601 F. App'x 461
9th Cir.2014Background
- MHN Government Services required employees to sign an arbitration agreement as a condition of employment; plaintiffs sought to proceed in court and challenged enforceability.
- District court denied MHN’s motion to compel arbitration, finding the arbitration clause procedurally and substantively unconscionable.
- Procedural unconscionability findings: MHN had superior bargaining power, the clause was a take-it-or-leave-it employment condition, and employees lacked meaningful opportunity to negotiate.
- Substantive unconscionability findings: arbitrator-selection clause gave MHN near-unfettered control; a six-month limitations period was unrealistically short; a prevailing-party fee-shifting term conflicted with statutory schemes; the commercial filing fee and punitive-damages waiver also disadvantaged employees.
- District court refused to sever the unconscionable provisions, concluding they permeated the agreement; the Ninth Circuit majority affirmed that decision.
- A concurring/dissenting judge agreed on unconscionability but would have reversed the refusal to sever, citing FAA policy favoring arbitration after AT&T Mobility v. Concepcion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Procedural unconscionability of arbitration requirement | Agreement was adhesive: employer superior power, no meaningful negotiation | Agreement permitted modification and thus negotiation opportunity | Court: procedurally unconscionable; findings of inequality and oppression upheld |
| Arbitrator-selection clause | Clause lets MHN control selection, stack deck against employees | Clause selects licensed, "neutral" arbitrators and is permissible | Clause is substantively unconscionable for giving MHN one-sided control |
| Six-month limitations period | Too short for employees to discover, investigate, and file claims | Shortened period is contractually permitted | Substantively unconscionable; effectively abrogates right to bring claims |
| Fee-shifting, filing fees, punitive-damages waiver | Fee-shifting and high filing fees chill claims; punitive waiver bars statutory remedies | Contract terms valid; promote efficiency | These terms are substantively unconscionable (fee-shifting conflicts with statutory schemes); filing fee and punitive waiver also problematic |
Key Cases Cited
- Chavarria v. Ralphs Grocery Co., 733 F.3d 916 (9th Cir.) (framework for procedural and substantive unconscionability in employment arbitration)
- Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir.) (limitations on arbitration terms that strip statutory remedies)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S.) (FAA policy favoring arbitration and limits on state-law rules that disproportionately impact arbitration)
- Samaniego v. Empire Today LLC, 205 Cal.App.4th 1138 (Cal. Ct. App.) (one-sided arbitration terms reallocate risk and can be unconscionable)
- Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal.4th 83 (Cal.) (multiple unconscionable provisions can make an arbitration agreement unlawful)
- Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir.) (district court discretion in refusing to enforce unconscionable arbitration clauses)