Russ v. United States Automobile Association et al

Filing 32

ORDER granting Defendant's 15 and 28 Motion to Dismiss, Motion to Compel Arbitration. Plaintiff Ronald C. Russ is directed to initiate arbitration of his claims against the defendants in accordance with the provisions of the Dialogue: The USAA Dispute Resolution Program. This action is dismissed without prejudice and the Clerk shall enter judgment accordingly. Signed by Senior Judge Paul G Rosenblatt on 5/10/17.(DXD)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9
10

Ronald C. Russ,
Plaintiff,

11
12
13

vs.
United Services Automobile
Association; and Gary W. Sherry,

14

Defendants.
15

)
)
)
)
)
)
)
)
)
)
)

No. CV-16-02787-PHX-PGR
ORDER

16

Pending before the Court is defendant United Services Automobile

17

Association’s Motion to Dismiss and Compel Arbitration (Doc. 15) and Defendant

18

Gary W. Sherry’s Motion to Dismiss and Compel Arbitration (Doc. 28). Having

19

considered the parties’ memoranda in light of the submitted evidence, the Court

20

finds that the motions should be granted.

21

Background

22

According to the First Amended Complaint (“FAC”) (Doc. 21), plaintiff Ronald

23

Russ was hired by defendant United Services Automobile Association (“USAA”), a

24

leading provider of financial planning, insurance, investments, and banking products,

25

in November 2006 and was terminated in September 2014. At the time of his

26

termination, the plaintiff was a Wealth Management Service and Implementation

1

Specialist who was responsible for providing customer support to USAA’s high net

2

worth members by servicing their financial and investment accounts. Defendant

3

Sherry was the plaintiff’s direct supervisor and manager beginning in November

4

2013. The two-count FAC alleges a retaliation claim against USAA pursuant to the

5

Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq. (Count One) and an

6

interference claim against both defendants pursuant to the Family and Medical

7

Leave Act, 29 U.S.C. § 2601 et seq. (Count Two).

8

According to the evidence submitted by USAA, which is not disputed by the

9

plaintiff, USAA implemented a dispute resolution program in August 2004 known as

10

the Dialogue Dispute Resolution Program (“Dialogue Program”), which provides in

11

part that all employment-related disputes between USAA and its employees (with

12

some exceptions not relevant here) that are not resolved through other available

13

Dialogue dispute resolution programs must be submitted to binding arbitration using,

14

where applicable, the Employment Dispute Resolution Rules of the American

15

Arbitration Association.1 The plaintiff received notice providing him with the Dialogue

16
17
18
19

1

The Dialogue: The USAA Dispute Resolution Program (Exhibit A-1 to
USAA’s motion) contains the following relevant provisions:
It defines “Dispute” in part as meaning

20
21
22
23
24
25
26

all legal and equitable claims, demands, and controversies, of
whatever nature or kind, whether in contract, tort, under statute or
regulation, or some other law, (i) between the Company and an
Employee or Applicant; ... or (iv) asserted against a Third Party
Beneficiary, including, but not limited to, any matters with respect to:
1. this Description, the Rules, or any other matter relating to
Dialogue;
2. the employment ... of an Employee, including the terms,
conditions, and termination of such employment with the Company,
including events that may occur after any such termination of
-2-

1

Program’s terms and conditions on or about his start date, he returned his signed

2

notice acknowledging that he had received, reviewed, and understood the Dialogue

3

Program materials and consented to be contractually bound by them on November

4

13, 20062, and he attended a training session on using the Dialogue Program on

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

employment;
3. any other matter relating to or concerning the relationship between
the Employee and the Company including, by way of example and
without limitation, allegations of discrimination based on race, sex,
religion, national origin, age, veteran status, disability, or other legally
protected characteristic; sexual or other types of harassment;
wrongful discharge; workers’ compensation retaliation or other
legally prohibited retaliation; defamation; infliction of emotional
distress; failure to pay wages; failure to comply with any mandatory
leave or reinstatement obligations, etc.
It defines “Third Party Beneficiary” in part as meaning “(ii) any of the past,
present ... employees ... of USAA against whom a Dispute is asserted, if such
Dispute relates in any way to the Company.”
It also provides, in a provision entitled Exclusive Remedy; Resolution of
Dispute that “Arbitration under Dialogue, rather than trial before a court or jury, is the
final, exclusive, and binding means for resolving all Disputes that are not otherwise
settled or resolved by the Parties, regardless of whether a Party asserts additional
claims that are not within the scope of Dialogue.”
2

The one-page Notice and Agreement Concerning Dialogue: the USAA
Dispute Resolution Program that the plaintiff signed on November 13, 2006 (Exhibit
A-3 to USAA’s motion), contains in part the following provisions:
NOTICE
[USAA] maintains a Dispute Resolution Program known as “Dialogue”
(the Program) that governs employment-related disputes which it may
have with applicants and employees. As a condition of employment,
you and USAA agree to resolve employment-related legal claims
against USAA through the Dialogue program rather than the court
system. Included with this NOTICE are the following: (1) a letter
regarding the Program ...; (2) the Dialogue guide, which summarizes
the program; (3) the Program Description and Rules, which provides a
-3-

1

November 30, 2006. In his declaration, the plaintiff states in part that he did not fully

2

understand and comprehend the notice regarding the Dialogue Program he signed

3

nor the potential adverse consequences and limitations the notice placed on his

4

legal rights and access to the federal court system.

5

Discussion

6

The defendants seek to have the Court compel the plaintiff to arbitrate all of

7

the claims alleged in the FAC and to dismiss the FAC in its entirety.3 The Dialogue

8

Program provides that the Federal Arbitration Act (“FAA”) applies to arbitrations

9

under it.

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

more formal and complete statement of the terms of the Program; and
(4) the USAA Legal Assistance Plan and Summary Plan Description.
AGREEMENT
I consent, along with USAA, to be bound by the terms of the Program.
I acknowledge having received the above-reference documents, and
that I have familiarized myself with the material. I understand that the
Program establishes a variety of options and resources to resolve workrelated disputes. I understand that any dispute covered by the
Dialogue Program that cannot be resolved by mutual agreement, must
be submitted to final and binding arbitration, instead of to the court
system. This includes any disputes relating to my employment, and
any termination of my employment (including events that may occur
after termination of employment). I understand that this means that
USAA and I are waiving any right we may have to bring a lawsuit and
to a jury trial concerning any dispute covered by the Program. I
understand and agree that the terms of the Program are a condition of
my employment. I also understand that the Program is not a contract
of employment for any specific period of time and does not affect either
my or USAA’s legal rights except as expressly stated in the Program
itself.
3

Although the USAA’s motion was directed at the original complaint since
it was filed prior to the filing of the FAC, the Court previously ordered (Doc. 27) that
the motion would be deemed to be directed at the FAC.
-4-

1

The FAA broadly provides that written agreements to arbitrate controversies

2

arising out of contracts involving interstate commerce4 “shall be valid, irrevocable,

3

and enforceable, save upon such grounds as exist at law or in equity for the

4

revocation of any contract.” 9 U.S.C. § 2. Absent a valid contractual defense, the

5

FAA mandates that district courts “shall direct the parties to proceed to arbitration

6

on issues as to which an arbitration agreement has been signed.” Dean Witter

7

Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis in original). The Court’s

8

role under the FAA is limited to (1) determining whether a valid agreement to

9

arbitrate exists and, if it does, whether the agreement encompasses the dispute at

10

issue. Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1130 (9th Cir.

11

2000); 9 U.S.C. § 4. Since the plaintiff does not dispute that both of his claims in the

12

FAC fall within the purview of the Dialogue Program’s arbitration agreement, the only

13

issue before the Court is the validity of the arbitration agreement.

14

The plaintiff argues that the arbitration provision is unenforceable because it

15

is both procedurally and substantively unconscionable.

Unconscionability is a

16

generally applicable contract defense that may render an arbitration provision

17

unenforceable under the FAA, Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681,

18

687 (1996), and the determination of unconscionability in the arbitration context is

19

determined according to the laws of the state of contract formation, here Arizona.5

20
21
22
23
24
25
26

4

The plaintiff does not dispute that the FAA’s commerce requirement is
fulfilled here, and in any case the Dialogue Program states that the applicability of
the FAA to its arbitrations “shall not depend on a determination that the relationship
between an Employee ... and the [USAA] involves commerce[.]”
5

The Court’s resolution of the defendants’ motions is predicated on
Arizona-based law notwithstanding the plaintiff’s over-reliance in his response on
California-based case law based on his contention that such case law is persuasive
-5-

1

Chalk v. T-Mobile USA, Inc., 560 F.3d 1087, 1092 (9th Cir.2009). Under Arizona law,

2

the plaintiff bears the burden of proving the unenforceablity of the arbitration

3

provision, and the determination of unconscionability is to be made by the Court as

4

a matter of law. Maxwell v. Fidelity Financial Services, Inc., 907 P.2d 51, 56

5

(Ariz.1995); Taleb v. AutoNation USA Corp., 2006 WL 3716922, at *2 (D.Ariz. Nov.

6

13, 2006) (“Because a court order compelling arbitration is the functional equivalent

7

of a summary disposition on the issue of the enforceability of the Arbitration

8

Agreement, the burden is properly upon the plaintiff to produce specific facts

9

showing that such a triable issue exists.”) The Court concludes as a matter of law

10

that the plaintiff has not met the “high bar” necessary to demonstrate

11

unconscionability. Longnecker v. American Express Co., 23 F.Supp.3d 1099, 1108

12

(D.Ariz.2014).

13

A. Procedural Unconscionabilty

14

The plaintiff argues that the Dialogue Program’s arbitration agreement is

15

procedurally unconscionable. Procedural unconscionability involves a finding that

16

something was wrong in the bargaining process in that it “is concerned with ‘unfair

17

surprise,’ fine print clauses, mistakes or ignorance of important facts or other things

18

that mean bargaining did not proceed as it should.” Maxwell, 907 P.2d at 57-58.

19

The plaintiff raises two reasons why the Dialogue Program’s arbitration

20

agreement is procedurally unconscionable, the first of which is because it constitutes

21

a contract of adhesion. For purposes of the resolution of the defendants’ motions,

22

the Court assumes that the Dialogue Program constitutes an adhesion contract

23

given the mandatory terms of the Dialogue Program and the plaintiff’s

24

uncontroverted statement in his declaration that signing the Dialogue Program notice

25
26

in interpreting Arizona law on unconscionability.
-6-

1

regarding the arbitration requirement was a “take it or leave it” situation on his part

2

because he was told that he had to sign it in order to be employed at USAA. See

3

Broemmer v. Abortion Services of Phoenix, Ltd., 840 P.2d 1013, 1015 (Ariz.1992)

4

(Court stated that an adhesion contract “is typically a standardized form offered to

5

consumers of goods and services on essentially a take it or leave it basis without

6

affording the consumer a realistic opportunity to bargain and under such conditions

7

that the consumer cannot obtain the desired product or services except by

8

acquiescing in the form contract.”)

9

The Court rejects, however, the plaintiff’s argument that a finding that a

10

contract is one of adhesion constitutes in and of itself a finding of procedural

11

unconscionability under Arizona law. Longnecker v. American Express Co., 23

12

F.Supp.3d at 1109 (“But even if the arbitration agreements were contracts of

13

adhesion that would not mean that they are procedurally unconscionable. Contracts

14

of adhesion are not per se unenforceable.”); Perry v. NorthCentral University, Inc.,

15

2011 WL 4356499, at *5 (D.Ariz. Sept. 19, 2011) (same); R & L Limited Investments,

16

Inc. v. Cabot Investment Properties, LLC, 729 F.Supp.2d 1110, 1115 (D.Ariz.2010)

17

(Court noted that “it does not appear that there is any Arizona law supporting the

18

assertion that a finding of adhesion equates to a finding of procedural

19

unconscionability. ... The fact that a given contract was a contract of adhesion is not

20

itself dispositive[.]”)

21

presumptively valid and fully enforceable according to its terms unless the contract

22

is unconscionable or beyond the range of reasonable expectations, Broemmer, 840

23

P.2d at 1016, which are two distinct grounds for invalidating or limiting the

24

enforcement of a contract, Maxwell, 907 P.2d at 57, and the plaintiff does not argue

25

the applicability of the latter exception. See also, AT&T Mobility LLC v. Concepcion,

Arizona law recognizes that a contract of adhesion is

26

-7-

1

131 S.Ct. 1740, 1750 (2011) (Court rejected the idea that arbitration agreements are

2

per se unconscionable when found in adhesion contracts.) As the defendants note,

3

and the plaintiff simply and inexplicably ignores without comment, another Judge of

4

this Court has already determined that the same USAA Dialogue Program arbitration

5

agreement at issue here is not a procedurally unconscionable adhesion contract.

6

O’Bannon v. United Services Automobile Ass’n, CV-15-02231-PHX-SRB (Doc. 51,

7

dated June 17, 2016) (In compelling arbitration, court stated that “[e]ven assuming

8

that the arbitration agreement in this case was a ‘take it or leave it’ contract of

9

adhesion, it was not procedurally unconscionable. ... [T]he arbitration agreement in

10

the Dialogue program is not a procedurally unconscionable contract of adhesion.”)

11

The Court agrees with that position.6

12

The plaintiff also argues that the arbitration agreement is procedurally

13

unconscionable because it allows USAA to impose mandatory arbitration pursuant

14

to AAA rules of procedure that are not provided to employees when they receive the

15

Dialogue Program and the Dialogue Program does not contain any information as

16

to how an employee might obtain a copy of the AAA rules. The Court also rejects

17

this argument. See O’Bannon order compelling arbitration (“The Court concludes

18

that [USAA’s] failure to provide a copy of the AAA rules did not make the arbitration

19

provision in this case procedurally unconscionable.”); Perry v. NorthCentral

20

University, 2011 WL 4356499, at *7 (This Court rejected the argument that an

21

arbitration provision was procedurally unconscionable because the employer did not

22
23
24
25
26

6

Furthermore, while the plaintiff may not have understood the full
ramifications of the Dialogue Program arbitration agreement he was compelled to
sign, there was no unfair surprise involved with it because he does not dispute that
he received the Dialogue Program materials and the contents of the arbitration
provisions were in no way hidden within those materials.
-8-

1

give the employee a copy of the AAA rules governing the arbitration process.);

2

Godhart v. Direct Alliance Corp., 2011 WL 2713977, at *3 (D.Ariz. July 13, 2011)

3

(Court concluded that an arbitration provision in an employment contract was not

4

procedurally unconscionable notwithstanding that the employer did not give the

5

plaintiff a copy of the rules of the AAA.); Harrington v. Pulte Home Corp., 119 P.3d

6

1044, 1052 n.9 (Ariz.App.2005) (In finding that an arbitration provision was

7

enforceable, court noted that the rules of the AAA are available publically on-line.)

8

B. Substantive Unconscionability

9

The plaintiff argues that the Dialogue Program’s arbitration agreement is also

10

substantively unconscionable. Substantive unconscionability is concerned with the

11

relative fairness of the actual terms of the contract, i.e. whether they are unjust or

12

one-sided. Maxwell, 907 P.2d at 58. “Indicative of substantive unconscionability are

13

contract terms so one-sided as to oppress or unfairly surprise an innocent party, an

14

overall imbalance in the obligations and rights imposed by the bargain, and

15

significant cost-price disparity.” Id. at 59.

16

The plaintiff raises two reasons why the Dialogue Program’s arbitration

17

agreement is substantively unconscionable, the first of which is because USAA, but

18

not the plaintiff, has the absolute right to unilaterally amend or cancel the mandatory

19

arbitration requirement so long as notice is provided.7 The Court rejects this

20
7

21
22
23
24
25
26

Regarding amendment, the Dialogue Program provides that “[t]he
Company may amend Dialogue by giving at least 30 days notice of amendment to
current Employees. No amendment shall apply to a Dispute for which a proceeding
has been initiated pursuant to the Rule prior to the Effective Date of Dialogue’s
amendment.”
Regarding termination, the Dialogue Program provides that “Dialogue
may be terminated by the Company by giving at least 30 days notice of termination
to current Employees. Termination shall not be effective as to Disputes for which a
proceeding has been initiated pursuant to the Rule prior to the Effective Date of
-9-

1

argument. While there is some case law to the contrary from this District, the Court

2

finds persuasive the case law that concludes that amendment and termination

3

provisions such as those found in the Dialogue Program are not substantively

4

unconscionable under Arizona law when, as with the plaintiff’s employment here,

5

employment is on an at-will basis. See O’Bannon v. United Services Automobile

6

Ass’n order compelling arbitration (Court concluded that the modification/termination

7

provisions in USAA’s Dialogue Program were not substantively unconscionable

8

because Arizona law views changes in the terms of an at-will employment

9

relationship to be a new offer that an employee may accept by performance or reject

10

by leaving the job.); EEOC v. Cheesecake Factory, Inc., 2009 WL 1259359, at *4-5

11

(D.Ariz. May 6, 2009) (Court concluded that an employer’s right in the future to

12

change the arbitration agreement in the employee handbook was not substantively

13

unconscionable under Arizona law given the at-will nature of the employment.); cf.,

14

Longnecker v. American Express Co., 23 F.Supp.3d at 1111 (Court noted, without

15

deciding, that it did not perceive how an arbitration agreement that gave the

16

employer the sole right to modify or terminate the agreement could be considered

17

to be substantively unconscionable when the employer had not used the unilateral

18

modification clause and the plaintiffs were faced with the exact terms to which they

19

originally agreed.)

20

The plaintiff also conclusorily argues that the Dialogue Program’s arbitration

21

agreement is substantively unconscionable because the applicable AAA rules, in

22

particular its Employment Dispute Resolution Rules 23 and 39(b), require that the

23
24
25
26

Dialogue’s termination.”
- 10 -

1

arbitration proceedings and awards not be subject to public scrutiny.8 The plaintiff’s

2

support for his argument consists solely of three string-cited cases, only two of

3

which, both Ninth Circuit cases, are relevant to this issue, wherein the courts, relying

4

on California law (which the defendants state is no longer the law in California),

5

concluded that even facially neutral confidentiality provisions in arbitration provisions

6

could be substantively unconscionable because they favor companies over

7

individuals by preventing employees from accessing precedents from similar

8

arbitrations. Totally absent from the plaintiff’s response is any cogent argument as

9

to how those cases, which involved total confidentiality provisions, are factually

10

apposite here, where the AAA rules cited by the plaintiff do not require absolute

11

confidentiality inasmuch as they both permit waiver of confidentiality by the parties.

12

In any case, the Court agrees with the conclusion of the O’Bannon court wherein it

13

determined that the applicability of AAA Rules 23 and 39 to USAA’s Dialogue

14

Program arbitration agreement did not make the agreement substantively

15

unconscionable as there is nothing overly broad or unfairly one-sided about those

16
17
18
19
20
21
22
23
24
25
26

8

The AAA’s employment arbitration rules (Exhibit 2 to the plaintiff’s
response) provide the following:
23. Confidentiality
The arbitrator shall maintain the confidentiality of the arbitration and
shall have the authority to make appropriate rulings to safeguard that
confidentiality, unless the parties agree otherwise or the law provides
otherwise.
***
39. The Award
***
b. An award issued under these rules shall be publicly available, on a
cost basis. The names of the parties and witnesses will not be publicly
available, unless a party expressly agrees to have its name made
public in the award.
- 11 -

1

rules.

2

Since the Dialogue Program arbitration agreement that the plaintiff agreed to

3

is not unconscionable, the Court concludes that arbitration must be compelled

4

pursuant to the FAA. 9 U.S.C. § 4. Since both of the claims arising out of the

5

plaintiff’s FAC are arbitrable, the Court, in the exercise of its discretion, see Sparling

6

v. Hoffman Construction Co., 864 F.2d 635, 638 (9th Cir.1988), further concludes that

7

the dismissal of this action, rather than a stay pending arbitration, is appropriate.

8

Therefore,

9

IT IS ORDERED that defendant United Services Automobile Association’s

10

Motion to Dismiss and Compel Arbitration (Doc. 15) and Defendant Gary W. Sherry’s

11

Motion to Dismiss and Compel Arbitration (Doc. 28) are both granted.

12

IT IS FURTHER ORDERED that plaintiff Ronald C. Russ is directed to initiate

13

arbitration of his claims against the defendants in accordance with the provisions of

14

the Dialogue: The USAA Dispute Resolution Program.

15
16
17

IT IS FURTHER ORDERED that this action is dismissed without prejudice and
that the Clerk of the Court shall enter judgment accordingly.
DATED this 10th day of May, 2017.

18
19
20
21
22
23
24
25
26

- 12 -