371 F. Supp. 3d 610
N.D. Cal.2019Background
- Plaintiff worked for Defendant (mortgage specialist, Dec 2015–Jun 2016) and sued for wage-and-hour and related California statutory claims; she amended to add a PAGA claim but later conceded its timeliness problem.
- Defendant moved to compel arbitration under an employment agreement containing: mandatory arbitration (AAA), a class/representative-action waiver, Illinois choice-of-law and Chicago forum selection, carve-outs for injunctive/equitable relief and non-solicitation enforcement, an attorneys'-fees-for-company clause, and a severability clause.
- Plaintiff opposed on multiple grounds: waiver (based on Defendant’s litigation/settlement activity in a separate state-court class action, Tadena), lack of a valid company signature, choice-of-law (arguing California law applies), procedural and substantive unconscionability (adhesive contract, failure to provide AAA rules, one-sided carve-outs, fee-shifting, forum/location), and non-severability.
- Court heard the motion, assessed arbitrability under federal law with state-law defenses (unconscionability, contract defenses), and considered whether Defendant waived arbitration by its conduct in the separate Tadena case.
- Rulings: Court found a valid, enforceable arbitration agreement; rejected waiver; applied California law on unconscionability issues because Defendant did not meaningfully argue for Illinois law; found modest procedural unconscionability and significant substantive unconscionability as to the Illinois choice-of-law clause and the injunctive/non-solicitation carve-outs; severed those unconscionable provisions and compelled arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver of arbitration | Defendant waived arbitration by litigating/settling similar claims in separate Tadena class action and not disclosing it, causing prejudice | No waiver; any reservation of rights in Tadena and distinct-party context do not show inconsistent conduct or prejudice | No waiver: Plaintiff failed to show inconsistent acts in this case or prejudice from Tadena conduct |
| Existence/validity of contract signature | Agreement invalid because company signature lacked required EVP/CEO signatory or Plaintiff only has unsigned copy | Defendant produced signed copy; signer retained EVP authority despite COO title | Valid contract: Defendant produced signed agreement and Plaintiff offered no evidence of fraud; Cal. Civ. Code § 3388 supports enforceability |
| Choice of law (Illinois vs. California) | California substantive law should apply; Illinois choice clause would bar California labor remedies and is unconscionable | Agreement contains Illinois law clause; but did not meaningfully defend its applicability here | California law applied for unconscionability analysis; choice-of-law clause found substantively unconscionable and severed |
| Unconscionability (procedural/substantive) | Arbitration agreement is adhesive, lacked AAA rules disclosure, contains one-sided carve-outs, shifting fees, and burdensome forum | Agreement is enforceable; some procedural unconscionability but not enough; fee clause inapplicable; forum and AAA incorporation permissible | Moderate procedural unconscionability (adhesion). High substantive unconscionability for (1) broad carve-out of injunctive/equitable relief and employer’s non-solicitation enforcement (one-sided) and (2) Illinois choice-of-law clause. Fee provision construed not to apply here and not unconscionable; forum selection not unconscionable |
| Severability | Unconscionable provisions render whole agreement unenforceable; severance not appropriate | Agreement contains severability; unconscionable terms can be excised while preserving arbitration | Severed the unconscionable provisions (choice-of-law and Sections VII(c)(ii) & (iii)); remainder of agreement enforced and arbitration compelled |
Key Cases Cited
- Ambler v. BT Americas Inc., 964 F. Supp. 2d 1169 (N.D. Cal. 2013) (arbitration motion framework and court’s limited role)
- Cox v. Ocean View Hotel Corp., 533 F.3d 1114 (9th Cir. 2008) (scope/threshold questions for arbitration)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (FAA mandates compelling arbitration when agreement valid and dispute arbitrable)
- Green Tree Financial Corp.–Ala. v. Randolph, 531 U.S. 79 (2000) (party resisting arbitration bears burden to show agreement unenforceable)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) (employment-arbitration mutuality and unconscionability principles)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (limits on state-law defenses that uniquely disfavor arbitration)
- Poublon v. C.H. Robinson Co., 846 F.3d 1251 (9th Cir. 2017) (adhesion contracts and AAA incorporation analysis)
- Tompkins v. 23andMe, 840 F.3d 1016 (9th Cir. 2016) (clarifying Armendariz in post-Concepcion context)
- Serafin v. Balco Properties Ltd., LLC, 235 Cal. App. 4th 165 (2015) (one-sided signature enforcement and severability in arbitration agreements)
- Farrar v. Direct Commerce, Inc., 9 Cal. App. 5th 1257 (2017) (wholesale carve-outs for injunctive relief can be substantively unconscionable)