Petition for Writ of Certiorari — Barker v. Golf U. S. A., Inc.

Court,

FILED

~~

V @8 644 0CT 161998

OFFICE OF THE Cicuar

No.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1998

CHARLES S. BARKER and EXPRESS GOLF, INC.,

Petitioners,

vs.

GOLF U:S.A., INC.,

Respondent.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Eighth Circuit

PETITION FOR A WRIT OF CERTIORARI

DAVID M. DUREE

Counsel of Record

REINERT & DUREE, P.C.

812 North Collins

St. Louis, MO 63102

(314) 621-5743

Attorneys for Petitioners

AeA n oe:

I.

QUESTIONS PRESENTED

Whether the Federal Arbitration Act

preempts state choice of law and forum

selection substantive rules, applicable to all

contracts and in all cases, when an arbitration

clause is included.

Whether state law overrides the federal

doctrine of separability established by Prima

Paint v. Flood & Conklin Mfg. in cases

governed by the Federal Arbitration Act.

LIST OF PARTIES

The names of all parties to the proceedings in

the Court whose judgment is sought to be reviewed

here appear in the caption of the case. There are no

parent or subsidiary companies of any party to be

listed.

TABLE OF CONTENTS

Page

TE Tate i

Be I eine eae hidtninabicdeithecicde. scccusesecace ii

OR ca a a iii

TS ee Vv

EES CEL a Oe a UT. l

Statement of Jurisdiction .....00..0.0.0..00ccccccceecceceeceeee 2

SII hdd, ane ctisdacccatuadetusiicbaossieh sdachasstue 2

Statement of the Case ..................ccccccsccccosccccccccssccses 2

Reasons for Granting the Writ ..000000...... oe... 7

a The Petition should be granted

because the judgment of the Eighth

Circuit conflicts with prior decisions

of this Court holding that general

state law, applicable to all contracts

and all cases, also applies to

arbitration contracts .........00000.00000....-.. i

iv

Il. The Petition should be granted

because the judgment of the Eighth

Circuit conflicts with prior decisions

of this Court holding that the

doctrine of separability is federal

law which preempts conflicting

state law in cases governed by

the Federal Arbitration Act.............. 11

] eR PRS eee aE Lee Soe se TOLL NO la

Judgment and opinion of the United States

Court of Appeals for the Eighth Circuit,

I i iitcithicn itiaia cian teticinnestaednnes la

Order of the Eighth Circuit denying

Appellants’ Petition for Rehearing and

Suggestion for Rehearing en Banc,

Septemsber 20, 2608 isi. cvssksscscicsc ck wcica:... 18a

Memorandum and Order of the District

Court, dismissing the Complaint,

DU Sy IY seklilsedcbidsncddtdescsecccsccconee 19a

Order of Dismissal by the District Court,

Dy ey neared 30a

TABLE OF CITATIONS

CASES CITED

Page

\llied-B te i vie

Dobson; 513 U.S. 265 (1995)........cccccccccccccecccoceeeeses. s)

Bracey v. Monsanto Co., Inc., 823 S.W.2d

ee I th 10

' Vv ;

I 9

‘ v. En

Hamilton, 150 F.3d 157 (2nd Cir. 1998)................ 11

E Jucational Employees Credit Union v.

Mutual Guaranty Corp., 821 F. Supp. 1294

(E.D. Mo. 1993), reversed, 50 F.3d 1432

re 5

Electrical and M ida ee

AMBAC International Corp., 941 F.2d 660

Ce ae ee eo 4, 5, 6, 8, 10

Fenberg v. Goggin, 800 S.W.2d 132

CG I ina 11

vi

Grand Bissell Towers, Inc. v. Joan

Gagnon Enterprises, Inc., 657 S.W.2d 378

COED. FUND, TIN eacrccchds Rete tad a cieieceistbilinnsisitdonisesikh 10

823 S.W.2d 493 (Mo. banc 1992)................ 4,6, 8, 10

Klaxon Co. v. Stentor Elec. Co., 313 U.S. 487

>| RRR ie Hs PE, be 5

Martin v. Prier Brass Mfg. Co., 710 S.W.2d

CRD I 10

Muhlhauser v. Muhlhauser, 754 S.W.2d 2

ED. DM, TG bitte abiiliditaatitinnttbat i cciatiti 10

Perry v. Thomas, 482 U.S. 483 (1987) ......000000000000.. )

Co., 388 U.S. 395, 18 L. Ed. 2d 1270

(BOB T) nnceerccscknsstodennic ta M ERs ssc. 12, 13, 14

Shaffer v. Jeffery, 915 P.2d 910

Cla, UODOD ecient es 13

State ex rel. Geil v. Corcoran, 623 S.W.2d

GED Ge: nits, I ai cents dine bicihntnctccindenta 5

Volt Inf ‘onal Sci Leland

Stanford, Jr. University, 489 U.S. 468

RRR BR aE CR ae ee 9

Whirlpool Corp. v. Ritter, 929 F.2d 1318

Gee GR HOD sein ecnsttitniicsctieneii telgacitldinicmcionsinma 5

a

STATUTES CITED

OG COE Cs OF Tee ire ore 9

AA EAs ee a 2,9

Pe ee ie oe 2

NN ccna soracosreenamnaansinccok ehh a 4

Pe 3

I cia sces scceeassantsnieerer 3,7

Supreme Court Rule 10(c).....00.0..0ccccccccccccecceeeee 7,12

No.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1998

CHARLES S. BARKER and EXPRESS GOLF, INC.,

Petitioners,

vs.

GOLF U.S.A., INC.,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

Petitioners, Charles S. Barker and Express

Golf, Inc., respectfully petition for a Writ of Certiorari

to review the judgment of the United States Court of

Appeals for the Eighth Circuit.

OPINION BELOW

The opinion below was issued on August 20,

1998 in ; Vv

U.S.A., Inc., Eighth Circuit No. 97-4243, Judge

Heaney dissenting, and is reproduced in the Appendix

at pages la-17a. It is not yet reported in Federal

Third. On September 29, 1998, the Eighth Circuit

denied the Petition for Rehearing and Suggestion for

Rehearing En Banc, with Judge McMillian in favor of

granting rehearing en banc.

STATEMENT OF JURISDICTION

The Court of Appeals entered judgment on

August 20, 1998. The Petition for Rehearing and

Suggestion for Rehearing En Banc was denied on

September 29, 1998. The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

STATUTES INVOLVED

9 U.S.C. § 2.

§2. Validity, irrevocability, and enforcement

of agreements to arbitrate _

A written provision in any maritime

transaction 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.

STATEMENT OF THE CASE

Charles Barker is a Missouri citizen who

operated a Golf U.S.A. franchise, through Express

Golf, Inc., a corporation established for that purpose,

Se ee ae

in St. Louis County, Missouri pursuant to a franchise

agreement (executed by Express Golf, Inc.) and a

guaranty agreement (executed by Charles Barker)

with Golf U.S.A., Inc., the franchisor. Golf US.A.,

Inc. is an Oklahoma corporation which maintains its

principal office and place of business in Oklahoma

City, Oklahoma.

The Golf U.S.A. franchise shop was operated in

Missouri and therefore, arguably, governed by the

Missouri Franchise Act, R.S. Mo. § 407.400, et seq.

The Missouri Franchise Act requires 90 days' notice of

termination by the franchisor, with certain exceptions

that are inapplicable here. R.S. Mo. § 407.405.

The Golf U.S.A. franchise agreement contains a

choice of law clause, selecting the law of Oklahoma,

and a choice of forum clause, requiring the franchisee

to arbitrate its claims against Golf U.S.A., Inc. in

Oklahoma. Appendix, p. 2a, 3a. The arbitration

clause, however, excludes claims by Golf U.S.A.

against Charles Barker and Express Golf, Inc. for

"monies owed to Golf U.S.A." Appendix, p. 2a. The

franchise agreement also permits Golf U.S.A. to

convert all its claims to "monies owed" it by

permitting it to terminate the franchise agreement

upon 24 hours' notice of any default that "materially

impairs the goodwill associated with the Golf U.S.A.

name, service mark or logo.” Appendix, p. 14a, n. 5.

The franchise agreement requires the

franchisee, Express Golf, Inc., and its guarantor,

Charles S. Barker, to arbitrate all their claims

against Golf U.S.A. in Oklahoma while permitting

Golf U.S.A. to litigate its related claims against them

in Missouri.

Prior to the Eighth Circuit opinion below, the

90-day notice of termination provision in the Missouri

Franchise Act was held to be fundamental public

policy in Missouri, by both the Missouri Supreme

Court and the Eighth Circuit, rendering void and

unenforceable conflicting choice of law and forum

selection clauses for franchise shops operated in

mn by nec citiseris. oe

941 F. 2d 660, 663-64 (th Cir. 1991); High Life Sales

Co. v. Brown-Forman Corp., 823 S.W.2d 493, 498 (Mo.

banc 1992).

On September 18, 1995, Charles Barker and

Express Golf, Inc. filed suit against Golf U.S.A., Inc.

in the Circuit Court of St. Louis, Missouri, alleging

they were fraudulently induced into the franchise and

guaranty agreements by false representations and the

intentional concealment of material facts relating to

the financial success of existing Golf U.S.A. stores,

the marketability of Golf U.S.A.'s products, the ability

to share advertising expenses with existing nearby

Golf U.S.A. stores, the amount of gross sales

franchisees obtain, the amount of inventory required

to meet the sales levels represented and the level and

quality of the assistance Golf U.S.A. provides to its

franchisees.

Golf U.S.A. immediately removed the case to

the United States District Court for Eastern Missouri,

because of diversity of citizenship under 28 U.S.C.

§ 1332. Golf U.S.A. then moved the District Court to

dismiss the Complaint, arguing that Charles Barker

and Express Golf, Inc. were required to arbitrate their

claims against it in Oklahoma.

On November 17, 1997, the District Court

dismissed the Complaint, ruling that Charles Barker

and Express Golf, Inc. were required to arbitrate their

claims against Golf U.S.A. in Oklahoma. Appendix,

pp. 19a-29a, 30a.

Charles Barker and Express Golf, Inc. appealed

to the Eighth Circuit, which affirmed the District

Court in a 2-1 decision on August 20, 1998.

Appendix, pp. la-17a.

The district courts are required to apply the

choice of law rules of the state in which they sit in

diversity cases. Klaxon Co. v. Stentor Elec. Co., 313

U.S. 487, 496 (1941); Whirlpool Corp. v. Ritter, 929

F.2d 1318, 1320 (8th Cir. 1991); Electrical and

941 F.2d 660, 661 (8th Cir. 1991); Educational

v. Mu u :

821 F. Supp. 1294, 1299 (E.D. Mo. 1993), affirmed on

this issue, but reversed on other grounds, 50 F.3d

1432, 1437 (8th Cir. 1995); State ex rel. Geil v.

Corcoran, 623 S.W.2d 555, 556-57 (Mo. App. 1981).

Missouri follows the Restatement of Conflicts

(Second) in contract actions, but bypasses the

Restatement's formal analysis and simply requires

that the choice of law provision be given effect unless

to do so would violate a fundamental policy of

Missouri. Id.

Oklahoma does not have a similar franchise

statute requiring 90 days' notice of termination.

Under Oklahoma law, the 24-hour notice of

termination clause in the Golf U.S.A. franchise

agreement is enforceable, even though it violates the

Missouri franchise statute enacted to protect Missouri

par am ema — auch pam Electrical

Carp. 941 F.2d 660, 663.64 (th Cir. 1991); ‘High Life

Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493,

498 (Mo. banc 1992).

The majority opinion below applied the law of

Oklahoma without discussion of Missouri's choice of

law rules, the Missouri Franchise Act or Missouri law

previously established by the Missouri Supreme

Court and interpreted by the Eighth Circuit. _

Appendix, p. 5a. The majority opinion below stated

only that "no persuasive reason having been advanced

for setting aside the choice-of-law provision upon

which the parties agreed in their contract, we reject

this argument and conclude that Oklahoma law

applies." The majority opinion also found

unpersuasive the choice of law analysis of the dissent,

Appendix, pp. 5a, n. 2, lla-14a.

The majority opinion further held that it did

not wish to risk "running afoul of [the strong federal

policy favoring arbitration]." Appendix, p. 8a.

On September 29, 1998, the Eighth Circuit

denied the Petition for Rehearing and Suggestion of

Rehearing En Banc, with Judge McMillian in favor of

granting rehearing en banc. Appendix, p. 18a.

REASONS FOR GRANTING THE WRIT

I. The Petition should be granted because

the judgment of the Eighth Circuit

conflicts with prior decisions of this Court

holding that general state law, applicable

to all contracts and all cases, also applies

to arbitration contracts.

Petitioners respectfully submit that the

majority opinion below conflicts with relevant

decisions of this Court, and alternatively, decides an

important question of federal law that has not been,

but should be, settled by this Court. The petition

should be granted under Supreme Court Rule 10(c).

The majority opinion disregarded established

Missouri choice of law rules and Missouri law

governing the validity and enforceability of forum

selection and choice of law clauses in franchise

agreements governed by the Missouri Franchise Act,

applicable to all franchise agreements, not just

francaise agreements containing arbitration clauses.

The 24-hour notice of termination provision in

the subject franchise agreement conflicts with the

Missouri Franchise Act, which requires 90 days'

notice of termination, with certain exceptions that do

not apply here. R.S. Mo. § 407.405. Both the

Missouri Supreme Court and the Eighth Circuit have

previously held that choice of law and choice of forum

clauses in franchise agreements governed by the

Missouri Franchise Act, applying the law of other

states and requiring litigation in other states for

franchise shops operated in Missouri by Missouri

citizens, are void and unenforceable as against the

fundamental public policy of Missouri expressed in

the Missouri Franchise Act. Electrical and Magneto

Service Co. v. AMBAC International Corp., 941 F.2d

660, 663-64 (8th Cir. 1991); High Life Sales Co. v.

Brown-Forman Corp., 823 S.W.2d 493, 498 (Mo. banc

1992).

Thus, under Missouri choice of law rules, which

the District Court was required to apply in this

diversity action, the choice of law and choice of forum

clauses in the Golf U.S.A. franchise agreement are

void and unenforceable in cases concerning Missouri

franchise agreements which do not contain

arbitration clauses.

The majority opinion disregards these

established choice of law and choice of forum rules

because an arbitration clause is included in the

frenchise agreement, stating that it does not wish to

risk "running afoul of [the strong federal policy

favoring arbitration]." Appendix, p. 8a.

Petitioners respectfully submit that there is no

strong federal policy favoring arbitration, at least to

the extent that such federal policy would override

existing state law applicable to all contracts, of the

same kind, generally, and all cases concerning such

contracts.

The Federal Arbitration Act was not intended

to be a super law which preempts substantive state

law principles that apply to all contracts, of a specific

kind, generally [such as franchise contracts], but

instead was intended to place contracts with

arbitration clauses on the same footing as similar

contracts without arbitration clauses. Volt

v

University, 489 U.S. 468, 478 (1989) holds that the

Federal Arbitration Act, 9 U.S.C. § 1, et seq., was

merely designed to place arbitration agreements

"upon the same footing as other contracts.”

Other recent decisions of this Court hold that

the validity and enforceability of arbitration clauses,

under 9 U.S.C. § 2, are determined by general state

contract law principles, within the parameters of the

federal policy restrictions of the Federal Arbitration

Act, so long as these state laws apply to contracts

generally and are not developed specifically for

arbitration contracts. Perry v. Thomas, 482 U:S. 483,

492, n. 9 (1987); Allied- ini

Inc. v. Dobson, 513 U.S. 265, 281 (1995); First

Vv , 514 US. 938, 115

S. Ct. 1920, 1924 (1995) and

v. Casarotto, 116 S. Ct. 1562, 1565 (1996).

Missouri law provides that all choice of law and

forum selection clauses in franchise agreements for

franchise shops operated by Missouri citizens within

the State of Missouri which deny Missouri citizens the

protection of the Missouri Franchise Act, including its

90-day notice of termination provisions, are void and

unenforceable as against the fundamental public

policy of Missouri. This rule of Missouri law applies

equally to franchise contracts with and without

arbitration clauses. That is all the Federal

Arbitration Act requires.

10

The majority opinion disregarded established

Missouri choice of law rules, applicable to all

franchise agreements, not just franchise agreements

with arbitration clauses, because it did not wish to

risk "running afoul of [the strong federal policy

favoring arbitration]." Appendix, p. 8a.

Charles Barker and Express Golf, Inc.

respectfully submit that the Eighth Circuit should not

have disregarded established choice of law and forum

selection substantive state laws just because an

arbitration clause was included. Under established

Missouri law, which applies under Missouri's choice of

law rules, the choice of law and forum selection

clauses are void and unenforceable as against state

public policy.

Under Missouri law, the arbitration contract is

void and unenforceable as against public policy and

because it is unconscionable, since it requires Charles

Barker and Express Golf, Inc. to arbitrate their claims

against Golf U.S.A. in Oklahoma, but permits Golf

U.S.A., Inc. to litigate its related claims against them

in Missouri, Electrical and Magneto Service Co., Inc.

v. AMBAC International Corp., 941 F.2d 660 (8th Cir.

1991); High Life Sales Co. v. Brown-Forman Corp.,

823 S.W.2d 493 (Mo. banc 1992); Bracey v. Monsanto

Co., Inc., 823 S.W.2d 946, 950 (Mo. banc 1992); Grand

Bi Ww Vv n Inc.,

657 S.W.2d 378, 379 (Mo. App. 1983); Muhlhauser v.

Muhlhauser, 754 S.W.2d 2, 4-5 (Mo. App. 1988) and is

void and unenforceable because it lacks mutuality

and consideration; Fenberg v. Goggin, 800 S.W.2d

132, 136 (Mo. App. 1990); Martin v. Prier Brass Mfg.

Co., 710 S.W.2d 466, 473 (Mo. App. 1986).

11

Petitioners respectfully submit that the

majority opinion below conflicts with prior decisions

of this Court, and that its implicit rule of decision —

that the Federal Arbitration Act overrides substantive

state law principles applicable to all contracts — raises

a serious question about the federal policy behind the

Federal Arbitration Act which requires resolution by

this Court.

In Doctor's Associates, Inc. v. Erik J. Hamilton,

150 F.3d 157 (2nd Cir. 1998), the court held that the

Federal Arbitration Act preempted the New Jersey

Franchise Act, and decisions thereunder by the New

Jersey Supreme Court which has also held that choice

of law and forum selection clauses in New Jersey

franchise agreements, requiring litigation in other

states under the laws of other states, are void and

unenforceable for New Jersey franchise shops

operated by New Jersey citizens. The franchisee,

Erik J. Hamilton, filed a petition for a writ of

certiorari on October 9, 1998. There are some

similarities between some of the issues raised there

and in this petition.

II. The Petition should be granted because

the judgment of the Eighth Circuit

conflicts with prior decisions of this Court

holding that the doctrine of separability is

federal law which preempts conflicting

state law in cases governed by the Federal

Arbitration Act.

Petitioners respectfully submit that the

majority opinion below conflicts with relevant

12

decisions of this Court, and alternatively, decides an

important question of federal law that has not been,

but should be, settled by this Court. The Petition

should be granted under Supreme Court Rule 10(c).

’

388 U.S. 395, 18 L. Ed. 2d 1270, 1276-77 (1967)

established the doctrine of separability, as a matter of

federal law, under which arbitration clauses are

separated from the principal contracts in which they

are embedded, for purposes of determining their

validity and enforceability. Prima Paint establishes

that the arbitration defense of fraud in the

inducement, with respect to the entire principal

contract, as opposed to specifically referable to the

arbitration clause, is for determination by the

arbitrator under a broad arbitration clause which is

otherwise enforceable. It may not be used to

determine the validity and enforceability of the

arbitration clause before hearing the case in chief.

The Prima Paint court reasoned that the

Federal Arbitration Act would be rendered

meaningless if arbitration clauses were not treated as

separate contracts for purposes of determining their

validity and enforceability.

In the case below, Charles Barker and Express

Golf, Inc. argued that the arbitration clause is void

and unenforceable because it is unconscionable,

violates public policy, lacks mutuality and lacks

consideration. In particular, Petitioners argued below

that the arbitration clause, treated as a separate

contract, lacks mutuality and consideration, because

Golf U.S.A., Inc. could convert all its claims to

13

“monies owed" it which are excepted from the

arbitration clause, permitting it to litigate its claims

against Petitioners in Missouri, while the arbitration

clause requires Petitioners to arbitrate their related

claims against Golf U.S.A. in Oklahoma.

Instead of determining whether the doctrine of

separability applies to the arbitration contract

defenses of lack of mutuality and the absence of

consideration, the majority opinion relied upon an

Oklahoma Supreme Court case which declined to

follow Prima Paint in an intrastate case governed by

the Oklahoma Uniform Arbitration Act. Appendix,

pp. 7a. See Shaffer v. Jeffery, 915 P.2d 910, 915-16

(Okla. 1996). If the rule of Shaffer v. Jeffery were

applied to the case below, the court would be required

to determine the claims of Charles Barker and

Express Golf, Inc. that they were fraudulently

induced into the entire franchise and guaranty

contracts, before determining whether they are

required to arbitrate. The majority opinion below

applied Shaffer v. Jeffery to hold that the doctrine of

separability established by Prima Paint does not

apply to the arbitration contract defenses of lack of

mutuality and the absence of consideration, because

the law of Oklahoma treats the contract as a whole,

stating: "In Shaffer, the Oklahoma Supreme Court,

in interpreting Oklahoma's Arbitration Act, rejected

the Prima Paint separability doctrine that 'the

arbitration clause is a severable part of the contract.’

Id. at 916. In addition, Oklahoma has espoused the

policy that ‘[t]he whole of a contract is to be taken

together, so as to give effect to every part, if

reasonably practicable, each clause helping to

interpret the others.” Appendix, p. 7a.

14

The doctrine of separability, however, is based

upon federal policy established by the Federal

Arbitration Act which preempts any conflicting state

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

388 U.S. 395, 18 L. Ed. 2d 1270, 1276-77 (1967). The

majority opinion below conflicts with Prima Paint.

If the doctrine of separability applies to the

arbitration contract defenses of lack of mutuality and

the absence of consideration, the arbitration contract

at issue is void and unenforceable because it imposes

no obligations upon Golf U.S.A., Inc. and grants no

benefits to Charles Barker and Express Golf, Inc.

On the other hand, if the federal doctrine of

separability applies to some arbitration contract

defenses, and not others, the majority opinion below

raises an important question of federal law that has

not been, but should be, settled by this Court, i.e.,

under what circumstances, and to which arbitration

defenses, does the federal doctrine of separability

apply?

15

CONCLUSION

For the reasons stated, the Petition for a Writ

of Certiorari should be granted.

Respectfully submitted,

New n

DAVID M. DUREE

Counsel of Record

REINERT & DUREE, P.C.

812 North Collins

St. Louis, MO 63102

(314) 621-5743

Attorneys for Petitioners

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APPENDIX

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UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 97-4243

Charles S. Barker; Express Golf, Inc., *

7”

Appellants,

*

Vv.

*

Golf U.S.A., Inc., *

*

Appellee. +s

Appeal from the United States

District Court for the

Eastern District of Missouri

Submitted: May 13, 1998

Filed: August 20, 1998

Before BOWMAN, Chief Judge, HEANEY, and

HANSEN, Circuit Judges.

2a

BOWMAN, Chief Judge.

Express Golf, Inc., a franchisee, and Charles

Barker, its owner, sued Golf U.S.A., Inc., the

franchisor, for fraud in state court. The case was

removed to federal district court on diversity grounds,

whereupon Golf U.S.A. moved to dismiss on the

ground that an arbitration clause in the franchise

agreement required arbitration of the plaintiffs'

claims. The District Court! granted the motion, and

Express and Barker appeal.

The facts of the case are as follows. Ina

franchise agreement dated September 18, 1995, Golf

U.S.A., an Oklahoma corporation, granted to Express,

a Missouri corporation, the right to operate a golf

retail store using Golf U.S.A 's methods, name,

designs, system, and service marks. That same day,

Charles Barker, the sole shareholder of Express,

agreed to guarantee the obligations of Express under

the franchise agreement. The franchise agreement

included the following provision:

Any and all disputes, claims, and

controversies arising out of or relating to

this Agreement, performance hereunder

or breach hereof, except for monies owed

to Golf USA pursuant to this Agreement

and except as described in Paragraph

18.5, shall be resolved by arbitration

conducted in Oklahoma County, State of

! The Honorable Charles A. Shaw, United States District Judge

for the Eastern District of Missouri.

3a

Oklahoma, in accordance with the latest

existing Commercial Rules of Arbitration

of the American Arbitration Association.

Franchise Agreement para. 18.1, at 29-30. A choice-

of-law provision was included, which specified that

the franchise agreement "shall be governed by and

construed in accordance with the laws of the State of

Oklahoma." Id. para. 20.1, at 31. The agreement also

contained a provision in 12-point bold-face type that

stated, "You acknowledge that You have received a

blank copy of this Agreement in time to afford ample

opportunity to seek legal counsel, and to analyze the

various provisions herein." Id. para. 20.13, at 33.

The retail operation tailed less than nine

months after the execution of the franchise

agreement. Soon thereafter, Express and Barker filed

the present action, claiming that fraudulent

representations made by Golf U.S.A. about the

operation and success of the franchise induced Barker

into signing the franchise agreement. Upon removal

to federal court, the District Court held that the

parties’ dispute must be resolved by arbitration

pursuant to the arbitration clause contained in the

franchise agreement. We affirm.

Our analysis must begin by determining

whether the franchise agreement is subject to the

Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16

(1994). In an attempt to declare a national policy

favoring arbitration, Congress passed the FAA

mandating the enforcement of arbitration

agreements. See 9 U.S.C. § 2. The Supreme Court

has held that the FAA applies to arbitration

4a

provisions, thereby mandating their enforcement,

subject to only two limitations. See Southland Corp.

v. Keating, 465 U.S. 1, 10-11 (1984). First, the

arbitration agreement "must be part of a written

maritime contract or a contract ‘evidencing a

transaction involving commerce.” Id. at 11 (quoting 9

U.S.C. § 2). Second, the agreement "may be revoked

upon ‘grounds as exist at law or in equity for the

revocation of any contract.” Id. (quoting 9 U.S.C. § 2).

The District Court found, and the parties do not

dispute, that the franchise agreement involves

interstate commerce. The parties are located in

different states, Oklahoma and Missouri, and the

agreement contemplates the transfer of inventory and

money between the states. The parties do dispute,

however, whether the arbitration clause contained in

the franchise agreement is valid.

Initially, we must determine whether it is for

the court or an arbitrator to decide the validity of the

arbitration clause. Express and Barker claim that the

| arbitration clause lacks mutuality of obligation, is

| unconscionable, and violates public policy. The

| District Court held that these claims should be

decided by an arbitrator. We disagree. In Prima

Pai Vv i uri a

388 U.S. 395, 403-04 (1967), the Supreme Court held

that a claim of fraud in the inducement of a contract

as a whole must go to an arbitrator, but "issue[s]

which [go] to the 'making' of the agreement to

arbitrate" should be decided by a court. See also

Houlihan v. Offerman & Co., 31 F.3d 692, 694-95 (&th

Cir. 1994). In this case, the underlying claim is for

fraud in the inducement of the entire contract, but

that is not the issue with which we are faced today.

5a

Rather, Express and Barker assert claims that go to

the making of the arbitration agreement itself. Under

Prima Paint, a court must decide whether the

agreement to arbitrate is valid.

To decide whether the parties’ agreement to

arbitrate is valid, we look to state contract law. See

Perry v. Thomas, 482 U.S. 483, 493-94, n. 9 (1987)

("[S]tate law, whether of legislative or judicial origin,

is applicable if that law arose to govern issues

concerning the validity, revocability, and

enforceability of contracts generally."). We may apply

state law to arbitration agreements only to the extent

that it applies to contracts in general. See Allied-

_ Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281

_ (1995). Put another way, we may not invalidate an

_ arbitration agreement under any state law applicable

j only to arbitration provisions; instead, we may apply

_ only a state's general contract defenses. See Doctor's

Assocs. v. Casarotto, 517 U.S. 681, 687 (1996).

ee ee eee ee eae

‘ The question then becomes one of choice-of-law.

_ Which state's laws are we to apply? Despite a choice-

__ of-law provision in the franchise agreement

_ designating Oklahoma law, Express and Barker

| argue that Missouri law should apply. No persuasive

_ reason having been advanced for setting aside the

| choice-of-law provision upon which the parties agreed

_ in their contract, we reject this argument and

conclude that Oklahoma law applies.?

* We find unpersuasive the reasons articulated in the dissenting

opinion for declaring the choice-of-law provision invalid.

aa ina a

6a

Express and Barker claim that Golf U.S.A.'s

promise to arbitrate is illusory and therefore fails for

lack of mutuality. They argue that virtually any

claim can be converted into a claim for monies owed to

Golf U.S.A. pursuant to the agreement and, as a

result, Golf U.S.A. is permitted to litigate any

conceivable claim, while they must arbitrate their

claims. To resolve this issue, "we are bound to apply

[Oklahoma law] as we are able to discern it from the —

rulings of [Oklahoma's] courts." Jackson v. Anchor

Packing Co., 994 F.2d 1295, 1310 (8th Cir. 1993). The

Oklahoma courts have not ruled on the issue of

whether mutuality of obligation is required in an

arbitration clause. For the reasons stated below, we

believe that the Oklahoma Supreme Court would hold

that mutuality in arbitration clauses is not required.

In Ditto v. Re/Max Preferred Properties, Inc.,

861 P.2d 1000, 1004 (Okla. Ct. App. 1993), the court

of appeals held unenforceable an arbitration clause

that excluded one party from participating in the

selection of an arbitrator. In the process, the court

considered an argument that the arbitration clause

lacked mutuality of obligation. See Ditto, 861 P.2d at

1002. The court cited two cases in distinguishing its

case from those that "involve truly one-sided

obligations to arbitrate." Id. (citing R.W. Roberts

iver W nagemen

Dist., 423 So.2d 630, 632 (Fla. Ct. App. 1982) and

Arcata Graphics Corp. v. Silin, 399 N.Y.S.2d 738,

738-39 (1977)). The court's consideration of the issue,

however, is pure dicta. Id. ("We reject [the lack of

mutuality argument] as a proper ground to challenge

the clause at issue [because]... [t]he trial court

expressly rested its decision on the unfairness of the

7a

arbitration panel."). Further, the decision in Arcata

Graphics to which the court cited has since been

abrogated by Sablosky v. Gordon Co., 73 N.Y.2d 133,

136-37 (1989), wherein the New York Court of

Appeals expressly held that mutuality is not required

in arbitration provisions if there exists consideration

for the entire agreement. Thus, we do not read Ditto

to indicate that the Oklahoma courts would require

mutuality of obligation in arbitration clauses where

the entire agreement is supported by consideration.

We are further persuaded that the Oklahoma

Supreme Court would not separately require

mutuality in arbitration clauses based on the more

recent decision of Shaffer v. Jeffery, 915 P.2d 910

(Okla. 1996). In Shaffer, the Oklahoma Supreme

Court, in interpreting Oklahoma's arbitration act,

rejected the Prima Paint separability doctrine that

"the arbitration clause is a severable part of the

contract." Id. at 916. In addition, Oklahoma has

espoused the policy that [t]he whole of a contract is

to be taken together, so as to give effect to every part,

if reasonably practicable, each clause helping to

interpret the others." Pierce Couch Hendrickson

Baysinger & Green v. Freede, 936 P.2d 906, 911

(Okla. 1997) (quoting Okla. Stat. Ann. tit. 15, § 157

(West 1993)).

Moreover, we find no indication that the

Oklahoma Supreme Court would not join the trend

established by decisions holding that consideration for

a contract as a whole covers the arbitration clause.

See Doctor's Assocs. v. Distajo, 66 F.3d 438, 452 (2d

Cir. 1995) ("Most courts facing this issue have arrived

at the same conclusion [that consideration for the

8a

entire contract is sufficient to support the arbitration

clause].") (citing cases), cert. denied, 517 U.S. 1120

(1996); see also Restatement (Second) of Contracts

§ 79 (1979) ("If the requirement of consideration is

met, there is no additional requirement of. . .

‘mutuality of obligation.”). Finally, "[{a] doctrine that

required separate consideration for arbitration

clauses might risk running afoul of [the strong federal

policy favoring arbitration]." Doctor's Assocs., 66 F.3d

at 453. For all these reasons, we conclude that, under

Oklahoma law, mutuality of obligation is not required

for arbitration clauses so long as the contract as a

whole is supported by consideration.’ In this case, the

5 The dissenting opinion relies on an unpublished opinion by the

Oklahoma Court of Appeals in concluding that Oklahoma law

requires mutuality of obligation in arbitration agreements and

that this clause is thus violative. See Neighbors v. Lynn Hickey

Dodge. Inc., No. 85676 (Okla. Ct. App. Aug. 6, 1996) (withdrawn

from publication). Neighbors, however, should not be relied

upon. After the court of appeals in Neighbors rendered its

decision and released the opinion for publication, one of the

parties petitioned to the Oklahoma Supreme Court for

certiorari. On November 12, 1996, the Oklahoma Supreme

Court denied certiorari and issued an order mandating that the

opinion be withdrawn from publication. See Order Nov. 12.

1996. This overt act by the Oklahoma Supreme Court

commands our restraint from relying on or citing to the opinion

because we do not know the reason for the withdrawal. Of

course, one possibility is that the supreme court did not agree

with the result. We find it unlikely, as the dissenting opinion

suggests, that the opinion may have been withdrawn because it

applies settled law. Our discussion in the text of the opinion

illustrates that the issue is far from settled in the Oklahoma

courts. The Neighbors opiniou lacks precedential vaiue, see 8th

Cir. R. 28A(k); Okla. Sup. Ct. R. 1.200(b)(5) (unpublished

opinions “shall not be considered as precedent by any court or

cited in any brief or other material presented to any court."),

and, in these circumstances, also lacks persuasive value.

9a

parties do not contend that the franchise agreement

lacks consideration.

We also reject Express and Barker's argument

that the arbitration clause is unconscionable, void,

and unenforceable. We dismiss the notion that,

because the contract is standardized, the arbitration

provision should be void. Unconscionability generally

requires a showing that one party lacked a

meaningful choice as to the inclusion of the

challenged provision and that the challenged

provision unreasonably favors the other party. See

915 P.2d 938, 940 (Okla. Ct. App. 1995). No such

showing has been made in this case. We similarly

find that the clause does not violate public policy. See

Freeman v. Prudential Sec., Inc., 856 P.2d 592, 594

(Okla. Ct. App. 1993) ("Ordinarily, agreements of

parties to bind themselves to mandatory arbitration

are favored.").

We also reject Express and Barker's final

argument that Golf U.S.A. waived its right to

arbitrate by filing with the District Court a claim for

attorney fees after the District Court's dismissal.

"[A]s a matter of federal law, any doubts concerning

the scope of arbitrable issues [such as an allegation of

waiver] should be resolved in favor of arbitration

wae 7 v. u nstr.

Corp., 460 U.S. 1, 24-25 (1983). We will find that a

party waived its right to arbitrate where that party

"(1) knew of an existing right to arbitration; (2) acted

inconsistently with that right; and (3) prejudiced the

other party by these inconsistent acts." Ritzel

ommunications, Inc. v. Mid-American Cellular Tel.

10a

Co., 989 F.2d 966, 969 (8th Cir. 1993) (citing Stifel,

Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th

Cir. 1991)). In Ritzel, the district court denied several

defendants' motion for arbitration, and they appealed.

While the appeal was pending, those defendants

continued to litigate the merits of the case in district

court. They filed answers, responded to

interrogatories and requests for production,

participated in depositions and pre-trial conferences,

and filed numerous motions and documents in

preparation for trial. The case was eventually tried in

a six-day bench trial and judgment entered against

the defendants. We held that the defendants had

waived their right to arbitration "[b]y failing to make

the simple effort of requesting a stay in this court and

by proceeding to trial on the merits in the district

court." Id. at 970 (emphasis added). In this case, Golf

U.S.A. has not acted inconsistently with its right to

arbitration because Golf U.S.A. has not attempted to

litigate the merits of the case. To the contrary, it has

resisted litigation and has persuaded the District

Court to dismiss the plaintiffs’ lawsuit in favor of

arbitration. Furthermore, Express and Barker have

not shown any prejudice to themselves. Even if the

District Court grants Golf U.S.A.'s pending motion for

attorney fees, that is not prejudice to Express and

Barker for purposes of the rules applicable in

determining whether a waiver of a right to arbitration

has occurred.

In conclusion, we believe that the arbitration

provision is valid upon "grounds as exist at law," 9

U.S.C. § 2, and therefore hold that the FAA mandates

the enforcement of the arbitration clause. We affirm

ree: =

OS SSeS aay ea Cae

lla

the judgment of the District Court dismissing the

complaint.

HEANEY, Circuit Judge, dissenting.

I respectfully dissent. As a preliminary matter

I believe that Missouri law, rather than Oklahoma

law, applies. "Federal district courts must apply the

choice of law rules of the state in which they sit when

jurisdiction is based on diversity of citizenship."

Whirlpool Corp. v. Ritter, 929 F.2d 1318, 1320 (8th

Cir. 1991) (citing Klaxon Co. v. Stentor Elec. Co., 313

U.S. 487, 496 (1941)). We review de novo the district

court's determination of which state's law to apply.

See Salve Regina College v. Russell, 499 U.S. 225,

230 (1991).

’

Express filed this case in the Eastern District

of Missouri. Therefore, we apply Missouri's choice of

law rules. Missouri courts follow the Restatement

(Second) of Conflicts when analyzing contractual

agreements.‘ See Fruin-Colnon Corp. v. Missouri

‘Section 187 of the Restatement provides:

(1) The law of the state chosen by the parties to

govern their contractual rights and duties will be

applied if the particular issue is one which the

parties could have resolved by an explicit

provision in their agreement directed to that

issue.

(2) The law of the state chosen by the parties to

govern their contractual rights and duties will be

applied, even if the particular issue is one which

the parties could not have resolved by an explicit

12a

Highway & Transp. Comm'n, 736 S.W.2d 41, 44 (Mo.

1987). Because Missouri has greater contacts, its law

would govern the case absent a valid choice of law by

the parties. See Restatement (Second) Conflicts

§ 187(1)(b). Having carefully reviewed the record, I

also find that Missouri has a materially greater

interest in the effect of the forum-selection clause

than Oklahoma. Id. Finally, to determine whether

the choice of law provision is valid, we must ask

whether the arbitration clause at issue violates a

fundamental policy of Missouri. Id. I conclude that it

does.

In Electrical & Magneto Service Co. v. Ambac

International Corp., 941 F.2d 660 (8th Cir. 1991), our

court reviewed Missouri statutes concerning franchise

agreements and concluded that "the Missouri

Legislature created a legislative presumption that

franchisees are in an inferior bargaining position with

respect to franchisors and thus are entitled to

provision in their agreement directed to the

issue, unless...

(b) application of the law of the chosen state

would be contrary to a fundamental policy of

a state which has a materially greater

interest than the chosen state in the

determination of the particular issue and

which . . . would be the state of the

applicable law in the absence of an effective

choice of law by the parties.

Restatement (Second) Conflicts § 187 (1988).

a ee

13a

protection from the oppressive use of the franchisor's

superiority." Id. at 663 n. 3. Although the majority is

correct that "we may not invalidate an arbitration

agreement under any state law applicable only to

arbitration provisions[,]" ante at 4, I would invalidate

this arbitration agreement, because rather than

single out specific protections afforded only to

arbitration agreements under Missouri law, the

Missouri legislative scheme at issue "is designed to

regulate the marketplace to the advantage of those

traditionally thought to have unequal bargaining

power as well as those who may fall victim to unfair

business practices." Id. at 663. In my judgment, the

arbitration provision that allows Golf U.S.A. to sue in

court, but requires Express to arbitrate without the

possibility of ever receiving a jury trial, violates a

fundamental policy under Missouri law.

The Missouri Supreme Court has explicitly

approved the legislative scheme designed to protect

Missouri franchisees and has invalidated a forum-

selection clause where the clause was "unreasonable"

and unfairly prejudiced the franchisee. See High Life

Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493,

500 (Mo. 1992). In agreeing with our Ambac decision

and in interpreting Missouri franchise law, the court

in High Life stated: "The Eighth Circuit Court of

Appeals. . . recognized the strong public policy

reflected in Chapter 407 generally" in protecting

franchisees and "the very fact that this legislation is

paternalistic in nature indicates that it is a

fundamental policy." Id. at 498 (citing Restatement

(Second) of Conflicts § 187 comment g). Consistent

with holdings of our court and the Missouri Supreme

Court, I would invalidate the arbitration clause

l4a

because under Missouri law it is unreasonable and

unfairly prejudices Express.

Even assuming that Oklahoma law applies, the

provision at issue violates the Oklahoma

Constitution. The Oklahoma Supreme Court has held

that "'[o]ne party may not unilaterally decide to have

someone other than a jury determine the issues and

thereby destroy the other's right to a jury trial."

Masey v. Farmers Ins. Group, 837 P.2d 880, 884

(Okla. 1992) (quoting Molodyh v. Truck Ins. Exch.,

744 P.2d 992, 998 (Or. 1987)). ~

In my view, Golf U.S.A. has the unilateral right

to decide to have someone other than a jury determine

the issues and thereby destroy Express's right to a

jury trial. While Golf U.S.A. can sue in court for

anything involving money damages, Express may

never demand a jury trial and must submit to

arbitration. My position that the arbitration

5 Once one closely examines the franchise agreements, it is not

hard to understand why the arbitration agreement 1s so truly

one-sided. Clause 16.4.2 of the franchise agreement, for

example, provides that Golf U.S.A. may terminate the

agreement:

If You [Express] fail to cure a default hereunder,

where such default materially impairs the

goodwill associated with the Golf USA name,

service mark or logo; but only after You have

been given written notice to cure said default

and have failed to do so after 24 hours.

(J.A. at A-55). Because the provision quoted above is so broad, if

Golf U.S.A. determined that Express "materially impair[ed] the

goodwill associated with the Golf USA name.” Golf U.S.A. could

15a

provision vitlates Oklahoma law is bolstered by an

unpublished opinion‘* of the Oklahoma Court of

Appeals. That court explicitly stated: “Because of the

special guarantee of jury trials granted by our

constitution, we hold that a contractual provision

purporting to grant a unilateral right to elect

alternative dispute resolution procedures is not

enforceable against the party demanding a jury trial."

See Neighbors v. Lynn Hickey Dodge, Inc., No. 85.676

terminate the agreement within twenty-four hours notice and

sue Express in court for monies owed as a result of the alleged

breach. On the other hand, as in this case, where Express

claims that Golf U.S.A. materially breached their agreement,

Express is forced to submit to arbitration.

6 Although Oklahoma Supreme Court rules provide that

unpublished opinions have no precedential effect, see Okla. Sup.

Ct. R. 1.200(6)(5), and "shall not be . . . cited in any brief or

other material presented to any court,” courts interpreting this

provision have found that unpublished opinions may be used for

persuasive value. See, e.g., Tillon v. Capital Cities/ABC Inc.,

938 F. Supp. 751, 753 n. 1 (N.D. Okla. 1995) ("Although . .

Oklahoma Court of Appeals’ unpublished opinion|{s] [do] not

have precedential value, . . . [they may] be persuasive."); see also

Farmers Ins. Group v. Stark. 924 P.2d 798, 800 (Okla. Ct. —

1996) ("The trial court found persuasive and followed .

unpublished opinion . . . of this court."); et «ae ND aa

Mosby, 943 P.2d 593, 594 (Okla. 1997) (discussing Northland v.

Nance, an unpublished court of appeals opinion analyzed in

Farmers, and while overruling Nance because a published court

of appeals opinion was on point, never suggested that lower

courts could not use unpublished opinion for persuasive value).

Our court has also stated that one may cite an unpublished

opinion of our court if, although lacking precedential value, it

has persuasive value on a material issue and no published

opinion would serve as well. See 8th Cir. R. 28A(k). In this

regard, I do not agree that the cases cited by the majority

sufficiently address the issues before us.

16a

at 9 (Okla. Ct. App. Aug. 6, 1996) (J.A. at A-111, A-

119) (emphasis in original).’? There can be no doubt

that the Neighbors holding is both persuasive and on

point with respect to this case.®

We are empowered to predict how tne

Oklahoma Supreme Court would decide this matter.

In my view, Oklahoma law compels us to find that the

unilateral right that Golf U.S.A. possesses in this case

directly contravenes its constitution. It is for this

reason that I respectfully dissent and hope that our

court en banc, or the United States Supreme Court,

7In Cannon v. Lane, 867 P.2d 1235 (Okla. 1993), the Oklahoma

Supreme Court stated: "Because we hold that the contract

before this Court is one 'with reference to insurance’ and

therefore an exception to the Uniform Arbitration Act, we need

not address the constitutional issue of whether the contract for

arbitration of future disputes deprives the petitioner of a jury

trial and violates his constitutional rights under . . . the

Constitution of the State of Oklahoma." Id. at 1239 n. 7.

Although the court did not reach the issue, it is clear that, at the

very least, it considered the question open whether arbitration

clauses may deprive one of the right to a jury trial in violation of

the Oklahoma Constitution. This fact, in conjunction with the

holdings in Massey and Neighbors, clearly shows the error made

by the majority.

8 Interestingly, the court in Neighbors considered the Shaffer

opinion, relied on so heavily by the majority, and yet still found

that the arbitration clause violated the Oklahoma Constitution.

See Neighbors, 85.676, at 7 (J.A. at A-117). One may question

why the Oklahoma Supreme Court withdrew Neighbors from

publication, rather than simply overruling it. Perhaps the

reason is that "[o]pinions of the Court of Civil Appeals which

apply settled precedent and do not settle new questions of law

shall not be released for publication." 20 0.S. 1991, § 30.5.

l7a

corrects this transparent misapprehension of our role

when hearing diversity cases.

A true copy.

Attest.

CLERK, U.S. COURT OF

APPEALS, EIGHTH CIRCUIT

18a

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 97-4243EMSL |

Charles S. Barker, 2

» |

Appellant, * Order Denying Petition

* for Rehearing and

vs. * Suggestion for

* Rehearing En Batic

Golf U.S.A., Inc., a

*

Appellee. sd

The suggestion for rehearing en banc is denied.

Judge McMillian would grant the suggestion. The

petition for rehearing by the panel is also denied.

September 29, 1998

Order Entered at the Direction of the Court:

Michael E. Gans /ss/

Clerk, U.S. Court of Appeals, Eighth Circuit

19a

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

CHARLES B. BARKER, et al., )

Plaintiffs, =)

v. No. 4:97-CV-1829 CAS

GOLF U.S.A., INC.,

Defendant. ‘

MEMORANDUM AND ORDER

This diversity matter is before the Court on

defendant Golf U.S.A., Inc.'s Motion to Dismiss or

Transfer or, Alternatively, Motion to Stay Proceedings

Pending Arbitration. Plaintiffs oppose the motion.

Background

Plaintiffs filed this action in state court, alleging

they were damaged by defendant's intentional

misrepresentations in connection with plaintiffs’ purchase

of a Golf U.S.A. store franchise. Defendant timely

removed the case to this Court on the basis of diversity of

citizenship, and filed the instant motion to dismiss,

transfer or stay.

Defendant Golf U.S.A., Inc. ("GUSA"), an

Oklahoma corporation, contends that under the terms of

applicable agreements between the parties, this dispute

20a

must be resolved through arbitration and not in the

courts. Plaintiffs respond that under applicable Missouri

law, the arbitration and choice of law clauses in the

agreements are void and unenforceable.

In September 1995, plaintiff Express Golf, Inc.

("Express"), a Missouri corporation, entered into a

Franchise Agreement with GUSA to own and operate a

Golf U.S.A. golf retail store, utilizing GUSA's name,

designs, system and service marks. (Ex. A to Def.'s Mot.

to Dismiss.) Plaintiff Charles S. Barker, a Missouri

resident, is the sole shareholder of Express. Barker

entered into a Principals' Agreement with GUSA under

which he, inter alia, agreed to personally guarantee

Express' performance under the Franchise Agreement.

(Ex. B to Def.'s Mot. to Dismiss.)

The Franchise Agreement contains the following

provision concerning arbitration:

18.1 Any and all disputes and

controversies arising out of or relating to

this Agreement, performance hereunder

or breach hereof, except for monies owed

to Golf USA pursuant to this Agreement

and except as described in Paragraph

18.5 [concerning temporary injunctive

relief], shall be resolved by arbitration

conducted in Oklahoma County, State of

Oklahoma, in accordance with the latest

existing Commercial Rules of Arbitration

of the American Arbitration Association.

See Franchise Agreement at pp. 29-30.

2la

The Franchise Agreement also contains the

following choice of law provision:

20.1 This Agreement shall be

governed by and construed in accordance

with the laws of the State of Oklahoma.

The parties consent to the jurisdiction of

the Oklahoma County District Court and

the United States District Court for the

Western District of Oklahoma. In the

event of any conflict, this section is

subordinated to the provisions of Article

18 [concerning arbitration].

See id. at p. 31.

Finally, the Franchise Agreement contains the

following provision in twelve-point bold type:

20.13 You acknowledge that

You have received a blank copy of

this Agreement in time to afford

ample opportunity to seek legal

counsel, and to analyze the various

provisions herein. ...

See id. at p. 33.

A Principals' Agreement was executed by

GUSA and Barker in connection with the Franchise

Agreement. This agreement incorporates the

arbitration provision of the Franchise Agreement,

providing in pertinent parts:

22a

2. Franchise Agreement. The Principals

hereby represent and warrant that they

have read and understand the Franchise

Agreement as a whole and all individual

provisions thereof, and acknowledge that

their signing of this Agreement is

voluntary and as an inducement to Golf

USA to enter into the Franchise

Agreement with the Franchisee

[Express].

* * 7

7. Enforcement. The provisions of the

Franchise Agreement relating to the

enforcement thereof are incorporated

herein by this reference and shall be

fully applicable to the obligations and

liabilities of each of the parties hereto.

Express opened a Golf USA retail store in

October 1995 in St. Louis County, Missouri. Express

closed the siore in June 1996, after losing money on

its operation. As a result, GUSA sent to Barker a

notice of termination of the Franchise Agreement

dated June 28, 1996. Plaintiffs filed this action on

August 4, 1997.

Di ,

Defendant GUSA moves to dismiss, stay or

transfer based on the arbitration and choice of law

provisions in the Franchise Agreement. Plaintiffs

respond that these provisions are void and contrary to

controlling Missouri law.

23a

The Federal Arbitration Act ("FAA"), 9 U.S.C.

§ 1 et seq., "embodies Congress’ intent to provide for

the enforcement of arbitration agreements within the

full reach of the Commerce Clause." Perry v. Thomas,

482 U.S. 48%, 490 (1997). Section 2 of the FAA

reflects a liberal federal policy favoring arbitration

agreements, despite any contrary substantive or

procedural policies created by state law. Section 2

creates a body of federal substantive law of

arbitrability, applicable to any arbitration agreement

within the Act's coverage. Id., 482 U.S. at 489

(citations omitted).

There are only two limitations on the

enforceability of an arbitration provision covered by

the FAA: (i) It must be part of a written contract

"evidencing a transaction involving commerce"; and

(ii) it may be revoked only upon “grounds as exist at

law or in equity for the revocation of any contract." 9

U.S.C. § 2; Southland Corp. v. Keating, 465 U.S. 1,

10-11 (1984). Federal law preempts state law with

respect to the interpretation and construction of

arbitration agreements falling within the scope of the

FAA. Webb v. R. Rowland & Co., Inc., 800 F.2d 803,

806 (8th Cir. 1986). Thus, "traditional choice of law

principles in diversity actions . . . are not available

when the Federal Act applies to the case." Sanders-

Midwest, Inc. v. Midwest Pipe Fabricators, Inc., 857

F.2d 1235, 1237 (8th Cir. 1988).

The first step in the Court's analysis is to

determine whether the Franchise Agreement between

the parties is subject to the FAA. The Court finds,

and parties do not contest, that the Franchise

24a

Agreement involves interstate commerce within the

meaning of 9 U.S.C. § 2, because it involves parties

located in different states and contemplates the

transfer of inventory and money between those states.

Thus, the Court concludes that the Franchise

Agreement is governed by the FAA.

Because the Franchise Agreement does not

specifically reflect that the parties agreed to submit

the question of arbitrability to arbitration, the Court

decides the issue. See McLaughlin Gormley King Co.

v. Terminix Int'l Co., L.P., 105 F.3d 1192, 1193-94

(8th Cir. 1997) (citing First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 1923 (1995)).

Questions of arbitrability "must be addressed with a

healthy regard for the federal policy favoring

arbitration." Moses H. Cone Mem. Hosp.., Inc. v.

Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Asa

matter of federal law, any doubts concerning the

scope of arbitrable issues are resolved in favor of

arbitration. Id. at 24-25.

The arbitration provision in the Franchise

Agreement is broad, because it provides for

arbitration of all disputes and controversies arising

out of or relating to the Agreement, its performance or

breach. See Fleet Tire Serv. of North Little Rock v.

Oliver Rubber Co., 118 F.3d 619, 621 (8th Cir. 1997).

Because plaintiffs allege fraud in the inducement,

specifically misrepresentation and omission of facts

regarding Express' operation and success under the

Franchise Agreement, the present dispute relates to

25a

the Agreement.' See, e.g., Prima Paint Corp. v. Flood

& Conklin Mfg. Co., 388 U.S. 395, 406 (1967) (where

plaintiff claimed that execution of agreement

containing arbitration clause was procured by fraud,

broad arbitration provision would be enforced);

Houlihan v. Offerman & Co., Inc., 31 F.3d 692, 695

(8th Cir. 1994). As a result, the parties' dispute in

this case must be submitted to arbitration.

Plaintiffs contend, however, that the

arbitration clause and the choice of law provision are

unenforceable under Missouri law. As a threshold

matter, because the Franchise Agreement provides

that it is to be interpreted under Oklahoma law, this

Court would follow the contractual choice of law

provision. See Houlihan, 31 F.3d at 695, n. 3.

Plaintiffs' contention that the choice of law provision

is unenforceable because it is contained within a

contract of adhesion is unpersuasive, for reasons

discussed below.

Plaintiffs argue the arbitration clause is

unenforceable because it is contained within a

contract of adhesion, fails for want of mutuality and

consideration, is unconscionable, and violates public

policy. These arguments are properly decided by an

arbitrator, not the Court, because they go to the

formation of the entire Franchise Agreement. See,

' Plaintiffs do not contend that only the arbitration clause of the

Franchise Agreement was induced by fraud, or that the alleged

misrepresentations relate only to the arbitration clause. Such a

claim may be adjudicated by a federal court.

Prima Paint Corp.

y. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967); see

Houlihan v. Offerman & Co., Inc., 31 F.3d 692, 695 (8th Cir.

1994).

~

26a

e.g., Prima Paint, 388 U.S. at 402-06; Houlihan, 31

F. F.3d at 696 n. 5; Merrill Lynch, Pierce, Fenner &

Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir.

1981).

Nonetheless, the Court finds plaintiffs’

arguments unavailing. Plaintiffs fail to provide any

factual support for their assertion that the Franchise

Agreement is a contract of adhesion because the

parties were of unequal bargaining power and the

Franchise Agreement was offered only on a take-it-or-

leave-it basis. As a result, this argument fails. See

R h n/ rican Exp.., Inc.,

490 U.S. 477, 484 (1989). Further, "The use of a

standard form contract between two parties of

admittedly unequal bargaining power does not

invalidate an otherwise valid contractual provision.

To be invalid, the provision at issue must be

unconscionakle." Webb, 800 F.2d at 807 (quoting

Surman v. Merrill Lynch, Pierce, Fenner & Smith,

733 F.2d 59, 61 n. 2 (8th Cir. 1984)). The Eighth

Circuit has held there is nothing inherently_unfair

about arbitration clauses, and they are therefore valid

and enforceable. Surman, 733 F.2d at 61 n. 2.

Plaintiffs fail to make a showing that the arbitration

clause is unconscionable or inherently unfair.

Nor does the Court agree with plaintiffs'

contention that the arbitration clause lacks mutuality

of obligation. In order for there to be adequate

mutuality, it is not essential that both parties be

required to arbitrate every type of claim which may

arise under an agreement. It is sufficient if both

parties agree to arbitrate some claims. Hull v.

Norcom, Inc., 750 F.2d 1547, 1548-50 (11th Cir. 1985)

27a

(citing Riccardi y, Modern Silver Linen Co., Inc., 356

N.Y.S.2d 872, 875- 76 ih — son Seymour v.

loria Jean pe Bea , 732 F.

Supp. 988, 995- 96 (D. Minn. 1990). i this case, the

parties agreed to arbitrate most claims either might

have arising under the Franchise Agreement, with

the exception of claims for monies owed by Express to

GUSA under the Agreement. As a result, sufficient

mutuality of obligation exists. See C.HI., Inc. v.

Marcus Bros. Textile, Inc., 930 F.2d 762, 764 (9th Cir.

1991).

Plaintiffs' argument that the arbitration clause

violates some nebulous Missouri public policy is also

without merit. As previously noted, the FAA favors

arbitration agreements, despite any contrary

substantive or procedural policies created by state

law. Perry v. Thomas, 482 U.S. at 490 (under

Supremacy Clause, provision of FAA preempted

California statute which stated that wage collection

actions could be maintained without regard to

existence of agreement to arbitrate); see Webb, 800

F.2d at 806-07 (federal law preempted a Missouri

statute which provided that arbitration agreements in

contracts of adhesion would not be enforced).

Consequently, the only issue remaining for

decision is whether this case should be dismissed,

transferred, or stayed.2 Under section 3 of the FAA,

2 Defendants have not moved to compel arbitration. Under the

weight of authority, this Court lacks the power to compel the

parties to arbitrate their dispute in another district, or to

arbitrate in this district where the Franchise Agreement

specifies arbitration in Okiahoma. See, e.g., Merrill Lynch,

——— aT

28a

federal courts have the authority to stay an action

pending arbitration, upon application by one of the |

parties. This provision does not limit dismissal of a

case, however, when all of the issues raised in the

complaint must be submitted to arbitration. See, e.g.,

Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161,

1164 (5th Cir. 1992); Sparling v. Hoffman Constr. Co..

Inc., 864 F.2d 635, 638 (9th Cir. 1988); E.E.O.C. v. |

Frank's Nursery & Crafts, Inc., 966 F. Supp. 500, 505- |

06 (E.D. Mich. 1997); Hoffman v. Fidelity and Deposit |

Co. of Maryland, 734 F. Supp. 192, 195 (D.N.J. 1990). |

Where all issues in a case must be submitted to

arbitration, it serves no purpose to retain jurisdiction

and stay an action, or to transfer it to another district.

This is also true with regard to post-arbitration

remedies, which would not involve a plenary review of

the merits of the dispute but rather are limited to a

review of the arbitrator's award in the manner

provided by law. See Alford, 975 F.2d at 1164. Asa

result, the Court concludes this matter should be

dismissed.

nclusi

For the foregoing reasons, the Court concludes

that the parties' dispute must be resolved by

arbitration, and this matter should be dismissed.

Defendant's Motion to Dismiss will be granted, and

its alternative motions will be denied as moot.

Accordingly,

Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 328 (7th Cir.

1995), and cases cited therein.

i

29a

IT IS HEREBY ORDERED that defendant

Golf U.S.A., Inc.'s Motion to Dismiss is GRANTED.

[Doc. 4-1]

IT IS FURTHER ORDERED that defendant's

alternative motions to transfer or to stay pending

arbitration are DENIED as moot. [Doc. 4-2, -3]

An appropriate order of dismissal will

accompany this memorandum and order.

Charles A. Shaw /ss/

CHARLES A. SHAW

UNITED STATES

DISTRICT JUDGE

Dated this 17th day of November, 1997.

30a

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

CHARLES B. BARKER, et al., )

Plaintiffs,

v. No. 4:97-CV-1829 CAS

GOLF U:S.A., INC.,

Defendant. ‘

ORDER OF DISMISSAL

In accordance with the memorandum and order

of this date and incorporated herein,

IT IS HEREBY ORDERED that plaintiffs'

Complaint is DISMISSED.

Charles A. Shaw /ss/

CHARLES A. SHAW

UNITED STATES

DISTRICT JUDGE

Dated this 17th day of November, 1997.