Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-02078/USCOURTS-cand-3_15-cv-02078-1/pdf.json

Parties Involved:
Cynthia Colvin
Plaintiff
Nasdaq OMX Group, Inc.
Defendant

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United States District Court

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CYNTHIA COLVIN,

Plaintiff,

v.

NASDAQ OMX GROUP, INC.,

Defendant.

Case No. 15-cv-02078-EMC 

ORDER GRANTING DEFENDANT’S 

MOTION TO COMPEL ARBITRATION

Docket No. 15

I. INTRODUCTION

Plaintiff Cynthia Colvin brought this action against Defendant NASDAQ OMX Group, 

alleging that Defendant wrongfully terminated her employment. Docket No. 1 (Compl.) at ¶ 51. 

Plaintiff alleges violations of the Fair Employment and Housing Act (FEHA), including race 

discrimination and retaliation, intentional infliction of emotional distress, and whistleblower 

retaliation. Defendant filed the instant motion to compel arbitration, based on Plaintiff signing a 

stand-alone confidentiality agreement. Docket No. 15 (Mot.) at 1; see also Docket No. 15-1, Exh. 

A (Confidentiality Agreement) at § 10.

Defendant‟s motion came on for hearing before the Court on October 15, 2015. For the 

reasons set forth below, the Court GRANTS Defendant‟s motion to compel arbitration.

II. BACKGROUND

On November 8, 2012, Plaintiff received an employment offer from Defendant to work as 

a Client Support Specialist. Compl. at ¶ 12; Docket No. 18 (Colvin Dec.) at ¶ 5. The following 

day, Plaintiff received an envelope with an offer letter, Employee Confidentiality and Inventions 

and Assignment Agreement (Confidentiality Agreement), several booklets and handouts, a Lab 

Request Form, and an IRS Form I-9. Colvin Dec. at ¶ 8. The Confidentiality Agreement included 

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an arbitration clause, which states:

Except as provided in Paragraph 9 of this Agreement, any dispute 

arising between the Parties under this Agreement, under any statute, 

regulation, or ordinance, under any other agreement between the 

parties, and/or in way [sic] relating to Employee‟s employment, 

shall be submitted to binding arbitration before the American 

Arbitration Association (“AAA”) for resolution.

Confidentiality Agreement at § 10. The Arbitration clause further states that “[t]he arbitration 

shall be conducted in accordance with the AAA‟s Employment Arbitration Rules as modified 

herein.”1 Id. A copy of the AAA rule was not provided. Colvin Dec. at ¶ 11. Immediately 

following the arbitration clause is a severability clause which states:

If any term or provision of this Agreement (or any portion thereof) 

is determined by an arbitrator or a court of competent jurisdiction to 

be invalid, illegal, or incapable of being enforced . . . NASDAQ 

OMX and Employee agree that an arbitrator or reviewing court shall 

have the authority to amend or modify this Agreement so as to 

render it enforceable and effect the original intent of the Parties to 

the fullest extent permitted by applicable law.

Confidentiality Agreement at § 11(b).

Plaintiff was not informed that the Confidentiality Agreement had any arbitration clause, 

but was told that she was required to sign the offer letter and Confidentiality Agreement in order 

to accept the employment offer. Colvin Dec. at ¶¶ 9, 10. Plaintiff was not given the opportunity 

to negotiate any of the terms, or to opt-out of the agreement. Id. at ¶¶ 10, 11.

III. DISCUSSION

The Federal Arbitration Act (FAA) provides that an arbitration agreement “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. “Thus, in determining the validity of any agreement to arbitrate, 

 

1

Plaintiff requests judicial notice of: (1) the AAA Rules, and (2) an AAA description of 

the differences between an individually negotiated employment agreement and employment 

arbitration plan. Docket No. 19 (RJN). The RJN is granted. Many district courts have found that 

judicial notice can be taken of the AAA Rules, “as the content of those Rules can be considered a 

„fact that is not subject to reasonable dispute because it . . . can be accurately and readily 

determined from sources whose accuracy cannot be questioned.‟” Cancer Ctr. Assocs. for 

Research & Excellence, Inc. v. Phila. Ins. Cos., 1:15-CV-00084 LJO MJS, 2015 U.S. Dist. LEXIS 

51091 at *13 fn. 3 (E.D. Cal. Apr. 17, 2015) (quoting Fed. R. Evid. 201).

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federal courts should apply ordinary state-law principles that govern the formation of contracts.” 

Pokorny v. Quixtar, Inc., 601 F.3d 987, 994 (9th Cir. 2010) (citation and internal modifications 

omitted). In the instant case, California law applies per the express terms of the Confidentiality 

Agreement. See Confidentiality Agreement at § 11(a) (“This Agreement shall be construed in 

accordance with and shall be governed by the laws of the State of California . . . .”). The parties 

do not dispute that California law applies, or that this Court has the authority to determine the 

validity of the arbitration clause at issue in this case.2

A. Agreement to Arbitrate

Plaintiff contends that there is no valid agreement to arbitrate. Docket No. 17 (Opp.) at 1. 

Generally, “arbitration is a matter of contract and a party cannot be required to submit to 

arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Commc’n 

Workers of Am., 475 U.S. 643, 648 (1986). Thus, “when one party disputes the making of the 

arbitration agreement, the [FAA] requires that the court proceed summarily to the trial thereof 

before compelling arbitration under the agreement.” Sanford v. MemberWorkers, Inc., 483 F.3d 

956, 962 (9th Cir. 2007) (citation omitted). Under California law, the party seeking to compel 

arbitration “bears the burden of proving its existence by a preponderance of the evidence.” 

Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 413 (1996).

Defendant presents a signed copy of the Confidentiality Agreement, which Plaintiff signed 

and dated on November 9, 2012. Confidentiality Agreement at 5. Plaintiff in turn argues that 

there is no enforceable arbitration agreement here because the arbitration language was contained 

in the Confidentiality Agreement, and Defendant made no effort to bring the arbitration clause to 

her attention. Opp. at 6. In support of her claim, Plaintiff cites Sparks v. Vista Del Mar Child & 

Family Services, in which the California Court of Appeal found unenforceable an arbitration 

clause that was contained in an Employee Handbook that was distributed to all employees. 207 

Cal. App. 4th 1511, 1522 (2012). The Handbook stated that it was “a general summary of the 

 

2 Defendant does not, for example, argue that there is a clear and unmistakable delegation 

clause, or that California‟s unconscionability analysis is pre-empted by the FAA or the United 

States Supreme Court‟s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

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agency‟s personnel policies, work rules and benefits,” and included an arbitration clause on pages 

35 and 36. Id. at 1515-16. Employees were then required to sign an acknowledgment form which 

stated that the Handbook “contains important information about [defendant‟s] general personnel 

policies,” and that the employee was to be “governed by the contents of the Handbook.” Id. at 

1516. The arbitration clause was not highlighted, and employees did not have to acknowledge the 

arbitration clause in writing. Id. at 1519. Significantly, a new version of the Handbook was later 

distributed, which specifically required employees „to sign a full arbitration agreement that is 

signed by both the Employee and the Human Resources Director or designee.” Id. at 1517.

The Court of Appeal concluded that the Handbook‟s arbitration agreement was 

unenforceable. Significantly, the Handbook‟s language itself suggested that it „was informational, 

rather than contractual.” Id. at 1520; see also id. at 1522 (“the Handbook expressly provides: „this 

Handbook is not intended to create a contract of employment . . . .‟”). Thus, absent the defendant 

pointing out the arbitration requirements, the “plaintiff should not be bound to arbitrate.” Id. at 

1520. In other words: 

[t]o support a conclusion that an employee has relinquished his or 

her right to assert an employment-related claim in court, there must 

be more than a boilerplate arbitration clause buried in a lengthy 

employee handbook given to new employees. At a minimum, there 

should be a specific reference to the duty to arbitrate employmentrelated disputes in the acknowledgment or receipt form signed by 

the employee at commencement of employment.

Id. at 1522. The fact that the employee signed an acknowledgment form did not alter the court‟s 

conclusion, as the acknowledgment “[a]t best . . . expressed the employee‟s understanding that he 

must comply with personnel policies and obligations, rather than an agreement to arbitrate.”

Unlike Sparks, the arbitration clause here is not contained in a separate and lengthy 

employee handbook, but within the five-page Confidentiality Agreement that Plaintiff was 

required to sign and date. Furthermore, in contrast to an employee handbook which appeared to 

be merely informational, the Confidentiality Agreement here is clearly a contract that expressly

imposes obligations on Plaintiff “in consideration of Employee‟s employment and continued 

employment with NASDAQ OMX and the compensation paid or to be paid for Employee‟s 

services during his/her employment.” Confidentiality Agreement at 1. Per California case law, 

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“[e]very contract requires mutual assent or consent (Civ. Code, §§ 1550, 1565), and ordinarily one 

who signs an instrument which on its face is a contract is deemed to assent to all its terms.” Marin 

Storage & Trucking, Inc. v. Benco Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1049 

(2001). At bottom, Plaintiff signed a contract containing an arbitration clause; the fact that she did 

not actually read it or know about does not negate mutual consent. See Tompkins v. 23andMe, 

Case No. 2014-cv-05682-LHK, 2014 WL 2903752, at *8 (N.D. Cal. June 25, 2014); Hernandez v. 

Badger Constr. Equip. Co., 28 Cal. App. 4th 1791, 1816 (1994). The Court therefore finds that a 

valid agreement to arbitrate was formed.

B. Unconscionability

The FAA requires courts to enforce arbitration provisions in written contracts “save upon 

such grounds as exist at law or in equity for the revocation of any such contract.” 9 U.S.C. § 2. 

The United States Supreme Court has interpreted the FAA‟s “saving clause” to permit 

“agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, 

duress, or unconscionability . . . .” AT&T Mobility LLC, 131 S. Ct. at 1746. Thus, “[u]nder 

California law, an arbitration agreement, like any other contractual clause, is unenforceable if it is 

both procedurally and substantively unconscionable,” Pokorny, 601 F.3d at 996, unless that state 

law is preempted by the FAA. 

“Because unconscionability is a contract defense, the party asserting the defense bears the

burden of proof.” Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 911 (2015). In 

determining unconscionability, “the core concern of unconscionability doctrine is the absence of 

meaningful choice on the part of one of the parties together with contract terms which are 

unreasonably favorable to the other party.” Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 

1145 (2013). While both procedural and substantive unconscionability are required, “they need 

not be present to the same degree.” Pokorny, 601 F.3d at 996. Instead, a sliding scale is applied, 

such that “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.” Armendariz v. Found. Health Psychcare Servs, Inc., 24 Cal. 4th 83, 114 (2000).

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1. Procedural Unconscionability

“In assessing procedural unconscionability, the court, under California law, focuses on the 

factors of surprise and oppression in the contracting process, including whether the contract was 

one drafted by the stronger party and whether the weaker party had an opportunity to negotiate.” 

Pokorny, 601 F.3d at 996. The “[u]nconscionability analysis begins with an inquiry into whether 

the contract is one of adhesion.” Armendariz, 24 Cal. 4th at 113. An adhesion contract is a 

“standardized contract, which, imposed and drafted by the party of superior bargaining strength, 

relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Id.

(citations omitted). The oppression element is nearly always satisfied by an adhesion contract. Id.

Here, the contract is one of adhesion. Plaintiff had no opportunity to negotiate the terms, 

nor was she given the option to opt out. Colvin Dec. at ¶ 10. Instead, the contract was imposed 

upon her by a party of superior bargaining power, as the relationship between Plaintiff and 

Defendant was that of a prospective employee and employer. Oppression is therefore satisfied

because:

in the case of preemployment arbitration contracts, the economic 

pressure exerted by employers on all but the most sought-after 

employees may be particularly acute, for the arbitration agreement 

stands between the employee and necessary employment, and few 

employees are in a position to refuse a job because of an arbitration 

requirement.

Armendariz, 24 Cal. 4th at 115.

Although the courts have found that a contract of adhesion satisfies the procedural 

unconscionability requirement, many courts have also acknowledged that “[w]here there is no 

other indication of oppression or surprise, the degree of procedural unconscionability of an 

adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive 

unconscionability is high.” Ajamian, 203 Cal. App. 4th at 796. Here, there is some additional 

evidence of surprise. For example, the arbitration clause is not specially set off from the rest of 

the contract or highlighted; at most, the heading “Arbitration” is underlined, but so too is every 

main section of the Confidentiality Agreement. See Confidentiality Agreement at § 10. At the 

same time, surprise is limited because the arbitration clause is not hidden in fine print or in a 

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voluminous document, as the Confidentiality Agreement is only five pages long, with the 

arbitration clause taking up about half of page four.

There is also additional, albeit limited, procedural unconscionability from Defendant‟s 

failure to attach the AAA rules. Several California courts have found that “the failure to provide a 

copy of the arbitration rules to which the employee would be bound, supported a finding of 

procedural unconscionability.” Trivedi v. Curexo Tech. Corp., 189 Cal. App. 4th 387, 393 (2010). 

By only referencing the applicable rules, rather than attaching them, the burden is placed on the 

employee to search for the rules. See Harper v. Ultimo, 113 Cal. App. 4th 1402, 1406 (2003). 

The procedural unconscionability is heightened when the agreement in question does not specify 

which rules are to be applied, such as whether the rules at the time of contracting or at the time of 

arbitration will govern. Id. at 1407. At the same time, other courts have suggested that the 

amount of procedural unconscionability from not attaching the rules is low, especially when the 

rules are readily available on the internet. See Lane v. Francis Capital Mgmt. LLC, 224 Cal. App. 

4th 676, 691 (2014). In the instant case, the failure to attach the AAA rules adds to the procedural 

unconscionability, particularly Defendant‟s failure to identify which version of the AAA rules 

would apply in the event of changes to the rules. At the same time, the AAA rules are readily 

available on-line, and there is no evidence that Plaintiff did not have ample time to review the 

Confidentiality Agreement or search for the rules prior to signing. Altogether, the fact that the 

Confidentiality Agreement was a contract of adhesion and the failure to specify which AAA rules 

applied satisfy the requirement that there be at least some procedural unconscionability 

requirement before proceeding to examine substantive unconscionability.

2. Substantive Unconscionability

The primary focus of the substantive unconscionability inquiry “is whether the term is onesided and will have an overly harsh effect on the disadvantaged party.” Pokorny, 601 F.3d at 997. 

“Thus, mutuality is the „paramount‟ consideration when assessing substantive unconscionability.” 

Id. Here, Plaintiff challenges four terms as being substantively unconscionable: (1) the carve-out 

that allows Defendant to file claims against Plaintiff in court, (2) the confidentiality clause, (3) the 

limitation on discovery in the AAA rules, and (4) the possibility that Plaintiff will be subject to 

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arbitration costs that she would not have to bear if she litigated her claims in court. 

a. Carve-Out

Plaintiff first contends that the Confidentiality Agreement‟s carve-out demonstrates a lack 

of mutuality because it exempts from arbitration claims that Defendant is more likely to bring 

against her. A lack of mutuality can be found where an agreement “compels arbitration of the 

claims more likely to be brought by the weaker party but exempts from arbitration the types of 

claims that are more likely to be brought by the stronger party.” Fitz v. NCR Corp., 118 Cal. App. 

4th 702, 724 (2004). While the party with superior bargaining power “may provide „extra 

protection‟ for itself within the terms of the arbitration agreement,” that party must establish that 

“„business realities‟ create a special need for the advantage.” Id. at 723. Business realities can be 

established either in the contract terms or through factual evidence. Id.

Here, Defendant argues that its retention of the right to seek a judicial injunction for 

proprietary information or trade secrets claims is reasonably justified by a business purpose, as 

“[t]ime is of the essence when an employer is faced with threats of misappropriation of trade 

secrets or the disclosure o[f] proprietary information.” Docket No. 20 (Reply) at 8. Some districts 

courts have indeed found that concerns about intellectual property are a reasonable justification for 

carving out certain claims from the arbitration clause. See Laughlin v. VMware, Inc., Case No. 

5:11-cv-00530 EJD, 2012 U.S. Dist. LEXIS 12262, at *17-18 (N.D. Cal. Feb. 1, 2012). However, 

California courts have rejected precisely that same argument. For example, in Stirlen v. Supercuts, 

Inc., Supercuts also argued that threats of patent infringement, improper use of confidential 

information, and competition posed “„an immediate threat to business operations‟ [that] therefore 

require[d] immediate access to the courts, which alone can provide meaningful „emergency 

relief.‟” 51 Cal. App. 4th 1519, 1536 (1997). The Court of Appeal found that there was no 

legitimate business reality because “[t]he forms of emergency judicial relief Supercuts asserts it 

must have are available to a party compelled to arbitrate a dispute.” Id. at 1537. Specifically, 

California Code of Civil Procedure section 1281.8, subdivision (b) permits a party subject to an 

arbitration agreement to go to court for provisional remedies -- including injunctions and 

temporary protective orders -- in connection with an arbitrable controversy, “upon the ground that 

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the award to which the applicant may be entitled may be rendered ineffectual without provisional 

relief.” Thus, “[t]he unilateral right to litigate rather than arbitrate claims . . . cannot be justified 

by the need for provisional remedies.” Id.; see also Fitz, 118 Cal. App. 4th at 723-24; O’Hare v. 

Mun. Res. Consultants, 107 Cal. App. 4th 267, 277-78 (2003); Mercuro v. Superior Court, 96 Cal. 

App. 4th 167, 177-78 (2002).

The Court finds that the carve-out for intellectual property claims is not reasonably 

justified by a business purpose because California Code of Civil Procedure section 1281.8 

provides Defendant with the right to seek a provisional remedy when faced with the threat of 

improper disclosure of proprietary information. This conclusion is bolstered by the fact that the 

carve-out is far broader than Defendant suggests, as the Confidentiality Agreement requires that 

the employee “agree[] that his/her breach of any of the foregoing provisions will result in 

irreparable injury,” and that “the Company parties shall be entitled to obtain an injunction to 

prevent and/or remedy such a breach (without first having to post a bond).” Confidentiality 

Agreement at § 9. Those “foregoing provisions” include requirements that the employee not 

publish any disparaging statements about Defendant, disclose any inventions the employee 

develops during his or her employment, and comply with any subpoena or process. Id. at §§ 4-6. 

Defendant does not attempt to argue that these provisions also require immediate injunctive relief. 

Thus, the broad right of the employer to obtain injunctive relief from a court is not justified by 

business need. The carve-out thus creates a lack of mutuality wherein the Defendant can force 

employee claims to arbitration while reserving the judicial forum for claims that Defendant is 

more likely to bring against its employees. The Court therefore holds that the carve-out is 

substantively unconscionable.3

 

3 Defendant also argues that the carve-out is irrelevant here because Plaintiff‟s claims do 

not relate to the carve-out. Reply at 8. In support, Defendant cites Dauod v. Ameriprise Financial 

Services, where the district court rejected an argument that a non-compete provision and a PAGA 

waiver were unconscionable because neither provision was at issue in the lawsuit. Case No. 8:10-

cv-00302-CJC(MANx), 2011 U.S. Dist. LEXIS 150972, at *14-16 & fn. 2 (C.D. Cal. Oct. 12, 

2011). However, with respect to PAGA, the district court notably found that the arbitration clause

did not actually preclude the plaintiff from bringing a PAGA action. Id. at *16. 

In any event, the fact that Plaintiff‟s claims do not relate to the carve-out is immaterial to 

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b. Confidentiality Provision

Next, Plaintiff challenges the confidentiality provision. The courts have generally found 

that confidentiality provisions are substantively unconscionable. For example, in Davis, at issue 

was a confidentiality provision which required that:

[e]xcept as may be necessary to enter judgment upon the award . . . 

all claims, defenses, and proceedings (including . . . the existence of 

a controversy and the fact that there is a mediation or an arbitration 

proceeding) shall be treated in a confidential manner by the 

mediator, the Arbitrator, the parties and their counsel, each of their 

agents, and employees and all other acting on behalf of or in concert 

with them. . . . no one shall divulge to any third party not directly 

involved in the mediation or arbitration the content of the pleadings, 

papers, orders, hearings, trials, or awards in the arbitration, except as 

may be necessary to enter judgment upon the arbitrator‟s award . . . .

Davis v. O’Melveny & Myers, 485 F.3d 1066, 1071 (9th Cir. 2007). The Ninth Circuit found that

by precluding even mentioning the dispute to anyone “not directly involved in the mediation or 

arbitration,” the confidentiality provision “would handicap if not stifle an employee‟s ability to 

investigate and engage in discovery” as the employee would be prevented from contacting other 

employees to assist in his or her case. Id. at 1078. In addition to restricting discovery, the 

provision “would also place [the employer] „in a far superior legal position‟ by preventing 

plaintiffs from accessing precedent while allowing [the employer] to learn how to negotiate and 

litigate its contracts in the future.” Id. Thus, strict confidentiality “could also prevent others from 

building cases.” Id.

Similarly, Pokorny held that a confidentiality provision which prohibited one party from 

“disclosing „to any other person not directly involved in the conciliation or arbitration process (a) 

the substance of, or basis for, the claim, (b) the content of any testimony or other evidence 

presented at an arbitration hearing or obtained through discovery; or (c) the terms or amount of 

any arbitration award” was substantively unconscionable. 601 F.3d at 1001 (citation omitted). 

The Ninth Circuit found that the provision would prevent the plaintiffs “from discussing their 

 

the unconscionability inquiry; the issue is whether “the arbitration agreement as written is 

unconscionable and contrary to public policy.” See Armendariz, 24 Cal. 4th at 125 (emphasis 

added).

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claims with other potential plaintiffs and from discovering relevant precedent to support their 

claims.” Id. at 1002. Meanwhile, the employer would be able to “accumulate „a wealth of 

knowledge‟ on how to arbitrate future claims . . . .” Id.

Here, the confidentiality provision requires that:

Employee shall not disclose the existence of a claim, the nature of a 

claim, any documents, exhibits, or information exchanged or 

presented in connection with such a claim, or the result of any action 

. . . to any third party, with the sole exception of Employee‟s legal 

counsel, who also shall be bound by these confidentiality terms.

Confidentiality Agreement at § 10. As Plaintiff points out, this confidentiality provision imposes 

a significant burden on discovery, preventing Plaintiff from even contacting other employees for 

information. The confidentiality provision also greatly favors Defendant, as Defendant obtains the 

benefits of being a repeat player in litigation while potential plaintiffs are unable to access 

precedent regarding prior arbitrations. Defendant provides no justification for the confidentiality 

clause, and in its papers admits that the confidentiality clause “could potentially add to the degree 

of substantive unconscionability,” but argues that it alone is insufficient to defeat the agreement. 

Reply at 7. At oral argument, Defendant also claimed that the confidentiality provision would not 

affect discovery because the confidentiality provision is trumped by the AAA rules, which provide 

for discovery. The Court is not persuaded, as the Confidentiality Agreement states that the 

arbitration shall be conducted according to the AAA rules “as modified herein.” Confidentiality 

Agreement at § 10. Such modifications would include the confidentiality provision, which in turn 

restricts Plaintiff‟s ability to gather information in support of her case. The Court therefore 

concludes that the confidentiality provision is substantively unconscionable.

c. Discovery Rights

Plaintiff argues that the AAA rules limit her rights to discovery, as AAA Rule 9 states that 

“[t]he 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, consistent with the expedited nature of arbitration.”

The Ninth Circuit has recently recognized that “California law permits parties to arbitrate 

under the [AAA]‟s employment dispute rules.” Sakaab v. Luxottica Retail N. Am., -- F.3d --, 2015 

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WL 5667912, at *10 (9th Cir. 2015) (citing Roman v. Superior Court, 172 Cal. App. 4th 1462,

1476 (2009)). In Armendariz, the California Supreme Court found that as an initial matter, “when 

parties agree to arbitrate statutory claims, they also implicitly agree, absent express language to the 

contrary, to such procedures as are necessary to vindicate that claim.” 24 Cal. 4th at 106. Thus,

employees “are at least entitled to discovery sufficient to adequately arbitrate their statutory claim, 

including access to essential documents and witnesses, as determined by the arbitrator(s) . . . .” 

Id. (emphasis added). The Court of Appeal in Roman concluded that because the AAA rule 

likewise gave the arbitrator the authority to permit discovery “necessary to a full and fair 

exploration of the issues in dispute,” there was “no meaningful difference between the scope of 

discovery approved in Armendariz and that authorized by the AAA employment dispute rules, 

certainly not the role of the arbitrator in controlling the extent of actual discovery permitted.” 172 

Cal. App. 4th at 1476; see also Lane, 224 Cal. App. 4th at 693.

Plaintiff argues that the Court of Appeal in Sparks found that the AAA rules on discovery

were unconscionable. 207 Cal. App. 4th at 1523. However, there the defendant had claimed that 

the “rules gave the arbitrator the discretion to deny any discovery.” Id. (citation omitted). The 

Court of Appeal did not appear to analyze the rule on its own, but took the defendant‟s claim at 

face value to conclude that such a discovery provision would be substantively unconscionable. In 

contrast, the California courts that have actually analyzed the AAA rule have each found that it 

satisfies Armendariz‟s requirements of discovery, in which “the employer impliedly agreed to all 

discovery necessary to adequately arbitrate the claims.” Lane, 224 Cal. 4th at 693. While the 

AAA rule does not require the arbitrator to allow discovery, it does require that the arbitrator 

allow discovery necessary to a full and fair exploration of the issues, and there is no indication 

here that Plaintiff risks a situation in which an arbitrator could completely deny discovery. Here, 

Defendant makes no such claim that all discovery should be denied, and the rule at issue grants the 

arbitrator the authority to order discovery as is necessary to fully and fairly explore the issues in 

dispute. Thus, the Court finds that there is no substantively unconscionable limitation on 

discovery.

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d. Costs of Arbitration

Finally, Plaintiff argues that there is substantive unconscionability because she may be 

exposed to arbitration costs that she would not bear if she litigated her claims in court. Opp. at 22. 

The California Supreme Court has been clear that “when an employer imposes mandatory 

arbitration as a condition of employment, the arbitration agreement or arbitration process cannot 

generally require the employee to bear any type of expense that the employee would not be 

required to bear if he or she were free to bring the action in court.” Armendariz, 24 Cal. 4th at 

110-11; see also Pokorny, 601 F.3d at 1004.

Under the AAA rules, an employee‟s costs are dependent on whether the dispute arises out 

of an employer-promulgated plan or an individually-negotiated employment agreement. If the 

dispute arises from an employer-promulgated plan, AAA Rule 48 provides that “a non-refundable 

filing fee capped in the amount of $200 is payable in full by the employee when a claim is filed, 

unless the plan provides that the employee pay less.” Docket No. 15-1, Exh. 1 at 32; RJN, Exh. 1 

at 33. The employer is then required to pay the arbitrator‟s compensation “unless the employee, 

post dispute, voluntarily elects to pay a portion of the arbitrator‟s compensation.” Id. Arbitrator 

compensation, expenses, and administrative fees “are not subject to reallocation by the 

arbitrator(s) except upon the arbitrator‟s determination that a claim or counterclaim was filed for 

purposes of harassment or is patently frivolous.” Id. However, if a dispute arises from an 

individually-negotiated employment agreement, the employer is not required to pay the arbitration 

fees. RJN, Exh. 2 at 1.

Plaintiff contends that because the arbitrator determinates whether the dispute arises from 

an employer-promulgated plan or an individually-negotiated employment agreement, there is a 

possibility that she may have to pay the arbitration fees if the arbitrator finds that the latter is at 

issue. However, there is no dispute between the parties here that the employment agreement 

between Plaintiff and Defendant is an employer-promulgated plan. An arbitrator could not find 

otherwise. The arbitrator determines what type of agreement it is by looking at whether the 

arbitration agreement is “one in which it appears that the employer has drafted a standardized 

arbitration clause with its employees,” and “the ability of the parties to negotiate the terms and 

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conditions of the parties‟ agreements.” RJN, Exh. 2 at 1. Here, the arbitration clause is a 

“standardized arbitration clause,” and Plaintiff had no ability to negotiate the terms. See Colvin 

Dec. at ¶ 10. The employment offer letter is also standard, providing her with the terms and 

conditions of her employment that Defendant “reserves the right to modify . . . at any time.” 

Colvin Dec. at Exh. 1. Any benefits such as an equity grant are determined at the “sole discretion” 

of the CEO and CFO, “subject to the terms and conditions of the relevant plan documents,” and 

bonus levels “are based upon corporate financial, business unit and individual performance 

results.” Id. No opportunity is given to modify the terms of the employment; Plaintiff can only

accept the offer as described.

Plaintiff‟s baseless speculation that an arbitrator could find that her claim arises from an 

individually-negotiated employment agreement is insufficient to show that she may be exposed to 

costs that she would not otherwise bear if she litigated her claims in court. The Court therefore 

finds no substantive unconscionability because there is no evidence that the AAA rules will 

require Plaintiff to pay more than the initial filing fee.4

e. Summary

There is significant substantive unconscionability. Under the sliding scale test, the 

combination of modest procedural unconscionability and significant substantive unconscionability 

as to two terms, renders those provisions unenforceable. 

3. Severability

If a court finds as a matter of law that “„the contract or any clause of the contract [was] 

unconscionable at the time it was made[,] the court may refuse to enforce the contract, or may 

enforce the remainder of the contract without the unconscionable clause, or it may so limit the 

application of any unconscionable clause so as to avoid any unconscionable result.‟” Armendariz, 

 

4 Defendant also argues that Plaintiff‟s substantive unconscionability claims are “rendered 

moot by Defendant‟s concession that it would need to be responsible for the types of costs unique 

to the arbitration forum.” Again, courts have not been willing to consider such after-the-fact 

concessions, as whether a party is now willing to excise an unconscionable clause in a contract 

“does not change the fact that the arbitration agreement as written is unconscionable and contrary 

to public policy.” Armendariz, 24 Cal. 4th at 125.

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24 Cal. 4th at 121 (quoting Cal. Civ. Code § 1670.5(a)). California law favors severance of 

unconscionable terms where “the interests of justice would be furthered by severance.” Id. at 123 

(internal citations and modifications omitted). Thus, only where the agreement is “permeated by 

unconscionability” or where the “central purpose of the contract is tainted with illegality” should 

the court refuse to sever the offending terms. Id.

Here, there are two unconscionable provisions - the carve-out and the confidentiality 

clause. Both may be excised without requiring the Court to reform or augment the agreement, as 

the remaining terms sufficiently govern how the arbitration would work. Roman, 172 Cal. App. 

4th at 1478; see also Burgoon v. Narconon of N. Cal., No. C-15-1381 EMC, 2015 U.S. Dist. 

LEXIS 114228, at *40 (N.D. Cal. Aug. 27, 2015). Furthermore, notwithstanding the two 

unconscionable provisions, the arbitration clause meets the fundamental requirements articulated 

by Armendariz, including the “neutrality of the arbitrator, the provision of adequate discovery, a 

written decision that will permit a limited form of judicial review, and limitations on the costs of 

arbitration.” Id. at 91. Severance is also warranted here because the Confidentiality Agreement 

includes an express severability clause, giving the Court “the authority to amend or modify this 

Agreement so as to render it enforceable . . . .” Confidentiality Agreement at § 11(b). See AlSafin v. Circuit City Stores, Inc., 394 F.3d 1254, 1271 (9th Cir. 2005). The Court therefore finds it 

appropriate to sever the two unconscionable provisions, and enforce the remaining agreement to 

arbitrate.

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IV. CONCLUSION

For the above reasons, the Court GRANTS Defendant‟s motion to compel arbitration, 

subject to severance of the carve-out and confidentiality provisions and with the understanding 

that Plaintiff will be afforded discovery rights consistent with Armendariz. Per the parties‟

request, the Court will stay the action pending arbitration. See 9 U.S.C. § 3.

This order disposes of Docket No. 15. 

IT IS SO ORDERED.

Dated: November 4, 2015

______________________________________

EDWARD M. CHEN

United States District Judge

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