ANTHONY W. ISHII, Senior District Judge.
This removed case from the Fresno County Superior Court is an employment discrimination suit between Plaintiff Hector Sanchez ("Sanchez") and his former employer, Defendant Homebridge Financial Services ("HFS"). Currently before the Court is HFS's motion to compel arbitration. For the reasons that follow, the Court will grant HFS's motion.
From the Complaint, Sanchez was employed by HFS from February 6, 2016 to July 10, 2017 as a branch manager. On June 15, 2017, Sanchez complained to HFS that it was unlawfully failing to pay all wages that were due him. HFS agreed to pay Sanchez all wages due by July 1, 2017, but failed to do so. Sanchez again complained to HFS about the failure to pay, and explained that HFS's conduct violated state and federal rules, regulations, and law. Shortly thereafter, HFS terminated Sanchez. On September 1, 2017, Sanchez filed this lawsuit and alleged claims under California for wrongful termination in violation of public policy, breach of contract, breach of the covenant of good faith, violation of Labor Code § 98.6, § 203, and § 1102.5.
HFS argues that Sanchez voluntarily entered into an arbitration agreement ("Agreement") and expressly agreed that any and all disputes arising out of or related to his employment would be resolved in binding arbitration. Each cause of action alleged is encompassed by the Agreement. The Agreement requires arbitration before JAMS and pursuant to JAMS rules. The Agreement is not unconscionable because it provides for a single neutral arbitrator, the JAMS Employment Rules permits discovery beyond "minimal discovery," requires a written decision that is subject to judicial review, permits the arbitrator to award equitable relief, damages, costs and fees, is bilateral because both parties must submit their claims to an arbitrator, and does not require the payment of any unreasonable fees, rather Sanchez is only required to pay a case management fee that is equivalent to a court filing fee. Because the claims are clearly within the enforceable Agreement, this case should be stayed or dismissed pending arbitration.
In reply, HFS argues that Sanchez has not shown unconscionability. The JAMS Comprehensive Rules contain numerous carve outs under which it is clear that the JAMS Employment Rules will apply in this arbitration, specifically either through agreement by the parties or through the conflict of law provisions of JAMS. The fees identified as part of the JAMS Comprehensive Rules will not apply, rather Sanchez will only pay a $400 fee under the JAMS Employment Rules (all other costs will be borne by HFS). Further, Sanchez has not identified a particular rule that results in an unfair circumstance, and he took six days before he signed the Agreement. Also, Sanchez does not dispute that the JAMS Employment Rules provide for sufficient discovery, and the requirement of a written decision conforms to § 9 of the Federal Arbitration Act ("FAA"). Also, the Agreement does not provide for one sided injunctive relief, rather the Agreement specifically states that "a party" may seek temporary injunctive relief.
Sanchez argues that Agreement is unenforceable because it is unconscionable. First, the Agreement was a form contract drafted by HFS and presented on a take or leave it basis and conditioned employment on signing the Agreement. Thus, there was a significant imbalance in bargaining power. Second, there is unfair surprise because HFS did not provide a copy of the JAMS Comprehensive Rules, although those rules are referenced in the Agreement. These JAMS rules do not allow for dispositive motions. Further, HFS has threatened to have the arbitration occur in Los Angeles, which is expensive and inconvenient. Third, the Agreement does not call for application of the JAMS Employment Rules, rather it applies the Comprehensive Rules, and those rules only permit an exchange of information and one deposition. Thus, there is insufficient discovery permitted. Fourth, there is no judicial review permitted since the Agreement states that the arbitrator's decision is final. Fifth, the Comprehensive Rules require him to pay a filing fee, a share of the arbitrator fees, and a case management fee. These fees are significantly larger than that required to file a lawsuit. Sixth, HFS has carved out for itself the ability to sue in court for injunctive relief, but there is no such right for the Plaintiff. Finally, an unexpected forum creates financial difficulty for Plaintiff. HFS has threatened to arbitrate in Los Angeles, but any location other than Fresno is not reasonably expected and would create an unreasonable financial burden. Thus, each of these aspects of the Agreement are unconscionable, and the collective unconscionability of the Agreement as a whole should preclude arbitration.
In pertinent part, the Agreement provides:
The FAA commands courts to "place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms."
The parties dispute which JAMS Rules would apply to an arbitration under the Agreement. HFS contends that the JAMS Employment Rules ("JER's") would apply, while Sanchez contends that the Comprehensive Rules ("JCR's") would apply. Most of the remainder of the parties' respective arguments are dependent upon which set of rules would apply to the arbitration.
The plain language of the Agreement specifies that the JCR's will apply to the arbitration. Sanchez is correct that there is no mention whatsoever of the JER's. Therefore, under the Agreement, the JCR's govern.
Although HFS's motion states that the Agreement calls for application of the JER's, that is plainly contradicted by the express language of the Agreement. The real basis of HFS's position that the JER's will govern are provisions from the JCR's and JER's themselves. In their motion, HFS cites JER Rule 1(a), which reads: "The JAMS [Employment Rules] govern binding arbitration of disputes or claims that are administered by JAMS and in which the Parties agree to use these Rules, or in the absences of such agreement, the disputes or claims are employment-related, unless other Rules are prescribed." JER 1(a). However, as stated above, the parties did not specify application of the JER's, rather they expressly specified use of the JCR's. That express reference and agreement to use the JCR's is key and dispositive, as the parties themselves have prescribed another Rule — the JCR's. Similarly, JCR 1(a) states that the Comprehensive Rules will govern if the parties agree.
Therefore, the Court will analyze the remainder of this motion with the understanding that the JCR's will govern.
Sanchez argues that he was forced to sign the Agreement as a condition of employment and because the Agreement was an adhesion contract, it is procedurally unconscionable
A contract of adhesion is a "standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it."
Here, there is no dispute that Sanchez's employment depended on him accepting and signing the Agreement. Sanchez could either accept the Agreement and be employed by HFS, or he could reject it and be unemployed. Therefore the Agreement is a contract of adhesion and there is procedural unconscionability.
Nevertheless, "if an employee must sign a non-negotiable employment agreement as a condition of employment, but `there is no other indication of oppression or surprise,' then `the agreement will be enforceable unless the degree of substantive unconscionability is high.'"
Because Sanchez has not sufficiently identified other aspects of procedural unconscionability, the Court concludes that Agreement is procedurally unconscionable because it is an employment adhesion contract, but the degree of unconscionability is low.
In California, an arbitration must provide for more than minimal discovery, which means discovery that is sufficiently adequate to litigate the claim at issue.
Here, Sanchez contends that the JCR's limit discovery to an exchange of information and one deposition. This is partially correct. The JCR's require an exchange of information and supplementation, and do prescribe one deposition.
JCR 17(b) is nearly identical to JER 17(b), the only material difference for purposes of this motion appears to be that JER provides that the parties may agree to at least one deposition, whereas JCR expressly provides for one deposition as a matter of right. Courts have found that JER 17(b) provides for adequate discovery for purposes of Armendariz.
In Affholter v. Franklin Cnty Water Dist., 2008 U.S. Dist. LEXIS 106254, *52-*56 (E.D. Cal. Dec. 23, 2008), the Court held that JCR 17(b) did not represent an unconscionable limit on discovery. Of particular import to the Affholter court was that the standard for obtaining additional depositions was "reasonable need," which is not an onerous showing.
Similarly, in Dotson v. Amgen, Inc., 181 Cal.App.4th 975, 982 (2010), the court addressed a contractual provision that limited discovery to one deposition of "natural persons" and all experts, but the arbitrator could order additional discovery "upon a showing of need." Dotson found that the limitation was not unconscionable. As part of its analysis, Dotson concluded that the fact the arbitrator was given the discretion to authorize additional discovery was not improper. Courts "assume that the arbitrator will operate in a reasonable manner in conformity with the law." Id. at 984-85. Further, Dotson relied on Roman v. Superior Court, 172 Cal.App.4th 1462 (2009), a decision that had upheld a rule of the American Arbitration Association rule that gave the arbitrator the ability to authorize additional discovery. As part of its discussion of Roman, Dotson noted that "JAMS Rule 17(b)" limited parties to one deposition as of right but permitted additional depositions upon request to the arbitrator.
In Baxter v. Genworth N. Am. Corp., 16 Cal.App.5th 713, 728-29 (2017), the Court of Appeal found that an arbitration provided for additional discovery upon a showing of "good and sufficient cause" was unconscionable. Baxter emphasized that the plaintiff in that case had specifically demonstrated that the "default discovery" would be inadequate, that the "good and sufficient cause" standard was a greater showing than the one of "need" upheld in Dotson, and the "good and sufficient cause" standard was vague because inclusion of the term "sufficient" suggested that "good cause" alone would not support additional discovery.
Considering Affholter, Dotson, and Baxter, because the standard for obtaining additional discovery is not onerous, and because it is presumed that the arbitrator will act reasonably and in accordance with the law, the Court concludes that Sanchez has not demonstrated that JCR 17(b) is a substantively unconscionable limitation on discovery.
Sanchez argues that Armendariz held that an arbitration agreement that attempts to deny employees the right to judicial review of arbitration decisions is unconscionable. Contrary to Armendariz, Sanchez argues the Agreement states that the arbitrator's decision is final.
The California Supreme Court has recognized that, because "arbitral finality is a core component" of arbitration agreements, courts generally "cannot review arbitration awards for errors of fact or law, even when those errors appear on the face of the award or cause substantial injustice to the parties."
Here, Sanchez has simply cited one provision of the Agreement that states that the arbitrator's decision is final. That provision appears to be nothing more than a recognition of the general rule of finality, as explained by Richey and Moncharsh. Sanchez has not shown how this provision of the Agreement is contrary to the general rules in Richey and Moncharsh. Moreover, as quoted above, the Agreement expressly invokes the FAA, and thus, includes the judicial review provided by the FAA. While review under the FAA is limited, there is still review. See 9 U.S.C. §§ 10, 11. Sanchez cites no case law for the proposition that the review provided by the FAA is unconscionable. Because the only identified clause merely states the accepted rule of finality, and because the Agreement includes the limited review provided by the FAA, there is no basis to find this aspect of the Agreement unconscionable.
In California, an employment arbitration agreement "cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court."
Sanchez argues that the JCR's require him to pay a filing fee of $1,200.00, a pro rata share of mediator fees (which could be thousands of dollars), and 12% case management fee. These fees and potential fees are substantially more than would be required to proceed in court and thus, is unconscionable. HFS contends that a $400 filing fee is all that Sanchez would be required to pay, per the JER's.
As explained above, the Court has already determined that the JCR's, not the JER's, apply. Apart from that determination, however, the Agreement contains language that specifically addresses arbitration fees. "The fees and expenses of the arbitration shall be borne by the parties, under the schedule in the Comprehensive Rules, unless otherwise awarded by the arbitrator in the final, written decision." Centeno Dec. Ex. 1 at p.8. Thus, the express language of the Agreement is again clearly and directly contrary to HFS's position that the JER fees will apply. It is unreasonable to ignore this clear language. Therefore, per the express language of the Agreement (and the Court's prior determination concerning the JCR's), the fees under the JCR's apply.
Neither party disputes any fee figure utilized in the briefing. Importantly, HFS does not dispute that the fees under the JCR are not as represented by Sanchez. Rather, HFS incorrectly and contrary to the clear and express language of the Agreement stated that a $400 fee under the JER's would apply to Sanchez. Because the parties do not dispute the actual percentages and dollar figures, the Court will accept the fee representations of counsel. Therefore, the Agreement and the JCR's would require Sanchez to pay a $1,200 filing fee, a pro rata share of the arbitrator's fee which easily could run into the thousands of dollars, and a 12% case management fee. The arbitrator's fee and the case management fee are fees that are not part of a court proceeding, and the $1,200 filing fee is three times what a court filing fee would be if the case proceeds in court. Therefore, the fees under the JCR are substantially greater than the fees that Sanchez would have to pay in court, and the Agreement's fee provision is substantially substantively unconscionable.
Sanchez argues that the Agreement reserves the right of HFS to seek injunctive relief in court, but that the Agreement does not give him such a right. Sanchez also cites cases in which courts have criticized an arbitration clause for requiring an employee to arbitrate claims that the employee is most likely to make, but allowing the employer to file a lawsuit or arbitrate claims that the employer is most likely to assert. Quoting part of the relevant clause, HFS argues that the Agreement permits both parties to seek injunctive relief.
The Agreement in relevant part reads: "Nothing shall preclude a party from seeking temporary injunctive relief, but said application shall only be brought in federal district court in the District of New Jersey, or if diversity or subject-matter jurisdiction is lacking, in a New Jersey State Court of competent jurisdiction." The clear language of this clause does not preclude any party from seeking temporary injunctive relief, and the clause does not limit its application to any particular type of claim or issue. If either party needs to obtain temporary injunctive relief, that party may go to court.
Sanchez argues that arbitration in any place other than Fresno, California is not part of his reasonable expectations and would create an unreasonable financial burden. Sanchez indicates that HFS has threatened to file for arbitration in Los Angeles, California, knowing that he cannot afford to litigate in Los Angeles. Sanchez has included an e-mail that does indicate that HFS has threatened to arbitrate in Los Angeles if he did not agree to arbitration and the payment of the $400 JAMS filing fee.
As quoted above, the Agreement provides in essence that the location for any arbitration of disputes with California employees will be "California," no specific city or county is identified. Per the Agreement, both Fresno (the location where Sanchez worked) and Los Angeles (the location undisclosed "key witnesses" reside), both appear to be proper. The cases cited by Sanchez included venue provisions that were unconscionable in that the clauses required consumers to arbitrate their claims in states that were a significant distance from California. Sanchez cites no cases where venue provisions were held unconscionable and involved distances comparable to the distance between Fresno and Los Angeles. Sanchez has not shown that the Agreement's arbitration general California venue provision is unconscionable.
As an employment contract of adhesion, the Agreement suffers from procedural unconscionability. The procedural unconscionability is amplified by the substantively unconscionable JCR provision for the payment of fees by Sanchez that are well in excess of the fees he would pay by proceeding in court.
If a court concludes that a contract contains one or more unconscionable clauses, it may: (1) refuse to enforce a contract that was "unconscionable at the time it was made," (2) "enforce the remainder of the contract without the unconscionable clause," or (3) "limit the application of any unconscionable clause as to avoid any unconscionable result." Cal. Civ. Code § 1670.5(a);
The history of this case prior to the motion to compel arbitration is important. From the submissions of the parties, HFS informed Sanchez's counsel of the Agreement in August 2017.
First, Sanchez does not appear to have any objection to arbitrating with JAMS under the JER's. The draft that Sanchez returned to HFS specifically identifies the JER's as the rules that would apply. Moreover, HFS's motion makes clear that it too wishes to proceed under the JER's, or at least officially takes the position that the JER's will apply. Therefore, both parties are willing to arbitrate under the JER's. Application of the JER's would eliminate the improper JCR fee provisions and limit Sanchez's expenditure to a $400 filing fee. If reference to the JCR's are stricken, then there is no enforceable agreement by the parties for a set of rules other than the JER's, which is the default set of JAMS rules that will be applied in employment related cases, and there is no dispute that HFS would pay all fees and costs except the $400 fee. See JER 1(b). Moreover, the objectionable fee provision of the Agreement could further be restricted by requiring HFS to pay all fees and costs that would be in excess of the expenses that would be required of Sanchez if he proceeded in court.
Second, no objection was identified to language in the draft stipulation for the Court to stay this case and retain jurisdiction over the matter. Where, as here, all claims are subject to arbitration, the Court has the discretion to either stay the case or dismiss it outright.
Finally, both parties are willing to arbitrate in Fresno. HFS expressly told Sanchez that it was willing to do so in the 9:27 a.m. e-mail on October 27, 2017.
In light of the above, the Court will strike references to the JCR's, restrict the Agreement's fee provision, compel arbitration to occur within the Eastern District of California — Fresno Division, and stay this case pending completion of the arbitration.
Accordingly, IT IS HEREBY ORDERED that:
1. Defendant's motion to compel arbitration is GRANTED;
2. All references to the JAMS Comprehensive Rules in the Agreement are STRICKEN;
3. In addition to the deletion of the reference to the Comprehensive Rules, the following clause of the Agreement may not be interpreted to mean that Sanchez will pay any type of expense that would be in excess of the expenses that would be required of Sanchez if he proceeded in court: "The fees and expenses of the arbitration shall be borne by the parties, under the schedule in the Comprehensive Rules, unless otherwise awarded by the arbitrator in the final, written decision."
4. This case is STAYED pending arbitration;
5. Within thirty days of service of this order, the parties may initiate arbitration within the Eastern District of California — Fresno Division, and shall file a notice of filing arbitration with the Court within thirty-five days of service of this order;
6. Within fourteen (14) days of completion of arbitration, the parties will file a notice of completion of arbitration and a status report that addresses how to proceed with the case, including the lifting of the stay; and
7. During the pendency of the stay, the parties will file joint status reports with the Court every sixty (60) days.
