A federal court in California held that a gallery owner's claims against his franchisor were barred by res judicata; and found no unconscionability in the arbitration agreement between the franchisor and gallery owner.

In Kayne v. Thomas Kinkade Co., No. C 07-4721-SI, 2007 WL 4287364 (N.D. Cal. Dec. 05, 2007), David Kayne owned several galleries which showed Kinkade's work. Kayne had entered into several contracts with Thomas Kinkade Co. (TKC), including a personal guaranty on an application for credit, which contained an arbitration agreement.

Kinkade demanded arbitration against Kayne for copyright infringement. In response to Kinkade's action against him, Kayne brought suit to invalidate the arbitration in a federal court in Georgia, alleging that no agreement to arbitrate existed. The suit failed, and Kayne then filed suit in this Court, again seeking to invalidate the arbitration agreement by alleging that the agreement was unenforceable. Kinkade sought to dismiss Kayne's amended complaint.

Initially, the Court found that Kayne's claims were barred by the doctrine of res judicata. The Court rejected Kayne's attempt to draw a fine line between his dispute of the existence of the arbitration agreement and its enforcement. The two were the same claim and were thus barred by res judicata.

Regardless, Kayne's claim would have failed on the merits because the agreement was not unconscionable under California law, the Court held.

First, the agreement was not procedurally unconscionable. The application was placed at the top of page two of the two page document, not embedded within the document as Kayne claimed and was marked with the heading "DISPUTES." Further, as the owner of several galleries, Kayne was not a weak party. Moreover, Kayne did not offer proof that he had no meaningful choice of financing options for his business.

Second, the agreement was not substantively unconscionable. The agreement was not harsh or one-sided. Both parties were required to submit to the expedited rules of the American Arbitration Association for claims under $10,000, which foreclose witness production.

Accordingly, Kayne's claims were dismissed with prejudice.