Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_07-cv-04340/USCOURTS-cand-4_07-cv-04340-0/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 42:1981 Job Discrimination (Race)

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

FREDDIE LAMBRIGHT, JR.,

Plaintiff,

v.

FEDERAL HOME LOAN BANK OF SAN

FRANCISCO, ANITA ADAMS, EMMANUEL

UNGSON and DOES 1-50,

Defendants.

 /

No. C 07 4340 CW

ORDER GRANTING IN

PART AND DENYING

IN PART

DEFENDANTS'

MOTION TO DISMISS

AND GRANTING

DEFENDANTS'

PETITION TO

COMPEL

ARBITRATION

Defendants Federal Home Loan Bank of San Francisco (FHLBSF),

Anita Adams and Emmanuel Ungson move under Federal Rule of Civil

Procedure 12(b)(6) to dismiss Plaintiff Freddie Lambright, Jr.'s

state law claims and to dismiss all claims against the individual

Defendants. Defendants further petition the Court to compel

arbitration of Plaintiff's remaining claims. Plaintiff Freddie

Lambright, Jr. opposes the motion and petition. Having considered

all the papers filed by the parties, the Court GRANTS Defendants'

motion in part and DENIES it in part and GRANTS Defendants'

petition.

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BACKGROUND

Plaintiff, an African American, worked as a Senior Community

Investment Consultant at FHLBSF from September 1, 1995 to May 7,

2007. Defendant Adams was Defendant FHLBSF's Vice President and

Director of Community Investment; Defendant Ungson was Assistant

Vice President of Community Investment. Plaintiff alleges that

Defendants harassed and discriminated against him in various ways

during his twelve years as an employee at FHLBSF.

In 1996, Defendant Adams told Plaintiff that she did not want

him to talk with a fellow African-American employee all day. 

Defendant Adams also required Plaintiff and the aforementioned

employee to attend writing classes because they did not write to

her satisfaction. Deeming such actions to constitute harassment

and a hostile work environment, Plaintiff complained to human

resources (HR) and got approval for counseling of Defendant Adams

and himself. After counseling, Defendant Adams returned to abusing

and harassing Plaintiff verbally. During a staff meeting,

Defendant Adams humiliated Plaintiff to the point that she was told

that she owed him an apology. When Plaintiff suggested that they

return to counseling, Defendant Adams said human resources could

resolve the problem. Plaintiff again went to human resources,

which agreed to help him. An HR representative met with Plaintiff

and Defendant Adams to no avail, and Plaintiff resorted to avoiding

Defendant Adams. FHLBSF placed an additional layer of management

between Plaintiff and Defendant Adams as a buffer.

Plaintiff alleges that Defendant Ungson facilitated Defendant

Adams' abuse and harassment of Plaintiff. In October, 2006,

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Defendant Ungson told Plaintiff of complaints that Plaintiff was

never at his desk and not performing his duties. Plaintiff asked

to confront his accusers but was refused. Scrutiny of Plaintiff

made him so uncomfortable as to seek assistance from FHLBSF's

Employee Assistance Program (EAP). EAP advised him to contact HR,

which told him not to be concerned with what others had said about

him and to discuss with Defendant Ungson his expectations of

Plaintiff. Plaintiff told Defendant Ungson that he was performing

his work, as demonstrated by his caseload activity. But in

January, 2007, Defendant Ungson again received a complaint about

Plaintiff not performing his duties, and Plaintiff again was given

no opportunity to contest it. That same month, Plaintiff again

contacted EAP, which offered him the opportunity to speak with a

psychiatrist and advised him to speak with HR. Plaintiff spoke

with a Senior Vice President (SVP) of HR, who admitted that he was

aware of past problems with Defendant Adams. The SVP repeated HR's

earlier advice not to be concerned with complaints being made to

Defendant Ungson and to speak directly to Defendant Ungson about

what his expectations were.

In February, 2007, Plaintiff spoke with Defendant Ungson. 

Also at that time, Plaintiff's performance review showed Plaintiff

exceeded or greatly exceeded expectations.

In April, 2007, Plaintiff requested and was approved for

several days of vacation -- May 3, 4 and 7. Defendant Ungson

assured Plaintiff that Plaintiff's caseload would be light then

because FHLBSF had additional staff for its bi-annual feasibility

review. Nevertheless, Plaintiff received a heavy caseload prior to

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his vacation.

On May 1, 2007, Plaintiff asked Defendant Ungson not to count

the vacation days against him because he was going to have to work

full-time while on vacation. Defendant Ungson told Plaintiff that

Defendant Adams had to approve this request and that he, Defendant

Ungson, would speak with Defendant Adams about it when Defendant

Adams returned to work the next day.

On May 2, 2007, Plaintiff came to the office to complete a

pending report and collect the files he needed in order to work

while on vacation. Plaintiff did not speak with or hear from

Defendants Ungson or Adams as to whether Defendant Adams had

approved Plaintiff's request that his vacation days not be counted

as such.

On May 3, 2007, Defendant Ungson confirmed Plaintiff's

scheduled vacation. On May 7, Plaintiff returned a day early from

vacation to process the work he had done on vacation. On May 8,

Plaintiff returned to work to find he had been terminated effective

May 7 for dishonesty, insubordination and failure to comply with

policy and procedure. Also on May 8, Plaintiff was told that his

vacation balance was negative and that he owed $1,341.75 for

vacation paid but not earned.

PROCEDURAL HISTORY

On August 22, 2007, Plaintiff filed in this Court a complaint

against Defendant FHLBSF for racial discrimination in violation of

Title 42 U.S.C. § 1981; racial discrimination in violation of 

Title 42 U.S.C. §§ 2000 et seq. (Title VII); racial discrimination

in violation of Cal. Gov. Code § 12940 (Fair Employment and Housing

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Act (FEHA)); harassment in violation of the FEHA; retaliation in

violation of Title VII and the FEHA; wrongful termination in

violation of public policy in violation of the FEHA; failure to

maintain an environment free from harassment in violation of the

FEHA; failure to investigate in violation of the FEHA; hostile work

environment in violation of the FEHA and intentional infliction of

emotional distress. In all but the § 1981, Title VII and FEHA

racial discrimination charges, Plaintiff sues the individual

Defendants in addition to Defendant FHLBSF.

DISCUSSION

I. Motion to Dismiss Under Federal Rule of Civil Procedure

12(b)(6)

A. Legal Standard

All material allegations in a complaint will be taken as true

and construed in the light most favorable to the plaintiff. NL

Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

A complaint must contain a "short and plain statement of the

claim showing that the pleader is entitled to relief." Fed. R.

Civ. P. 8(a). "Each averment of a pleading shall be simple,

concise, and direct. No technical forms of pleading or motions are

required." Fed. R. Civ. P. 8(e). The Federal Rules of Civil

Procedure do not require a claimant to set out in detail the facts

upon which he bases his claim. Bell Atl. Corp. v. Twombly, 

__ U.S. __, 127 S.Ct. 1955, 1964 (2007).

When granting a motion to dismiss, a court is generally

required to grant a plaintiff leave to amend, even if no request to

amend the pleading was made, unless amendment would be futile. 

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment

would be futile, a court examines whether the complaint could be

amended to cure the defect requiring dismissal "without

contradicting any of the allegations of [the] original complaint." 

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). 

Leave to amend should be liberally granted, but an amended

complaint cannot allege facts inconsistent with the challenged

pleading. Id. at 296-97.

B. Preemption by the Federal Home Loan Bank Act

Defendants move to dismiss on the grounds that all of

Plaintiff's state law claims are preempted by the Federal Home Loan

Bank Act (FHLBA), 12 U.S.C. §§ 1421 et seq. Under the United

States Constitution's Supremacy Clause, state law that conflicts

with federal law has no effect. Cipollone v. Liggett Group, Inc.,

505 U.S. 504, 516 (1992) (citing U.S. Const. art. VI, cl. 2). 

Federal preemption of state law may be express or implied. Shaw v.

Delta Airlines, Inc., 463 U.S. 85, 95 (1983).

The FHLBA gives Federal Home Loan Banks (FHLBs)

the power . . . to select, employ, and fix the compensation

of such officers, employees, attorneys, and agents as shall

be necessary for the transaction of its business,; [sic] to

define their duties, require bonds of them and fix the

penalties thereof, and to dismiss at pleasure such

officers, employees, attorneys, and agents. . . .

12 U.S.C. § 1432(a).

C. Intentional Infliction of Emotional Distress Claim

In the Ninth Circuit, the at-pleasure provision of FHLBA

preempts the field of the employment relationship, where an FHLB's

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wrongful acts would otherwise support causes of action for an

employee's claim of intentional infliction of emotional distress. 

Walleri v. Federal Home Loan Bank of Seattle, 83 F.3d 1575, 1582

(9th Cir. 1996). In Walleri, the plaintiff based her intentional

infliction of emotional distress claim on charges that the

defendants, her supervisors at a FHLB, had discouraged and

interfered with the performance of her contractual duties and

subjected her to, among other things, confrontational meetings with

supervisors, removal from her examiner-in-charge position, a

performance rating of "unacceptable," denial of part-time work and

finally termination. Id. The Ninth Circuit held that "attaching

the label of 'intentional emotional distress' to these allegations

does not alter the fact that they are all addressed to defendants'

management of the employment relationship" and that the § 1432(a)

at-pleasure provision "left no room for oversight under state law

over the manner in which that power is exercised." Id.

Accordingly, the Ninth Circuit affirmed the district court's

dismissal of Walleri's emotional distress claim. Id.

In the instant case, Plaintiff's charge of intentional

infliction of emotional distress is also based on such allegations. 

For example, Defendant Adams told Plaintiff that she did not want

him to talk all day with a co-employee and required him to attend

writing classes. Complaints were made as to Plaintiff's work

performance, he was assigned a heavy caseload instead of a promised

light caseload and he was terminated for disloyalty,

insubordination and failure to comply with policy and procedure. 

As did Walleri's, these allegations relate solely to Defendants'

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employment relationship with Plaintiff.

Plaintiff argues that the extreme and outrageous conduct he

complains of is wholly unrelated to any employment activity. It is

not. That Plaintiff also claims racial discrimination, harassment

and retaliation does not alter the fact that the alleged conduct

underlying his emotional distress claim lies fully within the ambit

of the employment relationship.

Construing Plaintiff's complaint in the light most favorable

to him and accepting all his factual allegations as true, the Court

concludes that Plaintiff's allegations with respect to his

intentional infliction of emotional distress claim arise out of his

employment relationship with FHLBSF. Therefore, the FHLBA preempts

this claim. For these reasons, the claim of intentional infliction

of emotional distress is DISMISSED.

D. Claims Brought Under California's Fair Employment and

Housing Act

In Walleri, the Ninth Circuit also held that Title 12 U.S.C. 

§ 1432(a) preempts the field of employees' wrongful termination

suits against FHLBs under state law. Id.; see also Inglis v.

Feinerman, 701 F.2d 97, 98-99 (9th Cir. 1983) (holding that 

§ 1432(a) preempted a wrongful discharge claim by a FHLBA

employee), cert. denied, 464 U.S. 1040 (1984); Bollow v. Federal

Reserve Bank of San Francisco, 650 F.2d 1093, 1097-98 (9th Cir.

1981) (finding such a claim against a Federal Reserve Bank (FRB)

preempted by the identical phrase, "to dismiss at pleasure," in the

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1

 The FHLBA, FRA and NBA confer on FHLBs, FRBs and national

banks the authority to dismiss "at pleasure," and courts cite

authority on these Acts interchangeably. See, e.g., Osei-Bonsu v.

Federal Home Loan Bank of New York, 726 F. Supp. 95, 97-98

(S.D.N.Y. 1989) (likening FHLBs to FRBs and citing courts'

interpretations of the "at pleasure" provisions in the FHLBA and

FRA). Unlike the FRA, whose dismiss-at-pleasure provision

encompasses "officers or employees," 12 U.S.C. § 341(Fifth), and

the NBA, which grants the power as to directors, executives and

officers, 12 U.S.C. § 24(Fifth), the FHBLA at-pleasure provision is

broader, including "officers, employees, attorneys, and agents." 

12 U.S.C. § 1432(a). For this reason, the Court need not parse

whether Plaintiff was an officer or agent of the FHLBSF, because it

is uncontested that he was at least an employeee.

9

Federal Reserve Act (FRA), 12 U.S.C. § 341(Fifth)).1

More recently, the Ninth Circuit held that, although federal

anti-discrimination law conflicts with federal banks' authority "to

dismiss at pleasure," the "at-pleasure" provision of the NBA is

repealed by implication to the extent necessary to give effect to

the later-enacted Age Discrimination in Employment Act (ADEA), even

if that effect is pursued under a state law cause of action --

provided the state law mirrors the ADEA. Kroske v. U.S. Bank

Corp., 432 F.3d 976, 986-87 (9th Cir. 2005), cert. denied, U.S.

Bank Corp. v. Kroske, 127 S.Ct. 157 (2006).

In Kroske, the plaintiff had brought her claim of wrongful

termination on the basis of age under the Washington Law Against

Discrimination (WLAD), Wash. Rev. Code §§ 49.60.030-.400. Kroske,

432 F.3d at 978-79. The district court had granted a motion for

summary judgment for the defendant bank, which was governed by the

NBA, concluding that NBA § 24(Fifth) preempts the field of law

regulating the bank's employment practices and therefore preempted

Kroske's claim under the WLAD. Id. On appeal, the Ninth Circuit

held that because the at-pleasure provision was repealed by

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implication to the extent necessary to give effect to the ADEA, the

NBA did not preempt Kroske's state law claim "as limited by the

ADEA." Id. Important to the court in allowing the plaintiff's

WLAD claim to stand was that the WLAD's anti-age-discrimination

provision "mirrors the substantive provisions of the ADEA and is

interpreted consistently with the ADEA." Id. at 987.

Plaintiff argues that, by analogy, the later-enacted Title VII

repeals the FHLBA to the extent necessary to give effect to Title

VII and to state laws that mirror it. Defendants contend that

California's FEHA does not mirror Title VII like the WLAD mirrors

the ADEA. They note that the FEHA (1) has a longer statute of

limitations, (2) creates additional protections and thus additional

protected classes and (3) allows for remedies not available under

Title VII.

However, the WLAD has a longer statute of limitations and

protects more classes of people than the ADEA. But Plaintiff

brings suit within Title VII's statutes of limitations, and he is a

member of a racial minority protected by Title VII. Moreover, just

as Washington state courts look to the ADEA to interpret the WLAD,

"[t]he California courts consistently look to Title VII for

guidance in interpreting FEHA." Kohler v. Inter-Tel Techs., 244

F.3d 1167, 1172 (9th Cir. 2001). 

It is true that the FEHA offers greater relief than Title VII: 

courts may award unlimited compensatory and punitive damages under

the FEHA. Murillo v. Rite Stuff Foods, Inc., 65 Cal. App. 4th 833

(1998). But as the Kroske court allowed WLAD claims against a FHLB

"as limited by the ADEA," this Court can limit relief for

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2 Courts have allowed Title VII suits against individual

defendants only in their official capacity. See Ortez, 88 F.3d at

808-09; Taylor v. ScottPolar Corp., 995 F. Supp. 1072, 1079 (D.

Ariz. 1998). However, the employer alone is liable for any

violation of Title VII; therefore, claims against the individuals

in their official capacity merge into claims against the employer. 

Id.; see also Gary v. Long, 59 F.3d 1391, 1399 (D.C. Cir. 1995).

11

Plaintiff's FEHA claims against Defendant FHLBSF to that which is

available under Title VII.

A more problematic distinction between the FEHA and Title VII

is that individual employees cannot be held liable for damages

under Title VII, except in their official capacities. See 42

U.S.C. §§ 2000e-16(c); Ortez v. Washington County, 88 F.3d 804, 808

(9th Cir. 1996); Miller v. Maxwell's Int'l, Inc., 991 F.2d 583, 587

(9th Cir. 1993).2 Because Congress did not contemplate causes of

action against individual defendants in Title VII, Defendants'

motion to dismiss Petitioner's FEHA claims is GRANTED as to all

FEHA claims against Defendants Adams and Ungson.

Both Plaintiff and Defendants cite Peatros v. Bank of America

NT&SA, 22 Cal. 4th 147 (2000). However, the Court must follow the

Ninth Circuit's lead in Kroske. Analogizing the reasoning in

Kroske to the instant case, the Court concludes that the FEHA

limits a FHLB's § 1432(a) power to dismiss at pleasure "officers,

employees, attorneys, and agents" only to the extent of allowing

against FHLBs claims under state law that mirrors Title VII. 

Plaintiff's FEHA claims of race-based discrimination,

harassment, retaliation, wrongful termination, failure to maintain

an environment free from harassment, failure to investigate and

hostile work environment could just as easily be Title VII claims

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as FEHA claims. Congress enacted Title VII to allow such causes of

action in all workplaces, including FHLBs. Plaintiff has brought

his claims within Title VII's statute of limitations, and Plaintiff

is a member of a class that Title VII protects. Although Plaintiff

may not pursue remedies Congress did not provide for Title VII

claims and may not sue individual Defendants, he may pursue the

FEHA claims to the extent that they mirror Title VII causes of

action.

Therefore Defendants' motion to dismiss Petitioner's FEHA

claims against Defendant FHLBSF is DENIED. 

E. Title VII Retaliation Claim Against Individual Defendants

As explained above, individuals are generally not proper

defendants in Title VII suits. Accordingly, the Court DISMISSES

the Title VII retaliation claim against Defendants Adams and

Ungson.

II. Petition to Compel Arbitration

Defendants petition to compel arbitration of any of

Plaintiff's claims that survive Defendants' motion to dismiss in

accordance with FHLBSF's arbitration agreement with employees, as

stated in the Employee Handbook.

According to Defendants, Plaintiff signed the Acceptance of,

and Agreement to, Defendant FHLBSF's arbitration agreement and thus

should be compelled to comply with his contractual obligation to

arbitrate his dispute with Defendants. Plaintiff argues that the

agreement is procedurally and substantively unconscionable and

therefore unenforceable.

Under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et

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seq., written agreements that controversies between parties shall

be settled by arbitration are "valid, irrevocable, and enforceable,

save on such grounds as exist in law or at equity for revocation of

any contract." 9 U.S.C. § 2. A party aggrieved by the refusal of

another to arbitrate under a written arbitration agreement may

petition the district court in which an action has been commenced

for an order directing that arbitration proceed as provided for in

the agreement. 9 U.S.C. § 4. If the court is satisfied "that the

making of the arbitration agreement or the failure to comply with

the agreement is not in issue, the court shall make an order

directing the parties to proceed to arbitration in accordance with

the terms of the agreement." Id.

 In determining whether an agreement to arbitrate is valid,

federal courts must "apply ordinary state-law principles that

govern the formation of contracts." Circuit City Stores v. Adams,

279 F.3d 889, 892 (9th Cir. 2002) (quoting First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). "General

contract defenses such as fraud, duress or unconscionability,

grounded in state contract law, may operate to invalidate

arbitration agreements." Id. (citing Doctor's Assocs., Inc. v.

Casarotto, 517 U.S. 681, 687 (1996)); Ticknor v. Choice Hotels

Int'l, Inc., 265 F.3d 931 (9th Cir. 2001) (citing same). "If the

court as a matter of law finds the contract or any clause of the

contract to have been unconscionable at the time it was made the

court may refuse to enforce the contract. . . ." Cal. Civ. 

Code § 1670.5(a). 

 Under California law, unconscionability has both a procedural

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and a substantive component. Although both procedural and

substantive unconscionability must be present before a court will

refuse to enforce a contract, they need not be present to the same

degree: "the more substantively oppressive the contract terms, the

less evidence of procedural unconscionability is required to come

to the conclusion that the term is unenforceable, and vice versa." 

Armendariz v. Found. Health Psychcare Servs., 24 Cal. 4th 83, 114

(2000). 

The procedural element focuses on two factors: oppression

and surprise. Oppression arises from an inequality of

bargaining power which results in no real negotiation and

an absence of meaningful choice. Surprise involves the

extent to which the supposedly agreed-upon terms of the

bargain are hidden in a prolix printed form drafted by the

party seeking to enforce the disputed terms.

Ellis v. McKinnon Broad. Co., 18 Cal. App. 4th 1796, 1803 (1993)

(internal citations omitted); see also Am. Software, Inc. v. Ali,

46 Cal. App. 4th 1386, 1390 (1996) ("Indicia of procedural

unconscionability include oppression . . . and surprise. . . ."). 

 A contract or clause is procedurally unconscionable if it is a

contract of adhesion. Circuit City Stores v. Adams, 279 F.3d at

893 ("The [arbitration agreement] is procedurally unconscionable

because it is a contract of adhesion."); see also Flores v.

Transamerica Homefirst, Inc., 93 Cal. App. 4th 846, 853 (2002) ("A

finding of a contract of adhesion is essentially a finding of

procedural unconscionability."). A contract of adhesion is a

"standardized contract, which, imposed and drafted by the party of

superior bargaining strength, relegates to the subscribing party

only the opportunity to adhere to the contract or reject it." 

Armendariz, 24 Cal. 4th at 113 (quoting Neal v. State Farm Ins.

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Co., 188 Cal. App. 2d 690, 694 (1961)). 

 In Armendariz, the California Supreme Court found an

arbitration contract to be procedurally unconscionable because

"[i]t was imposed on employees as a condition of employment and

there was no opportunity to negotiate." 24 Cal. 4th at 114-15. 

The court explained that "the economic pressure exerted by

employers on all but the most sought-after employees may be

particularly acute, for the arbitration agreement stands between

the employee and necessary employment, and few employees are in a

position to refuse a job because of an arbitration requirement." 

Id.

 Substantive unconscionability focuses on the harshness and

one-sided nature of the substantive terms of the contract. A & M

Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 486-87 (1982). An

adhesive agreement to arbitrate will satisfy this general standard

for substantive unconscionability if the agreement lacks a "modicum

of bilaterality." Armendariz, 24 Cal. 4th at 117. Whether an

arbitration agreement is sufficiently bilateral is determined by an

examination of the actual effects of the challenged provisions. 

Ellis, 18 Cal. App. 4th at 1803 ("Substantive unconscionability 

. . . refers to an overly harsh allocation of risks or costs which

is not justified by the circumstances under which the contract was

made.") (internal quotation marks omitted).

 In addition, an employment agreement that requires the

arbitration of unwaivable statutory claims is lawful only if it 

(1) provides for neutral arbitrators, (2) provides for more

than minimal discovery, (3) requires a written award, (4)

provides for all of the types of relief that would

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otherwise be available in court, and (5) does not require

employees to pay either unreasonable costs or any

arbitrators' fees or expenses as a condition of access to

the arbitration forum.

Armendariz, 24 Cal. 4th at 102 (quoting Cole v. Breuns Intern. Sec.

Serv., 105 F.3d 1465, 1482 (D.C. Cir. 1997)).

Defendant suggests that an arbitration agreement passes muster

under Armendariz if it meets five minimum requirements: a neutral

arbitrator, no limits on statutory remedies, adequate discovery,

written arbitration awards and no requirement that plaintiffs pay

the costs of arbitration. This mischaracterizes Armendariz, in

which the California Supreme Court, after evaluating the minimum

requirements applicable to mandatory employment arbitration

agreements, went on to address other more general issues that also

"fall under the rubric of unconscionability." 24 Cal. 4th at 113. 

A. Procedural Unconscionability 

 Plaintiff alleges that he had no opportunity to negotiate the

arbitration agreement in FHLBSF's Employee Handbook. He claims

that FHLBSF compels all job applicants and employees to sign the

arbitration agreement. Plaintiff alleges that he understood he

would be fired if he did not agree to binding arbitration. 

Defendant argues that the fact that a person must sign a

contract as a condition of employment does not make the contract

unenforceable per se. This is true, but it does not address the

fact that such a contract is procedurally unconscionable. Cf.

Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1108 (9th Cir.

2002) (holding arbitration agreement not procedurally

unconscionable under California law where employee was offered

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opportunity to opt out and declined).

B. Substantive Unconscionability 

 A contract that is procedurally unconscionable may still be

enforceable if it is not also substantively unconscionable. The

arbitration agreement meets the five Armendariz criteria described

above. Plaintiff complains that splitting the cost of arbitration

between FHLBSF and employees is unconscionable. However,

Armendariz held that

when an employer imposes mandatory arbitration as a

condition of employment, the arbitration agreement or

arbitration process cannot generally require the employee

to bear any type of expense that the employee would not be

required to bear if he or she were free to bring the action

in court. This rule will ensure that employees bringing

FEHA claims will not be deterred by costs greater than the

usual costs incurred during litigation, costs that are

essentially imposed on an employee by the employer.

Armendariz, 24 Cal. 4th at 110-11. For its part, the arbitration

agreement provides, 

You will not be required to pay anything more in the

arbitration process than you would have had to pay in

filing fees had you been permitted to file your claims in

court. The arbitrator will determine the amount you would

have had to pay in filing fees and will assess you that

amount. Other expenses of arbitration, including the

arbitrator's fees and expenses, will be paid by the Bank.

(Fontenot Decl. ¶ 4, Ex. A, 20.) This means of allocating the

costs of arbitration complies with the strictures of Armendariz and

is not unconscionable.

Calling it unconscionable unilaterality, Plaintiff objects to

the Employee Handbook's provision stating, "Except for the

employee's at-will status, the policies and procedures in the

Employee Handbook can be changed at any time by a written amendment

issued by authorized management." (Fontenot Decl. Ex. B.) This

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provision is decidedly one-sided and advantageous to FHLBSF,

perhaps to the detriment of Plaintiff and other employees. 

However, an evaluation of whether a contract of adhesion is

unconscionable "turns not only on a one-sided result, but also on

an absence of justification for it." Armendariz, 24 Cal. 4th at

117 (internal quotation marks omitted). Here, a ready

justification exists: the business realities of the workplace

dictate that employers be able to control and develop their

policies and procedures.

Defendants cite 24 Hour Fitness v. Superior Court, in which

the court found that an employer's discretionary power to modify

the terms of its personnel handbook in writing "indisputably

carries with it the duty to exercise that right fairly and in good

faith." 66 Cal. App. 4th 1199, 1214 (1998). In light of this

duty, such a modification provision does not render the contract

illusory. Id. Under 24 Hour Fitness, then, Defendant FHLBSF's

right to amend its employment policies in writing is not fatal to

the arbitration agreement.

Plaintiff contends that Defendant FHLBSF's reservation of the

right to "take other disciplinary action, up to and including

termination, instead of, or in addition to its claim in

arbitration," (Fontenot Decl. ¶ 4, Ex. A, 19), results in mere

illusory mutuality. But Defendants correctly point out that both

employees and the FHLBSF must submit any claim against the other to

arbitration. Thus, the obligation to arbitrate is mutual. The

one-sidedness in FHLBSF's reservation of the right to discipline or

even discharge employees instead of or in addition to filing its

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claims in arbitration is justified as a legitimate "business

reality:" FHLBs cannot be expected to arbitrate all discipline or

discharges of at-will employees. See Armendariz, 24 Cal. 4th at

117-18 ("[U]nconscionablity turns not only on a one-sided result,

but also on an absence of justification for it.") (internal

quotation marks omitted).

Because Defendant FHLBSF's arbitration agreement is not

substantively unconscionable, it is enforceable. Therefore,

Defendants' petition to arbitrate Plaintiff's remaining claims is

GRANTED.

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CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants' motion

to dismiss Plaintiff's intentional infliction of emotional distress

claim, without leave to amend. The Court further GRANTS with

prejudice Defendants' motion to dismiss Plaintiff's Title VII

retaliation claim against Defendants Adams and Ungson as well as

the FEHA claims against them. The Court DENIES Defendants' motion

to dismiss Plaintiff's FEHA claims against Defendant FHLBSF,

although Plaintiff will not be entitled to FEHA remedies greater

than Title VII remedies. Lastly, the Court GRANTS Defendants'

petition to compel arbitration of Plaintiff's claims under Title

VII, § 1981 and the FEHA against Defendant FHLBSF. 

This case is stayed pending that arbitration. A case

management conference will be held on November 13, 2008 at 2 p.m.

IT IS SO ORDERED.

Dated: 12/3/07 

CLAUDIA WILKEN

United States District Judge

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