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Savetsky v. Pre-Paid Legal Services, Inc.

United States District Court, N.D. California

July 30, 2015

MICHAEL SAVETSKY, individually and on behalf of all others similarly situated, Plaintiff,
v.
PRE-PAID LEGAL SERVICES, INC. d/b/a LegalShield, Defendant.

ORDER GRANTING MOTION TO COMPEL ARBITRATION

SAMUEL CONTI, District Judge.

I. INTRODUCTION

Now before the Court is Defendant LegalShield's[1] motion to compel Plaintiff Michael Savetsky to arbitrate his claims in this putative consumer class action. ECF Nos. 40 ("Mot."). The motion is fully briefed, ECF Nos. 53 ("Opp'n"), 57 ("Reply"), including a full round of supplemental briefing, ECF Nos. 60 ("Supp. Mot."), 61 ("Supp. Opp'n"), 63 ("Supp. Reply"), and because it is appropriate for consideration without oral argument under Civil Local Rule 7-1(b). The hearing has already been VACATED per ECF No. 65. For the reasons set forth below, the motion is GRANTED.

II. BACKGROUND

This is a putative consumer class action alleging that LegalShield improperly charged recurring payments to its California members for pre-paid legal services without providing sufficient consent or disclosure. To provide legal services to its members, LegalShield contracts with law firms in the states in which it operates and, in exchange for a monthly fee, gives members access to that network of law firms for certain types of legal services.

While LegalShield memberships are available directly to consumers through its website, memberships are primarily sold through "sales associates" - independent contractors who sign up to sell LegalShield memberships in exchange for commissions. ECF No. 42 ("Pinson Decl.") at ¶ 6. While LegalShield did not realize it until recently, Savetsky's involvement with LegalShield began when he applied to be a sales associate online through an existing LegalShield sales associate. After becoming a sales associate, he then also purchased a LegalShield membership of his own.

The Court previously denied a motion to compel arbitration under LegalShield's membership agreement, finding that Savetsky never assented to the arbitration provision. ECF No. 33 ("Prior Order") at 14. After the Court denied that motion, LegalShield discovered that even prior to becoming a member, Savetsky signed up to be a sales associate. In becoming a sales associate, LegalShield contends Savetsky entered into an "associate agreement" containing a separate and enforceable arbitration provision. See Pinson Decl. Ex. A ("Associate Agreement") at 6. The entire provision is lengthy, but the most relevant portion provides that:

[a]ll disputes and claims related to LegalShield, the Associate Agreement, these Policies and Procedures and any other LegalShield policies, products and services, the rights and obligations of an Associate and LegalShield, or any other claims or causes of action between the Associate or LegalShield or any of its officers, directors, employees or affiliates, whether statutory in tort in contract or otherwise, shall be settled totally and finally by arbitration in Oklahoma City, Oklahoma, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. However, Associate understands and expressly agrees that LegalShield may seek a temporary restraining order and/or preliminary injunction in state or federal court to maintain the status quo pending determination of the dispute. If any Associate files a claim or counterclaim against LegalShield or any of its officers, directors, employees or affiliates in any such arbitration, an associate shall do so only on an individual basis and not with any other Associate or as part of a class action....

Id. at ¶ 23. As a result, LegalShield asks the Court to compel Savetsky to arbitrate the claims he asserts in this case in an individual arbitration, and stay or dismiss the case pending the resolution of that individual arbitration. Savetsky opposes, arguing that the Court lacks jurisdiction to compel arbitration, the agreement is unenforceable, or it does not cover the claims at issue in this case.

In reviewing the underlying agreement, the Court previously noted that the relevant Associate Agreement - which includes the arbitration clause now at issue - stated that it "will be governed by and construed in accordance with the laws of the State of Oklahoma." ECF No. 42 ("Pinson Decl.") at 6, ¶ 23. Accordingly, the Court ordered a round of supplemental briefs, ECF No. 58, which the parties have provided. Defendant - who during the initial round of briefs agreed that California law applied - now asserts Oklahoma law should be applied, whereas Plaintiff continues to seek the application of California law.

III. LEGAL STANDARD

Section 4 of the Federal Arbitration Act ("FAA") permits "a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States district court... for any order directing that... arbitration proceed in the manner provided for in [the arbitration] agreement." 9 U.S.C. § 4. The FAA embodies a policy that generally favors arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The burden on a motion to compel arbitration is on the party opposing arbitration, Edwards v. Metropolitan Life Ins. Co., No. C 10-03755 CRB, 2010 WL 5059553, at *4 (N.D. Cal. Dec. 6, 2010) (citing Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 227 (1987)), and the Court must resolve any doubts in favor of arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985).

To determine whether a valid arbitration agreement exists, we "apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Where the parties do not agree on which state law governs, the court makes the determination by "using the choice-of-law rules of the forum state, which in this case is California." Pokorny v. Quixtar, Inc., 601 F.3d 987, 994 (9th Cir. 2010).

IV. DISCUSSION

Unlike the prior motion to compel arbitration, Plaintiff Savetsky does not argue that he did not assent to the arbitration provision contained in the Associate Agreement. Instead, he contends that LegalShield's motion should be denied because: (1) it seeks to re-litigate arguments the Court rejected in the prior motion to compel arbitration, (2) the Court lacks jurisdiction to decide the motion to compel, (3) the parol evidence rule bars consideration of anything aside from the specific membership agreement at issue in Plaintiff's substantive claims, (4) the Associate Agreement by its own terms does not apply to Plaintiff's claims, and (5) even if the agreement does apply to his claims, it is unconscionable and thus unenforceable.

The Court will address the jurisdictional and relitigation concerns, and then evaluate choice-of-law before turning to the arguments on parol evidence, the scope of the associate agreement, and unconscionability.

A. Jurisdiction

Section 4 of the Federal Arbitration Act provides for "[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, ... for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4 (emphasis added). Once filed, the court must determine whether a valid agreement to arbitrate exists and, if so, "make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." Id. Finally, Section 4 states that "[t]he hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed." Id.

Seizing on the final quoted language, Plaintiff argues that because the Associate Agreement provides for arbitration only in Oklahoma City, Oklahoma, LegalShield may only seek to compel arbitration there. Thus, he concludes, "this Court has no jurisdiction to grant Defendant's motion to compel." Opp'n at 9.

Plaintiff is mostly incorrect. While he rightly points out that the Court has authority only to order arbitration within the Northern District of California, that does not mean the court lacks jurisdiction to compel arbitration at all. See Textile Unlimited, Inc. v. A., BMH & Co., Inc., 240 F.3d 781, 785 (9th Cir. 2001) ("[B]y its terms, [Section] 4 only confines the arbitration to the district in which the petition to compel is filed. It does not require that the petition be filed where the contract specified that the arbitration should occur.") (emphasis added) (citing Cont'l Grain Co. v. Dant & Russell, 118 F.2d 967, 969 (9th Cir. 1941)). On the contrary, if the Court finds that a valid agreement to arbitrate exists, the FAA requires the Court to compel arbitration. See 9 U.S.C. § 4 ("The court..., upon being satisfied that the making of the agreement for arbitration... is not in issue, ... shall make an order directing the parties to proceed to arbitration....") (emphasis added). At the same time, however, Ninth Circuit precedent prevents the Court from ordering the parties to arbitrate in their chosen venue when, as here, the motion to compel arbitration is filed outside the district encompassing that venue. See Cont'l Grain, 118 F.2d at 968-69; see also Beauperthuy v. 24 Hour Fitness USA, Inc., No. 06-0715-SC, 2012 WL 3757486, at *5 (N.D. Cal. July 5, 2012); Homestake Lead Co. v. Doe Run Res. Corp., 282 F.Supp.2d 1131, 1143-44 (N.D. Cal. 2003).[2]

In short, while the Court has jurisdiction to compel arbitration, it lacks jurisdiction to compel arbitration in Oklahoma City. As a result, this argument is unavailing.

B. Relitigation

Next, Plaintiff contends that LegalShield's motion to compel should be denied as it is an improper attempt to relitigate issues the Court rejected when it denied LegalShield's motion to compel under the membership contract and denied leave to file a motion for reconsideration of that order. See Mot. at 7-8; see also Prior Order at 14; ECF No. 48 ("Recons. Mot.") at 9.

The Court disagrees. First, no authority the Court has found states that the denial of a prior motion to compel arbitration under a different agreement somehow bars the proponent of the prior motion from subsequently asserting that a different contract contains an enforceable arbitration provision. True, a party may waive its right to file a motion to compel arbitration if, while knowing of its right to compel arbitration, it acts inconsistently with that right, and prejudices the opposing party. See Sovak v. Chugai Pharmaceutical Co., 280 F.3d 1266, 1270 (9th Cir. 2002). But LegalShield has consistently and promptly asserted its argument that the parties agreed to arbitrate their disputes, whether in the membership agreement or the associate agreement. Furthermore, contrary to Savetsky's characterization of the Court's prior orders, the Court has never addressed whether the arbitration ...


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