United States District Court, C.D. California
Piya Mukherjee Attorneys Present for Plaintiffs.
Christopher Decker Jack Sholkoff Attorneys Present for Defendants.
CIVIL MINUTES - GENERAL
CHRISTINA A. SNYDER, District Judge.
Proceedings: DEFENDANTS' MOTION TO STAY, COMPEL ARBITRATION, AND DISMISS CLASS AND REPRESENTATIVE ALLEGATIONS (Dkt. No. 29, filed November 5, 2012)
On June 13, 2012, plaintiff Lorrie Poublon filed this putative class action against defendants C.H. Robinson Company, C.H. Robinson Worldwide, Inc., and Does 1 through 50. Defendants removed the action to federal court on August 1, 2012. Dkt. No. 1. Plaintiff filed the operative First Amended Complaint ("FAC") on September 7, 2012. Dkt. No. 20. Plaintiff alleges that defendants, her former employers, misclassified her and other employees as exempt from overtime pay requirements. The FAC asserts claims under California's Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq., and several provisions of the California Labor Code. Plaintiff brings these claims on behalf of herself and a class of similarly situated employees, as well as on behalf of the State of California pursuant to the Private Attorneys General Act ("PAGA"), California Labor Code §§ 2698, et seq.
On November 5, 2012, defendants filed a motion to compel arbitration of plaintiff's individual claims, stay this litigation, and dismiss plaintiff's class and representative allegations pursuant to the arbitration agreement. Dkt. No. 29. On November 24, 2014,  plaintiff filed an opposition, arguing that the arbitration provision is unenforceable. Dkt. No. 51. Defendants filed a reply on December 15, 2014. Dkt. No. 52. On January 12, 2015, the Court heard oral argument on the motion. After considering the parties' arguments, the Court DENIES defendants' motion in its entirety.
II. FACTUAL BACKGROUND
Defendants operate a large transportation services and logistics company. FAC ¶ 1. Plaintiff began working for defendants in May 2007 as an "Account Manager." Dkt. No. 29-1 (Arnold Decl.) ¶ 3. Plaintiff alleges that although she and other Account Managers did not exercise significant independent judgment or discretion, they were improperly classified as salaried employees exempt from overtime pay and related legal requirements. FAC ¶ 7. Plaintiff brings a class action on behalf of herself and other persons employed in California as Account Managers within a certain time period, as well as on behalf of the State of California through PAGA. See id. ¶¶ 24-45, 93-97.
On December 28, 2007, plaintiff signed the first of several "Incentive Bonus Agreements" (or "IBAs"). Arnold Decl. ¶¶ 4-9 & Exs. A-G. Plaintiff executed her last IBA on or about December 23, 2011. Id. ¶ 5. This IBA includes an arbitration provision that reads in relevant part:
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) the arbitration need not actually be administered by the American Arbitration Association; (2) any mediation or arbitration shall be governed by the Company's Employment Dispute Mediation/Arbitration Procedure, which is available on the Company intranet; (3) 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 the Federal Rules of Civil Procedure; (4) except on a substantial showing of good cause, discovery will be limited to the exchange of relevant documents and three depositions per side; and (5) except as mutually agreed at the time between You and the Company, neither You nor the Company may bring any Claim combined with or behalf of any other person or entity, whether on a collective, representative, or class action basis or any other basis. In the case of any conflict between the rules and procedures for either mediation or arbitration, the priority and order of precedence shall be as follows: (1) the rules and procedures stated herein; (2) the Company's Employment Dispute Mediation/Arbitration Procedure; (3) the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association.
For purposes of this Agreement, "Claims" shall include, but not limited to [sic], all claims directly or indirectly related to Your recruitment, employment, compensation or benefits... or termination of employment by the Company.... 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 include 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.
If any portion of this dispute resolution provision is determined to be void or unenforceable, then the remaining portions of this Agreement shall continue in full force and effect, and this Agreement may be modified to the extent necessary, consistent with its fundamental purpose and intent, in order to make it enforceable.
Arnold Decl. Ex. G. Additional terms relevant to this motion are contained in defendants' Employment Dispute Mediation/Arbitration Procedures ("Arbitration Procedures"), id. Ex. C, and are discussed below. The IBA also advises:
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 PROVISION CAREFULLY. BY SIGNING BELOW, YOU ARE ATTESTING THAT YOU HAVE READ AND UNDERSTOOD THIS DOCUMENT, AND ARE KNOWINGLY AND VOLUNTARILY AGREEING TO ITS TERMS.
III. LEGAL STANDARD
The Federal Arbitration Act ("FAA") provides that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising... 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. The FAA reflects a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24(1983)).
The "first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate the dispute." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 626 (1985). The court must determine (1) whether there exists a valid agreement to arbitrate; and (2) if there is a valid agreement, whether the dispute falls within its terms. Chiron Corp. v. Ortho Diagnostic Sys. , 207 F.3d 1126, 1130 (9th Cir. 2000). When determining whether a valid and enforceable contract to arbitrate has been established for the purposes of the FAA, federal courts should apply "ordinary state-law principles that govern the formation of contracts to decide whether the parties agreed to arbitrate a certain matter." First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944 (1995); Circuit City Stores v. Adams , 279 F.3d 889, 892 (9th Cir. 2002). "[A]greements to arbitrate [may] be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." AT&T Mobility LLC v. Concepcion, 563 ___ U.S. ___, 131 S.Ct. 1740, 1746 (2011). The party asserting a defense to the enforceability of an arbitration agreement has the burden of proving that defense by a preponderance of the evidence. See Engalla v. Permanente Med. Grp. , 15 Cal.4th 951, 972 (1997).
A. Whether the Arbitration Provision is Enforceable
Plaintiff argues that the arbitration agreement is unconscionable and thus unenforceable. Courts apply state contract law to determine the enforceability of an arbitration agreement. Pokorny v. Quixtar , 601 F.3d 987, 994 (9th Cir. 2010). Under California law, "a contractual provision is unenforceable if it is both procedurally and substantively unconscionable." Kilgore v. KeyBank, Nat'l Ass'n , 718 F.3d 1052, 1058 (9th Cir. 2013) (citing Armendariz v. Found. Health Psychare Servs., Inc. , 24 Cal.4th 83, 89 (2000)). These two prongs operate on a sliding scale: greater substantive unconscionability can make up for a lesser showing of procedural unconscionability, and vice versa. Armendariz , 24 Cal.4th at 89. If the Court determines that contractual provisions are unconscionable, the Court must decide whether the unconscionable provisions are severable from the rest of the contract. Id. at 121-122.
1. Procedural Unconscionability
Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agreement. Ferguson v. Countrywide Credit Indus., Inc. , 298 F.3d 778, 783 (9th Cir. 2002); A&M Produce Co. v. FMC Corp. , 135 Cal.App.3d 473, 484 (1982). "Oppression" addresses the weaker party's absence of choice and unequal bargaining power that results in "no real negotiation" and an absence of "meaningful choice." A&M Produce , 135 Cal.App.3d at 486. "Surprise" concerns the extent to which the contract clearly discloses its terms as well as the reasonable expectations of the weaker party. Parada v. Superior Court , 176 Cal.App.4th 1554, 1568 (2009).
"The threshold inquiry in California's unconscionability analysis is whether the arbitration agreement is adhesive.'" Nagrampa v. MailCoups, Inc. , 469 F.3d 1257, 1281 (9th Cir. 2006) (quoting Flores v. Transamerica HomeFirst, Inc. , 93 Cal.App.4th 846, 850 (2001)). A contract of adhesion is "a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it." Stirlen v. Supercuts, Inc. , 51 Cal.App.4th 1519, 1533 (1997) (internal quotation marks and citations omitted). Defendants admit that the IBA was a contract of adhesion that plaintiff had no opportunity to negotiate or modify. See Dkt. No. 51-2 (Blumenthal Decl.) Ex. A. Such "take-it-or-leave-it" contracts of adhesion are oppressive under California law. See Trivedi v. Curexo Tech. Corp. , 189 Cal.App.4th 387, 393 (2010) ("Procedural unconscionability occurs when the stronger party drafts the contract and presents it to the weaker party on a take it or leave it basis.'"); Flores , 93 Cal.App.4th at 853 ("A finding of a contract of adhesion is essentially a finding of procedural unconscionability."); Stirlen , 51 Cal.App.4th at 1533 ("[T]he threshold question is whether the subject arbitration clause is part of a contract of adhesion, thereby establishing the necessary element of procedural unconscionability.").
Defendants argue that the IBA is not procedurally unconscionable, or is only minimally so, because had plaintiff refused to sign it, she would not have lost her job, but only her bonus. Defendants appear to base this argument on plaintiff's supervisor's testimony that he is "not aware of" the signing of the IBA being a condition of continued employment. See Dkt. No. 29-5 (Cho Decl. Ex. B) at 36:3-23. But the first paragraph of the IBA states that the agreement is " [i]n consideration for your continued employment " as well "eligibility for a bonus incentive, " which at the very least could lead an employee to believe that a refusal to sign the contract could result in termination. Arnold Decl. Ex. G (emphasis added). Moreover, even if the only consequence of refusing to sign the IBA were the loss of plaintiff's bonus, that bonus accounted for approximately one-quarter of ...