Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_17-cv-07277/USCOURTS-cand-3_17-cv-07277-1/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1332 Diversity-Petition for Removal

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

LUIS CASTILLO,

Plaintiff,

v.

CLEANNET USA, INC., et al.,

Defendants.

Case No. 17-cv-07277-JCS 

ORDER DENYING MOTION TO 

COMPEL ARBITRATION

Re: Dkt. No. 65

I. INTRODUCTION

Plaintiff Luis Castillo brings a putative class action against Defendants CleanNet USA, 

Inc. (“CleanNet) and D&G Enterprises, Inc. dba CleanNet of the Bay Area and CleanNet of San 

Jose (“D&G”), asserting claims under the federal Trafficking Victims Protection Reauthorization 

Act (“TVPRA”), 18 U.S.C. § 1959, and the California Trafficking Victims Protection Act 

(“CTVPA”), Cal. Civ. Code § 52.5.1 Defendants bring a Motion to Compel Arbitration and Stay 

the Proceeding (“Motion”) based on an arbitration provision in the franchise agreement between

D&G and Castillo. The Motion has been fully briefed and the Court has permitted Castillo to file 

a sur-reply and supplemental evidence to respond to new evidence and arguments filed by 

Defendants with their Reply brief. A hearing on the motion was held on December 7, 2018 at 

9:30 a.m. For the reasons stated below, the Motion is DENIED.

2

 

1 The parties engaged in mediation and were able to resolve their disputes regarding other claims 

asserted by Castillo in this action, leaving only the two trafficking claims in the case. See Docket 

No. 68 (Stipulation of Dismissal of Claims 1-8). 

2 The parties have consented to the jurisdiction of the undersigned magistrate judge pursuant to 28 

U.S.C. § 636(c).

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 1 of 42
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

II. BACKGROUND

Factual Background3

Luis Castillo entered into a franchise agreement (“Franchise Agreement”) with D&G on 

September 26, 2011. Declaration of David P. Crum in Support of Defendants CleanNet USA, Inc. 

and D&G Enterprises, Inc.’s (d/b/a CleanNet of the Bay Area and CleanNet of San Jose) Motion 

to Compel Arbitration and Stay Proceedings (“Crum Decl.”) ¶ 4 & Ex. A. D&G is “an area 

operator licensed by CleanNet USA to sell franchises and to operate a franchising business using 

the CleanNet USA® registered marks and proprietary system in the San Francisco Bay area.” Id. 

¶ 3. To purchase the franchise, Castillo made a down payment of $8,500 and signed a promissory 

note for $5,000 on the day he signed the Franchise Agreement. Declaration of Luis Castillo in 

Support of Plaintiff’s Opposition to Defendants’ Motion to Compel Arbitration (“Castillo Decl.”)

¶ 14; Crum Decl., Ex. B (Promissory Note). 

The Franchise Agreement contains a section entitled “Dispute Resolution” that provides, in 

relevant part, as follows:

XXII. DISPUTE RESOLUTION 

The parties to this Agreement recognize that compliance with the terms of this 

Agreement and the nature of the Franchisor/Franchisee relationship may give rise to the 

need to resolve disputes between the parties. Both Franchisee and Franchisor wish to avoid 

the time, expense and disruption that can result from lawsuits, but they desire to have a 

method of resolving disputes that is mutually acceptable. For this purpose, the parties 

expressly agree first to resolve disputes by direct negotiation with each other. If such 

negotiations fail to reach an agreement, the party dissatisfied with the outcome of 

negotiations must submit the dispute, within 180 days, to mediation and/or arbitration 

under this Section XXII, as follows:

A. Mediation: Before, and as a necessary condition precedent to, filing a 

demand for arbitration in accordance with this Agreement, Franchisee and Franchisor shall

attempt to settle the dispute through mediation administered by the American Arbitration 

Association (“AAA”) at its office closest in proximity to Franchisor’s office in accordance 

 

3The parties have offered declarations and other evidence to support their versions of the facts, 

some of which are in dispute. Because the Court is required to weigh evidence and make factual 

findings in connection with Defendants’ Motion, the Court DENIES Plaintiff’s request that the 

evidence offered in support of Defendants’ reply brief be stricken. See Docket No. 72. Instead, 

the Court has permitted Castillo to file a sur-reply and offer his own evidence to rebut Defendants’ 

new evidence.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 2 of 42
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

with the Commercial Mediation Rules of the AAA. The filing fee for the proceeding shall 

be borne by the initiating party. The mediator’s compensation and any administrative costs 

shall be borne equally by both parties. If Franchisee and Franchisor arrive at an agreement 

through mediation, then that agreement shall be set forth in writing and be binding upon 

both parties.

Arbitration: All disputes, controversies, and claims of any kind arising 

between the parties, including but not limited to claims arising out of or relating to this 

Agreement, the rights and obligations of the parties, the sale of the franchise, or other 

claims or causes of action relating to the performance of either party that are unable to be 

settled through mediation shall be settled by arbitration administered by the AAA at its 

office closest in proximity to the Franchisor’s office, in accordance with the Federal 

Arbitration Act and the Commercial Rules of the AAA unless the parties otherwise agree 

in accordance with Section XXII.C of this Agreement.

1. This Section XXII.B shall survive expiration, non-renewal or termination

of this Agreement for any reason.

2. The filing fee for the proceeding shall be borne by the initiating party. The arbitrator’s 

compensation and any administrative costs shall be borne equally by both parties.

3. Either party shall have the right to seek a court order granting injunctive relief where 

such relief is necessary in order to provide protection on a temporary or preliminary basis 

while the arbitration process is pursued.

4. The parties expressly agree that an arbitrator shall have the power to enter an award, 

including injunctive relief, protecting its rights to the same extent a court could do so, and 

such relief shall be enforceable by a court having jurisdiction under Section XXII.E of this 

Agreement.

5. No arbitration or action under this Agreement shall include, by consolidation, joinder, or 

any other manner, any claims by any person or entity in privity with or claiming through or 

on behalf of Franchisee. Franchisee shall not seek to arbitrate or litigate as a representative 

of, or on behalf of, any other person or entity, any dispute, controversy of any kind arising 

out of or relating to this Agreement, the rights and obligations of the parties, the sale of the 

franchise, or other claims or causes of action relating to the performance of either party to 

this Agreement.

6. To the fullest extent permitted by law, direct negotiation, followed by mediation and/or 

binding arbitration, shall be the exclusive means of resolving any and all claims relating to 

this Agreement, including, but not limited to, claims of breach of contract, breach of the 

covenant of good faith and fair dealing, fraud, violation of any and all franchise 

registration, disclosure and/or franchisee protection statutes, regulations, or ordinances, 

whether federal, state or local, or any other common laws claims.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 3 of 42
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Alternative Procedures: The parties understand that specific disputes may 

make some flexibility in the foregoing dispute resolution procedures desirable. The parties 

may modify any of the negotiation, mediation or arbitration procedures as described 

below, or in any other manner that is mutually agreed:

1. Dispute Resolution Procedural Rules. Either party may propose to use a dispute 

resolution organization other than the AAA, if the proposed organization has rules

governing proceedings that are comparable in scope and formality to the AAA Commercial

Rules. Under no circumstances shall either of the parties seek to proceed under the AAA

Employment Arbitration Rules. The parties may also agree to use a private mediator or 

arbitrator who would then operate in accordance with the AAA Commercial Rules or a 

comparable set of rules.

. . .

Crum Decl., Ex. A at ECF pp. 41-42. Section XXII also provides for waiver of punitive damages, 

stating: 

FRANCISEE HEREBY IRREVOCABLY WAVES, TO THE 

FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT OR 

CLAIM FOR ANY PUNITIVE, EXEMPLARY, 

CONSEQUENTIAL, OR SPECULATIVE DAMAGES 

INCLUDNG, WITHOUT LIMITATION, LOSS OF PROFITS, AND 

AGREES THAT, IN THE EVENT OF A DISPUTE, FRANCISEE 

SHALL BE LIMITED TO THE ACTUAL DAMAGES 

SUSTAINED EXCEPT AS OTHERWISE PROVIDED HEREIN.

Id. (Section XXII(G)).

Finally, Section XXII contains a savings clause stating that “[i]f any provision of this 

Section XXII would violate applicable state or federal law, then the parties agree that such 

provision shall be excluded from the terms of this Agreement, or shall be modified to the 

minimum extent necessary to make the terms hereof lawful.” Id. at ECF p. 82 (Franchise 

Agreement, Section XXII(F)). Likewise, the Franchise Agreement contains a separate severability 

provision that provides as follows:

Except as expressly provided to the contrary herein, each section, 

part, term and/or provision of this Agreement shall be considered 

severable, and any section, part, term and/or provision herein is 

determined to be invalid and contrary to, or in conflict with, any 

existing or future law or regulation by a court or agency having valid 

jurisdiction, such shall not impair the operation of, or have any other 

effect on, such other portions, sections, parts, terms and/or provisions 

of this Agreement as may remain otherwise intelligible, and the latter 

shall continue to be given full force and effect and bind the parties 

hereto, and said invalid sections, parts, terms and/or provisions shall 

be deemed not to be a part of this Agreement; provided, however, that 

if Franchisor determines that such finding of invalidity or illegality 

adversely affects the basic consideration of this Agreement, 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 4 of 42
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Franchisor, at its option, may terminate this Agreement.

Id. at ECF p. 83 (Franchise Agreement, Section XXIV(A)).

The Franchise Agreement also contains a provision addressing the use of English 

language, which states as follows:

English Language: Franchisee acknowledges that Franchisor’s 

disclosure document and this Agreement are written in the English 

language. If English is not Franchisee’s native language, Franchisee 

warrants and represents that Franchisee has had the opportunity for 

translation of the disclosure document and this Agreement; that all 

aspects of this Agreement have been explained to Franchisee’s 

satisfaction; and that Franchisee understands and accepts this 

Agreement as written. Franchisee warrants and represents that 

Franchisee can in fact conduct business in the English language and 

that conducting business in the English language does not constitute 

an undue burden on Franchisee.

Id. at ECF pp. 78-79 (Franchise Agreement, Section XXI(D)).

As discussed below, the Franchise Agreement was provided to Castillo as part of a 

package of documents called “Franchise Disclosure Documents,” which included, among other 

things, a summary of the provisions of the Franchise Agreement. See Castillo Decl., Ex. A at ECF 

pp. 30-32. Item 17(u) on this summary lists “Dispute resolution by arbitration or mediation,” 

which is summarized on the chart as follows: “Provides for binding arbitration after mediation 

and negotiation by the parties.” Id. at ECF p. 32. Another document in the Financial Disclosures 

Document, entitled “California Addendum to Disclosures Document,” appears to add an 

additional term to the dispute resolution section of the Franchise Agreement, stating, in part, as 

follows:

Item 17(u) of this disclosure document is modified to include the 

following paragraph:

The franchise agreement requires binding arbitration. The arbitration 

will occur at the offices of the American Arbitration Association 

nearest our home office, with costs being paid by the party which does 

not substantially prevail. You are encouraged to consult private legal 

counsel to determine the applicability of California and federal laws 

(such as Business and Professions Code Section 20040.5, Code of 

Civil Procedure 1281, and the Federal Arbitration Act) to any 

provisions of the franchise agreement restricting venue to a forum 

outside of the state of California.

Castillo Decl., Ex. A (Franchise Disclosure Documents) at ECF p. 40 (“Addendum”).

Castillo does not dispute that he signed the Franchise Agreement and also initialed each 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 5 of 42
6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

page of it, including the pages containing the dispute resolution provision.4 However, there are

factual disputes about the circumstances under which he signed the Franchise Agreement and 

whether he understood what he was agreeing to. In support of his Opposition brief, Castillo 

supplied a declaration in which he describes the circumstances as follows:

3. Spanish is my primary language. I have a high school diploma but do not hold a college 

degree. I never owned a business, nor had I been trained in owning a business, prior to

purchasing the CleanNet franchise.

4. Prior to purchasing a CleanNet franchise, I worked as a janitor for over ten years. My 

yearly salary was approximately $35,000.

5. I learned about purchasing a CleanNet franchise from a Spanish magazine ad in 

approximately 2011. At the time, I had been laid off for approximately six months and 

desperately needed work to support my wife and our four children.

6. I called CleanNet and spoke with an employee of CleanNet named Vilma Vega. A few 

days later, I met her in person in Oakland, California. Vilma was eager to sell me a 

CleanNet franchise. Vilma promised I could earn $3,000 every month, and I would have 

the support of the company. I grew excited about the franchise opportunity.

7. All of my communications with Vilma over the phone had been in Spanish, and in our 

person meeting was also all in Spanish.

8. Soon after our first meeting, I returned to Oakland and Vilma gave me a large stack of 

documents. Attached to this declaration as Exhibit A is a true and correct copy of the

documents I received from Vilma in approximately September 2011.

9. None of the documents I received were in Spanish, and I was not able to read and 

comprehend the documents presented to me in English. Though I knew a few simple 

phrases, I was not capable of understanding the English, particularly the legal terminology, 

contained in documents. I had to rely upon Vilma to explain the documents to me. Vilma 

gave me some brief explanations and purported translations of what I was signing: this 

page says this, that page says that. Vilma told me I needed to sign everything in order to 

get the franchise, and she showed me where to write my initials and where to sign with 

post-it arrow flags. I felt pressured to sign right there and then. I was not given the option 

of taking it home to review with someone else.

10. I was not aware of any dispute resolution or arbitration provisions that were included 

within the contract that I signed; Vilma did not explain any of this prior to having me sign. 

I did not understand that I was giving up my right to present any legal claims in a court. I

would have not agreed to this had I known.

 

4 He did not, however, sign or initial the Addendum.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 6 of 42
7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

11. I was also not aware that there was a part of the agreement that I signed that I said I 

was capable of conducting business in English. I would not have agreed to such a 

statement.

12. I was presented with a franchise agreement on take it or leave it terms. I did not 

believe I could negotiate or alter any of the terms of the agreement, and I was not given an

opportunity to do so.

13. My second meeting with Vilma, including signing and initialing all documents, lasted 

about 1 hour. I was promised that everything was legitimate, and that I did not have

anything to worry about. I trusted the promises made to me by Vilma. I thought I was 

dealing with a large and reputable company. I was convinced my life was going to change 

for the better.

14. I paid the $8,500 down payment towards the franchise on the same day that I signed 

the contract and a promissory note for the difference of $5,000. This amount for the down 

payment was most of my life savings.

15. Currently, I earn approximately between $35,000 and $40,000 a year. My income goes 

almost entirely to cover our family’s life necessities, like rent, food, etc., and does not

permit me to save very much money. If I had to pay for arbitration of my claim, it would 

be a financial hardship to do so.

Castillo Decl., ¶¶ 3-15.5

Defendants have not offered any evidence that contradicts Castillo’s account of his 

interactions with Vilma Vega. In particular, they do not challenge the truth of Castillo’s 

statements that all of his conversations with Vega were in Spanish and or that when he signed the 

Franchise Agreement Vega “gave [him] some brief explanations and purported translations of 

what [he] was signing: this page says this, that page says that.” They also conceded at oral 

argument that there is no evidence in the record that contradicts Castillo’s statement that Vega did 

not tell him that the Franchise Agreement contained an arbitration provision.6 Instead, Defendants 

contend that Castillo had a reasonable opportunity to discover the terms of the contract, including 

 

5 Castillo’s declaration was accompanied by a declaration by Aldo Esparza, a legal assistant at 

Legal Aid who is fluent in English and Spanish, stating that Esparza translated Castillo’s 

declaration into Spanish for Castillo and that Castillo verified that all of the facts contained therein 

are true and accurate. See Esparza Decl., Docket No. 70-3.

6 Nor were Defendants able to represent to the Court at oral argument that they were aware of such 

evidence. Indeed, Defendants conceded that they had not communicated with Vega to obtain 

information about her interactions with Castillo in connection with the instant motion, even 

though Vega (who is no longer employed by Defendants) is available by telephone, according to 

Defendants.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 7 of 42
8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

the arbitration provision, and therefore, that his claim that he was induced to sign the Franchise 

Agreement by fraud is false. In support of their position, they offered evidence that was filed with 

their Reply brief that they contend shows that: 1) Castillo’s English language ability is not as 

limited as he represents in his declaration; 2) Castillo is a savvy business owner who already owns 

one business and may have more financial assets than he discloses in his declaration; and 3) 

Castillo received a copy of the Franchise Disclosure Documents, including the Franchise 

Agreement, in June 2011 and therefore had time to get it translated before signing it. Below, the 

Court summarizes this evidence.

With respect to Castillo’s ability to speak English, Defendants have offered a declaration 

by Andrew Kaska, who was employed by D&G and accompanied Castillo to meetings with 

customers who did not speak Spanish to discuss the work he was performing. Declaration of 

Andrew Kaska in Support of Defendants CleanNet USA, Inc. and D&G Enterprises, Inc.’s (d/b/a 

CleanNet of the Bay Area and CleanNet of San Jose) Reply Memorandum re Motion to Compel 

Arbitration and Stay the Proceedings (“Kaska Decl.”) ¶ 2. According to Kaska, he observed 

Castillo “conversing with customers in English.” Id. Kaska further states that his own 

conversations with Castillo “were in English and Spanish.” Id. Defendants also offer an Englishonly multiple-choice test that Castillo completed during his franchise training, suggesting that 

Castillo had some ability to comprehend English. See Declaration of David P. Crum in Support of 

Defendants CleanNet USA, Inc. and D&G Enterprises, Inc.’s (d/b/a CleanNet of the Bay Area and 

CleanNet of San Jose) Reply Memorandum re Motion to Compel Arbitration and Stay the 

Proceedings (“Crum Reply Decl.”), Ex. F.

Defendants also imply that Castillo is more sophisticated – and perhaps more financially 

well-off – than his declaration suggests. In particular, Defendants offer a business card for “J & V 

Maintenance” which shows that Castillo is the “owner,” and a business registration certificate for J 

& V Maintenance. Crum Reply Decl., Exs. D & E. According to Crum, who states that he is 

president of D&G, Castillo “gave out” the business card “[a]t or about the time he franchised with 

defendants” and produced the business registration certificate as part of his initial disclosures. 

Crum Reply Decl. ¶¶ 9-10. Defendants also introduce evidence showing that Castillo was able to 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 8 of 42
9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

pay $8,500 of the franchise cost when he signed the Franchise Agreement, introducing a copy of a 

personal check from Castillo for that amount. Crum Reply Decl., Ex. G. 

Finally, Defendants introduce evidence, in the form of a signed receipt and a subsequent 

acknowledgment of receipt, they contend shows that Castillo received a packet of Franchise 

Disclosure Documents on June 14, 2011. Crum Reply Decl., Exs. A (Receipt) & B

(Acknowledgement of Receipt). Both the Receipt and the Acknowledgment of Receipt are signed 

by Castillo and show a date of receipt of the Franchise Disclosure Documents – which is also 

handwritten on the forms – of June 14, 2011. Id. According to the Receipt, the Franchise 

Disclosure Documents included a copy of the Franchise Agreement. Id. Defendants also provide 

a copy of an application that appears to have been completed by Castillo; that document also is 

dated June 14, 2014. Crum Reply Decl., Ex. C. Crum states in the accompanying declaration that 

Castillo signed all three documents on June 14, 2011 but does not state how he knows that the 

signatures are authentic or that the date reflected on the documents is the date they were 

completed. See Crum Reply Decl. ¶¶ 6-7. 

In support of his sur-reply, Castillo provides a supplemental declaration addressing the 

evidence described above. In his supplemental declaration, Castillo states, in relevant part, as 

follows:

3. At my first meeting with a CleanNet representative, Vilma Vega, I 

was given very few pieces of paper. I recall a double-sided, two-page 

color flyer with images of janitors cleaning, advertising the CleanNet 

franchise, which I took home. I also remember being provided with a 

copy of a chart that included the different packages CleanNet offered; 

it listed monthly billings guarantees, total price, down payment and 

monthly installments. These were the only documents that I was 

provided and took home with me.

4. During our first meeting, Vilma asked me to fill out an application 

form. Since the form was in English, she helped me complete it by 

translating for me. Some of the sections, like name and address, I 

completed without her assistance, as I was familiar with those words.

Some of the portions I completed in Spanish on her direction.

5. After our first meeting, Vilma called me several times to ask when 

I was ready to come in to review and sign the agreement with her. 

During our last phone call before our second meeting, she reminded 

me to bring a check for the down payment and to make it out to 

CleanNet USA. I do not recall having any written communications 

with Vilma.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 9 of 42
10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

6. At our second meeting, on or around September 26, 2011, Vilma 

provided me a thick packet of documents. The documents were all in 

English, and I asked if she had the documents translated into Spanish. 

She told me that the documents included the Franchise Agreement I 

would have to sign. She said the documents were not in Spanish, but 

that she would be able to provide me with oral translations. I relied 

on her oral translation, as I could not read the Franchise Agreement 

and other documents myself.

7. Vilma reviewed the Franchise Agreement and other documents 

with me in about an hour. She told me this section is about this, and 

that section says that, and so on. She pointed out where I needed to 

initial or sign, which was also marked with post-it arrow flags. She 

made the process very easy, reassuring me that it was all very 

straightforward. She seemed trustworthy – as did CleanNet – and so 

I believed her.

8. As she provided brief explanations and purported oral translations 

of what we were reviewing, I recall asking her some questions based

on the content she shared, including how long before I would see the 

guaranteed monthly gross billings, and whether accounts are replaced 

if lost.

9. In reviewing the Agreement with me, Vilma did not mention 

anything regarding what would happen if l had a dispute with 

CleanNet, or if CleanNet had a dispute with me. She did not talk about 

court, or explain arbitration or anything of the type.

10. Vilma also did not mention anything about having to conduct 

business only in English. While I understand some janitorial words in 

English from working in the industry for so many years – words like 

clean, mop, vacuum, floor, window, toilet, garbage, recycle, compost

– I otherwise have limited English proficiency.

11. Vilma did not at any time advise me to consult with an attorney 

or any other person about the documents she wanted me to sign. She 

seemed eager for me sign all the documents that very day, and so I 

did, with her encouragement.

12. Before the second meeting with Vilma, I had not received a copy 

of the Franchise Agreement. Had I been provided the document in 

advance, I would have brought it home and asked my oldest child, 

who was around 16 at the time, to translate it – or at least try to 

translate it – for me, as I would typically do with documents provided 

to me in English.

13. During my time working at CleanNet, I got by using my Spanish 

and some janitorial-related words in English. The CleanNet 

representatives I spoke with, including Vilma, Andres, and Jorge, 

were bilingual in English and Spanish, and I communicated with them 

in Spanish. I was told to not talk with CleanNet clients directly, and 

certainly not outside the presence of CleanNet representatives. During 

meetings with CleanNet clients, it was the CleanNet representative, 

who primarily interfaced with the client. On November 27, 2018, I 

met with my one of my attorneys to review the documents that were 

filed with the Court by CleanNet on November 20, 2018.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 10 of 42
11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

15. I did not recognize Exhibit A [ECF 71-3], although I can confirm 

that it is my signature and printed name on the page. However, I do 

not believe that the date is my handwriting. I understand the document 

suggests that I was given six kinds of documents on or about June 14, 

2011, but that is not what happened. I do not recall signing any 

documents at my initial meeting with Vilma – except for the 

application form, which is Exhibit C [ECF 71-5].

16. As with Exhibit B [ECF 71-4], I can confirm that my signature is 

the only thing that is my handwriting on this page. I did not write the 

additional words on this page, and the dates also do not appear to be 

mine. I understand the document states that I signed the Agreement 

and provided a check on September 26, 2011, and that is correct. The 

document also states that I received a Disclosure Statement and a 

copy of the Franchise agreement on the same day as my first face-toface meeting with a CleanNet representative, and that is not correct.

17. I recognize Exhibit C [ECF 71-5] as the application form I 

completed with the assistance of Vilma during our initial meeting. All 

the writing in the document is mine except for the writing in the top 

left corner. I wrote Spanish words like “afios” and “Casado” to 

complete the form because Vilma said it was fine to respond in 

Spanish.

18. I recognize Exhibits D [ECF 71-6] and E [ECF 71-7] as 

documents related to J & V Maintenance, which was a business name 

I created in 2008 because I needed a company name to keep getting 

janitorial jobs from my then-employer. I did not have any employees, 

but I had to invoice my employer and received 1099 tax form for the 

wages I received. In 2008, I had printed a few dozen business cards 

for J & V Maintenance, and I brought one to Vilma, upon her request, 

to our second meeting. I provided the Business Registration 

Certificate for J & V Maintenance to CleanNet in 2012 also in 

response to their request to provide such a document.

19. I recognize Exhibit F [ECF 71-8] as a test I had to take after 

buying the CleanNet franchise. I recall watching several training 

videos that covered the responsibilities of a janitor like myself. All 

the videos were in English. I asked for the Spanish version, but was 

told there were none. I watched the videos alone, without any 

translation. When the time came for my test, I asked for a copy of the 

test in Spanish, but again there was none. Vilma offered to help and

basically told me the answers: put A there, put B there and circle true, 

circle false. I was able to complete the test with Vilma's assistance 

without needing to read any of the test. On the first page of Exhibit F 

[ECF 71-8], page 150, I recognize my printed name and date to be in 

my handwriting; on the last page of Exhibit F [ECF 71-8], page 162, 

I recognize the signature of my name to be in my handwriting, but not 

my name written above. I believe the signature below mine is of the 

man who was responsible for starting the training videos, but I do not 

recall his name. He did not speak Spanish, and so we did not say much 

to each other.

20. I recognize Exhibit G [Exh 71-9] as a copy of the check I wrote 

to CleanNet USA. The check was written at home, prior to my second 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 11 of 42
12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

meeting with Vilma. I remember copying “Eight Thousand and Five 

Hundred” from a reference chart for writing numbers in English in 

my checkbook. At the bottom of the check I wrote in Spanish, “Pago 

Inicial Franquiesa de Limpieza Commercial” as I did not know how 

to write that in English but I wanted it to be clear what the payment 

was for. The payment was basically my entire li[f]e savings and a 

considerable sum of money for me.

21. I do not recall meeting David Crum in person or having any 

communication with him directly before our mediation on May 1, 

2018.

22. I do not recognize the name Andrew Kaska. I had a supervisor at 

CleanNet whose name was Andres, and maybe it is the same 

individual. Andres was bilingual in English and Spanish, and we 

spoke almost entirely in Spanish. On a handful of occasions, Andres 

and I met with CleanNet clients together. Andres did the majority, if 

not all of the talking, with the CleanNet clients in English. After the 

communications, Andres pulled me aside and summarized into 

Spanish what had been said in the conversations with the CleanNet 

clients and the takeaways for me.

Castillo Supp. Decl. ¶¶ 3-22.7

Contentions of the Parties

In the Motion, Defendants ask the Court to order arbitration of Castillo’s claims under the 

Federal Arbitration Act (“FAA”), 9 U.S.C. § 2, on the basis that there is a valid and enforceable 

agreement to arbitrate between Castillo and D&G, that both D&G and CleanNet are entitled to 

invoke the arbitration agreement because they are alleged to have acted in concert, and that 

Castillo’s claims fall within the scope of the arbitration agreement. Castillo does not dispute that 

CleanNet can invoke the arbitration agreement even though it is not a signatory to the Franchise 

Agreement. Nor does he dispute that the claims he asserts in the action fall within the scope of the 

arbitration agreement or that he can arbitrate only his individual claims and not the class claims if 

his claims are subject to arbitration. He argues, however, that the arbitration agreement is void –

and therefore unenforceable – because he was induced to enter into it by fraud. In particular, he 

asserts that he does not have sufficient understanding of English to understand the terms of the 

Franchise Agreement and reasonably relied on Vega’s representations about what the agreement 

 

7 Castillo’s supplemental declaration, like his first declaration, was accompanied by a declaration 

by Aldo Esparza, a legal assistant at Legal Aid who is fluent in English and Spanish, stating that 

Esparza translated Castillo’s declaration into Spanish for Castillo and that Castillo verified that all 

of the facts contained therein are true and accurate. See Esparza Supp. Decl., Docket No. 73-3.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 12 of 42
13

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

said when he signed it and initialed each page. 

Castillo argues further that the arbitration agreement is unenforceable because it contains 

numerous provisions that are unconscionable and/or violate public policy under Armendariz v. 

Foundation Health Psychcare Servs., Inc. 24 Cal. 4th 83 (2000). In particular, he argues that the 

arbitration agreement is unenforceable because: 1) it may require that all disputes be brought 

within 180 days (hereinafter, “the 180-day requirement”); 2) it provides for only minimal 

discovery because it applies the AAA Commercial Arbitration Rules and prohibits use of the more 

liberal AAA Employment Arbitration Rules; 3) it forces Castillo to pay unreasonable costs under 

various cost provisions in the body of the Franchise Agreement and under the provision in the 

Addendum that shifts costs to the losing party; and 4) it prohibits Castillo (but not Defendants) 

from seeking punitive damages, which would be available in court on both of his trafficking 

claims. 

III. ANALYSIS

General Legal Standard

Under the FAA, “[a] written provision in . . . a contract evidencing a transaction involving 

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

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 FAA “was created to counter 

prevalent judicial refusal to enforce arbitration agreements . . . and has been interpreted to embody 

‘a liberal federal policy favoring arbitration.’” Mortenson v. Bresnan Communications, LLC, 722 

F.3d 1151, 1157 (9th Cir. 2013) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 

460 U.S. 1, 24 (1983) and citing AT&T Mobility LLC v. Concepcion (“Concepcion”), 563 U.S. 

333, 339 (2011)). Because arbitration is a matter of contract, the question of arbitrability is, in 

principle, an issue for judicial determination. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 

84 (2002). The court’s role in addressing a question of arbitrability is “limited to determining (1) 

whether a valid agreement to arbitrate exists, and if it does, (2) whether the agreement 

encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys. Inc., 207 F.3d 1126, 

1130 (9th Cir. 2000). If the court finds that both of these requirements are met, the FAA requires 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 13 of 42
14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

it to enforce the provision in accordance with its terms. Id. In this case, it is undisputed that 

Plaintiffs’ claims fall within the scope of the arbitration agreement. The only remaining question 

is whether the arbitration agreement is enforceable.

It is the burden of the party moving to compel arbitration to prove, by a preponderance of 

the evidence, that a valid arbitration agreement exists. Bruni v. Didion, 160 Cal. App. 4th 1272, 

1282 (Cal. App. 2008). If the moving party carries this burden, the opposing party must prove any 

contrary facts by the same burden. Id. (“[t]he petitioner bears the burden of proving the existence 

of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the 

petition bears the burden of proving by a preponderance of the evidence any fact necessary to its 

defense.”). “In these summary proceedings, the trial court sits as a trier of fact, weighing all the 

affidavits, declarations, and other documentary evidence, as well as oral testimony received at the 

court’s discretion, to reach a final determination.” Id.; see also Rosenthal v. Great Western Fin. 

Securities Corp., 14 Cal. 4th 394, 413 (1996) (“when a petition to compel arbitration is filed and 

accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court 

itself must determine whether the agreement exists and, if any defense to its enforcement is raised, 

whether it is enforceable”). 

Factual Findings

As a preliminary matter, the Court makes the following factual findings relevant to the 

circumstances under which Castillo entered into the Franchise Agreement. All of these findings 

are based on the preponderance of the evidence.8

 

8 At oral argument, the Court discussed the possibility of allowing the parties to engage in limited 

discovery to address factual questions related to the circumstances under which Castillo signed the 

Franchise Agreement. Upon further reflection, the Court concludes that such discovery is not 

appropriate. Both parties introduced evidence on this question in support of their briefs. Although 

the question of whether the parties entered into an agreement to arbitrate was squarely raised in 

Plaintiff’s Opposition brief, Defendants chose not to introduce any testimony from Vega in 

support of their Reply brief, even though they introduced other evidence on this question. Further, 

although Castillo stated in his declarations that he did not receive the Franchise Disclosure 

Documents in advance of the meeting in September when he signed them, and Defendants clearly 

understood the importance of this factual question (having introduced their own evidence 

purportedly showing that Castillo received these documents in June), Defendants’ counsel could 

only speculate at oral argument about what Vega’s testimony might be if she were deposed 

because they had not contacted her to discuss her interactions with Castillo or to ask her if she had 

any specific memory as to when she provided the Financial Disclosure Documents to him. (Nor 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 14 of 42
15

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

1. Castillo’s ability to speak and understand English is extremely limited. He conducted 

all of his conversations with D&G employees – both before and after entering into the Franchise 

Agreement – almost entirely in Spanish. In signing the Franchise Agreement he relied on the 

translation of that agreement provided by D&G employee Vilma Vega. Vega had previously 

assisted him in completing his franchise application, which was in English, and told Castillo he 

could respond in Spanish. She also helped him to complete the English language multiple choice 

test he was required to take after he entered into the Franchise Agreement. For the most part, 

Castillo did not communicate directly with clients and on the occasions when he met with clients, 

he was accompanied by a bilingual D&G employee who did most of the talking and translated for 

Castillo when needed. Given his very limited understanding of English, Castillo could not have 

understood the terms of the arbitration agreement in the Franchise Agreement and other Franchise

Disclosure Documents, or that he was waiving any rights, without assistance. Although he asked 

for a Spanish-language version of the Franchise Disclosure Documents, he was told that none 

existed.

2. Castillo did not receive the Franchise Disclosure Documents in advance of September 

26, 2011 meeting with Vega, when he signed them. The Receipt and Acknowledgment of Receipt 

upon which Defendants rely to show that Castillo received these documents before the September 

26, 2011 meeting were signed by Castillo but the June 14, 2011 date reflected on those documents 

was not in his handwriting and he did not write those dates, which are not accurate.9 

 

did Defendants represent to the Court that they had any reason to believe that Vega’s testimony 

would contradict Castillo’s sworn statement that Vega translated sections of the Franchise 

Agreement for him but did not tell him about the dispute resolution provisions.) As Defendants 

were unable to make a good-faith proffer at the motion hearing as to what testimony Vega might 

offer, or even that it would contradict Castillo’s testimony, the Court declines to permit further 

discovery and concludes that the record is sufficient developed to make factual findings relevant to 

the Motion.

9The Court notes that at oral argument, Defendants conceded that although these documents were 

attached to the Crum Reply Declaration, Crum had no personal knowledge with regard to who 

filled in the dates on the forms, or when they were actually completed. Rather, Defendants relied 

on these documents (including the dates stated in them) on the basis that they were “business 

records.” The business record exception against hearsay under Rule 803(6) of the Federal Rules 

of Evidence applies only if the custodian of the records, or some other “qualified witness” offers a 

declaration attesting that “the record was made at or near the time by--or from information 

transmitted by--someone with knowledge; . . . the record was kept in the course of a regularly 

conducted activity of a business, organization, occupation, or calling, whether or not for profit; 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 15 of 42
16

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

3. Vega encouraged Castillo to come to the September 26, 2011 meeting with a check to 

cover the down-payment for the franchise, which he did. She also encouraged him to sign the 

documents at that meeting and did not advise him to take them home to review them or to obtain 

assistance in understanding them or the advice of an attorney. 

3. Castillo’s financial means are limited; he earns approximately $35,000 to $40,000 a year 

and this income is devoted almost entirely to supporting his wife and four children. J & V 

Maintenance is simply a d/b/a that Castillo was required by a former employer to adopt to receive

payment for his work. It does not have any employees other than Castillo, who, at the time he 

purchased his franchise, had worked as a janitor for ten years and earned approximately $35,000 a 

year. At the time he signed the Franchise Agreement, Castillo was under financial pressure 

because he had been laid off more than six months before and desperately needed work to support 

his family.

Whether the Franchise Agreement is Void Due to Fraud in the Inception

Castillo contends that the Motion should be denied because there was fraud in the 

inception and therefore, under California law, the arbitration agreement is void. Defendants do 

not dispute that California contract law applies to the question of whether there is a valid 

agreement to arbitrate. See Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir. 1998) 

(holding that courts apply state contract law in determining the validity and scope of an arbitration 

agreement). They argue, however, that Plaintiff has not demonstrated that the arbitration

agreement is void under the doctrine of fraud in the inception. The Court disagrees.

California law provides that if there is fraud in the inception of an agreement such that 

“the promisor is deceived as to the nature of his act,” then “mutual assent is lacking” and the 

contract is void. Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 415 (1996). This theory 

can apply to void arbitration clauses. Id. at 415-16. To succeed on this theory, Plaintiff must show:

 

[and] making the record was a regular practice of that activity.” Fed.R. Evid. 803(6)(A)-(C). The 

Crum Reply Declaration does not satisfy these requirements, which are not addressed at all. 

Furthermore, the business records exception does not apply if the opponent “show[s] that the 

source of information or the method or circumstances of preparation indicate a lack of 

trustworthiness,” as is the case here. 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 16 of 42
17

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

(1) misrepresentation (including by omission) and (2) reasonable reliance on that

misrepresentation. Id. at 419–20; Ramos v. Westlake Servs. LLC, 242 Cal. App. 4th 674, 688–89 

(2015); Vasquez v. Libre by Nexus, Inc., No. 17-cv-00755 CW, Docket No. 76 (Order on Motion 

to Compel, Motion to Dismiss, and Motion for Sanctions) (hereinafter, “Vasquez Order”) at 7. 

Here, Vega purported to describe the contents of the Franchise Agreement at the time Castillo

signed it and did not disclose that the Franchise Agreement (or the Franchise Disclosure 

Documents generally) included an agreement to arbitrate disputes between the parties. Therefore, 

the first requirement is met. The question that remains for the Court to decide is if Castillo 

reasonably relied on Vega’s description of the contents of the Franchise Agreement. The Court 

finds that he did.

In addressing the question of reasonable reliance, the Court looks for guidance to the 

handful of cases that have addressed this question under similar circumstances, starting with the 

California Supreme Court’s decision in Rosenthal. In that case, the court explained that “[w]here . 

. . a party’s apparent assent to a written contracted is negated by fraud in the inception, there is 

simply no arbitration agreement to be enforced.” 14 Cal. 4th at 416 (emphasis in original).

10 Thus, 

an arbitration agreement may be “wholly void, despite the parties’ apparent assent to it, when 

‘without negligence on his part, a signer attaches his signature to a paper assuming it to be a paper 

of a different character.’” Id. at 420 (quoting CIT Corp. v. Panac, 25 Cal. 2d 547, 549 (1944))

(emphasis added in Rosenthal) (internal citations and quotations omitted). The Court in Rosenthal 

found that that rule would apply to investors who signed client agreements containing an 

arbitration clause where they had very limited understanding of English and relied on a description 

of the contents of the agreement by two representative of the investment company (“GWB”) who 

they believed (erroneously) to be employed by a bank where they maintained deposits

(“GWFSC”). Id. at 427-428. Although the California Supreme Court remanded for further 

factual findings because it found the evidence to be ambiguous, it made clear that “[i]n light of the 

 

10 In Rosenthal, and in California case law generally, “fraud in the inception” and “fraud in the 

execution” are used interchangeably. See 14 Cal. 4th at 415. For simplicity, the undersigned uses 

“fraud in the inception” herein but considers the two phrases to refer to the same concept. 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 17 of 42
18

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

plaintiff’s past relationship with GWB, which they were led to believe was also the employer of 

[the representatives], their limited ability to understand English, and [the representatives’] 

representations that their oral recitals accurately reflected the terms of the agreement, plaintiffs 

would not have been negligent in relying on the GWFSC representatives instead of reading the 

agreement themselves.” Id. at 428. 

On the other hand, the Rosenthal court found that there was not fraud in the inception as to 

other investors who had no difficulty speaking or understanding English and claimed that they 

signed the client agreement that contained the arbitration clause without reading it based on 

assurances by representatives of GWB (who they also believed were employed by their bank, 

GWFSC) that they didn’t need to read the contract. Id. at 424. In that situation, the court 

explained, the facts were not “so compelling as to make reasonable plaintiffs’ complete reliance 

on the representatives.” Id. Instead, under these circumstances the clients’ long-term relationship 

with GWB only explained “to some degree” their reliance on the assurances of the representatives 

and did not “establish these plaintiffs lacked a reasonable opportunity to learn the character of the 

documents they signed.” Id. at 425.

In Ramos v. Westlake Services LLC, the California Court of Appeal relied on Rosenthal to 

find that an arbitration clause was void due to fraud in the inception. There, the plaintiff, Alfredo 

Ramos, whose primary language is Spanish, purchased a used car at a car dealership, signing a 

contract, entitled “Conditional Sale Contract and Security Agreement” (“Sale Contract”) that was 

in English. 242 Cal. App. 4th at 677-679. The Sale Contract contained an arbitration provision. Id. 

at 679. Ramos was greeted at the dealership by an employee who spoke Spanish with him, and 

the transaction was primarily conducted in Spanish. Id. at 686-687. The contract Ramos signed 

was in English but he was also provided with a Spanish language version of the Sale Contract (the 

“Ramos Translation”); that version, however, did not contain the arbitration provision. Id. at 680. 

Under these circumstances, the court refused to enforce the arbitration provision, finding fraud in 

the inception because Ramos’s reliance on the Spanish translation of the Sale Contract was 

reasonable. Id. at 690. The court explained:

The Ramos Translation was not just inaccurate. Rather, it completely 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 18 of 42
19

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

omitted the arbitration agreement that [Defendant] now seeks to 

enforce. By providing Ramos a translation that did not even reference 

arbitration, let alone translate the terms of the arbitration agreement, 

[Defendant] “deprived [Ramos] of a reasonable opportunity to learn 

the character and essential terms of the [arbitration agreement] he 

signed.

242 Cal. App. 4th at 690 (quoting Rosenthal, 14 Cal. 4th at 428). 

Finally, in Vasquez, Judge Wilken reached a similar conclusion based on Rosenthal and 

Ramos, finding fraud in the inception with respect to an arbitration provision signed by individuals 

who only speak and read Spanish. In Vasquez, the plaintiffs were individuals from Honduras who 

had come to the United States to seek asylum and had been detained by United States Immigration 

and Customs Enforcement (“ICE”). Vasquez Order at 1. The defendant, Libre by Nexus 

(“LBN”), is an organization that works with families to seek release of their family members from 

immigration detention. Id. The plaintiffs’ spouses contacted LBN to arrange for their release and 

LBN, in turn, picked up each of the plaintiffs, gave them a cell phone to contact their families, and 

drove them to an LBN office. Id. at 2. There, the plaintiffs were presented with disclosures and 

agreements written in English and LBN discussed some portions of the agreements with the 

plaintiffs in Spanish. Id. at 3. LBN representatives did not, however, discuss the arbitration 

provision in the agreements. Id. Further, although LBN gave the plaintiffs a document in Spanish 

containing “five key points” it also did not mention the arbitration provision. Id. at 4. The court 

found fraud in the inception for the following reasons:

Here, Plaintiffs have sufficiently shown that LBN fraudulently 

concealed the arbitration clause. The parties agree that LBN did not 

provide Plaintiffs with a written Spanish version of the arbitration 

clause. The “key facts” sheet does not mention the arbitration clause. 

. . . Instead, LBN contends that it translated the entire contract 

(including the arbitration clause) into Spanish orally. But Plaintiffs 

each testified that LBN representatives did not translate or explain the 

arbitration clause. . . . And LBN’s own evidence shows that it is 

unlikely that LBN translated the arbitration clause into Spanish for 

Plaintiffs . . . Plaintiffs only speak and read Spanish and are not 

proficient in English. . . LBN representatives purported to translate 

the English-language contract into Spanish orally. Thus, Plaintiffs 

reasonably relied on LBN’s oral representations and “key facts” sheet 

as accurate translations of the English-language agreements.

Id. at 8-9.

The cases above instruct that the threshold for demonstrating fraud in the inception is high. 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 19 of 42
20

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

The fact that an individual who signs an arbitration agreement is not proficient in English is not, 

by itself, enough to demonstrate fraud in the inception, even if the agreement was provided only in 

English. As the court in Ramos noted, “[n]o law requires that parties dealing at arm’s length have 

a duty to explain to each other the terms of a written contract.” 242 Cal. 4th at 686 (internal 

quotation and citation omitted). Thus, California courts have held that “one who accepts or signs 

an instrument, which on its face is a contract, is deemed to assent to all its terms, and cannot 

escape liability on the ground that he has not read it.” Id. (internal quotations and citations

omitted). This rule applies even to someone who can’t read, who is expected to “have it read or 

explained to him.” Id. (internal quotations and citations omitted). Similarly, in Rodriguez v. Sim, 

Judge Larson found that there was no fraud in the inception where the plaintiff’s primary language 

was Spanish but she had had the contract (which was in English) at home and therefore had an 

opportunity to discover the arbitration provision. No. C 08-3982 JL, 2009 WL 975457, at *6 (N.D. 

Cal. Apr. 10, 2009). In particular, he reasoned that “[h]aving the written Arbitration Agreement at 

home, with her English-speaking son, Mario Nunez, who actually assisted her in filling out the 

certification of the Arbitration Agreement, Plaintiff had a reasonable opportunity to discover its 

terms.” Id.

In Rosenthal, Ramos and Vasquez, however, there were additional facts that rendered the 

agreements these plaintiffs signed void, namely, representations on which these plaintiffs relied 

and circumstances that made it reasonable for them to rely on these representations. In each case, 

somewhat different facts supported the courts’ conclusion that the plaintiff’s reliance was 

reasonable but the Court finds that there is significant overlap between the facts in those cases and 

the facts here. Like the plaintiffs in Rosenthal, Ramos and Vasquez, Castillo is not proficient in 

English and could not have understood the arbitration agreement (or the Franchise Disclosure 

Documents as a whole) without assistance. Having asked for a Spanish language translation of the 

agreement and been told there was none, he relied on Vega’s assurance that she would assist him 

and he relied on her translation of the documents. Castillo Supp. Decl., ¶ 6 (“She said the 

documents were not in Spanish, but that she would be able to provide me with oral translations. I 

relied on her oral translation, as I could not read the Franchise Agreement and other documents 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 20 of 42
21

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

myself.”). In fact, she had assisted him before, when he completed the application at his first 

meeting with her. See id. ¶ 4 (“During our first meeting, Vilma asked me to fill out an application 

form. Since the form was in English, she helped me complete it by translating for me. Some of the 

sections, like name and address, I completed without her assistance, as I was familiar with those 

words. Some of the portions I completed in Spanish on her direction.”). Based on this past 

assistance and his numerous conversations with Vega prior to signing the Franchise Agreement 

Castillo, like the plaintiffs in Rosenthal, believed he could trust Vega’s translation. It is undisputed 

that Vega did not tell Castillo about the existence of the arbitration provision in the Franchise 

Agreement, much less explain what it meant. Nor is there any evidence in the record that she told 

Castillo about the Addendum that shifts the costs of arbitration to the losing party.

In addition, unlike the plaintiffs in Sim, Castillo did not have an opportunity to review the 

Franchise Agreement or other Franchise Disclosure Documents at home before signing the 

Franchise Agreement. Instead, he was presented with these documents for the first time at the 

meeting that he and Vega had set up to finalize the agreement and make a down-payment, on 

September 26, 2011. Vega did not encourage Castillo to consult an attorney or obtain English 

language assistance so that he could fully understand the terms of the documents he was signing; 

instead, she encouraged him to rely on her translation of the documents. Under these 

circumstances, the Court concludes that Castillo has demonstrated that he reasonably relied on 

Vega’s translation and was unaware that he was entering into an arbitration agreement, giving rise 

to fraud in the inception and rendering the arbitration agreement void.

Whether the Arbitration Agreement is Enforceable under Armendariz

Castillo argues that even if the Court does not find fraud in the inception, it should not 

enforce the arbitration agreement because it contains numerous provisions that are unconscionable 

or violate public policy under Armendariz and the agreement cannot be fixed by severing them. 

The Court concludes that Plaintiff is correct.11

 

11 As discussed below, the Court concludes that the Armendariz requirements that apply to 

agreements to arbitrate claims asserted under state statutes are largely mirrored by requirements 

under federal common law that apply to agreements to arbitrate claims asserted under federal 

statutes. While the Court may refer as a short-hand to the Armendariz factors, to the extent it 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 21 of 42
22

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

1. Overview of Armendariz 

In Armendariz, the California Supreme Court addressed whether employees who had 

signed an arbitration agreement as a condition of their employment could be compelled to arbitrate 

wrongful termination claims asserted under California’s Fair Employment and Housing Act 

(“FEHA”) and related contract and tort claims. 24 Cal. 4th 83, 92 (2000). The court began its 

analysis by addressing whether FEHA prohibited arbitration outright. Id. at 98-99. It concluded 

that it does not, finding that there was “nothing in the language or the legislative history of the 

FEHA that suggests it was intended to prohibit arbitration.” Id. at 98. Nonetheless, it found that 

the rights protected under FEHA are unwaivable because the law was enacted for a public purpose

and therefore, that arbitration agreements that encompass such rights must be “subject to particular 

scrutiny.” Id. at 100. The court explained that the “unwaivability” of the rights protected under 

FEHA derives from “two statutes that are themselves derived from public policy.” Id. First, 

California Civil Code section 1668 states that contracts that “have for their object . . . to exempt 

anyone from responsibility for his own . . . violation of law . . . are against the policy of the law.” 

Id. (quoting Cal. Civ. Code § 1668). Second, California Civil Code section 3513 provides that 

“[a]nyone may waive the advantage of a law intended solely for his benefit. But a law established 

for a public reason cannot be contravened for a private reason.” Id. (quoting Cal. Civ. Code § 

3513). The Armendariz court concluded that an arbitration agreement may be enforced with 

respect to unwaivable statutory rights if it “‘(1) provides for neutral arbitrators, (2) provides for 

more than minimal discovery, (3) requires a written award, (4) provides for all of the types of 

relief that would otherwise be available in court, and (5) does not require employees to pay either 

unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration 

forum.’” Id. at 102 (quoting Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1481-1482 (D.C. Cir. 

1997)). An arbitration agreement that does not meet these requirements (hereinafter, “the 

Armendariz requirements”) is unenforceable with respect to unwaivable statutory claims because, 

under Armendariz, it results in the waiver of substantive rights protected by the statute and 

 

addresses the enforcement of the arbitration agreements as to claims under federal statutes, the 

Court also relies on the standards of federal common law.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 22 of 42
23

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

therefore is against public policy. 

The court in Armendariz went on to apply these principles to the arbitration agreement in 

that case, which incorporated all of the rules of the California Arbitration Act (“CAA”).12 First, 

the court concluded that the arbitration provision was against public policy to the extent that it 

explicitly provided that an award of backpay was the exclusive remedy available for violations of 

the terms, conditions, or covenants of employment. Id. at 103-104. The court found that this 

provision applied to all claims asserted by an employee, including statutory claims, thus 

prohibiting the employee plaintiffs from recovering punitive damages and attorneys’ fees if they 

prevailed on their FEHA claims, even though FEHA provides for both. Id. at 104. Therefore, the 

court found the limitation on remedies in the arbitration agreement to be unlawful. Id.

With respect to whether the arbitration agreement permitted adequate discovery to protect 

the employees’ substantive statutory rights, the court found that it did because it incorporated the 

rules set forth in the California Arbitration Act (“CAA”), which permit some discovery. Id. 

(citing Cal. Civ. Code §1283.05). The court further found that “when parties agree to arbitrate 

statutory claims, they . . . explicitly agree, absent express language to the contrary, to such 

procedures as are necessary to vindicate that claim.” Id. at 106. The court reasoned that the 

employer had, “by agreeing to arbitrate the FEHA claims . . . already impliedly consented to such 

discovery” and therefore, that the arbitration agreement provided for “more than minimal 

discovery.” Id. Similarly, the court found that the written award requirement was met because the 

CAA permits written findings and to the extent such written findings are required under FEHA, 

the arbitration agreement must be interpreted to provide for such findings. Id. at 107.

Finally, the court in Armendariz addressed whether a provision of the CAA requiring 

parties to pay a pro rata share of arbitration costs, Cal. Civ. Code section 1284.2, rendered the 

arbitration agreement invalid. The court held that “the imposition of substantial forum fees is 

contrary to public policy, and is therefore grounds for invalidating or revoking an arbitration 

agreement.” Id. at 110. Conversely, the court held that “a mandatory employment arbitration 

 

12 The Armendariz court did not address the neutral arbitrator requirement because it was not at 

issue in the case. Id. at 103. That requirement also is not at issue in this case.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 23 of 42
24

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the 

employer to pay all types of costs that are unique to arbitration.” Id. at 113. Nonetheless, the 

court found that the parties’ arbitration agreement did not conflict with that requirement because it 

contained no “specific provisions on arbitration costs” and California Civil Code section 1284.2 is 

a “default provision” that did not apply because of the parties’ implicit agreement “to abide by the 

substantive remedial provisions of the statute.” Id. at 112. 

The court in Armendariz went on to conduct a separate analysis addressing whether the 

arbitration agreement was unenforceable based on the state law contract defense of 

unconscionability, which applies not only to unwaivable statutory rights but to all claims. Id. at 

113-121. The court explained that under California law, a contract is invalid “if it is both 

procedurally and substantively unconscionable.” Id. at 114-15. The court explained that 

procedural unconscionability focuses “on ‘oppression’ or ‘surprise’ due to unequal bargaining 

power,” while substantive unconscionability focuses “on ‘overly harsh’ or ‘one-sided’ results.” 

Id. at 114 (internal citations omitted). While both must be present in order for a contract to be 

declared unconscionable, courts apply a “sliding scale” where “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. at 114. The Armendariz court 

found that the procedural unconscionability requirement was met in that case because the 

arbitration agreement was one of adhesion, that is, it was a mandatory condition of employment 

where there was no opportunity to negotiate and the employer had superior bargaining power. Id. 

at 114-115. 

The court also found that the arbitration agreement was substantively unconscionable 

because it was one-sided. Id. at 117-121. In particular, it required employees to arbitrate claims 

for wrongful termination but did not require the employer to submit to arbitration other claims that 

might arise out of the employee’s termination. Id. The court reasoned that an arbitration 

agreement contained in an adhesion contract must have a “modicum of bilaterality” to avoid 

substantive unconscionability. Id. at 117. The court found the unfairness that resulted from the 

one-sidedness of the arbitration agreement was exacerbated by the limitation on remedies 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 24 of 42
25

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

discussed above, which was also substantively unconscionable. Id. at 121. 

Finally, the Armendariz court addressed whether the provisions that were unconscionable 

or violated public policy in the arbitration agreement rendered the entire agreement unenforceable 

or rather, whether the arbitration agreement could be enforced so long as the unlawful provisions 

were severed. Id. at 121-127. The court concluded that the entire agreement was unenforceable 

because: 1) there was more than one provision that was unlawful; and 2) as to the lack of 

bilaterality, the court found that the problem could only be remedied by reforming the agreement 

to impose additional obligations on the employer, something the court did not have the power to 

do. Id. As a consequence, the court concluded it could not remedy the deficiencies in the 

arbitration agreement simply by severing the offending provisions. Id.

2. Concepcion and Preemption of State Law Defenses

Subsequent to Armendariz, the U.S. Supreme Court addressed the savings clause in 

Section 2 of the FAA in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). In that 

case, the Supreme Court rejected the holding of Discover Bank v. Superior Court, 36 Cal.4th 148

(2005), in which the California Supreme Court found that a class action waiver in an arbitration 

agreement that was part of an adhesion contract was unconscionable and therefore invalid. While 

recognizing that the savings clause of the FAA “permits agreements to arbitrate to be invalidated 

by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’” the 

Supreme Court in Concepcion held that “defenses that apply only to arbitration or that derive 

their meaning from the fact that an agreement to arbitrate is at issue” are preempted by the FAA. 

Id. (quoting Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Thus, even 

generally applicable contract defenses may be preempted if they “stand as an obstacle to the 

accomplishment of the FAA’s objectives.” Id. at 343. Applying that rule, the Court concluded 

that the prohibition against a class action waiver in an arbitration agreement under the guise of 

unconscionability “interfere[d] with fundamental attributes of arbitration,” namely, “to “facilitate 

streamlined proceedings,” and therefore, that the Discover Bank rule was preempted by the FAA.

Id. at 344. 

In the wake of Concepcion, California courts, including the California Supreme Court, 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 25 of 42
26

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

have found that Armendariz is still good law, relying on the Supreme Court’s affirmation of the 

principle that the savings clause of the FAA permits application of state law contract defenses 

such as unconscionability in the context of arbitration agreements. See Ramos v. Superior Court 

of San Francisco Cty., 28 Cal. App. 5th 1042 (Cal. Ct. App. 2018), as modified (Nov. 28, 2018)

(“Since Concepcion was decided, the California Supreme Court has reaffirmed the validity of 

Armendariz multiple times”) (citing McGill v. Citibank, N.A. 2 Cal. 5th 945, 962–963 (2017); 

Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899, 910 (2015); Sonic-Calabasas A, Inc. v. 

Moreno, 57 Cal.4th 1109, 1169 (2013)). Thus, for example, in Ramos v. Superior Court, the 

California Court of Appeal recently held that provisions of an arbitration agreement contained in a 

partnership agreement were unlawful both because they did not meet the five Armendariz 

requirements and because they were unconscionable. Nonetheless, the undersigned is mindful in 

applying Armendariz to the issues presented in this case that under Concepcion, state law 

defenses must not interfere with the fundamental attributes of arbitration. 

3. Cole, Gilmer and agreements to arbitrate claims asserted under federal 

statutes

While the Armendariz requirements discussed above apply to agreements to arbitrate 

claims asserted under state statutes, those requirements are drawn from federal common law, 

which establishes similar requirements for agreements to arbitrate federal statutory claims.13 In 

particular, the California Supreme Court in Armendariz looked to Cole v. Burns Int’l Sec. Servs., 

105 F.3d 1465, 1481-1482 (D.C. Cir. 1997) for guidance. In Cole, the Court of Appeals for the 

D.C. Circuit addressed whether a Title VII claim could be subject to arbitration, balancing

Congress’s intent in enacting the FAA and Title VII. 105 F.3d at 1482-1483; see also Fox v. 

Computer World Servs. Corp., 920 F. Supp. 2d 90, 101 (D.D.C. 2013) (“the Cole decision was 

based on balancing the goals of two competing federal statutes: promoting arbitration under the 

 

13 At oral argument, counsel for Plaintiff conceded that the Armendariz requirements apply to 

claims asserted under state statutes but that the public policy analysis in that case does not 

necessarily apply where a claim is asserted under a federal statute. Because Castillo asserts his 

trafficking claims under both state and federal statutes, the Court looks beyond Armendariz to the 

standards articulated under federal common law on the question of when arbitration agreements 

are enforceable as to claims asserted under federal statutes.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 26 of 42
27

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

FAA and preventing employment discrimination under Title VII.”). The court looked to Gilmer v. 

Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (U.S. 1991), for guidance.

In Gilmer, the plaintiff asserted a claim under the Age Discrimination in Employment Act

against his employer, who sought to compel arbitration under an arbitration provision the plaintiff 

was required to sign as a condition of employment. 500 U.S. 20, 23-24 (1991). The Supreme 

Court explained that “[i]t is by now clear that statutory claims may be the subject of an arbitration 

agreement, enforceable pursuant to the FAA.” 500 U.S. 20, 26 (U.S. 1991). It further “recognized 

that ‘[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights 

afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, 

forum.’” Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 

628 (1985)). Consequently, the Court held, “‘[s]o long as the prospective litigant effectively may 

vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to 

serve both its remedial and deterrent function.’” Id. (quoting Mitsubishi, 473 U.S. at 637). The 

Court went on to find that that standard was met under the parties’ arbitration agreement because it 

provided for: 1) a neutral arbitrator; 2) sufficient discovery to afford the plaintiff a “fair 

opportunity” to pursue his claims; 3) a written opinion by the arbitrator; and 4) the same authority 

to award equitable relief as could be awarded by a court. Id. at 30-32.

In Cole, the court concluded that under Gilmer’s “effective vindication” doctrine, an 

arbitration agreement is enforceable with respect to federal statutory claims so long as it: “(1) 

provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a 

written award, (4) provides for all of the types of relief that would otherwise be available in court, 

and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or 

expenses as a condition of access to the arbitration forum.” 105 F.3d at 1482. The first four 

requirements are taken directly from Gilmer, but the fifth requirement was not addressed in 

Gilmer because in that case the arbitration agreement provided that the employer would pay all of 

the arbitrator’s fees. Cole, 105 F.3d at 1483-84. The court in Cole concluded that the fifth 

requirement was consistent with Gilmer for the following reasons:

[I]n Gilmer, the Supreme Court endorsed a system of arbitration in 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 27 of 42
28

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

which employees are not required to pay for the arbitrator assigned to 

hear their statutory claims. There is no reason to think that the Court 

would have approved arbitration in the absence of this arrangement. 

Indeed, we are unaware of any situation in American jurisprudence in 

which a beneficiary of a federal statute has been required to pay for 

the services of the judge assigned to hear her or his case. Under 

Gilmer, arbitration is supposed to be a reasonable substitute for a 

judicial forum. Therefore, it would undermine Congress’s intent to 

prevent employees who are seeking to vindicate statutory rights from 

gaining access to a judicial forum and then require them to pay for the 

services of an arbitrator when they would never be required to pay for 

a judge in court.

Id. at 1484. The court went on to conclude that while reasonable arbitration costs comparable to 

the filing fees and administrative costs that parties must assume in federal court are not 

problematic, the daily arbitrator fees that the employee may have been required to pay in that case

(the court found the arbitration agreement was unclear on who would pay these costs) were 

“prohibitively expensive” and that “it [was] unacceptable to require Cole to pay arbitrators’ fees, 

because such fees are unlike anything that he would have to pay to pursue his statutory claims in 

court.” Id. It therefore read the arbitration agreement as requiring the employer to pay all costs of 

arbitration and enforced the agreement based on that interpretation. Id. at 1485. 

Courts continue to apply the Cole requirements to determine whether an arbitration 

agreement effectively vindicates the substantive rights afforded by a federal statute. See, e.g., 

CarMax Auto Superstores California LLC v. Hernandez, 94 F. Supp. 3d 1078, 1099 (C.D. Cal. 

2015) (“to be enforceable, an agreement to arbitrate claims based on statutory rights must meet 

minimum requirements first articulated in Cole v. Burns International Sec. Services, 105 F.3d 

1465 (D.C.Cir.1997)”); Arreguin v. Glob. Equity Lending, Inc., No. C07-06026 MHP, 2008 WL 

4104340, at *6 (N.D. Cal. Sept. 2, 2008) (listing Cole requirements and noting that both the Ninth 

Circuit and the California Supreme Court have cited to this portion of Cole with approval) (citing 

Ting v. AT&T, 319 F.3d 1126, 1151 (9th Cir. 2003); Armendariz, 24 Cal.4th at 102). However, in 

the wake of the Supreme Court’s decision in Green Tree Fin. Corp.-Alabama v. Randolph, 531 

U.S. 79, 90 (2000), some courts have concluded that the application of the fifth Cole requirement 

must be limited to the extent that Cole set forth a per se rule prohibiting arbitration agreements 

that “contemplate an employee paying arbitral expenses other than those analogous to federal 

court filing fees and administrative expenses.” Andresen v. IntePros Fed., Inc., 240 F. Supp. 3d 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 28 of 42
29

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

143, 152 (D.D.C. 2017). 

In Green Tree, the Supreme Court recognized that “the existence of large arbitration costs 

could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral 

forum.” 531 U.S. 79, 90 (2000). Nonetheless, it found that the arbitration agreement in that case 

was enforceable, even though it was silent as to who would bear the costs and fees of arbitration 

and there was a risk that the plaintiff would be required to pay prohibitive costs. Id. at 90-91. The 

Court reasoned that “[t]he party seeking to avoid arbitration bears the burden of establishing that 

Congress intended to preclude arbitration of the statutory claims at issue. . . Similarly, we believe 

that where, as here, a party seeks to invalidate an arbitration agreement on the ground that 

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

of incurring such costs.” Id. The undersigned agrees with the court in Andresen that while the 

Cole requirements remain good law, the fifth factor requires that the party opposing arbitration 

show that prohibitive costs are likely to be imposed upon that party, consistent with Green Tree.

14

4. Whether the Arbitration Agreement Meets the Requirements of Armendariz 

Gilmer and Cole

As a preliminary matter, the Court finds that the CTVPA, under which Castillo asserts his 

state law trafficking claim, was enacted for a public purpose and therefore, that the rights afforded 

under that statute are unwaivable. See 2005 Cal. Legis. Serv. Ch. 240 (A.B. 22) (adding human 

trafficking to the list of matters to be prioritized by the Attorney General, alongside “organized 

 

14 It is not clear whether the Supreme Court’s holding in Green Tree imposes the same burden on 

parties challenging cost provisions in arbitration agreements under Armendariz. The California 

Supreme Court has held that it does not. See Little v. Auto Stiegler, Inc., 29 Cal. 4th 1064, 1085 

(2003) (“we do not believe that the FAA requires state courts to adopt precisely the same means as 

federal courts to ensure that the vindication of public rights will not be stymied by burdensome 

arbitration costs. We continue to believe that Armendariz represents the soundest approach to the 

problem of arbitration costs in the context of mandatory employment arbitration. We therefore 

conclude that on remand the court compelling arbitration should require the employer to pay in 

this case ‘all types of costs that are unique to arbitration.’”) (quoting Armendariz, 24 Cal.4th at p. 

113.). However, Little was decided before Concepcion, which raises the possibility that the

approach to evaluating whether cost provisions in arbitration agreements are enforceable under 

Armendariz and Little may no longer be consistent with the Supreme Court’s jurisprudence 

relating to FAA preemption. The Court need not decide this question, though, because it finds that 

Castillo has met the more stringent standard under Green Tree, as discussed below.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 29 of 42
30

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

crime, gang activities, drug trafficking, and cases involving a high degree of risk to the witness” 

under CTVPA). The Court further finds that the Armendariz requirements are not limited to the 

arbitration of FEHA claims but rather, apply to the arbitration of any claim asserted under a 

California statute that affords unwaivable rights. See Mercuro v. Superior Court, 96 Cal.App.4th 

167, 180 (2002) (concluding that Armendariz factors apply to Labor Code violations and all 

claims under any statute enacted for a public reason). Accordingly, the Armendariz requirements 

apply to the parties’ agreement to arbitrate the CTVPA claim. Likewise, the requirements of 

federal common law, as set forth in Gilmer and Cole and limited by Green Tree and Concepcion, 

apply to the arbitration of Castillo’s federal trafficking claim. Below, the Court addresses these 

requirements as they relate to the provisions of the arbitration agreement at issue here.

The 180-day requirement: As discussed above, the Franchise Agreement requires that the 

parties must engage in direct negotiations before pursuing mediation or arbitration and states that 

“[i]f such negotiations fail to reach an agreement, the party dissatisfied with the outcome of 

negotiations must submit the dispute, within 180 days, to mediation and/or arbitration under this 

Section.” Crum Decl., Ex. A at ECF pp. 41. Although Defendants agree to waive this provision, 

they contend it is not problematic because it does not limit the time allowed for initiating direct 

negotiations in the first instance. Reply at 10. They further assert that because the Franchise 

Agreement does not expressly state that claims are barred if the 180-day requirement is not met, 

failure to satisfy that requirement will not result in any claim being barred. Id. The Court rejects 

both arguments.

Courts have found that arbitration agreements that impose a shorter limitations period than 

is permitted by statute may be unconscionable and deprive a plaintiff of the full range of statutory 

remedies – and thus, their substantive rights under the statute – in violation of Armendariz and 

Gilmer. See Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 895 (9th Cir. 2002) (holding that 

one year limitations period on arbitration of claims under arbitration agreement deprived the 

plaintiff of the right to assert claims under FEHA’s continuing violation doctrine and therefore 

deprived the plaintiff of his full range of statutory remedies); Al-Safin v. Circuit City Stores, Inc., 

394 F.3d 1254, 1262 (9th Cir. 2005) (citing Adams and finding that arbitration agreement required 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 30 of 42
31

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

the plaintiff to “forgo essential substantive and procedural rights” based, in part, on reduced

limitation period); Graham Oil Co. v. Arco Products Co., 43 F.3d 1244, 1247-1248 (9th Cir. 1994) 

(finding that where arbitration provision in franchise agreement “reduce[d] the time in which a 

claim [could] be brought from one year to 90 days or in some cases six months” it “strip[ped] 

franchisees” of their statutorily mandated rights in violation of Gilmer); Wherry v. Award, Inc., 

192 Cal. App. 4th 1242, 1249 (2011) (holding that arbitration agreement that required the plaintiff 

to bring claims within 180 days instead of the one year allowed under FEHA deprived the plaintiff 

of statutorily mandated rights under Armendariz).

Turning to the 180-day requirement here, the Court finds that the provision is ambiguous 

but that under any reasonable interpretation, it deprives Castillo of his substantive rights and 

remedies under the trafficking statutes at issue in this case. Because the language quoted above 

does not clearly state what the 180-day requirement relates to, it could be interpreted in a number 

of ways. One reasonable interpretation is that this language requires that claims be brought to 

arbitration within 180 days of the relevant conduct. (The Court disagrees with Defendants that this 

provision does not place limitations on the time allowed to initiate direct negotiations as the 

language is not clear on that point.) In contrast, the federal trafficking claim has a 10-year statute 

of limitations and the California trafficking law has a seven-year statute of limitations. 18 U.S.C. 

§ 1595(c); Cal. Civ. Code § 52.5(c). Further, under the California trafficking statute, this 

limitation period is tolled if “a person entitled to sue is under a disability at the time the cause of 

action accrues so that it is impossible or impracticable for him or her to bring an action” and “if a 

person entitled to sue could not have reasonably discovered the cause of action due to 

circumstances resulting from the trafficking situation, such as psychological trauma, cultural and 

linguistic isolation, and the inability to access services.” Cal. Civ. Code § 52(5)(d), (e).

Consequently, a 180-day limitations period dramatically reduces the time allowed to bring the 

trafficking claims asserted here. Further, this 180-day limitation is particularly onerous in light of 

the requirement under the arbitration agreement that parties must engage in both direct 

negotiations and mediation before initiating arbitration. 

Other reasonable interpretations of the 180-day requirement are that it requires arbitration 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 31 of 42
32

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

to be initiated within 180 days of the date when the parties began direct negotiations or

alternatively, within 180 days of the date when direct negotiations broke down. Under these 

interpretations, the arbitration agreement does not reduce the time to begin direct negotiations but 

nonetheless imposes a significant procedural burden on parties seeking to arbitrate claims, 

especially as the arbitration agreement contains no provision tolling the 180-day period while a 

party pursues the required direct negotiations and mediation that are prerequisites to initiating 

arbitration. (Nor does the arbitration provision provide for tolling of the 180-day period on any of 

the grounds that give rise to tolling under the California trafficking law.) The Court need not 

decide which interpretation of this provision is correct because it is apparent that under any of 

them, the 180-day requirement deprives Castillo of his statutorily mandated rights by shortening 

the limitation period or imposing a significant procedural barrier that may deprive him of his

ability to assert his claims.15 See Estrada v. CleanNet USA, Inc., No. 14-1785 JSW, Docket No. 

77 at 5-6 (finding same provision to be ambiguous and severing from agreement). Consequently, 

the Court concludes that this provision does not satisfy Armendariz, Cole or Gilmer.

Minimal Discovery: Castillo argues that the arbitration agreement does not protect his 

substantive rights because it allows for only minimal discovery, pointing to the requirement that 

arbitration must be conducted under the AAA’s Commercial Arbitration Rules and the section

prohibiting the parties from using the AAA’s Employment Arbitration Rules. See Franchise 

Agreement Section XXII(B) & (C)(1). He further asserts that the AAA Commercial Arbitration 

Rules regarding “exchange of information between parties” are “extremely limited, relate only to 

document exchange, and contain no provision for interrogatories or depositions.” Id. (citing

Olivier Decl., Ex. A (AAA Commercial Rules), ECF pp. 20-21 (Rule R-22, “Pre-Hearing 

Exchange and Production of Information”)). In contrast, the AAA Employment Arbitration Rules 

 

15 The Court rejects Defendants’ suggestion that failure to adhere to the 180-day requirement –

whatever it means – does not result in any claim being barred. Defendants cite no authority for 

this bizarre reading of the provision, which would render this language entirely superfluous. See 

Tri-Union Seafoods, LLC v. Starr Surplus Lines Ins. Co., 88 F. Supp. 3d 1156, 1164 (S.D. Cal. 

2015) (“Under . . . California . . . law, courts must interpret contracts as a whole and in a 

manner that does not render any clause or provision superfluous.”).

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 32 of 42
33

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

include a rule expressly devoted to “Discovery,” which provides that the arbitrator “shall have the 

authority to order such discovery, by way of deposition, interrogatory, document production, or 

otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in 

dispute.” Olivier Decl., Ex. B (AAA Employment Arbitration Rules), ECF p. 15. 

The discovery permitted under the Commercial Arbitration Rules is, admittedly, more 

limited than what would be allowed under the Employment Arbitration Rules. Nonetheless, the 

Commercial Arbitration Rules give the arbitrator the authority to “manage any necessary exchange 

of information among the parties with a view to achieving an efficient and economical resolution 

of the dispute, while at the same time promoting equality of treatment and safeguarding each 

party’s opportunity to fairly present its claims and defenses.” Olivier Decl., Ex. A (Commercial 

Arbitration Rules) at ECF p. 20. Further, the arbitrator may order depositions in “exceptional 

cases” for “good cause shown.” Id. at ECF p. 39. In Concepcion, the Supreme Court specifically 

warned against the application of generally applicable defenses to limitations on discovery under 

arbitration agreements, which are likely to have “a disproportionate impact on arbitration 

agreements.” See 563 U.S. at 341-342. With this guidance in mind, and in light of the fact that 

the AAA Commercial Arbitration Rules give arbitrators some authority to permit depositions –

even if the burden for obtaining such discovery is high, the Court concludes that the minimal 

discovery requirement under Armendariz and Cole is satisfied.

Unreasonable Costs and Fees: Castillo argues that the arbitration provision violates 

Armendariz because it unlawfully forces him to pay unreasonable costs and fees as a condition of

going to arbitration, pointing to five separate requirements. First, the party initiating arbitration 

must pay the filing fee for the mediation, which is a mandatory prerequisite to arbitration; 

according to Castillo, that fee is $250. Second, the Franchise Agreement provides that the parties 

must split the costs of mediation; according to Castillo, these costs can be several thousands of 

dollars. Third, the party initiating arbitration must pay the filing fee, which is approximately 

$7,700.00.16 Fourth, the parties must split the cost of arbitration, which often exceeds tens of 

 

16 At oral argument, Defendants stipulated that Plaintiff’s estimate of the arbitration filing fee is 

accurate.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 33 of 42
34

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

thousands of dollars, according to Castillo. Finally, under the Addendum, the party initiating 

arbitration may be required to pay the entire cost of arbitration if he does not prevail.17

As discussed above, although an arbitration agreement that imposes unreasonable costs 

may be invalid under Armendariz and Cole, under Green Tree an arbitration agreement may be 

invalidated on that basis only where the plaintiff has demonstrated that there is a likelihood of 

incurring prohibitive costs under the challenged provisions. Green Tree Fin. Corp.-Alabama v. 

Randolph, 531 U.S. 79, 92 (2000). Thus, in Estrada v. CleanNet USA, Inc., Judge White found 

that the same arbitration agreement that is at issue in this case was not substantively 

unconscionable based in part on his conclusion that the plaintiff “fail[ed] to provide the Court 

sufficient information from which the Court could draw a valid conclusion regarding Plaintiff’s 

ability to split costs.” No. 14-1785 JSW, Docket No. 77 at 6.18 Here, the record is different. 

First, Castillo has introduced evidence reflecting his financial means are very limited. See 

Findings of Fact, above. In particular, Castillo has earned approximately $35,000 a year for the 

past ten years and continues to earn between $35,000 and $40,000 a year. Castillo Decl. ¶¶ 4, 15. 

This income is devoted almost entirely to supporting his wife and four children, and the $8,500 

Castillo paid as a down-payment on the franchise was most of his life savings. Id. ¶¶ 14-15. 

While Defendants imply that the mere fact that Castillo was able to make the down-payment 

 

17 Although Plaintiff challenged the cost-shifting provision in his Opposition brief, and identified 

it as “one of the key unconscionable provisions,” see Opposition at 5, 13, 20, Defendants did not 

address that provision at all in their Reply brief. At oral argument, in response to the Court’s 

query, Defendants suggested for the first time that this provision was not part of the arbitration 

agreement at all. A close reading of the Franchise Agreement, however, supports the opposite 

conclusion. In particular, Section XXV states that “[t]his Agreement, the documents referred to 

herein and the Attachments hereto, if any, constitute the entire full and complete Agreement 

between the parties . . . .” Franchise Agreement, Section XXV (emphasis added). Further, the 

Franchise Disclosure Documents are expressly referenced in Section XXI(C), which states that the 

“Franchisee represents that it has read this Agreement and Franchisor’s disclosure documents in 

their entirety and that it has been given the opportunity to clarify any provisions that it did not 

understand and to consult with an attorney or other professional advisor. Franchisee further 

represents that it understands the terms, conditions and obligations of this Agreement and agrees 

to be bound thereby.” Finally, the plain language of the Addendum (which is contained in the 

Franchise Disclosure Documents referenced in the Franchise Agreement), purports to modify the 

arbitration agreement to shift costs to the losing party. Therefore, the Court concludes that the 

modification in the Addendum is, in fact, part of the arbitration agreement.

18 The Court notes that in Estrada, Judge White addressed only the cost splitting provision of the 

Franchise Agreement. Apparently the plaintiffs in that case did not challenge the cost-shifting 

provision in the Addendum.

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 34 of 42
35

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

shows that his financial resources cannot be as limited as he suggests, they do not offer any 

evidence to support this assertion (or explain why they think it is true). On the flip side, Plaintiff 

has offered evidence relating to the costs of arbitration that persuades the Court that at least as to 

the three provisions related to those costs (payment of the arbitration fee, splitting of arbitration 

costs and cost shifting to the losing party) Castillo has met his burden.19

The Court’s conclusion is based on two uncontroverted facts. First, Defendants concede 

that the filing fee to initiate arbitration is approximate $7,700. This is almost the same amount as 

Castillo paid for his franchise down-payment, which was almost his entire life savings. It is not in 

any way speculative to find on the basis of this evidence that the imposition of the cost of the 

arbitration filing fee on the party who initiates arbitration imposes a prohibitively high cost on 

Castillo and therefore will deprive him of his substantive rights as to both his state and federal 

claim. Second, the arbitration costs in the Estrada case, which involved the same defendants and 

the same arbitration agreement, were set by the arbitrator at almost $60,000 (which included over 

$38,000 in arbitrator fees). See Request for Judicial Notice, Ex. B (December 19, 2017 arbitration 

award in Estrada).20 Although the claims asserted in that case were based on allegations that the 

plaintiffs were employees rather than independent contractors, the factual context of this case has 

significant overlap with the Estrada case, and the two cases appear to be comparable in terms of 

complexity. Consequently, the Court finds that the arbitration award in that case sheds significant 

light on the costs that would likely be incurred in this case if it were subject to arbitration.21

 

19 With respect to the mediation filing fee of $250, the Court is not persuaded that this fee is 

prohibitive in light of Castillo’s ability to pay, or that it is so unreasonable as to render this 

requirement suspect given that it is somewhat less than the filing fee for initiating an action in 

federal court. As to the cost of mediation, the Court concludes that Plaintiff’s general statement 

that these costs “can be several thousands of dollars,” see Opposition at 13, is not sufficiently 

specific or definite to satisfy Castillo’s burden under Green Tree or to show that these costs are 

unreasonable under Armendariz.

20 Defendants’ request for judicial notice of this document, which is unopposed, is granted.

21 The Court acknowledges that Defendants have agreed to waive all of the cost provisions and 

indeed, any provision the Court finds does not pass muster. The relevant inquiry, however, is 

whether the contract the parties actually agreed to contains invalid provisions, not whether 

Defendants are now prepared to offer a different contract. In Ramos v. Superior Court, the court 

rejected a similar argument, finding that the defendant’s “willingness to have the court sever the 

invalid clauses [was] insufficient to save the agreement.” 28 Cal. App. 5th 1042, 1069 (2018). 

The court pointed to the following observation of the California Supreme Court in Armendariz: 

“whether an employer is willing, now that the employment relationship has ended, to allow the 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 35 of 42
36

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Further, to the extent that Castillo has shown that arbitration costs are likely to be in the range of 

$60,000, the Court concludes that both the provision that splits arbitration costs between the 

parties (which would require Castillo to pay $30,00 – or almost an entire year of his income) and 

the provision that imposes full costs on the losing party (which would require Castillo to pay 

$60,000) are sufficient to demonstrate that these costs are likely to be prohibitive and deprive 

Castillo of his substantive statutory rights. Therefore, the Court concludes that these three 

provisions violate Armendariz, Cole and Gilmer. 

Finally, the Court rejects Defendants’ argument that the cost provisions of the arbitration 

agreement are lawful because the AAA rules give the arbitrator the discretion to apportion fees 

and expenses as “appropriate.” See Reply at 13 (citing AAA Commercial Rules, Rule 47). First, 

to the extent that the cost of initiating arbitration, by itself, is prohibitively high for Castillo, the 

possibility that an arbitrator might later award him costs does not address that problem. Similarly, 

with respect the cost splitting and cost shifting provisions, an award at the end of the arbitration 

does not sufficiently mitigate the deterrent effect of these provisions. As the court in Armendariz

explained, “it is not only the costs imposed on the claimant but the risk that the claimant may have 

to bear substantial costs that deters the exercise of the constitutional right of due process.” 24 Cal. 

4

th at 110. Therefore, “the cost issue should be resolved . . . when a court is petitioned to compel 

arbitration.” Id.; see also Pokorny v. Quixtar, Inc., 601 F.3d 987, 1004 (9th Cir. 2010) (finding 

that “loser pays” provision in arbitration agreement was substantively unconscionable based on 

risk of incurring high arbitration costs).

Limitation on Remedies: Next, the Court must determine whether the waiver as to 

 

arbitration to be mutually applicable, or to encompass the full range of remedies, does not change 

the fact that the arbitration agreement as written is unconscionable and contrary to public policy. 

Such willingness can be seen, at most, as an offer to modify the contract; an offer that was never

accepted. No existing rule of contract law permits a party to resuscitate a legally defective contract 

merely by offering to change it.” Id. (quoting Armendariz, 24 Cal.4th at 125); see also Newton v. 

Am. Debt Servs., Inc., 854 F. Supp. 2d 712, 727 (N.D. Cal. 2012), aff’d, 549 F. App’x 692 (9th 

Cir. 2013) (“The offer to ‘waive’ the provision in this one lawsuit without reforming the 

objectionable provisions of the Agreement suggests that Defendants intend to maintain a 

systematic effort to impose unconscionable arbitration provisions.”). Of course, this rule does not 

prevent the Court from severing problematic provisions under appropriate circumstances and 

enforcing the remainder of the agreement, as discussed above. 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 36 of 42
37

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

punitive damages in the Franchise Agreement, found in Section XXII(G) (quoted above and 

referred to hereinafter as “the punitive damages waiver”), violates Armendariz and Gilmer. As a 

preliminary matter, the Court notes that while the California trafficking law expressly provides for 

the award of punitive damages, see Cal. Civ. Code section 52.5(a), the federal trafficking law is 

less clear, providing only that a victim of human trafficking may recover “damages and reasonable 

attorneys fees.” 18 U.S.C. § 1595(a). The Ninth Circuit has held, however, that because a 

trafficking claim sounds in tort, punitive damages are available under the civil damage provision 

of the TVPA. Ditullio v. Boehm, 662 F.3d 1091, 1096 (9th Cir. 2011). Further, to the extent that 

the Franchise Agreement provides for the waiver of punitive damages on Castillo’s state and 

federal trafficking claims, there is no question that it violates Armendariz and Gilmer as such 

damages are one of the remedies available to Castillo in court. See Armendariz, 24 Cal.4th at 103; 

Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1178 (9th Cir. 2003); Zaborowski v. MHN Gov’t 

Servs., Inc., 936 F. Supp. 2d 1145, 1155 (N.D. Cal. 2013), aff'd, 601 F. App’x 461 (9th Cir. 2014). 

The only remaining question is whether the words in the punitive damages waiver “to the 

fullest extent permitted by law” qualify the waiver such that it does not apply to Castillo’s 

trafficking claims, as Defendants contend in their reply brief. See Reply at 14. Defendants argue 

that this interpretation finds further support in Section XXI(B)(4), which provides that “[t]he 

parties expressly agree that an arbitrator shall have the power to enter an award, including 

injunctive relief, protecting its rights to the same extent a court could do so, and such relief shall 

be enforceable by a court having jurisdiction under Section XXI.E. of this Agreement.” Id. 

(quoting Franchise Agreement, Section XXI(E)(4)).

In determining the meaning of the punitive damages waiver in the Franchise Agreement, 

the Court looks to principles of contract construction under California law. “As a rule, the 

language of an instrument must govern its interpretation if the language is clear and explicit.” 

Ticor Title Ins. Co. v. Rancho Santa Fe Assn., 177 Cal. App. 3d 726, 730 (1986) (citing Cal. Civ.

Code, § 1638; Salton Bay Marina, Inc. v. Imperial Irrigation Dist., 172 Cal.App.3d 914, 931 

(1985)). While the “fundamental canon of interpreting written instruments is the ascertainment of 

the intent of the parties,” id., “ambiguities in written agreements are to be construed against their 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 37 of 42
38

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

drafters.” Sandquist v. Lebo Auto., Inc., 1 Cal. 5th 233, 247 (2016) (“Where the drafter of a form 

contract has prepared an arbitration provision whose application to a particular dispute is 

uncertain, ordinary contract principles require that the provision be construed against the drafter’s 

interpretation and in favor of the nondrafter’s interpretation.”). In Sandquist, the California 

Supreme Court recognized that this rule applies with particular force where the contract is one of 

adhesion, that is, one where one party has disproportionate bargaining power relative to the other. 

Id. at 248.

“When an instrument is susceptible to two interpretations, the court should give the 

construction that will make the instrument lawful, operative, definite, reasonable and capable of 

being carried into effect and avoid an interpretation which will make the instrument extraordinary, 

harsh, unjust, inequitable or which would result in absurdity.” Ticor Title Ins. Co. v. Rancho Santa 

Fe Assn., 177 Cal. App. 3d at 730 (citing Battram v. Emerald Bay Community Ass’n, 157 

Cal.App.3d 1184, 1189 (1984)). However, “[i]f a general and a specific provision are inconsistent, 

the specific provision controls.” Id. (citing National Ins. Underwriters v. Carter, 17 Cal.3d 380, 

384 (1976)).

Applying these principles to the provisions of the Franchise Agreement cited above, the 

Court looks first to the plain language of the agreement, which it finds to be ambiguous. Section

XXII(G) requires the franchisee to waive its rights to punitive damages “to the fullest extent 

permitted by law.” As Defendants have not pointed to any case in which a court has specifically 

held that the right to punitive damages under the state and federal trafficking laws may not be 

waived (or any statutory authority to that effect), it would not be unreasonable to interpret Section 

XXII(G) as a waiver of Castillo’s rights to obtain punitive damages under these statutes. On the 

other hand, under Armendariz and Gilmer, it is fairly well-established that an arbitration 

agreement may not deprive a party of statutory remedies that would be available in a judicial 

proceeding. Based on that authority, another possible interpretation of the waiver provision is that 

it does not result in a waiver of punitive damages on Castillo’s claims because such a waiver is not 

permitted by law. In determining which of these interpretations is correct, the Court must apply 

the rule that ambiguous terms are construed against the drafter. Under the circumstances here, the 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 38 of 42
39

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Court concludes that rule means that the latter interpretation of the waiver provision is correct and 

therefore, that the arbitration agreement does not deprive Castillo of his statutory remedies.22 

5. Whether the arbitration provision is unconscionable

Next, the Court addresses whether the arbitration provision is unconscionable, which 

“begins with an inquiry into whether the contract was a contract of adhesion—i.e., a standardized 

contract, imposed upon the subscribing party without an opportunity to negotiate the terms.” 

Flores v. Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 853 (2001) (citing Armendariz, 24 

Cal. 4th at 113–114; Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 817 (1981)). The Ninth Circuit 

has explained that “[u]nder current California law, it is unclear whether a contract of adhesion is 

inherently oppressive, and therefore automatically procedurally unconscionable, or whether 

oppression is a separate element that must be present. However, both standards for procedural 

unconscionability are satisfied by a finding that the arbitration provision was presented on a takeit-or-leave-it basis and that it was oppressive due to ‘an inequality of bargaining power that 

result[ed] in no real negotiation and an absence of meaningful choice.’” Nagrampa v. MailCoups, 

Inc., 469 F.3d 1257, 1281 (9th Cir. 2006) (quoting Flores, 93 Cal.App.4th at 853). Those 

standards are undoubtedly met here.

As discussed above, evidence in the record establishes that Castillo’s ability to understand 

English was very limited and his financial circumstances were also difficult. In addition to 

supporting his family on a yearly salary of approximately $35,000, he had been out of work for six 

months at the time he learned of the CleanNet franchise opportunity and he “desperately needed 

work to support [his] wife and four children.” Castillo Decl.¶ 5. Further, he was not given a copy 

of the Franchise Agreement until the day he was expected to sign it and Defendants’ 

representative falsified the date on documents later produced in this action to suggest that Castillo 

had a reasonable opportunity to discover the contents of the documents. There is no dispute that 

 

22 The Court is not, however, persuaded by Defendants’ reliance on Section XXI(B)(4), which 

appears to give the arbitrator the power to award punitive damages. Because the arbitration 

agreement does not require the franchisor to waive its right to seek punitive damages, a provision 

giving the arbitrator the power to award such damages is not necessarily inconsistent with a 

waiver of punitive damages on the part of the franchisee. 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 39 of 42
40

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Castillo was presented with the Franchise Agreement on a take-it-or-or leave it basis. And to 

make matters even worse, an important provision of the arbitration provision shifting costs to the 

losing party was not even contained in the Franchise Agreement but instead, was buried in the 

Addendum to the Franchise Disclosure Documents.

23 In other words, Castillo has made a strong 

showing of procedural unconscionability.24

6. Substantive Unconscionability

Castillo challenges the same provisions based on substantive unconscionability that he 

contends violate Armendariz. The Court’s conclusions as to substantive unconscionability largely 

mirror its analysis under Armendariz and Gilmer. In particular, the Court concludes that the 180-

day requirement and the three provisions relating to arbitration costs are substantively 

unconscionable. As discussed above, numerous courts have found that procedural barriers in 

arbitration agreements related to limitations periods are unconscionable and the Court concludes 

that the 180-day requirement in the arbitration agreement here is unconscionable as well. See, 

e.g., Pokorny, 601 F.3d at 999 (holding that shortened arbitration period in arbitration agreement 

was unconscionable); Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267, 1283 (2004) 

(holding that provision in arbitration agreement imposing 180-day limitation period was 

substantively unconscionable). Likewise, courts have regularly found that terms that require a 

litigant to pay high arbitration costs that the litigant cannot afford are harsh and one-sided. See, 

e.g., Pokorny, 601 F.3d at 1004 (holding that fee-shifting provision in arbitration agreement was 

unconscionable). Therefore, the Court concludes that at least these four requirements of the 

arbitration agreement are substantively unconscionable.25

 

23 It is particularly telling that at oral argument, Defendants’ counsel themselves were unable to 

find the Addendum without assistance from the Court, even though it was part of their own 

Financial Disclosure Documents, which consist of 166 pages, including the 41-page Franchise 

Agreement. The Addendum is found at ECF page 32 of the document, in the section described in 

the table of contents for the Financial Disclosure Documents as Exhibit D, “Franchisees – Bay 

Area.” See Docket No. 70-2, at ECF pp. 8, 32. There is nothing in the table of contents to suggest 

that this exhibit contains any modifications or additional terms to the Franchise Agreement. 

24 The Court notes that Judge White found only minimal procedural unconscionability in Estrada, 

but that finding was based on a different factual record. Among other things, the plaintiffs in 

Estrada apparently did not rely on the loser pays provision in the Financial Disclosure Documents. 

Nor did the Court in that case find that there was fraud in the inception.

25 With respect to the punitive damages waiver discussed above, the Court leaves open the 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 40 of 42
41

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

7. Severability

The final question the Court must decide is whether the sections of the arbitration 

agreement that are unenforceable can be severed such that the remainder of the agreement can be 

enforced. Under California law, courts have discretion to sever an unconscionable provision or

refuse to enforce the contract in its entirety. Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 895 

(9th Cir. 2002) (citing Cal. Civ. Code § 1670.5(a)). In determining whether illegal provisions of 

an arbitration agreement should be severed, courts should “look to the various purposes of the 

contract” to determine whether the “central purpose of the contract is tainted with illegality.” 

Armendariz, 24 Cal. 4th at 124; see also Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 896 (9th 

Cir. 2002) (finding that objectionable provisions could not be severed because they pervade[d] the 

entire contract”). Where an arbitration agreement strips a party of multiple important statutory 

rights and benefits, court have found that it is appropriate to invalidate the arbitration agreement as 

a whole rather than severing the illegal provisions. See Graham Oil Co. v. ARCO Prod. Co., a 

Div. of Atl. Richfield Co., 43 F.3d 1244, 1249 (9th Cir. 1994), as amended (Mar. 13, 1995)

(invalidating arbitration clause as a whole because it contained three offensive provisions);

Ajamian v. CantorCO2e, L.P., 203 Cal. App. 4th 771, 803 (2012) (invalidating arbitration 

provision as a whole and noting that an employment arbitration agreement can be considered 

permeated by unconscionability if it contains more than one unlawful provision”); Samaniego v. 

Empire Today LLC, 205 Cal. App. 4th 1138, 1149 (2012) (same). Because the arbitration 

agreement contains at least four illegal provisions, the Court concludes that it is permeated by 

unconscionability and is unenforceable as a whole.

 

question of whether it also is substantively unconscionable. Although the Court found that the 

punitive damages waiver does not result in a waiver of punitive damages as to the claims Castillo 

asserts in this case, the provision appears to be one-side as it does not preclude a franchisor from 

seeking punitive damages against the franchisee whereas there are many claims that may be 

asserted by a franchisee where the waiver would apply. The parties have not briefed the question 

of whether a party challenging an arbitration agreement has standing to challenge a provision on 

the basis that it deprives one party (but not the other) of certain types of remedies where, as here, 

those remedies are available to the challenging party under the arbitration agreement on the 

specific claims it asserts. Nor has the court found any case law that addresses that question. 

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 41 of 42
42

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

IV. CONCLUSION

For the reasons stated above, the Motion is DENIED.

IT IS SO ORDERED.

Dated: December 18, 2018

______________________________________

JOSEPH C. SPERO

Chief Magistrate Judge

Case 3:17-cv-07277-JCS Document 79 Filed 12/18/18 Page 42 of 42