Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-00266/USCOURTS-cand-3_05-cv-00266-0/pdf.json

Parties Involved:
Suzy Fisk
Plaintiff
Lehman Brothers, Inc.
Defendant
Timothy Smith
Plaintiff

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Defendant concedes the agreements are procedurally unconscionable, because

plaintiffs were required to sign the agreements as conditions of employment. (See Def.’s

Reply, filed May 6, 2005, at 4:26.) However, “[i]n order to render a contract unenforceable

under the doctrine of unconscionability, there must be both a procedural and substantive

element of unconscionability.” See Ferguson v. Countrywide Credit Indus., Inc., 298 F. 3d

778, 783 (9th Cir. 2002). For the reasons discussed infra, plaintiffs have not demonstrated

the substantive element of unconscionability.

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SUZY FISK and TIMOTHY SMITH,

Plaintiffs,

 v.

LEHMAN BROTHERS, INC.,

Defendant /

No. C-05-0266 MMC

ORDER GRANTING DEFENDANT’S

PETITION FOR ORDER TO COMPEL

ARBITRATION AND MOTION TO STAY

PROCEEDINGS; VACATING HEARING

Before the Court is defendant Lehman Brothers, Inc.’s petition for an order to

compel arbitration, pursuant to 9 U.S.C. § 4, and motion to stay proceedings pending

arbitration, pursuant to 9 U.S.C. § 3. Plaintiffs Suzy Fisk and Timothy Smith have filed

opposition, to which defendant has replied. Having considered the papers filed in support

of and in opposition to the petition and motion, the Court deems the matters suitable for

decision on the papers, VACATES the hearing scheduled for May 27, 2005, and rules as

follows:

1. Contrary to plaintiffs’ arguments, the arbitration agreements are not

unenforceable under the doctrine of unconscionability.1

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Plaintiffs argue that “limitations” set by the NASD and NYSE on “traditional

discovery” render the agreements unconscionable. (See Pls.’ Opp. at 8:19-21.) Because

plaintiffs fail to identify any additional discovery “limitations” that, alone or taken together,

may render the agreements unconscionable, the Court does not further consider the issue. 

The Court notes, however, that federal and state courts have concluded that discovery

procedures under NASD and/or NYSE are not unconscionable. See McManus, 109 Cal.

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a. The refusal of the National Association of Securities Dealers (“NASD”) and

the New York Stock Exchange (“NYSE”) to set an arbitration hearing in California unless

plaintiffs waive application of the California Ethics Standards is not unconscionable,

because the California Ethics Standards are, as applied to the NASD and NYSE,

preempted by federal law and “without effect.” See Credit Suisse First Boston Corp. v.

Grunwald, 400 F. 3d 1119, 1137 (9th Cir. 2005) (holding employee of securities firm “never

had a right to have his arbitration conducted pursuant to the California Ethics Standards”).

b. Although the arbitration agreements require plaintiffs to pay certain fees

plaintiffs would not have to pay in state or federal court, defendant has offered to pay such

fees, (see Willson Decl., filed April 15, 2005, Ex. 4), thus mooting the issue. Moreover, the

provisions requiring plaintiffs to pay such fees are severable. See McManus v. CIBC World

Markets Corp., 109 Cal. App. 4th 76, 102 (2003) (holding provision requiring plaintiff to pay

costs plaintiff would not have to pay in a court proceeding unconscionable, but severable;

enforcing agreement without such provision).

c. The agreements are not unconscionable on the ground plaintiffs lack the

ability to compel a third party residing outside California to appear. Arbitrators have the

ability to summon “any person” to appear before them. See 9 U.S.C. § 7. If a person

residing outside California refuses to comply, plaintiffs may avail themselves of the

procedures under Rule 45(a)(3)(B) of the Federal Rules of Civil Procedure to obtain a court

order requiring compliance. See, e.g., Amgen, Inc. v. Kidney Center of Delaware County,

Ltd., 879 F. Supp. 878, 883 (E.D. Ill. 1995) (holding where third party in Pennsylvania

refused to comply with subpoena issued by Illinois arbitrator, plaintiff could obtain

compliance by issuing subpoena on behalf of district court in Pennsylvania pursuant to

Rule 45(a)(3)(B) and seeking order enforcing subpoena from Pennsylvania district court).2

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App. 4th at 97-99 (“There are extensive discovery procedures under NASD and NYSE

providing for document production, information exchanges, and supoenas.”); Irwin v. UBS

Painewebber, Inc., 324 F. Supp. 2d 1103, 1109 (C.D. Cal. 2004) (rejecting argument

arbitration agreement unconscionable on ground NASD procedures do not provide for

sufficient discovery).

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2. Because, as discussed above, plaintiffs’ claims are referable to arbitration and

plaintiffs have not shown the agreements are unenforceable on grounds of

unconscionability, defendant is entitled to a stay of proceedings until the arbitration

proceedings have been conducted. See 9 U.S.C. § 3.

CONCLUSION

For the reasons stated above:

1. Defendant’s petition to compel arbitration is hereby GRANTED.

2. Defendant’s motion to stay the instant proceeding is hereby GRANTED.

3. The parties shall file, no later than November 21, 2005, and every six months

thereafter, a joint report apprising the Court of the status of the arbitral proceedings.

IT IS SO ORDERED.

Dated: May 20, 2005 /s/ Maxine M. Chesney 

MAXINE M. CHESNEY

United States District Judge

Case 3:05-cv-00266-MMC Document 32 Filed 05/20/05 Page 3 of 3