198 F. Supp. 3d 1070
N.D. Cal.2016Background
- California statute authorizes county district attorneys to run bad‑check diversion programs and allows them to hire private administrators; programs require a probable‑cause finding before enrollment and limit allowable fees.
- Victim Services, a private company, contracted with several county DAs to administer such programs and sent form letters on DA letterhead threatening prosecution unless recipients enrolled.
- The El Dorado letter to plaintiff Narisha Bonakdar included a terms-and-conditions page with a bilateral, opt‑out arbitration clause (AAA, individual arbitration only).
- Bonakdar completed the diversion program, did not opt out of arbitration, and later sued Victim Services (proposed class action) alleging statutory violations and FDCPA claims; Victim Services moved to compel arbitration of Bonakdar’s claims.
- The court considered (1) whether the Federal Arbitration Act (FAA) governs the non‑prosecution/diversion agreement, and (2) whether California law permits arbitration of disputes arising from a government‑administered criminal‑justice program.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the FAA apply to the DA’s non‑prosecution/diversion agreement? | The agreement resolves a local criminal matter and therefore does not evidence a transaction affecting interstate commerce; FAA inapplicable. | The arbitration clause benefits a private, for‑profit administrator engaged in commerce (debt collection), so FAA applies. | FAA does not apply: the relevant “contract” is the DA’s non‑prosecution agreement (an exercise of state police power) and does not evidence a transaction involving interstate commerce. |
| Is the arbitration clause enforceable under California public policy? | (Bonakdar) Forcing arbitration would bar judicial oversight of prosecutorial/administrative police‑power functions and hide public‑interest matters from courts and the public. | (Victim Services) The parties agreed to arbitration; California generally favors arbitration. | Clause contrary to California public policy: arbitration would impede judicial review of government law‑enforcement functions, undermine separation of powers, and shield official conduct from public scrutiny. |
| May the court nonetheless compel arbitration given parallel court actions by other plaintiffs? | (Victim Services) Even if FAA is inapplicable, procedural defenses to refusal to compel don’t apply absent express incorporation. | (Bonakdar) Other plaintiffs (not bound by arbitration) are litigating identical issues, creating risk of conflicting rulings. | Court declines to compel under Cal. Code Civ. Proc. §1281.2(c)/(e): the presence of related court actions by non‑arbitrating plaintiffs risks conflicting decisions, supporting denial. |
Key Cases Cited
- Allied‑Bruce Terminix Cos. v. Dobson, 518 U.S. 265 (clarifies FAA covers contracts evidencing transactions affecting interstate commerce)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (FAA preemption principles in consumer arbitration context)
- Bond v. United States, 134 S.Ct. 2077 (requirement to be cautious before reading federal statutes to intrude on state sovereignty)
- Lopez v. United States, 514 U.S. 549 (limits on Congress’s Commerce Clause power in criminal law context)
- Printz v. United States, 521 U.S. 898 (limits on federal intrusion into state executive functions)
- Town of Newton v. Rumery, 480 U.S. 386 (public‑policy concerns about agreements that suppress civil rights claims arising from prosecutorial bargains)
- Iskanian v. CLS Transp. L.A., LLC, 59 Cal.4th 348 (California recognition that FAA was not intended to govern disputes between government in law‑enforcement capacity and private individuals)
- Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83 (California law favoring arbitration but allowing refusal when contrary to public policy)