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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

SERGEI PORTNOY,

Plaintiff, No. CIV S-04-1462 WBS JFM PS

vs.

WASHINGTON MUTUAL BANK, F.A., ORDER AND

Defendant. FINDINGS AND RECOMMENDATIONS

 /

Plaintiff, proceeding pro se, has filed a third amended complaint alleging, inter

alia, breach of contract, violation of the Federal Fair Credit Reporting Act, 15 U.S.C. § 1681,

and violation of Federal Regulation “[12] CFR 229 Subpart B (Availability of Funds).” On

March 7, 2005, defendant filed a motion to compel arbitration pursuant to the provisions of the

Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. and 3 (“FAA”) and California Code of Civil

Procedure §§ 1281.2 and 1281.4, and a motion to stay this action pending arbitration. These

motions were noticed for hearing on March 21, 2005, and subsequently continued to May 19,

2005. Pursuant to Local Rule 78-230(h), the court has determined that the matter will be

submitted on the papers without oral argument. Upon review of the motion and the documents in

support and opposition, and good cause appearing therefor, THE COURT MAKES THE

FOLLOWING FINDINGS:

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Under 9 U.S.C. § 4, a district court must order arbitration if it is satisfied that “the

making of the agreement for arbitration or the failure to comply therewith is not in issue. . .” Id.

Therefore, the district court “can only determine whether a written arbitration exists, and if it

does, enforce it ‘in accordance with its terms.’” Weyerhaeuser Co. v. Western Seas Shipping

Co., 743 F.2d 635, 637 (9th Cir. 1984). 

The general guidelines for determining whether an arbitration agreement exists

and should be enforced have been explained by the Supreme Court. Moses H. Cone Memorial

Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983). Moreover, strong congressional

policy favors arbitration. Id. at 22, 23. This policy “requires a liberal reading of arbitration

agreements. Id. at 23 n.27. “The Arbitration Act establishes that, as a matter of federal law, any

doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration,

whether the problem at hand is the construction of the contract language itself or an allegation of

waiver, delay, or a like defense to arbitrability.” Id. at 24-25 (footnote omitted).

However, as provided under § 2 of the FAA, contracts containing arbitration

agreements are subject to "such grounds as exist at law or in equity for the revocation of any

contract." Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). When these grounds exist,

such as unconscionability, courts may refuse to enforce arbitration agreements. Ingle v. Circuit

City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir.2003). In determining the validity of an

arbitration agreement, federal courts "should apply ordinary state-law principles that govern the

formation of contracts." Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir), cert.

denied, 535 U.S. 1112 (2002), citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944,

(1995).

The Supreme Court has repeatedly affirmed that all doubts as to the scope of

arbitrability must be resolved in favor of arbitration. Volt Info. Sci. v. Bd. of Tr. of Leland

Stanford Jr. Univ., 489 U.S. 468, 475-76 (1989); Moses H. Cone Mem'l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24-25 (1983).

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Plaintiff’s opposition recites his position on the merits of his claim. The merits of

the claim and any defenses are for the arbitrator to evaluate, not the courts. See Bristol Farmers

Market & Auction Co. v. Arlen Realty & Development Corp., 589 F.2d 1214, 1217 (3d

Cir.1978). 

Defendants have provided a copy of the Master Account Agreement signed by

plaintiff on the day he opened his account with defendant, December 22, 2003. (Taunton Decl.,

Ex. A.) Plaintiff has provided no evidence or arguments to the contrary. This agreement

contains a provision which reads, “Most disputes arising under this Agreement related to

accounts or services hereunder are subject to mandatory, binding arbitration. Rights to trial by

judge or jury are waived hereby.” (Id.) 

Defendants also provided a copy of the “Account Disclosures and Regulations,” a

booklet referenced in the Master Account Agreement signed by plaintiff. (Taunton Decl., Ex. B.) 

This booklet contains a section entitled “RESOLUTION OF DISPUTES,” centered and placed at

the top of the second column, underneath which reads [INCLUDING ARBITRATION]. (Id. at

5.) The second paragraph of that section states “The Bank and you elect to be bound by the

Federal Arbitration Act.” (Id.) Later in the paragraph the waiver of trial is reiterated in capital

letters: “YOU AND WE ARE WAIVING THE RIGHT TO HAVE OUR DISPUTE HEARD

BEFORE A JUDGE OR JURY.” (Id.)

"An order to arbitrate the particular grievance should not be denied unless it may

be said with positive assurance that the arbitration clause is not susceptible of an interpretation

that covers the asserted dispute." United Food & Commercial Workers Union, Local 770 v.

Geldin Meat Co., 13 F.3d 1365, 1368 (9th Cir.1994)(citing United Steelworkers, 363 U.S. at

582-83). Plaintiff has not provided the court with the kind of "positive assurance" that is

required for his claims to be exempt from the arbitration clause. The arbitration clause at issue

here is susceptible of an interpretation which would cover all of plaintiff’s claims. The clause

applies to “any dispute or controversy concerning [his] deposit account . . . relationships with us

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whether or not arising out of federal or state law or regulation or otherwise, including without

limit, debit/ATM cards, checks, . . . or other related services.” (Deft.’s Motion, Ex. B, at 5.) All

of plaintiff’s claims derive from his banking relationship with defendant. 

California law applies to the present motion to compel arbitration. See First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (holding that enforceability of

arbitration agreement subject to state contract law principles); 9 U.S.C. § 2 (conditioning validity

of provisions in the FAA to defenses on "such grounds as exist at law or in equity for the

revocation of any contract"). Under California law, for a contract term to be held unconscionable

it must possess two elements: procedural unconscionability (meaning terms which are outside of

the reasonable expectations of the parties) and substantive unconscionability (meaning terms that

are overly harsh or one-sided). See Armendariz v. Foundation Health Psychcare Servs., 24

Cal.4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000). The arbitration clause at issue in this

case contains neither of these elements.

To the extent that plaintiff could argue that the arbitration was procedurally

unconscionable, for example, that it was a "take it or leave it" form, that claim must be deferred

to the arbitrator because it would challenge the validity of the contract generally and not the

arbitration clause itself. The court has reviewed the “Resolution of Disputes” form provided

plaintiff and finds that the specific rules and terms of the arbitration clause were not agreed to in

a procedurally unconscionable way.

Neither can this court find that the arbitration clause was substantively

unconscionable because it is one-sided in favor of defendant. California courts have held that in

order for a contract term to be substantively unconscionable, it must be so one-sided as to "shock

the conscience." See 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199, 1212-1213,

78 Cal.Rptr.2d 533 (1998). The arbitration clause in the present case is not one-sided because it

requires both sides to submit all claims they may have against one another to the arbitrator. 

Although in certain situations the arbitration clause may end up benefitting defendant, it does not

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so heavily favor defendant at the expense of plaintiff that it rises to the level of being

unenforceable. Moreover, the Supreme Court has recognized specific advantages that the

arbitration forum affords plaintiffs. See Allied-Bruce Terminix Companies v. Dobson, 513 U.S.

265, 280-281 (1995) (explaining that Congress had the needs of consumers in mind when

drafting the FAA and that arbitration may favor individual consumers with small claims).

Finally, numerous courts have upheld even non-mutual arbitration clauses against

unconscionability defenses. See, e.g., Gray v. Conseco, Inc., 2000 WL 1480273 at *4-5

(C.D.Cal. Sept.29, 2000); Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183 (3d Cir.1999); In re

Pate, 198 B.R. 841, 844 (Bkrtcy.S.D.Ga.1996); Green Tree Fin. Corp. v. Wampler, 749 So.2d

409, 416 (Ala.1999). Thus, even when one party alone has the option of compelling arbitration,

courts have not found the arbitration clause to be unconscionable. Therefore, this court finds that

the arbitration provision in the Agreement was neither fraudulently induced nor unconscionable,

and is therefore valid.

Accordingly, for the reasons stated above, the court will recommend that

defendant’s motion to compel arbitration of all claims in the third amended complaint be granted. 

The motion for stay should also be granted, and this action should be stayed in its entirety

pending arbitration, subject to its re-opening by the parties at the conclusion of arbitration.

In light of the foregoing, IT IS HEREBY ORDERED that the May 19, 2005

hearing is vacated; and

IT IS HEREBY RECOMMENDED that:

1. Defendant’s March 7, 2005 motion to compel arbitration be granted;

2. The parties be directed to arbitrate all claims, pursuant to 9 U.S.C. § 1et seq.

and California Code of Civil Procedure § 1281.1;

3. Defendant’s March 7, 2005 motion to stay this action be granted; this action be

stayed in its entirety pending arbitration; 

/////

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4. The Clerk of the Court be directed to administratively close this action pending

arbitration; and

5. The parties be directed to notify this court within thirty days of any decision

rendered by the American Arbitration Association.

These findings and recommendations are submitted to the United States District

Judge assigned to the case, pursuant to the provisions of Title 28 U.S.C. § 636(b)(l). Within ten

days after being served with these findings and recommendations, any party may file written

objections with the court and serve a copy on all parties. Such a document should be captioned

"Objections to Magistrate Judge's Findings and Recommendations." Any reply to the objections

shall be served and filed within ten days after service of the objections. The parties are advised

that failure to file objections within the specified time may waive the right to appeal the District

Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).

DATED: April 21, 2005.

001; portnoy.faa

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