Davis v. O'Melveny & Myers

• Decision Date: 14 May 2007
• Docket Number: No. 04-56039.,04-56039.
• Citation: 485 F.3d 1066
• Parties: Jacquelin DAVIS, Plaintiff-Appellant, v. O'MELVENY & MYERS, a California Limited Liability Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

485 F.3d 1066

Jacquelin DAVIS, Plaintiff-Appellant, v. O'MELVENY & MYERS, a California Limited Liability Corporation, Defendant-Appellee.

No. 04-56039.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 7, 2006.

Filed May 14, 2007.

Peter M. Hart, Los Angeles, CA, for plaintiff-appellant Jacquelin Davis.

Adam P. KohSweeney (argued), Scott H. Dunham & Anne E. Garrett (on the briefs), O'Melveny & Myers LLP, Los Angeles, CA, for defendant-appellee O'Melveny & Myers LLP.

Appeal from the United States District Court for the Central District of California; Dickran M. Tevrizian, District Judge, Presiding. D.C. No. CV-04-01338-DT.

Before M. MARGARET McKEOWN and MARSHA S. BERZON, Circuit Judges, and SAMUEL P. KING,^* Senior District Judge.

SAMUEL P. KING, Senior District Judge.

Plaintiff Jacqueline Davis (Davis) appeals the district court's order dismissing her action and compelling arbitration under 9 U.S.C. § 4 based upon an arbitration agreement with her former employer, Defendant O'Melveny & Myers (O'Melveny). On appeal, Davis challenges the enforceability of the arbitration agreement, contending that it is unconscionable under California law. The merits of the underlying claims in her complaint are not at issue here. Because the arbitration agreement is unconscionable under California law, we reverse and remand.

BACKGROUND

On August 1, 2002, O'Melveny adopted and distributed to its employees a new Dispute Resolution Program (DRP) that culminated in final and binding arbitration of most employment-related claims by and against its employees.¹ O'Melveny distributed the DRP via interoffice mail and posted it on an office intranet site. A cover memorandum stated: "Please read the attached and direct any questions you may have to a member of the Human Resources Department, the Legal Personnel Department, the Associate Advisory Committee or the Office of the Chair." Davis, who had worked as a paralegal at a Los Angeles, California, office of O'Melveny since June 1, 1999, received the DRP but apparently did nothing official to question the policy.

By its terms, the DRP became effective three months later, on November 1, 2002. It provides in bold, uppercase print: "THIS DISPUTE RESOLUTION PROGRAM (THE "PROGRAM") APPLIES TO AND IS BINDING ON ALL EMPLOYEES (INCLUDING ASSOCIATES) HIRED BY—OR WHO CONTINUE TO WORK FOR—THE FIRM ON OR AFTER NOVEMBER 1, 2002." Davis worked at O'Melveny until July 14, 2003.

On February 27, 2004, Davis filed this lawsuit under the Federal Fair Labor Standards Act (FLSA) and various other state and federal labor statutes, alleging failure to pay overtime for work during lunch time and rest periods and for other work exceeding eight hours a day and 40 hours a week, as well as denial of rest and meal periods. In addition to claims under the FLSA, her nine-count complaint included claims for violations of California Labor Code §§ 558, 2698 and 2699, and for declaratory relief seeking a declaration that the DRP is unconscionable and that O'Melveny's enforcement of its provisions and other allegedly illegal behavior constituted unfair business practices under California's Unfair Business Practices Act. The complaint sought damages and injunctive relief on an individual basis and for "all others similarly harmed."

The DRP covers most employment-related claims, as follows:

Except as otherwise provided in this Program, effective November 1, 2002, you and the Firm hereby consent to the resolution by private arbitration of all claims or controversies, past, present or future ... in any way arising out of, relating to, or associated with your employment with the Firm or the termination of your employment ... that the Firm may have against you or that you may have against the Firm.... The Claims covered by this Program include, but are not limited to, claims for wages or other compensation due; .... and claims for violation of any federal, state or other governmental constitution, law, statute, ordinance, regulation or public policy....

Except as otherwise provided in the Program, neither you nor the Firm will initiate or pursue any lawsuit or administrative action (other than filing an administrative charge of discrimination with the Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing, the New York Human Rights Commission or any similar fair employment practices agency) in any way related to or arising from any Claim covered by this Program.

In addition to administrative charges of discrimination as set forth above, the DRP also excluded certain other types of claims from mandatory arbitration as follows:

This Program does not apply to or cover claims for workers' compensation benefits; claims for unemployment compensation benefits; claims by the Firm for injunctive relief and/or other equitable relief for violations of the attorney-client privilege or work product doctrine or the disclosure of other confidential information; or claims based upon an employee pension or benefit plan, the terms of which contain an arbitration or other nonjudicial dispute resolution procedure, in which case the provisions of that plan shall apply.

It is undisputed that Davis's FLSA and related claims regarding overtime "arise out of," or "relate to," her employment for purposes of the scope of the DRP. The question here is whether the DRP is enforceable, in whole or in part.

Two other specific provisions of the DRP are also at issue in this appeal: (1) a "notice provision" requiring notice and a demand for mediation within one year from when the basis of the claim is known or should have been known; and (2) a confidentiality clause.

The notice provision provides as follows:

An employee must give written notice of any Claim to the Firm along with a demand for mediation. This notice must be given within one (1) calendar year from the time the condition or situation providing the basis for the Claim is known to the employee or with reasonable effort on the employee's part should have been known to him or her. The same rule applies to any Claim the Firm has against an employee . . . . Failure to give timely notice of a Claim along with a demand for mediation will waive the Claim and it will be lost forever. (Bold and underscore in original.)

The confidentiality clause provides as follows:

Except as may be necessary to enter judgment upon the award or to the extent required by applicable law, all claims, defenses and proceedings (including, without limiting the generality of the foregoing, the existence of a controversy and the fact that there is a mediation or an arbitration proceeding) shall be treated in a confidential manner by the mediator, the Arbitrator, the parties and their counsel, each of their agents, and employees and all others acting on behalf of or in concert with them. Without limiting the generality of the foregoing, no one shall divulge to any third party or person not directly involved in the mediation or arbitration the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration, except as may be necessary to enter judgment upon the Arbitrator's award as required by applicable law.

After Davis filed suit, O'Melveny moved to dismiss the action and to compel arbitration. The district court upheld the DRP and granted O'Melveny's motion. Davis filed a timely appeal.

JURISDICTION AND STANDARD OF REVIEW

The Court has jurisdiction over this appeal under 9 U.S.C. § 16(a)(3). A district court's order compelling arbitration is reviewed de novo. Circuit City Stores, Inc. v. Mantor, 417 F.3d 1060, 1063 (9th Cir.2005) (Mantor II) (citation omitted).

Neither party questioned whether a court—as opposed to an arbitrator— should decide whether the DRP is unconscionable. The Ninth Circuit, sitting en banc and applying Buckeye Check Cashing, Inc., v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), recently addressed whether challenges to an arbitration clause or agreement should be decided by a court or an arbitrator. See Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir.2006) (en banc). "When the crux of the complaint is not the invalidity of the contract as a whole, but rather the arbitration provision itself, then the federal courts [as opposed to the arbitrator] must decide whether the arbitration provision is invalid and unenforceable under 9 U.S.C. § 2[.]" Id. at 1264. The arbitration agreement challenged in this case is only part of the many conditions and terms of Davis's employment relationship with O'Melveny. Striking or upholding the arbitration agreement or severing any of its terms would not otherwise affect the legality of other conditions of her employment. Under Nagrampa, then, the question whether O'Melveny's arbitration agreement is unconscionable is for a court to decide. See id.; cf. Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 264-65 (3d Cir.2003) (exemplifying that a court addresses the unconscionability of an arbitration provision in a suit regarding employment disputes), cited with approval in Nagrampa, 469 F.3d at 1271-72.

DISCUSSION

Under the Federal Arbitration Act (FAA), arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Federal policy favors arbitration. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (reasoning that the FAA "manifest[s] a `liberal federal policy favoring arbitration agreements.'") (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). Generally, "arbitration affects only the choice of forum, not substantive rights." EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742, 750 (9th Cir.2003) (en banc). Of course, arbitration agreements are not always valid. Rather, in assessing whether an arbitration agreement or...