Iravanian v. Translations.com, Inc. et al, No. 4:2022cv09157 - Document 36 (N.D. Cal. 2023)
Court Description: ORDER DENYING MOTION TO COMPEL ARBITRATION AND TO DISMISS OR STAY COMPLAINT by Judge Jon S. Tigar denying 13 Motion to Compel.(mll, COURT STAFF) (Filed on 8/17/2023)
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 HANIEH IRAVANIAN, 7 Plaintiff, 8 v. 9 TRANSLATIONS.COM, INC., et al., 10 Defendants. 11 United States District Court Northern District of California Case No. 22-cv-09157-JST ORDER DENYING MOTION TO COMPEL ARBITRATION AND TO DISMISS OR STAY COMPLAINT Re: ECF No. 13 12 Before the Court is Defendants Translations.com, Inc.’s and TransPerfect, Inc.’s motion to 13 14 compel arbitration. ECF No. 13. The Court will deny the motion. 15 I. 16 BACKGROUND Defendant Translations.com, Inc. offers translation services for multilingual content, 17 generating $562 million in revenue and employing more than 5,000 employees. ECF No. 1-3 ¶ 18 20. Defendants hired Plaintiff Hanieh Iravanian on March 30, 2021 and set a start date of April 5, 19 2021. ECF No. 1-3 ¶ 21. Plaintiff is a California resident. ECF No. 1-3 ¶ 5. 20 On Plaintiff’s start date, Defendant required Plaintiff to sign and acknowledge an 21 Independent Contractor Agreement (“ICA”) in order to begin work. ECF No. 13-1 ¶ 4. The ICA 22 contains an arbitration agreement that reads, “In the Event of a dispute, both parties agree to 23 submit it to binding arbitration in New York City by the American Arbitration Association. Legal 24 Costs shall be paid as determined by the arbitrator.” ECF No. 13-1 at 10. Plaintiff signed and 25 acknowledged the agreement at 9:24 a.m. that same morning. 26 On November 8, 2022, Plaintiff filed a complaint in the Santa Clara County Superior 27 Court. ECF No. 1-3 at 2. Plaintiff alleges that Defendants failed to compensate her for required 28 overtime, to pay her in a timely manner for hours worked, to compensate her for missed meal and 1 rest break periods, and to reimburse her for required use of her personal equipment. Id. ¶¶ 31–34. 2 She brings 16 claims pursuant to the California Labor Code, California Business and Professions 3 Code, California Government Code, and Fair Labor Standards Act. Defendants filed an answer on 4 December 28, 2022, id. at 13, and removed the case to this Court on December 29, 2022, ECF No. 5 1. Defendants filed the instant motion on February 9, 2023. ECF No. 13. The Court took the 6 motion under submission without a hearing on March 27, 2023. ECF No. 20. 7 II. This Court has jurisdiction under 28 U.S.C. § 1332(a). 8 9 III. LEGAL STANDARD The Federal Arbitration Act (“FAA”) applies to written contracts “evidencing a transaction 10 United States District Court Northern District of California JURISDICTION 11 involving commerce.” 9 U.S.C. § 2. Under the FAA, arbitration agreements “shall be valid, 12 irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation 13 of any contract.” 9 U.S.C. § 2. This provision reflects “both a liberal federal policy favoring 14 arbitration, and the fundamental principle that arbitration is a matter of contract.” AT&T Mobility 15 LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quotation marks and citations omitted). On a motion to compel arbitration, the Court’s role under the FAA is “limited to 16 17 determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the 18 agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 19 F.3d 1126, 1130 (9th Cir. 2000). If the court is “satisfied that the making of the agreement for 20 arbitration or the failure to comply therewith is not in issue, the court shall make an order directing 21 the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. § 4. 22 Where the claims alleged in a complaint are subject to arbitration, the Court may stay the action 23 pending arbitration. Id. § 3. If a valid arbitration agreement exists, “the party resisting arbitration bears the burden of 24 25 proving that the claims at issue are unsuitable for arbitration.” Green Tree Fin. Corp.-Ala. v. 26 Randolph, 531 U.S. 79, 91 (2000). 27 IV. 28 DISCUSSION The parties dispute (1) whether the arbitration agreement delegates the inquiry of 2 United States District Court Northern District of California 1 arbitrability to the American Arbitration Association (“AAA”) arbitrator or can be properly heard 2 by this Court and (2) whether the arbitration agreement is unconscionable and thus unenforceable. 3 A. Delegation of Arbitrability 4 “[P]arties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the 5 parties have agreed to arbitrate or whether their agreement covers a particular controversy.” Rent- 6 A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010) (quoting Howsam v. Dean Witter 7 Reynolds, Inc., 537 U.S. 79, 83–85 (2002)). “Just as the arbitrability of the merits of a dispute 8 depends upon whether the parties agreed to arbitrate that dispute, so the question ‘who has the 9 primary power to decide arbitrability’ turns upon what the parties agreed about that matter.” First 10 Options of Chi. v. Kaplan, 514 U.S. 938, 943 (1995) (emphasis in original) (internal citations 11 omitted). Whether the court or an arbitrator decides arbitrability is “an issue for judicial 12 determination unless the parties clearly and unmistakably provide otherwise.” Howsam, 537 U.S. 13 at83 (quoting AT&T Techs., Inc. v. Commc’ns Workers of America, 475 U.S. 643, 649 (1986)). 14 Although courts generally resolve such ambiguities in favor of arbitration, ambiguities regarding 15 the delegation of arbitrability are resolved in favor of court adjudication. See First Options, 514 16 U.S. at 944–45. “Clear and unmistakable evidence of an agreement to arbitrate arbitrability 17 ‘might include . . . a course of conduct demonstrating assent . . . or . . . an express agreement to do 18 so.’” Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1208 (9th Cir. 2016) (quoting Momot v. 19 Mastro, 652 F.3d 982, 988 (9th Cir. 2011)). 20 The Ninth Circuit has held that “incorporation of the AAA rules constitutes clear and 21 unmistakable evidence that contracting parties agreed to arbitrate arbitrability.” Brennan, 796 F3d 22 at 1130. The Ninth Circuit stated that its holding did “not foreclose the possibility that this rule 23 could also apply to unsophisticated parties or to consumer contracts,” but it explicitly left that 24 question open. Id. at 1130–31. However, “[w]here at least one party is unsophisticated, judges in 25 this district routinely find that the incorporation of the AAA rules is insufficient to establish a 26 clear and unmistakable agreement to arbitrate arbitrability.” Magill v. Wells Fargo Bank, N.A., 27 No. 4:21-cv-01877 YGR, 2021 WL 6199649, at *5 (N.D. Cal. June 25, 2021) (citing Eiess v. 28 USAA Fed. Sav. Bank, 404 F. Supp. 3d 1240, 1253 (N.D. Cal. 2019); accord Meadows v. Dickey’s 3 1 Barbecue Rests. Inc., 144 F. Supp. 3d 1069, 1077–79 (N.D. Cal. 2015); Vargas v. Delivery 2 Outsourcing, LLC, No. 15-cv-03408-JST, 2016 WL 946112, at *7–8 (N.D. Cal. Mar. 14, 2016). 3 Defendants argue that the ICA contains language adequate to incorporate the AAA rules, 4 ECF No. 13 at 6-8; ECF No. 18 at 3–5, and that Plaintiff is sufficiently sophisticated for the Court 5 to construe that language as clear and unmistakable evidence that Plaintiff agreed to arbitrate 6 arbitrability, ECF No. 18 at 4. Plaintiff argues that the language of the ICA does not incorporate 7 the AAA rules. ECF No. 17 at 7. United States District Court Northern District of California 8 The Court agrees with Plaintiffs. The ICA simply states, “[B]oth parties agree to submit [a 9 dispute] to binding arbitration in New York City by the American Arbitration Association.” This 10 language contrasts sharply with the language of other contracts that courts have found sufficient to 11 incorporate the AAA rules or to otherwise provide clear and unmistakable evidence that the parties 12 agreed to arbitrate arbitrability. See id. at 1128 (“[A]ny controversy . . . . shall be settled by 13 binding arbitration with the Rules of the American Arbitration Association.”); Momot v. Mastro, 14 652 F.3d 982, 987–88 (9th Cir. 2011) (“If a dispute arises out of or relates to . . . the validity or 15 application of any of the provisions of this [s]ection . . . .”); Gerlach v. Tickmark, No. 21-cv- 16 02768-YGR, 2021 WL 3191692, at *5 (N.D. Cal. Jul. 28, 2021) (“[A]ny such controversy or 17 claim . . . shall be submitted to binding individual arbitration before a single, neutral arbitrator 18 . . . conducted by the American Arbitration Association under its Employment Arbitration Rules 19 and Mediation Procedures . . . .” (emphasis added)); Shierkatz Rllp v. Square, Inc., No. 15-cv- 20 2202-JST, 2015 WL 9258082, at *6 (N.D. Cal. Dec. 17, 2015) (“All Disputes shall be resolved 21 finally and exclusively by binding individual arbitration with a single arbitrator administered by 22 the American Arbitration Association (www.adr.org) or JAMS (www.jamsadr.org) according to 23 this provision and the applicable arbitration rules for that forum.” (emphasis added)). This is 24 because the ICA”s language merely selects the forum in which a dispute is to be adjudicated; it 25 does not purport to provide the rules governing that adjudication, let alone incorporate the AAA 26 rules that confer to the arbitrator “the power to rule on his or her own jurisdiction.” Brennan, 796 27 F.3d at 1131. Therefore, the ICA does not clearly and unmistakably delegate arbitrability to the 28 arbitrator, and the Court may determine the arbitrability of the parties’ dispute. 4 United States District Court Northern District of California 1 B. Unconscionability 2 A contract may be invalidated by “generally applicable contract defenses, such as fraud, 3 duress, or unconscionability.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) 4 (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Unconscionability 5 “refers to an absence of meaningful choice on the part of one of the parties together with contract 6 terms which are unreasonably favorable to the other party.” Sanchez v. Valencia Holding Co., 7 LLC, 61 Cal. 4th 899, 910 (2015) (quoting Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 8 1133 (2013)). An agreement may be found to be “invalid if it is both procedurally and 9 substantively unconscionable.” Sanchez v. Carmax Auto Superstores California LLC, 224 Cal. 10 App. 4th 398, 402 (2014). “Procedural unconscionability focuses on oppression and surprise due 11 to unequal bargaining power, and substantive unconscionability turns on overly harsh or one-sided 12 results.” Id. The unconscionability inquiry “employs a sliding scale—the more substantively 13 oppressive the contract term, the less evidence of procedural unconscionability is required to come 14 to the conclusion that the term is unenforceable, and vice versa.” Armendariz v. Found Health 15 Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000). “As the party opposing arbitration,” Plaintiff 16 “bears the burden of proving . . . unconscionability.” Sonic-Calabasas, 57 Cal. 4th at 1145 17 (quoting Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 18 (2012)). 19 20 1. Procedural Unconscionability “Procedural unconscionability analysis focuses on oppression or surprise.” Nagrampa v. 21 MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006). “Oppression occurs where a contract 22 involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable 23 provision is hidden within a . . . form.” Kho, 8 Cal. 5th at 126 (quoting Pinnacle Museum Tower 24 Assn. v. Pinnacle Market Dev. (US), LLC, 55 Cal. 4th 223, 247 (2012)) (emphases in original). 25 “Oppression can be established ‘by showing the contract was one of adhesion or by showing from 26 the ‘totality of the circumstances surrounding the negotiation and formation of the contract’ that it 27 was oppressive.’” Lim v. TForce Logistics, LLC, 8 F.4th 992, 1000 (9th Cir. 2021) (quoting 28 Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1260 (9th Cir. 2017). An adhesive contract is a 5 1 standardized form offered by the party with superior bargaining power “on a take-it-or-leave-it 2 basis,” id. (quoting Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1245 (2016)), but such a 3 contract is not “per se unconscionable,” Poublon, 846 F.3d at 1260. Other circumstances to be 4 considered include but are not limited to: 5 6 7 8 9 United States District Court Northern District of California 10 (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney. Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App. 4th 1332, 1348 (2015)). The Ninth Circuit’s opinion in Lim v. TForce Logistics, LLC, 8 F.4th 992, 1000 (9th Cir. 11 2021), is instructive. There, the Ninth Circuit considered both an arbitration agreement and a 12 delegation clause in an independent-contractor agreement signed by a delivery driver and held that 13 the provision was procedurally unconscionable. As to oppression, the Ninth Circuit concluded 14 that the contract was a contract of adhesion and that “the only choice [the defendant] provided to 15 him was to agree to the . . . clause and the rest of the contract or stop delivering.” Id. at 1001. As 16 to unfair surprise, the Ninth Circuit emphasized that the defendant “presented the delegation 17 clause in the middle of 31 numbered paragraphs, within more than nine pages of single-spaced, 18 10-point font,” “[n]othing in the text of the agreement called [the plaintiff’s] attention to the . . . 19 clause, and [the plaintiff] was not required to sign or initial that specific provision.” Id. On this 20 basis, the Ninth Circuit concluded that procedural unconscionability existed because the degree of 21 oppression and surprise in the contract “left [the plaintiff] without an ability to negotiate and to 22 make only a take-it-or-leave-it-decision.” Id. (internal quotation marks omitted). The Ninth 23 Circuit reached this conclusion both with respect to the arbitration agreement as a whole and to the 24 delegation clause specifically. See id. at 1001, 1006. 25 The case at hand presents substantially identical circumstances. As to oppression, 26 Defendants gave Plaintiff the adhesion contract on the day it was to be executed, and Plaintiff 27 could either sign the ICA or find a different job. Plaintiff was not given an opportunity to 28 negotiate its terms or obtain counsel to review it. ECF No. 17-1 ¶ 5–8. “These circumstances, 6 United States District Court Northern District of California 1 especially in the employment context, indicate some degree of procedural unconscionability.” 2 Lim, 8 F.4th at 992; accord Saravia v. Dynamex, Inc., 310 F.R.D. 412, 420 (N.D. Cal. 2015); cf. 3 Armendariz, 24 Cal. 4th at 115 (“In the case of preemployment arbitration contracts, the economic 4 pressure exerted by employers on all but the most sought-after employees may be particularly 5 acute, for the arbitration agreement stands between the employee and necessary employment, and 6 few employees are in a position to refuse a job because of an arbitration requirement.”). As to 7 surprise, the arbitration agreement is located at the end of more than 40 individual paragraphs with 8 no visual markers to call Plaintiff’s attention to it, and Plaintiff was not required to sign or initial 9 that specific provision. See ECF No. 13-1. This element of unfair surprise enhances the degree of 10 procedural unconscionability of the arbitration agreement. Lim, 8 F.4th at 992; OTO, 8 Cal. 5th at 11 128. Consequently, the ICA contains both oppression and surprise, and it is therefore procedurally 12 unconscionable to a significant degree. 13 Defendants’ arguments to the contrary are unpersuasive. Defendants contend that the 14 agreement is not procedurally unconscionable because Plaintiff is “a sophisticated college 15 graduate, who is fluent in English.” ECF No. 18 at 7. The case on which Defendants rely for this 16 argument addressed a contract that incorporated the AAA rules in considering whether a contract 17 presented clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. As 18 discussed above, the ICA does not incorporate the AAA rules. In any event, Defendants cite no 19 authority in support of their contention that fluency in English and the attainment of a college 20 degree are a cure-all in the face of a procedurally unconscionable employment contract. 21 22 2. Substantive Unconscionability “Substantive unconscionability examines the fairness of a contract’s terms.” Lim, 8 F.4th 23 at 1001. The doctrine “is concerned not with a simple old-fashioned bad bargain but with terms 24 that are unreasonably favorable to the more powerful party.” Poublon, 846 F.3d at 1158 (citation 25 omitted). “California law seeks to ensure that contracts, particularly contracts of adhesion, do not 26 impose terms that are overly harsh, unduly oppressive, or unfairly one sided.” Lim, 8 F.4th at 27 1002. “[S]ubstantive unconscionability exists when a fee-shifting clause creates for employees a 28 ‘greater financial risk in arbitrating claims than they would face if they were to litigate those same 7 1 claims in federal court.” Id. (quoting Pokorny v. Quixtar, Inc., 601 F.3d 987, 1004 (9th Cir. 2 2010), disapproved of on other grounds by Poublon, 846 F.3d at 1265–66). When the contract 3 contains a forum-selection clause, the clause is substantively unconscionable if it is 4 “‘unreasonable’ in that ‘the forum selected would be unavailable or unable to accomplish 5 substantial justice.’” Id. (quoting Poublon, 846 F.3d at 1265). In considering such clauses, “the 6 court] must take into account the respective circumstances of the parties.” Id. (quoting Nagrampa 7 v. Mailcoups, Inc., 469 F.3d 1257, 1288 (9th Cir. 2006)). 8 United States District Court Northern District of California 9 Lim is further instructive here. The independent contractor agreement in Lim contained a cost-splitting provision that split costs evenly between the parties by default, a fee-shifting 10 provision that awarded fees to the prevailing party, and a forum-selection clause that selected 11 Dallas, Texas. 8 F.4th at 996–97. The Ninth Circuit concluded that, “[v]iewed collectively, . . . 12 the cost-splitting, fee-shifting, and Texas venue provisions rendered the . . . clause substantively 13 unconscionable as to [the plaintiff].” Id. at 1002. The cost-splitting provision “impermissibly 14 impose[d] a ‘type of expense that [the plaintiff] would not be required to bear if he [] were free to 15 bring the action in court.’” Id. at 1003 (emphasis in original) (quoting Armendariz, 24 Cal. 4th at 16 110–11). The fee-shifting provision “create[d] a chilling effect on [the plaintiff] enforcing his 17 rights because it expose[d] him to the possibility of paying attorney’s fees . . . if he lost at 18 arbitration,” whereas “California public policy ‘unequivocally prohibits an employer from 19 recovering attorney fees for defending a wage and hour claim’” in court. Id. (quoting Ling v. P.F. 20 Chang’s China Bistro, Inc., 245 Cal. App. 4th 1242, 1256 (2016), disapproved of on other 21 grounds by Naranjo v. Spectrum Sec. Servs., 15 Cal. 5th 93 (2022)). And the forum-selection 22 provision “rendered the . . . clause so ‘prohibitively costly’ so as to deprive [the plaintiff],” a 23 resident of Southern California, “of any proceeding to vindicate his rights or accomplish 24 substantial justice.” Id. at 1003 25 The ICA has important similarities with the agreement at issue in Lim. It contains a clause 26 that allows the arbitrator to determine costs, as well as a forum-selection clause selecting New 27 York City. The former places Plaintiff at risk of paying costs that she would not be required to 28 pay if she pursued her claims in state or federal court. That risk is greater than the risk faced by 8 United States District Court Northern District of California 1 the Plaintiff in Lim because there is nothing in the provision that prevents the arbitrator from 2 imposing the full costs of arbitration on Plaintiff. The latter forum-selection clause imposes a 3 significant financial burden on Plaintiff to vindicate her rights under the ICA. Plaintiff lives in 4 California, was compensated for her work at a rate of thirty- to forty-dollars per hour, and her 5 position with Defendants was her full-time job. ECF No. 1-3 ¶ 22–23; ECF No. 17-1 ¶ 3. For 6 Plaintiff to travel from California to New York City would impose a significant financial burden, 7 requiring Plaintiff to secure travel, accommodations, and time off from her current employment. 8 That her hourly compensation was between thirty- to forty-dollars per hour appreciably 9 exacerbates the degree of that burden. These two provisions, viewed collectively, render the 10 arbitration clause “so ‘prohibitively costly’ so as to deprive Plaintiff of a proceeding to vindicate 11 her rights.” Lim, 8 F.4th at 1003; see Reyes v. Hearst Commc’ns, Inc., No. 21-cv-03362-PJH, 12 2021 WL 3771782 at *3–4 (N.D. Cal. Aug. 24, 2021) (holding substantively unconscionable a 13 provision apportioning arbitrator’s and/or arbitration fees equally between parties). 14 In an effort to save the arbitration clause from substantive unconscionability, Defendants 15 state in their reply brief that they “are amenable to California choice of law and venue being 16 applied and to using AAA’s Employment Arbitration Rules and Procedures in an arbitration of 17 Plaintiff’s individual claims.” ECF No. 18 at 5. While Defendants’ after-the-fact concession 18 might underscore the degree to which the ICS is obviously unfair, it does not assist their motion. 19 Courts have explained that such concessions “can be seen, at most, as an offer to modify the 20 contract; an offer that was never accepted. No existing rule of contract law permits a party to 21 resuscitate a legally defective contract merely by offering to change it.” Stirlen v. Supercuts, Inc., 22 51 Cal. App. 4th 1519, 1535–36 (1997). Allowing Defendants to waive unconscionable terms in 23 this manner would enable all employers to “draft one-sided agreements and then whittle down to 24 the least-offensive agreement if faced with litigation, rather than drafting fair agreements in the 25 first interest.” Saravia, 310 F.D.R. at 421–22. 26 Defendants also ask the Court to sever the unconscionable provisions from the arbitration 27 agreement as a whole. ECF No. 18 at 5–6. The Ninth Circuit explained in Lim that “an arbitration 28 agreement permeated by unconscionability, or one that contains unconscionable aspects that 9 1 cannot be cured by severance, restriction, or duly authorized reformation, should not be enforced.” 2 8 F.4th at 992 (quoting Armendariz, 24 Cal. 4th at 126). The arbitration agreement in the ICA 3 contains two provisions, each of which is substantively unconscionable, and the entire agreement 4 is permeated by procedural unconscionability. Accordingly, neither provision can be cured by 5 severance. 6 Given the significant degree of procedural unconscionability and measurable degree of 7 substantive unconscionability in the arbitration agreement, the Court concludes that the agreement 8 is invalid. CONCLUSION United States District Court Northern District of California 9 10 For the foregoing reasons, Defendants’ motion is denied. 11 IT IS SO ORDERED. 12 13 14 Dated: August 17, 2023 ______________________________________ JON S. TIGAR United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10
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