Michael Savetsky v. Pre-Paid Legal Services, Inc.

Filing 66

Order by Hon. Samuel Conti granting 40 Motion to Compel Arbitration, ORDERING arbitration to be held within this judicial district. The case is STAYED pending results of arbitration. The stay notwithstanding, Defendant is ordered to SHOW CAUSE (or stipulate) on a further matter within 20 days of this order. (sclc2, COURT STAFF) (Filed on 7/30/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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MICHAEL SAVETSKY, individually and ) Case No. 14-03514 SC
on behalf of all others similarly )
situated,
) ORDER GRANTING MOTION TO
) COMPEL ARBITRATION
Plaintiff,
)
)
v.
)
)
PRE-PAID LEGAL SERVICES, INC.
)
d/b/a LegalShield,
)
)
Defendant.
)
)
)
)
)
)

10
For the Northern District of California

United States District Court

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I.

INTRODUCTION
Now before the Court is Defendant LegalShield's1 motion to

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compel Plaintiff Michael Savetsky to arbitrate his claims in this

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putative consumer class action.

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is fully briefed, ECF Nos. 53 ("Opp'n"), 57 ("Reply"), including a

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full round of supplemental briefing, ECF Nos. 60 ("Supp. Mot."), 61

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("Supp. Opp'n"), 63 ("Supp. Reply"), and because it is appropriate

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ECF Nos. 40 ("Mot.").

The motion

Defendant is actually named Pre-Paid Legal Services, Inc., but
does business as LegalShield. For simplicity the Court will refer
to Defendant as LegalShield.

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for consideration without oral argument under Civil Local Rule

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7-1(b).

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the reasons set forth below, the motion is GRANTED.

The hearing has already been VACATED per ECF No. 65.

For

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II.

BACKGROUND
This is a putative consumer class action alleging that

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LegalShield improperly charged recurring payments to its California

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members for pre-paid legal services without providing sufficient

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consent or disclosure.

To provide legal services to its members,

United States District Court

For the Northern District of California

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LegalShield contracts with law firms in the states in which it

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operates and, in exchange for a monthly fee, gives members access

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to that network of law firms for certain types of legal services.

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While LegalShield memberships are available directly to

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consumers through its website, memberships are primarily sold

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through "sales associates" -- independent contractors who sign up

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to sell LegalShield memberships in exchange for commissions.

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No. 42 ("Pinson Decl.") at ¶ 6.

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it until recently, Savetsky's involvement with LegalShield began

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when he applied to be a sales associate online through an existing

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LegalShield sales associate.

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then also purchased a LegalShield membership of his own.

ECF

While LegalShield did not realize

After becoming a sales associate, he

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The Court previously denied a motion to compel arbitration

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under LegalShield's membership agreement, finding that Savetsky

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never assented to the arbitration provision.

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Order") at 14.

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discovered that even prior to becoming a member, Savetsky signed up

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to be a sales associate.

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LegalShield contends Savetsky entered into an "associate agreement"

ECF No. 33 ("Prior

After the Court denied that motion, LegalShield

In becoming a sales associate,

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containing a separate and enforceable arbitration provision.

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Pinson Decl. Ex. A ("Associate Agreement") at 6.

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provision is lengthy, but the most relevant portion provides that:

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[a]ll disputes and claims related to LegalShield, the
Associate Agreement, these Policies and Procedures and
any other LegalShield policies, products and services,
the rights and obligations of an Associate and
LegalShield, or any other claims or causes of action
between the Associate or LegalShield or any of its
officers, directors, employees or affiliates, whether
statutory in tort in contract or otherwise, shall be
settled totally and finally by arbitration in Oklahoma
City, Oklahoma, in accordance with the Commercial
Arbitration
Rules
of
the
American
Arbitration
Association.
However, Associate understands and
expressly agrees that LegalShield may seek a temporary
restraining order and/or preliminary injunction in
state or federal court to maintain the status quo
pending determination of the dispute.
If any
Associate files a claim or counterclaim against
LegalShield or any of its officers, directors,
employees or affiliates in any such arbitration, an
associate shall do so only on an individual basis and
not with any other Associate or as part of a class
action . . . .

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United States District Court

For the Northern District of California

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See

The entire

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Id. at ¶ 23.

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Savetsky to arbitrate the claims he asserts in this case in an

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individual arbitration, and stay or dismiss the case pending the

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resolution of that individual arbitration.

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arguing that the Court lacks jurisdiction to compel arbitration,

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the agreement is unenforceable, or it does not cover the claims at

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issue in this case.

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As a result, LegalShield asks the Court to compel

Savetsky opposes,

In reviewing the underlying agreement, the Court previously

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noted that the relevant Associate Agreement -- which includes the

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arbitration clause now at issue -- stated that it "will be governed

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by and construed in accordance with the laws of the State of

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Oklahoma."

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the Court ordered a round of supplemental briefs, ECF No. 58, which

ECF No. 42 ("Pinson Decl.") at 6, ¶ 23.

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Accordingly,

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the parties have provided.

Defendant -- who during the initial

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round of briefs agreed that California law applied -- now asserts

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Oklahoma law should be applied, whereas Plaintiff continues to seek

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the application of California law.

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III. LEGAL STANDARD
Section 4 of the Federal Arbitration Act ("FAA") permits "a

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party aggrieved by the alleged failure, neglect, or refusal of

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another to arbitrate under a written agreement for arbitration [to]

United States District Court

For the Northern District of California

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petition any United States district court . . . for any order

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directing that . . . arbitration proceed in the manner provided for

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in [the arbitration] agreement."

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policy that generally favors arbitration agreements.

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Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

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The burden on a motion to compel arbitration is on the party

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opposing arbitration, Edwards v. Metropolitan Life Ins. Co., No. C

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10-03755 CRB, 2010 WL 5059553, at *4 (N.D. Cal. Dec. 6, 2010)

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(citing Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 227

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(1987)), and the Court must resolve any doubts in favor of

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arbitration.

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Plymouth, Inc., 473 U.S. 614, 626 (1985).

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9 U.S.C. § 4.

The FAA embodies a
Moses H. Cone

See Mitsubishi Motors Corp. v. Soler Chrysler-

To determine whether a valid arbitration agreement exists, we

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"apply ordinary state-law principles that govern the formation of

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contracts."

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938, 944 (1995).

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governs, the court makes the determination by "using the choice-of-

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law rules of the forum state, which in this case is California."

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Pokorny v. Quixtar, Inc., 601 F.3d 987, 994 (9th Cir. 2010).

First Options of Chicago, Inc. v. Kaplan, 514 U.S.
Where the parties do not agree on which state law

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IV.

DISCUSSION
Unlike the prior motion to compel arbitration, Plaintiff

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Savetsky does not argue that he did not assent to the arbitration

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provision contained in the Associate Agreement.

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contends that LegalShield's motion should be denied because: (1) it

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seeks to re-litigate arguments the Court rejected in the prior

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motion to compel arbitration, (2) the Court lacks jurisdiction to

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decide the motion to compel, (3) the parol evidence rule bars

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consideration of anything aside from the specific membership

Instead, he

United States District Court

For the Northern District of California

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agreement at issue in Plaintiff's substantive claims, (4) the

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Associate Agreement by its own terms does not apply to Plaintiff's

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claims, and (5) even if the agreement does apply to his claims, it

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is unconscionable and thus unenforceable.

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The Court will address the jurisdictional and relitigation

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concerns, and then evaluate choice-of-law before turning to the

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arguments on parol evidence, the scope of the associate agreement,

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and unconscionability.

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A.

Jurisdiction

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Section 4 of the Federal Arbitration Act provides for "[a]

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party aggrieved by the alleged failure, neglect, or refusal of

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another to arbitrate under a written agreement for arbitration may

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petition any United States district court which, save for such

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agreement, would have jurisdiction under Title 28, . . . for an

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order directing that such arbitration proceed in the manner

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provided for in such agreement."

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Once filed, the court must determine whether a valid agreement to

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arbitrate exists and, if so, "make an order directing the parties

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to proceed to arbitration in accordance with the terms of the

9 U.S.C. § 4 (emphasis added).

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agreement."

Id.

Finally, Section 4 states that "[t]he hearing and

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proceedings, under such agreement, shall be within the district in

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which the petition for an order directing such arbitration is

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filed."

Id.

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Seizing on the final quoted language, Plaintiff argues that

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because the Associate Agreement provides for arbitration only in

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Oklahoma City, Oklahoma, LegalShield may only seek to compel

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arbitration there.

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jurisdiction to grant Defendant's motion to compel."

United States District Court

For the Northern District of California

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Thus, he concludes, "this Court has no

Plaintiff is mostly incorrect.

Opp'n at 9.

While he rightly points out

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that the Court has authority only to order arbitration within the

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Northern District of California, that does not mean the court lacks

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jurisdiction to compel arbitration at all.

14

Inc. v. A.,BMH & Co., Inc., 240 F.3d 781, 785 (9th Cir. 2001)

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("[B]y its terms, [Section] 4 only confines the arbitration to the

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district in which the petition to compel is filed.

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require that the petition be filed where the contract specified

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that the arbitration should occur.") (emphasis added) (citing

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Cont'l Grain Co. v. Dant & Russell, 118 F.2d 967, 969 (9th Cir.

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1941)).

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to arbitrate exists, the FAA requires the Court to compel

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arbitration.

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satisfied that the making of the agreement for arbitration . . . is

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not in issue, . . . shall make an order directing the parties to

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proceed to arbitration . . . .") (emphasis added).

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time, however, Ninth Circuit precedent prevents the Court from

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ordering the parties to arbitrate in their chosen venue when, as

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here, the motion to compel arbitration is filed outside the

See Textile Unlimited,

It does not

On the contrary, if the Court finds that a valid agreement

See 9 U.S.C. § 4 ("The court . . . , upon being

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At the same

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district encompassing that venue.

See Cont'l Grain, 118 F.2d at

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968-69; see also Beauperthuy v. 24 Hour Fitness USA, Inc., No. 06-

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0715-SC, 2012 WL 3757486, at *5 (N.D. Cal. July 5, 2012); Homestake

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Lead Co. v. Doe Run Res. Corp., 282 F. Supp. 2d 1131, 1143-44 (N.D.

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Cal. 2003).2
In short, while the Court has jurisdiction to compel

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arbitration, it lacks jurisdiction to compel arbitration in

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Oklahoma City.
B.

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United States District Court

Relitigation

Next, Plaintiff contends that LegalShield's motion to compel

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For the Northern District of California

As a result, this argument is unavailing.

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should be denied as it is an improper attempt to relitigate issues

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the Court rejected when it denied LegalShield's motion to compel

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under the membership contract and denied leave to file a motion for

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reconsideration of that order.

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Order at 14; ECF No. 48 ("Recons. Mot.") at 9.
The Court disagrees.

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See Mot. at 7-8; see also Prior

First, no authority the Court has found

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states that the denial of a prior motion to compel arbitration

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under a different agreement somehow bars the proponent of the prior

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motion from subsequently asserting that a different contract

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contains an enforceable arbitration provision.

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waive its right to file a motion to compel arbitration if, while

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knowing of its right to compel arbitration, it acts inconsistently

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with that right, and prejudices the opposing party.

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Chugai Pharmaceutical Co., 280 F.3d 1266, 1270 (9th Cir. 2002).

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But LegalShield has consistently and promptly asserted its argument

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that the parties agreed to arbitrate their disputes, whether in the

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2

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True, a party may

See Sovak v.

Plaintiff's argument is still further weakened by the Court's
ultimate conclusions in this case, which includes striking the
language which requires that arbitration be conducted in Oklahoma.

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membership agreement or the associate agreement.

Furthermore,

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contrary to Savetsky's characterization of the Court's prior

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orders, the Court has never addressed whether the arbitration

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provision in the associate agreement is valid and enforceable.

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a result, Plaintiff's suggestions that this is simply an improper

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motion for reconsideration or an attempt to relitigate issues

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previously decided are misplaced.

As

Plaintiff urges strict application of California law on the

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United States District Court

C.

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For the Northern District of California

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basis of waiver, that the contract was one of adhesion, and that

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the choice of law provision cannot be enforced under the principles

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of Section 187(2) of the Restatement (Second) of Conflict of Laws.

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Failing that, Plaintiff argues that the arbitration clause is

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unenforceable even under Oklahoma law, and even if enforceable that

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the arbitration clause should not be read to apply to the

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Membership Contract.

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Court will address the first three arguments in turn.

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argument is moot, and thus the Court does not reach it.

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is substantially similar to and thus addressed later in connection

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with Plaintiff's arguments relating to scope of the agreement.

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Choice-of-Law

1.

Defendant disputes all such arguments.

The

The fourth
The fifth

Waiver

Plaintiff argues that where a party fails to assert the laws

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contained in a choice of law provision, the forum state's laws

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apply by default.

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App. 4th 1425, 1442 (2012).

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supplemental briefing, Plaintiff would be correct that default

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application of California law would be proper.

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Defendant has asserted the laws from the choice-of-law provision.

See Peleg v. Neiman Marcus Grp., Inc., 204 Cal.
Therefore, had the Court never ordered

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Here, however, the

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While the Court does question why Defendant waited so long to

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assert their choice of law and notes that Defendant did previously

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agree to apply California law, the Court cannot now entirely ignore

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Defendant's choice to assert an on-its-face valid provision of the

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contractual agreement when filing a briefing the Court itself

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specifically requested.

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2.

Adhesion Contracts

Adhesion contracts are frequently enforced within California

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Accordingly, there was no waiver.

and throughout the United States.

Plaintiff's assertion that

United States District Court

For the Northern District of California

10

substantial injustice results from such a contract runs counter to

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the Supreme Court decision in Concepcion and other authorities.

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See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011); Reply

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at 7.

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law relating to clickwraps, shrinkwraps, and browsewraps.

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the Court filed February 12, 2015, ECF No. 33, 6-8.

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at issue bears a few of the hallmarks of browsewrap (Plaintiff had

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to affirmatively click a link to see the terms and conditions), but

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otherwise looks like clickwrap.

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digital agreement, was asked whether he agreed to the terms

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associated -- where the terms were hyperlinked within the question

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itself should he have chosen to review them -- and then clicked his

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acknowledgement and agreement to the terms of the contract.

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shows sufficient "mutual manifestation of assent, whether by

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written or spoken word or by conduct, [to satisfy] the touchstone

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of contract."

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(9th Cir. Aug. 18, 2014).

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that Courts find the requisite notice "where the user is required

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to affirmatively acknowledge the agreement before proceeding with

The Court has previously engaged in a detailed analysis of
Order of

The contract

Plaintiff sought out the all-

This

Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1175
Nguyen specifically cites approvingly

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use of the website."

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Plaintiff's adhesion argument at this juncture, though revisits the

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issue in connection with unconscionability.
3.

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Id. at 1176.

Therefore, the Court rejects

Restatement Principles

"California courts shall apply the principles set forth in

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Restatement [S]ection 187, which reflects a strong policy favoring

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enforcement of [choice-of-law] provisions."

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Superior Court, 3 Cal. 4th 459, 464-465 (Cal. 1992); see also Wash.

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Mut. Bank, FA v. Super. Ct., 24 Cal. 4th 906, 914-916 (Cal. 2001)

Nedlloyd Lines B.V. v.

United States District Court

For the Northern District of California

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(applying Nedlloyd); Pokorny, 601 F.3d at 994 (applying

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Bank).

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Laws requires enforcement of choice-of-law provisions except where:

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Wash. Mut.

Section 187(2) of the Restatement (Second) of Conflict of

(a) the chosen state has no substantial relationship
to the parties or the transaction and there is no
other reasonable basis for the parties choice, or
(b) application of the law of the chosen state would
be contrary to a fundamental policy of a state which
has materially greater interest than the chosen state
in the determination of the particular issue.

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Courts are first to check prong (a), then consider whether the

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foreign state's laws are contrary to a fundamental policy, and only

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then consider whether California has a "materially greater

21

interest" in applying its own laws.

22

v. Fastbucks Franchise Corp., 622 F.3d 996, 1002-03 (9th Cir.

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2010).

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25

i.

See Bridge Fund Capital Corp.

Substantial Relationship

Here, Defendant is an Oklahoma corporation whose principle

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place of business is in Oklahoma.

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Circuit have endorsed that this is sufficient analysis for finding

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a substantial relationship and reasonable basis for the choice of

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California courts and the Ninth

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law at the initial step.

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1446-47; Ruiz v. Affinity Logistics Corp., 667 F.3d 1318, 1323 (9th

3

Cir. 2012).

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"substantial relationship" to the parties and a "reasonable basis"

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for the parties' choice of law.

Accordingly, the Court finds that there is a

ii.

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See, e.g., Peleg, 204 Cal. App. 4th at

Fundamental Policy

The Court next considers whether Oklahoma's laws are contrary

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to a fundamental policy.

Here, Plaintiff offers several potential

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policies that might be frustrated: (1) that there are differences

United States District Court

For the Northern District of California

10

between the California and Oklahoma legal standards for

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unconscionability; (2) that Oklahoma law permits unilateral

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contract modifications whereas California law does not; and (3)

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Oklahoma's consumer protection law is far less strong than

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California's, which includes a robust punitive scheme and anti-

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waiver provisions.

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reflect a fundamental policy, rejects the second argument, but

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agrees with the third argument, and therefore finds that Oklahoma's

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laws are contrary to a fundamental policy.

The Court finds the first argument unlikely to

The Court finds the differences between the California and

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Oklahoma law to be real but minimal.

The FAA provides that

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arbitration agreements are "valid, irrevocable, and enforceable

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

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revocation of any contract."

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preserves generally-applicable state law contract defenses like

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unconscionability, provided they do not single out arbitration

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agreements or otherwise undermine the purposes of the FAA.

27

Concepcion, 131 S. Ct. at 1748.

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///

9 U.S.C. § 2.

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This "savings clause"

See

Under California law, unconscionability "'has both a

1
2

procedural and a substantive element, the former focusing on

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oppression or surprise due to unequal bargaining power, the latter

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on overly harsh or one-sided results.'"

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Ass'n, 673 F.3d 947, 963 (9th Cir. 2012) (quoting Armendariz v.

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

7

Conversely, unconscionability under Oklahoma law does not

8

separately consider procedural versus substantive factors:

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The basic test of unconscionability of a contract is
whether under the circumstances existing at the time
of making of the contract, and in light of the general
commercial background and commercial needs of a
particular case, clauses are so one-sided as to
oppress or unfairly surprise one of the parties.
Unconscionability has generally been recognized to
include an absence of meaningful choice on the part of
one of the parties, together with contractual terms
which are unreasonably favorable to the other party.

United States District Court

10
For the Northern District of California

Kilgore v. KeyBank Nat'l

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Barnes v. Helfenbein, 548 P.2d 1014, 1020 (Okla. 1976).
Plaintiff suggests this has been recently interpreted to

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17

require a showing of "gross inequality of bargaining power."

18

v. O.K. Indus., Inc., 495 F.3d 1217, 1237 (10th Cir. 2007).

19

However, further review shows that "gross inequality" is just one

20

circumstance that usually leads to a finding of unconscionability,

21

rather than an updated test.

22

substantially similar.

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3

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27
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Id.3

Been

Thus the standards do appear

Moreover, differences resulting from

Both Barnes and Been reference or expound upon Williams v.
Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965)
("In many cases the meaningfulness of the choice is negated by a
gross inequality of bargaining power. . . . Ordinarily, one who
signs an agreement without full knowledge of its terms might be
held to assume the risk that he has entered a one-sided bargain.
But when a party of little bargaining power, and hence little real
choice, signs a commercially unreasonable contract with little or
no knowledge of its terms, it is hardly likely that his consent, or
even an objective manifestation of his consent, was ever given to
all the terms.").

12

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application of a procedural law like unconscionability are unlikely

2

to reflect a fundamental policy choice.

3

Defendant asks the Court to accept that "there is no

4

meaningful difference in the standards."

5

there might be some reason to suspect Defendant is in error -- that

6

the laws of the two states are not the same -- such a finding would

7

favor application of California's law.

8

below that a different fundamental policy at issue, so the Court

9

ultimately does apply California law, mooting this concern.

United States District Court

For the Northern District of California

10

Supp. Reply at 2.

While

Even so, the Court finds

Next, Plaintiff argues that permitting unilateral contract

11

modifications is contrary to a fundamental policy.

12

true Plaintiff's assertion that Oklahoma law permits unilateral

13

contract modifications whereas California law does not, Plaintiff's

14

arguments fail.

15

Even taking as

The Court agrees that, in this limited instance, Concepcion's

16

preemption rulings will not invalidate the choice of law.

17

Concepcion, 131 S. Ct. at 1748.

18

Montana contract policy was found preempted by the FAA per

19

Concepcion because the policy would often operate to invalidate

20

arbitration clauses.

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1151, 1161 (9th Cir. 2013).

22

stands for the principle that fundamental policies are based on

23

contract law and not limited to arbitration.

24

Mortensen clarified that it found the general contract law

25

preempted because, as interpreted by the Montana Supreme Court, it

26

would always disfavor arbitrations.

27
28

See

In Mortenson, a long-standing

Mortensen v. Bresnan Communs., LLC, 722 F.3d
Plaintiff asserts Mortensen also

Supp. Oppn at 5.

Mortensen, 722 F.3d at 1160.

Here, there is a legitimate concern that laws of another state
could disfavor application of choice-of-laws in favor of another

13

or history of use within California connecting the disallowing of

3

unilateral contracts with the invalidation of otherwise permissible

4

arbitration clauses.

5

concerning as related to arbitration than it would be if this were

6

an agreement for consideration by any other judicial body.

7

same token, there is no indication that this is a fundamental

8

policy.4

9

will not refrain from applying the chosen law merely because this

10

United States District Court

state's laws.

2

For the Northern District of California

1

However, unlike in Mortensen, there is no indication

would lead to a different result than would be obtained under the

11

local law of the state of the otherwise applicable law."

12

Restatement (Second) of Conflict of Laws, § 187, comment g.

13

Therefore, while the Court agrees with Plaintiff's argument that

14

Concepcion does not change the California unconscionability

15

analysis or in this specific instance necessitates Federal

16

preemption, the Court's analysis does not provide Plaintiff the

17

desired relief.

18

contract law does not constitute a fundamental policy and is

19

therefore not substantive.5

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///

The choice-of-law issue here is no more

By the

The Court thus turns back to the restatement: "[a] forum

The Court finds that this particular difference of

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4

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27
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If there was such a policy, it might be the type of thing that
would be preempted under the Court's analysis of Concepcion.
5
Defendant suggests that contract law is, generally, not a
fundamental policy. Brack v. Omni Loan Co., Ltd., 164 Cal. App.
4th 1312, 1323-24 (Cal. App. 4th Dist. 2008). However, Brack
reaches the conclusion that general rules of contract law will
"rarely" be based on its analysis of whether parties can legally
contract to avoid a policy or whether such a contract would violate
statute -- an analysis which features application of Discover Bank
v. Super. Ct., 36 Cal. 4th 148, 174 (2005). However, the rule from
Discover Bank was expressly found preempted by the United States
Supreme Court in Concepcion. 131 S. Ct. at 1753. Therefore, the
Court finds Brack unpersuasive and follows the binding precedent of
Mortensen.

14

1

The Court agrees, however, with the Plaintiff's argument that

2

there is a substantial interest at stake in application of

3

California versus Oklahoma's consumer protection law.

4

agrees that Oklahoma's law is far less strong than California's,

5

and Plaintiff correctly cites the Court's pre-Concepcion order.

6

Supp. Opp'n at 5.

7

Remedies Act (such as those as cited by Plaintiff) cannot be used

8

to preclude arbitration agreements.

9

1747-48.

The Court

Antiwaiver provisions of the California Legal

See Concepcion, 131 S. Ct. at

But where the California legislature included an

United States District Court

For the Northern District of California

10

antiwaiver provision, it is reasonable to conclude that they were

11

attempting to create a fundamental right.

12

effectuate disfavoring arbitration, certainly the FAA per

13

Concepcion would preempt the statute and language.

14

the antiwaiver provision is cited merely to underscore the

15

importance of the California law, and the right lost is all

16

protections afforded under the law.

17

choice-of-law results in a fundamental policy harm irrespective of

18

whether this case is heard at arbitration or by a judge.

19
20
21
22

If interpreted to

Here, however,

The issue, then, is that

Thus the Court concludes there is a fundamental policy
conflict in the laws of Oklahoma versus California.
iii. Materially Greater Interest
If there was no such conflict of laws, the Court would be

23

required to enforce the parties' choice of law.

24

App. 4th at 1446.

25

step in the choice-of-laws analysis is whether California has a:

26
27
28

Peleg, 204 Cal.

Where, as here, there is a conflict, the last

'materially greater interest than the chosen state in
the determination of the particular issue . . . .' If
California has a materially greater interest than the
chosen state, the choice of law shall not be enforced,
for the obvious reason that in such circumstance we

15

will decline to enforce a law contrary to this state's
fundamental policy.

1
2

Id. (quoting in part Nedlloyd, 3 Cal. 4th at 466).
Having found a substantial interest, the Court is satisfied

3
4

California's interest is material, and thus is concerned here with

5

whether its interest is greater than that of Oklahoma.

6

thereto, the Ninth Circuit's analysis in Pokorny is highly

7

instructive.

8

should have been evaluated using Michigan's unconscionability law

9

vice California's.

In answer

There, Defendants argued Quixtar ADR provisions

Pokorny 601 F.3d at 994.

Pokorny differs with

United States District Court

For the Northern District of California

10

our case here in that it applied a governmental interest test to

11

which the parties had, in effect, assented.

12

of that test was examination of "each jurisdiction's interest in

13

the application of its own law under the circumstances of the

14

particular case to determine whether a true conflict exists."

15

at 994-95.

16

because it was the place of the corporate headquarters and Michigan

17

had an interest in providing its companies with a consistent body

18

of law on which they could rely nationwide.

19

in favor of the Plaintiffs, three individuals from California, on

20

the following basis: they had no discernable connection to

21

Michigan; Michigan thus had little to no interest in applying its

22

own procedural unconscionability laws to their challenge;

23

California had a substantial interest in applying its procedural

24

laws; there was no true conflict of laws; and even had there been

25

one California's considerably stronger interest would prevail.

26

at 995-996.

27

///

28

///

Id.

The second prong

Id.

Defendants there argued Michigan had an interest

16

However, Pokorny found

Id.

Here, the factual circumstances are almost identical to

1
2

Pokorny.6

3

employer under an arbitration clause.

4

Oklahoma and never visited Oklahoma.

5

("Savetsky Supp. Decl.").

6

Oklahoma corporation has been in and through California.

7

thus has no greater interest in application of its procedural

8

unconscionability law here than Michigan had in Pokorny.

9

California has as much interest in application of its procedural

Plaintiff is an associate bringing suit against an
He has never worked in
ECF No. 61-2, ¶¶ 3-4

All his contact with the Defendant

United States District Court

For the Northern District of California

10

law here as it did in Pokorny.

11

Oklahoma

So too

Accordingly, California thus has a

materially greater interest in applying its own laws.
Ruiz also favors a finding for Plaintiff.

12

See Ruiz, 667 F.3d

13

at 1324.

14

here, requires that for this third prong the Court "must analyze

15

the following factors: (1) the place of contracting; (2) the place

16

of negotiation of the contract; (3) the place of performance; (4)

17

the location of the subject matter of the contract; and, (5) the

18

domicile, residence, nationality, place of incorporation, and place

19

of business of the parties."

20

favors the Plaintiff.

21

agreed to) the contract, and performed the contract in California,

22

and the subject matter of the contract was all in California.

23

like in Ruiz, there is no evidence suggesting Oklahoma has any

24

material interest in the resolution of this case.

25

///

26

6

27
28

The test there, which is the same as the one applied

Id.

Here, all but the last factor

He contracted, "negotiated" (or at least

Also

Id. at 1324-25.

The tests being applied are slightly different, but they are
substantially similar, requiring determination of which state has
the "materially greater interest." Materiality has been determined
per the discussion above, leaving only the overlapping issue of
which state's interest is greater.

17

1

Therefore, the Court finds that California has a materially greater

2

interest in application of its laws.
Accordingly, the Court applies California law to the limited

3
4

question of whether or not the arbitration clause is enforceable or

5

unconscionable.7

6

D.

Parol Evidence

7

Plaintiff argues that the parol evidence rule bars LegalShield

8

from attempting to enforce the Membership Contract's arbitration

9

provisions by pointing to the arbitration provision in the

United States District Court

For the Northern District of California

10

associate agreement.

This argument fails.

Under California law,

11

when parties enter into an integrated written agreement, extrinsic

12

evidence of a prior agreement may not be used to contradict or

13

alter the terms of the written agreement.

14

Storage, Inc. v. Fresno-Madera Prod. Credit Ass'n, 291 P.3d 316,

15

318 (Cal. 2013); see also Cal. Code Civ. Proc. § 1856(a).8

16

However, LegalShield is not seeking to contradict or alter the

17

terms of the (latter) written membership agreement -- it is merely

18

seeking to enforce the terms of the (prior) associate agreement

See Riverisland Cold

19
7

20
21
22
23
24
25
26
27
28

Insofar as Defendants might desire to argue that the Oklahoma
unconscionability standard may be more favorable to their case or
mandates a different result (as it does not differentiate between
procedural and substantive unconscionability), the Court notes that
Defendant asks the Court to conclude that "there is no meaningful
difference in the standards." Supp. Reply at 2. Therefore, even
had the Court accepted Defendant's arguments and applied Oklahoma
law, Defendants must accept that the results would be the same.
That said, the Court need not consider and does not consider
whether the clause would have been enforceable under Oklahoma law.
8
Oklahoma law is similar. The Oklahoma Supreme Court ultimately
"declines to look beyond the four corners of the Contract to
examine the parties' intent further [when] the language employed is
unambiguous." Romine v. Pense (In re Estate of Metz), 2011 OK 26,
P13-14 (Okla. 2011) ("In the absence of fraud, accident, mistake or
absurdity, the clear and explicit language embodied in the written
instrument governs in determining the parties' true intent."); see
also 15 Okl. St. §§ 2A-202, 152, 154.

18

1

without reference to any extrinsic evidence at all.

To put it

2

another way, LegalShield is not seeking to enforce the arbitration

3

provision in the (latter) membership agreement by pointing to the

4

arbitration provision in the (prior) associate agreement; it is

5

seeking to enforce the (prior) arbitration provision in the

6

associate agreement by pointing to the arbitration provision in the

7

(prior) associate agreement.

8

integration clause might bar this approach, the Court has

9

previously (at Plaintiff's own urging) found that Plaintiff did not

While in some instances an

United States District Court

For the Northern District of California

10

consent to the membership agreement, and therefore neither side

11

would be bound by the terms therein -- the integration clause or

12

the arbitration clause.

13

parol evidence or an integration clause can require limitation to

14

the terms of the membership agreement.

15

membership agreement was still valid (which it is not), the terms

16

of the membership agreement are consistent with the associate

17

agreement insofar as both require arbitration.

18

Court filed February 12, 2015, ECF No. 33; ECF No. 42-3, Exhibit G

19

at 47.

Therefore, Plaintiff cannot now claim that

Moreover, even if the

See Order of the

As a result, the parol evidence rule is irrelevant.

20

E.

Scope of the Associate Agreement

21

Even if the Court finds the arbitration and choice-of-law

22

provisions valid, Plaintiff asserts that the terms of the associate

23

agreement do not apply to the separate Membership Contract.

24

Plaintiff is incorrect.

25

Agreement first.

26

that arbitration shall be used for "[a]ll disputes and claims

27

related to LegalShield . . . products and services . . . or any

28

other claims or causes of action between the Associate or

Plaintiff entered into the Associate

The agreement, if valid, clearly contemplates

19

1

LegalShield . . . whether statutory in tort in contract or

2

otherwise . . . ."

3

clause on its own is likely broad enough to be sufficient, and

4

certainly the additional quoted clauses make it clear that an

5

Associate is subjecting to arbitration for almost anything at all

6

relating to LegalShield.

The scope of an arbitration provision is

7

governed by federal law.

See Tracer Research Corp. v. Nat'l Envtl.

8

Servs. Co., 42 F.3d 1292, 1294 (9th Cir. 1994).

9

requires arbitration clauses be liberally construed, with all

Associate Agreement at 6.

The first quoted

Federal law

United States District Court

For the Northern District of California

10

doubts resolved in favor of arbitration.

See Chiron Corp. v. Ortho

11

Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); Simula,

12

Inc. v. Autoliv, Inc., 175 F.3d 716, 719-720 (9th Cir. 1999); see

13

also Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 797-98

14

(10th Cir. 1995); P & P Indus., Inc. v. Sutter Corp., 179 F.3d 861,

15

871 (10th Cir 1999).

16

cases cited by LegalShield that discuss "[a]ll disputes arising in

17

connection with this Agreement . . . ," or "[a]ny disputes related

18

to this Agreement or its enforcement . . . ," and, unlike those

19

cases, encompasses claims both related and unrelated to the

20

associate agreement.

21

omitted); In re TFT-LCD (Flat Panel) Antitrust Litig., No. M 07-

22

1827 SI, 2011 WL 2650689, at *3-5 (N.D. Cal. July 6, 2011).

Here, the language is even broader than the

See Simula, 175 F.3d at 720 (emphasis

23

While the Court might be more sympathetic to Plaintiff's

24

argument if made by a member who then later became an associate, it

25

is not unreasonable for an associate to expect that he would be

26

bound by different and more stringent rules when he later becomes a

27

member (as compared to those who are solely members ).

28

especially true where Savetsky knew or reasonably should have known

20

This is

1

he had already agreed to some form of binding contract that may

2

have (and here did) limit his rights as to "products and services"

3

and "any other claims or causes of action" that Plaintiff had.

4

Therefore, Plaintiff's claims made in the posture of simply being a

5

member are bound by all valid provisions of his earlier signed

6

Associate Agreement.

7

did not release or reduce his existing obligations.

8

Plaintiff's claims are clearly related to LegalShield (as opposed

9

to the associate agreement), relate to LegalShield products and

Signing a later contract (in this instance)
Because

United States District Court

For the Northern District of California

10

services, and are (at the very least) other claims between Savetsky

11

and LegalShield, this case clearly falls within the scope of the

12

arbitration clause in the associate agreement.

13

F.

Unconscionability

14

Plaintiff asserts that the associate agreement is

15

unconscionable, and hence unenforceable.

In California, a finding

16

of unconscionability requires “a 'procedural' and a 'substantive'

17

element, the former focusing on 'oppression' or 'surprise' due to

18

unequal bargaining power, the latter on 'overly harsh' or 'one-

19

sided' results.”

20

omitted).

21

parts of the associate agreement are unconscionable under

22

California law and therefore cannot be enforced.

23

the severability clause may operate to save the arbitration clause

24

and the Court is required to read the contract resolving any

25

ambiguity in favor of arbitration, the Court finds the severability

26

clause does operate to save the agreement to arbitrate.

27

despite ultimately striking some language as unenforceable, the

28

Court finds that an arbitration is required.

Concepcion, 131 S. Ct. at 1746 (citations

For the reasons set forth below, the Court agrees that

21

However, because

Therefore,

The Court rejects Plaintiff's concerns over the size and

1
2

length of the agreement.

Two pages in all 8-point type is easily

3

legible and is not so long that anything can be truly obfuscated by

4

its placement.

5

able to access a copy of the AAA rules, eliminating or minimizing

6

any harm therefrom.

7

failing to provide the AAA rules that may exist is minimal and does

8

not substantially sway the Court's analysis.9

The Court is also satisfied that Plaintiff has been

Thus, any procedural unconscionability in

Plaintiff cites Chavarria v. Ralphs Grocery Store, 733 F.3d

9

United States District Court

For the Northern District of California

10

916, 922 (9th Cir. 2013) for the proposition that a take-it-or-

11

leave-it contract is procedurally unconscionable under California

12

law.

13

unconscionability in the circumstances of that case, where

14

plaintiffs were required to agree to terms weeks after beginning a

15

job, and where the terms applied irrespective of agreement.

16

923.

17

unconscionability simply by virtue of being a take-it-or-leave-it,

18

"standardized contract, drafted by the party of superior bargaining

19

strength, that relegate[d] to the subscribing party only the

20

opportunity to adhere to the contract or reject it."

21

cited by Defendant to the contrary are all district court cases

22

decided prior to Chavarria, which itself was decided after

Chavarria goes on to find still greater procedural

Id. at

However, Chavarria still finds that there was procedural

Id.

Cases

23
24
25
26
27
28

9

See A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 489
(1982) ("Generally, courts have not been solicitous of businessman
in the name of unconscionability"); Captain Bounce v. Business Fin.
Services, No. 11-CV-858 JLS (WMC), 2012 WL 928412 *7 (S.D. Cal.
Mar. 19, 2012) ("Plaintiffs’ status as merchants, not consumers, is
undoubtedly a factor properly considered in the Court's
unconscionability analysis, as it is reasonable to expect even an
unsophisticated businessman to carefully read, understand, and
consider all the terms of an agreement affecting such a vital
aspect of his business.").

22

1

Concepcion.

2

follow these persuasive authorities in favor of binding precedent

3

from the Ninth Circuit.

4

degree, albeit the lesser degree, of procedural unconscionability.

5

Reply at 7.

The Court must therefore decline to

Accordingly, the Court finds there is a

This in no way negates the Court's earlier finding rejecting

6

that adhesion alone makes the associate agreement invalid nor

7

impacts the Court's earlier finding that there is sufficient

8

"mutual manifestation of assent, whether by written or spoken word

9

or by conduct, [to satisfy] the touchstone of contract."

Nguyen,

United States District Court

For the Northern District of California

10

763 F.3d at 1175.

11

sliding scale test.

12

and substantive unconscionability are required, and "greater

13

substantive unconscionability may compensate for lesser procedural

14

unconscionability."

15

there was substantive unconscionability, and if so whether it was

16

to the degree necessary.

17

Rather, California unconscionability is a
Chavarria, 733 F.3d at 922.

Id.

Both procedural

Thus the Court next considers whether

A contract term is not substantively unconscionable when it

18

merely gives one side a greater benefit; rather, the term must be

19

"so one-sided as to 'shock the conscience.'"

20

Assn. v. Pinnacle Market Development (US), LLC, 55 Cal. 4th 223,

21

246 (Cal. 2012).

22

sided results sufficient to meet this requirement can be found in

23

the unilateral rights provided to Defendant, the location of the

24

forum, and the costs Plaintiff might bear under the AAA Commercial

25

Rules.

26

Pinnacle Museum Tower

Here, Plaintiff suggests that overly harsh, one-

The Court considers each in turn.

Plaintiff objects that the arbitration clause grants

27

unilateral rights only to the Defendant.

28

Associate Agreement states: "Associate understands and expressly

23

In relevant part, the

1

agrees that LegalShield may seek a temporary restraining order

2

and/or preliminary injunction in state or federal court to maintain

3

the status quo pending determination of the dispute."

4

Agreement at 6.

5

Plaintiff's argument, see Reply at 9-10, but fails to note that it

6

is the Defendant who initially sets the status quo, and thus one

7

might expect the status quo will more frequently favor the

8

Defendant.

9

provide the Defendant some advantage in being the only side which

Associate

Defendant provides an effective critique of

Thus the Court is concerned that this clause does

United States District Court

For the Northern District of California

10

may seek injunctive relief.

11

both sides can still seek injunctive relief, there seems to be no

12

benefit to the clause.

13

does create some amount of substantive unconscionability.

14

Court also agrees with Defendant that the clause can be easily

15

severed -- a matter the Court will take up below.

16

Moreover, if Defendant is correct that

The Court therefore finds that this clause
But the

Plaintiff also objects to the location of the forum in

17

Oklahoma.

18

settled . . . by arbitration in Oklahoma City, Oklahoma. . . ."

19

Associate Agreement at 6.

20

Defendant's decision not to enforce this provision now does not

21

change the fact that, upon entry into the contract, the provision

22

indicated a degree of substantial unconscionability.

23

The Associate Agreement states arbitrations "shall be

The Court agrees with Plaintiff.

Plaintiff also objects to costs it might bear under the AAA

24

Commercial Rules.

The Associate Agreement states arbitrations

25

"shall be settled totally and finally by arbitration . . . in

26

accordance with the Commercial Arbitration Rules of the American

27

Arbitration Association."

28

again instructive.

Associate Agreement at 6.

Chavarria is

There, the underlying district court "cited [as

24

1

problematic] the preclusion of institutional arbitration

2

administrators, namely AAA or JAMS, which have established rules

3

and procedures to select a neutral arbitrator."

4

F.3d at 923.

5

each party seeking arbitration and structured the rules to ensure

6

that Ralphs would usually (if not always) get to pick the arbiter

7

and have certain innate advantages when going into arbitration.

8

See Chavarria, 733 F.3d 923-25.

9

There is no fee splitting, merely use of the rules of a well-

Chavarria, 733

There, Ralphs imposed significant fees up-front on

No such concern exists here.

United States District Court

For the Northern District of California

10

respected neutral arbitration group.

11

use such a group as problematic, and noted the Ninth Circuit has

12

failed to assign error where there was "a mere risk" that a party

13

might face a prohibitive cost.

14

KeyBank National Ass'n, 718 F.3d 1052, 1058 (9th Cir. 2013) (en

15

banc)).

16

Chavarria cited failure to

Id. at 925-26 (citing Kilgore v.

Here, the agreement simply selects the ground rules.

There is

17

no inclusion of additional fees in the Associate Agreement beyond

18

those set rules, and the AAA rules provide for relief for those

19

unable to pay.

20

evidence that there is some mechanism designed to increase costs in

21

a manner designed to deprive Plaintiff of a day in court, there is

22

insufficient evidence of substantive unconscionability.

23
24
25
26
27
28

Absent evidence that Plaintiff cannot pay or

Finally, the Court turns to the Severability Clause.

The

Associate Agreement states that:
In the event that a provision of the Associate
Agreement or these Policies and Procedures is held to
be invalid or unenforceable, such provision shall be
reformed only to the extent necessary to make it
enforceable, and the balance of the Agreement and
Policies and Procedures will remain in full force and
effect.

25

1

Associate Agreement at 6.

The FAA and Concepcion make clear that

2

any doubt or ambiguity in the contract should be resolved in favor

3

of arbitration.

4

have chosen to invalidate an entire contract on the basis of more

5

than one indication of substantive unconscionability.

6

24-25.

7

permeated by unconscionability, or one that contains unconscionable

8

aspects that cannot be cured by severance, restriction, or duly

9

authorized reformation, should not be enforced."

Plaintiff cites that several California courts

See Reply at

The Court recognizes that "an arbitration agreement

Armendariz, 24

United States District Court

For the Northern District of California

10

Cal. 4th at 126.

Here, however, the Court finds that there is a

11

reasonable means and basis to save the contract.

12

already found that there was a sufficient "mutual manifestation of

13

assent" and dicta indicating acceptance of this precise type of

14

contract by the Ninth Circuit.

15

Enforcement of those portions not found (above) to contain

16

unconscionable agreements does not favor or disfavor either side in

17

a manner that runs contrary to the interests of justice.

18

Armendariz, 24 Cal. 4th at 126-27.

19

finds unenforceable the clause limiting injunctive relief to only

20

Defendant and locating any arbitration in Oklahoma.

21

relating to filing orders in Oklahoma and consenting to

22

jurisdiction there does not foreclose other options (such as filing

23

an order with this Court) and thus do not yet pose any concern.

24

The remainder of the contract stands.

The Court has

See Nguyen, 763 F.3d at 1175-76.

See

Therefore, the Court severs and

Language

25
26

V. CONCLUSION

27

For the above reasons, the Court SEVERS and STRIKES the

28

language below with a cross-through from the associate agreement:

26

1

1.
"totally and finally by arbitration in Oklahoma
City, Oklahoma, . . . ."

2
3
4

2.
"However, Associate understands and expressly
agrees
that
LegalShield
may
seek
a
temporary
restraining order and/or preliminary injunction in
state or federal court to maintain the status quo
pending determination of the dispute."

5
6

The remainder of the associate agreement remains valid.

7

Accordingly, the Court hereby ORDERS that parties proceed to

8

binding arbitration in accordance with the (remaining) terms of the

9

agreement.

The hearing and proceedings, under such agreement,

United States District Court

For the Northern District of California

10

shall be within this judicial district.

11

Court STAYS this case pending results of the above ordered

12

arbitration.

13

See 9 U.S.C. § 4.

The

Still-valid language in the associate agreement consents to

14

entry of judgment in Oklahoma yet not in California, but does not

15

actually foreclose enforcement in California.

16

notwithstanding, within 20 days of this order, the Court ORDERS

17

Defendant to SHOW CAUSE why any judgment resulting from this

18

arbitration cannot be filed in and enforced by the Court or another

19

judicial body within California.

20

during those same 20 days stipulate to the continued jurisdiction

21

of the Court to enforce the results of the arbitration the Court

22

has ordered herein.

Therefore, the stay

Alternatively, Defendant may

23
24

IT IS SO ORDERED.

25
26
27

Dated: July 30, 2015

____________________________
UNITED STATES DISTRICT JUDGE

28

27