Kellie M O'Hanlon v. J.P. Morgan Chase Bank, N.A., No. 2:2015cv06640 - Document 18 (C.D. Cal. 2015)
Court Description: ORDER DENYING DEFENDANT'S MOTIONTO COMPEL ARBITRATION 8 by Judge Dean D. Pregerson. For all the reasons stated above, the Court DENIES Defendant's Motion to Compel Arbitration and Dismiss or Stay Claims. IT IS SO ORDERED. (lom)
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Kellie M O&#039;Hanlon v. J.P. Morgan Chase Bank, N.A. Doc. 18 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 KELLIE M. O’HANLON, 12 Plaintiff, 13 v. 14 JPMORGAN CHASE BANK, N.A., 15 Defendant. ___________________________ ) ) ) ) ) ) ) ) ) ) Case No. CV 15-06640 DDP (PJWx) ORDER DENYING DEFENDANT’S MOTION TO COMPEL ARBITRATION [Dkt. No. 8] 16 17 Presently before the Court is Defendant JPMorgan Chase Bank, 18 N.A.’s Motion to Compel Arbitration and Dismiss or Stay Action. 19 Having heard oral argument and considered the parties’ submissions, 20 the Court adopts the following order. 21 I. 22 BACKGROUND Plaintiff Kellie M. O’Hanlon, appearing in pro per, was hired 23 by Washington Mutual in May 2007 as a Default Customer Care Section 24 Manager. 25 for the job, Plaintiff had to sign a form that included an 26 acknowledgment of Washington Mutual’s arbitration policy. 27 acknowledgment stated: 28 /// (Compl.; Def. Mot. Compel Arbitration at 2.) To apply The Dockets.Justia.com 1 If I accept an offer of employment with Washington Mutual, I agree to abide by its policies and procedures and to resolve all disputes relating to my employment through Washington Mutual’s Dispute Resolution Process, which includes binding arbitration. As a condition of accepting any offer of employment, I will sign a Binding Arbitration Agreement. Upon request, Washington Mutual will provide me with a copy of the policy and the Agreement before I sign this application or the agreement. 2 3 4 5 6 (Decl. Of Sharon Young ISO Def. Mot. Compel Arbitration (“Young 7 Decl.”) Ex. A.) 8 When hired, Plaintiff received an offer letter that included a 9 note that Plaintiff’s employment was “contingent” on her “agreement 10 to resolve eligible job related concerns through Washington 11 Mutual’s Dispute Resolution Process (DRP).” 12 further stated that Plaintiff would receive an “original binding 13 Arbitration Agreement for signature on [her] first day of work.” 14 (Id.) (Id. Ex. B.) It 15 Plaintiff appears to have signed a Binding Arbitration 16 Agreement (“arbitration agreement” or “agreement”) on the day she 17 received and returned the offer letter. 18 signed the agreement on her first day of work a few days later. 19 (Id. Ex. D.) 20 “being included in the job offer letter,” but Plaintiff’s signature 21 is on the agreement. (See Pl. Opp’n to Mot. Compel Arbitration 22 (“Pl. Opp’n”) at 2.) Plaintiff states that she was given numerous 23 papers to sign on her first day of work, including the agreement. 24 (Id.) 25 (Id. Ex. C.) She also Plaintiff “does not recall a copy” of the agreement Defendant JP Morgan Chase acquired Washington Mutual in 2008, 26 and Plaintiff’s employment was transferred to Defendant at that 27 time. 28 Plaintiff remained employed with Defendant until August 2014, when (Compl.; Def. Mot. Compel Arbitration at 4; Pl. Opp’n at 2.) 2 1 Plaintiff alleges she was wrongfully terminated for contesting her 2 credit card statement with Defendant. 3 requested that Plaintiff arbitrate this dispute per the arbitration 4 agreement. 5 not enforceable. 6 II. 7 (Compl.) Defendant has Plaintiff has resisted, arguing that the agreement is LEGAL STANDARD Under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et 8 seq., a written agreement requiring controversies between the 9 contracting parties to be settled by arbitration is “valid, 10 irrevocable, and enforceable, save upon such grounds as exist at 11 law or in equity for the revocation of any contract.” 12 2. 13 court with jurisdiction over the dispute for an order directing 14 that arbitration proceed as provided for in the agreement. Id. § 4. 15 9 U.S.C. § A party to an arbitration agreement may petition a district The FAA reflects a “liberal federal policy favoring 16 arbitration agreements” and creates a “body of federal substantive 17 law of arbitrability.” 18 Corp., 460 U.S. 1, 24-25 (1983). 19 laws that “stand as an obstacle to the accomplishment of the FAA’s 20 objectives.” 21 Ct. 1740, 1748 (2011). 22 arbitration or that derive their meaning from the fact that an 23 agreement to arbitrate is at issue,” as well as state rules that 24 act to fundamentally change the nature of the arbitration agreed to 25 by the parties. 26 /// 27 /// 28 /// 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. 3 1 III. DISCUSSION 2 A. 3 4 Applicability of Washington Mutual’s Arbitration Agreement to Defendant JPMorgan Plaintiff argues that Defendant cannot enforce the arbitration 5 agreement because Plaintiff entered into the agreement with her 6 previous employer, Washington Mutual. 7 Defendant argues that the arbitration agreement states that it will 8 apply to successors in interest to Washington Mutual, which is what 9 Defendant is. 10 11 (Pl. Opp’n at 10.) (Def. Mot. Compel Arbitration at 8-9; Def. Reply at 2.) The arbitration agreement states: “This Agreement shall remain 12 in full force and effect at all times during and after my 13 employment with Washington Mutual, or any successor in interest to 14 Washington Mutual.” 15 nonsignatories to a contract may enforce the contract if they are 16 intended third-party beneficiaries of the contract, or are agents 17 or alter egos of a signatory. 18 167 Cal. App. 4th 412, 424 (2008). 19 agreement and under standard contract law, Defendants can enforce 20 the agreement against Plaintiff, if the agreement is valid. (Young Decl. Ex. D § 21.) Further, See Bouton v. USAA Cas. Ins. Co., Under the plain terms of the 21 B. 22 The FAA as well as federal and California case law recognize Unconscionability 23 the standard contract defense of unconscionability is applicable to 24 arbitration agreements. 25 states that arbitration agreements are to be enforced according to 26 their terms “save upon such grounds as exist at law or in equity 27 for the revocation of any contract”); Chavarria v. Ralphs Grocery 28 Co.,733 F.3d 916, 921 (9th Cir. 2013); Armendariz v. Found. Health See 9 U.S.C. § 2 (where “savings clause” 4 1 Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000). 2 alleges that the arbitration agreement is unconscionable and thus 3 unenforceable. 4 Plaintiff here (Pl. Opp’n at 7-11.) In California, unconscionability has two elements: procedural 5 unconscionability and substantive unconscionability. 6 24 Cal. 4th at 114. 7 to be unconscionable, but the elements need not be present to the 8 same degree — there is a sliding scale between the two where more 9 of one can make up for less of the other. 10 11 1. Armendariz, Both elements must be present for a contract Id. Procedural Unconscionability Plaintiff argues that the arbitration agreement is 12 procedurally unconscionable “because it was presented on a take it 13 or leave it basis and did not include a copy of the arbitration 14 rules,” citing to Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1282 15 (9th Cir. 2006); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 16 1172 (9th Cir. 2003); Ferguson v. Countrywide Credit Indus., Inc., 17 298 F.3d 778, 783-84 (9th Cir. 2002); and Abeyrama v. J.P. Morgan 18 Chase Bank, No. CV 12-00445 DMG (MRWx), 2012 WL 2393063 (C.D. Cal. 19 June 22, 2012). 20 that the agreement was adhesive, imposed as a condition of 21 employment, and lacked opportunity for negotiation. 22 (Pl. Opp’n at 8-10.) Plaintiff also points out (Id.) Defendant argues that the agreement is not unenforceable 23 “merely because it is imposed as a condition of employment.” 24 Mot. Compel Arbitration at 16.) 25 Plaintiff had “the opportunity to consider other reasonable 26 employment options, if any, prior to agreeing to the terms of any 27 specific employer.” (Id.) (Def. Defendant also argues that Defendant concludes saying there was no 28 5 1 evidence Plaintiff was oppressed or surprised by the agreement. 2 (Id. at 16-17; see also Def. Reply at 4-7.) 3 4 5 6 7 8 9 10 11 The Ninth Circuit has explained the standard for California’s procedural unconscionability, stating: Procedural unconscionability concerns the manner in which the contract was negotiated and the respective circumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agreement. Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 783 (9th Cir. 2002); A & M Produce Co. v. FMC Corp., 135 Cal. App.3d 473, 186 Cal. Rptr. 114, 121–22 (1982). Oppression addresses the weaker party's absence of choice and unequal bargaining power that results in ‘no real negotiation.’ A & M Produce, 186 Cal. Rptr. at 122. Surprise involves the extent to which the contract clearly discloses its terms as well as the reasonable expectations of the weaker party. Parada v. Super. Ct., 176 Cal. App. 4th 1554, 98 Cal. Rptr.3d 743, 757 (2009). 12 Chavarria, 733 F.3d at 922. In Chavarria, the court found an 13 employment arbitration agreement procedurally unconscionable 14 because it was an adhesive take-it-or-leave-it requirement of 15 continued employment. Id. at 923. 16 Here, the arbitration agreement was a standard, adhesive 17 agreement that was presented to Plaintiff as a condition of 18 employment. Defendant’s argument that Plaintiff could have either 19 taken the job or found a different job is a false choice, not the 20 kind of non-oppressive, “meaningful” choice that the case law 21 requires. See Ingle, 328 F.3d at 1172-72. That kind of meaningful 22 choice is a choice to negotiate terms or even the existence of an 23 arbitration agreement, not whether to be employed. See id. 24 Therefore, the agreement is procedurally unconscionable. 25 2. Substantive Unconscionability 26 “A contract is substantively unconscionable when it is 27 unjustifiably one-sided to such an extent that it ‘shocks the 28 6 1 conscience.’” 2 Superior Court, 176 Cal. App. 4th 1554 (2009)). 3 Chavarria, 733 F.3d at 923 (quoting Parada v. Plaintiff argues several grounds for substantive 4 unconscionability in the arbitration agreement, the most 5 significant of which are discussed below. 6 7 a. Injunctive Claim Carve Out Plaintiff argues that the agreement lacks “mutuality because 8 it excludes claims for injunctive relief favored by employers.” 9 (Pl. Opp’n at 7.) Defendant acknowledges that “both sides are 10 required, with narrow exceptions, to submit their claims to binding 11 arbitration.” 12 maintains that the agreement is not lacking mutuality, although 13 Defendant does not directly respond to Plaintiff’s argument in its 14 Reply. 15 16 17 18 (Def. Mot. Compel Arbitration at 17.) (Id. at 17-18; Def. Reply at 2-4.) But Defendant The agreement provides: 2. Washington Mutual and I understand that by entering into this Agreement, each of us is waiving any right we may have to file a lawsuit or other civil action or proceeding relating to my employment with Washington Mutual, and waiving any right we may have to resolve employment disputes through trial by jury. We agree that arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment. 19 20 21 22 23 24 25 26 27 3. This Agreement is intended to cover all civil claims that involve or relate in any way to my employment (or termination of employment) with Washington Mutual, including, but not limited to, claims of employment discrimination or harassment on the basis of race, sex, age, religion, color, national origin, sexual orientation, disability and veteran status . . ., claims for breach of any contract or covenant, tort claims, claims based on violation of public policy or statute, and claims against individuals or entities employed by, acting on behalf of, or affiliated with Washington Mutual. The only exceptions to this are Claims for benefits under a plan that is governed by ERISA, Claims for unemployment and workers compensation benefits, 28 7 1 2 3 4 Claims for injunctive relief to enforce rights to trade secrets, or agreements not to compete or solicit customers or employees. (Young Decl. Ex. D §§ 2-3.) “[A]n arbitration agreement ‘lacks basic fairness and 5 mutuality if it requires one contracting party, but not the other, 6 to arbitrate all claims arising out of the same transaction or 7 occurrence or series of transactions or occurrences.’” 8 Superior Court, 96 Cal. App. 4th 167, 176-77 (2002). 9 the employer carved out from arbitration certain injunctive relief Mercuro v. In Mercuro, 10 claims regarding trade secrets and unfair competition, and the 11 court found this unconscionable. 12 that an employee fired for unauthorized disclosures, for example, 13 would be forced to arbitrate the employment dispute, but the 14 employer could go to court for injunctive relief against the 15 employee. 16 provisions allowing a court to hear certain injunctive relief 17 claims, such as those regarding covenants not to compete and 18 intellectual property, are designed to favor the employer and are 19 substantively unconscionable. 20 Bank, N.A., 2d Civil No. B234089, 2012 WL 3065307, *3 (July 30, 21 2012) (unpublished); Trivedi v. Curexo Tech. Corp., 189 Cal. App. 22 4th 387, 397 (2010); Fitz v. NCR Corp., 118 Cal. App. 4th 702, 724- 23 26 (2004); Mercuro, 96 Cal. App. 4th at 176-77. 24 Id. at 176. Id. at 177-78. The problem was Many California cases hold that contractual See, e.g., Jara v. JPMorgan Chase The weight of authority provides that the carve out here 25 would be found unconscionable in California courts. 26 citation to Pirro v. Washington Mutual Bank, No. CV 10-04162 ODW 27 (JC), 2010 WL 3749597, *3-4 (C.D. Cal. Sept. 23, 2010), is 28 unavailing because in this circumstance, state law governs. 8 Defendant’s The 1 agreement here provides for certain claims to be exempted from the 2 arbitration requirement, but the exemption is designed to protect 3 an employer’s access to court for intellectual property protection. 4 There is no countervailing protection for employees, even if an 5 employee could theoretically utilize the same provision, because an 6 employee’s dispute regarding the same facts would be an employment 7 dispute subject to arbitration. 8 one-sided in application, the provision is substantively 9 unconscionable. 10 11 b. Because the provision is unfairly Costs Plaintiff argues that the arbitration agreement imposes costs 12 on her that are higher than she would face in arbitration because 13 the contract only requires the employer to “advance” the costs of 14 arbitration. 15 agreement only requires an employee to pay a filing fee, just like 16 in court, and that any cost-splitting would be controlled by the 17 American Arbitration Association (“AAA”) rules that are 18 incorporated into the agreement by reference. 19 Arbitration at 13-14; Def. Reply at 3.) 20 21 22 23 24 25 26 27 (Pl. Opp’n at 8.) Defendant argues that the (Def. Mot. Compel The agreement states: 12. Each party, at its own expense, has the right to hire an attorney to represent it in the arbitration. . . . Each party shall pay the fees of any witnesses testifying at its request, and pay the cost of any stenographic record of the arbitration hearing should it request such a record. 13. Any filing fee will be paid by the party initiating arbitration. To the extent such a fee exceeds the cost of filing a lawsuit in a court of that jurisdiction, Washington Mutual will reimburse the difference. Any postponement or cancellation fee imposed by the arbitration service will be paid by the party requesting the postponement or cancellation. During the time the arbitration proceedings are ongoing, Washington Mutual will advance any required administrative or arbitrator’s fees. Each party will pay its own witness fees. 28 9 1 2 14. . . . The decision and award, if any, shall be consistent with the terms of this Agreement and shall include an allocation of the costs of the arbitration proceeding between the parties. 3 (Young Decl. Ex. D §§ 12-14.) 4 In Chavarria, the arbitration agreement split arbitrator fees 5 equally, adding up to amounts of around $3,500 to $7,000 per day in 6 arbitration fees being put on the employee, and the Ninth Circuit 7 held this unconscionable. 733 F.3d at 925-26. These kind of fees 8 would prevent an employee from effectively vindicating their rights 9 by making arbitration cost prohibitive. See id. Further, in 10 Ingle, the court found unconscionable a $75 filing fee because 11 there was no provision for a finding of indigence to excuse the fee 12 for those unable to bear it. Ingle, 328 F.3d at 1177. 13 Here, an employee initiating arbitration pays a filing fee as 14 determined by the AAA, capped by the amount a lawsuit costs in the 15 relevant jurisdiction. Alone, this is not unconscionable (although 16 there is no provision for indigent employees, with only a reference 17 to indigent consumers in the AAA rules), but there is a problem 18 with the allocation of costs and attorneys’ fees. Initially, it 19 seems problematic to have explicit language in the arbitration 20 agreement providing for merely an “advance” of fees by the employer 21 and a demand that the arbitrator “shall include an allocation of 22 the costs of the arbitration proceeding between the parties.” 23 Defendant argues that this contractual language must be 24 understood through the AAA rules that state: “Arbitrat[or] 25 compensation, expenses [as defined in section (iv) below], and 26 administrative fees are not subject to reallocation by the 27 arbitrator(s) except upon the arbitrator’s determination that a 28 10 1 claim or counterclaim was filed for purposes of harassment or is 2 patently frivolous.” 3 Ex. J (“AAA Rules at Section R-48 at page 33”)).) 4 at the potential expenses in the AAA rules, section (iv) only 5 provides for “hearing room rental,” and other fees include: (ii) 6 hearing fees; (iii) postponement/cancellation fees; (v) abeyance 7 fee; and (vi) expenses (which does provide that the costs in that 8 section “shall be borne by the employer,” although it is not clear 9 if that is subject to the provision providing for allocation (Def. Mot. Compel Arbitration at 14 (citing However, looking 10 above). 11 Arbitration Ex. J (AAA Rules) at 33-35.) 12 rules do not provide that only the employer pays the full costs of 13 arbitration. 14 (Decl. Of Michelle Lee Flores, Esq. ISO Def. Mot. Compel This means that the AAA Additionally, the arbitration agreement here is not clear that 15 it has incorporated the AAA rules — or which version of the AAA 16 rules — as it states: 17 18 19 7. . . . The arbitration shall be conducted in accordance with the laws of the state in which the arbitration is conducted and the rules and requirements of the arbitration service being utilized, to the extent that such rules and requirements do not conflict with the terms of this Agreement. 20 21 (Young Decl. Ex. D § 7.) 22 fully incorporate AAA rules and it also provides that to the extent 23 the rules are incorporated, the rules’ provisions are subject to 24 the express provisions in the contract, such as the allocation of 25 costs in section 14 of the agreement. 26 The plain language of section 7 does not Further, the agreement’s provisions do not allow for costs of 27 litigation — like discovery costs — to be awarded to prevailing 28 plaintiffs after the end of the arbitration. 11 In Chavarria, the 1 court specifically set out that this kind of cost-shifting needed 2 to be accounted for in arbitration agreements. 3 (“There is no justification to ignore a state cost-shifting 4 provision, except to impose upon the employee a potentially 5 prohibitive obstacle to having her claim heard.”). 6 no provision for awarding attorneys’ fees to a prevailing employee 7 as would be done under several civil rights statutes. 8 the costs and fees provisions in the arbitration agreement are 9 substantively unconscionable. 10 11 c. 733 F.3d at 925 There is also Therefore, Discovery Plaintiff argues that the limited discovery provision in the 12 contract is unconscionable and prevents effective vindication of 13 her rights. 14 limited discovery is the hallmark of arbitration and that Plaintiff 15 has access to needed discovery as well as the option to request 16 more discovery at the arbitrator’s discretion. 17 Arbitration at 12-13; Def. Reply at 3-4.) The agreement states: 18 19 20 21 (See Pl. Opp’n at 10-11.) Defendant argues that (Def. Mot. Compel 9. Either party shall be entitled to a limited amount of discovery prior to the arbitration hearing. Either party may make a request for production of documents from the other party. Either party may take a maximum of two (2) depositions. Either party may apply to the arbitrator for further discovery or to limit discovery. The arbitration has the discretion to enter an appropriate order upon a showing of sufficient cause. . . . 22 23 24 25 26 10. During the arbitration process, Washington Mutual and I may each make a written demand on the other for a list of witnesses, including experts, to be called and/or copies of documents to be introduced at the hearing. . . . (Young Decl. Ex. D §§ 9-10.) In Armendariz, the California Supreme Court adopted the Cole 27 factors for employment arbitration of statutory rights. 28 Armendariz, 24 Cal. 4th at 102 (referring to Cole v. Burns Int’l 12 1 Sec. Servs., 105 F.3d 1465, 1482 (D.C. Cir. 1997)). 2 factor is that the arbitration agreement must provide “for more 3 than minimal discovery.” 4 One such Id. In Armendariz, the court found that the arbitration agreement 5 at issue there did provide for adequate discovery. 6 There, the agreement incorporated the California rules governing 7 procedures for arbitration. 8 that parties “are also permitted to agree to something less than 9 the full panoply of discovery provided” in court cases but that Id. at 105. Id. at 104-06. Further, the court found 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).” 14 California courts have held arbitration provisions allowing for two 15 depositions, document discovery, and arbitrator discretion are 16 substantively unconscionable. 17 WL 3065307, *3; Fitz, 118 Cal. App. 4th at 715-19. 18 Id. at 105-06. Applying this rule, other See Jara, 2d Civil No. B234089, 2012 Here, there is a provision for limited discovery, but as 19 Plaintiff argues, it is too limited. 20 arbitrator’s discretion — without any indication of what kind of 21 law or rules the arbitrator will apply to limit that discretion — 22 does not protect the employee’s entitlement to sufficient discovery 23 for effective vindication of statutory rights. 24 discovery provision here is the same as the scope of the discovery 25 provisions that were previously found unconscionable by California 26 courts. 27 in court in order to receive her needed discovery (“sufficient 28 cause”), which adds an additional burden as well as ambiguity into Leaving discovery at the The scope of the Further, Plaintiff must meet a higher standard here than 13 1 the contract, all leading to a more expensive and lengthier 2 process. 3 also substantively unconscionable. 4 Thus here, the Court finds the discovery provision is 3. 5 Sliding Scale of Unconscionability Both procedural and substantive unconscionability are present 6 here. 7 grounds discussed above: the carve out for certain kinds of 8 injunctive relief, the costs and fees provisions, and the discovery 9 provisions. 10 Most significant for substantive unconscionability are the The agreement is also procedurally unconscionable. Therefore, the contract is unconscionable and unenforceable. 11 The Court declines Defendant’s suggestion to sever any 12 unconscionable portions of the contract because the 13 unconscionability is pervasive and fundamental to the whole 14 agreement, making it impossible to sever the unconscionable parts 15 without re-writing the parties’ agreement. 16 IV. 17 18 CONCLUSION For all the reasons stated above, the Court DENIES Defendant’s Motion to Compel Arbitration and Dismiss or Stay Claims. 19 20 IT IS SO ORDERED. 21 22 23 Dated: October 7, 2015 HON. DEAN D. PREGERSON United States District Judge 24 25 26 27 28 14
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