Opinion
2:22-cv-00947 WBS DMC
01-12-2023
MARCUS TAYLOR, individually and on behalf of all those similarly situated, Plaintiff, v. TA OPERATING, LLC, a Delaware limited liability company; and DOES 1 through 50, inclusive, Defendants.
MEMORANDUM AND ORDER RE: DEFENDANT'S MOTION TO COMPEL ARBITRATION
WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE.
This is just the most recent of many cases in which the court has been called upon to determine whether an arbitration agreement between an employer and its employee is enforceable. Understandably, employers often include arbitration clauses in their written employment agreements with their employees. The fundamental value of arbitration is that it saves the time and expense of extended litigation for both sides. In the context of the employer-employee relationship (if a relationship still exists) it also serves to minimize the disruption of business and the acrimony of litigation. Parties in arbitration further benefit from the experience and expertise of an arbitrator who is a subject-matter expert rather than submitting to the uncertainties associated with a jury trial.
In this case, rather than take advantage of the arbitration provisions in his employment agreement, plaintiff Marcus Taylor seeks to pursue the more costly, time consuming, and rancorous process of litigating his employment dispute in federal court. Accordingly, he has initiated this putative class action against defendant TA Operating, LLC, alleging wage and hour violations under the California Labor Code and California Business and Professions Code. (See Compl. (Docket No. 1-1 at 519) at 2.) Defendant now moves to compel plaintiff to arbitrate his claims and seeks dismissal of the action. (Docket No. 19.)
I. Factual and Procedural Background
Defendant, an owner and operator of truck stops and convenience stores, employed plaintiff as a non-exempt assistant general manager from on or around August 16, 2021 to January 13, 2022. (Decl. of Marcus Taylor (“Taylor Decl.”) (Docket No. 21-2) ¶ 3; Decl. of Claudia Ratica (“Ratica Decl.”) (Docket No. 19-3) ¶¶ 3-4.) At the beginning of his employment with defendant, plaintiff signed a Mutual Agreement to Resolve Disputes and Arbitrate Claims (“Agreement”). (See Taylor Decl. ¶ 4; Ratica Decl. ¶ 5.)
The Agreement provides that if a dispute cannot be resolved through defendant's internal grievance process, it must be arbitrated. (Ex. B to Ratica Decl. (“Agreement”) (Docket No. 19-3 at 14-26) at 1.) Pursuant to the Agreement, defendant will pay all arbitration fees. (Id. at 3.) Defendant will not, however, pay associated costs including attorneys' fees and costs incurred in responding to discovery (though the arbitrator can award such costs and fees in his decision). (Id. at 3-4.) The Agreement provides that employees waive the right to bring class or collective claims and the right to a jury trial in the event the Agreement is found unenforceable. (Id. at 4.) A choice of law provision states that disputes regarding enforceability of the Agreement will be determined under Delaware law, while the substance of the claim will be governed by California law. (Id.) The Agreement also contains a delegation clause, which provides that “all challenges to the interpretation or enforceability of any provision of this Agreement shall be brought before the arbitrator, and the arbitrator shall rule on all questions regarding the interpretation and enforceability of this Agreement.” (Id. at 4.)
Defendant previously moved to compel arbitration in two cases that involved the precisely same Agreement. In Chandler v. TA Operating LLC, Judge Troy L. Nunley granted defendant's motion to compel arbitration, finding that the delegation clause was enforceable, and that even if the delegation clause was unconscionable, the Agreement as a whole was not. No. 2:20-cv-02091 TLN DMC, 2022 WL 597581, at *2 (E.D. Cal. Feb. 28, 2022).
While these district court decisions involved the same arbitration agreement, they are not binding on this court.
In Holley-Gallegly v. TA Operating LLC, Judge Jesus G. Bernal reached a different result and denied defendant's motion to compel arbitration, finding that the Agreement--including the choice of law and waiver of jury trial provisions--was unconscionable and therefore the delegation clause was unenforceable. See No. EDCV-22-593 JGB SHK, 2022 WL 9959778, at *3-5 (C.D. Cal. Sept. 16, 2022).
II. Discussion
The parties do not dispute that the Federal Arbitration Act (“FAA”) governs the instant Agreement. (See Def.'s Mem. in Supp. of Mot. to Compel (“Def.'s Mem.”) (Docket No. 19-1) at 10; Pl.'s Opp'n (Docket No. 21) at 9.) The FAA provides that a written provision in a “contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Because arbitration is a matter of contract, “the central . . . purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (internal quotation marks omitted). See also Perry v. Thomas, 482 U.S. 483, 490 (1987) (under the FAA, arbitration agreements “must be rigorously enforced”) (internal quotation marks omitted, alterations adopted).
The FAA “leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). “[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is a construction of the contract language itself or an allegation of waiver, delay, or like defense to arbitrability.” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983); see also Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1259 (9th Cir. 2017).
Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. See Cohen v. Wedbush, Noble Cooke, Inc., 841 F.2d 282, 285 (9th Cir. 1988). “[T]he FAA limits courts' involvement to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal quotation marks omitted). Ordinarily, courts may “refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.'” Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1622 (2018) (quoting 9 U.S.C. § 2). Such “generally applicable contract defenses” include fraud, duress, or unconscionability, as determined by state law. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 340 (2011).
Defendant seeks to compel arbitration not only of the underlying wage and hour claims, but also the threshold issue of whether those claims are subject to arbitration under the Agreement. (See Def.'s Mem.) Plaintiff argues that he cannot be compelled to arbitrate because both the Agreement and the delegation clause are unconscionable and therefore unenforceable. (See Pl.'s Opp'n at 16-18.)
A. Plaintiff's Substantive Unconscionability Arguments Lack Merit
“Unconscionability has both a ‘procedural' and a ‘substantive' element.” Armendariz v. Found. Health Psychcare Servs., 24 Cal.4th 83, 114 (2000). “Both [must] be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” Id. However, “they need not be present in the same degree.” OTO, LLC v. Kho, 8 Cal. 5th 111, 125 (2019). “A procedural unconscionability analysis begins with an inquiry into whether the contract is one of adhesion.” Id. at 126. “A substantive unconscionability analysis examines the fairness of a contract's terms.” Id. at 129. The concern is with “terms that are unreasonably favorable to the more powerful party.” Id. at 130.
Plaintiff first contends that the entire agreement is procedurally unconscionable because it was a condition of employment and plaintiff had no opportunity to negotiate the terms. (Pl.'s Opp'n at 10-11.) Under these circumstances, the Agreement is a contract of adhesion. See Armendariz, 24 Cal.4th at 115 (finding that arbitration agreement that was “imposed on employees as a condition of employment” with “no opportunity to negotiate” was adhesive); OTO, LLC, 8 Cal. 5th at 126 (“Arbitration contracts imposed as a condition of employment are typically adhesive.”).
However, because “adhesion establishes only a ‘low' degree of procedural unconscionability,” Davis v. Kozak, 53 Cal.App. 5th 897, 907 (2020), plaintiff must demonstrate a high level of substantive unconscionability. See Poublon, 846 F.3d at 1261 (“if an employee must sign a non-negotiable employment agreement as a condition of employment but there is no other indication of oppression or surprise, then the agreement will be enforceable unless the degree of substantive unconscionability is high”) (internal quotation marks and citations omitted); Armendariz, 24 Cal.4th at 114 (“the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa”).
Plaintiff next argues that the Agreement is so permeated by substantive unconscionability that it is unenforceable in its entirety. (Pl.'s Opp'n at 16.) In response to the court's request, counsel for plaintiff has provided a list of each of the provisions of the Agreement that plaintiff contends is substantively unconscionable. Specifically, plaintiff argues that the following provisions are unconscionable: (1) the waiver of jury trial, (2) the scope of the arbitrator's ability to award attorneys' fees and costs to the prevailing party, (3) the allocation of attorneys' fees and costs between the parties, (4) the limitations on discovery, (5) the requirement that plaintiff decide at the beginning of arbitration whether to be represented by a lawyer, and (6) the choice of Delaware law.
One can understand how an attorney who wants to turn the plaintiff's claims into a class action would prefer to litigate those claims in court. But it is hard to understand how any reasonable employee could really think any of these provisions, individually or collectively, are unconscionable or unfair. Although it is not necessary to this decision, the court will discuss each of the assailed provisions in turn.
i. Waiver of Jury Trial
The term at issues provides: “IF THIS AGREEMENT IS DETERMINED TO BE UNENFORCEABLE ANY CLAIMS BETWEEN YOU AND THE COMPANY RELATED TO YOUR EMPLOYMENT SHALL BE SUBJECT TO A NON-JURY TRIAL.” (Agreement at 5.) This term would apply only if arbitration were not compelled; as defendant points out, if arbitration is compelled, the provision will be moot. (Def.'s Reply Mem. (Docket No. 23 at 2-12) at 2.) As a result, this term is not relevant to whether the arbitration agreement is unconscionable.
Even if this term were unconscionable, it could be easily severed and thus would not warrant finding the entire agreement unconscionable. See Armendariz, 24 Cal.4th at 121122, 125 (courts should typically sever unconscionable provisions, but can decline to do so and instead find an entire contract unconscionable where it is so “permeated by an unlawful purpose” that a court would be unable to “remove the unconscionable taint from the agreement” by severing a specific provision).
Further, plaintiff has not demonstrated that the waiver of jury trial, if unconscionable, was a “‘deliberately illegal'” provision “drafted in bad faith” such that severance would be inappropriate. See Lim v. TForce Logistics, LLC, 8 F.4th 992, 1005-06 (9th Cir. 2021) (quoting Armendariz, 24 Cal.4th at 124 n.13).
ii. Recovery of Costs and Attorneys' Fees
The Agreement provides:
The arbitrator may award reasonable attorneys' fees and expenses only if expressly required by an applicable statute or law. In the absence of such an express requirement, the arbitrator may award attorneys' fees and expenses to either party only if the arbitrator determines that a failure to award attorneys' fees and expenses would be unconscionable under applicable law.(Agreement at 3-4.)
This provision mirrors the “American Rule,” according to which “attorneys' fees are not ordinarily recoverable by the prevailing litigant in federal litigation in the absence of statutory authorization.” Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 240 (1975); see also Bird v. Oregon Comm'n for the Blind, 22 F.4th 809, 815 (9th Cir. 2022), cert. denied sub nom. Bird v. Oregon Comm'n for Blind, No. 211583, 2022 WL 4652118 (U.S. Oct. 3, 2022). If this provision were unconscionable, so would be the practice in most courts across the United States.
Absent statutory authorization, federal courts may award attorneys' fees only when “overriding considerations of justice seem to compel such a result” under an established exception. Dir., Off. of Workers' Comp. Programs, U.S. Dep't of Lab. v. Robertson, 625 F.2d 873, 879 (9th Cir. 1980) (internal quotation marks and citation omitted). California law similarly applies the American Rule. See Cal. Civ. Proc. Code § 1021.
Plaintiff has not cited any authority indicating that a more permissive standard concerning attorneys' fees should apply in arbitration than would apply in federal or state court.
At any rate, the labor laws underlying plaintiff's claims do require that an employer pay a prevailing employee's attorneys' fees. See Compl.; Cal. Lab. Code §§ 218.5, 226. If plaintiff prevails at arbitration, the arbitrator will be required to award attorneys' fees in accordance with the California statutes applicable to plaintiff's substantive claims.
iii. Allocation of Costs and Attorneys' Fees
The first paragraph at issue provides:
The Company will pay 100% of the Arbitration Firm's fees as well as the arbitrator's fees and expenses. The Company also will pay (or reimburse you) for 100% of any filing fees that the Arbitration Firm may charge to initiate arbitration. Each party shall otherwise bear its own costs and fees associated with the arbitration including, but not limited to, attorneys' fees and the costs and fees of responding to discovery requests.(Agreement at 3.)
The court is baffled how counsel can even suggest that this paragraph is unconscionable. It actually favors the employee in that it allocates all arbitration fees to the employer. Although the employee is otherwise responsible for his own attorney's fees and costs, it is standard for parties, whether in arbitration or in litigation, to bear such expenses. This provision is therefore not unconscionable. See Lim, 8 F.4th at 1002 (“substantive unconscionability exists when a feeshifting clause creates for employees a greater financial risk in arbitrating claims than they would face if they were to litigate those same claims in federal court”) (internal quotation marks omitted).
And contrary to the Holley-Gallegly court's assertion that this provision leads to “large, fixed, forum costs” that serve to deter employees from vindicating their rights, see 2022 WL 9959778, at *5 (citing Armendariz, 24 Cal.4th at 1110), this provision allocates all direct fees required to initiate and carry out the arbitration process (i.e., forum costs) to the employer (see Agreement at 3).
Further, the Agreement allows the arbitrator to award costs and fees to a prevailing employee, as discussed above. The Agreement therefore does not limit plaintiff's ability to recover attorneys' fees under the California Labor Code and is not unconscionable on that basis. Cf. Armendariz, 24 Cal.4th at 103-04 (finding arbitration provision unconscionable because it actually precluded remedies that were otherwise made available to the plaintiff by statute); Serafin v. Balco Properties Ltd., LLC, 235 Cal.App.4th 165, 183 (2015) (same); Serpa v. California Sur. Investigations, Inc., 215 Cal.App.4th 695, 709 (2013), as modified (Apr. 19, 2013), as modified (Apr. 26, 2013) (same).
The next provision at issue states:
The Company agrees that if it prevails at the arbitration it shall not seek or pursue from you any of the costs it incurred in connection with the arbitration. This waiver shall not apply to other employees or supervisors who may be individually accused in the grievance.(Agreement at 4.) Again, this provision is actually favorable to plaintiff; and contrary to plaintiff's argument that the provision somehow threatens the employee with burdensome costs, it merely states that the waiver does not apply to individuals who are not parties to the Agreement. This provision is therefore clearly not unconscionable, and the court cannot understand how plaintiff could even argue that it is.
iv. Discovery Limitations
The paragraph at issue provides in relevant part:
Except as provided in this paragraph, the arbitration shall be conducted in accordance with [National Arbitration and Mediation (“NAM”)]'s then current rules for the resolution of employment disputes . . . It will not be necessary to conduct pre-hearing discovery, but either you or the Company may do so. If either party elects to conduct prehearing discovery, each party shall be allowed only up to five (5) interrogatories, including subparts, five (5) requests for production, including sub-parts, and two (2) depositions. Electronic discovery will be limited to searches of e-mail accounts of no more than two (2) addresses for a twelve month period (or any shorter period for which e-mails are retained in the ordinary course) and a maximum of five (5) search terms or phrases will be permissible.(See Agreement at 2-3.)
The NAM Employment Rules and Procedures (“NAM Rules”), incorporated by reference, provide for mandatory initial disclosures of “all documents . . . upon which [the parties] rely in support of their claims or defenses” within fourteen days of the appointment of the arbitrator, with a continuing obligation to supplement discovery. (Ex. D to Ratica Decl. (Docket No. 19-3 at 28-44) at 6.) The NAM Rules then numerically limit discovery to 20 interrogatories, 30 requests for production, and 3 depositions. (Id.) A separate subsection of the NAM Rules titled “Additional Discovery” states that the arbitrator may permit discovery in excess of the enumerated limits upon a showing of “substantial need.” (Id. at 7.)
The paragraph at issue in the Agreement explicitly provides limits on the number of interrogatories, requests for production, depositions, and electronic discovery searches, which would override the numerical limits provided by the NAM Rules. (See Agreement at 3.) Because the Agreement is silent on initial disclosures and additional discovery, the remaining NAM provisions--requiring initial disclosures and permitting additional discovery upon a showing of substantial need--apply. (See id.)
The court first notes that if plaintiff were allowed to litigate his claims in this court, he could also expect limitations to be placed upon discovery. There is nothing unusual or unfair about that. That is what Rule 26(b) of the Federal Rules of Civil Procedure is all about.
Discovery limitations are also common in arbitration agreements. Under Armendariz, parties in arbitration are “entitled to ‘adequate,' not unlimited, discovery.” Torrecillas v. Fitness Int'l, LLC, 52 Cal.App. 5th 485, 498 (2020) (quoting Armendariz, 24 Cal.4th at 105-06). “The fact that an arbitration may limit a party's discovery rights is not ‘substantive unconscionability.' If it were, every arbitration clause would be subject to an unconscionability challenge on that ground.” Coast Plaza Doctors Hosp. v. Blue Cross of Cal., 83 Cal.App.4th 677, 689-90 (2000)).
In evaluating discovery limitations in arbitration agreements, California courts “balance the ‘desirable simplicity' of limiting discovery with employees' need for discovery ‘sufficient to adequately arbitrate their statutory claim'” by “look[ing] to the amount of discovery permitted, the standard for obtaining additional discovery, and the evidence presented by plaintiffs that the discovery limitations will prevent them from adequately arbitrating their statutory claims.” Poublon, 846 F.3d at 1270 (quoting Armendariz, 24 Cal.4th at 106).
As explained above, the instant agreement requires initial disclosures with an ongoing duty to supplement discovery; limits the parties to five interrogatories, five requests for production, and two depositions; and permits additional discovery upon a showing of substantial need. Courts have determined that comparable discovery provisions are not unconscionable. See, e.g., Poublon, 846 F.3d at 1271 (discovery provision that required disclosure of relevant documents, limited parties to three depositions with zero requests for production and interrogatories, and permitted additional discovery upon showing of “good cause” was not unconscionable); Torrecillas, 52 Cal.App. 5th at 497-98 (discovery provision that required initial disclosures, limited parties to five depositions, twenty interrogatories, and zero requests for documents, and permitted additional discovery upon showing of “substantial need” was not unconscionable); Sanchez v. Carmax Auto Superstores Cal., LLC, 224 Cal.App.4th 398, 404 (2014) (discovery provision that required initial disclosure of relevant documents with a continuing obligation to supplement discovery, limited parties to three depositions, 20 interrogatories, and zero requests for production, and permitted additional discovery on showing of “substantial need” was not unconscionable). Cf. Fitz v. NCR Corp., 118 Cal.App.4th 702, 716 (2004) (discovery limitation was unconscionable because it did not permit additional discovery unless the parties could “demonstrate that a fair hearing would be impossible without additional discovery”) (emphasis in original).
Plaintiff has not “establish[ed] as a factual matter that the discovery provisions [a]re inadequate to vindicate [his] statutory rights,” which further weighs against finding the discovery provisions unconscionable. See Baxter v. Genworth N. Am. Corp., 16 Cal.App. 5th 713, 729 (2017) (citing Sanchez, 224 Cal.App.4th at 404-05, and Mercuro v. Superior Ct., 96 Cal.App.4th 167, 183 (2002)); see also Poublon, 846 F.3d at 1271. The discovery provisions at issue are therefore not unconscionable.
v. Requirement that Plaintiff Decide Whether to Be Represented by Counsel At Beginning of Arbitration
The provision at issue states:
If you initiate the arbitration, the decision whether to use a lawyer must be made at the time that arbitration is initiated. If the Company initiates the arbitration, your decision whether to use a lawyer must be made within twenty (20) calendar days after your receipt of notice that the Company has initiated arbitration.(Agreement at 3.)
Plaintiff argues that this provision unconscionably limits plaintiff's right to representation (but cites no on-point authority). To the contrary, the Agreement does not limit plaintiff's ability to be represented by counsel of his own choosing, but rather only requires plaintiff to decide whether to be represented by counsel towards the beginning of the arbitration process. (Id.) And as defendant points out, this provision also states that “if you elect not to use a lawyer at arbitration, then the Company will not use a lawyer either.” (Id.) This portion of the Agreement seems intended to ensure that neither party has the unfair advantage of being represented by counsel while the other is not.
While plaintiff argues that the time limitation on deciding whether to be represented is unconscionable, he has not identified (nor has the court found) any authority supporting that proposition. To the contrary, the lone case cited by plaintiff provides that “[b]ecause the rules of evidence and judicial procedure do not apply to arbitration proceedings absent the parties' agreement, arbitration procedures violate the common law right to a fair hearing only in the clearest of cases, i.e., when the applicable procedures essentially preclude the possibility of a fair hearing.” Hoso Foods, Inc. v. Columbus Club, Inc., 190 Cal.App.4th 881, 888-89 (2010) (internal quotation marks and alteration omitted).
The requirement that the plaintiff elect whether to be represented near the beginning of the arbitration process clearly does not preclude the possibility of a fair hearing. The court thus sees no reason to conclude that this provision is unconscionable.
vi. Choice of Law Provision
The choice of law provision states:
The law of the jurisdiction in which you are primarily employed will govern the substance of your grievance. However, all disputes regarding the enforcement of this Agreement, any of the provisions of this Agreement or whether a party's claim is subject to this Agreement shall be determined in accordance with the law of the State of Delaware.(Agreement at 4.)
California has a “strong policy favoring enforcement of [choice of law] provisions.” Nedlloyd Lines B.V. v. Superior Ct., 3 Cal.4th 459, 464-65 (1992). Under California law, courts determining the enforceability of a choice of law provision first ask whether “(1) the chosen state has a substantial relationship to the parties or their transaction,” or “(2) there is any other reasonable basis for the parties' choice of law.” Id. at 466. “If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties' choice of law.” Id. Where either test is met, the court proceeds to the second step and “determine[s] whether the chosen state's law is contrary to the fundamental policy of California.” Id. If there is no conflict of this nature, the choice of law provision must be enforced. Id.
Here, there is both a substantial relationship with Delaware and a reasonable basis for the choice of Delaware law, as defendant is incorporated in that state. See Consul Ltd. v. Solide Enterprises, Inc., 802 F.2d 1143, 1147 (9th Cir. 1986) (“If one of the parties resides in the chosen state, the parties have a reasonable basis for their choice.”); Nedlloyd, 3 Cal.4th at 467 (a “substantial relationship [is] present when ‘one of the parties is domiciled' in the chosen state”) (quoting Restatement (Second) of Conflict of Laws § 187, cmt. F (Am. Law Inst. 1971)).
The inquiry next turns to whether Delaware law contradicts a fundamental policy of California. Only disputes regarding the enforceability of the Agreement will be governed by Delaware law. (Agreement at 4.) Accordingly, only California policies relating to contract interpretation and arbitration are relevant here. There does not appear to be any relevant conflict between California and Delaware law, as both states have strong policies favoring arbitration. See Armendariz, 24 Cal.4th at 97 (“California law, like federal law, favors enforcement of valid arbitration agreements.”); Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396 (Del. 2010) (“The public policy of Delaware favors arbitration.”). While plaintiff points out that the Armendariz decision does not apply in Delaware, he fails to identify any provision of Delaware law that is in tension with a fundamental California policy. The court therefore declines to find the choice of law provision unenforceable.
B. Plaintiff Does Not Specifically Challenge the Delegation Clause
Most importantly here, even if the unconscionability arguments discussed above had merit, the court would nonetheless be required to compel arbitration based on the delegation clause. “Although gateway issues of arbitrability presumptively are reserved for the court, the parties may agree to delegate them to the arbitrator.” Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011) (citing Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-70 (2010)). Courts may “assume that the parties agreed to arbitrate arbitrability” only if “there is clear and unmistakable evidence that they did so.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 531 (2019) (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). An “express agreement” to arbitrate arbitrability, evinced by a contract's “language[ ] delegating to the arbitrators the authority to determine the validity or application of any of the provisions of the arbitration clause,” constitutes clear and unmistakable evidence. Momot, 652 F.3d at 988 (citations omitted).
Where an express delegation provision exists, unless a party opposing enforcement of the agreement “challenge[s] the delegation provision specifically, [courts] must treat it as valid . . ., leaving any challenge to the validity of the Agreement as a whole for the arbitrator.” Rent-A-Center, 561 U.S. at 72 (emphasis added). A party may challenge a delegation provision using “generally applicable contract defenses,” including unconscionability. Concepcion, 563 U.S. at 339. See also Brennan v. Opus Bank, 796 F.3d 1125, 1133 (9th Cir. 2015) (party challenging arbitration agreement on unconscionability grounds must do so specifically with respect to delegation provision to resist enforcement thereof) (citing Rent-A-Center, 561 U.S. at 73-75).
Some California courts have taken a similar approach to determining the enforceability of delegation clauses. See Malone v. Superior Ct., 226 Cal.App.4th 1551, 1559 (2014) (citing Bruni v. Didion, 160 Cal.App.4th 1272, 1287 (2008)) (“courts have treated the delegation clause as a separate agreement to arbitrate solely the issues of enforceability . . . thus, it has been held that whether the arbitration agreement as a whole is ultimately held to be unenforceable will have no bearing on the enforcement of the delegation clause itself”).
Under Rent-A-Center, arguments that an agreement “as a whole is unconscionable under state law” are not relevant to a court's determination of whether a delegation clause is enforceable. See 561 U.S. at 75 (emphasis in original). Plaintiff's arguments concerning the waiver of jury trial and limitation on the arbitrator's ability to award fees and costs are inapposite, as arguments concerning the unfairness of provisions other than the delegation clause are not relevant to the court's determination of the delegation clause's enforceability. See id. at 73 (rejecting argument that agreement's coverage was one-sided as it required arbitration of only employee's claims, because that argument “clearly did not go to the validity of the delegation provision”).
The remaining arguments concerning allocation of fees and costs, discovery limits, and obtaining counsel likewise do not go to the court's determination of the delegation clause's enforceability. While arbitration procedures--for example feesplitting arrangements or limitations on discovery--may apply equally to the delegation clause, plaintiff must argue that those provisions are unconscionable as applied to the delegation clause. Id. at 73-75; see also Lim, 8 F.4th at 1003 (holding that delegation clause was unenforceable because cost-splitting, fee-shifting, and venue selection provisions were unconscionable “as applied to the delegation clause”).
Plaintiff only makes one argument that is somewhat specific to the delegation clause. He contends that because the delegation clause is “embedded in the same paragraph” as the choice of law and waiver of jury trial provisions (which he argues are unconscionable), the delegation clause is also unconscionable. (See Pl.'s Opp'n at 18.) This argument fails for the same reasons discussed above, as it goes to the substantive unconscionability of provisions other than the delegation clause. See Rent-A-Center, 561 U.S. at 72.
This argument also fails on the merits. Even if the choice of law and waiver of jury trial provisions were substantively unconscionable, it is not clear that their proximity alone can render the delegation clause unenforceable. See Nalbandyan v. CitiBank, N.A., No. LA-cv-15-09302 JAK KK, 2022 WL 2783839, at *10 (C.D. Cal. June 13, 2022) (explaining that merely being in the same paragraph as an unconscionable burden shifting provision did not render the damage limitation provision at issue unconscionable); Lim v. Transforce, Inc., No. LA 19 04390 JAK AGR, 2020 WL 10728663, at *11 (C.D. Cal. Apr. 27, 2020), aff'd sub nom. Lim, 8 F.4th 992 (9th Cir. 2021) (stating that different substantive unconscionability analyses applied to two provisions in the same paragraph).
Plaintiff only cites Holley-Gallegly for the proposition that being in the same paragraph as a purportedly unconscionable waiver of jury trial renders the delegation clause unconscionable. (Pl.'s Opp'n at 18.) The Holley-Gallegly court, however, cited no authority for that proposition and focused its analysis exclusively on the waiver of jury trial provision. See 2022 WL 9959778, at *4-5. The court merely pointed out that “[t]he delegation clause is not an independent paragraph within the Agreement; it is the second sentence of a paragraph titled ‘Applicable Law and Construction/Waiver of Jury Trial,'” but provided no explanation of the relevance of this fact. See Id. at *4.
With respect to the choice of law provision, as the Chandler court noted, multiple California courts in the Ninth Circuit have enforced delegation clauses with similar choice of law provisions. See Chandler v. TA Operating LLC, No. 2:20-cv-2091 TLN DMC, 2022 WL 597581, at *2 (E.D. Cal. Feb. 28, 2022). And as discussed above, the court concludes that the choice of law provision here is not unenforceable, and therefore does not affect the delegation clause's enforceability.
The Chandler court cited two cases: Norris v. Aon PLC, No. 21-cv-00932 CRB, 2021 WL 1238303, at *7 (N.D. Cal. Apr. 2, 2021), reconsideration denied, No. 21-cv-00932 CRB, 2021 WL 1873098 (N.D. Cal. May 10, 2021) (holding choice of law provisions were “not grounds for invalidating the delegation clause” because “the delegation clause is an independent agreement to have an arbitrator decide gateway arbitrability issues, separate from the relevant choice-of-law provisions”); and Wainwright v. Melaluca, Inc., No. 2:19-cv-02330 JAM DB, 2020 WL 417546, at *2-4 (E.D. Cal. Jan. 27, 2020), aff'd, 844 Fed.Appx. 958 (9th Cir. 2021) (analyzing choice of law provision and that presence of foreign-state choice of law clause did not render delegation clause unconscionable).
Thus, even though the court rejects plaintiff's arguments concerning the Agreement's substantive unconscionability, it must grant the motion to compel for a more fundamental reason: plaintiff has failed to adequately challenge the delegation clause specifically, and the court does not see a reason to conclude that the delegation clause is unconscionable. See Rent-A-Center, 561 U.S. at 73-75.
Having found that the delegation clause is enforceable, the court will order the parties to arbitrate their dispute-including gateway issues of arbitrability--in accordance with their agreement to do so. See Stolt-Nielsen, 559 U.S. at 682; Dean Witter Reynolds, 470 U.S. at 218; Momot, 652 F.3d at 987-88.
The court will not, however, dismiss the action as defendant requests. Plaintiff requested a stay in lieu of dismissal (Pl.'s Opp'n at 2), a request the court must honor. See 9 U.S.C. § 3 (where the court is “satisfied that the issue delegation clause separately and upholding delegation clause because the “contract clearly and unmistakably delegated questions related to the scope and enforceability of the arbitration agreement to an arbitrator”).
Multiple other decisions have similarly enforced delegation clauses in arbitration agreements with choice of law provisions. See, e.g., Ratajesak v. New Prime, Inc., No. SA cv-18-9396 DOC AGR, 2019 WL 1771659, at *6-7 (C.D. Cal. Mar. 20, 2019) (holding that choice of law provision did not render delegation clause unconscionable because it did not prevent arbitrator from determining enforceability of the choice of law provision itself); Gountoumas v. Giaran, Inc., No. cv-18-7720 JFW PJW, 2018 WL 6930761, at *8 (C.D. Cal. Nov. 21, 2018) (holding involved in [a] suit or proceeding is referable to arbitration under [an arbitration] agreement,” it “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement”). Accordingly, the court will stay the action pending arbitration.
IT IS THEREFORE ORDERED that defendant's motion to compel arbitration (Docket No. 19-1) be, and the same hereby is, GRANTED. IT IS FURTHER ORDERED that this case is STAYED pending arbitration.
To the extent that the parties request that the court take judicial notice of the existence of the Holley-Gallegly order (Docket No. 21-1) and defendant's notice of appeal of the Holley-Gallegly order (Docket No. 22), the requests are GRANTED. See Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998). However, those documents do not ultimately affect the court's conclusions.
The Clerk shall close this file administratively, subject to it being reopened upon the application of either party after arbitration has been fully completed.