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Arbitration: A Review of the Literature

JONATHAN

the literature on arbitration

his
of
thatarticle
may identifies
be usefulsome
to the
franchise practitioner. Specifically, this review identifies and summarizes articles addressing the
following subjects:
*Arbitration in franchising
* Interplay of the Federal Arbitration Act (FAA) and the Uniform Arbitration Act (UAA)
Jonathan J.Toronto
* Interstate commerce under the
FAA and federal preemption of
state law
* Drafting arbitration agreements
* Enforcement of forum selection and choice-of-law clauses
* Arbitration procedure
* Who decides arbitrability
* Actions to compel arbitration, stay proceedings, or confirm awards
* Arbitration and class actions
* Mutuality of arbitration agreements
* Contractual expansion of judicial review
Contesting arbitration clauses
Challenging arbitration awards
* Collateral estoppel and the effect of an arbitration award
Privatization of law through arbitration
* Waiver of contractual arbitration rights
* Ethics and arbitration
Arbitration in Franchising
Christopher R. Drahozal, "Unfair" Arbitration Clauses,
2001 U. ILL. L. REV. 695 (Contains Professor Drahozal's
analysis of arbitration clauses of leading franchisors, filed
with the State of Minnesota. Discusses whether so-called
"unfair" provisions in arbitration clauses truly are unfair.
Concludes that under appropriate market conditions, fully
informed individuals may actually find it beneficial to
execute predispute arbitration clauses containing "unfair"
provisions.).
Keith N. Hylton and Christopher R. Drahozal, The Economics of Litigation and Arbitration: An Application to
Franchise Contracts, BOSTON U.

SCHOOL OF L. WORKING

No. 3, 2001,
available at <http://www.bu.edu/law/faculty/papers/HyltonK040601abstract.html> (Provides an economic analysis
of motivating factors for franchising parties to include arbitration clauses in their agreements. Presents empirical data
supporting premise that contracting parties choose forum for
PAPER SERIES, L. AND ECON., WORKING PAPER

Jonathan J. Toronto practices with the law.firm of Groy Plant Mootv

in its Minneapolis office.

128

Franchise Law Journal U

Fall 2002

J. TORONTO

dispute resolution that maximizes difference between deterrence benefits-defined as avoided harms net of avoidance
costs-and dispute resolution costs. Concludes that: (1) view
that arbitration generally involves coercive forfeiture of legal
rights is weak in franchise context, where both parties are
businesses represented by counsel and both have incentive to
choose dispute resolution forum that offers the greatest deterrence benefit per dollar invested; and (2) certain laws that
make arbitration less attractive, such as state franchisee protection statutes, may have substantial wealth effects.).
Edward Wood Dunham, Flatter, Will Get You Nowhere,
20 FRANCHISE L.J. 103 (Winter 2001) (Editorial comments
identify reasons for the enforcement of arbitration clauses in
franchise agreements, including the following: (1) franchisees are businesspeople-not vulnerable, helpless consumers-pursuing entrepreneurial opportunity; (2)
franchisees receive detailed presale disclosure regarding a
franchisor's dispute resolution history and mandated procedures; (3) franchisees' failure to read plain contractual provisions, where applicable, should not relieve franchisees; and
(4) franchisees can choose from competing franchise systems-many of which do not mandate arbitration. Argues
that arbitration is beneficial to franchisees based on: (a) lack
of meaningful discovery, dispositive motions, rules of evidence, and appellate review; (b) certain arbitrators' disdain
of big business; and (c) arbitrators' focus on equity (including compromise awards), rather than the law.).
Jean R. Sternlight, Protecting Franchiseesfrom Abusive
Arbitration Clauses, 20 FRANCHISE L.J. 45 (Fall 2000) (Criticizes use of arbitration clauses by franchisors as means of
securing unfair advantages with respect to franchisees. Disagrees with Professor Drahozal's conclusion that arbitration
clauses, even so-called unfair clauses, may in fact secure
advantages to franchisees as well as franchisors, as franchisors pass certain gains to franchisees. Suggests that franchisees lack the "perfect information" requisite to make the
market function efficiently, and thus that franchisors will not
necessarily share their gains with franchisees. Invites legislators to take action by enacting protective legislation.). (See
also Jean R. Sternlight, Fighting Arbitration Clauses in
FranchisorContracts,TRIAL, Oct. 2000, at 65.)
Ted P. Pearce, Ronald K. Gardner, and Robert L. Zisk, A
Critical Look at Alternative Dispute Resolution, 1 INT'L
FRANCHISE ASSOC. LEGAL SYMP., at Tab 7 (2000) (Provides
overview of mediation and arbitration through the eyes of
franchisee lawyers, franchisor lawyers, and in-house counsel.
Discusses: (1) how arbitration differs from litigation; (2)
advantages and disadvantages of arbitration; (3) drafting suggestions for arbitration clauses; and (4) how franchisors and
franchisees view arbitration.).
Barry M. Heller and Allan P. Hillman, Essentials of Dispute Resolution for Business Lawyers, 1 ABA FORUM ON

(1987), has been largely overlooked. States that under Perry,

the U.S. Supreme Court found that state law, rather than federal law, controls the question of whether parties have agreed
to arbitrate. Criticizes courts for continuously creating federal contract law rather than recognizing federalist intent of
Perry. Concludes that "sedulous application of state contract
principles, as mandated by recent Supreme Court decisions,
remains the best way to protect parties against the unintended waiver of their right to judicial redress.").
Stephen L. Hayford, Federal Preemption and Vacatur:
The Bookend Issues Under the Revised Uniform Arbitration
Act, 2001 J. DisP. RESOL. 67 (Prepared by one of the two academic advisors to the drafting committee responsible for
revising the UAA, article describes delicate, complex process
undertaken by RUAA Drafting Committee in preparing useful, viable state arbitration legislation. Focuses particular
attention on issues of federal preemption and vacatur.).
Timothy J. Heinsz, The Revised Uniform Arbitration Act:
An Overview, Disp. RESOL. J., May-July 2001, at 28 (Provides an extensive discussion of changes embodied in the
recently drafted RUAA. Suggests that additional legislative
Interplay of the FAA and the UAA,
reform is also needed at the federal level, in light of the docInterstate Commerce Under the FAA,
trine of federal preemption, to account for changes that have
and Federal Preemption of State Law
occurred since the FANs enactment. Concludes that adopStephen L. Hayford and Alan R. Palmiter, Arbitration Federtion of the RUAA will yield an efficient, modem, and fair
arbitration system, assuming that long-awaited reform of the
alism: A State Role in Commercial Arbitration, 54 FLA. L.
REV. 175 (2002) (Provides detailed discussion of the concept
FAA follows.).
Nancy R. Kornegay, Comment, Prima Paint to First
of arbitration federalism, and particularly considers areas in
which the FAA preempts state legislation regarding arbitraOptions: The Supreme Court's ProcrusteanApproach to the
Federal Arbitration Act and Fraud, 38 Hous. L. REv. 335
tion and those areas in which it does not. Asserts that states
(2001) (Examines U.S.
must serve critical role
Supreme Court's decision
of filling gaps left by
in Prima Paint Corp. v.
the FAA, reviews and critiques the Revised UniEnforcement4of an arbitration
Flood & Conklin Mfg.
Co., 388 U.S. 395 (1967),
form Arbitration Act
and related cases. Focuses
agreement is vi rt:ually automatic
(RUAA), and outlines considerations to be heeded by
in federal court absent irregular
on application of FAA in
state legislators in drafting
face of claims of fraudulent inducement. Critifacts or blun(Jers by counsel.
state legislation consistent
cizes: (1) Court's adoption
with the U.S. Supreme
of separability doctrine
Court's philosophy of arbiwith respect to charges of
tration federalism.).
Sarah Rudolph Cole, Unifbrm Arbitration: "One Size Fits
fraudulent inducement of contracts containing arbitration
clauses; (2) inconsistency of Prima Paint decision with
All" Does Not Fit, 16 OHIO ST. J. ON DisP. RESOL. 759 (2001)
Court's stated emphasis on respecting legislative intent; and
(Suggests that uniform approach to regulating predispute
(3) Court's usurpation of state arbitration and contract law.).
arbitration agreements may be inappropriate. Specifically
Todd Baker, Comment, Arbitration in the 21"' Century:
advocates distinct treatment of traditional arbitration, as pracWhere We've Been, Where We're Going, 53 OKLA. L. REV.
ticed by repeat players including merchants and labor unions,
653 (2000) (Provides overview of the history of arbitration in
and modem arbitration, as imposed by repeat players on onethe United States and considers the legislative history of the
time participants, such as consumers and employees. ProposFAA. Analyzes judicial decisions regarding the scope and
es revision of the FAA, or adoption of an additional federal
applicability of the FAA and considers various revisions to
arbitration law, to accommodate the differences between
the FAA.).
these groups.).
Edmond Seferi, Note, FAA and Arbitration Clauses How
Charles Davant IV, Note, Tripping on the Threshold: FedFar Can It Reach? The Effect of Allied-Bruce Terminix, Inc.
eral Courts' Failureto Observe Controlling State Law Under
v. Dobson, 19 CAMPBELL L. REV. 607 (1997) (Analyzes
the Federal Arbitration Act, 51 DUKE L.J. 521 (2001)
Court's decision in Allied-Bruce Terminix, Inc. v. Dobson,
(Argues that the case of Perry v. Thomas, 482 U.S. 483
at Tab W5 (1998) (Provides general overview
of various dispute resolution issues to be considered by franchise lawyers. Contains suggested substance and text for
mediation or arbitration provisions to be included in franchise agreements.).
Edward Wood Dunham, Mitchell S. Shapiro, and Jason
M. Murray, Advanced Litigation Topics: The Franchisorand
Franchisee Perspectives, 2 ABA FORUM ON FRANCHISING, at
Tab W13 (1998) (Presents overview of legal issues arising in
systemwide franchise disputes. Among other things, discusses franchise agreement provisions, including arbitration
clauses, commonly used to manage risks related to systemwide disputes. Concludes that, with respect to arbitration
clauses, notwithstanding any aversion that a franchisor may
have to arbitrating, the one key advantage is that enforcement
of an arbitration agreement is virtually automatic in federal
court, absent irregular facts or blunders by counsel. Also discusses the increasing trend toward mandatory mediation as a
precursor to arbitration, and briefly considers the concept of
res j udicata within the arbitration context.).
FRANCHISING,

Fall 2002

Franchise Law Journal

129

513 U.S. 265, 115 S. Ct. 834 (1995), in which Court held
that the FAA governs all arbitration agreements affecting or
involving commerce. Concludes that the Court's decision
"guarantees that if a contract involves or affects interstate
commerce, the pro-arbitration standards contained in the
FAA will govern the enforcement of an arbitration provision
in the contract" and that the "[p]arties submitting to arbitration will no longer face the legislative barriers of differing
state standards or the judicial hostility against the enforcement of arbitration clauses.").
Megan P. Davis, Comment, From ProceduralLaw to Preemption: The Supreme Court's Transformationof the Federal
Arbitration Act, I HARV. NEGOTIATION L. REV. 169 (1996)
(Criticizes Allied-Bruce and the Court's affirmation of supposedly flawed cases leading up to it. Discusses historic evolution of FAAs preemptive power over state law.). (See also
Lauri Washington Sawyer, Allied-Bruce Terminix Companies v. Dobson: The Implementation of the Purposes of the
FederalArbitrationAct or an Unjustified Intrusion Into State
Sovereignty?, 47 MERCER L. REV. 645 (1996).)
Donald E. Johnson, Recent Decision, Has Allied-Bruce
Terminix Cos. v. Dobson ExterminatedAlabama's Anti-Arbitration Rule?, 47 ALA. L. REV. 577 (1996) (Examines relevance of Allied-Bruce and its potential impact on state
arbitration law. Considers how expansion of FAA may
impact consumer protectionism. Concludes that Allied-Bruce
"effectively signals the end of presumptive unenforceability
of predispute arbitration agreements in Alabama.").
Joseph T. Mclaughlin, Arbitrability: Current Trends in the
United States, 59 ALB. L. REV. 905 (1996) (Traces U.S.
Supreme Court decisions over past twenty years that found
that "arbitration agreements covering claims arising under
congressional statutes are enforceable in accordance with the
terms of the FAA." Considers arbitrability of punitive damage claims, and preemption of FAA over state law in this
regard. Summarizes recent trends regarding arbitrability of
employment, consumer, family, tort, antitrust, bankruptcy,
and intellectual property law claims.).
Scott R. Swier, Note, The Tenuous Tale of the Terrible
Termites: The FederalArbitrationAct and the Court's Decision to Interpret Section Two in the Broadest Possible Manner: Allied-Bruce Terminix Cos., Inc. v. Dobson, 41 S.D. L.
REV. 131 (1995-1996) (Reviews the various tests used by
state and federal courts to determine whether certain activities involve interstate commerce to a degree sufficient to trigger the FAA. Criticizes Allied-Bruce for its unduly broad
construction of the interstate commerce requirement.).
Drafting Arbitration Agreements
Neal Blacker, Drafting the Arbitration/ADR Clause, 13 No. I
PRAC. LITIGATOR 51 (2002) (Examines legal issues related to
the incorporation of institutional arbitration rules into agreements. Outlines strategic, and practical, considerations in
framing the actual arbitration agreement. Provides extensive
checklist of items to be included in the arbitration agreement.).
Lucy E Reed, Drafting Arbitration Clauses, 670 P.L.I./LIT.
553 (Mar. 2002) (Outlines key issues to be addressed in nego130

Franchise Law Journal

FaIl 2002

tiating and drafting arbitration clauses in international contracts. Considers "scope and content of the clause, the seat of
arbitration, choosing the arbitrators and choosing the arbitration rules." Also provides model clauses.).
Erika Van Ausdall, Confirmation of Arbitral Awards:The
Confusion Surrounding Section 9 of the FederalArbitration
Act, 49 DRAKE L. REV. 41 (2000) (Discusses split among the
U.S. Courts of Appeals regarding the interpretation of section 9 of the FAA. In particular, considers the contractual
language required in order to authorize judicial enforcement
of an arbitration award. For example, while some courts hold
that "section 9 requires a clear statement by the parties in
their arbitration agreement that judgment be entered upon
issuance of the arbitration award," others hold that "while
some indicia of the parties' intent to be bound by arbitration
is necessary, explicit language providing for judicial confirmation is not mandated by the FAA. Concludes that "a court
should have the authority to confirm an arbitration award if
there is sufficient evidence that the parties intended the arbitration award to be final and binding.").
Jean R. Sternlight, Drafting a "Bulletproof" Consumer
ArbitrationAgreement: Is It Possible?, 1102 P.L.I./CoRP. 763
(Feb. 1999) (Considers whether it is possible to draft failsafe
arbitration agreement in consumer context. Categorizes types
of clauses and ranks clauses by likelihood of enforceability.
Concludes that the most enforceable clause is one that
secures benefits of speed, low cost, and expertise for both
sides, rather than to the drafter alone.).
Enforcement of Forum Selection
and Choice-of-Law Clauses
Note, An Unnecessary Choice of Law: Volt, Mastrobuono,
and FederalArbitration Act Preemption, 115 HARV. L. REV.
2250 (2002) (Addresses FAA preemption with respect to
generic choice-of-law clauses. Concludes that U.S. Supreme
Court has crafted line between protecting federal interest in
arbitration and preserving local autonomy in an area traditionally reserved to states. Discusses confusion of lower
courts in walking this line and offers suggestions with
respect to the proper resolution of this confusion.).
Nathan E. Ross, Note, Federalism versus the Greater
Good ...Should Powerful Franchisorsbe Allowed to Contract for the Home Court Advantage Through Forum Selection Clauses?, 2000 J. DIsP. RESOL. 199 (Discusses whether
FAA preempts state laws that otherwise invalidate forum
selection clauses contained in franchise agreements. In particular, considers the case of KKW Enters., Inc. v. Gloria
Jean's Gourmet Coffees FranchisingCorp., 184 F.3d 42 (1st
Cir. 1999), and concludes: "The FAA should preempt contrary state laws regarding the enforceability of forum selection clauses contained in arbitration provisions.").
Edward Wood Dunham, William A. Darrin, Jr., and Benjamin A. Levin, FranchisorAttempts to Control the Dispute
Resolution Forum: Why the FederalArbitration Act Trumps
the New Jersey Supreme Court's Decision in Kubis, 29 RUTGERS L.J. 237 (1998) (Reviews: (1) state and federal legal
standards applied to judicial forum selection clauses; (2) the

New Jersey Supreme Court's decision in Kubis & Perszyk

Assoc., Inc. v. Sun Microsystems, Inc., 146 N.J. 176, 680
A.2d 618 (1996); (3) state statutes and regulations aimed at
invalidating franchise agreement provisions that require outforum litigation or arbitration; and (4) the impact of FAA
with respect to a franchisor's enforcement of arbitral forum
selection clauses. Concludes that "franchisors with arbitration clauses have the substantial comfort of knowing that
their choice of forum should in almost every instance be
enforced."). (See also Edward Wood Dunham, William A.
Darrin, Jr., and Benjamin A. Levin, Choice of Forum in Litigation and Arbitration, 1 INT'L FRANCHISE Assoc. LEGAL
SYMP., at Tab 8 (1999).)
James Zimmerman, Note, Restrictions on Forum-Selection Clauses in FranchiseAgreements and the FederalArbitration Act: Is State Law Preempted?,51 VAND. L. REV. 759
(1998) (Considers whether FAA should preempt state franchise laws limiting the use of forum selection clauses in franchise agreements. Argues that "state laws which void
forum-selection agreements do not hold arbitration clauses to
a higher standard than other contracts and do not undermine
the policy of the FAA," but rather "address the inherent
unfairness in requiring individuals to seek redress in remote
forums.").
Arbitration Procedure
Theodore 0. Rogers, Jr., The Procedural Differences
Between Litigating in Court and Arbitration: Who Benefits?,
16 OHIo ST. J. ON DisP. RESOL. 633 (2001) (Analyzes practical differences between litigation or arbitration of employment law claims. Covers issues related to pleading, pretrial,
trial, and post-trial dispute stages. Concludes that notwithstanding some of the procedural advantages afforded to
employees by arbitration, employers continue to use arbitration as a means of dispute resolution in an effort to establish
greater certainty as to the length and cost of disputes.).
Jean R. Sternlight, Mandatory Binding Arbitration and
the Demise of the Seventh Amendment Right to a Jury Trial,
16 OHIO ST. J. ON DIsP. RESOL. 669 (2001) (Argues that there
is striking contrast between party's right to jury trial under
Seventh Amendment to the U.S. Constitution and that party's
obligation to submit claims to arbitration under FAA. Criticizes court decisions that fail to reconcile the sacrosanct view
of the right to a jury trial on the one hand with the strong
preference for arbitration on the other. States that "[a]lthough
the right [to a jury trial] is waivable, such waivers must be
genuine; specifically, they must be knowing, voluntary, and
intelligent. Companies cannot legitimately evade this strict
constitutional requirement by using arbitration clauses.").
Edward Wood Dunham, Enforcing Contract Terms
Designed to Manage FranchisorRisk, 19 FRANCHISE L.J. 91
(Winter 2000) (Provides practical insight with respect to the
current legal landscape of risk management provisions contained in franchise agreements. Discusses use of compulsory
mediation clauses, judicial forum selection clauses, arbitration clauses, jury trial waiver provisions, and damages caps.
Discusses recent case law interpreting these sorts of provi-

sions. Inquires whether construing mediation clause as form

of arbitration subject to the FAA is appropriate legal analysis.
Concludes that, with respect to forum selection clauses and
arbitration clauses, careful drafting and measured enforcement of contract terms should enable a franchisor to structure
its franchise agreement to provide for litigation of certain
claims while requiring a franchisee to arbitrate all claims.
Indicates that where an arbitration clause is used, even where
litigation has been used for past claims with respect to the
parties, once franchisee asserts a new claim against the franchisor that the franchisor has not previously litigated but
wants to arbitrate, the franchisor should be able to bring
those claims to arbitration.).
Julian J. Moore, Note, Arbitral Review (or Lack Thereof):
Examining the Procedural Fairnessof Arbitrating Statutory
Claims, 100 COLUM. L. REV. 1572 (2000) (Considers, inasmuch as individual statutory claims may be subject to resolution in mandatory arbitration, present status of judicial
review of individual statutory claims. Concludes, among
other things, that judicial review, and procedural safeguards,
must be expanded if arbitrators are to be allowed to resolve
such claims in both an efficient and fair manner.).
Who Decides Arbitrability
Alan Scott Rau, The Arbitrability Question Itself, 10 AM.
REV. INT'L ARB. 287 (1999) (Reviews First Options of
Chicago v. Kaplan, 514 U.S. 938 (1995), which held that the
arbitrator determines "arbitrability" where the agreement
"clearly and unmistakably so provides. Determining arbitrability is deciding whether a particular dispute falls within a
commitment to arbitrate. Considers, at length, the application
of Kaplan by the courts and analyzes the ultimate impact of
the case.).
Michael A. Hanzman, Arbitration Agreements: Analyzing
Threshold Choice of Law and Arbitrability Questions: An
Often Overlooked Task, FLA. B.J., Dec. 1996, at 14 (Introduces key issues to be addressed in drafting or disputing
mandatory arbitration provisions. In particular, considers: (1)
whether state or federal law will govern substantive and procedural issues; (2) whether dispute fits within scope of clause
and is thus arbitrable; (3) whether contractual choice-of-law
provision may impair otherwise valid arbitration agreement
or limit arbitrator's jurisdiction; or (4) whether arbitrators or
courts will decide arbitrability issues. Emphasizes point that
because courts will construe arbitration clauses to effectuate
the parties' intentions, due care should be given in the drafting process to be sure that the clauses meet the parties'
goals.).
Actions to Compel Arbitration, Stay
Proceedings, or Confirm Awards
Stephen H. McClain, Under a New Supreme Court Decision, Litigants Seeking Arbitration of a Dispute Can Control
the Timing of an Appeal, FED. LAW., Aug. 2001, at 22
(Explains the impact of the U.S. Supreme Court's recent
decision in Green Tree Financial Corp. v. Randolph, 531
U.S. 79 (2000), which ignored the independent and embedFaIl 2002

Franchise Law journal

131

ded proceedings distinction applied by the majority of U.S.

Courts of Appeals and held that if "the District Court has
ordered the parties to proceed to arbitration, and dismissed
all the claims before it, that decision is 'final' within the
meaning of 16(a)(3), and therefore appealable." Suggests
that as a consequence of the case, "practitioners should keep
in mind that an early tactical decision on whether to seek a
stay or dismissal will either enable or hinder an adversary's
ability to appeal immediately," and may "ultimately determine [the dispute's] outcome.").
Darynne L. O'Neal, Note, Clarifying the Intent of Congress: Are the FederalArbitration Act's Venue Provisions
Permissive or Mandatory?, 2001 J.Disp. RESOL. 157 (Considers impact of Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co., 529 U.S. 193 (2000), in questioning whether
FAA's venue provisions are optional or obligatory. In Harbert, the Court rejected view that a motion to confirm,
vacate, or modify an arbitration award must be brought in
same district court in which award was granted. Instead, the
Court agreed with majority of U.S. Courts of Appeals, which
hold venue provisions under the FAA to be permissive. The
article contains analysis of pro and con arguments with
respect to construing the FANs venue provisions as permissive.). (See also Karyn A. Doi, Recent Development, Cortez
Byrd Chips, Inc. v. Bill Harbert Construct. Co., 16 OHIO ST.
J. ON Disp. RESOL. 409 (2001) (Analyzes Cortez decision and
concludes that it clearly establishes "that as long as parties
are able to show that the place they seek to confirm, vacate,
or modify [an] arbitration award is proper under the general
venue statute or proper as the place where the award was
issued, courts will have jurisdiction over the motion.").)
Jean R. Sternlight, Forum Shopping for Arbitration Decisions: Federal Courts' Use of Antisuit Injunctions Against
State Courts, 147 U. PA. L. REV. 91 (1998) (Considers when
federal courts should be allowed to enjoin state court determinations, for the purpose of allowing arbitration to proceed.
Analyzes: (1)cases in which federal courts have, in the arbitration context, issued antisuit injunctions; (2) key policy
considerations regarding the issuance of such injunctions;
and (3) statutes and doctrines governing federal court injunctions of state court proceedings, allowing arbitration to go
forward. Argues that federal courts that "issue arbitral antisuit injunctions in defiance of dominant principles of federalism and comity ...disparage state courts' capacity for
fairness more seriously than can be justified by the federal
supremacy interest.").
FAA Venue Provisions Are Permissive and Do Not Supplant the General Venue Provisions of Federal Law, 12
WORLD ARH. & MEDIATION REP. 125 (2001) (Briefly
explains Textile Unlimited, Inc. v. A. BMH and Co., 240 E3d
781 (9th Cir. 2001), in which the Ninth Circuit upheld the
district court's determination that an action to enjoin arbitration need not be brought in the district where arbitration proceedings are being conducted.). (See also Arbitration-Venue
-Injunction BarringArbitration,FED. LITIGATOR, Apr. 2001,
at 83 (Summarizes Textile Unlimited as follows: "Although
an arbitration agreement designates the site for arbitration, an
132

Franchise Law Journal

Fall 2002

application for an injunction barring arbitration does not

have to be filed in the district where arbitration will take
place.").)
Arbitration and Class Actions
Jean R. Sternlight, As Mandatory Binding ArbitrationMeets
the Class Action, Will the Class Action Survive?, 42 WM. &
MARY L. REV. 1 (2000) (Explains that many corporate defendants use arbitration provisions as shield against class action
liability. Concludes that: (1) "federal statutes and contractual
doctrines, particularly unconscionability, will sometimes, but
not always, bar companies from entirely precluding plaintiffs
from proceeding by way of class action"; (2) "while parties
may elect to pursue their claims in classwide arbitration
rather than through class action litigation, the Due Process
Clause, federal statutes, and contractual doctrines will constrain this choice"; (3) "courts should interpret arbitration
clauses that do not expressly deny the availability of class
actions to permit classwide arbitrations"; and (4) "to the
extent that courts do not step in to prevent companies from
using mandatory arbitration clauses to eliminate class
actions, Congress should enact legislation to protect the use
of this important procedural device.").
Edward Wood Dunham, The Arbitration Clause as Class
Action Shield, 16 FRANCHISE L.J. 141 (Spring 1997)
(Describes arbitration clauses as powerful tool for avoiding
class action lawsuits. Among other points, Dunham suggests
that a "franchisor with an arbitration clause should be able to
require each franchisee in the potential class to pursue individual claims in a separate arbitration. Since many (and perhaps most) of the putative class members may never do that,
and because arbitrators typically do not issue runaway
awards, strict enforcement of an arbitration clause should
enable the franchisor to dramatically reduce its aggregate
exposure."). (See also Georgene M. Vairo, Classwide Arbitration: The Possibility of a Hybrid Procedure, ADR CURRENTS, June 1999, at 19 (Concludes that those who seek to
avoid class actions should use arbitration provisions to
achieve that end.).)
Mutuality of Arbitration Agreements (see also
Contesting Arbitration Clauses)
Allyson K. Kennett, Case Notes, Showmethemoney Check
Cashers, Inc. v. Williams: Show Me the Mutuality-A New
Demand Based on an Old Doctrine Changes the Rules Jbr
Enforceability of Arbitration Agreements in Arkansas, 54
ARK. L. REV. 621 (2001) (Examines the Arkansas Supreme
Court's recent decision in the case of Showmethemoney
Check Cashers,Inc. v. Williams, 342 Ark. 112, 27 S.W.3d 361
(2000). Suggests that in holding that arbitration agreements
must be mutually binding on the respective parties in order to
be enforceable, the state's highest court "has departed somewhat from its long-standing pro-arbitration policy."). (See also
Jeffrey R. Priebe, Recent Developments, Showmethemoney
Check Cashers, Inc. v. Williams, 53 ARK. L. REV. 983 (2000)
(Explains that "[lin the Showmethemoney Check Cashers
decision, the Supreme Court of Arkansas determined that an

arbitration clause must present mutual obligations on both

parties in order to be enforceable.").)
Adam M. Nahmias, The Enforceabilityof Contract Clauses Giving One Party the UnilateralRight to Choose Between
Arbitration and Litigation, CONSTRUCTION LAw., Summer
2001, at 36 (Briefly discusses several cases-including
Montana Supreme Court's recent decision in Iwen v. U.S.
West District, 977 P.2d 989 (Mont. 1999), in which courts
were unwilling to enforce arbitration agreements on the basis
of a lack of mutuality of obligation. Concludes that "[w]hile
there seems to be a trend toward enforcing [unilateral arbitration] provisions, despite claims concerning lack of mutuality,
absence of consideration, and unconscionability, the legal
authorities discussed [in this article] demonstrate that there is
clearly not a majority rule or consensus among the state and
federal courts regarding this issue.").

vantages of agreeing to judicial review of arbitration awards.

Considers the enforceability of such agreements.).

Contesting Arbitration Clauses

Ellen R. Lokker, Allan P. Hillman, and Craig R. Tractenberg,
Ninth Circuit Panel Holds Arbitration Clause Unconscionable, 21 FRANCHISE L.J. 164 (Winter 2002) (Summarizes recent cases, including Ticknor v. Choice Hotels Int'l,
Inc., 265 F.3d 931, 938 (9th Cir. 2001), cert. denied, Choice
Hotels Int'l, Inc. v. Ticknor 122 S. Ct. 1075 (2002) (finding
arbitration provision in franchise agreement to be unconscionable and unenforceable under Montana law).).
Charles Lee Eisen, What Arbitration Agreement? Compelling Non-Signatories to Arbitrate, Disp. RESOL. J., MayJuly 2001, at 40 (Discusses circumstances where party to
business transaction may be required to arbitrate, despite
never having signed an arbitration agreement. Specifically
Contractual Expansion of judicial Review
considers legal theories-including alter ego, incorporation
Recent Cases, Arbitration-Standard f Review-Tenth Cirby reference, assumption, agency, and equitable estoppelcuit Rejects Contractual Expansion of Judicial Review of
applied by courts in finding nonsignatories bound by an arbiArbitration Awards-Bowen v. Amoco Pipeline Co., 254
tration agreement.).
E3d 925 (10th Cir 2001), 115 HARv. L. REV. 1267 (2001)
Charles G. Miller and Darryl A. Hart, The FAA on a Colli(Explains that contrary to decisions in two other U.S. Courts
sion Course with the UnconscionabilityDoctrine, 21 FRANof Appeals-allowing priCHISE L.J. 4 (Summer 2001)
vate parties to contract
(Sharply criticizes recent
around the procedural
decision of California Court
aspects of the FAA-the
Where courts fir that arbitration
of Appeal, Bolter v. SuperiTenth Circuit has conor Court, 87 Cal. 4th 900,
cluded "that enforcement
clauses simply ena bi e a party to cheat
104 Cal. Rptr. 2d 888 (Cal.
of contractual provisions
the other party, or "break the law, such
App. 4th 2001), arguing
providing for expanded
that the court avoided the
clauses will likel iot be enforced,
preemptive constraints of
judicial review would
undermine federal polithe FAA in effort to do juscies and interfere with the
tice to California franjudicial process." Conchisees. In so doing, the
cludes that "the Tenth Circuit's concerns over permitting
court ignored the terms of the parties' franchise agreement and
private parties to expand judicial review of arbitration
misapplied established California common law with respect to
awards find little support in the language, legislative history,
the doctrine of unconscionability. Claims that the court erroneously skirted the FAA's strong, preemptive policy in its decior underlying policies of the FAA." Suggests that permitting
parties such flexibility increases their perception of arbitrasion. Provides valuable insight as to ongoing tension between
tion as a fair, voluntary, and sensible dispute resolution
state policy concerns and interpretation of the FAA.).
alternative.).
F. Paul Bland, Jr., To Fight ArbitrationAbuse, the Devil Is
Karon A. Sasser, Comment, Freedom to Contractfor
in the Details, TRIAL, July 2000, at 31 (Outlines several
Expanded Judicial Review in Arbitration Agreements, 31
potential arguments for resisting mandatory arbitration clausCUMB. L. REV. 337 (2001) (Considers the contractual expanes. Argues that contractual waiver of constitutional rights, to
sion of judicial review of arbitration awards. Provides hisbe valid, must be effected in voluntary, knowing, and intellitoric background, and judicial interpretation, of the FAA.
gent manner. Further, suggests that viability of contract law
Finds that due to the contractual nature of arbitration, various
arguments is grounded in concept of fairness, such as unconpolicy considerations, and the U.S. Supreme Court's view of
scionability, mutuality, unavailability of remedies or class
arbitration, parties should be allowed to agree, in arbitration
actions, excessive costs, or biased forum. Concludes that
provisions, to expand the scope of judicial review.).
where courts find that arbitration clauses simply enable a
Stephen P.Younger, Agreements to Expand Scope of Judiparty to cheat the other party, or break the law, such clauses
cial Review of Arbitration Awards, 63 ALBANY L. REV. 241
will likely not be enforced.).
(1999) (In light of the risk of maverick arbitration decisions,
Katherine Van Wezel Stone, Rustic Justice: Community
considers "whether or not parties should agree to judicial
and Coercion Under the FederalArbitration Act, 77 N.C. L.
review and risk losing the time and cost savings that make
REV. 931 (1999) (Criticizes "the trend toward increased defarbitration so attractive." Discusses the advantages and disaderence to private judicial systems." Proposes that where parFall 2002

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ties are of an unequal status in a relationship, courts should

scrutinize arbitration agreements to protect against unconscionable results, to ensure baseline standards of procedural
fairness, and to ensure appropriate review of legal issues.
With respect to the franchise context, notes that "[a]rbitration
does not emerge from participation in a shared normative
community in which both parties participate. In the franchise
..cases, the party seeking to avoid arbitration-the franchisee... -did not play a participatory role in framing the
rules, norms, and customs of the community.").

advantages and disadvantages of the current approaches

taken by these courts. Proposes incorporation of a plainly
defined manifest disregard standard into the FAA.).
Paul Turner, Preemption: The United States Arbitration
Act, the Manifest Disregardof the Law Test for Vacating an
Arbitration Award, and State Courts, 26 PEPP. L. REV. 519
(1999) (Considers whether state courts are required to follow
the "manifest disregard of the law" test-as articulated by
the U.S. Supreme Court in First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 942 (1995)-in the face of a motion
to vacate an arbitration award. Concludes that the answer is
negative, in that the manifest disregard of the law doctrine is
a creature of federal common law and not the FAA, and thus
that "the [FAA] cannot be read as requiring state court judges
to set aside an arbitration award when there has been a manifest disregard of the law by an arbitrator.").

Challenging Arbitration Awards

Bonnie Roach, Recent Development, George Watts & Son v.
Tiffany & Co., 17 OHIo ST. J. ON DisP. RESOL. 503 (2002)
(Considers Seventh Circuit's recent decision in George Watts
& Son v. Tiffrany & Co., 248 E3d 577 (7th Cir. 2001), and the
issue of "whether parties to arbitration should be bound by the
terms of an arbitration award when the arbitrator has clearly
Collateral Estoppel, Effect of an Arbitration Award
disregarded the law or has violated some basic public policy
Thurston K. Cromwell, Note, Arbitration and Its Collateral
tenets." Discusses potential impact of Seventh Circuit's rejecEstoppel Effect on Third Parties, 2000 J. Disp. RESOL. 425
tion of the manifest disregard standard in favor of a more liber(Considers why California's supreme court has elected not to
al agency theory under which an arbitrator's only duty is to
apply judicially confirmed arbitration awards to third parties.
issue an award that the parties themselves could have crafted.).
Suggests that the court's decision in Vandenberg v. Superior
David M. Glanstein, A Hail Mary Pass: Public Policy
Court, 88 Cal. Rptr. 2d 366, 982 P.2d 229 (Cal. 1999),
"undermines the credibility of the arbitration process and
Review of ArbitrationAwards, 16 OHIO ST. J. ON DisP. RESOL.
297 (2001) (Considers "how courts have interpreted the prinfails to consider the negative impact relitigation of issues will
cipal elements of public policy scrutiny outlined in United
have on the California courts.").
PaperworkersInt'l Union v. Misco, Inc., 484 U.S. 29 (1987),
Cal fbrnia Supreme Court Recognizes Possibility of Liaas well as the burdens faced by parties seeking vacatur of
bility Insurance Coverage jbr Contract Damages, 11 No. 8
awards on public policy grounds." Reviewing recent case
CAL. INS. L. & REG. REP. 191 (Aug. 1999) (Discusses recent
law, concludes "that if cerdecision of California
tain public policies are
Supreme Court in Vandenviolated, parties can still
berg, in which the court
overcome the strong defer"if certair ublic policies
found that findings in pri'F
ence courts show toward
vate arbitration proceedrties can still
ings have no collateral
arbitration.").
are violated,
Laird E. Lawrence and
overcome the rong deference
estoppel effect in litigation
Christopher R. Ward, The
regarding insurance coverage.). (See also California
paLrd arbitration."
courts show toN
Availability and Scope of
Appeal of Arbitration
Court of Appeal Holds
Awards Under the FederThat a Decision in a Prial, Uniform and State
vate, Non-JudicialArbitraActs, 29 BRIEF 32 (2000) (Provides brief overview of the vartion May Not be Given CollateralEstoppel Effect, 9 WORLD
ious means of challenging arbitration awards under statutory,
ARB. & MEDIATION REP. 160 (1998) (Discusses initial appelcommon law, and contractual grounds. Concludes that
late proceedings in the Vandenberg case.).)
regardless of route taken, challenging and overturning an
Pary to Binding Arbitration Who Is Awarded Recovery in
arbitration award is an extremely difficult task. Nevertheless,
Underlying Tort Claim Is Collaterally Estoppedfrom Relitifor practitioner looking for various avenues to attempt such a
gating the Damages Issue in Subsequent Action to Recover
challenge, the article provides many insights. Highlights preUnderinsuredMotorist Benefits, 8 WORLD ARB. & MEDIATION
sent division among U.S. Courts of Appeals regarding
REP. 258 (1997) (Discusses Minnesota Court of Appeals case,
whether parties can agree to expand court's scope of review
Butzer v. Allstate Insurance Co., 567 N.W.2d 534 (Minn. Ct.
of an arbitration award.).
App. 1997), in which the court held that "in a subsequent
Marcus Mungioli, Comment, The Manifest Disregardof
action to recover underinsured motorist benefits, an underinthe Law Standard:A Vehicle for Modernization of the Federsured motorist policy holder was collaterally estopped from
al ArbitrationAct, 31 ST. MARY'S L.J. 1079 (2000) (Focuses
seeking recovery of an amount greater than the damages
on "manifest disregard of the law standard" as interpreted
determined in arbitration of the underlying tort claim.").
and applied by the U.S. Courts of Appeals. Considers the
Timothy J.Heinsz, Grieve It Again: Of Stare Decisis, Res
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Judicata and Collateral Estoppel in Labor Arbitration, 38

B.C. L. REV. 275 (1997) (Considers whether prior award on
same issue binds future arbitrators, in light of the legal doctrines of stare decisis, res judicata, and collateral estoppel.
Concludes that "[a] review of awards indicates that under the
principle of constraint, most arbitrators viewing the same
issue between the same parties will follow the prior decision
unless ... it is 'preposterously wrong.' ").
Eric C. Christensen, Note, Civil Procedure/Alternative
Dispute Resolution-New Mexico Applies Collateral Estoppel to Issues Fully and Fairly Litigated in Arbitration Proceedings: Rex, Inc. v. Manufactured Housing Committee of
New Mexico, Manufactured Housing Division, 26 N.M. L.
REV. 513 (1996) (focuses on New Mexico Supreme Court's
decision in Rex, Inc. v. Manufactured Housing Comm. of
New Mexico, Manufactured Housing Div., 119 N.M. 500,
892 P.2d 947 (1995), in which the court elected to apply the
doctrine of collateral estoppel to prior arbitration decisions.
Provides background leading to, and considers implications
arising from, the court's decision.).
Andrew L. Pickens, Applying Collateral Estoppel from
Findings Made in Arbitration, Hous. LAW., Mar.-Apr. 1995,
at 33 (Explains that applicable Texas and federal authority
may support view that once issue is determined in arbitration, a party may be precluded from relitigating the issue in
subsequent court proceedings. States that "[tihe absence of
controlling Texas authority and the Fifth Circuit's reliance in
[UniversalAmerican Barge Corp. v. J-Chem, Inc., 946 E2d
1131 (5th Cir. 1991)] on law journals and Eleventh Circuit
authority suggest that the issue of whether to apply collateral
estoppel from arbitral findings is underdeveloped in Texas
law" but that "Texas courts' reluctance to distinguish
between the state and federal law of collateral estoppel indicates Texas courts may be persuaded to look to Fifth Circuit
decisions, as well as the Restatement (Second) of Judgments
as persuasive authority on this question.").
Arbitration Decision Collaterally Estops Litigation of
Non-Arbitrated Claims, COMPUTER LAW., Aug. 1991, at 36
(Explains Sixth Circuit's decision in Central Transport, Inc.
v. Four Phase Systems, Inc., 936 F.2d 256 (6th Cir. 1991), in
which the court "affirmed a district court's ruling giving collateral estoppel effect to an arbitration decision on a contract
claim, finding that it precluded litigation of non-arbitrated
misrepresentation and tortious interference claims and a
claim for civil violation of [RICO].").
Hiroshi Motomura, Arbitration and Collateral Estoppel:
Using Preclusion to Shape Procedural Choices, 63 TUL. L.
REV. 29 (1988) (Considers U.S. Supreme Court's invitation
in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221-23
(1985), to reexamine the widely held assumption that arbitration awards, like court judgments, may have the same collateral estoppel effect. Reviews cases considering the issue.
Suggests that arbitral findings should not have collateral
estoppel effect unless the parties to arbitration agreement
expressly provide for that result.).
G. Richard Shell, Res Judicata and Collateral Estoppel
Effects of CommercialArbitration, 35 U.C.L.A. L. REV. 623

(1988) (Contemplates circumstances, in the commercial arbitration context, in which collateral estoppel and res judicata
should bar litigation of previously decided issues or claims.
Concludes that "courts should be free to apply preclusion in
any case in which contractual intention supports it, regardless
of the traditional boundaries of res judicata and collateral
estoppel. The basis of arbitration is contract, and the preclusive effects of an arbitration award may legitimately extend
as far as the contractual agreement to arbitrate warrants.").
Privatization of Law Through Arbitration
Stephen J. Ware, Default Rules from Mandatory Rules: Privatizing Law Through Arbitration, 83 MINN. L. REV. 703
(1999) (Considers the extensive privatization of law through
the medium of arbitration. In particular, considers the impact
of current arbitration law on the privatization of other areas
of law. Suggests that what conventional wisdom may deem
to be mandatory laws, or laws providing for rights or duties
that cannot be avoided by contract, may in fact be alterable
by contract-by means of an arbitration agreement.).
Waiver of Contractual Arbitration Rights
Matthew Forsythe, The Treatment of Arbitration Waivers
Under Federal Law, DISp. RESOL. J., May 2000, at 8 (Analyzes recent federal cases addressing waiver of contractual
arbitration rights. Identifies key factual considerations and
standards applied by U.S. Courts of Appeals in arbitration
waiver cases. Concludes that although federal cases may
seem unrelated, each case generally "involves a review of the
amount of delay involved, some speculation concerning the
parties' intent to arbitrate, and, to varying degrees, whether
the party opposing arbitration has suffered prejudice." Further
finds that "[federal courts remain reluctant to allow litigants
to invoke arbitration at a late date, after they have deliberately
elected to participate in expensive and protracted litigation.").
Ethics and Arbitration
Stephen K. Huber, The Role of Arbitrator: Conflicts of Interest, 28 FORDHAM URB. L.J. 915 (2001) (Considers unique
role of arbitrators, who may have greater power than civil
judges due to standards of review under the FAA and UAA.
Discusses factors influencing the neutrality of arbitrators.
Argues that arbitration raises important ethical issues that
should receive greater emphasis in legal education.).
Matthew J. Clark, The Legal and Ethical Implications of
Pre-Dispute Agreements Between Attorneys and Clients to
Arbitrate Fee Disputes, 84 IOWA L. REV. 827 (1999) (Considers legal and ethical consequences of predispute agreements
between clients and attorneys to resolve fee disputes by arbitration. Discusses the treatment of such agreements by bar
associations, state courts, and commentators. Concludes that
predispute fee arbitration agreements are most appropriate if
executed postdispute, in that these agreements "limit the voluntary nature of a client's decision to arbitrate and inhibit the
client from being able to consider fully the facts and circumstances surrounding a dispute before deciding on the appropriate forum for its resolution.").
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