ORDER GRANTING MOTIONS TO COMPEL ARBITRATION AND REMAND AND DENYING MOTIONS TO DISMISS AND STRIKE (Re: Docket Nos. 85, 86, 93 and 105)

PAUL S. GREWAL, Magistrate Judge.

Before the court are various motions arising out of the first amended complaint, including motions to dismiss, compel arbitration, strike and remand. Because the parties agreed that disputes like this one must be resolved in arbitration, the court grants the motion to compel arbitration and remands the petition to confirm the arbitration award.

I.

The origins of this suit lie in a home renovation project gone awry. The project began after homeowners and Cross-Complainants Justin Schuh and Catherine Nguyen signed a contract for construction services with Defendant Reliance Management Group, the project's general contractor. Upset at the project's mounting delays and costs, the Schuhs refused to make further payments. It turns out that the Schuhs were not the only ones unhappy. So, too, were various third parties who claim they did work for Reliance Management Group but were never paid. After purchasing the accounts receivable of these third parties, Plaintiff Steven Nemec filed a complaint against not only Reliance Management Group, Defendant Forrest Linebarger and related entities (collectively, "Reliance"), but also the Schuhs. In his initial complaint, Nemec claimed violations of the Racketeer Influenced Corrupt Organization Act, breach of contract, account stated, conversion, unfair business practices and fraud.1 The Schuhs then filed a cross-complaint against Reliance asserting the same six separate causes of action2—despite an arbitration clause contained in their contract with Reliance3 and pending arbitration in which Reliance sought to force the Schuhs to pay outstanding invoices.4

Reliance demanded that the Schuhs pursue their claims in the pending arbitration. When the Schuhs refused, Reliance filed motions to compel arbitration and to dismiss both the complaint and the cross-complaint.5 The court denied the motions based on the suggestion by Nemec and the Schuhs that the arbitration clauses were part of the fraud alleged, even though no such suggestion could be found in their complaints. As the court explained, when an arbitration agreement is suggested to have been fraudulently obtained or to be a part of a fraudulent scheme, the Ninth Circuit has held that trial courts commit reversible error if they order arbitration because of deficiencies in the pleadings.6 In light of the absence of any such suggestion in their complaints, the court also granted leave to amend while preserving Reliance's right to challenge the sufficiency of the complaint as amended.7 Reliance and Nemec then settled,8 but the Schuhs' filed a first amended complaint as was permitted.9 In the meantime, after Relinace petitioned the state court to confirm the award issued by the arbitrator, the Schuhs removed that action to this court in this case.10

II.

This court has jurisdiction under 28 U.S.C. § 1331. The parties consented to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. P. 72(a).11

III.

Among the parties' disputes, the issue of whether arbitration is required is paramount. If the arbitration clause in the parties' agreement is valid, and the dispute falls within the scope of the arbitration clause, the case and remaining motions belong in arbitration.12 The Schuhs, as the parties resisting arbitration, bear the burden of proof.13 Both federal and California law place a strong presumption in favor of arbitration, and espouse a general policy favoring the recognition and enforcement of arbitration agreements.14

This initial question of arbitrability is ordinarily an issue for the courts, not the arbitrator.15 The parties must "clearly and unmistakably" provide in their contract that the arbitrator, and not the court, will decide whether a particular dispute is arbitrable.16 Finding no suggestion in the contract that the parties assigned the arbitrability question itself to an arbitrator, such as rules empowering the arbitrator to decide issues of arbitrability, the court must resolve that question here and finds that this dispute does indeed belong in arbitration.

First, the contract sets out a broad arbitration clause. The arbitration clause was typeset in bold and separately initialed immediately below the statutory language by both parties.17 The clause says: "Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules."18 In considering whether the Schuhs' claims fall within the scope of the arbitration clause, this court must "focus on the factual allegations underlying [the] claims in the [c]omplaint."19 The Schuh's underlying allegations and overarching claims both "arise out of" and "relate to" the contract, requiring that such claims "shall be settled by arbitration."20 This clear language is not, as the Schuhs suggest, rendered ambiguous simply because the contract elsewhere references litigation, which might occur where, as here, a party initiates litigation notwithstanding the arbitration clause. This is especially true given that courts must resolve any "ambiguities as to the scope of the arbitration clause itself . . . in favor of arbitration."21

Second, the Schuhs do not claim fraud in the execution of the contract as a whole, and nothing suggests that the arbitration clause itself was procured through fraud. The Schuhs were asked twice to initial the arbitration clause and did so after receiving the page containing the clause in the mail. Were the Schuhs able to show either that their execution of the agreement as a whole or that their initials indicating their assent to arbitration were fraudulently procured, arbitration might be avoided.22 But it is well-established that a claim of fraud in the inducement of the contract as a whole—like the claims here of a grand scheme of fraud or fraud permeating the transaction— does not prevent a court from enforcing a specific agreement to arbitrate.23 Put another way, in the absence of any evidence that the agreement as a whole was fraudulently executed, an arbitration provision can only be found unenforceable for fraud if the fraudulent conduct was directed at the arbitration provision itself.24

To meet their burden, the Schuhs highlight the illegality of the contract as whole (for example, the contract included a down payment labeled as a "retainer" of 5% of the contract price), their inability to acquire evidence of unlawful billing practices and the similar struggles of third parties in pursuing their own claims against Reliance.25 These allegations may all be true, but they do not specifically point to fraud in the inducement with regard to initialing the arbitration provision.

The Schuhs also allege Linebarger made fraudulent, material misrepresentations regarding the scope of the arbitration provision26 by telling the Schuhs the arbitration provision was limited to only matters involving billing questions.27 They state: "Linebarger also failed to inform Schuh that the arbitration provision included (1) any alleged construction defect issues and (2) that it would be binding based on the presentation of documents Schuh already possessed, without a hearing or the right to obtain documents or testimony from anyone in order to support their position at arbitration. Rather, Linebarger misrepresented that the arbitration provision would be limited in scope to `minor issues.'"28 But even if the court may properly consider parole evidence of these alleged misrepresentations in these circumstances,29 a misrepresentation of a contractual clause alone does not render the clause void when the allegedly defrauded party had a reasonable opportunity to discover the clause's actual terms.30 Although they claim Linebarger demanded that they sign the contract without providing any opportunity to review it, it is undisputed the Schuhs signed the arbitration clause only after receiving the clause language in the mail more than eleven days later, which gave them more than a reasonable opportunity to understand its terms.

Third, nothing suggests that the arbitration clause is unconscionable. Unconscionability is a question of law.31 California law requires that a contractual clause be both procedurally and substantively unconscionable to be unenforceable.32 The procedural inquiry examines any "oppression or surprise due to unequal bargaining power" with the agreement, and the substantive inquiry focuses on whether the agreement produces "overly harsh or one-sided results."33 A provision is substantively unconscionable if it "involves contract terms that are so one-sided as to `shock the conscience,' or that impose harsh or oppressive terms."34 "[B]oth [must] be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability."35 This is a sliding-scale calculation, where neither procedural nor substantive unconscionability need be present to the same degree.36

The Schuhs allege the arbitration provision is procedurally unconscionable because of the "coercive" circumstances in which they signed the contract.37 When they first saw the agreement, Linebarger "demanded the Schuhs sign the agreement within ten minutes of seeing it for the first time, or else the project would be delayed."38 The Schuhs say they had no opportunity to negotiate any of the terms set forth by Linebarger and there was an absence of reasonable alternatives.39 The Schuhs also point out Linebarger then did not provide the Schuhs with a copy of the agreement until six months after signing it,40 and "Lineberger also failed to provide copies of the American Arbitration Association's rules, which is required by law when such rules are incorporated into an agreement, making the agreement to arbitrate procedurally unconscionable."41 But the arbitration provision could hardly be said to be surprising or hidden, when it was called out in boldface type.42 And as noted earlier, whatever the issues with the contract as a whole, the Schuhs did not initial the arbitration provision when the signed the contract under these iffy circumstances, but rather many days later, without objection, by mail.43

The Schuhs say the arbitration provision's terms are substantively unconscionable because they did not comply with all the mandatory requirements of Section 7159.44 Section 7159 governs all home improvement contracts and is intended as a protection for consumers in an economic area where there is an opportunity for unconscionable abuse by contractors.45 The Schuhs also note that Linebarger inserted language that the arbitration would take place before the American Arbitration Association, which is binding and does not necessitate a hearing for disputes under $10,000.46 The Schuhs say this favored Linebarger and undermined their reasonable expectations: the Schuhs were not advised of all the implications of the extraneous language,47 such as precluding necessary discovery to obtain evidence showing the fraudulent billing scheme.48

None of this, however, shows any substantive unconsionability. Because the contract is a new construction contract, Cal. Bus. & Prof. Code § 7164, not Section 7159, would appear to govern.49 While the two sections have different requirements for an arbitration clause, these differences do not necessarily undermine the arbitration clause's validity.50 Even if the contract were subject to and did not comply with Section 7159, the arbitration clause would not be "void and unenforceable" but rather voidable.51 More fundamentally, the arbitration provision here is bilateral and mutual, and both parties are equally bound. When parties are bound equally by an arbitration agreement, the clause does not lack mutuality and is not substantively unconscionable.52 Article 11.1 provides for arbitration and states simply that the arbitration shall be "administered by the American Arbitration Association under its Construction Industry Arbitration Rules."53 The Schuhs have not shown that the AAA rules are one-sided or overly harsh.

Having resolved that this dispute belongs in arbitration, the court sees no basis to exercise jurisdiction over Reliance's petition to confirm the arbitration award. Nothing in the petition itself pleads a federal cause of action or establishes that diversity jurisdiction exists.54 The presence of a federal claim in the Schuhs' cross-complaint is irrelevant,55 as is the court's supplemental jurisdiction.56

IV.

Whatever the underlying merits of the Schuhs' claims, those claims were committed to arbitration by the language to which both sides in this dispute freely agreed. Reliance's motion to compel arbitration is GRANTED; Reliance's motion to remand is GRANTED and all other pending motions are DENIED as moot. The Clerk shall close the file.

SO ORDERED.