In a case arising from a franchise dispute, a federal district court in Massachusetts ruled that the court, not an arbitrator, should determine the issue whether the arbitration agreement was unconscionable because the parties did not agree to delegate questions of arbitrability to the arbitrator. Moreover, the agreement restricted the arbitrator’s authority to strike any offending provisions.

In Awuah v. Coverall North America, Inc., No. 07-10287-WGY, 2008 WL 2618199 (D. Mass. July 1, 2008), Coverall and Awuah entered into a franchise agreement whereby Awuah would own and operate a Coverall franchise providing janitorial services. The franchise agreement provided for arbitration.

When Awuah sued for deceptive trade practices and alleged violations of state wage and labor laws, Coverall moved to compel arbitration pursuant to the arbitration agreement. In opposing the motion, Awuah argued that several provisions of the arbitration agreement were unconscionable, rendering the agreement unenforceable.

At issue was whether Awuah’s challenge to the arbitration agreement presented a question of arbitrability that the Court, rather than the arbitrator, should resolve. The Court noted that the question of whether parties have agreed to arbitrate is a matter of contract and is an issue for judicial determination, unless the parties have contracted otherwise.

Awuah argued that Coverall could not compel arbitration because the agreement was invalid and unenforceable. The Court turned to the franchise agreement to determine if such issues were to be decided by an arbitrator. Coverall argued that the terms of the agreement vested the arbitrator with the power to decide questions of arbitrability.

However, the Court noted that the plain language of the contract contradicted Coverall’s argument. The agreement stated that issues of arbitrability would be decided by the court. Further, the agreement stated that the arbitrators could not alter or change any part of the agreement. This limitation left the arbitrators with no way to strike any offending provisions from the agreement – specifically, those provisions that Awuah contended were unconscionable.

Given the plain language of the contract, the Court retained jurisdiction over the unconscionability challenge based on the rule that "the question of arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise." Accordingly, the Court ordered that the issue of unconscionability be resolved in court before any decision on whether or not to compel arbitration.