Opinion
2:23-cv-00605-DJC-AC
03-19-2024
FRANK SHAMBLIN, individually and on behalf of all other similarly situated individuals, Plaintiff, v. ANDY FRAIN SERVICES, INC.; COHESIVE NETWORKS 2, INC.; and DOES 1 to 100, Defendants.
ORDER GRANTING MOTION TO COMPEL ARBITRATION
HON. DANIEL J. CALABRETTA UNITED STATES DISTRICT JUDGE
Plaintiff Frank Shamblin brings a putative class action against Defendants Andy Frain Services, Inc. (“Andy Frain Services”) and Cohesive Networks 2, Inc. (“Cohesive”), along with 100 Doe Defendants, alleging six causes of actions for violations of California's Labor Codes, a “collective action” for violations of the Fair Labor Standards Act, and a derivative action under California's Unfair Competition Law. Andy Frain Services moves to compel arbitration of Plaintiff's individual claims, and to stay Plaintiff's representative, class, and collective action claims that are not waived by the arbitration agreement. For the reasons set forth below, the Court GRANTS Andy Frain Services, Inc.'s Motion to Compel Arbitration and Stay Proceedings Pending Arbitration (ECF No. 3) and DISMISSES Plaintiff's remaining claims.
BACKGROUND
Plaintiff worked for Defendant Andy Frain Services from January 2022 until September 26, 2022. (See Mem. of P. and A. in Supp. of Andy Frain Services's Mot. to Compel Arbitration and Stay Proceedings Pending Arbitration (ECF No. 3-1) at 2 (“Motion” or “Mot.”).) Plaintiff and the other class members worked as security guards for Andy Frain Services. (See Class and Collective Action Compl. (ECF No. 1-4) ¶ 6 (“Complaint” or “Compl.”); Mot. at 1.)
Although Andy Frain Services hired and employed Plaintiff and other class members, Andy Frain Services used Cohesive, a “Professional Employer Organization[]” to “handle[ ] Andy Frain Services, Inc.'s human resources and administrative functions, including onboarding, payroll, benefits, workers' compensation, and training.” (Mot. at 2 (citing Decl. of Patricia Tonoff in Supp. of Andy Frain Services's Mot. (ECF No. 3-3) ¶¶ 2-4 (“Tonoff Declaration” or “Tonoff Decl.”).) As explained by Andy Frain Services's Director of Human Resources, Patricia Tonoff, every Andy Frain Services employee completes an application and onboarding process “through its career site system” that requires an employee to proceed to a secondary website “[o]nce the decision to hire is established[,]" where the employee “creates their own unique log-in and password and is considered an employee conditioned upon the completion of the mandatory onboarding documents and any required background screening.” (Id. ¶ 3.) Based on Director Tonoff's review of Andy Frain Services's human resources system and records, Plaintiff applied for a position on January 5, 2022, was extended an employment offer on January 8th, and created his unique log-on credentials and password for the system and electronically signed the employment agreement on January 11th. (Id. ¶ 5 (citing Tonoff Decl. Ex. A (ECF No. 3-3 at 4-6) (the “Agreement”) (providing a copy of the signed Agreement)).)
Plaintiff filed the Complaint in San Joaquin County Superior Court on February 14, 2023. (See Mot. at 2; Compl. at 10.) Andy Frain Services removed the case to federal court on March 30, 2023. (See ECF No. 1.) Andy Frain Services then moved to compel arbitration on April 6, 2023. (See Mot.) Plaintiff filed the Opposition on April 20, 2023 and Andy Frain Services filed its Reply on May 1,2023. (See Pl.'s Opp'n to Andy Frain Services's Mot. (ECF No. 6) (“Opposition” or “Opp'n”); Andy Frain Services's Reply to Pl.'s Opp'n to Andy Frain Services's Mot. (ECF No. 7) (“Reply”).) The matter is now fully briefed.
DISCUSSION
I. Legal Standard
The Federal Arbitration Act ("FAA") governs arbitration agreements. 9 U.S.C. § 2. The FAA affords parties the right to obtain an order directing that arbitration proceed in the manner provided for in the agreement. 9 U.S.C. § 4. To decide on a motion to compel arbitration, a court must determine: (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. Boardman v. Pac. Seafood Grp., 822 F.3d 1011, 1017 (9th Cir. 2016). Arbitration is a matter of contract, and the FAA requires courts to honor parties' expectations. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 351 (2011). However, parties may use general contract defenses to invalidate an agreement to arbitrate. See id. at 339. Thus, a court should order arbitration of a dispute only where satisfied neither the agreement's formation nor enforceability or applicability to the dispute is at issue. See Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299-300 (2010). “Where a party contests either or both matters, ‘the court' must resolve the disagreement[,]” id. (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)), because a party “cannot be required to submit to arbitration any dispute it has not agreed so to submit.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). If a valid arbitration agreement encompassing the dispute exists, arbitration is mandatory. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). Under § 3 of the FAA, a court, “upon being satisfied that the issue involved . . . is referable to arbitration, shall on application of one of the parties stay the trial of the action until such arbitration has been [completed] . . . .” 9 U.S.C. § 3.
The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an agreement to arbitrate. Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015). In resolving a motion to compel arbitration, “[t]he summary judgment standard [of Federal Rule of Civil Procedure 56] is appropriate because the district court's order compelling arbitration ‘is in effect a summary disposition of the issue of whether or not there had been a meeting of the minds on the agreement to arbitrate.'” Hansen v. LMB Mortg. Servs., Inc., 1 F.4th 667, 670 (9th Cir. 2021) (quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51,54 n.9 (3d Cir. 1980)). Under this standard of review, “[t]he party opposing arbitration receives the benefit of any reasonable doubts and the court draws reasonable inferences in that party's favor, and only when no genuine disputes of material fact surround the arbitration agreement's existence and applicability may the court compel arbitration.” Smith v. H.F.D. No. 55, Inc., No. 2:15-CV-01293-KJM-KJN, 2016 WL 881134, at *4 (E.D. Cal. Mar. 8, 2016). “A material fact is genuine if ‘the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Hanon v. Dataproducts Corp., 976 F.2d 497, 500 (9th Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Conversely, “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.'” Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
II. Analysis
A. The Arbitration Agreement Is Enforceable.
Plaintiff does not dispute that the FAA governs the Agreement or that the Agreement covers the claims raised in the Complaint. (See Mot. at 4-6.) Plaintiff only argues that the Agreement is unconscionable. (See Opp'n at 1-3.) The Court disagrees.
Under California law, unconscionability has a procedural element and a substantive element. See OTO, L.L.C. v. Kho, 8 Cal. 5th 111, 125 (2019); lyere v. Wise Auto Grp., 87 Cal.App. 5th 747, 759 (2023), review denied (Apr. 26, 2023). The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression and surprise due to unequal bargaining power, while the substantive element pertains to the fairness of an agreement's actual terms and whether they are overly harsh or one-sided. OTO, L.L.C., 8 Cal. 5th at 125; Iyere, 87 Cal.App. 5th at 759. While both the procedural and substantive elements must be present to establish unconscionability, they need not be present in the same degree; the more one element is present, the less present the other element needs to be. See OTO, L.L.C., 8 Cal. 5th at 125-26; Iyere, 87 Cal.App. 5th at 759.
1. Procedural Unconscionability
Procedurally, Plaintiff argues that the Agreement is unconscionable as an adhesive contract presented on a take-it-or-leave-it basis. (See Opp'n at 2 (citing Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1100 (2002)).) Andy Frain Services argues that Plaintiff's argument is procedurally deficient because Plaintiff provided no facts or declaration to support this assertion. (See Reply at 3.) However, Andy Frain Services ignores Director Tonoff's Declaration, which clearly indicated that, after an “Individual creates their unique log-in password[,]" that individual “is considered an employee conditioned upon the competition of the mandatory onboarding documents and any required screening." (Tonoff Decl. ¶ 3 (emphasis added).) Director Tonoff further explained that, during the onboarding process, the employee “is also presented with documents to acknowledge and sign, including, among other items, Employment-At-Will And Arbitration Agreement.” (Id. ¶ 4.) Therefore, even though Plaintiff failed to provide support for his argument that the Agreement is an adhesive contract, Director Tonoff's Declaration supports Plaintiff's argument and thus establishes that there is “some measure of procedural unconscionability.” Roman v. Superior Ct., 172 Cal.App.4th 1462, 1470 (2009) (citing Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 115 (2000); Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1071 (2003)).
However, courts have repeatedly recognized that an adhesive contract presents only a “low” degree of procedural unconscionability absent additional allegations of surprise and duress or oppression, which are not present here. See, e.g., Davis v. Kozak, 53 Cal.App. 5th 897, 907 (2020) (quoting Serpa v. Cal. Surety Investigations, Inc., 215 Cal.App.4th 695, 704 (2013), as modified (Apr. 19, 2013), as modified (Apr. 26, 2013)); Vigueras v. Red Robin Int'l, Inc., No. SA-CV-1701422-JVS-DFM, 2019 WL 1425887, at *4 (C.D. Cal. Feb. 21, 2019) (collecting cases). Plaintiff made no additional allegations of oppression. Contrast with OTO, L.L.C., 8 Cal. 5th at 126-27. Moreover, the Court is unable to find that the Agreement surprised Plaintiff because the Agreement clearly indicates at the top that it is an “EMPLOYMENT-AT-WILL AND ARBITRATION AGREEMENTS" (Tonoff Decl. Ex. A.) Compare with, e.g., Cohen v. CBR Sys., Inc., 625 F.Supp.3d 997, 1003 (N.D. Cal. 2022) (noting that the arbitration clause was on the first page of a four-page contract and finding that there was thus only a minimal amount of procedural unconscionability arising from the adhesive nature of the contract). Furthermore, the Court is unable to find that the Agreement surprised Plaintiff because the Agreement included an additional disclaimer at the end before the signature section. (Tonoff Decl. Ex. A). Compare with, e.g., Cristo v. Charles Schwab Corp., No. 17-CV-1843-GPC-MDD, 2018 WL 1737544, at *6-7 (S.D. Cal. Apr. 11, 2018) (citing Serpa, 215 Cal.App.4th at 703; Molina v. Scandinavian Designs, Inc., No. 13-CV-04256 NC, 2014 WL 1615177, at *7 (N.D. Cal. Apr. 21,2014)) (finding that, although the font size was tiny, it was similar to the size of the font for the rest of the agreement and that there was a bolded arbitration provision located right above the signature line of the application, therefore concluding that there was only a minimal amount of procedural unconscionability arising from the adhesive nature of the contract).
Therefore, Plaintiff only establishes a “low” amount of procedural unconscionability that arises solely from the adhesive nature of the contract. See, e.g., Dhaliwal v. Ace Hardware Corp., No. 2:22-CV-00446-DAD-KJN, 2023 WL 2555471, at *6-7 (E.D. Cal. Mar. 17, 2023) (finding only a “slight degree of procedural unconscionability” where the agreement was adhesive, failed to attach the incorporated rules, was two pages long, clearly labeled “ARBITRATION” and included a disclosure at the end by the signature line (citation omitted)).
2. Substantive Unconscionability
Because Plaintiff made no additional arguments regarding the procedural unconscionability of the Agreement, the Court must find a corresponding high amount of substantive unconscionability to find the contract is unconscionable overall and thus unenforceable. See OTO, L.L.C., 8 Cal. 5th at 130 (quoting Carmona v. Lincoln Millennium Car Wash, Inc., 226 Cal.App.4th 74, 85 (2014)). Plaintiff does not meet this burden. See Armendariz, 24 Cal.4th at 102-03.
As an initial matter, the Court notes that Andy Frain appears to have copied from the arbitration agreement that was challenged in Little, 29 Cal.4th at 1069-70, 1073-76, except for a “one-sided arbitration appeal” clause that the California Supreme Court held was substantively unconscionable. The California Supreme Court found that the agreement was only procedurally unconscionable to the extent the contract was adhesive. Therefore, Plaintiff faces an uphill battle in establishing the substantive unconscionability of the arbitration agreement.
California courts “often look to whether the [arbitration] agreement meets a minimum level of fairness based on the factors set forth in Armendariz." Davis, 53 Cal. App. 5th at 910 (citing Wherry v. Award, Inc., 192 Cal.App.4th 1242, 1248 (2011)); see, e.g., Murrey v. Superior Ct., 87 Cal.App. 5th 1223, 1248 (2023). Courts look to whether the agreement: (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award that permits limited judicial review, (4) provides for all of the types of relief that would otherwise be available in court, and (5) requires the employer to pay the arbitrator's fees and costs unique to arbitration. Murrey, 87 Cal.App. 5th at 1248 (citing Armendariz, 24 Cal.4th at 102-03). Elimination of or interference with any of these basic provisions makes an arbitration agreement substantively unconscionable. Wherry, 192 Cal.App.4th at 1248.
Plaintiff contends that the Agreement fails on all five factors courts consider under Armendariz. (See Opp'n at 2-3.) However, as Andy Frain Services notes, most of Plaintiff's arguments fail because Plaintiff failed to recognize that the Agreement incorporated the rules of the California Arbitration Act (“CAA”), codified at California Code of Civil Procedure section 1280, et. seq., which provide relevant default or backstop rules to fill in the absences about which Plaintiff complains. (See Reply at 1 -3.)
For instance, although Plaintiff complains that there is no way to designate an arbitrator and that, theoretically, Andy Frain Services could continually hold out to prevent any arbitrator from being selected by mutual agreement (see Opp'n at 2), the CAA provides that, should the method agreed to by the parties fail for whatever reason, upon petition by a party, a court may appoint a neutral arbitrator, and provides the steps for so doing. See Cal. Civ. Proc. Code § 1281.6. Plaintiff also ignores the fact that the Agreement includes both the mandatory and discretionary discovery procedures provided for in the CAA. (See Reply at 2; Tonoff Decl. Ex. A (“Both I and the Company agree that any claim . . . shall be submitted to and determined by binding arbitration under the [FAA], in conformity with the procedures of the [CAA] . . . including section 1283.05 and all of the Act's other mandatory and permissive rights to discovery[ ].”).) The CAA also provides for a right of appeal. (See Reply at 3.) See Cal. Civ. Proc. Code §§ 1294(b)-(d); 1294.2. And the CAA has provisions on awarding costs and avoiding fees. (See Reply at 3.) See Cal. Civ. Proc. Code §§ 1281.97-1281.99. See Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1268 (9th Cir. 2017) (noting that where a clause was consistent with the relevant CAA provisions, it was not substantively unconscionable).
Plaintiff's only potential remaining argument is that the Agreement is substantively unconscionable because it does not provide for all types of relief. (See Opp'n at 3.) Plaintiff's real concern, however, appears to be a conflict-of-law issue that California's law might not apply because Andy Frain Services is domiciled in Illinois, where it is incorporated and the principal place of business is located. (See Reply at 2-3 (quoting id.); also Mot. at 1 -2 (explaining that Andy Frain Services is domiciled in Illinois and that Cohesive is domiciled in Florida).) Plaintiff's concern is overstated. The Agreement states that it will resolve the dispute based on the law governing the claims and defenses pleaded. (See Tonoff Decl. Ex. A.) Because the Agreement was drafted in California and substantially performed in California, California law should potentially govern any claim arising from the Agreement. See Cal. Civ. Code § 1646 (indicating that contracts are to be interpreted according to the law and usage of the place of performance or the place where the contract was made); Washington Mut. Bank, FA v. Superior Ct., 24 Cal.4th 906, 919-21 (2001) (discussing California's governmental-interest test for conflict of law issues where a choice-of-law provision does not govern and that would dictate California law apply if it were the forum state).
For the above-stated reasons, the Court finds that the Agreement does not “eliminate] [ ] or interfere[ ] with any of the[ ] basic provisions” that establish the minimum level of fairness for mandatory employment arbitration agreements under Armendariz. Wherry, 192 Cal.App.4th at 1248. Thus, the Agreement is not substantively unconscionable, only has a minimal amount of procedural unconscionability as a contract of adhesion, and is not overall unconscionable, therefore making the Agreement enforceable. Accordingly, the Court GRANTS Andy Frain Services's Motion and ORDERS that Plaintiff is compelled to arbitrate his individual claims against Andy Frain Services.
However, Andy Frain Services also asked that the Court compel arbitration of Plaintiff's claims against Cohesive, arguing that the Agreement applies to all named Defendants, which Plaintiff did not contest. (See Reply 4 (citing Thomas v. Westlake, 204 Cal.App.4th 605, 614-15 (2012)).) Normally, only the parties to the arbitration agreement can enforce it, see Cal. Code Civ. Proc. § 1281.2, but an exception exists where a plaintiff alleges that a defendant acted as an agent of a party to the agreement, see, e.g., Thomas, 204 Cal.App.4th at 614 (collecting cases)). Here, Plaintiff alleges that “each of the Defendants was the agent or employee of the other defendants and acted in the scope of agency or employment.” (Compl. ¶ 5.) Moreover, Plaintiff brought each cause of action “[a]gainst [a]ll Defendants[.]” (Id. ¶¶ 23, 29, 34, 38, 44, 49, 52, 55.) Thus, Cohesive falls within the exception and may enforce the arbitration clause against Plaintiff. See Thomas, 204 Cal.App.4th at 61415.
Accordingly, all of Plaintiff's individual claims are subject to arbitration.
B. Disposing of the Class, Collective, or Representative Claims.
Andy Frain Services requests that the Court dismiss the remainder of Plaintiff's claims, and Plaintiff does not object to dismissal. (See Reply 4.) The Ninth Circuit has held that a district court has the discretion to stay or dismiss a plaintiff's claims where all of the relevant claims are subject to arbitration. See Sparling v. Hoffman Const. Co., 864 F.2d 635, 638 (9th Cir. 1988) (citing Martin Marietta Aluminum, Inc. v. Gen. Elec. Co., 586 F.2d 143, 147-48 (9th Cir. 1978)). The Court has already found that Plaintiff's individual claims are subject to arbitration. That leaves open the question of how to handle Plaintiff's representative, class, and collective claims, and the Court cannot grant Andy Frain Services's request until it finds that the class or representative claims are also subject to arbitration or have been waived. The Court finds that the Agreement does not permit arbitration of the class or representative claims but instead includes an enforceable waiver of those claims.
The Agreement states that: (1) the Parties “agree to utilize binding individual arbitration[,]" (2) that “any claims brought under this binding arbitration Agreement shall be brought in the individual capacity of” the Parties and “shall not be construed to allow or permit the consolidation or joinder of other claims or controversies involving any other employees or parties, or permit such claims or controversies to proceed as a class or collective action[,]" and (3) that “[u]nder no circumstances shall this Agreement be construed to allow arbitration on a class, collective, or other similar basis." (Tonoff Decl. Ex. A.) That is clear language that the Agreement does not permit arbitration of class, collective, or representative actions. See Lamps Plus, Inc. v. Varela, 587 U.S. -, 1 39 S.Ct. 1407, 1417 (2019) (“Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself.").
Further, the Agreement states that Plaintiff “waive[d] any substantive or procedural right that [he] may have to bring or participate in an action brought on a class or collective basis." (Tonoff Decl. Ex. A.) As the California and U.S. Supreme Courts have recognized, class action or representative action waivers like the one above are enforceable. See Concepcion, 563 U.S. at 351; Iskanian v. CLS Trans. Los Angeles, LLC, 59 Cal.4th 348, 366 (2014), abrogated by Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022). And several courts in the Eastern District have enforced class action waivers that are similarly broad and vague as the one here. See, e.g., Prostek v. Lincare, Inc., 662 F.Supp.3d 1100, 1107, 1122 (E.D. Cal. Mar. 21, 2023) (enforcing an unchallenged class action waiver that stated that "[t]he Parties expressly waive any right to submit, initiate or participate in any class, collective, representative, or joint action involving any employee . . . "); Dhaliwal, 2023 WL 2555471, at *2, 9 (enforcing a challenged representative and class action waiver by dismissing the putative class claims and staying the proceedings regarding the representative claims under California's Private Attorney General Act).; Ruiz v. Conduent Com. Sols., LLC, No. 1:21-CV-1555-JLT-CDB, 2023 WL 3379300, at *2, 12 (E.D. Cal. May 11, 2023) (enforcing an unopposed representative and class action waiver that stated that, excluding disputes and cases asserted before the effective date of the agreement, “neither an Employee nor the Company may initiate or participate in a Dispute on a class, collective, or consolidated basis, or in a representative capacity on behalf of other persons or entities that are claimed to be similarly situated.”).
Therefore, the Court finds that Plaintiff's class action or collective claims should be dismissed because of the valid waiver in the Agreement. Thus, Plaintiff's only claims are the individual claims that are subject to arbitration. As a result, the Court GRANTS Andy Frain Services's motion to arbitrate and dismiss rather than arbitrate and stay because “[a]n order compelling arbitration and staying the action isn't immediately appealable, but an order compelling arbitration and dismissing the action is.” Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072, 1073 (9th Cir. 2014) (citing 9 U.S.C. § 16(a)(3), (b)(1)-(2); Green Tree Fin. Corp. - Alabama v. Randolph, 531 U.S. 79, 87 n.2, 89 (2000)).
CONCLUSION
For the reasons set forth above, the Court GRANTS Andy Frain Services, Inc.'s Motion to Compel Arbitration and Stay Proceedings Pending Arbitration (ECF No. 3). The Court hereby ORDERS that Plaintiff is compelled to arbitrate his individual claims against Andy Frain Services, Inc. and Cohesive Networks 2, Inc. Further, the Court DISMISSES Plaintiff's remaining claims under the Complaint (ECF No. 1). The Clerk of the Court is directed to close this case.
IT IS SO ORDERED.