1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 MARCUS TAYLOR, individually and No. 2:22-cv-00947 WBS DMC on behalf of all those similarly 13 situated, 14 Plaintiff, MEMORANDUM AND ORDER RE: DEFENDANT’S MOTION TO COMPEL 15 v. ARBITRATION 16 TA OPERATING, LLC, a Delaware limited liability company; and 17 DOES 1 through 50, inclusive, 18 Defendants. 19 20 ----oo0oo---- 21 This is just the most recent of many cases in which the 22 court has been called upon to determine whether an arbitration 23 agreement between an employer and its employee is enforceable. 24 Understandably, employers often include arbitration clauses in 25 their written employment agreements with their employees. The 26 fundamental value of arbitration is that it saves the time and 27 expense of extended litigation for both sides. In the context of 28 the employer-employee relationship (if a relationship still 1 exists) it also serves to minimize the disruption of business and 2 the acrimony of litigation. Parties in arbitration further 3 benefit from the experience and expertise of an arbitrator who is 4 a subject-matter expert rather than submitting to the 5 uncertainties associated with a jury trial. 6 In this case, rather than take advantage of the 7 arbitration provisions in his employment agreement, plaintiff 8 Marcus Taylor seeks to pursue the more costly, time consuming, 9 and rancorous process of litigating his employment dispute in 10 federal court. Accordingly, he has initiated this putative class 11 action against defendant TA Operating, LLC, alleging wage and 12 hour violations under the California Labor Code and California 13 Business and Professions Code. (See Compl. (Docket No. 1-1 at 5- 14 19) at 2.) Defendant now moves to compel plaintiff to arbitrate 15 his claims and seeks dismissal of the action. (Docket No. 19.) 16 I. Factual and Procedural Background 17 Defendant, an owner and operator of truck stops and 18 convenience stores, employed plaintiff as a non-exempt assistant 19 general manager from on or around August 16, 2021 to January 13, 20 2022. (Decl. of Marcus Taylor (“Taylor Decl.”) (Docket No. 21-2) 21 ¶ 3; Decl. of Claudia Ratica (“Ratica Decl.”) (Docket No. 19-3) 22 ¶¶ 3-4.) At the beginning of his employment with defendant, 23 plaintiff signed a Mutual Agreement to Resolve Disputes and 24 Arbitrate Claims (“Agreement”). (See Taylor Decl. ¶ 4; Ratica 25 Decl. ¶ 5.) 26 The Agreement provides that if a dispute cannot be 27 resolved through defendant’s internal grievance process, it must 28 be arbitrated. (Ex. B to Ratica Decl. (“Agreement”) (Docket No. 1 19-3 at 14-26) at 1.) Pursuant to the Agreement, defendant will 2 pay all arbitration fees. (Id. at 3.) Defendant will not, 3 however, pay associated costs including attorneys’ fees and costs 4 incurred in responding to discovery (though the arbitrator can 5 award such costs and fees in his decision). (Id. at 3-4.) The 6 Agreement provides that employees waive the right to bring class 7 or collective claims and the right to a jury trial in the event 8 the Agreement is found unenforceable. (Id. at 4.) A choice of 9 law provision states that disputes regarding enforceability of 10 the Agreement will be determined under Delaware law, while the 11 substance of the claim will be governed by California law. (Id.) 12 The Agreement also contains a delegation clause, which provides 13 that “all challenges to the interpretation or enforceability of 14 any provision of this Agreement shall be brought before the 15 arbitrator, and the arbitrator shall rule on all questions 16 regarding the interpretation and enforceability of this 17 Agreement.” (Id. at 4.) 18 Defendant previously moved to compel arbitration in two 19 cases that involved the precisely same Agreement.1 In Chandler 20 v. TA Operating LLC, Judge Troy L. Nunley granted defendant’s 21 motion to compel arbitration, finding that the delegation clause 22 was enforceable, and that even if the delegation clause was 23 unconscionable, the Agreement as a whole was not. No. 2:20-cv- 24 02091 TLN DMC, 2022 WL 597581, at *2 (E.D. Cal. Feb. 28, 2022). 25 In Holley-Gallegly v. TA Operating LLC, Judge Jesus G. Bernal 26 reached a different result and denied defendant’s motion to 27 1 While these district court decisions involved the same 28 arbitration agreement, they are not binding on this court. 1 compel arbitration, finding that the Agreement--including the 2 choice of law and waiver of jury trial provisions--was 3 unconscionable and therefore the delegation clause was 4 unenforceable. See No. EDCV-22-593 JGB SHK, 2022 WL 9959778, at 5 *3-5 (C.D. Cal. Sept. 16, 2022). 6 II. Discussion 7 The parties do not dispute that the Federal Arbitration 8 Act (“FAA”) governs the instant Agreement. (See Def.’s Mem. in 9 Supp. of Mot. to Compel (“Def.’s Mem.”) (Docket No. 19-1) at 10; 10 Pl.’s Opp’n (Docket No. 21) at 9.) The FAA provides that a 11 written provision in a “contract evidencing a transaction 12 involving commerce to settle by arbitration a controversy 13 thereafter arising out of such contract . . . shall be valid, 14 irrevocable, and enforceable, save upon such grounds as exist at 15 law or in equity for the revocation of any contract.” 9 U.S.C. 16 § 2. Because arbitration is a matter of contract, “the central 17 . . . purpose of the FAA is to ensure that private agreements to 18 arbitrate are enforced according to their terms.” Stolt-Nielsen 19 S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010) 20 (internal quotation marks omitted). See also Perry v. Thomas, 21 482 U.S. 483, 490 (1987) (under the FAA, arbitration agreements 22 “must be rigorously enforced”) (internal quotation marks omitted, 23 alterations adopted). 24 The FAA “leaves no place for the exercise of discretion 25 by a district court, but instead mandates that district courts 26 shall direct the parties to proceed to arbitration on issues as 27 to which an arbitration agreement has been signed.” Dean Witter 28 Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). “[A]s a matter 1 of federal law, any doubts concerning the scope of arbitrable 2 issues should be resolved in favor of arbitration, whether the 3 problem at hand is a construction of the contract language itself 4 or an allegation of waiver, delay, or like defense to 5 arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Const. 6 Corp., 460 U.S. 1, 24–25 (1983); see also Poublon v. C.H. 7 Robinson Co., 846 F.3d 1251, 1259 (9th Cir. 2017). 8 Upon a showing that a party has failed to comply with a 9 valid arbitration agreement, the district court must issue an 10 order compelling arbitration. See Cohen v. Wedbush, Noble Cooke, 11 Inc., 841 F.2d 282, 285 (9th Cir. 1988). “[T]he FAA limits 12 courts’ involvement to determining (1) whether a valid agreement 13 to arbitrate exists and, if it does, (2) whether the agreement 14 encompasses the dispute at issue.” Cox v. Ocean View Hotel 15 Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal quotation 16 marks omitted). Ordinarily, courts may “refuse to enforce 17 arbitration agreements ‘upon such grounds as exist at law or in 18 equity for the revocation of any contract.’” Epic Sys. Corp. v. 19 Lewis, 138 S. Ct. 1612, 1622 (2018) (quoting 9 U.S.C. § 2). Such 20 “generally applicable contract defenses” include fraud, duress, 21 or unconscionability, as determined by state law. See AT&T 22 Mobility LLC v. Concepcion, 563 U.S. 333, 340 (2011). 23 Defendant seeks to compel arbitration not only of the 24 underlying wage and hour claims, but also the threshold issue of 25 whether those claims are subject to arbitration under the 26 Agreement. (See Def.’s Mem.) Plaintiff argues that he cannot be 27 compelled to arbitrate because both the Agreement and the 28 delegation clause are unconscionable and therefore unenforceable. 1 (See Pl.’s Opp’n at 16-18.)
2 A. Plaintiff’s Substantive Unconscionability Arguments Lack Merit 3 “Unconscionability has both a ‘procedural’ and a 4 ‘substantive’ element.” Armendariz v. Found. Health Psychcare 5 Servs., 24 Cal. 4th 83, 114 (2000). “Both [must] be present in 6 order for a court to exercise its discretion to refuse to enforce 7 a contract or clause under the doctrine of unconscionability.” 8 Id. However, “they need not be present in the same degree.” 9 OTO, LLC v. Kho, 8 Cal. 5th 111, 125 (2019). “A procedural 10 unconscionability analysis begins with an inquiry into whether 11 the contract is one of adhesion.” Id. at 126. “A substantive 12 unconscionability analysis examines the fairness of a contract’s 13 terms.” Id. at 129. The concern is with “terms that are 14 unreasonably favorable to the more powerful party.” Id. at 130. 15 Plaintiff first contends that the entire agreement is 16 procedurally unconscionable because it was a condition of 17 employment and plaintiff had no opportunity to negotiate the 18 terms. (Pl.’s Opp’n at 10-11.) Under these circumstances, the 19 Agreement is a contract of adhesion. See Armendariz, 24 Cal. 4th 20 at 115 (finding that arbitration agreement that was “imposed on 21 employees as a condition of employment” with “no opportunity to 22 negotiate” was adhesive); OTO, LLC, 8 Cal. 5th at 126 23 (“Arbitration contracts imposed as a condition of employment are 24 typically adhesive.”). 25 However, because “adhesion establishes only a ‘low’ 26 degree of procedural unconscionability,” Davis v. Kozak, 53 Cal. 27 App. 5th 897, 907 (2020), plaintiff must demonstrate a high level 28 1 of substantive unconscionability. See Poublon, 846 F.3d at 1261 2 (“if an employee must sign a non-negotiable employment agreement 3 as a condition of employment but there is no other indication of 4 oppression or surprise, then the agreement will be enforceable 5 unless the degree of substantive unconscionability is high”) 6 (internal quotation marks and citations omitted); Armendariz, 24 7 Cal. 4th at 114 (“the more substantively oppressive the contract 8 term, the less evidence of procedural unconscionability is 9 required to come to the conclusion that the term is 10 unenforceable, and vice versa”). 11 Plaintiff next argues that the Agreement is so 12 permeated by substantive unconscionability that it is 13 unenforceable in its entirety. (Pl.’s Opp’n at 16.) In response 14 to the court’s request, counsel for plaintiff has provided a list 15 of each of the provisions of the Agreement that plaintiff 16 contends is substantively unconscionable. Specifically, 17 plaintiff argues that the following provisions are 18 unconscionable: (1) the waiver of jury trial, (2) the scope of 19 the arbitrator’s ability to award attorneys’ fees and costs to 20 the prevailing party, (3) the allocation of attorneys’ fees and 21 costs between the parties, (4) the limitations on discovery, (5) 22 the requirement that plaintiff decide at the beginning of 23 arbitration whether to be represented by a lawyer, and (6) the 24 choice of Delaware law. 25 One can understand how an attorney who wants to turn 26 the plaintiff’s claims into a class action would prefer to 27 litigate those claims in court. But it is hard to understand how 28 any reasonable employee could really think any of these 1 provisions, individually or collectively, are unconscionable or 2 unfair. Although it is not necessary to this decision, the court 3 will discuss each of the assailed provisions in turn. 4 i. Waiver of Jury Trial 5 The term at issues provides: “IF THIS AGREEMENT IS 6 DETERMINED TO BE UNENFORCEABLE ANY CLAIMS BETWEEN YOU AND THE 7 COMPANY RELATED TO YOUR EMPLOYMENT SHALL BE SUBJECT TO A NON-JURY 8 TRIAL.” (Agreement at 5.) This term would apply only if 9 arbitration were not compelled; as defendant points out, if 10 arbitration is compelled, the provision will be moot. (Def.’s 11 Reply Mem. (Docket No. 23 at 2-12) at 2.) As a result, this term 12 is not relevant to whether the arbitration agreement is 13 unconscionable. 14 Even if this term were unconscionable, it could be 15 easily severed and thus would not warrant finding the entire 16 agreement unconscionable. See Armendariz, 24 Cal. 4th at 121- 17 122, 125 (courts should typically sever unconscionable 18 provisions, but can decline to do so and instead find an entire 19 contract unconscionable where it is so “permeated by an unlawful 20 purpose” that a court would be unable to “remove the 21 unconscionable taint from the agreement” by severing a specific 22 provision). 23 Further, plaintiff has not demonstrated that the waiver 24 of jury trial, if unconscionable, was a “‘deliberately illegal’” 25 provision “drafted in bad faith” such that severance would be 26 inappropriate. See Lim v. TForce Logistics, LLC, 8 F.4th 992, 27 1005–06 (9th Cir. 2021) (quoting Armendariz, 24 Cal. 4th at 124 28 n.13). 1 ii. Recovery of Costs and Attorneys’ Fees 2 The Agreement provides:
3 The arbitrator may award reasonable attorneys’ fees and expenses only if expressly required by an applicable statute 4 or law. In the absence of such an express requirement, the arbitrator may award attorneys’ fees and expenses to either 5 party only if the arbitrator determines that a failure to award attorneys’ fees and expenses would be unconscionable 6 under applicable law. 7 (Agreement at 3-4.) 8 This provision mirrors the “American Rule,” according 9 to which “attorneys’ fees are not ordinarily recoverable by the 10 prevailing litigant in federal litigation in the absence of 11 statutory authorization.” Alyeska Pipeline Serv. Co. v. 12 Wilderness Soc’y, 421 U.S. 240, 240 (1975); see also Bird v. 13 Oregon Comm’n for the Blind, 22 F.4th 809, 815 (9th Cir. 2022), 14 cert. denied sub nom. Bird v. Oregon Comm’n for Blind, No. 21- 15 1583, 2022 WL 4652118 (U.S. Oct. 3, 2022). If this provision 16 were unconscionable, so would be the practice in most courts 17 across the United States. 18 Absent statutory authorization, federal courts may 19 award attorneys’ fees only when “overriding considerations of 20 justice seem to compel such a result” under an established 21 exception. Dir., Off. of Workers’ Comp. Programs, U.S. Dep’t of 22 Lab. v. Robertson, 625 F.2d 873, 879 (9th Cir. 1980) (internal 23 quotation marks and citation omitted). California law similarly 24 applies the American Rule. See Cal. Civ. Proc. Code § 1021. 25 Plaintiff has not cited any authority indicating that a more 26 permissive standard concerning attorneys’ fees should apply in 27 arbitration than would apply in federal or state court. 28 At any rate, the labor laws underlying plaintiff’s 1 claims do require that an employer pay a prevailing employee’s 2 attorneys’ fees. See Compl.; Cal. Lab. Code §§ 218.5, 226. If 3 plaintiff prevails at arbitration, the arbitrator will be 4 required to award attorneys’ fees in accordance with the 5 California statutes applicable to plaintiff’s substantive claims. 6 iii. Allocation of Costs and Attorneys’ Fees 7 The first paragraph at issue provides:
8 The Company will pay 100% of the Arbitration Firm’s fees as well as the arbitrator’s fees and expenses. The Company 9 also will pay (or reimburse you) for 100% of any filing fees that the Arbitration Firm may charge to initiate 10 arbitration. Each party shall otherwise bear its own costs and fees associated with the arbitration including, but not 11 limited to, attorneys’ fees and the costs and fees of responding to discovery requests. 12 (Agreement at 3.) 13 The court is baffled how counsel can even suggest that 14 this paragraph is unconscionable. It actually favors the 15 employee in that it allocates all arbitration fees to the 16 employer. Although the employee is otherwise responsible for his 17 own attorney’s fees and costs, it is standard for parties, 18 whether in arbitration or in litigation, to bear such expenses. 19 This provision is therefore not unconscionable. See Lim, 8 F.4th 20 at 1002 (“substantive unconscionability exists when a fee- 21 shifting clause creates for employees a greater financial risk in 22 arbitrating claims than they would face if they were to litigate 23 those same claims in federal court”) (internal quotation marks 24 omitted). 25 And contrary to the Holley-Gallegly court’s assertion 26 that this provision leads to “large, fixed, forum costs” that 27 serve to deter employees from vindicating their rights, see 2022 28 1 WL 9959778, at *5 (citing Armendariz, 24 Cal. 4th at 1110), this 2 provision allocates all direct fees required to initiate and 3 carry out the arbitration process (i.e., forum costs) to the 4 employer (see Agreement at 3). 5 Further, the Agreement allows the arbitrator to award 6 costs and fees to a prevailing employee, as discussed above. The 7 Agreement therefore does not limit plaintiff’s ability to recover 8 attorneys’ fees under the California Labor Code and is not 9 unconscionable on that basis. Cf. Armendariz, 24 Cal. 4th at 10 103-04 (finding arbitration provision unconscionable because it 11 actually precluded remedies that were otherwise made available to 12 the plaintiff by statute); Serafin v. Balco Properties Ltd., LLC, 13 235 Cal. App. 4th 165, 183 (2015) (same); Serpa v. California 14 Sur. Investigations, Inc., 215 Cal. App. 4th 695, 709 (2013), as 15 modified (Apr. 19, 2013), as modified (Apr. 26, 2013) (same). 16 The next provision at issue states:
17 The Company agrees that if it prevails at the arbitration it shall not seek or pursue from you any of the costs it 18 incurred in connection with the arbitration. This waiver shall not apply to other employees or supervisors who may be 19 individually accused in the grievance. 20 (Agreement at 4.) Again, this provision is actually favorable to 21 plaintiff; and contrary to plaintiff’s argument that the 22 provision somehow threatens the employee with burdensome costs, 23 it merely states that the waiver does not apply to individuals 24 who are not parties to the Agreement. This provision is 25 therefore clearly not unconscionable, and the court cannot 26 understand how plaintiff could even argue that it is. 27 iv. Discovery Limitations 28 The paragraph at issue provides in relevant part: 1 Except as provided in this paragraph, the arbitration shall 2 be conducted in accordance with [National Arbitration and Mediation (“NAM”)]’s then current rules for the resolution 3 of employment disputes . . . It will not be necessary to conduct pre-hearing discovery, but either you or the Company 4 may do so. If either party elects to conduct prehearing discovery, each party shall be allowed only up to five (5) 5 interrogatories, including subparts, five (5) requests for production, including sub-parts, and two (2) depositions. 6 Electronic discovery will be limited to searches of e-mail accounts of no more than two (2) addresses for a twelve 7 month period (or any shorter period for which e-mails are retained in the ordinary course) and a maximum of five (5) 8 search terms or phrases will be permissible. 9 (See Agreement at 2-3.) 10 The NAM Employment Rules and Procedures (“NAM Rules”), 11 incorporated by reference, provide for mandatory initial 12 disclosures of “all documents . . . upon which [the parties] rely 13 in support of their claims or defenses” within fourteen days of 14 the appointment of the arbitrator, with a continuing obligation 15 to supplement discovery. (Ex. D to Ratica Decl. (Docket No. 19-3 16 at 28-44) at 6.) The NAM Rules then numerically limit discovery 17 to 20 interrogatories, 30 requests for production, and 3 18 depositions. (Id.) A separate subsection of the NAM Rules 19 titled “Additional Discovery” states that the arbitrator may 20 permit discovery in excess of the enumerated limits upon a 21 showing of “substantial need.” (Id. at 7.) 22 The paragraph at issue in the Agreement explicitly 23 provides limits on the number of interrogatories, requests for 24 production, depositions, and electronic discovery searches, which 25 would override the numerical limits provided by the NAM Rules. 26 (See Agreement at 3.) Because the Agreement is silent on initial 27 disclosures and additional discovery, the remaining NAM 28 provisions--requiring initial disclosures and permitting 1 additional discovery upon a showing of substantial need--apply. 2 (See id.) 3 The court first notes that if plaintiff were allowed to 4 litigate his claims in this court, he could also expect 5 limitations to be placed upon discovery. There is nothing 6 unusual or unfair about that. That is what Rule 26(b) of the 7 Federal Rules of Civil Procedure is all about. 8 Discovery limitations are also common in arbitration 9 agreements. Under Armendariz, parties in arbitration are 10 “entitled to ‘adequate,’ not unlimited, discovery.” Torrecillas 11 v. Fitness Int’l, LLC, 52 Cal. App. 5th 485, 498 (2020) (quoting 12 Armendariz, 24 Cal. 4th at 105–06). “The fact that an 13 arbitration may limit a party’s discovery rights is not 14 ‘substantive unconscionability.’ If it were, every arbitration 15 clause would be subject to an unconscionability challenge on that 16 ground.” Coast Plaza Doctors Hosp. v. Blue Cross of Cal., 83 17 Cal. App. 4th 677, 689–90 (2000)). 18 In evaluating discovery limitations in arbitration 19 agreements, California courts “balance the ‘desirable simplicity’ 20 of limiting discovery with employees’ need for discovery 21 ‘sufficient to adequately arbitrate their statutory claim’” by 22 “look[ing] to the amount of discovery permitted, the standard for 23 obtaining additional discovery, and the evidence presented by 24 plaintiffs that the discovery limitations will prevent them from 25 adequately arbitrating their statutory claims.” Poublon, 846 26 F.3d at 1270 (quoting Armendariz, 24 Cal. 4th at 106). 27 As explained above, the instant agreement requires 28 initial disclosures with an ongoing duty to supplement discovery; 1 limits the parties to five interrogatories, five requests for 2 production, and two depositions; and permits additional discovery 3 upon a showing of substantial need. Courts have determined that 4 comparable discovery provisions are not unconscionable. See, 5 e.g., Poublon, 846 F.3d at 1271 (discovery provision that 6 required disclosure of relevant documents, limited parties to 7 three depositions with zero requests for production and 8 interrogatories, and permitted additional discovery upon showing 9 of “good cause” was not unconscionable); Torrecillas, 52 Cal. 10 App. 5th at 497–98 (discovery provision that required initial 11 disclosures, limited parties to five depositions, twenty 12 interrogatories, and zero requests for documents, and permitted 13 additional discovery upon showing of “substantial need” was not 14 unconscionable); Sanchez v. Carmax Auto Superstores Cal., LLC, 15 224 Cal. App. 4th 398, 404 (2014) (discovery provision that 16 required initial disclosure of relevant documents with a 17 continuing obligation to supplement discovery, limited parties to 18 three depositions, 20 interrogatories, and zero requests for 19 production, and permitted additional discovery on showing of 20 “substantial need” was not unconscionable). Cf. Fitz v. NCR 21 Corp., 118 Cal. App. 4th 702, 716 (2004) (discovery limitation 22 was unconscionable because it did not permit additional discovery 23 unless the parties could “demonstrate that a fair hearing would 24 be impossible without additional discovery”) (emphasis in 25 original). 26 Plaintiff has not “establish[ed] as a factual matter 27 that the discovery provisions [a]re inadequate to vindicate [his] 28 statutory rights,” which further weighs against finding the 1 discovery provisions unconscionable. See Baxter v. Genworth N. 2 Am. Corp., 16 Cal. App. 5th 713, 729 (2017) (citing Sanchez, 224 3 Cal. App. 4th at 404–05, and Mercuro v. Superior Ct., 96 Cal. 4 App. 4th 167, 183 (2002)); see also Poublon, 846 F.3d at 1271. 5 The discovery provisions at issue are therefore not 6 unconscionable. v. Requirement that Plaintiff Decide Whether to Be 7 Represented by Counsel At Beginning of Arbitration 8 The provision at issue states:
9 If you initiate the arbitration, the decision whether to use a lawyer must be made at the time that arbitration is 10 initiated. If the Company initiates the arbitration, your decision whether to use a lawyer must be made within twenty 11 (20) calendar days after your receipt of notice that the Company has initiated arbitration. 12 (Agreement at 3.) 13 Plaintiff argues that this provision unconscionably 14 limits plaintiff’s right to representation (but cites no on-point 15 authority). To the contrary, the Agreement does not limit 16 plaintiff’s ability to be represented by counsel of his own 17 choosing, but rather only requires plaintiff to decide whether to 18 be represented by counsel towards the beginning of the 19 arbitration process. (Id.) And as defendant points out, this 20 provision also states that “if you elect not to use a lawyer at 21 arbitration, then the Company will not use a lawyer either.” 22 (Id.) This portion of the Agreement seems intended to ensure 23 that neither party has the unfair advantage of being represented 24 by counsel while the other is not. 25 While plaintiff argues that the time limitation on 26 deciding whether to be represented is unconscionable, he has not 27 identified (nor has the court found) any authority supporting 28 1 that proposition. To the contrary, the lone case cited by 2 plaintiff provides that “[b]ecause the rules of evidence and 3 judicial procedure do not apply to arbitration proceedings absent 4 the parties’ agreement, arbitration procedures violate the common 5 law right to a fair hearing only in the clearest of cases, i.e., 6 when the applicable procedures essentially preclude the 7 possibility of a fair hearing.” Hoso Foods, Inc. v. Columbus 8 Club, Inc., 190 Cal. App. 4th 881, 888–89 (2010) (internal 9 quotation marks and alteration omitted). 10 The requirement that the plaintiff elect whether to be 11 represented near the beginning of the arbitration process clearly 12 does not preclude the possibility of a fair hearing. The court 13 thus sees no reason to conclude that this provision is 14 unconscionable. 15 vi. Choice of Law Provision 16 The choice of law provision states:
17 The law of the jurisdiction in which you are primarily employed will govern the substance of your grievance. 18 However, all disputes regarding the enforcement of this Agreement, any of the provisions of this Agreement or 19 whether a party’s claim is subject to this Agreement shall be determined in accordance with the law of the State of 20 Delaware.
21 (Agreement at 4.) 22 California has a “strong policy favoring enforcement of 23 [choice of law] provisions.” Nedlloyd Lines B.V. v. Superior 24 Ct., 3 Cal. 4th 459, 464-65 (1992). Under California law, courts 25 determining the enforceability of a choice of law provision first 26 ask whether “(1) the chosen state has a substantial relationship 27 to the parties or their transaction,” or “(2) there is any other 28 reasonable basis for the parties’ choice of law.” Id. at 466. 1 “If neither of these tests is met, that is the end of the 2 inquiry, and the court need not enforce the parties’ choice of 3 law.” Id. Where either test is met, the court proceeds to the 4 second step and “determine[s] whether the chosen state’s law is 5 contrary to the fundamental policy of California.” Id. If there 6 is no conflict of this nature, the choice of law provision must 7 be enforced. Id. 8 Here, there is both a substantial relationship with 9 Delaware and a reasonable basis for the choice of Delaware law, 10 as defendant is incorporated in that state. See Consul Ltd. v. 11 Solide Enterprises, Inc., 802 F.2d 1143, 1147 (9th Cir. 1986) 12 (“If one of the parties resides in the chosen state, the parties 13 have a reasonable basis for their choice.”); Nedlloyd, 3 Cal. 4th 14 at 467 (a “substantial relationship [is] present when ‘one of the 15 parties is domiciled’ in the chosen state”) (quoting Restatement 16 (Second) of Conflict of Laws § 187, cmt. F (Am. Law Inst. 1971)). 17 The inquiry next turns to whether Delaware law 18 contradicts a fundamental policy of California. Only disputes 19 regarding the enforceability of the Agreement will be governed by 20 Delaware law. (Agreement at 4.) Accordingly, only California 21 policies relating to contract interpretation and arbitration are 22 relevant here. There does not appear to be any relevant conflict 23 between California and Delaware law, as both states have strong 24 policies favoring arbitration. See Armendariz, 24 Cal. 4th at 97 25 (“California law, like federal law, favors enforcement of valid 26 arbitration agreements.”); Kuhn Const., Inc. v. Diamond State 27 Port Corp., 990 A.2d 393, 396 (Del. 2010) (“The public policy of 28 Delaware favors arbitration.”). While plaintiff points out that 1 the Armendariz decision does not apply in Delaware, he fails to 2 identify any provision of Delaware law that is in tension with a 3 fundamental California policy. The court therefore declines to 4 find the choice of law provision unenforceable.
5 B. Plaintiff Does Not Specifically Challenge the Delegation Clause 6 Most importantly here, even if the unconscionability 7 arguments discussed above had merit, the court would nonetheless 8 be required to compel arbitration based on the delegation clause. 9 “Although gateway issues of arbitrability presumptively are 10 reserved for the court, the parties may agree to delegate them to 11 the arbitrator.” Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 12 2011) (citing Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 13 68-70 (2010)). Courts may “assume that the parties agreed to 14 arbitrate arbitrability” only if “there is clear and unmistakable 15 evidence that they did so.” Henry Schein, Inc. v. Archer & White 16 Sales, Inc., 139 S. Ct. 524, 531 (2019) (quoting First Options of 17 Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). An “express 18 agreement” to arbitrate arbitrability, evinced by a contract’s 19 “language[ ] delegating to the arbitrators the authority to 20 determine the validity or application of any of the provisions of 21 the arbitration clause,” constitutes clear and unmistakable 22 evidence. Momot, 652 F.3d at 988 (citations omitted). 23 Where an express delegation provision exists, unless a 24 party opposing enforcement of the agreement “challenge[s] the 25 delegation provision specifically, [courts] must treat it as 26 valid . . ., leaving any challenge to the validity of the 27 Agreement as a whole for the arbitrator.” Rent-A-Center, 561 28 1 U.S. at 72 (emphasis added). A party may challenge a delegation 2 provision using “generally applicable contract defenses,” 3 including unconscionability. Concepcion, 563 U.S. at 339. See 4 also Brennan v. Opus Bank, 796 F.3d 1125, 1133 (9th Cir. 2015) 5 (party challenging arbitration agreement on unconscionability 6 grounds must do so specifically with respect to delegation 7 provision to resist enforcement thereof) (citing Rent-A-Center, 8 561 U.S. at 73-75).2 9 Under Rent-A-Center, arguments that an agreement “as a 10 whole is unconscionable under state law” are not relevant to a 11 court’s determination of whether a delegation clause is 12 enforceable. See 561 U.S. at 75 (emphasis in original). 13 Plaintiff’s arguments concerning the waiver of jury trial and 14 limitation on the arbitrator’s ability to award fees and costs 15 are inapposite, as arguments concerning the unfairness of 16 provisions other than the delegation clause are not relevant to 17 the court’s determination of the delegation clause’s 18 enforceability. See id. at 73 (rejecting argument that 19 agreement’s coverage was one-sided as it required arbitration of 20 only employee’s claims, because that argument “clearly did not go 21 to the validity of the delegation provision”). 22 The remaining arguments concerning allocation of fees 23 2 Some California courts have taken a similar approach to 24 determining the enforceability of delegation clauses. See Malone v. Superior Ct., 226 Cal. App. 4th 1551, 1559 (2014) (citing 25 Bruni v. Didion, 160 Cal. App. 4th 1272, 1287 (2008)) (“courts have treated the delegation clause as a separate agreement to 26 arbitrate solely the issues of enforceability . . . thus, it has 27 been held that whether the arbitration agreement as a whole is ultimately held to be unenforceable will have no bearing on the 28 enforcement of the delegation clause itself”). 1 and costs, discovery limits, and obtaining counsel likewise do 2 not go to the court’s determination of the delegation clause’s 3 enforceability. While arbitration procedures--for example fee- 4 splitting arrangements or limitations on discovery--may apply 5 equally to the delegation clause, plaintiff must argue that those 6 provisions are unconscionable as applied to the delegation 7 clause. Id. at 73-75; see also Lim, 8 F.4th at 1003 (holding 8 that delegation clause was unenforceable because cost-splitting, 9 fee-shifting, and venue selection provisions were unconscionable 10 “as applied to the delegation clause”). 11 Plaintiff only makes one argument that is somewhat 12 specific to the delegation clause. He contends that because the 13 delegation clause is “embedded in the same paragraph” as the 14 choice of law and waiver of jury trial provisions (which he 15 argues are unconscionable), the delegation clause is also 16 unconscionable. (See Pl.’s Opp’n at 18.) This argument fails 17 for the same reasons discussed above, as it goes to the 18 substantive unconscionability of provisions other than the 19 delegation clause. See Rent-A-Center, 561 U.S. at 72. 20 This argument also fails on the merits. Even if the 21 choice of law and waiver of jury trial provisions were 22 substantively unconscionable, it is not clear that their 23 proximity alone can render the delegation clause unenforceable. 24 See Nalbandyan v. CitiBank, N.A., No. LA-cv-15-09302 JAK KK, 2022 25 WL 2783839, at *10 (C.D. Cal. June 13, 2022) (explaining that 26 merely being in the same paragraph as an unconscionable burden- 27 shifting provision did not render the damage limitation provision 28 at issue unconscionable); Lim v. Transforce, Inc., No. LA-19- 1 04390 JAK AGR, 2020 WL 10728663, at *11 (C.D. Cal. Apr. 27, 2 2020), aff’d sub nom. Lim, 8 F.4th 992 (9th Cir. 2021) (stating 3 that different substantive unconscionability analyses applied to 4 two provisions in the same paragraph). 5 Plaintiff only cites Holley-Gallegly for the 6 proposition that being in the same paragraph as a purportedly 7 unconscionable waiver of jury trial renders the delegation clause 8 unconscionable. (Pl.’s Opp’n at 18.) The Holley-Gallegly court, 9 however, cited no authority for that proposition and focused its 10 analysis exclusively on the waiver of jury trial provision. See 11 2022 WL 9959778, at *4–5. The court merely pointed out that 12 “[t]he delegation clause is not an independent paragraph within 13 the Agreement; it is the second sentence of a paragraph titled 14 ‘Applicable Law and Construction/Waiver of Jury Trial,’” but 15 provided no explanation of the relevance of this fact. See id. 16 at *4. 17 With respect to the choice of law provision, as the 18 Chandler court noted, multiple California courts in the Ninth 19 Circuit have enforced delegation clauses with similar choice of 20 law provisions. See Chandler v. TA Operating LLC, No. 2:20-cv- 21 2091 TLN DMC, 2022 WL 597581, at *2 (E.D. Cal. Feb. 28, 2022).3 22 3 The Chandler court cited two cases: Norris v. Aon PLC, 23 No. 21-cv-00932 CRB, 2021 WL 1238303, at *7 (N.D. Cal. Apr. 2, 2021), reconsideration denied, No. 21-cv-00932 CRB, 2021 WL 24 1873098 (N.D. Cal. May 10, 2021) (holding choice of law provisions were “not grounds for invalidating the delegation 25 clause” because “the delegation clause is an independent agreement to have an arbitrator decide gateway arbitrability 26 issues, separate from the relevant choice-of-law provisions”); 27 and Wainwright v. Melaluca, Inc., No. 2:19-cv-02330 JAM DB, 2020 WL 417546, at *2-4 (E.D. Cal. Jan. 27, 2020), aff’d, 844 F. App’x 28 958 (9th Cir. 2021) (analyzing choice of law provision and 1 And as discussed above, the court concludes that the choice of 2 law provision here is not unenforceable, and therefore does not 3 affect the delegation clause’s enforceability. 4 Thus, even though the court rejects plaintiff’s 5 arguments concerning the Agreement’s substantive 6 unconscionability, it must grant the motion to compel for a more 7 fundamental reason: plaintiff has failed to adequately challenge 8 the delegation clause specifically, and the court does not see a 9 reason to conclude that the delegation clause is unconscionable. 10 See Rent-A-Center, 561 U.S. at 73-75. 11 Having found that the delegation clause is enforceable, 12 the court will order the parties to arbitrate their dispute-- 13 including gateway issues of arbitrability--in accordance with 14 their agreement to do so. See Stolt-Nielsen, 559 U.S. at 682; 15 Dean Witter Reynolds, 470 U.S. at 218; Momot, 652 F.3d at 987-88. 16 The court will not, however, dismiss the action as 17 defendant requests. Plaintiff requested a stay in lieu of 18 dismissal (Pl.’s Opp’n at 2), a request the court must honor. 19 See 9 U.S.C. § 3 (where the court is “satisfied that the issue
20 delegation clause separately and upholding delegation clause because the “contract clearly and unmistakably delegated 21 questions related to the scope and enforceability of the 22 arbitration agreement to an arbitrator”). Multiple other decisions have similarly enforced 23 delegation clauses in arbitration agreements with choice of law provisions. See, e.g., Ratajesak v. New Prime, Inc., No. SA cv- 24 18-9396 DOC AGR, 2019 WL 1771659, at *6–7 (C.D. Cal. Mar. 20, 2019) (holding that choice of law provision did not render 25 delegation clause unconscionable because it did not prevent arbitrator from determining enforceability of the choice of law 26 provision itself); Gountoumas v. Giaran, Inc., No. cv-18-7720 JFW 27 PJW, 2018 WL 6930761, at *8 (C.D. Cal. Nov. 21, 2018) (holding that presence of foreign-state choice of law clause did not 28 render delegation clause unconscionable). eee nnn een nnn nn nnn nn nnn nn on ne on nn OS I NO
1 involved in [a] suit or proceeding is referable to arbitration 2 under [an arbitration] agreement,” it “shall on application of 3 one of the parties stay the trial of the action until such 4 arbitration has been had in accordance with the terms of the 5 agreement”). Accordingly, the court will stay the action pending 6 arbitration. 7 IT IS THEREFORE ORDERED that defendant’s motion to 8 compel arbitration (Docket No. 19-1) be, and the same hereby is, 9 GRANTED.* IT IS FURTHER ORDERED that this case is STAYED pending 10 arbitration. 11 The Clerk shall close this file administratively, 12 subject to it being reopened upon the application of either party 13 after arbitration has been fully completed. 14 Dated: January 12, 2023 Lyd ak. 2 / 15 WILLIAM B. SHUBB 16 UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 5 4 To the extent that the parties request that the court ° take judicial notice of the existence of the Holley-Gallegly 26 order (Docket No. 21-1) and defendant’s notice of appeal of the Holley-Gallegly order (Docket No. 22), the requests are GRANTED. 27 See Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998). However, those documents do 28 not ultimately affect the court’s conclusions. 23