Unpublished Disposition, 896 F.2d 556 (9th Cir. 1988)

MEMORANDUM^* 

The defendants in a commercial arbitration proceeding timely appealed the district court's denial of their petition to vacate the arbitrator's award and its grant of the plaintiff's petition to confirm the award under sections 10 and 9 of the Federal Arbitration Act, 9 U.S.C. §§ 10, 9 (1982) [hereinafter FAA], respectively. We have jurisdiction under 28 U.S.C. § 1291 and affirm.¹ 

* Appellants Philip and Pamela Wilber are commercial printers residing in Tucson, Arizona. In May, 1985, they entered into a 20-year franchise agreement with appellee, Print Shack, Inc., a printing franchisor with its principal place of business in Tampa, Florida. The franchise agreement provided, inter alia, that the disputes would be resolved by arbitration in accordance with the FAA.

On March 17, 1987, the Wilbers notified Print Shack that they were rescinding the agreement because it was allegedly procured by fraud. On May 26, 1987, in accordance with the arbitration clause, Print Shack filed a Demand for Arbitration with the American Arbitration Association ("AAA") in Phoenix, Arizona. The following week, counsel for the Wilbers sent the AAA a letter stating that because the Wilbers rescinded the agreement, they were no longer bound by its arbitration provisions. On June 12, the AAA notified the parties that "an issue of arbitrability exists which could be determined by an arbitrator."

The Wilbers obtained new counsel October 28, 1987 and joined 14 other franchisees in a Florida state court action against Print Shack, its corporate parent, and five other defendants. The action sought rescission of the franchise agreements and damages. That day the Wilbers also notified the AAA of their participation in the state lawsuit. They asserted that the state court had exclusive jurisdiction and announced their withdrawal from the arbitration.

Unmoved, the AAA notified the parties the following week that it had scheduled a final arbitration hearing for January 7, 1988. On November 18, Print Shack filed a motion in Florida state court to stay the Wilbers' lawsuit and compel arbitration. The Florida court set its hearing date on the motion for February 2, 1988, nearly one month after the scheduled arbitration hearing.

The following day, Ms. Carol Wilson accepted her AAA appointment as arbitrator, and notified the AAA that she was currently general counsel for a different rapid print franchisor. On December 2, the AAA notified both parties of that fact. The Wilbers twice objected to Wilson's appointment and requested a substitute. Twice the AAA denied their request.

On December 23, the Wilbers filed a motion in Florida state court to stay the January 7 arbitration. The Florida state court set the hearing for February 3 and reset the hearing on Print Shack's motion for that date as well. Over the following two weeks, the AAA twice repeated its intention to hold the arbitration January 7 unless stayed by court order.

On January 7, Wilson conducted the hearing in the Wilbers' absence. The following day, the Wilbers requested that the hearing be reopened. The AAA denied the request January 20, and Wilson entered judgment for Print Shack February 4, 1988.

On May 2, 1988, the Wilbers timely filed a petition in Arizona Federal District Court to vacate the arbitration award pursuant to FAA Sec. 10. They challenged the AAA's handling of the arbitrability issue and its appointment of Ms. Wilson as arbitrator. They also claimed Wilson exceeded her powers by denying them discovery. Print Shack timely filed a cross-petition in the same court to confirm the arbitration award pursuant to FAA Sec. 9. The district court issued an order November 1 denying the Wilbers' motion and granting Print Shack's. It entered judgment in accordance with the arbitration award November 3.

II

The Wilbers first argue²  that the arbitrator's refusal to postpone the hearing pending decision of their motion to stay arbitration constituted misconduct under FAA Sec. 10(c). They base their argument on the premise that the question of arbitrability is exclusively for the courts to decide.

We disagree. It is true that questions of arbitrability concerning the scope of an arbitration clause are for the courts. See, e.g., AT & T Tech., Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986); United Steelworkers of America v. American Mfg. Co., 363 U.S. 564, 568 (1960); Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 419 (9th Cir. 1984). However, where the challenge to arbitrability stems from an attack on the entire contract, an arbitrator may address it. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 286 (9th Cir. 1988) (rejecting argument that claim of fraudulent inducement via failure to explain arbitration clause is for arbitrator on grounds that the claim was not leveled at the entire contract); see also Maria Victoria Naviera, S.A. v. Cementos Del Valle, S.A., 759 F.2d 1027, 1031 (2d Cir. 1985) (per curiam); Wilson Wear, Inc. v. United Merchants & Mfrs., Inc., 713 F.2d 324, 328 (7th Cir. 1983).

Because the issue of arbitrability was inextricably linked to the Wilbers' challenge to the entire contract, it was hardly misconduct for the arbitrator to decide it. See Cohen, 841 F.2d at 286; Sharon Steel Corp. v. Jewell Coal & Coke Co., 735 F.2d 775, 778 (3d Cir. 1984) (question of arbitrability intertwined with merits of contractual dispute makes it prime candidate for resolution by arbitration). Cf. Merril Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir.Unit B 1981) (questions of fraud and duress in inducement of contract are for the arbitrator because they concern formation of contract as a whole).

III

The Wilbers next contend that Ms. Wilson's position as general counsel for a different rapid print franchisor constituted "evident partiality or corruption" within the meaning of FAA Sec. 10(b). In rejecting this argument, the district court relied upon International Produce, Inc. v. A/S Rosshavet, 638 F.2d 548, 552 (2d Cir.), cert. denied, 451 U.S. 1017 (1981) for the proposition that Sec. 10(b) is not triggered by the mere "appearance of bias." The district court stated that the Wilbers had the burden of offering specific evidence that Wilson acted upon bias. It ruled that the Wilbers had not met that burden.

We review the district court's announced legal standard for this determination de novo. See Toyota, 834 F.2d at 755. Assuming application of the proper legal standard, the finding of no bias is reviewed under the clearly erroneous standard. Id. at 756.

The district court's announced standard squares with the law of this circuit. In Sheet Metal Workers Int'l. Ass'n Local 420 v. Kinney Air Conditioning Co., 756 F.2d 742, 746 (9th Cir. 1985), we relied upon Rosshavet in holding that " [t]he party alleging evident partiality must establish specific facts which indicate improper motives on the part of the Board [of arbitrators]. The appearance of impropriety, standing alone, is insufficient." We reaffirmed this standard in Toyota, 834 F.2d at 755. Thus, the district court applied the correct standard.

The court's finding that the Wilbers had not satisfied the applicable standard was not clearly erroneous. The sole basis for the Wilbers' claim is Wilson's position as general counsel for a firm in the same business as Print Shack. This circuit has found no Sec. 10(b) partiality in cases containing an even stronger appearance of bias. See, e.g., Sheet Metal Workers, 756 F.2d at 746; Toyota, 834 F.2d at 756-57. In light of these decisions, the district court did not err.

IV

The Wilbers also claim that the arbitrator exceeded her powers by impeding their discovery efforts,³  and thus her award should be vacated pursuant to FAA Sec. 10(d).

Grounds for vacating under Sec. 10(d) "must be clearly shown." Lundgren v. Freeman, 307 F.2d 104, 109 (9th Cir. 1962). Here, the record contains no indication that either the AAA or the arbitrator impeded discovery. Thus, we find the Wilbers' argument meritless.⁴ 

V

Finally, the Wilbers challenge the arbitrator's award of specific performance of the franchise agreement. Specifically, they contend that such an award is violative of public policy.

However, because the question of whether this particular contract calls for personal services was not presented to either the arbitrator or the district court, we decline to address it. See Bolker v. C.I.R., 760 F.2d 1039, 1042 (9th Cir. 1985).

VI

For these reasons, the judgment of the district court is AFFIRMED.