James v. Conceptus, Inc.

• Decision Date: 12 March 2012
• Docket Number: Civil Action No. H–11–1183.
• Citation: 851 F.Supp.2d 1020
• Parties: Toby JAMES, Plaintiff, v. CONCEPTUS, INC., Defendant.
• Court: U.S. District Court — Southern District of Texas

851 F.Supp.2d 1020

Toby JAMES, Plaintiff,

v.CONCEPTUS, INC., Defendant.

Civil Action No. H–11–1183.

United States District Court,

S.D. Texas,

Houston Division.

March 12, 2012.

Martin A. Shellist, Houston, TX, for Plaintiff.

Kent M. Adams, Lewis, Brisbois, Bisgaard & Smith, LLP, Houston, TX, for Defendant.

MEMORANDUM AND ORDER

LEE H. ROSENTHAL, District Judge.

This is a whistleblower-retaliation action under the False Claims Act, 31 U.S.C. § 3730(h). The plaintiff, Toby James, worked in Texas as a sales representative for Conceptus, Inc., a medical-device firm. James alleges that Conceptus fired him after he questioned the legality of how a sales representative had marketed Conceptus medical devices to physicians and how those physicians had billed Medicaid for them. After James sued in this court, (Docket Entry No. 1), Conceptus moved to compel arbitration under James's employment agreement and to dismiss this suit in favor of that arbitration. (Docket Entry No. 5). James responded by arguing that the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 ¹ made the arbitration clause unenforceable. (Docket Entry No. 7). Conceptus replied and James surreplied. (Docket Entry Nos. 12, 14). Conceptus also moved to stay discovery pending the decision on the arbitration motion. (Docket Entry No. 17).

Because the employment agreement James signed specified that California law applied, this court ordered the parties to address the Supreme Court's decision in AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), in particular how it affected the California Supreme Court's decision in Armendariz v. Foundation Health Psychcare Services, 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000). (Docket Entry No. 20). The parties presented argument at a hearing, (Docket Entry No. 22), and James filed supplemental authority, (Docket Entry No. 21).

Based on the pleadings, the motion and responses, the record, and the applicable law, this court rules as follows:

• the Dodd–Frank Act does not make the arbitration clause unenforceable;

• the provision requiring James to pay half of all arbitration costs is unconscionable under California law but can be severed; and

• the remainder of the arbitration clause, including the requirement that James arbitrate in California, is enforceable.

Based on these rulings, the motion to dismiss in favor of arbitration, (Docket Entry No. 5), is granted. The motion to stay discovery, (Docket Entry No. 17), is denied as moot. The reasons for these rulings are explained below.

I. Background

James lives in Houston; Conceptus is headquartered in California. Conceptus sells Essure, a female birth-control device. Conceptus hired James in August 2008 to work as a Regional Sales Representative for the Texas area. ( See Docket Entry No. 1, ¶ 9; Docket Entry No. 5, at 1; Docket Entry No. 7, at 7). When James started work, Conceptus required him to sign a “Proprietary Information and Inventions Agreement.” The Agreement confirmed James's status as an at-will employee. (Docket Entry No. 5, Ex. A, ¶ D). It also contained a mandatory-arbitration clause. That clause stated:

I agree that any dispute concerning the meaning, effect or validity of this Agreement shall be resolved in accordance with the laws of the State of California without regard to the conflict of laws provisions thereof. I further agree that any dispute I may have with the Company, or any of its employees, which arises out of my employment or the termination of that employment, shall be resolved through final and binding arbitrationin San Mateo County of the State of California.

This shall include, without limitation, any controversy, claim or dispute of any kind, including disputes relating to my employment with the Company or the termination thereof ... and any claims of discrimination or other claims under ... any other federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of my employment with the Company or my termination.

The only claims not covered by this agreement are claims for benefits under the workers' compensation or unemployment insurance laws, which will be resolved pursuant to those laws. Each party will split the cost of the arbitration filing and hearing fees and the cost of the arbitrator; each side will bear its own attorneys' fees, that is, the arbitrator will not have the authority to award attorneys' fees unless a statutory section at issue in the dispute authorizes the award of attorneys' fees to the prevailing party, in which case the arbitrator has authority to make such award as permitted by the statute in question. The arbitration shall be instead of any civil litigation; this means that I am waiving any right to a jury trial, and that the arbitrator's decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof.

( Id., ¶ F (emphasis in original)). The Agreement also contained a severability clause:

I further agree that if one or more provisions of this Agreement are held to be illegal or unenforceable under applicable California law, such provision(s) shall be limited or excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provisions were so limited or excluded and shall be enforceable in accordance with its terms.

( Id., ¶ G).

Two years later, in August 2010, James assumed responsibility for several sales accounts that had been handled by another Conceptus salesman. Some of these accounts were for physicians' offices. James alleges that soon after taking over these accounts, he discovered information that led him to believe that this salesman had discounted or given Essure kits and related products to physicians to induce them to recommend and use Essure in treating their patients. James alleges that he also discovered information leading him to believe that some of these physicians had sought full reimbursement from Medicaid for kits that they had received at either discounted or zero cost. James reported his concerns up the ladder and was told to investigate one of the physicians' offices. That physician sent a written complaint to Conceptus's CEO after James visited. Conceptus's Director of Human Resources told James about the complaint on October 26, 2010. The following day, Conceptus fired James. In this lawsuit, James alleges that Conceptus fired him in retaliation for his whistleblowing activity, in violation of the False Claims Act, 31 U.S.C. § 3730(h). (Docket Entry No. 1, ¶¶ 9–25).

Conceptus has moved to compel arbitration under the Agreement and to dismiss this lawsuit in favor of that arbitration. (Docket Entry No. 5). In response, James argued that the Dodd–Frank Act makes the clause unenforceable. (Docket Entry No. 7). In his surreply, James argued more generally that the clause is unenforceable as unconscionable. (Docket Entry No. 14, at 4–5). James filed an affidavit describing his financial situation and his economic inability to pursue his claim if he has to arbitrate in California instead of litigate in Houston federal court. As of September 2011, the date of the affidavit, James had depleted his savings and was selling assets. Although he had found new employment, he was paid on commission and did not expect to earn any income from the new position until March 2012. (Docket Entry No. 14, Ex. A).

The issue is whether the arbitration clause is enforceable.

II. The Applicable Law

In 1925, Congress enacted the Federal Arbitration Act “as a response to judicial hostility to arbitration,” CompuCredit Corp. v. Greenwood, –––U.S. ––––, 132 S.Ct. 665, 668, 181 L.Ed.2d 586 (2012), to “ensure that private arbitration agreements are enforced according to their terms,” Concepcion, 131 S.Ct. at 1748 (internal quotation marks and alteration omitted). “This purpose,” the Concepcion Court stated,

is readily apparent from the FAA's text. Section 2 makes arbitration agreements “valid, irrevocable, and enforceable” as written (subject, of course, to the saving clause); § 3 requires courts to stay litigation of arbitral claims pending arbitration of those claims “in accordance with the terms of the agreement”; and § 4 requires courts to compel arbitration “in accordance with the terms of the agreement” (assuming that the “making of the arbitration agreement or the failure ... to perform the same” is not at issue). In light of these provisions, we have held that parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom a party will arbitrate its disputes[.]

Id. at 1748–49 (internal citations and emphasis omitted).

The question in Concepcion was “whether § 2 preempts California's rule classifying most collective-arbitration waivers in consumer contracts as unconscionable.” Id. at 1746. The California rule was known as the Discover Bank rule after the California Supreme Court's decision in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005). The Concepcion Court held that § 2 preempted the Discover Bank rule because it “disfavored” arbitration. 131 S.Ct. at 1747. Although the specific issue in Concepcion was the enforceability of a class-action waiver in an arbitration agreement, the Court stated the basis of the ruling more broadly: if the state law singles out arbitration agreements by imposing requirements that do not apply to other contracts, § 2 of the FAA preempts applying that law to “disfavor” arbitration. This approach is shown in post-Concepcion Supreme Court decisions that enforced arbitration clauses that lower courts had found invalid. See Marmet Health Care Ctr., Inc. v. Marchio, 565 U.S. ––––, 132 S.Ct. 1201, 1202–03, 182 L.Ed.2d 42 (2012) (per curiam); CompuCredit, 132 S.Ct. 665;cf. KPMG LLP v. Cocchi, ––– U.S. ––––, 132 S.Ct. 23, 181...