Johannessen v. Juul Labs, Inc.

• Court: District Court, N.D. California
• Decided: June 24, 2024
• Docket: 3:23-cv-03681
• Status: Unknown

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 ELIZABETH JAY JOHANNESSEN, Case No. 3:23-cv-03681-JD

9 Plaintiff, ORDER RE ARBITRATION AND 10 v. SEALING

11 JUUL LABS, INC.; DOES 1-25, inclusive, 12 Defendants.

14 Plaintiff Elizabeth Jay Johannessen sued defendants JUUL Labs, Inc. (JUUL) and 15 unnamed Does for violations of the California Fair Employment and Housing Act, Cal. Gov. 16 Code. § 12940, et seq., and the California Family Rights Act, Cal. Gov. Code § 12945, et seq. 17 Dkt. No. 1-2. Johannessen says that she experienced gender discrimination, retaliation, and 18 harassment, and was denied accommodations for her medical disabilities, while working at JUUL. 19 Johannessen filed suit in the Superior Court for the City and County of San Francisco, and 20 JUUL removed to this Court on traditional diversity grounds. Dkt. No. 1. Johannessen did not 21 object to removal. JUUL now asks to send the case to arbitration, Dkt. No. 5, which Johannessen 22 opposes, Dkt. No. 15. Arbitration is ordered. 23 BACKGROUND 24 As alleged in the complaint, Johannessen worked as JUUL’s Senior Director of 25 Compliance from March 12, 2018, to May 22, 2020, when she was fired. Dkt. No. 1-2 ¶¶ 26, 28. 26 Johannessen’s employment agreement, which JUUL submitted with the motion to compel 27 arbitration, contains an agreement to arbitrate any “claim, controversy or legal dispute between . . . 1 the Federal Arbitration Act and “to the extent not inconsistent with or preempted by the Federal 2 Arbitration Act, the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 3 et seq.” Id. Rather atypically, the arbitration clause does not delegate questions of arbitrability, 4 validity, and the like, to an arbitrator. Consequently, the Court will decide those issues as 5 germane to JUUL’s motion. 6 Before reaching the merits, a misstep by the parties needs correction. This Court, and all 7 courts of the United States, do business under the strong presumption of the public’s right of 8 access to all proceedings. In re Google Play Store Antitrust Litig., 556 F. Supp. 3d 1106 (N.D. 9 Cal. 2021). This presumption may be overcome only upon a showing of compelling 10 circumstances. Id. Neither side respected these principles, and filed redacted documents, 11 including the employment agreement in question here, without requesting a sealing order, or 12 obtaining the Court’s consent. See Dkt. Nos. 5-1 (JUUL contract version), 15-1 (Johannessen 13 version). The parties are advised that any future filings that do not comport with the Local Rules 14 and the Court’s standing orders will be summarily stricken from the docket. 15 LEGAL STANDARDS 16 The Court has detailed the standards governing a motion to compel arbitration under the 17 FAA in several prior orders, which are incorporated here. See Blackstock v. Marin Luxury Cars 18 LLC, No. 22-cv-07052-JD, 2023 WL 5959426, at *1 (N.D. Cal. Sept. 12, 2023); Williams v. Eaze 19 Sols., Inc., 417 F. Supp. 3d 1233 (N.D. Cal. 2019). In pertinent part, the Court’s role under 20 Section 4 of the FAA “is limited to determining whether a valid arbitration agreement exists and, 21 if so, whether the agreement encompasses the dispute at issue.” Cornet v. Twitter, Inc., No. 22-cv- 22 06857-JD, 2023 WL 187498, at *1 (N.D. Cal. Jan. 13, 2023) (quoting Lifescan, Inc. v. Premier 23 Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004)). “If the party seeking to compel 24 arbitration establishes both factors, the district court ‘must order the parties to proceed to 25 arbitration only in accordance with the terms of their agreement.’” Id. (quoting Lifescan, 363 F.3d 26 at 1012). The validity and scope of an agreement to arbitrate are determined by the Court unless 27 the parties clearly provide that those questions will be determined by the arbitrator. Id. at *2 1 DISCUSSION 2 I. ENFORCEABILITY AND UNCONSCIONABILITY 3 Well-established principles foreclose Johannessen’s objections of enforceability and 4 unconscionability. To start, there is no disagreement that Johannessen signed an offer letter on 5 February 2, 2018, that featured the arbitration agreement. Her opposition brief forthrightly 6 acknowledges this fact. Dkt. No. 15 at 1 (“She executed the document as requested on February 2, 7 2018.”). Johannessen criticizes JUUL for not providing a complete and unredacted set of her 8 employment-related agreements in its motion papers, but that does not change the salient fact that 9 she signed an agreement with an arbitration clause. Johannessen herself provided the relevant 10 documents, albeit redacted improperly, and so there is no problem with going forward on the 11 record before the Court. Johannessen also chides JUUL for not specifying which rules would 12 apply in arbitration, but the arbitration agreement clearly states that California Code of Civil 13 Procedure Section 1280, et seq., applies. 14 Johannessen’s unconscionability contentions are not well taken. An arbitration agreement 15 will be set aside only if it is procedurally and substantively unconscionable. Blackstock, 2023 WL 16 5959426, at *2 (citing Lim v. TForce Logistics, LLC, 8 F.4th 992, 1000 (9th Cir. 2021)). 17 Johannessen says the arbitration agreement is adhesive and unfair. Dkt. No. 15 at 9-10. These 18 concerns have been definitively rejected as reasons to deny arbitration. All arbitration agreements, 19 which allow for very limited or no negotiation, will always have some degree of procedural 20 unconscionability. OTO L.L.C. v. Kho, 8 Cal. 5th 111, 126 (2019). Consequently, “offering 21 arbitration and other terms on a take-it-or-leave-it basis is not enough to find an agreement to 22 arbitrate unenforceable.” Alonso v. AuPairCare, Inc., No. 3:18-cv-00970-JD, 2018 WL 4027834, 23 at *3 (N.D. Cal. Aug. 23, 2018) (citing Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 24 915 (2015)). 25 Johannessen’s rather convoluted theory about an Invention Assignment Agreement that 26 accompanied her offer letter does not change this conclusion. Johannessen says the Invention 27 Assignment Agreement conflicts with the employment agreement, resulting in an arbitration 1 manner.” Dkt. No. 15 at 10-11. The plain language of the documents demonstrates otherwise. 2 The Invention Assignment requires all disputes arising out of that agreement -- namely, 3 intellectual property disputes -- to be litigated in California state and federal courts. Dkt. No. 15-1 4 at ECF p. 11. The employment agreement separately provides that all disputes between the 5 employee and the Company “arising out of [Johannessen’s] employment or termination” must be 6 submitted to binding arbitration. Id. at ECF p. 6. The agreements are directed toward different 7 types of disputes and are not in conflict. 8 It bears mention that Johannessen, an experienced attorney, was better situated than most 9 prospective employees to manage concerns of procedural unconscionability. She successfully 10 negotiated an agreement for an annual salary of $235,000, a target bonus of 30%, and additional 11 equity compensation and benefits, id. at ECF pp. 4-5. These favorable terms, coupled with her 12 professional experience, underscore that she “knowingly entered into a contract containing an 13 arbitration provision in exchange for a generous compensation and benefits package.” Dotson v. 14 Amgen, Inc., 181 Cal. App. 4th 975, 981 (2010). 15 Overall, Johannessen has not established any material issues of procedural 16 unconscionability. That effectively ends the unconscionability inquiry, but the Court notes that 17 her showing of substantive unconscionability is equally light. Johannessen says that the 18 arbitration agreement is substantively unconscionable because it requires employees to arbitrate 19 employment claims against JUUL while JUUL may litigate in court intellectual property against 20 employees. Dkt. No. 15 at 12-13 (citing Chun Ping Turng v. Guaranteed Rate, Inc., 371 F. Supp. 21 3d 610, 628-29 (N.D. Cal. 2019)). 22 It is true that unfairly one-sided agreements may be substantively unconscionable where 23 the weaker party is forced into arbitration, and the party with greater bargaining power is not. Fitz 24 v. NCR Corp., 118 Cal. App. 4th 702 (2004). But an employer need only demonstrate that the 25 agreement contains a “modicum of bilaterality” or that there is a reasonable justification for the 26 agreement’s ostensible one-sidedness, based on business realities. Armendariz v. Found. Health 27 Psychcare Servs., Inc., 24 Cal. 4th 83, 117 (2000). 1 That is the case here. The arbitration agreement requires employees and JUUL to arbitrate 2 employment claims, so there is no disparity there. For the IP claim carve-out, JUUL says that IP 3 disputes often implicate the rights of third parties and are consequently better suited to judicial 4 forums. See Dkt. No. 16 at 8. JUUL also says that these disputes often arise after the employer- 5 employee relationship has terminated. Id. These explanations are reasonable. The IP carve-out 6 does not make the arbitration agreement “so one-sided as to shock the conscience.” Ingle v. 7 Circuit City Stores, Inc., 328 F.3d 1165, 1172 (9th Cir. 2003) (quoting Kinney v. United 8 HealthCare Servs., Inc., 70 Cal. App. 4th 1332, 1330 (1999)). 9 II. NULLIFICATION 10 Paragraph 14 of the Invention Assignment Agreement, which Johannessen signed on the 11 same day as her employment contract, states that it is “the entire agreement and understanding 12 between the parties as to the subject matter herein and supersedes all prior or contemporaneous 13 agreements whether written and oral.” Dkt. No. 15-1 at ECF p. 11. Johannessen suggests that this 14 language abrogated her employment agreement and nullified the arbitration provision. 15 Not so. Paragraph 14 plainly limits the scope of the clause to the “subject matter herein” 16 of the Invention Assignment Agreement. Similarly, paragraph 15 of the Invention Assignment 17 Agreement limits in-court litigation to disputes “arising out of or relating to this Agreement.” Id. 18 Neither provision supports the conclusion that the Invention Assignment Agreement effectively 19 ripped up Johannessen’s employment contract with JUUL. 20 III. THE ENDING FORCED ARBITRATION OF SEXUAL ASSAULT AND SEXUAL HARASSMENT ACT OF 2021 (EFAA) 21 22 The EFAA amended the FAA to render pre-dispute arbitration agreements unenforceable 23 with respect to workplace sexual assault and sexual harassment claims. It was enacted in March 24 2022, and applies to any “dispute or claim that arises or accrues on or after” its enactment. Pub. L. 25 No. 117-90, 136 Stat. 26 (2022) (codified at 9 U.S.C. §§ 401, 402) (EFAA). Johannessen says the 26 EFAA retroactively applies to the claims in the case, and so renders the arbitration agreement 27 unenforceable. 1 The question of the possible application of the EFAA here came up in prior briefing on 2 arbitration. The Court could not readily ascertain which, if any, of Johannessen’s claims might be 3 covered by the EFAA. See Dkt. No. 23. At the Court’s direction, the parties filed statements in 4 answer to that inquiry. See Dkt. Nos. 24, 25. 5 The complaint uses the word “harassment,” but not as that term is to be understood for 6 purposes of the EFAA. The EFAA defines a sexual harassment dispute to “mean[] a dispute 7 relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, 8 or State law.” 9 U.S.C. § 401. Johannessen alleged a claim under the California FEHA, which 9 defines “harassment because of sex” as “sexual harassment, gender harassment, and harassment 10 based on pregnancy, childbirth, or related medical conditions.” Cal. Gov’t Code § 12940(j)(4)(C). 11 The California Civil Rights Council, the agency tasked with interpreting and effectuating the 12 purpose of the FEHA, 2 Cal. Code. Regs. § 11004, has defined harassment as: 13 (A) Verbal harassment, e.g., epithets, derogatory comments or slurs on a basis enumerated in the Act; 14 (B) Physical harassment, e.g., assault, impeding or blocking movement, or any 15 physical interference with normal work or movement, when directed at an individual on a basis enumerated in the Act; 16 (C) Visual forms of harassment, e.g., derogatory posters, cartoons, or drawings on a basis enumerated in the Act; or 17 (D) Sexual favors, e.g., unwanted sexual advances, which condition an employment benefit upon an exchange of sexual favors. 18 19 2 Cal. Code Regs. § 11019(2). California state courts have construed the FEHA’s “prohibition 20 against sexual harassment” to “include[] protection from a broad arrange of conduct, ranging from 21 expressly or impliedly conditioning employment benefits on submission to or tolerance of 22 unwelcome sexual advances, to the creation of a work environment that is hostile or abusive on 23 the basis of sex.” Lewis v. City of Benicia, 224 Cal. App. 4th 1519, 1524 (2014). 24 The critical point for present purposes is that sexual harassment and sexual discrimination 25 are not the same under the FEHA. They “appear in separate provisions and define distinct 26 wrongs.” Roby v. McKesson Corp., 47 Cal. 4th 686, 705 (2009). “[C]laims for sexual 27 discrimination and sexual harassment are distinct causes of action, each arising from different 1 Discrimination and harassment claims may on occasion “overlap as an evidentiary matter.” Roby, 2 47 Cal. 4th at 709. But “discrimination refers to bias in the exercise of official actions on behalf 3 of the employer, and harassment refers to bias that is expressed or communicated through 4 interpersonal relations in the workplace.” Id. at 707. 5 Nothing in the complaint plausibly alleges sexual harassment as contemplated by the 6 FEHA. The complaint does not allege that Johannessen was subjected to unwelcome sexual 7 advances or experienced “epithets, derogatory comments or slurs” on the basis of her gender or 8 pregnancy. 2 Cal. Code Regs. § 11019(2). It does not allege physical or visual harassment of a 9 sexual nature. Id. The FEHA harassment claim is based solely on the allegations that 10 Johannessen’s job duties were changed adversely after she returned to work from maternity leave; 11 she was not included in some meetings; one of her direct reports was reassigned to a different 12 manager; and she was provided with a lactation room with inadequate privacy, including “no lock 13 on the door.” Dkt. No. 1-2 ¶¶ 43-52. These incidents plausibly allege discrimination or gender 14 bias by the employer for pleading purposes, but not sexual harassment in interpersonal 15 relationships at work. Personnel actions such as “hiring and firing, job or project assignments, . . . 16 the assignment or nonassignment of supervisory functions, deciding who will and who will not 17 attend meetings, . . . and the like, do not come within the meaning of harassment.” Janken v. GM 18 Hughes Elecs., 46 Cal. App. 4th 55, 64-65 (1996). 19 The EFAA does not apply in the absence of a plausible sexual harassment claim. Other 20 courts have reached the same conclusion. See, e.g., Yost v. Everyrealm, Inc., 675 F. Supp. 3d 563, 21 585 (S.D.N.Y. 2023) (declining to apply EFAA where plaintiff did not allege plausible sexual 22 harassment claim). To read the EFAA more broadly, as Johannessen urges, would violate the 23 plain meaning of the statute, and lead to an improper dilution of the “liberal federal policy 24 favoring arbitration.” AT&T Mobility LLC v. Conception, 563 U.S. 333, 339 (2011). 25 CONCLUSION 26 Johannessen’s claims will go to arbitration. The case is stayed pending further order. The 27 parties are directed to jointly file status reports every 90 days, starting on September 6, 2024. 1 request that conforms to the District’s Local Rules and the Court’s sealing practices, by July 12, 2 |} 2024. 3 IT IS SO ORDERED. 4 Dated: June 24, 2024 5 JAMES#PPONATO 6 United Btates District Judge 7 8 9 10 11 a 12

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