MARGARET M. MORROW, UNITED STATES DISTRICT JUDGE
On November 12, 2014, CarMax Auto Superstores California LLC ("CarMax") filed a petition for an order compelling arbitration under § 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4; it also sought a stay of state court proceedings arising out of its dispute with Rosella Michelle Hernandez.
CarMax alleges that, beginning in 2002, it employed Hernandez as a Management Assistant.
The DRA requires the applicant to "file a claim for arbitration within one (1) year of the day on which [she] know[s] or, through reasonable diligence, should have known of the facts giving rise to [the] claim." It requires that the arbitration be conducted in accordance with CarMax's Dispute Resolution Rules and Procedures ("DRRP").
Hernandez was purportedly given a copy of the DRRP before signing the DRA.
On September 25, 2014, Hernandez sued CarMax and Alan Hanna, one of her supervisors, in Orange Superior Court.
CarMax alleges that, prior to filing the state court complaint, Hernandez's attorneys told her in writing of the DRA and her obligation to submit the claims in the complaint to binding arbitration.
CarMax requests that the court take judicial notice of a docket entry in Hernandez's state court action in considering its opposition to Hernandez's motion to dismiss the petition.
A court can consider evidence in deciding a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, including documents that can be judicially noticed. See, e.g., Villegas v. United States, 963 F.Supp.2d 1145, 1158 (E.D.Wash.2013) ("A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction permits a court to consider `affidavits or any other evidence properly before the court,' even material extrinsic to the pleadings," quoting Association of Am. Medical Colleges v. United States, 217 F.3d 770, 778 (9th Cir.2000)); Ellis v. J.P. Morgan Chase & Co., 950 F.Supp.2d 1062, 1072-73 (N.D.Cal.2013) (taking judicial notice of various documents in deciding defendant's Rule 12(b)(1) motion to dismiss); Smith v. Kim, No. C 05-01439 JK, 2006 WL 1320483, *2-3 (N.D.Cal. May 15, 2006) (same). Thus, in deciding Hernandez's motion to dismiss, the court can consider material that can be judicially noticed under Rule 201 of the Federal Rules of Evidence. FED. R. EVID 201. Under Rule 201, the court can take judicial notice of "[o]fficial acts of legislative, executive, and judicial departments of the United States," and "[f]acts and propositions that are not
As noted, CarMax requests that the court take notice of an order issued in the parallel state court proceeding.
CarMax argues that Hernandez's motion should be denied because she failed to comply with Local Rule 7-3.
When a party fails to comply with Local Rule 7-3, the court can, in its discretion, refuse to consider the motion. See, e.g., Singer v. Live Nation Worldwide, Inc., No. SACV 11-0427 DOC (MLGx), 2012 WL 123146, *2 (C.D.Cal. Jan. 13, 2012) (denying a motion for summary judgment because the moving party failed to comply with Local Rule 7-3); Alcatel-Lucent USA, Inc. v. Dugdale Communications, Inc., No. CV 09-2140 PSG (JCx), 2009 WL 3346784, *4 (C.D.Cal. Oct. 13, 2009) ("The meet and confer requirements of Local Rule 7-3 are in place for a reason, and counsel is warned that nothing short of strict compliance with the local rules will be expected in this Court. Thus, the
In her reply, Hernandez concedes that she did not meet and confer with CarMax prior to filing the motion to dismiss. She asserts, however, that "the parties subsequently met and conferred, and [she] filed an amended notice [of motion] following" that meeting.
In its discretion, therefore, the court could deny Hernandez's motion. Failure to comply with the Local Rules does not automatically require the denial of a party's motion, however, particularly where the non-moving party has suffered no apparent prejudice as a result of the failure to comply. See ECASH Techs., Inc. v. Guagliardo, 35 Fed.Appx. 498, 500 (9th Cir. May 13, 2002) (Unpub.Disp.) ("The Central District of California's local rules do not require dismissal of appellee's motions for failure to satisfy the meet-and-confer requirements" (citations omitted)); Brodie v. Board of Trustees of California State University, No. CV 12-07690 DDP (AGRx), 2013 WL 4536242, *1 (C.D.Cal. Aug. 27, 2013) (considering the merits of a motion despite counsel's failure to comply with Local Rule 7-3); Williams-Ilunga v. Gonzalez, No. CV 12-08592 DDP (AJWx), 2013 WL 571795, *4 (C.D.Cal. Feb. 13, 2013) (same); Reed v. Sandstone Properties, L.P., No. CV 12005021 MMM (VBKx), 2013 WL 1344912, *6 (C.D.Cal. Apr. 2, 2013) (same). The court therefore elects to consider the merits of Hernandez's motion.
Federal courts are courts of limited jurisdiction, and may adjudicate only those cases authorized by the Constitution and by Congress. See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); Attorneys Trust v. Videotape Computer Products, Inc., 93 F.3d 593, 594-95 (9th Cir.1996). "The presumption is that a federal court lacks jurisdiction in a particular case until it has been demonstrated that jurisdiction over the subject matter exists." 13 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE & PROCEDURE: JURISDICTION 2d § 3522 n. 3 (1984). Plaintiffs bear the burden of proving that the court has subject matter jurisdiction to hear the action. See, e.g., Sopcak v. Northern Mountain Helicopter Serv., 52 F.3d 817, 818 (9th Cir.1995); Stock West, Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir.1989).
A defendant mounting a Rule 12(b)(1) challenge to the court's jurisdiction may do so either on the face of the pleadings or by presenting extrinsic evidence for the court's consideration. See Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004) ("A Rule 12(b)(1) jurisdictional attack may be facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th
CarMax's petition seeks to compel arbitration under the Federal Arbitration Act.
Under 28 U.S.C. § 1332(a), "[t]he district courts . . . have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000.00, exclusive of interest and costs, and is between . . . citizens of different states." 28 U.S.C. § 1332(a); see also Matheson v. Progressive Speciality Ins. Co., 319 F.3d 1089, 1090 (9th Cir.2003) ("[J]urisdiction founded on [diversity] requires that the parties be in complete diversity and the amount in controversy exceed $75,000"). In any case where subject
Although neither party disputes that the amount in controversy requirement is satisfied, the court nonetheless evaluates the allegations of the petition to determine whether more than $75,000 is at issue in this case. Generally, the amount in controversy claimed by a plaintiff in good faith will be determinative of the jurisdictional amount, unless it appears to a legal certainty that the claim is for less than $75,000. See St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938). "When a petition to compel arbitration is involved, `the amount at stake in the underlying litigation . . . is the amount in controversy for purposes of diversity jurisdiction.'" L.A. Fitness, 2009 WL 3676272, at *3 (quoting Theis Research, Inc. v. Brown & Bain, 400 F.3d 659, 662 (9th Cir.2005)). In the petition, CarMax alleges that the amount in controversy exceeds $75,000, citing the prayer for damages in Hernandez's state court complaint; Hernandez seeks no less than $5,000,000 in damages for Car-Max's alleged violations of state law.
The court next evaluates whether there is complete diversity of citizenship between the parties, i.e., whether Hernandez has citizenship different than all defendants. See Strawbridge, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435; see also Caterpillar, Inc., 519 U.S. at 68 n. 3, 117 S.Ct. 467. Hernandez does not dispute that her citizenship is diverse from CarMax's.
Id. (citing We Care Hair Development, Inc. v. Engen, 180 F.3d 838, 842 (7th Cir. 1999); MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 945 (11th Cir.1999); Doctor's Associates, Inc. v. Distajo, 66 F.3d 438, 445-46 (2d Cir.1995) (emphasis added)).
As in Najd, it is undisputed that the citizenship of the parties before the court, i.e., the parties to CarMax's arbitration petition, is diverse. It is of no consequence that Hannah, who is not a party to the petition, is a California citizen; under Najd, "the citizenship of someone not before the court[, i.e., Hannah,] is irrelevant to the jurisdictional inquiry."
Hernandez asserts that Najd is no longer good law in light of the Supreme Court's decision in Vaden v. Discover Bank, 556 U.S. 49, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009).
Hernandez relies on the Supreme Court's statement in Vaden that the district court should "look through a § 4 petition" to consider the "substantive conflict between the parties" as support for her argument that the court must consider the citizenship of all parties named in a parallel state court action to determine if it can exercise diversity jurisdiction over CarMax's 4 petition. The court is not persuaded.
Most fundamentally, Hernandez's argument ignores the limited scope of the Supreme Court's holding in Vaden. The Eighth Circuit's decision in Northport Health Services of Arkansas, LLC v. Rutherford, 605 F.3d 483 (8th Cir.2010), is particularly instructive on this point. There, the court addressed the argument Hernandez makes here—that the Vaden "look through" directive applies when the court is determining whether it has diversity jurisdiction to entertain a § 4 petition. Rutherford, 605 F.3d at 488-91. After extensive analysis of Vaden and relevant authorities, the court concluded that the "look through" approach mandated by the Supreme Court in federal question cases does not "appl[y] in deciding diversity of citizenship . . . § 4 disputes." Id. at 489. In reaching this conclusion, the Rutherford court made several important observations.
First, it addressed "[t]he fundamental flaw in the [ ] contention that Vaden implicitly overruled prior circuit court diversity jurisdiction decisions" concluding that a court can consider only the citizenship of the parties to the § 4 petition. The court stated "that [the argument] ignore[d] the underlying facts and the Supreme Court's decision in Moses H. Cone [Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)]. In Moses H. Cone, the Supreme Court observed that the court had diversity jurisdiction over a § 4 petition and affirmed an order compelling arbitration, notwithstanding the fact that a "non-diverse party [] made the parallel state court action [underlying the petition] non-removable." See Rutherford, 605 F.3d at 490 (citing Moses H. Cone, 460 U.S. at 7 & n. 4, 103 S.Ct. 927). The Eighth Circuit
Second, the Eighth Circuit noted that, although the Supreme Court described at length "the `curious practical consequences' of the no-look-through approach to federal question issues," it made no mention of similar concerns associated with employing such an approach where diversity jurisdiction was invoked. Id. It found this significant, as the Vaden Court "adopted the look-through approach to expand the universe of § 4 cases in which there will be an independent basis of federal question jurisdiction [so that it would] be more compatible with diversity jurisdiction cases (i.e., Moses H. Cone)." Adopting the "look-through approach" for diversity jurisdiction, the Rutherford court observed, would run counter to the Supreme Court's focus on expanding § 4 jurisdiction because it would "severely contract[ ] pre-existing § 4 diversity jurisdiction" under Moses H. Cone. Id. at 490-91.
The court agrees with the Eighth Circuit's reasoned analysis, and concludes that the Supreme Court's holding in Vaden is not so expansive as to mandate that a district court adopt the "look-through approach" to determine whether it has diversity jurisdiction to hear a § 4 petition. In reaching this conclusion, the court finds particularly significant the expressly limited nature of the Vaden Court's approval of the "look-through approach" to assess the existence of federal question jurisdiction. See Vaden, 556 U.S. at 62, 129 S.Ct. 1262 ("Attending to the language of the FAA and the above-described jurisdictional tenets, we approve the "look through" approach to this extent: A federal court may "look through" a § 4 petition to determine whether it is predicated on an action that `arises under' federal law'" (emphasis added)). The court is also cognizant of the well-established principle that the Supreme Court "does not normally overturn, or [ ] dramatically limit, earlier authority[, i.e., Moses H. Cone] sub silentio." Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 18, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000).
The authority Hernandez cites, moreover, does not support her argument to the contrary. Each case cites Vaden only for the general proposition that "a federal court has jurisdiction over a petition to compel arbitration if the federal court would have jurisdiction over the underlying substantive dispute." See Countrywide Home Loans, Inc. v. Mortgage Guar. Ins. Corp., 642 F.3d 849, 855 (9th Cir. 2011); Geographic Expeditions, Inc., 599 F.3d at 1106; In re Wade, No. 14-CV-03453-LHK, 2014 WL 5088258, *4 (N.D.Cal. Oct. 9, 2014). None of these decisions provides any substantive support for Hernandez's argument, however. In Countrywide Home Loans and Geographic Expeditions, Inc., the Ninth Circuit concluded that there was diversity jurisdiction to hear § 4 petitions because there was complete diversity of citizenship among the parties; in neither decision did the court indicate that the parties to the federal action were different than the parties to the underlying state action. Nor did either address whether, assuming this was the case, complete diversity should be assessed by looking to the citizenship of the parties to the underlying state action. See Countrywide Home Loans, 642 F.3d at 855 n.2 (it is undisputed that the "parties are completely diverse"); Geographic Ex-peditions,
In re Wade is similarly of little help; the court notes in summary fashion that "[it was] simply not the case [t]here" that "the matter involve[d] a question of federal law, or [that] it involve[d] diverse parties." In re Wade, 2014 WL 5088258, at *4. Finally, Anaya v. Lowe's Home Centers, LLC, No. 14cv1260 L(BGS), 2014 WL 2199878, *1 (S.D.Cal. May 27, 2014), is clearly distinguishable, as it addressed removal jurisdiction rather than a petition to compel arbitration under the FAA; the decision makes no reference whatsoever to Vaden.
In sum, for the reasons stated, the court declines to extend the limited approval of the "look-through" approach announced in Vaden to the question of diversity jurisdiction in this case.
The Federal Arbitration Act ("FAA") provides that written arbitration agreements "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. Section 4 of the FAA, which governs petitions to compel arbitration, provides that
In enacting the FAA, Congress "declared a national policy favoring arbitration" that was intended to reverse centuries of judicial hostility to arbitration agreements. Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); see Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 475 n. 8 (9th Cir.1991) ("The Federal Arbitration Act of 1925 . . . reflects the strong Congressional policy favoring arbitration by making such clauses `valid, irrevocable, and enforceable,'" quoting 9 U.S.C. § 2); Arreguin v. Global Equity Lending, Inc., No. C 07-06026 MHP, 2008 WL 4104340, *4 (N.D.Cal. Sept. 2, 2008) (stating that the FAA "is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary,'" quoting Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927). As a result, the FAA requires that courts "rigorously enforce agreements to arbitrate." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); id. at 218, 105 S.Ct. 1238 ("By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed," citing 9 U.S.C. §§ 3, 4 (emphasis original)); see also Moses H. Cone, 460 U.S. at 22-23, 103 S.Ct. 927.
Despite this strong policy favoring arbitration, "`arbitration is a matter of contract and a party cannot be required
A district court's "role under the [FAA] is . . . limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. If the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms." Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1130 (9th Cir.2000) (citations omitted).
When evaluating whether a party is bound by an arbitration agreement, "the liberal federal policy regarding the scope of arbitrable issues is inapposite." Comer v. Micor, Inc., 436 F.3d 1098, 1104 n. 11 (9th Cir.2006); Chastain v. Union Security Life Insurance Co., 502 F.Supp.2d 1072, 1075 (C.D.Cal.2007) (where the issue is whether parties are bound by an arbitration agreement, "the Court is not bound by [the] . . . policy encouraging arbitration in reviewing plaintiffs' motion"). The issue instead is determined according to ordinary principles of contract law. Waffle House, 534 U.S. at 293, 122 S.Ct. 754 (in deciding whether a valid agreement to arbitrate exists, federal courts must "place arbitration agreements on equal footing with other contracts"); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir.2003) ("[T]o evaluate the validity of an arbitration agreement, federal courts `should apply ordinary state-law principles that govern the formation of contracts,'" quoting First Options of Chicago, 514 U.S. at 944, 115 S.Ct. 1920)); see also Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002) ("[The] federal policy favoring arbitration does not apply to the determination of whether there is a valid agreement to arbitrate between the parties; instead `[o]rdinary contract principles determine who is bound,'" quoting Daisy Manufacturing Co. v. NCR Corp., 29 F.3d 389, 392 (8th Cir.1994)); Flores v. Jewels Marketing and Agribusiness, No. CIV-F 07-334 AWI WMW, 2007 WL 2022042, *6 (E.D.Cal. July 9, 2007) (same). Accordingly, arbitration agreements "are subject to all defenses to enforcement that apply to contracts generally." Ingle, 328 F.3d at 1170.
"[A]n arbitration agreement may not function so as to require employees to
Thus, to be enforceable, an agreement to arbitrate claims based on statutory rights must meet minimum requirements first articulated in Cole v. Burns International Sec. Services, 105 F.3d 1465 (D.C.Cir.1997). Specifically, they must "(1) provide[ ] for neutral arbitrators, (2) provide[ ] for more than minimal discovery, (3) require[] a written award, (4) provide[ ] for all types of relief that would otherwise be available in court, and (5)[] not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum." See id. at 1482 (applying Gilmer, 500 U.S. at 28, 111 S.Ct. 1647); see also Arreguin, 2008 WL 4104340, at *4 (listing the Cole factors, and noting that "[b]oth the Ninth Circuit and the California Supreme Court have cited . . . this portion of Cole with approval," citing Ting, 319 F.3d at 1151, and Armendariz, 24 Cal.4th at 102, 99 Cal.Rptr.2d 745, 6 P.3d 669).
In addition, "generally applicable defenses, such as . . . unconscionability, may be applied to invalidate arbitration agreements" between employers and employees. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). Because Hernandez was employed in California, the court must apply California law to determine whether the arbitration agreement is unconscionable. See Ingle, 328 F.3d at 1170 ("Ingle was employed in California; we therefore evaluate Circuit City's arbitration agreement under the contract law of that state").
As an initial matter, Hernandez contends that CarMax's motion must be denied because the FAA does not apply to her arbitration agreement with CarMax.
"The FAA applies to any contract affecting interstate commerce." Yahoo! Inc. v. Iversen, 836 F.Supp.2d 1007, 1009 (N.D.Cal.2011) (citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001)); see Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126
The Supreme Court has held that the FAA applies to employment contracts if the employment affects interstate commerce. See, e.g., Herrera v. CarMax Auto Superstores California, LLC, No. CV-14-776-MWF (VBKx), 2014 WL 3398363, *3 (C.D.Cal. July 2, 2014) ("The FAA applies to written arbitration agreements in `contract[s] evidencing a transaction involving commerce.' An employment contract including an agreement to arbitrate can be subject to the FAA, if it is not expressly exempted by the FAA and if the employment affects interstate commerce," citing Circuit City Stores, 532 U.S. at 113, 119, 121 S.Ct. 1302 (rejecting an argument that an employment agreement is not a "contract evidencing a transaction involving interstate commerce," and holding that 9 U.S.C. § 1 does not exempt all employment contracts from the FAA)); Plows v. Rockwell Collins, Inc., 812 F.Supp.2d 1063, 1066 (C.D.Cal.2011) ("The FAA, which provides that `a written provision in any . . . contract . . . to settle by arbitration a controversy thereafter arising out of such contract. . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,' applies to transactions involving interstate commerce, including employment agreements where the employment relationship involves interstate commerce," citing Circuit City Stores); Slaughter v. Stewart Enterprises, Inc., No. C 07-01157 MHP, 2007 WL 2255221, *5 (N.D.Cal. Aug. 3, 2007) ("[T]he FAA undisputably reaches some employment contracts," citing Circuit City Stores).
The term "involving commerce" "signals an intent to exercise Congress' commerce power to the full." Circuit City Stores, 532 U.S. at 115, 121 S.Ct. 1302 (citing Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)). Given that the statute "provides for `the enforcement of arbitration agreements within the full reach of the Commerce Clause,'" Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S.Ct. 2037, 156 L.Ed.2d 46 (citing Perry v. Thomas, 482 U.S. 483, 490, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987)), the Court has held that "the FAA encompasses a wider range of transactions than those actually `in commerce'—that is `within the flow of interstate commerce.'" Id. at 56, 123 S.Ct. 2037 (citing Allied-Bruce, 513 U.S. at 277, 115 S.Ct. 834).
Hernandez argues that CarMax has "fail[ed] to establish that [her] specific
CarMax proffers the declaration of Kimberly Ross, its vice president of human resources.
The evidence proffered by CarMax suffices to demonstrate that Hernandez's employment contract with CarMax "involv[ed] [interstate] commerce." It is undisputed that Hernandez was employed by a national corporation that did business in thirty-six states and engaged in interstate transactions on a regular basis. CarMax has also adduced evidence that Hernandez's job directly involved interstate commerce in that management assistants (1) hire employees who engage in interstate activity; (2) correspond with CarMax's corporate offices in Virginia; and (3) make out-of-state travel arrangements. Courts have concluded that similar employment relationships have a sufficient connection in interstate commerce that they are subject to the FAA. See, e.g., Herrera, 2014 WL 3398363, at *2-3 (concluding that an employment contract between CarMax and three former employees—a painter, service mechanic, and automotive service technician—involved interstate commerce); Montes v. San Joaquin Community Hospital, No. 1:13-cv-01722-AWI-JLT, 2014 WL 334912, *5 (E.D.Cal. Jan. 29, 2014) (concluding that an employment contract between plaintiff and a hospital was governed by the FAA because the hospital's activities were involved interstate commerce); Abdullah v. Duke University Health System, Inc., No. 5:09-CV-8-FL, 2009 WL 1971622, *3 (E.D.N.C. July 8, 2009) (concluding that an employment contract between a hospital and the plaintiff "involve[d] interstate commerce because DUHS treats patients
Hernandez argues that the arbitration agreement is unconscionable and
The California Supreme Court's decision in Armendariz "provides the definitive pronouncement of California law on unconscionability to be applied to mandatory arbitration agreements." See Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d 778, 782-83 (9th Cir.2002). Prior to Armendariz, California courts applied two distinct analytical frameworks in assessing whether a contract was unconscionable. See Morris v. Redwood Empire Bancorp, 128 Cal.App.4th 1305, 1317, 27 Cal.Rptr.3d 797 (2005) ("In California, two separate approaches have developed for determining whether a contract or provisions thereof [are] unconscionable"); see also Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 852-53 & n. 6, 113 Cal.Rptr.2d 376 (2001) (explaining the two frameworks); Patterson v. ITT Consumer Financial Corp., 14 Cal.App.4th 1659, 1663-64, 18 Cal.Rptr.2d 563 (1993) ("Two alternative analyses exist under California law for determining whether a contractual provision will be enforceable because it is unconscionable"). In Armendariz, the Supreme Court cited both tests with approval but did not treat them as separate. See Armendariz, 24 Cal.4th at 113-14, 99 Cal.Rptr.2d 745, 6 P.3d 669.
Under the first test, which derives from Graham v. Scissor-Tail, Inc., 28 Cal.3d 807, 817-20, 171 Cal.Rptr. 604, 623 P.2d 165 (1981), courts look first to whether the agreement at issue is a contract of adhesion. See Armendariz, 24 Cal.4th at 113, 99 Cal.Rptr.2d 745, 6 P.3d 669 ("Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion," citing Graham, 28 Cal.3d at 817-19, 171 Cal.Rptr. 604, 623 P.2d 165). 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." Id. (quoting Neal v. State Farm Ins. Cos., 188 Cal.App.2d 690, 694, 10 Cal.Rptr. 781 (1961)). If an agreement is a contract of adhesion, the court must consider both whether the terms are contrary to the expectations of the weaker party, and whether they are otherwise unduly oppressive. See id. ("Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or `adhering' party will not be enforced against him. The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or `unconscionable'" (citations and internal quotation marks omitted)).
The different phrasing of the two tests has produced some confusion. In particular, Armendariz's statement that "[u]nconscionability analysis begins with an inquiry into whether the contract is one of adhesion," id. at 113, 99 Cal.Rptr.2d 745, 6 P.3d 669, has led some courts to conclude that a contract must be adhesive to be unconscionable. See Morris, 128 Cal. App.4th at 1317, 27 Cal.Rptr.3d 797 ("Each of the two approaches has generated some confusion in its application. For example, the Graham approach commences with a determination of whether the contract is one of adhesion, thus fostering the impression that a nonadhesion contract may never be unconscionable"). While Armendariz's statement that adhesiveness is the starting point for unconscionability analysis may have generated confusion, the Court also made clear that any contract or contract term may be unconscionable if it is "unduly oppressive." See Armendariz, 24 Cal.4th at 113, 99 Cal.Rptr.2d 745, 6 P.3d 669 ("The second [judicially imposed limitation on enforcement of adhesion contracts]—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or `unconscionable'" (emphasis added and internal quotation marks omitted)).
The Graham test is thus best understood as a specific application of the "sliding scale" adopted in A & M Produce. Because "[a] finding of a contract of adhesion is essentially a finding of procedural unconscionability," Flores, 93 Cal.App.4th at 853, 113 Cal.Rptr.2d 376, the Graham test simply describes the degree of substantive unconscionability that must be present before it is appropriate to refuse to enforce an adhesive contract or term on grounds of unconscionability. The California Supreme Court has observed, in fact, that the Graham and A & M Produce frameworks produce identical results. See Perdue v. Crocker National Bank, 38 Cal.3d 913, 925 n. 9, 216 Cal.Rptr. 345, 702 P.2d 503 (1985).
Before considering whether Hernandez and CarMax entered into a valid, enforceable arbitration agreement, the court must first determine whether the 2001 or 2011 DRRP reflects that agreement. Hernandez asserts that unconscionability must be measured "at the time the agreement is entered into, not when it is
Rule 19 of the 2001 DRRP included a modification clause stating:
Hernandez does not dispute that CarMax provided the notice required by Rule 19 or that it validly modified the DRRP. Rather, she appears to contend that the modified DRRP does not apply because it was not in effect at the time she entered into the DRA, and thus cannot govern any of her claims. While it is true that "[t]he court determines unconscionability with reference to the time the contract is entered into," Lanigan v. City of Los Angeles, 199 Cal.App.4th 1020, 1035, 132 Cal.Rptr.3d 156 (2011), Hernandez fails to appreciate that "a subsequent written contract alters the terms of a previous contract," Thiele v. Merrill Lynch, Pierce, Fenner & Smith, 59 F.Supp.2d 1060, 1064 (S.D.Cal.1999).
It is for this reason that courts considering modifications to arbitration clauses have found that, when a term has been altered through a valid modification, unconscionability is judged with reference to the modified provision, rather than the original, superceded provision. See, e.g., Herrera, 2014 WL 3398363, at *4-5 (applying the 2011 DRRP, which was different than that in effect on the date the employees signed the agreement, and rejecting plaintiff's argument that the agreement was illusory because it could be modified unilaterally by CarMax, as CarMax had followed the prescribed notice procedures and that procedure and the covenant of good faith and fair dealing limited CarMax's ability to make unilateral modifications and save the agreement from being illusory); Casas, 224 Cal.App.4th at 1236-37, 169 Cal.Rptr.3d 96 (concluding that the 2011 DRRP applied to plaintiff's claims, rather than the DRRP in effect when he was first hired, and holding that "`[t]he implied covenant of good faith and fair dealing limits the employer's authority to unilaterally modify the arbitration agreement and saves that agreement from being illusory and thus unconscionable,'" quoting Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695, 708, 155 Cal.Rptr.3d 506 (2013)). Compare Ferguson, 298 F.3d 778, 786 (9th Cir.2002) (in assessing the unconscionability of an arbitration agreement, the court declined to consider a fee provision included in a subsequent arbitration agreement, holding "the purported
Because Hernandez does not dispute that CarMax validly modified the DRRP in accordance with Rule 19, the court concludes that the 2011 DRRP is the effective arbitration agreement for purposes of CarMax's petition.
It is undisputed that the agreement mandates the arbitration of claims based on statutory rights.
Rule 5 of the 2011 DRRP governs the selection of a neutral arbitrator.
The second Cole factor examines whether the DRRP provides for "more than minimal discovery." Rule 8 requires the parties to make initial disclosures within fourteen days of the appointment of an arbitrator, exchanging copies of "all documents (except for privileged documents that are protected from disclosure because they involve attorney-client, doctor-patient, or other legally privileged or protected communications or materials) upon which they rely in support of their claims or defenses"; it imposes a continuing obligation to supplement the initial disclosures.
Hernandez asserts, in summary fashion, and without substantive argument, that the discovery authorized by the 2001 Rules
Numerous courts have found that similar—and in some cases, identical—discovery provisions provide sufficient discovery and have held that the DRRP does not unfairly or unconscionably limit a party's ability to conduct discovery in order to prove its case. See, e.g., Herrera, 2014 WL 3398363, at *8-9 ("The DRRP's Rule 8 provides for initial disclosure of relevant documents, production of the . . . plaintiffs `personnel records file,' up to twenty interrogatories which may be submitted with a request for supporting documents, and additional discovery on a showing of `substantial need.' The court in Sanchez [v. CarmaxAuto Superstores California, LLC, 224 Cal.App.4th 398, 168 Cal.Rptr.3d 473 (2014),] reviewed the DRRP's Rule 8 and found that it was not unconscionable. . . . Plaintiffs have not shown that the discovery allowable under the DRRP would be unconscionable in wage-and-hour cases. Because the DRRP allows for a significant amount of discovery, because California courts have found it sufficient, and because discovery in arbitration need not be as robust as provided for in a court's rules of procedure, the DRRP's Rule 8 is not unconscionable"); Jones-Mixon v. Bloomingdale's, Inc., No. 14-cv-01103-JCS, 2014 WL 2736020, *9 (N.D.Cal. June 11, 2014) ("The discovery provisions of the agreement in this case require Defendants to provide Plaintiff with `copies of all documents upon which they rely in support of their claims or defenses,' and Plaintiff is `entitled to a copy of all documents' in her personnel file. The parties are both limited to one set of twenty interrogatories and three depositions, and all discovery must be completed within ninety days. In addition, the arbitrator [may] permit additional discovery upon `a showing of appropriate justification,' so long as the request for discovery is not `overly burdensome, and will not unduly delay the conclusion of arbitration.' Plaintiff has cited no case in support of her argument that the foregoing discovery restrictions render an agreement to arbitrate substantively unconscionable. The great weight of authority supports at least one California Court of Appeal in holding that `[t]he fact that an arbitration may limit a party's discovery rights is not substantive unconscionability.' In any event, several courts have held that discovery limitations similar to those here do not render an agreement substantively unconscionable" (citations omitted)); Luchini v. CarMax, Inc., No. CV F 12-0417 LJO DLB, 2012 WL 2995483, *10 (E.D.Cal. July 23, 2012) ("CarMax notes that Rule 8 requires the parties' exchange of nonprivileged documents to support claims and defenses and to supplement disclosures and permits up to 20 interrogatories and three depositions along with additional discovery as allowed by the arbitrator. There is no dispute that the arbitration agreement and arbitration rule provide for adequate discovery"); Abeyrama v. J.P. Morgan Chase Bank, No. CV 12-00445 DMG (MRWx), 2012 WL 2393063, *4 (C.D.Cal. June 22, 2012) ("Plaintiff also argues that the arbitration agreement does not provide for the minimal discovery that Armendariz requires because the parties can only conduct a limited amount of discovery and two depositions prior to the arbitration hearing. Plaintiffs argument fails because `the fact that an arbitration may limit a party's discovery rights is not substantive unconscionability.' While the arbitration agreement normally allows only two depositions,
Hernandez argues that the agreement does not require a "written reasoned award"; the provision she references, however, is from the 2001 DRRP.
Rule 14 of the DRRP states that "[i]f the Arbitrator finds for the Associate, the Arbitrator, in his discretion, may award appropriate relief in accordance with applicable law."
Hernandez argues that the DRRP conditions access to the arbitral forum on payment of unreasonable costs by the employee because it "require[s] the employee to pay certain of the arbitration forum fees (including room rental), and also permits these fees to be shifted and awarded to CarMax if CarMax[] prevails."
For the reasons stated, the court finds that the 2011 DRRP between CarMax and Hernandez satisfies each of the Cole factors. Accordingly, the court proceeds to consider whether it is unconscionable generally.
"Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. It focuses on factors of oppression and surprise. The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party." Parada v. Superior Court, 176 Cal.App.4th 1554, 1570, 98 Cal.Rptr.3d 743 (2009) (citations omitted).
In Armendariz, the California Supreme Court concluded that an arbitration agreement was procedurally unconscionable because "[i]t was imposed on employees as a condition of employment and there was no opportunity to negotiate. . . ." Armendariz, 24 Cal.4th at 114, 99 Cal.Rptr.2d 745, 6 P.3d 669. The Court noted that "in the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement." Id. Because the agreement lacked mutuality, it concluded that the arbitration agreement was substantively as well as procedurally unconscionable. Specifically, the employee was required to arbitrate claims against the employer, but the employer was not bound to arbitrate any dispute it had with the employee. Id. at 114, 119, 99 Cal.Rptr.2d 745, 6 P.3d 669. The Court noted that, in the employment context, arbitration agreements must contain a "modicum of bilaterality." Id. at 117, 99 Cal.Rptr.2d 745, 6 P.3d 669. It explained:
"Given the disadvantages that may exist for plaintiffs arbitrating disputes, it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on `business realities.' As has been recognized `unconscionability turns not only on a "one-sided" result, but also on an absence of "justification" for it.'. . . If the arbitration system established by the employer is indeed fair, then the employer as well as the employee should be willing to submit claims to arbitration. Without reasonable justification for this lack of mutuality, arbitration appears less as a forum for neutral dispute resolution and more as a means of maximizing employer advantage. Arbitration was not intended for this purpose." Id. at 117-18, 99 Cal.Rptr.2d 745, 6 P.3d 669 (citations omitted).
Like the arbitration agreement at issue in Armendariz, CarMax's arbitration agreement is procedurally unconscionable. Although it is not hidden, or buried in a lengthy document, see Nat'l Bank of California, NA v. Gay, No. CV 11-2521-RSWL (JCGx), 2011 WL 2672359, *3 (C.D.Cal. June 29, 2011) ("[T]he element of surprise was not present at the time of contracting. The arbitration agreement is not hidden or difficult to read, as it was contained in a stand-alone, three-page document regarding remedies, is listed in bold, capital letters and clearly sets forth the terms contained therein"), it is a preemployment contract of adhesion that the potential employee must sign if he or she wishes to be considered for employment. Indeed, the document speaks for itself in this regard; its first sentence states that the employer "will not consider
Hernandez contends that, beyond the adhesive nature of the agreement, the fact that CarMax did not give her a copy of the DRRP before she signed the DRA adds an additional layer of procedural unconscionability. She notes that courts have concluded that "[t]he failure to attach the applicable rules referred to in the agreement, or provide them to employee at the time the agreement is entered into establishes further procedural unconscionability."
Evidence in the record, however, belies Hernandez's assertion that she was not given the DRRP at the time she entered into the agreement, and that she was not given sufficient notice and access to the 2011 DRRP when modifications were made. Although Hernandez asserts that the employment application she completed did not include the DRRP,
Hernandez does not dispute that she signed the employment application and subsequent agreements acknowledging, immediately below bolded text, that she had "received" a copy of the DRRP prior to signing the agreement.
As for subsequent DRRPs, including the 2011 DRRP, the agreement, as noted, requires that CarMax give employees notice of the modified DRRP. CarMax has submitted Ross' declaration, which states that CarMax employees, including Hernandez, were given access to copies of all DRRPs through the company's intranet system.
Poublon is distinguishable, and in fact supports CarMax's contention that the modification provision is not unconscionable. That provision is, in all relevant respects, identical to the one at issue in Casas. Judge Snyder implicitly recognized that the Casas provision was not procedurally unconscionable. Hernandez does not dispute that the agreement required that CarMax give all employees notice of any intention to amend the DRRP at least thirty days before the modification took effect. She has adduced no evidence that the notice was not given.
The foregoing analysis indicates that the arbitration agreement was somewhat unconscionable procedurally. Cf. Nagrampa, 469 F.3d at 1284 (holding that there was only "minimal" procedural unconscionability despite defendant's "overwhelming bargaining power," its concession that the contract was non-negotiable, and its drafting of the contract). Consequently, the court can find that it is unenforceable only on a showing of significant substantive unconscionability. See, e.g., id. at 1281 ("Because California courts employ a sliding scale in analyzing whether the entire arbitration provision is unconscionable, even if the evidence of procedural unconscionability is slight, strong evidence of substantive unconscionability will tip the scale and render the arbitration provision unconscionable," citing Armendariz).
An arbitration provision is substantively unconscionable if it is "`overly harsh'" or generates "`one-sided' results." Armendariz, 24 Cal.4th at 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (quoting A & M Produce, 135 Cal.App.3d at 486-87, 186 Cal.Rptr. 114); see Herrera, 2014 WL 3398363 at *6 ("`Substantive unconscionability relates to the effect of the contract
Hernandez first argues that the DRRP is substantively unconscionable because it shortens the limitations period on statutory claims against CarMax and because the limitations provision is unilateral, i.e., it applies only to her claims against CarMax and does not apply to claims asserted by CarMax.
Although Rule 4(b) of the 2001 DRRP required that an employee submit an arbitration claim "not later than one year after the date on which [he or she] knew, or through reasonable diligence, should have known, of the facts giving rise to the . . . claim(s)",
Hernandez next argues that the DRRP is substantively unconscionable because it does not require a written arbitration award.
Hernandez's next argument—that the agreement is substantively unconscionable because it does not require CarMax to bear all of the costs of arbitration—is unpersuasive for the same reason, i.e., that it is premised on the language of the 2001, rather than the 2011, DRRP.
Hernandez argues that "the requirement of confidentiality of the arbitration proceedings is unconscionable because, although it is facially mutual, in reality it may greatly favor the employer because [it is a] `repeat player[].'"
First, as CarMax notes, both the Sanchez and Herrera courts concluded that the confidentiality provision in the 2011
Second, and more fundamentally, the Ninth Circuit has noted that "the enforceability of the confidentiality clause is a matter distinct from the enforceability of the arbitration clause in general." Kilgore v. KeyBank Nat'l Ass'n, 718 F.3d 1052, 1059 n. 9 (9th Cir.2013) ("In any event, the enforceability of the confidentiality clause is a matter distinct from the enforceability of the arbitration clause in general. Plaintiffs are free to argue during arbitration that the confidentiality clause is not enforceable"). Hernandez argues that the confidentiality provision is unduly restrictive and provides a "repeat player [like CarMax an] advantage" because it allows it to use prior arbitral rulings concerning other employees, while depriving the employee of the ability to do so, even if he or she is represented by a lawyer involved in the prior proceeding. Even if this were so, under Kilgore, the fact that a confidentiality clause is overly restrictive and not enforceable does not compel a conclusion that the arbitration agreement itself is unenforceable; indeed, the Kilgore court suggested that this argument is best left to the arbitrator to decide. See, e.g., Melez v. Kaiser Foundation Hospitals, Inc., No. 2:14-cv-08772-CAS (VBKx), 2015 WL 898455, *11 (C.D.Cal. Mar. 2, 2015) ("The DROP confidentiality provision is less restrictive than those held unconscionable in the cases cited above. . . . Moreover, even assuming the provision is unduly restrictive, the Ninth Circuit has cautioned against invalidating arbitration agreements on the basis of confidentiality provisions, noting that `[p]laintiffs are free to argue during arbitration that the confidentiality
Because confidentiality provisions are generally unobjectionable and, in any event, "the enforceability of the confidentiality clause is a matter distinct from the confidentiality of the arbitration clause in general"—the question now before the court—the court concludes that Rule 9(g) of the 2011 DRRP does not render the DRRP substantively unconscionable and thus unenforceable. Hernandez is "free to argue during arbitration that the confidentiality clause is unenforceable." Kilgore, 718 F.3d at 1059 n. 9.
In passing, Hernandez asserts that the "Rules prohibit the parties from settling their case after the arbitration hearing has been closed without the approval of the arbitrator." She contends this "acts as an obstacle to parties' resolving their dispute among themselves, in violation of public policy."
Although Hernandez does not clearly argue so, it appears she believes that the provision conditioning settlement on approval of the arbitrator after the arbitration hearing has concluded is unconscionable because the arbitrator, who is being paid to conduct the arbitration, may have an incentive to disapprove a settlement on which the parties mutually agree. Such a limitation on the parties' ability to resolve the dispute voluntarily could run contrary to the "strong public policy of this state. . . encourag[ing] voluntary settlement of litigation." Osumi v. Sutton, 151 Cal.App.4th 1355, 1359, 60 Cal.Rptr.3d 693 (2007). Given the fact that California "courts will refuse to enforce arbitration provisions that are . . . contrary to public policy" on grounds that they are unconscionable, Abramson v. Juniper Networks, Inc., 115 Cal.App.4th 638, 651, 9 Cal.Rptr.3d 422 (2004) (citing Armendariz, 24 Cal.4th at 99, 99 Cal.Rptr.2d 745, 6 P.3d 669), the court concludes that the settlement provision exhibits some degree of substantive unconscionability.
The DRRP, however, gives the parties free rein to settle the case without the arbitrator's approval at all times after the filing of the arbitration demand through conclusion of the hearing. Given this freedom, and the narrow set of circumstances under which the arbitrator's approval must be obtained, the settlement provision is, at most, minimally unconscionable.
Hernandez next contends that the limitations on discovery set forth in the DRRP are substantively unconscionable.
Finally, Hernandez argues that the DRRP is substantively unconscionable because it "expressly place[s] the burden of proving a claim or claims by [a] preponderance of the evidence [on the employee]," and makes no "exception for those claims for which the employee does not bear the burden of proof." For this reason, she contends, the agreement "improperly shifts th[e] burden [of proof] to the employee" on all claims.
Thus, far from "improperly shift[ing] th[e] burden" to Hernandez, the DRRP explicitly requires that she satisfy the same burden of proof she would be required to satisfy if proceeding in court. Hernandez cites no reason why the court should conclude that a bilateral requirement that both Hernandez and CarMax satisfy their respective burdens of proof under applicable law is unconscionable, and the court can discern none. Because the DRRP provides that Hernandez and CarMax have the burden of proving their respective claims just as they would in court, the 2011 DRRP does not unconscionably shift the burden of proof on all claims to Hernandez. See, e.g., Sanchez,
The arbitration agreement at issue has indicia of both procedural and substantive unconscionability: it is a contract of adhesion that the prospective employee must accept as a condition of employment and it might have the effect of preventing the parties from voluntarily resolving the case after the close of the arbitral hearing. Under Civil Code § 1670.5(a), a court may either refuse to enforce an agreement that is "permeated" by unconscionability, Armendariz, 24 Cal.4th at 122, 99 Cal.Rptr.2d 745, 6 P.3d 669, or, alternatively, "[i]f the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate." Id. at 124, 99 Cal.Rptr.2d 745, 6 P.3d 669.
In Armendariz, the court discussed the severance of contractual provisions:
Factors weighing against severance include (1) the existence of more than one unlawful provision in the arbitration agreement, and (2) the inability of the court to "remove the unconscionable taint from the agreement" by simply striking or limiting a provision. Id. at 124-25, 99 Cal.Rptr.2d 745, 6 P.3d 669. "The overarching inquiry is whether the interests of justice . . . would be furthered by severance." Id.
Here, unlike in Armendariz, severance of the unconscionable provision is appropriate. Compare id. at 124, 99 Cal.Rptr.2d 745, 6 P.3d 669 ("In this case, two factors weigh against severance of the unlawful provisions. First, the arbitration agreement contains more than one unlawful provision; it has both an unlawful damages provision and an unconscionably unilateral arbitration clause. Such multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage. In other words, given the multiple unlawful provisions, the trial court did not abuse its discretion in concluding that the arbitration agreement is permeated by an unlawful purpose"); Dunham v. Environmental Chemmical Corp., No. C 06-03389 JSW, 2006 WL 2374703, *12-13 (N.D.Cal. Aug. 16, 2006) ("Having determined that the provision requiring only Dunham, but not ECC, to arbitrate, and the provision
By contrast, CarMax's arbitration agreement contains a single portion of one provision that could arguably be said to be unconscionable. Unlike the provisions at issue in Armendariz and the cases cited above, the settlement provision is mutual and affects both parties' ability to settle the case equally. The restriction on their right to settle without the arbitrator's approval does not "permeate" the arbitration agreement as a whole, or even the provision in which it is found, and can be easily severed.
Consequently, the court concludes that severing the unconscionable portion of the settlement provision—i.e., the portion that requires the parties to obtain the arbitrator's approval of any settlement reached after the arbitral hearing has concluded—is appropriate. See Martin v. Ricoh Americas Corp., No. C-08-4853 EMC, 2009 WL 1578716, *6 (N.D.Cal. June 4, 2009) ("In the instant case . . . there is only one substantively unconscionable provision; the arbitration agreement otherwise comports with the requirements of Armendariz (e.g., providing for a neutral arbitrator, more than minimal discovery, and all of the types of relief that would otherwise be available in court and not requiring an employee to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum). . . . Because there is only one substantively unconscionable provision easily capable of severance, and because there is no other indication that there has been `a systematic effort [on the part of Ricoh] to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage,' the Court shall sever ¶ 8 and compel arbitration" (citation omitted)); Siglain v. Trader Publishing Co., No. C 08-2108 JL, 2008 WL 3286974, *11 (N.D.Cal. Aug. 6,
For the reasons stated, the court denies Hernandez's motion to dismiss and grants CarMax's motion to compel arbitration. The court severs the arbitration agreement's provision requiring the parties to obtain the arbitrator's approval of a settlement reached after the close of the arbitration hearing. The court stays the state court action currently pending in Superior Court pending resolution of the arbitration in this matter. See, e.g., Brown v. Pacific Life Ins. Co., 462 F.3d 384, 399 (5th Cir. 2006) (affirming a district court's order compelling arbitration and staying a parallel state court proceedings); Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1109 (9th Cir.2002) (affirming the district court's order compelling arbitration and staying state court proceedings); Insurance Newsnet.com, Inc. v. Pardine, No. 1:11-CV-00286, 2011 WL 3423081, *4 (M.D.Pa. Aug. 4, 2011) ("Plaintiffs also seek a stay of the New Jersey state court proceedings pending arbitration. In keeping with principles of federalism and respect for the sovereignty of the several states and their judicial system, the courts of the United States are generally prohibited by the Anti-Injunction Act from issuing injunctions to stay proceedings in state courts. However, the Anti-Injunction Act does empower the courts of the United States to enjoin actions in a state court where (1) an injunction is expressly authorized by Congress; (2) an injunction is necessary in aid of its jurisdiction; or (3) an injunction is necessary to protect or effectuate its judgments. The FAA does not expressly authorize federal courts to enjoin state court proceedings. However, such injunctions fall within the second exception to the Anti-Injunction Act because they are necessary in aid of federal jurisdiction.
Here, in contrast to Hoover, CarMax has adduced evidence concerning the extent of its interstate activities. (See Ross Decl., ¶ 8.) It has also shown that Hernandez's job affected interstate commerce in that management assistants hired employees who sold and transported vehicles across state lines, served as liaisons to CarMax's out-of-state corporate offices, and arranged interstate travel for CarMax employees. (Ross Decl., ¶ 9.) No evidence of this type was proffered in Hoover. As the authorities cited indicate, such evidence is sufficient to show that an employment relationship involves interstate commerce under the FAA.
In Fitz, plaintiff began to work for NCR Corp. in 1981. Beginning in 1996, the company implemented a mandatory, binding arbitration policy. Fitz, 118 Cal.App.4th at 708-09, 13 Cal.Rptr.3d 88. In 2000, NCR amended the terms of the policy to comply with the requirements set forth in Armendariz by excising certain provisions of the 1996 policy. Id. at 709, 13 Cal.Rptr.3d 88. The policy was amended in accordance with authority granted NCR in the 1996 policy. Id.
Prior to considering the merits of the trial court's decision regarding unconscionability, the appellate court addressed Fitz's contention that the 1996 policy should be considered in its entirety when determining whether the policy was unconscionable or not. Id. at 715, 13 Cal.Rptr.3d 88. Fitz argued, much as Hernandez does here, that the court should not judge unconscionability by examining the 2000 amended policy, which removed certain purportedly unconscionable provisions from the 1996 policy, but should instead evaluate unconscionability by looking to the 1996 policy; she asserted this was the proper approach because "a judicial determination of unconscionability focuses on whether the contract or any of its provisions was `unconscionable at the time it was made.'" Id. After noting that "Fitz [had] fail[ed] to provide any authority to support her argument that the 2000 modifications were invalid," such that unconscionability should not be judged with reference to the 2000 amended policy, the court explicitly declined to determine which policy was relevant because "two provisions . . . that were not modified," i.e., that were present in both the 1996 and 2000 policies, were sufficiently unconscionable to make either policy unenforceable. Id. ("Fitz, however, fails to provide any authority to support her argument that the 2000 modifications were invalid. At any rate, since we find two provisions of the ACT policy that were not modified to be contra to both standards of unconscionability and the minimum requirements of Armendariz, we need not decide whether the 2000 amendments were improper").
Harper also does not stand for the proposition that the court must judge unconscionability with reference to the 2001, rather than 2011, DRRP. The Court of Appeal there did not address whether a court can consider validly modifications to a written arbitration agreement when determining unconscionability. Instead, it noted that the agreement was procedurally unconscionable because Ultimo had failed to attach the relevant arbitration rules to the agreement at the time it was presented to the employee to sign. Harper, 113 Cal.App.4th at 1406, 7 Cal.Rptr.3d 418 ("Here is the oppression: The inability to receive full relief is artfully hidden by merely referencing the Better Business Bureau arbitration rules, and not attaching those rules to the contract for the customer to review. The customer is forced to go to another source to find out the full import of what he or she is about to sign—and must go to that effort prior to signing"). As discussed infra, this aspect of Harper is distinguishable, as CarMax has adduced evidence that Hernandez was given the DRRP at the time she signed the DRA and when subsequent modifications were made.
Although the Harper court referenced the modification provision as additional evidence of procedural unconscionability, id. at 1407, 7 Cal.Rptr.3d 418 ("But the oppression is even more onerous than that: As written, the clause pegs both the scope and procedure of the arbitration to rules which might change"), the procedurally unconscionable aspect of the modification provision, i.e., that "it is unclear whether an arbitration would be conducted under the Better Business Bureau rules at the time of contracting, or at the time of arbitration," id. is not present here, because the agreement explicitly provides that the governing DRRP are in effect at the time the claim is brought. Furthermore, nowhere in Harper does the court address whether unconscionability should be be judged by looking to a validly modified arbitration agreement not in effect at the time the employee was first employed; the reason for this is likely because the arbitration rules in that case had not been modified.
For these reasons, the court finds Fitz and Harper distinguishable. The authority cited above for the proposition that unconscionability should be judged by looking to the most recent, validly modified agreement is directly on point and not in conflict with Fitz and Harper. Thus, the court applies it to the facts of this case.
The court is not persuaded that this demonstrates procedural unconscionability. First, CarMax has presented evidence from its Human Resources department indicating that Hernandez had not been hired until July 8, 2002, some twelve days after she was presented with and signed the DRA. (See Declaration of Kristy P. Jordan In Support of Petitioner CarMax's Opposition to Motion to Dismiss Petition to Compel Arbitration, Docket No. 17-1 (Mar. 16, 2015), ¶ 2; id., Exh. G; Declaration of Steven A. Weiss in Support of Petitioner CarMax's Reply to Respondent's Opposition to Motion to Compel Arbitration and Stay State Court Action, Docket No. 17-3 (Mar. 16, 2015), ¶ 2; id., Exh. H.)
More fundamentally, even if Hernandez had not been presented with the DRA until after she was officially hired by CarMax—which the evidence indicates is not the case—courts have found that "the exact date that [an employee] began to work for CarMax is not alone determinative of whether [she] showed oppression or surprise," particularly in cases where, as here, "[t]he stand-alone arbitration agreement was not hidden, but prominently featured as part of the employment application." Sanchez, 224 Cal.App.4th at 402-03, 168 Cal.Rptr.3d 473 ("Sanchez makes much of the timing of his signature, arguing that he was not advised that he would have to sign an arbitration agreement until after he was already working for CarMax. He submitted a declaration in the trial court stating that he began work for CarMax on October 16, 2006 without being told that he would have to sign an arbitration agreement, and was presented with the agreement for signature over a week later on October 26. His declaration also states, however, that he received his offer of employment from Car-Max on October 31, 2006, and he acknowledged receipt of the Associate Handbook on November 9, 2006. The October 31, 2006 letter offering him employment states that he was to start October 16 (which CarMax calls a typographical error); his signature on the letter accepting and agreeing to the offer of employment is dated November 9, 2006. He acknowledged receipt of the CarMax Associate Handbook on November 9 and November 21, 2006. Further, Sanchez signed his employment application on October 26. The trial court did not resolve the factual question whether Sanchez signed the agreement before or after he began employment with CarMax. In any event, the exact date that Sanchez began to work for CarMax is not alone determinative of whether he showed oppression or surprise. The trial court did not find oppression or surprise, and we agree. The stand-alone arbitration agreement was not hidden, but prominently featured as part of the employment application, and there are no `other indicia of procedural unconscionability'" (citation omitted)); see also Luchini v. Carmax, Inc., No. CV F 12-0417 LJO DLB, 2012 WL 2995483, *9 (E.D.Cal. July 23, 2012) (finding no oppression or surprise when employee signed arbitration agreement after beginning employment with CarMax).
