Kenneth Holley-Gallegly v. Ta Operating, LLC
74 F.4th 997
9th Cir.2023Background
- Holley‑Gallegly signed TA Operating LLC’s "Mutual Agreement to Resolve Disputes and Arbitrate Claims" as a condition of employment; the Agreement contains a delegation clause sending questions of arbitrability to an arbitrator.
- The Agreement also contains a jury‑waiver sentence stating that "if this agreement is determined to be unenforceable, any claims ... shall be subject to a non‑jury trial" in court.
- Holley‑Gallegly sued TA in state court asserting wage‑and‑hour and related employment claims; TA removed and moved to compel arbitration invoking the delegation clause.
- The district court found the delegation clause was clear and unmistakable but procedurally and substantively unconscionable (relying principally on the jury‑waiver sentence) and therefore denied the motion to compel; it then ruled the Agreement as a whole was unenforceable.
- On appeal the Ninth Circuit held the district court erred: the jury‑waiver sentence applies only if the Agreement is found unenforceable and thus cannot make the delegation clause substantively unconscionable; the court vacated and remanded, directing the district court to order the arbitrator to decide arbitrability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TA waived the argument that the delegation clause should be enforced | TA failed to adequately raise delegation enforcement below, so argument waived | TA raised delegation specifically in its motion and reply; district court ruled on it, so no waiver | No waiver — TA preserved the delegation argument |
| Whether the delegation clause is substantively unconscionable due to the Agreement’s jury‑waiver sentence | Jury waiver is a prototypical unconscionable pre‑dispute waiver because it would bar juries even if the Agreement is unenforceable, tainting the delegation clause | The jury‑waiver applies only if the Agreement is determined unenforceable and thus cannot render delegation unconscionable | Rejected district court’s substantive‑unconscionability ruling; the jury‑waiver cannot support invalidating the delegation clause |
| Whether the court or the arbitrator decides arbitrability | Because the delegation clause was unenforceable, the court should decide arbitrability | The delegation clause is enforceable and thus the arbitrator should decide arbitrability | Vacated denial of motion to compel; remanded with direction to have the arbitrator decide arbitrability |
| Whether other unconscionability arguments (choice‑of‑law, fee provisions) can be raised on appeal | Those provisions make the delegation clause unconscionable | These arguments were not raised specifically against the delegation clause below and therefore are forfeited | Forfeited — other unconscionability challenges not properly raised below are not considered |
Key Cases Cited
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clauses are severable and a party must specifically challenge the delegation provision to have a court decide arbitrability)
- Caremark LLC v. Chickasaw Nation, 43 F.4th 1021 (9th Cir. 2022) (discussing scope of permissible challenges to delegation clauses and limits on attacking unrelated arbitration procedures)
- Lim v. TForce Logistics, LLC, 8 F.4th 992 (9th Cir. 2021) (California unconscionability requires showing both procedural and substantive unconscionability)
- Yamada v. Nobel Biocare Holding AG, 825 F.3d 536 (9th Cir. 2016) (no waiver where a party raises an argument with sufficient specificity and the district court rules on it)
- Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) (plaintiff must specifically challenge delegation clause to avoid enforcement)