Jackson v. Applied Materials Corporation

• Court: District Court, N.D. California
• Decided: April 8, 2021
• Docket: 5:20-cv-06007
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 KEVIN F. JACKSON, Case No. 20-cv-06007-VKD

9 Plaintiff, ORDER GRANTING MOTION TO 10 v. COMPEL ARBITRATION AND STAYING ACTION 11 APPLIED MATERIALS CORPORATION, et al., Re: Dkt. No. 29 12 Defendants.

13 14 Plaintiff Kevin Jackson filed this Title VII action against his former employer, Applied 15 Materials Corporation (“Applied Materials”), and its Managing Director of Human Resources, 16 Keith Dupen. Dkt. No. 1. Defendants now move to compel arbitration pursuant to Mr. Jackson’s 17 employment agreement and stay the action. Dkt. No. 29. 18 All parties have consented to magistrate judge jurisdiction. Dkt. No. 4, 26. The Court 19 heard oral argument on defendants’ motion on April 6, 2021. Dkt. No. 44. Having considered the 20 parties’ briefs and arguments made at the hearing, the Court grants the motion to compel 21 arbitration and stays the action pending arbitration. 22 I. BACKGROUND 23 This case arises out of Mr. Jackson’s former employment at Applied Materials. He applied 24 for a Product Line Management IV position on May 10, 2018 and was offered the position on June 25 1, 2018. Dkt. No. 29-1, Ex. A at 1, Ex. B. Applied Materials’ offer letter to Mr. Jackson stated 26 that the offer of employment was contingent upon Mr. Jackson signing the letter and a separate 27 Employment Agreement. Id., Ex. B at 1–2. In consideration of my Employment, to the fullest extent allowed by 1 law and except as set forth below, any controversy or claim (whether or not arising out of or relating to my Employment or 2 termination of my Employment) . . . by me (and no other party) against Applied [Materials] . . . or any of [Applied Materials’] 3 agents or employees . . . will be finally resolved by binding arbitration. The arbitration will be conducted by a single, neutral 4 arbitrator and administered by JAMS, Inc. (“JAMS”), under its Employment Arbitration Rules & Procedures . . . and no other rules . 5 . . . 6 Id., Ex. C at 6. The Employment Agreement expressly specifies that claims brought under Title 7 VII of the Civil Rights Act of 1964 (“Title VII”) and any other federal, state, or local statute, 8 regulation, or common law doctrine, including contract or tort, are subject to arbitration. Id., Ex. 9 C at 7. It also states that the Employment Agreement is governed by the Federal Arbitration Act. 10 Id. The Employment Agreement further states that Applied Materials and Mr. Jackson “are 11 waiving [their] rights to proceed in a court of law, including a trial by jury, in exchange for 12 arbitration.” Id. Mr. Jackson signed the offer letter and the Employment Agreement on June 1, 13 2018. Id., Ex. C. at 1, 9. 14 According to Mr. Jackson, his last day of employment was December 17, 2019. Dkt. No. 15 10 ¶ 17. He filed this action on August 24, 2020. Dkt. No. 1. The operative complaint asserts a 16 claim for race discrimination and retaliation in violation of Title VII and alleges that Applied 17 Materials did not permit Mr. Jackson to transfer to a different position within Applied Materials, 18 gave him poor performance reviews, constructively discharged him, and otherwise retaliated 19 against him in other ways because of his race. Dkt. No. 10. Defendants move to compel 20 arbitration pursuant to the Employment Agreement. Dkt. No. 29. 21 II. LEGAL STANDARD 22 The Federal Arbitration Act (“FAA”) governs written arbitration agreements affecting 23 interstate commerce. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111–12 (2001). 24 Congress enacted the FAA to ensure enforcement of written arbitration agreements according to 25 their terms based on “the basic precept that arbitration ‘is a matter of consent, not coercion.’” 26 Stolt–Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010) (quoting Volt Info. 27 Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)). 1 United States district court for “an order directing that such arbitration proceed in the manner 2 provided for in such agreement.” 9 U.S.C. § 4. 3 Courts have developed a “liberal federal policy favoring arbitration agreements.” Moses 4 H. Cone Mem’l Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24–25 (1983). Under this presumption 5 in favor of arbitration, a court should not decline to order arbitration “unless it may be said with 6 positive assurance that the arbitration clause is not susceptible of an interpretation that covers the 7 asserted dispute.” AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986). 8 Under the FAA, a district court must compel arbitration if (1) a valid agreement to arbitrate exists, 9 and (2) the dispute falls within the scope of the agreement. Geier v. M-Qube Inc., 824 F.3d 797, 10 799 (9th Cir. 2016) (citing Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th 11 Cir. 2000)). “By its terms, the [FAA] leaves no place for the exercise of discretion by a district 12 court, but instead mandates that district courts shall direct the parties to proceed to arbitration on 13 issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 14 470 U.S. 213, 218 (1985) (citing 9 U.S.C. §§ 3, 4). 15 Arbitration agreements are “a matter of contract” and “may be invalidated by generally 16 applicable contract defenses, such as fraud, duress or unconscionability.” Rent-A-Ctr., W., Inc. 17 v. Jackson, 561 U.S. 63, 67–68 (2010). Parties may “agree to limit the issues subject to 18 arbitration” and “to arbitrate according to specific rules.” AT&T Mobility LLC v. Concepcion, 563 19 U.S. 333, 345 (2011). “[T]he party resisting arbitration bears the burden of proving that the 20 claims at issue are unsuitable for arbitration.” Green Tree Fin. Corp.-Alabama v. Randolph, 531 21 U.S. 79, 81 (2000). 22 III. DISCUSSION 23 A. Request for Judicial Notice 24 Defendants ask the Court to take judicial notice of two items: (1) the “About” page on the 25 JAMS website, and (2) the JAMS Employment Arbitration Rules & Procedures (“JAMS Rules”). 26 Dkt. No. 38. Mr. Jackson does not object to the request. 27 The Court need not rely on the “About” page of the JAMS website to resolve this motion 1 item, the JAMS Rules, as those rules are referenced in the Employment Agreement’s arbitration 2 clause. 3 B. Motion to Compel Arbitration 4 The Court must first consider whether the parties’ agreement to arbitrate is valid. It then 5 turns to whether this dispute falls within the scope of the agreement. Geier, 824 F.3d at 799. 6 1. Validity of the Employment Agreement 7 “In determining whether a valid arbitration agreement exists, federal courts apply ordinary 8 state law.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (internal 9 quotation marks omitted). The party seeking to compel arbitration bears the burden of proving by 10 a preponderance of the evidence that there was an agreement to arbitrate. See Norcia v. Samsung 11 Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). Conversely, the party opposing 12 arbitration is entitled to the benefit of all reasonable doubts and inferences. See Three Valleys 13 Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1141 (9th Cir. 1991). Therefore, a court 14 may find that an agreement to arbitrate exists as a matter of law “[o]nly when there is no genuine 15 issue of fact concerning the formation of the agreement.” Id. (quotation omitted); see also 16 Alarcon v. Vital Recovery Servs., Inc., 706 F. App’x 394, 394 (9th Cir. 2017) (same). 17 Under California law, a valid contract requires the “mutual consent of the parties,” which 18 is “generally achieved through the process of offer and acceptance.” DeLeon v. Verizon Wireless, 19 LLC, 207 Cal. App. 4th 800, 813 (2012) (internal citations omitted). Whether mutual consent 20 existed “is determined under an objective standard applied to the outward manifestations or 21 expressions of the parties, i.e., the reasonable meaning of their words and acts, and not their 22 unexpressed intentions or understandings.” Id. Although mutual consent is generally a question 23 of fact, whether a certain set of facts is sufficient to establish a contract is a question of 24 law. Id.; Long v. Provide Com., Inc., 245 Cal. App. 4th 855, 863 (2016). 25 Here, Applied Materials provides evidence that the parties entered into an Employment 26 Agreement requiring the arbitration of Mr. Jackson’s Title VII claim. Mr. Jackson does not 27 dispute that he signed the offer letter and Employment Agreement; however, the Court infers from 1 his submissions1 that he opposes arbitration on grounds of duress and unconscionability. See Dkt. 2 No. 35 at ECF p. 2; Dkt. No. 40 at ECF p. 1. 3 “Under California Law, ‘the party opposing arbitration bears the burden of proving any 4 defense, such as unconscionability.’” Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1260 (9th 5 Cir. 2017) (quoting Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 6 223, 236 (2012)). To establish a defense of unconscionability, “the party opposing arbitration 7 must demonstrate that the contract as a whole or a specific clause in the contract is both 8 procedurally and substantively unconscionable.” Id. (citing Sanchez v. Valencia Holding Co., 9 LLC, 61 Cal. 4th 899, 910 (2015)). The Court’s evaluation of procedural and substantive 10 unconscionability proceeds on a sliding scale where “the more substantively oppressive the 11 contract term, the less evidence of procedural unconscionability is required to come to the 12 conclusion that the term is unenforceable, and vice versa.” Id. (quoting Armendariz v. Found. 13 Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000)). 14 a. Procedural unconscionability 15 The Court understands Mr. Jackson’s argument concerning duress as one asserting 16 procedural unconscionability. See Dkt. No. 40 at ECF p. 1. Procedural unconscionability focuses 17 on “oppression or surprise due to unequal bargaining power” where oppression “arises from an 18 inequality of bargaining power that results in real negation and an absence of meaningful 19 choice.” Poublon, 846 F.3d at 1260 (internal quotations omitted). “California courts have held 20 that oppression may be established by showing the contract was one of adhesion or by showing 21 from the totality of the circumstances surrounding the negotiation and formation of the contract 22 1 Mr. Jackson submitted an opposition brief to defendants’ motion on March 5, 2021. Dkt. No. 35. 23 Defendants filed their reply brief on March 10, 2021. Dkt. No. 37. After briefing closed, Mr. Jackson filed another submission in response on March 16, 2021, which the Court construes as a 24 surreply. Dkt. No. 40. Defendants objected to Mr. Jackson’s unauthorized surreply. Dkt. No. 41. Defendants’ objection is well-taken. Civil Local Rule 7-3(d)(1) states that “[o]nce a reply is filed, 25 no additional memoranda, papers or letters may be filed without prior Court approval,” with the exception of objections to new evidence raised in a reply brief. Civ. L.R. 7-3(d)(1). Mr. Jackson 26 did not seek permission from the Court to file his surreply, nor does it address any purportedly new evidence in defendants’ reply brief. Nevertheless, the Court must construe a pro se litigant’s 27 pleadings liberally and afford them the benefit of any doubt. Karim-Panahi v. Los Angeles Police 1 that it was oppressive.” Id. (internal quotations omitted). The Ninth Circuit has held that “the 2 threshold inquiry in California’s unconscionability analysis is whether the arbitration agreement is 3 adhesive.” Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1210 (9th Cir. 2016) (quoting 4 Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th. Cir. 2006) (alterations and internal 5 quotation marks omitted)). An adhesion contract is a “standardized contract, which, imposed and 6 drafted by the party of superior bargaining strength, relegates to the subscribing party only the 7 opportunity to accept the contract or reject it.” Id. at 1261 (quoting Armendariz, 24 Cal. 4th at 8 113). There is no “rule that an adhesion contract is per se unconscionable.” Id. 9 The Employment Agreement is an adhesion contract. Applied Materials presented the 10 agreement on a take-it-or-leave-it basis by conditioning Mr. Jackson’s employment on his 11 acceptance of its terms. See Dkt. No. 29-1, Ex. B at 1–2. As the employer, Applied Materials had 12 the superior bargaining position and apparently did not permit any exceptions to this pre-condition 13 for employment.2 Mr. Jackson perceived that his only option was to accept the agreement if he 14 wished to become employed. In these circumstances, there is at least some degree of procedural 15 unconscionability attending formation of the agreement. See Garcia v. Din Tai Fung, No. 20-cv- 16 02919-BLF, 2020 WL 6822909, at *6 (N.D. Cal. Nov. 20, 2020). 17 However, several courts have found that “mandatory arbitration agreements offered as a 18 precondition to employment are enforceable provided there is no indication that applicants signed 19 the agreement under duress, were lied to, or otherwise manipulated into signing the agreement.” 20 Id. (listing cases, internal quotation marks omitted). “The adhesive nature of a contract, without 21 more, would give rise to a low degree of procedural unconscionability at most.” Poublon, 846 22 F.3d at 1261–62 (citing Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 12 45 (2016)). Mr. Jackson 23 points to no other circumstances suggesting he signed the Employment Agreement and agreed to 24 arbitration under duress, and the Court finds no other indication of oppression or surprise. “In the 25 employment context, if an employee must sign a non-negotiable employment agreement as a 26

27 2 At the hearing, Mr. Jackson acknowledged that he did not attempt to negotiate any provision of 1 condition of employment but there is no other indication of oppression or surprise, then the 2 agreement will be enforceable unless the degree of substantive unconscionability is high.” Id. at 3 1260 (internal quotations omitted). The Court concludes that the parties’ arbitration agreement is 4 an adhesion contract with minimal procedural unconscionability. The Court next considers 5 whether that agreement has a high degree of substantive unconscionability. 6 b. Substantive unconscionability 7 A neutral arbitrator is an essential requirement to ensure the integrity of the arbitration 8 process. Armendariz, 24 Cal. 4th at 103. Mr. Jackson argues that he will be unable to have his 9 dispute with Applied Materials resolved by a neutral arbitrator, as the agreement requires, if the 10 arbitration is administered by JAMS. Mr. Jackson cites two principal reasons for why he believes 11 JAMS cannot field a neutral arbitrator. First, he contends that JAMS has potential conflicts of 12 interest. He argues that the selected JAMS arbitrator may have an ownership interest in JAMS 13 which could cause that arbitrator to be biased in favor of Applied Materials, given his expectation 14 that JAMS and Applied Materials have an on-going business relationship or that JAMS at least 15 enjoys repeat business from Applied Materials.. Dkt. No. 35 at ECF pp. 2–3; Dkt. No. 40 at ECF 16 pp. 4–6. Second, Mr. Jackson points to an incident in August 2020 when a JAMS arbitrator, 17 retired Cook County, Illinois Judge Richard Neville, sent an email containing racist sentiments 18 about Black people to at least 36 other people. Dkt. No. 35 at ECF pp. 1–2; Dkt. No. 1-2 at ECF 19 pp. 37–43. Mr. Jackson expresses concern that a culture of racism exists within JAMS which will 20 make it impossible for him, as a Black person, to have a fair hearing, particularly in a case 21 involving race discrimination claims. Dkt. No. 35 at ECF pp. 1–2; Dkt. No. 40 at ECF pp. 3–6. 22 While Mr. Jackson’s concerns are understandable, they do not render the terms of the 23 arbitration agreement substantively unconscionable. The agreement provides for arbitration by a 24 “neutral arbitrator” which is “administered by [JAMS] under its Employment Arbitration Rules & 25 Procedures.” Applied Materials moves to compel an arbitration that complies with this provision, 26 and there is nothing substantively unconscionable about this provision on its face. 27 With respect to Mr. Jackson’s first argument, the Court is not persuaded that requiring 1 conflict of interest. As Mr. Jackson correctly notes, JAMS arbitrators must disclose their 2 ownership interests in JAMS. Dkt. No. 35 at 2 (citing Monster Energy Company v. City 3 Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019)). There is no reason to believe, however, that all 4 JAMS arbitrators are owners who would have a conflict of interest. The Court observes that under 5 the JAMS Rules, arbitrators must disclose potential conflicts of interest to the parties, and the 6 parties have an opportunity to participate in the selection of the arbitrator who will ultimately hear 7 the dispute. See Dkt. No. 38, Ex. B at Rule 15(h). Indeed, the parties may agree in advance on a 8 mutually acceptable JAMS arbitrator of their own choosing. As for Mr. Jackson’s concerns about 9 the frequency with which Applied Materials may have used JAMS’s services, the Ninth Circuit 10 has held that the mere fact that a company like Applied Materials is a “repeat player,” without 11 more particularized evidence of bias, is insufficient under California law to support a finding of 12 unconscionability. Nagrampa, 469 F.3d at 1284–85; see also Bankwitz v. Ecolab, Inc., No. 17-cv- 13 02924-EMC, 2017 WL 4642284, at *4 (N.D. Cal. Oct. 17, 2017). The Court understands, 14 however, that proposed arbitrators routinely disclose to the parties whether they have handled 15 matters for one or the other or both in the past, and Mr. Jackson will have the benefit of this 16 information in selecting a neutral. 17 With respect to Mr. Jackson’s second argument, the Court agrees that Mr. Jackson is 18 entitled to have a neutral arbitrator who does not harbor racial bias, and that the incident to which 19 Mr. Jackson refers in his papers reflects that at least Judge Neville is not an acceptable arbitrator 20 and apparently he no longer works for JAMS. However, the Court does not agree that the incident 21 shows that all JAMS arbitrators are presumptively prejudiced against Black people. The Court 22 understands that Mr. Jackson wishes to know which, if any, JAMS employees were copied on 23 Judge Neville’s email, or at least wishes to know that any potential arbitrators proposed for his 24 arbitration were not copied on the email. At the hearing, Applied Materials indicated that it has no 25 objection to asking JAMS to provide information to the parties that will permit them to avoid any 26 arbitrators copied on Judge Neville’s email.3 27 1 Because the arbitration agreement is not substantively unconscionable on its face, and 2 because the JAMS Rules provide a means by which the parties can select a neutral arbitrator, the 3 Court finds that Mr. Jackson has not demonstrated substantive unconscionability. 4 2. Scope of the Employment Agreement 5 The parties do not dispute that the Employment Agreement’s arbitration clause applies to 6 Title VII claims such as Mr. Jackson’s. Dkt. No. 29 at 2–3; see Dkt. Nos. 35, 40. The language of 7 the Employment Agreement unambiguously reserves Title VII claims for arbitration, thus Mr. 8 Jackson’s claim falls within the scope of the Employment Agreement’s arbitration clause. 9 In sum, the Court finds that the arbitration clause in the Employment Agreement is 10 enforceable, and Mr. Jackson must arbitrate his Title VII claim. 11 C. Motion to Stay 12 Applied Materials moves to stay the action in its entirety pending the completion of 13 arbitration proceedings. Where a dispute is subject to arbitration under the terms of a written 14 agreement, the district court shall “stay the trial of the action until such arbitration has been had in 15 accordance with the terms of the agreement.” 9 U.S.C. § 3. The Ninth Circuit has held that courts 16 have discretion under § 3 to dismiss claims that are subject to an arbitration agreement. Sparling 17 v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988). 18 Mr. Jackson does not oppose the stay. See Dkt. No. 35. Accordingly, the Court stays this 19 action pending the outcome of arbitration proceedings between the parties. 20 IV. CONCLUSION 21 For the foregoing reasons, the Court grants Applied Materials’s motion to compel 22 arbitration. This action is stayed in its entirety pending the final resolution of the arbitration. The 23 parties shall file a joint status report within two weeks of the completion of arbitration. 24 The Clerk of the Court shall administratively close the case. 25 /// 26 /// 27 1 IT IS SO ORDERED. 2 || Dated: April 8, 2021 3

VIRGINIA K. DEMARCHI 5 United States Magistrate Judge 6 7 8 9 10 11 12

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