Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_10-cv-01658/USCOURTS-casd-3_10-cv-01658-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 28:1331 Fed. Question: Fair Labor Standards

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ALEX GRABOWSKI, an individual, on

behalf of himself, and on behalf of all

persons similarly situated,

Plaintiff,

CASE NO. 10cv1658-WQH-MDD

ORDER

vs.

C.H. ROBINSON COMPANY; C.H.

ROBINSON WORLDWIDE, INC.,

Defendants.

HAYES, Judge:

The matters before the Court are (1) the Motion for an Order Directing Arbitration and

Dismissing, or in the Alternative, Staying the Action (“Motion for an Order Directing

Arbitration”), filed by Defendants (ECF No. 34); and (2) the Request for Full Discovery and

a Jury Trial as to Disputed Issues of Fact in Motion to Compel Arbitration (“Request for Full

Discovery and a Jury Trial”), filed by Plaintiff (ECF No. 43-1).

I. Background

On August 9, 2010, Plaintiff initiated this action by filing a Complaint in this Court.

(ECF No. 1).

On November 30, 2010, Plaintiff filed the Third Amended Complaint, which is the

operative pleading. (ECF No. 14). Plaintiff, who was employed by Defendants as an

“Account Manager,” alleges that Defendants improperly classified him (and other individuals

employed by Defendants in California) as an exempt employee from overtime wages, and

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therefore failed to pay him overtime compensation although he “regularly worked more than

eight (8) hours in a workday, forty (40) hours a workweek, and/or seven (7) consecutive days.”

Id. ¶ 4. Plaintiff alleges the following claims, on behalf of himself and all others similarly

situated: (1) Unfair Competition in Violation of Cal. Bus. & Prof. Code §§ 17200, et seq.; (2)

Failure to Pay Overtime Compensation in Violation of California Labor Code §§ 510, 515.5,

551, 552, 1194 & 1198, et seq.; (3) Failure to Provide Accurate Itemized Statements in

Violation of California Labor Code § 226; (4) Failure to Pay Overtime Compensation in

Violation of 29 U.S.C. §§ 201, et seq.; and (5) Labor Code Private Attorney General Act,

California Labor Code §§ 2698, et seq. Plaintiff alleges a class and collective action.

On May 19, 2011, Defendants filed the Motion for an Order Directing Arbitration.

(ECF No. 34). Defendants move for an order directing the parties to arbitration pursuant to

an agreement which Defendants contend requires Plaintiff to submit all employment-related

disputes to binding arbitration, and requires the parties to arbitrate all disputes on an individual

and not a class or collective basis.

On June 20, 2011, Plaintiff filed an opposition to the Motion for an Order Directing

Arbitration, and a Request for Full Discovery and a Jury Trial. (ECF Nos. 43 & 43-1).

On June 27, 2011, Defendants filed a reply in support of the Motion for an Order

Directing Arbitration, and an opposition to the Request for Full Discovery and a Jury Trial.

(ECF Nos. 45 & 46).

On June 29, 2011 and July 5, 2011, Plaintiff filed a reply to Defendants’ opposition to

the Request for Full Discovery and a Jury Trial, and a response to the evidence submitted by

Defendants in their reply in support of the Motion for an Order Directing Arbitration. (ECF

Nos. 47 & 49).

On July 12, 2011, Defendants filed a reply to Plaintiff’s response. (ECF No. 50).

On July 15, 2011, Plaintiff filed a Notice of Statement of Recent Authority Relevant to

Defendants’ Motion for an Order Directing Arbitration. (ECF No. 52).

On July 15, 2011, Defendants filed a Notice of Statement of Recent Authority Relevant

to Defendants’ Motion for an Order Directing Arbitration. (ECF No. 54).

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On August 31, 2011, Plaintiff filed a second Notice of Statement of Recent Authority

Relevant to Defendants’ Motion for an Order Directing Arbitration. (ECF No. 55).

II. Facts

Plaintiff began working for Defendants on October 1, 2007. (Arnold Decl. ¶ 2, ECF

No. 34-2).

On December 13, 2007, Plaintiff met with his supervisor, Barry Cohen, for

approximately ten minutes and discussed the Defendants’ “Bonus Incentive Agreement.”

(Grabowski Dep. at 25, ECF No. 45-1). At the end of the meeting, Plaintiff and Cohen each

signed the Bonus Incentive Agreement. (Turai Decl., Ex. C at 51, ECF No. 45-1). The Bonus

Incentive Agreement provides that, “[i]n consideration for Your continued employment, Your

eligibility for a bonus incentive, and the mutual promises set forth in this Agreement, You and

the Company hereby agree” to the terms set forth in the Bonus Incentive Agreement. Id. at 47.

The Bonus Incentive Agreement sets forth the terms of Plaintiff’s compensation and eligibility

for “a bonus based upon the annual Gross Net Earnings of the San Diego office.” Id. The

Bonus Incentive Agreement contains a “Dispute Resolution” provision which states:

You and the Company agree that, except as provided below, all Claims the

Company might bring against You and all claims You might bring against the

Company and/or any of its officers, directors, or employees shall be deemed

waived unless submitted to mediation, then, if mediation is unsuccessful, to final

and binding arbitration in accordance with the Employment Arbitration Rules

and Mediation Procedures of the American Arbitration Association, modified

as follows: (1) any mediation or arbitration shall be governed by the Company’s

Employment Dispute Mediation/Arbitration Procedure, which is available on the

Company Intranet; (2) dispositive motions shall be permissible and not

disfavored in any arbitration, and the standard for deciding such motions shall

be the same as under Rule 56 of Federal Rules of Civil Procedure, and (3) except

as mutually agreed at the time between You and the Company, neither You nor

the Company may bring any Claim combined with or on behalf of any other

person or entity, whether on a collective, representative, or class action basis or

any other basis.

Id. The Dispute Resolution provision defines “Claims” to include: “all claims directly or

indirectly related to Your recruitment, employment, compensation or benefits ... or termination

of employment by the Company, including, but not limited to, alleged violations of ... the Fair

Labor Standards Act..., and any and all claims under federal, state, local laws or regulations

(including all such laws and regulations pertaining to employment or prohibiting

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discrimination).” Id. at 48. The Dispute Resolution Provision concludes with the following

statements:

YOU MAY WISH TO CONSULT AN ATTORNEY PRIOR TO SIGNING

THIS AGREEMENT. HOWEVER, YOU WILL NOT BE ELIGIBLE TO

RECEIVE ANY BONUS PAYMENTS OR ADVANCES UNTIL THIS

AGREEMENT IS SIGNED AND RETURNED BY YOU. PLEASE READ

THESE PROVISIONS CAREFULLY. BY SIGNING BELOW, YOU ARE

ATTESTING THAT YOU HAVE READ AND UNDERSTOOD THIS

DOCUMENT, AND ARE KNOWINGLY AND VOLUNTARILY AGREEING

TO ITS TERMS.

The Effective Date of this Agreement is January 01, 2008.

Id. 

On December 17, 2008, Plaintiff and Cohen each signed a second Bonus Incentive

Agreement, which contained the same terms as the December 13, 2007 Bonus Incentive

Agreement, except it provided that “[t]he Effective Date of this Agreement is January 01,

2009.” (Turai Decl., Ex. D at 54, ECF No. 45-1).

On December 21, 2009, Plaintiff and Cohen each signed a third Bonus Incentive

Agreement, which contained the same terms as the prior two Bonus Incentive Agreements,

except it provided that “[t]he Effective Date of this Agreement is January 01, 2010.” (Turai

Decl., Ex. E at 58, ECF No. 45-1).

In February of 2010, Plaintiff resigned from his employment with Defendants.

(Grabowski Dep. at 18, ECF No. 45-1).

III. Contentions of the Parties

Defendants contend:

The issue in this petition is simple: plaintiff ... repeatedly entered into a clear and

unambiguous agreement with his former employer to arbitrate all claims arising

out of his employment on an individual basis. Notwithstanding this agreement,

plaintiff brought a class and collective action alleging five employment-related

causes of action in the United States District Court for the Southern District of

California. Defendants ... did not move to compel arbitration at the outset of the

litigation because plaintiff’s agreement to arbitrate was unenforceable under

then-current California law.

On April 27, 2011, the United States Supreme Court overturned the entire

landscape of existing California law pertaining to arbitration agreements when

it issued its decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740

(2011)....

In light of AT&T, the Court must now enforce plaintiff’s previously

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unenforceable agreement requiring plaintiff to arbitrate any claims relating to his

employment on an individual, and not a class, basis. Accordingly, Defendants

seek an order compelling plaintiff’s claims to arbitration and dismissing the

action, or in the alternative, staying the instant proceedings until the arbitration

is completed. Because the arbitration provisions executed by plaintiff are valid

and enforceable agreements, this petition should be granted in its entirety.

(ECF No. 34-1 at 2).

Plaintiff contends:

Defendant’s arbitration provision violates Section 7 of the National Labor

Relations Act by denying employees the right to bring collective, class or

representative actions. The arbitration provision is also unlawful and constitutes

a criminal misdemeanor under California Labor Code Section 206.5 because

Plaintiff was required to sign the agreement and release his right to bring a

collective, class or representative action in order to avoid forfeiture of earned

wages. The arbitration agreement is also unenforceable because it was signed

under duress because Plaintiff was required to sign it to avoid forfeiture of

earned bonus wages. The arbitration provision is unconscionable under Cal.

Civil Code § 1670.5. Concepcion v. AT&T Mobility LLC, __U.S.__,131 S. Ct.

1740 (2011) is inapplicable to the facts of this case and Defendants have waived

any right to seek arbitration by litigating this action in Court for 9 months before

bringing this motion. For all these reasons, Defendant’s motion to compel must

be denied.

(ECF No. 43 at 10 (citations omitted)).

IV. Discussion

A. Waiver

Plaintiff contends that Defendants have “waived the right to seek to compel arbitration.”

(ECF No. 43 at 36).

In determining whether arbitration has been waived pursuant to California law, a court

may consider the following factors:

(1) whether the party’s actions are inconsistent with the right to arbitrate; (2)

whether the litigation machinery has been substantially invoked and the parties

were well into preparation of a lawsuit before the party notified the opposing

party of an intent to arbitrate; (3) whether a party either requested arbitration

enforcement close to the trial date or delayed for a long period before seeking

a stay; (4) whether a defendant seeking arbitration filed a counterclaim without

asking for a stay of the proceedings; (5) whether important intervening steps

[e.g., taking advantage of judicial discovery procedures not available in

arbitration] had taken place; and (6) whether the delay affected, misled, or

prejudiced the opposing party.

Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1124 (9th Cir. 2008) (quoting St. Agnes Med.

Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1196 (2003)). The waiver inquiry “must be

conducted in light of the strong federal policy favoring enforcement of arbitration agreements.”

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Id. at 1125 (quoting Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986)).

“Because waiver of the right to arbitration is disfavored, any party arguing waiver of

arbitration bears a heavy burden of proof.” Fisher, 791 F.2d at 694 (quotation omitted); see

also Sobremonte v. Superior Court, 61 Cal. App. 4th 980, 991 (1998) (“Since arbitration is a

strongly favored means of resolving disputes, courts must closely scrutinize any claims of

waiver. A party claiming that the right to arbitrate has been waived has a heavy burden of

proof.”) (quotation omitted).

The Court of Appeals for the Ninth Circuit has held that a party does not act

inconsistently with the right to arbitrate by failing to seek to enforce an arbitration agreement

that would be unenforceable under then-existing law. See Letizia v. Prudential Bache Sec.,

Inc., 802 F.2d 1185, 1187 (9th Cir. 1986) (“It is undisputed that defendants did not seek

arbitration until after the close of discovery, nine months after their answer was filed....

[T]here could be no waiver here because there was no existing right to arbitration....

Defendants actively pursued their right to arbitrate as soon as they believed, in good faith, that

they had such a right.”); Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 697 (9th Cir. 1986)

(“Until the Supreme Court’s decision in Byrd, the arbitration agreement in this case was

unenforceable. Therefore, the Fishers have failed to demonstrate that Becker acted

inconsistently with a known existing right to compel arbitration.”). In this case, Defendants

reasonably could have believed that, prior to AT&T Mobility, LLC v. Concepcion, --- U.S. ---,

131 S. Ct. 1740 (2011), California courts would have found the arbitration agreement to be

unenforceable, particularly with regard to Plaintiff’s claims pursuant to California’s Private

Attorney General Act, as discussed below. Less than a month after Conception was decided,

Defendants filed the Motion for an Order Directing Arbitration. Accordingly, Plaintiff has

failed to show that Defendants acted inconsistently with a known right to arbitrate. See Fisher,

791 F.2d at 697.

The eight-month delay between Defendants’ initial Answer and the Motion for an Order

Directing Arbitration is less than the three-year delay in Fisher and the nine-month delay in

Letizia. No dispositive motions have been filed, no motion for class certification has been

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filed, and no trial date has been set. The Court finds that the second and third waiver factors

(i.e., “whether the litigation machinery has been substantially invoked” and “whether a party

either requested arbitration enforcement close to the trial date or delayed for a long period

before seeking a stay”) do not favor a finding of waiver. Cox, 533 F.3d at 1124 (quotation

omitted). Defendants did not file a counterclaim, and there is no showing that Defendants

obtained discovery which would not have been available in arbitration. Cf. id. (fourth and fifth

waiver factors). Plaintiff contends that he has been prejudiced because “[m]ore hundred of

hours of legal work and research has been expended by Plaintiff’s attorneys to litigate the

action for the last eight months, including responding to Defendant’s discovery, appearing for

deposition, conducting multiple depositions, filing motions, working out Rule 26 reports and

schedules, along with working out a schedule [for] class certification and performing all of the

work necessary to move for class certification.” (ECF No. 43 at 39). The Court finds that

Plaintiff has failed to establish that “the delay [in moving to compel arbitration] affected,

misled, or prejudiced” Plaintiff within the meaning of the relevant caselaw. Cox, 533 F.3d at

1124; cf. Fisher, 791 F.2d at 698 (“[T]he [plaintiff]s make the surprising contention that they

have been prejudiced because they ‘willingly incurred the substantial expense involved in this

litigation in order to benefit from a full jury trial.’ This wound was self-inflicted. The

[plaintiff]s were parties to an agreement making arbitration of disputes mandatory. They

violated that agreement by including their arbitrable claims in this action. Any extra expense

incurred as a result of the [plaintiffs]’ deliberate choice of an improper forum, in contravention

of their contract, cannot be charged to [defendant].”).

After considering the relevant factors, the Court finds that Defendants have not waived

the right to compel arbitration.

B. Federal Arbitration Act

The Federal Arbitration Act (“FAA”) “was enacted ... in response to widespread judicial

hostility to arbitration agreements.” Concepcion, 131 S. Ct. at 1745 (citation omitted). Section

2 of the FAA states: “A written provision in any ... contract evidencing a transaction involving

commerce to settle by arbitration a controversy thereafter arising out of such contract or

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transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at

law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The Supreme Court has

described Section 2 “as reflecting both a liberal federal policy favoring arbitration and the

fundamental principle that arbitration is a matter of contract.” Concepcion, 131 S. Ct. at 1745

(quotations omitted). “In line with these principles, courts must place arbitration agreements

on an equal footing with other contracts, and enforce them according to their terms.” Id. at

1745-46 (citations omitted).

“The final phrase of § 2 ... permits arbitration agreements to be declared unenforceable

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

clause permits agreements to arbitrate to be invalidated by generally applicable contract

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

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

Id. at 1746 (quotation omitted). “When state law prohibits outright the arbitration of a

particular type of claim, the analysis is straightforward: The conflicting rule is displaced by

the FAA.” Id. at 1747 (citation omitted). “But the inquiry becomes more complex when a

doctrine normally thought to be generally applicable, such as duress or ... unconscionability,

is alleged to have been applied in a fashion that disfavors arbitration.” Id. (citation omitted).

“[A] court may not rely on the uniqueness of an agreement to arbitrate as a basis for a state-law

holding that enforcement would be unconscionable, for this would enable the court to effect

what the state legislature cannot.” Id. (quotation omitted).

“Because the FAA mandates that district courts shall direct the parties to proceed to

arbitration on issues as to which an arbitration agreement has been signed, the FAA limits

courts’ involvement to determining (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) (emphasis in original; quotation omitted). “If the

response is affirmative on both counts, then the [FAA] requires the court to enforce the

arbitration agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic Sys.,

Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).

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The FAA states that “[i]f the making of the arbitration agreement ... be in issue, the

[district] court shall proceed summarily to the trial thereof.” 9 U.S.C. § 4. “[T]o put such

matters in issue, it is not sufficient for the party opposing arbitration to utter general denials

of the facts on which the right to arbitration depends. If the party seeking arbitration has

substantiated the entitlement by a showing of evidentiary facts, the party opposing may not rest

on a denial but must submit evidentiary facts showing that there is a dispute of fact to be tried.”

Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995) (citations omitted).

“[T]he party resisting arbitration bears the burden of proving that the claims at issue are

unsuitable for arbitration.” Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91-92 (2000).

In this case, it is undisputed that the parties’ arbitration agreement encompasses the

dispute at issue. Plaintiff contends that the arbitration provisions in the Bonus Incentive

Agreements are not valid and enforceable for the following reasons: (1) “the arbitration

provision violates Section 7 of the [National Labor Relations Act]”; (2) “the arbitration

provision violates [California Labor Code] § 206.5”; (3) “the arbitration provision is

unenforceable because it was obtained by duress”; and (4) “the arbitration provision is

unconscionable under Cal. Civil Code § 1670.5.” (ECF No. 43 at 10-11).

C. National Labor Relations Act

Plaintiff contends Section 7 of the National Labor Relations Act (“NLRA”) is violated

by the following provision in the Bonus Incentive Agreements: “except as mutually agreed at

the time between You and the Company, neither you nor the Company may bring any Claims

combined with or on behalf of any other person or entity whether on a collective,

representative, or class action basis or any other basis.” (Turai Decl., Ex. C at 47, ECF No.

45-1; see also Turai Decl., Ex. D at 54, ECF No. 45-1; Turai Decl., Ex. E at 58, ECF No. 45-

1). Plaintiff contends: “In the context of statutory claims by an employee, the restriction

prohibiting combined claims ‘on a collective, representative, or class action basis or any other

basis’ impairs employee statutory rights and is therefore unlawful by conflicting with Section

7 of the ... NLRA ... which guarantees employees the right to engage in concerted activities for

the purpose of mutual aid and protection.” (ECF No. 43 at 17).

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Section 7 of the NLRA provides that “[e]mployees shall have the right ... to engage in

... concerted activities for the purpose of collective bargaining or other mutual aid or

protection....” 29 U.S.C. § 157. Courts have “held that the ‘mutual aid or protection’ clause

protects employees from retaliation by their employers when they seek to improve working

conditions through resort to administrative and judicial forums, and that employees’ appeals

to legislators to protect their interests as employees are within the scope of this clause.”

Eastex, Inc. v. Nat’l Labor Relations Bd., 437 U.S. 556, 565-66 (1978).

Plaintiff fails to cite any authority stating that the enforcement of an arbitration

agreement prohibiting class actions violates the NLRA. The only case cited by either party

which addresses a contention similar to Plaintiff’s in an analogous situation is Slawienski v.

Nephron Pharmaceutical Corp., No. 10cv460, 2010 WL 5186622 (N.D. Ga. Dec. 9, 2010).

The court stated:

The only objection plaintiff makes to the agreements concerns the class action

waiver provision. Plaintiff argues that this provision violates the National Labor

Relations Act ... because it prohibits plaintiff and other employees from

engaging in ‘concerted action to advocate about the terms and conditions of their

employment.’ Thus, although plaintiff consents to arbitration, she asks the

Court to invalidate the class action waiver and permit a collective or class action

arbitration. 

There is no legal authority to support plaintiff’s position. The relevant

provisions of the NLRA, as well as the case law cited by plaintiff, deal solely

with an employee’s right to participate in union organizing activities. That right

is not implicated by the allegations in plaintiff’s complaint. Indeed, it is

apparent from the face of the complaint that plaintiff and the other opt-ins are

not advocating regarding the terms and conditions of their employment. Rather,

plaintiffs are pursuing FLSA claims in an attempt to collect allegedly unpaid

overtime wages.

Id. at *2 (quotations omitted).

The Court finds this reasoning persuasive. Plaintiff, who resigned from his employment

with Defendants six months before filing suit, has failed to show that this suit implicates the

“mutual aid or protection” clause, or that he suffered retaliation by Defendants. The Court

finds that the NLRA does not operate to invalidate or otherwise render unenforceable the

arbitration provisions of the Bonus Incentive Agreements signed by Plaintiff.

D. California Labor Code § 206.5

Plaintiff contends: “The arbitration agreement in this case violates [California Labor

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Code] § 206.5(a) because Plaintiff was required to release his right to bring collective class or

representative actions ... in order to avoid forfeiture of earned wages.... California law

therefore precludes enforcement of this unlawful arbitration agreement.” (ECF No. 43 at 19).

Section 206.5 states:

An employer shall not require the execution of a release of a claim or right on

account of wages due, or to become due, or made as an advance on wages to be

earned, unless payment of those wages has been made. A release required or

executed in violation of the provisions of this section shall be null and void as

between the employer and the employee. Violation of this section by the

employer is a misdemeanor.

Cal. Labor Code § 206.5(a). “Labor Code section 206.5 simply prohibits employers from

coercing settlements by withholding wages concededly due. In other words, wages are not

considered ‘due’ and unreleasable under Labor Code section 206.5, unless they are required

to be paid under Labor Code section 206. When a bona fide dispute exists, the disputed

amounts are not ‘due’....” Watkins v. Wachovia Corp., 172 Cal. App. 4th 1576, 1587 (2009);

see also Cal. Labor Code § 206(a) (“In case of a dispute over wages, the employer shall pay,

without condition ... all wages, or parts thereof, conceded by him to be due, leaving to the

employee all remedies he might otherwise be entitled to as to any balance claimed.”).

Each Bonus Incentive Agreement states that “[t]he Effective Date of this Agreement

is” after the date Plaintiff signed the agreement. At the time Plaintiff signed his first Bonus

Incentive Agreement on December 13, 2007, he was provided a “Compensation Projection

Summary,” which showed Plaintiff’s “Gross Net Bonus” and “Advance” bonus to be $0.00.

(Turai Decl., Ex. C at 52, ECF No. 45-1). This evidence is sufficient to demonstrate that each

Bonus Incentive Agreement concerned Plaintiff’s eligibility for future bonuses, rather than

already-earned bonuses.

Plaintiff submits a declaration which states: “It was my understanding that signing the

documents was a necessary step to receiving the bonuses I had earned over the prior year.”

(Grabowski Decl. ¶ 9, ECF No. 44). Plaintiff does not explain the basis for his understanding

that the Bonus Incentive Agreements related to earned bonuses. Plaintiff does not submit

evidence that Cohen or any representative of Defendants told him that the agreements related

to earned bonuses. Plaintiff testified in a deposition that Cohen “did not explicitly say that”

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Plaintiff had to sign the agreement in order to receive past, earned bonus amounts. (Grabowski

Dep. at 54, ECF No. 45-1). Plaintiff testified that his “understanding [was] based on ... the

tone of the meeting,” and the fact that Cohen showed Plaintiff the company’s financial results

of the previous year and projections for the upcoming year, which formed the basis for the

bonus amounts. Id. As discussed above, Plaintiff’s understanding is contrary to the plain

terms of the each agreement, which state that “the terms of this Agreement shall be effective

from” January first through December thirty-first of the following year. (Turai Decl., Ex. C

at 47, ECF No. 45-1; see also Turai Decl., Ex. D at 54, ECF No. 45-1; Turai Decl., Ex. E at

58, ECF No. 45-1). Even if Plaintiff’s declaration and deposition were sufficient to create a

genuine dispute as to whether the Bonus Incentive Agreements related to already-earned

bonuses (as opposed to future bonuses), “[w]hen a bona fide dispute exists, the disputed

amounts are not ‘due’” within the meaning of California Labor Code § 206.5. Watkins, 172

Cal. App. 4th at 1587. Plaintiff’s declaration is insufficient to warrant a trial on the issue of

whether the Bonus Incentive Agreements violate California Labor Code § 206.5(a).

The Court finds that the Bonus Incentive Agreements do not violate California Labor

Code § 206.5.

E. Duress

Plaintiff contends that his “execution of the arbitration agreement was obtained as the

result of duress and undue influence because he was required to sign the agreement in order

to avoid a forfeiture of earned wages.” (ECF No. 43 at 19). In support of this contention,

Plaintiff relies upon an unpublished California Court of Appeals case which held that an

arbitration agreement was unenforceable due to duress when the trial court found that the

employer violated California Labor Code § 206.5. See Canales v. Perf. Team Triangle West,

2003 WL 361242, at *2 (Cal. Ct. App. Feb. 20, 2003) (“The record thus contains ample

evidence to support the trial court’s determinations of duress.... Canales’s declaration indicates

that she was asked to sign the agreement well after she began her employment, and that

appellants’ improper threat to withhold her earned pay compelled her to execute the agreement,

which she had no reasonable opportunity to examine or understand.”) (citing, inter alia, Cal.

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 Defendants contend that Plaintiff “improperly relies on Armendariz and other

California decisions that specifically address the unconscionability of arbitration agreements

as opposed to non-arbitration contracts. Yet, judicially-created obstacles to enforcement of the

parties’ arbitration agreement identified in Armendariz and numerous other California

decisions do not survive the Supreme Court’s decision in AT&T [Mobility v. Conception].”

(ECF No. 45 at 11). The Court does not find that Conception implicitly overruled all

California and Ninth Circuit cases applying California unconscionability law to employeremployee arbitration agreements. However, the Court finds that pre-Conception cases

applying California unconscionability law must be read in light of Conception, as discussed

below.

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Labor Code § 206.5).

As discussed above, Plaintiff has failed to introduce sufficient evidence for a fact-finder

to conclude that Plaintiff was required to sign the Bonus Incentive Agreements in order to

avoid a forfeiture of “wages due” pursuant to California Labor Code § 206.5. Accordingly,

Plaintiff has failed to show that the Bonus Incentive Agreements were obtained by duress or

undue influence.

F. Unconscionability

Plaintiff contends that the arbitration provisions in the Bonus Incentive Agreements are

unconscionable.

“[I]n assessing whether an arbitration agreement or clause is enforceable, the Court

should apply ordinary state-law principles that govern the formation of contracts.” Davis v.

O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir. 2007) (quotation omitted). Under

California law, a contractual clause is unenforceable if it is both procedurally and substantively

unconscionable. See id. (citing, inter alia, Armendariz v. Found. Health Psychcare Servs.,

Inc., 24 Cal. 4th 83, 114 (2000)).1

 “Courts apply a sliding scale: ‘the more substantively

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

come to the conclusion that the term is unenforceable, and vice versa.’” Id. (quoting

Armendariz, 24 Cal. 4th at 114). “Still, ‘both [must] be present in order for a court to exercise

its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’”

Id. at 1072-73 (quoting Armendariz, 24 Cal. 4th at 114). “[T]he party opposing arbitration has

the burden of proving the arbitration provision is unconscionable.” Higgins v. Superior Court,

140 Cal. App. 4th 1238, 1249 (2006) (quotation omitted).

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A court determination that “the arbitration agreement contains ... flawed provisions does

not necessarily mean that the entire [arbitration agreement] is substantively unconscionable.”

Davis, 485 F.3d at 1084. The court next considers whether it is “possible to sever the

[unconscionable] provision.” Id. (citation omitted).

1. Procedural Unconscionability

The “[p]rocedural unconscionability analysis focuses on ‘oppression’ or ‘surprise.’”

Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006) (quoting Flores v.

Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 853 (2001)). “‘Oppression arises from

an inequality of bargaining power that results in no real negotiation and an absence of

meaningful choice,’ while ‘[s]urprise involves the extent to which the supposedly agreed-upon

terms are hidden in a prolix printed form drafted by the party seeking to enforce them.’” Id.

(quoting Flores, 93 Cal. App. 4th at 853). 

Plaintiff contends: 

According to the face of the agreement, there can be no dispute that the

agreement is a procedurally unconscionable contract of adhesion presented to

current employee by his employer on a take-it or leave-it basis.... Further, this

agreement is even more procedurally unconscionable here because (1) earned

bonus wages are being withheld until the agreement is signed, (2) the employee

is told to sign the agreement by his boss, and (3) many of the rights waived by

the agreement are not disclosed at the time the agreement is presented for

signature.

(ECF No. 43 at 22).

Plaintiff has presented evidence that the agreements were presented on a “take it or

leave” basis, with little or no option for the employee to negotiate. In light of the Supreme

Court’s decision in Conception, however, the Court does not find that the adhesive nature of

the agreement weighs strongly in favor of procedural unconscionability. Cf. Conception, 131

S. Ct. at 1750 (holding that California’s “Discover Bank rule” is preempted by the FAA in part

because “[t]he rule is limited to adhesion contracts, but the times in which consumer contracts

were anything other than adhesive are long past”).

As discussed above, the Court finds that Plaintiff has failed to adequately demonstrate

that “earned bonus wages are being withheld until the agreement is signed.” (ECF No. 43 at

22).

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The arbitration provision was not hidden in the contract; it is the longest provision in

the relatively short Bonus Incentive Agreement. The Bonus Incentive Agreement signed on

December 13, 2007 contains two pages of text, and the Bonus Incentive Agreements signed

the following two years are each a single page. However, there is no evidence that Plaintiff

was provided with a copy of “the Company’s Employment Dispute Mediation/Arbitration

Procedure” at the time he was asked to sign the agreement. (Turai Decl., Ex. C at 47, ECF No.

45-1). According to the Bonus Incentive Agreement, the Company’s Employment Dispute

Mediation/Arbitration Procedure governs any mediation or arbitration pursuant to the

agreement, and is “available on the Company Intranet.” Id. By the time Plaintiff signed the

second and third Bonus Incentive Agreements in December 2008 and December 2009, he

would have had ample opportunity to review “the Company’s Employment Dispute

Mediation/Arbitration Procedure,” but the failure of Defendants to supply Plaintiff with this

document at the time he signed the agreements adds an element of surprise, and therefore

procedural unconscionability. See Nagrampa, 469 F.3d at 1280.

The Court finds that the arbitration agreement contains elements of procedural

unconscionability, although the evidence of procedural unconscionability is not strong, in light

of Conception.

2. Substantive Unconscionability

“Substantive unconscionability relates to the effect of the contract or provision. A lack

of mutuality is relevant in analyzing this prong. The term focuses on the terms of the

agreement and whether those terms are so one-sided as to shock the conscience.” Davis, 485

F.3d at 1075 (quotation omitted) (emphasis in original). “A determination of substantive

unconscionability involves whether the terms of the contract are unduly harsh or oppressive.”

Id. (quotation omitted).

Plaintiff contends that the arbitration agreement is substantively unconscionable

because (a) “the agreement is not bilateral”; (b) “the rules of the agreement are drafted and

subject to unilateral revision by Defendant”; (c) “the agreement invokes a distant venue in

Minnesota”; (d) “the agreement calls for application of Minnesota law”; (e) “the agreement

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unfairly limits discovery”; (f) “the agreement changes the burden of proof”; (g) “the agreement

effectively imposes one-sided confidentiality”; (h) “the agreement imposes prohibitive

arbitration expenses on employees”; and (i) “the agreement shifts liability for attorneys’ fees.”

(ECF No. 43 at 24-33).

a. “Carve Out” Provision

Plaintiff contends: “The agreement to arbitrate is not bilateral or mutual because the

Defendant has carved out the claims commonly brought by employers and reserved these

claims for judicial resolution, whereas the claims commonly brought by employees are forced

into arbitration.” (ECF No. 43 at 24-25).

The Bonus Incentive Agreement states:

This Dispute Resolution Agreement shall not apply to any of the following: (1)

Worker’s Compensation claims; (2) claims related to unemployment insurance;

and (3) any claims by the Company that includes a request for injunctive or

equitable relief, including, without limitation, claims related to its enforcement

of any restrictive covenants, non-competition obligations, non-solicitation

obligations and/or confidential information provisions contained in any

Company policy and/or employment agreement(s) entered into between You and

the Company and/or any claims to protect the Company’s trade secrets,

confidential or proprietary information, trademarks, copyrights, patents, or other

intellectual property.

(Turai Decl., Ex. C at 48, ECF No. 45-1).

“California law allows an employer to preserve a judicial remedy for itself if justified

based upon a ‘legitimate commercial need’ or ‘business reality.’” Davis, 485 F.3d at 1080

(quoting, inter alia, Armendariz, 24 Cal. 4th at 117 (“[A] contract can provide a ‘margin of

safety’ that provides the party with superior bargaining strength a type of extra protection for

which it has a legitimate commercial need without being unconscionable”)). However, “the

‘business realities’ that create the special need for such an advantage [must be] explained in

the contract itself, ... [or] it must be factually established.” Armendariz, 24 Cal. 4th at 117

(quotation omitted). Absent such a showing, “[w]here the party with stronger bargaining

power has restricted the weaker party to the arbitral forum, but reserved for itself the ability

to seek redress in either an arbitral or judicial forum, California courts have found a lack of

mutuality supporting substantive unconscionability.” Nagrampa, 469 F.3d at 1286 (citing

Armendariz, 24 Cal.4th at 119). 

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In light of Nagrampa, the Court finds that the “carve out” provision stating that the

Dispute Resolution Agreement does not apply to “any claims by the Company that includes

a request for injunctive or equitable relief” is substantively unconscionable under California

law. See id.; see also Davis, 485 F.3d at 1081 (“[T]he [dispute resolution provision]’s

non-mutual exception allowing it a judicial remedy to protect confidential information, as

written, is one-sided and thus substantively unconscionable.”) (quotation omitted).

b. Unilateral Revision of Arbitration Rules

Plaintiff contends that the agreement is substantively unconscionable because “the

agreement to arbitrate is controlled by rules created by the Defendant, which rules the

Defendant can change or revise to Defendant’s advantage.” (ECF No. 43 at 27). Plaintiff cites

to Ingle v. Circuit City Stores, Inc, 328 F.3d 1165 (9th Cir. 2003), which “conclude[d] that [a]

provision affording [the employer] the unilateral power to terminate or modify the contract is

substantively unconscionable.” Id. at 1179.

Plaintiff does not cite to any provision in the Bonus Incentive Agreement or the

Employment Dispute Mediation/Arbitration Procedure which permits Defendants to

unilaterally modify change or revise the procedures. The Employment Dispute

Mediation/Arbitration Procedure contains a provision entitled, “Revision of Employment

Dispute Arbitration Procedure,” which states in its entirety: “The Parties to a Dispute for which

the Employment Dispute Arbitration Procedure has been initiated may agree in writing to vary

the Employment Dispute Arbitration Procedure at any time before the Arbitrator gives copies

of the Award to both Parties.” (Arnold Decl., Ex. B at 43; ECF No. 34-2). 

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

is substantively unconscionable because Defendants are permitted to unilaterally change the

arbitration rules.

c. Minnesota Venue

Plaintiff contends: “[T]he venue of the arbitration proceeding is unfairly one-sided

because the venue is Minnesota. Minnesota is solely advantageous to Defendant, which

maintains headquarters in Minnesota, and is unfair to Plaintiff who worked in California, has

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claims under California law, and has no relationship with Minnesota.” (ECF No. 43 at 27).

The Employment Dispute Mediation/Arbitration Procedure provides that “[u]nless the

Parties otherwise agree or the Arbitrator otherwise directs for good reason, any hearing shall

be conducted and deemed held in [Hennepin County, Minnesota], at a place convenient to the

Parties as so designated by the Arbitrator.” (Arnold Decl., Ex. B at 40; ECF No. 34-2). In the

briefing on the Motion to Compel, Defendants “agree that the arbitration hearing in the instant

matter should be held in San Diego, California.” (ECF No. 45 at 16).

The Court finds that the clear terms of the Employment Dispute Mediation/Arbitration

Procedure provide for a Minnesota venue only if the parties do not otherwise agree or the

arbitrator does not otherwise direct. By filing suit in this Court, Plaintiff has effectively chosen

a San Diego venue, as has Defendants. According to the terms of the Employment Dispute

Mediation/Arbitration Procedure, in this situation, the venue of any arbitration would be San

Diego, and not Minnesota.

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

is substantively unconscionable because of the venue provision in the Employment Dispute

Mediation/Arbitration Procedure.

d. Choice of Law

Plaintiff contends: “The agreement unfairly deprives Plaintiff of the protections of

California law by making the governing law the ‘law of the state of venue’ which is

Minnesota.” (ECF No. 43 at 29). 

The Employment Dispute Mediation/Arbitration Procedure contains a provision

entitled, “Applicable Law and Burden of Persuasion,” which states: “The principles of

applicable substantive common, decisional and statutory law shall control the disposition of

each Dispute. Each Party bears the burden of persuasion on any claim or counterclaim raised

by that Party in accordance with the principles of applicable common, decisional and statutory

law.” (Arnold Decl., Ex. B at 40; ECF No. 34-2). The provision of the Employment Dispute

Mediation/Arbitration Procedure quoted by Plaintiff states: “Any proceeding pursuant to the

Employment Dispute Mediation/Arbitration Procedure is deemed to be an arbitration

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proceeding subject to the Federal Arbitration Act, 9 U.S.C. §§ 1-16, if applicable, to the

exclusion of any state law inconsistent therewith; or, if the FAA is not applicable, to the law

of the state of venue.” Id. at 42. As discussed above, the “state of venue” in this case would

be California.

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

is substantively unconscionable because of the choice of law provision in the Employment

Dispute Mediation/Arbitration Procedure.

e. Discovery

Plaintiff contends: “[D]iscovery is unfairly limited by the Defendant’s rules. The

agreement and rules limit discovery to no written discovery and only one deposition. Thus,

the agreement limits the amount of discovery from what would be available under the Fed.

Rules of Civil Procedure. Moreover, the Defendant is only required to produce documents

which the Defendant deems relevant and material.” (ECF No. 43 at 30).

The Employment Dispute Mediation/Arbitration Procedure contains only one provision

related to discovery, which states:

Discovery shall be conducted in the most expeditious and cost-effective manner

practicable, and shall be limited to that which is relevant and material to the

Dispute and for which each Party has a substantial, demonstrable need....

Upon request, the Employee shall be entitled, at least thirty (30) days in advance

of the commencement of the hearing, to take at least one deposition of a[]

Company representative designated by the Employee.... Any disputes relative

to discovery shall be presented to the Arbitrator for final and binding resolution.

The Arbitrator may grant, upon good cause shown, either Party’s request for

discovery in addition to or limiting that for which this paragraph expressly

provides.

(Arnold Decl., Ex. B at 40; ECF No. 34-2 (emphasis added)). The discovery provision of the

Employment Dispute Mediation/Arbitration Procedure does not limit the employee to only one

deposition, and it names the Arbitrator as the decisionmaker on whether discovery should be

granted or denied.

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

is substantively unconscionable because of the discovery provision in the Employment Dispute

Mediation/Arbitration Procedure.

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f. Burden of Proof

Plaintiff contends that, “[u]nder California law and the Labor Code, the employee is

presumed to be non-exempt and the employer bears the burden of proving that the employee

was exempt,” but “under the Defendant’s rules, the burden of proof is unfairly switched to

Plaintiff to prove his claim in this action that he was misclassified as exempt under the

California Labor Code.” (ECF No. 43 at 31-32).

As discussed above, the Employment Dispute Mediation/Arbitration Procedure contains

a provision entitled, “Applicable Law and Burden of Persuasion,” which states: “The

principles of applicable substantive common, decisional and statutory law shall control the

disposition of each Dispute. Each Party bears the burden of persuasion on any claim or

counterclaim raised by that Party in accordance with the principles of applicable common,

decisional and statutory law.” (Arnold Decl., Ex. B at 40; ECF No. 34-2). This provision

places the burden of persuasion “in accordance with the principles of applicable common,

decisional and statutory law.” Id.

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

is substantively unconscionable because of the burden of proof provision in the Employment

Dispute Mediation/Arbitration Procedure.

g. Confidentiality

Plaintiff contends: “[T]he Defendant’s rules impose confidentiality which unfairly

favors Defendant. While arbitration normally is not open to the public, the Defendant’s rules

go much further. Defendant’s rules require that the record of the proceedings be confidential

under threat of a sanction order by the arbitrator.” (ECF No. 43 at 32). 

The Employment Dispute Mediation/Arbitration Procedure contains a provision

entitled, “Confidentiality,” which states:

All aspects of the arbitration, including without limitation, the record of the

proceeding, are confidential and shall not be open to the public, except (a) to the

extent both Parties agree otherwise in writing, (b) as may be appropriate in any

subsequent proceedings by the Parties, or (c) as may otherwise be appropriate

in response to a governmental agency or legal process, provided that the Party

upon whom such process is served shall give immediate notice of such process

to the other Party and afford the other Party an appropriate opportunity to object

to such process.

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At the request of a Party or upon his or her initiative, the Arbitrator shall issue

protective orders appropriate to the circumstances and shall enforce the

confidentiality of the arbitration as set forth in this article.

(Arnold Decl., Ex. B at 41; ECF No. 34-2).

In Davis, the Court of Appeals for the Ninth Circuit stated that, under California law,

“[c]onfidentiality by itself is not substantively unconscionable,” but the employer’s

“confidentiality clause ... is written too broadly” and “unconscionably favors [the employer],”

when the clause at issue “would prevent an employee from contacting other employees to

assist in litigating (or arbitrating) an employee’s case.” Davis, 485 F.3d at 1078-79 (“The

clause precludes even mention to anyone ‘not directly involved in the mediation or arbitration’

of ‘the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration’

or even ‘the existence of a controversy and the fact that there is a mediation or an arbitration

proceeding.’”). In this case, the confidentiality provision in the Employment Dispute

Mediation/Arbitration Procedure is broader than what the court in Davis indicated would be

conscionable. Cf. id. at 1079 (noting that “[t]he parties to any particular arbitration, especially

in an employment dispute, can always agree to limit availability of sensitive employee

information (e.g., social security numbers or other personal identifier information) or other

issue-specific matters, if necessary”).

The Court finds that the confidentiality provision in the arbitration agreement is

substantively unconscionable under California law.

h. Arbitration Expenses

Plaintiff contends that “the agreement imposes prohibitive arbitration expenses on

employees.” (ECF No. 43 at 33).

The Employment Dispute Mediation/Arbitration Procedure contains an “Expenses”

provision which states:

Unless precluded by decisional or other law in the jurisdiction where venue lies

for the Arbitration, the Employee shall bear a portion of the reasonable expenses

of the arbitration up to the lesser of (a) one-half of these expenses, or (b) an

amount equal to two (2) days of the Employee’s gross annual cash compensation

(including bonuses, commissions and related cash compensation) during the

twelve (12) months immediately preceding the notice of claim initiating the

Employment Dispute Arbitration Procedure. The Company shall bear the

remainder of these expenses.

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(Arnold Decl., Ex. B at 41; ECF No. 34-2). Defendants submit undisputed evidence that

Plaintiff earned approximately $130 a day when he resigned. (Turai Decl., Ex. E at 59, ECF

No. 45-1). Accordingly, the Employment Dispute Mediation/Arbitration Procedure provides

that, “[u]nless precluded by” California law, the maximum amount Plaintiff would have to pay

in arbitration expenses is $260. Id. This amount is less than the $350 filing fee Plaintiff paid

to initiate this judicial action. (ECF No. 1). Plaintiff presents no authority indicating that a

requirement that an employee pay $260 in arbitration expenses is substantively unconscionable

under California law.

The Court finds that Plaintiff has failed to demonstrate that the arbitration agreement

is substantively unconscionable because of the expenses provision in the Employment Dispute

Mediation/Arbitration Procedure.

i. Attorney’s Fees

Plaintiff contends:

The Defendant’s rules provide for one-way awards of attorney’s fees in favor of

Defendant, which would not be available in a judicial proceeding. This is true

because Plaintiff, as an employee, is statutorily entitled to attorneys’ fees when

prevailing on his misclassification claim, whereas Defendant is not permitted to

recover attorneys’ fees under California law.... Moreover, the award of

attorneys’ fees to the prevailing employee is relegated to the discretion of the

arbitrator, whereas under Labor Code §1194, Plaintiff would have an absolute

right to recover attorneys’ fees. Thus, the unilateral right in favor of the Plaintiff

has been abridged by the arbitration provision.

(ECF No. 43 at 33-34 (citations omitted)).

The Employment Dispute Mediation/Arbitration Procedure states:

[T]he Arbitrator shall have the same power and authority as would a judge in a

non-jury court trial to grant any relief that a court could grant, as may be in

conformance with applicable principles of common, decisional and statutory law

in the relevant jurisdiction.... The Award of any damages or relief is left to the

discretion of the Arbitrator, in accordance with applicable law, and may be made

in a bifurcated proceeding....

The Arbitrator may award either Party its reasonable attorneys’ fees and costs,

including reasonable expenses associated with production of witnesses or proof,

upon a finding that the claim or counterclaim was frivolous or brought to harass

the Employee, the Company or the Company’s personnel.

The Arbitrator may award either Party its reasonable attorneys’ fees and costs,

including reasonable expenses associated with production of witnesses or proof,

upon a finding that the other Party (a) engaged in unreasonable delay, (b) failed

to cooperate in discovery, or (c) failed to comply with requirements of

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confidentiality.

(Arnold Decl., Ex. B at 41-42; ECF No. 34-2).

Defendants concede that the arbitration agreement “potentially offers Defendants

attorneys fees for which they might not otherwise be eligible” under California law. (ECF No.

45 at 17). In light of this concession, the Court finds that the attorneys’ fee provision in the

Employment Dispute Mediation/Arbitration Procedure is substantively unconscionable under

California law. Cf. Armendariz, 24 Cal. 4th at 110-11 (“[W]e conclude 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.”)

(emphasis in original). However, the degree of unconscionability is low, given the ability of

a court to sanction a party in the amount of the opposing party’s attorney’s fees for frivolous,

harassing, or unreasonable filings. Cf. 28 U.S.C. § 1927; Fed. R. Civ. P. 11.

3. Severability

Defendants contend: 

Once Plaintiff’s fabrications are removed, what remains is an agreement that

carves out some potential employer claims, imposes confidentiality on the

parties, and potentially offers Defendants attorneys fees for which they might

not otherwise be eligible. These terms fall far short of being so one-sided that

they ‘shock the conscious’ as required to invalidate the agreement. Furthermore,

the latter two terms can be easily severed from the agreement.

(ECF No. 45 at 17). Plaintiff contends that “[t]he unconscionability so permeates that

agreement that severance is not an option.” (ECF No. 43 at 35).

A court determination that “the arbitration agreement contains ... flawed provisions does

not necessarily mean that the entire [arbitration agreement] is substantively unconscionable.”

Davis, 485 F.3d at 1084. The court next considers whether it is “possible to sever the

[unconscionable] provision.” Id. (citing Cal. Civ. Code § 1670.5(a) (“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, or it may enforce the remainder of

the contract without the unconscionable clause, or it may so limit the application of any

unconscionable clause as to avoid any unconscionable result.”)).

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In Armendariz, the California Supreme Court stated that “the statute [i.e., Cal. Civ.

Code § 1670.5] appears to give a trial court some discretion as to whether to sever or restrict

the unconscionable provision or whether to refuse to enforce the entire agreement. But it also

appears to contemplate the latter course only when an agreement is permeated by

unconscionability.” Armendariz, 24 Cal. 4th at 122. The court stated:

Courts are to look to various purposes of the contract. If the central purpose of

the contract is tainted with illegality, then the contract as a whole cannot be

enforced. If the illegality is collateral to the main purpose of the contract, and

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

or restriction, then such severance and restriction are appropriate.

Id. at 124; see also Davis, 485 F.3d at 1084 (“The question is whether the offending clause or

clauses are merely ‘collateral’ to the main purpose of the arbitration agreement, or whether the

[entire arbitration agreement] is ‘permeated’ by unconscionability.”) (quoting Armendariz, 24

Cal. 4th at 124). In Davis, the Court of Appeals for the Ninth Circuit decided that, while the

arbitration agreement under consideration had a lesser degree of unconscionability as those

considered in Ingle or in Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (2002), the

agreement nonetheless could not be cured by severance when the agreement did not have a

severability clause, was procedurally unconscionable, and contained four substantively

unconscionable terms which “cannot be stricken or excised without gutting the agreement.”

Id.

In this case, unlike in Davis, the Bonus Incentive Agreement contains a severability

clause. (Turai Decl., Ex. C at 48, ECF No. 45-1 (“If any portion of this dispute resolution

provision is determined to be void or unenforceable, then the remaining portions of this

Agreement shall continue in full force and effect, and this Agreement may be modified to the

extent necessary, consistent with its fundamental purpose and intent, in order to make it

enforceable.”)). As discussed above, the arbitration agreement and the incorporated

Employment Dispute Mediation/Arbitration Procedure have an element of procedural

unconscionability and contain three substantively unconscionable provisions (the “carve out”

provision stating that the Dispute Resolution Agreement does not apply to “any claims by the

Company that includes a request for injunctive or equitable relief”; the confidentiality

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provision; and the attorney’s fees provision). Collectively, the three substantively

unconscionable provisions in this case have a lower degree of unconscionability than the four

substantively unconscionable provisions at issue in Davis. Cf. Davis, 485 F.3d at 1082

(holding that the four substantively unconscionable provisions included a “carve out”

provision, a confidentiality provision, an “all-inclusive bar to administrative actions ... [which]

is contrary to U.S. Supreme Court and California Supreme Court precedent,” and a “notice

provision” which functioned as “a substantively-unconscionable shortened statute of

limitations”). The Court finds that, given “the liberal federal policy favoring arbitration,”

Concepcion, 131 S. Ct. at 1745, the three substantively unconscionable provisions may be

severed from the agreement, and that the entire arbitration agreement is not “permeated by

unconscionability.” Davis, 485 F.3d at 1084 (quotation omitted). The three substantively

unconscionable provisions, discussed above, are severed from the arbitration agreement

pursuant to California Civil Code § 1670.5. The Court finds that, after the substantively

unconscionable provisions are severed, the arbitration agreement is enforceable.

G. California Private Attorney General Act Claims

After the conclusion of briefing on the pending motions, each party filed a Notice of

Statement of Recent Authority Relevant to Defendants’ Motion for an Order Directing

Arbitration. (ECF Nos. 52, 54). 

Plaintiff attached to his Notice Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489,

2011 WL 2685959 (2011). In Brown, a divided panel of the California Court of Appeal held

that a contractual waiver of an employee’s right to pursue a representative action under the

Private Attorney General Act, located in an arbitration agreement, was unenforceable under

California law. The court stated that “representative actions under the [Private Attorney

General Act, Cal. Labor Code §§ 2698, et seq.] do not conflict with the purposes of the FAA.

If the FAA preempted state law as to the unenforceability of the PAGA representative action

waivers, the benefits of private attorney general actions to enforce state labor laws would, in

large part, be nullified.” 2011 WL 2685959, at *6. The court stated that:

United States Supreme Court authority [including Concepcion] does not address

a statute such as the PAGA, which is a mechanism by which the state itself can

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enforce state labor laws, for the employee suing under the PAGA does so as the

proxy or agent of the state’s labor law enforcement agencies. And, even if a

PAGA claim is subject to arbitration, it would not have the attributes of a class

action that the [Concepcion] case said conflicted with arbitration, such as class

certification, notices, and opt-outs. Until the United States Supreme Court rules

otherwise, we continue to follow what we believe to be California law.

Id. at *7.

Defendants attached to their Notice Quevedo v. Macy’s, Inc., --- F. Supp. 2d ---, No. CV

09-1522, 2011 WL 3135052 (C.D. Cal. June 16, 2011). In Quevedo, the court held that

Concepcion compelled enforcement of arbitration agreements even where the agreements

barred an employee from bringing a representative Private Attorney General Act claim. The

court stated:

[R]equiring arbitration agreements to allow for representative PAGA claims on

behalf of other employees would be inconsistent with the FAA. A claim brought

on behalf of others would, like class claims, make for a slower, more costly

process. In addition, representative PAGA claims ‘increase[] risks to

defendants’ by aggregating the claims of many employees. See [Concepcion, 131 S. Ct.] at 1752. Defendants would run the risk that an erroneous decision

on a PAGA claim on behalf of many employees would ‘go uncorrected’ given

the ‘absence of multilayered review.’ See id. Just as ‘[a]rbitration is poorly

suited to the higher stakes of class litigation,’ it is also poorly suited to the

higher stakes of a collective PAGA action. See id. The California Court of

Appeal’s decision in Franco [which was relied on by Brown, 2011 WL

2685959, at *4-*5] shows only that a state might reasonably wish to require

arbitration agreements to allow for collective PAGA actions. See Franco [v.

Athens Disposal Co., 171 Cal. App. 4th 1277 (2009)]. AT&T v. Concepcion

makes clear, however, that the state cannot impose such a requirement because

it would be inconsistent with the FAA. See Concepcion, 131 S. Ct. at 1753.

For these reasons, the Court concludes that Quevedo’s PAGA claim is

arbitrable, and that the arbitration agreement’s provision barring him from

bringing that claim on behalf of other employees is enforceable.

Id. at *17.

Plaintiff’s Third Amended Complaint alleges a representative action pursuant to the

California Private Attorney General Act. To the extent Plaintiff has raised the arguments made

by the California Court of Appeal in Brown, the Court finds the reasoning of Quevado to be

more persuasive. See Nelson v. AT&T Mobility, LLC, No. C10-4802, 2011 WL 3651153, at

*4 (N.D. Cal. Aug. 18, 2011) (same). The United States Supreme Court has stated that a state

“cannot require a procedure that is inconsistent with the FAA, even if it is desirable for

unrelated reasons,” Concepcion, 131 S. Ct. at 1753, nor can a state “prohibit[] outright the

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arbitration of a particular type of claim,” id. at 1747. Court finds that Plaintiff’s California

Private Attorney General Act claim is arbitrable, and that the arbitration agreement’s provision

barring him from bringing that claim on behalf of other employees is enforceable.

The Motion for an Order Directing Arbitration is granted, as discussed above.

H. Motion for Discovery and Jury Trial

When Plaintiff filed his opposition to the Motion for an Order Directing Arbitration,

Plaintiff also filed the Motion for Discovery and Jury Trial. (ECF No. 43-1). Plaintiff

contends: “Plaintiff should be able to discover the Defendant’s processes and procedures for

presenting the [Bonus Incentive Agreement]s to all of the putative class members, including

whether anyone [was] able to negotiate the terms of the dispute resolution provision, whether

anyone attempted to refuse signing the agreement along with corresponding repercussions, and

the extent to which anyone suffered the forfeiture of bonus wages due to their refusal to sign

the BIA.” (ECF No. 47 at 5).

Pursuant to California law, “[t]o determine whether [an] arbitration agreement is

procedurally unconscionable the court must examine the manner in which the contract was

negotiated and the circumstances of the parties at that time.” Ingle, 328 F.3d at 1171

(quotation omitted). On June 2, 2011, the Court granted Plaintiff an extension of time to

oppose the Motion for an Order Directing Arbitration to allow Plaintiff “to conduct limited

discovery as to the facts concerning the negotiation of the arbitration contract and the

circumstances of the parties at the time the contract was signed.” (ECF No. 37 at 2). Plaintiff

has not shown that Defendants failed to adequately respond to Plaintiff’s discovery requests

regarding “the manner in which the contract was negotiated and the circumstances of the

parties at that time.” Ingle, 328 F.3d at 1171. The parties filed excerpts from the depositions

of Cohen and Plaintiff, who each testified regarding the circumstances surrounding the signing

of the Bonus Incentive Agreements. As discussed above, based upon the evidence submitted

by the parties (including the depositions of Cohen and Plaintiff, and Plaintiff’s Declaration),

the Court has not found that there exists a genuine issue of material fact which would warrant

a trial regarding the enforceability of the arbitration agreements signed by Plaintiff. To the

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extent that Plaintiff requests discovery related to the execution of arbitration agreements by

persons other than Plaintiff, the Court finds that such discovery is not relevant to the issues

to be decided in the motion for an order directing Plaintiff to arbitration. Cf. Flores v.

Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 852 (2001) (holding that there is no

collateral estoppel regarding “virtually identical” arbitration agreements, because they “were

signed by different parties under different circumstances”).

The Motion for Discovery and Jury Trial is denied.

V. Conclusion

IT IS HEREBY ORDERED that the Motion for an Order Directing Arbitration is

GRANTED, as discussed above. (ECF No. 34). The Motion for Discovery and Jury Trial is

DENIED. (ECF No. 43-1).

The Clerk of the Court shall administratively close this case without prejudice to any

party moving to have the case reopened for good cause.

DATED: September 19, 2011

WILLIAM Q. HAYES

United States District Judge

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