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Swarbrick v. Umpqua Bank

August 4, 2008

STEPHEN L. SWARBRICK, CESAR LOPEZ, AND ELIZABETH FESTEJO PLAINTIFFS,
v.
UMPQUA BANK, AN OREGON STATE CHARTERED BANK; WESTERN SIERRA NATIONAL BANK, A FEDERALLY CHARTERED FINANCIAL INSTITUTION; AND DOES I THROUGH XX, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER

Plaintiffs Stephen L. Swarbrick ("Swarbrick"), Cesar Lopez ("Lopez"), and Elizabeth Festejo ("Festejo") (herinafter collectively referred to as "Plaintiffs") seek monetary relief against Defendants Umpqua Bank ("Umpqua"), Western Sierra National Bank ("Western Sierra") and DOES I through XX (hereinafter collectively referred to as "Defendants"), arising out of an employment dispute regarding unpaid commissions.

Presently before the Court is Umpqua's Motion to Compel Arbitration, which alleges that Plaintiffs are bound to submit their claims to arbitration pursuant to their respective employment agreements with Western Sierra, and their third-party beneficiary claims arising under an agreement between Western Sierra and Woodbury Financial Services, Inc. ("Woodbury"). For the reasons set forth below, Umpqua's Motion to Compel Arbitration is granted.

BACKGROUND

Plaintiffs are former employees of Western Sierra, a banking institution acquired by Umpqua on or about June 3, 2006. Plaintiffs executed employment agreements with Western Sierra. These agreements contained an arbitration provision requiring all claims arising under the agreements to be submitted to arbitration by the American Arbitration Association ("AAA").

On or about July 22, 2003, Western Sierra and Woodbury entered into a third-party brokerage agreement ("Woodbury Agreement"), whereby some Western Sierra employees would sell securities as representatives of Woodbury. Under this agreement, Woodbury would pay commissions to Western Sierra based on the representatives' securities sales, Western Sierra would deduct commissions arising from sales made to its customers, and then Western Sierra would remit the appropriate remaining commission to each representative.

On July 21, 2006, Lopez requested arbitration through the AAA to resolve a dispute regarding severance pay, alleging that California law requires Umpqua to pay for the arbitration. Following Umpqua's refusal to pay, Lopez withdrew his arbitration request. Umpqua alleges Lopez's withdrawal resulted from a ruling by the AAA that his employment agreement was an "individually-negotiated employment agreement" and not an "employer promulgated plan" (as defined by the AAA), and thus he would be responsible for certain arbitration fees.

On January 23, 2008, Plaintiffs filed their Complaint for Damages in state court alleging breach of contract to third-party beneficiary, breach of fiduciary duties, unjust enrichment, breach of California Labor Code §§ 201 and 203, and breach of employment contract. Plaintiffs allege Defendants failed to pay Plaintiffs all commissions due under the Woodbury Agreement. Lopez further alleges that under his employment contract with Western Sierra, Western Sierra agreed to pay Lopez an agreed upon sum in the event of a merger or consolidation such as the Umpqua-Western Sierra acquisition. Lopez alleges Western Sierra unlawfully failed to pay this sum.

On March 7, 2008, Umpqua successfully removed the action to this Court under diversity jurisdiction.

On March 14, 2008, Umpqua filed this Motion to Compel Arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 ("FAA"). Umpqua alleges that arbitration is the required dispute resolution forum for Plaintiffs' claims, pursuant to their respective employment agreements with Western Sierra, and their third-party beneficiary claims arising under the Woodbury Agreement.

STANDARD

When a contract contains an arbitration clause, there is a presumption of arbitrability. AT & T Techs., Inc. v. Commc'ns Workers of America, 475 U.S. 643, 650, 106 S.Ct. 1415, 1419 (1986). Arbitration should be compelled unless it is clear that the dispute is not covered by the arbitration agreement. United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-583 (1960). Any doubts should be resolved in favor of arbitration. Id. at 583. In making this decision, the court looks only at whether the parties agreed to arbitrate the claim, not to the merits of the claim itself. AT & T Techs., 475 U.S. at 649-650.

If the existence of an arbitration agreement between the parties is proven or undisputed, the party opposing arbitration has the burden of proving any fact necessary to its defense. Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 972 (1997). Under the FAA, arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. "Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening" federal law. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652 (1996).

When an opposing party's defense rests on the contract principle of unconscionability, the party must prove both procedural and substantive unconscionability to overcome the statutory presumption in favor of arbitration. Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199 (9th Cir. 2002); Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83 (2000). However, procedural and substantive unconscionability need not be present in equal amounts. Armendariz, 24 Cal. 4th at 83. The two factors are evaluated on a "sliding scale," therefore, the more evidence of procedural unconscionability there is, the less evidence of substantive unconscionability is needed to render the agreement unenforceable, and vice versa. Id. If ...


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