-PLA Unimax Express, Inc. v. Cosco North America, Inc. et al, No. 2:2011cv02947 - Document 22 (C.D. Cal. 2011)

Court Description: ORDER Denying Defendants' Motion to Compel Arbitration 9 by Judge Dean D. Pregerson. For the reasons stated above, Defendants Motion to Compel Arbitration is DENIED. (See Order for Details). (sch)

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-PLA Unimax Express, Inc. v. Cosco North America, Inc. et al Doc. 22 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 UNIMAX EXPRESS, INC., and on behalf of all others similarly situated, 13 Plaintiff, 14 15 16 17 v. COSCO NORTH AMERICA, INC., COSCO CONTAINER LINES AMERICA, INC., Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 11-02947 DDP (PLAx) ORDER DENYING DEFENDANTS’ MOTION TO COMPEL ARBITRATION [Docket No. 9] 18 19 Presently before the court is a Motion to Compel Arbitration 20 filed by Defendants Cosco North America, Inc. and Cosco Container 21 Lines America, Inc. (collectively, “Cosco”). 22 the submissions of the parties and heard oral argument, the court 23 denies the motion and adopts the following order. 24 I. 25 Having considered Background Cosco transports cargo containers over sea and land. Cosco 26 contracts with trucking companies such as Plaintiff Unimax 27 Express, Inc. (“Unimax”) for the overland portions of Cosco’s 28 shipments. Trucking companies pick up loaded containers from Dockets.Justia.com 1 marine terminals, deliver the containers to their ultimate 2 destination, then return the empty containers back to the marine 3 terminal. 4 the agreed upon time, equipment providers such as Cosco charge 5 truckers “demurrage,” or late pick-up, fees. 6 trucking companies do not return empty containers on time, Cosco 7 charges “per diem,” or late drop-off, fees. 8 9 When truckers do not pick up loaded containers within Similarly, when Cosco only contracts with carriers who are signatories to a standard contract, the Uniform Intermodal Interchange and 10 Facilities Access Agreement (“the Agreement”). 11 drafted by the Intermodal Association of North America (“the 12 Association”), a trade organization located in Maryland.1 13 has signed the Agreement. 14 The Agreement was Unimax The Agreement contains an arbitration provision (“the 15 Provision”). 16 resolving disputes “with respect to per diem [i.e. late drop-off] 17 or maintenance and repair invoices.” 18 parties must provide written notification of disputed charges 19 within thirty days of receipt of the disputed invoice. 20 §§ H.2-H.3.) 21 notice of a dispute, that party may not seek arbitration or assert 22 any other defense against the invoice, and must pay the invoiced 23 charges immediately. 24 The Provision sets forth default procedures for (Agreement § H.1). (Agreement If an invoiced party fails to timely provide written (Agreement § H.3.) If arbitration is sought, the Association will appoint a 25 three-member panel to resolve the dispute. 26 ¶ 3.) (Agreement, Exhibit D “Disputes must be confined to charges arising from 27 28 Invoiced 1 The Association is not a party to this action. 2 1 Maintenance and Repair . . . or Per Diem [late drop-off] 2 invoices.” 3 initiated, the moving party has fifteen days to submit written 4 arguments to the Association. 5 then has fifteen days to submit responses. 6 arbitration panel will then render a decision based on the written 7 submissions of the parties. 8 required, the panel “may” hold a conference call with both 9 parties. 10 (Agreement, Ex. D ¶ 6.) (Id. ¶ 10.) not subject to appeal. Once an arbitration is (Id. ¶ 7.) (Id. ¶ 9.) The non-moving party (Id. ¶ 8.) The If further information is The panel’s decisions are final, and are (Id. ¶ 11.) 11 On April 7, 2011, Unimax filed the instant action against 12 Costco, alleging that Cosco unlawfully levies late pick-up and 13 late drop-off fees on weekends and holidays in violation of 14 California Business and Professions Code § 22928. 15 to compel Unimax to arbitrate its claims under the Agreement. 16 II. 17 Cosco now moves Legal Standard Under the FAA, 9 U.S.C. § 1 et seq., a written agreement that 18 controversies between the parties shall be settled by arbitration 19 is “valid, irrevocable, and enforceable, save upon such grounds as 20 exist at law or in equity for the revocation of any contract.” 21 U.S.C. § 2. 22 arbitrate under a written arbitration agreement may petition the 23 court for an order directing that arbitration proceed as provided 24 for in the agreement. 25 Supercuts, Inc., 51 Cal. App. 4th 1519, 1526-27 (1997) 26 (considering a motion to compel arbitration). 27 motion to compel arbitration, the court must determine whether 28 there is a duty to arbitrate the controversy, and “this 9 A party aggrieved by the refusal of another to 9 U.S.C. § 4; see e.g. Stirlen v. 3 In considering a 1 determination necessarily requires the court to examine and, to a 2 limited extent, construe the underlying agreement.” 3 Cal. App. 4th at 1527. 4 arbitration clause, which may be made only “upon such grounds as 5 exist for the revocation of any contract,” is solely a judicial 6 function. 7 Stirlen, 51 The determination of the validity of an Id. (internal citation omitted). If the court is satisfied that the making of the arbitration 8 agreement or the failure to comply with the agreement is not at 9 issue, the court shall order the parties to proceed to arbitration 10 in accordance with the terms of the agreement. 11 FAA reflects a “federal policy favoring arbitration agreements.” 12 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991) 13 (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 14 U.S. 1, 24 (1983)). 15 III. 16 9 U.S.C. § 3. The Discussion Unimax opposes Cosco’s instant motion on the grounds that the 17 Provision is unconscionable and, therefore, unenforceable. 18 (Opposition at 12.) 19 Cosco’s suggestion that this argument is controlled by the Supreme 20 Court’s recent decision in AT&T Mobility LLC v. Concepcion, 131 21 S.Ct. 1740 (2011). 22 from invalidating unconscionable arbitration agreements on the 23 basis of state law. 24 limited state-law-based unconscionability challenges to class- 25 action waiver provisions in arbitration agreements. 26 131 S.Ct. at 1753. 27 “agreements to arbitrate may be invalidated by generally 28 applicable contract defenses, such as fraud, duress, or As an initial matter, the court rejects Cosco suggests that Concepcion prevents courts (Reply at 4.) Cosco is mistaken. Concepcion Concepcion, The Court recognized, however, that 4 1 unconscionability.” Id. at 1746 (internal quotation and citation 2 omitted). 3 invalidate arbitration agreements is not affected by the Supreme 4 Court’s decision in [Concepcion].” 5 Strong, 651 F.3d 1241, 1267 n.28 (11th Cir. 2011); See also 6 Ferguson v. Community College, 2011 WL 4852339 *2 (C.D. Cal. 7 October 6, 2011). Thus, “[t]he ability of such contractual defects to Community State Bank v. 8 A. 9 Before determining whether the Provision is valid, this court Choice of Law 10 must first determine, under the choice-of-law rules of the forum 11 state, which state’s laws apply. 12 987, 994 (9th Cir. 2010). 13 choice of law provision. 14 courts generally respect choice-of-law provisions within contracts 15 that have been negotiated at arm’s length. 16 Superior Court, 3 Cal.4th 459, 464 (1992).2 17 provisions will not be enforced, however, if “the chosen state has 18 no substantial relationship to the parties or the transaction and 19 there is no reasonable basis for the parties choice” or 2) the 20 chosen state’s law is contrary to the fundamental public policy of 21 a state that has a materially greater interest in the issue at 22 hand and whose law would otherwise apply. Pokorny v. Quixtar, 601 F.3d Here, the Agreement contains a Maryland (Agreement § G.7.) In California, Nedlloyd Lines B.V. v. Choice-of-law Bridge Fund Capital 23 24 2 25 26 27 28 The court notes that here, as discussed further infra, the Agreement was not negotiated at arm’s length. The Association drafted the standard language of the Agreement, to which Unimax had to agree in order to conduct business with Cosco. “[C]ourts should not apply choice-of-law provisions in adhesion contracts if to do so would result in substantial injustice to the adherent.” Flores v. American Seafoods Co., 335 F.3d 904, 918 (9th Cir. 2003) (internal quotation marks omitted). 5 1 Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1002-1003 (9th 2 Cir. 2010); Nedlloyd, 3 Cal.4th at 465. 3 Here, Maryland has no relationship to the parties or the 4 transactions at issue here. 5 does it appear that any party conducts substantial business in 6 Maryland. 7 the transactions relevant here occurred in California. 8 claims arise under California state law alone. 9 This cases only tie to Maryland is the fact that the Association, 10 which drafted the Agreement without Unimax’s input, is located in 11 Maryland. 12 The court is not persuaded by Cosco’s unsupported assertion that 13 “[g]iven the importance of the [Association] and its role in this 14 industry, there is an obvious nexus between Maryland and the 15 choice of law provision.” 16 any reasonable basis to apply Maryland law where the only 17 conceivable connection to Maryland is a contract of adhesion 18 drafted by a third party. No party is located in Maryland, nor Unimax asserts, and Cosco does not dispute, that all of Unimax’s The Association, however, is not a party to this case. (Reply at 5.) Nor can the court find Accordingly, California law applies. 19 B. 20 Unconscionability has generally been recognized to include Validity of the Arbitration Provision 21 (1) an absence of meaningful choice on the part of one of the 22 parties and (2) contract terms which are unreasonably favorable to 23 the other party. 24 way, unconscionability has a “procedural” and “substantive” 25 element. 26 Cir. 2007). “[A]n arbitration agreement, like any other 27 contractual clause, is unenforceable if it is both procedurally 28 and substantively unconscionable.” Stirlen, 51 Cal. App. 4th at 1531. Put another See Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th 6 Pokorny, 601 F.3d at 996. 1 California courts apply a “sliding scale” analysis in making 2 this determination: “the more substantively oppressive the 3 contract term, the less evidence of procedural unconscionability 4 is required to come to the conclusion that the term is 5 unenforceable, and vice versa.” 6 Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 7 690 (Cal. App. 2000)). 8 unconscionability must be present for a contract to be declared 9 unenforceable, but they need not be present to the same degree. 10 Davis, 485 F.3d at 1072. (quoting Both procedural and substantive Harper v. Ultimo, 113 Cal. App. 4th 1402, 1406 (2003). 11 1. 12 Procedural Unconscionability Here, Cosco recognizes that its revenues are greater than 13 Unimax’s, apparently conceding that Cosco is in a position of 14 superior bargaining power. 15 is not adhesive is not persuasive. 16 that Unimax “simply chose to sign” the Agreement. 17 8.) 18 Unimax had to sign the standardized Agreement in order to conduct 19 business as an intermodal carrier. 20 is well settled that standardized, adhesive contracts drafted by 21 the stronger party are procedurally unconscionable. 22 F.3d at 996. 23 drafted the Provision’s language, does not affect the strength of 24 the parties’ relative positions. 25 draft the Agreement, it clearly approved of the Provision’s 26 language, and proceeded to present the Provision to Unimax on a 27 take it or leave it basis. 28 unconscionable. Cosco’s contention that the Agreement Cosco argues in a footnote (Reply at 10 n. However, Cosco does not dispute Unimax’s assertion that (Opp. at 14, Reply at 10.) It Pokorny, 601 The fact that the Association, and not Cosco, Though Cosco did not itself As such, the Provision is procedurally See, e.g. Bridge Fund, 622 F.3d at 1004 7 1 (“California law treats . . . terms over which a party of lesser 2 bargaining power had no opportunity to negotiate[] as procedurally 3 unconscionable to some degree.”) (citing Armendariz, 6 P.3d at 4 690); Pokorny, 601 F.3d at 996 (“An agreement or any portion 5 thereof is procedurally unconscionable if ‘the weaker party is 6 presented the clause and told to “take it or leave it” without the 7 opportunity for meaningful negotiation.’” (quoting Szetela v. 8 Discover Bank, 97 Cal.App.4th 1094 (2002). 9 10 2. Substantive Unconscionability Substantive unconscionability focuses on the one-sidedness of 11 the contract terms. 12 arbitration agreement is concerned, the agreement is 13 unconscionable unless the arbitration remedy contains a ‘modicum 14 of bilaterality.’” 15 P.3d at 692). 16 Armendariz, 6 P. 3d at 690. “Where an Ting, 319 F.3d at 1149 (citing Armendariz, 6 Here, the burdens of the arbitration procedures fall 17 inordinately on the invoiced party. 18 been improperly charged, it must provide written notice of the 19 dispute to Cosco within thirty days, at pain of forfeiting any 20 defense to such charges, regardless of whether the charges are 21 proper. 22 thirty-day limitation period furthers Unimax’s “interest in 23 resolving legitimate disputes.” 24 argument ignores the reality that the thirty-day notice period 25 operates as a statute of limitations shorter than that available 26 under California law, and works solely to Cosco’s benefit. 27 28 If Unimax believes it has Cosco contends that the “expeditious and efficient” (Reply at 12-13.) Cosco’s Other terms of the Provision also operate solely to Cosco’s benefit. While both parties could theoretically initiate an 8 1 arbitration, the burden is always on the invoiced party to 2 initiate a dispute. 3 believes it has been wrongly charged and seeks to arbitrate, it 4 must submit all of its arguments to the arbitration panel first. 5 The invoiced party must articulate its arguments with a clarity 6 bordering on prescience, for it has no right to discovery and will 7 have no opportunity to rebut the invoicing party’s response 8 (notwithstanding the possibility that the arbitration panel “may” 9 initiate a conference call). (Agreement § H.1.) When an invoiced party Finally, even if the invoiced party 10 receives a favorable determination, the arbitration panel lacks 11 the power to enjoin the invoicer’s wrongful conduct, leaving the 12 invoicer free to repeat the offense. 13 violation, the invoiced party’s only option is to initiate a 14 separate dispute every thirty days, ad infinitum. 15 circumstances, the arbitration procedures lack even a modicum of 16 bilaterality, and the Provision is, therefore, substantively 17 unconscionable. 18 IV. 19 20 In the case of an ongoing Under these Conclusion For the reasons stated above, Defendants’ Motion to Compel Arbitration is DENIED. 21 22 IT IS SO ORDERED. 23 24 25 Dated: November 28, 2011 DEAN D. PREGERSON United States District Judge 26 27 28 9

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