Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_09-cv-00168/USCOURTS-azd-4_09-cv-00168-0/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 42:2000e Job Discrimination (Employment)

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

HEATHER M. WERNETT,

Plaintiff, 

vs.

SERVICE PHOENIX, LLC, et al.,

Defendants. 

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No. CIV 09-168-TUC-CKJ 

ORDER

Pending before the Court is Defendant Service Phoenix, LLC’s Motion to Dismiss

Plaintiff’s Complaint and Compel Arbitration [Doc. # 4]. Plaintiff has filed a response and

Defendant has filed a reply. The parties presented oral argument to the Court on June 22,

2009.

I. Factual and Procedural Background

On or about August 200, 2007, Plaintiff Heather M. Wernett ("Wernett") began

working for Defendant Service Phoenix, LLC (“Service”). 

Craig Nassar (“Nassar”), who had recruited Wernett and was to become Wernett’s

new supervisor, presented Wernett with documents for her to sign. Nassar informed Wernett

that the documents had to be signed so she could start working for Service. Wernett believed

the documents to be the standard paperwork new employees expect to encounter when

beginning a new job (e.g., I-9, W-2, insurance forms, etc.). To the best of Wernett’s

recollection, an Arbitration Agreement (“the Agreement”) was included among the

documents. There was no discussion of the Agreement and Wernett believed all of the

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1

Wernett’s affidavit indicates that Swisher International was the name by which

Service was known. Opposition, Ex. A, p. 2. The Court will refer to the employer as

Service.

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documents, including the Agreement, had to be signed in order for her to be hired by Service.

Nassar and Wernett each signed the Agreement on August 6, 2007. See Motion, Ex. 1, p. 2.

The Agreement provides:

In consideration of employment by Swisher International, Inc., Swisher Hygiene

Franchise Corp., or any Swisher subsidiary (“Swisher”), the parties agree as follows:

If any dispute arises out of or relates to Employee’s employment with Swisher or the

breach thereof, including but not limited to . . . Title VII of the Civil Rights Act

claims . . . and if the dispute cannot be settled informally, the parties agree to submit

the dispute to compulsory and binding arbitration as set forth below. by signing this

Agreement, the parties waive any rights to file a lawsuit in federal or state courts

except to enforce the arbitration award.

Id. at p.1.1

On March 3, 2009, Wernett filed a Complaint in the Superior Court of Arizona,

County of Pima, alleging sex discrimination in violation of the Arizona Civil Rights Act and

sex discrimination in violation of Title VII against Service and Defendant SHFC Arizona,

LLC (“SHFC”). The action was subsequently removed to this Court.

On March 26, 2009, Service filed a Motion to Dismiss Plaintiff’s Complaint and

Compel Arbitration [Doc. # 4]. Wernett has filed a response and Service has filed a reply.

II. Arbitration 

The Federal Arbitration Act ("FAA") was enacted to "overcome courts' reluctance to

enforce arbitration agreements." Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th

Cir. 2002). The FAA reverses "the longstanding judicial hostility to arbitration agreements

that had existed at English common law and had been adopted by American courts, and to

place arbitration agreements upon the same footing as other contracts." Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26

(1991). Pursuant to the FAA, arbitration agreements "shall be valid, irrevocable, and

enforceable, save upon such grounds that exist at law or in equity for the revocation of any

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contract." 9 U.S.C. § 2. Accordingly, "general contract defenses such as fraud, duress, or

unconscionability, grounded in state contract law, may operate to invalidate arbitration

agreements." Adams, 279 F.3d at 892, citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S.

681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); see also Chiron Corp. v. Ortho

Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (the FAA mandates district courts

to direct parties to arbitration on issues as to which arbitration has been agreed upon). When

evaluating the validity of an arbitration agreement, federal courts are to “apply ordinary statelaw principles that govern the formation of contracts.” First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 944 (1995). Furthermore, “‘any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration.’” Simula, Inc. v. Autoliv, Inc.,

175 F.3d 716, 719 (9th Cir. 1999), quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 20, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). 

Moreover, since "[p]arallel state anti-discrimination laws are explicitly made part of

Title VII's enforcement scheme," claims under the ACRA are arbitrable to the same extent

as Title VII claims. Prudential Ins. Co. v. Lai, 42 F.3d 1299, 1303 n. 1 (9th Cir. 1994)

(citing Kremer v. Chemical Const. Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262

(1982)), cert. denied, 516 U.S. 812,116 S.Ct. 61, 133 L.Ed.2d 24 (1995).

Wernett asserts that the Agreement is not enforceable because it is procedurally

unconscionable, is substantively unconscionable, and is a contract of adhesion.

A. Contract of Adhesion

While Arizona law favors arbitration, "it is more accurate to say that the law favors

arbitration of disputes that the parties have agreed to arbitrate." Southern Cal. Edison Co.

v. Peabody Western Coal Co., 194 Ariz. 47, 51, 977 P.2d 769, 773 (1999). In a factually

dissimilar case, the Supreme Court of Arizona has held contract terms requiring arbitration

of medical malpractice claims unenforceable where the contract was adhesive and did not

reflect the reasonable expectations of the parties. Broemmer v. Abortion Services of Phoenix,

Ltd., 173 Ariz. 148, 840 P.2d 1013 (1992).

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"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.'" Broemmer, 173

Ariz. at 150, 840 P.2d at 1015, quoting Wheeler v. St. Joseph Hosp., 63 Cal.App. 3d 345,

356, 133 Cal.Rtr. 775, 783 (1976). 

In this case, the Agreement is a form contract prepared by Service. Wernett states in

her affidavit that it was her understanding that she had to sign the document to be hired by

Service. See Bennett v. Appaloosa Horse Club, 201 Ariz. 372, 376, 35 P.2d 426, 430 (App.

2001) (the ability to negotiate negates any finding of adhesiveness). The "take it or leave it"

nature leads to the conclusion that the Agreement is an adhesive contract. However, a

contract of adhesion is fully enforceable unless legislative or judicial rules render it

unenforceable. Broemmer, 173 Ariz. at 151, 840 P.2d at 1016. The Court, therefore, must

consider whether the Agreement is unconscionable.

B. Unconscionability

Arizona's statutory provision on unconscionability, A.R.S. § 47-2302, provides:

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.

B. When it is claimed or appears to the court that the contract or any clause thereof

may be unconscionable the parties shall be afforded a reasonable opportunity to

present evidence as to its commercial setting, purpose and effect to aid the court in

making the determination.

As previously stated, the general contract defense of unconscionability may operate to

invalidate arbitration agreements. Adams, 279 F.3d at 892. However, "[c]ourts should not

assume an overly paternalistic attitude toward the parties to a contract by relieving one or

another of them of the consequences of what is at worst a bad bargain[.]" Nelson v. Rice, 198

Ariz. 563, 568, 12 P.3d 238, 243 (App. 2000), quoting Pacific Am. Leasing, 152 Ariz. 96,

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103, 730 P.2d 273, 280 (App. 1986).

"Unconscionability includes both procedural unconscionability, i.e., something wrong

in the bargaining process, and substantive unconscionability, i.e., the contract terms per se."

Nelson, 198 Ariz. at 567, 12 P.3d at 242, quoting Phoenix Baptist Hosp. & Medical Ctr., Inc.

v. Aiken, 179 Ariz. 289, 283, 877 P.2d 1345, 1349 (App. 1994). The Supreme Court of

Arizona has recognized that, while contracts may have elements of both procedural and

substantive unconscionability, "a claim of unconscionability can be established with a

showing of substantive unconscionability alone[.]" Maxwell, 184 Ariz. at 90, 907 P..2d at

59. 

1. Procedural Unconscionability

 Procedural unconscionability is concerned with unfair surprise; courts examine factors

influencing the "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 [and] whether there were alternative sources

of supply of the goods in question." Maxwell v. Fidelity Fin. Servs., 184 Ariz. 82, 89, 907

P.2d 51, 58 (1995), quoting Johnson v. Mobil Oil Corp., 415 F.Supp. 264, 268 (E.D.Mich.

1976). 

Wernett indicates that she believed she had to sign all of the documents presented to

her before she would be hired by Service. Wernett asserts that she did not have a meaningful

opportunity to negotiate the terms of the Agreement and that it was offered to her in a “take

it or leave it” basis. Service asserts, however, that “boiler-plate,” unbargained-for contract

provisions are enforceable so long as they do not violate the aggrieved party’s “reasonable

expectations.” Darner Motor Sales, Inc. v. Universal Underwriters Insurance Co., 140 Ariz.

383, 387-94, 682 P.2d 388, 392-99 (1984) (such provisions in insurance contracts can be

enforced even if insured fails to read or understand the provisions); see also Broemmer, 173

Ariz. at 151, 840 P.2d at 1016. Service asserts that contractual terms are beyond the range

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2

"In the absence of controlling statutory or case authority, Arizona courts generally

follow the Restatement of the Law if its view 'is logical, furthers the interests of justice, is

consistent with Arizona law and policy, and has been generally acknowledged elsewhere.'"

Wetherill v. Basham, 197 Ariz. 198, 203, 3 P.3d 1118, 1123 (App. 2000), quoting Ramirez

v. Health Partners of Southern Arizona, 193 Ariz. 325, 972 P.2d 658 (App. 1998).

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of reasonable expectations only if one party “has reason to believe that the other party would

not have accepted the agreement if he had known the agreement contained the particular

term.” Harrington v. Pulte Home Corp., 211 Ariz. 241, 247, 119 P.3d 1044, 1050 (App.

2005). Service asserts that Wernett offers no evidence that she did not have a chance to read

the Agreement, Service buried the Agreement, the Agreement was illegible, the Agreement

was bizarre or oppressive, the Agreement was contrary to prior negotiations, or that Service

had any reason to believe that Wernett would not have accepted the Agreement if Wernett

had known the Agreement contained any particular provision. See Darner, 140 Ariz. at 391-

392, 682 P.2d at 396-97 (discussing factors that could violate reasonable expectations).

Indeed, Wernett has alleged that the Agreement is oppressive, but she has not alleged any of

the other factors that are considered in determining reasonable expectations as set forth in

Darner. 

It appears that, although the Agreement purports to be a mutual agreement, there is

no internal indicia of bargained for exchange within the contract. Although mere inequality

in bargaining power "is not a sufficient reason to hold that arbitration agreements are never

enforceable in the employment context[,]" Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20, 33, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), the inequality of bargaining power is

considered. Additionally, Wernett does not recall any discussion between her and Nassar

regarding the Agreement; in other words, it appears that the terms of the Agreement were not

explained to Wernett. The Restatement (Second) of Contracts ("Restatement") provides that

"the more standardized the agreement and the less the party may bargain meaningfully, the

more susceptible the contract or a term will be to a claim of unconscionability." Restatement,

§ 208, Comment (a).2

 The Court finds Wernett has established the arbitration agreement has

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elements of procedural unconscionability. See Heinig v. Hudman, 177 Ariz. 66, 73-74, 865

P.2d 110, 117-18 (App. 1994) (party asserting arbitration provision is unenforceable has

burden). 

However, the Court must also consider whether Service had “reason to believe that

[Wernett] would not have accepted the agreement if [she] had known that the agreement

contained the particular term.” Harrington, 211 Ariz. at 247, citation omitted. A reason to

believe:

may be (1) shown “by the prior negotiations,” (2) “inferred from the circumstances,”

(3) “inferred from the fact that the term is bizarre or oppressive,” (4) proved because

the term “eviscerates the non-standard terms explicitly agreed to,” or (5) provided if

the term “eliminates the dominant purpose of the transaction.”

Id, citations omitted. Additionally, the doctrine of reasonable expectations “(6) ‘requires

drafting of provisions which can be understood if the customer does attempt to check on his

rights” and consideration of “(7) any other facts relevant to the issue of what [the party]

reasonably expected in this contract.” Id. at 248, citations omitted.

In this case, there were no prior negotiations – there is no basis to think Wernett

would or would not have expected an arbitration agreement. Similarly, an employment

contract may or may not include an agreement to arbitrate, so there is no basis to conclude

that Service had reason to believe that Wernett opposed the terms of the arbitration. See

generally Harrington, 211 Ariz. at 248 (no reason to conclude contract to sell home would

or would not include arbitration clause). Moreover, the Agreement does not eviscerate or

eliminate the agreement for Service to hire Wernett. Additionally, the Agreement “‘can be

understood if [Wernett chose] to check on [her] rights.’” Harrington, 211 Ariz. at 249,

quoting Darner, 140 Ariz. at 394.

As to whether the Agreement contained bizarre or oppressive terms, there is a strong

public policy favoring arbitration. Harrington, 211 Ariz. at 248. The inclusion of the

Agreement as part of the employment agreement is not, therefore, bizarre or oppressive. As

discussed infra, however, some of the terms are oppressive. The Court also considers as

relevant factors that the Agreement is a standardized contract, Wernett had a lack of

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3

Reasonable expectations and unconscionability are each distinct grounds for

invalidating or limiting a contract. Harrington, 211 Ariz. at 252.

4

The Court notes that Service asserts that whether the parties have an agreement is

decided by the Court, while the enforceability of any term of the agreement is decided by the

arbitrator. Foy v. Thorp, 186 Ariz. 151, 920 P.2d 31 (App. 1996). However, consideration

of the alleged unconscionability of the terms is necessary for the Court to determine whether

the parties have an enforceable agreement to arbitrate.

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bargaining power, and Service failed to explain the terms to Wernett. The Court also

considers the lack of showing that Wernett did not have an opportunity to read the

Agreement and Service’s lack of hiding the Agreement. The Court finds there was no reason

for Service to believe that Wernett would not have accepted the agreement if she had known

of the particular terms of the Agreement. However, the Court will consider the elements of

procedural unconscionability in considering whether the Agreement is substantively

unconscionable.3

2. Substantive Unconscionability

"Substantive unconscionability concerns the actual terms of the contract and examines

the relative fairness of the obligations assumed." Maxwell,184 Ariz. at 88, 907 P.2d at 57,

citing Resource Management Co. v. Weston Ranch and Livestock Co., 706 P.2d 1025, 1041

(Utah 1985); see also Harrington v. Pulte Home Corp., 211 Ariz. 241, 252, 119 P.3d 1044,

1055 (App. 2005) (factors showing substantive unconscionability include “contractual 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”).4

 In

Arizona, a case-by-case approach is used in determining whether the terms imposed under

an arbitration agreement denies a potential litigant the opportunity to vindicate her rights.

Batory v. Sears, Roebuck & Co., 456 F.Supp.2d 1137, 1141 (D.Ariz. 2006). Service asserts

that Wernett has not shown that the agreement’s terms are so one-sided as to oppress or

unfairly surprise her. 

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a. Limitation of Remedies

Wernett asserts that the Agreement unlawfully limits the remedies available to her

under Title VII and ACRA. Wernett asserts that if she is successful on her claims and

adequate proof exists, she is entitled to recover compensatory damages, punitive damages,

and an award of attorneys’ fees and costs. See 42 U.S.C. § 1981l 42 U.S.C. § 2000e-5(k);

A.R.S. § 41-1481 (J). The Agreement, however, limits such a recovery:

Each party waives any claim for and the arbitrator has no authority to award costs,

expenses, attorneys’s fees, punitive damages or tort damages. Swisher and Employee

waive any claims for an award of damages that are excluded under this Agreement.

Motion, Ex. 1, p. 2. Wernett asserts that the far-reaching limitation on remedies is

unenforceable. See Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244, 1246-48 (9th Cir.

1994) (arbitration clause that purported to waive remedies provided by federal statute and

to shorten statute of limitations for filing such claims was unenforceable). By the nature of

this provision, this provision is one-sided. The Court agrees that this term denies a potential

litigant the opportunity to vindicate her rights. Batory, 456 F.Supp.2d at 1141. The Court

finds this term is substantively unconscionable.

b. Statute of Limitations

Wernett asserts that the Agreement unlawfully shortens the statute of limitations:

Any claim or dispute arising out of or relating to this Agreement or the Employee’s

employment must be brought within 6 months of the date the dispute first arises.

Motion, Ex. 1, p. 2. Wernett argues that this provision is unconscionable and unenforceable.

See Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1175 (2003) (forcing employees to

comply with a strict one-year limitation period for employment related statutory claims is

oppressive in a mandatory arbitration context); Circuit City Stores, Inc. v. Mantor, 335 F.3d

1101, 1107 (9th Cir. 2003), cert. denied, 540 U.S. 1160, 124 S.Ct. 1169, 157 L.Ed.2d 1204

(2004); Circuit City Stores, Inc. v. Adams, 179 F.3d 889 (9th Cir.), cert. denied, 535 U.S.

1112, 122 S.Ct. 2329, 153 L.Ed.2d 160 (2002); Davis, 485 F.3d at 1077-78 (one year

universal limitation period is substantively unconscionable); Adler v. Fred Lind Manor, 153

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Arguably, the lack of tolling may not be enforceable. See Wilks v. The Pep Boys, 241

F.Supp.2d 860 (M.D.Tenn. 2003).

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Wash.2d 331, 103 P.3d 773, 787 (Wash. 2004 (en banc) (180 day limitation provision in an

employment arbitration agreement was substantively unconscionable because it unreasonably

favors the employer). 

Wernett also asserts that the use of the limiting phrase “first arises” operates to

preclude an action based on a continuing violation theory. See Freeman v. Oakland Unified

School Dist., 291 F.3d 632 (9th Cir. 2002) (continuing violation theory under Title VII

provides that a systematic policy of discrimination is actionable even if some or all of the

events evidencing its inception occurred prior to limitations period). Wernett asserts that the

Agreement is unconscionable because an employee seeking to redress a series of connected

perceived violations would be precluded under the provision from bringing her claim if the

date the dispute “first arose” was more than six months prior. See Davis, 485 F.3dat 1077

(court is particularly concerned about barring a continuing violations theory by employees

and striking down as unconscionable a strict one-year limitations period).

Wernett also argues that the Agreement’s limitations period completely discounts and

ignores the statutory enforcement scheme, including the filing of an administrative charge,

under the ACRA and Title VII. See A.R.S. § 41-1481(A) (ACRA requires the charge of

discrimination be filed within 180 days “after the alleged unlawful practice occurred”); see

also 42 U.S.C § 2000e-5(e)(1). 

The Ninth Circuit has made clear that such strict limitations provisions in an

arbitration agreement may deprive an employee of benefits and, because the benefits of such

a provision flow only to any employer, such a provision is substantively unconscionable.

Ingle. The Court finds the limitations provision of the Agreement to be unconscionable.5

c. Discovery

Wernett also asserts that the Agreement impermissibly limits the discovery available

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to Wernett. The Agreement provides:

. . . The parties may request subpoenas for documents at the pre-arbitration conference

from any other party or witness and the documents must be produced within 10 days

of the pre-arbitration conference with copies provided to all parties. The parties may

request at the pre-arbitration conference subpoenas to take a maximum of 2

depositions prior to the arbitration hearing. No additional witnesses other than the

witnesses disclosed at the pre-arbitration conference or documents may be introduced

at the Arbitration, exception for rebuttal purposes only.

Motion, Ex. 1, p. 1. Wernett asserts that the failure of the Agreement to incorporate the

relevant rules of civil procedure, the Agreement’s limitation of depositions, and the

Agreement’s requirement of subpoenas to obtain documents and depose a representative of

Service exhibits the unconscionability of the Agreement. However, the Supreme Court

stated in a similar case: 

there has been no showing in this case that the . . . discovery provisions, which allow

for document production, information requests, depositions, and subpoenas, will

prove insufficient to allow [plaintiff] . . . a fair opportunity to present [her] claims.

Although those procedures might not be as extensive as in the federal courts, by

agreeing to arbitrate, a party trades the procedures and opportunity for review of the

courtroom for the simplicity, informality, and expedition of arbitration. 

Gilmer, 500 U.S. at 31. Although discovery is limited pursuant to the terms of the

Agreement, it is not precluded. Indeed, although the parties are limited in the number of

depositions, they are not limited in the number of interviews they are permitted. This

provision is cost-saving to all parties and the Court finds this term is not unconscionable.

d. Payment of Arbitration Fees and Venue

Wernett asserts that the payment provision of the Agreement is unfairly one-sided and

substantively unconscionable. She also asserts that the provision requiring arbitration to take

place in North Carolina is unconscionable. The Agreement provides:

At the pre-arbitration [c]onference, the arbitrator will determine the amount of time

required for the arbitration and set their respective fees accordingly. Each party will

pay his or her chosen attorney’s fees. Compensation to the neutral arbitrator

represents an independent obligation of the parties. If either party is unable to pay

their share of the neutral arbitrator’s fee, the other party has the option to pay the

neutral arbitrator’s fee in full and continue with the arbitration. The cost assumed by

the paying party for the non-moving party may be deducted from any award to the

non-paying party.

The pre-arbitration conference and the arbitration will take place in Charlotte, North

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6

Wernett’s affidavit indicates that she is unemployed and receiving unemployment

compensation. 

7

Arizona courts find decisions from other states with constitutional provisions similar

to Arizona's to be very persuasive. Empress Adult Video and Bookstore v. City of Tucson,

204 Ariz. 50, 58, 59 P.3d 814, 822 (App. 2003), citing Faires v. Frohmiller, 49 Ariz. 366,

372, 67 P.2d 470, 472 (1937); see also Culpepper v. State, 187 Ariz. 431, 439, 930 P.2d 508,

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Carolina, at Swisher’s corporate office.

Motion, Ex. 1, p. 2. Where "a party seeks to invalidate an arbitration agreement on the

grounds that arbitration would be prohibitively expensive, that party bears the burden of

showing the likelihood of incurring such costs." Green Tree Financial Corp. v. Randolph,

531 U.S. 79, 92, 121 S.Ct. 513, 522, 148 L.Ed.2d 373 (2000). Indeed, Arizona courts place

the burden of proving that a term is unduly expensive on the party seeking to invalidate the

agreement. See Batory, 456 F.Supp.2d at 1141. The Agreement makes clear that Wernett

would be required to pay her attorney’s fees and be responsible for her share of the

arbitration costs if she was successful at arbitration. Further, her affidavit demonstrates such

expenses would be expensive to her.6

 In a similar situation, the Court of Appeals of Arizona

stated “[t]he 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[.]” Harrington, 211 Ariz. at 252-53. Wernett has

provided information regarding her limited receipt of funds (unemployment compensation);

additionally, during argument, counsel indicated that Wernett did not have any significant

asserts. Moreover, this case differs from Harrington in that the arbitration agreement in

Harrington permitted the arbitrator to reduce or defer administrative fees.

The Ninth Circuit has held that, where an arbitration agreement requires an employee

to split the arbitrator's fees with the employer and the fees are not, therefore, speculative,

such an "allocation scheme alone would render an arbitration agreement unenforceable[.]"

Adams, 279 F.3d at 894. Adams, however, involved application of California law in

determining whether an arbitration agreement was unconscionable.7

 Under Arizona law, as

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516 (App. 1997) (decision of California Supreme Court interpreting similar statutory

language persuasive); Moore v. Browning, 203 Ariz. 102, 109, 50 P.3d 852, 859 (App. 2002)

(California caselaw only followed to the extent that it is sound). Arizona and California law

regarding unconscionability is somewhat similar. The Court will consider Adams to the

extent it does not conflict with Arizona law and is factually similar to this case. See

generally Santana v. Zilog, Inc., 95 F.3d 780, 783 (9th Cir. 1996) (in the absence of state

supreme court precedent, federal court may consider well-reasoned decisions from other

jurisdictions).

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set forth in Harrington, an allocation scheme that splits the arbitrator’s fees is not sufficient

alone to render an arbitration agreement unenforceable. Indeed, during the hearing on the

motion, counsel for Lifeline indicated that the exact terms would be resolved by the

arbitrator. However, the Agreement does not provide for this modification. Counsel appears

to be agreeing that strict compliance with the Agreement may be substantively

unconscionable in this case. Because the Agreement does not provide that the arbitrator can

reduce or defer the fees and Wernett has shown her limited income, the Court finds this

provision to be substantively unconscionable. Indeed, it appears that, if Wernett could not

afford the arbitration expenses and Service did not initially pay the arbitration costs,

arbitration would cease; it does not appear that any other remedy would then be available to

Wernett in that case. See Harrington, 211 Ariz. at 252 (arbitration is appropriate if

prospective litigant can effectively vindicate her rights in the arbitral forum).

Additionally, forum selection clauses are valid and should be given effect unless

enforcement of the clause would be unreasonable. Nagrampa, 469 F.3d at 1287. However,

the forum selection provision is unconscionable if the place and manner restrictions of a

forum selection provision are unduly oppressive, or has the effect of shielding the stronger

party from liability. Id. In determining the reasonableness of the place and manner

provisions of an arbitration agreement, courts are to take into account the respective

circumstances of the parties. Id. at 1288. In this case, the Agreement provides that the prearbitration conference and the arbitration take place at Service’s corporate headquarters in

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8

The Court notes that the Agreement was signed in Arizona, Wernett performed her

work for Service in Arizona, Wernett lives in Arizona, and Wernett (and presumably

witnesses) will incur travel expenses to North Carolina. Further, Wernett may need to seek

counsel in North Carolina or incur additional expenses of counsel’s travel. In her affidavit,

Wernett asserts she cannot afford the expenses for attending arbitration.

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North Carolina.8

Wernett asserts that similar clauses have been stricken because they are nothing more

than an attempt by the corporate party to shield itself from liability and operates to preclude

the other party from pursuing claims. See Comb v. PayPal, Inc., 218 F.Supp,2d 1165, 1177

(N.D.Cal. 2002) (limiting venue to PayPal’s backyard appears to be yet one more means by

which the arbitration clause serves to shield PayPal from liability instead of providing a

neutral forum in which to arbitrate disputes); Armendariz, 24 Cal.4th at 118, 6 P.3d 669

(structuring an arbitration provision to effectively preclude the other party from pursuing a

claim would be unconscionable). 

During the hearing on the motion, counsel for Service indicated that she had informed

Plaintiff’s counsel that arbitration could occur in Arizona. This appears to be an implicit

agreement that this term of the Agreement is substantively unconscionable in this case.

Moreover, considering the respective circumstances of the parties, the Court finds the forum

selection provision of the Agreement is unconscionable.

e. Service’s Access to a Judicial Forum

Wernett also asserts that the Agreement improperly gives Service access to a judicial

forum. The Agreement provides:

Nothing in this section will prevent Swisher from obtaining temporary, preliminary

or permanent injunctive relief, with a $1,000.00 bond, from a court or agency of

competent jurisdiction against actual or threatened conduct causing loss or damage

that can be remedied under usual equity rules.

Motion, Ex. 1, p. 2. Wernett asserts Service’s ability to seek judicial relief yet eliminated

such a remedy for Wernett lacks mutuality and is substantively unconscionable. See

Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1293 (9th Cir. 2006) (en banc) (employer’s

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reservation to itself of the right to seek any provisional remedy it decides it needs is

substantively unconscionable because it lacks mutuality); Davis v. O’Melveny & Myers, 485

F.3d at 1081 (non-mutual exception allowing the employer a judicial remedy to protect

confidential information was one-sided and substantively unconscionable). 

The Court of Appeals of Arizona has stated that "[p]arties may make a distinction

between issues subject to arbitration and issues for the court to decide." Smith v. Logan, 166

Ariz. 1, 3, 799 P.2d 1378, 1380 (App. 1990). The court found the exception to arbitration

acceptable despite the non-mutuality of the exception. This differs from California case law

which requires employee arbitration agreements to have a "modicum of bilaterality" to be

enforceable unless the employer has a reasonable justification for the agreement. See

Armendariz v. Foundation Health Psychcare Serv., Inc., 24 Cal.4th 83, 117-18 (2000).

However, the provision in the Agreement does not make any distinction as to issues . . . only

to the party that may seek judicial relief. Service has not responded to this argument.

Because the Agreement makes a distinction between the parties, as opposed to the issues, the

Court finds this provision is substantively unconscionable.

C. Severance

The Court has found the Agreement is a contract of adhesion and has elements of

procedural unconscionability despite the lack of showing that Service had reason to believe

that Wernett would not have accepted the agreement if she had known that the agreement

contained particular terms. Further, the Court has found that the provisions limiting the

remedies available to Wernett, shortening the statute of limitations, requiring Wernett to bear

the costs of bringing her claim, specifying the place of arbitration, and permitting Service to

access a judicial forum are substantively unconscionable. The Court "may refuse to enforce

the contract, or it may enforce the remainder of the contract without the unconscionable

clause[s], or it may so limit the application of any unconscionable clause[s] as to avoid any

unconscionable result." A.R.S. § 47-2302.A. However, the Court “cannot create a new

agreement for the parties to uphold the contract.” Olliver/Pilcher Insur. Inc. v. Daniels, 148

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9

Ferguson was based on California law. The Court will consider Ferguson to the

extent it does not conflict with Arizona law and is factually similar to this case. See

generally Santana v. Zilog, Inc., 95 F.3d 780, 783 (9th Cir. 1996) (in the absence of state

supreme court precedent, federal court may consider well-reasoned decisions from other

jurisdictions).

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Ariz. 530, 715 P.2d 1218, 1221 (1986), citations omitted; see also Fearnow v. Ridenour

Swenson, Cleere & Evans, P.C., 213 Ariz. 24, 32, 138 P.3d 723, 731 (2006) (where contracts

contain restrictive covenants, but not containing a severability clause, Arizona courts

eliminate “grammatically severable, unreasonable provisions”).

In Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d 778, 787 (9th Cir. 2002),

the court recognized an "insidious pattern" in the arbitration agreement that provided the

employer with undue advantages in an employment-related dispute.9

 Moreover, the court

found that offending provisions so permeated the arbitration agreement that severance was

not appropriate. 298 F.3d at 787-88. 

The Agreement at issue in this case, however, does not contain an insidious pattern

that provides Service with undue advantages in employment related disputes. Severance of

the unconscionable terms will permit mutual benefits and restrictions to each party. Further,

severance of the unconscionable terms will permit an arbitrator to determine appropriate

procedures (e.g., allocation of fees, venue, etc.). The unconscionable terms will be severed

and the Motion to Dismiss will be granted. 

Accordingly, IT IS ORDERED:

1. Defendant Service Phoenix, LLC’s Motion to Dismiss Plaintiff’s Complaint

and Compel Arbitration [Doc. # 4] is GRANTED IN PART.

2. The following provisions are severed from the Agreement:

a. “Each party waives any claim for and the arbitrator has no authority to

award costs, expenses, attorneys’s fees, punitive damages or tort

damages. Swisher and Employee waive any claims for an award of

damages that are excluded under this Agreement.” Motion, Ex. 1, p. 2.

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b. “Any claim or dispute arising out of or relating to this Agreement or the

Employee’s employment must be brought within 6 months of the date

the dispute first arises.” Motion, Ex. 1, p. 2.

c. “At the pre-arbitration [c]onference, the arbitrator will determine the

amount of time required for the arbitration and set their respective fees

accordingly. Each party will pay his or her chosen attorney’s fees.

Compensation to the neutral arbitrator represents an independent

obligation of the parties. If either party is unable to pay their share of

the neutral arbitrator’s fee, the other party has the option to pay the

neutral arbitrator’s fee in full and continue with the arbitration. The

cost assumed by the paying party for the non-moving party may be

deducted from any award to the non-paying party.

The pre-arbitration conference and the arbitration will take place in

Charlotte, North Carolina, at Swisher’s corporate office.” Motion, Ex.

1, p. 2.

d. “Nothing in this section will prevent Swisher from obtaining temporary, preliminary or permanent injunctive relief, with a $1,000.00

bond, from a court or agency of competent jurisdiction against actual

or threatened conduct causing loss or damage that can be remedied

under usual equity rules.” Motion, Ex. 1, p. 2.

3. The parties shall participate in arbitration pursuant to the remaining terms of

the Agreement. 

4. This matter is DISMISSED WITHOUT PREJUDICE.

5. The Clerk of the Court shall enter judgment and shall close its file in this

matter.

DATED this 2nd day of July, 2009.

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