Lang v. Skytap, Inc., 347 F. Supp. 3d 420

Background

Plaintiff Rudolf Lang signed a December 2, 2013 employment agreement with Skytap that contained a broad arbitration clause (AAA rules; arbitration in King County, Washington; Washington choice-of-law), an attorney-fees-each-side provision, a cost‑split (each pays one-half) provision, and a severability clause.
Lang sued in California state court asserting ten employment-related claims including California Labor Code wage claims and wrongful termination; defendants removed to federal court and moved to compel arbitration.
Lang argued the arbitration agreement was unconscionable (procedural and substantive) and nonseverable; defendants sought enforcement and represented they would not enforce forum/choice-of-law and would cover arbitration costs and allow California law to apply.
The court applied the FAA and California unconscionability law (procedural + substantive analysis) to determine enforceability.
The court found minimal procedural unconscionability (adhesion contract but no surprise/duress) and identified three substantively unconscionable collateral provisions: the Washington choice-of-law/forum clause (because it would strip unwaivable California labor rights), the attorney‑fees provision (precluding statutory fee awards), and the cost‑splitting provision.
The court severed those three provisions (relying on the agreement’s severability clause and defendants’ concessions) and compelled arbitration under the remaining terms, staying the federal proceedings pending arbitration.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether arbitration agreement is governed by FAA	FAA applies (not disputed), but agreement is unconscionable	FAA governs; agreement valid	FAA applies; court proceeds to unconscionability analysis
Procedural unconscionability (adhesion, notice of AAA rules)	Agreement is adhesive and unconscionable; lack of attached AAA rules adds surprise	Adhesion alone insufficient; Lang does not show surprise or duress; he does not challenge AAA rules	Minimal procedural unconscionability (adhesive) because no surprise/duress and plaintiff did not challenge AAA rules
Substantive unconscionability—choice of law/forum	Washington law and forum would force waiver of unwaivable California labor rights	Forum/choice provision is reasonable (connected to defendant); defendants offer not to enforce it and to apply CA law if required	Substantively unconscionable as drafted because it risked stripping unwaivable California statutory rights; provision severed rather than invalidating entire agreement
Substantive unconscionability—attorney's fees & cost-splitting	Fee provision denies statutory fee awards; cost-splitting requires employee to bear arbitration costs not required in court	Proffered to cover costs and not enforce problematic terms; AAA rules will apply	Both provisions are substantively unconscionable as written but readily severable; severed and AAA rules (and defendants' concessions) preserve statutory remedies and employer‑covered arbitration costs
Severability—whether multiple flaws render entire agreement unenforceable	Multiple unconscionable terms require invalidation of whole clause	Severance clause and mutuality permit severing collateral unlawful terms	Court severs the three collateral provisions and enforces remaining arbitration agreement; compels arbitration and stays case

Key Cases Cited

Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (Cal. 2000) (establishes procedural/substantive unconscionability framework for employment arbitration and limits on fee/cost provisions)
Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899 (Cal. 2015) (explains unconscionability balancing; degree of procedural vs substantive unconscionability)
Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (Cal. 2013) (plaintiff bears burden to prove arbitration provision unenforceable)
Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237 (Cal. 2016) (distinguishes incorporation-by-reference challenges to undisclosed arbitration rules from challenges to express contract terms)
Verdugo v. Alliantgroup, L.P., 237 Cal. App. 4th 141 (Cal. Ct. App. 2015) (shifts burden to enforcing party when forum/choice provisions risk diminishing unwaivable California statutory rights)
Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002) (employee cannot be required to split arbitration fees in a way that deters claim filing)
Davis v. O'Melveny & Myers, 485 F.3d 1066 (9th Cir. 2007) (severance of unconscionable arbitration provisions can preserve remainder of agreement)
Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir. 2010) (refuses enforcement where multiple unconscionable terms produce pervasive lack of mutuality)
Poublon v. C.H. Robinson Co., 846 F.3d 1251 (9th Cir. 2017) (applies California unconscionability framework in Ninth Circuit)