Smith v. Medidata Solutions, Inc. et al
Filing
23
ORDER granting 7 Defendant's Motion to Compel Arbitration, Staying Plaintiff's PAGA Claim Pending Arbitration. The parties shall file a joint status report upon entry of the arbitration award, or on March 30, 2019, whichever first occurs. Failure to timely comply with this provision will result in dismissal pursuant to Federal Rule of Civil Procedure 41(b). Signed by Judge M. James Lorenz on 3/30/2018. (sjt)
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
SOUTHERN DISTRICT OF CALIFORNIA
10
11
KEVIN SMITH,
Case No.: 16cv1689-L(JLB)
Plaintiff,
12
13
v.
14
ORDER GRATING TO
DEFENDANT'S MOTION TO
COMPEL ARBITRATION AND
STAYING PLAINTIFF'S THE PAGA
CLAIM PENDING ARBITRATION
MEDIDATA SOLUTIONS, INC.,
Defendant.
15
16
17
In this action for wrongful termination, fraud and violation of California wages and
18
hour laws, Defendant Medidata Solutions, Inc. filed a motion to compel arbitration.
19
Plaintiff filed an opposition, and Defendant replied. The Court decides the matter on the
20
papers submitted and without oral argument. See Civ. L. R. 7.1(d.1). For the reasons
21
stated below, Defendant's motion is granted. Plaintiff's causes of action numbered one
22
through twelve are dismissed; however, Plaintiff may reassert them in arbitration.
23
Plaintiff's thirteenth cause of action under the Private Attorney General Act is stayed
24
pending arbitration.
25
According to the second amended complaint, Plaintiff was employed by Defendant
26
as a senior director of sales. Plaintiff's compensation consisted of base salary plus
27
commissions, bonuses, benefits, and other compensation. Plaintiff claims that he and
28
others were not paid all commissions owed, and that Defendant had a practice of
1
16cv1689-L(JLB)
1
terminating employees to avoid paying large commissions. After complaining to
2
Defendant about its practices regarding payment of commissions, Plaintiff was
3
terminated. It is undisputed that when he was hired, Plaintiff signed an agreement with
4
an arbitration provision.
5
Plaintiff filed an action in this Court. In his second amended complaint, he alleges
6
numerous California Labor Code violations, wrongful termination, promissory estoppel,
7
fraud, unjust enrichment, violation of the California Unfair Competition Law (Cal. Bus.
8
& Prof. Code § 17200 et seq.), and receiving stolen property in violation of California
9
Penal Code § 496(a). Plaintiff also seeks penalties on behalf of himself and other
10
aggrieved employees and on behalf of the California Labor Workforce Development
11
Agency ("LWDA") for the Labor Code violations, including failure to timely pay all
12
wages due, unlawful deduction (undisclosed payment using a lower pay scale than
13
designated by statute or contract), violations relating to commissions, unlawful
14
retaliation, failure to pay all wages due upon termination, and failure to provide accurate
15
itemized wage statements). The Court has diversity jurisdiction under 28 U.S.C. § 1332.
16
Defendant filed the pending motion to compel arbitration of Plaintiff's individual
17
claims. Defendant concedes that Plaintiff's PAGA claim is not subject to arbitration.
18
(Mot. at 1 n.1 (citing Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 440 (9th Cir.
19
2015).) See Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348, 386-88 (2014)
20
(no Federal Arbitration Act preemption when an aggrieved employee brings a PAGA
21
claim as an agent of a state agency, "where any resulting judgment is binding on the state
22
and any monetary penalties largely go to state coffers."). Defendant argues that
23
Plaintiff's remaining claims are covered by the arbitration clause included in the
24
Employee Confidentiality, Invention Assignment and Non-Competition Agreement
25
which Plaintiff signed when he was hired. (Decl. of Jessica Micciche Ex. A
26
("Agreement").) Plaintiff opposes, arguing that the arbitration clause is unenforceable.
27
Arbitration clauses are governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.
28
("FAA") and California contract law. "The FAA mandates that district courts shall direct
2
16cv1689-L(JLB)
1
the parties to proceed to arbitration on issues as to which an arbitration agreement has
2
been signed." Kilgore v. KeyBank N.A., 718 F.3d 1052, 1058 (9th Cir. 2013) (emphasis
3
in original) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)). "As
4
federal substantive law, the FAA preempts contrary state law." Mortensen v. Bresnan
5
Comm'cns, LLC, 722 F.3d 1151, 1158 (9th Cir. 2013). However, the FAA does not
6
require enforcement of arbitration agreements that may be invalidated on "such grounds
7
as exist at law or in equity for the revocation any contract." 9 U.S.C. § 2. "This saving
8
clause permits agreements to arbitrate to be invalidated by generally applicable contract
9
defenses, such as fraud, duress, or unconscionability . . .." AT&T Mobility LLC v.
10
Concepcion, 563 U.S. 333, 339 (2011) (internal quotation marks and citation omitted).
11
The burden of proving that the arbitration agreement cannot be enforced is on the party
12
resisting arbitration. Green Tree Fin. Corp. - Ala. v. Randolph, 531 U.S. 79, 92 (2000).
13
Initially, Plaintiff contends that the arbitration clause is unenforceable for failure of
14
consideration because Defendant failed to pay him in full. This argument is undermined
15
by the Agreement itself, which expressly addresses the issue of consideration:
16
17
18
19
20
c.
Consideration. I UNDERSTAND THAT EACH PARTY'S
PROMISE TO RESOLVE CLAIMS BY ARBITRATION IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT,
RATHER THAN THROUGH THE COURTS, IS CONSIDERATION FOR
OTHER PARTY'S LIKE PROMISE. I FURTHER UNDERSTAND THAT
I AM OFFERED EMPLOYMENT IN CONSIDERATION OF MY
PROMISE TO ARBITRATE CLAIMS.
21
22
(Agreement § 11.c. (emphasis in original).) It is undisputed that Plaintiff signed the
23
Agreement and that he was offered, and accepted, employment with Defendant.
24
Plaintiff's argument that the arbitration clause is unenforceable for failure of
25
consideration is therefore rejected.
26
27
Next, Plaintiff argues that his claims do not fall within the scope of the
Agreement's forum selection clause. This argument is inapposite. Defendant's motion is
28
3
16cv1689-L(JLB)
1
not seeking to enforce the forum selection clause, but the arbitration clause. In this
2
regard, the arbitration clause provides:
3
4
5
6
7
8
9
10
a.
Arbitration. . . . [¶] THIS ARBITRATION CLAUSE . . .
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO
ALL ASPECTS IF THE EMPLOYER/EMPLOYEE RELATIONSHIP . . .,
INCLUDING, BUT NOT LIMITED TO THE FOLLOWING CLAIMS:
i.
ANY AND ALL CLAIMS FOR WRONGFUL
DISCHARGE OF EMPLOYMENT; . . .;
ii.
ANY AND ALL CLAIMS FOR VIOLATION OF ANY
FEDERAL, STATE OR MUNICIPAL STATUTE . . .;
iii. ANY AND ALL CLAIMS ARISING OUT OF ANY
OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT .
. ..
11
(Agreement § 11.a. (emphasis in original).) In addition to the PAGA claim, which is not
12
the subject of the pending motion, Plaintiff alleges claims for violation of numerous
13
California Labor Code provisions, wrongful termination in violation of public policy,
14
promissory estoppel, fraud, unjust enrichment, unfair competition, and receiving stolen
15
property, i.e., his wages, in violation of California Penal Code. Plaintiff does not dispute,
16
but agrees, that all of his claims relate to his employment relationship with Defendant.
17
(See Opp'n at 10 ("the question is whether, in failing to pay SMITH the wages earned by
18
him, has Defendant violated the law?") (emphasis in original).) All of Plaintiff's claims,
19
except for PAGA, fall within the scope of the arbitration clause.
20
Plaintiff further contends that the forum selection clause does not require exclusive
21
jurisdiction. (Opp'n at 10-11.) Again, this argument is inapposite, as Defendant is not
22
seeking to enforce the forum selection clause, but compel arbitration. Although the
23
arbitration clause provides that arbitration be held in New York (Agreement § 11.a.),
24
Defendant is not requesting to arbitrate in New York. Accordingly, the Court does not
25
express any opinion regarding the validity of the forum selection clause. With respect to
26
arbitration, to the extent the arbitration clause applies to Plaintiff's claims, it is not
27
optional. See 9 U.S.C. § 4 ("upon being satisfied that the making of the agreement for
28
arbitration or the failure to comply therewith is not in issue, the court shall make an order
4
16cv1689-L(JLB)
1
directing the parties to proceed to arbitration in accordance with the terms of the
2
agreement") (emphasis added); see also Kilgore, 718 F.3d at 1058 ("The FAA mandates
3
that district courts shall direct the parties to proceed to arbitration on issues as to which
4
an arbitration agreement has been signed.") (emphasis in original).
5
Plaintiff also contends that the arbitration provision cannot be enforced because it
6
is unconscionable under California law. The arbitration provision includes a choice of
7
law clause, stating, "THIS AGREEMENT WILL BE GOVERNED AND CONSTRUED
8
ACCORDING TO THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
9
EFFECT TO ITS CONFLICT OF LAW PRINCIPLES." (Agreement § 11.d. (emphasis
10
in original).) Defendant claims that New York law applies to the question whether the
11
arbitration clause is enforceable. (Mot. at 5.) Plaintiff counters that when an employer is
12
seeking to enforce an agreement against a California employee, California law should be
13
applied in determining the underlying contract validity. (Opp'n at 11.) Plaintiff's reliance
14
for this proposition on Ingle v. Circuit City Stores, Inc. 328 F.3d 1165, 1170 (9th Cir.
15
2003), is unavailing because, unlike here, the court in Ingle had no occasion to consider a
16
choice of law clause. When an arbitration clause includes a choice of law clause, the
17
clause may be enforced. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514
18
U.S. 52, 58-64 (1995). If, as unambiguously stated in the Agreement, New York law
19
applies, Plaintiff concedes that the arbitration clause is enforceable, as he does not
20
contend otherwise in his opposition. See Civ. Loc. R. 7.1.f.3.b. ("The opposition brief
21
must contain . . . a complete statement of all reasons in opposition to the position taken
22
by the movant . . ..").
23
Alternatively, the arbitration clause is not unconscionable under California law, as
24
Plaintiff contends. To prevail, Plaintiff must show that the arbitration clause is both
25
procedurally and substantively unconscionable. See Armendariz v. Found. Health
26
Psychcare Servs., Inc., 24 Cal.4th 83, 99 (2000). The procedural element focuses on
27
"oppression or surprise due to unequal bargaining power," and the substantive element
28
focuses on "overly harsh and one-sided results." Id. A sliding scale is applied, so that the
5
16cv1689-L(JLB)
1
more substantively oppressive the contract term, the less evidence of procedural
2
unconscionability is required to find it unenforceable and vice versa. Id.
3
Plaintiff argues that the arbitration clause is unconscionable because Defendant did
4
not explain it to him, he was not given an opportunity to negotiate its terms, and it was
5
presented to him on a "take it or leave it" basis. Defendant "was under no obligation to
6
highlight the arbitration clause of its contract, nor was it required to specifically call that
7
clause to [Plaintiff]'s attention. Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899,
8
914 (2015). A fortiori, Defendant was under no obligation to explain the arbitration
9
provision to Plaintiff. Furthermore, the arbitration provision is unambiguous and set off
10
from the rest of the Agreement's provisions by the use of all caps. Nevertheless, it was
11
included in a contract of adhesion. Procedural unconscionability can be based on a
12
showing of oppression, Lhotka v. Geographic Expeditions, Inc., 181 Cal. App. 4th 816,
13
821, 824 (2010), which "arises from inequality in bargaining power that results in no real
14
negotiation and an absence of meaningful choice," Gatton v. T-Mobile USA, Inc., 152
15
Cal. App. 4th 571, 581 (2008). This often takes the form of a contract of adhesion -- a
16
standardized contract drafted by the party of superior bargaining strength and imposed on
17
the other, without an opportunity to negotiate the terms. See Shroyer v. New Cingular
18
Wireless Servs., Inc., 498 F.3d 976, 981 (9th Cir. 2007); see also Gatton, 152 Cal. App.
19
3d 582 ("adhesion pertains to the oppression aspect of procedural unconscionability").
20
The Court therefore finds that "the adhesive nature of the contract is sufficient to
21
establish some degree of procedural unconscionability." Sanchez, 61 Cal.4th at 915.
22
"Yet a finding of procedural unconscionability does not mean that a contract will not be
23
enforced, but rather that courts will scrutinize the substantive terms of the contract to
24
ensure they are not manifestly unfair or one-sided." Id. (internal quotation marks and
25
citation omitted).
26
Substantive unconscionability focuses on whether the results of the contract terms
27
are overly harsh or one-sided. Armendariz, 24 Cal.4th at 114. Plaintiff contends that the
28
arbitration provision is substantively unconscionable because Defendant reserves the
6
16cv1689-L(JLB)
1
right to file a court action with respect to certain types of claims, it imposes excessive
2
costs, and does not permit for recovery of attorney's fees.
3
4
The arbitration clause carves out Defendant's right to pursue injunctive relief in
court under certain circumstances:
5
B.
Equitable remedies. I AGREE THAT IT WOULD BE
IMPOSSIBLE OR INADEQUATE TO MEASURE AND CALCULATE
THE COMPANY'S DAMAGES FROM ANY BREACH OF THE
COVENANTS SET FORTH IN SECTIONS 2 [Outside Employment], 3
[Confidential Information], 4 [Inventions], 5 [Competitive Activities],1 6
[Returning Company Documents] AND 8 [Non-Solicitation; Non-Hire]
HEREIN. ACCORDINGLY, I AGREE THAT IF I BREACH ANY OF
SUCH SECTIONS, THE COMPANY WILL HAVE AVAILABLE . . . THE
RIGHT TO OBTAIN AN INJUNCTION FROM A COURT OF
COMPETENT JURISDICTION RESTRAINING SUCH BREACH OR
THREATENED BREACH AND TO SPECIFIC PERFORMANCE OF
ANY SUCH PROVISION OF THIS AGREEMENT. . . .
6
7
8
9
10
11
12
13
14
(Agreement § 11.b. (emphasis in original).) Plaintiff argues that this is sufficiently one-
15
sided to render the arbitration clause substantively unconscionable. California law does
16
not require complete mutuality as Plaintiff assumes. See Armendariz, 24 Cal.4th at 117
17
(only a "modicum of bilaterality" is required) (internal quotation marks and citations
18
omitted). "Although parties are free to contract for asymmetrical remedies and
19
arbitration clauses of varying scope, . . . the doctrine of unconscionability limits the
20
extent to which a stronger party may, through a contract of adhesion, impose the
21
arbitration forum on the weaker party without accepting that forum for itself." Id. at 118.
22
The limit is defined by the commercial justification for the one-sidedness:
23
a contract can provide a "margin of safety" that provides the party with
superior bargaining strength a type of extra protection for which it has a
legitimate commercial need without being unconscionable. However, unless
24
25
26
27
28
1
Section 5, Competitive Activities, does not apply to California employees like
Plaintiff. (See Decl. of Kevin Smith in Supp. of Opp'n to Def.'s Mot. to Compel Arb. at
3-4.)
7
16cv1689-L(JLB)
1
2
the "business realities" that create the special need for such an advantage are
explained in the contract itself, . . . it must be factually established.
3
Id. at 117 (internal quotation marks and citations omitted). Here, the arbitration clause
4
states that claims related to competition, confidentiality and intellectual property require
5
injunctive relief and/or specific performance to be adequately remedied. Such remedies
6
may be obtainable on an emergency basis in a court action. This does not render the
7
arbitration clause unconscionable. See Sanchez, 61 Cal.4th at 922 (holding that an
8
arbitration clause carving out a car dealer's right to repossession was not substantively
9
unconscionable).
10
Plaintiff next contends that the cost-sharing clause in the arbitration provision is
11
per se unconscionable. (Opp'n at 19.) It may be possible to invalidate an arbitration
12
agreement as unconscionable if it "required a plaintiff to pay 'filing and administrative
13
fees attached to arbitration that are so high as to make access to the forum
14
impracticable.'" Chevarria v. Ralphs Grocery Co., 733 F.3d 916, 927 (9th Cir. 2013)
15
(quoting American Express Co. v. Italian Colors Rest., 570 U.S. 228, 236 (2013)). The
16
cost-sharing clause provides that, "THE COMPANY AND I SHALL EACH PAY ONE-
17
HALF OF THE COSTS AND EXPENSES OF SUCH ARBITRATION . . .."
18
(Agreement § 11.a. (emphasis in original).) The arbitration provision also states that the
19
arbitration is to be conducted under the rules of the American Arbitration Association
20
("AAA"). (Id.) Plaintiff does not contend that the AAA fees are so high as to preclude
21
him from arbitrating. The AAA's fee schedule for employment disputes caps an
22
individual party's fees at $300. See https://www.adr.org/sites/default/files/Employment_
23
Arbitration_Fee_Schedule.pdf (last visited Mar. 30, 2018). The filing fee for an action
24
filed in this Court is $400. See https://www.casd.uscourts.gov/Attorneys/SitePages/
25
FeesOfTheUSDistrictCourt.aspx (last visited Mar. 30, 2018). Whether he proceeds in
26
this Court or before the AAA, he will incur costs. Like this Court, the arbitrator, under
27
28
8
16cv1689-L(JLB)
1
the AAA Employment Arbitration Rule 39, may award costs "in accordance with
2
applicable law."2 See https://www.adr.org/sites/default/files/employment_arbitration_
3
rules_and_mediation_procedures_0.pdf (last visited Mar. 30, 2018) ("Rule 39"). For the
4
foregoing reasons, the cost sharing clause does not render the arbitration provision
5
substantively unconscionable.
6
Finally, Plaintiff objects to the clause that "EACH OF US SHALL SEPARATELY
7
PAY OUR COUNSEL FEES AND EXPENSES." (Agreement § 11.a. (emphasis in
8
original).) As Defendant concedes, this provision does not preclude an attorney fee
9
award at the conclusion of arbitration. (Reply at 9.) Under Rule 39, the arbitrator may
10
award attorney's fees "as provided by applicable law." If he prevails in arbitration,
11
Plaintiff will therefore be able to recover fees as if he had proceeded in this Court.
12
Accordingly, the attorneys' fee clause is not substantively unconscionable for the same
13
reasons as the cost sharing clause.
14
For the foregoing reasons, Plaintiff has not demonstrated that the arbitration
15
provision is unconscionable under California law. Plaintiff has conceded that it is not
16
unconscionable under New York law. Plaintiff has therefore not shown that a contract
17
defense renders the arbitration provision unenforceable.
18
Defendant's motion is therefore granted as follows:
19
1. Plaintiff's causes of action alleged in the second amended complaint and
20
numbered one through twelve are dismissed. Plaintiff may reassert these claims as
21
provided in the Employee Confidentiality, Invention Assignment and Non-Competition
22
Agreement which Plaintiff signed when he was hired by Defendant. (Decl. of Jessica
23
Micciche Ex. A ("Agreement").)
24
25
26
27
28
2
To the extent Plaintiff contends that California law, as opposed to New York law,
may favor him, the concern has no merit. Under the Agreement's choice of law clause,
New York law governs the Agreement and how the Agreement is construed. (Agreement
§ 11.d.) It does not apply to Plaintiff's substantive claims.
9
16cv1689-L(JLB)
1
2
2. Plaintiff's thirteenth cause of action pursuant to the Private Attorney General
Act is stayed pending arbitration pursuant to 9 U.S.C. § 3.
3
3. The parties shall file a joint status report upon entry of the arbitration award, or
4
on March 30, 2019, whichever first occurs. Failure to timely comply with this provision
5
will result in dismissal pursuant to Federal Rule of Civil Procedure 41(b).
6
IT IS SO ORDERED.
7
8
Dated: March 30, 2018
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
10
16cv1689-L(JLB)
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?