Elite Logistics Corporation v. Mol America, Inc. et al

Filing 28

ORDER by Judge Dean D. Pregerson: denying 20 defendants Motion to Compel Arbitration. Any class certification motion shall be filed within ninety days of the date of this order. (lc) Modified on 6/21/2012 (lc).

1
2

O

3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA

10
11
12

ELITE LOGISTICS CORPORATION
and on behalf of all others
similarly situated,

13

Plaintiff,

14

v.

15

MOL AMERICA, INC.,

16

Defendant.
___________________________

)
)
)
)
)
)
)
)
)
)
)
)

Case No. CV 11-02952 DDP (PLAx)

ORDER DENYING DEFENDANT’S MOTION
TO COMPEL ARBITRATION
[Dkt. No. 20]

17
18

Presently before the court is a Motion to Compel Arbitration

19

filed by Defendant Mol America, Inc. (“Mol”).

20

substantially similar to a motion filed by the defendant in a

21

related case, Unimax Express, Inc. v. Cosco North America, Inc.,

22

No. CV 11-2947 DDP.

23

arbitration in the related case.

24

22.)

25

case, the court denies the instant Motion on the grounds discussed

26

in Unimax v. Cosco and reiterated below, and adopts the following

27

order.

28

///

The Motion is

This court denied the motion to compel
(See No. CV 11-2947, Dkt. No.

Having considered the submissions of the parties in this

1
2

I.

Background
Mol transports cargo containers over sea and land.

Mol

3

contracts with trucking companies such as Plaintiff Elite Logistics

4

Corp. (“Elite”) for the overland portions of Mol’s shipments.

5

truckers do not pick up loaded containers within the agreed upon

6

time, equipment providers such as Mol charge truckers “demurrage,”

7

or late pick-up, fees.

8

return empty containers on time, Mol charges “per diem,” or late

9

drop-off, fees.

10

When

Similarly, when trucking companies do not

Mol only contracts with carriers who are signatories to a

11

standard contract, the Uniform Intermodal Interchange and

12

Facilities Access Agreement (“the Agreement”).

13

drafted by the Intermodal Association of North America (“the

14

Association”), a trade organization located in Maryland.1

15

has signed the Agreement.

16

The Agreement was

Elite

The Agreement contains an arbitration provision (“the

17

Provision”).

18

resolving disputes “with respect to per diem [i.e. late drop-off]

19

or maintenance and repair invoices.”

20

parties must provide written notification of disputed charges

21

within thirty days of receipt of the disputed invoice.

22

§§ H.2-H.3.)

23

notice of a dispute, that party may not seek arbitration or assert

24

any other defense against the invoice, and must pay the invoiced

25

charges immediately.

The Provision sets forth default procedures for

(Agreement § H.1).

(Agreement § H.3.)

27
1

(Agreement

If an invoiced party fails to timely provide written

26

28

Invoiced

The Association is not a party to this action.
2

1

If arbitration is sought, the Association will appoint a

2

three-member panel to resolve the dispute.

3

“Disputes must be confined to charges arising from Maintenance and

4

Repair . . . or Per Diem [late drop-off] invoices.”

5

Ex. D ¶ 6.)

6

fifteen days to submit written arguments to the Association.

7

¶ 7.)

8

responses.

9

decision based on the written submissions of the parties.

(Agreement ¶ 3.)

(Agreement,

Once an arbitration is initiated, the moving party has
(Id.

The non-moving party then has fifteen days to submit
(Id. ¶ 8.)

The arbitration panel will then render a

10

9.)

11

conference call with both parties.

12

decisions are final, and are not subject to appeal.

(Id. ¶

If further information is required, the panel “may” hold a
(Id. ¶ 10.)

The panel’s
(Id. ¶ 11.)

13

On April 7, 2011, Elite filed the instant action against Mol,

14

alleging that Mol unlawfully levies late pick-up and late drop-off

15

fees on weekends and holidays in violation of California Business

16

and Professions Code § 22928.

17

arbitrate its claims under the Agreement.

18

II.

19

Mol now moves to compel Elite to

Legal Standard
Under the FAA, 9 U.S.C. § 1 et seq., a written agreement that

20

controversies between the parties shall be settled by arbitration

21

is “valid, irrevocable, and enforceable, save upon such grounds as

22

exist at law or in equity for the revocation of any contract.”

23

U.S.C. § 2.

24

arbitrate under a written arbitration agreement may petition the

25

court for an order directing that arbitration proceed as provided

26

for in the agreement.

27

Supercuts, Inc., 51 Cal. App. 4th 1519, 1526-27 (1997) (considering

28

a motion to compel arbitration).

9

A party aggrieved by the refusal of another to

9 U.S.C. § 4; see e.g., Stirlen v.

In considering a motion to compel
3

1

arbitration, the court must determine whether there is a duty to

2

arbitrate the controversy, and “this determination necessarily

3

requires the court to examine and, to a limited extent, construe

4

the underlying agreement.”

5

(internal citation omitted).

6

an arbitration clause, which may be made only “upon such grounds as

7

exist for the revocation of any contract,” is solely a judicial

8

function.

9

Stirlen, 51 Cal. App. 4th at 1527
The determination of the validity of

Id. (internal citation omitted).

If the court is satisfied that the making of the arbitration

10

agreement or the failure to comply with the agreement is not at

11

issue, the court shall order the parties to proceed to arbitration

12

in accordance with the terms of the agreement.

13

FAA reflects a “liberal federal policy favoring arbitration

14

agreements.”

15

25 (1991) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr.

16

Corp., 460 U.S. 1, 24 (1983)).

17

III.

9 U.S.C. § 3.

The

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

Discussion

18

A.

19

Elite opposes Mol’s instant motion on the grounds that the

Viability of Unconscionability Defense

20

Provision is unconscionable and, therefore, unenforceable.

21

initial matter, the court rejects Mol’s suggestion that this

22

argument is controlled by the Supreme Court’s decision in AT&T

23

Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011).

24

limited state-law-based unconscionability challenges to class-

25

action waiver provisions in arbitration agreements.

26

131 S.Ct. at 1753.

27

to arbitrate may be invalidated by generally applicable contract

28

defenses, such as fraud, duress, or unconscionability.” Id. at

As an

Concepcion

Concepcion,

The Court recognized, however, that “agreements

4

1

1746; See also Kilgore v. KeyBank, Nat. Ass’n, 673 F.3d 947, 963

2

(9th Cir.2012) (“Concepcion did not overthrow the common law

3

contract defense of unconscionability whenever an arbitration

4

clause is involved.

5

savings clause preserves generally applicable contract defenses

6

such as unconscionability . . . .”); Community State Bank v.

7

Strong, 651 F.3d 1241, 1267 n.28 (11th Cir. 2011) (“The ability of

8

such contractual defects to invalidate arbitration agreements is

9

not affected by the Supreme Court’s decision in [Concepcion]. . .

10

Rather, the Court affirmed that the [FAA’s]

.”).

11

B.

12

Before determining whether the Provision is valid, this court

Choice of Law

13

must first determine, under the choice-of-law rules of the forum

14

state, which state’s laws apply.

15

994 (9th Cir. 2010).

16

choice of law provision.

17

generally respect choice-of-law provisions within contracts that

18

have been negotiated at arm’s length.

19

Superior Court, 3 Cal. 4th 459, 464 (1992).2

20

provisions will not be enforced, however, if “the chosen state has

21

no substantial relationship to the parties or the transaction and

22

there is no reasonable basis for the parties choice” or 2) the

23

chosen state’s law is contrary to the fundamental public policy of

Pokorny v. Quixtar, 601 F.3d 987,

Here, the Agreement contains a Maryland
(Agreement § G.7.)

In California, courts

Nedlloyd Lines B.V. v.
Choice-of-law

24
2

25
26
27
28

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 Elite had
to agree in order to conduct business with Mol. “[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).
5

1

a state that has a materially greater interest in the issue at hand

2

and whose law would otherwise apply.

3

Fastbucks Franchise Corp., 622 F.3d 996, 1002-1003 (9th Cir. 2010);

4

Nedlloyd, 3 Cal.4th at 465.

5

Bridge Fund Capital Corp. v.

Here, Maryland has no relationship to the parties or the

6

transactions at issue here.

7

does it appear that any party conducts substantial business in

8

Maryland.

9

transactions relevant here occurred in California.

No party is located in Maryland, nor

Elite asserts, and Mol does not dispute, that all of the
Elite’s claims

10

arise under California state law alone.

11

Maryland is the fact that the Association, which drafted the

12

Agreement, is located in Maryland.

13

not a party to this case.

14

basis to apply Maryland law where the only conceivable connection

15

to Maryland is a contract of adhesion drafted by a third party.

16

Accordingly, California law applies.

This case’s only tie to

The Association, however, is

The court cannot find any reasonable

17

C.

18

Unconscionability has generally been recognized to include (1)

Validity of the Arbitration Provision

19

an absence of meaningful choice on the part of one of the parties

20

and (2) contract terms which are unreasonably favorable to the

21

other party.

22

unconscionability has a “procedural” and “substantive” element.

23

See Kilgore, 673 F.3d at 963. “[A]n arbitration agreement, like any

24

other contractual clause, is unenforceable if it is both

25

procedurally and substantively unconscionable.”

26

at 996.

27
28

Stirlen, 51 Cal. App. 4th at 1531.

Put another way,

Pokorny, 601 F.3d

California courts apply a “sliding scale” analysis in making
this determination.

“[T]he more substantively oppressive the
6

1

contract term, the less evidence of procedural unconscionability is

2

required to come to the conclusion that the term is unenforceable,

3

and vice versa.”

4

Inc., 24 Cal.4th 83, 114 (2000).

5

unconscionability must be present for a contract to be declared

6

unenforceable, but they need not be present to the same degree.

7

Id.; See also Harper v. Ultimo, 113 Cal. App. 4th 1402, 1406

8

(2003).

9

1.

10

Armendariz v. Found. Health Psychcare Servs.,
Both procedural and substantive

Procedural Unconscionability

Mol’s contention that the Agreement is not adhesive is not

11

persuasive.

12

the drafting of the Agreement, presumably because motor carriers

13

were represented on the Association’s Executive Committee.

14

at 14; Reply at 20.)

15

took part in any negotiations.

16

not.

17

adhesive because Unimax had already signed on to the Agreement

18

prior to the adoption of the Arbitration Provision.

19

Mol does not, however, dispute Unimax’s assertion that Unimax had

20

to agree to the standardized Agreement, including the Provision, in

21

order to conduct business as an intermodal carrier after the

22

adoption of the Provision in 2008.

23

Mol appears to argue that Elite had some voice the in

(Opp. at 11.)

(Mot.

There is no evidence, however, that Elite
Indeed, Elite insists that it did

Mol further asserts that the Agreement was not

(Mot. at 14.)

It is well settled that standardized, adhesive contracts

24

drafted by the stronger party are procedurally unconscionable.

25

Pokorny, 601 F.3d at 996.

26

Mol, drafted the Provision’s language, does not affect the strength

27

of the parties’ relative positions.

28

draft the Agreement, it clearly approved of the Provision’s

The fact that the Association, and not

7

Though Mol did not itself

1

language, and proceeded to present the Provision to Elite on a take

2

it or leave it basis.

3

carrier unless it agreed to the Provision.

4

is procedurally unconscionable.

5

1004 (“California law treats . . . terms over which a party of

6

lesser bargaining power had no opportunity to negotiate[] as

7

procedurally unconscionable to some degree.”) (citing Armendariz,

8

24 Cal.4th at 114); Pokorny, 601 F.3d at 996 (“An agreement or any

9

portion thereof is procedurally unconscionable if ‘the weaker party

Elite could not operate as an intermodal
As such, the Provision

See, e.g. Bridge Fund, 622 F.3d at

10

is presented the clause and told to “take it or leave it” without

11

the opportunity for meaningful negotiation.’”) (quoting Szetela v.

12

Discover Bank, 97 Cal.App.4th 1094 (2002)).

13
14

2.

Substantive Unconscionability

Substantive unconscionability focuses on the one-sidedness of

15

the contract terms.

16

arbitration agreement is concerned, the agreement is unconscionable

17

unless the arbitration remedy contains a ‘modicum of

18

bilaterality.’”

19

F.3d at 117).

20

Armendariz, 24 Cal.4th at 114.

“Where an

Ting, 319 F.3d at 1149 (citing Armendariz, 319

Here, the burdens of the arbitration procedures fall

21

inordinately on the invoiced party.

22

improperly charged, it must provide written notice of the dispute

23

to Mol within thirty days, at pain of forfeiting any defense to

24

such charges, regardless of whether the charges are proper.

25

thirty-day notice period operates as a statute of limitations

26

shorter than the four-year claim period available under California

27

law, and works solely to Mol’s benefit.

28

and Professions Code § 17208.
8

If Elite believes it has been

This

See California Business

1

Other terms of the Provision also operate solely to Mol’s

2

benefit.

3

arbitration, the burden is always on the invoiced party to initiate

4

a dispute.

5

receive any number of invoices in a given thirty-day period, it may

6

not dispute more than five invoices in a single arbitration.

7

(Agreement Ex. D ¶ 6.) Here, it appears that Mol took over one

8

hundred billing actions during some months.

9

Licata in Support of Motion, Ex. 1.)

While both parties could theoretically initiate an

(Agreement § H.1.)

Though an invoiced party may

(Declaration of Don

When an invoiced party

10

believes it has been wrongly charged and proceeds to arbitrate five

11

or fewer charges, it must submit all of its arguments to the

12

arbitration panel first.

13

arguments with a clarity bordering on prescience, for it has no

14

right to discovery and will have no opportunity to rebut the

15

invoicing party’s response (notwithstanding the possibility that

16

the arbitration panel “may” initiate a conference call).

The invoiced party must articulate its

17

Finally, even if the invoiced party receives a favorable

18

determination, the arbitration panel lacks the power to enjoin the

19

invoicer’s wrongful conduct, leaving the invoicer free to repeat

20

the offense.

21

party’s only option is to initiate a separate dispute every thirty

22

days, ad infinitum.

23

procedures lack even a modicum of bilaterality, and the Provision

24

is, therefore, substantively unconscionable.

25

IV.

In the case of an ongoing violation, the invoiced

Under these circumstances, the arbitration

Conclusion

26
27
28
9

1

For the reasons stated above, Defendants’ Motion to Compel

2

Arbitration is DENIED.3

3

filed within ninety days of the date of this order.

4

IT IS SO ORDERED.

Any class certification motion shall be

5
6
7

Dated: June 21, 2012
DEAN D. PREGERSON
United States District Judge

8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

3

The court acknowledges that the Los Angeles County Superior
Court disagreed with this court’s reasoning regarding the viability
of the unconscionability defense and compelled arbitration in Elite
Logistics Corp v. Wan Hai Lines, et al., Case No. BC 459050 and
Unimax Express v. Hyundai Merchant Marine, Case No. BC 459051.
10