Brandyn Ridgeway et al v. Nabors Completion and Production Services Co. et al, No. 2:2015cv03436 - Document 49 (C.D. Cal. 2015)
Court Description: ORDER DENYING DEFENDANTS' MOTIONS TO COMPEL ARBITRATION AND DISMISS OR STAY 26 , 29 by Judge Dean D. Pregerson. See document for details. (gk)
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Brandyn Ridgeway et al v. Nabors Completion and Production Services Co. et al Doc. 49 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 13 BRANDYN RIDGEWAY and TIM SMITH on behalf of themselves and all others similarly situated and the general public, 14 Plaintiff, 15 16 17 18 19 20 v. NABORS COMPLETION & PRODUCTION SERVICES CO., a Delaware corporation; CITY OF LONG BEACH, a California municipality; TIDELANDS OIL PRODUCTION COMPANY, a Texas General Partnership, Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 15-03436 DDP (VBKx) ORDER DENYING DEFENDANTS’ MOTIONS TO COMPEL ARBITRATION AND DISMISS OR STAY [Dkt. Nos. 26, 29] 21 22 Presently before the Court are Defendants’ Motions to Compel 23 Arbitration. 24 submissions and heard oral argument, the Court adopts the following 25 order. 26 I. 27 28 (Dkt. Nos. 26, 28.) Having considered the parties’ BACKGROUND Plaintiffs Brandyn Ridgeway (“Ridgeway”) and Tim Smith (“Smith”; collectively, “Plaintiffs”) brought this class action Dockets.Justia.com 1 wage and hour employment dispute against their former employer, 2 Defendant Nabors Completion and Production Services, Co. 3 (“Nabors”), as well as unknown Doe defendants. 4 1-2 (“FAC”).) 5 wages on public works, violated California Labor Code sections 203 6 and 226(a), and violated California Business & Professions Code 7 section 17200. 8 declaratory relief cause of action against Nabors and Defendants 9 City of Long Beach (“Long Beach”) and Tidelands Oil Production (First Am. Compl. ¶ Plaintiffs allege Nabors failed to pay prevailing (Id. at 11-17.) Plaintiffs have also alleged a 10 Company (“Tidelands”), asking the court to find that the work 11 Plaintiffs did for Nabors was “public work” because Nabors was a 12 subcontractor of Tidelands, who had contract with Long Beach. 13 at 14-15.) 14 (Id. Plaintiffs each signed an Application for Employment 15 (“Application”) that stated “I acknowledge that a copy of the 16 Company’s Dispute Resolution Program was available for my review at 17 the location where I submitted this application . . . if I refuse 18 to sign below . . . my application will not be considered for 19 employment.” 20 Compel Arbitration, Dismiss Class & Representative Action Claims, & 21 Stay Proceedings (“Martinez Decl.”) Ex. A, B.) 22 (Decl. Michelle Martinez ISO Def. [Nabors] Mot. In addition, Plaintiffs each signed an Employee Acknowledgment 23 (“Acknowledgment”) that states “I have received a copy of the 24 Nabors Dispute Resolution Program . . . . By my signature below, I 25 acknowledge and understand that I am required to adhere to the 26 Dispute Resolution Program and its requirement for submission of 27 disputes to a process that may include mediation and/or 28 arbitration.” (Id.) 2 1 Ridgeway signed the Application in April 2011 and the 2 Acknowledgment in May 2011. (Decl. Pl. Brandyn Ridgeway (“Ridgeway 3 Decl.”) Exs. A, B.) 4 not read the document and he understood that his signature was 5 required to be considered for employment. 6 Nabors required Ridgeway to sign a “pile of documents,” including 7 the Acknowledgment, during safety training as a condition of 8 employment. 9 and to his knowledge was not provided with a copy of Nabors’s When Ridgeway signed the Application, he did (Id. ¶¶ 12-13.) (Ridgeway Decl. ¶ 16.) Ridgeway did not review the documents 10 Dispute Resolution Program (“arbitration agreement”) either when he 11 signed the Acknowledgment or later during his employment. 12 16-18; see also Martinez Decl. Ex. C (arbitration agreement).) 13 Smith signed the Application in January 2012 and the (Id. ¶¶ 14 Acknowledgment in February 2012. (Decl. Pl. Tim Smith (“Smith 15 Decl.”) Exs. A, B.) 16 page” Application during a meeting with Nabors’s Human Resources as 17 a condition of employment. 18 signed the Application, he did not read the documents and he 19 understood that his signature was required to be considered for 20 employment. 21 Acknowledgment during a safety training when he was presented with 22 a “number of additional documents to sign” during class. 23 16, 18.) 24 arbitration agreement either when he signed the Acknowledgment or 25 later during his employment. 26 27 Nabors required Smith to sign the “several (Id. ¶ 14.) (Smith Decl. ¶¶ 9-13.) When Smith Smith believes he signed the (Id. ¶¶ To his knowledge, Smith never received a copy of the (Id. ¶ 18.) The arbitration agreement is divided into two parts. First is an introductory section titled “The Nabors Dispute Resolution 28 3 1 Program” and second is a description of the rules of arbitration 2 titled “Nabors Dispute Resolution Rules.” 3 (Martinez Decl. Ex. C.) Defendants have filed motions to compel arbitration and to 4 dismiss or stay Plaintiffs’ claims. 5 II. 6 LEGAL STANDARD Under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et 7 seq., a written agreement requiring controversies between the 8 contracting parties to be settled by arbitration is “valid, 9 irrevocable, and enforceable, save upon such grounds as exist at 10 law or in equity for the revocation of any contract.” 11 2. 12 court with jurisdiction over the dispute for an order directing 13 that arbitration proceed as provided for in the agreement. Id. § 4. 14 9 U.S.C. § A party to an arbitration agreement may petition a district The FAA reflects a “liberal federal policy favoring 15 arbitration agreements” and creates a “body of federal substantive 16 law of arbitrability.” 17 Corp., 460 U.S. 1, 24-25 (1983). 18 laws that “stand as an obstacle to the accomplishment of the FAA’s 19 objectives.” 20 Ct. 1740, 1748 (2011). 21 arbitration or that derive their meaning from the fact that an 22 agreement to arbitrate is at issue,” as well as state rules that 23 act to fundamentally change the nature of the arbitration agreed to 24 by the parties. 25 consumers to invoke class arbitration post hoc was neither 26 “consensual” nor the kind of arbitration envisioned by the FAA). Moses H. Cone Mem. Hosp. v. Mercury Constr. The FAA therefore preempts state AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. This includes “defenses that apply only to Id. at 1746, 1750 (California rule allowing 27 On the other hand, “[t]he principal purpose of the FAA is to 28 ensure that private arbitration agreements are enforced according 4 1 to their terms.” 2 marks and brackets omitted). 3 agreement typically cannot bind non-parties to arbitrate. 4 E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293-94 (2002). 5 an individual cannot contract away the government’s right to 6 enforce its laws, even if the government seeks to recover “victim- 7 specific” remedies such as punitive damages. 8 III. DISCUSSION 9 Id. at 1748 (emphasis added) (internal quotation Moreover, parties to an arbitration See Thus, Id. at 294-95. The main thrust of this contested motion to compel arbitration 10 is Plaintiffs’ argument that the arbitration agreement is 11 unenforceable because it is unconscionable. 12 evidentiary objections to the proffered arbitration agreement in 13 Exhibit C of the Martinez declaration. 14 5-7; Pls. Opp’n to Tidelands/Long Beach at 2, 9-11.) 15 Defendants Tidelands and Long Beach argue that they can enforce the 16 arbitration agreement despite being nonsignatories to that 17 agreement. 18 12-17; Tidelands/Long Beach Reply at 3-4.) 19 unconscionability determines the ultimate outcome here, the Court 20 assumes for the sake of argument that Defendants Tidelands and Long 21 Beach can enforce the arbitration agreement and that the agreement 22 provided in Exhibit C is properly before the Court. Plaintiffs also raise (Pls. Opp’n to Nabors at 1, In addition, (Def. Tidelands/Long Beach Mot. Compel Arbitration at Because the question of 23 A. 24 The FAA as well as federal and California case law recognize Unconscionability of the Arbitration Contract 25 the standard contract defense of unconscionability is applicable to 26 arbitration agreements. 27 states that arbitration agreements are to be enforced according to 28 their terms “save upon such grounds as exist at law or in equity See 9 U.S.C. § 2 (where “savings clause” 5 1 for the revocation of any contract”); Chavarria v. Ralphs Grocery 2 Co.,733 F.3d 916, 921 (9th Cir. 2013) (finding employment 3 arbitration agreement unconscionable); Armendariz v. Found. Health 4 Psychcare Servs., Inc., 24 Cal. 4th 83, 114-21 (2000) (same). 5 Plaintiffs here allege that the arbitration agreement is 6 unconscionable and thus unenforceable. 7 10-19; Pls. Opp’n to Tidelands/Long Beach at 13-23.) 8 9 (Pls. Opp’n to Nabors at In California, unconscionability has two elements: procedural unconscionablility and substantive unconscionablility. Armendariz, 10 24 Cal. 4th at 114. 11 to be unconscionable, but the elements need not be present to the 12 same degree — there is a sliding scale between the two where more 13 of one can make up for less of the other. 14 15 1. Both elements must be present for a contract Id. Procedural Unconscionability Here, Plaintiffs argue that there is procedural 16 unconscionability because they did not receive a copy of the 17 arbitration agreement but were required to sign acknowledgments of 18 receiving and agreeing to the arbitration agreement as a condition 19 for employment. 20 Tidelands/Long Beach at 14.) 21 opportunity to negotiate the terms of the contract. (Pls. Opp’n to Nabors at 11; Pls. Opp’n to Further, they argue that there was no (Id.) 22 Defendants argue that there is no procedural unconscionability 23 because employers can require adhesive arbitration agreements to be 24 included in employment contracts, as was done here, and because 25 Plaintiffs signed acknowledgments stating that they did receive 26 copies of the arbitration agreement. 27 Defs. Tidelands/Long Beach Mot. Compel Arbitration at 19; Defs. 28 Tidelands/Long Beach Reply at 6-7.) 6 (Def. Nabors Reply at 15; 1 Procedural unconscionability “concerns the manner in which the 2 contract was negotiated and the respective circumstances of the 3 parties at that time.” 4 Inc., 298 F.3d 778, 783 (9th Cir. 2002). 5 factors for procedural unconscionability: (1) oppression, which 6 focuses on bargaining power disparity, absence of meaningful 7 choice, and lack of negotiation; and (2) surprise, which refers to 8 hidden terms, prolix forms, and whether the contractual terms meet 9 the reasonable expectations of the weaker party. Ferguson v. Countrywide Credit Indus., A court examines two See id. In 10 Chavarria, the Ninth Circuit found an employment arbitration 11 agreement procedurally unconscionable because it was an adhesive 12 take-it-or-leave-it requirement of continued employment. 13 Chavarria, 733 F.3d at 923. 14 Here, there is no real debate that consenting to the 15 arbitration agreement was a condition of even applying to work for 16 Defendants, as well as to continue in employment. 17 Decl. Exs. A, B.) 18 provisions in the agreement providing that Plaintiffs could have 19 negotiated different terms, much less that they could have forgone 20 the agreement and still had a job. 21 Chavarria, the arbitration agreement is procedurally unconscionable 22 as a nonnegotiable requirement of employment drafted by the 23 employer, who had the greater bargaining power. 24 25 2. (See Martinez Further, there are no facts alleged or Therefore, just like in Substantive Unconscionability “A contract is substantively unconscionable when it is 26 unjustifiably one-sided to such an extent that it ‘shock[s] the 27 conscience.’” 28 Superior Court, 176 Cal. App. 4th 1554, 1573 (2009)). Chavarria, 733 F.3d at 923 (quoting Parada v. 7 1 Plaintiffs argue seven grounds for substantive 2 unconscionability in the arbitration agreement. 3 will only address the determinative grounds. 4 a. 5 However, the Court Scope of Discovery Plaintiffs argue that the provisions covering the scope of 6 discovery are unconscionable because they do not provide for a 7 right to more than minimal discovery — the case law’s minimum 8 standard — as the scope of discovery is completely at the 9 arbitrator’s discretion. (Martinez Decl. Ex. C § 11.A-C (in rules 10 section); Pls. Opp’n to Nabors at 16-17; Pls. Opp’n to 11 Tidelands/Long Beach at 18-20.) 12 discovery provisions provide for limited but adequate discovery. 13 (Def. Nabors’ Mot. Compel Arbitration at 12; Def. Nabors Reply at 14 8-10; Def. Tidelands/Long Beach at 18; Def. Tidelands/Long Beach at 15 8.) 16 17 18 19 Defendants argue that the Section 11 of the rules section in the arbitration agreement states: A. On any schedule determined by the arbitrator, each Party shall submit in advance the names and addresses of the witnesses it intends to produce and any documents it intends to present. 20 21 22 B. The arbitrator shall have discretion to determine the form, amount and frequency of discovery by the parties. 23 C. Discovery may take any form permitted by the Federal Rules of Civil Procedure, as amended from time to time, subject to any restrictions imposed by the arbitrator. 24 In Armendariz, the California Supreme Court adopted the Cole 25 factors for arbitration of statutory rights in employment cases. 26 Armendariz, 24 Cal. 4th at 102 (referring to Cole v. Burns Int’l 27 Sec. Servs., 105 F.3d 1465, 1482 (D.C. Cir. 1997)). 28 8 One such 1 factor is that the arbitration agreement must provide “for more 2 than minimal discovery.” 3 Id. In Armendariz, the court found that the arbitration agreement 4 at issue there did provide for adequate discovery. 5 There, the agreement expressly incorporated the California code 6 section that provided rules governing discovery procedures for 7 arbitration. 8 “are also permitted to agree to something less than the full 9 panoply of discovery provided” in that code section, but that Id. at 105. Id. at 104-06. Further, the court found that parties 10 parties also “implicitly agree . . . to such procedures as are 11 necessary” to vindicate a statutory claim, such as “access to 12 essential documents and witnesses, as determined by the 13 arbitrator(s) and subject to limited judicial review.” 14 06. 15 sufficient discovery” to vindicate statutory claims, and that 16 employers “by agreeing to arbitrate the [statutory] claim, ha[ve] 17 already impliedly consented to such discovery.” 18 Id. at 105- The court made clear that employees “are entitled to Id. at 106. Here, the discovery section explicitly provides for the 19 arbitrator to have discretion in conducting discovery (“form, 20 amount and frequency”) and that the discovery “may take any form 21 permitted by the Federal Rules of Civil Procedure, . . . subject to 22 any restrictions imposed by the arbitrator.” 23 § 11.A-C.) 24 discovery so as to allow effective vindication of Plaintiffs’ 25 rights, such access to documents and witnesses, as Plaintiffs 26 argued in their Oppositions. 27 entitle Plaintiffs to such a right, and instead leaves the form, 28 amount, and frequency of discovery to the arbitrator’s discretion. (Martinez Decl. Ex. C Under Armendariz, the arbitrator must grant sufficient The contract here does not protect or 9 1 This is insufficient under Armendariz because the arbitrator’s only 2 requirement is to ensure parties provide documents and a list of 3 witnesses that they plan to use, which is insufficient discovery 4 for an employee to vindicate statutory claims. 5 As Plaintiffs pointed out at oral argument, Plaintiffs have no 6 provision for depositions or document requests unless the 7 arbitrator decides to allow for such discovery, and the contract 8 does not provide a standard by which the arbitrator is to decide 9 such requests. In fact, California courts applying the Armendariz 10 rule have found unconscionable arbitration agreements that provided 11 for two depositions, document discovery, and arbitrator discretion 12 for further discovery. 13 4th 702, 716-19 (2004). 14 that much discovery. 15 unconscionable as well. 16 17 b. See, e.g., Fitz v. NCR Corp., 118 Cal. App. Plaintiffs here are not guaranteed even A fortiori, the discovery provisions here are Arbitration Fees and Costs Plaintiffs claim the provisions covering arbitrator fees and 18 costs are vague, ambiguous, and disadvantageous to employees who 19 may not be able to afford arbitration under the terms provided. 20 (Martinez Decl. Ex. C § 32 (in rules section); Pls. Opp’n to Nabors 21 at 18-19; Pls. Opp’n to Tidelands/Long Beach at 20-22.) 22 argue that these provisions provide for a maximum filing fee of 23 $150 for employees or applicants who seek to arbitrate grievances, 24 and that the costs of discovery are on each party as would occur in 25 court. 26 Reply at 8.) 27 28 Defendants (Def. Nabors Reply at 10-11; Defs. Tidelands/Long Beach’s Section 32 in the rules section of the arbitration agreement reads: 10 1 2 3 4 5 6 7 8 9 10 11 12 13 A. The expenses of witnesses shall be borne by the Party producing such witnesses, except as otherwise provided by law or in the award of the arbitrator. B. All attorneys’ fees shall be borne by the Party incurring them except as otherwise provided by law, by the Program, or in the award of the arbitrator. C. Discovery costs (e.g., court reporter fees for original transcripts) shall be borne by the Party initiating the discovery. The cost of copies of depositions transcripts or other discovery shall be borne by the Party ordering the copy. D. The fees and expenses of experts, consultants and others retained or consulted by a Party shall be borne by the Party utilizing those services. E. The Employee or Applicant shall pay a $150 fee if he or she initiates arbitration or mediation. Otherwise, Employee/Applicant Parties shall not be responsible for payment of fees and expenses of proceedings under these Rules, including required travel of an arbitrator or a mediator, expenses of an arbitrator, mediator, AAA or JAMS, and the cost of any proof produced at the discretion of an arbitrator. 14 15 16 17 F. If the demand for mediation or arbitration is initiated by the Company, such fees will be paid by the Company. G. Except as otherwise provided by law or in the award of the arbitrator, all other expenses, fees, and costs of proceedings under these rules shall be borne equally by the Parties who are not Employees/Applicants. 18 This fee provision is mostly unlike those that have been found 19 unconscionable. For example, in Chavarria, the arbitration 20 agreement split arbitrator fees equally, adding up to amounts of 21 around $3,500 to $7,000 per day in arbitration fees being put on 22 the employee. 733 F.3d at 925-26. Here, the employee pays a 23 maximum of $150 in arbitration fees if the employee or applicant 24 initiates the action, but otherwise the employee or applicant pays 25 no arbitration fees at all. 26 However, as Plaintiffs argue, the provisions do not allow for 27 costs of litigation — like discovery costs — to be awarded to 28 11 1 prevailing plaintiffs after the end of the arbitration. 2 Opp’n to Nabors at 19; Pls. Opp’n to Tidelands/Long Beach at 22.) 3 In Chavarria, the court specifically set out that this kind of cost 4 shifting needed to be accounted for in arbitration agreements. 5 F.3d at 925 (“There is no justification to ignore a state cost- 6 shifting provision, except to impose upon the employee a 7 potentially prohibitive obstacle to having her claim heard.”). 8 Therefore, the fee provisions are unconscionable in so far as they 9 fail to account for cost-shifting state laws. 10 11 c. (Pls. 733 Unilateral Modification Lastly, the parties dispute the unconscionability of section 12 6, which allows Nabors to unilaterally amend the arbitration 13 agreement provided employees are given ten days notice. 14 Michelle Martinez, Ex. C § 6.A.) 15 part B that Nabors “may amend the Rules at any time by serving 16 notice of the amendments on AAA and JAMS.” 17 (Decl. The section further provides in (Id. § 6.B.) Plaintiffs argue that section 6 is substantively 18 unconscionable based on Ninth Circuit and California Court of 19 Appeal precedent stating that unilateral modification provisions 20 are unenforceable. 21 Tidelands/Long Beach at 22.) 22 (Pls. Opp’n to Nabors at 19; Pls. Opp’n to Defendants argue that California contract law implies a 23 covenant of good faith and fair dealing that insulates a unilateral 24 modification provision from unconscionability, particularly where 25 the provision requires an employee receive notice of any changes. 26 (Def. Nabors Reply at 13; Def. Tidelands/Long Beach Reply at 9.) 27 In Asmus v. Pacific Bell, the California Supreme Court 28 interpreted California contract law to allow for unilateral 12 1 contract modifications provided that the party’s power to do so is 2 limited by fairness and reasonable notice. 3 (2000). 4 California Court of Appeal has found that there is an implied 5 covenant of good faith that prevents a unilateral modification 6 provision from rendering a contract illusory because “the party 7 with that authority may not change the agreement in such a manner 8 as to frustrate the purpose of the contract.” 9 Investigations, Inc., 215 Cal. App. 4th 695, 706 (2013). 23 Cal. 4th 1, 16 Applying this principle to arbitration contracts, the Serpa v. Cal. Sur. Further, 10 “when . . . the agreement is silent as to notice, implied in the 11 unilateral right to modify is the accompanying obligation to do so 12 upon reasonable and fair notice.” 13 Id. at 708. However, the Ninth Circuit has taken the position that 14 unilateral modification provisions can be unconscionable. See 15 Chavarria, 733 F.3d at 926; Net Glob. Mktg., Inc. v. Dialtone, 16 Inc., 217 F. App’x 598, 602 (9th Cir. 2007); Ingle v. Circuit City 17 Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003). 18 court found a provision similar to the provision at issue here to 19 be unconscionable. 20 employer’s grant to itself of unilateral modification power 21 “proscribes an employee’s ability to consider and negotiate the 22 terms of her contract.” 23 unilateral modification provision was part of an adhesive contract 24 and that the provision solidified the adhesiveness of the 25 agreement, despite any provision for notice to the employee, 26 because only the employer could modify the agreement. 27 28 See 328 F.3d at 1179. Id. In Ingle, the The court found that the The court was also concerned that the Id. Similarly, the Ninth Circuit affirmed in Net Global that a unilateral modification provision was unconscionable. 13 217 F. App'x 1 at 602. The court explained that a unilateral modification clause 2 allows an employer to “craft precisely the sort of asymmetrical 3 arbitration agreement that is prohibited under California law as 4 unconscionable.” 5 unilateral modification clause renders the arbitration provision 6 severely one-sided in the substantive dimension, even moderate 7 procedural unconscionability renders the arbitration agreement 8 unenforceable.” 9 modification provision tainted the entire agreement with illegality Id. Id. The court went on to state that “because the The court held that the unilateral 10 so that it could not be severed; thus, the whole agreement was 11 unenforceable. 12 Id. In contrast to the decisions of the Ninth Circuit, the recent 13 California Court of Appeal case Casas v. Carmax Auto Superstores 14 California LLC held that “[u]nder California law . . . even a 15 modification clause not providing for advance notice does not 16 render an agreement illusory, because the agreement also contains 17 an implied covenant of good faith and fair dealing.” 18 4th 1233, 1237 (2014). 19 have reached similar holdings. 20 at 706; 24 Hour Fitness, Inc. v. Superior Court, 66 Cal. App. 4th 21 1199, 1214 (1998). 22 have concluded that unilateral modification provisions are 23 unconscionable. 24 Servs., 207 Cal. App. 4th 1511, 1523 (2012), as modified on denial 25 of reh'g (Aug. 20, 2012). 26 224 Cal. App. Other California Court of Appeals cases See, e.g., Serpa, 215 Cal. App. 4th But other California Court of Appeal panels See, e.g., Sparks v. Vista Del Mar Child & Family Federal district courts have reached different conclusions in 27 light of the contrasting California Court of Appeal holdings. 28 court in Herrera v. CarMax Auto Superstores California, LLC chose 14 The 1 to “follow Casas rather than Ingle” and held a unilateral 2 modification provision was not unconscionable. 3 VBKX, 2014 WL 3398363, at *8 (C.D. Cal. July 2, 2014). 4 Mohamed v. Uber Technologies, Inc., the court reached the opposite 5 conclusion and found a unilateral modification clause 6 unconscionable. 7 Cal. June 9, 2015). 8 California Supreme Court authority, and in light of the conflicting 9 appellate court decisions in California, it would follow Ninth 10 Circuit precedent such as Chavarria and Ingle, consistent with 11 Sparks and Macias v. Excel Bldg. Servs. LLC, 767 F. Supp. 2d 1002, 12 1010-11 (N.D. Cal. 2011). 13 2:12-CV-06654-CAS MA, 2015 WL 588515, at *10 (C.D. Cal. Jan. 12, 14 2015) (holding that a unilateral modification provision was 15 unconscionable). 16 No. CV-14-776-MWF However, in No. C-14-5200 EMC, 2015 WL 3749716, at *30 (N.D. The court explained that absent controlling See also Poublon v. Robinson Co., No. This Court finds that the reasoning in cases such as Ingle, 17 Chavarria, Sparks, Macias, Mohamed, and others is the right 18 approach to unilateral modification provisions in arbitration 19 agreements. 20 good faith and fair dealing, but this implied covenant should not 21 be what saves a facially unequal and unfair contractual provision. 22 If a contractual provision allows one side, particularly the side 23 with stronger bargaining power, to completely turn an agreement on 24 its head, then there is no reason for a court to go further — this 25 is unconscionable. 26 for the parties, but that is exactly what the implied covenant is 27 asking the court to do: to write in that an employer, for example, 28 will only modify an agreement if it is fair and reasonable to do Every contract is subject to the implied covenant of Courts are admonished to not rewrite contracts 15 1 so. 2 no guarantee that such a provision would be followed absent court 3 intervention. 4 “reasonable” requirement to any modification just further opens the 5 door to litigation on two fronts: first, judicial intervention to 6 determine if a change is fair and reasonable; and second, 7 litigation over the unconscionability of any changed agreement. 8 There is no reason to write in this implied covenant when instead 9 there could be a bilateral modification requirement, or a 10 requirement of no modification without new consideration. 11 But the parties did not include that provision, and there is In effect, writing in an implied “fair” and If courts continue to find that parties can do whatever they 12 want to a contract after it is made so long as it is “reasonable,” 13 then what is really left of a contract at all? 14 covenant is best served by the sanctity of the contract remaining 15 as it was when it was signed absent bilateral agreement. 16 increases predictability and decreases vagueness, two of the main 17 goals of effective contract writing and also alternative dispute 18 resolution. 19 only adhere to the party with the greater bargaining power who 20 drafts an arbitration agreement; an employee, for instance, should 21 also reap the benefits of an increase in predictability when 22 signing such an agreement instead of being subjected to a 23 potentially shifting target. 24 Instead, the Doing so The benefits of alternative dispute resolution cannot Looking at section 6 here, the contractual language includes a 25 modest constraint to Nabors’s authority to unilaterally modify the 26 arbitration agreement because Nabors is required to give employees 27 ten days notice of any changes. 28 Defendant Nabors further points to the “caveat” in section 6 that (Martinez Decl. Ex. C § 6.A.) 16 1 “no amendment shall apply to a Dispute for which a proceeding has 2 been initiated pursuant to the Rules, unless otherwise agreed” as 3 evidence of further constraint on the unilateral modification 4 power. 5 ambiguous to the point of being meaningless. 6 clause “unless otherwise agreed” is unclear in the context of the 7 provision. 8 unless the employee has signed an acknowledgment of the amendments; 9 however, this makes the purpose of unilateral amendments moot if (Def. Nabors Reply at 13.) However, this “caveat” is The meaning of the It could mean that the amendments are unenforceable 10 signed acceptance is required. 11 that continued employment constitutes acceptance of the amendments. 12 In either case, the clause is ambiguous and creates no actual 13 constraint on the employer especially when, as here, there are 14 elements of procedural unconscionability. 15 The clause could also possibly mean Additionally, section 6.B does not require any notice in order 16 for Defendant to change the rules governing the arbitration. 17 section states that Defendant “may amend the Rules at any time by 18 serving notice of the amendments on AAA and JAMS,” but the 19 provision does not provide for notice to employees. 20 Decl. Ex. C § 6.B.) 21 The (Martinez Defendants also argue that since Nabors has not utilized the 22 unilateral modification provision to amend the arbitration 23 agreement during the time Plaintiffs were under the agreement, the 24 provision cannot be unconscionable. 25 However, “unconscionability is determined as of the time the 26 contract was entered into, not in light of subsequent events.” 27 Morris v. Redwood Empire Bancorp, 128 Cal. App. 4th 1305, 1324 28 (2005). (Def. Nabors Reply at 13.) Here, the fact that Defendant has not amended the 17 1 arbitration agreement since Plaintiffs signed it is not relevant to 2 the unconscionability analysis. 3 Thus, the Court finds that the unilateral modification 4 provision here is unconscionable. 5 as it is — is insufficient to save the provision, as is any implied 6 covenant, which the Court finds cannot save any unilateral 7 modification provision for the reasons mentioned above. 8 3. 9 The notice provision — limited Sliding Scale of Unconscionability Both procedural and substantive unconscionability are present 10 here. 11 unconscionable: the fees and costs of arbitration; the discovery 12 provision; and the unilateral modification provision. 13 these are some of the most basic terms of the arbitration contract, 14 the Court finds that the contract is not fixable by simply severing 15 the unconscionable terms and allowing arbitration to proceed. 16 Instead, the entire contract is permeated with the unconscionable 17 effects of these provisions and the contract is thus unenforceable. Several elements Plaintiffs complained of are Because 18 B. 19 Defendants all argue that Plaintiffs’ PAGA claim is arbitrable PAGA and Class Waivers 20 and must be arbitrated under the terms of the arbitration 21 agreement’s class and representative action waiver. 22 Compel Arbitration at 8-9; Nabors Reply at 16-18; Tidelands/Long 23 Beach Mot. Compel Arbitration at 19-22. But see Tidelands/Long 24 Beach Reply at 7 n.3 (arguing PAGA claim not against them).) 25 (Nabors Mot. This Court follows the California Supreme Court’s analysis in 26 Iskanian v. CLS Transportation Los Angeles, LLC, which found that 27 PAGA claims are not claims on behalf of an individual employee but 28 rather are claims on behalf of the State. 18 See 59 Cal. 4th 348, 1 382-89 (2014). Thus, the FAA does not preempt PAGA and the claim 2 is not arbitrable under state law. 3 Terminix Int’l Co. LP, No. CV 14-09748 DDP (Ex), 2015 WL 4342867, 4 at *7-10 (C.D. Cal. July 14, 2015) (this Court finding that PAGA 5 claim was not arbitrable after Iskanian). 6 recently affirmed the logic of Iskanian, finding that the FAA does 7 not preempt PAGA and that PAGA claims cannot be waived. 8 Luxottica Retail N. Am., Inc., –F.3d–, No. 13-55184, 2015 WL 9 5667912 (9th Cir. Sept. 28, 2015). Id.; see also Valdez v. The Ninth Circuit has Sakkab v. Therefore, the PAGA claim here 10 is also not waivable and the court denies the motion to arbitrate 11 the PAGA claim on this basis. 12 IV. 13 14 CONCLUSION For the reasons stated above, Defendants’ Motions to Compel Arbitration and to Stay or Dismiss are DENIED. 15 16 IT IS SO ORDERED. 17 18 Dated: October 13, 2015 DEAN D. PREGERSON United States District Judge 19 20 21 22 23 24 25 26 27 28 19
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