Reyes v. Hearst Communications, Inc.

• Court: District Court, N.D. California
• Decided: August 24, 2021
• Docket: 4:21-cv-03362
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA

7 MANUEL REYES, Case No. 21-cv-03362-PJH 8 Plaintiff,

9 v. ORDER DENYING MOTION TO COMPEL ARBITRATION 10 HEARST COMMUNICATIONS, INC., Re: Dkt. No. 14 11 Defendant. 12

13 Defendant Hearst Communications, Inc.’s (“defendant”) motion to compel 14 arbitration came on for hearing before this court on August 12, 2021. Plaintiff Manuel 15 Reyes (“plaintiff”) appeared through his counsel, Scott Nakama and Daniel Martinez de la 16 Vega. Defendant appeared through its counsel, Richard Lapp and Andrew Cockroft. 17 Having read the parties’ papers and carefully considered their arguments and the 18 relevant legal authority, and good cause appearing, the court DENIES defendant’s 19 motion. 20 BACKGROUND 21 Defendant distributes online and print media content. Dkt. 1 (Compl.) ¶ 8. Plaintiff 22 is a “newspaper dealer.” Id. ¶ 11. He spends most of his time “sorting” or “delivering” 23 various publications for defendant. Dkt. 23-4 ¶¶ 2, 24. Those publications include the 24 San Francisco Chronicle, Wall Street Journal, China Daily, Korean Times, and New York 25 Times, id. ¶ 25, as well as other unspecified “advertisements,” id. ¶ 28. Plaintiff’s zone of 26 delivery is limited to the Bay Area. Compl. ¶ 10(c); Dkt. 14-1 at 26-27. 27 On May 5, 2021, plaintiff filed the instant action against defendant. In his 1 contractor. Compl. ¶¶ 8, 11-12. Based on that purported misclassification, plaintiff 2 alleges numerous claims under the California Labor Code, the Fair Labor Standards Act, 3 and the California Business & Professions Code. Id. ¶¶ 22-84. 4 On July 7, 2021, defendant filed the instant motion to compel this action to 5 arbitration. Dkt. 14. To support its request, defendant relies on both the Federal 6 Arbitration Act (“FAA”), Title 9 U.S.C. § 3, et. seq. and its state law counterpart, the 7 California Arbitration Act (“CAA”), California Code of Civil Procedure § 1280, et. seq.. Id. 8 Defendants bases its motion on a 24-page agreement signed by plaintiff on 9 December 2, 2019. Dkt. 14-1. That agreement is titled “San Francisco Chronicle . . . 10 Contractor Home Delivery Agreement.” Id. at 4.1 The court will refer to it as the 11 “contractor agreement.” The contractor agreement comprises 23 paragraphs and various 12 schedules. Paragraph 18 details the arbitration provision at issue. Id. ¶ 18. That 13 paragraph comprises eleven subparts. Id. ¶ 18(a)-(k). The court will detail the contractor 14 agreement, the arbitration provision, and other relevant facts as necessary below. 15 DISCUSSION 16 As noted above, defendant relies on the FAA and CAA as alternative grounds for 17 granting its requested relief. The court addresses the applicability of each act in turn. 18 I. The FAA Does Not Apply to This Action 19 “The FAA generally provides that arbitration agreements ‘shall be valid, 20 irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 21 revocation of any contract.’” Rittmann v. Amazon.com, Inc., 971 F.3d 904, 909 (9th Cir. 22 2020), cert. denied, 141 S. Ct. 1374, 209 L. Ed. 2d 121 (2021). Any party bound to an 23 arbitration agreement that falls within the scope of the FAA may bring a motion to compel 24 arbitration and stay the proceeding pending resolution of the arbitration. 9 U.S.C. §§ 3-4; 25 Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). The 26

27 1 In support of his opposition, plaintiff attaches an identical 24-page agreement to his 1 FAA requires the court to compel arbitration of issues covered by the arbitration 2 agreement. Dean Witter Reynolds, Inc., v. Byrd, 470 U.S. 213, 218 (1985). 3 Title 9 U.S.C. § 2, however, “exempts certain contracts from its scope, specifically 4 the employment contracts of ‘seamen, railroad employees, and any other class of 5 workers engaged in foreign or interstate commerce.’” Rittmann, 971 F.3d at 909. 6 In Rittman, the Ninth Circuit considered whether workers who provided delivery 7 services for Amazon were “engaged in interstate commerce” when they made “’last mile” 8 deliveries of packaged products from Amazon warehouses to the packages’ destinations. 9 Rittmann, 971 F.3d at 907. Those workers were primarily engaged in intrastate 10 deliveries. Id. They only “occasionally” crossed state lines to make such deliveries. Id. 11 The panel in Rittman held that the delivery workers fell within the scope of Title 9 12 U.S.C. § 2’s exemption. Id. at 909. Relevant here, the panel reasoned that the subject 13 packages “are goods that remain in the stream of interstate commerce until they are 14 delivered.” Id. at 915. It explained that, because the Amazon workers completed such 15 “last mile” deliveries, they were “engaged in the movement of interstate commerce.” Id. 16 More recently, the Ninth Circuit considered similar facts in Romero v. Watkins and 17 Shepard Trucking Inc., -- F.4th --, 2021 WL 3671380 (9th Cir. Aug. 19, 2021). In that 18 case, defendant “operated an interstate trucking business, and [plaintiff’s] job was to 19 deliver furniture and carpet to retail stores in California. The product often originated 20 from outside of the state, but [plaintiff] made deliveries only within California.” Romero, 21 2021 WL 3671380 at *1. Citing Rittman, the panel in Romero found that the nature of the 22 goods delivered by plaintiff put him “within the class of workers which [Title 9 U.S.C.] § 1 23 excludes from the FAA’s coverage.” Id. at *3. 24 The court concludes that Rittman and Romero control its determination that 25 plaintiff qualifies as a transportation worker engaged in interstate commerce. Critically, in 26 his declaration, plaintiff says that he “delivers advertisements that [are] shipped in boxes 27 from other states.” Dkt. 23-4 ¶ 28. He also says that defendant’s newspapers arrive to 1 and that those pallets are “split up and sorted among the [newspaper] dealers.” Id. ¶ 27. 2 In its reply, defendant does not proffer any evidence contesting the accuracy of 3 plaintiff’s statements. It also fails to offer any evidence otherwise suggesting that the 4 subject publications come from within California. 5 Based on plaintiff’s uncontested statements, the court finds that the publications 6 delivered by plaintiff come from outside California. Because plaintiff delivers such 7 publications to their subscribers in the Bay Area, he qualifies as a worker “engaged in the 8 movement of interstate commerce.” Rittmann, 971 F.3d at 909; Romero, 2021 WL 9 3671380, at *3. Given that, the court concludes that the FAA does not apply to this 10 action in the first instance. 11 Defendant’s remaining contentions do not alter this conclusion. First, defendant 12 argues that plaintiff does not qualify as a “worker” within the meaning of Title 9 U.S.C. § 2 13 because he may enlist third parties to deliver publications on his behalf. Dkt. 24 at 14. 14 Perhaps. But that argument overlooks plaintiff’s uncontested statement that he himself 15 sorts and delivers defendant’s publications. Dkt. 23-4 ¶¶ 24-28. 16 Second, defendant argues that plaintiff may not rely on Rittman because the 17 publications that he delivers are “not fully arranged until he assembles them prior to 18 delivery” and plaintiff admits that he “does not cross state lines.” Dkt. 24 at 14-15. 19 Both criticisms miss the mark. With respect to the first criticism, the fact that 20 plaintiff not only delivers but also assembles the subject publications does not detract 21 from his role in moving them through the channels of interstate commerce. The second 22 criticism fundamentally misunderstands Rittman’s ruling. Rittman, 971 F.3d at 915 (“[W]e 23 conclude that § 1 exempts transportation workers who are engaged in the movement of 24 goods in interstate commerce, even if they do not cross state lines.”). 25 II. The CAA Does Not Provide an Alternative Basis to Compel Arbitration 26 California Code of Civil Procedure § 1281 (“CCP § 1281”) states that: 27 A written agreement to submit to arbitration an existing for the revocation of any contract. 1 2 The California Supreme Court has explained that, as a general matter, CCP § 3 1281 and Title 9 U.S.C. § 2 are identical in that both sections require courts to enforce an 4 arbitration agreement unless that agreement may “be invalidated for the same reasons 5 as other contracts.” Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 6 98 (2000). Unlike the FAA, though, the CAA does not exempt workers engaged in 7 interstate commerce. Id. 8 In its reply, defendant picks up on that distinction. Pivoting its argument away 9 from the FAA, defendant primarily asserts that, regardless of that act’s (in)applicability, 10 the CAA requires the court to compel this action to arbitration. Dkt. 24 at 8-9. 11 The court disagrees. Following the court’s hearing on this motion, the Ninth Circuit 12 issued its decision in Lim v. TForce Logistics, LLC, -- F.4th --, 2021 WL 3557294 (9th Cir. 13 Aug. 12, 2021). In Lim, the panel considered the unconscionability of an agreement 14 between a company and an allegedly misclassified employee-worker. Id. at *2. Relevant 15 here, the agreement included an arbitration provision that generally required the parties 16 to “split” any arbitration fees. Id. 17 The panel in Lim held that that arbitration fee-splitting requirement is substantively 18 unconscionable under California law. Lim, 2021 WL 3557294, at *8. To support that 19 holding, the panel relied on the Armendariz court’s ruling that: 20 [W]hen an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or 21 arbitration process cannot generally require the employee to bear any type of expense that the employee would not be 22 required to bear if he or she were free to bring the action in court. Lim, 2021 WL 3557294, at * 6 (citing Armendariz, 24 23 Cal. 4th at 110-11) (emphasis in the original). 24 In this case, the arbitration provision includes a substantially similar requirement at 25 paragraph 18(j). In particular, that subparagraph states the following: 26 (j) Each party will pay the fees for his, her or its own attorneys, subject to any remedies to which that party may later be entitled 27 under applicable law. The Arbitrator's and/or arbitration Dkt. 14-1 at 16 ¶ 18(j) (emphasis added). 1 2 By its plain text, paragraph 18(j)’s fee-splitting requirement extends to all 3 arbitration fees. Such fees may include both those incurred for an arbitrator to determine 4 the gateway issue of whether an action is subject to arbitration and, if so, the merits of 5 such action. Accordingly, the court concludes that paragraph 18(j) is substantively 6 unconscionable with respect to both the delegation clause (paragraph 18(c) in particular) 7 and arbitration provision (paragraph 18 more broadly). 8 That leaves only procedural unconscionability. That element “focuses on 9 ‘oppression or surprise due to unequal bargaining power.’” Lim, 2021 WL 3557294, at *5. 10 In his declaration, plaintiff states that he primarily speaks Spanish, is not fluent in reading 11 or writing English, and was offered only an English version of the contractor agreement. 12 Dkt. 23-4 ¶¶ 3, 6, 9. Plaintiff adds that “[he] and other drivers entered into the same form 13 agreements with blank sections to be filled with the rate they would receive per delivery.” 14 Id. ¶ 17. 15 Defendant does not contest plaintiff’s second statement. Defendant does, 16 however, contest plaintiff’s purported language limitations. Dkt. 24-2 ¶¶ 17-19. In light of 17 the evidence presented, the court finds plaintiff’s version on that issue persuasive. 18 Based on the above two statements, the court concludes that plaintiff proffered sufficient 19 evidence of surprise and oppression to justify finding that the arbitration provision 20 qualifies as unconscionable. 21 To be sure, the court understands that the parties offer conflicting evidence 22 concerning numerous other procedural unconscionability-related facts. For example, the 23 parties dispute whether defendant required plaintiff to sign the contractor agreement as a 24 condition of employment. Compare Dkt. 23-4 ¶ 10 with Dkt. 24-2 ¶ 20. That said, given 25 the clarity and weight of paragraph 18(j)’s substantive unconscionability, the court need 26 not resolve those conflicts in plaintiff’s favor to justify its finding of unconscionability. Lim, 27 2021 WL 3557294, at *5 (describing California unconscionability doctrine as a “sliding 1 evidence of procedural unconscionability is required to come to the conclusion that the 2 term is unenforceable, and vice versa.”). Because paragraph 18(j)’s fee-splitting 3 requirement is unconscionable and extends to all arbitration expenses, the court 4 concludes that the arbitration provision is unenforceable in its entirety. 5 Lastly, to the extent defendant invites the court to simply sever paragraph 18(j), 6 Dkt. 24 at 12-13, the court declines. First, defendant does not explain why such 7 severance would be justified under California Civil Code § 1670.5 in the first instance. 8 Second, the panel in Lim expressly recognized that district courts properly deny a request 9 to sever an unconscionable term if doing so would encourage persons to “overreach” 10 when drafting an agreement with the fallback expectation that they could later “whittle 11 down to the least offensive agreement if faced with litigation.” Lim, 2021 WL 3557294, at 12 *9. The court finds that, in this case, severing paragraph 18(j) would incentivize such 13 improper, strategic behavior. 14 For the above reasons, the court rejects defendant’s alternative position that the 15 CAA separately requires the court to compel this action to arbitration. 16 CONCLUSION 17 For the above reasons, the court DENIES defendant’s motion to compel this action 18 to arbitration. 19 IT IS SO ORDERED. 20 Dated: August 24, 2021 21 /s/ Phyllis J. Hamilton PHYLLIS J. HAMILTON 22 United States District Judge

24 25 26 27