Opinion ID: 1087290
Heading Depth: 5
Heading Rank: 2

Heading: Ralphs filed a motion to compel arbitration;

Text: (3) If the court grants the motion, then the case will go to arbitration; and (4) Ralphs will have “demanded” arbitration and thereby relinquished the first strike to Chavarria. 16 CHAVARRIA V. RALPHS Chavarria will, under Ralphs’ scenario, strike all three of the arbitrators on Ralphs’ list, and the last remaining arbitrator will necessarily be from Chavarria’s list. It doesn’t take a close examination of Ralphs’ argument to reveal its flaws. To begin with, Ralphs’ argument invites an employee to disregard the arbitration policy and to file a lawsuit in court, knowing that the claim is subject to arbitration. Even if Ralphs is willing to waste its time and money for that detour, it is not one that makes any sense for the court. We cannot endorse an interpretation that encourages the filing of an unnecessary lawsuit simply to gain some advantage in subsequent arbitration. Perhaps more to the point, Ralphs’ argument relies on a fanciful interpretation of its arbitration policy. Ralphs’ motion to compel arbitration does not constitute a “demand for arbitration” as provided in the policy. Paragraph 9 of the arbitration policy provides that “[a] demand for arbitration . . . must be made in writing, comply with the requirements for pleadings under the [Federal Rules of Civil Procedure] and be served on the other party.” (emphasis added). Ralphs’ motion to compel arbitration is not a demand for arbitration under the terms of Ralphs’ policy because it does not comply with the Federal Rules of Civil Procedure requirements governing pleadings. See Fed. R. Civ. P. 7(a) (providing that “[o]nly these pleadings are allowed” before listing types of pleadings); Fed. R. Civ. P. 8 (stating the general rules of pleading). A fair construction of the agreement suggests that an employee, even after filing a frivolous claim in federal court, nonetheless must serve on Ralphs a demand for arbitration that complies with the Federal Rules. Accordingly, as the CHAVARRIA V. RALPHS 17 district court found, Ralphs gets to pick the pool of potential arbitrators every time an employee brings a claim. Even if it were the case that Ralphs’ policy does not guarantee that Ralphs will always be the party with the final selection, the selection process is not one designed to produce a true neutral in any individual case. As noted above, Ralphs has not argued that the selection process is fair, acknowledging that the process “disadvantages the party seeking arbitration.” Ralphs simply argues that sometimes the process may work to its disadvantage. But that is no consolation to the individual employee who is disadvantaged in her one and only claim. Forcing her into an arbitration process where Ralphs has an advantage cannot be justified by the possibility that some other employee might someday get the upper hand in that employee’s arbitration against Ralphs. Ralphs also argues that there is nothing of concern in its cost allocation provision because it simply follows the “American Rule” that each party shall bear its own fees and costs. Ralphs misses the point. The troubling aspect of the cost allocation provision relates to the arbitrator fees, not attorney fees. The policy mandates that the arbitrator apportion those costs on the parties up front, before resolving the merits of the claims. Further, Ralphs has designed a system that requires the arbitrator to apportion the costs equally between Ralphs and the employee, disregarding any potential state law that contradicts Ralphs’ cost allocation. Only a decision of the United States Supreme Court that directly addresses the issue can alter Ralphs’ cost allocation term. This pseudo 18 CHAVARRIA V. RALPHS “AEDPA deference”4 has no place in employment claims governed by state law. There is no justification to ignore a state cost-shifting provision, except to impose upon the employee a potentially prohibitive obstacle to having her claim heard. Ralphs’ policy imposes great costs on the employee and precludes the employee from recovering those costs, making many claims impracticable. The significance of this obstacle becomes more apparent through Ralphs’ representation to the district court that the fees for a qualified arbitrator under its policy would range from $7,000 to $14,000 per day. Ralphs’ policy requires that an employee pay half of that amount—$3,500 to $7,000—for each day of the arbitration just to pay for her share of the arbitrator’s fee. This cost likely dwarfs the amount of Chavarria’s claims.5 The specific allocation of costs distinguishes this arbitration agreement from the provision we upheld in Kilgore v. KeyBank National Ass’n, 718 F.3d 1052, 1058 (9th Cir. 2013) (en banc). In that case, plaintiffs asserted only two arguments supporting unconscionability: (1) that a class waiver provision was unconscionable under California law; and (2) that students may not be able to afford arbitration 4 Referring to the Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. No. 104-132, 110 Stat. 1214. See 28 U.S.C. § 2254(d)(1) (providing that, in the context of habeas corpus, courts must look to “clearly established Federal law, as determined by the Supreme Court of the United States”). 5 As the district court noted, Chavarria worked as a deli clerk for roughly five to six months and alleges she was not paid for rest and meal breaks as required by California law. Her monetary claims likely would not approach the cost of the arbitrator fees. CHAVARRIA V. RALPHS 19 fees. Id. The first argument was expressly foreclosed by the U.S. Supreme Court in Concepcion, 131 S. Ct. at 1753. We rejected the second argument because the Court has held that the mere risk that a plaintiff will face prohibitive costs is too speculative to justify invalidating an arbitration agreement. Kilgore, 718 F.3d at 1058 (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90–91 (2000)). But in this case, not only does the cost provision stand beside other unconscionable terms, there is nothing speculative about it. Ralphs’ term requires that the arbitrator impose significant costs on the employee up front, regardless of the merits of the employee’s claims, and severely limits the authority of the arbitrator to allocate arbitration costs in the award. The district court focused its substantive unconscionability discussion on these terms, and it was correct in doing so because the terms lie far beyond the line required to render an agreement invalid. We therefore need not discuss at length the additional terms in Ralphs’ arbitration policy, such as the unilateral modification provision, which we have previously held to support a finding of substantive unconscionability. See Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003) (holding that a unilateral modification provision, which provided more notice than required in Ralphs’ policy, was substantively unconscionable).