Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-00347/USCOURTS-cand-4_06-cv-00347-0/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1332 Diversity-Breach of Contract

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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

AILEPATA LUAFAU, individually and on

behalf of others similarly situated,

Plaintiff,

v.

AFFILIATED COMPUTER SERVICES, INC.;

ACS EDUCATION SERVICES, INC; and DOES

ONE THROUGH TWENTY-FIVE, inclusive,

Defendants.

 /

No. C 06-0347 CW

ORDER GRANTING

DEFENDANTS'

MOTION TO STAY

LITIGATION AND TO

COMPEL

ARBITRATION,

DENYING

DEFENDANTS'

MOTION TO

TRANSFER VENUE,

AND GRANTING

PLAINTIFF'S

MOTION TO AMEND 

COMPLAINT

Defendants Affiliated Computer Services, Inc. (ACS) and ACS

Education Services, Inc. move to stay this litigation and to compel

arbitration. In a separate motion, Defendants move to transfer

venue of this case to the United States District Court for the

Central District of California. Plaintiff opposes both motions and

moves for leave to amend her first amended complaint. Defendants

have filed a statement of non-opposition to Plaintiff's motion to

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amend. The motions were heard on April 21, 2006. Having

considered all of the papers filed by the parties and oral argument

on the motions, the Court denies without prejudice Defendants'

motion to transfer venue and grants Defendants' motion to stay

litigation and to compel arbitration. Plaintiff's motion to amend

is granted.

BACKGROUND

Plaintiff began working for Defendant ACS Education Services

on December 2, 2002. Defendant ACS Education Services processes

student college loans and has been doing so for over twenty years. 

Previously it was known as Academic Financial Services Association.

Its name was changed to ACS Education Services when Defendant ACS

acquired it in 2002. Both Defendant ACS and its subsidiary

Defendant ACS Education Services are Delaware corporations with

their principal places of business in Texas.

Plaintiff worked in Long Beach, California, processing student

loans. Her supervisor, Elva Correa, and her manager, Trena

Alvarado, also worked in Long Beach. They supervised only

employees in Long Beach. Plaintiff's entire department was located

at Defendant ACS Education Services' Long Beach office. According

to Defendants, human resource matters for employees in Long Beach

are handled in the Long Beach office and the administration of

breaks and meal times is the responsibility of front-line

supervision. Defendant ACS Education Services has a single

employee in Northern California. 

A week after Plaintiff was hired, she signed an Acceptance of,

and Agreement to, ACS' Dispute Resolution Plan. That one-page

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document states in part:

I recognize that ACS has adopted a Dispute Resolution

Plan ("DRP") effective April 13, 2002 as the exclusive

remedy for resolving the vast majority of workplace

concerns and disputes. I understand and agree that the

DRP will be the exclusive means for resolving any dispute

or claim concerning my application for employment or the

terms and conditions of my employment with Affiliated

Computer Services. I understand that ACS' consideration

of my employment and any offer of employment that may be

made to me are contingent on my acceptance of the DRP as

the exclusive means for resolving all disputes covered

under the DRP . . . . I understand that by signing this

document, I am waiving any right I might otherwise have

to have a jury or judge resolve any claim I might have

against Affiliated Computer Services.

Plaintiff states that she does not remember seeing or receiving a

copy of the Dispute Resolution Plan and Rules. 

In April, 2005, Plaintiff gave notice to terminate her

employment. She alleges that Defendant ACS Education Services

fired her before her notice period had expired and that her last

day of work was on April 21, 2005. On or about May 5, 2005,

Plaintiff received a check from Defendant ACS Education Services. 

Five days later, her final salary payment was deposited directly in

her bank account.

Following her termination, Plaintiff filed a complaint with

the California Labor Commission, Division of Labor Standards

Enforcement, in Long Beach, California. On October 6, 2005, a

State Labor Commissioner found that Plaintiff was paid all of her

wages, and, in fact, was over-paid. Finding her claims for unpaid

wages without merit, the Commissioner closed her file.

In January, 2006, Plaintiff, who now lives in Phoenix,

Arizona, filed this action in the Northern District of California. 

Plaintiff seeks to recover wages, penalty wages, punitive damages,

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1

As discussed below, Plaintiff seeks leave to amend her

complaint to add an eleventh claim for relief under the Labor Code

Private Attorneys General Act of 2004, Cal. Lab. Code § 2698.

4

liquidated damages and civil penalties for all present and former

employees of Defendants based on Defendants' failure to provide

breaks and pay wages. Specifically, Plaintiff alleges ten causes

of action: (1) failure to provide rest periods in violation of Cal.

Labor Code §§ 226.7 and 516; (2) failure to provide meal periods in

violation of Cal. Labor Code §§ 226.7, 512 and 516; (3) failure to

pay wages in violation of Cal. Labor Code §§ 201, 202 and 218;

(4) late payment of wages in violation of Cal. Labor Code §§ 201,

202 and 203; (5) failure to pay minimum wage in violation of Cal.

Labor Code §§ 512, 1194, 1194.2 and 1197; (6) failure to pay

overtime in violation of Cal. Labor Code §§ 510, 512 and 1194;

(7) breach of contract; (8) conversion of wages; (9) quantum

meruit; and (10) unfair competition in violation of Cal. Business

and Professions Code § 17200.1

DISCUSSION

I. Defendants' Motion to Compel Arbitration

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

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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. 

Defendants request that the Court order Plaintiff to proceed

with arbitration in accordance with the terms of the DRP. 

According to Defendants, Plaintiff signed the Acceptance of, and

Agreement to, ACS' Dispute Resolution Plan, and thus should be

compelled to comply with her contractual obligation to arbitrate

her dispute with Defendants. Plaintiff disagrees. She argues that

she did not enter into a contract to arbitrate with Defendants and

that, even if she did, the DRP is unenforceable. 

A. Contract

Plaintiff notes that, under California law, "there is no

contract until there has been a meeting of the minds on all

material points." Banner Entertainment, Inc. v. Superior Ct., 62

Cal. App. 4th 348, 358 (1998) (emphasis in original). Plaintiff

contends that, because she never saw the DRP, she could not have

assented to its terms and thus there was no meeting of the minds on

the material points of the DRP. Plaintiff claims that when she

signed Defendants' form she was only agreeing to resolve disputes

with Defendants while she was employed by Defendants.

The Acceptance of, and Agreement to, ACS' Dispute Resolution

Plan explicitly discusses the DRP and provides basic information

regarding the DRP. It makes clear that the "arbitration

proceedings under the DRP shall be conducted by the American

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Arbitration Association or Judicial Arbitration and Mediations

Services under ACS' Dispute Resolution Plan & Rules as published

and in effect at the time a demand for arbitration is made." By

signing the form, Plaintiff agreed to arbitrate claims between

herself and Defendants. As Defendants note, a party is presumed to

have read the contract she signed. Randas v. YMCA of Metropolitan

Los Angeles, 17 Cal. App. 4th 158, 163 (1993); Hulsey v. Elsinore

Parachute Center, 168 Cal. App. 3d 333, 339 (1985) ("It is well

established, in the absence of fraud, overreaching or excusable

neglect, that one who signs an instrument may not avoid the impact

of its terms on the ground that he failed to read the instrument

before signing it."). The Acceptance of, and Agreement to, ACS'

Dispute Resolution Plan is not unenforceable merely because

Plaintiff allegedly did not see the DRP and its rules. See

Spellman v. Sec., Annuities & Ins. Servs., Inc., 8 Cal. App. 4th

452, 458 (1992) (enforcing arbitration agreement where employment

contract "clearly referred to and identified the incorporated

document wherein the arbitration clause appeared"). 

B. Unconscionability of the Arbitration Agreement

Plaintiff also contends that the arbitration agreement is

unconscionable and thus unenforceable. 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

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operate to invalidate arbitration agreements." Id. (citing

Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)); see

also Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931 (9th Cir.

2001) (applying Montana contract law to determine validity of

arbitration agreement). “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). 

In California, “unconscionability has both a procedural and a

substantive element, the former focusing on undue oppression or

surprise due to unequal bargaining power, the latter on

overly-harsh or one-sided results.” Armendariz v. Foundation

Health Psychcare Servs., Inc., 24 Cal.4th 83, 114 (2000) (internal

quotation marks omitted); see also Ingle v. Circuit City Stores,

Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) ("Unconscionability

refers to 'an absence of meaningful choice on the part of one of

the parties together with contract terms which are unreasonably

favorable to the other party.'") (quoting A & M Produce Co. v. FMC

Corp., 135 Cal. App. 3d 473, 486 (1982)). To invalidate a contract

on grounds of unconscionability, both procedural and substantive

unconscionability must be present, although not necessarily 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." Id.

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1. Procedural Unconscionability

A contract or clause is procedurally unconscionable if it is a

contract of adhesion. Adams, 279 F.3d at 893; see also Flores v.

Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 853 (2001) ("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.

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.

Like the arbitration contract found to be procedurally

unconscionable in Adams and Ingle I, the DRP was drafted by

Defendants, who do not deny that they use it as their standard

arbitration agreement for all of their new employees. Signing the

DRP is a prerequisite to employment, and "job applicants are not

permitted to modify the agreement's terms -- they must take the

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contract or leave it." Adams, 279 F.3d at 893. 

Although there is no dispute that the DRP is adhesive,

Defendants, relying upon EEOC v. Luce Forward, Hamilton & Scripps,

345 F.3d 742 (9th Cir. 2003), argued that the DRP is not

procedurally unconscionable. The Ninth Circuit has rejected this

argument. In Ingle v. Circuit City, 408 F.3d 592, 595 (9th Cir.

2005) (Ingle II), the court found that the defendant's argument on

appeal that Luce Forward undermined its decision in Ingle I was

"wholly without merit" and imposed sanctions. Pointing to Al-Safin

v. Circuit City Stores, Inc., 394 F.3d 1254 (9th Cir. 2005), the

court explained that, post-Luce Forward, it continues to examine

compulsory agreements and to hold that certain agreements are

unconscionable, and hence unenforceable, as a matter of State law. 

408 F.3d at 595. Defendants did not address procedural

unconscionability, or Luce Forward, in their reply, and at the

hearing conceded that the DRP is procedurally unconscionable.

Like the arbitration agreements in Adams and Ingle I,

Defendants presented the DRP to Plaintiff on an adhere-or-reject

basis; the DRP is a contract of adhesion and procedurally

unconscionable.

2. Substantive Unconscionability 

Substantive unconscionability focuses on the harshness and

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

Produce, 135 Cal. App. 3d at 486-87. The Ninth Circuit instructs

that, 

under California law, a contract to arbitrate between an

employer and an employee, such as the one we evaluate in

this case, raises a rebuttable presumption of

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substantive unconscionability. Unless the employer can

demonstrate that the effect of a contract to arbitrate

is bilateral -- as is required under California law --

with respect to a particular employee, courts should

presume such contracts substantively unconscionable.

Ingle I, 328 F.3d at 1174. Whether an arbitration agreement is

sufficiently bilateral is determined by examining the actual

effects of the challenged provisions. Ellis v. McKinnon Broad.

Co., 18 Cal. App. 4th 1796, 1803-04 (1993).

Defendants contend that the DRP is bilateral. They note that

Defendants and Plaintiff would jointly participate in the selection

of a neutral arbitrator. DRP at 9. A list of qualified

arbitrators is sent to the employee and Defendants, and each party

has two weeks to review the list, to strike any names it objects to

and to number the names in order of preference; an arbitrator then

is selected based on the order of mutual preference. Id. All

parties have the right to strike one list in its entirety. Id. 

The DRP provides for a written award and judicial review. As

Defendants correctly note, the DRP, unlike arbitration agreements

struck down by courts, does not limit the damages that can be

awarded, does not impose a shortened statute of limitations, does

not reserve the right to a judicial forum for disputes initiated by

the employer, and does not require the employee to share equally

the costs of arbitration. 

Plaintiff, however, challenges various terms of the DRP,

arguing that those terms are substantively unconscionable and

render the entire arbitration agreement unenforceable. 

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1. Modification and Termination

The DRP provides that it may be amended by Defendant ACS "at

any time by giving at least ten days notice" to current employees

and that its rules may be amended "at any time by serving notice of

the amendments on AAA or JAMS." Defendant ACS can terminate the

DRP "at any time by giving at least 10 days notice of termination

to current Employees." The power to amend or terminate the DRP is

reserved solely for Defendant ACS; employees do not have that

power.

Plaintiff notes that the Ninth Circuit has held that a

provision affording an employer the unilateral power to modify or

terminate the contract is substantively unconscionable. Ingle I,

328 F.3d at 1179. Defendants respond by noting that they have

never changed or amended the DRP since its inception in 2002. 

Defendants further note that, unlike the arbitration agreement at

issue in Ingle I, here, the DRP prohibits any amendments to, or

termination of, the DRP while a dispute is pending. Specifically,

the DRP states that no amendment to the Plan or Rules "shall apply

to a Dispute for which a proceeding has been initiated pursuant to

the Rules" and that "termination shall not be effective as to

Disputes for which a proceeding has been initiated pursuant to the

Rules prior to the date of termination." Defendants acknowledge

that they cannot modify or terminate the DRP with respect to

Plaintiff's claims. Examining the actual effects of the

modification and termination provisions, the Court finds that they

are not substantively unconscionable. 

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2. Claims subject to Arbitration

Plaintiff further argues that the DRP is substantively

unconscionable because it requires arbitration only of claims

brought by employees. Defendants deny that the DRP is one-sided;

they contend that, like employees, they too are bound to arbitrate

all employment-related disputes with employees. Defendants point

to the DRP's definition of "Dispute," which is broad, unlike that

in Ingle I, where the arbitration agreement expressly limited its

scope to claims brought by employee. 328 F.3d at 1174-75. And the

DRP provides, "Until revoked by the Sponsor pursuant to this Plan,

this Plan applies to and binds the Company." 

Plaintiff argues that, as in Ingle I, the legal claims the

arbitration agreement lists as examples are virtually all claims

that employees would assert against their employer. See id. at

1174 n.8. Plaintiff also notes that, as explained in the Rules, an

employee or applicant must initiate the arbitration by filing a

written request with Defendants, but the Rules do not explain how

Defendants would initiate arbitration. Nonetheless, as noted

above, the definition of "dispute" is broad, covering "all legal

and equitable claims, demands, and controversies of whatever nature

or kind, whether in contract, tort, under statute or regulation, or

some other law, between persons bound" by the DRP. Defendants are

bound by the Plan. Because the agreement does not lack the

requisite modicum of bilaterality with regard to claims covered,

the Court finds that the coverage of the arbitration agreement is

not substantively unconscionable. 

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3. Confidentiality

The DRP contains a confidentiality provision. Plaintiff notes

that, in Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003), the court

held that the district court did not err in finding a

confidentiality provision unconscionable. Defendants point out

that the arbitration agreement at issue in Ting required that an

arbitration remain confidential, whereas, here, the DRP requires

that those administering the DRP maintain confidentiality. The DRP

does not prevent employees from disclosing the facts, circumstances

or results of arbitration. Thus, the Court finds that the

confidentiality provision is not substantively unconscionable.

4. Class Treatment

Plaintiff argues that the DRP effectively bans class

proceedings. In Ingle I, a ban on class-wide arbitration was found

to be substantively unconscionable. 328 F.3d at 1176. Defendants

note, however, that in Ingle I the agreement itself directed

arbitrators not to consolidate claims of different employees in one

proceeding. Here, as Plaintiff concedes, there is no express

provision banning class proceedings. At the hearing, counsel for

Defendants affirmed that, under the DRP, Plaintiff can bring a

class action in arbitration. Thus, the lack of a provision

expressly allowing class proceedings does not make the DRP

substantively unconscionable.

5. Plaintiff's Costs

Plaintiff argues that the arbitration agreement seeks to

impose fees on her that she would not have to pay if this case

remained in court. As explained in Ingle I, “when an employer

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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.” 328 F.3d at 1177 (quoting Armendariz, 24 Cal.4th

at 110-11). The court in Ingle I found the filing fee in the

arbitration agreement substantively unconscionable, in part because

it did not provide for a waiver in the case of indigence. 

Defendants note that the DRP provides for a waiver of the onehundred dollar filing fee.

Plaintiff, however, points to costs other than the filing fee. 

She argues that the DRP provides that there will be no record of

the proceedings unless requested by a party or the arbitrator and

that the party requesting the record shall bear the entire cost of

producing it. According to Plaintiff, if she were in court she

would not be forced to pay for the entire cost of the record or

forego having the record; a court reporter would be present

regardless of whether she planned to purchase a copy of the

transcript of the proceedings. Plaintiff also notes that the DRP

requires that the cost of discovery be borne by the party

initiating discovery. Plaintiff claims that the employee's cost of

discovery is potentially much higher than that of the employer and

that the employee's ability to conduct discovery could be precluded

altogether by cost. 

Defendants respond that the DRP is consistent with the

practice under the Federal Rules of Civil Procedure, where the

party noticing a deposition bears the cost of the court reporter

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and the party requesting production bears the cost of photocopying.

The cost provisions of the DRP are not as oppressive as other

arbitration agreements, which require an employee to split the cost

of arbitration with her employer, that courts have found

substantively unconscionable. The DRP does not require an employee

to bear costs that she would not incur if she were free to bring

the action in court. Thus, the cost provisions of the DRP are not

substantively unconscionable. 

C. Conclusion

The Court finds that, under California law, the arbitration

agreement is procedurally unconscionable, but not substantively

unconscionable. Thus, the agreement will be enforced and

Defendants' motion to stay this litigation and compel arbitration

is granted.

II. Defendants' Motion to Transfer

Because the Court has stayed this suit pending arbitration,

Defendants' motion to transfer is denied without prejudice. If,

for any reason, this case must be decided on its merits in District

Court, the Court will entertain the motion to transfer, which

appears to be meritorious. 

III. Plaintiff's Motion to Amend Complaint

Plaintiff seeks leave to amend her first amended complaint. 

Specifically, Plaintiff seeks to add an additional claim under the

Labor Code Private Attorney Generals Act of 2004. Defendants filed

a statement of non-opposition to Plaintiff's motion to amend. The

Court grants Plaintiff's motion to amend her first amended

complaint.

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CONCLUSION

For the foregoing reasons, Defendants' Motion to Stay

Litigation and Compel Arbitration (Docket No. 13) is GRANTED;

Defendants' Motion to Change Venue to the United States District

Court for the Central District of California (Docket No. 14) is

DENIED without prejudice. Plaintiff's Motion for an Order Granting

Leave to Amend Plaintiff's Complaint (Docket No. 19) is GRANTED,

and Plaintiff shall file her amended complaint forthwith.

Plaintiff is ordered to proceed with arbitration in accordance with

the terms of the DRP. This case shall be stayed, pending

arbitration, which shall proceed expeditiously. A case management

conference will be held on October 27, 2006 at 1:30 p.m. If the

arbitrator's award is made before the case management conference,

the parties shall notify the Court. 

IT IS SO ORDERED.

Dated: 5/15/06

 

CLAUDIA WILKEN

United States District Judge

Case 4:06-cv-00347-CW Document 42 Filed 05/15/06 Page 16 of 16