Yeomans v. World Financial Group

• Court: District Court, N.D. California
• Decided: September 11, 2020
• Docket: 3:19-cv-00792
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 TRICIA YEOMANS, et al., Case No. 19-cv-00792-EMC

8 Plaintiffs, ORDER DENYING DEFENDANTS’ 9 v. MOTION TO COMPEL ARBITRATION 10 WORLD FINANCIAL GROUP INSURANCE AGENCY, INC., et al., Docket No. 73 11 Defendants. 12 13 14 I. INTRODUCTION 15 Plaintiffs1 filed a putative class action lawsuit against Defendants World Financial Group 16 Insurance Agency Inc. and World Financial Group Inc. (collectively, “Defendants”), alleging, 17 inter alia, violations of the California Labor Code, the California Business and Professional Code, 18 and California Wage Orders based on Defendants’ purported misclassification of Plaintiffs as 19 independent contractors, as opposed to employees. Defendants have now filed a Motion to 20 Compel Arbitration, Dismiss Class Claims, and Stay Case. See Docket No. 73 (“Mot.”). 21 II. BACKGROUND 22 A. Factual Background 23 Plaintiffs allege the following. Defendants represent themselves as a financial- and 24 insurance-products marketing company; they recruit individuals as “Associates” and purport to 25 give people the tools “to build and operate their own financial services business.” First Amended 26 Complaint (“FAC”) ¶ 1, Docket No. 23. However, Plaintiffs assert that “Defendants conduct their 27 1 business by way of a massive pyramid scheme,” wherein recruiting new Associates is one of the 2 “main factors involved in achieving promotions.” Id. ¶ 2. Once someone is an Associate, 3 Defendants pressure that person to “purchase Defendants’ financial and insurance products” and to 4 “sell financial and insurance products to the new Associates.” Id. ¶ 3. 5 Central to Plaintiffs’ case is their allegation that “Defendants have unlawfully misclassified 6 Associates as ‘independent contractors’ rather than as employees” in order to further increase 7 company profits. Id. ¶ 4. Specifically, each Associate is “required to sign identical, non- 8 negotiable Associate Membership Agreements (‘AMAs’),” which “set forth uniform rules and 9 policies promulgated by Defendants, which subject Associates to strict control.” Id. ¶ 5. 10 “Plaintiffs and Class Members signed the AMAs.” Id. Plaintiffs also contend that “Defendants 11 completely control the overall operation of the business” and “retain the exclusive authority to hire 12 and fire every Associate.” Id. ¶¶ 6, 7. Furthermore, because of this classification, Associates earn 13 only commissions, not minimum wage, and they bear the burden of business costs, which 14 Defendants might otherwise bear. Id. ¶¶ 8, 9. In addition, Associates are improperly deprived of 15 the protection of workers’ compensation, the benefits of overtime pay, and meal and rest breaks. 16 Id. ¶¶ 9, 10. 17 B. The Arbitration Agreement 18 The arbitration provision at issue here is contained in the AMA. See Docket No. 73-5 19 (sample Associate Membership Agreement; the “AMA”). Some of the relevant terms are 20 contained in the AMA itself, while others are explained in greater detail in a glossary appended to 21 the AMA. 22 The body text of AMA’s arbitration provision provides: “The Parties agree that, except as 23 specifically provided to the contrary in this Agreement, any Grievance shall be resolved 24 exclusively by Good Faith Arbitration.” Id. at 4, art V. It also sets forth that Defendants, although 25 not Associates, can seek some forms of “extraordinary relief” through the courts. Id., art VI (“The 26 Associate acknowledges that WFG would suffer extremely costly and irreparable harm, loss and 27 damage if any of the provisions of this Agreement are violated by the Associate. The Associate 1 the Associate of this Agreement and that WFG may seek Extraordinary Relief in the federal and 2 state courts of the State of Georgia, in any court of competent jurisdiction outside the State of 3 Georgia, as well as in Good Faith Arbitration and if justice requires, in more than one of them, all 4 without having to first comply with the requirements of Article V. The specifics of this Article VI 5 shall not be deemed to preclude or narrow the judicial or arbitral powers regarding Extraordinary 6 Relief.”). It also provides the awarding of attorneys’ fees for the party that prevails in arbitration. 7 Id. at 5, art IX, ¶ J (“If any Party hereto commences an action or arbitration to enforce any of the 8 provisions hereof, the prevailing Party in such action shall be entitled to an award of its reasonable 9 attorneys’ fees and all costs and expenses incurred in connection therewith.”). 10 Finally, the text of the AMA also contains a severability provision, which reads: “If any 11 part, section, clause, paragraph, term or provision of this Agreement shall be found to be void or 12 unenforceable by any court or arbitration of competent jurisdiction, such finding shall have no 13 effect upon any other part, section, clause, paragraph, term or provision of this Agreement.” Id., ¶ 14 H. 15 As noted above, many of the details related to arbitration are actually set forth in the 16 “Glossary and Explanation of Terms” that is appended to the AMA, and not in the body of the 17 AMA itself. That Glossary explains that the term “Good Faith Arbitration” generally means:

18 All Grievances shall be resolved by Good Faith Arbitration in accordance with the Rules, except that, or in addition to such Rules: 19 i) in order to assure neutrality and impartiality of the arbitrator(s), and to preserve the confidentiality of proprietary information, the 20 arbitrator(s) shall not be any present or past owner, officer, director, employee, consultant, associate, agent, registered representative, 21 attorney or other representative of any insurance company, insurance broker or insurance agency, securities broker, securities 22 dealer or mortgage company, investment advisor, or of any affiliate of any of them; ii) the Parties may be entitled to such discovery and 23 protective orders as provided herein; iii) the locale where the arbitration shall be held is the principal head office of WFG in 24 Duluth, Georgia or, if that location is not convenient for all Parties, they shall try to devise a way so that it is convenient, or if that 25 location cannot be made convenient, at such other place as the Parties may agree, or, if they cannot agree, then as may be set by the 26 Rules, as the case may be: iv) a transcript shall be made on the proceeding; and v) the arbitrator’s(s’) award shall state their findings 27 of fact and conclusions of law. 1 defines the term “grievance” broadly, as “[a]ny controversy, claim or dispute arising out of or 2 relating to this Agreement, between the Associate, on the one part, and WFG and/or any of the 3 Corporate People, or any of them, on the other part.” Glossary at 3, ¶ J. The “Rules” of 4 arbitration are not spelled out in the body of the text quoted above. Instead, one has to find the 5 term “Rules” contained further back in the Glossary. There, the Glossary defines Rules as, 6 “Where required to be applied, the Commercial Arbitration Rules of the American Arbitration 7 Association, as in effect at the time of the occurrence of any Grievance.” Id. at 3, ¶ S. 8 In addition, the Glossary contains a provision entitled “Waiver of Litigation,” which reads 9 as follows:

10 The Parties acknowledge and agree that, except as specifically provided to the contrary in this Agreement, this Section I is and shall 11 be the Parties’ exclusive remedy for any Grievance arising out of or relating to this Agreement, or the breach thereof. It is the intent of 12 the Parties that, except as specifically provided to the contrary in this Agreement, to the fullest extent allowed by law all Grievances, 13 including any claims or defense (whether created or governed by federal, state or local law, rule or regulation) shall be resolved in an 14 arbitral rather than a judicial forum. It is understood by the Parties that it is to their mutual benefit to submit Grievances that they are 15 unable to resolve themselves for resolution by a neutral referee in an arbitral rather than a judicial forum. Those Parties recognize that by 16 choosing Good Faith Arbitration as the mechanism for resolving Grievances, each Party expects to ensure a more expeditious and 17 economical resolution of their Grievances than is available in most cases in a judicial forum. Accordingly, except as specifically 18 provided to the contrary in this Agreement, the Parties expressly waive the right to litigate in a judicial forum all Grievances and 19 waive the right to trial by jury. The Parties further agree that the findings of fact issued by the arbitrator(s), as reviewed, if applicable, 20 shall be binding on them in any subsequent arbitration, litigation or other proceeding. 21 22 Id. at 2, ¶ I, § 4. 23 C. Procedural Background 24 Plaintiffs filed this case in San Francisco Superior Court in December 2018. Defendants 25 removed to federal court in February 2019. In June 2019, Plaintiffs filed a First Amended Class 26 Action Complaint. See Docket No. 23. The FAC defines the putative class as “other similarly 27 situated and aggrieved individuals in the business of selling securities and insurance or training to 1 specify: “All of the claims Plaintiffs assert for themselves and for the putative Class relate 2 exclusively to work performed within the State of California.” Id. ¶ 15. Shortly after the FAC 3 was filed, Defendants filed a Motion to Transfer Case, seeking an order transferring the case to the 4 U.S. District Court for the Northern District of Georgia. See Docket No. 24. 5 In their Motion to Transfer, Defendants relied on forum selection clauses in the parties’ 6 various agreements. See Defendants’ Notice of Motion to Transfer Venue at 1, Docket No. 24. 7 However, this Court denied transfer on the grounds that the forum selection clauses violated 8 California public policy as expressed by California Labor Code section 925. See Docket No. 55. 9 In relevant part, Section 925 of the California Labor Code provides: “An employer shall not 10 require an employee who primarily resides and works in California, as a condition of employment, 11 to agree to a provision that would . . . [r]equire the employee to adjudicate outside of California a 12 claim arising in California, [or] [d]eprive the employee of the substantive protection of California 13 law with respect to a controversy arising in California.” Cal. Labor Code § 925(a). After finding 14 that Section 925 applied to the parties’ agreements, this Court concluded that the forum selection 15 clauses were voidable and that the factors of Section 1404(a) weighed against transfer. See 16 Docket No. 55 at 16. 17 On April 28, 2020, Plaintiffs filed an ex parte Application for a Temporary Restraining 18 Order (“TRO”), seeking relief from what they alleged was Defendants’ practice of terminating 19 associates and subsequently seeking to collect money owed to Defendants in the form of “Debit 20 Balances.”2 See Docket No. 57. On April 29, 2020, the Court denied that request, finding that 21 Plaintiffs had not stated a sufficient basis for ex parte relief. See Docket No. 60. However, the 22 2 The term “Debit Balance” encompasses various debts Associates may owe to Defendants. See 23 Docket No. 57 at 10. Debts are accumulated through, e.g., charges imposed on Associates, such as “a mandatory monthly fee of $25 to $180 to access the online platform” and “E&O insurance 24 from WFG’s captive insurance company at a cost of approximately $45 to $85 per month.” See Docket No. 57-2 at ¶ 10. In addition, as explained in the AMA, Debit Balances may also include: 25 “expenses; license fees; commissions, and expenses that Associate is required to refund to WFG because of Customer cancellations, rights of withdrawal, non-renewals, terminations, lapses or 26 otherwise; Advance Commissions; Debit Balances of Associate’s Downline Associate(s); expenses and fees incurred by WFG in attempting to register prospective Downline Associates of 27 Associate; WFG claims for indemnification against Associate; and other claims by WFG against 1 Court converted the TRO application to a Motion for Preliminary Injunction and set the motion for 2 briefing and a hearing, which took place by Zoom on May 22, 2020. Id. After the hearing, the 3 Court denied Plaintiffs’ motion for a TRO on the grounds that the issuance of class-wide relief 4 prior to the certification of the class is strongly disfavored. See Docket No. 72 at 6 (citing M.R. v. 5 Dreyfus, 697 F.3d 706, 738 (9th Cir. 2012)). It noted that none of the exceptions to the general 6 rule (that a court should not grant such relief prior to class certification) applied. Id. On June 18, 7 2020, Defendants moved to compel arbitration. Docket No. 73. 8 III. LEGAL STANDARD 9 Under the Federal Arbitration Act (“FAA”), “[a] written provision in . . . a contract 10 evidencing a transaction involving commerce to settle by arbitration a controversy thereafter 11 arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such 12 grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA 13 establishes “a liberal federal policy favoring arbitration agreements.” Epic Sys. Corp. v. Lewis, 14 138 S. Ct. 1612, 1621 (2018) (citing 9 U.S.C. § 2); see also Blair v. Rent-A-Ctr., Inc., 928 F.3d 15 819, 825 (9th Cir. 2019) (quoting 9 U.S.C. § 2). Courts “must place arbitration agreements on an 16 equal footing with other contracts . . . and enforce them according to their terms.” AT&T Mobility 17 LLC v. Concepcion, 563 U.S. 333, 339 (2011) (internal citations omitted). 18 To determine “the validity of an arbitration agreement, federal courts apply state law 19 contract principles.” Lau v. Mercedes-Benz USA, LLC, No. CV 11-1940 MEJ, 2012 WL 370557, 20 at *2 (N.D. Cal. Jan. 31, 2012) (citing Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th 21 Cir. 2002)). However, arbitration agreements may “be invalidated by ‘generally applicable 22 contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only 23 to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” 24 Concepcion, 563 U.S. at 339. 25 Typically, “the question whether an issue is arbitrable . . . is ‘an issue for judicial 26 determination . . . .’” Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1208 (9th Cir. 2016) (citing 27 Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1072 (9th Cir. 2013)). In other words, 1 favor of arbitration does not extend to deciding questions of arbitrability.” Oracle Am., Inc., 724 2 F.3d at 1072. However, where “the parties clearly and unmistakably provide otherwise, the 3 question of whether the parties agreed to arbitrate” may be decided by an arbitrator. AT&T Techs., 4 Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986). “Such clear and unmistakable 5 evidence of agreement to arbitrate arbitrability might include . . . a course of conduct 6 demonstrating assent . . . or . . . an express agreement to do so.” Momot v. Mastro, 652 F.3d 982, 7 988 (9th Cir. 2011). 8 IV. DISCUSSION 9 Defendants argue that Plaintiffs each signed the AMA, which contains a valid and 10 enforceable arbitration provision. Plaintiffs challenge Defendants’ motion to compel arbitration 11 with the following arguments: (1) California law, rather than Federal law, governs the arbitration 12 provision; (2) Plaintiffs never entered into an agreement to arbitrate; (3) a later-signed agreement 13 superseded the AMA’s arbitration provision; and (4) the arbitration provision is unconscionable. 14 Neither party disputes this Court should determine the question of arbitrability. 15 A. Federal Law Versus California Law 16 Plaintiffs contend California law governs this dispute to arbitrate because the activities 17 identified in the FAC do not have a substantial relation to interstate commerce. Defendants argue 18 that the AMA governs activities that affect interstate commerce. 19 “The FAA applies to any contract affecting interstate commerce, including employment 20 agreements.” Yahoo! Inc. v. Iversen, 836 F. Supp. 2d 1007, 1009 (N.D. Cal. 2011). As this Court 21 recently explained in Capriole v. Uber Technologies, Inc., No. 20-CV-02211-EMC, 2020 WL 22 2563276, at *7 (N.D. Cal. May 14, 2020), the Supreme Court has interpreted the phrase 23 “involving commerce” (the phrase used in § 2, the coverage provision, of the FAA) as indicating 24 “congressional intent to regulate to the full extent of its commerce power.” Circuit City Stores, 25 Inc. v. Adams, 532 U.S. 105, 114 (2001) (citing Allied-Bruce Terminix Companies, Inc. v. Dobson, 26 513 U.S. 265, 277 (1995) (“Thus, the Court interpreted the words ‘involving commerce’ as 27 broadly as the words ‘affecting commerce’; and, as we have said, these latter words normally 1 The Supreme Court has indicated that conduct may be said to “involve commerce” within 2 Congress’ power to regulate where a company does business throughout an entire region of the 3 country or where large-scale “financial activities” can be said to have a “broad impact.” Citizens 4 Bank v. Alafabco, Inc., 539 U.S. 52, 58 (2003) (citing Lewis v. BT Investment Managers, Inc., 447 5 U.S. 27, 38–39 (1980) (“[B]anking and related financial activities are of profound local concern 6 . . . . Nonetheless, it does not follow that these same activities lack important interstate 7 attributes”); Perez v. United States, 402 U.S. 146, 154 (1971) (“Extortionate credit transactions, 8 though purely intrastate, may in the judgment of Congress affect interstate commerce”)) (“No 9 elaborate explanation is needed to make evident the broad impact of commercial lending on the 10 national economy or Congress’ power to regulate that activity pursuant to the Commerce 11 Clause.”). Interstate commerce is also implicated where the materials or inputs needed to make a 12 final product come from outside the state, or where the products themselves cross state lines. 13 Allied-Bruce, 513 U.S. at 277, 282. 14 Here, Defendants have presented evidence (in the form of two declarations from Andrew 15 Schaad, the Director of Operations for WFG) that the company “is a marketing company 16 headquartered in Johns Creek, Georgia” that is “engaged in the recommendation, offer, or sale of 17 insurance and financial services and products” on a nationwide basis. Declaration of Andrew 18 Schaad (“Schaad Decl.”) ¶¶ 3, 4, Docket No. 73-4. It “offers a business-marketing platform to 19 individuals throughout the United States who seek to run their own independent financial services 20 and/or insurance businesses.” Id. ¶ 3. Defendants also assert that WFG-affiliated Associates 21 “operate independent businesses and some offer the sale of insurance products from companies 22 such as Nationwide, headquartered in Ohio; Prudential, headquartered in New Jersey; and Everest 23 Funeral Concierge, headquartered in Houston, Texas. Some of the independent business owners 24 also have helped others contract with Defendants, again, throughout the United States. Some also 25 market their independent businesses online through Facebook, LinkedIn, and other similar 26 platforms.” Supplemental Declaration of Andrew Schaad (“Supp. Schaad Decl.”) ¶ 3, Docket No. 27 75-3. 1 products from companies in different states to customers in various states, market their products to 2 customers nationwide through online platforms, and recruit people (in states across the country) to 3 join WFG, this Court concludes that there is sufficient evidence that the relevant transactions 4 “involve commerce,” and therefore that the FAA applies, rather than California law. 5 B. Contract Formation 6 Plaintiffs argue that Defendants cannot demonstrate that a valid agreement to arbitrate 7 exists. Defendants contend they have met their burden because Plaintiffs’ FAC admits that they 8 signed the AMA and had numerous opportunities to view the agreement. 9 With respect to formation, Defendants bear “the burden of proving the existence of an 10 agreement to arbitrate by a preponderance of the evidence.” Norcia, 845 F.3d at 1283 (quoting 11 Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014)). Once it is established that a 12 valid agreement to arbitrate exists, the burden shifts to the party seeking to avoid arbitration to 13 show that the agreement should not be enforced. Green Tree Fin. Corp.-Alabama v. Randolph, 14 531 U.S. 79, 92 (2000). In adjudicating those issues, “the FAA limits courts’ involvement to 15 ‘determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the 16 agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 17 1119 (9th Cir. 2008) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 18 (9th Cir. 2000)). Federal courts look to state law contract principles to determine the validity of an 19 arbitration agreement. Circuit City, 279 F.3d at 892. “Generally, under California law, the 20 essential elements for a contract are (1) ‘parties capable of contracting’; (2) ‘their consent;’ (3) ‘a 21 lawful object;’ and (4) ‘sufficient cause or consideration.’” Norcia v. Samsung 22 Telecommunications Am., LLC, 845 F.3d 1279, 1284 (9th Cir. 2017) (quoting United States ex rel. 23 Oliver v. Parsons Co., 195 F.3d 457, 462 (9th Cir. 1999)) (internal brackets omitted). 24 Here the dispute is whether Plaintiffs consented to the AMA and its arbitration provision. 25 Plaintiffs contend that they did not—and could not—consent because they received only the 26 signature page of the AMA when they were being recruited to join WFG and never actually saw or 27 received the entire AMA or the provision containing the arbitration agreement; they contend they 1 at 3–4, Docket No. 74. For example, Ms. Yeomans states that she was told that the page she was 2 signing was a photo-release form that would permit WFG to use her photograph in promotional 3 materials. Id. (citing Declaration of Tricia Yeomans (“Yeomans Decl.”) ¶ 7, Docket No. 74-9). 4 On the one hand, Plaintiffs admit that they signed the AMA. See FAC ¶ 5 (“As a condition 5 precedent to employment, all Associates are required to sign identical, non-negotiable Associate 6 Membership Agreements (“AMAs”) . . . . Plaintiffs and Class Members signed the AMAs.”); see 7 also id. ¶ 42 (“Defendants’ relationship with all Associates is governed by the AMA, which is a 8 uniform, non-negotiable contract. Defendants’ uniform rules, policies, and procedures are 9 disseminated to all Associates via the company’s intranet, and are incorporated by reference into 10 the AMA.”). However, on the other hand, Plaintiffs assert that “Defendants never provided 11 Plaintiffs with more than the signature page to the AMA and withheld the pages of the AMA that 12 included the arbitration agreement.” Opp. at 1; see also Declaration of Named Plaintiffs at Docket 13 Nos. 74-2 to 74-9 (stating, e.g., “None of the pages I was given or reviewed contained a clause 14 indicating I had to arbitrate disputes with regards to my relationship with Defendants. The only 15 page of the AMA I was given was the signature page.”). They claim they did not know they were 16 signing the AMA contract. 17 Although Defendants contend that Plaintiffs’ declarations “prove they saw the full AMA,” 18 there is evidence in one of the exhibits to Mr. Schaad’s declaration indicating that Ms. Yeomans 19 was only provided with the signature page of the AMA when she applied to join WFG. In Mr. 20 Schaad’s declaration, he indicates that Exhibit 9 to his declaration is a “true and correct copy” of 21 Ms. Yeomans’s application to join WFG. See Schaad Decl. ¶ 15. That application contains only 22 seven pages (while the AMA is seventeen pages), and two of those seven pages are a tax form and 23 a credit card authorization form. See Docket No. 73-13. None of the pages contain information 24 about the arbitration agreement or clearly refer the signatory to a full copy of the AMA or where a 25 copy of that document might be found. Id. Indeed, it is not evident from the file that what was 26 being signed was a full contract. Only the signature page of the AMA was included. 27 Defendants contend Plaintiffs received actual notice of the full AMA containing the 1 notice: 2 • “The footer on the signature page describes the document as the ‘Associate 3 Membership Agreement’ and states ‘Page 6’ as the page number, indicating five 4 other pages.” Id. 5 • “The first paragraph on the signature page is ‘Paragraph O,’ indicating Paragraphs 6 A through N before. The last sentence of Paragraph O states, ‘The Associate is 7 over eighteen years of age and has read the above authorization and release prior to 8 its execution,’ indicating there is a prior authorization and release.” Id. 9 • “Likewise, the other documents Plaintiffs received and signed reference the AMA. 10 For example, the Credit Card Agreement states it is for ‘payment for the [AMA].’ 11 It also states, ‘If you chose to pay by credit card, please complete the form below 12 and attach it to the front of the [AMA].’ The acknowledgments state that agents 13 ‘must sign the World Financial Group [AMA].’” Id. 14 The key is whether the party had notice of the contract. In Nguyen v. Barnes & Noble Inc., 763 15 F.3d 1171 (9th Cir. 2014), the Ninth Circuit explained (in the context of examining online 16 “browsewrap” agreements) that “courts have consistently enforced . . . agreements where the user 17 had actual notice of the agreement.” 763 F.3d at 1176. But where “there is no evidence that the 18 website user had actual knowledge of the agreement, the validity of the browsewrap agreement 19 turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the 20 contract.” Id. at 1177. It further noted that “[w]here the link to a website’s terms of use is buried 21 at the bottom of the page or tucked away in obscure corners of the website where users are 22 unlikely to see it, courts have refused to enforce the browsewrap agreement.” Id.; see also 23 Knutson, 771 F.3d at 567 (“As a general rule, a party cannot avoid the terms of a contract by 24 failing to read them before signing. Yet an exception to this general rule exists when the writing 25 does not appear to be a contract and the terms are not called to the attention of the recipient.” 26 (internal citations omitted)). By contrast, “an offeree, regardless of apparent manifestation of his 27 consent, is not bound by inconspicuous contractual provisions of which he was unaware, 1 3d at 993. “If a party wishes to bind in writing another to an agreement to arbitrate future 2 disputes, such purpose shall be accomplished in a way that each party to the arrangement will fully 3 and clearly comprehend that the agreement to arbitrate exists and binds the parties hereto.” 4 Commercial Factors Corp. v. Kurtzman Bros., 131 Cal. App. 2d 133, 136 (1955); see also 5 Knutson, 771 F.3d at 566 (same). 6 There are several reasons to think the forgoing factors offered by Defendants would be 7 insufficient to put a reasonably prudent person on inquiry notice of the terms of the AMA, 8 including its arbitration provision. With respect to the fact that the AMA signature page contained 9 a footer that said “Associate Membership Agreement” and “Page 6”: (1) the font of the footer is 10 small and inconspicuous, (2) because it appears in the context of a multi-page application packet, 11 the phrase “Associate Membership Agreement” could easily be read as applying to the application 12 packet (7 pages) and not to a separate agreement (with 17 pages), and (3) the signature page 13 appeared as Page 6 of Ms. Yeomans’s application packet, and therefore would not necessarily 14 have put her on notice that the signature page was Page 6 of a separate agreement, as opposed to 15 the 7-page packet. Thus, the Court is not convinced that the fact that the AMA signature page 16 contained a footer that read “Associate Membership Agreement” and “Page 6” would put a 17 reasonable person on notice that what he/she/they was signing was a full contract. 18 With respect to Defendants’ argument that “[t]he first paragraph on the signature page is 19 ‘Paragraph O,’ indicating Paragraphs A through N before,” (thus creating notice there was a full 20 17-page AMA) that inference is not so clear. The paragraph begins with “O.” See Docket No. 73- 21 5. The “O.” almost looks like a bullet point. Additionally, while the last sentence of the signature 22 page refers to “the above authorization and release,” Paragraph O is a photo release, and nothing 23 in that final sentence suggests that “the above authorization and release” would refer to something 24 broader than that single paragraph that authorized Defendants’ use of photographs of the applicant. 25 As to other documents in the application packet which referred to the AMA, again, the 26 evidence suggests that a reasonable person could easily have interpreted the referral as being 27 directed to the application packet itself as being the AMA. For instance, the Credit Card 1 form to the front of the AMA; however, the application packet for Tricia Yeomans (provided by 2 Defendants) indicates that the credit card form was completed on the same day as the rest of the 3 application packet. Thus, if anything, the fact that the credit card form asks applicants to attach 4 that document to the AMA, coupled with the fact that the document they were returning to 5 Defendants was the application packet, suggests that a reasonable applicant could easily conclude 6 that the application packet, not the full 17 page AMA they did not notice, was the “AMA” being 7 referred to. Accordingly, the Court is not persuaded that the existence of other documents 8 completed alongside the application packet would put a reasonable person on notice of the terms 9 to which they were purportedly being bound to a full agreement—the 17 page AMA. 10 The cases cited by Defendants (whether or not the plaintiffs in the case were held to an 11 arbitration agreement) involved situations in which the full text of the arbitration agreement was 12 readily available to the plaintiffs. See, e.g., Nguyen, 763 F.3d at 1177 (“‘Terms of Use’ hyperlink 13 in the bottom left-hand corner of every page”); Knutson, 771 F.3d at 562 (Customer Agreement 14 mailed to plaintiff); Knepper, 2019 WL 144585, at *5 (arbitration agreement sent to plaintiff by 15 email, which she opened, and multiple reminders sent as well). Here, there is no evidence before 16 the Court that Plaintiffs had ready access to the complete AMA at the time they signed the 17 signature page in the application packet (with the exception of, perhaps, Ms. Abtahi). As 18 Plaintiffs represent, they were only “presented with a small packet of paper documents” and “were 19 not shown or provided with the rest of the AMA when they signed the photographic release 20 signature page, and therefore had no idea they were purportedly waiving all rights to litigate their 21 disputes with Defendants in a court of law.” Opp. at 12 (citing Plaintiffs’ Decls. at ¶ 2). 22 Defendants contend that Plaintiffs have always “had the ability to review the full AMA on 23 WFG’s online website.” Reply at 9 (citing Schaad Decl. ¶¶ 6, 7; Declaration of Chad Palid 24 (“Palid Decl”) ¶ 8, Docket No. 75-2. However, the evidence presented in support of that 25 contention is not persuasive. In the declaration of Chip Palid (a WFG Associate with no apparent 26 relationship to this case), he attests: “Since approximately 2016, individuals have completed the 27 AMA (currently called the Agent Agreement) online and signed it via DocuSign. After doing so, 1 basis of his personal knowledge with respect to the named Plaintiffs, individually, or account for 2 the fact that only Ms. Abtahi (who denies using DocuSign, as discussed below) signed the forms 3 in 2016 or later. In Mr. Schaad’s declaration, he states: “At all relevant times, individuals who 4 wanted to contract with Defendants had access to the full AMA through a variety of means. They 5 could access the AMA through a public website using an access code provided by an agent or they 6 could request a hard copy from an agent or Defendants.” Schaad Decl. ¶ 7. However, even 7 assuming this is true, as discussed above, there was no obvious reason for an applicant to seek out 8 a copy of the AMA because the 7-page application packet would not have put a reasonable person 9 on notice of any additional terms to which they were being bound. 10 For Plaintiff Fatemeh Abtahi specifically, Defendants argue that, despite her 11 representations to the contrary, she saw the full AMA when she signed her name to the document 12 via DocuSign.3 Mr. Schaad asserts that “[t]o sign via DocuSign, agents must access on online 13 portal. Before December 2018, that portal contained a copy of the full AMA. It now contains a 14 full copy of the Agent Agreement (formerly the AMA).” Schaad Decl. ¶ 6. Defendants have 15 submitted a document purported to be the full copy of an AMA initialed and signed (in various 16 places across three different pages) by Ms. Abtahi via DocuSign. See Schaad Decl. ¶ 6; see also 17 Docket No. 73-6 (document alleged to be a full AMA initialed and signed by Ms. Abtahi). 18 But Plaintiffs contend that “Ms. Abtahi never DocuSigned the AMA,” and that “the AMA 19 was DocuSigned without her consent by someone else.” Opp. at 4 (citing Declaration of Fatemeh 20 Abtahi (“Abtahi Decl.”) ¶ 8, Docket No. 74-6). They also note two irregularities in the document 21 presented by WFG: “the purported signature on the AMA actually reverses Ms. Abtahi’s first and 22 last names, and the initialed portions of the document again reverse her first and last name initials, 23 which is not a mistake that Ms. Abtahi would have made while signing her own name.” Id. (citing 24 Abtahi Decl. ¶ 11). Finally, Plaintiffs suggest that Chad Greer (one of Ms. Abtahi’s trainers) may 25 have been the one to sign her name via DocuSign. Id. (Abtahi Decl. ¶ 11). 26 3 Defendants note that Ms. Abtahi was “the only plaintiff to DocuSign the AMA.” Reply to 27 Plaintiffs’ Opposition (“Reply”) at 5, Docket No. 75. Although she denies doing so, this 1 Defendants offer numerous responses to these allegations of forgery, e.g., purported 2 evidence of Ms. Abtahi’s “DocuSign Certificate” and alleged cultural differences with respect to 3 signing one’s family name first, as argued by defense counsel at the hearing. This Court need not 4 go through each of Defendants’ proffered theories. Plaintiffs, themselves, admit to fraudulently 5 signing AMAs on behalf of recruitees via DocuSign. See Declarations of Plaintiffs Abtahi, 6 Braford, Chraibi, and Yeomans ¶ 2 (stating, e.g., “When I docusigned on behalf of the new recruit, 7 I never reviewed the document with or provided a copy to the new recruit. To be clear, I would 8 sign the downline associate’s name and/or initials to documents, including the signature page of 9 the AMA.”). Thus, taking these allegations as true, it would not be abnormal for Ms. Abtahi’s 10 recruiter signed on her behalf. 11 What is of particular import for purposes of formation is whether Ms. Abtahi and the other 12 named Plaintiffs subsequently saw the full AMA and had an opportunity to review it after they 13 signed. If they did, and they continued their work for Defendants, they could then be charged with 14 the obligations of the agreement. Under California law, “a party’s acceptance of an agreement to 15 arbitrate may be . . . implied-in-fact where . . . the employee’s continued employment constitutes 16 her acceptance of an agreement proposed by her employer.” Craig v. Brown & Root, Inc., 84 Cal. 17 App. 4th 416, 420 (2000). A party may be bound by an arbitration agreement even where that 18 party is not aware of all the terms in the contract. See, e.g., Windsor Mills, Inc. v. Collins & 19 Aikman Corp., 25 Cal. App. 3d 987, 992 (Ct. App. 1972) (“[A]n offeree, knowing that an offer has 20 been made to him but not knowing all of its terms, may be held to have accepted, by his conduct, 21 whatever terms the offer contains.”); see Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 567 (9th 22 Cir. 2014) (“As a general rule, a party cannot avoid the terms of a contract by failing to read them 23 before signing.”). 24 Here, Defendants contend that—because DocuSign required someone to scroll past all 25 pages of the AMA before getting to the signature page—Plaintiffs became aware of the full terms 26 of the AMA when they signed the signature page for new recruits and “kept performing under [the 27 AMA]” such that they can be understood to have consented to the arbitration agreement contained 1 Plaintiffs allege, however, that DocuSign simply brings the user to the pages that require a 2 signature, thereby forgoing all the relevant text of the AMA because only the last page has a 3 signature block. But at the hearing, neither party offered a demonstration of the precise contours 4 of DocuSign. Such a demonstration is not necessary to resolve this formation issue. 5 As noted above, the question is whether Plaintiffs had notice of the AMA as a contract. 6 Here, Plaintiffs Abtahi, Braford, Chraibi, and Yeomans attest to using DocuSign to complete 7 AMAs on behalf of new recruits. That process would permit the user clear opportunity to view all 8 pages of the AMA in DocuSign, and even if the terms are not carefully read, gives notice that 9 there was a comprehensive agreement called an AMA. These four plaintiffs thus had notice of the 10 existence of the full AMA, and by their continued work on behalf of Defendants manifested 11 acceptance of that agreement, including the agreement to arbitration. See Craig, 84 Cal. App. 4th 12 at 420; see, e.g., Docket Nos. 74-4, 74-6, 74-7, 74-9, Bradford Decl., ¶ 11; Abtahi Decl., ¶ 16; 13 Chraibi Decl., ¶ 16; Yeomans Decl., ¶ 17. Similarly, Mrs. Jenkins later had an opportunity to 14 view the AMA when she recruited her husband, Mr. Jenkins. Moreover, Mr. Jenkins’s declaration 15 admits to seeing the full AMA.4 Thus, the Court finds that Defendants have met their burden in 16 demonstrating that Plaintiffs—except for Mr. Rodriguez—agreed to the terms of the AMA when 17 they had an opportunity to review the full terms, yet continued their work with Defendants. See 18 Craig, 84 Cal. App. 4th at 420. 19 However, there are no allegations that Mr. Rodriguez ever saw the full AMA either 20 directly or as part of recruiting efforts or signed DocuSign on behalf of individuals he recruited. 21 Therefore, the Court concludes Defendants have failed to demonstrate, by a preponderance of the 22 evidence, that Mr. Rodriguez had notice of the AMA and therefore did not agree to the arbitration 23

24 4 See Docket No. 74-8 ¶ 9 (“[O]n one occasion I believe I came across a copy of the full AMA when an agent I recruited brought it to my attention that he received an email with an agreement 25 that was different than the one he signed. I was new to the company so I did not review the document and, instead, brought it to the attention of my recruiter and trainers Chad Greer, 26 Stephanie Haynes, and Alex Haynes. They informed me that what he received was irrelevant and not to concern myself with it. They told me there was no need to follow up and essentially swept 27 the whole incident under the rug. Chad, Stephanie, and Alex confirmed that the only agreement 1 provision contained the AMA. 2 C. Revocability Based on Subsequent Agreement 3 Plaintiffs contend that the Marketing Director Agreement (“MDA”) (the agreement that 4 must be signed upon promotion to the position of Marketing Director) signed by all Plaintiffs 5 except Robert Jenkins (who was not promoted to that position), supersedes the AMA and 6 contemplates a judicial, rather than an arbitral, forum. Opp. at 15. That agreement states in 7 relevant part (“Governing Law”):

8 You and WFG agree that this Agreement will be governed by the laws of the State of Georgia. If Georgia conflict or choice of law 9 rules would choose a law of another state, each party waives such rules and agrees that the substantive law of the State of Georgia 10 shall nonetheless govern. The parties agree that the state and federal courts of Georgia shall have exclusive jurisdiction of any litigation 11 between the parties and the Marketing Director expressly submits to the jurisdiction and venue of the federal and state courts sitting in 12 Fulton County, Georgia, with respect to such litigation. 13 Docket No. 24-3. However, the MDA also includes the following statement: “Unless the 14 provisions of this Agreement expressly provide otherwise, the terms and conditions of your 15 Associate Membership Agreement remain in force.” Id. (emphasis added). 16 It is not clear that this provision of the MDA unsettles the parties’ earlier agreement to 17 arbitrate. The AMA contemplated the possibility that Defendants would seek equitable or 18 extraordinary relief through the courts in certain circumstances. See AMA, art. VI (“The 19 Associate agrees that . . . WFG may seek Extraordinary Relief in the federal and state courts of the 20 State of Georgia, in any court of competent jurisdiction outside the State of Georgia, as well as in 21 Good Faith Arbitration and if justice requires, in more than one of them . . . . “). Thus, the MDA’s 22 reference to Georgia as a venue for litigation in court is not inconsistent with the AMA. 23 Defendants rely on Ramirez-Baker v. Beazer Homes, Inc., 636 F. Supp. 2d 1008 (E.D. Cal. 24 2008) for the proposition that a “later employment contract d[oes] not supersede the original 25 arbitration agreement [where] the later contracts were silent on arbitration.” Ramirez-Baker, 636 26 F. Supp. 2d at 1016. Because the MDA is silent on arbitration, this Court concludes that it is not 27 an “explicit intention” to rescind the AMA’s arbitration clause. See Homestake Lead Co. of 1 Corp. v. Armstrong, 129 F.3d 71, 75 (2d Cir. 1997) (“Absent the explicit intention to rescind an 2 arbitration clause, however, the clause will survive even where the prior agreement itself is 3 rescinded by the latter agreement.”). Accordingly, this Court finds that the MDA did not 4 supersede the AMA’s arbitration provision. 5 D. Unconscionability 6 Plaintiffs challenge the AMA’s arbitration provision on grounds of unconscionability. 7 Defendants concede that there exists both procedural and substantive unconscionability, but they 8 argue that there is only minimal with respect to both. “[P]rocedural and substantive 9 unconscionability must both be present in order for a court to exercise its discretion to refuse to 10 enforce a contract or clause under the doctrine of unconscionability.” Armendariz v. Found. 11 Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114, 6 P.3d 669 (2000) (emphasis in original). In 12 addition, the Ninth Circuit has concluded that “California law regarding unconscionable contracts” 13 is not inherently “unfavorable towards arbitration,” and instead “reflects a generally applicable 14 policy against abuses of bargaining power.” Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 927 15 (9th Cir. 2013). 16 1. Procedural Unconscionability 17 “Procedural unconscionability exists when the stronger party drafts the contract and 18 presents it to the weaker party on a ‘take-it-or-leave-it basis.’” Serafin v. Balco Properties Ltd., 19 LLC, 235 Cal. App. 4th 165, 179 (2015). This can render an agreement a contract of adhesion. Id. 20 “However, the fact that the arbitration agreement is an adhesion contract does not render it 21 automatically unenforceable as unconscionable. Courts have consistently held that the requirement 22 to enter into an arbitration agreement is not a bar to its enforcement.” Id. Instead, “[t]he 23 procedural element focuses on two factors: ‘oppression’ and ‘surprise.’ ‘Oppression’ arises from 24 an inequality of bargaining power which results in no real negotiation and ‘an absence of 25 meaningful choice.’ ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of 26 the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the 27 disputed terms.’” Zullo v. Superior Court, 197 Cal. App. 4th 477, 484 (2011) (internal citations 1 Id. 2 Here with respect to oppression, Plaintiffs contend (and Defendants do not meaningfully 3 dispute) that the AMA was a contract of adhesion because Defendants “drafted the agreement and 4 presented the packet containing the AMA’s signature page to Plaintiffs on a ‘take it or leave it’ 5 basis.” Opp. at 18. At the moment in which the application packets were presented, applicants 6 “had a stark choice: either sign the AMA signature page as part of the sign-up packet, or reject the 7 agreement and not take the job.” Id. “[T]here was no meaningful opportunity to negotiate the 8 terms of the agreement.” Id. Nor was there an option to opt out. 9 With respect to surprise, as noted above, Plaintiffs assert that they were never presented 10 with the full AMA, the arbitration provision it contained, or any hint that they were binding 11 themselves to additional terms when the signed the signature page contained in the WFG 12 application packet, at least until sometime later they had notice of the AMA when they recruited 13 others. See, e.g., Carlson v. Home Team Pest Def., Inc., 239 Cal. App. 4th 619, 633 (2015) 14 (finding procedural unconscionability where plaintiff “was required to sign the Agreement without 15 time for reflection” and noting that “failure to disclose the terms of arbitration and the applicable 16 rules also constitute surprise”). 17 The AMA’s rollout was plagued with an element of surprise due to all the reasons 18 discussed above regarding formation. As previously noted, Defendants’ own declaration indicates 19 that Ms. Yeomans only received a 7-page packet containing just the signature page of the AMA 20 when she became an Associate for Defendants. She only became aware (at least constructively) of 21 the existence of the AMA when she subsequently recruited other individuals to become 22 Associate—only because she signed the AMA on their behalf; those individuals presumably did 23 not know about the arbitration provision until it was their turn to recruit. Moreover, although the 24 heading of the AMA’s arbitration provision is underscored in bold (like all other headings), the 25 text is in single-spaced, small-type font. To be exact, the AMA is written in 9-point font. The 26 California Supreme Court recently affirmed a trial court’s finding of surprise in a procedural 27 unconscionability determination when the arbitration agreement was made up of 8.5-point font 1 L.L.C. v. Kho, 8 Cal. 5th 111, 128 (2019), cert. denied sub nom. OTO, L.L.C. v. Ken Kho, 207 L. 2 Ed. 2d 170 (June 8, 2020) (alterations in original). Indeed, the court concluded, as does this Court 3 regarding the AMA, that “[a] layperson trying to navigate this block text, printed in tiny font, 4 would not have an easy journey.” Id. 5 The prolix is further exacerbated by the arbitration provisions use of undefined terms, 6 definitions of which are located elsewhere. The first sentence of the AMA’s arbitration provision 7 reads “[t]he Parties agree that, except as specifically provided to the contrary in this Agreement, 8 any Grievance shall be resolved exclusively by Good Faith Arbitration.” AMA, art. V. The AMA 9 does not define what the term “Grievance” or the phrase “Good Faith Arbitration” means. The 10 reader must turn to Paragraph I of the Glossary and Explanation of Terms—a wholly separate 11 document that is similarly single spaced and in small-scale font—to find the general definition of 12 “Good Faith Arbitration,” followed by seven separate terms and definition that make up good faith 13 arbitration.5 Then, the reader must scroll further to uncover the definition of “Grievance”6 in order 14 to put it all together Although these agreed-upon terms were not hidden per se, they were not 15 contained within the AMA’s arbitration provision, and a reader seeking to make sense of the 16 arbitration provision would have to flip through a separate document in order to understand the 17 5 “All Grievances shall be resolved by Good Faith Arbitration in accordance with the Rules, 18 except that, or in addition to such Rules: i) in order to assure neutrality and impartiality of the arbitrator(s), and to preserve the confidentiality of proprietary information, the arbitrator(s) shall 19 not be any present or past owner, officer, director, employee, consultant, associate, agent, registered representative, attorney or other representative of any insurance company, insurance 20 broker or insurance agency, securities broker, securities dealer or mortgage company, investment advisor, or of any affiliate of any of them; ii) the Parties may be entitled to such discovery and 21 protective orders as provided herein; iii) the locale where the arbitration shall be held is the principal head office of WFG in Duluth, Georgia or, if that location is not convenient for all 22 Parties, they shall try to devise a way so that it is convenient, or if that location cannot be made convenient, at such other place as the Parties may agree, or, if they cannot agree, then as may be 23 set by the Rules, as the case may be: iv) a transcript shall be made on the proceeding; and v) the arbitrator’s(s’) award shall state their findings of fact and conclusions of law.” Glossary and 24 Explanation of Terms at ¶ I(1) (general definition); see also id at ¶ I(2)–(8) (definitions of judicial review of award, discovery, protective orders, waiver of litigation, no condition precedent to 25 action and power of arbitrators, extraordinary relief, statute of limitations, and beneficiaries).

26 6 Any controversy, claim, or dispute arising out of or relating to this Agreement, between the Associate, on the one part, and WFG and/or any of the Corporate People, or any of them, on the 27 other part.” Id. ¶ J. “Corporate People” is defined earlier in the Glossary as “Any and all of the 1 extent to which they would be bound. 2 Although the Glossary makes reference to the “Rules” of arbitration, Defendants did not 3 provide a copy of the rules that would govern their arbitration proceedings. Indeed, “Rules” is not 4 defined until near the end of the Glossary and even then makes reference to the AAA rules without 5 a hyperlink or an instruction as to how to obtain them. At the hearing herein, Defendants’ counsel 6 could not even explain what the substance of the AAA’s rule on venue provided. As this Court 7 has noted:

8 It is true that some courts have found procedural unconscionability based on the failure to provide AAA rules or the failure to identify 9 which of the then existing AAA rules govern. See Carbajal v. CWPSC, Inc., 245 Cal. App. 4th 227, 244 (Cal. Ct. App. 2016). 10 However, this Court is bound by California Supreme Court precedent which holds that where a “challenge to the enforcement of 11 the agreement has nothing to do with the AAA rules” and the only challenges to the contract concern “matters that were clearly 12 delineated in the agreement she signed” a party’s “failure to attach the AAA rules” alone does not raise the level of procedural 13 unconscionability. Baltazar, 62 Cal. 4th at 1246. Courts have, however, recognized that when AAA rules are incorporated by 14 reference, courts may “more closely scrutinize the substantive unconscionability of terms appearing only in the [AAA] rules”, but 15 incorporation alone does not amount to oppression. Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1262 (9th Cir. 2017) (quoting 16 Baltazar, 62 Cal. 4th at 1246). 17 Pereyra v. Guaranteed Rate, Inc., No. 18-CV-06669-EMC, 2019 WL 2716519, at *4 (N.D. Cal. 18 June 28, 2019). 19 The Court concludes that there was a significantly high degree of procedural 20 unconscionability associated with Plaintiffs’ (except for Mr. Rodriguez) assent to arbitration. 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 1 2. Substantive Unconscionability 2 As to substantive unconscionability, Plaintiffs’ note that the AMA’s contains two 3 provisions (the “Extraordinary Relief”7 clause and the “Equitable Relief”8 clause), which “are 4 designed to allow Defendants—and Defendants only—the option of circumventing the arbitration 5 process for the claims they felt were important enough to them to go the extreme position of 6 excluding themselves from arbitration for those claims, while requiring all employees to submit 7 those very claims to the arbitration process.” In California, “[c]ourts have found one-sided 8 employer-imposed arbitration provisions unconscionable where they provide that employee claims 9 will be arbitrated, but the employer retains the right to file a lawsuit in court for claims it initiates, 10 or where only the types of claims likely to be brought by employees (wrongful termination, 11 discrimination etc.) are made subject to arbitration.” Serafin, 235 Cal. App. 4th at 181. Here, the 12 one-sidedness of arbitration is even more stark. This is not a case where, e.g., either party can 13 seek an injunction to force compliance with a confidentiality clause—where there is facial 14 mutuality but results in a de facto advantage to the employer. Here, the one-sidedness is facial. 15 This one-sided provision is substantively unconscionable. 16 Second, Plaintiffs contend that the attorneys’ fees provision of the AMA is also 17

18 7 “Extraordinary Relief. The Parties agree that WFG has the right to seek preliminary and temporary restraining orders, injunctions and other extraordinary relief (such orders, injunctions 19 and other relief referred to as “Extraordinary Relief”) under Article VI of this Agreement without complying with Article V of the Agreement or this Section I. Without limitation, the Parties agree 20 that the requirements for Good Faith Arbitration under Article V of the Agreement or this Section do not preclude WFG from seeking in an arbitral or in a judicial forum, or in both, Extraordinary 21 Relief to protect its rights under Article VI of the Agreement. Neither Article V of the Agreement or this Section I shall be deemed to preclude or narrow the judicial or arbitral powers regarding 22 Extraordinary Relief.” AMA, art. VI.

23 8 “Equitable Relief. The Associate acknowledges and agrees that, in the event that he/she were to violate or threaten to violate any of the Covenants, WFG’s recovery of damages would be 24 inadequate to protect WFG. Accordingly, the Associate agrees that, in the event of a violation, actual or threatened, of any such Covenants, WFG shall be entitled to injunctive relief and specific 25 performance, notwithstanding any other provision of this Agreement to the contrary. The Associate acknowledges and agrees that injunctive relief and specific performance are appropriate 26 and necessary in the event of a violation, actual or threatened, of such covenants because there may be no adequate remedy at law for violation of any of such Covenants in that, among other 27 reasons, the property rights of WFG which are protected by such covenants are unique assets 1 substantively unconscionable. The provision provides: “If any Party hereto commences an action 2 or arbitration to enforce any of the provisions hereof, the prevailing Party in such action shall be 3 entitled to an award of its reasonable attorneys’ fees and all costs and expenses incurred in 4 connection therewith.” AMA, art IX, ¶ J. California courts have previously disapproved of 5 mandatory fee and cost provisions where a plaintiff who failed to prevail on similar claims in court 6 would be responsible for attorneys’ fees only where the action was “frivolous, unreasonable, 7 without foundation, or brought in bad faith.” Trivedi v. Curexo Tech. Corp., 189 Cal. App. 4th 8 387, 394 (2010), disapproved of on other grounds by Baltazar v. Forever 21, Inc., 62 Cal. 4th 9 1237, 367 P.3d 6 (2016) (“a mandatory attorney fee and cost provision in favor of the prevailing 10 party was unconscionable because it placed [the plaintiff] at greater risk than if he retained the 11 right to bring his . . . claims in court”); see also Ajamian v. CantorCO2e, L.P., 203 Cal. App. 4th 12 771, 800 (2012) (finding the attorneys’ fees provision unconscionable in part because “it imposes 13 on [plaintiff] the obligation to pay [defendant]’s attorney fees where she would have no such 14 obligation under at least one of her California statutory claims”). Here, Plaintiffs assert causes of 15 action under California Labor Code § 218.5(a), which contemplates imposition of attorneys’ fees 16 on a losing plaintiff only where “the court finds that the employee brought the court action in bad 17 faith,” Cal. Lab. Code § 218.5(a), and California Labor Code § 1194, which entitles only a 18 prevailing employee (and not the employer) to “reasonable attorney’s fees,” Cal. Lab. Code § 19 1194(a). This provision undermines the balance of the risk of fee shifting prescribed by statute 20 and can have a substantial chilling effect on plaintiffs seeking to vindicate their rights. This 21 provision is substantively unconscionable. 22 Plaintiffs also contend that the arbitration agreement is substantively unconscionable 23 because “the AMA only provides for discovery at the arbitrator’s discretion,” Opp. at 22, while the 24 law requires that the parties “will have the same rights, remedies, and procedures . . . as if the 25 subject matter of the arbitration were pending before a superior court,” id. (quoting Cal. Code Civ. 26 P. § 1283.05(a)). But this Court has previously explained:

27 California courts that have actually analyzed the AAA rule9 have 1 each found that it satisfies Armendariz’s requirements of discovery, in which “the employer impliedly agreed to all discovery necessary 2 to adequately arbitrate the claims.” Lane, 224 Cal. 4th at 693. While the AAA rule does not require the arbitrator to allow discovery, it 3 does require that the arbitrator allow discovery necessary to a full and fair exploration of the issues, and there is no indication here that 4 Plaintiff risks a situation in which an arbitrator could completely deny discovery. Here, Defendant makes no such claim that all 5 discovery should be denied, and the rule at issue grants the arbitrator the authority to order discovery as is necessary to fully and fairly 6 explore the issues in dispute. Thus, the Court finds that there is no substantively unconscionable limitation on discovery. 7 8 Colvin v. NASDAQ OMX Grp., Inc., No. 15-CV-02078-EMC, 2015 WL 6735292, at *7 (N.D. Cal. 9 Nov. 4, 2015). 10 Accordingly, although the discovery issue does not appear to add to a finding of 11 substantive unconscionability, the one-sidedness of the right to seek relief in court and the bar on 12 attorneys’ fees support a finding of substantive unconscionability. 13 Moreover, the Court finds an additional provision to be substantively unconscionable: the 14 AMA’s requirement to litigate all claims in the state of Georgia and to apply Georgia law. See 15 AMA, art IX, ¶ L. The burden imposed on individual plaintiffs is obvious—Defendants are 16 headquartered in Johns Creek, Georgia. See Schaad Decl. ¶¶ 3, 4. The Court finds the provision 17 mandating all court litigation to occur in the state of Defendants’ headquarters, as well as the 18 application of Georgia law, to be unduly one-sided such that it would serve as a deterrent to 19 litigants who otherwise do not have the means to litigate in a foreign state. 20 In toto, the Court concludes there are at least three substantive unconscionable provisions 21 contained in the AMA’s arbitration provision. “A sliding scale is applied so that the more 22 substantively oppressive the contract term, the less evidence of procedural unconscionability is 23 required to come to the conclusion that the term is unenforceable, and vice versa.” Serafin, 235 24 Cal. App. 4th at 178. The Court disagrees with Defendants’ argument that there is only a minimal 25 degree of both procedural and substantive unconscionability. As stated above, the Court finds 26 there is a remarkably high degree of procedural unconscionability, which in turn only requires a 27 1 finding of a low degree of substantive unconscionability in order to conclude the arbitration 2 provision is unenforceable. With three problematic provisions, the AMA has far more than a low 3 degree of substantive unconscionability. Thus, the Court concludes that the AMA’s arbitration 4 provision is unenforceable unless severance is in the interest of justice. 5 3. Severance 6 Because the Court finds—and Defendants concede—that both procedural and substantive 7 unconscionability are present, the Court must analyze whether the unconscionable parts of the 8 arbitration provision should be severed or whether it should refuse to enforce the arbitration 9 agreement altogether because unconscionability permeates the entire agreement. 10 “If the court as a matter of law finds the contract or any clause of the contract to have been 11 unconscionable at the time it was made the court may refuse to enforce the contract, or it may 12 enforce the remainder of the contract without the unconscionable clause, or it may so limit the 13 application of any unconscionable clause as to avoid any unconscionable result.” Cal. Civ. Code. 14 § 1670.5(a)). The Court has the discretion to sever or limit unconscionable clauses. See id.; see 15 also Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1272 (9th Cir. 2017). The California Supreme 16 Court in Armendariz weighed three factors in determining whether severance is appropriate: (1) 17 whether the substantively unconscionable provision relates to the arbitration agreement’s chief 18 objective; (2) whether the arbitration agreement contained multiple substantively unconscionable 19 provisions such that it indicates a systematic effort to impose arbitration not simply as an 20 alternative to litigation, but as an inferior forum; and (3) a lack of mutuality that permeated the 21 entire agreement. 24 Cal. 4th at 124–25; see also Poublon, 846 F.3d at 1272 (severance is 22 determined by examining the unconscionable provisions in relation to the purpose of the contract). 23 “[A] contract is permeated with unlawfulness (and severance is inappropriate) where ‘[t]he good 24 cannot be separated from the bad, or rather the bad enters into and permeates the whole contract, 25 so that none of it can be said to be good.’” Poublon, 846 F.3d at 1272 (quoting Keene v. Harling, 26 61 Cal. 2d 318, 322 (1964)) (second alteration in original). 27 The Court must determine whether the AMA’s arbitration provision is so permeated with 1 lawful and conscionable. Here, severance of the problematic provisions, e.g., prohibition on the 2 attorneys’ fees, one-sided extraordinary/equitable relief, and the choice-of-law provision could be 3 mechanically accomplished without “reformation and augmentation of the agreement.” Roman v. 4 Superior Court, 172 Cal. App. 4th 1462, 1478 (2009). Indeed, this Court has previously severed 5 identical provisions and compelled arbitration. See Pereyra v. Guaranteed Rate, Inc., No. 18-CV- 6 06669-EMC, 2019 WL 2716519, at *10 (N.D. Cal. June 28, 2019) (serving choice of law 7 provision, the lack of mutuality pertaining to exceptions from arbitration, the fee provision, and 8 the choice of forum provision and compelling arbitration). 9 However, the Court finds that the AMA is permeated by both a substantial degree of 10 procedural unconscionability as well as multiple substantively unconscionable provisions that are 11 designed to confer an unfair unilateral advantage to Defendants, which serves to chill attempts by 12 would-be plaintiffs to vindicate their rights. See Perez v. DirecTV Grp. Holdings, LLC, No. 13 816CV1440JLSDFMX, 2017 WL 8117452, at *1 (C.D. Cal. Sept. 22, 2017) (“the high degree of 14 procedural unconscionability—i.e., convincing a Spanish-speaking beauty salon owner to sign an 15 agreement that the sales representative knew she could not understand and withholding key terms 16 until a consumer would have to pay steep penalties to cancel—means that it is not possible to 17 remove the unconscionable taint to the arbitration agreement through severance.”) (internal 18 quotations omitted); see also Sherwood v. Blue Cross, No. CIV. S-07-633 LKK/DA, 2007 WL 19 2705262, at *5 (E.D. Cal. Sept. 14, 2007) (“While the court could attempt to sever the 20 substantively unconscionable provisions of the arbitration agreement in order to save the 21 remaining provisions, where defendants have openly admitted that the contract was procedurally 22 unconscionable, this result would not be in the interests of justice. Here, the undisputed element 23 of procedural unconscionability permeates the entire agreement, rendering the entire agreement 24 unenforceable.”) (internal citations omitted); Cf. Mok v. Optum, United Healthcare Servs., Inc., 25 No. CV 13-04577 RS, 2014 WL 10754130, at *6 (N.D. Cal. Feb. 10, 2014) (“In this case it is not 26 appropriate to invalidate the entire agreement. The injunction provision can be severed and 27 clearly is not the purpose of the agreement. Once the offending provision is severed, the 1 agreement. Accordingly, Mok has failed to demonstrate that the agreement is so permeated with 2 unconscionability that it is rendered completely unenforceable.”). 3 Here it is apparent that the AMA, and the process by which consent was obtained, is 4 tainted with an evident intent to deter individuals from enforcing their rights under California law. 5 Poublon, 846 F.3d at 1272 (quoting Marathon Entm't, Inc. v. Blasi, 42 Cal. 4th 974, 996, (2008) 6 (“If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot 7 be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal 8 provision can be extirpated from the contract by means of severance or restriction, then such 9 severance and restriction are appropriate.”). The provision lacks mutuality and contains 10 burdensome and chilling deterrents to associates seeking to enforce their legal rights. 11 Unconscionability permeates the agreement. 12 V. CONCLUSION 13 For the foregoing reasons, the Court DENIES Defendants’ Motion to Compel Arbitration, 14 Dismiss Class Claims, and Stay Case. Mr. Rodriguez is not bound by the arbitration provision. 15 As to the other Plaintiffs, the arbitration provisions are unconscionable and unenforceable. 16 Although the AMA contains a severance provision, it is not entitled to deference under these 17 circumstances. 18 This order disposes of Docket No. 73. 19 20 IT IS SO ORDERED. 21 22 Dated: September 11, 2020 23 24 ______________________________________ EDWARD M. CHEN 25 United States District Judge 26 27