The defendants-appellants KFC National Management Company KFC U.S.A. Incorporated and Lars Peterson (collectively KFC ) appeal from the circuit court's decision and order denying KFC's motion to stay action and to compel arbitration of the claims asserted by the plaintiffs-Appellees Drake Alabanza (Drake) a former employee of KFC and his wife Lou Alabanza (Lou) (collectively the Alabanzas ) in their complaint filed in the first circuit court. The Alabanzas' claims stem from Drake's allegation that race discrimination was implicated in his termination from employment. KFC asserts its right to compel arbitration of all the claims raised by the Alabanzas based on an arbitration agreement that was reflected in an application for employment with KFC that Drake had signed.

On appeal KFC contends that: (1) the circuit court erred in ruling as a matter of law that the arbitration agreement reflected in Drake's employment application was "not an enforceable arbitration clause within the scope of Chapter 658 of the Hawaii's Revised Statutes"; and (2) an arbitration agreement is not unenforceable merely because it is included in an application for employment that disclaims any implied or express contract of employment. The Alabanzas on the other hand urge that: (1) the arbitration agreement if a contract at all is an unenforceable contract of adhesion; (2) a provision in an arbitration agreement that the Federal Arbitration Act 9 U.S.C. SEC. 1 et seq. (FAA) would govern the substance of controversies renders the alleged contract for arbitration unenforceable in the employment context; and (3) in any event Lou is not bound by an arbitration agreement signed only by Drake.

For the reasons set forth below we hold as a matter of law: (1) that the arbitration agreement imposed upon Drake by KFC as an adjunct of his employment application is enforceable against Drake and is not an unenforceable contract of adhesion; but (2) that Lou who did not sign the arbitration agreement is not bound to arbitrate her claims of loss of consortium and intentional and negligent infliction of emotional distress which are both derivative and separable.

I. BACKGROUND

In August 1992 Drake applied for a job as a cook with KFC at its Kentucky Fried Chicken store in Wahiawa City and County of Honolulu where he had previously worked from 1990 to 1991. As part of the application process he completed and signed a written standard form application for employment that had been drafted by KFC. On the application Drake supplied certain personal information his employment interest his educational background and his employment history. The employment application also contained a separate section entitled "Agreement." The first two paragraphs of the Agreement stipulated that Drake if employed would be an "at will" employee and that the application was not an implied or express contract of employment. The text of the Agreement provided in relevant part as follows:

I agree that I am offered *fn1 employment by KFC and accept my employment will be employment at will and not for any specific duration [and] that my employment and compensation can be terminated with or without cause with or without notice at any time at the option of either KFC or myself.

I am hereby informed and I understand that nothing contained in this application any KFC manual handbook or other written materials shall constitute an implied or expressed contract of employment. All such materials are presented for informational purposes only and can be changed at any time by KFC with or without notice. Furthermore no employee or agent of KFC other than the Chief Executive Officer has any authority to enter into any agreement for employment for any specified period of time or to make any agreement contrary to the foregoing and that any such agreements must be in writing and must be signed by the Chief Executive Officer of KFC.

The Agreement also contained a subsection styled "Arbitration Of Employee Rights" (the Employee Rights subsection) and a signature line which Drake executed. The application was not signed by any agent of KFC. The Employee Rights subsection in turn contained an arbitration agreement providing that the applicant agreed to arbitrate any dispute regarding compensation employment or termination from employment. The full text of the arbitration agreement was as follows:

Because of the delay and expense which results from the use of the federal and state court systems KFC and I agree to submit to binding arbitration any controversies concerning my compensation employment[ ] or termination of employment rather than to use such court systems. In any such arbitration the American Arbitration Association rules shall govern the procedure[ ] and the Federal Arbitration Act shall govern the substance of such controversies.

In July or August 1992 Drake was hired as a cook for the Kentucky Fried Chicken store in Wahiawa. He worked for KFC until February 25 1993 when his employment was allegedly terminated. *fn2 Subsequent to his alleged termination Drake who is an African American filed a complaint with the Hawaii's Civil Rights Commission (HCRC) *fn3 alleging inter aia race discrimination and harassment. He received a right-to-sue letter from the HCRC pursuant to Hawaii's Revised Statutes (HRS) SEC. 368-12 (1993). *fn4 On December 9 1993 the Alabanzas along with the plaintiffs-Appellees Larry Brown and his wife Angelica Brown *fn5 filed the lawsuit and jury demand against KFC that has given rise to this appeal setting forth inter alia claims for relief arising out of Drake's alleged termination of employment with KFC.

The Alabanzas' lawsuit was premised solely on claims based on alleged violations of state law. In the complaint -- which seeks compensatory and punitive damages injunctive relief costs and Counsels' fees -- Drake raised claims of race discrimination in violation of HRS chs.368 (1993) and 378 (1993) including SEC. 378-2 (first and eighth claims for relief) *fn6 breach of contract (second claim for relief) tortious breach of contract (third claim for relief) negligence (sixth claim for relief) and negligent and intentional infliction of emotional distress (fifth claim for relief). Lou raised derivative claims of loss of consortium (fourth claim for relief) and negligent and intentional infliction of emotional distress (fifth claim for relief). The Alabanzas are not parties to the seventh claim for relief in which Larry Brown alleges a violation of the Hawaii's Whistle blowers' Protection Act HRS SEC. 378-61 et seq. (1993).

On January 10 1994 KFC removed the action to the United States District Court for the District of Hawaii's on the ground of diversity jurisdiction within the meaning of 28 U.S.C. SEC. 1332(a). The district court remanded the matter to the circuit court by order dated April 4 1994 for lack of diversity of citizenship. See Mathewson v. Aloha Airlines Inc. 82 Haw. 57; 919 P.2d 969; 1995 Haw. LEXIS 101; 152 L.R.R.M. 2986 (Haw. 1996) (describing the federal statutory scheme governing removal and remand).

On June 23 1994 KFC filed a motion in the circuit court to stay the action and to compel compliance on the Alabanzas' part with the arbitration agreement (the "motion to compel"). In support of the motion to compel KFC argued that because Drake had been hired pursuant to the employment application that he had executed and tendered to KFC the circuit court should as a matter of law enforce the arbitration agreement contained therein and stay the Alabanzas' lawsuit pursuant to HRS SEC. 658-3 (1993). The motion to compel was heard and argued on July 14 1994 following which the circuit court orally denied the motion ruling from the bench in the following manner:

Court: The provision in the Plaintiff Alabanza's employment application is not an enforceable arbitration clause within the scope of Chapter 658 of the Hawaii's Revised Statutes; and on that basis the motion by Defendants KFC National Management Company KFC U.S.A. Incorporated and Lars Peterson for stay of action by the plaintiffs in this case to compel arbitration is denied.

On August 12 1994 the circuit court entered its written order denying the motion to compel. On the same day KFC filed a timely notice of appeal.

II. STANDARD OF REVIEW

A petition to compel arbitration is reviewed de novo. Dines v. Pacific Ins. Co. Ltd. 78 Haw. 325 326 893 P.2d 176 177 reconsideration denied 78 Haw. 474 896 P.2d 930 (1995). See also Shimote v. Vincent 80 Haw. 96 99 905 P.2d 71 74 (App.) cert. denied 80 Haw. 497 911 P.2d 132 (1995). The standard is the same as that which would be applicable to a motion for summary judgment and the trial court's decision is reviewed using the same standard employed by the trial court and based upon the same evidentiary materials as were before [it] in determination of the motion. Koolau Radiology Inc. v. Queen's Medical Center 73 Haw. 433 439-40 834 P.2d 1294 1298 (1992) (citation and internal quotation marks omitted); see also Cuba v. Fernandez 71 Haw. 627 631 801 P.2d 1208 1211 (1990); First Hawaiian Bank v. Weeks 70 Haw. 392 396 772 P.2d 1187 1190 (1989); Feliciano v. Waikiki Deep Water Inc. 69 Haw. 605 607 752 P.2d 1076 1078 (1988).

III. DISCUSSION

A. Based On The Plain Language Of The Arbitration Agreement And Federal Preemption Law The Federal Arbitration Act Governs The Enforceability Of The Arbitration Agreement.

1. Statement of the problem

Although the Alabanzas characterize the circuit court's order as having determined that the employment application was not a written contract KFC is correct that neither the transcripts of the hearing on its motion to compel nor Court's subsequent written order denying the motion reveal such a specific finding. As we have indicated the circuit court simply ruled that the applicable provision in Drake's employment application was not an enforceable arbitration clause within the scope of Chapter 658 of the Hawaii's Revised Statutes. Whatever the underlying analysis may have been the circuit court premised its order on an interpretation of Hawaii's law. However the terms of the arbitration agreement itself and relevant federal case law establish that the FAA governs the enforceability of arbitration in the present case.

Under the common law agreements to arbitrate were not enforceable. Yoshioka v. E.F. Hutton & Co. 2 Haw. App. 125 126 626 P.2d 1186 1187 (1981) (citation omitted). Parties could agree to arbitrate an existing controversy but either party could freely revoke or abrogate such an agreement at any time prior to the entry of a final arbitration award. Textile Workers Union v. Lincoln Mills of Alabama 353 U.S. 448 466 1 L. Ed. 2d 972 77 S. Ct.912 (1957) (Frankfurter J. dissenting). Over the course of time however both federal and state law have evolved to the point where the enforceability of arbitration agreements has been expressly approved.

Hawaii's has codified its endorsement of the enforceability of arbitration agreements in HRS ch.658 (1993). This court has previously held that "under [Hawaii's] arbitration statute before parties to a lawsuit can be ordered to arbitrate pursuant to Hawaii's Revised Statutes (HRS) Sec. 658-3 HRS Sec. 658-1 requires that an enforceable valid and irrevocable agreement in writing exists." Koolau Radiology Inc. 73 Haw. at 439 834 P.2d at 1298. In this connection HRS SEC. 658-1 provides in relevant part that [a] provision in a written contract to settle by arbitration a controversy thereafter arising out of the contract . . . shall be valid, enforceable, and irrevocable save only upon such grounds as exist for the revocation of any contract. (Emphases added.) *fn7

Significantly the present dispute arises out of an employment relationship established pursuant to an oral unwritten contract of employment. It is not surprising that the circuit court grounded its refusal to enforce the present arbitration agreement in a statutory analysis of HRS Sec. 658-1 inasmuch as it was invited to do so by the parties. KFC's motion to compel the Alabanzas' responsive memorandum in opposition and the oral argument on the motion all focused exclusively on Hawaii's law and policy. Indeed the Alabanzas declared in their memorandum in opposition that "it is axiomatic that the issue before this Court is a question to be decided pursuant to [Hawaii's] State law and not Federal law." The Alabanzas however cited no authority for their "axiom."

The relevance of the FAA to the present case was first raised on appeal in KFC's opening brief in which KFC argued that the arbitration agreement is enforceable under both HRS ch.658 and the FAA. The Alabanzas' answering brief cited the FAA only within the context of its argument that the inclusion of the FAA in the arbitration agreement vitiated the agreement's enforceability.

Both KFC's and the Alabanzas' arguments are inapposite to some degree however because the outcome of the present appeal turns in the first instance on the application of federal law. *fn8 Our view in this regard is based on a review of the arbitration agreement itself and federal case law mandating that the FAA is applicable to disputes such as that before us. The issues raised on appeal -- in particular the application of the FAA to disputes in the employment context -- appear to be questions of first impression in this jurisdiction.

2. The arbitration agreement and the FAA

As indicated the arbitration agreement between Drake and KFC expressly provided that the FAA would govern any controversies concerning termination of Drake's employment. *fn9 As this court has previously stated one of the prime objectives of contract law is to protect the justified expectations of the parties. When the parties choose the law of a particular [jurisdiction] to govern their contractual relationship and the chosen law has some nexus with the parties or the contract that law will generally be applied.

Airgo Inc. v. Horizon Cargo Transp. Inc. 66 Haw. 590 595 670 P.2d 1277 1281 (1983) (citing Restatement (Second) of Conflict of Laws Sec. 187(1) (1971)). Thus the arbitration agreement itself would favor the application of the FAA to the present dispute if there is a sufficient nexus between the federal statute and either the parties or the essential nature of their contractual relationship.

The FAA which is the law recited in the arbitration agreement has a clear bearing on any arbitration contract. Its "basic purpose . . . is to overcome courts' refusals to enforce agreements to arbitrate." Allied-Bruce Terminix Cos. Inc. v. Dobson 513 U.S. 265 130 L. Ed. 2d 753 115 S. Ct.834 838 (1995) (citation omitted). Moreover KFC National Management Company and KFC U.S.A. being nationally based foreign corporations doing business in Hawaii's could reasonably look to federal law as a logical vehicle for ensuring uniformity in the maintenance of employer-employee relations throughout their multistage operations. Accordingly there is "some nexus" between the FAA and the contractual relationship between KFC and its employees.

In any event even if the arbitration agreement did not reflect an intent that the FAA should govern employment-related disputes between KFC and Drake we would be compelled to address the question whether the FAA has preempted any state law that is in conflict with it. Accordingly we do so now.

This court has acknowledged that "whether a state law . . . is preempted in a given case is a question of congressional intent." Norris v. Hawaiian Airlines Inc. 74 Haw. 235 245-246 842 P.2d 634 639 (1992) (citing Allis-Chalmers Corp. v. Lueck 471 U.S. 202 208 85 L. Ed. 2d 206 105 S. Ct. 1904 (1985)) aff'd 512 U.S. 246; 114 S. Ct.2239; 129 L. Ed. 2d 203; 62 U.S.L.W. 4537 (1994). In a trilogy of cases decided in consecutive years the United States Supreme Court has explicated the underlying purpose and congressional intent of the FAA.

In Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. 460 U.S. 1 74 L. Ed. 2d 765 103 S. Ct.927 (1983) the United States Supreme Court reviewed a decision of the United States Court of Appeals for the Fourth Circuit ordering arbitration of a dispute between a hospital and its contractor concerning building construction costs. Although their contract contained a binding arbitration clause the hospital sought to stay arbitration and obtain a declamatory judgment in a state court regarding its financial obligations to the contractor. The state court granted the stay as did the federal district court. The Fourth Circuit reversed and remanded with instructions to enter an order to arbitrate. The Supreme Court affirmed ruling as follows:

[9 U.S.C. SEC. 2 of the FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements notwithstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability applicable to any arbitration agreement within coverage of the [FAA].

Moses H. Cone Memorial Hosp. 460 U.S. at 24 (footnote omitted).

In Southland Corp. v. Keating 465 U.S. 1 79 L. Ed. 2d 1 104 S. Ct.852 (1984) the Supreme Court ruled that Congress intended that the substantive provisions of the FAA would control actions commenced in either federal or state courts noting that in creating a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements. Southland Corp. 465 U.S. at 16 (footnotes omitted). *fn10

Finally in Dean Witter Reynolds Inc. v. Byrd 470 U.S. 213 84 L. Ed. 2d 158 105 S. Ct.1238 (1985) the Supreme Court considered the practice adopted in some federal circuits of denying arbitration when arbitrable pendent state law claims were "intertwined" *fn11 with non-arbitrable federal claims triable in federal court. Rejecting the practice the Byrd Court reaffirmed its established position that Congress intended that the FAA apply to claims arising under state law whether umbilical connected to federal claims or not:

The preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered and that concern requires that we rigorously enforce agreements to arbitrate even if the result is "piecemeal" litigation at least absent a countervailing policy manifested in another federal statute.

Byrd .470 U.S. at 221.

Virtually every state and federal court that has considered the preemptive effect of the FAA has concluded that in light of the Supreme Court's decisions cited above the FAA applies equally in state or federal courts. See e.g. Robert Lawrence Co. v. Devonshire Fabrics Inc. 271 F.2d 402 404-407 (2d Cir.1959); American Airlines Inc. v. Louisville & Jefferson County Air Bd. 269 F.2d 811 815-816 (6th Cir.1959); Main v. Merrill Lynch Pierce Fenner & Smith Inc. 67 Cal. App. 3d 19 136 Cal. Rptr.378 381 (Cal. Ct. App. 1977); West Point--Pepperell Inc. v. Multi--Line Indus. 231 Ga. 329 201 S.E.2d 452 453 (Ga. 1973); Pathman Constr. Co. v. Knox County Hosp. Ass'n 164 Ind. App. 121 326 N.E.2d 844 851 (Ind. Ct. App. 1975); Skewes v. Shearson Lehman Bros. 250 Kan.574 829 P.2d 874 878-879 (Kan.1992); In re Rederi (Dow Chem. Co.) 25 N.Y.2d 576 255 N.E.2d 774 778 307 N.Y.S.2d 660 (N.Y.) cert. denied 398 U.S. 939 26 L. Ed. 2d 272 90 S. Ct.1844 (1970); Cooper v. Computer Credit Sys. Inc. 40 A.D.2d 692 336 N.Y.S.2d 380 381 (N.Y. App. Div. 1972); Aerojet-General Corp. v. Non-Ferrous Metal Ref. Ltd. 37 A.D.2d 531 322 N.Y.S.2d 33 34 (N.Y. App. Div. 1971); Miller v. Puritan Fashions Corp. 516 S.W.2d 234 238 (Tex. Civ. App. 1974); Mamlin v. Susan Thomas Inc. 490 S.W.2d 634 637 (Tex. Civ. App. 1973); REA Express v. Missouri Pac. R.R. Co. 447 S.W.2d 721 726 (Tex. Civ. App. 1969); Pinkis v. Network Cinema Corp. 9 Wash. App. 337 512 P.2d 751 755 (Wash. Ct. App. 1973).Neither the Alabanzas nor the HCRC see supra note 3 cite any contrary authority. *fn12

Thus the Alabanzas' "axiom" -- that the issue before this court is a question to be decided pursuant to state law -- is not apodictic. Indeed their argument -- intended to support their contention that state law is outcome-dispositive of the present appeal -- that their "complaint was filed in State court alleging causes of action based on Hawaii's State law" merely begs the question. After all the plaintiffs in Southland Corp. were franchisees of 7-Eleven convenience stores who like the Alabanzas were asserting claims based exclusively on state common and statutory law. Nevertheless Southland Corp. definitively established the applicability of the FAA to claims subject to arbitration whether brought in a federal or state court. Observing that a contrary result would "encourage and reward forum shopping the Southland Corp. Court explained its rationale as follows:

We are unwilling to attribute to Congress the intent . . . to create a right to enforce an arbitration contract and yet make the right dependent for its enforcement on the particular forum in which it is asserted. And since the overwhelming proportion of all civil litigation in this country is in the state courts, we cannot believe Congress intended to limit the [FAA] to disputes subject only to federal-court jurisdiction. Such an interpretation would frustrate congressional intent to place an arbitration agreement . . .upon the same footing as other contracts where it belongs." H.R.Rep. No. 96 68^th.Cong. 1st Sess. 1 (1924). Southland Corp. 465 U.S. at 15-16 (footnotes omitted) (emphasis in original).

Equally misplaced is the Alabanzas' argument that the federal district court's order remanding their lawsuit to the state court for lack of diversity of citizenship within the meaning of 28 U.S.C. SEC. 1332(a) implies that federal law is immaterial to their appeal for all purposes. The fact remains that the FAA "creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate despite the concurrent fact that it does not create any independent federal-question jurisdiction under 28 U.S.C. SEC. 1331 . . . or otherwise." Moses H. Cone Memorial Hosp. 460 U.S. at 25 n.32.

Given the foregoing analysis it is apparent that the applicability of the FAA is the same with respect to state and federal claims and whether such claims are pursued in state or federal court. That being the case and assuming that the arbitration agreement is a valid and binding contract see supra note 9 we hold that the FAA which is expressly enumerated in the arbitration agreement governs the obligation of the parties to that agreement -- KFC and Drake -- to arbitrate their employment-related disputes.

B. The FAA's Exclusionary Clause Relating To "Contracts Of Employment" Does Not Apply To Drake's Employment Relation With KFC.

The Alabanzas contend that the FAA does not apply to the present dispute arising as it does from "a contract of employment because the FAA itself specifically refuses to require arbitration of disputes arising out of employment contracts." The phrase "contract of employment however, is a cryptic one and a term of art in FAA jurisprudence, deriving from the last sentence of 9 U.S.C. SEC. 1, which provides in relevant part that nothing herein contained shall apply to contracts of employment of seamen railroad employees or any other class of workers engaged in foreign or interstate commerce" [hereinafter the section 1 exclusion ]. (Emphasis added.)

The Alabanzas acknowledge that the section 1 exclusion has been interpreted narrowly to apply only to seamen railway workers or workers directly engaged in foreign or interstate commerce. They argue however that a broader interpretation of the section 1 exclusion is more apt. Because consistent with the overwhelming weight of federal authority we believe that the narrow interpretation of the section 1 exclusion is correct we disagree.

In Gilmer v. Interstate/Johnson Lane Corp. 500 U.S. 20 114 L. Ed. 2d 26 111 S. Ct.1647 (1991) the Supreme Court expressly declined to address whether particular contracts of employment are subject to the FAA under the section 1 exclusion. Gilmer 500 U.S. at 25 n.2. However many other federal courts construing the section 1 exclusion narrowly have held that the FAA governs a variety of employment contracts.

As far as we can tell the first analysis of the section 1 exclusion by a federal appellate court appears in Tenney Eng'g Inc. v. United Elec. Radio & Mach. Workers of Am. Local 437 207 F.2d 450 (3d Cir.1953). The Tenney court noted that the only reference to the section 1 exclusion in the relevant legislative history appeared in a report prepared by the American Bar Association's Committee on Commerce Trade and Commercial Law which addressed objections to the FAA raised by the Seamen's Union. Id. at 452. It seems that the seamen had originally objected to passage of the FAA arguing that because disputes relating to their wages were subject to federal admiralty jurisdiction they should not be compelled to arbitrate them. Id. In order to eliminate this opposition the drafters of the FAA added the section 1 exclusion to the language of 9 U.S.C. SEC. 1. Id. Given that background the Tenney court construed the section 1 exclusion as follows:

It thus appears that the draftsmen of the [FAA] were presented with the problem of exempting seamen's contracts. Seamen constitute a class of workers as to whom Congress had long provided machinery for arbitration. In exempting them[ ] the draftsmen excluded also railroad employees another class of workers as to whom [a] special procedure for the adjustment of disputes had previously been provided. Both these classes of workers were engaged directly in interstate or foreign commerce. To these the draftsmen of the [FAA] added "any other class of workers engaged in foreign or interstate commerce." We think that the intent of the latter language was under the rule of ejusdem generics *fn13 to include only those other classes of workers who are likewise engaged directly in commerce that is only those other classes of workers who are actually engaged in the movement of interstate or foreign commerce or in work so closely related thereto as to be in practical effect part of it. The draftsmen had in mind the two groups of transportation workers as to which special arbitration legislation already existed[ ] and they rounded out the exclusionary clause by excluding all other similar classes of workers.

Id. at 452-453 (footnotes omitted).

Three years later the United States Court of Appeals for the Second Circuit applied the same analysis in Signal-Stat Corp. v. Local 475 United Elec. Radio & Mach. Workers of Am. (UE) 235 F.2d 298 303 (2d Cir.1956) ("The . . .employees are not . . . actually engaged in interstate and foreign commerce. They are merely engaged in the manufacture of goods for interstate commerce. Therefore the . . . agreement here does not come within the exclusionary clause of Section 1.") cert. denied 354 U.S. 911 (1957). See also Erving v. Virginia Squires Basketball Club 468 F.2d 1064 1069 (2d Cir.1972) ("In light of the strong national policy in favor of arbitration as a means of settling private disputes[ ] we see no reason to give an expansive interpretation to the exclusionary language of Section 1 by reexamining our decision in Signal-Stat[.]").

The First Sixth and Seventh Circuits have now adopted the foregoing construction of the section 1 exclusion. See Dickstein v. du Pont 443 F.2d 783 785 (1st Cir.1971) (holding that section 1 exclusion is limited "to employees . . . involved in or closely related to the actual movement of goods in interstate commerce"); Asplundh Tree Expert Co. v. Bates 71 F.3d 592 596-602 (6th Cir.1995) (holding that section 1 exclusion should be narrowly construed to apply only class of workers engaged in the same manner as seamen and railroad workers in actual movement of goods in interstate commerce); Bacashihua v. United States Postal Serv. 859 F.2d 402 405 (6th Cir.1988) (holding that section 1 exclusion applies to class of workers engaging in interstate commerce); Miller Brewing Co. v. Brewery Workers Local Union No. 9 AFL-CIO 739 F.2d 1159 1162 (7th Cir.1984) (agreeing that section 1 exclusion is limited to workers employed in transportation industry) cert. denied 469 U.S. 1160 83 L. Ed. 2d 926 105 S. Ct.912 (1985); Pietro Scalzitti Co. v. International Union of Operating Eng'rs Local No. 150 351 F.2d 576 579-580 (7th Cir.1965) (holding that section 1 exclusion relates "only to workers engaged in the movement of interstate or foreign commerce"); cf. Willis v. Dean Witter Reynolds Inc. 948 F.2d 305 310-311 (6th Cir.1991) (taking position that all collective bargaining agreements are subject to the section 1 exclusion). The Ninth Circuit has not yet ruled on the issue but a recent district court decision within that circuit has held that the section 1 exclusion "should be narrowly construed to cover only workers directly involved in the interstate transportation of goods." Golenia v. Bob Baker Toyota 915 F. Supp.201 203 (S.D. Cal. 1996).

Only one circuit appears to have held otherwise. In United Elec. Radio & Mach. Workers v. Miller Metal Prods. of Am. 215 F.2d 221 (4th Cir.1954) the Fourth Circuit declined to include workers who were engaged in the production of goods for interstate commerce within the coverage of the FAA. Id. at 224. Significantly the Miller Metal court expressly limited its holding to the issue of the applicability of the FAA to collective bargaining agreements. Id. In any event it is questionable whether Miller Metal is still good law even in the Fourth Circuit: at least one district court within it has declined to follow the Miller Metal decision. See Kropfelder v. Snap-On Tools Corp. 859 F. Supp.952 958 (D. Md. 1994) ("In the light of the time which has passed since the Miller Metal decision the strong federal policy in favor of arbitration and the great weight of circuit court authority this Court is of the view that the Fourth Circuit would not as of this date apply the words used in Miller Metal so as to exclude SEC. 1's application in all non-collective bargaining contexts and would instead apply the views expressed by a majority of courts that[ ] as to non-collective bargaining contracts[ ] the FAA excludes only those workers involved in the interstate transportation of goods.").

We are persuaded by the reasoning of the First Second Third Sixth and Seventh Circuits leading to the conclusion that Congress intended that the section 1 exclusion of the FAA should apply only to classes of employees engaged in the same manner as seamen and railroad workers in the actual movement of goods in interstate commerce. Accordingly inasmuch as he does not fall within that class we hold that the section 1 exclusion does not extend to Drake's "contract of employment" with KFC and that therefore the general provisions of the FAA -- to the extent that they are otherwise applicable -- govern his claims in the matter before us.

C. Although Not An Employment Contract The Arbitration Agreement Between Drake Alabanza And KFC Constitutes A Written And Valid Contract To Arbitrate.

We now reach the question whether the arbitration agreement set forth in the Employee Rights subsection of KFC's employment application constitutes a valid contract binding Drake to arbitrate employment-related disputes -- such as those asserted in the complaint at issue in this case -- with KFC. For the reasons discussed below we hold that it does. *fn14

"When presented with a motion to compel arbitration Court is limited to answering two questions: 1) whether an arbitration agreement exists between the parties; and 2) if so whether the subject matter of the dispute is arbitrable under such agreement." Koolau Radiology Inc. 73 Haw. at 445 834 P.2d at 1300. See also Lee v. Heftel .81 Haw. 1 3 911 P.2d 721 723 (1996); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth 473 U.S. 614 626 87 L. Ed. 2d 444 105 S. Ct.3346 (1985) ("The first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute. Court is to make this determination by applying the 'federal substantive law of arbitrability applicable to any arbitration agreement within the coverage of the [FAA].'") (Quoting in part Moses H. Cone Memorial Hosp. 460 U.S. at 24.)). Although their terms are not identical both the FAA and HRS ch.658 interpose a written and otherwise valid contract to arbitrate as a precondition to enforcement. 9 U.S.C. SEC.(s) 2 and 4;Koolau Radiology Inc. 73 Haw. at 439 834 P.2d at 1298.

1. The arbitration agreement is a written contract to arbitrate.

The Alabanzas contend that there is no valid contract between Drake and KFC compelling Drake to arbitrate anything. Their position however is grounded in the proposition that Drake's employment relation with KFC never derived from a written contract a premise that KFC readily concedes. Indeed as noted above KFC insists that the employment application executed by Drake was by its plain language in no way an employment contract and that Drake's status was that of an employee at will.

Inasmuch as we have held that if the arbitration agreement is a legitimate contract Drake's claims are governed by the FAA the question becomes whether the arbitration agreement in fact constitutes a written and otherwise valid contract to arbitrate. Section 2 of the FAA provides in relevant part that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid irrevocable and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. SEC. 2. Moreover section 4 of the FAA mandates that the arbitration contract described in section 2 be "a written agreement." 9 U.S.C. SEC. 4. Thus in contrast with HRS SEC. 658-1 *fn15 which mandates the existence of "[a] provision in a written contract to settle by arbitration a controversy thereafter arising out of the contract" (emphases added) as a prerequisite to the arbitrability of a dispute the FAA merely requires that the arbitration provision but not necessarily the contract out of which the controversy arises be in writing.

The foregoing proposition is exemplified in White-Weld & Co. v. Mosser 587 S.W.2d 485 (Tex. Civ. App. 1979) cert. denied 446 U.S. 966 64 L. Ed. 2d 825 100 S. Ct.2943 (1980) in which the "principal question on appeal [was] whether the trial Court erred in refusing to abate [a lawsuit] pending arbitration pursuant to a written agreement between the parties to arbitrate." Id. 587 S.W.2d at 486. The plaintiff had filed suit against his employer claiming that it owed him commissions for the sale of bonds that he had earned in the course of his employment. Id. Significantly the plaintiff's employment contract with his employer concerning his financial compensation was strictly oral. Id. As in the present appeal the written agreement to arbitrate appeared in the plaintiff's initial employment application. Id. The employer's appeal turned on whether the plaintiff's claim was arbitrable pursuant to 9 U.S.C. Sec. 2. The White-Weld court held that it was quoting Dickstein 443 F.2d at 785 for the proposition that "the creation of an employment relationship which involves commerce is a sufficient 'transaction' to fall within section 2 of the [FAA]." White-Weld 587 S.W.2d at 487 (some internal quotation marks omitted). Accordingly the White-Weld court reversed the judgment of the trial court and remanded with instructions that the plaintiff's lawsuit be stayed pending arbitration of the dispute. Id. at 488.

The Alabanzas do not dispute that Drake executed a written arbitration agreement. *fn16 We therefore hold that the arbitration agreement satisfied the "writing" requirement of the FAA. Accordingly we must ascertain whether the arbitration agreement is a "valid" contract.

2. The arbitration agreement between Drake and KFC is valid.

"As a general rule the construction and legal effect to be given a contract is a question of law freely review able by an appellate court." Cho Mark Oriental Food Ltd. v. K&K Int'l 73 Haw. 509 519 836 P.2d 1057 1063 (1992); see also Hanagami v. China Airlines Ltd. 67 Haw. 357 364 688 P.2d 1139 1144 (1984); Reed & Martin Inc. v. City and County of Honolulu 50 Haw. 347 348-349 440 P.2d 526 527 (1968). The determination whether a contract is ambiguous is likewise a question of law that is freely review able on appeal. MPM Hawaiian Inc. v. World Square 4 Haw. App. 341 345-346 666 P.2d 622 626 (1983) (citing United States ex rel. Union Bldg. Materials Corp. v. Haas & Haynie Corp. 577 F.2d 568 (9th Cir.1978)). These principles apply equally to appellate review of the construction and legal effect to be given a contractual agreement to arbitrate. Bateman Constr. Inc. v. Haitsuka Bros. Ltd. 77 Haw. 481 485 889 P.2d 58 62 (1995); Koolau Radiology Inc. 73 Haw. at 447 834 P.2d at 1301;Simbajon v. Gentry 81 Haw. 193 197 914 P.2d 1386 1390 (App. 1996).

The arbitration agreement in the present case is manifestly unambiguous in its expressed intent that employment-related disputes be arbitrated rather than resolved via resort to the federal or state court systems. Indeed no other construction could be accorded the recitation that "KFC and [Drake] agree to submit to binding arbitration any controversies concerning [Drake's] compensation employment[ ] or termination of employment[.]" Moreover the agreement is supported by the bilateral consideration that Drake and KFC would forego their respective rights to a judicial forum given "the delay and expense which results from the use of the federal and state court systems in order to benefit from the resulting time and cost savings.

Thus, on its face, the written agreement for arbitration see 9 U.S.C. SEC. 4, reflects both mutual assent to the arbitration of employment-related disputes and consideration for that mutual assent. It is fundamental that terms of a contract should be interpreted according to their plain ordinary and accepted use in common speech unless the contract indicates a different meaning." Amfac Inc. v. Waikiki Beachcomber Inc. Co. 74 Haw. 85 108 839 P.2d 10 24 reconsideration denied 74 Haw. 650 843 P.2d 144 (1992) (citation and internal quotation marks omitted). Correlatively in construing a contract, a court's principal objective is to ascertain and effectuate the intention of the parties as manifested by the contract in its entirety. If there is any doubt, the interpretation which most reasonably reflects the intent of the parties must be chosen. University of Hawaii Professional Assembly v. University of Hawaii 66 Haw. 214 219 659 P.2d 720 724 (1983) (citations and internal quotation marks omitted). Finally the FAA "was designed . . . to place arbitration agreements upon the same footing as other contracts[.]" Scherk v. Alberto-Culver Co. 417 U.S. 506 511 41 L. Ed. 2d 270 94 S. Ct.2449 (1974) (citations and internal quotation marks omitted); see also Gilmer 500 U.S. at 24. Applying these principles we hold that the arbitration agreement is a valid "written agreement for arbitration" within the meaning of the FAA.

D. Lou Is Not Required To Arbitrate Her Derivative But Separable Claims Against KFC Because She Is Not A Party To The Arbitration Agreement.

As we have noted the Alabanzas' complaint included claims asserted against KFC by Lou for both loss of consortium and negligent and intentional infliction of emotional distress. On appeal the Alabanzas argue that Lou cannot be compelled to arbitrate her claims because she did not sign the arbitration agreement. *fn17 KFC on the other hand contends that Lou while not a signatory to the arbitration agreement is equally bound by its terms. It cites Barrowclough v. Kidder Peabody & Co. 752 F.2d 923 938 (3d Cir.1985) overruled on other grounds in Pritzker v. Merrill Lynch Pierce Fenner & Smith Inc. 7 F.3d 1110 (3d Cir.1993) and A.L. Williams & Assocs. v. McMahon 697 F. Supp.488 494 (N.D. Ga. 1988) in support of its contention.

The issue generated by the mutually exclusive positions taken by the Alabanzas and KFC is resolved by a determination regarding whether Lou's claims are derivative of Drake's and if so whether they are separable.

"Derivative" has been defined to mean "that which has not its origin in itself but owes its existence to something foregoing." Black's Law Dictionary 443 (6th ed. 1990). Under Hawaii's law a spouse's claim of emotional distress based on an injury to her husband is a "derivative" claim sounding in tort. First Ins. Co. of Hawaii v. Lawrence 77 Haw. 2 17 881 P.2d 489 504 reconsideration denied 77 Haw. 373 884 P.2d 1149 (1994).

Similarly loss of consortium is a derivative action[;] i.e., [an] action by [a] spouse for loss of consortium is derivative of the action for damages by the injured spouse. Towse v. State 64 Haw. 624 637 647 P.2d 696 705 (1982) (citations omitted). See also Mist v. Westin Hotels 69 Haw. 192 196-200 738 P.2d 85 89-91 (1987); Yamamoto v. Premier Ins. Co. 4 Haw. App. 429 435-436 668 P.2d 42 48 (1983) overruled on other grounds in Doi v. Hawaiian Ins. & Guar. Co. 6 Haw. App. 456 727 P.2d 884 (1986); Black's Law Dictionary at 444 (defining "derivative action inter alia, to mean actions based on injury to another; e.g. action for loss of consortium by husband against third person for injuries to wife").

However as the Hawaii's Intermediate Court of Appeals (ICA) stated in Yamamoto claims such as loss of consortium are "only derivative in the sense that [they do] not arise unless one's spouse has sustained a personal injury. The loss of consortium claim is a claim for damages independent and separate from the spouse's claim for damages." Yamamoto 4 Haw. App. at 435-36 668 P.2d at 48 (citing Norwest v. Presbyterian Inter community Hosp. 52 Ore. App. 853 631 P.2d 1377 (Or. Ct. App. 1981) aff'd 293 Ore. 543 652 P.2d 318 (Or. 1982) and Fitzgerald v. Meissner & Hicks Inc. 38 Wis. 2d 571 157 N.W.2d 595 (Wis. 1968)) (footnote omitted). Thus while these types of derivative claims are barred when the victim's initial claim of injury cannot be maintained Towse 64 Haw. at 637 647 P.2d at 705 and are subject to defenses premised on the injured spouse's contributory or comparative negligence see Mist 69 Haw. At 199 738 P.2d at 91 it does not inevitably follow that they must be adjudicated in the same forum as the claims for injury to which they relate or that they are not otherwise separable.

Several federal and state courts have held that certain derivative claims are inseparable from those to which they relate and on that basis have obligated the proponents of such derivative claims to arbitrate them when the proponents of the related and underlying claims are contractually bound to do so.

The Barrowclough court for example addressed claims asserted by a discharged stockbroker who was a party to a compulsory arbitration agreement and had filed a lawsuit against his former employer for improperly withholding deferred compensation benefits and violating ERISA reporting and fiduciary provisions. The stockbroker was joined in his suit by the contingent beneficiaries of his deferred compensation plan who were not signatories to the arbitration agreement. Acknowledging the general rule that "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit Barrowclough,.752 F.2d at 937-38, the court nevertheless held that the contingent beneficiaries were obligated, along with the stockbroker, to arbitrate their derivative claims. Id. at 938-39. Court's holding as to the contingent beneficiaries, however, was premised on the fact that the beneficiaries claimed no present entitlement to the [stockbroker's] deferred compensation and pressed no claims separate from his." Id. at 938. Accordingly the Barrowclough court viewed the joined of the contingent beneficiaries as co plaintiffs in the stockbroker's lawsuit as incidental to the core claim which it characterized as a simple "dispute between an employer and an employee arising out of the employment relationship that should be subject to the employee's agreement to arbitrate." Id. at 939.

Similarly in McMahon the federal district court took pains to acknowledge that it "understood that arbitration clauses are . . . contractual agreements and that as a general proposition persons who are not parties to a contract are not bound by the provisions of that contract." McMahon .697 F. Supp. at 493. As in Barrowclough the McMahon co-plaintiff was suing under the same theory as -- and as an alleged agent of -- the primary plaintiff from whose injury her claim was derived. For that reason the McMahon court regarded the case before it as an exception to the general rule observing that "[the co-plaintiff spouse] alleged no entitlement to damages distinct from those allegedly suffered by her [plaintiff] husband and based her entitlement [on] allegations that she was her husband's business partner and that she had a vested interest in all commissions and other income earned by [him] through his employment by and affiliation with [the] defendants." Id. At 494 (internal quotation marks omitted). Court followed the converse of the reasoning of Hughes Masonry Co. v. Greater Clark County School Bldg. Corp. 659 F.2d 836 (7th Cir.1981) which held that "it would be 'manifestly inequitable'" to allow a party to sue another for breach of a contract containing an arbitration agreement -- to which the other was not a signatory -- and at the same time to maintain that the party sued was not entitled to invoke the arbitration agreement. McMahon 697 F. Supp. at 494. Accordingly the McMahon court held that the co-plaintiff spouse was bound by the arbitration agreement to which her husband was a party.

Consistent with McMahon Court in Mutual Benefit Life Ins. Co. v. Zimmerman 783 F. Supp.853 (D.N.J.) aff'd 970 F.2d 899 (3d Cir.1992) espoused the rule that "non signatories of a contract . . . may . . . be subject to arbitration if the nonparty is an agent of a party or a third party beneficiary to the contract." Id. at 865 (citing Arnold v. Arnold Corp.-Printed Communications for Business 920 F.2d 1269 1281 (6th Cir.1990); Barrowclough supra; Scher v. Bear Stearns & Co. 723 F. Supp.211 216 (S.D.N.Y. 1989); Farmers & Merchants Bank v. Hamilton Hotel Partners Ltd. 702 F. Supp.1417 1425 (W.D. Ark. 1988); Cauble v. Mabon Nugent & Co. 594 F. Supp.985 991-92 (S.D.N.Y. 1984); and Okcuoglu v. Hess Grant & Co. 580 F. Supp.749 751 (E.D. Pa. 1984)).

The critical distinction between a co-plaintiff (such as those in Barrowclough and McMahon) asserting contract claims as the agent or functional equivalent of a primary plaintiff who is a party to the contract containing an arbitration agreement on the one hand and a co-plaintiff asserting claims that are distinct and separable from those of a primary plaintiff who is a party to an arbitration agreement on the other appears to account for the results reached in Hays and Co. v. Merrill Lynch Pierce Fenner & Smith Inc. 885 F.2d 1149 (3d Cir.1989) and Merrill Lynch Pierce Fenner & Smith Inc. v. Longoria .783 S.W.2d 229 (Tex. Ct. App. 1989). *fn18 In Hays Court was faced with a securities broker's motion to compel arbitration of claims that a bankruptcy trustee had asserted against it. The trustee alleged both securities violations arising out of prior business transactions between the bankrupt and the defendant broker and claims of fraudulent conveyance and constructive trust which the trustee brought pursuant to powers conferred under federal bankruptcy law. The Hays court held that the trustee was bound by the arbitration agreement signed by the debtor only to the extent that the trustee's claims were inherited from the debtor:

We hold that the trustee-plaintiff stands in the shoes of the debtor for purposes of the arbitration clause and that the trustee-plaintiff is bound by the clause to the same extent as would the debtor. We also hold that the trustee's . . . [fraudulent conveyance and constructive trust] claims are not arbitrable under the arbitration clause because they are not derivative of the debtor and the trustee is accordingly not bound by the [arbitration agreement] with respect to them.

Hays 885 F.2d at 1153 (emphasis added).

The Longoria court similarly highlighted the foregoing distinction in its holding that a co-plaintiff spouse who claimed loss of consortium as a result of the defendant's alleged wrongful termination of her husband was not obligated to arbitrate her claim. Court acknowledged that "all of [the spouse's] claims are derivative in nature arising solely from her husband's contract with [the defendant]. However because she was not a party to the contract she is not bound to proceed to arbitration." Longoria 783 S.W.2d at 231. In reaching its decision the Texas court distinguished In re Oil Spill by the Amoco Cadiz 659 F.2d 789 (7th Cir.1981). In Cadiz the claimant had also sought the right to a judicial forum because it had not consented to arbitration. But unlike the matter before the Longoria court the claimant in Cadiz "was attempting to recover as an agent." Longoria 783 S.W.2d at 231. Because "recovery as an agent would necessarily be limited to that amount recoverable by the principal the claimant in Cadiz was understandably bound by the arbitration agreement that had been signed by the principal. Id. By contrast, the claim of the co plaintiff spouse in Longoria was dependent upon her husband's in the sense that it derived from the alleged wrongful termination but the bases of her damages [were] totally separate from the damages [her husband] would claim for breach of contract or wrongful termination." Id.

We are persuaded by the logic of Hays and Longoria. In the present appeal Lou is asserting her claims neither as an agent for her husband nor pursuant to a "derivative" and contract-based theory of recovery such as that of a third party beneficiary. As distinguished from Drake Lou has not contracted to arbitrate any dispute with KFC. Although her claims are "derivative" in the sense that they arise out of an alleged tortuous injury to Drake sustained during his employment with KFC or upon his termination therefrom they are separable from his and her potential damages are not coextensive with his. We therefore hold that to the extent that she is not pursuing claims as Drake's agent or under a breach of contract theory (pursuant to which she stands in Drake's shoes) Lou is not bound by the arbitration agreement between Drake and KFC. However because (1) the viability of Lou's claims is conditioned upon KFC's liability to Drake see Towse .64 Haw. at 637 647 P.2d at 705 (2) Drake is bound by the arbitration agreement with KFC see sections III.E. and F. of this opinion infra and (3) the issue of KFC's liability to Drake will determined by arbitration we further hold that trial of Lou's claims must be stayed pending the disposition of Drake's arbitrable claims. See HRS SEC.658-5 (1993) ("If any action . . . is brought upon any issue referable to arbitration under an agreement in writing the circuit court upon being satisfied that the issue involved in the action . . . is referable to arbitration under such an agreement in writing shall stay the trial of the action . . . until the arbitration has been had in accordance with the terms of the agreement[.]" (Emphases added.)). *fn19

E. The Arbitration Agreement Extends To All Of The Claims Asserted In Drake's Complaint Relating To His Alleged Termination From Employment With KFC Notwithstanding That The Arbitration Agreement Is Not Contained Within A Written Employment Contract.

The Alabanzas next urge that the arbitration agreement cannot forestall their lawsuit against KFC because the agreement was contained within Drake's employment application which -- as the parties agree -- was not itself a binding employment contract. In other words the Alabanzas reason that insofar as their dispute with KFC does not "arise out of" the arbitration agreement but rather arises out of a subsequent oral employment contract the dispute is beyond the scope of the arbitration agreement. To the extent that their argument concerns the significance of an oral employment contract under Hawaii's law we have already disposed of it supra in section III. C.1. of this opinion. Their position however also implicates elements of controlling federal and other relevant law which we now address.

We discern three facets of the Alabanzas' argument that the arbitration agreement does not extend to the present dispute even under the FAA. First the Alabanzas call our attention to the fact that when it drafted the employment application, . . .KFC worded it to leave no doubt that [Drake's] employment, if it happened, did not arise out of this employment application or any other written contract. By this we understand the Alabanzas to mean that the employment application was not an employment contract -- a fact as we have repeatedly noted that is not in dispute -- and therefore could not govern controversies arising out of Drake's employment.

Second the Alabanzas level a direct attack on the validity of the arbitration agreement by insisting that "KFC cannot be permitted to take inconsistent positions by stating that[ ] despite specific language to the contrary the Employment Application they drafted [is] somehow a valid enforceable and irrevocably binding contract." Put differently the Alabanzas advance the view that the arbitration agreement is not sever able from the employment application and therefore cannot govern disputes arising out of Drake's subsequent contractual relation with KFC.

Third the Alabanzas insist that "KFC has no right to force [Drake] to arbitrate disputes which arose out of his subsequent oral employment contract based on an arbitration clause in a separate written 'contract' (the application) out of which no dispute arose." *fn20 In other words the Alabanzas maintain that the arbitration agreement cannot be imported into the complex of rights and obligations comprising Drake's subsequent and oral contractual relationship with KFC such that he can be compelled to arbitrate issues relating to his alleged termination from employment.

We therefore examine whether under federal law or otherwise: (1) the arbitration agreement can govern disputes arising out of Drake's subsequent oral contract of employment with KFC; (2) the arbitration agreement is sever able from the remaining provisions of the writing i.e. the employment application in which it is contained; and (3) the absence of a contemporaneous and written employment contract places the present dispute beyond the scope of the arbitration agreement.

1. The legal effect of the arbitration agreement

Although the public policy underlying Hawaii's law "strongly favors arbitration over litigation the mere existence of an arbitration agreement does not mean that the parties must submit to an arbitrator disputes which are outside the scope of the arbitration agreement." Norris 74 Haw. at 259 842 P.2d at 645 (citing Koolau Radiology Inc. supra). Federal law is in accord: "'Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" AT&T Technologies v. Communications Workers of Am. 475 U.S. 643 648 89 L. Ed. 2d 648 106 S. Ct.1415 (1986) (quoting Steelworkers v. Warrior & Gulf Navigation Co. 363 U.S. 574 582 4 L. Ed. 2d 1409 80 S. Ct.1347 (1960)).

"When the arbitration clause is clear and unambiguous . . . its interpretation is a question of law which may be made by the appellate court. . . . Consequently we are free to interpret the arbitration clause and apply the correct law to its enforcement." Koolau Radiology Inc. 73 Haw. at 447 834 P.2d at 1301 (quoting Beclar Corp. v. Young 7 Haw. App. 183 190 750 P.2d 934 938-39 (1988)) (original brackets and internal quotation marks omitted). See also Simbajon 81 Haw. at 197 914 P.2d at 1390. Correlatively what issues, if any, are beyond the scope of a contractual agreement to arbitrate depends on the wording of the contractual agreement to arbitrate. Rainbow Chevrolet Inc. v. Asahi Jyuken (USA) Inc. 78 Haw. 107 113 890 P.2d 694 700 (App. 1995).

On de novo review we believe that the arbitration agreement by its plain language demonstrably extends to "controversies" arising out of alleged wrongful termination. Nevertheless this court has stated that a contract "'should be construed as a whole and its meaning determined from the entire context and not from any particular word phrase or clause.'" Hawaiian Isles Enters. v. City and County of Honolulu 76 Haw. 487 491 879 P.2d 1070 1074 (1994) (quoting Maui Land and Pineapple Co. v. Dillingham Corp. 67 Haw. 4 11 674 P.2d 390 395 (1984)). We therefore look to the arbitration agreement within the greater context of the document in which it is located in order to determine whether any party to it could reasonably have failed to understand that it was intended to govern the entire galaxy of employment-related controversies.

As we have indicated in section I. of this opinion the arbitration agreement is contained in a discrete section of the application denominated Agreement. The Agreement is boxed off from the other sections of the application. Moreover the Employee Rights subsection in which the arbitration agreement is located is set off from the preceding paragraphs of the Agreement by its own subheading labeled "Arbitration Of Employee Rights." The signature line prepared for the applicant appears just below the arbitration agreement. The arbitration agreement references neither the remainder of the employment application in general nor the other provisions of the Agreement in particular all of which are distinct in subject matter from the arbitration agreement. *fn21

A disclaimer appears in the second paragraph of the Agreement but it is exclusively limited to the applicant's acknowledgment that "I am hereby informed and I understand that nothing contained in this application . . . shall constitute an implied or expressed contract of employment." In our view the disclaimer could not reasonably be construed to render nugatory the other provisions of the Agreement see supra note 21 including the arbitration agreement located in the Employee Rights subsection.

Viewed in context the arbitration agreement highlights -- rather than camouflages -- its general purpose and the limited scope of the disclaimer is clear and unambiguous: the arbitration agreement obviously relates to the future possibility of employment and in the event of employment to employment-related controversies. The arbitration agreement expressly provided in terms accessible to any literate English speaking applicant that he or she "agreed to submit to binding arbitration" all possible future controversies concerning . . . termination of employment[.] The undisputed fact that the employment application did not in itself constitute an employment contract in no way undermines this simple reality.

2. Sever ability of arbitration provisions

For almost forty years arbitration agreements have been regarded as a matter of federal law as sever able and distinct from the underlying agreement. Devonshire Fabrics 271 F.2d at 410. Accord Municipal Energy Agency v. Big Rivers Elec. Corp. 804 F.2d 338 342 (5th Cir.1986) ("An arbitration clause is separable from the contract in which it is embedded."); Matterhorn Inc. v. NCR Corp. 763 F.2d 866 868-869 (7th Cir.1985) ("An arbitration clause will often be 'sever able' from the contract in which it is embedded . . . . If the agreement of one party to arbitrate disputes is fully supported by the other party's agreement to do likewise there is no need to look elsewhere in the contract for consideration for the agreement to arbitrate[.]"); Ericksen Arbuthnot McCarthy Kearney & Walsh Inc. v. 100 Oak Street 673 P.2d 251 255-56 (Cal. 1983) (citing Moses H. Cone Memorial Hosp. 460 U.S. at 24-25; Prima Paint Corp. v. Flood & Conklin Mfg. Co. 388 U.S. 395 402-04 18 L. Ed. 2d 1270 87 S. Ct.1801 (1967); and Devonshire Fabrics 271 F.2d at 409).

In its opening brief KFC cites to numerous jurisdictions that have upheld and enforced arbitration agreements encapsulated within underlying agreements including Mago v. Shearson Lehman Hutton Inc. 956 F.2d 932 (9th Cir.1992); Katz v. Shearson Hayden Stone Inc. 438 F. Supp.637 (S.D.N.Y. 1977); and White-Weld supra. Indeed in a dispute involving age discrimination the United States Supreme Court has recently upheld an arbitration provision embedded in a similar agreement. Gilmer supra. Despite the Alabanzas' accurate observation that all of these decisions including Gilmer concern securities exchange applications -- within the context of a highly regulated industry -- as opposed to employment contracts the decisions nevertheless support the general proposition that an arbitration agreement is sever able from the writing in which it is embedded. And as demonstrated supra in section II.B. of this opinion arbitration agreements governed by the provisions of the FAA are subject to the section 1 exclusion enforceable with respect to employment contracts.

3. Absence of a contemporaneous and written employment contract

The fact that the arbitration agreement is not geographically ensconced in a contemporaneous and written employment contract while potentially relevant to the application of HRS SEC. 658-1 to a dispute not controlled by the FAA see supra notes 7 and 20 is immaterial to the present appeal. It is tautological that the arbitration agreement by its terms interposed a future employment relationship between Drake and KFC as a condition precedent to the parties' contractual obligation to arbitrate any controversies arising out of that relationship. The presence of a condition precedent in the arbitration agreement however merely required that it be fulfilled before the obligation to arbitrate ripened. See Restatement (Second) of Contracts SEC. 224 (1981) ("A condition is an event not certain to occur which must occur unless its non-occurrence is excused before performance under a contract becomes due.") The fact that the mutual promises to arbitrate were executor at the time they were made merely signifies that Drake's obligation to arbitrate employment-related controversies with KFC and vice versa did not mature until he was hired and in this case was allegedly terminated. Restatement (Second) of Contracts SEC. 232 (1981) ("Where the consideration given by each party to a contract consists in whole or in part of promises all the performances to be rendered by each party taken collectively are treated as performances to be exchanged under an exchange of promises unless a contrary intention is clearly manifested.")

4. Summary

Based on the foregoing analysis we hold that the arbitration agreement between Drake and KFC -- which was sever able and distinct from the remainder of the employment application -- was a valid agreement that in the event of a future employment relationship (whether evidenced by a written employment contract or not) contractually bound Drake and KFC to arbitrate the galaxy of controversies that could potentially arise out of Drake's termination from that employment relationship.

F. The Arbitration Agreement Is Not An Unenforceable Contract Of Adhesion Under Either Hawaii Or Federal Law.

Relying primarily on Leong v. Kaiser Found. Hosp. 71 Haw. 240 788 P.2d 164 (1990) and Gilmer supra the Alabanzas assert as a backup position that whatever its validity might otherwise be the arbitration agreement is an unenforceable contract of adhesion thereby relieving them of any obligation to arbitrate their claims against KFC. *fn22 For the reasons set forth below we disagree. *fn23

1. Hawaii law of contracts of adhesion within the context of arbitration agreements

Under Hawaii law an unenforceable contract of adhesion.is a form contract created by the stronger of the contracting parties. It is offered on a take this or nothing basis. Consequently the terms of the contract are imposed upon the weaker party who has no choice but to conform. These terms unexpectedly or unconscionably *fn24 limit the obligations and liability of the drafting party. . .

In contracts of adhesion courts are concerned with terms which are oppressive to the weaker party and which serve to limit the obligations and liability of the stronger party. . .

Leong 71 Haw. at 247-48 788 P.2d at 168-69 (citations and internal quotation signals omitted). In other words a contract that is "adhesive" - in the sense that it is drafted or otherwise proffered by the stronger of the contracting parties on a "take it or leave it" basis -- is unenforceable if two conditions are present: (1) the contract is the result of coercive bargaining between parties of unequal bargaining strength; and (2) the contract unfairly limits the obligations and liabilities of or otherwise unfairly advantages the stronger party. See Buraczynski v. Eyring .919 S.W.2d 314 __ 1996 WL 144242 at 4-6 (Tenn. 1996) (citing Leong). Arbitration agreements are not usually regarded as unenforceable contracts of adhesion because the second condition is generally lacking -- that is the agreement bears equally on the contracting parties and does not limit the obligations or liabilities of any of them but merely substitutes one forum for another. Leong .71 Haw. at 248 788 P.2d at 169 (citation and internal quotation marks omitted).

We assume (and KFC does not appear to contest) that as the Alabanzas suggest Drake was offered the possibility of employment on a "take it or leave it form [i.e. the employment application] that had to be filled out and signed by [Drake] if he wanted to be considered for employment with KFC." Accordingly the first of the Leong conditions is present in this case insofar as Drake's submission to the arbitration agreement was the result of coercive bargaining between parties of unequal bargaining strength.

However arbitration agreements such as that at issue in the matter before us simply do not entail the second of the Leong conditions. KFC is neither entitled to breach any contractual term or condition of its employment relationship with Drake nor to inflict tortuous injury upon him simply because Drake's claims that it did so will be resolved around an arbitrator's table rather than in a court room. In other words the record before us is devoid of any showing that the forum-substitution effected by the arbitration agreement either limits KFC's obligations and potential liabilities to Drake or otherwise confers an unfair advantage upon KFC.

2. Federal law of contracts of adhesion within the context of the FAA

Most of the early federal jurisprudence that addressed claims that arbitration agreements otherwise governed by the FAA were contracts of adhesion developed within the context of disputes between members of various securities exchanges and their employers. These decisions rejected the argument of exchange members that the arbitration agreement at issue should not be enforced because it was involuntarily foisted upon the member by a party of superior bargaining power. See e.g. Webb v. R. Rowland & Co. 800 F.2d 803 807 (8th Cir.1986) ("[Arbitration] agreements are not invalid as contracts of adhesion. The use of a standard form contract between two parties of admittedly unequal bargaining power does not invalidate an otherwise valid contractual provision. To be invalid the provision at issue must be unconscionable. We have previously observed in a similar context: 'There is certainly nothing inherently unfair about the arbitration clause.'" (Citation omitted.)); Katz .438 F. Supp. at 641 ("Plaintiff disputes the validity of the arbitration provisions arguing that [they constitute] a contract of adhesion foisted upon him without choice by a party of superior bargaining power. This contention was pressed and rejected in Rust v. Drexel Firestone Inc. 352 F. Supp.715 (S.D.N.Y. 1972)[ ] after full examination of the identical arbitration provisions and underlying judicial . . . policies involved."); Rust 352 F. Supp. at 718 ("Under all the circumstances it cannot be said that the arbitration requirement as a condition of employment constitutes duress or that the employer has taken unjust economic advantage of the employee."). *fn25

In Gilmer supra which likewise involved claims asserted by a securities representative (registered with the New York Stock Exchange) against his employer the United States Supreme Court expressly approved and adopted the view permeating the federal court system. Acknowledging the representative's argument that by virtue of the "unequal bargaining power between employers and employees he should not be bound by the arbitration agreement appearing in his registration application, the Gilmer Court ruled that mere inequality in bargaining power . . . is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context." Gilmer 500 U.S. at 33. Court reiterated that 'by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum. Id. at 26 (quoting Mitsubishi Motors Corp. 473 U.S. at 628). *fn26

Thus the federal courts including the United States Supreme Court have rejected the "inequality of bargaining power" argument advanced by the Alabanzas in this case when determining the applicability of the FAA to arbitration agreements between employers and employees. Neither Gilmer nor any other federal authority of which we are aware stands for the proposition that inequality of bargaining power between employers and employees without more and however great may render an arbitration agreement unenforceable as a contract of adhesion. *fn27

3. Summary

Based on the foregoing analysis we hold that the arbitration agreement between Drake and KFC is not an unenforceable contract of adhesion under either Hawai'i or federal law.

IV. CONCLUSION

With respect to Lou Alabanza's claims of loss of consortium and negligent and intentional infliction of emotional distress (fourth and fifth claims for relief) the circuit court's decision and order denying KFC's motion to compel arbitration is affirmed. With respect to Drake Alabanza's claims (first second third sixth and eighth claims for relief) the decision and order is vacated and remanded to the circuit court with instructions to enter an order granting KFC's motion in accordance with the terms of HRS Sec. 658-3.

Ronald T. Y. Moon

Robert G. Klein

Steven H. Levinson

Paula A. Nakayama