Ingle v. Circuit City Stores, Inc., No. 99-56570.

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: Pregerson
• Citation: 328 F.3d 1165
• Parties: Catherine INGLE, Plaintiff-Appellee, v. CIRCUIT CITY STORES, INC., a Virginia Corporation, Defendant-Appellant.
• Docket Number: No. 99-56570.
• Decision Date: 13 May 2003

328 F.3d 1165 Catherine INGLE, Plaintiff-Appellee,
v.
CIRCUIT CITY STORES, INC., a Virginia Corporation, Defendant-Appellant. No. 99-56570. United States Court of Appeals, Ninth Circuit. Argued and Submitted November 5, 2002. Filed May 13, 2003.

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Rex Darrell Berry, Davis, Grimm, Payne, Marra, & Berry, Seattle, WA, for the defendant-appellant.

Michael H. Crosby, San Diego, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California; Edward J. Schwartz, Senior Judge, Presiding. D.C. No. CV-99-01297-EJS(JFS).

Before: PREGERSON, THOMPSON, and WARDLAW, Circuit Judges.

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PREGERSON, Circuit Judge.

This appeal arises from the district court's denial of defendant-appellant Circuit City Stores, Inc.'s (Circuit City) motion to compel arbitration. Circuit City moved to compel arbitration in response to the action plaintiff-appellee Catherine Ingle filed in the Southern District of California, in which she alleged employment discrimination in violation of state and federal civil rights statutes. Circuit City argues on appeal that the district court erred in declining to enforce an arbitration agreement requiring Ingle and Circuit City to arbitrate employment-related legal claims. We have jurisdiction under 9 U.S.C. § 16(a), and we affirm.

FACTS and PROCEDURAL BACKGROUND

In September 1996, Catherine Ingle applied to become an Associate¹ at a Circuit City electronics retail store in San Diego County, California. Ingle was required to sign an arbitration agreement for Circuit City to consider her employment application. By signing the arbitration agreement, Ingle agreed to resolve all employment-related legal claims through arbitration.

On June 21, 1999, Ingle filed this action against Circuit City in the Southern District of California. In her complaint, Ingle alleged claims of sexual harassment, sex discrimination, and disability discrimination under the California Fair Employment and Housing Act, Cal. Gov't Code § 12940, et seq. (FEHA). She also alleged claims of sex discrimination and retaliation under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq.

On July 16, 1999, Circuit City moved to compel arbitration. On September 22, 1999, the district court entered an order denying the motion on the ground that the arbitration agreement was unenforceable under Duffield v. Robertson, Stephens & Co., 144 F.3d 1182 (9th Cir.1998). The district court held that Circuit City's form application for employment unlawfully conditioned Ingle's employment on her agreement to forego statutory rights and remedies. Circuit City now appeals, arguing primarily that its arbitration agreement is enforceable under Duffield² and California contract law.

STANDARD OF REVIEW

We review de novo a district court's denial of a motion to compel arbitration. Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 936 (9th Cir.2001), cert. denied, 534 U.S. 1133, 122 S.Ct. 1075, 151 L.Ed.2d 977 (2002); United Food & Commercial Workers Union, Local 770 v. Geldin Meat Co., 13 F.3d 1365, 1368 (9th Cir.1994).

DISCUSSION

I. Circuit City's Arbitration Agreement

Circuit City compels all of its employees and job applicants to sign an arbitration agreement requiring arbitration of all employment-related legal claims. The "Circuit City Dispute Resolution Rules and Procedures" (Rules and Procedures) determine the substance and procedures of the arbitration agreement. Ingle and Circuit City agree that the arbitration agreement

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Ingle signed provided that the Rules and Procedures governing an arbitration would be those in effect at the time the claim arose. Because the 1998 Rules and Procedures were in effect at the time Ingle's civil rights claims arose, we examine these rules in analyzing whether this arbitration agreement is enforceable. However, our holdings as to substantive unconscionability reside with the discrete provisions we examine, and therefore would likely extend beyond this particular version of the Rules and Procedures.

II. The Doctrine of Unconscionability

The Federal Arbitration Act (FAA) provides that arbitration agreements generally "shall be valid, irrevocable, and enforceable." 9 U.S.C. § 2 (2002). But when grounds "exist at law or in equity for the revocation of any contract," courts may decline to enforce such agreements. Id.; Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 683, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 782 (9th Cir.2002).

It is a settled principle of law that "arbitration is a matter of contract." United Steelworkers of America v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Federal law "directs courts to place arbitration agreements on equal footing with other contracts." EEOC v. Waffle House, Inc., 534 U.S. 279, 293, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002). Arbitration agreements, accordingly, are subject to all defenses to enforcement that apply to contracts generally. See 9 U.S.C. § 2 (2002). To evaluate the validity of an arbitration agreement, federal courts "should apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Ingle was employed in California; we therefore evaluate Circuit City's arbitration agreement under the contract law of that state. Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir.2002) ("Adams III"); see also Ticknor, 265 F.3d at 937 (applying Montana law to determine whether arbitration clause was valid).

Because unconscionability is a generally applicable defense to contracts, California courts may refuse to enforce an unconscionable arbitration agreement. See Ferguson, 298 F.3d at 782. Unconscionability refers to "an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party." A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 486, 186 Cal. Rptr. 114 (1982); see also U.C.C. § 2-302; Cal. Civ.Code § 1670.5; Restatement (Second) of Contracts § 208 (1981). Thus, a contract to arbitrate is unenforceable under the doctrine of unconscionability when there is "both a procedural and substantive element of unconscionability." Ferguson, 298 F.3d at 783; accord Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669, 690 (2000). Significantly, the California Supreme Court has noted that procedural and substantive unconscionability "need not be present in the same degree." Id. In Armendariz,³ the court held that:

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"[e]ssentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves." In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.

Id. at 114 (quoting 15 Williston on Contracts § 1763A, at 226-27 (3d ed. 1972)) (other citations omitted).

A. Procedural Unconscionability

To determine whether the arbitration agreement is procedurally unconscionable the court must examine "the manner in which the contract was negotiated and the circumstances of the parties at that time." Kinney v. United Healthcare Servs., Inc., 70 Cal.App.4th 1322, 1329, 83 Cal.Rptr.2d 348, 352-53 (1999). An inquiry into whether Circuit City's arbitration agreement involves oppression or surprise is central to that analysis. A contract is oppressive if an inequality of bargaining power between the parties precludes the weaker party from enjoying a meaningful opportunity to negotiate and choose the terms of the contract. Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 1532, 60 Cal.Rptr.2d 138, 145 (1997) (citation omitted). "Surprise involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms." Id. (internal quotation marks omitted).

There is no doubt that Circuit City's arbitration agreement is oppressive. In Adams III, we held that the arbitration agreement at issue in that case was procedurally unconscionable under California law because:

Circuit City, which possesses considerably more bargaining power than nearly all of its employees or applicants, drafted the contract and uses it as its standard arbitration agreement for all of its new employees. The agreement is a prerequisite to employment, and job applicants are not permitted to modify the agreement's terms — they must take the contract or leave it.

Adams III, 279 F.3d at 893. Procedurally, there is absolutely no difference between the version of the arbitration agreement we evaluated in Adams III and the version we review in this case. Because of the stark inequality of bargaining power between Ingle and Circuit City, we conclude that Circuit City's 1998 arbitration agreement is also procedurally oppressive. See id.; Ferguson, 298 F.3d at 783-84; Armendariz, 24 Cal.4th at 114-15, 99 Cal.Rptr.2d 745, 6 P.3d at 690; see also Stirlen, 51 Cal.App.4th at 1533-34, 60 Cal.Rptr.2d 138 (finding procedural unconscionability when an arbitration clause was part of a contract of adhesion in which the employee was presented with an employment

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contract on a "take it or leave it" basis).

Circuit City argues that because Ingle had sufficient time — three days — to consider the terms of the arbitration agreement, the court should not find this agreement procedurally unconscionable. We disagree. The amount of time Ingle had to consider the contract is irrelevant. We follow the reasoning...