Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_10-cv-08229/USCOURTS-azd-3_10-cv-08229-0/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 28:1441 Petition for Removal - Employment Discrimination

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 While oral argument has been requested, the Court concludes that oral

argument would not aid the decisional process. The Court further concludes that

the resolution of the arbitration-related portion of the Motion to Dismiss does not

require an evidentiary hearing.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Anthony Perry,

 Plaintiff,

vs.

NorthCentral University, Inc., et al.,

 Defendants.

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No. CV-10-8229-PCT-PGR

 

 ORDER

 

Pending before the Court is the defendants’ Motion to Dismiss (Doc. 8),

wherein the defendants seek in part the dismissal of this employment-related

action on the ground that all of the claims in this action are subject to arbitration. 

Having reviewed all the parties’ memoranda directed at the arbitration issue in

light of the relevant record, the Court finds that this action should be dismissed

and the plaintiff compelled to arbitrate all of the claims in his First Amended

Complaint.1

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Background

The named defendants in this action, which was removed from the Yavapai

County Superior Court on the basis of federal question jurisdiction, are

Northcentral University, Inc., an on-line university located in Prescott Valley,

Arizona, and NCU employees Clinton Gardner, NCU’s president (and his

unnamed spouse), Lloyd Williams, NCU’s provost, and Karry Layette, NCU’s vice

president for human resources (and her unnamed spouse) (collectively “NCU”). 

Plaintiff Anthony Perry, who was the chairperson of NCU’s school of psychology

at the time of his termination on May 14, 2008, alleges in his First Amended

Complaint that he was sexually harassed by Provost Williams, his immediate

supervisor, that he complained about it to Vice President Layette in March 2008,

that Layette did an incompetent investigation that concluded that no sexual

harassment had taken place, and that President Gardner pretextually fired him

after he complained about the quality of the investigation and the need to stop

Williams’ continuing sexual harassment. The First Amended Complaint alleges

nine claims: sexual, hostile and offensive environment in violation of the Arizona

Civil Rights Act (ACRA), against NCU; retaliation in violation of ACRA, against

NCU; breach of the implied covenant of good faith and fair dealing, against all

defendants; intentional interference with contractual relations, against the

individual defendants; intentional infliction of emotional distress, against all

defendants; negligent infliction of emotional distress, against all defendants;

assault, against Williams; sexual, hostile and offensive environment in violation of

Title VII, against NCU; and retaliation in violation of Title VII, against NCU. 

Perry, who received his Ph.D. in experimental psychology from Brandeis

University in 1993, wrote to NCU in May 2006, expressing his interest in being

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hired as the chairperson of its psychology school; at that time he was employed

as an associate professor in the psychology department at North Carolina A & T

State University and had taught psychology at that university since 1995. He

came to NCU for an interview for the position on August 4, 2006, and was offered

the position that same day; he accepted the position in writing on August 11,

2006. At the time of his interview, he was given a packet of employment-related

forms to take back to North Carolina with him, including an employment

application form and a staff handbook. The last page of the employment

application was a signature page containing four separate paragraphs; Perry

placed his initials next to each of the paragraphs on that page and signed the

page on August 11, 2006. One of the four paragraphs was an arbitration

provision that stated:

ARP I hereby agree to submit to binding arbitration on all disputes and

claims arising out of the submission of this application. I further

agree, in the event that I am hired by Northcentral University, that all

disputes that cannot be resolved by informal, internal resolution

which might arise out of my employment with Northcentral University,

whether during or after that employment, shall be submitted to

binding arbitration. I agree that such arbitration shall be conducted

under the rules of the American Arbitration Association. This

application contains the entire agreement between the parties with

regard to dispute resolution, either oral or written.

On August 11, 2006, Perry also signed the receipt page for NCU’s

employee handbook. That page, in the paragraph immediately above Perry’s

signature, contained an arbitration provision that stated:

The University and I hereby agree that any dispute arising out of or

related to my employment at the University shall be settled by final

and binding arbitration to be conducted in Yavapai County in

accordance with the rules of the American Arbitration Association. 

Both parties acknowledge and agree that neither party shall be

deprived of any rights or benefits established by Federal or Arizona

State law by reason of this provision; this provision only provides for

an agreed alternative method for dispute resolution. The costs of

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arbitration, including consultants and attorneys fees, may be ordered

reimbursed or otherwise allocated between the parties as

determined in the arbitration proceedings. If questions arise

regarding the content or interpretation of this Handbook, I will bring

them to the attention of the department director or the President.

On October 26, 2007, Perry signed the receipt page for NCU’s revised

employee handbook. By signing the receipt, Perry acknowledged that he

understood that the handbook replaced “any and all prior verbal and written

communications regarding NCU working conditions, policies, procedures, appeal

processes and benefits[,]” and that he had read and understood the handbook

contents and would “act in accord with these policies and procedures as a

condition of [his] employment with NCU.” The receipt page also contained an

arbitration provision, in a separate paragraph, that was substantively identical to

the one on the handbook receipt page that Perry signed in August 2006; the

arbitration provision in the revised handbook stated: 

NCU and I hereby agree that any dispute arising out of or related to

my employment shall be settled by final and binding arbitration to be

conducted in Yavapai County in accordance with the rules of the

American Arbitration Association. Both parties acknowledge and

agree that neither party shall be deprived of any rights or benefits

established by Federal or Arizona State law by reason of this

provision; this provision only provides for an agreed alternative

method for dispute resolution. The costs of arbitration, including

consultants and attorneys fees, may be ordered reimbursed or

otherwise allocated between the parties as determined in the

arbitration proceedings. 

Discussion

Although NCU has filed a two-part Motion to Dismiss, the Court’s only

concern herein is that portion of the motion seeking the dismissal of this action in

its entirety for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1)

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2

 NCU alternatively argues in its Motion to Dismiss that six of the

plaintiff’s seven state law claims should be dismissed for failure to state a claim

pursuant to Fed.R.CiV.P. 12(b)(6) if the Court finds that the arbitration provision is

not enforceable. Since the Court finds that the entirety of this action is arbitrable,

the Court does not reach the Rule 12(b)(6) portion of NCU’s motion.

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and the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq.2

 Since NCU states

that the relief it is seeking is an order dismissing Perry’s claims and compelling

their arbitration, the Court has construed this portion of NCU’s motion as being a

motion to compel arbitration pursuant to 9 U.S.C. § 4. See FDIC v. Artesa

Holdings, LLC, 2011 WL 2669231, at *1 (D.Ariz. July 7, 2011) (Court treated a

motion to dismiss for lack of subject matter jurisdiction that was based on the

existence of a binding arbitration clause as a motion to compel arbitration under

the FAA); Service Employees International Union, Local 707 v. Connex-ATC,

2006 WL 2975591, at *2 (N.D.Cal. Oct. 18, 2006) (Court, noting that the

existence of an arbitration provision did not deprive it of subject matter

jurisdiction, construed a motion to dismiss for lack of subject matter jurisdiction as

a motion to compel arbitration pursuant to the FAA.); cf. Craft v. Campbell Soup

Co., 177 F.3d 1083, 1084 n.4 (9th Cir. 1998) (Court treated a motion for summary

judgment as a de facto motion to compel arbitration), abrogated on other grounds

by Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). The Court has

applied a summary judgment-type standard in resolving NCU’s motion. See e.g.,

Aliron International, Inc. v. Cherokee Nation Industries, Inc., 531 F.3d 863, 865

(D.C.Cir.2008) (“The district court properly examined CNI’s motion to compel

arbitration under the summary judgment standard of Federal Rule of Civil

Procedure 56(c), as if it were a request for summary disposition of the issue of

whether or not there had been a meeting of the minds on the agreement to

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3

 Perry also does not dispute that employment contract provisions that

compel the arbitration of employment-related claims, even those statutorilybased, are generally valid under the FAA. See Gilmer v. Interstate/Johnson Lane

Corp., 500 U.S. 20, 26 (1991); EEOC v. Luce, Forward, Hamilton & Scripps, 345

F.3d 742 (9th Cir.2003) (en banc) (Court concluded that an employer can require

the arbitration of Title VII claims as a condition of employment.); Wernett v.

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arbitrate.”); Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2nd Cir.2003) (“In the

context of motions to compel arbitration under the Federal Arbitration Act ..., the

court applies a standard similar to that applicable for a motion for summary

judgment.”); Kaneff v. Delaware Title Loans, Inc., 587 F.3d 616, 620 (3rd Cir.

2009) (same). A trial is necessary under the FAA only of there is an issue of fact

as to the making of the agreement for arbitration, 9 U.S.C. § 4, and the Court,

viewing the evidence of record and all reasonable inferences from that evidence

in Perry’s favor, concludes that Perry has not raised any significant issue of

material fact directed at the enforceability of the arbitration agreements he

signed.

 The FAA broadly provides that written agreements to arbitrate

controversies airing out of contracts involving commerce, which Perry does not

dispute that the arbitration provisions at issue do, “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. Absent a valid contractual defense, 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.” Dean Witter

Reynolds, Inc. v. Bryd, 470 U.S. 213, 218 (1985) (emphasis in original). Since

Perry does not dispute that all of his claims in the First Amended Complaint fall

within the purview of the applicable arbitration provision, the Court’s only role is

to determine if a valid agreement to arbitrate exists.3

 Chiron Corp. v. Ortho

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Service Phoenix, LLC, 2009 WL 1955612, at *2 (D.Ariz. July 6, 2009) (Court

noted that “claims under the [Arizona Civil Rights Act] are arbitrable to the same

extent as Title VII claims.”) 

 To the extent that Perry contends in a supplemental memorandum

(Doc. 21) that Arizona does not have any state policy favoring arbitration

agreements in the employment context, that is irrelevant given the FAA’s

overriding federal policy favoring arbitration. See AT&T Mobility LLC v.

Concepcion, 131 S.Ct. 1740 (2011); Johnson v. Gruma Corp., 614 F.3d 1062,

1066 (9th Cir.2010) (“When an agreement falls within the purview of the FAA,

there is a strong default presumption ... that the FAA, not state law, supplies the

rules for arbitration.”) (Internal quotation marks omitted). There is no clear and

unmistakable evidence in the record that the parties agreed to apply non-federal

arbitrability law.

4

 NCU attached to its Motion to Dismiss only a copy of the arbitration

provision set forth on the August 2006 employee handbook receipt page, and it is

to that arbitration provision that Perry refers to in his response and in his

declaration. NCU attached to its reply copies of the arbitration provisions set

forth in Perry’s employment application and in the October 2007 revised

employee handbook receipt page. To the extent that it is an issue, the Court

concludes that the applicable arbitration provision is the October 2007 one

because Perry concedes in a supplemental memorandum that the defendants’

alleged misconduct underlying his claims in the First Amended Complaint

occurred after October 2007, and the October 2007 arbitration provision is the

one that was in effect at the time of Perry’s termination.

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Diagnostic Systems, Inc., 207 F.3d 1126, 1130 (9th Cir.2000); 9 U.S.C. § 4. 

A. Unconscionability

Perry argues in part that NCU’s arbitration provision is unenforceable

because it is both procedurally and substantively unconscionable.4

 

Unconscionability is a generally applicable contract defense that may render an

arbitration provision unenforceable under the FAA, Doctor’s Associates, Inc. v.

Casarotto, 517 U.S. 681, 687 (1996), and the determination of unconscionability

in the arbitration context is determined according to the laws of the state of

contract formation, here Arizona. Chalk v. T-Mobile USA, Inc., 560 F.3d 1087,

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5

 However, the Court notes that Perry only focuses on the “take it or

leave it” aspect of the definition of an adhesion contract while essentially ignoring

the remainder of the definition, i.e. the absence of meaningful choice for the party

occupying the weaker bargaining position. See e.g., Cooper v. MRM Investment

Co., 367 F.3d 493, 501-03 (6th Cir.2004) (Court, considering the Tennessee

definition of a contract of adhesion that is identical to that adopted by the Arizona

courts, concluded that an arbitration agreement in an employment contract is not

a contract of adhesion unless the employee bears his burden of establishing that

he would be unable to find a suitable job if he refused to agree to arbitrate.) 

Perry has made no such showing.

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1092 (9th Cir.2009). Under Arizona law, Perry bears the burden of proving the

unenforceablity of the arbitration provision, and the determination of

unconscionability is to be made by the Court as a matter of law. Maxwell v.

Fidelity Financial Services, Inc., 907 P.2d 51, 56 (Ariz.1995); Taleb v. AutoNation

USA Corp., 2006 WL 3716922, at *2 (D.Ariz. Nov. 13, 2006) (“Because a court

order compelling arbitration is the functional equivalent of a summary disposition

on the issue of the enforceability of the Arbitration Agreement, the burden is

properly upon the Plaintiff to produce specific facts showing that such a triable

issue exists.”) Unconscionability is determined as of the time the parties entered

into the contract. Nelson v. Rice, 12 P.3d 238, 243 (Ariz.App.2000).

1. Procedural Unconscionability

Perry initially contends that the arbitration provision is a procedurally

unconscionable contract of adhesion. The Court assumes, without deciding, that

the arbitration provision constitutes an adhesion contract given Perry’s

uncontroverted statements in his declaration that signing the handbook

agreement receipt containing the arbitration provision was a “take it or leave it”

situation on his part because he was told that he had to sign it in order to be

employed and he was never told that he could negotiate the arbitration provision.5

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See Broemmer v. Abortion Services of Phoenix, Ltd., 840 P.2d 1013, 1015

(Ariz.1992) (Court has stated that an adhesion contract “is typically a

standardized form offered to consumers of goods and services on essentially a

take it or leave it basis without affording the consumer a realistic opportunity to

bargain and under such conditions that the consumer cannot obtain the desired

product or services except by acquiescing in the form contract.”) 

The Court rejects, however, Perry’s position that a finding that a contract is

one of adhesion is a finding of procedural unconscionability. See R & L Limited

Investments, Inc. v. Cabot Investment Properties, LLC, 729 F.Supp.2d 1110,

1115 (D.Ariz.2010) (Court noted that “it does not appear that there is any Arizona

law supporting the assertion that a finding of adhesion equates to a finding of

procedural unconscionability. ... The fact that a given contract was a contract of

adhesion is not itself dispositive, but relates to [the procedural unconscionability]

factor about ‘whether alterations in the printed terms were possible.’”) Under

Arizona law, a contract of adhesion is presumptively valid and fully enforceable

according to its terms unless the contract is unconscionable or beyond the range

of reasonable expectations, Broemmer, 840 P.2d at 1016, which are two distinct

grounds for invalidating or limiting the enforcement of a contract. Maxwell, 907

P.2d at 57. See also, AT&T Mobility LLC v. Concepcion, 131 S.Ct. at 1750 (Court

rejected the idea that arbitration agreements are per se unconscionable when

found in adhesion contracts.)

Procedural unconscionability involves a finding that something was wrong

in the bargaining process in that it “is concerned with ‘unfair surprise,’ fine print

clauses, mistakes or ignorance of important facts or other things that mean

bargaining did not proceed as it should.” Maxwell, 907 P.2d at 57-58 (noting that

relevant factors for determining the existence of procedural unconscionability, at

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least in the commercial context, include “the real and voluntary meeting of the

minds of the contracting party: age, education, intelligence, business acumen and

experience, relative bargaining power, who drafted the contract, whether the

terms were explained to the weaker party, whether alterations in the printed terms

were possible, whether there were alternative sources of supply for the goods in

question.”)

The Court concludes as a matter of law that while the arbitration provisions

had certain adhesive “take it or leave it” qualities, none of the provisions were

procedurally unconscionable at the time Perry signed them. First, while Perry

states in his declaration that he was told that he had to sign the August 2006

handbook receipt if he wanted to be employed at NCU, that he was never told by

any NCU official that he could negotiate the arbitration provision, and that he

does not remember reading the arbitration provision contained in that receipt, he

offers no evidence that NCU attempted to deceive him about the existence of that

arbitration provision or either of the other two arbitration provisions, or prevented

him from inquiring about the meaning of any of the arbitration provisions. He also

states in his declaration that he vaguely remembers signing the August 2006

handbook receipt and that the signature on that receipt is his, and he does not

offer any evidence disputing that he also signed the pages containing the other

two arbitration provisions, nor has he submitted any evidence showing that he did

not have the opportunity to read any of the arbitration provisions before signing

them. Furthermore, he does not dispute that each of the three arbitration

provisions was located in plain sight on a signature page, that none of them was

in fine print and that each was in the same size font as the rest of the signature

page, and that each was written in easily understood language. See EEOC v.

Cheesecake Factory, Inc., 2009 WL 1259359, at *3 (D.Ariz. May 6, 2009) (Court

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concluded that an arbitration provision contained in an employee handbook was

not procedurally unconscionable in part because the plaintiffs offered no evidence

that the employer attempted to deceive them about the arbitration provision or

pressured them to sign the agreement under exigent circumstances or prevented

them from inquiring about the meaning of the arbitration provision, and because

the plaintiffs both initialed the arbitration provision and signed the bottom of the

handbook page containing the arbitration provision.)

Second, while Perry also states in his declaration that during his

employment nobody at NCU ever explained the arbitration provision to him or

discussed the American Arbitration Association with him or gave him a copy of its

rules, and that he did not know anything about the organization during his

employment, he does not dispute that he is a highly educated individual with a

doctorate degree who had the intellectual capacity to read and understand the

arbitration provisions, and who had the ability and opportunity through the internet

to access and review the rules of the American Arbitration Association prior to

signing any of the arbitration provisions. Harrington v. Pulte Home Corp., 119

P.3d 1044, 1052 n.9 (Ariz.App.2005) (In finding that an arbitration provision was

enforceable, court noted that the rules of the American Arbitration Association are

available publically on-line); Godhart v. Direct Alliance Corp., 2011 WL 2713977,

at *3 (D.Ariz. July 13, 2011) (Court concluded that an arbitration provision in an

employment contract was not procedurally unconscionable notwithstanding that

the employer did not give the plaintiff a copy of the rules of the American

Arbitration Association.)

Third, Perry does not dispute that he was employed as a psychology

professor at another university at the time he accepted the position at NCU, nor

has he offered any evidence that he would have refused to accept employment at

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NCU, or would have refused to continue that employment, had he read the

arbitration provisions he signed. See Zimmer v. CooperNeff Advisors, Inc., 523

F.3d 224, 229 (3rd Cir.2008) (Court, in holding that an arbitration provision in an

employment contract was enforceable under the FAA, concluded that the

provision was not procedurally unconscionable because the plaintiff did not lack a

meaningful choice in accepting the arbitration provision given that he was a

highly-educated person with various employment opportunities who accepted the

employment offer without examining the terms of that employment.)

2. Substantive Unconscionability

Perry alternatively argues that the arbitration provision is unenforceable

because it is substantively unconscionable. Substantive unconscionability is

concerned with the relative fairness of the actual terms of the contract, i.e.

whether they are unjust or one-sided. Maxwell, 907 P.2d at 58. “Indicative of

substantive unconscionability are contract terms so one-sided as to oppress or

unfairly surprise an innocent party, an overall imbalance in the obligations and

rights imposed by the bargain, and significant cost-price disparity.” Id. at 59. A

showing of substantive unconscionability can alone establish a claim of

unconscionability. Id. The Court concludes as a matter of law that none of the

arbitration provisions are substantively unconscionable.

Perry, who does not dispute that the arbitration provisions did not impose

an overall imbalance in the obligations and rights of the parties given that the 

terms of the arbitration provisions applied equally to NCU, alleges that the

arbitration provision is substantively unconscionable for three reasons. The first

reason advanced by Perry is that the August 2006 receipt agreement gave NCU

the right to unilaterally modify or terminate the terms of the employee handbook

agreement, including the terms of the arbitration provision, without giving the

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6

 The August 2006 receipt agreement stated in relevant part: “I

understand that except for the employment at-will status, any and all policies or

practices may be changed at any time by the University.”

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employee the same right.6

 

The Court is not persuaded by Perry’s contention since the applicable

handbook receipt for purposes of this issue is not the August 2006 one, but the

revised October 2007 handbook receipt agreement as that is the one that was in

effect at the time of Perry’s termination and which covered the time period in

which Perry’s alleges the wrongful acts against him took place. The October

2007 receipt agreement, which stated that it was replacing “any and all prior

verbal and written communications regarding NCU working conditions, policies,

procedures, appeal processes and benefits,” did not contain any similar unilateral

policy modification language. 

The second reason advanced by Perry is that the arbitration provision

requires posting fees that he cannot pay and which may not be required in the

judicial system. Perry supports his contention with his declaration, dated

November 1, 2010, wherein he states in relevant part:

8. I have now been informed of the costs of arbitration which I would

be required to pay, including portions of the fees of the arbitrator and

hearing room. I cannot afford to pay these costs, and I am now

aware that these costs are not costs I would incur in litigation.

9. My financial situation became so bad after my termination from NCU 

on May 14, 2008 that I had to contemplate filing bankruptcy in 2009. 

I did not file bankruptcy, but my finances are extremely tight at this

time. Even though the costs of arbitration may be reimbursed to me

if I prevail in an arbitration before the American Arbitration

Association, I cannot afford to pay those costs in the first place

before I get the chance to prevail in an arbitration.

While the Supreme Court has recognized that an arbitration agreement

may be unenforceable if the existence of large arbitration costs preclude a litigant

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7

 As previously noted, unconscionability is determined as of the time the

arbitration provision is executed, not the time a complaint is filed. Allied Waste

North America, Inc. v. ITS Enterprises, Inc., 2009 WL 798867, at *3 (D.Ariz.

March 25, 2009) (“Substantive unconscionability must be determined at the time

of contracting, because to ‘judge the substantive fairness of a contract at a

subsequent date would nullify many contracts entailing a speculative element.’”)

(quoting Seeking v, Jimmy GMC of Tucson, Inc., 638 P.2d 210, 216 (Ariz.1981)).

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from effectively vindicating his federal statutory rights in the arbitral forum, Green

Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 90 (2000), it also has

made it clear that a party seeking to invalidate an arbitration agreement on the

ground that the arbitration would be prohibitively expensive bears the burden of

showing the likelihood of incurring such costs, and that the mere risk that the

plaintiff “will be saddled with prohibitive costs is too speculative to justify the

invalidation of an arbitration agreement.” Id. at 91-92. Arizona has adopted the

Randolph test in resolving claims that arbitration costs render an arbitration

agreement substantively unconscionable. Harrington v. Pulte Home Corp., 119

P.3d at 1055-56.

Perry has not met his burden of proving that an arbitral forum would be

financially inaccessible to him inasmuch as he provides only conclusory

statements in his declaration regarding his current ability to pay arbitration costs7

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what Perry has not submitted is any information, much less specifics, of the costs

associated with an arbitration conducted through the American Arbitration

Association or any information regarding its procedural rules applicable to

indigent claimants, or how arbitration costs compare to the litigation costs he

would incur in this action, or any specifics concerning his financial situation that

would make arbitration costs prohibitively expensive. In Harrington, the court

concluded that the arbitration clause was not substantively unconscionable

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because the plaintiffs’ allegations about the potential cost of arbitration were too

speculative:

The affidavits submitted by the five named appellees stated that they

could not afford the cost of arbitration, either because they are

retired and live on a ‘modest fixed income’ or self-employed and live

on a ‘low fixed income.’ ... The affidavits offer no specific facts

regarding appellees’ financial situations, only conclusory statements. 

There is no showing of assets or why arbitration costs would be a

hardship, let alone a prohibitive hardship as required by Randolph. ... They do not even show arbitration will put them in any worse position

than litigation in allowing them to pursue their claims. As such, the

allegation that arbitration is substantively unconscionable on this

record is speculative at best. (Emphasis in original).

119 P.3d at 1056; accord, Jones v. General Motors Corp., 640 F.Supp.2d 1124,

1132-33 (D.Ariz.2009) (Court, citing Harrington, concluded that the fee provision

in the arbitration agreement was not substantively unconscionable

notwithstanding the plaintiff’s allegation that he might be forced to pay expenses

that he might not have to pay in a judicial forum because the plaintiff’s affidavit

offered only conclusory statements regarding his inability to pay; court also noted

that the rules of the American Arbitration Association provide that administrative

fees may be deferred or reduced for indigent parties.); Batory v. Sears, Roebuck

and Co., 456 F.Supp.2d 1137, 1141 (D.Ariz.2006) (Court rejected the plaintiff’s

argument that an arbitration provision in an employment contract was

substantively unconscionable due to the costs involved because the plaintiff had

failed to demonstrate with specific evidence that the non-waivable $150 filing fee

was prohibitively expensive.); Price v. HotChalk, Inc., 2010 WL 5137896, at *4

(D.Ariz. Dec. 10, 2010) (Court concluded that the plaintiff’s conclusory allegation

that the cost of arbitration could potentially force him to give up his claims due to

his precarious financial position was not specific enough to make the arbitration

agreement substantively unconscionable.)

The third reason advanced by Perry as to why the arbitration provision is

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substantively unconscionable is based on the language found in the arbitration

provision in both of the handbook receipt agreements that stated that “[t]he costs

of arbitration, including consultants and attorneys fees, may be ordered

reimbursed or otherwise allocated between the parties as determined in the

arbitration proceedings.” The gist of Perry’s argument is that this arbitration

provision language potentially places him at greater risk to pay attorneys’ fees to

the defendants should he lose his federal civil rights claims than he would have in

a judicial forum because under federal law he would only have to pay attorneys’

fees if his claims were determined to be frivolous, unreasonable, without

foundation or brought in bad faith, as set forth in Christianburg Garment Co. v.

EEOC, 434 U.S. 412 (1978).

Perry’s position is not persuasive for several reasons. First, he does not

cite to any supporting Arizona-based law. Second, his position is speculative in

that he does not make any effort to supply or discuss any procedural rules of the

American Arbitration Association governing the payment of attorneys’ fees by the

losing party. Third, his position ignores the fact that the same arbitration

provisions specifically state that “[b]oth parties acknowledge and agree that

neither party shall be deprived of any rights or benefits established by Federal or

Arizona State law by reason of this provision.”

B. Reasonable Expectations

Perry also argues that the adhesive arbitration provision is unenforceable

in part because he did not reasonably expect that he had to arbitrate

employment-related disputes. Under the “reasonable expectation” doctrine, while

a party is typically bound by the terms of an adhesion contract even when they do

not know the details of the contract terms, they are not bound by the unknown

terms of the contract that are beyond the range of reasonable expectation.

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Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388, 396

(Ariz.1984); Broemmer, 840 P.2d at 1017. Arizona law provides that a contract

term is beyond the range of reasonable expectation if one party to the contract

has reason to believe that the other party would not have accepted the

agreement if that party had known that the agreement contained the particular

term at issue. Harrington v. Pulte Home Corporation, 119 P.3d at 1050 (holding

that the reasonable expectation doctrine did not prohibit the enforceability of an

arbitration clause in a contract of adhesion). This “reason to believe” may be 

(1) shown by prior negotiations, (2) inferred from the circumstances, (3) inferred

from the fact that the provision at issue is bizarre or oppressive, (4) shown by the

fact that the provision at issue eviscerates the agreed-to non-standard terms, 

(5) proved if the provision eliminates the dominant purpose of the transaction, 

(6) shown if the provision cannot be understood if the party challenging it

attempts to check on his rights, and (7) shown by any other facts relevant to what

the challenging party reasonably expected from the contract. Id. at 1050-51;

Darner, 682 P.2d at 397. 

Perry, who does not specifically cite to the Harrington factors, has not

offered any evidence raising an issue of fact supporting the invocation of the

reasonable expectations rule and the Court concludes as a matter of law that

none of the arbitration provisions were beyond Perry’s reasonable expectations. 

As to the first and second Harrington factors, there is no evidence or

reasonable inferences in the record to establish that any employee of NCU had

said or done anything prior to the times that Perry signed any of the documents

containing the arbitration provisions to cause him to believe that there would not

be an arbitration provision. Harrington, 119 P.3d at 1051; Wernett v. Service

Phoenix, LLC, 2009 WL 1955612, at *4 (Court, in concluding that the reasonable

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expectations rule did not bar the enforcement of an arbitration provision in an

employment contract, noted in part that “an employment contract may or may not

include an agreement to arbitrate, so there is no basis to conclude that [the

employer] had reason to believe that Wernett opposed the terms of the

arbitration.”) Furthermore, that NCU would not have inferred from the

circumstances that Perry opposed the arbitration provision in the October 2007

handbook receipt is readily apparent from the fact that Perry had already signed

two other arbitration provisions in October 2006.

As to the third and sixth factors, the language of all three arbitration

provisions is clear and plain and in no way bizarre or oppressive - rather than

being out of the mainstream, the provisions contain standard terms that Perry

could have readily understood had he reviewed them. Id. at 1051-52; Wernett,

2009 WL 1955612, at * 4 (Court noted that the inclusion of an arbitration

provision in an employment agreement is not bizarre or oppressive given the

strong public policy favoring arbitration.)

As to the fourth and fifth factors, none of the terms of any of the arbitration

provisions eviscerate any non-standard terms specifically agreed to by the parties

or otherwise eliminate the employment relationship that was the dominant

purpose of the parties’ agreement. Id. Although Perry argues that he did not

reasonably expect to have to arbitrate his dispute with NCU because he followed

NCU’s internal administrative dispute resolution policy set forth in its October

2007 revised handbook in pursuing his sexual harassment dispute against NCU

and Provost Williams, the existence of that internal procedure in no way

eviscerated the arbitration provision given that the purpose of the arbitration

process is to replace a judicial forum, not an initial informal administrative dispute

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 The arbitration provision in the employment application that Perry

signed in August 2006 specifically provided that employment-related disputes that

“cannot be resolved by informal, internal resolution” would be resolved through

arbitration.

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resolution policy.8

As to the final factor, the underlying premise of a reasonable expectations

argument is that the party invoking the doctrine is claiming that he would not have

entered the contract had he known the clause at issue was present. Harrington,

at 1052. Perry has not submitted any evidence that he would not have accepted

employment at NCU had he known about the arbitration requirement; in fact,

Perry states in his declaration that he “very much wanted to be employed” at

NCU at the time he signed the initial handbook receipt in August 2006. Perry has

also not submitted any evidence that he would have quit his employment at NCU

in October 2007 had he known about the arbitration provision in the revised

handbook. Smith v. Autonation, Inc., 2011 WL 380517, at *2 (D.Ariz. Feb. 2,

2011) (Court rejected argument that an arbitration provision in an employment

contract was invalid under the reasonable expectations doctrine in part because

the plaintiff did not assert that had she read the arbitration agreements she would

have declined to work for the defendants.)

Perry’s reasonable expectations-related argument is based almost solely

on Broemmer v. Abortion Services of Phoenix , Ltd., which the Court concludes

does not govern the situation here as it is factually inapposite. The Broemmer

court held that an adhesive arbitration agreement that the plaintiff signed prior to

undergoing a clinical abortion did not bar the plaintiff’s medical malpractice suit

because the agreement was unenforceable inasmuch as it fell outside of the

plaintiff’s reasonable expectations. In so ruling, the court made it clear that it “was

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declin[ing] the invitation to write a sweeping, legislative rule concerning all

agreements to arbitrate” and was basing its decision on the specific facts of that

case. 840 P.2d at 1018. The relevant facts underlying the court’s conclusion that

the arbitration agreement was a contract of adhesion outside of the plaintiff’s

reasonable expectations were the following: at the time she signed the arbitration

agreement the plaintiff was 21 years old, unmarried, was a high school graduate

earning less that $100 per week with no medical benefits, was 16 or 17 weeks

pregnant, and was not experienced in commercial matters and was unsure of

what arbitration was; she was then under considerable confusion and emotional

and physical turmoil because the father-to-be was insisting that she have an

abortion while her parents were against it; the day before she had the abortion

she went to the clinic and was given the arbitration agreement, as well a consentto-operate form and a medical questionnaire, all of which she completed in less

than five minutes; and the clinical staff made no attempt to explain the purpose of

the arbitration agreement to the plaintiff either before or after she signed it and

did not provide her with a copy of the agreement.

Notwithstanding Perry’s contention that all of the types of evidence found in

Broemmer to invalidate the arbitration clause under the reasonable expectations

rule are applicable to him, Perry’s situation at the time he signed the arbitration

provisions was vastly different from Broemmer’s. As already noted, Perry is a

highly-educated professional who was fully capable of understanding the

arbitration provisions, he had a significant amount of time in which to review at

least the first two arbitration provisions before he signed the documents

containing them and he had the ability to research the American Arbitration

Association and its rules had he wanted to, and there is no significant evidence

that he was under any physical or emotional turmoil or other external pressures at

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the time he signed any of the arbitration documents that drove him to sign them

without reviewing them.

C. Waiver

Perry further argues in his response and in two supplemental memoranda

that NCU waived its right to enforce the arbitration procedure by initially engaging

in its internal administrative dispute resolution process set out in its October 2007

employee handbook. The Court disagrees.

The determination of whether NCU waived its right to compel arbitration, as

opposed to the issue of whether the arbitration provisions are unenforceable

under Arizona law, is controlled solely by federal law. Sovak v. Chugai

Pharmaceutical Co., 280 F.3d 1266, 1270 (9th Cir.2002), as amended, 289 F.3d

615 (9th Cir.2002). Under federal law, in order to establish a waiver, Perry bears

a heavy burden of proving (1) that NCU had knowledge of its existing right to

compel arbitration, (2) NCU acted inconsistently with that existing right, and (3)

that he suffered prejudice from NCU’s delay in moving to compel arbitration. Id. 

Because waiver of the right to arbitration is disfavored given the FAA’s preference

for arbitration, any doubt concerning an allegation of waiver must be resolved in

favor of arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction

Corp., 460 U.S. 1, 24-25 (1983). The Court concludes as a matter of law that

NCU did not waive its right to compel arbitration because, as the Court has

already noted, NCU’s initial use of its internal administrative dispute resolution

process is simply not inconsistent with its right to require arbitration once Perry

commenced this action.

D. Dismissal

Since the arbitration provisions that Perry agreed to are neither

unconscionable nor beyond his reasonable expectations, the Court concludes

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that arbitration must be compelled pursuant to the FAA. 9 U.S.C. § 4. Since all

of the claims arising out of Perry’s First Amended Complaint are arbitrable, the

Court, in the exercise of its discretion, see Sparling v. Hoffman Construction Co.,

864 F.2d 635, 638 (9th Cir.1988), further concludes that the dismissal of this

action, rather than a stay pending arbitration, is appropriate. Therefore,

IT IS ORDERED that the plaintiff’s Motion to File Supplemental Authority

Regarding Defendant’s Motion to Dismiss Under Rule 12(b)(1), Fed.R.Civ.P.

Dealing with the Arbitration Issue (Doc. 21) is granted.

IT IS FURTHER ORDERED that the defendants’ Motion to Dismiss (Doc.

8) is granted to the extent that this action is dismissed without prejudice inasmuch

as all of the plaintiff’s claims in his First Amended Complaint are subject to the

arbitration provision in defendant Northcentral University, Inc.’s October 2007

employee handbook, and the parties are directed to proceed to arbitration before

the American Arbitration Association in accordance with the terms of that

arbitration provision. The Court makes no ruling regarding the alternative

Fed.R.Civ.P. 12(b)(6) portion of the Motion to Dismiss.

IT IS FURTHER ORDERED that the Clerk of the Court shall enter

judgment accordingly.

DATED this 19th day of September, 2011.

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