Unimax Express, Inc. v. Cosco North America, Inc. et al
Filing
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ORDER Denying Defendants' Motion to Compel Arbitration 9 by Judge Dean D. Pregerson. For the reasons stated above, Defendants Motion to Compel Arbitration is DENIED. (See Order for Details). (sch)
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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UNIMAX EXPRESS, INC., and on
behalf of all others
similarly situated,
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Plaintiff,
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v.
COSCO NORTH AMERICA, INC.,
COSCO CONTAINER LINES
AMERICA, INC.,
Defendants.
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Case No. CV 11-02947 DDP (PLAx)
ORDER DENYING DEFENDANTS’ MOTION
TO COMPEL ARBITRATION
[Docket No. 9]
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Presently before the court is a Motion to Compel Arbitration
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filed by Defendants Cosco North America, Inc. and Cosco Container
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Lines America, Inc. (collectively, “Cosco”).
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the submissions of the parties and heard oral argument, the court
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denies the motion and adopts the following order.
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I.
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Having considered
Background
Cosco transports cargo containers over sea and land.
Cosco
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contracts with trucking companies such as Plaintiff Unimax
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Express, Inc. (“Unimax”) for the overland portions of Cosco’s
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shipments.
Trucking companies pick up loaded containers from
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marine terminals, deliver the containers to their ultimate
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destination, then return the empty containers back to the marine
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terminal.
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the agreed upon time, equipment providers such as Cosco charge
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truckers “demurrage,” or late pick-up, fees.
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trucking companies do not return empty containers on time, Cosco
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charges “per diem,” or late drop-off, fees.
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When truckers do not pick up loaded containers within
Similarly, when
Cosco only contracts with carriers who are signatories to a
standard contract, the Uniform Intermodal Interchange and
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Facilities Access Agreement (“the Agreement”).
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drafted by the Intermodal Association of North America (“the
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Association”), a trade organization located in Maryland.1
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has signed the Agreement.
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The Agreement was
Unimax
The Agreement contains an arbitration provision (“the
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Provision”).
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resolving disputes “with respect to per diem [i.e. late drop-off]
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or maintenance and repair invoices.”
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parties must provide written notification of disputed charges
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within thirty days of receipt of the disputed invoice.
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§§ H.2-H.3.)
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notice of a dispute, that party may not seek arbitration or assert
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any other defense against the invoice, and must pay the invoiced
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charges immediately.
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The Provision sets forth default procedures for
(Agreement § H.1).
(Agreement
If an invoiced party fails to timely provide written
(Agreement § H.3.)
If arbitration is sought, the Association will appoint a
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three-member panel to resolve the dispute.
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¶ 3.)
(Agreement, Exhibit D
“Disputes must be confined to charges arising from
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Invoiced
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The Association is not a party to this action.
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Maintenance and Repair . . . or Per Diem [late drop-off]
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invoices.”
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initiated, the moving party has fifteen days to submit written
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arguments to the Association.
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then has fifteen days to submit responses.
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arbitration panel will then render a decision based on the written
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submissions of the parties.
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required, the panel “may” hold a conference call with both
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parties.
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(Agreement, Ex. D ¶ 6.)
(Id. ¶ 10.)
not subject to appeal.
Once an arbitration is
(Id. ¶ 7.)
(Id. ¶ 9.)
The non-moving party
(Id. ¶ 8.)
The
If further information is
The panel’s decisions are final, and are
(Id. ¶ 11.)
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On April 7, 2011, Unimax filed the instant action against
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Costco, alleging that Cosco unlawfully levies late pick-up and
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late drop-off fees on weekends and holidays in violation of
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California Business and Professions Code § 22928.
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to compel Unimax to arbitrate its claims under the Agreement.
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II.
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Cosco now moves
Legal Standard
Under the FAA, 9 U.S.C. § 1 et seq., a written agreement that
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controversies between the parties shall be settled by arbitration
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is “valid, irrevocable, and enforceable, save upon such grounds as
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exist at law or in equity for the revocation of any contract.”
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U.S.C. § 2.
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arbitrate under a written arbitration agreement may petition the
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court for an order directing that arbitration proceed as provided
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for in the agreement.
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Supercuts, Inc., 51 Cal. App. 4th 1519, 1526-27 (1997)
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(considering a motion to compel arbitration).
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motion to compel arbitration, the court must determine whether
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there is a duty to arbitrate the controversy, and “this
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A party aggrieved by the refusal of another to
9 U.S.C. § 4; see e.g. Stirlen v.
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In considering a
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determination necessarily requires the court to examine and, to a
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limited extent, construe the underlying agreement.”
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Cal. App. 4th at 1527.
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arbitration clause, which may be made only “upon such grounds as
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exist for the revocation of any contract,” is solely a judicial
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function.
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Stirlen, 51
The determination of the validity of an
Id. (internal citation omitted).
If the court is satisfied that the making of the arbitration
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agreement or the failure to comply with the agreement is not at
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issue, the court shall order the parties to proceed to arbitration
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in accordance with the terms of the agreement.
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FAA reflects a “federal policy favoring arbitration agreements.”
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Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991)
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(quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460
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U.S. 1, 24 (1983)).
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III.
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9 U.S.C. § 3.
The
Discussion
Unimax opposes Cosco’s instant motion on the grounds that the
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Provision is unconscionable and, therefore, unenforceable.
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(Opposition at 12.)
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Cosco’s suggestion that this argument is controlled by the Supreme
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Court’s recent decision in AT&T Mobility LLC v. Concepcion, 131
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S.Ct. 1740 (2011).
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from invalidating unconscionable arbitration agreements on the
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basis of state law.
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limited state-law-based unconscionability challenges to class-
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action waiver provisions in arbitration agreements.
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131 S.Ct. at 1753.
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“agreements to arbitrate may be invalidated by generally
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applicable contract defenses, such as fraud, duress, or
As an initial matter, the court rejects
Cosco suggests that Concepcion prevents courts
(Reply at 4.)
Cosco is mistaken.
Concepcion
Concepcion,
The Court recognized, however, that
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unconscionability.”
Id. at 1746 (internal quotation and citation
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omitted).
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invalidate arbitration agreements is not affected by the Supreme
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Court’s decision in [Concepcion].”
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Strong, 651 F.3d 1241, 1267 n.28 (11th Cir. 2011); See also
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Ferguson v. Community College, 2011 WL 4852339 *2 (C.D. Cal.
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October 6, 2011).
Thus, “[t]he ability of such contractual defects to
Community State Bank v.
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A.
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Before determining whether the Provision is valid, this court
Choice of Law
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must first determine, under the choice-of-law rules of the forum
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state, which state’s laws apply.
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987, 994 (9th Cir. 2010).
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choice of law provision.
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courts generally respect choice-of-law provisions within contracts
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that have been negotiated at arm’s length.
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Superior Court, 3 Cal.4th 459, 464 (1992).2
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provisions will not be enforced, however, if “the chosen state has
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no substantial relationship to the parties or the transaction and
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there is no reasonable basis for the parties choice” or 2) the
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chosen state’s law is contrary to the fundamental public policy of
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a state that has a materially greater interest in the issue at
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hand and whose law would otherwise apply.
Pokorny v. Quixtar, 601 F.3d
Here, the Agreement contains a Maryland
(Agreement § G.7.)
In California,
Nedlloyd Lines B.V. v.
Choice-of-law
Bridge Fund Capital
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The court notes that here, as discussed further infra, the
Agreement was not negotiated at arm’s length. The Association
drafted the standard language of the Agreement, to which Unimax had
to agree in order to conduct business with Cosco. “[C]ourts should
not apply choice-of-law provisions in adhesion contracts if to do
so would result in substantial injustice to the adherent.” Flores
v. American Seafoods Co., 335 F.3d 904, 918 (9th Cir. 2003)
(internal quotation marks omitted).
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Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1002-1003 (9th
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Cir. 2010); Nedlloyd, 3 Cal.4th at 465.
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Here, Maryland has no relationship to the parties or the
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transactions at issue here.
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does it appear that any party conducts substantial business in
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Maryland.
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the transactions relevant here occurred in California.
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claims arise under California state law alone.
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This cases only tie to Maryland is the fact that the Association,
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which drafted the Agreement without Unimax’s input, is located in
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Maryland.
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The court is not persuaded by Cosco’s unsupported assertion that
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“[g]iven the importance of the [Association] and its role in this
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industry, there is an obvious nexus between Maryland and the
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choice of law provision.”
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any reasonable basis to apply Maryland law where the only
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conceivable connection to Maryland is a contract of adhesion
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drafted by a third party.
No party is located in Maryland, nor
Unimax asserts, and Cosco does not dispute, that all of
Unimax’s
The Association, however, is not a party to this case.
(Reply at 5.) Nor can the court find
Accordingly, California law applies.
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B.
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Unconscionability has generally been recognized to include
Validity of the Arbitration Provision
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(1) an absence of meaningful choice on the part of one of the
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parties and (2) contract terms which are unreasonably favorable to
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the other party.
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way, unconscionability has a “procedural” and “substantive”
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element.
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Cir. 2007). “[A]n arbitration agreement, like any other
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contractual clause, is unenforceable if it is both procedurally
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and substantively unconscionable.”
Stirlen, 51 Cal. App. 4th at 1531.
Put another
See Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th
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Pokorny, 601 F.3d at 996.
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California courts apply a “sliding scale” analysis in making
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this determination: “the more substantively oppressive the
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contract term, the less evidence of procedural unconscionability
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is required to come to the conclusion that the term is
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unenforceable, and vice versa.”
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Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669,
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690 (Cal. App. 2000)).
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unconscionability must be present for a contract to be declared
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unenforceable, but they need not be present to the same degree.
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Davis, 485 F.3d at 1072. (quoting
Both procedural and substantive
Harper v. Ultimo, 113 Cal. App. 4th 1402, 1406 (2003).
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1.
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Procedural Unconscionability
Here, Cosco recognizes that its revenues are greater than
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Unimax’s, apparently conceding that Cosco is in a position of
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superior bargaining power.
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is not adhesive is not persuasive.
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that Unimax “simply chose to sign” the Agreement.
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8.)
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Unimax had to sign the standardized Agreement in order to conduct
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business as an intermodal carrier.
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is well settled that standardized, adhesive contracts drafted by
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the stronger party are procedurally unconscionable.
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F.3d at 996.
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drafted the Provision’s language, does not affect the strength of
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the parties’ relative positions.
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draft the Agreement, it clearly approved of the Provision’s
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language, and proceeded to present the Provision to Unimax on a
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take it or leave it basis.
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unconscionable.
Cosco’s contention that the Agreement
Cosco argues in a footnote
(Reply at 10 n.
However, Cosco does not dispute Unimax’s assertion that
(Opp. at 14, Reply at 10.)
It
Pokorny, 601
The fact that the Association, and not Cosco,
Though Cosco did not itself
As such, the Provision is procedurally
See, e.g. Bridge Fund, 622 F.3d at 1004
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(“California law treats . . . terms over which a party of lesser
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bargaining power had no opportunity to negotiate[] as procedurally
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unconscionable to some degree.”) (citing Armendariz, 6 P.3d at
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690); Pokorny, 601 F.3d at 996 (“An agreement or any portion
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thereof is procedurally unconscionable if ‘the weaker party is
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presented the clause and told to “take it or leave it” without the
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opportunity for meaningful negotiation.’” (quoting Szetela v.
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Discover Bank, 97 Cal.App.4th 1094 (2002).
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2.
Substantive Unconscionability
Substantive unconscionability focuses on the one-sidedness of
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the contract terms.
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arbitration agreement is concerned, the agreement is
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unconscionable unless the arbitration remedy contains a ‘modicum
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of bilaterality.’”
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P.3d at 692).
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Armendariz, 6 P. 3d at 690.
“Where an
Ting, 319 F.3d at 1149 (citing Armendariz, 6
Here, the burdens of the arbitration procedures fall
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inordinately on the invoiced party.
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been improperly charged, it must provide written notice of the
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dispute to Cosco within thirty days, at pain of forfeiting any
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defense to such charges, regardless of whether the charges are
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proper.
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thirty-day limitation period furthers Unimax’s “interest in
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resolving legitimate disputes.”
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argument ignores the reality that the thirty-day notice period
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operates as a statute of limitations shorter than that available
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under California law, and works solely to Cosco’s benefit.
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If Unimax believes it has
Cosco contends that the “expeditious and efficient”
(Reply at 12-13.)
Cosco’s
Other terms of the Provision also operate solely to Cosco’s
benefit.
While both parties could theoretically initiate an
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arbitration, the burden is always on the invoiced party to
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initiate a dispute.
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believes it has been wrongly charged and seeks to arbitrate, it
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must submit all of its arguments to the arbitration panel first.
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The invoiced party must articulate its arguments with a clarity
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bordering on prescience, for it has no right to discovery and will
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have no opportunity to rebut the invoicing party’s response
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(notwithstanding the possibility that the arbitration panel “may”
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initiate a conference call).
(Agreement § H.1.)
When an invoiced party
Finally, even if the invoiced party
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receives a favorable determination, the arbitration panel lacks
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the power to enjoin the invoicer’s wrongful conduct, leaving the
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invoicer free to repeat the offense.
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violation, the invoiced party’s only option is to initiate a
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separate dispute every thirty days, ad infinitum.
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circumstances, the arbitration procedures lack even a modicum of
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bilaterality, and the Provision is, therefore, substantively
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unconscionable.
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IV.
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In the case of an ongoing
Under these
Conclusion
For the reasons stated above, Defendants’ Motion to Compel
Arbitration is DENIED.
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IT IS SO ORDERED.
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Dated: November 28, 2011
DEAN D. PREGERSON
United States District Judge
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