HAYES, District Judge:
The matters before the Court are (1) the Motion for an Order Directing Arbitration and Dismissing, or in the Alternative, Staying the Action ("Motion for an Order Directing Arbitration"), filed by Defendants (ECF No. 34); and (2) the Request for Full Discovery and a Jury Trial as to Disputed Issues of Fact in Motion to Compel Arbitration ("Request for Full Discovery and a Jury Trial"), filed by Plaintiff (ECF No. 43-1).
On August 9, 2010, Plaintiff initiated this action by filing a Complaint in this Court. (ECF No. 1).
On November 30, 2010, Plaintiff filed the Third Amended Complaint, which is the operative pleading. (ECF No. 14). Plaintiff, who was employed by Defendants as an "Account Manager," alleges that Defendants improperly classified him (and other individuals employed by Defendants in California) as an exempt employee from overtime wages, and therefore failed to pay him overtime compensation although he "regularly worked more than eight (8) hours in a workday, forty (40) hours a workweek, and/or seven (7) consecutive days." Id. ¶ 4. Plaintiff alleges the following claims, on behalf of himself and all others similarly situated: (1) Unfair Competition in Violation of Cal. Bus. & Prof. Code §§ 17200, et seq.; (2) Failure to Pay Overtime Compensation in Violation of California Labor Code §§ 510, 515.5, 551, 552, 1194 & 1198, et seq.; (3) Failure to Provide Accurate Itemized Statements in Violation of California Labor Code § 226; (4) Failure to Pay Overtime Compensation in Violation of 29 U.S.C. §§ 201, et seq.; and (5) Labor Code Private Attorney General Act, California Labor Code §§ 2698, et seq. Plaintiff alleges a class and collective action.
On May 19, 2011, Defendants filed the Motion for an Order Directing Arbitration. (ECF No. 34). Defendants move for an order directing the parties to arbitration pursuant to an agreement which Defendants contend requires Plaintiff to submit all employment-related disputes to binding arbitration, and requires the parties to arbitrate all disputes on an individual and not a class or collective basis.
On June 20, 2011, Plaintiff filed an opposition to the Motion for an Order Directing Arbitration, and a Request for Full Discovery and a Jury Trial. (ECF Nos. 43 & 43-1).
On June 27, 2011, Defendants filed a reply in support of the Motion for an Order Directing Arbitration, and an opposition to the Request for Full Discovery and a Jury Trial. (ECF Nos. 45 & 46).
On June 29, 2011 and July 5, 2011, Plaintiff filed a reply to Defendants' opposition to the Request for Full Discovery and a Jury Trial, and a response to the evidence submitted by Defendants in their reply in support of the Motion for an Order Directing Arbitration. (ECF Nos. 47 & 49).
On July 15, 2011, Plaintiff filed a Notice of Statement of Recent Authority Relevant to Defendants' Motion for an Order Directing Arbitration. (ECF No. 52).
On July 15, 2011, Defendants filed a Notice of Statement of Recent Authority Relevant to Defendants' Motion for an Order Directing Arbitration. (ECF No. 54).
On August 31, 2011, Plaintiff filed a second Notice of Statement of Recent Authority Relevant to Defendants' Motion for an Order Directing Arbitration. (ECF No. 55).
Plaintiff began working for Defendants on October 1, 2007. (Arnold Decl. ¶ 2, ECF No. 34-2).
On December 13, 2007, Plaintiff met with his supervisor, Barry Cohen, for approximately ten minutes and discussed the Defendants' "Bonus Incentive Agreement." (Grabowski Dep. at 25, ECF No. 45-1). At the end of the meeting, Plaintiff and Cohen each signed the Bonus Incentive Agreement. (Turai Decl., Ex. C at 51, ECF No. 45-1). The Bonus Incentive Agreement provides that, "[i]n consideration for Your continued employment, Your eligibility for a bonus incentive, and the mutual promises set forth in this Agreement, You and the Company hereby agree" to the terms set forth in the Bonus Incentive Agreement. Id. at 47. The Bonus Incentive Agreement sets forth the terms of Plaintiff's compensation and eligibility for "a bonus based upon the annual Gross Net Earnings of the San Diego office." Id. The Bonus Incentive Agreement contains a "Dispute Resolution" provision which states:
Id. The Dispute Resolution provision defines "Claims" to include: "all claims directly or indirectly related to Your recruitment, employment, compensation or benefits ... or termination of employment by the Company, including, but not limited to, alleged violations of ... the Fair Labor Standards Act ..., and any and all claims under federal, state, local laws or regulations (including all such laws and regulations pertaining to employment or prohibiting discrimination)." Id. at 48. The Dispute Resolution Provision concludes with the following statements:
Id.
On December 17, 2008, Plaintiff and Cohen each signed a second Bonus Incentive Agreement, which contained the same terms as the December 13, 2007 Bonus Incentive Agreement, except it provided that "[t]he Effective Date of this Agreement is January 01, 2009." (Turai Decl., Ex. D at 54, ECF No. 45-1).
On December 21, 2009, Plaintiff and Cohen each signed a third Bonus Incentive Agreement, which contained the same terms as the prior two Bonus Incentive Agreements, except it provided that "[t]he Effective Date of this Agreement is January 01, 2010." (Turai Decl., Ex. E at 58, ECF No. 45-1).
In February of 2010, Plaintiff resigned from his employment with Defendants. (Grabowski Dep. at 18, ECF No. 45-1).
Defendants contend:
(ECF No. 34-1 at 2).
Plaintiff contends:
(ECF No. 43 at 10 (citations omitted)).
Plaintiff contends that Defendants have "waived the right to seek to compel arbitration." (ECF No. 43 at 36).
In determining whether arbitration has been waived pursuant to California law, a court may consider the following factors:
Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1124 (9th Cir.2008) (quoting St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal.4th 1187, 1196, 8 Cal.Rptr.3d 517, 82 P.3d 727 (2003)). The waiver inquiry "must be conducted in light of the strong federal policy favoring enforcement of arbitration agreements." Id. at 1125 (quoting Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir.1986)). "Because waiver of the right to arbitration is disfavored, any party arguing waiver of arbitration bears a heavy burden of proof." Fisher, 791 F.2d at 694 (quotation omitted); see also Sobremonte v. Superior Court, 61 Cal.App.4th 980, 991, 72 Cal.Rptr.2d 43 (1998) ("Since arbitration is a strongly favored means of resolving disputes, courts must closely scrutinize any claims of waiver. A party claiming that the right to arbitrate has been waived has a heavy burden of proof.") (quotation omitted).
The Court of Appeals for the Ninth Circuit has held that a party does not act inconsistently with the right to arbitrate by failing to seek to enforce an arbitration agreement that would be unenforceable under then-existing law. See Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185, 1187 (9th Cir.1986) ("It is undisputed that defendants did not seek arbitration until after the close of discovery, nine months after their answer was filed.... [T]here could be no waiver here because there was no existing right to arbitration.... Defendants actively pursued their right to arbitrate as soon as they believed, in good faith, that they had such a right."); Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 697 (9th Cir.1986) ("Until the Supreme Court's decision in Byrd [v. Dean Witter Reynolds, Inc., 726 F.2d 552 (9th Cir.1984) ], the arbitration agreement in this case was unenforceable. Therefore, the Fishers have failed to demonstrate that Becker acted inconsistently with a known existing right to compel arbitration."). In this case, Defendants reasonably could have believed that, prior to AT & T Mobility, LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), California courts would have found the arbitration agreement to be unenforceable, particularly with regard to Plaintiff's claims pursuant to California's Private Attorney General Act, as discussed below.
The eight-month delay between Defendants' initial Answer and the Motion for an Order Directing Arbitration is less than the three-year delay in Fisher and the nine-month delay in Letizia. No dispositive motions have been filed, no motion for class certification has been filed, and no trial date has been set. The Court finds that the second and third waiver factors (i.e., "whether the litigation machinery has been substantially invoked" and "whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay") do not favor a finding of waiver. Cox, 533 F.3d at 1124 (quotation omitted). Defendants did not file a counterclaim, and there is no showing that Defendants obtained discovery which would not have been available in arbitration. Cf. id. (fourth and fifth waiver factors). Plaintiff contends that he has been prejudiced because "[m]ore hundred of hours of legal work and research has been expended by Plaintiff's attorneys to litigate the action for the last eight months, including responding to Defendant's discovery, appearing for deposition, conducting multiple depositions, filing motions, working out Rule 26 reports and schedules, along with working out a schedule [for] class certification and performing all of the work necessary to move for class certification." (ECF No. 43 at 39). The Court finds that Plaintiff has failed to establish that "the delay [in moving to compel arbitration] affected, misled, or prejudiced" Plaintiff within the meaning of the relevant caselaw. Cox, 533 F.3d at 1124; cf. Fisher, 791 F.2d at 698 ("[T]he [plaintiff]s make the surprising contention that they have been prejudiced because they `willingly incurred the substantial expense involved in this litigation in order to benefit from a full jury trial.' This wound was self-inflicted. The [plaintiff]s were parties to an agreement making arbitration of disputes mandatory. They violated that agreement by including their arbitrable claims in this action. Any extra expense incurred as a result of the [plaintiffs]' deliberate choice of an improper forum, in contravention of their contract, cannot be charged to [defendant].").
After considering the relevant factors, the Court finds that Defendants have not waived the right to compel arbitration.
The Federal Arbitration Act ("FAA") "was enacted ... in response to widespread judicial hostility to arbitration agreements." Concepcion, 131 S.Ct. at 1745 (citation omitted). Section 2 of the FAA states: "A written provision in any... 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. § 2. The Supreme Court has described Section 2 "as reflecting both a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract." Concepcion, 131 S.Ct. at 1745 (quotations omitted). "In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms." Id. at 1745-46 (citations omitted).
"The final phrase of § 2 ... permits arbitration agreements to be declared unenforceable `upon such grounds as exist at law or in equity for the revocation of
"Because the FAA mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed, the FAA limits courts' involvement to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (emphasis in original; quotation omitted). "If the response is affirmative on both counts, then the [FAA] requires the court to enforce the arbitration agreement in accordance with its terms." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.2000).
The FAA states that "[i]f the making of the arbitration agreement ... be in issue, the [district] court shall proceed summarily to the trial thereof." 9 U.S.C. § 4. "[T]o put such matters in issue, it is not sufficient for the party opposing arbitration to utter general denials of the facts on which the right to arbitration depends. If the party seeking arbitration has substantiated the entitlement by a showing of evidentiary facts, the party opposing may not rest on a denial but must submit evidentiary facts showing that there is a dispute of fact to be tried." Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir.1995) (citations omitted). "[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration." Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91-92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).
In this case, it is undisputed that the parties' arbitration agreement encompasses the dispute at issue. Plaintiff contends that the arbitration provisions in the Bonus Incentive Agreements are not valid and enforceable for the following reasons: (1) "the arbitration provision violates Section 7 of the [National Labor Relations Act]"; (2) "the arbitration provision violates [California Labor Code] § 206.5"; (3) "the arbitration provision is unenforceable because it was obtained by duress"; and (4) "the arbitration provision is unconscionable under Cal. Civil Code § 1670.5." (ECF No. 43 at 10-11).
Plaintiff contends Section 7 of the National Labor Relations Act ("NLRA") is violated by the following provision in the Bonus Incentive Agreements: "except as mutually agreed at the time between You and the Company, neither you nor the Company may bring any Claims combined with or on behalf of any other person or entity whether on a collective, representative, or class action basis or any other basis." (Turai Decl., Ex. C at 47, ECF No. 45-1; see also Turai Decl., Ex. D at
Section 7 of the NLRA provides that "[e]mployees shall have the right ... to engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection...." 29 U.S.C. § 157. Courts have "held that the `mutual aid or protection' clause protects employees from retaliation by their employers when they seek to improve working conditions through resort to administrative and judicial forums, and that employees' appeals to legislators to protect their interests as employees are within the scope of this clause." Eastex, Inc. v. Nat'l Labor Relations Bd., 437 U.S. 556, 565-66, 98 S.Ct. 2505, 57 L.Ed.2d 428 (1978).
Plaintiff fails to cite any authority stating that the enforcement of an arbitration agreement prohibiting class actions violates the NLRA. The only case cited by either party which addresses a contention similar to Plaintiff's in an analogous situation is Slawienski v. Nephron Pharmaceutical Corp., No. 10cv460, 2010 WL 5186622 (N.D.Ga. Dec. 9, 2010). The court stated:
Id. at *2 (quotations omitted).
The Court finds this reasoning persuasive. Plaintiff, who resigned from his employment with Defendants six months before filing suit, has failed to show that this suit implicates the "mutual aid or protection" clause, or that he suffered retaliation by Defendants. The Court finds that the NLRA does not operate to invalidate or otherwise render unenforceable the arbitration provisions of the Bonus Incentive Agreements signed by Plaintiff.
Plaintiff contends: "The arbitration agreement in this case violates [California Labor Code] § 206.5(a) because Plaintiff was required to release his right to bring collective class or representative actions ... in order to avoid forfeiture of earned wages.... California law therefore precludes enforcement of this unlawful arbitration agreement." (ECF No. 43 at 19).
Section 206.5 states:
Cal. Labor Code § 206.5(a). "Labor Code section 206.5 simply prohibits employers from coercing settlements by withholding wages concededly due. In other words, wages are not considered `due' and unreleasable under Labor Code section 206.5, unless they are required to be paid under Labor Code section 206. When a bona fide dispute exists, the disputed amounts are not `due'...." Watkins v. Wachovia Corp., 172 Cal.App.4th 1576, 1587, 92 Cal.Rptr.3d 409 (2009); see also Cal. Labor Code § 206(a) ("In case of a dispute over wages, the employer shall pay, without condition ... all wages, or parts thereof, conceded by him to be due, leaving to the employee all remedies he might otherwise be entitled to as to any balance claimed.").
Each Bonus Incentive Agreement states that "[t]he Effective Date of this Agreement is" after the date Plaintiff signed the agreement. At the time Plaintiff signed his first Bonus Incentive Agreement on December 13, 2007, he was provided a "Compensation Projection Summary," which showed Plaintiff's "Gross Net Bonus" and "Advance" bonus to be $0.00. (Turai Decl., Ex. C at 52, ECF No. 45-1). This evidence is sufficient to demonstrate that each Bonus Incentive Agreement concerned Plaintiff's eligibility for future bonuses, rather than already-earned bonuses.
Plaintiff submits a declaration which states: "It was my understanding that signing the documents was a necessary step to receiving the bonuses I had earned over the prior year." (Grabowski Decl. ¶ 9, ECF No. 44). Plaintiff does not explain the basis for his understanding that the Bonus Incentive Agreements related to earned bonuses. Plaintiff does not submit evidence that Cohen or any representative of Defendants told him that the agreements related to earned bonuses. Plaintiff testified in a deposition that Cohen "did not explicitly say that" Plaintiff had to sign the agreement in order to receive past, earned bonus amounts. (Grabowski Dep. at 54, ECF No. 45-1). Plaintiff testified that his "understanding [was] based on ... the tone of the meeting," and the fact that Cohen showed Plaintiff the company's financial results of the previous year and projections for the upcoming year, which formed the basis for the bonus amounts. Id. As discussed above, Plaintiff's understanding is contrary to the plain terms of the each agreement, which state that "the terms of this Agreement shall be effective from" January first through December thirty-first of the following year. (Turai Decl., Ex. C at 47, ECF No. 45-1; see also Turai Decl., Ex. D at 54, ECF No. 45-1; Turai Decl., Ex. E at 58, ECF No. 45-1). Even if Plaintiff's declaration and deposition were sufficient to create a genuine dispute as to whether the Bonus Incentive Agreements related to already-earned bonuses (as opposed to future bonuses), "[w]hen a bona fide dispute exists, the disputed amounts are not `due'" within the meaning of California Labor Code § 206.5. Watkins, 172 Cal.App.4th at 1587, 92 Cal.Rptr.3d 409. Plaintiff's declaration is insufficient to warrant a trial on the issue of whether the Bonus Incentive Agreements violate California Labor Code § 206.5(a).
The Court finds that the Bonus Incentive Agreements do not violate California Labor Code § 206.5.
Plaintiff contends that his "execution of the arbitration agreement was obtained as the result of duress and undue influence
As discussed above, Plaintiff has failed to introduce sufficient evidence for a fact-finder to conclude that Plaintiff was required to sign the Bonus Incentive Agreements in order to avoid a forfeiture of "wages due" pursuant to California Labor Code § 206.5. Accordingly, Plaintiff has failed to show that the Bonus Incentive Agreements were obtained by duress or undue influence.
Plaintiff contends that the arbitration provisions in the Bonus Incentive Agreements are unconscionable.
"[I]n assessing whether an arbitration agreement or clause is enforceable, the Court should apply ordinary state-law principles that govern the formation of contracts." Davis v. O'Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir.2007) (quotation omitted). Under California law, a contractual clause is unenforceable if it is both procedurally and substantively unconscionable. See id. (citing, inter alia, Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000)).
A court determination that "the arbitration agreement contains ... flawed provisions does not necessarily mean that the entire [arbitration agreement] is substantively unconscionable." Davis, 485
The "[p]rocedural unconscionability analysis focuses on `oppression' or `surprise.'" Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir.2006) (quoting Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 853, 113 Cal.Rptr.2d 376 (2001)). "`Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice,' while `[s]urprise involves the extent to which the supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them.'" Id. (quoting Flores, 93 Cal.App.4th at 853, 113 Cal.Rptr.2d 376).
Plaintiff contends:
(ECF No. 43 at 22).
Plaintiff has presented evidence that the agreements were presented on a "take it or leave" basis, with little or no option for the employee to negotiate. In light of the Supreme Court's decision in Conception, however, the Court does not find that the adhesive nature of the agreement weighs strongly in favor of procedural unconscionability. Cf. Conception, 131 S.Ct. at 1750 (holding that California's "Discover Bank [v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005) ] rule" is preempted by the FAA in part because "[t]he rule is limited to adhesion contracts, but the times in which consumer contracts were anything other than adhesive are long past").
As discussed above, the Court finds that Plaintiff has failed to adequately demonstrate that "earned bonus wages are being withheld until the agreement is signed." (ECF No. 43 at 22).
The arbitration provision was not hidden in the contract; it is the longest provision in the relatively short Bonus Incentive Agreement. The Bonus Incentive Agreement signed on December 13, 2007 contains two pages of text, and the Bonus Incentive Agreements signed the following two years are each a single page. However, there is no evidence that Plaintiff was provided with a copy of "the Company's Employment Dispute Mediation/Arbitration Procedure" at the time he was asked to sign the agreement. (Turai Decl., Ex. C at 47, ECF No. 45-1). According to the Bonus Incentive Agreement, the Company's Employment Dispute Mediation/Arbitration Procedure governs any mediation or arbitration pursuant to the agreement, and is "available on the Company Intranet." Id. By the time Plaintiff signed the second and third Bonus Incentive Agreements in December 2008 and December 2009, he would have had ample opportunity to review "the Company's Employment Dispute Mediation/Arbitration Procedure," but the failure of Defendants to supply Plaintiff with this document at the time he signed the agreements adds an element of surprise, and therefore procedural unconscionability. See Nagrampa, 469 F.3d at 1280.
The Court finds that the arbitration agreement contains elements of procedural
"Substantive unconscionability relates to the effect of the contract or provision. A lack of mutuality is relevant in analyzing this prong. The term focuses on the terms of the agreement and whether those terms are so one-sided as to shock the conscience." Davis, 485 F.3d at 1075 (quotation omitted) (emphasis in original). "A determination of substantive unconscionability involves whether the terms of the contract are unduly harsh or oppressive." Id. (quotation omitted).
Plaintiff contends that the arbitration agreement is substantively unconscionable because (a) "the agreement is not bilateral"; (b) "the rules of the agreement are drafted and subject to unilateral revision by Defendant"; (c) "the agreement invokes a distant venue in Minnesota"; (d) "the agreement calls for application of Minnesota law"; (e) "the agreement unfairly limits discovery"; (f) "the agreement changes the burden of proof"; (g) "the agreement effectively imposes one-sided confidentiality"; (h) "the agreement imposes prohibitive arbitration expenses on employees"; and (i) "the agreement shifts liability for attorneys' fees." (ECF No. 43 at 24-33).
Plaintiff contends: "The agreement to arbitrate is not bilateral or mutual because the Defendant has carved out the claims commonly brought by employers and reserved these claims for judicial resolution, whereas the claims commonly brought by employees are forced into arbitration." (ECF No. 43 at 24-25).
The Bonus Incentive Agreement states:
(Turai Decl., Ex. C at 48, ECF No. 45-1).
"California law allows an employer to preserve a judicial remedy for itself if justified based upon a `legitimate commercial need' or `business reality.'" Davis, 485 F.3d at 1080 (quoting, inter alia, Armendariz, 24 Cal.4th at 117, 99 Cal.Rptr.2d 745, 6 P.3d 669 ("[A] contract can provide a `margin of safety' that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need without being unconscionable")). However, "the `business realities' that create the special need for such an advantage [must be] explained in the contract itself, ... [or] it must be factually established." Armendariz, 24 Cal.4th at 117, 99 Cal.Rptr.2d 745, 6 P.3d 669 (quotation omitted). Absent such a showing, "[w]here the party with stronger bargaining power has restricted the weaker party to the arbitral forum, but reserved for itself the ability to seek redress in either an arbitral or judicial forum, California courts have found a lack of mutuality supporting substantive unconscionability." Nagrampa, 469 F.3d at 1286 (citing Armendariz, 24 Cal.4th at 119, 99 Cal.Rptr.2d 745, 6 P.3d 669).
In light of Nagrampa, the Court finds that the "carve out" provision stating that
Plaintiff contends that the agreement is substantively unconscionable because "the agreement to arbitrate is controlled by rules created by the Defendant, which rules the Defendant can change or revise to Defendant's advantage." (ECF No. 43 at 27). Plaintiff cites to Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003), which "conclude[d] that [a] provision affording [the employer] the unilateral power to terminate or modify the contract is substantively unconscionable." Id. at 1179.
Plaintiff does not cite to any provision in the Bonus Incentive Agreement or the Employment Dispute Mediation/Arbitration Procedure which permits Defendants to unilaterally modify change or revise the procedures. The Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, "Revision of Employment Dispute Arbitration Procedure," which states in its entirety: "The Parties to a Dispute for which the Employment Dispute Arbitration Procedure has been initiated may agree in writing to vary the Employment Dispute Arbitration Procedure at any time before the Arbitrator gives copies of the Award to both Parties." (Arnold Decl., Ex. B at 43; ECF No. 34-2).
The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement is substantively unconscionable because Defendants are permitted to unilaterally change the arbitration rules.
Plaintiff contends: "[T]he venue of the arbitration proceeding is unfairly one-sided because the venue is Minnesota. Minnesota is solely advantageous to Defendant, which maintains headquarters in Minnesota, and is unfair to Plaintiff who worked in California, has claims under California law, and has no relationship with Minnesota." (ECF No. 43 at 27).
The Employment Dispute Mediation/Arbitration Procedure provides that "[u]nless the Parties otherwise agree or the Arbitrator otherwise directs for good reason, any hearing shall be conducted and deemed held in [Hennepin County, Minnesota], at a place convenient to the Parties as so designated by the Arbitrator." (Arnold Decl., Ex. B at 40; ECF No. 34-2). In the briefing on the Motion to Compel, Defendants "agree that the arbitration hearing in the instant matter should be held in San Diego, California." (ECF No. 45 at 16).
The Court finds that the clear terms of the Employment Dispute Mediation/Arbitration Procedure provide for a Minnesota venue only if the parties do not otherwise agree or the arbitrator does not otherwise direct. By filing suit in this Court, Plaintiff has effectively chosen a San Diego venue, as has Defendants. According to the terms of the Employment Dispute Mediation/Arbitration Procedure, in this situation, the venue of any arbitration would be San Diego, and not Minnesota.
The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement is substantively unconscionable because of the venue provision in the Employment Dispute Mediation/Arbitration Procedure.
Plaintiff contends: "The agreement unfairly deprives Plaintiff of the protections of California law by making the governing law the `law of the state of venue' which is Minnesota." (ECF No. 43 at 29).
The Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, "Applicable Law and Burden of Persuasion," which states: "The principles of applicable substantive common, decisional and statutory law shall control the disposition of each Dispute. Each Party bears the burden of persuasion on any claim or counterclaim raised by that Party in accordance with the principles of applicable common, decisional and statutory law." (Arnold Decl., Ex. B at 40; ECF No. 34-2). The provision of the Employment Dispute Mediation/Arbitration Procedure quoted by Plaintiff states: "Any proceeding pursuant to the Employment Dispute Mediation/Arbitration Procedure is deemed to be an arbitration proceeding subject to the Federal Arbitration Act, 9 U.S.C. §§ 1-16, if applicable, to the exclusion of any state law inconsistent therewith; or, if the FAA is not applicable, to the law of the state of venue." Id. at 42. As discussed above, the "state of venue" in this case would be California.
The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement is substantively unconscionable because of the choice of law provision in the Employment Dispute Mediation/Arbitration Procedure.
Plaintiff contends: "[D]iscovery is unfairly limited by the Defendant's rules. The agreement and rules limit discovery to no written discovery and only one deposition. Thus, the agreement limits the amount of discovery from what would be available under the Fed. Rules of Civil Procedure. Moreover, the Defendant is only required to produce documents which the Defendant deems relevant and material." (ECF No. 43 at 30).
The Employment Dispute Mediation/Arbitration Procedure contains only one provision related to discovery, which states:
(Arnold Decl., Ex. B at 40; ECF No. 34-2 (emphasis added)). The discovery provision of the Employment Dispute Mediation/Arbitration Procedure does not limit the employee to only one deposition, and it names the Arbitrator as the decisionmaker on whether discovery should be granted or denied.
The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement is substantively unconscionable because of the discovery provision in the Employment Dispute Mediation/Arbitration Procedure.
Plaintiff contends that, "[u]nder California law and the Labor Code, the employee is presumed to be non-exempt and the employer bears the burden of proving that
As discussed above, the Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, "Applicable Law and Burden of Persuasion," which states: "The principles of applicable substantive common, decisional and statutory law shall control the disposition of each Dispute. Each Party bears the burden of persuasion on any claim or counterclaim raised by that Party in accordance with the principles of applicable common, decisional and statutory law." (Arnold Decl., Ex. B at 40; ECF No. 34-2). This provision places the burden of persuasion "in accordance with the principles of applicable common, decisional and statutory law." Id.
The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement is substantively unconscionable because of the burden of proof provision in the Employment Dispute Mediation/Arbitration Procedure.
Plaintiff contends: "[T]he Defendant's rules impose confidentiality which unfairly favors Defendant. While arbitration normally is not open to the public, the Defendant's rules go much further. Defendant's rules require that the record of the proceedings be confidential under threat of a sanction order by the arbitrator." (ECF No. 43 at 32).
The Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, "Confidentiality," which states:
(Arnold Decl., Ex. B at 41; ECF No. 34-2).
In Davis, the Court of Appeals for the Ninth Circuit stated that, under California law, "[c]onfidentiality by itself is not substantively unconscionable," but the employer's "confidentiality clause ... is written too broadly" and "unconscionably favors [the employer]," when the clause at issue "would prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee's case." Davis, 485 F.3d at 1078-79 ("The clause precludes even mention to anyone `not directly involved in the mediation or arbitration' of `the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration' or even `the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.'"). In this case, the confidentiality provision in the Employment Dispute Mediation/Arbitration Procedure is broader than what the court in Davis indicated would be conscionable. Cf. id. at 1079 (noting that "[t]he parties to any particular arbitration, especially in an employment dispute, can always agree to
The Court finds that the confidentiality provision in the arbitration agreement is substantively unconscionable under California law.
Plaintiff contends that "the agreement imposes prohibitive arbitration expenses on employees." (ECF No. 43 at 33).
The Employment Dispute Mediation/Arbitration Procedure contains an "Expenses" provision which states:
(Arnold Decl., Ex. B at 41; ECF No. 34-2). Defendants submit undisputed evidence that Plaintiff earned approximately $130 a day when he resigned. (Turai Decl., Ex. E at 59, ECF No. 45-1). Accordingly, the Employment Dispute Mediation/Arbitration Procedure provides that, "[u]nless precluded by" California law, the maximum amount Plaintiff would have to pay in arbitration expenses is $260. Id. This amount is less than the $350 filing fee Plaintiff paid to initiate this judicial action. (ECF No. 1). Plaintiff presents no authority indicating that a requirement that an employee pay $260 in arbitration expenses is substantively unconscionable under California law.
The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement is substantively unconscionable because of the expenses provision in the Employment Dispute Mediation/Arbitration Procedure.
Plaintiff contends:
(ECF No. 43 at 33-34 (citations omitted)).
The Employment Dispute Mediation/Arbitration Procedure states:
(Arnold Decl., Ex. B at 41-42; ECF No. 34-2).
Defendants concede that the arbitration agreement "potentially offers Defendants attorneys fees for which they might not otherwise be eligible" under California law. (ECF No. 45 at 17). In light of this concession, the Court finds that the attorneys' fee provision in the Employment Dispute Mediation/Arbitration Procedure is substantively unconscionable under California law. Cf. Armendariz, 24 Cal.4th at 110-11, 99 Cal.Rptr.2d 745, 6 P.3d 669 ("[W]e conclude that when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process 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.") (emphasis in original). However, the degree of unconscionability is low, given the ability of a court to sanction a party in the amount of the opposing party's attorney's fees for frivolous, harassing, or unreasonable filings. Cf. 28 U.S.C. § 1927; Fed.R.Civ.P. 11.
Defendants contend:
(ECF No. 45 at 17). Plaintiff contends that "[t]he unconscionability so permeates that agreement that severance is not an option." (ECF No. 43 at 35).
A court determination that "the arbitration agreement contains ... flawed provisions does not necessarily mean that the entire [arbitration agreement] is substantively unconscionable." Davis, 485 F.3d at 1084. The court next considers whether it is "possible to sever the [unconscionable] provision." Id. (citing Cal. Civ.Code § 1670.5(a) ("If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.")).
In Armendariz, the California Supreme Court stated that "the statute [i.e., Cal. Civ.Code § 1670.5] appears to give a trial court some discretion as to whether to sever or restrict the unconscionable provision or whether to refuse to enforce the entire agreement. But it also appears to contemplate the latter course only when an agreement is permeated by unconscionability." Armendariz, 24 Cal.4th at 122, 99 Cal.Rptr.2d 745, 6 P.3d 669. The court stated:
Id. at 124, 99 Cal.Rptr.2d 745, 6 P.3d 669; see also Davis, 485 F.3d at 1084 ("The question is whether the offending clause or clauses are merely `collateral' to the main purpose of the arbitration agreement, or whether the [entire arbitration agreement] is `permeated' by unconscionability.") (quoting Armendariz, 24 Cal.4th at 124, 99 Cal.Rptr.2d 745, 6 P.3d 669). In Davis, the Court of Appeals for the Ninth Circuit decided that, while the arbitration agreement under consideration had a lesser degree of unconscionability as those considered in Ingle or in Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (2002), the agreement nonetheless could not be cured by severance when the agreement did not have a severability clause, was procedurally unconscionable, and contained four substantively unconscionable terms which "cannot be stricken or excised without gutting the agreement." Id.
In this case, unlike in Davis, the Bonus Incentive Agreement contains a severability clause. (Turai Decl., Ex. C at 48, ECF No. 45-1 ("If any portion of this dispute resolution provision is determined to be void or unenforceable, then the remaining portions of this Agreement shall continue in full force and effect, and this Agreement may be modified to the extent necessary, consistent with its fundamental purpose and intent, in order to make it enforceable.")). As discussed above, the arbitration agreement and the incorporated Employment Dispute Mediation/Arbitration Procedure have an element of procedural unconscionability and contain three substantively unconscionable provisions (the "carve out" provision stating that the Dispute Resolution Agreement does not apply to "any claims by the Company that includes a request for injunctive or equitable relief"; the confidentiality provision; and the attorney's fees provision). Collectively, the three substantively unconscionable provisions in this case have a lower degree of unconscionability than the four substantively unconscionable provisions at issue in Davis. Cf. Davis, 485 F.3d at 1082 (holding that the four substantively unconscionable provisions included a "carve out" provision, a confidentiality provision, an "all-inclusive bar to administrative actions ... [which] is contrary to U.S. Supreme Court and California Supreme Court precedent," and a "notice provision" which functioned as "a substantively-unconscionable shortened statute of limitations"). The Court finds that, given "the liberal federal policy favoring arbitration," Concepcion, 131 S.Ct. at 1745, the three substantively unconscionable provisions may be severed from the agreement, and that the entire arbitration agreement is not "permeated by unconscionability." Davis, 485 F.3d at 1084 (quotation omitted). The three substantively unconscionable provisions, discussed above, are severed from the arbitration agreement pursuant to California Civil Code § 1670.5. The Court finds that, after the substantively unconscionable provisions are severed, the arbitration agreement is enforceable.
After the conclusion of briefing on the pending motions, each party filed a Notice of Statement of Recent Authority Relevant to Defendants' Motion for an Order Directing Arbitration. (ECF Nos. 52, 54).
Id. at 503, 128 Cal.Rptr.3d 854.
Defendants attached to their Notice Quevedo v. Macy's, Inc., 798 F.Supp.2d 1122, No. CV 09-1522, 2011 WL 3135052 (C.D.Cal. June 16, 2011). In Quevedo, the court held that Concepcion compelled enforcement of arbitration agreements even where the agreements barred an employee from bringing a representative Private Attorney General Act claim. The court stated:
Id. at 1142, at *17.
Plaintiff's Third Amended Complaint alleges a representative action pursuant to
The Motion for an Order Directing Arbitration is granted, as discussed above.
When Plaintiff filed his opposition to the Motion for an Order Directing Arbitration, Plaintiff also filed the Motion for Discovery and Jury Trial. (ECF No. 43-1). Plaintiff contends: "Plaintiff should be able to discover the Defendant's processes and procedures for presenting the [Bonus Incentive Agreement]s to all of the putative class members, including whether anyone [was] able to negotiate the terms of the dispute resolution provision, whether anyone attempted to refuse signing the agreement along with corresponding repercussions, and the extent to which anyone suffered the forfeiture of bonus wages due to their refusal to sign the BIA." (ECF No. 47 at 5).
Pursuant to California law, "[t]o determine whether [an] arbitration agreement is procedurally unconscionable the court must examine the manner in which the contract was negotiated and the circumstances of the parties at that time." Ingle, 328 F.3d at 1171 (quotation omitted). On June 2, 2011, the Court granted Plaintiff an extension of time to oppose the Motion for an Order Directing Arbitration to allow Plaintiff "to conduct limited discovery as to the facts concerning the negotiation of the arbitration contract and the circumstances of the parties at the time the contract was signed." (ECF No. 37 at 2). Plaintiff has not shown that Defendants failed to adequately respond to Plaintiff's discovery requests regarding "the manner in which the contract was negotiated and the circumstances of the parties at that time." Ingle, 328 F.3d at 1171. The parties filed excerpts from the depositions of Cohen and Plaintiff, who each testified regarding the circumstances surrounding the signing of the Bonus Incentive Agreements. As discussed above, based upon the evidence submitted by the parties (including the depositions of Cohen and Plaintiff, and Plaintiff's Declaration), the Court has not found that there exists a genuine issue of material fact which would warrant a trial regarding the enforceability of the arbitration agreements signed by Plaintiff. To the extent that Plaintiff requests discovery related to the execution of arbitration agreements by persons other than Plaintiff, the Court finds that such discovery is not relevant to the issues to be decided in the motion for an order directing Plaintiff to arbitration. Cf. Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 852, 113 Cal.Rptr.2d 376 (2001) (holding that there is no collateral estoppel regarding "virtually identical" arbitration agreements, because they "were signed by different parties under different circumstances").
IT IS HEREBY ORDERED that the Motion for an Order Directing Arbitration is GRANTED, as discussed above. (ECF No. 34). The Motion for Discovery and Jury Trial is DENIED. (ECF No. 43-1).
The Clerk of the Court shall administratively close this case without prejudice to any party moving to have the case reopened for good cause.
