Graham v. Scissor-Tail, Inc.

Supreme Court of California · Contracts

ContractsArbitrationContracts of AdhesionUnconscionabilityadhesion contractunconscionabilityarbitration clausebiased arbitrator

Facts

Graham, a concert promoter, signed A.F. of M. form contracts with Scissor-Tail for concerts promoted by Leon Russell's group. Those form contracts required that disputes involving the musical services be submitted to the A.F. of M. for final and binding determination. After a dispute arose over allocation of concert losses and offsets, Scissor-Tail sought to compel arbitration, and the union ultimately issued an award in Scissor-Tail's favor. Graham argued that the arbitration provision was unenforceable because the contracts were adhesive and because the union designated as arbitrator was aligned with one side of the dispute.

Issue

Whether the trial court erred in compelling arbitration under an arbitration provision in an adhesive contract that required all disputes to be arbitrated before the American Federation of Musicians, the union of one of the contracting parties. Also, whether federal labor law required enforcement of that provision despite state-law objections.

Rule

A contract of adhesion is not unenforceable merely because it is adhesive; it is unenforceable if a provision falls outside the weaker party's reasonable expectations or is unduly oppressive or unconscionable. An arbitration clause is unconscionable and unenforceable when, especially in adhesive circumstances, it designates as sole arbitrator a party to the contract or an entity whose interests are so aligned with one party that fair and reasoned decision is a virtual impossibility, because arbitration as a substitute for judicial proceedings must satisfy minimum levels of integrity. A clause may also be denied enforcement if the arbitral procedures clearly preclude a fair opportunity to present one's position.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nora Kim, a concert promoter in Chicago, signs a standardized appearance contract supplied by Lakefront Booking Group for a nationally known band. The form is required for all of the band's shows and states that any dispute over payment must be finally decided by the National Performers Guild, the union representing the band's members; Nora has used the same form dozens of times and knows the clause is there.

If a payment dispute arises and the band seeks to compel arbitration before the National Performers Guild, what is the strongest argument against enforcement of the clause?

Explanation. A contract of adhesion is not invalid merely because it is adhesive, and the clause may still be within the adhering party's reasonable expectations. But the majority held that an adhesive arbitration clause is unconscionable when it names as sole arbitrator a party or an entity whose interests are so aligned with one party that fair decision is a virtual impossibility. A union representing one side's compensation interests fits that description.