Court Opinion

ID: 2825890
Source: CourtListenerOpinion
Date Created: 2015-08-11 06:34:47.167228+00
Date Added: 2024-06-11T11:31:19.798228
License: Public Domain

appellants' motion to compel arbitration.' As a threshold matter,
                 appellants assert for the first time on appeal that the district court lacked
                 subject matter jurisdiction to determine the enforceability of the
                 employment agreement because the agreement contained a clause
                 delegating such authority to the arbitrator. We conclude that the
                 existence of the delegation clause does not implicate the district court's
                 subject matter jurisdiction, and appellants have waived this argument by
                 failing to raise the issue below.   Cant? Gas. Co. v. Am. Nat'l Ins. Co., 417
F.3d 727, 732 n.7 (7th Cir. 2005) (recognizing that "the proper course of
                 action when a party seeks to invoke an arbitration clause is to stay the
                 proceedings pending arbitration rather than to dismiss outright"
                 (emphasis omitted)). Further, because the district court was not divested
                 of subject matter jurisdiction, the court did not err in denying appellants'
                 request to dismiss the action under NRCP 12(b)(1) and we affirm the
                 district court's order in that regard.

                        "We conclude that California law is applicable here as the
                 employment agreement provides that California law will apply, the
                 agreement is not contrary to Nevada public policy, and California has a
                 substantial relationship with this action because EPMG is a California
                 corporation. See Progressive Gulf Ins. Co. v. Fctehnrich, 130 Nev. Adv. Op.
                 No. 19, 327 P.3d 1061, 1063-64 (2014) (providing that Nevada courts will
                 honor choice of law provisions in contract actions when the situs fixed by
                 the agreement has a substantial relationship with the transaction and the
                 agreement is not contrary to the public policy of the forum); D.R. Horton,
                 Inc. v. Green, 120 Nev. 549, 553-54, 96 P.3d 1159, 1162-63 (2004)
                 (demonstrating that Nevada applies the same standards in determining
                 the enforceability of an arbitration agreement as California); see also
                 generally Nedlloyd Lines B.V. v. Superior Court of San Mateo Cnty., 834
P.2d 1148, 1153 (Cal. 1992) (explaining that "[a] party's incorporation in a
                 state is a contact sufficient to allow the parties to choose that state's law
                 to govern their contract" (internal quotation marks omitted)).

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                            The district court, however, erred in concluding that the
                arbitration article is unconscionable, and thus, unenforceable.    Baker v.
                Osborne Dev. Corp., 71 Cal. Rptr. 3d 854, 860 (Ct. App. 2008) (applying de
                novo review in determining whether an arbitration agreement is
                unconscionable, but reviewing factual inferences relied on by the district
                court under the substantial evidence standard). To conclude that a
                contract is unenforceable based on unconscionability, the contract must be
                both procedurally and substantively unconscionable          Armendariz v.
                Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000). While
                both forms of unconscionability must be present for a contract to be
                deemed unenforceable, they can be present on a sliding scale, meaning
                "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.   Here, there is only a small
                degree of evidence demonstrating that the arbitration article is
                procedurally and substantively unconscionable.
                Procedural unconscionability
                            In analyzing procedural unconscionability, the circumstances
                surrounding the formation and negotiation of the contract are relevant,
                with a focus on whether there was "an inequality of bargaining power
                which results in no real negotiation and an absence of meaningful choice"
                or whether a party may be surprised by the unconscionable term, meaning
                "the supposedly agreed-upon terms of the bargain are hidden in a prolix
                printed form drafted by the party seeking to enforce the disputed terms."
                Bruni v. Didion, 73 Cal. Rptr. 3d 395, 409 (Ct. App. 2008) (internal
                quotations omitted). While the fact that the contract is an employment
                agreement lends some credence to the idea that the contract is a contract
                of adhesion, and thus procedurally unconscionable, respondent did not
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                 present any evidence other than his own statement that he was unable to
                 negotiate the contract. See Mission Viejo Emergency Med. Assocs. v. Beta
                 Healthcare Grp., 128 Cal. Rptr. 3d 330, 336 (Ct. App. 2011) (providing that
                 the party opposing enforcement of an arbitration agreement has the
                 burden of establishing that the agreement is unenforceable). Further,
                 respondent signed the arbitration article independently from the rest of
                 the contract in an outlined box that provided in bold letters that he had
                 the opportunity to have an attorney review the provision. He also signed
                 the contract a full month before EPMG's president, indicating that he had
                 time for an attorney to review the contract and time to negotiate the
                 contract.
                             The district court relied upon EPMG's failure to provide
                 respondent with copies of the American Arbitration Association (AAA)
                 rules, Federal Rules of Civil Procedure, and Federal Arbitration Act as
                 evidence of procedural unconscionability because the contract provided
                 that certain provisions from each would be applicable.      Trivedi v. Curexo
                 Tech. Corp., 116 Cal. Rptr. 3d 804, 808 (Ct. App. 2010) (providing that "the
                 failure to provide a copy of the arbitration rules to which the employee
                 would be bound, supported a finding of procedural unconscionability").
                 Because the AAA rules were applicable except for a few instances
                 involving discovery and pre-hearing motions, EPMG's failure to provide
                 respondent with copies of these three documents only demonstrates
                 procedural unconscionability to a small extent.       See generally Lane v.
                 Francis Capital Mgmt. LLC, 168 Cal. Rptr. 3d 800, 811-12 (Ct. App. 2014)
                 (providing that "the failure to attach the arbitration rules could be a factor
                 in support of a finding of procedural unconscionability, but [we] disagree
                 that the failure, by itself, is sufficient to sustain a finding of procedural

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                unconscionability"). Thus, in considering all of the above, the arbitration
                article is procedurally unconscionable but only to a small degree.
                Substantive unconscionabilitv
                            The substantive element of unconscionability focuses on the
                actual terms of the contract and assesses whether those terms are overly
                harsh or one-sided. Armendariz, 6 P.3d at 690. Neither the availability of
                preliminary injunctive relief, see Cal. Civ. Pro. Code § 1281.8(b) (allowing
                a party to an arbitration agreement to seek preliminary injunctive relief
                regardless of the arbitration agreement's language), nor the unavailability
                of an appeal from the arbitrator's decision demonstrates substantive
                unconscionability because they apply equally to both parties. And
                EPMG's duty to pay the arbitration costs incurred by both parties that
                would not be incurred if the matter proceeded in court does not
                demonstrate substantive unconscionability. Further, because respondent
                did not argue that an adequate remedy would be unavailable to him in the
                chosen jurisdiction, the choice-of-law and forum-selection provisions are
                not substantively unconscionable.     See Olinick v. BMG Entm't,     42 Cal.
                Rptr. 3d 268, 283 (Ct. App. 2006) (providing that "[a]n employer and an
                employee may validly agree to select a forum other than California, and
                may validly select the substantive law of another jurisdiction, provided the
                employee has an adequate remedy for his or her discrimination claim in
                the selected forum" (emphasis omitted)); see also Mission Viejo, 128 Cal.
                Rptr. 3d at 335.
                            Nevertheless, the presence of the confidentiality provision
                precluding the use or release of evidence outside of the arbitration
                proceeding demonstrates substantive unconscionability.         See Ting v.
                AT&T,    319 F.3d 1126, 1151-52 (9th Cir. 2003) (recognizing that
                "[c]onfidentiality provisions usually favor companies over individuals . . .

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                  because companies continually arbitrate the same claims," and gag orders
                  on those arbitrations prevent plaintiffs from accessing a body of knowledge
                  regarding those companies). Additionally, because respondent has a
                  conspiracy claim pending in the district court and arising from the same
                  facts and circumstances as this matter, if he is unable to use the evidence
                  discovered during arbitration, he will be forced to incur unfair duplicative
                  costs.' But the presence of the confidentiality provision alone is not
                  sufficient to establish the high degree of substantive unconscionability
                  necessary to render the arbitration article unenforceable. 3
                              Thus, because there is only minimal evidence that the
                  arbitration article is procedurally and substantively unconscionable, the
                  district court erred in concluding that the arbitration article is
                  unenforceable and denying appellants' motion to compel arbitration.
                  Accordingly, we reverse the district court's denial of appellants' motion to

                        'While appellants argue that this court cannot consider the effect
                  the conspiracy claim has on the enforceability of the arbitration article
                  because this court must review the article at the time it was made, in
                  order to determine if the arbitration article is sufficiently bilateral, this
                  court may examine the actual effects of the challenged provisions. Acorn
                  v. Household Int'l, Inc., 211 F. Supp. 2d 1160, 1169-71 (D. Cal. 2002).

                         'We note that on remand the confidentiality provision could be
                  severed, allowing enforcement of the arbitration article minus the
                  confidentiality provision, because no other provision of the arbitration
                  article is substantively unconscionable and the contract provides that
                  when one provision is held to be unenforceable, the remaining provisions
                  shall continue in full force. See Armendariz, 6 P.3d at 695-96 (explaining
                  that when one unconscionable provision is present, it can be severed from
                  an agreement to allow the majority of the agreement to be imposed); see
                  also Woodside Homes of Cal., Inc. v. Superior Court, 132 Cal. Rptr. al 35,
                  42 (Ct. App. 2003) (discussing severing a confidentiality provision from the
                  rest of the agreement).

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                compel arbitration and remand this matter to the district court for
                proceedings consistent with this order.
                            It is so ORDERED.

                                                                                 J.
                                                          Saitta

                                                                                  J.
                                                          Gibbons

                                                                                  J.
                                                          Pickering

                cc: Hon. Kerry Louise Earley, District Judge
                     Salvatore C. Gugino, Settlement Judge
                     Wilson, Elser, Moskowitz, Edelman & Dicker, LLP/Las Vegas
                     Fennemore Craig Jones Vargas/Las Vegas
                     Eighth District Court Clerk

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