Zenia Chavarria v. Ralphs Grocery Company
733 F.3d 916
9th Cir.2013Background
- Chavarria applied for and accepted employment with Ralphs; the employment application incorporated a mandatory arbitration policy that bound applicants upon submission (no signature required).
- After leaving Ralphs, Chavarria sued on behalf of herself and a proposed class for alleged California Labor Code and UCL violations; Ralphs moved to compel arbitration of her individual claim under the policy.
- Ralphs’ arbitration policy: (1) requires a retired judge arbitrator and precludes AAA/JAMS administration; (2) uses a strike-to-select process that effectively advantages the party who did not "demand" arbitration (in practice Ralphs); (3) requires the arbitrator to apportion arbitrator fees up front—generally split equally—and limits recovery of those fees except as required by U.S. Supreme Court precedent; (4) permits Ralphs to unilaterally modify the policy, with continued employment deemed acceptance.
- District court denied the motion to compel arbitration, finding the policy procedurally and substantively unconscionable under California law and therefore unenforceable.
- Ralphs appealed, arguing the policy is not unconscionable and, alternatively, that the Federal Arbitration Act (FAA) preempts California unconscionability law as applied.
- The Ninth Circuit affirmed the district court: it held the policy unconscionable under California law and that application of state unconscionability doctrine was not preempted by the FAA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration agreement is procedurally unconscionable | Chavarria: presented on a take-it-or-leave-it basis, bound upon application submission, and terms provided only after acceptance | Ralphs: agreement was voluntary; signature was not required so applicants could decline; not procedurally unconscionable | Procedural unconscionability: yes — standardized, adhesive process, and key terms delivered after binding increased oppression/surprise |
| Whether the arbitration agreement is substantively unconscionable | Chavarria: selection process systematically favors Ralphs; prohibiting AAA/JAMS and upfront cost allocation makes claims impracticable | Ralphs: provisions may sometimes disadvantage Ralphs; cost rule mirrors "American Rule" each bears own fees | Substantive unconscionability: yes — arbitrator-selection and fee-apportionment terms are one-sided and can preclude effective vindication of rights |
| Whether FAA preempts California unconscionability law as applied here | Chavarria: California’s generally applicable unconscionability doctrine can invalidate arbitration terms that make process unfair or impracticable | Ralphs: Concepcion/FAA preempt state rules that single out arbitration; state law cannot defeat arbitration enforcement | FAA does not preempt: application of California law here enforces general contract fairness and does not discriminate against arbitration; invalidation does not frustrate FAA objectives |
| Whether costs/fee provisions render arbitration effectively unavailable | Chavarria: requiring upfront, nonrecoverable arbitrator fees (half of $7k–$14k/day) makes small employment claims impracticable | Ralphs: cost clause follows ordinary fee rules; risk of costs is speculative | Held for Chavarria: costs are concrete and potentially prohibitive, making arbitration inaccessible and substantively unconscionable |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preemption of state rules that disproportionately burden arbitration)
- American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013) (class waiver + prohibitive costs; forum-fee rules may invalidate arbitration if fees make access impracticable)
- Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006) (apply California unconscionability framework to arbitration agreements)
- Kilgore v. KeyBank Nat’l Ass’n, 718 F.3d 1052 (9th Cir. 2013) (addressed affordability of arbitration and limits after Concepcion)
- Davis v. O’Melveny & Myers, 485 F.3d 1066 (9th Cir. 2007) (adhesive employment arbitration agreements can be procedurally unconscionable)
- Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003) (unilateral modification clauses support substantive unconscionability)
- Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) (speculative risk of prohibitive arbitration costs insufficient to invalidate agreement)