Smith v. Medidata Solutions, Inc., 3:16-cv-01689

Background

Plaintiff Kevin Smith was hired by Medidata Solutions, signed an Employee Confidentiality, Invention Assignment and Non-Competition Agreement containing an arbitration clause and a New York choice-of-law clause.
Smith alleges failure to pay earned commissions and other wage/hour violations, wrongful termination after complaining, fraud, unjust enrichment, UCL claims, receiving stolen property, and PAGA penalties; suit filed in federal court (diversity jurisdiction).
Medidata moved to compel arbitration of Smith’s individual claims under the agreement; conceded PAGA claims are not arbitrable but sought stay of PAGA pending arbitration.
Smith argued the arbitration clause is unenforceable for lack of consideration, beyond its scope, and unconscionable (procedural and substantive), including cost-sharing and attorney-fee provisions.
The court evaluated FAA preemption, contract defenses (fraud, unconscionability), California unconscionability doctrine (Armendariz sliding scale), and the agreement’s choice-of-law provision.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1. Consideration for arbitration clause	Smith: clause unenforceable because employer failed to pay wages (failure of consideration)	Medidata: mutual promise to arbitrate and job offer constitute adequate consideration per the Agreement	Court: rejected Smith; Agreement expressly states arbitration promise and employment are consideration, so enforceable
2. Scope — whether Plaintiff's non-PAGA claims fall within arbitration clause	Smith: some employment claims fall outside forum/arbitration clause	Medidata: clause covers "all disputes relating to employer/employee relationship," including statutory and wrongful termination claims	Court: all claims except PAGA fall within arbitration clause and are arbitrable
3. Unconscionability (procedural and substantive)	Smith: clause was adhesive, not explained, non-negotiable, allows employer court remedies, imposes costs, and bars fee recovery	Medidata: adhesive form does not automatically invalidate clause; clause is not substantively one-sided; choice-of-law is New York; arbitration rules allow fee awards	Court: found some procedural unconscionability (adhesive) but no substantive unconscionability; carve-outs for injunctive relief and choice-of-law commercially justified; cost and fee provisions not so onerous as to preclude access
4. PAGA claim treatment	Smith: PAGA claim should proceed in court	Medidata: conceded PAGA not arbitrable but sought stay pending arbitration of individual claims	Court: confirmed PAGA claim is not arbitrable, dismissed claims 1–12 to arbitration, and stayed PAGA (claim 13) pending arbitration; ordered joint status report after award or by date specified

Key Cases Cited

Kilgore v. KeyBank N.A., 718 F.3d 1052 (9th Cir.) (FAA requires courts to compel arbitration where agreement exists)
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preempts state law that interferes with arbitration agreements; general contract defenses may invalidate arbitration agreements)
Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) (party resisting arbitration bears burden to show agreement unenforceable)
Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (2014) (PAGA claims brought as agent of the state are not preempted by FAA)
Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) (California procedural and substantive unconscionability framework; sliding scale)
Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (2015) (adhesive contract alone does not render arbitration clause unenforceable; substantive terms require scrutiny)
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (choice-of-law clauses in arbitration agreements can be enforced)
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (courts must direct parties to arbitration under FAA)
Chevarria v. Ralphs Grocery Co., 733 F.3d 916 (9th Cir.) (excessive arbitration costs can render an agreement unenforceable if they preclude access to forum)