Jacobson v. Snap-on Tools Company et al

Filing 34

Order by Hon. James Donato re 12 Motion to Dismiss or Compel Arbitration and Stay Proceedings. (jdlc1S, COURT STAFF) (Filed on 12/9/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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DANIEL JACOBSON, individually and on
behalf of all others similarly situated,

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United States District Court
Northern District of California

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Case No. 15-cv-02141-JD

Plaintiff,
ORDER RE ARBITRATION
v.
SNAP-ON TOOLS COMPANY, et al.,
Defendants.

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This putative class action arises out of a franchise relationship between named plaintiff

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Daniel Jacobson and defendants Snap-on Tools Company, LLC. (“Snap-on Tools”) and Snap-on

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Incorporated (“Snap-on Inc.”). Jacobson alleges that defendants exercised so much control over

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his work that he is an employee under California law and not a true franchisee. As a consequence,

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defendants failed to properly pay for employment-related expenses, overtime, meal and rest

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breaks. He sues on behalf of himself and a putative class of individuals who signed franchise

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agreements with defendants in California.

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Jacobson’s franchise agreement contains an arbitration provision and class action waiver.

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Defendants move to compel arbitration. The Court found the matter suitable for decision without

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oral argument under Civil Local Rule 7-1(b), Dkt. No. 30, and now orders the case to arbitration

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on all claims other than the California Private Attorneys General Act claims.

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BACKGROUND
As alleged in the complaint, Snap-on Tools sells automotive and shop tools and equipment

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through franchisees. Dkt. No. 1. The franchisees “carry out Snap-On’s business by making

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weekly sales and service calls to existing and prospective” customers. Id. ¶ 13. Jacobson alleges

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that the franchisees’ working conditions and conduct were so closely regulated and controlled by

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Snap-on Tools and Snap-on Inc. that they were effectively employees rather than independent

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franchise operators. As a result, according to Jacobson, defendants got all the benefits of an

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employer-employee relationship and work force without the burden of honoring their employment

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law obligations. Jacobson alleges multiple claims against defendants under California

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employment laws, for unfair business practices, and under the Private Attorneys General Act

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(“PAGA”).
At the heart of this motion is an arbitration provision in Snap-on Tools’ Standard Franchise

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Agreement. This provision states in pertinent part that “any controversy or dispute arising out of,

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or relating to Franchisee’s franchise business or this Agreement including, but not limited to, any

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claim by Franchisee . . . concerning the entry into, [or] performance under” the agreement “shall

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United States District Court
Northern District of California

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be submitted to final and binding arbitration as the sole and exclusive remedy for any such

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controversy or dispute.” Dkt. No. 1-1 at § 25(B). An arbitrable dispute includes “any claims

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arising under state or federal laws.” Id.
In Jacobson’s case, the standard arbitration provision was modified by an Addendum for

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specific use with California parties. Dkt. No. 20-1, Exh. 1. The Addendum states that the

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“Franchise Agreement requires binding arbitration” and goes on to say that California residents

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can require arbitration to take place in California, that arbitration will proceed before an arbitrator

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with the American Arbitration Association (“AAA”) at a location within California, and that

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Snap-on Tools will pay AAA fees and expenses up to $7,500 for demands of less than $75,000.

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Id.

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Jacobson attests that he signed a Standard Franchise Agreement with Snap-on Tools on

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July 20, 2012 (the “Agreement”) and received a copy of the California Addendum. Dkt. No. 20-1

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¶¶ 3, 8, 9. He ended his relationship with Snap-on Tools in November 2014. Id. ¶ 5.

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Defendants now seek to enforce arbitration of the claims in the complaint. Dkt. No. 12.

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Jacobson argues that no enforceable agreement to arbitrate was ever formed and that, in any event,

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the PAGA claims are not subject to arbitration. Dkt. No. 20. He also argues that Snap-on Inc.

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was not a party to the Agreement and cannot compel arbitration. He does not contend that any

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other claim is outside the scope of the arbitration clause.
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The Court finds that most of these arguments fail to hold water and that arbitration is

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required in this case. The one exception is the PAGA claims, which are not arbitrable.

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Consequently, the Court grants the motion to compel arbitration in all respects outside the PAGA

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claims. The PAGA portion of the case will remain with the Court and is stayed pending the

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outcome of the arbitration.
DISCUSSION

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I.

STANDARDS
Defendant’s motion to compel arbitration is governed by the Federal Arbitration Act

(“FAA”). The FAA’s “overarching purpose . . . is to ensure the enforcement of arbitration
agreements according to their terms so as to facilitate streamlined proceedings.” AT&T Mobility

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United States District Court
Northern District of California

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LLC v. Concepcion, 131 S.Ct. 1740, 1748 (2011). “Agreements to arbitrate that fall within the

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scope and coverage of the Federal Arbitration Act . . . must be enforced in state and federal

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courts.” KPMG LLP v. Cocchi, 132 S.Ct. 23, 24 (2011) (per curiam). A district court’s role under

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the FAA is limited to determining (1) whether a valid, enforceable agreement to arbitrate exists

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and, if it does, (2) whether the scope of that agreement encompasses the claims at issue. Assi v.

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Citibank Nat’l Ass’n, No. 14-CV-03241-JD, 2015 WL 166919, at *1 (N.D. Cal. Jan. 13, 2015)

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(citing Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004)). If the

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party seeking to compel arbitration establishes both factors, the FAA requires the court to enforce

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the arbitration agreement in accordance with its terms. Id. Any doubts about the scope of

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arbitrable issues should be decided in favor of arbitration. Three Valleys Mun. Water Dist. v. E.F.

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Hutton & Co., Inc., 925 F.2d 1136, 1139 (9th Cir. 1991).

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“[T]here is a presumption that courts will decide which issues are arbitrable.” Oracle Am.,

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Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1072 (9th Cir. 2013). This presumption controls

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“[u]nless the parties clearly and unmistakably provide otherwise.” Howsam v. Dean Witter

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Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotation omitted). Neither party here argues or

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even suggests that arbitrability should be decided in another forum, and so the Court will resolve it

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as necessary.

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The parties agree that California law governs the Agreement. Dkt. No. 12 at 1; Dkt. No.

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20 at 1. Consequently, Jacobson’s attack on the validity of the arbitration provision will be

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evaluated under California’s “‘ordinary state-law principles that govern the formation of

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contracts.’” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (quoting First

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Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). A court may consider “generally

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applicable contract defenses, such as fraud, duress, or unconscionability . . . without contravening

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§ 2 [of the FAA].” Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). The party

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seeking arbitration bears the burden of proving the existence of a valid arbitration agreement, and

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the party opposing arbitration has the burden of proving the agreement is unenforceable or any

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other fact necessary to its defenses. Bridge Fund Capital Corp. v. Fastbucks Franchise Corp.,

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United States District Court
Northern District of California

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622 F.3d 996, 1005 (9th Cir. 2010) (citing Engalla v. Permanente Med. Grp., Inc., 15 Cal. 4th 951

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(1997)).

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II.

THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE

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A.

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Jacobson’s opposition to arbitration leads with the contention that he never agreed to

The Parties Agreed To Arbitration

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arbitrate any disputes. This argument is unpersuasive. To be sure, this is not a case where an

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arbitration clause was buried in a sneaky or underhanded fashion. The arbitration provisions in the

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Agreement that Jacobson signed were clear and straightforward. Section 25(B) sets out the

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arbitration terms in large font and plain English. Dkt. No. 1-1 at § 25(B). Section 32(K), which

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appears right above Jacobson’s signature at the end of the Agreement, highlights the arbitration

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requirement in even larger, bold-faced font also in plain English. Id. at § 32(K). And the

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California Addendum is equally clear in presentation and content. Dkt. No. 20-1, Exh. 1.

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Jacobson had the Agreement in hand when he signed it. His complaint that no one at

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Snap-on took the extra step of specifically explaining the arbitration provisions to him is of no

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moment. The California Supreme Court has held that a defendant is “under no obligation to

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highlight the arbitration clause of its contract, nor [is] it required to specifically call that clause to

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[plaintiff’s] attention.” Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 914 (2015).

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Moreover, by signing the Agreement, Jacobson certified that he had read it and “has been
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thoroughly advised with regard to the terms and conditions” of it. Dkt. No. 1-1 at § 32(A). He is,

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of course, still bound by the terms of the contract, including the arbitration clause, even if he did

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not read them. Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 567 (9th Cir. 2014); Pinnacle

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Museum Tower Ass’n. v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 (2012) (“A party’s

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acceptance of an agreement to arbitrate may be express, as where a party signs the agreement.”

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Further, “[a]n arbitration clause within a contract may be binding on a party even if the party never

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actually read the clause.”)

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Jacobson nevertheless contends that there was no meeting of the minds over arbitration.
Jacobson’s counsel states in the opposition brief that Snap-on informed Jacobson “[b]efore he

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signed the FA [the Agreement]” that “the arbitration clause in the FA may be unenforceable.”

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United States District Court
Northern District of California

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Dkt. No. 20 at 2; see also id. at 1 (“Snap-On told Plaintiff before he signed the Franchise

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Agreement that the arbitration clause was potentially unenforceable.”) Counsel relies heavily on

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Laxmi Investments, LLC v. Golf USA, 193 F.3d 1095 (9th Cir. 1999), and Winter v. Window

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Fashions Professionals, Inc., 166 Cal. App. 4th 943 (2008), to contend that this pre-contract

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disclosure misled Jacobson into thinking arbitration was not a requirement that Snap-on can

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demand now.

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This theory does not fly. Jacobson does not show that he got any pre-contract disclosures

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about arbitration from Snap-On, let alone deceptive or confusing ones. Counsel says that

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happened, but Jacobson’s declaration does not. All Jacobson attests to is that he received and

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signed the Agreement, and also received the California Addendum. Dkt. No. 20-1 ¶¶ 3, 8, 9. He

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does not say that one preceded the other or that he was told before signing that the arbitration

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provision was potentially unenforceable. To the contrary, he avers that “no one explained

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anything about arbitration” to him before he signed. Id. ¶ 3.

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This is highly problematic for Jacobson’s contract formation attack. The cases he relies on

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found that a conflict between a pre-contract advisement and the terms of contract signed afterward

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could show no meeting of the minds and cast doubt on the fairness of enforcing a disclaimed

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condition in the agreement. See Laxmi, 193 F.3d at 1096; Winter, 166 Cal. App. 4th at 946; see

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also Meadows v. Dickey’s BBQ Rests., Inc., No. 15–cv–02139–JST, 2015 WL 7015396, at * 8
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(N.D. Cal. Nov. 12, 2015) (highlighting that disclosures were made to plaintiffs in Laxmi and

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Winter “before they executed Franchise Agreements.”). At their core, these cases are concerned

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about misleading statements that failed to give adequate notice of the terms in a binding franchise

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agreement. See Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1290-91 (9th Cir. 2006) (en banc)

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(Laxmi directed to misleading or dishonest pre-contract disclosures). The predicate of a deceptive

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pre-contract advisement is missing here. Jacobson does not tender any evidence that Snap-on

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made any pre-contract representations at all to him about arbitration, and certainly not a

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misleading one. There is no evidence here of dishonest disclosures that preclude contract

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formation.

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This failure of proof defeats Jacobson’s argument, and the contract documents he cites

United States District Court
Northern District of California

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further highlight the weakness of his position. Jacobson pins his lack of formation theory on one

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sentence reading “This provision may not be enforceable under California law,” which appears at

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the end of the arbitration section in the California Addendum. Dkt. No. 20-1. As outlined above,

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the Addendum paragraph on arbitration focuses on details like where arbitration will occur and

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how the parties will handle AAA’s fees and expenses. Id. The pertinent question, then, is what

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does “[t]his provision” refer to -- the immediately preceding sentence about fees and costs, or the

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two immediate sentences, or the entire paragraph? And how does “[t]his provision” reach through

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the Addendum to the main Agreement to show that the parties could not reasonably expect that

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their disputes would be arbitrated? Jacobson does not proffer any answers or any evidence

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indicating that the parties did not reasonably expect to be bound by the arbitration requirement. In

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these circumstances, his contention that he never agreed to arbitration falls flat.

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B.

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Jacobson also challenges the arbitration clause as unconscionable, which he bears the

The Agreement Is Enforceable

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burden of demonstrating. See Sanchez, 61 Cal. 4th at 911. Under California law, a contract is

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enforceable unless it is both procedurally and substantively unconscionable. Id. at 910. This is

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judged on a sliding scale: “the more substantively oppressive the contract term, the less evidence

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of procedural unconscionability is required to come to the conclusion that the term is

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unenforceable, and vice versa.” Id. (citing Armendariz v. Found. Health Psychcare Servs., Inc.,

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24 Cal. 4th 83, 114 (2000)). Jacobson does not succeed on either score.

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Procedural Unconscionability Is Minimal

Jacobson’s procedural unconscionability arguments are nominal at best. Procedural

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unconscionability focuses on “oppression” and “surprise.” Armendariz, 24 Cal. 4th at 114. For

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“oppression,” Jacobson makes the sole contention, without more, that the Agreement was a “take-

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it-or-leave it” deal that California law “nearly always” treats as oppressive. Dkt. No. 20 at 4. That

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may be so and is likely to be enough to establish a minimal showing of oppression. See

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Nagrampa, 469 F.3d at 1284 (“minimal” level of oppression present in a franchise agreement

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where a party with vastly inferior bargaining power is presented with an arbitration clause on a

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United States District Court
Northern District of California

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“take-it-or-leave it” basis). But it is the barest of showings. In fact, the California Supreme Court

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recently upheld an arbitration requirement where the plaintiff made very similar claims of

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adhesion, unequal bargaining power and inability to negotiate anything. See Sanchez, 61 Cal. 4th

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at 909.

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Jacobson identifies even less in the way of genuine surprise. He says the arbitration

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provisions were “hidden,” Dkt. No. 20 at 5, but in fact, as discussed, they were quite clear in

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format and language. Navigation to the arbitration provisions in the Agreement was also made

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easy by the table of contents and bolded, underlined headings. Dkt. No. 1-1 at iii, § 25(B). A

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reminder about the arbitration provisions is provided in boldface right above the signature line,

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together with a cross-reference to the arbitration section number. Id. § 32(K). Jacobson was not

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ambushed by a stealth arbitration clause.

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Jacobson’s protest that Snap-on failed to hand him a copy of the AAA rules also does not

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raise the procedural unconscionability level. See Howard v. Octagon, Inc., No. 13–cv–01111

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PJH, 2013 WL 5122191, at *15-*16 (N.D. Cal. Sept. 13, 2013) (finding the arbitration

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agreement’s clear incorporation of the AAA Rules and the availability of the AAA Rules to weigh

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against finding procedural unconscionability). Jacobson does not allege that the rules were not

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available or explain how he was in any way disadvantaged by not being given a copy.

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No Substantive Unconscionability

Because no more than minimal procedural unconscionability exists in this case, Jacobson
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needs to identify substantial evidence of “overly harsh” or “one-sided” results in the arbitration

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clause to prevent enforcement. See Sanchez, 61 Cal. 4th at 910. He does not meet this test.
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Jacobson challenges the Agreement’s cost-splitting provision, but it is in step with
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California law. See Nagrampa, 469 F.3d at 1285 (fee splitting arrangement in franchise
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agreement not per se substantively unconscionable in light of California default rule of equally
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splitting arbitration costs). Jacobson cites to employment cases involving fee shifting provisions
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and seeks to invoke them by characterizing his Agreement as an employment contract. But the
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Court must evaluate the Agreement in light of its “commercial setting, purpose, and effect” and
the reasonable expectations of the parties “at the time [the contract] was made.” Sanchez, 61 Cal.

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United States District Court
Northern District of California

4th at 911, 920 (internal quotations omitted), and the record shows Jacobson and Snap-On were
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contemplating a franchise contract at the time it was signed. Among other facts, the agreement
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was clearly marked as a franchise agreement and Jacobson’s immediate payment of approximately

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$31,000 in franchise fees to Snap-On confirms that the parties did not view it as an employment
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contract. See Dkt. No. 20-1 ¶ 4. Consequently, the Agreement’s fee-splitting provision is not

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inherently unconscionable.
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Jacobson’s concern that fee splitting might effectively close all doors to his claims is

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considerably more potent. Jacobson attests that his debts, which are related to his relationship
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with Snap-on, so outweigh his assets and income that any level of filing fee would likely deter
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him. See id. ¶¶ 5-7. While the arbitrator can reapportion fees during arbitration, there is no
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guarantee that would happen. Consequently, to ensure that arbitration fees will not “effectively
block[] every forum” for redress of Jacobson’s claims, the Court severs the fee shifting provision

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as unconscionable under the circumstances of this case. Sanchez, 61 Cal. 4th at 920 (a court may
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use “unconscionability doctrine on a case-by-case basis to protect nonindigent consumers against
fees that unreasonably limit access to arbitration”); see also Kairy v. Supershuttle Int’l, Inc., No. C
08-02993 JSW, 2012 WL 4343220, at *8 (N.D. Cal. Sept. 20, 2012) (“fee splitting can be
unconscionable where fees and costs are so prohibitively expensive as to deter arbitration”).

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Defendants do not oppose severing the fee-splitting provision. Dkt. No. 12 at 10.
Jacobson’s other unconscionability attacks are unavailing. His challenges to the discovery

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provisions miss the mark. The Agreement accommodates reasonable discovery and offers the

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possibility of more as “ordered by the arbitrator” or “otherwise agreed by the parties.” Dkt. No. 1-

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1 § 25(B); see Fouts v. Milgard Mfg., Inc., No. C11-06269 HRL, 2012 WL 1438817, at *5 (N.D.

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Cal. Apr. 25, 2012) (“‘access to essential documents and witnesses, as determined by the

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arbitrator(s)’” sufficient for arbitration, quoting Armendariz, 24 Cal. 4th at 106). Discovery of

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Jacobson’s tax returns is not unfair because he specifically agreed to release them under the

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Agreement. Dkt. No. 1-1 § 12(C)-(D).
His concern that he must initiate a claim within one year of the challenged conduct is

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United States District Court
Northern District of California

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equally unpersuasive. Jacobson has made no showing that this would prevent him from

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“effectively pursu[ing]” a remedy or unfairly bars some portion of his claims. See Ellis v. U.S.

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Sec. Associates, 224 Cal. App. 4th 1213, 1222 (2014) (internal quotation omitted). The Court is

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retaining the PAGA claims, so Jacobson has no argument there against the one-year claim

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requirement.
The Court declines the invitation to invalidate the arbitration clause based on the issue

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preclusion or mediation provisions. Preclusion issues must be dealt with by the arbitrator under

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California law. See Tectura Corp. v. LaBudde Grp., Inc., No. C 08-5752 SBA, 2009 WL

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4723340, at *2 (N.D. Cal. Dec. 4, 2009) (citing Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207

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F.3d 1126, 1132 (9th Cir. 2000)). And defendants have represented that the mediation clause will

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not be invoked in this case. See Dkt. No. 21 at 9.

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III.

THE PAGA CLAIMS

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Jacobson’s non-class, representative claim for civil penalties under PAGA is not subject to

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arbitration. Jacobson’s right to bring representative PAGA claims is not waived by the Agreement

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or preempted by the FAA. In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348

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(2014), the California Supreme Court held that pre-dispute waivers of representative PAGA

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claims are unenforceable under California law. Id. at 382-84. Defendants ask the Court to

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disregard that ruling because “[t]he vast majority of courts within the Ninth Circuit” have
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determined that the FAA preempts Iskanian and that allowing a PAGA representative action to

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remain in court “would contravene the FAA’s purpose.” Dkt. No. 12 at 14. Even assuming that

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were true at one point in time, an issue which the Court does not decide, developments have

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overtaken defendants’ position. The Ninth Circuit recently held that “the FAA does not preempt

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the Iskanian rule.” Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 429 (9th Cir. 2015).

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Consequently, defendants’ suggestion that the Agreement or the FAA forestall a representative

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PAGA claim is wrong.
The Ninth Circuit has emphasized, however, that representative PAGA claims are not

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inherently inarbitrable. “Nothing prevents parties from agreeing to use informal procedures to
arbitrate representative PAGA claims.” Id. at 436. Consequently, the terms of the parties’

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United States District Court
Northern District of California

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arbitration agreement determines the forum where these claims will be resolved. In this case, the

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parties manifested an intent in the Agreement not to require arbitration of representative claims.

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See Dkt. No. 1-1 § 25(B) (“The parties agree to arbitrate only controversies and disputes that are

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specific to Franchisee… and not issues that effect Snap-on franchisees generally,” and “no

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arbitration under Section 25 shall include, by consolidation, joinder, class action or in any other

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manner, any person other than Franchisee”). Defendants expressly state in their briefs that they

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“have not consented to representative arbitration.” Dkt. No. 12 at 15 n.8. Consequently, the Court

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retains the PAGA claims and stays them pending completion of the arbitration. 9 U.S.C. § 3;

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Kilgore v. KeyBank, Nat’l Assoc., 718 F.3d 1052, 1057 (9th Cir. 2013) (“9 U.S.C. § 3 . . .

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requir[es] stay of civil action during arbitration”).

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IV.

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SNAP-ON INC.
Jacobson contends that Snap-On Inc., which did not sign the Agreement, cannot get the

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benefit of the arbitration clause. But as plaintiff himself recognizes, Dkt. No. 20 at 14, a non-

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signatory is entitled to arbitration when the claims against it involve “interdependent and

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concerted” events with a defendant who did sign and are “‘founded in or intimately connected

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with the obligations of the underlying agreement.’” Kramer v. Toyota Motor Corp., 705 F.3d

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1122, 1129 (9th Cir. 2013) (quoting Goldman v. KPMG LLP, 173 Cal. App. 4th 209, 219 (2009)).

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Throughout his complaint, Jacobson treats the two Snap-ons as a single actor. He consistently
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refers to them collectively as “Snap-On” and “Defendants,” and never alleges that either company

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ever undertook any independent or individual action. The claims and operative facts against them

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are identical. He alleges that both companies benefitted equally from the Agreement, and does not

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distinguish between them where he alleges -- drawing primarily on the Agreement -- that they

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exerted sufficient control over his work to render him an employee. Id. He also does not address

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why the Agreement’s requirement of arbitration for any claims against an “affiliate of Snap-on”

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should not apply to a company he alleges is indistinguishable from Snap-on Tools. Dkt. No. 1-1 §

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25(B). After electing to merge Snap-on Tools and Snap-on Inc. together for this lawsuit, Jacobson

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cannot argue, now that unitary treatment seems less convenient, that the Court should cleave them

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into totally independent actors. Moreover, he proffers no facts at all to demonstrate why splitting

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United States District Court
Northern District of California

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the claims and parties for purposes of arbitration is the right thing to do. Both defendants may

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enforce the Agreement’s arbitration provision against him.

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CONCLUSION

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The Court grants the motion to compel arbitration of the First through Ninth claims and

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dismisses them from the complaint. Defendants expressly argued that these claims should proceed

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on an individual basis only in light of the Agreement’s class action waiver, Dkt. No. 12 at 14, and

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Jacobson has not contested that point. Consequently, the arbitration will be on an individual basis.

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The arbitration will proceed on the conditions that Snap-on will pay for all AAA fees and costs

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regardless of the demand amount, and that the mediation provisions in the Agreement will not be

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cited or invoked for any reason.

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Plaintiff’s Tenth claim for representative PAGA civil penalties will remain with the Court

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and is stayed pending completion of the arbitration. Parties are directed to file a status report with

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the Court every 3 months to keep the Court apprised of the arbitration status.

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IT IS SO ORDERED.
Dated: December 9, 2015

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________________________
JAMES DONATO
United States District Judge

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