Manuel Reyes v. Hearst Communications, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 22, 2022
• Docket: 21-16542
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUN 22 2022 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

MANUEL REYES, No. 21-16542

Plaintiff-Appellee, D.C. No. 4:21-cv-03362-PJH

v. MEMORANDUM* HEARST COMMUNICATIONS, INC.,

Defendant-Appellant.

Appeal from the United States District Court for the Northern District of California Phyllis J. Hamilton, District Judge, Presiding

Submitted June 17, 2022** San Francisco, California

Before: S.R. THOMAS, BEA, and H. THOMAS, Circuit Judges.

Hearst Communications, Inc. appeals the district court’s order denying its

motion to compel arbitration of claims asserted by Manuel Reyes. We have

jurisdiction under 9 U.S.C. § 16(a). We affirm.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). 1. The district court did not err in finding that Reyes is a transportation

worker engaged interstate commerce, and that the Federal Arbitration Act therefore

does not apply to his claims. See 9 U.S.C. § 1; Rittmann v. Amazon.com, Inc., 971

F.3d 904, 909 (9th Cir. 2020). Reyes stated in his declaration that the

advertisements he delivered were “shipped in boxes from other states.” The district

court could reasonably infer that Reyes would know from observation or

experience where the boxes originated. The fact that the newspapers and

magazines arrived by large trucks and on wooden shipping pallets was additional

circumstantial evidence that they, too, arrived from out of state. And the district

court reasonably concluded that Hearst’s arguments to the contrary were

undermined by its failure to produce any evidence that its publications originated

within California.

2. The district court correctly concluded that Hearst’s arbitration

agreement with Reyes, including the provision delegating the adjudication of

threshold issues to the arbitrator (the “delegation clause”), could not be enforced

under the California Arbitration Act because it is unconscionable under California

law.

a. Reyes sufficiently raised a specific unconscionability challenge to the

delegation clause. See Tiri v. Lucky Chances, Inc., 226 Cal. App. 4th 231, 240–41

(2014). Reyes argued at the hearing on the motion to compel arbitration that the

2 delegation clause was not enforceable. He submitted an additional filing after the

hearing in which he expressly asserted that the delegation clause was procedurally

and substantively unconscionable. The district court understood Reyes to be

making a specific challenge to the delegation clause, and it assessed the

unconscionability of the clause separately from the arbitration agreement as a

whole, as California law requires. See id.; cf. Yamada v. Nobel Biocare Holding

AG, 825 F.3d 536, 543 (9th Cir. 2016).

b. Under California law, when an employer requires an employee to

arbitrate unwaivable statutory claims, the arbitration agreement must adhere to

certain requirements, including that the agreement cannot “require [the]

employee[] to pay either unreasonable costs or any arbitrators’ fees or expenses as

a condition of access to the arbitration forum.” Armendariz v. Found. Health

Psychcare Servs., Inc., 24 Cal. 4th 83, 102 (2000); see Lim v. TForce Logistics,

LLC, 8 F.4th 992, 1002–04 (9th Cir. 2021). The district court correctly held that

Hearst’s arbitration agreement with Reyes violated this rule because it contained a

provision requiring Reyes to pay an equal share of all arbitration fees.

Contrary to Hearst’s arguments, Reyes was not required to introduce

evidence of the amount of fees he would be required to pay to arbitrate threshold

unconscionability issues. The agreement, on its face, requires that he pay an equal

share of all fees incurred. That is a violation of California law, regardless of

3 whether Reyes could afford arbitration. See Armendariz, 24 Cal. 4th at 102; Lim, 8

F.4th at 1004 (“[I]mposing arbitration expenses on an employee that he would not

otherwise bear in federal court is unconscionable regardless of his ability to pay.”).

The rule from Armendariz applies to the unwaivable statutory claims Reyes

asserts in this action, including claims under California Labor Code § 1194. See

Gentry v. Superior Court, 42 Cal. 4th 443, 456–57 (2007), abrogated on other

grounds by AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); Lim, 8 F.4th

at 996, 1002–04 (applying Armendariz to claims similar to those asserted by

Reyes). Hearst’s contention that equally apportioning arbitration fees comports

with the default rule of California Code of Civil Procedure § 1284.2 is squarely

foreclosed by Armendariz. 24 Cal. 4th at 112–13.

Finally, Hearst’s argument that Reyes could challenge his obligation to pay

arbitration fees before the arbitrator finds no support in the language of the

agreement. The agreement authorizes the arbitrator to resolve disputes related to

the apportionment of fees, but it does not empower the arbitrator to depart from the

contracted rule of equal apportionment. Even if the agreement did grant the

arbitrator discretion to excuse Reyes from paying fees, it would still impose an

impermissible risk that the arbitrator would not exercise that discretion, leaving

Reyes with fees he would not otherwise bear in federal court. See Armendariz, 24

Cal. 4th at 110; Lim, 8 F.4th at 1004.

4 c. The district court correctly found that there was sufficient evidence of

procedural unconscionability that, when combined with the substantively

unconscionable fee-splitting provision, rendered the arbitration agreement and

delegation clause unconscionable. Hearst did not dispute that all delivery persons

entered into substantially similar form agreements, which is some evidence of

procedural unconscionability. See Poublon v. C.H. Robinson, Co., 846 F.3d 1251,

1261 (9th Cir. 2017). The district court did not, as Hearst asserts, improperly refuse

to resolve factual disputes related to Reyes’s knowledge of English and ability to

understand the arbitration agreement. Rather, the court considered the parties’

competing narratives and “f[ound] [Reyes’s] version . . . persuasive.”

d. The district court did not abuse its discretion by declining to sever the

fee-splitting provision from the rest of the arbitration agreement. See Lim, 8 F.4th

at 999 (standard of review). The court was well within its discretion to conclude

that severance was not appropriate given Hearst’s inclusion of a fee-splitting

provision that has been impermissible under Armendariz for more than two

decades. See Armendariz, 24 Cal. 4th at 124 n.13; Lim, 8 F.4th at 1005–06.

AFFIRMED.