116 F. Supp. 3d 1000
N.D. Cal.2015Background
- Ritarose Capili worked for Finish Line (retail) in Daly City during two periods; this suit concerns her second stint (Aug 2013–July 2014) and alleges termination in response to pregnancy/medical leave.
- Capili agreed to Finish Line’s Employee Dispute Resolution Plan (arbitration agreement) as a condition of employment via an application (Aug 13, 2013) and a new-hire packet (Aug 26, 2013).
- Finish Line moved to compel arbitration of Capili’s employment-discrimination and related claims under the Federal Arbitration Act.
- Capili argued the arbitration agreement is a contract of adhesion and both procedurally and substantively unconscionable, so unenforceable.
- The court found some procedural unconscionability (take-it-or-leave-it, unequal bargaining power) and several substantively unconscionable provisions (forum-selection to Indiana, employer-only judicial-exemptions, and onerous employee cost-sharing).
- Because multiple core provisions were unconscionable and not merely collateral, the court refused to sever and held the entire arbitration agreement unenforceable; motion to compel arbitration denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of arbitration agreement (procedural unconscionability) | Capili: agreement is adhesive, imposed as condition of employment; oppression/surprise present | Finish Line: automated notice limited unfairness; no negotiation but argues limited procedural defect | Court: some procedural unconscionability found (adhesive, no meaningful choice) |
| Substantive unconscionability — forum selection | Capili: clause requiring arbitration/litigation in Indianapolis unduly oppressive and inhibits vindication of rights | Finish Line: offered to hold arbitration in San Francisco; urges severance | Court: forum-selection to Indiana unconscionable; cannot salvage by offer to waive |
| Substantive unconscionability — mutuality/exemptions | Capili: agreement lets employer litigate key claims (trade secrets, injunctive relief) while forcing employee into arbitration — one-sided | Finish Line: argues exemptions are mutual or immaterial | Court: exemption provision is substantively unconscionable; it favors employer and is not mutual |
| Substantive unconscionability — cost sharing | Capili: arbitration fees cap ($10,000 or 10%) and employee burden chills claims; conflicts with Armendariz requiring employer to bear arbitration-unique costs for FEHA claims | Finish Line: offered to pay AAA fees or sever clause | Court: cost-sharing provision unenforceable; employer’s post-hoc offer does not cure the defective agreement |
Key Cases Cited
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (federal policy favors arbitration)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (FAA mandates district courts direct parties to proceed to arbitration when applicable)
- Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681 (generally applicable contract defenses may invalidate arbitration agreements)
- Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal.4th 83 (Cal. 2000) (mandatory employment arbitration must be procedurally and substantively fair; employer bears arbitration-unique costs for FEHA claims)
- Chavarria v. Ralphs Grocery Co., 733 F.3d 916 (9th Cir. 2013) (California unconscionability standard requires both procedural and substantive elements)
- Martinez v. Master Protection Corp., 118 Cal.App.4th 107 (Cal. Ct. App. 2004) (employer carve-outs for claims like trade secrets render arbitration clause one-sided and unconscionable)
- Mercuro v. Superior Court, 96 Cal.App.4th 167 (Cal. Ct. App. 2002) (exclusions for workers’ compensation/unemployment do not save mutuality; arbitration clause can be substantively unconscionable)
- Little v. Auto Stiegler, Inc., 29 Cal.4th 1064 (Cal. 2003) (arbitration provisions that are unfairly one-sided are substantively unconscionable)