Palmer v. Infosys Technologies Limited Incorporated

Filing 10

OPINION AND ORDER that defendant Infosys Technologies Limited Incorporated's motion to compel arbitration 4 is denied. Signed by Honorable Judge Myron H. Thompson on 11/9/2011. (Attachments: # 1 Civil Appeals Checklist)(jg, )

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE
MIDDLE DISTRICT OF ALABAMA, NORTHERN DIVISION

JACK PALMER, JR.,
Plaintiff,
v.
INFOSYS TECHNOLOGIES
LIMITED INCORPORATED,
Defendant.

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CIVIL ACTION NO.
2:11cv217-MHT
(WO)

OPINION and ORDER
Pursuant to the Federal Arbitration Act (FAA), 9
U.S.C. §§ 1-16, defendant Infosys Technologies Limited
Incorporated moves to compel arbitration of plaintiff
Jack

Palmer,

Jr.’s

claims

of

breach

of

contract,

intentional infliction of emotional distress, negligent
hiring, training, monitoring and supervising, and legal
misrepresentation.

Jurisdiction

is

proper

under

U.S.C. §§ 1332 (diversity) & 1441 (removal).
reasons given below, the motion will be denied.

28

For the

I.

Background

This case stems from allegations of visa fraud and
retaliation.

Palmer alleges that, while employed as an

Infosys consultant, he uncovered evidence of fraud in the
procurement

of

H-1B

visas

for

specialty

workers.

Specifically, he believes that Infosys improperly asked
employees

to

workers.

write

Palmer

information

to

“welcome

asserts
his

letters”

that,

upon

supervisors

for

unskilled

reporting
and

this

Infosys’s

“Whistleblower Team,” he was subjected to various forms
of harassment, including threatening phone calls, denial
of bonuses, derogatory comments, and increased working
hours without appropriate compensation.
Palmer filed suit in an Alabama state court, but
Infosys

removed

the

case

jurisdictional grounds.

on

diversity-of-citizenship

Infosys now moves to compel

arbitration pursuant to an arbitration agreement included
in Palmer’s employment contract.

2

II.

Standard for Arbitration

The FAA is a “congressional declaration of a liberal
federal policy favoring arbitration agreements.”

Moses

H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 24 (1983).

Section 2 of the FAA provides that an

arbitration agreement “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
equity for the revocation of any contract.”
§ 2.

9 U.S.C.

Section 2's final phrase “permits agreements to

arbitrate

to

be

invalidated

contract

defenses,

such

by
as

generally
fraud,

applicable

duress,

or

unconscionability.” AT&T Mobility LLC v. Concepcion, ___
U.S. ___, ___, 131 S. Ct. 1740, 1746 (2011) (quotation
marks omitted).
“The FAA thereby places arbitration agreements on an
equal footing with other contracts and requires courts to
enforce them according to their terms.”

Rent-A-Center,

West, Inc. v. Jackson, ___ U.S. ___, ___, 130 S. Ct.
2772, 2776 (2010) (internal citations omitted).

3

Thus,

there is a “presumption of arbitrability” as to claims
falling

within

an

arbitration

agreement.

AT&T

Technologies, Inc. v. Communications Workers of America,
475 U.S. 643, 650 (1986).
In addition to arbitrating the merits of a dispute,
“parties can agree to arbitrate ‘gateway’ questions of
‘arbitrability,’ such as whether the parties have agreed
to arbitrate or whether the agreement covers a particular
controversy,” Rent-A-Center, ___ U.S. at ___, 130 S. Ct.
at 2777; “[a]n agreement to arbitrate a gateway issue is
simply an additional, antecedent agreement the party
seeking arbitration asks the federal court to enforce.”
Id. at ___, 130 S. Ct. at 2777-78.
Although federal policy permits arbitrators to decide
these

gateway

questions,

there

is

a

crucial

caveat.

Arbitrators may not decide that which the parties have
not agreed to arbitrate.

See United Steelworkers of

America v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582 (1960) (noting that “arbitration is a matter of

4

contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to
submit”); Janiga v. Questar Capital Corp., 615 F.3d 735,
740 (7th Cir. 2010) (“[F]ederal law places arbitration
clauses on equal footing with other contracts, not above
them.”).

“This

axiom

recognizes

the

fact

that

arbitrators derive their authority to resolve disputes
only because the parties have agreed in advance to submit
such grievances to arbitration.” Communications Workers,
475 U.S. at 648-49.

The Supreme Court, therefore, has

mandated a heightened threshold for determining whether
there has been an agreement to arbitrate arbitrability:
“Unless the parties clearly and unmistakably provide
otherwise, the question of whether the parties agreed to
arbitrate

is

arbitrator.”

to

be

decided

by

the

court,

Id. at 649 (emphasis added).

5

not

the

III. Discussion
Palmer

raises

two

arguments

against

mandatory

arbitration. First, Palmer contends that the arbitration
agreement’s delegation provision does not “clearly and
unmistakably” grant the arbitrator the power to decide
arbitrability; if he prevails on this threshold argument,
Palmer submits that the arbitration agreement is void on
unconscionability grounds.

A.

Adjudicating Arbitrability

Palmer’s first argument focuses on which institution
decides arbitrability: the court or the arbitrator.

In

answering this question, the court must determine whether
the parties “clearly and unmistakably” delegated this
decision
“revers[e]

to

the

arbitrator.

presumption--one

in

rather than an arbitral, forum.”

This
favor

standard
of

a

is

a

judicial,

Rent-A-Center, ___ U.S.

at ___, 130 S. Ct. at 2783 (Stevens, J., dissenting)

6

(alteration in original) (quotation marks and footnote
omitted).
The arbitration agreement provides, in all capital
letters, that: “ALL CONTROVERSIES, CLAIMS, OR DISPUTES
WITH ANYONE ... ARISING OUT OF, RELATING TO, OR RESULTING
FROM MY EMPLOYMENT WITH INFOSYS OR THE TERMINATION OF ANY
EMPLOYMENT WITH INFOSYS, INCLUDING ANY BREACH OF THIS
AGREEMENT, SHALL BE SUBJECT TO BINDING ARBITRATION.”
Arbitration Agreement, Doc. No. 4-1, at 7.

The agreement

further states that: “THE ARBITRATOR SHALL HAVE THE POWER
TO

DECIDE

ANY

ARBITRATION,

MOTIONS

BROUGHT

BY

INCLUDING

MOTIONS

FOR

ANY

PARTY

SUMMARY

TO

THE

JUDGMENT

AND/OR ADJUDICATION AND MOTIONS TO DISMISS AND DEMURRERS,
PRIOR

TO

ANY

ARBITRATION

HEARING.”

Id.

at

8.

The

arbitration agreement requires conformity with California
law and American Arbitration Association (AAA) rules,
with the former controlling if there is a conflict.
The

arbitration

unmistakably”

confer

agreement
authority

7

does
to

not
the

“clearly

and

arbitrator

to

decide

gateway

questions.

It

discusses

only

controversies or claims “arising out of, relating to, or
resulting

from”

employment.

The

agreement

does

not

contemplate questions concerning its own validity; the
arbitration
inquiries.

clause

is

silent

as

to

these

threshold

See First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938, 945 (1995) (“A party often might not focus
upon that question or upon the significance of having
arbitrators decide the scope of their own powers.”).
Rent-A-Center provides a useful comparison.
delegation

provision

in

that

case

provided:

The
“The

Arbitrator ... shall have exclusive authority to resolve
any dispute relating to the ... enforceability ... of
this Agreement including, but not limited to any claim
that

all

voidable.”

or

any

part

of

this

Agreement

is

void

or

Rent-A-Center, ___ U.S. at ___, 130 S. Ct. at

2777 (alteration and ellipses in original) (quotation
marks omitted).
delegation

The district court concluded that the

provision

satisfied

8

the

“clearly

and

unmistakably” standard.

Id. at 2777 n.1.

Here, by

contrast, there is no mention of who decides whether the
agreement is void.
Infosys contends that the AAA’s rules prescribe that
the arbitrator should determine this gateway question.
Even if such cross-references to rules and statutes could
“clearly

and

unmistakably”

confer

authority

on

an

arbitrator to decide arbitrability, Infosys’s argument is
misplaced. California law, which controls here, provides
that the court should decide whether an agreement to
arbitrate a gateway issue exists.

See Cal. Code Civ.

Pro. § 1281.2(b) (“[T]he court shall order the petitioner
and the respondent to arbitrate the controversy if it
determines that an agreement to arbitrate the controversy
exists, unless it determines that [g]rounds exist for the
revocation of the agreement.”).
Infosys further asserts that the Supreme Court’s
recent

decision

in

Rent-A-Center

dictates

that

unconscionability challenges should be decided by the

9

arbitrator.

Infosys

overreads

Rent-A-Center.

The

Court’s opinion opens with a simple question: whether “a
district court may decide a claim that an arbitration
agreement

is

unconscionable,

where

the

agreement

explicitly assigns that decision to the arbitrator.”
Rent-A-Center, ___ U.S. at ___, 130 S. Ct. at 2775
(emphasis

added).

The

Court

also

acknowledged

that

neither party disputed the district court’s finding that
the

agreement

“clearly

and

unmistakably”

conferred

authority to the arbitrator to decide gateway issues.
Id. at ___, 130 S. Ct. at 2777 n.1.

Thus, Rent-A-Center

controls only if the “clearly and unmistakably” issue is
decided in Infosys’s favor.

See Morocho v. Carnival

Corp., 2011 WL 147750, *1 & n.2 (S.D. Fla. Jan. 18, 2011)
(Martinez, J.) (distinguishing Rent-A-Center on similar
grounds).
The

parties,

therefore,

have

not

“objectively

revealed an intent to submit the arbitrability issue to
arbitration.”

First Options, 514 U.S. at 944.

10

B.

Unconscionability

Because

the

unmistakably”

parties

agree

to

did

arbitrate

not

“clearly

and

arbitrability,

this

court must decide Palmer’s unconscionability challenge.
Under California law, “[u]nconscionability analysis
begins with an inquiry into whether the contract is one
of adhesion.”

Armendariz v. Foundation Health Psychcare

Services, Inc., 6 P.3d 669, 689 (Cal. 2000).

A contract

of adhesion is another term for 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.”

(internal quotation marks omitted).

Id.
The

court

procedurally

then

asks

whether

and

the

substantively

contract

is

unconscionable.

Procedural unconscionability focuses on “‘oppression’ or
‘surprise’

due

to

unequal

bargaining

power,”

while

substantive unconscionability hinges on “‘overly harsh’
or ‘one-sided’ results.”

Id. at 690.

11

While both must be

present to invalidate a contract, “they need not be
California courts have

present in the same degree.”

Id.

adopted

approach

a

“sliding

scale”

unconscionability claims.
Infosys

contends

to

adjudicating

Id.

that

the

contract

is

neither

procedurally nor substantively unconscionable because it
permitted Palmer to obtain legal advice prior to signing
and

because

it

provided

for

a

accordance with California law.

fair

arbitration

in

Palmer relies on a

California trial court’s ruling that an identical Infosys
arbitration agreement was unconscionable. See Awasthi v.
Infosys Technologies Limited, No. RG09486022 (Cal. Super.
Ct. 2010).

The court agrees with the California court’s

finding of unconscionability.
Here, it is clear that the arbitration agreement is
a contract of adhesion.
included

within

boilerplate

and

a

The arbitration provisions,

larger

drafted

by

employment
the

bargaining power, the employer.

12

party

contract,
with

are

superior

Similarly,

the

unconscionable.

contract

is

procedurally

The employment agreement begins: “As a

condition of my employment with Infosys ... I agree to
the following.”
2.

Arbitration Agreement, Doc. No. 4-1, at

Palmer concluded that this was a “take-it or leave-it

requirement”

of

employment

with

Infosys.

Palmer

Affidavit, Doc. No. 8-1, at 4.

Indeed, “few employees

are

a

in

a

position

to

refuse

job

because

of

an

Armendariz, 6 P.3d at 690.

arbitration requirement.”

This type of “‘oppression’ ... due to unequal bargaining
power”

suffices

unconscionability.

for

a

finding

of

procedural

Id.

Regarding substantive unconscionability, California
courts

invalidate

contracts

if

there

is

a

mutuality” in their arbitration agreements.
Here,

the

arbitration

agreement

requires

“lack

of

Id. at 691.
that

all

disputes between Infosys and Palmer, regardless of who
asserts the claim, shall be decided by an arbitrator.
The agreement then lists the types of claims to be

13

decided

by

an

arbitrator,

all

of

which

rely

on

antidiscrimination or labor statutes protecting employee
See Arbitration Agreement, Doc. No. 4-1, at 7.

rights.

However, the arbitration agreement provides that either
party may seek injunctive relief in court for claims
relating to intellectual property or trade secrets.

See

id. at 8.
While these provisions are fair on their face, it is
obvious that the types of claims that must be arbitrated
are those most commonly brought by an employee, while
those likely initiated by an employer can be filed in
court.

California

unconscionability

law

under

creates
such

a

presumption

arrangements.

As

of
the

California Supreme Court explained: “If an employer does
have

a

reasonable

justification

for

the

[lack

of

mutuality] arrangement ... such an agreement would not be
unconscionable.

Without such a justification, we must

assume

is.”

that

it

Armendariz,

6

P.3d

at

694.

Infosys’s motion to compel arbitration is silent as to

14

this provision and asserts that there is no lack of
mutuality in the arbitration agreement.

See Motion to

Compel Arbitration, Doc. No. 4, at 11-12.

In the absence

of a reasonable justification for this lack of mutuality,
the court must presume the contract is unconscionable.
The court also notes that California law “indicates
that protecting against breaches of confidentiality alone
does not constitute a sufficient justification” for lack
of mutuality.

Davis v. O’Melveny & Myers, 485 F.3d 1066,

1081 (9th Cir. 2007).
holdings
agreements

under

This ruling accords with numerous

California

unconscionable

law

finding

arbitration

for

their

asymmetrical

treatment of trade-secrets claims.

See, e.g., Nagrampa

v. MailCoups, Inc., 469 F.3d 1257, 1287 (9th Cir. 2006)
(en banc) (“[T]he arbitration provision itself states the
purported

business

justification

for

excluding

MailCoups's right to obtain provisional relief on any
cause of action it might assert: ‘to protect its Service
Marks and proprietary information.’ California courts

15

routinely

have

rejected

legitimate

basis

for

this

allowing

justification
only

one

party

as

a

to

an

agreement access to the courts for provisional relief.”);
Armendariz, 6 P.3d at 694 (“An employee terminated for
stealing trade secrets, for example, must arbitrate his
or her wrongful termination claim ... while the employer
has no corresponding obligation to arbitrate its trade
secrets

claim

against

the

employee.”);

O’Hare

v.

Municipal Resource Consultants, 132 Cal. Rptr. 2d 116,
124

(Cal.

Ct.

App.

2003)

(finding

agreement

unconscionable for allowing judicial relief of tradesecrets claims).
Finally,

after

the

briefing

in

this

case

was

completed, the Supreme Court handed down AT&T Mobility
LLC v. Concepcion, ___ U.S. at ___, 131 S. Ct. 1740
(2011).

The Concepcion Court held that the FAA preempted

California’s rule that waivers of classwide arbitration
were unconscionable.
feature

of

While this case also involves a

California’s

unconscionability

16

doctrine,

Concepcion

does

not

control

here.

See

Sanchez

v.

Valencia Holding Co., LLC, 2011 WL 5027488, *7 (Cal. Ct.
App.

Oct.

24,

2011)

(noting

that

California’s

unconscionability doctrine survives Concepcion so long as
it does not relate to waiver of classwide arbitration).
The

Concepcion

Court

held

that

requiring

the

“availability of classwide arbitration interferes with
fundamental attributes of arbitration and thus creates a
scheme inconsistent with the FAA.”
at ___, 131 S. Ct. at 1748.

Concepcion, ___ U.S.

The Court’s proffered

reasons for conflict were that classwide arbitration was
less

efficient,

more

procedurally formal.

costly

to

defendants,

and

See id. at ___, 131 S. Ct. at 1751-

52. These attributes undermined the “principal advantage
of arbitration--its informality.”

Id. at ___, 131 S. Ct.

at 1751.
While the Concepcion Court expressed concern about
arbitration morphing into a set of formalized, classbased

procedures,

this

arbitration

17

agreement

is

unconscionable at an antecedent step. The arbitration
agreement

is

unconscionable

because

of

its

lack

of

mutuality as to the availability of arbitration and the
types of claims that may proceed to a judicial forum.
The agreement does not impact the internal procedures of
arbitration at all.
a

lack

of

In fact, California’s rule against

mutuality

encourages

arbitration,

as

arbitration is contingent on both parties’s claims being
subject to the arbitral forum.
of

mutuality”

fundamental

rule

does

attributes

preempted by the FAA.

of

Thus, California’s “lack
not

“interefere[]

arbitration”

and

with

is

not

Id. at ___, 131 S. Ct. at 1748.
* * *

Accordingly, it is ORDERED that defendant Infosys
Technologies

Limited

Incorporated’s

motion

to

arbitration (Doc. No. 4) is denied.
DONE, this the 9th day of November, 2011.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE

compel