Grabowski v. C.H. Robinson Worldwide, Inc.

Filing 58

ORDER: The (Doc. 34 ) Motion for an Order Directing Arbitration is granted, as discussed. The (Doc. 43 -1) Motion for Discovery and Jury Trial is DENIED. The Clerk of the Court shall administratively close this case without prejudice to any party moving to have the case reopened for good cause. Signed by Judge William Q. Hayes on 9/19/2011. (mdc) Modified on 9/19/2011 - Per chambers, case was closed on this Order with no judgment. (mdc)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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ALEX GRABOWSKI, an individual, on
behalf of himself, and on behalf of all
persons similarly situated,

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ORDER

Plaintiff,
vs.
C.H. ROBINSON COMPANY; C.H.
ROBINSON WORLDWIDE, INC.,
Defendants.
HAYES, Judge:

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CASE NO. 10cv1658-WQH-MDD

The matters before the Court are (1) the Motion for an Order Directing Arbitration and
Dismissing, or in the Alternative, Staying the Action (“Motion for an Order Directing
Arbitration”), filed by Defendants (ECF No. 34); and (2) the Request for Full Discovery and
a Jury Trial as to Disputed Issues of Fact in Motion to Compel Arbitration (“Request for Full
Discovery and a Jury Trial”), filed by Plaintiff (ECF No. 43-1).
I.

Background
On August 9, 2010, Plaintiff initiated this action by filing a Complaint in this Court.

(ECF No. 1).
On November 30, 2010, Plaintiff filed the Third Amended Complaint, which is the
operative pleading. (ECF No. 14). Plaintiff, who was employed by Defendants as an
“Account Manager,” alleges that Defendants improperly classified him (and other individuals
employed by Defendants in California) as an exempt employee from overtime wages, and
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1 therefore failed to pay him overtime compensation although he “regularly worked more than
2 eight (8) hours in a workday, forty (40) hours a workweek, and/or seven (7) consecutive days.”
3 Id. ¶ 4. Plaintiff alleges the following claims, on behalf of himself and all others similarly
4 situated: (1) Unfair Competition in Violation of Cal. Bus. & Prof. Code §§ 17200, et seq.; (2)
5 Failure to Pay Overtime Compensation in Violation of California Labor Code §§ 510, 515.5,
6 551, 552, 1194 & 1198, et seq.; (3) Failure to Provide Accurate Itemized Statements in
7 Violation of California Labor Code § 226; (4) Failure to Pay Overtime Compensation in
8 Violation of 29 U.S.C. §§ 201, et seq.; and (5) Labor Code Private Attorney General Act,
9 California Labor Code §§ 2698, et seq. Plaintiff alleges a class and collective action.
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On May 19, 2011, Defendants filed the Motion for an Order Directing Arbitration.

11 (ECF No. 34). Defendants move for an order directing the parties to arbitration pursuant to
12 an agreement which Defendants contend requires Plaintiff to submit all employment-related
13 disputes to binding arbitration, and requires the parties to arbitrate all disputes on an individual
14 and not a class or collective basis.
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On June 20, 2011, Plaintiff filed an opposition to the Motion for an Order Directing

16 Arbitration, and a Request for Full Discovery and a Jury Trial. (ECF Nos. 43 & 43-1).
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On June 27, 2011, Defendants filed a reply in support of the Motion for an Order

18 Directing Arbitration, and an opposition to the Request for Full Discovery and a Jury Trial.
19 (ECF Nos. 45 & 46).
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On June 29, 2011 and July 5, 2011, Plaintiff filed a reply to Defendants’ opposition to

21 the Request for Full Discovery and a Jury Trial, and a response to the evidence submitted by
22 Defendants in their reply in support of the Motion for an Order Directing Arbitration. (ECF
23 Nos. 47 & 49).
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On July 12, 2011, Defendants filed a reply to Plaintiff’s response. (ECF No. 50).

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On July 15, 2011, Plaintiff filed a Notice of Statement of Recent Authority Relevant to

26 Defendants’ Motion for an Order Directing Arbitration. (ECF No. 52).
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On July 15, 2011, Defendants filed a Notice of Statement of Recent Authority Relevant

28 to Defendants’ Motion for an Order Directing Arbitration. (ECF No. 54).
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On August 31, 2011, Plaintiff filed a second Notice of Statement of Recent Authority

2 Relevant to Defendants’ Motion for an Order Directing Arbitration. (ECF No. 55).
3 II.

Facts

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Plaintiff began working for Defendants on October 1, 2007. (Arnold Decl. ¶ 2, ECF

5 No. 34-2).
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On December 13, 2007, Plaintiff met with his supervisor, Barry Cohen, for

7 approximately ten minutes and discussed the Defendants’ “Bonus Incentive Agreement.”
8 (Grabowski Dep. at 25, ECF No. 45-1). At the end of the meeting, Plaintiff and Cohen each
9 signed the Bonus Incentive Agreement. (Turai Decl., Ex. C at 51, ECF No. 45-1). The Bonus
10 Incentive Agreement provides that, “[i]n consideration for Your continued employment, Your
11 eligibility for a bonus incentive, and the mutual promises set forth in this Agreement, You and
12 the Company hereby agree” to the terms set forth in the Bonus Incentive Agreement. Id. at 47.
13 The Bonus Incentive Agreement sets forth the terms of Plaintiff’s compensation and eligibility
14 for “a bonus based upon the annual Gross Net Earnings of the San Diego office.” Id. The
15 Bonus Incentive Agreement contains a “Dispute Resolution” provision which states:
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You and the Company agree that, except as provided below, all Claims the
Company might bring against You and all claims You might bring against the
Company and/or any of its officers, directors, or employees shall be deemed
waived unless submitted to mediation, then, if mediation is unsuccessful, to final
and binding arbitration in accordance with the Employment Arbitration Rules
and Mediation Procedures of the American Arbitration Association, modified
as follows: (1) any mediation or arbitration shall be governed by the Company’s
Employment Dispute Mediation/Arbitration Procedure, which is available on the
Company Intranet; (2) dispositive motions shall be permissible and not
disfavored in any arbitration, and the standard for deciding such motions shall
be the same as under Rule 56 of Federal Rules of Civil Procedure, and (3) except
as mutually agreed at the time between You and the Company, neither You nor
the Company may bring any Claim combined with or on behalf of any other
person or entity, whether on a collective, representative, or class action basis or
any other basis.

24 Id. The Dispute Resolution provision defines “Claims” to include: “all claims directly or
25 indirectly related to Your recruitment, employment, compensation or benefits ... or termination
26 of employment by the Company, including, but not limited to, alleged violations of ... the Fair
27 Labor Standards Act..., and any and all claims under federal, state, local laws or regulations
28 (including all such laws and regulations pertaining to employment or prohibiting
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1 discrimination).” Id. at 48. The Dispute Resolution Provision concludes with the following
2 statements:
YOU MAY WISH TO CONSULT AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT. HOWEVER, YOU WILL NOT BE ELIGIBLE TO
RECEIVE ANY BONUS PAYMENTS OR ADVANCES UNTIL THIS
AGREEMENT IS SIGNED AND RETURNED BY YOU. PLEASE READ
THESE PROVISIONS CAREFULLY. BY SIGNING BELOW, YOU ARE
ATTESTING THAT YOU HAVE READ AND UNDERSTOOD THIS
DOCUMENT, AND ARE KNOWINGLY AND VOLUNTARILY AGREEING
TO ITS TERMS.

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The Effective Date of this Agreement is January 01, 2008.
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Id.
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On December 17, 2008, Plaintiff and Cohen each signed a second Bonus Incentive
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Agreement, which contained the same terms as the December 13, 2007 Bonus Incentive
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Agreement, except it provided that “[t]he Effective Date of this Agreement is January 01,
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2009.” (Turai Decl., Ex. D at 54, ECF No. 45-1).
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On December 21, 2009, Plaintiff and Cohen each signed a third Bonus Incentive
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Agreement, which contained the same terms as the prior two Bonus Incentive Agreements,
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except it provided that “[t]he Effective Date of this Agreement is January 01, 2010.” (Turai
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Decl., Ex. E at 58, ECF No. 45-1).
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In February of 2010, Plaintiff resigned from his employment with Defendants.
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(Grabowski Dep. at 18, ECF No. 45-1).
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III.

Contentions of the Parties

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Defendants contend:
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The issue in this petition is simple: plaintiff ... repeatedly entered into a clear and
unambiguous agreement with his former employer to arbitrate all claims arising
out of his employment on an individual basis. Notwithstanding this agreement,
plaintiff brought a class and collective action alleging five employment-related
causes of action in the United States District Court for the Southern District of
California. Defendants ... did not move to compel arbitration at the outset of the
litigation because plaintiff’s agreement to arbitrate was unenforceable under
then-current California law.
On April 27, 2011, the United States Supreme Court overturned the entire
landscape of existing California law pertaining to arbitration agreements when
it issued its decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740
(2011)....

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In light of AT&T, the Court must now enforce plaintiff’s previously
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unenforceable agreement requiring plaintiff to arbitrate any claims relating to his
employment on an individual, and not a class, basis. Accordingly, Defendants
seek an order compelling plaintiff’s claims to arbitration and dismissing the
action, or in the alternative, staying the instant proceedings until the arbitration
is completed. Because the arbitration provisions executed by plaintiff are valid
and enforceable agreements, this petition should be granted in its entirety.

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(ECF No. 34-1 at 2).
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Plaintiff contends:
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Defendant’s arbitration provision violates Section 7 of the National Labor
Relations Act by denying employees the right to bring collective, class or
representative actions. The arbitration provision is also unlawful and constitutes
a criminal misdemeanor under California Labor Code Section 206.5 because
Plaintiff was required to sign the agreement and release his right to bring a
collective, class or representative action in order to avoid forfeiture of earned
wages. The arbitration agreement is also unenforceable because it was signed
under duress because Plaintiff was required to sign it to avoid forfeiture of
earned bonus wages. The arbitration provision is unconscionable under Cal.
Civil Code § 1670.5. Concepcion v. AT&T Mobility LLC, __U.S.__,131 S. Ct.
1740 (2011) is inapplicable to the facts of this case and Defendants have waived
any right to seek arbitration by litigating this action in Court for 9 months before
bringing this motion. For all these reasons, Defendant’s motion to compel must
be denied.

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14 (ECF No. 43 at 10 (citations omitted)).
15 IV.

Discussion

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A.

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Plaintiff contends that Defendants have “waived the right to seek to compel arbitration.”

Waiver

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In determining whether arbitration has been waived pursuant to California law, a court

20 may consider the following factors:
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(1) whether the party’s actions are inconsistent with the right to arbitrate; (2)
whether the litigation machinery has been substantially invoked and the parties
were well into preparation of a lawsuit before the party notified the opposing
party of an intent to arbitrate; (3) whether a party either requested arbitration
enforcement close to the trial date or delayed for a long period before seeking
a stay; (4) whether a defendant seeking arbitration filed a counterclaim without
asking for a stay of the proceedings; (5) whether important intervening steps
[e.g., taking advantage of judicial discovery procedures not available in
arbitration] had taken place; and (6) whether the delay affected, misled, or
prejudiced the opposing party.

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Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1124 (9th Cir. 2008) (quoting St. Agnes Med.
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Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1196 (2003)). The waiver inquiry “must be
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conducted in light of the strong federal policy favoring enforcement of arbitration agreements.”
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1 Id. at 1125 (quoting Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986)).
2 “Because waiver of the right to arbitration is disfavored, any party arguing waiver of
3 arbitration bears a heavy burden of proof.” Fisher, 791 F.2d at 694 (quotation omitted); see
4 also Sobremonte v. Superior Court, 61 Cal. App. 4th 980, 991 (1998) (“Since arbitration is a
5 strongly favored means of resolving disputes, courts must closely scrutinize any claims of
6 waiver. A party claiming that the right to arbitrate has been waived has a heavy burden of
7 proof.”) (quotation omitted).
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The Court of Appeals for the Ninth Circuit has held that a party does not act

9 inconsistently with the right to arbitrate by failing to seek to enforce an arbitration agreement
10 that would be unenforceable under then-existing law. See Letizia v. Prudential Bache Sec.,
11 Inc., 802 F.2d 1185, 1187 (9th Cir. 1986) (“It is undisputed that defendants did not seek
12 arbitration until after the close of discovery, nine months after their answer was filed....
13 [T]here could be no waiver here because there was no existing right to arbitration....
14 Defendants actively pursued their right to arbitrate as soon as they believed, in good faith, that
15 they had such a right.”); Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 697 (9th Cir. 1986)
16 (“Until the Supreme Court’s decision in Byrd, the arbitration agreement in this case was
17 unenforceable.

Therefore, the Fishers have failed to demonstrate that Becker acted

18 inconsistently with a known existing right to compel arbitration.”). In this case, Defendants
19 reasonably could have believed that, prior to AT&T Mobility, LLC v. Concepcion, --- U.S. ---,
20 131 S. Ct. 1740 (2011), California courts would have found the arbitration agreement to be
21 unenforceable, particularly with regard to Plaintiff’s claims pursuant to California’s Private
22 Attorney General Act, as discussed below. Less than a month after Conception was decided,
23 Defendants filed the Motion for an Order Directing Arbitration. Accordingly, Plaintiff has
24 failed to show that Defendants acted inconsistently with a known right to arbitrate. See Fisher,
25 791 F.2d at 697.
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The eight-month delay between Defendants’ initial Answer and the Motion for an Order

27 Directing Arbitration is less than the three-year delay in Fisher and the nine-month delay in
28 Letizia. No dispositive motions have been filed, no motion for class certification has been
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1 filed, and no trial date has been set. The Court finds that the second and third waiver factors
2 (i.e., “whether the litigation machinery has been substantially invoked” and “whether a party
3 either requested arbitration enforcement close to the trial date or delayed for a long period
4 before seeking a stay”) do not favor a finding of waiver. Cox, 533 F.3d at 1124 (quotation
5 omitted). Defendants did not file a counterclaim, and there is no showing that Defendants
6 obtained discovery which would not have been available in arbitration. Cf. id. (fourth and fifth
7 waiver factors). Plaintiff contends that he has been prejudiced because “[m]ore hundred of
8 hours of legal work and research has been expended by Plaintiff’s attorneys to litigate the
9 action for the last eight months, including responding to Defendant’s discovery, appearing for
10 deposition, conducting multiple depositions, filing motions, working out Rule 26 reports and
11 schedules, along with working out a schedule [for] class certification and performing all of the
12 work necessary to move for class certification.” (ECF No. 43 at 39). The Court finds that
13 Plaintiff has failed to establish that “the delay [in moving to compel arbitration] affected,
14 misled, or prejudiced” Plaintiff within the meaning of the relevant caselaw. Cox, 533 F.3d at
15 1124; cf. Fisher, 791 F.2d at 698 (“[T]he [plaintiff]s make the surprising contention that they
16 have been prejudiced because they ‘willingly incurred the substantial expense involved in this
17 litigation in order to benefit from a full jury trial.’ This wound was self-inflicted. The
18 [plaintiff]s were parties to an agreement making arbitration of disputes mandatory. They
19 violated that agreement by including their arbitrable claims in this action. Any extra expense
20 incurred as a result of the [plaintiffs]’ deliberate choice of an improper forum, in contravention
21 of their contract, cannot be charged to [defendant].”).
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After considering the relevant factors, the Court finds that Defendants have not waived

23 the right to compel arbitration.
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B.

Federal Arbitration Act

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The Federal Arbitration Act (“FAA”) “was enacted ... in response to widespread judicial

26 hostility to arbitration agreements.” Concepcion, 131 S. Ct. at 1745 (citation omitted). Section
27 2 of the FAA states: “A written provision in any ... contract evidencing a transaction involving
28 commerce to settle by arbitration a controversy thereafter arising out of such contract or
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1 transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at
2 law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The Supreme Court has
3 described Section 2 “as reflecting both a liberal federal policy favoring arbitration and the
4 fundamental principle that arbitration is a matter of contract.” Concepcion, 131 S. Ct. at 1745
5 (quotations omitted). “In line with these principles, courts must place arbitration agreements
6 on an equal footing with other contracts, and enforce them according to their terms.” Id. at
7 1745-46 (citations omitted).
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“The final phrase of § 2 ... permits arbitration agreements to be declared unenforceable

9 ‘upon such grounds as exist at law or in equity for the revocation of any contract.’ This saving
10 clause permits agreements to arbitrate to be invalidated by generally applicable contract
11 defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to
12 arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.”
13 Id. at 1746 (quotation omitted). “When state law prohibits outright the arbitration of a
14 particular type of claim, the analysis is straightforward: The conflicting rule is displaced by
15 the FAA.” Id. at 1747 (citation omitted). “But the inquiry becomes more complex when a
16 doctrine normally thought to be generally applicable, such as duress or ... unconscionability,
17 is alleged to have been applied in a fashion that disfavors arbitration.” Id. (citation omitted).
18 “[A] court may not rely on the uniqueness of an agreement to arbitrate as a basis for a state-law
19 holding that enforcement would be unconscionable, for this would enable the court to effect
20 what the state legislature cannot.” Id. (quotation omitted).
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“Because the FAA mandates that district courts shall direct the parties to proceed to

22 arbitration on issues as to which an arbitration agreement has been signed, the FAA limits
23 courts’ involvement to determining (1) whether a valid agreement to arbitrate exists and, if it
24 does, (2) whether the agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel
25 Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (emphasis in original; quotation omitted). “If the
26 response is affirmative on both counts, then the [FAA] requires the court to enforce the
27 arbitration agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic Sys.,
28 Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).
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1

The FAA states that “[i]f the making of the arbitration agreement ... be in issue, the

2 [district] court shall proceed summarily to the trial thereof.” 9 U.S.C. § 4. “[T]o put such
3 matters in issue, it is not sufficient for the party opposing arbitration to utter general denials
4 of the facts on which the right to arbitration depends. If the party seeking arbitration has
5 substantiated the entitlement by a showing of evidentiary facts, the party opposing may not rest
6 on a denial but must submit evidentiary facts showing that there is a dispute of fact to be tried.”
7 Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995) (citations omitted).
8 “[T]he party resisting arbitration bears the burden of proving that the claims at issue are
9 unsuitable for arbitration.” Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91-92 (2000).
10

In this case, it is undisputed that the parties’ arbitration agreement encompasses the

11 dispute at issue. Plaintiff contends that the arbitration provisions in the Bonus Incentive
12 Agreements are not valid and enforceable for the following reasons: (1) “the arbitration
13 provision violates Section 7 of the [National Labor Relations Act]”; (2) “the arbitration
14 provision violates [California Labor Code] § 206.5”; (3) “the arbitration provision is
15 unenforceable because it was obtained by duress”; and (4) “the arbitration provision is
16 unconscionable under Cal. Civil Code § 1670.5.” (ECF No. 43 at 10-11).
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C.

National Labor Relations Act

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Plaintiff contends Section 7 of the National Labor Relations Act (“NLRA”) is violated

19 by the following provision in the Bonus Incentive Agreements: “except as mutually agreed at
20 the time between You and the Company, neither you nor the Company may bring any Claims
21 combined with or on behalf of any other person or entity whether on a collective,
22 representative, or class action basis or any other basis.” (Turai Decl., Ex. C at 47, ECF No.
23 45-1; see also Turai Decl., Ex. D at 54, ECF No. 45-1; Turai Decl., Ex. E at 58, ECF No. 4524 1). Plaintiff contends: “In the context of statutory claims by an employee, the restriction
25 prohibiting combined claims ‘on a collective, representative, or class action basis or any other
26 basis’ impairs employee statutory rights and is therefore unlawful by conflicting with Section
27 7 of the ... NLRA ... which guarantees employees the right to engage in concerted activities for
28 the purpose of mutual aid and protection.” (ECF No. 43 at 17).
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1

Section 7 of the NLRA provides that “[e]mployees shall have the right ... to engage in

2 ... concerted activities for the purpose of collective bargaining or other mutual aid or
3 protection....” 29 U.S.C. § 157. Courts have “held that the ‘mutual aid or protection’ clause
4 protects employees from retaliation by their employers when they seek to improve working
5 conditions through resort to administrative and judicial forums, and that employees’ appeals
6 to legislators to protect their interests as employees are within the scope of this clause.”
7 Eastex, Inc. v. Nat’l Labor Relations Bd., 437 U.S. 556, 565-66 (1978).
8

Plaintiff fails to cite any authority stating that the enforcement of an arbitration

9 agreement prohibiting class actions violates the NLRA. The only case cited by either party
10 which addresses a contention similar to Plaintiff’s in an analogous situation is Slawienski v.
11 Nephron Pharmaceutical Corp., No. 10cv460, 2010 WL 5186622 (N.D. Ga. Dec. 9, 2010).
12 The court stated:
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The only objection plaintiff makes to the agreements concerns the class action
waiver provision. Plaintiff argues that this provision violates the National Labor
Relations Act ... because it prohibits plaintiff and other employees from
engaging in ‘concerted action to advocate about the terms and conditions of their
employment.’ Thus, although plaintiff consents to arbitration, she asks the
Court to invalidate the class action waiver and permit a collective or class action
arbitration.
There is no legal authority to support plaintiff’s position. The relevant
provisions of the NLRA, as well as the case law cited by plaintiff, deal solely
with an employee’s right to participate in union organizing activities. That right
is not implicated by the allegations in plaintiff’s complaint. Indeed, it is
apparent from the face of the complaint that plaintiff and the other opt-ins are
not advocating regarding the terms and conditions of their employment. Rather,
plaintiffs are pursuing FLSA claims in an attempt to collect allegedly unpaid
overtime wages.

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Id. at *2 (quotations omitted).
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The Court finds this reasoning persuasive. Plaintiff, who resigned from his employment
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with Defendants six months before filing suit, has failed to show that this suit implicates the
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“mutual aid or protection” clause, or that he suffered retaliation by Defendants. The Court
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finds that the NLRA does not operate to invalidate or otherwise render unenforceable the
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arbitration provisions of the Bonus Incentive Agreements signed by Plaintiff.
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D.

California Labor Code § 206.5

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Plaintiff contends: “The arbitration agreement in this case violates [California Labor
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1 Code] § 206.5(a) because Plaintiff was required to release his right to bring collective class or
2 representative actions ... in order to avoid forfeiture of earned wages.... California law
3 therefore precludes enforcement of this unlawful arbitration agreement.” (ECF No. 43 at 19).
4

Section 206.5 states:

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An employer shall not require the execution of a release of a claim or right on
account of wages due, or to become due, or made as an advance on wages to be
earned, unless payment of those wages has been made. A release required or
executed in violation of the provisions of this section shall be null and void as
between the employer and the employee. Violation of this section by the
employer is a misdemeanor.

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Cal. Labor Code § 206.5(a). “Labor Code section 206.5 simply prohibits employers from
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coercing settlements by withholding wages concededly due. In other words, wages are not
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considered ‘due’ and unreleasable under Labor Code section 206.5, unless they are required
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to be paid under Labor Code section 206. When a bona fide dispute exists, the disputed
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amounts are not ‘due’....” Watkins v. Wachovia Corp., 172 Cal. App. 4th 1576, 1587 (2009);
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see also Cal. Labor Code § 206(a) (“In case of a dispute over wages, the employer shall pay,
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without condition ... all wages, or parts thereof, conceded by him to be due, leaving to the
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employee all remedies he might otherwise be entitled to as to any balance claimed.”).
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Each Bonus Incentive Agreement states that “[t]he Effective Date of this Agreement
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is” after the date Plaintiff signed the agreement. At the time Plaintiff signed his first Bonus
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Incentive Agreement on December 13, 2007, he was provided a “Compensation Projection
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Summary,” which showed Plaintiff’s “Gross Net Bonus” and “Advance” bonus to be $0.00.
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(Turai Decl., Ex. C at 52, ECF No. 45-1). This evidence is sufficient to demonstrate that each
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Bonus Incentive Agreement concerned Plaintiff’s eligibility for future bonuses, rather than
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already-earned bonuses.
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Plaintiff submits a declaration which states: “It was my understanding that signing the
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documents was a necessary step to receiving the bonuses I had earned over the prior year.”
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(Grabowski Decl. ¶ 9, ECF No. 44). Plaintiff does not explain the basis for his understanding
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that the Bonus Incentive Agreements related to earned bonuses. Plaintiff does not submit
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evidence that Cohen or any representative of Defendants told him that the agreements related
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to earned bonuses. Plaintiff testified in a deposition that Cohen “did not explicitly say that”
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1 Plaintiff had to sign the agreement in order to receive past, earned bonus amounts. (Grabowski
2 Dep. at 54, ECF No. 45-1). Plaintiff testified that his “understanding [was] based on ... the
3 tone of the meeting,” and the fact that Cohen showed Plaintiff the company’s financial results
4 of the previous year and projections for the upcoming year, which formed the basis for the
5 bonus amounts. Id. As discussed above, Plaintiff’s understanding is contrary to the plain
6 terms of the each agreement, which state that “the terms of this Agreement shall be effective
7 from” January first through December thirty-first of the following year. (Turai Decl., Ex. C
8 at 47, ECF No. 45-1; see also Turai Decl., Ex. D at 54, ECF No. 45-1; Turai Decl., Ex. E at
9 58, ECF No. 45-1). Even if Plaintiff’s declaration and deposition were sufficient to create a
10 genuine dispute as to whether the Bonus Incentive Agreements related to already-earned
11 bonuses (as opposed to future bonuses), “[w]hen a bona fide dispute exists, the disputed
12 amounts are not ‘due’” within the meaning of California Labor Code § 206.5. Watkins, 172
13 Cal. App. 4th at 1587. Plaintiff’s declaration is insufficient to warrant a trial on the issue of
14 whether the Bonus Incentive Agreements violate California Labor Code § 206.5(a).
15

The Court finds that the Bonus Incentive Agreements do not violate California Labor

16 Code § 206.5.
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E.

Duress

18

Plaintiff contends that his “execution of the arbitration agreement was obtained as the

19 result of duress and undue influence because he was required to sign the agreement in order
20 to avoid a forfeiture of earned wages.” (ECF No. 43 at 19). In support of this contention,
21 Plaintiff relies upon an unpublished California Court of Appeals case which held that an
22 arbitration agreement was unenforceable due to duress when the trial court found that the
23 employer violated California Labor Code § 206.5. See Canales v. Perf. Team Triangle West,
24 2003 WL 361242, at *2 (Cal. Ct. App. Feb. 20, 2003) (“The record thus contains ample
25 evidence to support the trial court’s determinations of duress.... Canales’s declaration indicates
26 that she was asked to sign the agreement well after she began her employment, and that
27 appellants’ improper threat to withhold her earned pay compelled her to execute the agreement,
28 which she had no reasonable opportunity to examine or understand.”) (citing, inter alia, Cal.
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1 Labor Code § 206.5).
2

As discussed above, Plaintiff has failed to introduce sufficient evidence for a fact-finder

3 to conclude that Plaintiff was required to sign the Bonus Incentive Agreements in order to
4 avoid a forfeiture of “wages due” pursuant to California Labor Code § 206.5. Accordingly,
5 Plaintiff has failed to show that the Bonus Incentive Agreements were obtained by duress or
6 undue influence.
7

F.

Unconscionability

8

Plaintiff contends that the arbitration provisions in the Bonus Incentive Agreements are

9 unconscionable.
10

“[I]n assessing whether an arbitration agreement or clause is enforceable, the Court

11 should apply ordinary state-law principles that govern the formation of contracts.” Davis v.
12 O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir. 2007) (quotation omitted). Under
13 California law, a contractual clause is unenforceable if it is both procedurally and substantively
14 unconscionable. See id. (citing, inter alia, Armendariz v. Found. Health Psychcare Servs.,
15 Inc., 24 Cal. 4th 83, 114 (2000)).1 “Courts apply a sliding scale: ‘the more substantively
16 oppressive the contract term, the less evidence of procedural unconscionability is required to
17 come to the conclusion that the term is unenforceable, and vice versa.’” Id. (quoting
18 Armendariz, 24 Cal. 4th at 114). “Still, ‘both [must] be present in order for a court to exercise
19 its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’”
20 Id. at 1072-73 (quoting Armendariz, 24 Cal. 4th at 114). “[T]he party opposing arbitration has
21 the burden of proving the arbitration provision is unconscionable.” Higgins v. Superior Court,
22 140 Cal. App. 4th 1238, 1249 (2006) (quotation omitted).
23
24
25
26
27
28

1

Defendants contend that Plaintiff “improperly relies on Armendariz and other
California decisions that specifically address the unconscionability of arbitration agreements
as opposed to non-arbitration contracts. Yet, judicially-created obstacles to enforcement of the
parties’ arbitration agreement identified in Armendariz and numerous other California
decisions do not survive the Supreme Court’s decision in AT&T [Mobility v. Conception].”
(ECF No. 45 at 11). The Court does not find that Conception implicitly overruled all
California and Ninth Circuit cases applying California unconscionability law to employeremployee arbitration agreements. However, the Court finds that pre-Conception cases
applying California unconscionability law must be read in light of Conception, as discussed
below.
- 13 -

10cv1658-WQH-MDD

1

A court determination that “the arbitration agreement contains ... flawed provisions does

2 not necessarily mean that the entire [arbitration agreement] is substantively unconscionable.”
3 Davis, 485 F.3d at 1084. The court next considers whether it is “possible to sever the
4 [unconscionable] provision.” Id. (citation omitted).
5

1.

6

Procedural Unconscionability

The “[p]rocedural unconscionability analysis focuses on ‘oppression’ or ‘surprise.’”

7 Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006) (quoting Flores v.
8 Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 853 (2001)). “‘Oppression arises from
9 an inequality of bargaining power that results in no real negotiation and an absence of
10 meaningful choice,’ while ‘[s]urprise involves the extent to which the supposedly agreed-upon
11 terms are hidden in a prolix printed form drafted by the party seeking to enforce them.’” Id.
12 (quoting Flores, 93 Cal. App. 4th at 853).
13

Plaintiff contends:

14

According to the face of the agreement, there can be no dispute that the
agreement is a procedurally unconscionable contract of adhesion presented to
current employee by his employer on a take-it or leave-it basis.... Further, this
agreement is even more procedurally unconscionable here because (1) earned
bonus wages are being withheld until the agreement is signed, (2) the employee
is told to sign the agreement by his boss, and (3) many of the rights waived by
the agreement are not disclosed at the time the agreement is presented for
signature.

15
16
17
18

(ECF No. 43 at 22).
19
Plaintiff has presented evidence that the agreements were presented on a “take it or
20
leave” basis, with little or no option for the employee to negotiate. In light of the Supreme
21
Court’s decision in Conception, however, the Court does not find that the adhesive nature of
22
the agreement weighs strongly in favor of procedural unconscionability. Cf. Conception, 131
23
S. Ct. at 1750 (holding that California’s “Discover Bank rule” is preempted by the FAA in part
24
because “[t]he rule is limited to adhesion contracts, but the times in which consumer contracts
25
were anything other than adhesive are long past”).
26
As discussed above, the Court finds that Plaintiff has failed to adequately demonstrate
27
that “earned bonus wages are being withheld until the agreement is signed.” (ECF No. 43 at
28
22).
- 14 -

10cv1658-WQH-MDD

1

The arbitration provision was not hidden in the contract; it is the longest provision in

2 the relatively short Bonus Incentive Agreement. The Bonus Incentive Agreement signed on
3 December 13, 2007 contains two pages of text, and the Bonus Incentive Agreements signed
4 the following two years are each a single page. However, there is no evidence that Plaintiff
5 was provided with a copy of “the Company’s Employment Dispute Mediation/Arbitration
6 Procedure” at the time he was asked to sign the agreement. (Turai Decl., Ex. C at 47, ECF No.
7 45-1). According to the Bonus Incentive Agreement, the Company’s Employment Dispute
8 Mediation/Arbitration Procedure governs any mediation or arbitration pursuant to the
9 agreement, and is “available on the Company Intranet.” Id. By the time Plaintiff signed the
10 second and third Bonus Incentive Agreements in December 2008 and December 2009, he
11 would have had ample opportunity to review “the Company’s Employment Dispute
12 Mediation/Arbitration Procedure,” but the failure of Defendants to supply Plaintiff with this
13 document at the time he signed the agreements adds an element of surprise, and therefore
14 procedural unconscionability. See Nagrampa, 469 F.3d at 1280.
15

The Court finds that the arbitration agreement contains elements of procedural

16 unconscionability, although the evidence of procedural unconscionability is not strong, in light
17 of Conception.
18
19

2.

Substantive Unconscionability

“Substantive unconscionability relates to the effect of the contract or provision. A lack

20 of mutuality is relevant in analyzing this prong. The term focuses on the terms of the
21 agreement and whether those terms are so one-sided as to shock the conscience.” Davis, 485
22 F.3d at 1075 (quotation omitted) (emphasis in original). “A determination of substantive
23 unconscionability involves whether the terms of the contract are unduly harsh or oppressive.”
24 Id. (quotation omitted).
25

Plaintiff contends that the arbitration agreement is substantively unconscionable

26 because (a) “the agreement is not bilateral”; (b) “the rules of the agreement are drafted and
27 subject to unilateral revision by Defendant”; (c) “the agreement invokes a distant venue in
28 Minnesota”; (d) “the agreement calls for application of Minnesota law”; (e) “the agreement
- 15 -

10cv1658-WQH-MDD

1 unfairly limits discovery”; (f) “the agreement changes the burden of proof”; (g) “the agreement
2 effectively imposes one-sided confidentiality”; (h) “the agreement imposes prohibitive
3 arbitration expenses on employees”; and (i) “the agreement shifts liability for attorneys’ fees.”
4 (ECF No. 43 at 24-33).
5
6

a.

“Carve Out” Provision

Plaintiff contends: “The agreement to arbitrate is not bilateral or mutual because the

7 Defendant has carved out the claims commonly brought by employers and reserved these
8 claims for judicial resolution, whereas the claims commonly brought by employees are forced
9 into arbitration.” (ECF No. 43 at 24-25).
10

The Bonus Incentive Agreement states:

11

This Dispute Resolution Agreement shall not apply to any of the following: (1)
Worker’s Compensation claims; (2) claims related to unemployment insurance;
and (3) any claims by the Company that includes a request for injunctive or
equitable relief, including, without limitation, claims related to its enforcement
of any restrictive covenants, non-competition obligations, non-solicitation
obligations and/or confidential information provisions contained in any
Company policy and/or employment agreement(s) entered into between You and
the Company and/or any claims to protect the Company’s trade secrets,
confidential or proprietary information, trademarks, copyrights, patents, or other
intellectual property.

12
13
14
15
16

(Turai Decl., Ex. C at 48, ECF No. 45-1).
17
“California law allows an employer to preserve a judicial remedy for itself if justified
18
based upon a ‘legitimate commercial need’ or ‘business reality.’” Davis, 485 F.3d at 1080
19
(quoting, inter alia, Armendariz, 24 Cal. 4th at 117 (“[A] contract can provide a ‘margin of
20
safety’ that provides the party with superior bargaining strength a type of extra protection for
21
which it has a legitimate commercial need without being unconscionable”)). However, “the
22
‘business realities’ that create the special need for such an advantage [must be] explained in
23
the contract itself, ... [or] it must be factually established.” Armendariz, 24 Cal. 4th at 117
24
(quotation omitted). Absent such a showing, “[w]here the party with stronger bargaining
25
power has restricted the weaker party to the arbitral forum, but reserved for itself the ability
26
to seek redress in either an arbitral or judicial forum, California courts have found a lack of
27
mutuality supporting substantive unconscionability.” Nagrampa, 469 F.3d at 1286 (citing
28
Armendariz, 24 Cal.4th at 119).
- 16 -

10cv1658-WQH-MDD

1

In light of Nagrampa, the Court finds that the “carve out” provision stating that the

2 Dispute Resolution Agreement does not apply to “any claims by the Company that includes
3 a request for injunctive or equitable relief” is substantively unconscionable under California
4 law. See id.; see also Davis, 485 F.3d at 1081 (“[T]he [dispute resolution provision]’s
5 non-mutual exception allowing it a judicial remedy to protect confidential information, as
6 written, is one-sided and thus substantively unconscionable.”) (quotation omitted).
b.

7
8

Unilateral Revision of Arbitration Rules

Plaintiff contends that the agreement is substantively unconscionable because “the

9 agreement to arbitrate is controlled by rules created by the Defendant, which rules the
10 Defendant can change or revise to Defendant’s advantage.” (ECF No. 43 at 27). Plaintiff cites
11 to Ingle v. Circuit City Stores, Inc, 328 F.3d 1165 (9th Cir. 2003), which “conclude[d] that [a]
12 provision affording [the employer] the unilateral power to terminate or modify the contract is
13 substantively unconscionable.” Id. at 1179.
14

Plaintiff does not cite to any provision in the Bonus Incentive Agreement or the

15 Employment Dispute Mediation/Arbitration Procedure which permits Defendants to
16 unilaterally modify change or revise the procedures.

The Employment Dispute

17 Mediation/Arbitration Procedure contains a provision entitled, “Revision of Employment
18 Dispute Arbitration Procedure,” which states in its entirety: “The Parties to a Dispute for which
19 the Employment Dispute Arbitration Procedure has been initiated may agree in writing to vary
20 the Employment Dispute Arbitration Procedure at any time before the Arbitrator gives copies
21 of the Award to both Parties.” (Arnold Decl., Ex. B at 43; ECF No. 34-2).
22

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

23 is substantively unconscionable because Defendants are permitted to unilaterally change the
24 arbitration rules.
25
26

c.

Minnesota Venue

Plaintiff contends: “[T]he venue of the arbitration proceeding is unfairly one-sided

27 because the venue is Minnesota. Minnesota is solely advantageous to Defendant, which
28 maintains headquarters in Minnesota, and is unfair to Plaintiff who worked in California, has
- 17 -

10cv1658-WQH-MDD

1 claims under California law, and has no relationship with Minnesota.” (ECF No. 43 at 27).
2

The Employment Dispute Mediation/Arbitration Procedure provides that “[u]nless the

3 Parties otherwise agree or the Arbitrator otherwise directs for good reason, any hearing shall
4 be conducted and deemed held in [Hennepin County, Minnesota], at a place convenient to the
5 Parties as so designated by the Arbitrator.” (Arnold Decl., Ex. B at 40; ECF No. 34-2). In the
6 briefing on the Motion to Compel, Defendants “agree that the arbitration hearing in the instant
7 matter should be held in San Diego, California.” (ECF No. 45 at 16).
8

The Court finds that the clear terms of the Employment Dispute Mediation/Arbitration

9 Procedure provide for a Minnesota venue only if the parties do not otherwise agree or the
10 arbitrator does not otherwise direct. By filing suit in this Court, Plaintiff has effectively chosen
11 a San Diego venue, as has Defendants. According to the terms of the Employment Dispute
12 Mediation/Arbitration Procedure, in this situation, the venue of any arbitration would be San
13 Diego, and not Minnesota.
14

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

15 is substantively unconscionable because of the venue provision in the Employment Dispute
16 Mediation/Arbitration Procedure.
17
18

d.

Choice of Law

Plaintiff contends: “The agreement unfairly deprives Plaintiff of the protections of

19 California law by making the governing law the ‘law of the state of venue’ which is
20 Minnesota.” (ECF No. 43 at 29).
21

The Employment Dispute Mediation/Arbitration Procedure contains a provision

22 entitled, “Applicable Law and Burden of Persuasion,” which states: “The principles of
23 applicable substantive common, decisional and statutory law shall control the disposition of
24 each Dispute. Each Party bears the burden of persuasion on any claim or counterclaim raised
25 by that Party in accordance with the principles of applicable common, decisional and statutory
26 law.” (Arnold Decl., Ex. B at 40; ECF No. 34-2). The provision of the Employment Dispute
27 Mediation/Arbitration Procedure quoted by Plaintiff states: “Any proceeding pursuant to the
28 Employment Dispute Mediation/Arbitration Procedure is deemed to be an arbitration
- 18 -

10cv1658-WQH-MDD

1 proceeding subject to the Federal Arbitration Act, 9 U.S.C. §§ 1-16, if applicable, to the
2 exclusion of any state law inconsistent therewith; or, if the FAA is not applicable, to the law
3 of the state of venue.” Id. at 42. As discussed above, the “state of venue” in this case would
4 be California.
5

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

6 is substantively unconscionable because of the choice of law provision in the Employment
7 Dispute Mediation/Arbitration Procedure.
e.

8
9

Discovery

Plaintiff contends: “[D]iscovery is unfairly limited by the Defendant’s rules. The

10 agreement and rules limit discovery to no written discovery and only one deposition. Thus,
11 the agreement limits the amount of discovery from what would be available under the Fed.
12 Rules of Civil Procedure. Moreover, the Defendant is only required to produce documents
13 which the Defendant deems relevant and material.” (ECF No. 43 at 30).
14

The Employment Dispute Mediation/Arbitration Procedure contains only one provision

15 related to discovery, which states:
16
17
18
19
20
21

Discovery shall be conducted in the most expeditious and cost-effective manner
practicable, and shall be limited to that which is relevant and material to the
Dispute and for which each Party has a substantial, demonstrable need....
Upon request, the Employee shall be entitled, at least thirty (30) days in advance
of the commencement of the hearing, to take at least one deposition of a[]
Company representative designated by the Employee.... Any disputes relative
to discovery shall be presented to the Arbitrator for final and binding resolution.
The Arbitrator may grant, upon good cause shown, either Party’s request for
discovery in addition to or limiting that for which this paragraph expressly
provides.

22 (Arnold Decl., Ex. B at 40; ECF No. 34-2 (emphasis added)). The discovery provision of the
23 Employment Dispute Mediation/Arbitration Procedure does not limit the employee to only one
24 deposition, and it names the Arbitrator as the decisionmaker on whether discovery should be
25 granted or denied.
26

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

27 is substantively unconscionable because of the discovery provision in the Employment Dispute
28 Mediation/Arbitration Procedure.
- 19 -

10cv1658-WQH-MDD

1
2

f.

Burden of Proof

Plaintiff contends that, “[u]nder California law and the Labor Code, the employee is

3 presumed to be non-exempt and the employer bears the burden of proving that the employee
4 was exempt,” but “under the Defendant’s rules, the burden of proof is unfairly switched to
5 Plaintiff to prove his claim in this action that he was misclassified as exempt under the
6 California Labor Code.” (ECF No. 43 at 31-32).
7

As discussed above, the Employment Dispute Mediation/Arbitration Procedure contains

8 a provision entitled, “Applicable Law and Burden of Persuasion,” which states: “The
9 principles of applicable substantive common, decisional and statutory law shall control the
10 disposition of each Dispute. Each Party bears the burden of persuasion on any claim or
11 counterclaim raised by that Party in accordance with the principles of applicable common,
12 decisional and statutory law.” (Arnold Decl., Ex. B at 40; ECF No. 34-2). This provision
13 places the burden of persuasion “in accordance with the principles of applicable common,
14 decisional and statutory law.” Id.
15

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

16 is substantively unconscionable because of the burden of proof provision in the Employment
17 Dispute Mediation/Arbitration Procedure.
18
19

g.

Confidentiality

Plaintiff contends: “[T]he Defendant’s rules impose confidentiality which unfairly

20 favors Defendant. While arbitration normally is not open to the public, the Defendant’s rules
21 go much further. Defendant’s rules require that the record of the proceedings be confidential
22 under threat of a sanction order by the arbitrator.” (ECF No. 43 at 32).
23

The Employment Dispute Mediation/Arbitration Procedure contains a provision

24 entitled, “Confidentiality,” which states:
25
26
27
28

All aspects of the arbitration, including without limitation, the record of the
proceeding, are confidential and shall not be open to the public, except (a) to the
extent both Parties agree otherwise in writing, (b) as may be appropriate in any
subsequent proceedings by the Parties, or (c) as may otherwise be appropriate
in response to a governmental agency or legal process, provided that the Party
upon whom such process is served shall give immediate notice of such process
to the other Party and afford the other Party an appropriate opportunity to object
to such process.
- 20 -

10cv1658-WQH-MDD

1
2

At the request of a Party or upon his or her initiative, the Arbitrator shall issue
protective orders appropriate to the circumstances and shall enforce the
confidentiality of the arbitration as set forth in this article.

3 (Arnold Decl., Ex. B at 41; ECF No. 34-2).
4

In Davis, the Court of Appeals for the Ninth Circuit stated that, under California law,

5 “[c]onfidentiality by itself is not substantively unconscionable,” but the employer’s
6 “confidentiality clause ... is written too broadly” and “unconscionably favors [the employer],”
7 when the clause at issue “would prevent an employee from contacting other employees to
8 assist in litigating (or arbitrating) an employee’s case.” Davis, 485 F.3d at 1078-79 (“The
9 clause precludes even mention to anyone ‘not directly involved in the mediation or arbitration’
10 of ‘the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration’
11 or even ‘the existence of a controversy and the fact that there is a mediation or an arbitration
12 proceeding.’”). In this case, the confidentiality provision in the Employment Dispute
13 Mediation/Arbitration Procedure is broader than what the court in Davis indicated would be
14 conscionable. Cf. id. at 1079 (noting that “[t]he parties to any particular arbitration, especially
15 in an employment dispute, can always agree to limit availability of sensitive employee
16 information (e.g., social security numbers or other personal identifier information) or other
17 issue-specific matters, if necessary”).
18

The Court finds that the confidentiality provision in the arbitration agreement is

19 substantively unconscionable under California law.
20
21

h.

Arbitration Expenses

Plaintiff contends that “the agreement imposes prohibitive arbitration expenses on

22 employees.” (ECF No. 43 at 33).
23

The Employment Dispute Mediation/Arbitration Procedure contains an “Expenses”

24 provision which states:
25
26
27
28

Unless precluded by decisional or other law in the jurisdiction where venue lies
for the Arbitration, the Employee shall bear a portion of the reasonable expenses
of the arbitration up to the lesser of (a) one-half of these expenses, or (b) an
amount equal to two (2) days of the Employee’s gross annual cash compensation
(including bonuses, commissions and related cash compensation) during the
twelve (12) months immediately preceding the notice of claim initiating the
Employment Dispute Arbitration Procedure. The Company shall bear the
remainder of these expenses.
- 21 -

10cv1658-WQH-MDD

1 (Arnold Decl., Ex. B at 41; ECF No. 34-2). Defendants submit undisputed evidence that
2 Plaintiff earned approximately $130 a day when he resigned. (Turai Decl., Ex. E at 59, ECF
3 No. 45-1). Accordingly, the Employment Dispute Mediation/Arbitration Procedure provides
4 that, “[u]nless precluded by” California law, the maximum amount Plaintiff would have to pay
5 in arbitration expenses is $260. Id. This amount is less than the $350 filing fee Plaintiff paid
6 to initiate this judicial action. (ECF No. 1). Plaintiff presents no authority indicating that a
7 requirement that an employee pay $260 in arbitration expenses is substantively unconscionable
8 under California law.
9

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

10 is substantively unconscionable because of the expenses provision in the Employment Dispute
11 Mediation/Arbitration Procedure.
12

i.

Attorney’s Fees

13

Plaintiff contends:

14

The Defendant’s rules provide for one-way awards of attorney’s fees in favor of
Defendant, which would not be available in a judicial proceeding. This is true
because Plaintiff, as an employee, is statutorily entitled to attorneys’ fees when
prevailing on his misclassification claim, whereas Defendant is not permitted to
recover attorneys’ fees under California law.... Moreover, the award of
attorneys’ fees to the prevailing employee is relegated to the discretion of the
arbitrator, whereas under Labor Code §1194, Plaintiff would have an absolute
right to recover attorneys’ fees. Thus, the unilateral right in favor of the Plaintiff
has been abridged by the arbitration provision.

15
16
17
18

19 (ECF No. 43 at 33-34 (citations omitted)).
20

The Employment Dispute Mediation/Arbitration Procedure states:

21

[T]he Arbitrator shall have the same power and authority as would a judge in a
non-jury court trial to grant any relief that a court could grant, as may be in
conformance with applicable principles of common, decisional and statutory law
in the relevant jurisdiction.... The Award of any damages or relief is left to the
discretion of the Arbitrator, in accordance with applicable law, and may be made
in a bifurcated proceeding....

22
23
24
25
26
27
28

The Arbitrator may award either Party its reasonable attorneys’ fees and costs,
including reasonable expenses associated with production of witnesses or proof,
upon a finding that the claim or counterclaim was frivolous or brought to harass
the Employee, the Company or the Company’s personnel.
The Arbitrator may award either Party its reasonable attorneys’ fees and costs,
including reasonable expenses associated with production of witnesses or proof,
upon a finding that the other Party (a) engaged in unreasonable delay, (b) failed
to cooperate in discovery, or (c) failed to comply with requirements of
- 22 -

10cv1658-WQH-MDD

1

confidentiality.

2 (Arnold Decl., Ex. B at 41-42; ECF No. 34-2).
3

Defendants concede that the arbitration agreement “potentially offers Defendants

4 attorneys fees for which they might not otherwise be eligible” under California law. (ECF No.
5 45 at 17). In light of this concession, the Court finds that the attorneys’ fee provision in the
6 Employment Dispute Mediation/Arbitration Procedure is substantively unconscionable under
7 California law. Cf. Armendariz, 24 Cal. 4th at 110-11 (“[W]e conclude that when an employer
8 imposes mandatory arbitration as a condition of employment, the arbitration agreement or
9 arbitration process cannot generally require the employee to bear any type of expense that the
10 employee would not be required to bear if he or she were free to bring the action in court.”)
11 (emphasis in original). However, the degree of unconscionability is low, given the ability of
12 a court to sanction a party in the amount of the opposing party’s attorney’s fees for frivolous,
13 harassing, or unreasonable filings. Cf. 28 U.S.C. § 1927; Fed. R. Civ. P. 11.
14

3.

Severability

15

Defendants contend:

16

Once Plaintiff’s fabrications are removed, what remains is an agreement that
carves out some potential employer claims, imposes confidentiality on the
parties, and potentially offers Defendants attorneys fees for which they might
not otherwise be eligible. These terms fall far short of being so one-sided that
they ‘shock the conscious’ as required to invalidate the agreement. Furthermore,
the latter two terms can be easily severed from the agreement.

17
18
19

(ECF No. 45 at 17). Plaintiff contends that “[t]he unconscionability so permeates that
20
agreement that severance is not an option.” (ECF No. 43 at 35).
21
A court determination that “the arbitration agreement contains ... flawed provisions does
22
not necessarily mean that the entire [arbitration agreement] is substantively unconscionable.”
23
Davis, 485 F.3d at 1084. The court next considers whether it is “possible to sever the
24
[unconscionable] provision.” Id. (citing Cal. Civ. Code § 1670.5(a) (“If the court as a matter
25
of law finds the contract or any clause of the contract to have been unconscionable at the time
26
it was made the court may refuse to enforce the contract, or it may enforce the remainder of
27
the contract without the unconscionable clause, or it may so limit the application of any
28
unconscionable clause as to avoid any unconscionable result.”)).
- 23 -

10cv1658-WQH-MDD

1

In Armendariz, the California Supreme Court stated that “the statute [i.e., Cal. Civ.

2 Code § 1670.5] appears to give a trial court some discretion as to whether to sever or restrict
3 the unconscionable provision or whether to refuse to enforce the entire agreement. But it also
4 appears to contemplate the latter course only when an agreement is permeated by
5 unconscionability.” Armendariz, 24 Cal. 4th at 122. The court stated:
6
7
8

Courts are to look to various purposes of the contract. If the central purpose of
the contract is tainted with illegality, then the contract as a whole cannot be
enforced. If the illegality is collateral to the main purpose of the contract, and
the illegal provision can be extirpated from the contract by means of severance
or restriction, then such severance and restriction are appropriate.

9 Id. at 124; see also Davis, 485 F.3d at 1084 (“The question is whether the offending clause or
10 clauses are merely ‘collateral’ to the main purpose of the arbitration agreement, or whether the
11 [entire arbitration agreement] is ‘permeated’ by unconscionability.”) (quoting Armendariz, 24
12 Cal. 4th at 124). In Davis, the Court of Appeals for the Ninth Circuit decided that, while the
13 arbitration agreement under consideration had a lesser degree of unconscionability as those
14 considered in Ingle or in Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (2002), the
15 agreement nonetheless could not be cured by severance when the agreement did not have a
16 severability clause, was procedurally unconscionable, and contained four substantively
17 unconscionable terms which “cannot be stricken or excised without gutting the agreement.”
18 Id.
19

In this case, unlike in Davis, the Bonus Incentive Agreement contains a severability

20 clause. (Turai Decl., Ex. C at 48, ECF No. 45-1 (“If any portion of this dispute resolution
21 provision is determined to be void or unenforceable, then the remaining portions of this
22 Agreement shall continue in full force and effect, and this Agreement may be modified to the
23 extent necessary, consistent with its fundamental purpose and intent, in order to make it
24 enforceable.”)).

As discussed above, the arbitration agreement and the incorporated

25 Employment Dispute Mediation/Arbitration Procedure have an element of procedural
26 unconscionability and contain three substantively unconscionable provisions (the “carve out”
27 provision stating that the Dispute Resolution Agreement does not apply to “any claims by the
28 Company that includes a request for injunctive or equitable relief”; the confidentiality
- 24 -

10cv1658-WQH-MDD

1 provision; and the attorney’s fees provision).

Collectively, the three substantively

2 unconscionable provisions in this case have a lower degree of unconscionability than the four
3 substantively unconscionable provisions at issue in Davis. Cf. Davis, 485 F.3d at 1082
4 (holding that the four substantively unconscionable provisions included a “carve out”
5 provision, a confidentiality provision, an “all-inclusive bar to administrative actions ... [which]
6 is contrary to U.S. Supreme Court and California Supreme Court precedent,” and a “notice
7 provision” which functioned as “a substantively-unconscionable shortened statute of
8 limitations”). The Court finds that, given “the liberal federal policy favoring arbitration,”
9 Concepcion, 131 S. Ct. at 1745, the three substantively unconscionable provisions may be
10 severed from the agreement, and that the entire arbitration agreement is not “permeated by
11 unconscionability.” Davis, 485 F.3d at 1084 (quotation omitted). The three substantively
12 unconscionable provisions, discussed above, are severed from the arbitration agreement
13 pursuant to California Civil Code § 1670.5. The Court finds that, after the substantively
14 unconscionable provisions are severed, the arbitration agreement is enforceable.
15

G.

California Private Attorney General Act Claims

16

After the conclusion of briefing on the pending motions, each party filed a Notice of

17 Statement of Recent Authority Relevant to Defendants’ Motion for an Order Directing
18 Arbitration. (ECF Nos. 52, 54).
19

Plaintiff attached to his Notice Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489,

20 2011 WL 2685959 (2011). In Brown, a divided panel of the California Court of Appeal held
21 that a contractual waiver of an employee’s right to pursue a representative action under the
22 Private Attorney General Act, located in an arbitration agreement, was unenforceable under
23 California law. The court stated that “representative actions under the [Private Attorney
24 General Act, Cal. Labor Code §§ 2698, et seq.] do not conflict with the purposes of the FAA.
25 If the FAA preempted state law as to the unenforceability of the PAGA representative action
26 waivers, the benefits of private attorney general actions to enforce state labor laws would, in
27 large part, be nullified.” 2011 WL 2685959, at *6. The court stated that:
28

United States Supreme Court authority [including Concepcion] does not address
a statute such as the PAGA, which is a mechanism by which the state itself can
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enforce state labor laws, for the employee suing under the PAGA does so as the
proxy or agent of the state’s labor law enforcement agencies. And, even if a
PAGA claim is subject to arbitration, it would not have the attributes of a class
action that the [Concepcion] case said conflicted with arbitration, such as class
certification, notices, and opt-outs. Until the United States Supreme Court rules
otherwise, we continue to follow what we believe to be California law.

4
Id. at *7.
5
Defendants attached to their Notice Quevedo v. Macy’s, Inc., --- F. Supp. 2d ---, No. CV
6
09-1522, 2011 WL 3135052 (C.D. Cal. June 16, 2011). In Quevedo, the court held that
7
Concepcion compelled enforcement of arbitration agreements even where the agreements
8
barred an employee from bringing a representative Private Attorney General Act claim. The
9
court stated:
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[R]equiring arbitration agreements to allow for representative PAGA claims on
behalf of other employees would be inconsistent with the FAA. A claim brought
on behalf of others would, like class claims, make for a slower, more costly
process. In addition, representative PAGA claims ‘increase[] risks to
defendants’ by aggregating the claims of many employees. See [Concepcion,
131 S. Ct.] at 1752. Defendants would run the risk that an erroneous decision
on a PAGA claim on behalf of many employees would ‘go uncorrected’ given
the ‘absence of multilayered review.’ See id. Just as ‘[a]rbitration is poorly
suited to the higher stakes of class litigation,’ it is also poorly suited to the
higher stakes of a collective PAGA action. See id. The California Court of
Appeal’s decision in Franco [which was relied on by Brown, 2011 WL
2685959, at *4-*5] shows only that a state might reasonably wish to require
arbitration agreements to allow for collective PAGA actions. See Franco [v.
Athens Disposal Co., 171 Cal. App. 4th 1277 (2009)]. AT&T v. Concepcion
makes clear, however, that the state cannot impose such a requirement because
it would be inconsistent with the FAA. See Concepcion, 131 S. Ct. at 1753.
For these reasons, the Court concludes that Quevedo’s PAGA claim is
arbitrable, and that the arbitration agreement’s provision barring him from
bringing that claim on behalf of other employees is enforceable.

21 Id. at *17.
22

Plaintiff’s Third Amended Complaint alleges a representative action pursuant to the

23 California Private Attorney General Act. To the extent Plaintiff has raised the arguments made
24 by the California Court of Appeal in Brown, the Court finds the reasoning of Quevado to be
25 more persuasive. See Nelson v. AT&T Mobility, LLC, No. C10-4802, 2011 WL 3651153, at
26 *4 (N.D. Cal. Aug. 18, 2011) (same). The United States Supreme Court has stated that a state
27 “cannot require a procedure that is inconsistent with the FAA, even if it is desirable for
28 unrelated reasons,” Concepcion, 131 S. Ct. at 1753, nor can a state “prohibit[] outright the
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1 arbitration of a particular type of claim,” id. at 1747. Court finds that Plaintiff’s California
2 Private Attorney General Act claim is arbitrable, and that the arbitration agreement’s provision
3 barring him from bringing that claim on behalf of other employees is enforceable.
4

The Motion for an Order Directing Arbitration is granted, as discussed above.

5

H.

6

When Plaintiff filed his opposition to the Motion for an Order Directing Arbitration,

Motion for Discovery and Jury Trial

7 Plaintiff also filed the Motion for Discovery and Jury Trial. (ECF No. 43-1). Plaintiff
8 contends: “Plaintiff should be able to discover the Defendant’s processes and procedures for
9 presenting the [Bonus Incentive Agreement]s to all of the putative class members, including
10 whether anyone [was] able to negotiate the terms of the dispute resolution provision, whether
11 anyone attempted to refuse signing the agreement along with corresponding repercussions, and
12 the extent to which anyone suffered the forfeiture of bonus wages due to their refusal to sign
13 the BIA.” (ECF No. 47 at 5).
14

Pursuant to California law, “[t]o determine whether [an] arbitration agreement is

15 procedurally unconscionable the court must examine the manner in which the contract was
16 negotiated and the circumstances of the parties at that time.” Ingle, 328 F.3d at 1171
17 (quotation omitted). On June 2, 2011, the Court granted Plaintiff an extension of time to
18 oppose the Motion for an Order Directing Arbitration to allow Plaintiff “to conduct limited
19 discovery as to the facts concerning the negotiation of the arbitration contract and the
20 circumstances of the parties at the time the contract was signed.” (ECF No. 37 at 2). Plaintiff
21 has not shown that Defendants failed to adequately respond to Plaintiff’s discovery requests
22 regarding “the manner in which the contract was negotiated and the circumstances of the
23 parties at that time.” Ingle, 328 F.3d at 1171. The parties filed excerpts from the depositions
24 of Cohen and Plaintiff, who each testified regarding the circumstances surrounding the signing
25 of the Bonus Incentive Agreements. As discussed above, based upon the evidence submitted
26 by the parties (including the depositions of Cohen and Plaintiff, and Plaintiff’s Declaration),
27 the Court has not found that there exists a genuine issue of material fact which would warrant
28 a trial regarding the enforceability of the arbitration agreements signed by Plaintiff. To the
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1 extent that Plaintiff requests discovery related to the execution of arbitration agreements by
2 persons other than Plaintiff, the Court finds that such discovery is not relevant to the issues
3 to be decided in the motion for an order directing Plaintiff to arbitration. Cf. Flores v.
4 Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 852 (2001) (holding that there is no
5 collateral estoppel regarding “virtually identical” arbitration agreements, because they “were
6 signed by different parties under different circumstances”).
7

The Motion for Discovery and Jury Trial is denied.

8 V.

Conclusion

9

IT IS HEREBY ORDERED that the Motion for an Order Directing Arbitration is

10 GRANTED, as discussed above. (ECF No. 34). The Motion for Discovery and Jury Trial is
11 DENIED. (ECF No. 43-1).
12

The Clerk of the Court shall administratively close this case without prejudice to any

13 party moving to have the case reopened for good cause.
14 DATED: September 19, 2011
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16

WILLIAM Q. HAYES
United States District Judge

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