Caviani v. Mentor Graphics Corporation

• Court: District Court, N.D. California
• Decided: September 18, 2019
• Docket: 3:19-cv-01645
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 RON CAVIANI, Case No. 19-cv-01645-EMC

8 Plaintiff, ORDER GRANTING DEFENDANT’S 9 v. MOTION TO COMPEL ARBITRATION AND STAY 10 MENTOR GRAPHICS CORPORATION, PROCEEDINGS 11 Defendant. Docket No. 24

12 13 14 Plaintiff Ron Caviani filed suit in Alameda County superior court alleging various FEHA 15 discrimination claims. Defendant Mentor Graphics removed to federal court. Docket No. 1. The 16 parties exchanged multiple meet-and-confer correspondences regarding the enforceability of an 17 arbitration agreement. Pending before the Court is Defendant’s motion to compel arbitration and 18 to stay proceedings (“Mot.”). Docket No. 24. 19 I. BACKGROUND 20 The parties do not dispute most facts. Defendant extended an offer of employment to 21 Plaintiff on June 18, 2008; he signed the following day. Mot. at 2; Opp. at 4. Plaintiff began 22 working on June 26, 2008, and he signed the at-issue arbitration agreement (“Agreement”) on June 23 30, 2008. Mot. at 2; Opp. at 4. The Agreement is one page, and its “Final and Binding 24 Arbitration” clause reads as follows:

25 All Disputes shall be submitted to and resolved by final and binding arbitration. The arbitration will be conducted under the rules and 26 procedures of JAMS (formerly known as Judicial Arbitration & Mediation Services, Inc.) or its successor, before a mutually agreed 27 upon neutral arbitrator selected in accordance with the JAMS responsible for its own attorney’s fees and other costs, fees and 1 disbursements incurred. The arbitration will be held in the state and county in which you are/were employed. 2 3 Declaration of Sandy Bradshaw in Support of Defendant’s Motion to Compel Arbitration 4 (“Bradshaw Decl.”), Ex. D. 5 The parties dispute whether Defendant included the Agreement with the initial offer letter. 6 Reply at 6; Opp. at 6. The parties also dispute the characterization of Plaintiff’s transition into a 7 new role with Defendant in 2012 when he received a promotion from inside sales representative to 8 territory account manager. Defendant contends it was an internal transfer that maintained the 9 parties’ preexisting employment relationship and agreement to arbitrate all claims. Mot. at 4. 10 Plaintiff argues it was an entirely new employment offer in which Defendant did not provide a 11 new agreement to arbitrate. Opp. at 4. Plaintiff never signed the 2012 letter; Defendant does not 12 dispute this. Id. Defendant terminated Plaintiff in 2017. Defendant brought this motion to 13 compel arbitration. 14 II. LEGAL STANDARD 15 Arbitration agreements are “valid, irrevocable, and enforceable” under the Federal 16 Arbitration Act. 9 U.S.C. § 2. Section 2, however, “permits arbitration agreements to be declared 17 unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract.’ 18 This saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable 19 contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only 20 to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” 21 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339–40 (2011) (quoting Doctor's Associates, 22 Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). “By its terms, the [FAA] leaves no place for the 23 exercise of discretion by a district court, but instead mandates that district courts shall direct the 24 parties to proceed to arbitration.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). 25 Plaintiff bears the burden of showing that an arbitration agreement should not be enforced. Green 26 Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000). 27 Under California law, for a party to claim a contract is unconscionable, it must show that it 1 5909710, at *3 (N.D. Cal. Oct. 11, 2016). “A sliding scale is applied so that the more 2 substantively oppressive the contract term, the less evidence of procedural unconscionability is 3 required to come to the conclusion that the term is unenforceable, and vice versa.” Serafin v. 4 Balco Props. Ltd., LLC, 235 Cal. App. 4th 165, 178 (2015). When evaluating procedural 5 unconscionability, courts focus on oppression or surprise that results from unequal bargaining 6 power; while evaluating substantive unconscionability, courts are more concerned with overly 7 harsh or one-sided results. Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1133 (2013). 8 III. DISCUSSION 9 Plaintiff challenges enforcement in three ways: (1) Plaintiff contends there is no valid 10 Agreement because of formation defects; (2) the Agreement is substantively unconscionable; and 11 (3) the Agreement is procedurally unconscionable. Defendant responds by arguing that it has 12 demonstrated the existence of an arbitration agreement by a preponderance of the evidence, and 13 that the parties clearly and unmistakably delegated arbitrability of the Agreement to the arbitrator. 14 A. Formation of Arbitration Agreement 15 Plaintiff makes two formation arguments. First, he contends he did not agree to arbitrate 16 his claims because at the time he signed his offer of employment, it did not contain the 17 Agreement, despite the offer expressly stating that employment was conditioned on signing the 18 Agreement. Opp. at 6. More specifically, he signed the employment offer on June 19, 2008, 19 began working for Defendant on June 26, 2008, but signed the Agreement to arbitrate all claims 20 on June 30, 2008—which is Plaintiff’s way of saying he did not agree to arbitration at the time he 21 formed an employment relationship with Defendant. Plaintiff’s second argument against 22 formation relates to his 2012 promotion, which did not come with a new arbitration agreement. 23 Plaintiff contends that this new job offer required a separate arbitration agreement. Opp. at 8. 24 Defendant’s position is that the 2012 promotion was an internal transfer that maintained the 25 parties’ preexisting employment relationship and agreement to arbitrate all claims. Mot. at 4. 26 1. The 2008 Employment Offer 27 California state law governs the formation issue, and Defendant bears the burden of 1 v. Samsung Telecommunications America, LLC, 845 F.3d 1279, 1283 (quoting Knutson v. Sirius 2 XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014)); Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 3 4th 394, 413 (1996). “Courts must determine whether the outward manifestations of consent 4 would lead a reasonable person to believe the offeree has assented to the agreement.” Norcia, 845 5 F.3d at 1284 (quotation omitted). An offeree's consent to the terms of a contract may be inferred 6 based on conduct consistent with acceptance. Id. 7 The 2008 employment offer contained the following language:

8 In order to process your payroll enrollment in a timely manner, you MUST execute the enclosed Confidentiality and Mutual Arbitration 9 Agreements on your first day of employment at Mentor.

10 ¶ . . . I accept your offer of employment and understand that this document and its attachments do not create a contract and that 11 Mentor Graphics or I may terminate my employment at any time for any reason. I also agree that any disputes that may arise between us 12 will be resolved pursuant to binding arbitration as described in the Mutual Arbitration Agreement. 13 14 Bradshaw Decl., Ex. C, at 2–3 (emphasis in original). Plaintiff argues that there was no meeting 15 of the minds regarding Defendant’s employment offer and Plaintiff’s acceptance because “the 16 offer letter of 2008 condition[ed] the employment on signing the Mutual Arbitration Agreement[,] 17 which was not provided to Plaintiff at the time.” Opp. at. 6–7. He commenced employment 18 without signing the Agreement. Plaintiff relies on general principles of contract law—i.e., that 19 “[t]erms proposed in an offer must be met exactly, precisely and unequivocally for its acceptance 20 to result in the formation of a binding contract; and a qualified acceptance amounts to a new 21 proposal or counteroffer putting an end to the original offer.” Id. at 6 (citing Panagotacos v. Bank 22 of America, 60 Cal. App. 4th 851 (1998)). Defendant, on the other hand, contends that Plaintiff 23 did, in fact, receive the Agreement at the time he signed the employment offer, as it is Defendant’s 24 standard practice to include it all in one packet. Reply at 6; Bradshaw Decl., at ¶ 5, Ex. A. 25 Even if, assuming arguendo, the Agreement did not come with the offer letter, he still 26 faces a formation issue—because he signed it after his employment commenced. Even if there 27 was a contract for employment formed when he began work on June 26, 2008, and that contract 1 Arbitration Agreement on June 30, 2008. That Arbitration Agreement may be treated as a new 2 contract, separate and apart from the employment offer and acceptance. There was valid 3 consideration for the Agreement as it is bilateral. Moreover, Plaintiff’s continued employment 4 also constituted sufficient consideration. See Asfaw v. Lowe's HIW, Inc., 2014 WL 1928612, at *3 5 (C.D. Cal. May 13, 2014) (citing Craig v. Brown & Root, Inc., 84 Cal. App. 4th 416, 422 (2000)). 6 As such, there is a valid Arbitration Agreement. 7 2. The 2012 Promotion to Territory Account Manager 8 Plaintiff’s alternative argument regarding formation is that his employment relationship 9 changed in 2012 when he received a new job offer, thereby ending any preexisting agreements. 10 Opp. at 8. He also claims that he never signed the 2012 offer. Id. at 12. Defendant argues that the 11 2012 letter itself refers to the new position as an “internal transfer.” Reply at 7 (citing Bradshaw 12 Decl., Ex. F). The copy of the letter attached to the declaration of Defendant’s human resource 13 director does not, however, include Plaintiff’s signature despite there being a signature line. 14 Bradshaw Decl., Ex. F, p. 2. 15 Regardless of the semantics surrounding to the 2012 promotion, the Agreement does not 16 have any expiration clauses or temporal limitations. See Nolde Bros., Inc. v. Local No. 358, 17 Bakery & Confectionary Workers Union, 430 U.S. 243, 250 (1977) (where there is a “dispute over 18 a provision of [an] expired agreement, the presumptions favoring arbitrability must be negated 19 expressly or by clear implication.”). If Plaintiff did not sign the 2012 letter, the 2008 Agreement 20 would remain in effect; nothing in the terms of the 2008 Agreement prevents its ongoing effect. If 21 Plaintiff did sign the 2012 letter, it incorporated the 2008 Agreement1—so the result is the same: 22 the Agreement is in effect. 23 Accordingly, Defendant has met its burden by proving the existence of an agreement to 24 arbitrate by a preponderance of the evidence. 25

26 1 Bradshaw Decl., Ex. F, at 2 (“I accept your transfer of employment and understand that this document and its attachments do not create a contract and that Mentor Graphics or I may terminate 27 my employment at any time for any reason. I also agree that any disputes that may arise between 1 B. Delegation of Arbitrability 2 There is a presumption that the issue of arbitrability is a judicial determination—not one 3 for an arbitrator to decide. See Martin v. Yasuda, 829 F.3d 1118, 1123 (9th Cir. 2016) (citing 4 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)). “Such issues concern gateway 5 questions of arbitrability, such as whether the parties have a valid arbitration agreement or are 6 bound by a given arbitration clause, and whether an arbitration clause in a concededly binding 7 contract applies to a given controversy.” Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011) 8 (citing Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003) 9 However, parties may delegate the adjudication of gateway issues of arbitrability to the 10 arbitrator if they “clearly and unmistakably” agree to do so. See Rent-A-Ctr., W., Inc. v. Jackson, 11 561 U.S. 63, 68–69 (2010) (“We have recognized that parties can agree to arbitrate ‘gateway’ 12 questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their 13 agreement covers a particular controversy.”); Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 14 F.3d 981, 985 (9th Cir. 2017); see also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 15 943, (1995) (noting that “the question ‘who has the primary power to decide arbitrability’ turns 16 upon whether the parties agreed about that matter[;] [d]id the parties agree to submit the 17 arbitrability question itself to the arbitration?”) (emphasis in original). “In cases where the parties 18 ‘clearly and unmistakably intended to delegate the power to decide arbitrability to an arbitrator,’ 19 the district court's inquiry is ‘limited . . . [to] whether the assertion of arbitrability is “wholly 20 groundless.’” Zenelaj v. Handybook Inc., 82 F. Supp. 3d 968, 975 (N.D. Cal. 2015). 21 Defendant argues that all issues related to arbitrability are delegated exclusively to the 22 arbitrator, not the Court, because the Agreement incorporates by reference the rules and 23 procedures of JAMS. Mot. at 7. When a signed arbitration agreement includes a reference to 24 specific arbitration rules—e.g., AAA, JAMS, etc.—the Ninth Circuit has held that the parties 25 agreed to delegate arbitrability itself to the arbitrator. See Oracle America, Inc. v. Myriad Group 26 A.G., 724 F.3d 1069 (9th Cir. 2013). The Ninth Circuit reasons so because within those 27 arbitration rules are clauses that specifically state that the arbitrator retains the jurisdiction to 1 “[j]urisdictional and arbitrability disputes, including disputes over the existence, validity, 2 interpretation or scope of the agreement under which Arbitration is sought, and who are proper 3 Parties to the Arbitrator, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has 4 the authority to determine jurisdiction and arbitrability issues as a preliminary matter.” 5 Declaration of Neda N. Dal Cielo in Support of Defendant’s Motion to Compel Arbitration (“Dal 6 Cielo Decl.”), Ex. D at 5–6. 7 Plaintiff argues that the Agreement is silent as to who decides arbitrability, so the issue is 8 reserved for the Court. Opp. at 8. At least one California Court of Appeal decision has found that 9 mere incorporation by reference—without more—is not sufficient to constitute clear and 10 unmistakable proof that the parties made a wholesale delegation of all issues to the arbitrator. See 11 Ajamian v. CantorCO2e, L.P., 203 Cal. App. 4th 772, 781 (2012). Defendant contends that 12 Ajamian does not apply. Defendant asserts Ajamian’s discussion on this issue as being dictum 13 and, alternatively, claims the Agreement here is distinguishable because, there, the agreement 14 allowed the court to rule on certain issues, as opposed to reserving all issues for the arbitrator. 15 Here, Defendant argues the Agreement provides no such exceptions, and that the arbitrator decides 16 all issues, leaving none for the Court. Reply at 3. 17 In any event, whether there is a clear and unmistakable agreement to delegate the question 18 of arbitrability to the arbitrator involves the application of the FAA and is a question of federal 19 law. As mentioned, in this Circuit, incorporation of, e.g., JAMS rules by reference is generally 20 sufficient to provide a basis for such a finding. In Oracle, 724 F.3d at 1069, the Ninth Circuit 21 recognized that “[v]irtually every circuit to have considered the issue has determined that 22 incorporation of the American Arbitration Association's (AAA) arbitration rules constitutes clear 23 and unmistakable evidence that the parties agreed to arbitrate arbitrability.” Id. at 1073–75. The 24 Oracle court then went on to hold that the incorporation of United Nations Commission on 25 International Trade Law (“UNCITRAL”) arbitration rules constituted clear and unmistakable 26 evidence that the parties to the contract intended to delegate questions of arbitrability to the 27 arbitrator. Id. at 1075. The Ninth Circuit subsequently extended this rule to arbitration 1 796 F.3d 1125, 1130 (9th Cir. 2015) (“we hold that incorporation of the AAA rules constitutes 2 clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.”). 3 However, “as long as an arbitration agreement is between sophisticated parties to commercial 4 contracts, those parties shall be expected to understand that incorporation of the UNCITRAL rules 5 delegates questions of arbitrability to the arbitrator.” Oracle, 724 F.3d at 1075 (emphasis added). 6 Relying upon this open question, Plaintiff relies on Zenelaj v. Handybook which states that 7 since Oracle left open the question of party sophistication, “the question of whether the 8 incorporation of the AAA Rules is always ‘clear and unmistakable’ evidence of the parties’ intent 9 to arbitrate arbitrability is not a clearly settled question of law in the Ninth Circuit.” 82 F. Supp. 10 3d 968, 971 (N.D. Cal. 2015) (emphasis added). “It is therefore an appropriate interpretation of 11 Oracle America that the Ninth Circuit issued a narrow holding limited to its facts—sophisticated 12 parties to a commercial contract—but favorably acknowledged the “prevailing view” . . . all of 13 which found clear and unmistakable delegation of arbitration regardless of the parties’ 14 sophistication. Id. at 973 (emphasis added). Notably, Brennan also left the issue of sophistication 15 open. Brennan, 796 F.3d at 1131 (“Nevertheless, as in Oracle America, we limit our holding to 16 the facts of the present case, which do involve an arbitration agreement ‘between sophisticated 17 parties.’”). The employee in Brennan was an Executive Vice President and Director for Strategy 18 and Corporate Development at Opus Bank. Id. at 1127. Further, neither Brennan or Oracle 19 discussed whether the result would obtain if the party who presented the arbitration agreement 20 failed to provide a copy, hyperlink, or any access whatsoever to the governing arbitration rules, 21 which is what Plaintiff takes issue with here. 22 One pre-Oracle Ninth Circuit decision holds that failure to provide a copy of the rules will 23 support a finding of procedural unconscionability. See Pokorny v. Quixtar, Inc., 601 F.3d 987, 24 997 (9th Cir. 2010). Several post-Oracle decisions have found that the failure to provide a copy of 25 the arbitration rules favors a finding of procedural unconscionability; those courts have found the 26 delegation clause unenforceable. See e.g., Gountoumas v. Giaran, Inc., 2018 WL 6930761 (C.D. 27 Cal. Nov. 21, 2018) (“Given that the delegation provision incorporated the AAA rules by 1 minimal degree of procedural unconscionability to the delegation provision”); Saravia v. 2 Dynamex, Inc., 310 F.R.D. 412 (N.D. Cal. 2015) (“The 2012 agreement simply incorporated the 3 AAA rules and stated the arbitrator shall have the power to rule on his or her own 4 jurisdiction . . . .” The court decided that the delegation clause was procedurally unconscionable 5 and substantively unconscionable, with the failure to provide a copy of the rules going towards 6 procedural unconscionability.). 7 Here, it is undisputed that Plaintiff did not receive a copy of the JAMS rules that governs 8 the Agreement. Nor did he receive a hyperlink to facilitate access to the rules. The Agreement 9 itself does not have a specific delegation clause, so the only way Plaintiff could possibly know 10 about the delegation of authority would be to perform his own independent due diligence by 11 obtaining the JAMS rules, and searching through them to find the delegation clause and ascertain 12 its meaning. This could lead to a finding a lack of clear and unmistakable delegation in some 13 cases. As in Oracle and Brennan, however, Plaintiff herein is sophisticated. Plaintiff is a well- 14 versed businessman, an MBA-program attendee, fluent in English, and had a 15-year history of 15 business dealings. In 2008, Plaintiff was an Inside Sales Representative (receiving $82,200 in 16 compensation). In 2012, he became a Territory Account Manager (receiving $195,000 in 17 compensation). Moreover, Plaintiff was in possession of the Agreement for multiple days (which 18 included a weekend) and had ample time to find and read the JAMS rules. Oracle controls. 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 1 IV. CONCLUSION 2 For the foregoing reasons, the Court holds as follows: (1) notwithstanding Defendant’s 3 failure to provide a copy of the JAMS rules, under the circumstances of this case, the Agreement 4 || clearly and unmistakably delegates the power to determine arbitrability of a claim to the arbitrator 5 because both parties were highly sophisticated; (2) therefore, the Court grants Defendant’s motion 6 || to compel arbitration. The issue of arbitrability is one for the arbitrator to decide; and (3) all 7 proceedings in this case are stayed pending the arbitration. 8 This order disposes of Docket No. 24. 9 10 IT IS SO ORDERED. 11 e 12 Dated: September 18, 2019

6 M4 <= ED M. CHEN 5 United States District Judge 16

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