Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-04805/USCOURTS-cand-3_15-cv-04805-3/pdf.json

Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 15:1681 Fair Credit Reporting Act

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United States District Court

Northern District of California

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UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

DANIEL GERTON,

Plaintiff,

v.

FORTISS, LLC, et al.,

Defendants.

Case No. 15-cv-04805-TEH 

ORDER GRANTING IN PART 

MOTION TO COMPEL 

ARBITRATION

This matter came before the Court on February 1, 2016 for a hearing on 

Defendants’ motion to compel arbitration. After carefully considering the parties’ written

and oral arguments, the Court hereby GRANTS IN PART Defendants’ motion and 

DISMISSES the matter without prejudice.

BACKGROUND 

Plaintiff Daniel Gerton (“Plaintiff”) is a third party propositional player of various 

casino games. Compl. at 4 (Docket No. 1). In February 2013, Plaintiff applied for 

employment with Defendant Knighted Ventures (“Knighted Ventures”), a third party 

propositional player service provider, which provides human staffing to gaming 

establishments. Id. at 5. Knighted Ventures is designated as the direct employer of the 

players. Id. Defendant Fortiss (“Fortiss”) provides human resources to Knighted Ventures 

and other third party propositional staffing companies. Id.

Sometime in February 2013,1Plaintiff signed Fortiss’ “Employee Release 

Authorization,” authorizing Fortiss to procure a background/credit report on Plaintiff in 

connection with Plaintiff’s prospective employment with Knighted Ventures. Ex. A to 

 

1 At oral argument, Defendants’ counsel stated that while the exact date is unclear, Plaintiff 

signed the Employee Release Authorization on either February 23 or February 25, 2013.

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Compl. Plaintiff’s underlying claims2are based on this Employee Release Authorization. 

On February 25, Plaintiff signed a stand-alone “Agreement to Mediate and Arbitrate 

Disputes,” (the “Arbitration Agreement”) that stated:

Knighted Ventures, LLC. and I hereby agree that any issue 

between me and Knighted Ventures, LLC. or any of its 

employees, agents, officers, directors or affiliates (the 

“Knighted Ventures, LLC. Parties”), which relates to my 

employment with Knighted Ventures, LLC., including, but not 

limited to any claims of discrimination, harassment, retaliation, 

statutory claims, tort claims or contract claims (the “Claims”), 

must be resolved exclusively through (i) mediation, and if that 

fails to resolve the dispute, (ii) binding arbitration, according to 

the terms set forth below. 

Ex. A to Grewohl Decl. at 1 (Docket No. 11-2). The Arbitration Agreement went on to 

provide, among other terms, the process for either party’s invocation of arbitration 

according to the American Arbitration Association (“AAA”) Rules. Id.

The Arbitration Agreement also set out (1) the process for choosing a neutral; (2)

the venue; (3) payment of arbitration-specific costs and fees; (4) available remedies; and 

(5) details of the arbitrator’s written decision and award. Id. at 1-2. After these five items, 

a paragraph in bold and capital letters stated that the employee understands that s/he is 

giving up rights (including a jury trial), followed by a blank line and the words 

“employee’s initials.” Id. at 2. Plaintiff initialed the line. Id.

Next, the Arbitration Agreement stated the following: 

I understand that I have the right to commence arbitration 

against Knighted Ventures, LLC. in the form of a class action 

or representative action, in which case I would act as a 

representative plaintiff and attempt to assert claims on behalf 

of a number of my fellow employees. I further understand that 

Knighted Ventures, LLC. requests that I give up my right to 

proceed against Knighted Ventures, LLC. in a class action or 

representative action capacity, or participate voluntarily in any 

way. I understand that I [sic] if I do not choose to accept 

Knighted Ventures, LLC.’s offer to waive my class action 

rights in exchange, I will retain those rights and will not suffer 

any retaliation from Knighted Ventures, LLC. for having made 

that choice.

 

2

Plaintiff alleges violations of various consumer protection and credit reporting statutes 

based on the format and contents of the Employee Release Authorization. 

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I AGREE THAT I WILL NOT VOLUNTARILY ASSERT 

AGAINST KNIGHTED VENTURES, LLC. PARTIES 

ANY CLAIMS OTHER THAN MY OWN CLAIMS. I 

FURTHER AGREE THAT, EXCEPT AS OTHERWISE 

REQUIRED BY LAW, I WILL NOT COOPERATE, AID 

OR ASSIST ANY OTHER PERSON OR ENTITY IN 

ASSERTING CLAIMS OF ANY KIND OR NATURE 

AGAINST THE KNIGHTED VENTURES, LLC. 

PARTIES, OR ANY OF THEM, INCLUDING THAT I 

WILL NOT SERVE AS A REPRESENTATIVE 

PLAINTIFF OR A PRIVATE ATTORNEY GENERAL IN 

ANY CLAIM, ACTION OR CHARGE AGAINST 

KNIGHTED VENTURES, LLC. PARTIES, OR ANY OF 

THEM.

 (Employee’s initials)

Ex. A to Grewohl Decl. at 2. Plaintiff initialed the line. Id. For purposes of this Order, 

the Court will refer to these two paragraphs as the “class action waiver.”

Plaintiff filed a class action complaint in this Court on October 19, 2015. (Docket 

No. 1.) Before the court is Defendants’ motion to compel arbitration, filed on December 

15, 2015. (Docket No. 12.) 

LEGAL STANDARD 

The Federal Arbitration Act (“FAA”) applies to arbitration agreements in any 

contract affecting interstate commerce. See Circuit City Stores, Inc. v. Adams, 532 U.S. 

105, 119 (2001); 9 U.S.C. § 2. Section 4 of the FAA ensures that “private agreements to 

arbitrate are enforced according to their terms.” Volt Info. Scis., Inc. v. Bd. of Trs. of 

Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). Accordingly, a party to an 

arbitration agreement can petition a United States District Court for an order directing that 

“arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. 

Additionally, the FAA contains a mandatory stay provision. Id. § 3. 

Under the FAA, arbitration agreements “shall be valid, irrevocable, and enforceable 

save upon such grounds as exist at law or in equity for the revocation of any contract.” Id.

§ 2. “[T]he FAA’s purpose is to give preference (instead of mere equality) to arbitration 

provisions.” Mortensen v. Bresnan Commc’ns, LLC, 722 F.3d 1151, 1160 (9th Cir. 2013). 

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Nonetheless, arbitration “is a matter of consent, not coercion.” Volt, 489 U.S. at 479. In 

accordance with this principle, the Supreme Court has held that parties may agree to limit 

the issues subject to arbitration, and to arbitrate according to specific rules. Mitsubishi 

Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628 (1985); Volt, 489 U.S. 

at 479. 

“The party seeking arbitration bears the burden of proving the existence of an 

arbitration agreement, and the party opposing arbitration bears the burden of proving any 

defense, such as unconscionability.” Pinnacle Museum Tower Assn. v. Pinnacle Mkt Dev., 

LLC, 55 Cal. 4th 223, 236 (2012). “[T]he party resisting arbitration bears the burden of 

proving that the claims at issue are unsuitable for arbitration.” Green Tree Fin. Corp.-Ala. 

v. Randolph, 531 U.S. 79, 91 (2000) (internal citations omitted). A court must defer to 

arbitration “unless it may be said with positive assurance that the arbitration clause is not 

susceptible of an interpretation that covers the asserted dispute,” and “doubts should be 

resolved in favor of coverage.” AT&T Tech, Inc. v. Commc’ns Workers of Am., 475 U.S. 

643, 650 (1986). 

DISCUSSION 

In ruling on a motion to compel arbitration, a district court’s inquiry is two-fold. 

The Court decides “(1) whether a valid agreement to arbitrate exists; and if it does, (2) 

whether the agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel Corp., 

533 F.3d 1114, 1119 (9th Cir. 2008) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 

207 F.3d 1126, 1131 (9th Cir. 2000). “If the response is affirmative on both counts, the 

[FAA] requires the court to enforce the arbitration in accordance with its terms.” Chiron, 

207 F.3d at 1131. 

I. The Agreement Is Valid and Enforceable 

Arbitration clauses may be invalidated “based on the same grounds as exist in law 

or in equity for revocation of a contract,” such as fraud, duress, or unconscionability. 9 

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U.S.C. § 2. Thus, to assess the validity of an arbitration clause, the Court applies state law; 

here, California state law applies. “Under California law, a contractual clause is 

unenforceable if it is both procedurally and substantively unconscionable.” Davis v. 

O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir. 2007). Procedural unconscionability 

focuses on “oppression or surprise due to unequal bargaining power;” substantive 

unconscionability focuses on “overly harsh or one-sided results.” Armendariz v. Found. 

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

citations omitted). Both elements must be present, but courts employ a “sliding scale,” 

whereby a stronger showing on one may make up for a weaker showing on the other. Id. 

Plaintiff, as the party resisting arbitration, bears the burden of proving unconscionability. 

Pinnacle, 55 Cal. 4th at 236. 

Defendants contend that there is, at most, minimal procedural unconscionability, 

due to the fact that the Arbitration Agreement was presented to Plaintiff as a mandatory 

condition of employment. Defs.’ Mot. at 6 (Docket No. 11). See Serpa v. Cal. Surety 

Investigations, Inc., 215 Cal. App. 4th 695, 704 (2013). Defendants also point out the 

substantive provisions of the Arbitration Agreement that are clearly not unconscionable: 

the neutral arbitrator; the availability of unlimited statutory remedies; that there is adequate 

discovery; the written arbitration award; that Defendants will pay any costs unique to 

arbitration; and that the parties’ obligations are bilateral. Defs.’ Mot. at 7-8. 

Plaintiff contends that the Arbitration Agreement is a contract of adhesion because 

the class action waiver is “confusing,” and while it purports to allow employees to 

preserve their class action rights, there is no way to actually preserve the rights.3Pl.’s 

 

3

Plaintiff also argues that the provision is unconscionable because it bars the ability to 

bring a Private Attorney General Act (“PAGA”) representative claim. Pl.’s Opp’n at 12-

14. Plaintiff is correct that PAGA waivers are unenforceable. Iskanian v. CLS Transp. 

Los Angeles, LLC, 59 Cal. 4th 348, 359-60 (2014). However, Plaintiff does not have 

standing to challenge the PAGA waiver provision because the statute of limitations has 

expired on Plaintiff’s PAGA claim. See Arellano v. T-Mobile USA, Inc., No. 10-CV-5663, 

2011 WL 1362165, at *5 (N.D. Cal. Apr. 11, 2011) (court could not decide whether 

provision of an arbitration agreement, if applied to plaintiff, would be unconscionable, 

because plaintiff was not injured by the mere inclusion of the provision in the agreement). 

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Opp’n at 10. Plaintiff contends that the “lack of an effective opt out provision provides 

proof of procedural unconscionability;” thus, the Arbitration Agreement is invalid. Id. at 

11. Plaintiff further contends that the issue of enforceability of class action waivers in 

consumer credit transaction arbitration agreements “must be reconsidered in light of recent 

regulatory and congressional action.” Id. at 15. 

As discussed below, the Court finds that the Arbitration Agreement is valid and 

enforceable, despite containing an unconscionable provision, because the unconscionable 

provision can be severed from the Arbitration Agreement. 

A. The class action waiver is unconscionable. 

The California Supreme Court has held that the FAA preempts California law 

disfavoring enforcement of a class action waiver in employment arbitration agreements. 

Iskanian, 59 Cal. 4th at 359-60. Thus, class action waivers do not outright invalidate 

arbitration agreements. The United States Supreme Court recently affirmed Iskanian, 

holding that class action waivers are enforceable under the FAA and cannot be invalidated 

on state law grounds inapplicable to any other contract. DirecTV, Inc. v. Imburgia, 136 S. 

Ct. 463 (2015). The Court cautioned that arbitration agreements must be interpreted 

consistently with ordinary rules of contract interpretation and cannot be subject to special 

consideration due to concerns invoked by waiver of class rights. Id. at 469-70. 

Here, Plaintiff argues that the class action waiver is unconscionable, and thus makes 

the Arbitration Agreement unenforceable. Plaintiff relies heavily on In re D.R. Horton, 

Inc. (“Horton I”), an NLRB decision, which found that a class action waiver violated 

employees’ right to engage in concerted activity under Section 7 of the National Labor 

Relations Act (“NLRA”), and struck down the arbitration agreement. 357 NLRB No. 184, 

2012 WL 36274, at *7-10 (Jan. 3, 2012). The NLRB further found that such waivers run 

afoul of the Norris-LaGuardia Act of 1932, 29 U.S.C. § 101 et seq. (“Norris-LaGuardia”), 

which protects employees’ concerted activities for purposes of collective bargaining. Id. 

Plaintiff contends that Horton I exemplifies Congress’ belief that class action 

waivers are unconscionable in the consumer and employee context; thus, the Court should 

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follow Horton I and accordingly find the Arbitration Agreement invalid. 4 Pl.’s Opp’n at 

15; see Am. Express Co. v. Italian Colors Restaurant, --- U.S. ---, 133 S.Ct. 2304, 2309 

(2013) (arbitration clause unenforceable if “FAA’s mandate has been overridden by a 

contrary congressional command”). 

However, “the majority of federal courts to have considered Horton I have rejected 

its reasoning.” Nanavati v. Adecco USA, Inc., 99 F. Supp. 3d 1072, 1077-79 (N.D. Cal. 

2015); Richards v. Ernst & Young, LLP, 744 F.3d 1072, 1075 n.3 (9th Cir. 2013) 

(surveying number of federal courts rejecting Horton I). The Fifth Circuit partially 

overruled Horton I, and sided with the weight of federal courts holding class action 

waivers enforceable. D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 359 (5th Cir. 2013) 

(“Horton II”). Indeed, even the California Supreme Court rejected Horton I in Iskanian. 

59 Cal. 4th 348, 367-74 (2014) (“We thus conclude . . . that sections 7 and 8 of the NLRA 

do not represent a ‘contrary congressional command’ overriding the FAA’s mandate.”) 

(citation omitted). 

In Johnmohammadi v. Bloomingdales, Inc., the Ninth Circuit held that where the 

employee has the right to opt out of the arbitration agreement but chooses not to do so, the 

employee may not claim a violation of Norris-LaGuardia or the NLRA. 755 F.3d at 1077. 

The Johnmohammadi Court reasoned that the opt out provision meant the employer did 

not require the employee to accept a class action waiver as a condition of employment; 

thus, there was no coercion and the waiver was not unconscionable. Id. at 1075-76; see 

also Nanavanti, 99 F. Supp. 3d 1072 (upholding arbitration agreement where class action 

waiver’s opt out procedure involved requesting a form via email and submitting the form 

 

4

 On January 25, 2016, Plaintiff filed a “Statement of Recent Decision” (Docket No. 22) 

to alert the Court of the recent decision in Totten v. Kellogg Brown & Root, LLC, No. 14-

CV-1766, 2016 WL 316019 (C.D. Cal. Jan. 22, 2016). While Totten contains an 

interesting discussion of class action waivers, public policy concerns with arbitration in the 

employment context, and authority interpreting Horton I, the arbitration agreement at issue 

in Totten (and also in Horton I) did not have an opt out provision; thus the facts are not 

analogous to this case. The Court finds Johnmohammadi v. Bloomingdales, Inc., 755 F.3d 

1072, 1077 (9th Cir. 2014), to be more useful in its analysis, as the Ninth Circuit directly 

addressed opt out provisions in class action waivers.

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within 30 days of signing the agreement); Guadagno v. E*Trade Bank, 592 F. Supp. 2d 

1263, 1270 (C.D. Cal. 2008) (employee can opt out by notifying employer in writing 

within 60 days of receiving the agreement; thus, class action waiver not unconscionable). 

However, even agreements containing opt out provisions may still be found 

unconscionable if the opt out provision is “extremely onerous” or “largely illusory.” 

Mohamed v. Uber Techs., Inc., 109 F. Supp. 3d 1185, 1205-06 (N.D. Cal. 2015) (opt out 

provision was buried in contract and employees could only opt out by writing that was 

hand-delivered or sent via overnight mail); Gentry v. Superior Court, 42 Cal. 4th 443, 472 

(2007) (even with opt out provision, employees felt pressured to submit to arbitration for 

fear of losing job). Courts consider whether there was a “meaningful opportunity” to opt

out. Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199-1200 (9th Cir. 2002); but see 

Circuit City Stores Inc. v. Mantor, 335 F.3d 1101, 1106 (9th Cir. 2003) (no meaningful 

opportunity to opt out when employers pressured employees to not opt out). 

1. There was no meaningful opportunity for Plaintiff to opt out of the 

class action waiver.

 Considering the class action waiver section of the Arbitration Agreement at issue 

here, the Court finds several areas of concern. First, in analyzing the language of the two 

paragraphs, it appears that the provision allows the employee to opt out of the class action 

waiver by simply not initialing the box under the waiver paragraph. However, even 

assuming that failing to initial the line would suffice to opt out, such a procedure for opting 

out is not described anywhere in the Arbitration Agreement. A simple sentence such as, 

“If you wish to opt out of this class action waiver, do not initial this line,” may have 

sufficed.5 Instead, without reading carefully and possessing enough experience to 

 

5 At oral argument, Plaintiff’s counsel implied that there was no meaningful opportunity to 

opt out because Plaintiff was not given at least 30 days to review the class action waiver. 

It is true that in the majority of cases finding a meaningful opportunity to opt out of 

arbitration agreements, the agreements contained a procedure whereby an employee could 

opt out by mail or email within a specified period of time (usually 30 or 60 days). See, 

e.g., Ahmed, 283 F.3d at 1199. However, the Court declines to extend the authority so far 

as to require a 30 day waiting period. Instead, the Court notes that a 30 day waiting period 

would have weighed in favor of a meaningful opportunity to opt out, by giving Plaintiff 

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understand the language of the two paragraphs taken together, an employee would likely 

skim over the class action waiver section, assuming it is another mandatory line to initial in 

a “pre-hire package.” Pl.’s Opp’n at 3.

In fact, the paragraph under which the employee would initial or refrain from 

initialing does not contain the words “class action,” “waiver” or “opt out” anywhere in its 

90 words. While the paragraph is written in bold, capital letters, and is set apart from the 

surrounding sections, the wording is extremely confusing and would take an exceptionally 

careful reading to understand that initialing below this paragraph would constitute a waiver 

of the rights recited in the paragraph above. Cf. Velazquez v. Sears, Roebuck & Co., No. 

13-CV-0680, 2013 WL 4525581, at *5 (S.D. Cal. Aug. 26, 2013) (agreement clearly 

outlined steps for opting out; option to opt out was “not buried in fine print, but was 

instead, clearly labeled”) (citing Kilgore v. KeyBank, Nat. Ass’n, 718 F.3d 1052, 1059 (9th 

Cir. 2013)) (internal marks omitted).

Perhaps most importantly, Knighted Ventures has demonstrated that it can draft a 

clearer waiver of rights, by doing so in the immediately preceding paragraph, which begins 

by stating: “I UNDERSTAND THAT BY SIGNING THIS AGREEMENT, I AM GIVING 

UP SIGNIFICANT RIGHTS, INCLUDING BUT NOT LIMITED TO, THE RIGHT TO A 

JURY TRIAL.[. . .]” Ex. A to Grewohl Decl. at 2. It is unclear to the Court why Knighted 

Ventures did not reproduce this language in the class action waiver section, but instead 

chose a convoluted and verbose alternative.

For these reasons, the Court finds that Plaintiff did not have a meaningful 

opportunity to opt out of the class action waiver. The Arbitration Agreement’s class action 

waiver is therefore procedurally unconscionable because the inability to opt out of the 

provision constitutes unfair surprise, and substantively unconscionable because the ensuing 

waiver of Plaintiff’s class action rights constitutes overly harsh results.

 

time to consider the waiver.

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B. The unconscionable class action waiver is severable from the 

Arbitration Agreement.

An unconscionable provision of an arbitration agreement may be severed to retain 

the remaining provisions. Rent-A-Center, West, Inc., v. Jackson, 561 U.S. 63, 71-72 

(2010); Davis, 485 F.3d at 1084 (a court’s finding that the agreement contains “flawed 

provisions” does not necessarily mean the entire agreement is unconscionable). However, 

under California law, an arbitration agreement that is “permeated” or “tainted” with 

multiple unconscionable provisions, such that the provisions cannot be severed without 

reforming the contract, is unenforceable. Armendariz, 24 Cal. 4th at 123-25. Courts 

consider whether the offending clauses are central or collateral to the purpose of the 

agreement, and what the resulting agreement will look like after severance. Davis, 485 

F.3d at 1066, 1084 (severance not possible if striking provisions would “gut” agreement). 

Here, the Court finds the class action waiver provision collateral to the arbitration 

agreement’s main purpose. The agreement is, at most, confusing and poorly worded, but 

one unconscionable provision does not constitute permeation or demonstrate a “systematic 

effort” to disadvantage Plaintiff by imposing arbitration. Armendariz, 24 Cal. 4th at 124. 

Furthermore, the class action waiver provision is easily severable, because it is selfcontained in its own section of the Arbitration Agreement. Accordingly, the Court hereby 

SEVERS the class action waiver provision from the Arbitration Agreement pursuant to 

California Civil Code Section 1670.5(a). 

II. The Arbitration Agreement Encompasses the Dispute at Issue 

The final question for the Court is whether the Arbitration Agreement covers the 

dispute at issue. If there is no clear and unmistakable delegation clause stating that the 

issue of arbitrability should be decided in arbitration, the issue of arbitrability remains for 

courts to decide. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (19945);

AT&T Tech, 475 U.S. at 650. Courts apply ordinary state law contract principles “[w]hen 

deciding whether the parties agreed to arbitrate a certain matter.” First Options, 514 U.S. 

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at 944. Keeping in mind that arbitration is about contracts, a party “cannot be required to 

submit to arbitration any dispute which he has not agreed so to submit.” United 

Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960).

Courts grant motions to compel arbitration unless “it may be said with positive 

assurance that the arbitration clause is not susceptible of an interpretation that covers the 

asserted dispute.” AT&T Tech, 475 U.S. at 650. Furthermore, under the Federal 

Arbitration Act, any doubts that the court may have about the scope of arbitrable issues 

should be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury 

Const. Corp., 460 U.S. 1, 24-25 (1983). 

The scope language of the Arbitration Agreement at issue here is broad, stating:

Knighted Ventures, LLC. and I hereby agree that any issue

between me and Knighted Ventures, LLC. or any of its 

employees, agents, officers, directors or affiliates ... which 

relates to my employment with Knighted Ventures, LLC., 

including, but not limited to any claims of discrimination, 

harassment, retaliation, statutory claims, tort claims or contract 

claims ... [must be arbitrated].

Ex. A to Grewohl Decl. at 1 (emphasis added). Plaintiff contends that by signing the 

Arbitration Agreement, Plaintiff did not agree to arbitrate pre-employment statutory 

violations with another entity. Pl.’s Opp’n at 5.

First, the Court must determine whether Fortiss, as a non-signatory to the 

Arbitration Agreement may bind Plaintiff to the Arbitration Agreement. Plaintiff contends 

that Fortiss is not mentioned by name in the Arbitration Agreement, and that Fortiss’ role 

was “both distinct from the role of an employer but so prominent and consistent in the 

application process for thousands of potential litigants that if the parties contemplated 

binding arbitration with Defendant Fortiss, then the maker of the agreement would have 

mentioned Defendant Fortiss by name in the agreement itself.” Pl.’s Opp’n at 6, 7.

“Nonsignatories of arbitration agreements may be bound by the agreement under 

ordinary contract and agency principles” Letizia v. Prudential Bache Secs., Inc., 802 F.2d 

1185, 1187-88 (9th Cir. 1986). Such principles include: (1) incorporation by reference; (2) 

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assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel. Comer v. Micor, Inc., 

436 F.3d 1098, 1101 (9th Cir. 2006) (citing Thomson-CSF, S.A. v. Am. Arbitration Assoc., 

64 F.3d 773, 776 (2d Cir. 1995). 

A. Fortiss may compel arbitration because Fortiss is an agent of Knighted 

Ventures. 

Plaintiff relies heavily on Cox v. ScreeningOne, Inc., No. 14-CV-0229, 2015 WL 

413812 (N.D. Ohio Jan. 30, 2015), for the contention that Fortiss, as a third party to the 

Arbitration Agreement, cannot compel Plaintiff to arbitration. In Cox, the plaintiff sued a 

recruiting company for an improper background check under FCRA, and the recruiting 

company sought to compel arbitration under an agreement entered into between the 

plaintiff and his employer. Id. at *2. The Cox court refused to apply the agreement with 

the employer to the pre-employment conduct by the non-signatory recruiter. Id. at *4. 

The facts of Cox are distinguishable from the instant case for two main reasons. 

First, the agreement in Cox did not contain language extending arbitration obligations to 

agents of the employer, so the Cox Court did not consider agency. Here, the language of 

the Arbitration Agreement specifically binds the employee as well as “Knighted Ventures, 

LLC. or any of its employees, agents, officers, directors or affiliates.” Ex. A to Grewohl 

Decl. at 1. Second, the Cox plaintiff’s claims against the employer were distinct from the 

claims against the recruiter, so it did not make sense for the recruiter – a completely 

unrelated third party – to reap the benefits of the agreement; here, Plaintiff asserts one 

claim against both Defendants jointly. 

“[D]efendants who are not signatories to an arbitration agreement, but who are 

acting as agents for the party to the arbitration provision, may be allowed to enforce the 

arbitration clause.” Valley Casework, Inc. v. Comfort Constr., Inc., 76 Cal. App. 4th 1013, 

1021 (1999). “An agent is one who represents another, called the principal, in dealings 

with third persons.” Cal Civ. Code § 2295. An agency relationship may be created by 

express contract or may be “implied from the circumstances and conduct of the parties.” 3 

Witkin, Summary of Cal. Law (10th), Agency & Emp’t § 92; Brea v. McGlashan, 3 Cal. 

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App. 2d 454, 464 (1934). 

Here, the Court finds that Defendants have met their burden of showing that the 

relationship between Fortiss and Knighted Ventures is that of principal and agent, and thus 

an agreement to arbitrate exists between Plaintiff and Fortiss. Plaintiff’s Complaint alleges 

that Fortiss “provides human resource services” to Knighted Ventures, among other 

entities. Compl. ¶ 19-20; Pl.’s Opp’n at 3 (“Defendant Fortiss also supplies applicants . . . 

to third party employers like Defendant Knighted Ventures”). Plaintiff signed both 

Fortiss’ Release Authorization and Knighted Ventures’ Arbitration Agreement as part of a 

“pre-hire package.” Pl.’s Opp’n at 3. Plaintiff also refers to Knighted Ventures’ as a 

“client” of Fortiss. Id. Finally, it would not logically make sense for Plaintiff to file suit 

against both Defendants for the actions (procuring a background/credit report) of only one 

unless the relationship was more than that of a “third party recruiter.” Rather, the 

relationship between the Defendants appears to be such that Knighted Ventures directs 

Fortiss to find potential employees and perform background/credit checks; then, depending 

on the results of the report, Knighted Ventures decides whether to hire the applicant. 

For these reasons, the Court finds that Fortiss is an agent of Knighted Ventures, and 

therefore may compel Plaintiff to arbitration under the Arbitration Agreement. 

B. Alternatively, Fortiss May Compel Arbitration under the Theory of 

Equitable Estoppel

Under the FAA, a litigant who is not a party to an arbitration agreement may invoke 

arbitration if the relevant state contract law allows the litigant to enforce the agreement. 

Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 632 (2009). California courts have held, 

under the theory of equitable estoppel, that parties to an arbitration agreement may not 

avoid arbitration by suing non-signatory defendants for claims based on the same facts and 

that are inherently inseparable from arbitrable claims against signatory defendants. 

Metalclad Corp. v. Ventana Envir. Org. P’ship, 109 Cal. App. 4th 1705, 1713 (2003). 

Thus, the focus is on the nature of the claims asserted by the plaintiff against the nonsignatory defendants. 

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Defendants contend that here, Plaintiff does not allege merely interdependent 

claims against the two Defendants; he alleges the same claims jointly against both 

Defendants. Defs.’ Reply at 3. Plaintiff makes no argument to the contrary. The Court 

finds that the claims are sufficiently intertwined between the two Defendants that they are 

inherently inseparable. In the Complaint, Plaintiff alleges all three causes of action against 

both Defendants, and does not separately identify either Defendant in any cause of action. 

See Compl. ¶¶ 32-49. The Factual Allegations section of the Complaint separately 

identifies the Defendants’ roles in some paragraphs (e.g., id. ¶¶ 19-21), but alleges other 

facts jointly as to the Defendants. E.g., id. ¶ 22 (“Defendants commanded that Plaintiff 

sign an Employee Release Authorization”); ¶ 23 (“Plaintiff became aware that a 

background report was indeed procured by Defendants”). Such labeling further entwines 

the Defendants’ actions.

For these reasons, the Court finds that even though Fortiss already may compel 

arbitration as an agent of Knighted Ventures, Fortiss alternatively may compel arbitration 

under the theory of equitable estoppel. 

C. The Arbitration Agreement encompasses Fortiss’ pre-employment 

activities because the activities were related to Plaintiff’s employment. 

Finally, in order to determine whether the Arbitration Agreement covers the dispute 

at issue, the Court must decide whether pre-employment activities fall under the purview 

of an employment arbitration agreement. Mitsubishi, 473 U.S. at 626 (with arbitration 

agreements, “as with any other contract, the parties’ intentions control”). In doing so, the 

Court must maintain a “healthy regard for the federal policy favoring arbitration.” Id.

(citing Moses H. Cone, 460 U.S. at 24-25). “The [FAA] establishes that, as a matter of 

federal law, any doubts concerning the scope of arbitrable issues should be resolved in 

favor of arbitration.” Id.

Here, Plaintiff signed the Employee Release Authorization and Arbitration 

Agreement with very little – if any – time in between. Plaintiff contends that the various 

forms were presented to him as part of a “pre-hire package.” Pl.’s Opp’n at 3. Thus, the 

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Court finds that the parties’ likely anticipated that the scope of the Arbitration Agreement 

extended to all of the papers Plaintiff was given as part of the “package.” Furthermore, the 

Arbitration Agreement states that the scope extends to any issue “which relates to my 

employment,” which is very broad language. See Cape Flattery Ltd. v. Titan Mar., LLC, 

647 F.3d 914, 922 (9th Cir. 2011); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 721 (9th Cir. 

1999). It is undisputed that the background/credit check performed by Fortiss related to 

Plaintiff’s employment with Knighted Ventures; even Plaintiff concedes the point in the 

Complaint. Compl. ¶ 33 (“[the background/credit reports] were procured for employment 

purposes”).

Keeping in mind the strong policy favoring arbitration, the Court finds that it cannot 

“be said with positive assurance that the arbitration clause is not susceptible of an 

interpretation that covers the asserted dispute.” AT&T Tech, 475 U.S. at 650. Resolving 

doubts in favor of arbitration, the Court finds that the Arbitration Agreement covers 

disputes about a pre-employment background check performed by an agent of the 

employer with whom Plaintiff had a valid arbitration agreement. 

III. The Court Exercises Its Discretion to Dismiss the Action 

Section 3 of the FAA requires courts to stay actions pending arbitration. 9 U.S.C. § 

3. However, the Court has discretion to dismiss the action in its entirety, rather than stay 

the action, if all of the remaining claims asserted in the complaint must be submitted to 

arbitration. Sparling v. Hoffman Constr. Co., 846 F.2d 635, 638 (9th Cir. 1988). Here, all 

of Plaintiff’s remaining claims must be arbitrated, so the Court exercises its discretion and 

dismisses the remaining claims. 

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CONCLUSION 

For the reasons stated above, the Court GRANTS IN PART Defendants’ motion to 

compel arbitration. All of Plaintiff’s claims against both Knighted Ventures and Fortiss 

shall be submitted to arbitration, but Plaintiff may proceed with arbitration on a class basis 

because the class action waiver is severed from the Arbitration Agreement. The Court 

hereby DISMISSES the action without prejudice. 

IT IS SO ORDERED.

Dated: 02/16/16 _____________________________________ 

THELTON E. HENDERSON 

United States District Judge

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