

held that arbitration Provisions are necessarily exempt

from general contractual Principles of adhesion,

Oppression and unconscionability. Rather, this Court

’ In addition, it is clear that the analysis for determining

unconscionability applied by the Court of Appeal was not

uniquely applicable to arbitration provisions, but rather was

applicable to contracts generally. The same analysis has been

applied by courts in California to a variety of contractual provi-

sions, including a Provision requiring an unconscionable inter-

est rate (Carboni v. Arrospide, 2 Cal.App.4th 76, 2 Cal.Rptr. 2d 845

(Cal.App. 1 Dist. 1992) rev. denied; a provision establishing an

NSF bank charge (Perdue v. Crocker National Bank, 38 Cal.3d 913,

216 Cal.Rptr. 345, 702 P2d 503, appeal dismissed, 475 U.S. 1001

(1985)); and a provision imposing a termination fee for an IRA

account (Dean Witter Reynolds v, Superior Court, 211 Cal.App.3d

758, 259 Cal.Rptr. 789 (Cal.App. 1 Dist. 1989), rev, denied.)

24

has cautioned that allegations of oppression and uncon-

scionability remain relevant, (see Mitsubishi Motors Corp.,

supra, 473 U.S., at 627; Gilmer, supra, 111 S.Ct., at 1656),

and that determinations on these issues must be made in

individual cases based on evidence in the record. See e.g.,

Perry v. Thomas, supra, 482 U.S., at 492 n.9 (claim of

unconscionability to be considered on remand); Gilmer,

supra, at 111S.Ct., at 1656; Rodriguez De Quijas v. Shearson/

American Exp., Inc., 490 U.S. 477, 484 (1989).

The cases cited by Petitioners in which federal courts

have enforced arbitration agreements alleged to be adhe-

sion contracts are distinguishable in two important

aspects — the relative sophistication of the adhering party,

and the lack of any evidence supporting the claim of

adhesion and unconscionability. See ¢ ¢., Gilmer, supra, 111

S.Ct., at 1656, (the record showed that Gilmer was “an

experienced businessman” and did not contain any evi-

dence of coercion in the signing of the arbitration clause);

Rodriguez De Quijas v. Shearson/American Exp., Inc., supra,

490 U.S., at 484 (the record showed that plaintiffs were

large-scale securities investors and contained no evidence

that the contract was one of adhesion); Passage v. Pruden-

tial-Bache Securities, Inc., 727 P.2d 1298, 1302 (Mont. 1986),

cert. denied, 480 U.S. 905 (1987) (although brokerage

agreement may have been one of adhesion, there was no

evidence presented that it was oppressive or unconscion-

able); Webb v. Rowland & Co., Inc., 800 F.2d 803, 807 (8th

Cir. 1986) (contract of adhesion is only invalid if it is also

unconscionable).

The evidentiary record in this case is markedly ciffer-

ent. Respondents in this case did not merely assert that

the arbitration provision was unenforceable because it

25

was a contract of adhesion. Rather, Respondents estab-

lished through evidence in the record the specific manner

in which the provision was procedurally and substan-

tively unconscionable. This evidence established not only

that the arbitration provision was a contract of adhesion,

but also that Respondents were relatively unsophisti-

cated, lower-income consumer borrowers who did not

reasonably anticipate that an arbitration provision requir-

ing arbitration in Minnesota would be contained in the

loan documents they signed in California. More impor-

tantly, the evidence also established that, in operation

and effect, the provision was substantively unfair and

oppressive for the consumer parties. As the Court of

Appeal found, by designating a distant, inaccessible, and

prohibitively expensive forum, the arbitration provision

appeared to have been designed to; and effectively did,

deny California consumers any meaningful opportunity

to present their claims or defenses. (Petition Appendix,

8a-9a.) Regardless of whether the Court of Appeal

applied federal or state common law, the unique facts of

this case clearly established grounds for denying enforce-

ment of the arbitration provision.

26

Ill. THERE IS NO JUSTIFICATION FOR THIS

COURT’S REVIEW BECAUSE THE CALIFORNIA

COURT OF APPEAL DECISION IS UNIQUE TO

THE PARTICULAR FACTS OF THIS CASE, DOES

NOT CREATE PRECEDENT FOR THE STATE OF

CALIFORNIA, AND DOES NOT EVIDENCE ANY

STATEWIDE HOSTILITY TOWARD ENFORCE-

MENT OF ARBITRATION AGREEMENTS.

Despite Petitioners’ attempt to portray this case as a

frontal assault on arbitration agreements by California

courts, the Court of Appeal opinion is clearly limited to

the unique facts of this case and is of little or no prece-

dential significance. It is not an opinion of the California

Supreme Court, and has no binding precedential effect

beyond the District in which it was decided. Nothing in

the opinion below criticizes or conflicts in any way with

precedent of other California Courts of Appeal or of the

California Supreme Court.

Furthermore, the opinion neither stated nor implied

any hostility whatsoever to arbitration agreements or to

the arbitral process. Indeed, the opinion is utterly devoid

of any broad statements about the arbitration process in

general. Nor does the opinion assert any state law pre-

emption of the provisions of the FAA. Rather, the Court

of Appeal simply applied basic contract law to determine,

based on the evidence in the record, the validity of a

contractual arbitration provision. Because the evidence

showed that, in this particular case, “the procedure

seem[ed] designed to discourage borrowers from

responding at all” and came “perilously close” to deny-

ing consumers a fair Opportunity to present their claims,

27

the court found the provision to be invalid. (Petition

Appendix, 8a-9a.) Given that most arbitration agreements

designate a widely-accepted or well-known forum,

equally accessible to both parties, it is highly unlikely

that the obvious unfairness evident in this case would re-

occur in any other case.

Petitioners’ contention that “hostility to arbitra-

tion... still flourishes in the California courts” is clearly

false.* (Petitioner, at 13-14) As the Court will note, Peti-

tioners fail to cite any California case whatsoever in

support of this assertion, and indeed, there are none. In

fact, it would be difficult to imagine a more resounding

endorsement of both the concept and the process of arbi-

tration than is demonstrated by the California Supreme

Court’s recent opinion in Moncharsh v. Heily & Blase, 3

Cal.4th 1, 10 Cal.Rptr. 2d 183, 832, P.2d 899, reh’g. denied,

(1992). In that case, the Court addressed the issue of

whether, and under what conditions, a trial court was

allowed to review an arbitrator’s decision. Id., at 8. The

Court emphasized both the state’s ” ‘strong public policy

in favor of arbitration as a speedy and relatively inexpen-

sive means of dispute resolution,’ ” (3 Cal.4th, at 9, cita-

tions omitted), and the importance of enforcing the

parties’ expectations of finality. Id., at 10. The Court con-

cluded that, except in the limited exceptions created by

Statute, an award reached by an arbitrator is not subject

to judicial review even if errors of law or fact are apparent on

an)

Che contention is also an abrupt reversal of the argument

strenuously asserted by Petitioners in each of the lower courts

in this case that the California case law demonstrates a clear

policy favoring the enforcement of arbitration agreements

28

the face of the award, and even if those errors cause substantial

injustice to the parties. Id., at 33.

Through Moncharsh and other decisions, the Califor-

nia Supreme Court and California Courts of Appeal have

made clear the state’s own strong judicial policy favoring

arbitration, as well as the courts’ respect for and defer-

ence to the arbitral process. See e.g., Ericksen, Arbuthnot,

Etc. v. 100 Oak Street, 35 Cal.3d 312, 322-323, 197 Cal. Rptr.

581, 673 P.2d 251 (1983) (California has a strong public

policy in favor or arbitration, and doubts concerning the

scope of arbitrable issues are to be resolved in favor of

arbitration); Rowland v. Paine Webber, Inc., 4 Cal. App.4th

279, 284, 6 Cal.Rptr. 2d 20, (Cal. App.2 Dist. 1992) (“Cali-

tornia has a strong, public policy in favor of arbitration as

a speedy and relatively inexpensive means of dispute

resolution”; arbitration agreement would be enforced

even though plaintiff claimed he was unaware of the

provision and that his consent was obtained by fraud);

Izzy v. Mesquite Country Club, 186 Cal.App.3d_ 1309,

1318-19, 231 Cal.Rptr. 315, (Cal.App. 4 Dist. 1986) (arbi-

tration provision was not unconscionable and was fully

enforceable even though plaintiff failed to read the provi-

sion before signing contract); Bolanos v. Khalatian, 23)

Cal.App.3d 1586, 283 Cal. Rptr. 209 (Cal.App. 2 Dist. 1991)

(arbitration agreement related to medical services would

be enforced even though the patient had only limited

reading ability and did not remember signing agreement;

agreement would also be enforced against husband and

child even though neither was a signatory to the agree-

ment).

Thus, California courts have consistently and repeat-

edly enforced valid arbitration agreements. The opinion

9A!)

“

of the Court of Appeal below denying enforcement of the

I1f arbitration provision was clearly limited to the

unique facts of this case and compelled by the evidence

in the record. The decision does not conflict in any way

with the FAA or with federal common law, and presents

no basis whatsoever for this Court’s review

S

CONCLUSION

For all the foregoing reasons, this Court should deny

the petition for writ of certiorari

DATED: February 8, 1994

Respectfully submitted,

PATRICIA STURDEVANT, Esq :

James C. StTURDEVANT, hsq

Kim E. Carp, ksq

STURDEVANT & STURDEVANT

A Professional Corporation

785 Market Street, Suite 500

San Francisco, California 94103-2012

(415) 495-4140

Brian Newcome, hsq

770 Menlo Avenue, Suite 101

Menlo Park, California 94025

(415) 322-7780

kk i) i Awe s, Esq

107 Second Street, Suite 330

Sacramento, California 95814

(916) 444-8155

Attorneys for Respondents

*Counse! of Record