485 F.Supp.3d 1168
N.D. Cal.2020Background
- Plaintiffs are current and former "Associates" of World Financial Group (WFG) who sued as a putative California class alleging misclassification as independent contractors and violations of California labor and wage laws.
- Associates were required to sign a 17‑page Associate Membership Agreement (AMA) with an arbitration clause; many arbitration details were in a separate Glossary that incorporated AAA rules and a broad "waiver of litigation."
- Plaintiffs say they were given only a short application packet or the AMA signature page (often via recruiters) and thus lacked notice of the full AMA or its arbitration terms; DocuSign evidence is disputed for some plaintiffs.
- Defendants moved to compel arbitration; the court found the FAA applies because WFG’s activities involve interstate commerce and denied transfer earlier under Cal. Lab. Code § 925.
- The court found most named plaintiffs (except Rodriguez) had notice or later accepted the AMA by conduct, but the AMA’s arbitration clause was procedurally and substantively unconscionable (one‑sided extraordinary/equitable relief, fee‑shifting, Georgia choice‑of‑law/forum), and unconscionability permeated the agreement so severance was inappropriate.
- Conclusion: Motion to compel arbitration, dismiss class claims, and stay case denied; arbitration unenforceable as to the bound plaintiffs and Rodriguez is not bound.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Governing law: FAA vs California law | Plaintiffs: FAA does not apply because activities lack substantial relation to interstate commerce | Defendants: WFG’s nationwide marketing and sales involve interstate commerce, so FAA governs | Held: FAA applies (commerce established) |
| Formation / consent to arbitrate | Plaintiffs: they only signed a signature/photo‑release page and lacked notice of the full AMA/arbitration terms | Defendants: plaintiffs signed the AMA or had access (including via DocuSign) and continued performing, implying assent | Held: Defendants met burden for all named plaintiffs except Rodriguez (Rodriguez not shown to have notice) |
| Later agreement (MDA) supersedes AMA arbitration | Plaintiffs: MDA selects Georgia courts and thus supersedes AMA arbitration | Defendants: MDA is silent on arbitration and expressly preserves AMA terms | Held: MDA did not supersede or revoke AMA’s arbitration clause |
| Unconscionability and severance | Plaintiffs: arbitration provision is adhesive, surprising, and substantively one‑sided (extraordinary relief, fee shifting, Georgia forum) and should be unenforceable | Defendants: any unconscionability is minimal and severable under AMA’s severability clause | Held: High procedural unconscionability plus multiple substantive defects; severance inappropriate because unconscionability permeates the agreement; arbitration unenforceable for the affected plaintiffs |
Key Cases Cited
- Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (U.S. 2018) (federal policy favoring enforcement of arbitration agreements)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (arbitration agreements enforceable according to their terms)
- Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (U.S. 2001) (FAA covers contracts "involving commerce")
- Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014) (notice required for browsewrap‑style agreements)
- Norcia v. Samsung Telecommunications Am., LLC, 845 F.3d 1279 (9th Cir. 2017) (party seeking arbitration bears burden to prove agreement exists)
- Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83 (Cal. 2000) (procedural and substantive unconscionability doctrine for arbitration agreements)
- Poublon v. C.H. Robinson Co., 846 F.3d 1251 (9th Cir. 2017) (severance analysis and evaluating unconscionability in arbitration clauses)
- OTO, L.L.C. v. Kho, 8 Cal.5th 111 (Cal. 2019) (font size and legibility relevant to procedural unconscionability)