Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_18-cv-06669/USCOURTS-cand-3_18-cv-06669-0/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1332 Diversity-(Citizenship)

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Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

KARLA PEREYRA,

Plaintiff,

v.

GUARANTEED RATE, INC.,

Defendant.

Case No. 18-cv-06669-EMC 

ORDER GRANTING DEFENDANT’S 

MOTION TO COMPEL 

ARBITRATION

Docket No. 14

I. INTRODUCTION

Currently pending before the Court is Defendant’s motion to compel arbitration. The 

Court ruled from the bench that there are four unconscionable provisions all of which can be 

severed or reformed. For the reasons stated on the record and as memorialized, clarified and

supplemented herein, the Court GRANTS Defendant’s motion to compel arbitration. 

II. FACTUAL & PROCEDURAL BACKGROUND

Plaintiff seeks to file a class action for claims arising under the California Labor Codes §§ 

510; 1198; 226.7(a); 512(a); 226.7(a); 226(a); 201-203; 221-224 et seq.; and violations of the 

Business and Professions Code § 17200 et seq. Complaint (“Compl.”) Plaintiff argues that she 

and other class members are entitled to premium wages for overtime pay based on a regular rate 

with commission and bonuses. Id. ¶ 8. She alleges that Defendant denied her, and other class 

members, minimum wages owed to her and others based on overtime work laws, wages upon 

discharge, and compensation for meals and rest breaks. Id. Similarly, Plaintiff claims that 

Defendant failed to keep accurate payroll and wage statements in accordance with California law. 

Id. 

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She also raises a breach of contract claim. She claims the breach of her employment 

contract was the failure “to provide Plaintiff with the draw amount as stated and in the proper 

amounts, failing to provide Plaintiff with the basis points on each loan, failing to pay the correct 

commission payments for loans originated, failing to pay the enhanced commission, failing to pay 

accurate monthly commissions after submitting questions within the time required, failing to pay 

all wages owed per the contract for each pay period, and imposing deductions for expenses not

contemplated by the employment contract.” Id. ¶ 32. 

Plaintiff worked as an employee of Defendant from August 2015 to August 2016. Id. ¶ 13. 

She held the position of mortgage specialist in Orange County, California. Id. She contends that 

in that position she regularly worked over eight hours a day and more than 40 hours a week 

without overtime pay or compensation for meal and rest breaks. Id. 

After Plaintiff filed the Complaint, Defendant moved to compel arbitration and to dismiss 

the action under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). Defendant’s Motion to 

Compel (“Mot.”). The basis for this motion is an arbitration agreement in Plaintiff’s employment 

contract. 

Plaintiff opposes the motion to compel arbitration on several grounds. She argues the 

contract is procedurally unconscionable because it was a contract of adhesion and Defendant 

failed to include the AAA rules. Opposition to Motion to Compel (“Opp’n”) at 1. She also 

challenges the agreement on substantive unconscionability grounds, asserting that it lacked

mutuality, it requires Plaintiff to waive un-waivable claims, and allows Defendant to recover 

attorneys’ fees and costs in violation of California law. Id. She also argues that both the choice of 

law provision and choice of forum provision are unconscionable. Id. at 14-15. Despite the choice 

of law clause, Defendant does not argue that Illinois law applies here. Reply at 6. 

A. The Contract

On July 24, 2015, Plaintiff signed an arbitration agreement. This agreement was 

superseded by a contract signed by Plaintiff on July 8, 2016. Confusingly, the parties have each

submitted the arbitration agreement for a different employee (the plaintiff in the related case 

Turng). Turng v. Guaranteed Rate, Inc., 371 F. Supp. 3d 610, 615 (N.D. Cal. 2019). However, 

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both parties agree that it is identical to the copy of the arbitration agreement provided to Plaintiff 

in this matter. The relevant provisions of the arbitration agreement read:

(V) YOUR CONFIDENTIALITY OBLIGATIONS; NONSOLICITATION

. . . 

(f) Enforcement; Remedies 

You covenant, agree and recognize that because the breach or 

threatened breach of the covenants, or any of them, contained in 

Section V hereof will result in immediate and irreparable injury to 

the Company, the Company shall be entitled to an injunction 

restraining you from any violation of the covenants and agreements 

contained in this Section V to the fullest extent allowed by law. 

Nothing herein shall be construed as prohibiting the Company, and 

its respective successors and assigns, from pursuing all legal or 

equitable remedies that may be available to them for any such 

breach, including the recovery of damages from you. 

(f) Construction 

You hereby expressly acknowledge and agree as follows: 

(i) the covenants set forth in Section V are reasonable in all respects 

and are necessary to protect the legitimate business and competitive 

interests of the Company in connection with its business, which you 

agree, pursuant to this Agreement, to assist in maintaining and 

developing; and

(ii) each of the covenants set forth in Section V is separately and 

independently given, and each such covenant is intended to be 

enforceable separately and independently of the other such 

covenants, including without limitation, enforcement by

injunction, and that the invalidity or unenforceability of any 

provision of this Agreement in any respect shall not affect the 

validity or enforceability of this Agreement in any other respect.

In the event that any provision of this Section V shall be held invalid 

or unenforceable by a court of competent jurisdiction by reason of 

the duration thereof of any such covenant, or for any other reason, 

such invalidity or unenforceability shall attach only to the particular 

aspect of such provision found invalid or unenforceable as applied 

and shall not affect or render invalid or unenforceable any other 

provision. This Section V shall be construed as if the provision or 

other basis on which such provisions has been determined to be 

overly broad had been more narrowly drafted so as not to be invalid 

or unenforceable. . . .

VII. MANDATORY ARBITRATION AND WAIVER OF RIGHT 

TO SUE AND RIGHT TO FILE ANY CLASS OR COLLECTIVE

ACTION. 

(a) Arbitration 

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Any and all claims (legal or equitable), demands, disputes, or 

controversies between you and the Company must be resolved by

arbitration in accordance with the rules of the American Arbitration 

Association then in existence. Such arbitration shall take place in 

Chicago, Illinois, the applicable law will be the laws of the State of 

Illinois without regard to the conflicts of law provisions therein and 

the decision of the arbitrator shall be final and binding on you and 

the Company. Without limiting the foregoing, the following claims 

must be resolved by arbitration:

(i) Claims related to your compensation with the Company brought 

under any federal, state or local statute, law, ordinance, regulation or 

order or the common law of any state, including without limitation 

claims relating to your wages, salary increases, bonuses, 

commissions, overtime pay, vacation pay, or severance pay whether 

or not such claim is based upon a legally protected right, whether 

statutory, contractual or common law; and

(ii) Claims brought under any federal, state, or local statute, law, 

ordinance, regulation, or order, or the common law of any state, 

alleging that you were or are being subject to discrimination 

retaliation, harassment, or denial of equal employment opportunity 

based on sex, race, color, religion, national origin, disability, age, 

marital status, or any other category protected by law; and/or 

relating to your benefits or working conditions, including without 

limitation, claims related to leaves of absence, Employee benefit 

plans, Employee health and safety, and activity protected by federal 

labor laws.

(b) Waiver of Right to Sue and Right to File any Action as a Class 

or Collective Action 

You and the Company expressly waive any right to resolve any 

dispute covered by this Agreement by filing suit in court for trial

by a judge or jury.

With respect to any and all claims made by you, there will be no 

right or authority for any dispute to be brought, heard or arbitrated

under this Agreement as a class or collective action, private attorney 

general, or in a representative capacity on behalf of any

Person.

(c) Exclusions 

The mandatory arbitration provisions of this Agreement do not 

apply to: (i) any claim by you for workers compensation benefits or

unemployment compensation benefits; (ii) any claim for injunctive 

or equitable relief, including without limitation claims related to

unauthorized disclosure of confidential information, trade secrets or 

intellectual property; or (iii) any action brought relating to or

arising out of any non-solicitation violations.

IX. APPLICABLE LAW; VENUE 

This Agreement shall be governed by and construed in accordance 

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with the laws of the State of Illinois, without regard to the conflicts 

of laws provisions therein. You irrevocably consent to the exclusive 

jurisdiction of the state and federal courts located in Cook County, 

Illinois, for the purposes of any action or proceeding relating to or 

arising out of this Agreement and/or your employment with the 

Company.

X. ATTORNEYS’ FEES AND COSTS; INJUNCTIVE RELIEF 

The Company may recover from you its attorneys’ fees and costs 

relating to any action to enforce, defend and/or prosecute this

Agreement. You acknowledge that a breach of any provision of this 

Agreement will cause irreparable harm to the Company and

that monetary damages will be inadequate and may be difficult or 

impossible to ascertain. Therefore, in the event of any such

breach, or threatened breach, in addition to all other remedies, the 

Company shall have the right to require you to fulfill your

obligations by way of temporary and/or permanent injunctive relief.

XI. MISCELLANEOUS 

This Agreement, together with any Schedule, is complete and 

reflects all of the agreements, representations and warranties

between you and the Company and supersedes all other agreements 

(oral or written) in effect prior to the execution of this

Agreement. The Company reserves the right to terminate or modify 

this Agreement at any time. Any delay or failure to enforce

any provision of this Agreement by the Company shall not be 

considered a waiver of such provisions or any other provision of this

Agreement.

. . . 

To the extent a court of competent jurisdiction determines any 

provision is not enforceable, the parties agree that the court may

modify the provision to the minimum extent necessary to make the 

provision enforceable. Further, any such invalid provision shall

not invalidate the remaining provisions, which shall remain in full 

force and effect.

Plaintiff’s Ex. 2. 

III. DISCUSSION

A. Legal Standard 

Arbitration agreements are “valid, irrevocable, and enforceable” under the Federal 

Arbitration Act. 9 U.S.C. § 2. Section 2, however, “permits arbitration agreements to be declared 

unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract.’

This saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable 

contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only 

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to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” 

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-40 (2011) (quoting Doctor's Associates, 

Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). “By its terms, the [FAA] leaves no place for the 

exercise of discretion by a district court, but instead mandates that district courts shall direct the 

parties to proceed to arbitration.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). 

Plaintiff bears the burden of showing that an arbitration agreement should not be enforced. Green 

Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000). 

Neither party questioned whether the Court (as opposed to an arbitrator) may determine 

arbitrability.

B. Choice of Law

Plaintiff challenges the choice of law provision both as it is applied in this case and facially 

as unconscionable. As applied here, she contends that California law governs this matter despite 

the existence of a choice of law provision in the contract requiring Illinois law to apply. 

Defendant makes no attempt to enforce the choice of law provision. Reply at 6. For this 

reason, the Court shall apply California law. 

C. Unconscionability

Arbitration clauses can be invalidated based “upon such grounds as exist at law or in 

equity for the revocation of any contract” such as unconscionability. 9 U.S.C. § 2. Under 

California law, for a party to claim a contract is unconscionable, it must show that it is both 

procedurally and substantively unconscionable. Dalton v. J. Mann Inc., 2016 WL 5909710, at *3 

(N.D. Cal. Oct. 11, 2016). “A sliding scale is applied so that the more substantively oppressive 

the contract term, the less evidence of procedural unconscionability is required to come to the 

conclusion that the term is unenforceable, and vice versa.” Serafin v. Balco Props. Ltd., LLC, 235 

Cal. App. 4th 165, 178 (Ct. App. 2015). When evaluating procedural unconscionability courts 

focus on oppression or surprise that results from unequal bargaining power, and while evaluating

substantive unconscionability courts are more concerned with overly harsh or one-sided results. 

Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1133 (2013). 

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1. Procedural Unconscionability

Procedural unconscionability refers to unequal bargaining power resulting from no real 

negotiation and the absence of a meaningful choice. Dean Witter Reynolds, Inc. v. Superior 

Court, 211 Cal. App. 3d 758, 767-68 (Ct. App. 1989), reh'g denied and opinion modified (July 21, 

1989). Plaintiff contends that the contract contains two different aspects of procedural 

unconscionability. 

a. Defendant’s Failure to Provide AAA Rules

Plaintiff argues that because Defendant did not provide her with a copy of the AAA rules, 

nor did it tell her where to find a copy of the rules, the arbitration agreement is procedurally 

unconscionable. A failure to provide AAA rules that govern an arbitration agreement can 

sometimes amount to procedural unconscionability where the challenge to the contract “concerned 

some element of the AAA rules of which she had been unaware when she signed the arbitration 

agreement.” Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1246 (2016). It is true that some 

courts have found procedural unconscionability based on the failure to provide AAA rules or the 

failure to identify which of the then existing AAA rules govern. See Carbajal v. CWPSC, Inc., 

245 Cal. App. 4th 227, 244 (Cal. Ct. App. 2016). However, this Court is bound by California 

Supreme Court precedent which holds that where a “challenge to the enforcement of the 

agreement has nothing to do with the AAA rules” and the only challenges to the contract concern 

“matters that were clearly delineated in the agreement she signed” a party’s “failure to attach the 

AAA rules” alone does not raise the level of procedural unconscionability. Baltazar, 62 Cal. 4th 

at 1246. Courts have, however, recognized that when AAA rules are incorporated by reference, 

courts may “more closely scrutinize the substantive unconscionability of terms appearing only in 

the [AAA] rules”, but incorporation alone does not amount to oppression. Poublon v. C.H. 

Robinson Co., 846 F.3d 1251, 1262 (9th Cir. 2017) (quoting Baltazar, 62 Cal. 4th at 1246).

In the case at bar, Plaintiff does not contend that any aspect of the AAA rules surprised 

her, nor does she challenge any specific AAA rule. The AAA rules referenced in the arbitration 

agreement are readily available to the public. Ulbrich v. Overstock.com, Inc., 887 F. Supp. 2d 

924, 932-33 (N.D. Cal. 2012) (recognizing that “[u]nder general California rules of contract 

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interpretation, matters like the AAA rules can be incorporated into a contract by reference 

provided the incorporation is clear and the incorporated rules are readily available”). Absent a 

showing that one of the AAA rules somehow surprised her, the failure to provide Plaintiff with a 

copy of the AAA rules or to specify which of the then existing AAA rules governed does not 

amount to any procedural unconscionability, at least where none of the AAA rules are challenged.

b. Contract of Adhesion

Plaintiff challenges the arbitration agreement as unconscionable because it was a contract 

of adhesion. Plaintiff asserts that she did not have any opportunity to negotiate the terms of the 

contract. In Plaintiff’s declaration she indicated that she was not given an “opportunity to 

negotiate any of the terms in the Compensation Agreement” and she was instructed by a person in 

the Human Resources department at GRI “to immediately sign” the documents or she “would 

forego [the] employment opportunity.” Pereyra Decl. ¶ 5. 

Under California law, access to employment is treated differently. In Armendariz v. 

Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 115 (2000), the California Supreme Court 

recognized that “few employees are in a position to refuse a job because of an arbitration 

requirement,” and thus an employment contract of adhesion is procedurally unconscionable. Here, 

the contract does appear to be “a standardized contract that is imposed and drafted by the party of 

superior bargaining strength and relegates to the other party only the opportunity to adhere to the 

contract or reject it.” Dalton., 2016 WL 5909710, at *3 (quoting Higgins v. Superior Court, 140 

Cal. App. 4th 1238, 1248 (2006)). “California courts have held that oppression may be 

established by showing the contract was one of adhesion or by showing from the ‘totality of the 

circumstances surrounding the negotiation and formation of the contract’ that it was oppressive.” 

Poublon, 846 F.3d at 1260 (citing Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 

Cal. App. 4th 1332, 1348, as modified on denial of reh'g (Feb. 9, 2015)). It is true that 

Armendariz found that “[g]iven the lack of choice and the potential disadvantages that even a fair 

arbitration system can harbor for employees, we must be particularly attuned to claims that 

employers with superior bargaining power have imposed one-sided, substantively unconscionable 

terms as part of an arbitration agreement.” Armendariz, 24 Cal. 4th at 115. This language is 

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arguably in tension with the proposition that a court “may not ‘rely on the uniqueness of an 

agreement to arbitrate as a basis for . . . ’” finding an arbitration agreement unenforceable. 

Concepcion, 563 U.S. at 341 (quoting Perry v. Thomas, 482 U.S. 483, 493 (1987)). But the 

broader reading of Armendariz concerns the imposition of any one-sided unconscionable terms in 

an employment contract, not just those regarding arbitration. Armendariz’s recognition of 

differential bargaining power between employers and employees is not unique to an agreement to 

arbitrate. Hence, the proposition that adhesive contracts in the employment context generally 

entails some degree of procedural unconscionability still obtains in both the California Supreme 

Court and the Ninth Circuit subsequent to Concepcion. See Poublon, 846 F.3d at 1260; Ramos v. 

Superior Court of San Francisco Cty., 28 Cal. App. 5th 1042 (Cal. Ct. App. 2018) (citing McGill 

v. Citibank, N.A., 2 Cal. 5th 945, 962–963 (2017); Sanchez v. Valencia Holding Co., LLC, 61 Cal.

4th 899, 910 (2015); Sonic-Calabasas A, Inc., 57 Cal. 4th at 1169 for the proposition that “[s]ince

Concepcion was decided, the California Supreme Court has reaffirmed the validity of Armendariz

multiple times”). Thus, the adhesive nature of the employment contract warrants a finding of 

some degree of procedural unconscionability. 

Although there is some procedural unconscionability here, “[w]here there is no other 

indication of oppression or surprise, the degree of procedural unconscionability of an adhesion 

agreement is low, and the agreement will be enforceable unless the degree of substantive 

unconscionability is high.” Ajamian v. CantorCO2e, L.P., 203 Cal. App. 4th 771 (Cal. Ct. App. 

2012). Thus, Plaintiff in the instant case needs to show a high degree of substantive 

unconscionability to invalidate the arbitration provision.

2. Substantive Unconscionability

Substantive unconscionability exists where the contract is overly harsh or is unduly onesided. Sonic-Calabasas A, Inc., 57 Cal. 4th at 1133. Plaintiff argues that the arbitration 

agreement is substantively unconscionable because it lacks mutuality, requires Plaintiff to waive 

unwaivable claims, allows Defendant to seek attorneys’ fees, and requires Plaintiff to apply 

Illinois law and arbitrate in Chicago, Illinois. 

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a. Mutuality

The California Supreme Court found in Armendariz that given the basic and substantial 

nature of the rights at issue in requiring arbitration, the unilateral obligation to arbitrate may be so 

unfairly one-sided as to warrant a finding of substantive unconscionability. Armendariz, Inc., 24 

Cal. 4th at 117. The Armendariz Court found that “it is unfairly one-sided for an employer with 

superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such 

limitations when it seeks to prosecute a claim against the employee, without at least some 

reasonable justification for such one-sidedness based on ‘business realities.’” Id. The phrase 

“business realities” refers to legitimate commercial need. Id. “But an arbitration agreement 

imposed in an adhesive context lacks basic fairness and mutuality if it requires one contracting 

party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or 

series of transactions or occurrences.” Id. at 120 (finding unconscionability in part because “[a]n 

employee terminated for stealing trade secrets, for example, must arbitrate his or her wrongful 

termination claim under the agreement while the employer has no corresponding obligation to 

arbitrate its trade secrets claim against the employee”). Further, for a Defendant to employ the 

“business realities” justifying a one-sided arbitration agreement, those “‘business realities’ 

creating the special, need must be explained in the terms of the contract or factually established.” 

Fitz v. NCR Corp., 118 Cal. App. 4th 702, 723 (Ct. App. 2004) (citing Armendariz, 24 Cal. 4th at 

117, quoting Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 1536 (Ct. App. 1997).

A general assumption cannot be made that arbitration is a universally inferior forum to 

courts. See Sonic-Calabasas A, Inc., 57 Cal. 4th at 1125, Tompkins v. 23andMe, 840 F.3d 1016, 

1030 (9th Cir. 2016), see Baltazar, 62 Cal. 4th at 1247-48, 1250 (upholding a provision excepting 

preliminary injunctive relief likely to be used by employers, not employees, because that provision 

reiterated rights already in existence under California Code of Civil Procedure § 1281.8).

On the other hand, one-sided rights affording a broad exemption from arbitration and 

likely to benefit one party over the other by affording that party a choice of fora may be 

unconscionable. For instance, in Farrar the court found unconscionable an agreement which 

contained a “wholesale exception” to arbitration exempting “any claim based on or related to the 

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and Assignment of Inventions & Confidentiality Agreement between you and Direct Commerce,” 

Farrar v. Direct Commerce, Inc., 9 Cal. App. 5th 1257, 1273 (Ct. App. 2017), review denied

(June 14, 2017). The exception for “any claim” extended beyond the provisional judicial remedies 

exempted from arbitration in Baltazar. The broad exception for all injunctions (including 

permanent injunction) in Farrar was therefore distinguishable from the limited exception in 

Baltazar. Other courts have similarly found that provisions which carve out from arbitration 

claims for permanent (not just preliminary) injunctive relief to be substantively unconscionable. 

See Carbajal, 245 Cal. App. 4th at 250; Lara v. Onsite Health, Inc., 896 F. Supp. 2d 831, 844 

(N.D. Cal. 2012) (“Accordingly, because the Arbitration Agreement allows the parties access to 

the courts only for injunctive relief, and this form of relief favors employers, the Court finds that 

this provision is substantively unconscionable”); Colvin v. NASDAQ OMX Grp., Inc., 2015 WL 

6735292, at *5 (N.D. Cal. Nov. 4, 2015) (finding an arbitration provision unconscionable where 

the exception “creates a lack of mutuality wherein the Defendant can force employee claims to 

arbitration while reserving the judicial forum for claims that Defendant is more likely to bring 

against its employees”); Bermudez v. PrimeLending, 2012 WL 12893080, at *13 (C.D. Cal. Aug. 

14, 2012) (finding that a provision providing for an exception that is “not limited to injunctive 

relief” unconscionable); Martin v. Ricoh Americas Corp., 2009 WL 1578716, at *4 (N.D. Cal. 

June 4, 2009) (citing cases). 

In the case at bar, the exemptions from arbitration are provided in section (c) Part VII of 

the Agreement: 

The mandatory arbitration provisions of this agreement do not apply 

to: (i) any claim by you for workers compensation benefits or 

unemployment compensation benefits; (ii) any claim for injunctive 

or equitable relief, including without limitation claims related to 

unauthorized disclosure of confidential information, trade 

secrets or intellectual property; or (iii) any action brought 

relating to or arising out of any non-solicitation violations. 

Plaintiff’s Ex. 2 (emphasis added). 

As in Farrar, Part VII(c) carves out a wholesale exemption of claims for injunctive or 

equitable relief (including permanent injunctive relief); this which is likely to benefit employers 

more than employees by affording employers a choice of fora not available to employees. See 

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also Fitz, 118 Cal. App. 4th at 724 (arbitration agreement “is unfairly one-sided because it 

compels arbitration of the claims more likely to be brought by Fitz, the weaker party, but exempts 

from arbitration the types of claims that are more likely to be brought by NCR, the stronger 

party”). The one-sided nature is heightened by Section VII(c)(iii) which allows employers to sue 

in court for damages as well as injunctive relief for non-solicitation violations–restrictions are 

imposed only on employees and not the company. Accordingly, the non-mutuality of Part 

VII(c)(ii) and (iii) are substantively unconscionable.

The Court does not, however, find Section V(e) lacks mutuality. Section V(e) states:

V. YOUR CONFIDENTIALITY OBLIGATIONS; NONSOLICITATION

. . . 

(e) Enforcement; Remedies 

You covenant, agree and recognize that because the breach or 

threatened breach of the covenants, or any of them, contained in 

Section V hereof will result in immediate and irreparable injury to 

the Company, the Company shall be entitled to an injunction 

restraining you from any violation of the covenants and agreements 

contained in this Section V to the fullest extent allowed by law. 

Nothing herein shall be construed as prohibiting the Company, and 

its respective successors and assigns, from pursuing all legal or 

equitable remedies that may be available to them for any such 

breach, including the recovery of damages from you. 

Plaintiff’s Ex. 2. 

This section does not provide an exemption to arbitration. Instead, it provides for certain 

relief (injunctive), whether in arbitration or in court. Section V(e) contrasts with Section VII(c) 

which expressly exempts certain causes of action from arbitration. Section V(e) does not 

expressly provide for such an exemption.

For the reasons stated herein Sections VII(c)(ii)-(iii) are unconscionable because mutuality 

is lacking. Section V(e), however, is not unconscionable.

b. Attorneys’ Fees Provision

Plaintiff challenges as unconscionable the contract’s attorneys’ fees provision because it 

subverts language in the Labor Code related to a requirement that an employer show bad faith on 

the part of a plaintiff to recover attorneys’ fees. Defendant argues that Plaintiff only raised a 

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breach of contract claim in this context to render the agreement unconscionable. To begin with, 

the Court does not find that the breach of contract claim is illusory and will therefore evaluate the 

unconscionability of the provision. The provision reads:

The Company may recover from you its attorneys’ fees and costs 

relating to any action to enforce, defend, and/or prosecute this 

Agreement. 

Plaintiff’s Ex. 2. The attorneys’ fees provision is non-mutual. Although California Civil Code § 

1717 operates to reform a one-sided attorney fee provision in a contract into a mutual obligation, § 

1717 does not save the one-sided provision from unconscionability. In Carmona, Cal. App. 4th at 

85, the court explained:

Still, the attorney fee provision is not conscionable merely because 

section 1717 might provide employees relief from the provision’s 

one-sidedness. The court’s reasoning in Samaniego demonstrates 

the flaw in this argument. There, the arbitration agreement 

contained a unilateral fee-shifting provision requiring employees to 

pay any attorney fees the employer, Empire, might incur “‘to 

enforce any of its rights’” under the employment agreement. 

Samaniego, supra, 205 Cal. App. 4th at p. 1143, 140 Cal. Rptr. 3d 

292.) The court held “[S]uch a clause contributes to a finding of 

unconscionability. [Citation] Empire argues this clause is of no 

moment because, after all, one-way fee-shifting provisions that 

benefit only employers violate both the Labor Code and commercial 

arbitration rules, ‘which means that Empire cannot recover its 

attorney’s fees from plaintiffs even if it prevails in arbitration.’ In 

other words, according to Empire, it is not unconscionable because 

it is illegal and, hence, unenforceable. To state the premise is to 

refute Empire’s logic. The argument is unpersuasive.” (Id. at p. 

1147, 140 Cal. Rptr. 3d 492.)

The car wash companies’ argument represents the same sort of 

flawed logic. “‘Section 1717 was enacted to make all parties to a 

contract, especially an “adhesion contract,” equally liable for 

attorney’s fees and other necessary disbursements.’” (System Inv. 

Corp. v. Union Bank (1971) 21 Cal. App. 3d 137, 163, 98 Cal. Rptr. 

735.) “The statute was designed to establish mutuality of remedy 

when a contractual provision makes recovery of attorney fees 

available to only one party, and to prevent the oppressive use of onesided attorney fee provisions.” (Trope v. Katz (1995) 11 Cal. 4th 

274, 285, 45 Cal. Rptr. 2d 241, 902 P.2d 259, italics added.) In 

other words, the statute was enacted to prevent the application of 

substantively unconscionable attorney fee provisions. According to 

the car wash companies, the attorney fees provision is not 

unconscionable because it is oppressively one-sided and 

unenforceable as written. To quote our colleagues in Samaniego, 

“[t]o state the premise is to refute [their] logic.” (Samaniego, 205 

Cal. App. 4th at p. 1147, 140 Cal. Rptr. 3d 492.)

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The existence of the fee provision may well have a chilling effect on employees seeking to 

vindicate their rights. The conscionability of the provision is to be judged at the time the 

agreement is made. Loewen v. Lyft, Inc., 129 F. Supp. 3d 945, 960 (N.D. Cal. 2015). The 

unconscionability of the fee provision is exacerbated by the fact that although the fee shifting 

agreement (even if made mutual by § 1717) applies only to claims to “enforce, defend, and/or 

prosecute” the Agreement – i.e., a breach of contract claim – its enforcement could well interfere 

with the Labor Code which limits employee’s exposure to fee liability. There may be instances in 

which the fees associated with defending a labor code violation may be intertwined with costs 

associated with the breach of contract claim. Awarding fees incurred for such intertwining fees 

under the prevailing party provision of the agreement would conflict with the protection of 

employees from liability for fees afforded by the Labor Code. See Samaniego v. Empire Today, 

LLC, 205 Cal. App. 4th 1138 (2012)). 

The fee provision is unconscionable.

c. Choice of Law

Plaintiff challenges the choice of law provision in the arbitration agreement as, not only 

inapplicable in this matter, but also as unconscionable. The provision states that “[s]uch 

arbitration shall take place in Chicago, Illinois, the applicable law will be the laws of the State of 

Illinois without regard to the conflicts of law provisions therein and the decision of the arbitrator 

shall be final and binding on you and the Company.” Plaintiff’s Ex. 2. 

Despite Defendant’s failure to argue that Illinois law applies to this current dispute, the 

Court must evaluate whether the choice of law provision would be substantively unconscionable at 

the time it went into effect. As previously explained, “unconscionability is evaluated at the time 

the contract went into effect and not how it may be applied in the future.” Loewen, 129 F. Supp. 

3d at 960. Plaintiff argues that the choice of law provision applicable here would prevent her from 

bringing certain California state law claims that do not have an Illinois law counterpart. For this 

reason, she contends that the choice of law provision requires her waive certain “unwaivable” 

claims.

In Pinela v. Neiman Marcus Group, Inc., the California Court of Appeal found that it was 

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substantively unconscionable to have a Texas choice of law provision because under Texas law a 

plaintiff could not bring a private right of enforcement under Labor Code provisions at issue. 

Pinela v. Neiman Marcus Group, Inc., 238 Cal. App. 4th 227, 251 (Ct. App. 2015). Under 

California law a plaintiff would have been able to bring those claims. Id. The choice of law 

provision barring that substantive right under California law was unconscionable. Id. In this case, 

because the choice of law provision would prevent employees from bringing non-waivable claims 

under California law, the choice of law provision has a high degree of substantive 

unconscionability. 

d. Requirement to Arbitrate in Illinois 

Finally, Plaintiff challenges the requirement to arbitrate in Chicago, Illinois. “[T]he 

California Supreme Court has stated that California courts must enforce a forum selection clause 

unless the clause is unreasonable because ‘the forum selected would be unavailable or unable to 

accomplish substantial justice’; inconvenience and expense of the forum alone is not sufficient.” 

Poublon, 846 F.3d at 1264-65 (quoting Tompkins, 840 F.3d at 1027). A distant forum is not 

necessarily “unavailable or unable to accomplish substantial justice.” Id. at 1265 (quoting 

Tompkins, 840 F.3d at 1027). “California appellate courts considering forum selection clauses in 

adhesion contracts have held that ‘[n]either inconvenience nor additional expense in litigating in 

the selected forum is part of the test of unreasonability.’” Tompkins, 840 F.3d at 1028 (quoting 

Cal–State Bus. Prods. & Servs., Inc. v. Ricoh, 12 Cal. App. 4th 1666 (Ct. App. 1993)). However, 

if the forum is “so gravely difficult and inconvenient that [the plaintiffs] will for all practical 

purposes be deprived of [their] day in court”, it is unenforceable. Id. at 1029 (quoting Aral v. 

Earthlink, Inc., 134 Cal. App. 4th 544, 561 (Ct. App. 2005)) (alteration in original). Here, 

Plaintiff provided a declaration describing the difficulty she would face in arbitrating this claim in 

Chicago. Pereyra ¶ 21. She faces a risk of being fired if she took time off to litigate these claims. 

Id. She cannot afford the flights to Chicago. Id. Finally, the amount of money it would cost her 

to litigate this cause of action in Chicago exceeds the amount she could recover if successful. Id. 

All of these factors lead the Court to find that Chicago, Illinois is more than merely inconvenient 

but actually unavailable and incapable of accomplishing substantial justice. 

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For these reasons, Plaintiff has shown that the choice of forum provision is substantively 

unconscionable. 

e. Conclusion

Plaintiff has established a high degree of substantive unconscionability as it relates to the 

choice of law provision, the lack of mutuality pertaining to exceptions from arbitration, the fee 

provision, and the choice of forum provision. Because there is some procedural unconscionability, 

these provisions are unenforceable. 

D. Severability

The agreement at issue here has a severability clause. The clause reads:

To the extent a court of competent jurisdiction determines any 

provision is not enforceable, the parties agree that the court may 

modify the provision to the minimum extent necessary to make the 

provision enforceable. Further, any such invalid provision shall not 

invalidate the remaining provisions, which shall remain in full force 

and effect.

Plaintiff’s Ex. 2. Severability “clauses evidence the parties’ intent that, to the extent possible, the 

valid provisions of the contracts be given effect, even if some provision is found to be invalid or 

unlawful.” Baeza v. Superior Court, 201 Cal. App. 4th 1214 (Ct. App. 2011). “The presence of a 

severability clause makes severance more feasible.” Smith v. Vmware, Inc., 2016 WL 54120, at 

*6 (N.D. Cal. Jan. 5, 2016); Grabowski v. C.H. Robinson Co., 817 F. Supp. 2d 1159, 1179 (S.D. 

Cal. 2011) (severing unconscionable provisions in part because the agreement had a severability 

clause). 

“[A] court should sever an unconscionable provision unless the agreement is so 

‘permeated’ by unconscionability that it cannot be cured by severance.” Serafin, LLC, 235 Cal. 

App. 4th at 183-84. The California Supreme Court has recognized that multiple unconscionable 

provisions “indicate a systematic effort to impose arbitration on an employee.” Armendariz, 24 

Cal. 4th at 124. However, “the Court did not hold that any time there is more than one 

unconscionable provision, severance is not possible.” Burgoon v. Narconon of N. California, 125 

F. Supp. 3d 974, 990 (N.D. Cal. 2015) (discussing Armendariz). See, e.g., Bermudez, 2012 WL 

12893080, at *14 (severing four provisions including a bilateral shifting of attorneys’ fees and a 

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unilateral exclusion from arbitration for a defendant’s claims); Colvin, 2015 WL 6735292, at *9 

(severing multiple unconscionable provisions). A court may refuse to sever illegal provisions 

where the “central purpose of the contract is tainted with illegality” or if “there is no single 

provision a court can strike or restrict in order to remove the unconscionable taint from the 

agreement.” Poublon, 846 F.3d at 1273 (quoting Ontiveros, 164 Cal. App. 4th at 515). “[T]he 

dispositive question is whether ‘the central purpose of the contract’ is so tainted with illegality that 

there is no lawful object of the contract to enforce.” Id. (quoting Marathon Entm't, Inc. v. Blasi,

42 Cal. 4th 974, 996 (2008)). 

In contrast, “[w]here parts of an arbitration provision are unconscionable, the arbitration 

provision can be saved when the unconscionable portion ‘represent[s] only a part of [the] 

agreement and can be severed without disturbing the primary intent of the parties to arbitrate their 

disputes.’” Openshaw v. FedEx Ground Package Sys., Inc., 731 F. Supp. 2d 987, 998 (C.D. Cal. 

2010) (quoting Spinetti v. Serv. Corp. Int'l, 324 F. 3d 212, 215 (3d Cir. 2003)) (alterations in 

original). Severance is appropriate where “the illegality is collateral to the main purpose of the 

contract, and the illegal provision can be extirpated from the contract by means of severance or 

restriction.” Armendariz, 24 Cal. 4th at 124. 

In this case, the four provisions tainted with unconscionability, while presenting a close 

question, do not “permeate[ ] the arbitration agreements to such an extent that the purpose of the 

agreements—i.e., to arbitrate rather than litigate—was transformed—i.e., to impose arbitration 

‘not simply as an alternative to litigation, but as an inferior forum.’” Burgoon, 125 F. Supp. 3d at 

990 (quoting Armendariz, 24 Cal.4th at 124). See Poublon, 846 F.3d at 1273 (“Poublon argues 

that an agreement is necessarily permeated by unconscionability if more than one clause in the 

agreement is unconscionable or illegal. We disagree; California courts have not adopted such a 

per se rule.”); Grabowski, 817 F. Supp. 2d at 1179 (severing “three substantively unconscionable 

provisions (the ‘carve out’ provision stating that the Dispute Resolution Agreement does not apply 

to ‘any claims by the Company that includes a request for injunctive or equitable relief’; the 

confidentiality provision; and the attorney's fees provision)” because of federal policy favoring 

arbitration); Pope v. Sonatype, Inc., 2015 WL 2174033, at*7 (N.D. Cal. May 8, 2015) (also 

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severing three unconscionable provisions—“(1) [the] trade secret misappropriation injunctive 

relief carve-out, (2) the requirement that arbitration take place in Washington, D.C., and (3) the 

requirement that Pope pay attorney’s fees unless he is a prevailing party”). And in view of the 

severability clause, the unconscionable carve-outs can be severed “without disturbing the primary 

intent of the parties to arbitrate their dispute.” Openshaw, 731 F. Supp. 2d at 998. The 

objectionable provisions may be severed or construed without re-writing the agreement.

Plaintiff also argues that courts can never sever non-mutual provisions of an arbitration 

agreement. The Ninth Circuit has ruled otherwise. See Poublon, 846 F.3d at 1273 (“In this case, 

severance is appropriate. Per C.H. Robinson's concession, there is one unconscionable clause in 

the dispute resolution provision, the portion of the dispute resolution provision that permits C.H. 

Robinson, but not Poublon, to seek judicial resolution of specified claims. This provision can be 

extirpated without affecting the remainder of the paragraph and is ‘collateral to the main purpose 

of the contract,’ which is to require arbitration of disputes.” (quoting Marathon Entm't, Inc. v. 

Blasi, 42 Cal. 4th at 996, as modified (Mar. 12, 2008)).1

IV. CONCLUSION

For the reasons stated herein, the Court GRANTS Defendant’s motion to compel

arbitration. The unenforceable provisions are severed from the agreement as provided herein.

This order disposes of Docket No. 14.

IT IS SO ORDERED.

Dated: June 28, 2019

______________________________________

EDWARD M. CHEN

United States District Judge

 

1 The Court notes that severance, while an adequate remedy for the party challenging arbitration, 

may not be effective for other and future employees if the arbitration agreement is not reformed 

and such employees are not aware of the decision herein. The chilling effect of an unreformed 

arbitration clause may persist. The Court urges defendant Guaranteed Rate to revise its arbitration 

agreement in the interest of fairness and to avoid future litigation wherein an opposing party might 

claim that Guaranteed Rate’s refusal to revise the agreement shows bad faith and an overarching 

intent to impose arbitration as an inferior forum, rendering future severance unavailable.

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