Moule v. United Parcel Service Co.

Filing 24

ORDER GRANTING 16 Defendant's Motion to Compel Arbitration, signed by Magistrate Judge Jennifer L. Thurston on 7/7/2016. CASE STAYED. Joint status report due within 120 days. The Court retains jurisdiction to confirm the arbitration award and enter judgment for the purpose of enforcement. All pending dates and hearings are VACATED. (Hall, S)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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WAYNE MOULE, dba NORTHWEST
METROLOGY,

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Plaintiff,
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v.
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UNITED PARCEL SERVICE CO.,
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Defendant.
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Case No.: 1:16-cv-00102-JLT
ORDER GRANTING DEFENDANT’S MOTION
TO COMPEL ARBITRATION
(Doc. 16)

United Parcel Service Company seeks to compel arbitration and stay this action initiated by

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Plaintiff Wayne Moule, doing business as Northwest Metrology. (Doc. 16) For the following reasons,

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Defendant’s motion to compel arbitration is GRANTED.

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I.

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Background
Plaintiff’s business, Northwest Metrology, provides “calibration services for specific types of

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equipment such as electronic aviation equipment, oilfield equipment, and hospital equipment.” (Doc. 1

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at 1, ¶ 3) Plaintiff asserts that in January 2015, he prepared a piece of equipment called the Synthesized

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Generator Model #HP8673D (“SG”) to be shipped to Hawaii, via UPS. (Id. at 2, ¶ 7)

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According to Plaintiff, he “packaged the box with several rounds of bubble wrap and it was

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taped security [sic].” (Doc. 1 at 2, ¶ 7) He alleges warning stickers were placed on the box, including

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stickers that indicated “Fragile-Handle With Care” and “High Claim Item.” (Id., ¶ 9) In addition, the

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box had a “75G Shock Watch” sticker, which “contains a device attached to it [and] lights red when
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rough handling of the box occurs.” (Id.) Plaintiff reports that “[t]he 75G Shock Watch sticker

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contained the following words: “HANDLE WITH CARE; RED INDICATES ROUGH HANDLING.

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IF RED, NOTE ON THE BILL OF LADING AND INSPECT PRODUCT.” (Id.) Plaintiff asserts he

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“noted on paper with UPS the SG had a value of $27,000 and paid $528 for the item to be shipped.”

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(Id., ¶ 10)
Plaintiff alleges that when the box arrived in Hawaii, “the 75 G Shock Watch sticker was red

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showing that it had been extremely mishandled and the box was crushed and had been taped together.”

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(Doc. 1 at 2, ¶ 11) He asserts the SG “was a total loss.” (Id.)
Plaintiff asserts UPS was notified of the damage and sent an inspector, who “claimed that the

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equipment was packaged improperly in a ‘used’ single walled box.” (Doc. 1 at 3, ¶12) Plaintiff

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contends this was untrue, and “the box appeared used because it had been mishandled badly.” (Id.) In

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addition, Plaintiff reports that when a UPS driver picked up the box, “he indicated it was packaged

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adequately and that all high value items were inspected at the facility before being shipped.” (Id., ¶ 13)

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Plaintiff contends he “assumed by said representation that had the SG been packaged inappropriately,

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UPS would have informed Plaintiff of this after it was inspected.” (Id.)
Plaintiff made a claim to UPS, “and a claims representative from Crawford and Company was

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assigned.” (Doc. 1 at 3, ¶ 14) He reports that the representative “informed Plaintiff he would hear

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from an agent of UPS,” but “Plaintiff never heard from an agent of UPS accepting or denying the

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claim.” (Id.) Plaintiff contends that he hired counsel, who mailed a letter to the claims representative.

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(Id., ¶ 15) On June 26, 2015, UPS sent a letter “finally denying the claim.” (Id.)
Plaintiff contends that UPS “is liable for the value of the SG, or $27,000 pursuant to the terms

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of the Carmack Amendment, 49 U.S.C. 14706.” (Doc. 1 at 4, ¶ 20) Defendant filed its answer on

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March 18, 2016, asserting the “claim is subject to a mandatory arbitration provision contained in the

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UPS Tariff/Terms and Conditions of Service.” (Doc. 6 at 2) Accordingly, Defendant seeks to compel

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arbitration pursuant to the terms of the arbitration agreement. (Doc. 16)

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II.

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The UPS Terms
The “UPS Tariff/Terms and Conditions of Service” (“UPS Terms”) are applicable to UPS

“shipments within and originating in the United States.” (Doc. 18 at 2, Liberatore Decl. ¶ 1) The UPS
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Terms “contains the general terms conditions of contract under which … [UPS] is engaged in the

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transportation of Package shipments itself and jointly through interchange with its affiliates.” (Doc.

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18-1 at 5) The UPS Terms include a section entitled “Claims and Legal Actions: Individual Binding

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Arbitration of Claims,” which provides:
Claimant and UPS agree that, except for disputes that qualify for state courts of limited
jurisdiction (such as small claims, justice of the peace, magistrate court, and similar
courts with monetary limits on their jurisdictions over civil disputes), any controversy or
claim, whether at law or equity, arising out of or related to the provision of services by
UPS, regardless of the date of accrual of such dispute, shall be resolved in its entirety by
individual (not class-wide nor collective) binding arbitration.

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(Doc. 18-1 at 27, emphasis omitted) Shippers are informed that both parties “are waiving the right to
trial by jury,” and “giving up the ability to participate in a class, mass, consolidated or combined action
or arbitration.” (Id., emphasis omitted) The UPS Terms—including the arbitration provision—is
intended to apply to all shipments, whether processed through the UPS WorldShip program or the
company’s website. (Id. at 5; see also Doc. 18-2 at 5-6, Libertore Decl. ¶¶ 8-9)

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Pursuant to the UPS Terms, “[a]ll issues are for the arbitrator to decide,” though issues related

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“to the scope, application, and enforceability of the arbitration provision” are reserved for the court.

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(Doc. 18-1 at 28) Further, the UPS Terms indicate “[t]he Federal Arbitration Act governs the

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interpretation and enforcement of [the] provision.” (Id.)

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III.

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Legal Standard
The Federal Arbitration Act (“FAA”) applies to arbitration agreements in any contract affecting

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interstate commerce. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001); 9 U.S.C. § 2.

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Here, it is undisputed that Defendant’s operate nationwide and its shipping business affects interstate

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commerce. Thus the FAA governs the arbitration policy.

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Under the FAA, written arbitration agreements “shall be valid, irrevocable, and enforceable,

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save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. A

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party seeking to enforce arbitration agreement may petition the Court for “an order directing the parties

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to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. § 4.

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The court’s role in applying the FAA is “limited to determining (1) whether a valid agreement

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to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron

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Corp. v. Ortho Diagnostic Systems, 207 F.3d 1126, 1130 (9th Cir. 2000), citing 9. U.S.C. § 4. “If the
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response is affirmative on both counts, then the [FAA] requires the court to enforce the arbitration

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agreement in accordance with its terms.” Id.; see also 9 U.S.C. § 4 (“The court shall hear the parties,

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and upon being satisfied that the making of the agreement for arbitration or the failure to comply

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therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in

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accordance with the terms of the agreement” (emphasis added)). Importantly, because the FAA “is

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phrased in mandatory terms,” “the standard for demonstrating arbitrability is not a high one [and] a

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district court has little discretion to deny an arbitration motion.” Republic of Nicaragua v. Standard

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Fruit Co., 937 F.2d 469, 475 (9th Cir. 1991).

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A party opposing arbitration has the burden to demonstrate the claims at issue should not be

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sent to arbitration. Green Tree Fin. Corp.- Alabama v. Randolph, 531 U.S. 79, 81 (2000); see also

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Mortensen v. Bresnan Communications, LLC, 722 F.3d 1151, 1157 (9th Cir. 2013) (“the parties

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challenging the enforceability of an arbitration agreement bear the burden of proving that the provision

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is unenforceable”). “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor

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of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

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IV.

Discussion and Analysis

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A.

Validity of the arbitration agreement

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When determining whether a valid and enforceable agreement to arbitrate has been established

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for the purposes of the FAA, the Court should apply “ordinary state-law principles that govern the

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formation of contracts to decide whether the parties agreed to arbitrate a certain matter.” First Options

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of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Circuit City Stores v. Adams, 279 F.3d 889, 892

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(2002). Because Plaintiff is a resident of California and Defendant seeks to compel arbitration in Kern

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County, California, the Court looks to the state’s law to determine whether there is a valid arbitration

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agreement between the parties.

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Pursuant to California contract law, the elements for a viable contract are “(1) parties capable

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of contracting; (2) their consent; (3) a lawful object; and (4) sufficient cause or consideration.” United

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States ex rel. Oliver v. Parsons Co., 195 F.3d 457, 462 (9th Cir. 1999) (citing Cal. Civ. Code § 1550;

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Marshall & Co. v. Weisel, 242 Cal. App. 2d 191, 196 (1966)). An arbitration agreement may be

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“invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but
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not by defenses that apply only to arbitration or that derive their meaning from the fact that an

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agreement to arbitrate is at issue.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 333 (2011); see

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also Cal. Code Civ. Proc. § 1281 (explaining an arbitration agreement may only be invalidated upon

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the same “grounds as exist for the revocation of any contract”).

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Plaintiff contends there is not a binding contract because “there [was] no affirmative action

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required to demonstrate assent to the terms and conditions.”1 (Doc. 20 at 3) In addition, Plaintiff

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contends the terms of the arbitration provision are unconscionable and should not be enforced by the

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Court. (Id. at 5-10)
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Consent to arbitrate

Generally “a party cannot be required to submit to arbitration any dispute which he has not

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agreed so to submit.” AT&T Techs., Inc. v. Communications Workers of America, 475 U.S. 643, 648

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(1986). “‘While new commerce on the Internet has exposed courts to many new situations, it has not

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fundamentally changed the principles of contract.’” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171,

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1175 (9th Cir. 2014), quoting Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). One

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principle that remains unchanged is that “[m]utual manifestation of assent, whether by written or

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spoken word or by conduct, is the touchstone of contract.” Id., quoting Specht v. Netscape Comm.

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Corp., 306 F.3d 17, 29 (2d Cir. 2002).

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Contracting parties manifest mutual assent when a “specific offer is communicated to the

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offeree, and an acceptance is subsequently communicated to the offeror.” Netbula, LLC v. BindView

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Dev. Corp., 516 F. Supp. 2d 1137, 1155 (N.D. Cal. 2007), citing Russell v. Union Oil Co., 7 Cal. App.

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3d 110, 114 (Ct. Cal. App. 1970). With the Internet and digital software, the Court must examine how

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the terms of an agreement were presented to a user, and how a user indicated his or her consent to the

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terms. Nguyen, 763 F.3d at 1176-77. The Ninth Circuit explained:

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Contracts formed on the Internet come primarily in two flavors: “clickwrap” (or “clickthrough”) agreements, in which website users are required to click on an “I agree” box
after being presented with a list of terms and conditions of use; and “browsewrap”
agreements, where a website’s terms and conditions of use are generally posted on the
website via a hyperlink at the bottom of the screen.

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Plaintiff does not dispute that the parties are capable of entering a contract, that there was a lawful object, or the
existence of consideration. Rather, Plaintiff argues only the lack of consent to the arbitration agreement.

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Id., 763 F.3d at 1175-76. Defendant appears to assert it used a “clickwrap” agreement (see Doc. 21 at

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6), while Plaintiff argues UPS uses a “browsewrap” agreement that should not be enforced by the Court

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(Doc. 20 at 1-3).

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A “clickwrap” agreement requires an affirmative action to indicate consent to terms. Nguyen,

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763 F.3d at 1176; see also Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 837-38 (S.D.N.Y. 2012)

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(describing “pure-form clickwrap agreement” as one in which the website “forces the user to actually

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examine the terms before assenting”); Register.com, Inc., 356 F.3d at 429 (“under a clickwrap

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arrangement, potential licensees are presented with the proposed license terms and forced to expressly

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and unambiguously manifest either assent or rejection prior to being given access to the product”).

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Given the indication of assent, courts have “routinely upheld” clickwrap agreements. United States v.

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Drew, 259 F.R.D. 449, 462 n.22 (C.D. Cal. 2009).

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In contrast, with a “browsewrap” agreement, the user “gives his assent simply by using the

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website.” Nguyen, 763 F.3d at 1176 (quotation omitted). Generally, “the website will contain a notice

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that – by merely using the services of, obtaining information from, or initiating applications within the

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website – the user is agreeing to and is bound by the site’s terms of service.” Drew, 259 F.R.D. at 462

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n.22; Fteja, 841 F. Supp. 2d at 837 (same). When there is no evidence users “had actual knowledge” of

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an agreement, the Court must consider the “design and content of the website and the agreement’s

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webpage.” Nguyen, 763 F.3d at 1177. “[T]he validity of the browsewrap agreement turns on whether

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the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” Id. Thus, the

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Court must consider the “design and content of the website and the agreement’s webpage.” Id.

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Kenneth Liberatore, Functional User Manager at UPS, reports that when using the UPS

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WorldShip program, “[b]efore a shipper can transmit information (e.g., package size, weight, and

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destination to UPS…, the shipper must confirm its acceptance of the UPS Terms.” (Doc. 18 at 5,

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Liberatore Decl. ¶ 8) A window on the screen asks, “Are you ready to close today’s shipping and send

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the information to UPS?” (Id.) The shipper is informed: “By clicking the Yes button, you agree to the

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UPS Tariff/Terms and Conditions,” and provides a link to the UPS Terms. (Id.) If a shipper selects

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the “No” button, the shipping information is not transmitted to UPS and no transaction occurs. (Id.)

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Similarly, the UPS website requires consent to the UPS Terms. (Doc. 18 at 6, Liberatore ¶ 9)

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The first time a user processes a package for shipment through the website, and anytime thereafter if

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the UPS Terms have been amended, the user “is automatically directed” to a screen entitled “Service

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Terms and Conditions Update.” (Id.) The screen directs the user to “Review Terms and Conditions:”

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The Service Terms and conditions have been updated since your last visit. Select View
Terms and Conditions to see the current Service Terms and Conditions or Continue to
proceed with your shipping request.

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UPS is making changes to the UPS Tariff/Terms and Conditions of Service, UPS
Freight’s Rules and Charges (UPGF102), UPS Express Critical Terms and Conditions
of Contract, and the UPS Air Freight Terms and Conditions of Contract beginning
December 30, 2013.
The documents will include a new section providing for binding arbitration of
claims, except as otherwise noted in the terms. To view the Individual Binding
Arbitration of Claims section in the UPS Tariff/Terms and Conditions of Service, click
on the View button below.

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The changes pertaining to UPS Freight®, UPS Express Critical and UPS Air Freight
will contain substantially the same terms as provided in the Individual Binding
Arbitration of Claims Section.

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(Id. at 7, ¶12) (emphasis added) At the bottom of the page, the user could either click “Continue” or

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click to “View Terms and Conditions.” (Id.) If the user selected to view the terms, the next screen

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contains a list of links, including to “UPS Tariff/Terms and Conditions and Services” and “Claims and

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Legal Actions: Individual Binding Arbitration of Claims.” (Id., ¶ 13) By clicking either link, users are

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directed to information that includes the UPS requirement to arbitrate claims. (Id. at 8, ¶ 14)

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Mr. Liberatore reports, “UPS’s billing group was able to identify the Subject Package as a

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package tendered to UPS on January 5, 2015 with tracking number 1Z37W6200361921507.” (Doc. 18

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at 4, ¶ 4) According to Mr. Liberatore, though Plaintiff identified the tracking number as

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1Z37W6200361172728, UPS believes this was an error based upon the description of the package

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alleged in the Complaint because “only the package associate with the tracking number ending in 1507

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matches the alleged $528 charge.” (Id. ¶ 6 n.1) Regardless, Mr. Liberatore reports “both packages

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were shipped under Plaintiff’s account, processed through the WorldShip® shipping system and billed

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in the same manner.” (Id.) In addition, Mr. LIberatore reports the records of Plaintiff’s account

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indicate “the user . . . clicked through the Service Terms and Conditions Update on ups.com numerous

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times, including on January 22, 2014.” (Id. at 6, ¶ 10)
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Significantly, the WorldShip and ups.com systems could best be described as a modified

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clickwrap agreement, because the screens asked the user to confirm acceptance of the UPS Terms,

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though the terms were not identified on the same page. See, Swift v. Zynga Game Network, Inc., 805 F.

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Supp. 2d 904, 911-912 (N.D. Cal. 2011) (defining “modified clickwrap” agreement as an agreement

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where “the plaintiff was provided notice and an opportunity to review terms of service prior to

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acceptance”). In Swift, the court rejected the plaintiff’s argument that she was not given notice of the

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contractual terms to which she consented “[b]ecause Plaintiff was provided with an opportunity to

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review the terms of service in the form of a hyperlink immediately under the ‘I accept’ button and she

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admittedly clicked ‘Accept.’” Id. at 912. Likewise, here, the UPS shipper was informed: “By clicking

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the Yes button, you agree to the UPS Tariff/Terms and Conditions.” (Doc. 18 at 5, ¶ 8) In addition,

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immediately below this statement, and above the “Yes” button, a hyperlink to the “Terms and

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Conditions” was provided. (Id.) Because it is undisputed that Plaintiff had the opportunity to view the

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Terms and Conditions and clicked the “Yes” button to process the shipment, the Court finds Plaintiff

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manifested assent to the UPS Terms when arranging the shipment at issue.2 Accordingly, Plaintiff’s

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argument that there was no binding contract due to lack of consent fails.
2.

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Unconscionability

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A contract “is unenforceable if it is both procedurally and substantively unconscionable.” Davis

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v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir. 2007)). Procedural unconscionability focuses on

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“oppression and surprise,” while substantive unconscionability focuses upon “overly harsh or one-sided

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results.” Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 1532 (1997) (citations omitted). Both forms

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of unconscionability must be present in order for a court to find a contract unenforceable, but it is not

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necessary that they be present in the same degree. Davis, 485 F.3d at 1072; Stirlen, 51 Cal. App. 4th at

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1532. Consequently, “[c]ourts apply a sliding scale: ‘the more substantively oppressive the contract

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term, the less evidence of procedural unconscionability is required to come to the conclusion that the

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term is unenforceable, and vice versa.’” Id. (quoting Armendariz v. Foundation Health Psychcare

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Moreover, Defendant presented evidence that Plaintiff also processed shipments through the website and
received notice of the arbitration requirement by clicking through the “Service Terms and Conditions Update” screen when
processing other shipments with UPS. (See Doc. 18 at 6, ¶ 10) Accordingly, Plaintiff received adequate notice of the UPS
Terms through that system as well, and indicated consent by placing the orders. See Nguyen, 763 F.3d at 1177.

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Services, Inc., 24 Cal. 4th 83, 99 (2000)).
a.

Procedural Unconscionability

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Procedural unconscionability focuses on the “manner in which the contract was negotiated and

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the circumstances of the party at the time.” Kinney v. United Healthcare Servs., Inc., 70 Cal. App. 4th

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1322, 1329 (1999). The Court must consider both oppression and surprise “due to unequal bargaining

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power.” Armendariz, 24 Cal. 4th at 114. Oppression derives from a lack of “real negotiation and an

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absence of meaningful choice,” while surprise arises from the terms of the bargain being “hidden in a

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prolix printed form,” or drafted in “fine-print terms.” Bruni v. Didion, 160 Cal. App. 4th 1272, 1288

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(2008); Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 911 (2015).

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i.

Oppression

The threshold issue for oppression with procedural unconscionability “is whether the subject

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arbitration clause is part of a contract of adhesion.” Stirlen, 51 Cal. App. 4th at 1532; see also Soltani

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v. W. & S. Life Ins. Co., 258 F.3d 1038, 1042 (9th Cir. 2001). A contract of adhesion “is a

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standardized contract, which, imposed and drafted by the party of superior bargaining strength,

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relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Graham

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v. Scissor-Tail, Inc., 28 Cal. 3d 807, 817 (1981). An arbitration clause on a “take it or leave it” basis

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demonstrates “quintessential procedural unconscionability.” Aral v. Earthlink, Inc., 134 Cal.App.4th

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544, 557 (2005). Accordingly, the Court must examine “the manner in which the contract was

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negotiated and the circumstances of the parties at that time.” Kinney v. United Healthcare Services,

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70 Cal. App. 4th 1322, 1327 (1999).

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It is undisputed that the UPS Terms were offered on a “take it or leave it” basis—giving users

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the option to either accept the UPS Terms or find another shipping service. Accordingly, the

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“oppression” element is satisfied.

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ii.

Surprise

Plaintiff contends the arbitration agreement was “procedurally unconscionable as the plaintiff

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was not even aware an arbitration provision was found in the hyperlinked terms and conditions.”

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(Doc. 20 at 6) Specifically, David Brown, the “shipping manager/customer service representative” for

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Northwest Metrology, reported:
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In performing my job duties I have utilized the defendant (“UPS”) for the
shipping needs for Northwest Metrology, and use that company’s website for our
shipping materials. In doing so, I would merely hit the prompts that require me to
continue until I am able to confirm a shipping label is printed.

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During the four years of working as the shipping manager/customer service
representative for Northwest Metrology, I have never read the terms and conditions of
UPS while utilizing the UPS online database for shipping. Until I learned of this
motion, I was unaware of any arbitration provision or clauses found on the UPS
website or within UPS’ terms and conditions, and was surprised to learn of their
existence.

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(Doc. 20-2 at 3, Brown Decl. ¶¶ 2-3)
Significantly, under California law, Plaintiff cannot avoid the terms of a contract by asserting a

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representative failed to read the UPS Terms when provided with an opportunity to do so, or that he

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does not recall receiving notice of the UPS Terms. See Mohamed v. Uber Techs., Inc., 109 F. Supp. 3d

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1185, 1198 (N.D. Cal. 2015) (explaining that “it is essentially irrelevant whether a party actually reads

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the contract or not, so long as the individual had a legitimate opportunity to review it” (emphasis in

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original); Marin Storage & Trucking, Inc., 89 Cal.App.4th at 1049 (“A party cannot avoid the terms of

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a contract on the ground that he or she failed to read it before signing”); Bolanos v. Khalatian, 231

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Cal.App.3d 1586, 1590 (1991) (finding a party “with the capacity of reading and understanding an

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instrument” may not avoid terms of a contract “on the ground he failed to read it before signing”). As

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discussed above, Plaintiff received notice of the UPS Terms—including the requirement for binding

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arbitration—through use of the WorldShip program and ups.com. Though Mr. Brown elected to

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“merely hit the prompts” rather than read the notifications, Plaintiff fails to show “surprise” because the

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terms were not hidden from view or drafted in “fine-print terms.” See Bruni, 160 Cal. App. 4th at 1288;

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Sanchez, 61 Cal. 4th at 911.
c.

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Conclusion

Because the agreement to submit to the dispute resolution program was offered on a “take it or

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leave it” basis, the agreement was procedurally unconscionable. Circuit City Stores, Inc. v. Adams,

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279 F.3d 889, 893 (9th Cir. 2002). However, the lack of surprise supports a conclusion that the level

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of procedural unconscionability is lessened. See Stirlen, 51 Cal.App.4th at 1532 (directing the court to

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consider both “oppression and surprise”).

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b.

Substantive Unconscionability

“Substantive unconscionability addresses the fairness of the term in dispute.” Szetela v.

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Discover Bank, 97 Cal. App. 4th 1094, 1100 (Ct. App. 2002). While “parties are free to contract for

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asymmetrical remedies and arbitration clauses of varying scope,” substantive unconscionability “limits

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the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum

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on the weaker party without accepting the forum for itself.” Ting v. AT&T, 319 F.3d 1126, 1149 (9th

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Cir. 2003) (quoting Armendariz, 24 Cal. 4th at 118). Thus, the focus of the Court’s inquiry is whether

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an agreement is one-sided and will have an overly harsh effect on the party not given an opportunity to

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negotiate its terms. Flores v. Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 854 (2001).

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The Ninth Circuit instructs courts applying California law to arbitration agreements “look

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beyond facial neutrality and examine the actual effects of the challenged provision.” Ting, 319 F.3d at

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1149; see, e.g., Ingle v. Circuit City Stores, Inc., 328 F.3d at 1165, 1180 (2003) (finding an arbitration

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agreement substantively unconscionable upon review of the agreement’s provisions, including claims

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subject to arbitration, its statute of limitations, class actions, fee and cost-splitting arrangements,

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remedies available, and termination/ modification of the agreement). Plaintiff contends the agreement

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is substantively unconscionable “due to the requirement of forcing Plaintiff to pay costs,” its

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confidentiality requirement, and limitations on discovery. (Doc. 20 at 6, 6-10) (emphasis omitted).

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i.

Claims subject to arbitration

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An arbitration agreement that compels arbitration for claims of the individual but exempts

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from arbitration those claims of the corporation is substantively unconscionable. See Ferguson v.

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Countrywide Credit Indus., 298 F.3d 778, 785 (2002) (citing Mercuro v. Superior Court, 96 Cal. App.

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4th 167, 175-76 (Ct. App. 2002)). In this case, the UPS Terms and the specific arbitration provision

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apply to “[a]ny controversy or claim arising out of or related to the provision of services by UPS.”

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(Doc. 18-1 at 28) Thus, it does not appear that Defendant excluded claims it may bring against

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Plaintiff or other shippers from the arbitration agreement. Accordingly, the claims subject to

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arbitration are not unconscionable. See Ferguson, 298 F.3d at 784, n.6 (explaining substantive

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unconscionability may be demonstrated when a defendant seeks to enforce “what is essentially a

28

unilateral arbitration agreement”).
11

ii.

1
2

Filing fees and cost arrangement

An arbitration agreement containing a cost-splitting provision is substantively unconscionable.

3

For example, the Ninth Circuit found a provision substantively unconscionable when the agreement

4

forced the plaintiffs to pay the filing fee up to a maximum of $125.00 and share costs equally after the

5

first day of arbitration. Ferguson, 298 F.3d at 781; see also Ingle, 328 F.3d at 1177-78 (finding a

6

provision substantively unconscionable that stated “each party shall pay one-half of the costs of

7

arbitration following the issuance of the arbitration award”). Similarly, a party cannot be required “to

8

bear any type of expense that [he or she] would not be required to bear . . . in court.” Armendariz, 24

9

Cal. 4th at 110 (emphasis in original)

10

The UPS Terms indicate: “Any filing fee or administrative fee required of Claimant by the

11

AAA Rules shall be paid by Claimant to the extent such fee does not exceed the amount of the fee

12

required to commence a similar action in a court that otherwise would have jurisdiction.” (Doc. 18-1 at

13

28) Thus, the UPS Terms do not require Plaintiff to incur any type of expense other than may similarly

14

be paid in court. Further, there is no indication that Plaintiff could be held responsible for half the costs

15

of arbitration, and the arbitrator may award costs “to the extent such allocation or award is available

16

under applicable law.” (Doc. 18-1 at 28) Accordingly, the fees and costs arrangement is not

17

substantively unconscionable.3
iii.

18
19

Limitations on discovery

California law requires that an arbitration agreement “provide for adequate discovery.”

20

Armendariz, 24 Cal. 4th 83 at 122. In Armendariz, the court observed that parties are “permitted to

21

agree to something less than the full panoply of discovery provided in Code of Civil Procedure section

22

1283.05.” Id. at 106.

23
24

Plaintiff contends the AAA Rules incorporated by the UPS Terms impose “substantial limits on
discovery.” (Doc. 20 at 8) The AAA Rules for discovery provide:

25

The arbitrator may, on application of a party or on the arbitrator’s own initiative:

26

i. require the parties to exchange documents in their possession or custody on which
they intend to rely;

27
28

3

To the extent the UPS Terms incorporate the AAA Rules for arbitration, Plaintiff does not identify any expenses
that are not similar to those that may be incurred in a court proceeding.

12

1
2
3
4
5
6
7
8
9

ii. require the parties to update their exchanges of the documents on which they intend to
rely as such documents become known to them;
iii. require the parties, in response to reasonable document requests, to make available to
the other party documents, in the responding party’s possession or custody, not
otherwise readily available to the party seeking the documents, reasonably believed
by the party seeking the documents to exist and to be relevant and material to the
outcome of disputed issues; and
iv. require the parties, when documents to be exchanged or produced are maintained in
electronic form, to make such documents available in the form most convenient and
economical for the party in possession of such documents, unless the arbitrator
determines that there is good cause for requiring the documents to be produced in a
different form. The parties should attempt to agree in advance upon, and the arbitrator
may determine, reasonable search parameters to balance the need for production of
electronically stored documents relevant and material to the outcome of disputed
issues against the cost of locating and producing them.

10

(Doc. 20-1 at 27-28, AAA R-22) Thus, Plaintiff argues the AAA Rules “do[] not allow depositions at

11

all,” and “there is nothing like the Federal Rules of Civil Procedure to give guidance in relation to

12

discovery.” (Doc. 20 at 9) Plaintiff notes that “in Martinez v. Master Protection Corp. (2004) 118

13

Cal.App.4th 107, the court found the discovery limitation evidenced the otherwise one-sidedness of the

14

agreement:

15
16
17
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We recognize that in many employment disputes restricting a plaintiff to a single
deposition and document request could place him at a serious disadvantage if testimony
from numerous witnesses is necessary to prepare his case. We also are aware the same
restriction could operate to the employer’s advantage, because it has ready access to
most of the relevant documents and many of the witnesses remain in its employ.
Consequently, the employer has far less need for discovery in order to prepare for
arbitration than the employee which is not limited by the terms of the agreement.”

19

(Id.) Further, Plaintiff observes that in Fitz v. NCR Corp., the court determined a limitation to two

20

depositions was unconscionable where a provision “[g]ranting the arbitrator discretion to determine

21

whether additional discovery is necessary, as the ACT policy does, is an inadequate safety valve.” (Id.

22

at 13, quoting Fitz, 118 Cal. App. 4th 702, 717 (2004)).

23

In Fitz, there was a limitation on depositions “unless the arbitrator finds a compelling need to

24

allow it.” Id., 118 Cal. App. 4th at 716. The arbitration agreement “require[d] the arbitrator to limit

25

discovery as specified in the agreement unless the parties can demonstrate that a fair hearing would be

26

impossible without additional discovery.” Id. (emphasis added). The court found that despite the

27

provision allowing the arbitrator to grant additional discovery, the arbitrator was “constrained” by the

28

“impossibility standard.” Id. at 717. The court explained, “we do not believe that an employee should
13

1

be forced to demonstrate this impossibility to an arbitrator before being granted access to the type of

2

discovery that is necessary for a fair opportunity to vindicate her claim.” Id. at 719. Accordingly, the

3

court determined that the provision regarding discovery was substantively unconscionable. Id. In

4

contrast, here, the arbitrator is not held to an “impossibility” standard, and no party has a burden of

5

proof in seeking additional discovery.

6

Similarly, the UPS Terms may be distinguished from the provisions before the court in

7

Martinez, where the arbitration agreement, “absent a demonstration of ‘substantial need,’ restrict[ed]

8

discovery to a single deposition and a document request.” Id., 118 Cal. App. 4th at 118. Under the

9

UPS Terms, there is no requirement for parties to show a “substantial need” before the arbitrator may

10

approve a request for additional discovery. Because the AAA Rules allow the arbitrator to authorize

11

discovery, either on his own initiative or by a request—without a showing of either a “substantial need”

12

that a fair hearing would be “impossible” without such discovery—the discovery provision is not

13

substantively unconscionable. See, e.g., Jacovides v. Future Foam, Inc., 2016 U.S. Dist. LEXIS 57530

14

at *31 (N.D. Cal. Apr. 25, 2016) (finding the initial limitation to one deposition in an arbitration

15

agreement was not substantively unconscionable where it allows “discovery without the limitation of a

16

high standard such as “impossib[ility]” of a fair hearing without such discovery … or “substantial

17

need”) (internal citations omitted).

18
19

v.

Remedies

Remedy provisions that “fail[] to provide for all the types of relief that would otherwise be

20

available in court” by limiting an employee’s total and punitive damages are substantively

21

unconscionable. Adams, 279 F.3d at 895 (citing Cole v. Burns Int’l Sec. Servs.,105 F.3d 1465, 1482

22

(9th Cir. 1997)). The UPS Terms grants the arbitrator the authority to “the same damages and relief

23

that a court can award under the law.” (Doc. 18-1 at 27) Because the available remedies are not

24

improperly limited, the provision is not substantively unconscionable.

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26

vi.

Unilateral amendment and termination

The UPS Terms provide that “UPS reserves the right to unilaterally modify or amend any

27

portion of the Service Guide or the Terms at any time without prior notice.” (Doc. 18-1 at 33) When,

28

as here, a provision of an agreement permits a company to unilaterally amend or terminate the
14

1

agreement, even with written notice, that provision is substantively unconscionable. See, e.g., Ingle,

2

328 F.3d at 1179; Ramirez-Baker v. Beazer Homes, 636 F. Supp. 2d 1008, 1021-22 (E.D. Cal. 2008).

3

Consequently, the provision governing “future changes” is substantively unconscionable.
vii.

4
5

Confidentiality requirement

Plaintiff contends, “The arbitration provision is substantively unconscionable due to his

6

confidentiality requirement.” (Doc. 20 at 7, emphasis omitted) Specifically, the UPS Terms provide

7

in relevant part:

8
9
10
11
12

Confidentiality of Arbitration
Notwithstanding anything to the contrary in the AAA Rules, UPS and Claimant agree
that the filing of arbitration, the arbitration proceeding, any documents exchanged or
produced during the arbitration proceedings, any briefs or other documents prepared for
the arbitration, and the arbitral award shall all be kept fully confidential and shall not be
disclosed to any other party, except to the extent necessary to enforce this arbitration
provision, arbitral award or other rights of the parties, or as required by law or court
order. This confidentiality provision does not foreclose the American Arbitration
Association from reporting certain consumer arbitration case information as required by
state law.

13
14

(Doc. 18-1 at 29) Plaintiff asserts “[t]his confidentiality clause, although facially mutual, in reality is

15

not.” (Doc. 20 at 8, citing Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003)).

16

In Ting v. AT&T, the Ninth Circuit examined a confidentiality clause that provided: “Any

17

arbitration shall remain confidential. Neither you nor AT&T may disclose the existence, content or

18

results of any arbitration or award, except as may be required by law or to confirm and enforce an

19

award.” Id., 319 F.3d at 1151, n.16. The Court observed that “confidentiality provisions usually favor

20

companies over individuals,” explaining that a company could “place[] itself in a far superior legal

21

posture by ensuring that none of its potential opponents have access to precedent while, at the same

22

time, [the company] accumulates a wealth of knowledge on how to negotiate the terms of its own

23

unilaterally crafted contract.” Id. at 1151-52. In addition, the Court observed that “the unavailability

24

of arbitral decisions may prevent potential plaintiffs from obtaining the information needed to build a

25

case of intentional misconduct or unlawful discrimination.” Id. at 1152.

26

On the other hand, as Defendant argues, California law does not mandate a finding that a

27

confidentiality provision is “per se unconscionable.” (Doc. 21 at 16, citing Sanchez v. Carmax Auto

28

Superstores Cal., LLC, 224 Cal.App.4th 398, 408 (2014). In Sanchez, the Court found the “provision
15

1

requiring confidentiality is not unconscionable.” Id., 224 Cal.App.4th at 408 (citing Woodside Homes

2

of Cal., Inc. v. Superior Court, 107 Cal.App.4th 723, 732 (2003)) Rather, California law recognizes

3

that a confidentiality requirement may be imposed to protect “a legitimate commercial need” as well

4

as a company’s “trade secrets and proprietary and confidential information” from public disclosure.

5

See Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1250 (2016).

6

Defendant has not identified any commercial need for the proceedings to remain confidential,

7

and it appears the confidentiality requirement places UPS in a superior legal posture. See Ting, 319

8

F.3d at 1151. Consequently, the Court finds the confidentiality provision is substantively

9

unconscionable. However, this provision may be severed from the remainder of the agreement. See,

10

e.g., Grabowski v. C.H. Robinson Co., 817 F. Supp. 2d 1159 (S.D. Cal. 2011) (finding three

11

substantively unconscionable provisions could be severed from an arbitration agreement which was

12

not “permeated by unconscionability,” thus rendering the agreement enforceable); Stacy v. Brinker

13

Rest. Corp., 2012 U.S. Dist. LEXIS 150345, at * 31-32 (E.D. Cal. Oct. 18. 2012) (explaining the

14

substantively unconscionable provision could be severed because it was “collateral to the Agreement

15

and does not permeate the Agreement with unconscionability”).

16

viii.

17

Agreement as a whole

California law provides: “If the court as a matter of law finds the contract or any clause of the

18

contract to have been unconscionable at the time it was made the court may refuse to enforce the

19

contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may

20

so limit the application of any unconscionable clause as to avoid any unconscionable result.” Cal. Civ.

21

Code § 1670.5(a). Refusing to enforce an arbitration agreement is appropriate “only when an

22

agreement is permeated by unconscionability.” Armendariz, 24 Cal.4th 83 at 122 (internal quotation

23

marks omitted). Courts often look to whether the offending provisions “indicate a systematic effort to

24

impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum

25

that works to the employer’s advantage.” Id. at 124; see also Ferguson, 298 F.3d at 787-88. For

26

example, the Ninth Circuit found an arbitration agreement was “permeated by unconscionable

27

clauses” where there was a “lack of mutuality regarding the type of claims that must be arbitrated, the

28

fee provision, and the discovery provision.” Ferguson, 298 F.3d at 788.
16

In this agreement, the provisions of the UPS Terms appearing substantively unconscionable are

1
2

those regarding the confidentiality and granting unilateral amendment and termination of the dispute

3

resolution program. However, the EDR Program provisions regarding claims subject to arbitration,

4

discovery, fees, costs, and remedies are not permeated by unconscionability and do not establish an

5

inferior forum that works to Defendant’s advantage. See Armendariz, 24 Cal. 4th 83 at 122.

6

Significantly, the unconscionable provisions are not relevant to Plaintiff’s claims, and may be severed

7

from the agreement. See Grabowski, 817 F. Supp. 2d 1159; Stacy, 2012 U.S. Dist. LEXIS 150345 at *

8

31-32. Accordingly, the terms, taken as a whole, do not appear substantively unconscionable.
B.

9

Whether the Agreement encompasses the Disputed Issue

Plaintiff contends its single cause of action arising under the Carmack Amendment4 is not

10
11

encompassed within the arbitration agreement. (Doc. 20 at 4-5) The Carmack Amendment preempts

12

any state common law action against a common carrier for damage to belongings transported in

13

interstate commerce. See Adams Express Co. v. Croninger, 226 U.S. 491, 505-06 (1913); Hughes

14

Aircraft v. North American Van Lines, 970 F.2d 609, 613 (9th Cir. 1992). “[T]he Carmack Amendment

15

is the exclusive cause of action for interstate-shipping contract claims alleging loss or damage to

16

property.” Hall v. North American Van Lines, Inc., 476 F.3d 683, 688 (9th Cir. 2007). It establishes “a

17

nationally uniform policy governing interstate carriers’ liability for property loss.” New York. N. H. &

18

H. R. Co. v. Nothnagle, 346 U.S. 128, 131 (1953). As such, the Ninth Circuit determined “the Carmack

19

Amendment constitutes a complete defense to common law claims alleging all manner of harms.” Hall

20

at 687.

21

Plaintiff contends that because the Carmack Amendment is a federal statute, the failure to

22

specifically reference it in the arbitration agreement is a “fatal flaw.”5 (Doc. 20 at 4) As Plaintiff

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24
25
26
27
28

4

Defendant disputes that the Carmack Amendment applies because the Amendment applies only to contracts for shipping
over rail or by truck. UPS notes that the package was shipped to Hawaii which means, by necessity, that the package was
not shipped by rail or truck and surmises it was shipped by air. Whether by air or cargo vessel, the Carmack Amendment
would not apply. However, it is probable that the package was shipped via truck or rail initially after the plaintiff tendered
it. UPS fails to discuss whether the Carmack Agreement applies in this type of situation. See e.g.,
Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S. 89, 101 (2010) Carmack Amendment applies where the
receiving carrier—as opposed to the connecting carrier—issues a Carmack-compliant bill of lading.]
5
Notably, “The [FAA]'s centerpiece provision makes a written agreement to arbitrate ‘in any maritime transaction or a
contract evidencing a transaction involving commerce ... valid, irrevocable, and enforceable, save upon such grounds as

17

1

observes, courts have determined that “arbitration provisions concerning federal statutory rights are

2

only enforceable where the arbitration clause “clearly and unmistakably” designates the federal statute

3

at issue is subject to arbitration.” (Doc. 20 at 4, citing 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 248

4

(2009) (emphasis omitted)).

5

arbitration of disputes related to shipping household goods, but did not provide an exception for

6

disputes arising from shipping contracts for any other goods. Smallwood v. Allied Van Lines, Inc., 660

7

F.3d 1115, 1124 (9th Cir. 2011). Thus, the FAA applies unless the plaintiff demonstrates “Congress

8

intended to preclude a waiver of a judicial forum” for the claim. Gilmer v. Interstate/Johnson Lane

9

Corp., 500 U.S. 20, 26 (U.S. 1991).

10

In enacting the Carmack Amendment, Congress prohibited forced

Notably, court have held there must “be at least a knowing agreement to arbitrate employment

11

disputes before an employee may be deemed to have waived the comprehensive statutory rights,

12

remedies and procedural protections prescribed in Title VII and related state statutes.” Prudential Ins.

13

Co. of Am. v. Lai, 42 F.3d 1299, 1304 (9th Cir. 1994). However, the plaintiff does not cite to any

14

authority that a similar knowing waiver is required in other cases outside of the employment arena.

15

Indeed, while not holding that the FAA applies to Carmack Amendment claims, the Ninth Circuit has

16

upheld arbitration awards under the FAA in these cases. White v. Mayflower Transit, L.L.C., 543 F.3d

17

581, 586 (9th Cir. 2008).

18

In any event, the UPS Terms indicate they apply to “[a]ny controversy or claim arising out of

19

or related to the provision of services by UPS.” (Doc. 18-1 at 28) Thus, the plain language of the

20

UPS Terms indicates that the disputed issue—which arises from the handling of a package Plaintiff

21

shipped with UPS—is encompassed within the arbitration provision, and has not been excluded from

22

arbitration. “In the absence of any express provision excluding a particular grievance from arbitration

23

. . . only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail.”

24

United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 584-86 (1960). The

25

Court holds that because the Carmack Amendment governs all disputes related to shipment of goods6

26
27
28

exist at law or in equity for the revocation of any contract.’ 9 U.S.C. § 2.” Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614, 625 (1985). “Commerce” includes shipping between states. 9 U.S.C. § 1.
6
White, 543 F.3d 586 [All claims arising from the “same conduct as the claims for delay, loss or damage to shipped
property” are preempted by the Carmack Amendment.

18

1

and because it provides the “exclusive cause of action for interstate-shipping contract claims alleging

2

loss or damage to property” (Hall, 476 F.3d at 688), requiring the UPS Terms to specifically reference

3

the Carmack Amendment would be redundant and would cause confusion rather than provide clarity.

4

V.

5

Conclusion
Plaintiff and Defendant entered into a valid arbitration agreement, which encompasses the issue

6

in dispute. As a result, “there is a presumption of arbitrability” and Defendant’s motion to compel

7

arbitration should not be denied. See AT&T Tech., Inc., 475 U.S. at 650.

8

Accordingly, IT IS HEREBY ORDERED:

9

1.

The clauses governing amendment, and confidentiality are severed from the UPS Terms;

10

2.

Defendant’s motion to compel arbitration is GRANTED;

11

3.

The matter is STAYED to allow the completion of the arbitration;

12

4.

Within 120 days and every 120 days thereafter, counsel SHALL file a joint status

13

report. In addition, within 10 days of the determination by the arbitrator, counsel

14

SHALL file a joint status report; and

15

5.

The Court retains jurisdiction to confirm the arbitration award and enter judgment for
the purpose of enforcement.

16
17
18
19
20

IT IS SO ORDERED.
Dated:

July 7, 2016

/s/ Jennifer L. Thurston
UNITED STATES MAGISTRATE JUDGE

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